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(a)	Excludes amortization of intangible assets, except as disclosed in Note 9A. Identifiable Intangible Assets and Goodwill:Identifiable Intangible Assets.

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(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 Income/(Loss).

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•	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).

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(a)	The changes in the estimated fair values 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.

•	Amounts for certain legal and environmental contingencies, pending receipt of certain information that could affect provisional amounts recorded.

•	Amounts for intangibles and PP&E, pending finalization of valuation efforts.

•	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.

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•	Elimination of Hospira’s historical intangible asset amortization expense (approximately $12 million in the second quarter of 2015 and $24 million in the first six months of 2015).

•	Additional amortization expense (approximately $124 million in the second quarter of 2015 and $251 million in the first six months of 2015) related to the preliminary estimate of the fair value of identifiable intangible assets acquired.

•	Additional depreciation expense (approximately $21 million in the second quarter of 2015 and $43 million in the first six months of 2015) related to the preliminary estimate of the fair value adjustment to 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 second quarter of 2015 and $9 million of charges in the first six months of 2015).

•	Adjustment to decrease interest expense (approximately $10 million in the second quarter of 2015 and $20 million in the first six months 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 $30 million of charges in the second quarter of 2015 and $44 million of charges in the first six months of 2015), reflecting non-recurring charges incurred by both Hospira and Pfizer, which would have been recorded in 2014 under the pro forma assumption that the Hospira acquisition was completed on January 1, 2014.

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•

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.

•

Manufacturing plant network rationalization and optimization, where execution timelines are necessarily long. Our plant network strategy is expected to result in the exit of six sites over the next several years. In connection with these activities, during 2014-2016, we expect to incur costs of approximately $400 million associated with prior acquisition activity and costs of approximately $1.0 billion associated with new non-acquisition-related cost-reduction initiatives. Through July 3, 2016, we incurred approximately $364 million and $685 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. Through July 3, 2016, we incurred costs of approximately $219 million and have completed this initiative.

•	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 $800 million. Through July 3, 2016, we incurred approximately $657 million associated with these initiatives.

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(a)

In the six months ended July 3, 2016, Employee terminations represent the expected reduction of the workforce by approximately 600 employees, mainly in manufacturing, sales 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.

•	For the second quarter of 2016, the IH segment ($5 million); the EH segment ($11 million income); WRD, GPD and Medical (M) (WRD/GPD/M) ($49 million); manufacturing operations ($59 million); and Corporate ($39 million).

•	For the first six months of 2016, IH ($14 million); EH ($8 million income); WRD/GPD/M ($52 million); manufacturing operations ($73 million); and Corporate ($40 million).

•	For the second quarter of 2015, IH ($21 million); EH ($2 million income); WRD/GPD/M ($4 million); manufacturing operations ($14 million); and Corporate ($6 million).

•	For the first six months of 2015, IH ($46 million); EH ($8 million); WRD/GPD/M ($16 million); manufacturing operations ($8 million income); and Corporate ($24 million).

(b)	Transaction costs represent external costs for banking, legal, accounting and other similar services, most of which in the second quarter of 2016 are directly related to the acquisition of Anacor, and most of which in the first six months of 2016 includes costs related to the Anacor acquisition, as well as costs associated with our 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. In the second quarter and first six months of 2016, integration

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(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.

(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 ($541 million) and Other noncurrent liabilities ($477 million).

(a)

Interest income increased in the second quarter and first six months of 2016, primarily due to higher investment returns. Interest expense increased in the second quarter and first six months of 2016, primarily due to interest on legacy Hospira debt acquired in September 2015 and the addition of new fixed rate debt in the second quarter of 2016, partially offset by the maturity of other fixed rate debt.

(b)

In the second quarter and first six months of 2016, primarily includes amounts to resolve a Multi-District Litigation relating to Celebrex and Bextra pending against the Company in New York federal court for $486 million, which is subject to the negotiation of a final settlement agreement and court approval, a portion of which was accrued for during the first quarter of 2016 and the full amount of which was accrued for during the first six months of 2016, partially offset by the reversal of a legal accrual where a loss is no longer deemed probable. In addition, the first six months of 2016 includes a settlement related to a patent matter. See Note 12A2 for additional information.

(c)	In the first six months of 2016, primarily includes gains on sales/out-licensing of product and compound rights (approximately $31 million). In the first six months of 2015, primarily includes gains on sales/out-licensing of product and compound rights (approximately $69 million) and gains on sales of investments in equity securities (approximately $125 million).

(d)

In the second quarter and first six months of 2016, primarily includes intangible asset impairment charges of $641 million, reflecting (i) $331 million related to developed technology rights for a generic injectable antibiotic product for the treatment of bacterial infections; (ii) $265 million related to an IPR&D compound for the treatment of anemia; and (iii) $45 million of other IPR&D assets, all acquired in connection with our acquisition of Hospira and associated with the EH segment. In addition, 2016 includes an impairment loss of $130 million in the second quarter and $211 million in the first six months related to Pfizer’s 49%-owned equity-method investment with Zhejiang Hisun Pharmaceuticals Co., Ltd. in China, Hisun Pfizer, and the first six months of 2016 includes 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.

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(e)	In the second quarter and first six months 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 second quarter and first six months of 2016, primarily includes among other things, $150 million paid to Allergan for reimbursement of Allergan’s expenses associated with the terminated transaction (see Note 1A). The first six months of 2016, also includes income of $116 million from resolution of a contract disagreement.

(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 six months of 2016. Fair value was determined using the income approach, specifically the multi-period excess earnings method, also known as the discounted cash flow method. We started with a forecast of all the expected net cash flows associated with the asset and then applied an asset-specific discount rate to arrive at a net present value amount. Some of the more significant estimates and assumptions inherent in this approach include: the amount and timing of the projected net cash flows, which includes the expected impact of competitive, legal and/or regulatory forces on the product 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.

•	a favorable change in the jurisdictional mix of earnings as a result of operating fluctuations in the normal course of business; as well as

•	an increase in 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.

•	benefits related to the final resolution 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;

•	a favorable change in the jurisdictional mix of earnings as a result of operating fluctuations in the normal course of business;

•	benefits associated with our Venezuela operations;

•	an increase in benefits associated with the U.S. R&D tax credit, which was not in effect in the first six months of the prior year but was permanently extended on December 18, 2015; as well as

•	an increase 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.

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•	With respect to Pfizer, the IRS has issued a 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, the federal income tax audit of tax years 2010-2011 was effectively settled in the second quarter of 2016. The IRS is currently auditing tax years 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 are not considered material to Pfizer.

•	With respect to Anacor, the open tax years are not considered material to Pfizer.

(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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(a)	Amounts do not include foreign currency translation adjustments attributable to noncontrolling interests of $1 million loss for the first six months of 2016.

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(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 July 3, 2016, trading funds are composed of $184 million of trading equity funds and $57 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 July 3, 2016 and December 31, 2015, trading equity funds of $66 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 $77 million as of July 3, 2016; and foreign currency forward-exchange contracts with fair values of $136 million as of December 31, 2015.

(e)

The differences between the estimated fair values and carrying values of held-to-maturity debt securities, private equity securities at cost and short-term borrowings not measured at fair value on a recurring basis were not significant as of July 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. 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.

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(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 $213 million and foreign currency forward-exchange contracts with fair values of $116 million as of July 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)	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. See Note 1B for additional information.

(i)

The fair value of our long-term debt (not including the current portion of long-term debt) was $34.6 billion as of July 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.

(a)	As of July 3, 2016, derivative instruments at fair value include interest rate swaps ($58 million), foreign currency swaps ($71 million) and foreign currency forward-exchange contracts ($175 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 July 3, 2016, derivative instruments at fair value include interest rate swaps ($1.9 billion), foreign currency swaps ($21 million) and foreign currency forward-exchange contracts ($14 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. See Note 1B for additional information.

(d)	As of July 3, 2016, derivative instruments at fair value include interest rate swaps ($3 million), foreign currency swaps ($265 million) and foreign currency forward-exchange contracts ($338 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 July 3, 2016, derivative instruments at fair value include interest rate swaps ($1 million), foreign currency swaps ($1.2 billion) and foreign currency forward-exchange contracts ($28 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).

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(a)	Issued by a diverse group of corporations, largely consisting of financial institutions, virtually all of which are investment-grade.

(b)	Issued by governments, government agencies or supranational entities, as applicable, 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.

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(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.

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(d)

For derivative financial instruments in cash flow hedge relationships, the effective portion is included in Other comprehensive income/(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 income/(loss)––Foreign currency translation adjustments, net.

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

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(a)

The increase in Identifiable intangible assets, less accumulated amortization, is primarily related to assets acquired as part of the acquisition of Anacor (see Note 2A), the impact of foreign exchange and the impact of measurement period adjustments related to our acquisition of Hospira (see Note 2A), partially offset by amortization and impairments. For information about impairments, see Note 4.

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(a)	IH additions relate to our acquisition of Anacor and are subject to change until we complete the valuation of assets acquired and liabilities assumed from Anacor (see Note 2A).

(b)	Primarily reflects the impact of foreign exchange.

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(a)

The increase in net periodic benefit costs for the three months ended July 3, 2016, compared to the three months ended June 28, 2015, is due primarily to (i) a lower expected return on plan assets resulting from a lower expected rate of return as well as 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 vested 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 as a result of the addition of Hospira qualified plans. The aforementioned increases were partially offset by (i) lower service and interest costs, resulting from a change in our approach for measuring service and interest costs (see (e) below) and (ii) lower settlement activity. The slight decrease in net periodic benefit costs for the six months ended July 3, 2016, compared to the six months ended June 28, 2015, for our U.S. qualified pension plans was primarily driven by (i) lower service and interest costs, resulting from a change in our approach for measuring service and interest costs (see (e) below) and (ii) lower settlement activity. The aforementioned decreases were largely offset by (i) a lower expected return on plan assets resulting from a lower expected rate of return as well as 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 vested 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 as a result of the addition of Hospira qualified plans.

(b)

The decrease in net periodic benefit costs for the three and six months ended July 3, 2016, compared to the three and six months ended June 28, 2015, for our U.S. non-qualified pension plans was primarily driven by (i) 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 and (ii) lower service and interest costs resulting from a change in our approach for measuring service and interest costs (see (e) below). For the three months ended July 3, 2016, compared to the three months ended June 28, 2015, the aforementioned decreases were largely offset by an increase in settlement activity

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(c)

The decrease in net periodic benefit costs for the three and six months ended July 3, 2016, compared to the three and six months ended June 28, 2015, for our international pension plans was primarily driven by (i) lower service and interest costs, resulting from favorable foreign exchange rate changes and a change in our approach 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 a decrease in the expected return on plan assets due to a lower expected rate of return on plan assets, and favorable foreign exchange rates changes.

(d)

The change from net periodic benefit costs to net periodic benefit credits for the three and six months ended July 3, 2016, compared to the three and six months ended June 28, 2015, for our postretirement plans was primarily driven by (i) lower service and interest costs, resulting from a change in our approach 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 payments by the plan for IRC 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 for certain international plans, or a yield curve implied from our specific detailed bond model for U.S. plans, 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, including $42 million from international plans, which is expected to be recognized evenly over each quarter of the year.

(a)	Contributions to the postretirement plans reflect IRC 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 six months ended July 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.

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(a)	These common stock equivalents were outstanding for the six months ended July 3, 2016 and June 28, 2015, but were not included in the computation of diluted EPS for those periods because their inclusion would have had an anti-dilutive effect.

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•

Patent litigation, which typically involves challenges to the coverage and/or validity of our patents on various products, processes or dosage forms. We are the plaintiff in the vast majority of these actions. An adverse outcome in actions in which we are the plaintiff could result in a loss of patent protection for the drug at issue, a significant loss of revenues from that drug and impairments of any associated assets.

•	Product liability and other product-related litigation, which can include personal injury, consumer, off-label promotion, securities, antitrust and breach of contract claims, among others, often involves highly complex issues relating to medical causation, label warnings and reliance on those warnings, scientific evidence and findings, actual, provable injury and other matters.

•	Commercial and other matters, which can include merger-related and product-pricing claims and environmental claims and proceedings, can involve complexities that will vary from matter to matter.

