Attached files

file filename
EX-3 - EXHIBIT 3 - PFIZER INCa6285704ex3.htm
EX-12 - EXHIBIT 12 - PFIZER INCa6285704ex12.htm
EX-10.1 - EXHIBIT 10.1 - PFIZER INCa6285704ex10_1.htm
EXCEL - IDEA: XBRL DOCUMENT - PFIZER INCFinancial_Report.xls
EX-15 - EXHIBIT 15 - PFIZER INCa6285704ex15.htm
EX-32.2 - EXHIBIT 32.2 - PFIZER INCa6285704ex32-2.htm
EX-31.1 - EXHIBIT 31.1 - PFIZER INCa6285704ex31-1.htm
EX-32.1 - EXHIBIT 32.1 - PFIZER INCa6285704ex32-1.htm
EX-31.2 - EXHIBIT 31.2 - PFIZER INCa6285704ex31-2.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q

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

For the quarterly period ended April 4, 2010

OR

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

For the transition period from _______ to _______

COMMISSION FILE NUMBER 1-3619

----
 
 
PFIZER INC.
(Exact name of registrant as specified in its charter)
 
DELAWARE
(State of Incorporation)
13-5315170
(I.R.S. Employer Identification No.)
 
 
235 East 42nd Street, New York, New York  10017
(Address of principal executive offices)  (zip code)
(212) 733-2323
(Registrant’s telephone number)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 
YES x                 NO o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one):
 
Large Accelerated filer x Accelerated filer o Non-accelerated filer o Smaller reporting company o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES o                  NO x

At May 10, 2010, 8,066,133,809 shares of the issuer’s voting common stock were outstanding.
 
 

 
 
FORM 10-Q
 
For the Quarter Ended
April 4, 2010
 
Table of Contents
 
Page
   
 
 
 
   
 
3
   
 
4
   
 
5
   
 
6
   
 
20
   
 
 
21
   
 
 
48
   
 
 
48
   
 
 
   
 
 
48
   
 
 
51
   
 
 
51
   
 
 
52
   
 
 
52
   
 
 
52
   
 
53
 
 
2

 
 


CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
 
   
Three Months Ended
 
(millions, except per common share data)
 
April 4,
2010
   
Mar. 29,
2009
 
             
Revenues
  $ 16,750     $ 10,867  
                 
Costs and expenses:
               
Cost of sales(a)
    4,306       1,408  
Selling, informational and administrative expenses(a)
    4,436       2,876  
Research and development expenses(a)
    2,226       1,705  
Amortization of intangible assets
    1,409       578  
Acquisition-related in-process research and development charges
    74        
Restructuring charges and certain acquisition-related costs
    706       554  
Other (income)/deductions––net
    414       (57 )
                 
Income from continuing operations before provision for taxes on income
    3,179       3,803  
                 
Provision for taxes on income
    1,146       1,074  
                 
Income from continuing operations
    2,033       2,729  
                 
Discontinued operations – net of tax
    2       1  
                 
Net income before allocation to noncontrolling interests
    2,035       2,730  
                 
Less:  Net income attributable to noncontrolling interests
    9       1  
                 
Net income attributable to Pfizer Inc.
  $ 2,026     $ 2,729  
                 
Earnings per common share––basic:
               
Income from continuing operations attributable to Pfizer Inc. common shareholders
  $ 0.25     $ 0.41  
Discontinued operations––net of tax
     ––        ––  
Net income attributable to Pfizer Inc. common shareholders
  $ 0.25     $ 0.41  
                 
Earnings per common share––diluted:
               
Income from continuing operations attributable to Pfizer Inc. common shareholders
  $ 0.25     $ 0.40  
Discontinued operations––net of tax
     ––        ––  
Net income attributable to Pfizer Inc. common shareholders
  $ 0.25     $ 0.40  
                 
Weighted-average shares used to calculate earnings per common share:
               
Basic
    8,061       6,723  
Diluted
    8,101       6,753  
                 
Cash dividends paid per common share
  $ 0.18     $ 0.32  
(a)
Exclusive of amortization of intangible assets, except as disclosed in Note 8B. Goodwill and Other Intangible Assets: Other Intangible Assets.

See accompanying Notes to Condensed Consolidated Financial Statements.
 
 
3

 
 
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

 (millions of dollars)
 
April 4,
2010*
   
Dec. 31,
2009**
 
Assets
           
Cash and cash equivalents
  $ 1,759     $ 1,978  
Short-term investments
    15,503       23,991  
Accounts receivable, less allowance for doubtful accounts
    13,611       14,645  
Short-term loans
    919       1,195  
Inventories
    10,132       12,403  
Current deferred tax assets and other current assets
    7,502       6,962  
Assets held for sale
    490       496  
Total current assets
    49,916       61,670  
Long-term investments and loans
    12,081       13,122  
Property, plant and equipment, less accumulated depreciation
    21,651       22,780  
Goodwill
    42,648       42,376  
Identifiable intangible assets, less accumulated amortization
    64,480       68,015  
Noncurrent deferred tax assets and other noncurrent assets
    4,337       4,986  
Total assets
  $ 195,113     $ 212,949  
                 
Liabilities and Shareholders’ Equity
               
Short-term borrowings, including current portion of long-term debt
  $ 7,769     $ 5,469  
Accounts payable
    3,028       4,370  
Dividends payable
    1       1,454  
Income taxes payable
    765       10,107  
Accrued compensation and related items
    2,060       2,242  
Current deferred tax liabilities and other current liabilities
    12,301       13,583  
Total current liabilities
    25,924       37,225  
                 
Long-term debt
    38,281       43,193  
Pension benefit obligations
    6,119       6,392  
Postretirement benefit obligations
    3,239       3,243  
Noncurrent deferred tax liabilities
    17,460       17,839  
Other taxes payable
    8,338       9,000  
Other noncurrent liabilities
    5,670       5,611  
Total liabilities
    105,031       122,503  
                 
Preferred stock
    58       61  
Common stock
    443       443  
Additional paid-in capital
    70,456       70,497  
Employee benefit trusts
    (89 )     (333 )
Treasury stock
    (21,697 )     (21,632 )
Retained earnings
    42,429       40,426  
Accumulated other comprehensive income/(loss)
    (1,941 )     552  
Total Pfizer Inc. shareholders’ equity
    89,659       90,014  
Equity attributable to noncontrolling interests
    423       432  
Total shareholders’ equity
    90,082       90,446  
Total liabilities and shareholders’ equity
  $ 195,113     $ 212,949  
Unaudited.
** 
Condensed from audited financial statements.

See accompanying Notes to Condensed Consolidated Financial Statements.
 
