UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________ 
FORM 10-K
_____________________________________________ 
(Mark One)
ý
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2012
¨
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
 
13-5315170
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)
 
 
235 East 42nd Street
 
10017-5755
New York, New York
(Address of principal executive offices)
 
(Zip Code)
(212) 733-2323
(Registrant’s telephone number, including area code)
_____________________________________________ 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of each exchange
on which registered
Common Stock, $.05 par value
 
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
_____________________________________________ 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes   ý     No   ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes   ¨     No   ý
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   ý     No   ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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   ý     No   ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   ý
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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer   ý
 
Accelerated filer   ¨
 
Non-accelerated filer   ¨
 
Smaller reporting company   ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ¨     No   ý
The aggregate market value of the voting stock held by non-affiliates of the registrant, computed by reference to the closing price as of the last business day of the registrant’s most recently completed second fiscal quarter, June 29, 2012, was approximately $172 billion. The registrant has no non-voting common stock.
The number of shares outstanding of the registrant’s common stock as of February 21, 2013 was 7,189,061,853 shares of common stock, all of one class.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 2012 Annual Report to Shareholders
  
Parts I, II and IV
Portions of the Proxy Statement for the 2013 Annual Meeting of Shareholders
  
Part III




TABLE OF CONTENTS
 
   
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 





PART I

ITEM 1.
BUSINESS
General

Pfizer Inc. is a research-based, global biopharmaceutical company. We apply science and our global resources to improve health and well-being at every stage of life. We strive to set the standard for quality, safety and value in the discovery, development and manufacturing of medicines for people and animals. Our diversified global healthcare portfolio includes human and animal biologic and small molecule medicines and vaccines, as well as many of the world’s best-known consumer products. Every day, we work across developed and emerging markets to advance wellness, prevention, treatments and cures that challenge the most feared diseases of our time. We also collaborate with healthcare providers, governments and local communities to support and expand access to reliable, affordable healthcare around the world. Our revenues are derived from the sale of our products, as well as through alliance agreements, under which we co-promote products discovered by other companies (Alliance revenues). The majority of our revenues come from the manufacture and sale of biopharmaceutical products.

The Company was incorporated under the laws of the State of Delaware on June 2, 1942. Unless the context requires otherwise, references to “Pfizer,” “the Company,” “we,” “us” or “our” in this Annual Report on Form 10-K for the fiscal year ended December 31, 2012 (2012 Form 10-K) refer to Pfizer Inc. and its subsidiaries. References to developed markets in this 2012 Form 10-K include the United States (U.S.), Western Europe, Japan, Canada, Australia, Scandinavia, South Korea, Finland and New Zealand; and references to emerging markets in this 2012 Form 10-K include the rest of the world, including, among other countries, China, Brazil, Mexico, Turkey, Russia and India.

In July 2011, we announced our decision to explore strategic alternatives for our Animal Health and Nutrition businesses.

On February 6, 2013, an initial public offering (IPO) of our subsidiary, Zoetis Inc. (Zoetis), was completed, pursuant to which we sold 99.015 million shares of Zoetis in exchange for the retirement of approximately $2.5 billion of Pfizer commercial paper issued on January 10, 2013. The IPO represented approximately 19.8% of the total outstanding Zoetis shares. On February 1, 2013, Zoetis shares began trading on the New York Stock Exchange under the symbol “ZTS.” Prior to and in connection with the IPO, Zoetis completed a $3.65 billion senior notes offering and we transferred to Zoetis substantially all of the assets and liabilities of our Animal Health business. For additional details, see the Notes to Consolidated Financial Statements— Note 19A. Subsequent Events: Zoetis Debt Offering and Initial Public Offering in our 2012 Financial Report, as well as Other Products — Animal Health below.

We may in the future make a tax-free distribution to our shareholders of all or a portion of our remaining equity interest in Zoetis, which may include one or more distributions effected as a dividend to all Pfizer shareholders, one or more distributions in exchange for Pfizer shares or other securities, or any combination thereof. We will consider all alternatives to maximize the after-tax return for our shareholders, including a tax-free distribution to our shareholders. If pursued, any disposition would be subject to various conditions, including receipt of any necessary regulatory or other approvals and the existence of satisfactory market conditions.

On November 30, 2012, we completed the sale of our Nutrition business to Nestlé for $11.85 billion in cash. For additional information, see the Notes to Consolidated Financial Statements — Note 2B. Acquisitions, Divestitures, Collaborative Arrangements and Equity-Method Investments: Divestitures in our 2012 Financial Report, as well as Other Products — Nutrition below.