•	Government investigations, which often are related to the extensive regulation of pharmaceutical companies by national, state and local government agencies in the U.S. and in other countries.

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•	Personal Injury Actions

•	Antitrust Actions

•	Whistleblower Action

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•	Antitrust Actions

•	Personal Injury Actions

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•

Our entire contract manufacturing business, Pfizer CentreOne, is part of EH. Pfizer CentreOne (previously known as Pfizer CentreSource or PCS) consists of (i) the revenues and expenses of legacy Pfizer's contract manufacturing and active pharmaceutical ingredient sales operation, including the revenues and expenses related to our manufacturing and supply agreements with Zoetis; and (ii) the revenues and expenses of legacy Hospira's One-2-One sterile injectables contract manufacturing operation, which has been included in EH since we acquired Hospira on September 3, 2015. Prior to 2016, PCS was managed outside our operating segments as part of PGS and reported as "Other Business Activities". We have reclassified prior period PCS operating results ($133 million of PCS revenues and $30 million of PCS earnings in the second quarter of 2015, and $244 million of PCS revenues and $52 million of PCS earnings in the first six months of 2015) to conform to the current period presentation as part of EH.

•

In connection with the formation of a new EH R&D organization, certain functions transferred from Pfizer’s WRD organization to the new EH R&D organization. The new R&D organization within EH expects to develop potential new sterile injectable drugs and therapeutic solutions, as well as biosimilars. We have reclassified approximately $67 million of costs in the second quarter of 2015 and $134 million of costs in the first six months of 2015 from WRD to EH to conform to the current period presentation as part of EH.

•

In connection with the formation of the GPD organization, a new unified center for late-stage development for our innovative products, which is generally responsible for the clinical development of assets that are in clinical trials for our WRD and Innovative portfolios, certain development-related functions transferred from IH to GPD. We have reclassified approximately $76 million of costs in the first quarter of 2016, approximately $73 million of costs in the second quarter of 2015 and approximately $147 million of costs in the first six months of 2015 from IH to GPD to conform to the current period presentation as part of GPD.

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•

WRD, which is generally responsible for research projects for our IH business until proof-of-concept is achieved and then for transitioning those projects to the IH segment via the newly formed GPD organization for possible clinical and commercial development. R&D spending may include upfront and milestone payments for intellectual property rights. The WRD organization also has responsibility for certain science-based and other platform-services organizations, which provide technical expertise and other services to the various R&D projects, including EH R&D projects. WRD is also responsible for facilitating all regulatory submissions and interactions with regulatory agencies, including all safety-event activities.

•	GPD, which is generally responsible for the clinical development of assets that are in clinical trials for our WRD and Innovative portfolios. GPD also provides technical support and other services to Pfizer R&D projects. In connection with the formation of the GPD organization, certain development-related functions transferred from WRD and IH to GPD.

•	Pfizer Medical, which is responsible for the provision of medical information to healthcare providers, patients and other parties, transparency and disclosure activities, clinical trial results publication, grants for healthcare quality improvement and medical education, and partnerships with global public health and medical associations.

•	Corporate, representing platform functions (such as worldwide technology, global real estate operations, legal, finance, human resources, worldwide public affairs, compliance and worldwide procurement) and certain compensation and other corporate costs, such as interest income and expense, and gains and losses on investments.

•	Other unallocated costs, representing overhead expenses associated with our manufacturing and commercial operations not directly attributable to an operating segment.

•

Certain transactions and events such as (i) purchase accounting adjustments, where we incur expenses associated with the amortization of fair value adjustments to inventory, intangible assets and PP&E; (ii) acquisition-related costs, where we incur costs for executing the transaction, integrating the acquired operations and restructuring the combined company; and (iii) certain significant items, which are substantive and in some cases recurring, or unusual items that are evaluated on an individual basis by management and which include non-acquisition-related restructuring costs, as well as costs incurred for legal settlements, asset impairments and disposals of assets or businesses, including, as applicable, any associated transition activities.

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(a)	Income from continuing operations before provision for taxes on income.

(b)

Effective as of the beginning of the second quarter of 2016, in connection with the formation of the GPD organization, certain development-related functions transferred from IH to GPD. We have reclassified approximately $76 million of costs in the first quarter of 2016, approximately $73 million of costs in the second quarter of 2015 and approximately $147 million of costs in the first six months of 2015 from IH to GPD to conform to the current period presentation as part of GPD.

(c)

On September 3, 2015, we acquired Hospira. Commencing from the acquisition date, our condensed consolidated statement of income includes the operating results of Hospira. As a result, legacy Hospira commercial operations, including the legacy Hospira One-2-One contract manufacturing business, are included in EH’s operating results in our condensed consolidated statements of income for the second quarter and first six months of 2016, but not for the second quarter and first six months of 2015. See Note 2A for additional information. Effective as of the beginning of 2016, our entire contract manufacturing business, Pfizer CentreOne, is part of EH. Pfizer CentreOne (previously known as Pfizer CentreSource or PCS) consists of (i) the revenues and expenses of legacy Pfizer's contract manufacturing and active pharmaceutical ingredient sales operation, including the revenues and expenses related to our manufacturing and supply agreements with Zoetis; and (ii) the revenues and expenses of legacy Hospira's One-2-One sterile injectables contract manufacturing operation, which has been included in EH since we acquired Hospira on September 3, 2015. Prior to 2016, PCS was managed outside our operating segments as part of PGS and reported as "Other Business Activities". We have reclassified prior period PCS operating results ($133 million of PCS revenues and $30 million of PCS earnings in the second quarter of 2015, and $244 million of PCS revenues and $52 million of PCS earnings in the first six months of 2015) to conform to the current period presentation as part of EH. As noted above, also effective as of the beginning of 2016, in connection with the formation of a new EH R&D organization, certain functions transferred from Pfizer’s WRD organization to the new EH R&D organization. We have reclassified approximately $67 million of costs in the second quarter of 2015 and $134 million of costs in the first six months of 2015 from WRD to EH to conform to the current period presentation as part of EH.

(d)	Other business activities includes the costs managed by our WRD, GPD and Pfizer Medical organizations.

(e)	For a description, see the “Other Costs and Business Activities” section above.

(f)	Certain significant items are substantive and in some cases recurring (such as restructuring or legal charges), or unusual items that, either as a result of their nature or size, would not be expected to occur as part of our normal business on a regular basis.

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(a)

On September 3, 2015, we acquired Hospira. Commencing from the acquisition date, our condensed consolidated statement of income includes the operating results of Hospira. As a result, legacy Hospira operations are included in our condensed consolidated statements of income for the second quarter and first six months of 2016, but not for the second quarter and first six months of 2015. See Note 2A for additional information.

(b)	Developed Europe region includes the following markets: Western Europe, Finland and the Scandinavian countries. Revenues denominated in euros were $1.9 billion and $1.8 billion in the second quarter of 2016 and 2015, respectively, and $3.7 billion and $3.6 billion in the first six months of 2016 and 2015, respectively.

(c)	Developed Rest of World region includes the following markets: Australia, Canada, Japan, New Zealand and South Korea.

(d)	Emerging Markets region includes, but is not limited to, the following markets: Asia (excluding Japan and South Korea), Latin America, Africa, Eastern Europe, Central Europe, the Middle East and Turkey.

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(a)	The IH business, previously known as the Innovative Products business, encompasses Internal Medicine, Vaccines, Oncology, Inflammation & Immunology, Rare Disease and Consumer Healthcare.

(b)	Lyrica revenues from all of Europe, Russia, Turkey, Israel and Central Asia countries are included in Lyrica EH. All other Lyrica revenues are included in Lyrica IH. Total Lyrica revenues represent the aggregate of worldwide revenues from Lyrica IH and Lyrica EH.

(c)	Viagra revenues from the U.S. and Canada are included in Viagra IH. All other Viagra revenues are included in Viagra EH. Total Viagra revenues represent the aggregate of worldwide revenues from Viagra IH and Viagra EH.

(d)	Includes Eliquis (2016 and 2015) and Rebif (2015 only).

(e)

The EH business, previously known as the Established Products business, encompasses Legacy Established Products, Sterile Injectable Pharmaceuticals, Peri-LOE Products, Infusion Systems, Biosimilars and Pfizer CentreOne and includes all legacy Hospira commercial operations. Hospira's commercial operations, including the legacy Hospira One-2-One sterile injectables contract manufacturing business, are included in EH’s operating results in our condensed consolidated statements of income, commencing from the acquisition date of September 3, 2015. As a result, EH's revenues for the second quarter and first six months of 2015 do not include Hospira's revenues. Also, effective as of the beginning of 2016, our entire contract manufacturing business, Pfizer CentreOne, is part of EH. Pfizer CentreOne (previously known as Pfizer CentreSource or PCS) consists of (i) legacy Pfizer's contract manufacturing and active pharmaceutical ingredient sales operation, including our manufacturing and supply agreements with Zoetis; and (ii) legacy Hospira's One-2-One sterile injectables contract manufacturing operation. Prior to 2016, PCS was managed outside our operating segments and its revenues were reported as other business activities. We have reclassified prior period PCS revenues ($133 million in the second quarter of 2015 and $244 million in the first six months of 2015) to conform to the current period presentation as part of EH.

(f)	Legacy Established Products include products that have lost patent protection (excluding Sterile Injectable Pharmaceuticals and Peri-LOE Products).

(g)	Prior period revenues for Medrol and Zithromax/Zmax may not agree to previously-disclosed revenues because revenues for those products are now split between the Legacy Established Products and the Sterile Injectable Pharmaceuticals categories.

(h)	Sterile Injectable Pharmaceuticals include generic injectables and proprietary specialty injectables (excluding Peri-LOE Products).

(i)	Peri-LOE Products include products that have recently lost or are anticipated to soon lose patent protection. These products primarily include Lyrica in certain developed Europe markets, Pristiq globally, Celebrex, Zyvox and Revatio in most developed markets, Vfend and Viagra in certain developed Europe markets and Japan, and Inspra in the EU.

(j)	Infusion Systems include Medication Management Systems products composed of infusion pumps and related software and services, as well as I.V. Infusion Products, including large volume I.V. solutions and their associated administration sets.

(k)	Biosimilars include Inflectra (biosimilar infliximab) in certain European markets, Nivestim (biosimilar filgrastim) in certain Asian markets and Retacrit (biosimilar epoetin zeta) in certain international markets.

(l)	Pfizer CentreOne (previously known as Pfizer CentreSource or PCS) includes (i) revenues from legacy Pfizer's contract manufacturing and active pharmaceutical ingredient sales operation, including revenues related to our manufacturing and supply agreements with Zoetis; and (ii) revenues from legacy Hospira’s One-2-One sterile injectables contract manufacturing operation.

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•	higher cost of sales (up $994 million) (see also the “Costs and Expenses––Cost of Sales” section of this MD&A);

•	higher asset impairments (up $792 million) (see also the Notes to Condensed Consolidated Financial Statements––Note 4. Other (Income)/Deductions––Net);

•	higher restructuring charges and certain acquisition-related costs (up $230 million) (see also the Notes to Condensed Consolidated Financial Statements––Note 3. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives);

•	higher charges for legal matters (up $161 million) (see also the Notes to Condensed Consolidated Financial Statements––Note 4. Other (Income)/Deductions––Net);

•	higher amortization of intangible assets (up $89 million) (see also the “Costs and Expenses––Amortization of Intangible Assets” section of this MD&A);

•	higher selling, informational and administrative expenses (up $84 million) (see also the “Costs and Expenses––Selling, Informational and Administrative Expenses (SI&A) Expenses” section of this MD&A); and

•	lower Other, net (down $80 million) (see also the Notes to Condensed Consolidated Financial Statements––Note 4. Other (Income)/Deductions––Net).