 
4

 
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 
   
Three Months Ended
 
 
(millions of dollars)
 
April 4,
2010
   
Mar. 29,
2009
 
             
Operating Activities:
           
Net income before allocation to noncontrolling interests
  $ 2,035     $ 2,730  
Adjustments to reconcile net income before allocation to noncontrolling interests to net
   cash (used in)/provided by operating activities:
               
Depreciation and amortization
    2,051       1,008  
Share-based compensation expense
    138       71  
Acquisition-related in-process research and development charges
    74       ––  
Deferred taxes from continuing operations
    840       533  
Other non-cash adjustments
    319       (296 )
Changes in assets and liabilities, net of acquisitions and divestitures
    (11,817 )     (899 )
                 
Net cash (used in)/provided by operating activities
    (6,360 )     3,147  
                 
Investing Activities:
               
Purchases of property, plant and equipment
    (305 )     (253 )
Purchases of short-term investments
    (2,178 )     (17,724 )
Proceeds from redemptions and sales of short-term investments
    11,388       6,711  
Purchases of long-term investments
    (858 )     (3,442 )
Proceeds from redemptions and sales of long-term investments
    1,127       889  
Other investing activities
    220       185  
                 
Net cash provided by/(used in) investing activities
    9,394       (13,634 )
                 
Financing Activities:
               
Increase in short-term borrowings
    1,892       10,774  
Principal payments on short-term borrowings
    (3,663 )     (12,100 )
Proceeds from issuances of long-term debt
    2       13,392  
Principal payments on long-term debt
    (9 )     (303 )
Cash dividends paid
    (1,441 )     (2,133 )
Other financing activities
    8       5  
                 
Net cash (used in)/provided by financing activities
    (3,211 )     9,635  
Effect of exchange-rate changes on cash and cash equivalents
    (42 )     (23 )
Net decrease in cash and cash equivalents
    (219 )     (875 )
Cash and cash equivalents at beginning of period
    1,978       2,122  
                 
Cash and cash equivalents at end of period
  $ 1,759     $ 1,247  
                 
Supplemental Cash Flow Information:
               
Cash paid during the period for:
               
Income taxes
  $ 10,547     $ 454  
Interest
    792       84  

See accompanying Notes to Condensed Consolidated Financial Statements.
 
 
5

 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


We prepared the condensed consolidated financial statements following the requirements of the Securities and Exchange Commission (SEC) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by accounting principles generally accepted in the United States of America (U.S. GAAP) can be condensed or omitted. Balance sheet amounts and operating results for subsidiaries operating outside the U.S. are as of and for the three-month periods ended February 28, 2010, and February 22, 2009.

On October 15, 2009, we completed our acquisition of Wyeth and, commencing from the acquisition date, our financial statements include the assets, liabilities, operating results and cash flows of Wyeth. As a result, legacy Wyeth operations are reflected in our results of operations and cash flows for the first quarter of 2010, but not for the first quarter of 2009.

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

We are responsible for the unaudited financial statements included in this document.  The financial statements include all normal and recurring adjustments that are considered necessary for the fair presentation of our financial position and operating results.

The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2009.

 
The provisions of the following new accounting standards were adopted as of January 1, 2010 and did not have a significant impact on our consolidated financial statements:

·
An amendment to the recognition and measurement guidance for the transfers of financial assets.

·
An amendment to the guidelines for determining the primary beneficiary in a variable interest entity.

 
On October 15, 2009 (the acquisition date), we acquired all of the outstanding equity of Wyeth in a cash-and-stock transaction, valued at the acquisition date at approximately $68 billion. While Wyeth now is a wholly-owned subsidiary of Pfizer, the merger of local Pfizer and Wyeth entities may be pending or delayed in various international jurisdictions and integration in these jurisdictions is subject to completion of various local legal and regulatory obligations.
 
Recording of Assets Acquired and Liabilities Assumed

The following table summarizes the provisional amounts recognized for assets acquired and liabilities assumed as of the acquisition date as well as adjustments made in the first quarter of 2010 to the amounts initially recorded in 2009 (measurement period adjustments). The measurement period adjustments did not have a significant impact on our consolidated statements of income, balance sheets or cash flows in any period and, therefore, we have not retrospectively adjusted our financial statements. Certain estimated values are not yet finalized (see below) and are subject to change, which could be significant. We will finalize the amounts recognized as we obtain the information necessary to complete the analyses, but no later than one year from the acquisition date.

 
6

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

(millions of dollars)
 
Amounts Recognized
as of Acquisition Date
(as previously reported)
   
Measurement
Period
Adjustments
   
Amounts Recognized
as of Acquisition Date
(as adjusted)
 
                   
Working capital, excluding inventories
  $ 16,342     $ ––     $ 16,342  
Inventories
    8,388       (167 )     8,221  
Property, plant and equipment
    10,054       (171 )     9,883  
Identifiable intangible assets, excluding
in-process research and development (a)
    37,595       (452 )     37,143  
In-process research and development (a)
    14,918       (956 )     13,962  
Other noncurrent assets
    2,394       ––       2,394  
Long-term debt
    (11,187 )     ––       (11,187 )
Benefit obligations
    (3,211 )     ––       (3,211 )
Net tax accounts
    (24,773 )     761       (24,012 )
Other noncurrent liabilities
    (1,908 )     ––       (1,908 )
Total identifiable net assets
    48,612       (985 )     47,627  
Goodwill
    19,954       985       20,939  
Net assets acquired
    68,566       ––       68,566  
Less: Amounts attributable to
noncontrolling interests
    (330 )     ––       (330 )
Total consideration transferred
  $ 68,236     $ ––     $ 68,236  
(a)
The measurement period adjustments for Identifiable intangible assets reflect changes in the estimated fair value of certain acquired intangibles, principally in-process research and development assets, primarily to better reflect market participant assumptions about facts and circumstances existing as of the acquisition date.  The measurement period adjustments did not result from intervening events subsequent to the acquisition date.

The recorded amounts are provisional and subject to change. Specifically, the following items are subject to change:

·  
Amounts for intangibles and inventory, pending finalization of valuation efforts.

·  
Amounts for legal contingencies, pending the finalization of our examination and evaluation of the portfolio of filed cases.

·  
Amounts for income tax assets, receivables and liabilities pending the filing of Wyeth pre-acquisition tax returns, including all required disclosures and documentation, as well as the receipt of information from taxing authorities which may change certain estimates and assumptions used.

·  
The allocation of goodwill among reporting units.


We have incurred significant costs in connection with our cost-reduction initiatives (several programs initiated since 2005) and our acquisition of Wyeth on October 15, 2009.

Since the acquisition of Wyeth, our cost-reduction initiatives that were announced on January 26, 2009, but not completed as of December 31, 2009, have been incorporated into a comprehensive plan to integrate Wyeth’s operations, generate cost savings and capture synergies across the combined company. We are focusing our efforts on achieving an appropriate cost structure for the combined company.