On August 1, 2011, we completed the sale of our Capsugel business for approximately $2.4 billion in cash. For additional information, see the Notes to Consolidated Financial Statements — Note 2B. Acquisitions, Divestitures, Collaborative Arrangements and Equity-Method Investments: Divestitures in our 2012 Financial Report.

On January 31, 2011, we acquired King Pharmaceuticals, Inc. (King) and, in accordance with our domestic and international reporting periods, our consolidated financial statements for the year ended December 31, 2011 reflect approximately 11 months of King’s U.S. operations and approximately ten months of King’s international operations. For additional information, see the Notes to Consolidated Financial Statements — Note 2A. Acquisitions, Divestitures, Collaborative Arrangements and Equity-Method Investments: Acquisitions in our 2012 Financial Report.

If we decide to fully separate Zoetis, then, following such separation, we will be a global biopharmaceutical company with an innovative core (our Primary Care, Specialty Care and Oncology business units) and a value core (our Established

1


Products business unit) in developed markets, with different cost structures and operating drivers. Our Emerging Markets business unit has a geographic focus that includes both the innovative and value cores in those markets. The innovative core includes a portfolio of innovative, largely patent-protected, in-line products and an R&D organization focused on continuing to build a robust pipeline of highly differentiated product candidates in areas of unmet medical needs. The value core includes a portfolio of products that have lost exclusivity or are approaching the loss of exclusivity that help meet the global need for less expensive, quality medicines. In addition, we have a complementary Consumer Healthcare business with several well-known brands.

For a further discussion of our strategy and our business development initiatives, see the Overview of Our Performance, Operating Environment, Strategy and Outlook — Our Strategy and — Our Business Development Initiatives sections of the Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) in our 2012 Financial Report.

Pfizer Website

This 2012 Form 10-K, our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (Exchange Act), are available on our website (www.pfizer.com) , in text format and, where applicable, in interactive data file format , as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (SEC).

Throughout this 2012 Form 10-K, we “incorporate by reference” certain information from other documents filed or to be filed with the SEC, including our Proxy Statement for the 2013 Annual Meeting of Shareholders (2013 Proxy Statement) and the 2012 Financial Report, portions of which are filed as Exhibit 13 to this 2012 Form 10-K, and which also will be contained in Appendix A to our 2013 Proxy Statement (2012 Financial Report). The SEC allows us to disclose important information by referring to it in that manner. Please refer to such information. Our 2012 Annual Report to Shareholders consists of the 2012 Financial Report and the Corporate and Shareholder Information attached to the 2013 Proxy Statement. Our 2012 Financial Report will be available on our website (www.pfizer.com) on or about February 28, 2013. Our 2013 Proxy Statement will be available on our website (www.pfizer.com) on or about March 14, 2013.

Information relating to corporate governance at Pfizer, including our Corporate Governance Principles; Director Qualification Standards; Pfizer Policies on Business Conduct (for all of our employees, including our Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer); Code of Business Conduct and Ethics for our Directors; information concerning our Directors; ways to communicate by e-mail with our Directors; Board Committees; Committee Charters; the Lead Independent Director Charter; and transactions in Pfizer securities by Directors and Officers; as well as Chief Executive Officer and Chief Financial Officer certifications, are available on our website (www.pfizer.com) . We will provide any of the foregoing information without charge upon written request to our Corporate Secretary, Pfizer Inc., 235 East 42nd Street, New York, NY 10017-5755. Information relating to shareholder services, including the Computershare Investment Program, book-entry share ownership and direct deposit of dividends, is also available on our website (www.pfizer.com) .

The information contained on our website does not constitute a part of this 2012 Form 10-K.

Operating Segments

We manage our operations through five operating segments — Primary Care; Specialty Care and Oncology; Established Products and Emerging Markets; Animal Health; and Consumer Healthcare. As of the third quarter of 2012, the Animal Health and Consumer Healthcare business units are no longer managed as a single operating segment. Each operating segment has responsibility for its commercial activities and for certain research and development activities related to in-line products and in-process research and development (IPR&D) projects that generally have achieved proof-of-concept.

We regularly review our segments and the approach used by management to evaluate performance and allocate resources. Generally, products are transferred to the Established Products business unit in the beginning of the fiscal year following loss of patent protection or marketing exclusivity.