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•	higher cost of sales (up $2.0 billion) (see also the “Costs and Expenses––Cost of Sales” section of this MD&A);

•	higher asset impairments (up $922 million) (see also the Notes to Condensed Consolidated Financial Statements––Note 4. Other (Income)/Deductions––Net);

•	higher charges for legal matters (up $435 million) (see also the Notes to Condensed Consolidated Financial Statements––Note 4. Other (Income)/Deductions––Net);

•	higher selling, informational and administrative expenses (up $365 million) (see also the “Costs and Expenses––Selling, Informational and Administrative Expenses (SI&A) Expenses” section of this MD&A);

•	higher restructuring charges and certain acquisition-related costs (up $311 million) (see also the Notes to Condensed Consolidated Financial Statements––Note 3. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives);

•	higher amortization of intangible assets (up $155 million) (see also the “Costs and Expenses––Amortization of Intangible Assets” section of this MD&A); and

•	lower net gains on asset disposals (down $155 million) (see also the Notes to Condensed Consolidated Financial Statements––Note 4. Other (Income)/Deductions––Net),

•	lower research and development expenses (down $141 million) (see also the “Costs and Expenses––Research and Development (R&D) Expenses” section of this MD&A);

•	higher Other, net (up $76 million) (see also the Notes to Condensed Consolidated Financial Statements––Note 4. Other (Income)/Deductions––Net); and

•	lower charges for business and legal entity alignment costs (down $54 million) (see also the Notes to Condensed Consolidated Financial Statements––Note 4. Other (Income)/Deductions––Net).

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•	$63 million in the second quarter of 2016 and $68 million in the second quarter of 2015, and $159 million in the first six months of 2016 and $156 million in the first six months of 2015, recorded as a reduction to Revenues related to the Medicare “coverage gap” discount provision; and

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$92 million in the second quarter of 2016 and $56 million in the second quarter of 2015, and $124 million in the first six months of 2016 and $89 million in the first six month of 2015, recorded in Selling, informational and administrative expenses, related to the fee payable to the federal government (which is not deductible for U.S. income tax purposes) based on our prior-calendar-year share relative to other companies of branded prescription drug sales to specified government programs.

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•

We believe that patients, who are experiencing increases in co-pays and restrictions on access to medicines as payers seek to control costs, sometimes switch to generic products, delay treatments, skip doses or use less effective treatments. We are exposed to negative pricing pressure in various markets around the world. The U.S. has highly competitive insurance markets, and Europe, Japan, China, Canada, South Korea and a number of other international markets have government-mandated reductions in prices and access restrictions for certain biopharmaceutical products to control costs for the government-sponsored healthcare system, particularly under recent global economic pressures. Furthermore, some government agencies and third-party payers use health technology assessments in ways that, at times, lead to restricted access to and lower prices for new medicines.

•	We continue to monitor developments regarding government and government agency receivables in several European markets, including Greece, where economic conditions remain challenging and uncertain. For further information about our Accounts Receivable, see the “Analysis of Financial Condition, Liquidity and Capital Resources” section of this MD&A.

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Significant portions of our revenues and earnings, as well as our substantial international net assets, are exposed to changes in foreign exchange rates. We seek to manage our foreign exchange risk in part through operational means, including managing same-currency revenues in relation to same-currency costs and same-currency assets in relation to same-currency liabilities. Depending on market conditions, foreign exchange risk also is managed through the use of derivative financial instruments and foreign currency debt. As we operate in multiple foreign currencies, including the euro, the Japanese yen, the Chinese renminbi, the U.K. pound, the Canadian dollar and approximately 100 other currencies, changes in those currencies relative to the U.S. dollar will impact our revenues and expenses. If the U.S. dollar were to weaken against another currency, assuming all other variables remained constant, our revenues would increase, having a positive impact on earnings, and our overall expenses would increase, having a negative impact on earnings. Conversely, if the U.S. dollar were to strengthen against another currency, assuming all other variables remained constant, our revenues would decrease, having a negative impact on earnings, and our overall expenses would decrease, having a positive impact on earnings. Therefore, significant changes in foreign exchange rates, including those changes resulting from the volatility following the U.K. referendum in which voters approved the exit from the EU, can impact our results and our financial guidance.

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In June 2016, the U.K. electorate voted to leave the EU. The U.K. government has not formally notified the European Council of their intention to leave the EU, which would begin a two-year negotiation process establishing the terms of the exit and outlining the future relationship between the U.K. and the EU. This process is expected to be highly complex, and, if needed, may be bilaterally extended. The end result of these negotiations may pose certain implications to our research, commercial and general business operations in the U.K. and the EU.

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Our entire contract manufacturing business, Pfizer CentreOne (previously known as Pfizer CentreSource or PCS), is now part of EH. Pfizer CentreOne consists of (i) the revenues and expenses of legacy Pfizer's contract manufacturing and active pharmaceutical ingredient sales operation, including the revenues and expenses related to our manufacturing and supply agreements with Zoetis; and (ii) the revenues and expenses of legacy Hospira's One-2-One sterile injectables contract manufacturing operation, which has been included in EH since we acquired Hospira on September 3, 2015. Prior to 2016, PCS was managed outside our operating segments as part of PGS and reported as "Other Business Activities". We have reclassified prior period PCS operating results ($133 million of PCS revenues and $30 million of PCS earnings in the second quarter of 2015, and $244 million of PCS revenues and $52 million of PCS earnings in the first six months of 2015) to conform to the current period presentation as part of EH.

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In connection with the formation of a new EH R&D organization, certain functions transferred from Pfizer’s WRD organization to the new EH R&D organization. The new R&D organization within EH expects to develop potential new sterile injectable drugs and therapeutic solutions, as well as biosimilars. We have reclassified approximately $67 million of costs in the second quarter of 2015 and $134 million of costs in the first six months of 2015 from WRD to EH to conform to the current period presentation as part of EH.

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In connection with the formation of the GPD organization, a new unified center for late-stage development for our innovative products, which is generally responsible for the clinical development of assets that are in clinical trials for our WRD and Innovative portfolios, certain development-related functions transferred from IH to GPD. We have reclassified approximately $76 million of costs in the first quarter of 2016, approximately $73 million of costs in the second quarter of 2015 and approximately $147 million of costs in the first six months of 2015 from IH to GPD to conform to the current period presentation as part of GPD.

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•	Amounts for certain legal and environmental contingencies, pending receipt of certain information that could affect provisional amounts recorded.

•	Amounts for intangibles and PP&E, pending finalization of valuation efforts.

•	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.

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Acquisition of Bamboo Therapeutics, Inc. (Bamboo)––On August 1, 2016, we acquired all the remaining equity in Bamboo, a privately held biotechnology company, focused on developing gene therapies for the treatment of patients with certain rare diseases, for $150 million, plus potential milestone payments to Bamboo’s selling shareholders of up to $495 million contingent upon the progression of key assets through development, regulatory approval and commercialization. We previously purchased a minority stake in Bamboo in the first quarter of 2016 for a payment of approximately $43 million. This acquisition provides us with several clinical and pre-clinical assets that complement our rare disease portfolio, an advanced recombinant Adeno-Associated Virus vector design and production technology, and a fully functional Phase I/II gene therapy manufacturing facility. We do not expect this transaction to have any significant impact on our 2016 financial performance. Following the acquisition, Bamboo is now a wholly-owned subsidiary of Pfizer.

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Acquisition of Anacor Pharmaceuticals, Inc.––On June 24, 2016 (the acquisition date), we completed the acquisition of Anacor. For additional information, see the “Our Business” section of this MD&A. Included within Anacor’s pipeline is crisaborole, which is currently under review by the FDA for the treatment of mild-to-moderate atopic dermatitis in children and adults, commonly referred to as a type of eczema. The PDUFA goal timing for the completion of the FDA’s review of the crisaborole NDA is early 2017. Anacor also holds the rights to Kerydin, a topical treatment for onychomycosis (toenail fungus) that is distributed and commercialized by Sandoz in the U.S.

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Research and Development Arrangement with NovaQuest Co-Investment Fund II, L.P.––In May 2016, our agreement with NovaQuest became effective, under which NovaQuest will fund up to $250 million in development costs related to certain Phase III clinical trials of Pfizer’s bococizumab compound and Pfizer will use commercially reasonable efforts to develop and obtain regulatory approvals for such compound. Following potential regulatory approval, NovaQuest will be eligible to receive a combination of fixed milestone payments of up to $195 million in total based on achievement of first commercial sale and certain levels of cumulative net sales as well as royalties on bococizumab net sales over approximately nine years. NovaQuest’s development funding is expected to cover up to 40% of the development costs and will be received over five quarters during 2016 and 2017. As there is a substantive and genuine transfer of risk to NovaQuest, 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 second quarter and first six months of 2016 totaled $69.3 million. Fixed sales-based milestone payments will be recorded as intangible assets and amortized to Amortization of intangible assets over the estimated commercial life of the bococizumab product and royalties on net sales will be recorded as Cost of sales when incurred.

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Research and Development Arrangement with NovaQuest Co-Investment Fund V, L.P.––In April 2016, Pfizer entered into an agreement with NovaQuest under which NovaQuest will fund up to $200 million in development costs related to certain Phase III clinical trials of Pfizer’s rivipansel compound and Pfizer will use commercially reasonable efforts to develop and obtain regulatory approvals for such compound. Following potential regulatory approval, NovaQuest will be eligible to receive a combination of fixed milestone payments of up to approximately $267 million in total based on achievement of first

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•	Terminated Agreement to Combine with Allergan plc––On April 6, 2016, we announced that the merger agreement between Pfizer and Allergan entered into on November 22, 2015 was terminated by mutual agreement of the companies. For additional information, see the “Our Business” section of this MD&A.

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Research and Development Arrangement with RPI Finance Trust––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 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 second quarter of 2016 totaled $12.9 million and for the first six months of 2016 totaled $21.7 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.

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Minority Interest in AM-Pharma B.V.––In April 2015, we acquired a minority equity interest in AM-Pharma, a privately-held Dutch biopharmaceutical company focused on the development of 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, which is expected to read out in 2017. 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.

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Collaboration with OPKO Health, Inc.––We entered into a collaborative agreement with OPKO, which closed in January 2015, to develop and commercialize OPKO’s long-acting hGH-CTP for the treatment of GHD in adults and children, as well as for the treatment of growth failure in children born 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.

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Acquisition of Marketed Vaccines Business of Baxter International Inc.––On December 1, 2014 (which falls in the first fiscal quarter of 2015 for our international operations), we acquired Baxter’s portfolio of marketed vaccines for a final purchase price of $648 million. The portfolio that was acquired consists of NeisVac-C and FSME-IMMUN/TicoVac. NeisVac-C is a vaccine that helps protect against meningitis caused by group C meningococcal meningitis and FSME-IMMUN/TicoVac is a vaccine that helps protect against tick-borne encephalitis.

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(a)	The 2016 financial guidance reflects the following:

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Pfizer does not provide guidance for GAAP Reported financial measures (other than Revenues) or a reconciliation of forward-looking non-GAAP financial measures to the most directly comparable GAAP Reported financial measures on a forward-looking basis because it is unable to predict with reasonable certainty the ultimate outcome of pending litigation, unusual gains and losses, acquisition-related expenses and potential future asset impairments without unreasonable effort. These items are uncertain, depend on various factors, and could have a material impact on GAAP Reported results for the guidance period.

•	Does not assume the completion of any business development transactions not completed as of July 3, 2016, including any one-time upfront payments associated with such transactions.

•	Exchange rates assumed are a blend of the actual exchange rates in effect through the second quarter of 2016 and the mid-July 2016 exchange rates for the remainder of the year.

•	Guidance for 2016 revenues reflects the anticipated negative impact of $2.3 billion due to recent and expected generic competition for certain products that have recently lost or are anticipated to soon lose patent protection.

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Guidance for 2016 revenues also reflects the anticipated negative impact of $1.4 billion as a result of unfavorable changes in foreign exchange rates relative to the U.S. dollar compared to foreign exchange rates from 2015, including $0.8 billion due to the estimated significant negative currency impact related to Venezuela. The anticipated negative impact on adjusted diluted EPS resulting from unfavorable changes in foreign exchange rates compared to foreign exchange rates from 2015 is approximately $0.10, including $0.07 due to the estimated significant negative currency impact related to Venezuela.

•	Guidance for adjusted diluted EPS assumes diluted weighted-average shares outstanding of approximately 6.2 billion shares.

(b)	For an understanding of Adjusted income and its components and Adjusted diluted EPS (all of which are non-GAAP financial measures), see the “Non-GAAP Financial Measure (Adjusted Income)” section of this MD&A.