 
7

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

We incurred the following costs in connection with all of our cost-reduction initiatives and the acquisition of Wyeth:
   
Three Months Ended
 
(millions of dollars)
 
April 4,
2010
   
Mar. 29,
2009
 
             
Transaction costs(a)
  $ 9     $ 369  
Integration costs(b)
    208       28  
Restructuring charges(c)
    489       157  
Restructuring charges and certain acquisition-related costs
    706       554  
Additional depreciation––asset restructuring(d)
    93       90  
Implementation costs(e)
    ––       84  
Total
  $ 799     $ 728  
(a)
Transaction costs represent external costs directly related to effecting the acquisition of Wyeth and primarily include expenditures for banking, legal, accounting and other similar services. Substantially all of the costs incurred in the first quarter of 2009 were fees related to a $22.5 billion bridge term loan credit agreement entered into with certain financial institutions on March 12, 2009 to partially fund our acquisition of Wyeth. The bridge term loan credit agreement was terminated in June 2009 as a result of our issuance of approximately $24.0 billion of senior unsecured notes in the first half of 2009.
(b)
Integration costs represent external, incremental costs directly related to integrating Wyeth and primarily include expenditures for consulting and systems integration.
(c)
Restructuring charges include the following:
   
Costs Incurred
             
   
Three Months Ended
         
Activity
   
Accrual
 
(millions of dollars)
 
April 4,
2010
   
Mar. 29,
2009
      2005-2010    
Through
April 4,
2010(1)
   
As of
April 4,
2010(2)
 
                                 
Employee termination costs
  $ 458     $ 135     $ 8,179     $ 5,276     $ 2,903  
Asset impairments
    6       18       1,458       1,458       ––  
Other
    25       4       735       631       104  
Total restructuring charges
  $ 489     $ 157     $ 10,372     $ 7,365     $ 3,007  
(1) 
Includes adjustments for foreign currency translation.
(2) 
Included in Current deferred tax liabilities and other current liabilities ($2.0 billion) and Other noncurrent liabilities ($1.0 billion).

In the first quarter of 2010, the restructuring charges are related to the integration of Wyeth.  From the beginning of our cost-reduction initiatives in 2005 through April 4, 2010, Employee termination costs represent the expected reduction of the workforce by approximately 45,400 employees, mainly in manufacturing, sales and research, of which approximately 28,100 employees have been terminated as of April 4, 2010. 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. Asset impairments primarily include charges to write down property, plant and equipment to fair value. Other primarily includes costs to exit certain assets and activities.

(d)
Additional depreciation – asset restructuring represents the impact of changes in the estimated useful lives of assets involved in restructuring actions and are included in our condensed consolidated statements of income as follows:
   
Three Months Ended
 
(millions of dollars)
 
April 4,
2010
   
Mar. 29,
2009
 
             
Cost of sales
  $ 13     $ 63  
Selling, informational and administrative expenses
    60       6  
Research and development expenses
    20       21  
Total
  $ 93     $ 90  
 
(e)
Implementation costs in the first quarter of 2009 represent external, incremental costs directly related to implementing cost-reduction initiatives prior to our acquisition of Wyeth, and primarily include expenditures related to system and process standardization and the expansion of shared services. For the three months ended March 29, 2009, implementation costs are included in Cost of sales ($13 million), Selling, informational and administrative expenses ($40 million), Research and development expenses ($20 million) and Other (income)/deductions––net ($11 million).

 
8

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


A. Selected Financial Assets and Liabilities

Information about certain of our financial assets and liabilities follows:
(millions of dollars)
 
April 4,
2010
   
Dec. 31,
2009
 
Selected financial assets measured at fair value on a recurring basis (a) :
           
Trading securities (b)
  $ 168     $ 184  
Available-for-sale debt securities(c)
    23,787       32,338  
Available-for-sale money market funds(d)
    1,484       2,569  
Available-for-sale equity securities, excluding money market funds(c)
    243       281  
Derivative financial instruments in receivable positions(e):
               
Foreign currency swaps
    400       798  
Interest rate swaps
    315       276  
Foreign currency forward-exchange contracts
    284       502  
Total
    26,681       36,948  
Other selected financial assets(f):
               
Short-term loans, carried at cost (g)
    919       1,195  
Held-to-maturity debt securities, carried at amortized cost(c)
    642       812  
Private equity securities, carried at cost or equity method (h)
    858       811  
Long-term loans, carried at cost(g)
    782       784  
Total
    3,201       3,602  
Total selected financial assets (i)
  $ 29,882     $ 40,550  
Financial liabilities measured at fair value on a recurring basis(a):
               
Derivative financial instruments in a liability position(j):
               
Foreign currency forward-exchange contracts
  $ 351     $ 237  
Foreign currency swaps
    221       528  
Interest rate swaps
    73       25  
Total
    645       790  
Other financial liabilities (k):
               
Short-term borrowings, carried at historical proceeds, as adjusted(f), (l)
    7,769       5,469  
Long-term debt, carried at historical proceeds, as adjusted(m), (n)
    38,281       43,193  
Total
    46,050       48,662  
Total selected financial liabilities
  $ 46,695     $ 49,452  
(a)
Fair values are determined based on valuation techniques categorized as follows: Level 1 means the use of quoted prices for identical instruments in active markets; Level 2 means the use of quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active or are directly or indirectly observable; Level 3 means the use of unobservable inputs. Virtually 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 that included in available-for-sale equity securities, excluding money market funds, are $93 million as of April 4, 2010 and $77 million as of December 31, 2009 of investments that use Level 1 inputs in the calculation of fair value. None of our financial assets and liabilities measured at fair value on a recurring basis are valued using Level 3 inputs as of April 4, 2010 or December 31, 2009.
(b)
Trading securities are held in trust for legacy Pharmacia severance benefits.
(c)
Gross unrealized gains and losses are not significant.
(d)
Includes approximately $1.2 billion of money market funds held in escrow to secure certain of Wyeth’s payment obligations under its 1999 Nationwide Class Action Settlement Agreement, which relates to litigation against Wyeth concerning its former weight-loss products, Redux and Pondimin (see Note 5G. Financial Instruments: Guarantee).
(e)
Designated as hedging instruments, except for certain foreign currency contracts used as offsets; namely, foreign currency forward-exchange contracts with fair values of $150 million and foreign currency swaps with fair values of $36 million as of April 4, 2010; and foreign currency swaps with fair values of $106 million and foreign currency forward-exchange contracts with fair values of $100 million at December 31, 2009.
(f)
The differences between the estimated fair values and carrying values of our financial assets and liabilities not measured at fair value on a recurring basis were not significant as of April 4, 2010 or December 31, 2009.
(g)
Our short-term and long-term loans are due from companies with highly rated securities (Standard & Poor’s (S&P) ratings of mostly AA or better).
(h)
Our private equity securities represent investments in the life sciences sector.
(i)
The decrease in selected financial assets is primarily due to the use of proceeds of short-term investments for tax payments made in the first quarter of 2010, associated with certain business decisions executed to finance the Wyeth acquisition.
(j)
 Designated as hedging instruments, except for certain foreign currency contracts used as offsets; namely, foreign currency forward exchange contracts with fair values of $157 million and foreign currency swaps with fair values of $72 million as of April 4, 2010; and foreign currency forward-exchange contracts with fair values of $122 million and foreign currency swaps with fair values of $3 million as of December 31, 2009.
(k)
The carrying amounts may include adjustments for discount or premium amortization or for the effect of interest rate swaps designated as hedges.
 