A description of each of our five operating segments follows:

•
Primary Care operating segment — includes revenues from human prescription pharmaceutical products primarily prescribed by primary-care physicians, and may include products in the following therapeutic and disease areas: Alzheimer’s disease, cardiovascular (excluding pulmonary arterial hypertension), erectile dysfunction,

2


genitourinary, major depressive disorder, pain, respiratory and smoking cessation. Examples of products in this segment in 2012 include Celebrex , Chantix/Champix , Eliquis , Lipitor (in certain European Union (EU) countries and in Australia and New Zealand), Lyrica , Premarin , Pristiq and Viagra . All revenues for these products are allocated to the Primary Care business unit, except those generated in emerging markets and those that are managed by the Established Products business unit.

Beginning in 2012, sales of Lipitor in the U.S., Canada, South Korea and Japan were reported in our Established Products business unit and beginning in 2013, sales of Lipitor in Australia and most of developed Europe are being reported in our Established Products business unit.

•
Specialty Care and Oncology operating segment — comprises the Specialty Care business unit and the Oncology business unit.

·
Specialty Care — includes revenues from human prescription pharmaceutical products primarily prescribed by physicians who are specialists, and may include products in the following therapeutic and disease areas: anti-infectives, endocrine disorders, hemophilia, inflammation, ophthalmology, pulmonary arterial hypertension, specialty neuroscience and vaccines. Examples of products in this business unit in 2012 include BeneFIX , Enbrel , Genotropin , Geodon (outside the U.S.), the Prevnar/Prevenar family, ReFacto AF , Revatio (outside the U.S.), Tygacil , Vfend (outside the U.S. and South Korea), Vyndaqel (outside the U.S.), Xalatan (outside the U.S., Canada and South Korea), Xeljanz (in the U.S.), Xyntha and Zyvox . All revenues for these products are allocated to the Specialty Care business unit, except those generated in emerging markets and those that are managed by the Established Products business unit.

·
Oncology — includes revenues from human prescription pharmaceutical products addressing oncology and oncology-related illnesses. The products in this business unit in 2012 include Inlyta , Sutent , Torisel , Xalkori , Mylotarg (in Japan) and Bosulif (in the U.S.). All revenues for these products are allocated to the Oncology business unit, except those generated in emerging markets and those that are managed by the Established Products business unit.

•
Established Products and Emerging Markets operating segment — comprises the Established Products business unit and the Emerging Markets business unit.

·
Established Products — includes revenues from human prescription pharmaceutical products that have lost patent protection or marketing exclusivity in certain countries and/or regions. Typically, products are transferred to this business unit in the beginning of the fiscal year following loss of patent protection or marketing exclusivity. However, in certain situations, products may be transferred to this business unit at a different point than the beginning of the fiscal year following loss of patent protection or marketing exclusivity in order to maximize their value. This business unit also excludes revenues generated in emerging markets. Examples of products in this business unit in 2012 include Arthrotec , Effexor , Lipitor (in the U.S., Canada, South Korea and Japan), Medrol , Norvasc , Protonix , Relpax , Vfend (in the U.S. and South Korea), Xalatan (in the U.S., Canada and South Korea) and Zosyn/Tazocin .

·
Emerging Markets — includes revenues from all human prescription pharmaceutical products sold in emerging markets, including Asia (excluding Japan and South Korea), Latin America, the Middle East, Eastern Europe, Africa, Turkey and Central Europe.

•
Animal Health operating segment — includes worldwide revenues from products and services to prevent and treat disease in livestock and companion animals, including anti-infectives, vaccines, parasiticides, medicinal feed additives, other pharmaceutical products and other non-pharmaceutical products.

•
Consumer Healthcare operating segment — includes worldwide revenues from non-prescription products in the following therapeutic categories: dietary supplements, pain management, respiratory and personal care. Products marketed by Consumer Healthcare include Advil , Caltrate , Centrum , ChapStick , Emergen-C , Preparation H and Robitussin .

For a further discussion of our operating segments, including certain costs that are not allocated to our operating segment results, as well as comparative segment information for 2012, 2011 and 2010, see the Notes to Consolidated Financial Statements — Note 18. Segment, Geographic and Other Revenue Information, including the tables therein captioned Selected income statement information, Geographic Information and Significant Product Revenues in our 2012 Financial Report and the

3


table captioned Revenues by Segment and Geographic Area in the MD&A in our 2012 Financial Report, which are incorporated by reference.