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(a)	IH = the Innovative Health segment; and EH = the Essential Health segment. For additional information about each operating segment, see the “Our Strategy––Commercial Operations” section of this MD&A and Notes to Condensed Consolidated Financial Statements––Note 13A. Segment, Geographic and Other Revenue Information: Segment Information.

•	inclusion of revenues from legacy Hospira operations of $1.1 billion in the second quarter of 2016; and

•	the continued strong performance of several key products in developed markets, including Ibrance, Lyrica (IH) and Xeljanz, all primarily in the U.S., as well as Eliquis (collectively, up approximately $780 million in the second quarter of 2016),

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the Prevnar/Prevenar 13 franchise, primarily driven by the expected decline in revenues for Prevnar 13 for adults in the U.S. due to a high initial capture rate of the eligible population following its successful fourth-quarter 2014 launch, which resulted in a smaller remaining “catch up” opportunity compared to the prior-year quarter. International revenues for the pediatric indication for Prevenar 13 also decreased, primarily in emerging markets, reflecting timing of purchases from Gavi, the Vaccine Alliance, and certain other markets, compared to the prior-year quarter (down approximately $230 million in the second quarter of 2016);

•	the loss of exclusivity and associated generic competition for Zyvox, primarily in the U.S. and certain developed Europe markets, and Lyrica (EH), in certain developed Europe markets (collectively, down approximately $210 million in the second quarter of 2016); and

•	the expiration at the end of 2015 of the collaboration agreement to co-promote Rebif in the U.S. (down approximately $90 million in the second quarter of 2016).

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•	inclusion of revenues from legacy Hospira operations of $2.3 billion in the first six months of 2016;

•	the continued strong performance of several key products in developed markets, including Ibrance, Lyrica (IH), Xeljanz, Chantix/Champix and Consumer Healthcare, all primarily in the U.S., as well as Eliquis (collectively, up approximately $1.9 billion in the first six months of 2016); and

•	a 6% operational increase in revenues in emerging markets (excluding the contribution from legacy Hospira operations), reflecting continued strong performance primarily from Enbrel and Eliquis and continued strong volume growth from certain other products (collectively, up approximately $320 million in the first six months of 2016),

•	the loss of exclusivity and associated generic competition for Zyvox, primarily in the U.S. and certain developed Europe markets, and Lyrica (EH) in certain developed Europe markets (collectively, down approximately $440 million in the first six months of 2016); and

•	the expiration at the end of 2015 of the collaboration agreement to co-promote Rebif in the U.S. (down approximately $140 million in the first six months of 2016).

•	in the U.S., revenues increased $1.3 billion, or 27%, in the second quarter of 2016, and increased $3.5 billion, or 37%, in the first six months of 2016, compared to the same periods in 2015, reflecting, among other things:

◦	the inclusion of legacy Hospira U.S. operations of approximately $850 million in the second quarter of 2016 and $1.8 billion in the first six months of 2016; and

◦	the continued strong performance of several key products including Ibrance, Lyrica (IH), Eliquis, Xeljanz and Chantix (collectively, up approximately $720 million in the second quarter of 2016 and $1.6 billion in the first six months of 2016),

◦	the expected decline in revenues for Prevnar 13 primarily driven by Prevnar 13 for adults in the U.S. due to a high initial capture rate of the eligible population following its successful fourth-quarter 2014 launch, which resulted in a smaller remaining “catch up” opportunity compared to the prior-year quarter (down approximately $110 million in the second quarter of 2016);

◦	the expiration at the end of 2015 of the collaboration agreement to co-promote Rebif in the U.S. (down approximately $90 million in the second quarter of 2016 and $140 million in the first six months of 2016); and

◦	the loss of exclusivity and associated generic competition for Zyvox (down approximately $70 million in the second quarter of 2016 and $170 million in the first six months of 2016).

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in our international markets, revenues decreased $47 million, or 1%, in the second quarter of 2016, and decreased $98 million, or 1%, in the first six months of 2016 compared to the same periods in 2015. Foreign exchange unfavorably impacted international revenues by approximately $300 million, or 4%, in the second quarter of 2016 and unfavorably impacted international revenues by approximately $1.0 billion, or 8% in the first six months of 2016. Operationally, revenues increased $253 million, or 4%, in the second quarter of 2016 and increased $931 million, or 7% in the first six months of 2016, compared to the same periods in 2015, reflecting, among other things:

◦	the inclusion of legacy Hospira international operations of approximately $290 million in the second quarter of 2016 and $560 million in the first six months of 2016;

◦	the continued strong performance of Eliquis (up approximately $90 million in the second quarter of 2016 and $180 million in the first six months of 2016); and

◦	the continued strong volume growth from certain other products in emerging markets, excluding the contributions from legacy Hospira and Eliquis and lower revenues from Prevenar 13 pediatric (collectively, up approximately $130 million in the second quarter of 2016 and $360 million in the first six months of 2016),

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◦	lower revenues in developed markets for Lyrica (EH) and Zyvox as a result of the loss of exclusivity (collectively, down approximately $150 million in the second quarter of 2016 and $280 million in the first six months of 2016); and

◦	lower revenues for Prevenar 13 primarily for the pediatric indication mostly in emerging markets, reflecting timing of purchases from Gavi, the Vaccine Alliance, and certain other markets, compared to the prior-year period (down approximately $120 million for the second quarter of 2016 and $60 million in the first six months of 2016).

(a)	Rebates are product-specific and, therefore, for any given year are impacted by the mix of products sold.

(b)

Performance-based contract rebates include contract rebates with managed care customers within the U.S., including health maintenance organizations and PBMs, who receive rebates based on the achievement of contracted performance terms and claims under these contracts. Outside the U.S., performance-based contract rebates include rebates to wholesalers/distributors based on achievement of contracted performance for specific products or sales milestones.

(c)	Chargebacks primarily represent reimbursements to U.S. wholesalers for honoring contracted prices to third parties.

(d)	Sales allowances primarily represent price reductions that are contractual or legislatively mandated outside the U.S., discounts and distribution fees.

(e)

For the three months ended July 3, 2016, associated with the following segments: IH ($1.6 billion) and EH ($2.4 billion). For the three months ended June 28, 2015, associated with the following segments: IH ($1.4 billion); and EH ($2.3 billion). For the six months ended July 3, 2016, associated with the following segments: IH ($3.3 billion) and EH ($4.8 billion). For the six months ended June 28, 2015, associated with the following segments: IH ($2.6 billion) and EH ($4.2 billion).

•	an increase in chargebacks from EH products, primarily due to the addition in 2016 of Hospira sterile injectables, and from certain IH products;

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•	an increase in performance-based contract rebates primarily due to sales to managed care customers in the U.S. and, for the first six months of 2016, higher rebates in certain developed Europe markets due to competitive pressures post loss of exclusivity for certain products; and

•	an increase in Medicaid and related state program rebates, primarily as a result of updated estimates of sales related to these programs.

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(a)	As compared to the three and six months ended June 28, 2015.

(b)	The IH business, previously known as the Innovative Products business, encompasses Internal Medicine, Vaccines, Oncology, Inflammation & Immunology, Rare Disease and Consumer Healthcare.

(c)	Lyrica revenues from all of Europe, Russia, Turkey, Israel and Central Asia countries are included in Lyrica EH. All other Lyrica revenues are included in Lyrica IH. Total Lyrica revenues represent the aggregate of worldwide revenues from Lyrica IH and Lyrica EH.

(d)	Viagra revenues from the U.S. and Canada are included in Viagra IH. All other Viagra revenues are included in Viagra EH. Total Viagra revenues represent the aggregate of worldwide revenues from Viagra IH and Viagra EH.

(e)	Includes Eliquis (2016 and 2015) and Rebif (2015 only).

(f)

The EH business, previously known as the Established Products business, encompasses Legacy Established Products, Sterile Injectable Pharmaceuticals, Peri-LOE Products, Infusion Systems, Biosimilars and Pfizer CentreOne and includes all legacy Hospira commercial operations. For additional information about changes impacting Essential Health, see Notes to Condensed Consolidated Financial Statements––Note 13A. Segment, Geographic and Other Revenue Information: Segment Information.

(g)	Legacy Established Products include products that have lost patent protection (excluding Sterile Injectable Pharmaceuticals and Peri-LOE Products).

(h)	Prior period revenues for Medrol and Zithromax/Zmax may not agree to previously-disclosed revenues because revenues for those products are now split between the Legacy Established Products and the Sterile Injectable Pharmaceuticals categories.

(i)	Sterile Injectable Pharmaceuticals include generic injectables and proprietary specialty injectables (excluding Peri-LOE Products).

(j)	Peri-LOE Products include products that have recently lost or are anticipated to soon lose patent protection. These products primarily include Lyrica in certain developed Europe markets, Pristiq globally, Celebrex, Zyvox and Revatio in most developed markets, Vfend and Viagra in certain developed Europe markets and Japan, and Inspra in the EU.

(k)	Infusion Systems include Medication Management Systems products composed of infusion pumps and related software and services, as well as I.V. Infusion Products, including large volume I.V. solutions and their associated administration sets.

(l)	Biosimilars include Inflectra (biosimilar infliximab) in certain European markets, Nivestim (biosimilar filgrastim) in certain Asian markets and Retacrit (biosimilar epoetin zeta) in certain international markets.

(m)

Pfizer CentreOne (previously known as Pfizer CentreSource or PCS) includes (i) revenues from legacy Pfizer's contract manufacturing and active pharmaceutical ingredient sales operation, including revenues related to our manufacturing and supply agreements with Zoetis; and (ii) revenues from legacy Hospira’s One-2-One sterile injectables contract manufacturing operation. For additional information, see Notes to Condensed Consolidated Financial Statements––Note 13A. Segment, Geographic and Other Revenue Information: Segment Information.

*	Calculation not meaningful.

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Prevnar/Prevenar 13 (IH) is our pneumococcal conjugate vaccine for the prevention of pneumococcal disease. Overall, worldwide revenues for Prevnar/Prevenar 13 decreased 15% operationally in the second quarter of 2016, and were relatively flat operationally in the first six months of 2016, compared to the same periods in 2015. Foreign exchange had an unfavorable impact on worldwide revenues of 1% in the second quarter, and 2% in the first six months of 2016, compared to the same periods in 2015.

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Lyrica (EH (revenues from all of Europe, Russia, Turkey, Israel and Central Asia)/IH (revenues from all other geographies)) is indicated in the U.S. for three neuropathic pain conditions, fibromyalgia and adjunctive therapy for adult patients with partial onset seizures. In certain markets outside the U.S., indications include neuropathic pain (peripheral and central), fibromyalgia, adjunctive treatment of epilepsy and generalized anxiety disorder. Worldwide revenues for Lyrica increased 4% operationally in the second quarter of 2016, and 6% operationally in the first six months of 2016, compared to the same periods in 2015. Foreign exchange had an unfavorable impact on worldwide revenues of 1% in the second quarter of 2016 and 2% in the first six months of 2016, compared to the same periods in 2015.

•

Enbrel (IH, outside the U.S. and Canada), indicated for the treatment of moderate-to-severe rheumatoid arthritis, polyarticular juvenile rheumatoid arthritis, psoriatic arthritis, plaque psoriasis, ankylosing spondylitis and nonradiographic axial spondyloarthritis, recorded a 3% operational decrease in worldwide revenues, excluding the U.S. and Canada, in the second quarter of 2016, compared to the same period in 2015, primarily due to the impact of the entrance of the first etanercept biosimilar as well as mandated price reductions across certain markets in Europe. Worldwide revenues, excluding the U.S. and Canada, increased 3% operationally in the first six months of 2016, compared to the same period in 2015. Results for the first six months of 2016 were favorably impacted by stronger demand and price increases in emerging markets, specifically in Latin America. Foreign exchange had an unfavorable impact on revenues of 4% in the second quarter of 2016, and 8% in the first six months of 2016, compared to the same periods in 2015.

•	Ibrance (IH) has been approved and launched in the U.S., and certain international markets as a treatment for a certain form of advanced breast cancer. Ibrance recorded worldwide revenues of $514 million in the second quarter of 2016, and $942 million in the first six months of 2016, nearly all of which were recorded in the U.S.