 
9

 
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
(l)
Includes foreign currency borrowings with fair values of $2.3 billion at April 4, 2010 and $1.1 billion as of December 31, 2009, which are used as hedging instruments.
(m)
Includes foreign currency debt with fair value of $754 million as of April 4, 2010 and $2.1 billion as of December 31, 2009, which is used as a hedging instrument.
(n)
The fair value of our long-term debt is $41.7 billion as of April 4, 2010 and $46.2 billion as of December 31, 2009.

We use a market approach to determine the fair value of our financial assets and liabilities and apply the following methods and assumptions:
 
·  
Trading equity securities––quoted market prices.

·  
Trading debt securities––observable market interest rates.

·  
Available-for-sale debt securities––third-party matrix-pricing model that uses significant inputs derived from or corroborated by observable market data and credit-adjusted interest rate curves.

·  
Available-for-sale money market funds––observable prices.

·  
Available-for-sale equity securities, excluding money market funds––third-party pricing services that principally use a composite of observable prices.

·  
Derivative financial instruments (assets and liabilities)–– third-party matrix-pricing model that uses significant inputs derived from or corroborated by observable market data.  Where applicable, these models discount future cash flow amounts using market-based observable inputs including interest rate curves, foreign exchange rates, and forward and spot prices for currencies.  The credit risk impact to our derivative financial instruments was not significant.

·  
Held-to-maturity debt securities–– third-party matrix-pricing model that uses significant inputs derived from or corroborated by observable market data and credit-adjusted interest rate curves.

·  
Short-term and long-term loans–– third-party model that discounts future cash flows using current interest rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.
 
·  
Private equity securities––application of the implied volatility associated with an observable biotech index to the carrying amount of our portfolio and, to a lesser extent, performance multiples of comparable securities adjusted for company-specific information.

·  
Short-term borrowings and long-term debt–– third-party matrix-pricing model that uses significant inputs derived from or collaborated by observable market data and our own credit rating.
 
In addition, we have long-term receivables where the determination of fair value uses discounted future cash flows, using current interest rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.
 
These selected financial assets and liabilities are presented in the condensed consolidated balance sheets as follows:
(millions of dollars)
 
April 4,
2010
   
Dec. 31,
2009
 
Assets
           
Cash and cash equivalents
  $ 380     $ 666  
Short-term investments
    15,503       23,991  
Short-term loans
    919       1,195  
Long-term investments and loans
    12,081       13,122  
Current deferred tax assets and other current assets(a)
    313       526  
Noncurrent deferred tax assets and other noncurrent assets(b)
    686       1,050  
Total
  $ 29,882     $ 40,550  
Liabilities
               
Short-term borrowings, including current portion of long-term debt
  $ 7,769     $ 5,469  
Current deferred tax liabilities and other current liabilities(c)
    414       369  
Long-term debt
    38,281       43,193  
Other noncurrent liabilities(d)
    231       421  
Total
  $ 46,695     $ 49,452  
(a)
As of April 4, 2010, derivative instruments at fair value include foreign currency forward-exchange contracts ($284 million) and foreign currency swaps ($29 million) and as of December 31, 2009, include foreign currency forward-exchange contracts ($503 million) and foreign currency swaps ($23 million).
(b)
As of April 4, 2010, derivative instruments at fair value include foreign currency swaps ($371 million) and interest rate swaps ($315 million) and as of December 31, 2009, include foreign currency swaps ($774 million) and interest rate swaps ($276 million).
 
 
10

 
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
(c)
As of April 4, 2010, derivative instruments at fair value include foreign currency forward-exchange contracts ($351 million) and foreign currency swaps ($63 million) and as of December 31, 2009, include foreign currency forward-exchange contracts ($237 million) and foreign currency swaps ($132 million).
(d)
As of April 4, 2010, derivative instruments at fair value include foreign currency swaps ($158 million) and interest rate swaps ($73 million) and as of December 31, 2009, include foreign currency swaps ($396 million) and interest rate swaps ($25 million).

We regularly evaluate all of our financial assets for impairment. For investments in debt and equity securities, when a decline in fair value, if any, is determined to be other-than-temporary, an impairment charge is recorded, and a new cost basis in the investment is established. For loans, an impairment charge is recorded if it is probable that we will not be able to collect all amounts due according to the loan agreement. There were no significant impairments recognized in the first quarter of 2010 or the year ended December 31, 2009.

B. Investments in Debt and Equity Securities

The contractual maturities of the available-for-sale and held-to-maturity debt securities as of April 4, 2010, follow:
   
Years
       
(millions of dollars)
 
Within 1
   
Over 1
to 5
   
Total as of
April 4,
2010
 
Available-for-sale debt securities:
                 
Western European and other government debt
  $ 9,157     $ 2,576     $ 11,733  
Western European and other government agency debt
    2,678       266       2,944  
Corporate debt(a)
    996       1,885       2,881  
Federal Home Loan Mortgage Corporation and Federal National Mortgage
        Association asset-backed securities
    102       2,531       2,633  
Reverse repurchase agreements(b)
    1,263       ––       1,263  
U.S. government Federal Deposit Insurance Corporation guaranteed debt
    ––       1,101       1,101  
Supranational debt
    636       386       1,022  
Other asset-backed securities
    33       125       158  
Certificates of deposit
    52       ––       52  
Held-to-maturity debt securities:
                       
Certificates of deposit and other
    636       6       642  
Total debt securities
  $ 15,553     $ 8,876     $ 24,429  
Trading securities
                    168  
Available-for-sale money market funds(c)
                    1,484  
Available-for-sale equity securities, excluding money market funds
                    243  
Total
                  $ 26,324  
(a)
Largely issued by above-investment-grade institutions in the financial services sector.
(b)
Very short-term agreements involving U.S. government securities.
(c)
Consisting of securities issued by the U.S. government and its agencies or instrumentalities and reverse repurchase agreements involving the same investments held.

C. Short-Term Borrowings
Short-term borrowings include amounts for commercial paper of $3.1 billion as of April 4, 2010 and $3.9 billion as of December 31, 2009.

D. Long-Term Debt
In March 2007, we filed a securities registration statement with the SEC. The registration statement was filed under the automatic shelf registration process available to “well-known seasoned issuers” and expired in March 2010. On March 24, 2009, in order to partially finance our acquisition of Wyeth, we issued $13.5 billion of senior unsecured notes under this registration statement. On June 3, 2009, also in order to partially finance our acquisition of Wyeth, we issued approximately $10.5 billion of senior unsecured notes in a private placement pursuant to Regulation S under the Securities Act of 1933, as amended (Securities Act of 1933). The notes have not been and will not be registered under the Securities Act of 1933 and, subject to certain exceptions, may not be sold, offered or delivered within the U.S. to, or for, the account or benefit of U.S. persons.