Our businesses are heavily regulated in most of the countries in which we operate. In the U.S., the principal authority regulating our operations is the U.S. Food and Drug Administration (FDA). The FDA regulates the safety and efficacy of the products we offer and our research, quality, manufacturing processes, product promotion, advertising and product labeling. Similar regulations exist in most other countries, and in many countries the government also regulates our prices. See Government Regulation and Price Constraints below.

Biopharmaceutical Products

Our biopharmaceutical business is comprised of the following five business units: Primary Care, Specialty Care, Oncology, Established Products and Emerging Markets. For further information regarding these business units, see Operating Segments above, and for a discussion of certain of our key biopharmaceutical products, including Lyrica , Lipitor , Enbrel , Prevnar 13/Prevenar 13 , Celebrex , Viagra , Norvasc , Zyvox , Sutent , and the Premarin family, see the Analysis of the Consolidated Statements of Income — Biopharmaceutical — Selected Product Descriptions section of the MD&A in our 2012 Financial Report.

Revenues from biopharmaceutical products contributed approximately 87% of our total revenues in 2012, 88% of our total revenues in 2011 and 90% of our total revenues in 2010.

We recorded direct product sales of more than $1 billion for each of 10 biopharmaceutical products in 2012, each of 12 biopharmaceutical products in 2011 and each of 15 biopharmaceutical products in 2010. These products represented 49% of our revenues from biopharmaceutical products in 2012, 56% of our revenues from biopharmaceutical products in 2011 and 60% of our revenues from biopharmaceutical products in 2010. See Item 1A. Risk Factors — Dependence on Key In-Line Products below.

Worldwide revenues from biopharmaceutical products in 2012 were $51.2 billion, a decrease of 11% compared to 2011, primarily due to the decrease of $7.6 billion in operational revenues from Lipitor , Geodon , Xalatan , Caduet , Aromasin and Detrol , and lower Alliance revenues for Aricept , all due to the loss of exclusivity in certain markets, and from lower Alliance revenues for Spiriva due to the final-year terms of our collaboration agreements in certain European countries, Canada and Australia; lower revenues for Effexor and Zosyn/Tazocin ; and the unfavorable impact of foreign exchange of $1.3 billion, or 2%. This decrease was partially offset by an increase in operational revenues in developed markets for certain biopharmaceutical products, particularly Lyrica , Celebrex , and Enbrel , and in revenues from emerging markets.

Geographically, in the U.S., revenues from biopharmaceutical products decreased 17% in 2012 compared to 2011, primarily reflecting lower revenues from Lipitor , Geodon , Caduet , Xalatan and Aromasin , all due to the loss of exclusivity; lower Alliance revenues due to loss of exclusivity of Aricept 5mg and 10mg tablets in November 2010; and lower revenues from Effexor , Zosyn and Detrol/Detrol LA . The impact of these adverse factors was partially offset by the strong performance of certain other biopharmaceutical products, lower reductions related to rebates and the lower reduction in revenues related to the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (commonly referred to as the Affordable Care Act, or ACA).

For additional information regarding the impact of the ACA on our revenues, see the Overview of Our Performance, Operating Environment, Strategy and Outlook — Our Operating Environment — U.S. Healthcare Legislation section of the MD&A in our 2012 Financial Report.

In our international markets, revenues from biopharmaceutical products decreased 7% in 2012 compared to 2011, primarily due to the loss of exclusivity of Lipitor in most of developed Europe and the unfavorable impact of foreign exchange of 3%. Operationally, revenues decreased 4% in 2012 compared to 2011. In addition to Lipitor , the decrease in operational revenues was driven by Xalatan/Xalacom , Aricept and Aromasin , all due to the loss of exclusivity in certain markets, as well as lower Alliance revenues, primarily due to the loss of exclusivity of Aricept in many major European markets and lower revenues for Spiriva in certain European countries, Canada and Australia (reflecting the final-year terms of our Spiriva collaboration agreements relating to those countries), as well as lower revenues for Norvasc and Effexor . The impact of these adverse factors was partially offset by the strong operational growth of Lyrica , Prevnar 13/Prevenar 13 and Enbrel .

During 2012, international revenues from biopharmaceutical products represented 62% of total revenues from biopharmaceutical products, compared to 59% in 2011.