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Lipitor (EH) is indicated for the treatment of elevated LDL-cholesterol levels in the blood. Lipitor faces generic competition in all major developed markets. Branded Lipitor recorded worldwide revenues of $461 million, or a 2% operational decrease in the second quarter of 2016, and $872 million in the first six months of 2016, or relatively flat operationally, compared to the same periods in 2015. Foreign exchange had an unfavorable impact on worldwide revenues of 7% in the second quarter of 2016, and 8% in the first six months of 2016, compared to the same periods in 2015.

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Viagra (IH (U.S. and Canada revenues)/EH (all other revenues excluding U.S. and Canada)) is indicated for the treatment of erectile dysfunction. Viagra worldwide revenues decreased 9% operationally in the second quarter of 2016, and 3% operationally in the first six months of 2016, compared to the same periods in 2015, primarily due to new access constraints and increased rebates. Foreign exchange had an unfavorable impact on worldwide revenues of 1% in the second quarter of 2016, and 2% in the first six months of 2016, compared to the same periods in 2015. Revenues in the U.S. decreased 10% in the second quarter of 2016, and 3% in the first six months of 2016, compared to the same periods in 2015, primarily reflecting new access constraints, lower patient demand and higher rebates, partially offset by price increases, wholesaler buying patterns and increased pill quantity per prescription. International revenues decreased 5% operationally in the second quarter of 2016, and decreased 4% operationally in the first six months of 2016, compared to the same periods in 2015, primarily from lower volumes in China and in developed international markets. Foreign exchange had an unfavorable impact on international revenues of 5% in the second quarter of 2016, and 7% in the first six months of 2016, compared to the same periods in 2015.

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Sutent (IH) is indicated for the treatment of advanced renal cell carcinoma, including mRCC; GIST after disease progression on, or intolerance to, imatinib mesylate; and advanced pancreatic neuroendocrine tumor. Sutent worldwide revenues were relatively flat operationally in the second quarter of 2016, compared to the same period in 2015, primarily due to price increases in the U.S., offset by competitive pressures and cost containment measures. Sutent worldwide revenues increased 10% operationally in the first six months of 2016, compared to the same period in 2015, primarily due to price increases in the U.S., as well as strong demand primarily in emerging markets. Foreign exchange had an unfavorable impact on revenues of 2% in the second quarter of 2016, and 5% in the first six months of 2016, compared to the same periods in 2015.

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Our Premarin family of products (EH) helps women address moderate-to-severe menopausal symptoms. Premarin worldwide revenues decreased 2% operationally in the second quarter of 2016, and increased 4% operationally in the first six months of 2016, compared to the same periods in 2015. Revenues in the U.S. decreased 2% in the second quarter of 2016 compared to the same period in 2015, primarily driven by prescription volume declines and lower market growth, partially offset by favorable pricing. Revenues in the U.S. increased 5% in the first six months of 2016 compared to the same period in 2015, primarily driven by price increases, partially offset by prescription volume declines and lower market growth. Foreign exchange had an unfavorable impact on revenues of 1% in both the second quarter and the first six months of 2016, compared to the same periods in 2015.

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Norvasc (EH) is indicated for the treatment of hypertension. Norvasc worldwide revenues decreased 2% operationally in the second quarter of 2016, and 1% operationally in the first six months of 2016, compared to the same periods in 2015. Results for the second quarter of 2016 were primarily impacted by generic erosion in Japan and declines in certain emerging markets, primarily in the Middle East, partially offset by strong demand in China. Results for the first six months of 2016 were primarily impacted by generic erosion in Japan, partially offset by strong demand in China. Foreign exchange had an unfavorable impact on revenues of 2% in the second quarter of 2016, and 4% in the first six months of 2016, compared to the same periods in 2015.

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Chantix/Champix (IH) is approved as an aid to smoking-cessation treatment in adults 18 years of age and older in multiple markets worldwide. Worldwide revenues increased 24% operationally in the second quarter of 2016, and 33% operationally in the first six months of 2016, compared to the same periods in 2015. Foreign exchange had an unfavorable impact on worldwide revenues of 1% in the second quarter of 2016, and 2% in the first six months of 2016, compared to the same periods in 2015.

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Xeljanz (IH) is approved for use as a second-line therapy for the treatment of adult patients with moderate to severe active rheumatoid arthritis who have had an inadequate response or intolerance to methotrexate and is available in more than 45 markets including the U.S., Japan, Australia, Canada, Switzerland and Brazil. Xeljanz worldwide revenues increased 72% operationally in the second quarter of 2016, and 87% operationally in the first six months of 2016, compared to the same periods in 2015. In the U.S., Xeljanz revenues increased 63% in the second quarter of 2016, and 78% in the first six months of 2016, compared to the same periods in 2015, driven by increased adoption among rheumatologists and growing awareness among patients as well as price increases. Foreign exchange had a 2% unfavorable impact on revenues in both the second quarter and in the first six months of 2016, compared to the same periods in 2015.

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Pristiq (EH) is indicated for the treatment of major depressive disorder in the U.S. and in various other countries. Pristiq has also been indicated for treatment of moderate-to-severe vasomotor symptoms associated with menopause in certain international markets. Worldwide revenues for Pristiq increased 11% operationally in the second quarter of 2016, and increased 13% operationally in the first six months of 2016, compared to the same periods in 2015, primarily due to growth in the U.S. driven by favorable pricing and increased demand. Foreign exchange had an unfavorable impact on revenues of 2% in the second quarter of 2016, and 3% in the first six months of 2016, compared to the same periods in 2015.

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BeneFIX and ReFacto AF/Xyntha (IH) are recombinant hemophilia products that assist patients with their lifelong hemophilia bleeding disorders. BeneFIX worldwide revenues decreased 5% operationally in the second quarter of 2016, compared to the same period in 2015, primarily as a result of erosion of market share in the U.S. due to the launch of new extended half-life treatment options. BeneFIX worldwide revenues increased 3% operationally in the first six months of 2016, compared to the same period in 2015, primarily as a result of higher product demand in Europe. Foreign exchange had an unfavorable impact on revenues of 1% in the second quarter of 2016 and 3% in the first six months of 2016, compared to the same periods in 2015.

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Celebrex (EH) is indicated for the treatment of the signs and symptoms of osteoarthritis and rheumatoid arthritis worldwide and for the management of acute pain in adults in the U.S., Japan and certain other markets. Celebrex recorded a 16% operational decrease in worldwide revenues in the second quarter of 2016, and a 12% operational decrease in worldwide revenues in the first six months of 2016, compared to the same periods in 2015, primarily driven by the loss of exclusivity and associated generic competition in the U.S. and most developed international markets, partially offset by growth in China and other emerging markets. Foreign exchange had an unfavorable impact on worldwide revenues of 2% in the second quarter of 2016, and 5% in the first six months of 2016, compared to the same periods in 2015.

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Xalkori (IH) is indicated for the treatment of patients with locally advanced or metastatic NSCLC that is ALK-positive or ROS1-positive. Xalkori worldwide revenues increased 15% operationally in the second quarter of 2016, and 22% operationally in the first six months of 2016, compared to the same periods in 2015, as a result of a steady increase in diagnostic rates for the ALK gene mutation across key markets, which has led to more patients being treated, and price increase in the U.S. Foreign exchange had an unfavorable impact on revenues of 3% in the first six months of 2016, compared to the same period in 2015.

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Zyvox (EH) is used to treat serious Gram-positive pathogens, including methicillin-resistant staphylococcus-aureus. Zyvox worldwide revenues decreased 54% operationally in the second quarter of 2016, and 50% operationally in the first six months of 2016, compared to the same periods in 2015, due to generic competition in the U.S. and developed international markets and corresponding pricing pressures, as well as lower volumes in emerging markets, primarily China and Latin America. Foreign exchange had an unfavorable impact on revenues of 2% in the second quarter of 2016, and 4% in the first six months of 2016, compared to the same periods in 2015.

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Inlyta (IH) is indicated for the treatment of patients with advanced RCC after failure of a prior systemic treatment. Worldwide revenues decreased 3% operationally in the second quarter of 2016, compared to the same period in 2015, primarily due to increased competition due to new entrants in the second line market primarily in the U.S., offsetting the growth in other markets, particularly in Japan and Argentina as well as in China following the launch in the third quarter of 2015. Worldwide revenues increased 3% operationally in the first six months of 2016, compared to the same period in 2015, primarily due to increased demand across key international markets with greater access and reimbursement, particularly in Europe and emerging markets, mainly in Argentina as well as in China following the launch in the third quarter of 2015, partially offset by a decrease in the U.S. due to increased competition due to new entrants in the second line market. Foreign exchange had an unfavorable impact on revenues of 2% in the first six months of 2016, compared to the same period in 2015.

•	Alliance revenues (IH/EH) increased 19% operationally in the second quarter of 2016, and 39% operationally in the first six months of 2016, compared to the same periods in 2015, mainly due to:

◦	an increase in Eliquis alliance revenues due to increased market share,

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◦	the expiration at the end of 2015 of the collaboration agreement to co-promote Rebif in the U.S., which resulted in a decrease of approximately $90 million in the second quarter of 2016, and approximately $140 million in the first six months of 2016, compared to the same periods in 2015.

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Eliquis (apixaban) (IH) is being jointly developed and commercialized by Pfizer and BMS. The two companies share commercialization expenses and profit/losses equally on a global basis. In April 2015, we signed an agreement with BMS to transfer full commercialization rights in certain smaller markets to us, beginning in the third quarter of 2015. BMS supplies the product to us at cost plus a percentage of the net sales to end-customers in these markets. Eliquis is part of the NOAC market; the agents in this class were developed as alternative treatment options to warfarin in appropriate patients. Eliquis (apixaban) is approved for multiple indications in major markets around the world:

◦	to reduce the risk of stroke and systemic embolism in patients with nonvalvular atrial fibrillation;

◦	for the treatment of DVT and PE, and for the reduction in the risk of recurrent DVT and PE following initial therapy; and

◦	for the prophylaxis of DVT, which may lead to PE, in patients who have undergone hip or knee replacement surgery.

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*	The dates set forth in this column are the dates on which the FDA accepted our submissions.

(a)

In June 2016, the FDA’s Anesthetic and Analgesic Drug Products Advisory Committee and Drug Safety and Risk Management Advisory Committee voted in favor of approval of ALO-02 for “management of pain severe enough to require daily, around-the-clock, long-term opioid treatment and for which alternative options are inadequate.” The Committees recommended the inclusion of abuse-deterrent labeling for intranasal and intravenous routes of abuse, but voted against inclusion of abuse-deterrent labeling for the oral route. The FDA will take the Committees’ recommendations into consideration before taking action on the ALO-02 NDA.

(b)

Epogen® is a registered U.S. trademark of Amgen Inc.; Procrit® is a registered U.S. trademark of Johnson & Johnson. In October 2015, we received a “complete response” letter from the FDA with respect to our biologics license application for Retacrit, our proposed biosimilar to epoetin alfa, which was submitted for all indications of the reference product. We are working diligently to address the content of the letter.

(c)

In May 2012, the FDA’s Peripheral and Central Nervous System Drugs Advisory Committee voted that the tafamidis meglumine data provide substantial evidence of efficacy for a surrogate endpoint that is reasonably likely to predict a clinical benefit. In June 2012, the FDA issued a “complete response” letter with respect to the tafamidis NDA. The FDA has requested the completion of a second efficacy study, and also has asked for additional information on the data within the current tafamidis NDA. Pfizer initiated study B3461028 in December 2013, a global Phase 3 study to support a potential new indication in transthyretin cardiomypathy, which includes transthyretin familial amyloid cardiomyopathy (TTR-FAC) and wild-type cardiomyopathy (WT-CM). We continue to work with the FDA to identify next steps.

*	For applications in the EU, the dates set forth in this column are the dates on which the EMA validated our submissions.

(a)	In July 2016, the EMA’s Committee for Medicinal Products for Human Use issued an opinion recommending that Xalkori be granted approval for the treatment of adults with ROS1-positive advanced non-small cell lung cancer.

(b)	This indication for Eliquis (apixaban) was developed and is being commercialized in collaboration with BMS.

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(a)

Remicade® is a registered trademark of Janssen Biotech, Inc. In February 2016, we divested the rights for development and commercialization of PF-06438179, a potential biosimilar to Remicade® (infliximab) in the 28 countries that form the EEA to Sandoz, which was a condition to the European Commission’s approval of the Hospira transaction. We retain commercialization and manufacturing rights to PF-06438179 in all countries outside of the EEA.