E. Derivative Financial Instruments and Hedging Activities
Foreign Exchange Risk—A significant portion of our revenues, earnings and net investments in foreign affiliates is exposed to changes in foreign exchange rates. We seek to manage our foreign exchange risk, in part, through operational means,
 
 
11

 
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
including managing expected 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. These financial instruments serve to protect net income and net investments against the impact of the translation into U.S. dollars of certain foreign exchange-denominated transactions. The aggregate notional amount of foreign exchange derivative financial instruments hedging or offsetting foreign currency exposures is $44.8 billion. The derivative financial instruments primarily hedge or offset exposures in euro, Japanese yen and U.K. pound. The maximum length of time over which we are hedging future foreign exchange cash flows relates to our $2.4 billion U.K. pound debt maturing in 2038.
 
Interest Rate Risk—Our interest-bearing investments, loans and borrowings are subject to interest rate risk. We seek to invest and loan primarily on a short-term or variable-rate basis; however, in light of current market conditions, we currently borrow primarily on a long-term, fixed-rate basis. From time to time, depending on market conditions, we will change the profile of our outstanding debt by entering into derivative financial instruments like interest rate swaps.
 
We entered into derivative financial instruments to hedge or offset the fixed interest rates on the hedged item, matching the amount and timing of the hedged item. The aggregate notional amount of interest rate derivative financial instruments is $9.2 billion. The derivative financial instruments hedge U.S. dollar and euro fixed-rate debt.

Information about gains/(losses) incurred to hedge or offset operational foreign exchange or interest rate risk is as follows:
   
Gains/(Losses)
 
   
Three Months Ended
 
(millions of dollars)
 
April 4, 2010
   
Mar. 29, 2009
 
Derivative Financial Instruments in Fair Value Hedge Relationships
           
Interest rate swaps
           
Recognized in OID(a)
  $ ––     $ (284 )
Foreign currency swaps
               
Recognized in OID(a)
    ––       (1 )
Derivative Financial Instruments in Cash Flow Hedge Relationships
               
U.S. Treasury interest rate locks
               
Recognized in OID(a)
  $ ––     $ (11 )
Recognized in OCI(a), (b)
    ––       (15 )
Reclassified from OCI to OID(a), (b)
    ––       ––  
Foreign currency swaps
               
Recognized in OID(a)
    ––       ––  
Recognized in OCI(a), (b)
    (438 )     (19 )
Reclassified from OCI to OID(a), (b)
    (628 )     ––  
Foreign currency forward exchange contracts
               
Recognized in OID(a)
    ––       ––  
Recognized in OCI(a), (b)
    ––       2  
Reclassified from OCI to OID(a), (b)
    1       10  
Derivative Financial Instruments in Net Investment Hedge Relationships
               
Foreign currency swaps
               
Recognized in OID(a)
  $ 1     $ (2 )
Recognized in OCI(a), (b)
    11       53  
Derivative Financial Instruments Not Designated as Hedges
               
Foreign currency swaps
               
Recognized in OID(a)
  $ 4     $ (5 )
Foreign currency forward-exchange contracts
               
Recognized in OID(a)
    (890 )     (255 )
Non-Derivative Financial Instruments in Net Investment Hedge Relationships
               
Foreign currency short-term borrowings
               
Recognized in OID(a)
  $ ––     $ ––  
Recognized in OCI(a), (b)
    31       110  
Foreign currency long-term debt
               
Recognized in OID(a)
    ––       ––  
Recognized in OCI(a), (b)
    16       158  
(a)
OID = Other (income)/deductions––net. OCI = Other comprehensive income/(expense), a balance sheet account.
(b)
Amounts presented represent the effective portion of the gain or loss. For derivative financial instruments in cash flow hedge relationships, the effective portion is included in Other comprehensive income/(expense) – Net unrealized gains/(losses) on derivative financial instruments. 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/(expense)––Currency translation adjustment.

 
12

 
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
For information about the fair value of our derivative financial instruments, and the impact on our Condensed Consolidated Balance Sheets, see Note 5A. Financial Instruments: Selected Financial Assets and Liabilities. Certain of our derivative instruments are covered by associated credit-support agreements that have credit-risk-related contingent features designed to reduce our counterparties’ exposure to our risk of defaulting on amounts owed. The aggregate fair value of these derivative instruments that are in a liability position is $353 million, for which we have posted collateral of $188 million in the normal course of business. These features include the requirement to pay additional collateral in the event of a downgrade in our debt ratings. If there had been a downgrade to below an A rating by S&P or the equivalent rating by Moody’s Investors Service, on April 4, 2010, we would have been required to post an additional $171 million of collateral to our counterparties. The collateral advanced receivables are reported in Short-term loans.

F. Credit Risk
On an ongoing basis, we review the creditworthiness of counterparties to our foreign exchange and interest rate agreements and do not expect to incur a significant loss from failure of any counterparties to perform under the agreements. There are no significant concentrations of credit risk related to our financial instruments with any individual counterparty. As of April 4, 2010, we had $2.1 billion due from a well-diversified, highly rated group (S&P ratings of primarily A+ or better) of bank counterparties around the world.  See Note 5B. Financial Instruments: Investment in Debt and Equity Securities for a distribution of our investments.

In general, there is no requirement for collateral from customers. However, derivative financial instruments are executed under master netting agreements with financial institutions. These agreements contain provisions that provide for the ability for collateral payments, depending on levels of exposure, our credit rating and the credit rating of the counterparty. As of April 4, 2010, we received cash collateral of $518 million against various counterparties. The collateral primarily supports the approximate fair value of our derivative contracts. The collateral received obligations are reported in Short-term borrowings, including current portion of long-term debt.

G. Guarantee
In April 2010, Wyeth LLC (Wyeth), a wholly owned subsidiary of Pfizer Inc. (Pfizer), entered into the Tenth Amendment (Tenth Amendment) to the 1999 Diet Drug Nationwide Settlement Agreement (Settlement Agreement) related to the litigation against Wyeth concerning its former weight-loss products, Redux and Pondimin. Pursuant to the Tenth Amendment, Pfizer entered into an agreement to guarantee Wyeth's obligation to make certain payments under the Settlement Agreement up to a maximum amount of $1.5 billion (Guarantee). The Guarantee will remain in effect until the termination of Wyeth's long-term obligation to make such payments. The Tenth Amendment and the Guarantee are subject to the approval of the United States District Court for the Eastern District of Pennsylvania and will become effective following such approval.