(b)	Herceptin® is a registered trademark of Genentech, Inc.

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(c)	Rituxan® is a registered trademark of Biogen MA Inc.

(d)	Avastin® is a registered trademark of Genentech, Inc.

(e)	Humira® is a registered trademark of AbbVie Biotechnology Ltd.

•	an increase in sales volumes including legacy Hospira operations;

•	the sale of legacy Hospira inventory measured at fair value on the acquisition date and amortized over the turn of the related inventory; and

•	the unfavorable impact of foreign exchange.

•	an unfavorable change in product mix due to (i) the inclusion of legacy Hospira operations with products that carry a higher cost, as well as the impact of acquired Hospira inventory which is measured at fair value on the acquisition date and amortized over the turn of the related inventory; and (ii) the impact of losses of exclusivity on products which formerly had a higher gross margin; and

•	the unfavorable impact of foreign exchange,

•	a favorable change in product mix related to legacy Pfizer products, including alliance revenues (which have no associated cost of sales), excluding losses of exclusivity.

•	the inclusion of legacy Hospira operations; and

•	increased investments to support certain recently launched products;

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•	the favorable impact of foreign exchange of 2% in the second quarter of 2016; and

•	lower field force, advertising and promotional expenses, reflecting the benefits of cost-reduction and productivity initiatives.

•	an increase in the allowance for doubtful trade accounts receivable, resulting from unfavorable developments with a distributor;

•	the inclusion of legacy Hospira operations; and

•	increased investments to support certain recently launched products and other in-line biopharmaceutical products,

•	the favorable impact of foreign exchange of 3% in the first six months of 2016; and

•	lower field force, advertising and promotional expenses, reflecting the benefits of cost-reduction and productivity initiatives.

•	the inclusion of legacy Hospira operations and increased investment in legacy Pfizer biosimilar development programs; and

•	increased costs associated with our avelumab alliance with Merck KGaA,

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development funding of $97 million under which we have an obligation to perform contractual services related to certain clinical trials of bococizumab, Ibrance and rivipansel (see Notes to Condensed Consolidated Financial Statements––Note 2B. Acquisitions, Research and Development and Collaborative Arrangements, Equity-Method Investments and Cost-Method Investment: Research and Development and Collaborative Arrangements).

•	the non-recurrence of the $295 million upfront payment to OPKO in the first quarter of 2015 associated with a worldwide development and commercialization agreement; and

•

development funding of $106 million under which we have an obligation to perform contractual services related to certain clinical trials of bococizumab, Ibrance and rivipansel (see Notes to Condensed Consolidated Financial Statements––Note 2B. Acquisitions, Research and Development and Collaborative Arrangements, Equity-Method Investments and Cost-Method Investment: Research and Development and Collaborative Arrangements),

•	the inclusion of legacy Hospira operations and increased investment in legacy Pfizer biosimilar development programs;

•	increased costs associated with our oncology programs, primarily our avelumab alliance with Merck KGaA; and

•	increased investments in certain late-stage pipeline programs, primarily bococizumab and tanezumab.

•

Research Units within our WRD organization continue to be generally responsible for research assets for our IH business (assets that have not yet achieved proof-of-concept). Our Research Units are organized in a variety of ways (by therapeutic area or combinations of therapeutic areas, by discipline, by location, etc.) to enhance flexibility, cohesiveness and focus. Because of our structure, we can rapidly redeploy resources within a Research Unit between various projects as necessary because the workforce shares similar skills, expertise and/or focus.

•	We created an R&D organization within the EH business, which supports the large base of EH products and is expected to develop potential new sterile injectable drugs and therapeutic solutions, as well as biosimilars.

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•	We formed the GPD organization, which is generally responsible for the clinical development of assets that are in clinical trials for our WRD and Innovative portfolios. GPD also provides technical support and other services to Pfizer R&D projects.

•

Our science-based and other platform-services organizations, where a significant portion of our R&D spending occurs, provide technical expertise and other services to the various R&D projects, and are organized into science-based functions (which are part of our WRD organization), such as Pharmaceutical Sciences, Medicinal Chemistry, Regulatory and Drug Safety, and non-science-based functions, such as Facilities, Business Technology and Finance. As a result, within each of these functions, we are able to migrate resources among projects, candidates and/or targets in any therapeutic area and in most phases of development, allowing us to react quickly in response to evolving needs.

(a)	Comprises Restructuring charges and certain acquisition-related costs as well as costs associated with our cost-reduction/productivity initiatives included in Cost of sales, Research and development expenses and/or Selling, informational and administrative expenses, as appropriate.

*	Calculation not meaningful.

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*	Calculation not meaningful.

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•	senior management receives a monthly analysis of our operating results that is prepared on an Adjusted income and Adjusted diluted earnings per share basis;

•	our annual budgets are prepared on an Adjusted income and Adjusted diluted earnings per share basis; and

•	senior management’s annual compensation is derived, in part, using Adjusted income and Adjusted diluted earnings per share measures. See the “Adjusted Income––General Description of Adjusted Income Measure” section of our 2015 Financial Report for additional information.

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(a)	For details of adjustments, see “Details of Income Statement Items Included in GAAP Reported but Excluded from Non-GAAP Adjusted Income” below.

(b)

The effective tax rate on Non-GAAP Adjusted income was 23.2% in the second quarter of 2016, compared with 25.6% in the second quarter of 2015. This decline was primarily due to a favorable change in the jurisdictional mix of earnings, as well as an increase in tax 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. The effective tax rate on Non-GAAP Adjusted income was 23.5% in the first six months of 2016, compared with 25.0% in the first six months of 2015. This decline was primarily due to a favorable change in the jurisdictional mix of earnings, an increase in tax benefits associated with the U.S. R&D tax credit, which was not in effect in the first six months of the prior year but was permanently extended on December 18, 2015, as well as an increase 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.

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(a)	Included primarily in Amortization of intangible assets.

(b)	Included in Provision for taxes on income. Income taxes includes the tax effect of the associated pre-tax amounts, calculated by determining the jurisdictional location of the pre-tax amounts and applying that jurisdiction’s applicable tax rate.

(c)

Included in Restructuring charges and certain acquisition-related costs (see Notes to Condensed Consolidated Financial Statements—Note 3. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives). Restructuring charges include employee termination costs, asset impairments and other exit costs associated with business combinations. Transaction costs primarily represent external costs for banking, legal, accounting and other similar services. 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)	Represents the impact of changes in estimated useful lives of assets involved in restructuring actions related to acquisitions. Included in Cost of sales for both the three and six months ended July 3, 2016 and June 28, 2015.

(e)

Included in Provision for taxes on income. Income taxes includes the tax effect of the associated pre-tax amounts, calculated by determining the jurisdictional location of the pre-tax amounts and applying that jurisdiction’s applicable tax rate. The six months ended July 3, 2016 were unfavorably impacted by the remeasurement of certain deferred tax liabilities resulting from plant network restructuring activities.

(f)	Included in Discontinued operations––net of tax. For the three and six months ended June 28, 2015, represents post-close adjustments.

(g)	Amounts relate to our cost-reduction/productivity initiatives not related to acquisitions. Included in Restructuring charges and certain acquisition-related costs (see Notes to Condensed Consolidated Financial Statements—Note 3. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives).

(h)

Amounts relate to our cost-reduction/productivity initiatives not related to acquisitions (see Notes to Condensed Consolidated Financial Statements—Note 3. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives). For the three months ended July 3, 2016, virtually all included in Cost of sales ($90 million), Selling, informational and administrative expenses ($20 million) and Research and development expenses ($6 million). For the three months ended June 28, 2015, virtually all included in Cost of sales ($39 million), Selling, informational and administrative expenses ($13 million) and Research and development

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(i)	Included in Other (income)/deductions—net (see the “Other (Income)/Deductions—Net” section of this MD&A and Notes to Condensed Consolidated Financial Statements—Note 4. Other (Income)/Deductions—Net).

(j)	Included in Other (income)/deductions––net. 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.

(k)	Primarily all included in Other (income)/deductions––net (see the “Other (Income)/Deductions—Net” section of this MD&A and Notes to Condensed Consolidated Financial Statements—Note 4. Other (Income)/Deductions—Net).

(l)

Included in Provision for taxes on income. Income taxes includes the tax effect of the associated pre-tax amounts, calculated by determining the jurisdictional location of the pre-tax amounts and applying that jurisdiction’s applicable tax rate. The first six months of 2016 were favorably impacted by benefits related to the final resolution 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, as well as benefits associated with our Venezuela operations.

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Our entire contract manufacturing business, Pfizer CentreOne (previously known as Pfizer CentreSource or PCS), is part of EH. Pfizer CentreOne consists of (i) the revenues and expenses of legacy Pfizer's contract manufacturing and active pharmaceutical ingredient sales operation, including the revenues and expenses related to our manufacturing and supply agreements with Zoetis; and (ii) the revenues and expenses of legacy Hospira's One-2-One sterile injectables contract manufacturing operation, which has been included in EH since we acquired Hospira on September 3, 2015. Prior to 2016, PCS was managed outside our operating segments as part of PGS and reported as "Other Business Activities". We have reclassified prior period PCS operating results ($133 million of PCS revenues and $30 million of PCS earnings in the second quarter of 2015, and $244 million of PCS revenues and $52 million of PCS earnings in the first six months of 2015) to conform to the current period presentation as part of EH.

•

In connection with the formation of a new EH R&D organization, certain functions transferred from Pfizer’s WRD organization to the new EH R&D organization. The new R&D organization within EH expects to develop potential new sterile injectable drugs and therapeutic solutions, as well as biosimilars. We have reclassified approximately $67 million of costs in the second quarter of 2015 and $134 million of costs in the first six months of 2015 from WRD to EH to conform to the current period presentation as part of EH.

•

In connection with the formation of the GPD organization, a new unified center for late-stage development for our innovative products, which is generally responsible for the clinical development of assets that are in clinical trials for our WRD and Innovative portfolios, certain development-related functions transferred from IH to GPD. We have reclassified approximately $76 million of costs in the first quarter of 2016, approximately $73 million of costs in the second quarter of 2015 and approximately $147 million of costs in the first six months of 2015 from IH to GPD to conform to the current period presentation as part of GPD.

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(a)

Amounts represent the revenues and costs managed by each of our operating segments. The expenses generally include only those costs directly attributable to the operating segment. On September 3, 2015, we acquired Hospira. Commencing from the acquisition date, our condensed consolidated statement of income includes the operating results of Hospira. As a result, legacy Hospira commercial operations, including the legacy Hospira One-2-One contract manufacturing business, are included in EH’s operating results in our condensed consolidated statements of income for the second quarter and first six months of 2016, but not for the second quarter and first six months of 2015. See Notes to Condensed Consolidated Financial Statements––Note 2A. Acquisitions, Research and Development and Collaborative Arrangements, Equity-Method Investments and Cost-Method Investment: Acquisitions for additional information.

(b)	Other comprises the revenues and costs included in our Adjusted income components (see footnote (c) below) that are managed outside of our two operating segments and includes the following:

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(i)

WRD—the research and development expenses managed by our WRD organization, which is generally responsible for research projects for our IH business until proof-of-concept is achieved and then for transitioning those projects to the IH segment via the newly formed GPD organization for possible clinical and commercial development. R&D spending may include upfront and milestone payments for intellectual property rights. The WRD organization also has responsibility for certain science-based and other platform-services organizations, which provide technical expertise and other services to the various R&D projects, including EH R&D projects. WRD is also responsible for facilitating all regulatory submissions and interactions with regulatory agencies, including all safety-event

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(ii)

GPD––the costs associated with our newly formed GPD organization, which is generally responsible for the clinical development of assets that are in clinical trials for our WRD and Innovative portfolios. GPD also provides technical support and other services to Pfizer R&D projects. In connection with the formation of the GPD organization, certain development-related functions transferred from WRD and IH to GPD. We have reclassified costs of approximately $78 million from WRD and $76 million from IH in the first quarter of 2016, approximately $77 million from WRD and $73 million from IH in the second quarter of 2015 and approximately $157 million from WRD and $147 million from IH in the first six months of 2015 to GPD to conform to the current period presentation as part of GPD.