The components of comprehensive income/(loss) follow:
   
Three Months Ended
 
(millions of dollars)
 
April 4,
 2010
   
Mar. 29,
2009
 
             
Net income before allocation to noncontrolling interests
  $ 2,035     $ 2,730  
Other comprehensive income/(loss):
               
Currency translation adjustment and other
    (2,747 )     (384 )
Net unrealized gains/(losses) on derivative financial instruments
    134       (23 )
Net unrealized gains/(losses) on available-for-sale securities
    (15 )     145  
Benefit plan adjustments
    117       159  
Total other comprehensive loss
    (2,511 )     (103 )
Total comprehensive (loss)/income before allocation to noncontrolling interests
    (476 )     2,627  
Less: Comprehensive (loss)/income attributable to noncontrolling interests
    (9 )     2  
Comprehensive (loss)/income attributable to Pfizer Inc.
  $ (467 )   $ 2,625  
 
 
13

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

The components of inventories follow:
 (millions of dollars)
 
April 4,
2010
   
Dec. 31,
2009
 
             
Finished goods
  $ 4,535     $ 5,249  
Work-in-process
    4,233       5,776  
Raw materials and supplies
    1,364       1,378  
Total inventories(a)
  $ 10,132     $ 12,403  
(a)
The decrease in total inventories is primarily due to the inventory sold during the first quarter of 2010 that was acquired from Wyeth and had been recorded at fair value, as well as operational reductions and the impact of foreign exchange. Certain amounts of inventories are in excess of one year’s supply.  These excess amounts are primarily attributable to biologics inventory acquired from Wyeth and recorded at fair value and the quantities are generally consistent with the normal operating cycle of such inventory. There are no recoverability issues associated with these quantities.


A. Goodwill

The changes in the carrying amount of goodwill for the three months ended April 4, 2010, follow:
(millions of dollars)
 
Biopharmaceutical
   
Diversified
   
Other
   
Total
 
                         
Balance, December 31, 2009(a)
  $ 22,165     $ 173     $ 20,038     $ 42,376  
Additions
    ––       18       985  (b)     1,003  
Other(c)
    (570 )     (3 )     (158 )     (731 )
Balance, April 4, 2010
  $ 21,595     $ 188     $ 20,865     $ 42,648  
(a)
The Other goodwill relates to our acquisition of Wyeth and is subject to change until we complete the recording of the assets acquired and liabilities assumed from Wyeth (see Note 3. Acquisition of Wyeth). The allocation of Wyeth goodwill among the Biopharmaceutical and Diversified segments has not yet been completed, but will be completed within one year of the acquisition date.
(b)
Reflects the impact of measurement period adjustments (see Note 3. Acquisition of Wyeth).
(c)
Primarily reflects the impact of foreign exchange.

B. Other Intangible Assets

The components of identifiable intangible assets, primarily included in our Biopharmaceutical segment, follow:
   
April 4, 2010
   
December 31, 2009
 
(millions of dollars)
 
Gross
Carrying
Amount
   
Accumulated
Amortization
   
Identifiable
Intangible
Assets, less
Accumulated
Amortization
   
Gross
Carrying
Amount
   
Accumulated
Amortization
   
Identifiable
Intangible
Assets, less Accumulated
Amortization
 
                                     
Finite-lived intangible assets:
                                   
Developed technology rights
  $ 68,416     $ (22,417 )   $ 45,999     $ 68,870     $ (21,223 )   $ 47,647  
Brands
    1,627       (563 )     1,064       1,637       (535 )     1,102  
License agreements
    620       (148 )     472       622       (119 )     503  
Trademarks
    107       (69 )     38       113       (73 )     40  
Other
    425       (228 )     197       488       (231 )     257  
Total amortized finite-lived
                                               
  intangible assets
    71,195       (23,425 )     47,770       71,730       (22,181 )     49,549  
Indefinite-lived intangible assets:
                                               
Brands
    12,462       ––       12,462       12,562       ––       12,562  
In-process research and development (a)
    4,178       ––       4,178       5,834       ––       5,834  
Trademarks
    70       ––       70       70       ––       70  
Total indefinite-lived
                                               
intangible assets
    16,710       ––       16,710       18,466       ––       18,466  
Total identifiable intangible assets(b)
  $ 87,905     $ (23,425 )   $ 64,480     $ 90,196     $ (22,181 )   $ 68,015  
(a)
Decrease is primarily related to the impact of measurement period adjustments (see Note 3. Acquisition of Wyeth).
(b)
Decrease is primarily related to amortization of finite-lived intangible assets, the impact of measurement period adjustments (see Note 3. Acquisition of Wyeth) and the impact of foreign exchange.
 
 
14

 
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
Amortization expense related to acquired intangible assets that contribute to our ability to sell, manufacture, research, market and distribute products, compounds and intellectual property is included in Amortization of intangible assets as it benefits multiple business functions. Amortization expense related to acquired intangible assets that are associated with a single function is included in Cost of sales, Selling, informational and administrative expenses and Research and development expenses, as appropriate. Total amortization expense for finite-lived intangible assets was $1.4 billion for the first quarter of 2010, and $610 million for the first quarter of 2009.


The components of net periodic benefit costs of the U.S. and international pension plans and the postretirement plans, which provide medical and life insurance benefits to retirees and their eligible dependents, follow:
   
Pension Plans
       
   
U.S.
Qualified
   
U.S.
Supplemental
(Non-Qualified)
   
International
   
Postretirement
Plans
 
(millions of dollars)
 
April 4,
2010
   
Mar. 29,
2009
   
April 4,
2010
   
Mar. 29,
2009
   
April 4,
2010
   
Mar. 29,
2009
   
April 4,
2010
   
Mar. 29,
2009
 
Three Months Ended:
                                               
Service cost
  $ 94     $ 59     $ 8     $ 5     $ 60     $ 45     $ 22     $ 8  
Interest cost
    191       119       19       13       111       78       54       30  
Expected return on plan assets
    (202 )     (118 )     ––       ––       (112 )     (86 )     (8 )     (6 )
Amortization of:
                                                               
Actuarial losses
    38       57       7       8       17       6       ––       4  
Prior service costs/(credits)
    ––       1       (1 )     (1 )     (1 )     (1 )     (4 )     (1 )
Curtailments and settlements––net
    (33 )     24       (1 )     7       1       2       ––       5  
Special termination benefits
    14       13       90       ––       1       1       6       12  
Net periodic benefit costs
  $ 102     $ 155     $ 122     $ 32     $ 77     $ 45     $ 70     $ 52  

The decrease in net periodic benefit costs in the first three months of 2010 compared to the first three months of 2009 for our U.S. qualified plans was primarily driven by curtailment gains and lower settlement charges associated with Wyeth-related restructuring initiatives.  The acquisition of Wyeth contributed to the increase in certain components of net periodic benefit costs, such as service cost and interest cost, offset by related expected return on plan assets.

The increase in net periodic benefit costs in the first three months of 2010, compared to the first three months of 2009 for our U.S. supplemental (non-qualified) pension plans was primarily driven by special termination benefits recognized for certain executives as part of Wyeth-related restructuring initiatives.

For the first quarter of 2010, we contributed from our general assets $87 million to our international pension plans, $61 million to our U.S. supplemental (non-qualified) pension plans and $60 million to our postretirement plans. Contributions to our U.S. qualified pension plans in the first quarter of 2010 were not significant.

During 2010, we expect to contribute from our general assets, a total of $439 million to our international pension plans, $257 million to our postretirement plans, $205 million to our U.S. supplemental (non-qualified) pension plans and $7 million to our U.S. qualified pension plans. Contributions expected to be made for 2010 are inclusive of amounts contributed during the first quarter of 2010. The international pension plan, postretirement plan and U.S. supplemental (non-qualified) pension plan contributions from our general assets include direct employer benefit payments.

 
15

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


Basic and diluted earnings per share (EPS) were computed using the following data:
   
Three Months Ended
 
(millions)
 
April 4,
2010
   
Mar. 29,
2009
 
             
EPS Numerator––Basic:
           
Income from continuing operations attributable to Pfizer Inc.
  $ 2,024     $ 2,728  
Less: Preferred stock dividends––net of tax
    1       ––  
Income from continuing operations attributable to Pfizer Inc. common shareholders
    2,023       2,728  
Discontinued operations––net of tax
    2       1  
Net income attributable to Pfizer Inc. common shareholders
  $ 2,025     $ 2,729  
                 
EPS Denominator––Basic:
               
Weighted-average number of common shares outstanding
    8,061       6,723  
                 
EPS Numerator––Diluted:
               
Income from continuing operations attributable to Pfizer Inc. common shareholders
  $ 2,024     $ 2,728  
Discontinued operations––net of tax
    2       1  
Net income attributable to Pfizer Inc. common shareholders
  $ 2,026     $ 2,729  
                 
EPS Denominator––Diluted:
               
Weighted-average number of common shares outstanding
    8,061       6,723  
Common-share equivalents: stock options, stock issuable under employee compensation
        plans and convertible preferred stock
    40       30  
Weighted-average number of common shares outstanding and common-share equivalents
    8,101       6,753  
                 
Stock options that had exercise prices greater than the average market price of our common
        stock issuable under employee compensation plans(a)
    366       475  
(a)
These common stock equivalents were outstanding during the first quarters of 2010 and 2009, but were not included in the computation of diluted EPS for those periods because their inclusion would have had an anti-dilutive effect.


We operate in the following two distinct commercial organizations, which constitute our two business segments:

·  
Biopharmaceutical consists of the Primary Care, Specialty Care, Oncology, Established Products and Emerging Markets customer-focused units and includes products that prevent and treat cardiovascular and metabolic diseases, central nervous system disorders, arthritis and pain, infectious and respiratory diseases, urogenital conditions, cancer, eye diseases and endocrine disorders, among others. Biopharmaceutical’s segment profit includes costs related to research and development, manufacturing, and sales and marketing activities that are associated with the products in our Biopharmaceutical segment.

·  
Diversified includes Animal Health products that prevent and treat diseases in livestock and companion animals, including vaccines, parasiticides and anti-infectives; Consumer Healthcare products that include over-the-counter healthcare products such as pain management therapies (analgesics and heat wraps), cough/cold/allergy remedies, dietary supplements, hemorrhoidal care and personal care items; Nutrition products such as infant and toddler nutritional products; and Capsugel, which represents our capsule products and services business. Diversified’s segment profit includes costs related to research and development, manufacturing, and sales and marketing activities that are associated with the products in our Diversified segment.

Segment profit/(loss) is measured based on income from continuing operations before provision for taxes on income and income attributable to noncontrolling interests. Certain costs, such as significant impacts of purchase accounting for acquisitions, restructuring and acquisition-related costs and costs related to our cost-reduction initiatives are included in Corporate/Other only. This methodology is utilized by management to evaluate our businesses. Each segment is managed separately and offers different products requiring different marketing and distribution strategies.

 
16

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

Revenues and profit/(loss) by segment for the first quarters of 2010 and 2009 follow:
   
Three Months Ended(a)
 
(millions of dollars)
 
April 4,
2010
   
Mar. 29,
2009
 
Revenues
           
Biopharmaceutical
  $ 14,506     $ 10,102  
Diversified
    2,141       691  
Corporate/Other(b)
    103       74  
Total revenues
  $ 16,750     $ 10,867  
                 
Segment profit/(loss)(c)
               
Biopharmaceutical
  $ 7,912     $ 5,407  
Diversified
    510       163  
Corporate/Other(b), (d)
    (5,243 )     (1,767 )
Total profit/(loss)
  $ 3,179     $ 3,803  
(a)
Includes revenues and profit/(loss) from legacy Wyeth products and operations for the three months ended April 4, 2010. Revenues and profit/(loss) from legacy Wyeth products and operations are not included in the three months ended March 29, 2009. Prior-period amounts for Capsugel, which were previously classified in Corporate/Other, are now classified in Diversified.
(b)
Corporate/Other includes Pfizer Centersource, which includes contract manufacturing and bulk pharmaceutical chemical sales. Corporate/Other under Segment profit/(loss) also includes interest income/(expense), corporate expenses (e.g., corporate administration costs), other income/(expense) (e.g., realized gains and losses attributable to our investments in debt and equity securities), certain performance-based and all share-based compensation expenses, significant impacts of purchase accounting for acquisitions, acquisition-related costs, intangible asset impairments and costs related to our cost-reduction initiatives.
(c)
Segment profit/(loss) equals Income from continuing operations before provision for taxes on income. Certain costs, such as significant impacts of purchase accounting for acquisitions, acquisition-related costs and costs related to our cost-reduction initiatives are included in Corporate/Other only. This methodology is utilized by management to evaluate our businesses.
(d)
For the first quarter of 2010, Corporate/Other includes: (i) significant impacts of purchase accounting for acquisitions of $2.8 billion, including intangible asset amortization related to our acquisitions of Wyeth in 2009 and Pharmacia in 2003 and charges related to fair value adjustments of inventory acquired from Wyeth and sold during the period; (ii) restructuring and acquisition-related costs of $799 million, primarily related to our acquisition of Wyeth; (iii) all share-based compensation expense; and (iv) net interest expense of $410 million. For the first quarter of 2009, Corporate/Other includes: (i) significant impacts of purchase accounting for acquisitions of $546 million, including intangible asset amortization and other charges, primarily related to our acquisition of Pharmacia in 2003; (ii) acquisition-related costs of $397 million, primarily related to our acquisition of Wyeth; (iii) restructuring charges and implementation costs associated with our cost-reduction initiatives of $331 million; (iv) all share-based compensation expense; and (v) net interest income of $116.
 