(iii)	Medical—the costs associated with our Medical organization, which is responsible for the provision of medical information to healthcare providers, patients and other parties, transparency and disclosure activities, clinical trial results publication, grants for healthcare quality improvement and medical education, and partnerships with global public health and medical associations.

(iv)	Corporate—the costs associated with Corporate, representing platform functions (such as worldwide technology, global real estate operations, legal, finance, human resources, worldwide public affairs, compliance, and worldwide procurement) and certain compensation and other corporate costs, such as interest income and expense, and gains and losses on investments.

(v)	Other Unallocated—other unallocated costs, representing overhead expenses associated with our manufacturing and commercial operations not directly attributable to an operating segment.

*	Amounts not material. After excluding net interest expense included in Corporate and net income from investments not attributable to an operating segment and included in Corporate, Other (income)/deductions––net approximates $24 million of income for the first six months of 2016.

•	WRD/GPD/Medical––The information provided in the table above for WRD, GPD and Medical was substantially all derived from our estimates of the costs incurred in connection with the R&D projects associated with each operating segment.

•

Corporate/Other Unallocated––The information provided in the table above for Corporate and Other Unallocated was derived mainly using proportional allocation methods based on global, regional or country revenues or global, regional or country headcount, as well as certain cost metrics, as appropriate, such as those derived from research and development and manufacturing costs, and, to a lesser extent, specific identification. Management believes that the allocations of Corporate and Other Unallocated costs are reasonable.

(c)	See the “Non-GAAP Financial Measure (Adjusted Income)” section of this MD&A for a definition of these “Adjusted Income” components.

(d)

Includes costs associated with (i) purchase accounting adjustments; (ii) acquisition-related costs; and (iii) certain significant items, which are substantive and in some cases recurring (such as restructuring or legal charges), or unusual items that are evaluated on an individual basis by management. For additional information about these reconciling items and/or our Non-GAAP Adjusted measure of performance, see the “Non-GAAP Financial Measure (Adjusted Income)” section of this MD&A.

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IH Revenues increased 7% to $7.1 billion in the second quarter of 2016, compared to $6.6 billion in the same period in 2015, and increased 14% to $14.1 billion in the first six months of 2016, compared to $12.4 billion in the same period in 2015. Foreign exchange had an unfavorable impact of 2% on IH revenues in the second quarter of 2016, and 4% in the first six months of 2016, compared to the same periods in 2015. IH Revenues increased by 9% operationally in the second quarter of 2016 and 18% operationally in the first six months of 2016 compared to the same periods in 2015, primarily due to the following operational factors:

◦	continued strong momentum from Ibrance primarily in the U.S., as well as strong operational growth from Eliquis globally and Lyrica, Xeljanz, Consumer Healthcare and Chantix, all primarily in the U.S. (collectively, up approximately $900 million for the second quarter of 2016 and $2.0 billion for the first six months of 2016),

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the Prevnar/Prevenar 13 franchise, primarily driven by the expected decline in revenues for Prevnar 13 for adults in the U.S. due to a high initial capture rate of the eligible population following its successful fourth-quarter 2014 launch, which resulted in a smaller remaining “catch up” opportunity compared to the prior-year quarter. International revenues for the pediatric indication for Prevenar 13 also decreased, primarily in emerging markets, reflecting timing of purchases from Gavi, the Vaccine Alliance, and certain other markets, compared to the prior-year quarter (down approximately $230 million for the second quarter of 2016); and

◦	a decline in Rebif revenues in the U.S. due to the expiration of the collaboration agreement to co-promote Rebif in the U.S., which expired at the end of 2015 (down approximately $90 million for the second quarter of 2016 and $140 million for the first six months of 2016).

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Cost of sales as a percentage of Revenues decreased 0.1 percentage point in the second quarter of 2016, and decreased 0.4 percentage points in the first six months of 2016, compared to the same periods in 2015, primarily driven by a favorable change in product mix, including an increase in alliance revenues, which have no associated cost of sales, partially offset by unfavorable foreign exchange. The increase in Cost of sales of 6% in the second quarter of 2016, compared to the same period in 2015, was primarily driven by unfavorable foreign exchange and an increase in royalty expense, partially offset by favorable product mix. The increase in Cost of sales of 11% in the first six months of 2016, compared to the same period in 2015, was primarily driven by unfavorable foreign exchange, an increase in sales volumes and an increase in royalty expense.

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The slight decrease in Selling, informational and administrative expenses in the second quarter of 2016, compared to the same period in 2015, reflects favorable foreign exchange, offset by additional investment in Prevnar 13 and Eliquis. The increase in Selling, informational and administrative expenses of 9% in the first six months of 2016, compared to the same period in 2015, reflects an increase in the allowance for doubtful trade accounts receivable, resulting from unfavorable developments with a distributor, and additional investment in Eliquis and Prevnar 13, partially offset by favorable foreign exchange.

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The increase in Research and development expenses of 2% in the second quarter of 2016, compared to the same period in 2015, primarily reflects the increased costs associated with our avelumab alliance with Merck KGaA. The decrease in Research and development expenses of 13% in the first six months of 2016, compared to the same period in 2015, primarily reflects the non-recurrence of the $295 million upfront payment made to OPKO in the first quarter of 2015, partially offset by increased costs associated with our oncology programs, primarily our avelumab alliance with Merck KGaA and increased investment in certain late-stage pipeline programs, primarily bococizumab and tanezumab.

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EH Revenues increased 16%, to $6.0 billion in the second quarter of 2016, compared to $5.2 billion in the same period in 2015, and increased 16% to $12.0 billion in the first six months of 2016, compared to $10.3 billion in the same period in 2015. Foreign exchange had an unfavorable impact of 4% on EH revenues in the second quarter of 2016, and 6% in the first six months of 2016, compared to the same periods in 2015. Revenues increased by 19% operationally in the second quarter of 2016 and 22% operationally in the first six months of 2016, compared to the same periods in 2015, primarily due to the inclusion of legacy Hospira operations of $1.1 billion in the second quarter of 2016 and $2.3 billion in the first six months of 2016, partially offset by the loss of exclusivity and associated generic competition for certain Peri-LOE Products, primarily Zyvox in the U.S. and certain developed Europe markets, as well as Lyrica in certain developed Europe markets. EH Revenues excluding the contribution from the legacy Hospira portfolio, decreased 3% operationally in the second quarter of 2016 and decreased 1% operationally in the first six months of 2016, compared to the same periods in 2015, primarily due to the following operational factors:

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◦	the loss of exclusivity and associated generic competition for certain Peri-LOE Products, primarily Zyvox in the U.S. and certain developed Europe markets, as well as Lyrica in certain developed Europe markets (collectively, down by approximately $210 million in the second quarter of 2016 and $440 million in the first six months of 2016),

◦	growth in the legacy Pfizer Sterile Injectable Pharmaceuticals portfolio primarily in emerging markets and the U.S. (up by approximately $80 million in the second quarter of 2016 and $170 million in the first six months of 2016); and

◦	growth in the Legacy Established Products portfolio primarily in the U.S. (up by approximately $60 million in the second quarter of 2016 and $270 million in the first six months of 2016).

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Cost of sales as a percentage of Revenues increased 7.8 percentage points in the second quarter of 2016, and increased 6.3 percentage points in the first six months of 2016, compared to the same periods in 2015, primarily due to the inclusion of legacy Hospira operations, unfavorable foreign exchange and the impact of losses of exclusivity resulting in an unfavorable change in product mix. The increase in Cost of sales of 61% in the second quarter of 2016 and 53% in the first six months of 2016, compared to the same periods in 2015, was driven by the inclusion of legacy Hospira operations and the unfavorable impact from foreign exchange, partially offset by lower volumes as a result of products losing exclusivity.

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Selling, informational and administrative expenses increased 5% in the second quarter of 2016, compared to the same period in 2015, primarily due to the inclusion of legacy Hospira operations, partially offset by lower advertising, promotional and field force expenses, reflecting the benefits of cost-reduction and productivity initiatives, and favorable foreign exchange. The increase in Selling, informational and administrative expenses of 5% in the first six months of 2016, compared to the same period in 2015, was primarily due to the inclusion of legacy Hospira operations, partially offset by favorable foreign exchange and lower advertising, promotional and field force expenses, reflecting the benefits of cost-reduction and productivity initiatives.

•	Research and development expenses increased 41% in the second quarter of 2016, and increased 39% in the first six months of 2016, compared to the same periods in 2015, reflecting the inclusion of legacy Hospira operations and increased investment in legacy Pfizer biosimilar development programs.

•	The favorable change in Other (income)/deductions––net in the first six months of 2016, compared to the same period in 2015, primarily reflects resolution of a contract disagreement and favorable foreign exchange.

•	For Foreign currency translation adjustments, net, for the second quarter of 2016, primarily reflects the weakening of the U.S. dollar against the euro and Japanese yen; for the first six months of 2016, primarily reflects the strengthening of the U.S. dollar against the U.K. pound, partially offset by the weakening of the U.S. dollar against the euro and Japanese yen.

•	For Unrealized holding gains/(losses) on derivative financial instruments, net and Unrealized holding gains/(losses) on available-for-sale securities, net, reflects the impact of fair value remeasurements and the reclassification of realized amounts into income. For additional information, see Notes to Condensed Consolidated Financial Statements—Note 7. Financial Instruments.

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For Benefit plans: actuarial gains/(losses), net, reflects the impact of the inclusion of Hospira’s pension and postretirement benefit plans in our results of operations, subsequent to its acquisition, partially offset by favorable foreign exchange, large gains in the international plans in 2015 and, to a lesser extent, settlement activity. For additional information, see Notes to Condensed Consolidated Financial Statements—Note 10. Pension and Postretirement Benefit Plans.

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For Benefit plans: prior service credits and other, net, for the first six months of 2016, reflects an $82 million reduction in our U.S. Postretirement Plan obligation due to a plan change approved in June 2016 that introduced a cap on costs for certain groups within the plan, partially offset by the reclassification into income of amounts related to (i) amortization of changes in prior service costs and credits previously recognized in Other comprehensive income and (ii) curtailment activity. For additional information, see Notes to Condensed Consolidated Financial Statements—Note 10. Pension and Postretirement Benefit Plans.

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•	For Trade accounts receivable, less allowance for doubtful accounts, the change reflects the timing of sales and collections in the normal course of business and an increase in the allowance for doubtful accounts, resulting from unfavorable developments with a distributor.

•	For Inventories, the change reflects planned inventory reductions, offset by inventory builds in the normal course of business.

•	For Other current assets, the change reflects an increase in VAT receivable balances due to a change in our supply chain, partially offset by a decrease in receivables associated with our derivative financial instruments.

•	For PP&E, the change reflects depreciation during the period, partially offset by capital additions in the normal course of business.

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For Identifiable intangible assets, less accumulated amortization, the change reflects the acquisition of Anacor and the impact of measurement period adjustments related to our acquisition of Hospira (see Notes to Condensed Consolidated Financial Statements—Note 2A. Acquisitions, Research and Development and Collaborative Arrangements, Equity-Method Investments and Cost-Method Investment: Acquisitions and Note 9A. Identifiable Intangible Assets and Goodwill: Identifiable Intangible Assets for additional information), partially offset by amortization and impairments for the period.

•	For Goodwill, the change primarily reflects the acquisition of Anacor (see Notes to Condensed Consolidated Financial Statements—Note 2A. Acquisitions, Research and Development and Collaborative Arrangements, Equity-Method Investments and Cost-Method Investment: Acquisitions and Note 9A. Identifiable Intangible Assets and Goodwill: Identifiable Intangible Assets for additional information).

•	For Other noncurrent assets, the change reflects an increase in receivables associated with our derivative financial instruments and an increase in noncurrent VAT receivable balances due to a change in our supply chain.

•	For Trade accounts payable, the change reflects the timing of purchases and payments in the normal course of business.

•	For Dividends payable, the change reflects the difference between the first quarter 2016 dividends declared in 2015 and the third quarter dividends declared in June 2016.

•	For Accrued compensation and related items, the decrease reflects bonus payments made to employees during the first six months of 2016.

•	For Other current liabilities, the change reflects payments and accruals for certain legal matters and restructuring matters, and payments for interest, partially offset by an increase in VAT payable balances due to a change in our supply chain and the timing of other accruals and payments in the normal course of business.

•	For Pension benefit obligations, net and Postretirement benefit obligations, net, the change reflects a $1.0 billion voluntary pension contribution in January 2016, as well as the information provided in Notes to Condensed Consolidated Financial Statements—Note 10. Pension and Postretirement Benefit Plans.

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•	For Other noncurrent liabilities, the change reflects an increase in the payables associated with our derivative financial instruments and deferred revenue from a co-development agreement, partially offset by distributions under certain of our deferred compensation programs and changes in accruals in the normal course of business.

•	For Treasury stock, the change reflects $5 billion paid to GS&Co. in March 2016 pursuant to the terms of an accelerated share repurchase agreement. See Notes to Condensed Consolidated Financial Statements—Note 12. Commitments and Contingencies for additional information.

*	Calculation not meaningful.

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cash paid of $4.5 billion, net of cash acquired, for the acquisition of Anacor in the first six months of 2016 compared to cash paid of $679 million, net of cash acquired, primarily for the acquisition of Baxter’s portfolio of marketed vaccines in the first six months of 2015. (see Notes to Condensed Consolidated Financial Statements—Note 2A. Acquisitions, Research and Development and Collaborative Arrangements, Equity-Method Investments and Cost-Method Investment: Acquisitions),

•	net redemptions of investments of $5.1 billion in the first six months of 2016, compared to $5.3 billion in the first six months of 2015.

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•	net proceeds on short-term borrowings and long-term debt of $2.9 billion in the first six months of 2016, compared to net payments on borrowings of $504 million in the first six months of 2015; and

•	purchases of common stock of $5.0 billion in the first six months of 2016, compared to $6.0 billion in the first six months of 2015;

•	proceeds from the exercise of stock options of $696 million in the first six months of 2016, compared to $981 million in the first six months of 2015.

•	the working capital requirements of our operations, including our research and development activities;

•	investments in our business;

•	dividend payments and potential increases in the dividend rate;

•	share repurchases;

•	the cash requirements associated with our cost-reduction/productivity initiatives;

•	paying down outstanding debt;

•	contributions to our pension and postretirement plans; and

•	business-development activities.

(a)	See Notes to Condensed Consolidated Financial Statements––Note 7. Financial Instruments for a description of certain assets held and for a description of the credit risk related to our financial instruments held.

(b)	Selected net financial assets decreased due to an increase in short-term and long-term debt, the acquisition of Anacor and payments on long-term debt. For additional information, see the “Analysis of the Condensed Consolidated Statements of Cash Flows” section of this MD&A.

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(c)	The decrease in working capital is primarily due to an increase in short term borrowings, and the timing of accruals, cash receipts and payments in the ordinary course of business.

(d)	Represents total Pfizer Inc. shareholders’ equity divided by the actual number of common shares outstanding (which excludes treasury stock).

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(a)

Represents shares purchased pursuant to and received upon settlement of an accelerated share repurchase agreement. For additional information, see Notes to Condensed Consolidated Financial Statements––Note 12. Commitments and Contingencies and “Unregistered Sales of Equity Securities and Use of Proceeds––Issuer Purchases of Equity Securities" in Part II, Item 2 of this Quarterly Report on Form 10-Q.

(b)	Includes approximately 151 million shares purchased for $5 billion pursuant to an accelerated share repurchase agreement. For additional information, see Notes to Consolidated Financial Statements––Note 12. Equity in our 2015 Form 10-K.

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the outcome of research and development activities including, without limitation, the ability to meet anticipated pre-clinical and clinical trial commencement and completion dates, regulatory submission and approval dates, and launch dates for product candidates, as well as the possibility of unfavorable pre-clinical and clinical trial results, including unfavorable new clinical data and additional analyses of existing clinical data;

•	decisions by regulatory authorities regarding whether and when to approve our drug applications, which will depend on the assessment by such regulatory authorities of the benefit-risk profile suggested by the totality of the

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•	the speed with which regulatory authorizations, pricing approvals and product launches may be achieved;

•	the outcome of post-approval clinical trials, which could result in the loss of marketing approval for a product or changes in the labeling for, and/or increased or new concerns about the safety or efficacy of, a product that could affect its availability or commercial potential;

•	risks associated with interim data, including the risk that final results of studies for which interim data have been provided and/or additional clinical trials may be different from (including less favorable than) the interim data results and may not support further clinical development of the applicable product candidate or indication;

•	the success of external business-development activities, including the ability to satisfy the conditions to closing of any announced transactions in the anticipated time frame or at all;

•	competitive developments, including the impact on our competitive position of new product entrants, in-line branded products, generic products, private label products and product candidates that treat diseases and conditions similar to those treated by our in-line drugs and drug candidates;

•	the implementation by the FDA and regulatory authorities in certain other countries of an abbreviated legal pathway to approve biosimilar products, which could subject our biologic products to competition from biosimilar products, with attendant competitive pressures, after the expiration of any applicable exclusivity period and patent rights;

•	risks related to our ability to develop and launch biosimilars;

•	the ability to meet generic and branded competition after the loss of patent protection for our products or competitor products;

•	the ability to successfully market both new and existing products domestically and internationally;

•	difficulties or delays in manufacturing;

•	trade buying patterns;

•	the impact of existing and future legislation and regulatory provisions on product exclusivity;

•	trends toward managed care and healthcare cost containment, and our ability to obtain timely or adequate pricing or formulary placement for our products;

•	the impact of any significant spending reductions or cost controls affecting Medicare, Medicaid or other publicly funded or subsidized health programs or changes in the tax treatment of employer-sponsored health insurance that may be implemented, and/or any significant additional taxes or fees that may be imposed on the pharmaceutical industry as part of any broad deficit-reduction effort;

•	the impact of U.S. healthcare legislation enacted in 2010—the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act––and of any modification, repeal or invalidation of any of the provisions thereof;

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U.S. federal or state legislation or regulatory action affecting, among other things, pharmaceutical product pricing, reimbursement or access, including under Medicaid, Medicare and other publicly funded or subsidized health programs; the importation of prescription drugs from outside the U.S. at prices that are regulated by governments of various foreign countries; restrictions on direct-to-consumer advertising; limitations on interactions with healthcare professionals; or the use of comparative effectiveness methodologies that could be implemented in a manner that focuses primarily on the cost differences and minimizes the therapeutic differences among pharmaceutical products and restricts access to innovative medicines; as well as pricing pressures for our products as a result of highly competitive insurance markets;

•	legislation or regulatory action in markets outside the U.S. affecting pharmaceutical product pricing, reimbursement or access, including, in particular, continued government-mandated reductions in prices and access restrictions for certain biopharmaceutical products to control costs in those markets;

•	the exposure of our operations outside the U.S. to possible capital and exchange controls, expropriation and other restrictive government actions, changes in intellectual property legal protections and remedies, as well as political unrest, unstable governments and legal systems and inter-governmental disputes;

•	contingencies related to actual or alleged environmental contamination;

•	claims and concerns that may arise regarding the safety or efficacy of in-line products and product candidates;

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•	any significant breakdown, infiltration or interruption of our information technology systems and infrastructure;

•	legal defense costs, insurance expenses, settlement costs, the risk of an adverse decision or settlement and the adequacy of reserves related to product liability, patent matters, government investigations, consumer, commercial, securities, antitrust, environmental, employment, tax issues, ongoing efforts to explore various means for resolving asbestos litigation, and other legal proceedings;

•	our ability to protect our patents and other intellectual property, both domestically and internationally;

•	interest rate and foreign currency exchange rate fluctuations, including the impact of possible currency devaluations in countries experiencing high inflation rates and the volatility following the U.K. referendum in which voters approved the exit from the EU;

•	governmental laws and regulations affecting domestic and foreign operations, including, without limitation, tax obligations and changes affecting the tax treatment by the U.S. of income earned outside the U.S. that may result from pending and possible future proposals;

•	the end result of any negotiations between the U.K. government and the EU regarding the terms of the U.K.’s exit from the EU, which could have implications on our research, commercial and general business operations in the U.K. and the EU;

•	any significant issues involving our largest wholesaler customers, which account for a substantial portion of our revenues;

•	the possible impact of the increased presence of counterfeit medicines in the pharmaceutical supply chain on our revenues and on patient confidence in the integrity of our medicines;

•	any significant issues that may arise related to the outsourcing of certain operational and staff functions to third parties, including with regard to quality, timeliness and compliance with applicable legal requirements and industry standards;

•	any significant issues that may arise related to our joint ventures and other third-party business arrangements;

•	changes in U.S. generally accepted accounting principles;

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uncertainties related to general economic, political, business, industry, regulatory and market conditions including, without limitation, uncertainties related to the impact on us, our customers, suppliers and lenders and counterparties to our foreign-exchange and interest-rate agreements of challenging global economic conditions and recent and possible future changes in global financial markets; and the related risk that our allowance for doubtful accounts may not be adequate;

•	any changes in business, political and economic conditions due to actual or threatened terrorist activity in the U.S. and other parts of the world, and related U.S. military action overseas;

•	growth in costs and expenses;

•	changes in our product, segment and geographic mix;

•	the impact of purchase accounting adjustments, acquisition-related costs, discontinued operations and certain significant items;

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the impact of acquisitions, divestitures, restructurings, internal reorganizations, product recalls, withdrawals and other unusual items, including our ability to realize the projected benefits of our cost-reduction and productivity initiatives, including those related to our research and development organization, and of the internal separation of our commercial operations into our current operating structure;

•	the risk of an impairment charge related to our intangible assets, goodwill or equity-method investments;

•	risks related to internal control over financial reporting; and

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risks and uncertainties related to our recent acquisitions of Hospira and Anacor, including, among other things, the ability to realize the anticipated benefits of the acquisitions of Hospira and Anacor, including the possibility that expected cost savings related to the acquisition of Hospira and accretion related to the acquisitions of Hospira and Anacor will not be realized or will not be realized within the expected time frame; the risk that the businesses will not be integrated successfully; disruption from the transaction making it more difficult to maintain business and operational relationships; significant transaction costs; and unknown liabilities.

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(a)

On October 23, 2014, we announced that the Board of Directors had authorized an $11 billion share-purchase plan, and share purchases commenced thereunder in January 2015 (the October 2014 Stock Purchase Plan). In December 2015, the Board of Directors authorized a new $11 billion share repurchase program to be utilized over time. On March 8, 2016, we entered into an accelerated share repurchase agreement with GS&Co. to repurchase $5 billion of our common stock. Pursuant to the terms of the agreement, on March 10, 2016, we paid $5 billion to GS&Co. and received an initial delivery of approximately 136 million shares of our common stock from GS&Co. based on a price of $29.36 per share, which represented, based on the closing share price of our common stock on the NYSE on March 8, 2016, approximately 80% of the notional amount of the accelerated share repurchase agreement. On June 20, 2016, the accelerated share repurchase agreement with GS&Co. was completed, which, per the terms of the agreement, resulted in GS&Co. owing us a certain number of shares of Pfizer common stock. Pursuant to the agreement’s settlement terms, we received an additional 18 million shares of our common stock from GS&Co. on June 20, 2016. The average price paid for all of the shares delivered under the accelerated share repurchase agreement was $32.38 per share. The common stock received is included in Treasury stock. This agreement was entered into pursuant to our previously announced share repurchase authorization. After giving effect to the accelerated share repurchase agreement, our remaining share-purchase authorization is approximately $11.4 billion at July 3, 2016.

(b)

In addition to the amounts purchased under the accelerated share repurchase agreement, these columns reflect the following transactions during the second fiscal quarter of 2016: (i) the surrender to Pfizer of 40,088 shares of common stock to satisfy tax withholding obligations in connection with the vesting of restricted stock units issued to employees; (ii) the surrender to Pfizer of 944 shares of common stock to satisfy tax withholding obligations in connection with the vesting of performance share awards issued to employees; (iii) the surrender to Pfizer of 767 shares of common stock to pay the exercise price and to satisfy tax withholding obligations in connection with the exercise of employee stock options; and (iv) the clawback of a first quarter payment of total shareholder return units in accordance with the terms of the grant resulting in the reversal of the surrender of 2,710 shares of common stock to satisfy withholding obligations.

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