 
17

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

Significant product revenues are as follows:
   
Three Months Ended
 
(millions of dollars)
 
April 4,
2010
   
Mar. 29,
2009
 
             
Biopharmaceutical products:
           
Lipitor
  $ 2,757     $ 2,721  
Enbrel(a), (c)
    802       ––  
Lyrica
    723       684  
Effexor(a)
    716       ––  
Celebrex
    570       564  
Prevnar/Prevenar 7(a)
    520       ––  
Viagra
    479       454  
Xalatan/Xalacom
    422       407  
Norvasc
    368       481  
Zyvox
    292       283  
Prevnar/Prevenar 13(a)
    286       ––  
Zosyn/Tazocin(a)
    264       ––  
Detrol/Detrol LA
    261       289  
Sutent
    259       202  
Premarin family(a)
    256       ––  
Geodon/Zeldox
    254       230  
Genotropin
    206       197  
Chantix/Champix
    189       177  
Vfend
    188       179  
BeneFIX(a)
    154       ––  
Caduet
    135       134  
Aromasin
    128       110  
Zoloft
    120       115  
Revatio
    114       113  
Medrol
    109       118  
Cardura
    107       107  
Aricept(b)
    107       95  
Zithromax/Zmax
    103       114  
ReFacto/Xyntha(a)
    90       ––  
All other(d)
    2,523       1,746  
Alliance revenues (Enbrel (in the U.S. and Canada)(a), Aricept, Exforge, Rebif and Spiriva)
    1,004       582  
Total Biopharmaceutical products
    14,506       10,102  
Diversified products:
               
Animal Health products(d)
    846       537  
Consumer Healthcare products(a)
    663       ––  
Nutrition products(a)
    458       ––  
Capsugel(e)
    174       154  
Total Diversified products
    2,141       691  
Corporate/Other
    103       74  
Total revenues
  $ 16,750     $ 10,867  
(a)
Represents legacy Wyeth products for the three months ended April 4, 2010. Legacy Wyeth products are not included in the three months ended March 29, 2009.
(b)
Represents direct sales under license agreement with Eisai. Co. Ltd.
(c)
Outside the U.S. and Canada.
(d)
Includes legacy Pfizer and legacy Wyeth products for the three months ended April 4, 2010 and includes only legacy Pfizer products in the three months ended March 29, 2009.
(e)
Prior-period amounts for Capsugel, which were previously classified in Corporate/Other, are now classified in Diversified.

 
18

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

Revenues by geographic area follow:
   
Three Months Ended(a)
 
(millions of dollars)
 
April 4,
2010
   
Mar. 29,
2009
   
% Change
 
                   
Revenues
                 
United States
  $ 7,314     $ 4,969       47  
Europe
    4,785       3,005       59  
Japan/Other Asia
    2,659       1,738       53  
Canada/Latin America/Africa/Middle East
    1,992       1,155       72  
Total Revenues
  $ 16,750     $ 10,867       54  
(a)
Includes revenues from legacy Wyeth products for the three months ended April 4, 2010. Revenues from legacy Wyeth products are not included in the three months ended March 29, 2009.


Our effective tax rate for continuing operations was 36.0% for the first quarter of 2010, compared to 28.2% for the first quarter of 2009. The higher tax rate for the first quarter of 2010 is primarily the result of:

·  
higher amortization charges, primarily related to intangible assets acquired in connection with the acquisition of Wyeth, and the mix of jurisdictions in which those charges were incurred;

·  
the write-off of the deferred tax asset of approximately $270 million related to the Medicare Part D subsidy for retiree prescription drug coverage, resulting from changes in the U.S. healthcare legislation enacted in March 2010 concerning the tax treatment of that subsidy effective for tax years beginning after December 31, 2012;

·  
the expiration of the U.S. research tax credit; and

·  
the increase in non-deductible in-process research and development charges.

These factors were partially offset by $410 million in tax benefits for the resolution of certain tax positions pertaining to prior years with various foreign tax authorities.

 
19

 
 

To the Shareholders and Board of Directors of Pfizer Inc.:

We have reviewed the condensed consolidated balance sheet of Pfizer Inc. and Subsidiary Companies as of April 4, 2010, the related condensed consolidated statements of income for the three-month periods ended April 4, 2010, and March 29, 2009, and the related condensed consolidated statements of cash flows for the three-month periods ended April 4, 2010, and March 29, 2009. These condensed consolidated financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Pfizer Inc. and Subsidiary Companies as of December 31, 2009, and the related consolidated statements of income, shareholders’ equity, and cash flows for the year then ended (not represented herein); and in our report dated February 26, 2010, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2009, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.





KPMG LLP

New York, New York
May 13, 2010

 
20

 
 

Introduction

Our MD&A is provided in addition to the accompanying condensed consolidated financial statements and footnotes to assist readers in understanding Pfizer’s results of operations, financial condition and cash flows. The MD&A is organized as follows:

·  
Overview of Our Performance and Operating Environment. This section, beginning on page 23, provides information about the following: our business; our performance during the first quarter of 2010; the anticipated impacts of the recently enacted healthcare legislation in the U.S.; our operating environment; and our strategic initiatives.

·  
Acquisition of Wyeth. This section, beginning on page 26, discusses our 2009 acquisition of Wyeth and adjustments made in the first quarter of 2010 to the provisional allocation of the purchase price. For additional information see Notes to Condensed Consolidated Financial Statements––Note 3. Acquisition of Wyeth.

·  
Revenues. This section, beginning on page 27, provides an analysis of our products and revenues for the first quarters of 2010 and 2009, as well as an overview of important product developments.

·  
Costs and Expenses. This section, beginning on page 36, provides a discussion about our costs and expenses.

·  
Provision for Taxes on Income. This section, on page 39, provides a discussion of items impacting our tax provision for the periods presented.

·  
Adjusted Income. This section, beginning on page 39, provides a discussion of an alternative view of performance used by management.

·  
Financial Condition, Liquidity and Capital Resources. This section, beginning on page 43, provides an analysis of our balance sheets as of April 4, 2010 and December 31, 2009 and cash flows for the first quarters of 2010 and 2009, as well as a discussion of our outstanding debt and commitments that existed as of April 4, 2010, and December 31, 2009. Included in the discussion of outstanding debt is a discussion of the amount of financial capacity available to help fund Pfizer’s future activities.

·  
Our Financial Guidance for 2010 and Our Financial Targets for 2012. These sections, beginning on page 45, provide a discussion of our financial guidance for full-year 2010 and our financial targets for full-year 2012.

·  
Forward-Looking Information and Factors That May Affect Future Results. This section, beginning on page 46, provides a description of the risks and uncertainties that could cause actual results to differ materially from those discussed in forward-looking statements set forth in this MD&A relating to our financial results, operations and business plans and prospects. Such forward-looking statements are based on management’s current expectations about future events, which are inherently susceptible to uncertainty and changes in circumstances. Also included in this section is a discussion of legal proceedings and contingencies.

 
21

 
 
Components of the Condensed Consolidated Statements of Income follow:
   
Three Months Ended
 
(millions of dollars, except per common share data)
 
April 4,
2010
   
Mar. 29,
2009
   
% Change
 
                   
Revenues
  $ 16,750     $ 10,867       54  
                         
Cost of sales
    4,306       1,408       206  
% of revenues
    25.7 %     13.0 %        
                         
Selling, informational and administrative expenses
    4,436       2,876       54  
% of revenues
    26.5 %     26.5 %        
                         
Research and development expenses
    2,226       1,705       31  
% of revenues
    13.3 %     15.7 %        
                         
Amortization of intangible assets
    1,409       578       144  
% of revenues
    8.4 %     5.3 %