4


For additional information, see the Analysis of the Consolidated Statements of Income — Biopharmaceutical Revenues section of the MD&A in our 2012 Financial Report.

Other Products

Animal Health

Our Animal Health operating segment is a market leader in nearly all of the major regions in which it operates. It discovers, develops, manufactures and commercializes animal health medicines and vaccines, with a focus on both livestock and companion animals.

On February 6, 2013, an IPO of our subsidiary Zoetis was completed, pursuant to which we sold 99.015 million shares of Zoetis in exchange for the retirement of approximately $2.5 billion of Pfizer commercial paper issued on January 10, 2013. The IPO represented approximately 19.8% of the total outstanding Zoetis shares. On February 1, 2013, Zoetis shares began trading on the New York Stock Exchange under the symbol “ZTS.” Prior to and in connection with the IPO, Zoetis completed a $3.65 billion senior notes offering and we transferred to Zoetis substantially all of the assets and liabilities of our Animal Health business. For additional details see the Notes to Consolidated Financial Statements — Note 19A. Subsequent Events: Zoetis Debt Offering and Initial Public Offering in our 2012 Financial Report.

We will continue to consolidate Zoetis as we have retained control over the entity, and we will reflect amounts attributable to noncontrolling interests for the divested portion. The net assets, operations and cash flows that comprise Zoetis are not the same as those of the Animal Health operating segment.

Revenues from Animal Health products were approximately $4.3 billion in 2012, an increase of 3% compared to 2011, reflecting higher operational revenues of 6%, partially offset by the unfavorable impact of foreign exchange of 3%. Operational revenues from Animal Health products were favorably impacted by the solid performance in both the livestock and companion animal portfolios.

Major categories and product lines in the Animal Health business include:

•
Anti-infectives: products that prevent, kill or slow the growth of bacteria, fungi or protozoa. Examples of products in this category include Draxxin , Terramycin , Clavamox / Synulox , and the Ceftiofur line;
•
Vaccines: biological preparations that prevent diseases of the respiratory, gastrointestinal and reproductive tracts or induce a specific immune response. Examples of products in this category include the Bovishield line, Improvac , and Vanguard ;
•
Parasiticides: products that prevent or eliminate external and internal parasites, such as fleas, ticks and worms. Examples of products in this category include Cydectin , Dectomax , and Revolution ;
•
Medicinal feed additives: products that provide medicines, nutrients and probiotics to livestock; and
•
Other pharmaceutical products and other non-pharmaceutical products: complementary products, such as pain and sedation, oncology and antiemetic products. Examples of products in this category include Palladia and Rimadyl .

Consumer Healthcare

Based on 2012 revenues, our Consumer Healthcare operating segment is the fifth-largest branded multi-national, over-the-counter (OTC), healthcare products business in the world and sells two of the ten largest selling OTC healthcare brands ( Centrum and Advil ) in the world. Consumer Healthcare revenues totaled $3.2 billion for 2012, an increase of 6% compared to 2011, reflecting higher operational revenues of 8%, partially offset by the unfavorable impact of foreign exchange of 2%. The operational revenue increase was primarily due to the addition of products from the acquisitions of the consumer healthcare business of Ferrosan Holding A/S (Ferrosan) in December 2011 and Alacer Corp. (Alacer) in February 2012, discussed below. The Consumer Healthcare operating segment holds strong positions in various geographic markets, with its highest revenue volume in the U.S., Canada, China, Germany, Italy, Brazil and Australia.

Major categories and product lines in our Consumer Healthcare business include:

•
Dietary supplements: Centrum brands (including Centrum , Centrum Silver , Centrum Men’s and Women’s , Centrum Specialist , Centrum Flavor Burst , and Centrum Kids ), Caltrate , and Emergen-C ;

5


•
Pain management: Advil brands (including Advil , Advil PM , Advil Liqui-Gels , Children’s Advil , Infants’ Advil , and Advil Migraine) , and ThermaCare ;
•
Respiratory: Robitussin , Advil Cold & Sinus , Advil Congestion Relief , and Dimetapp ; and
•
Personal care: ChapStick and Preparation H.

On August 13, 2012, we announced that we entered into an agreement with AstraZeneca for the global OTC rights for Nexium , a leading prescription drug currently approved to treat the symptoms of gastroesophageal reflux disease. Under the terms of the agreement, we acquired the exclusive global rights to market Nexium for OTC indications, which are subject to regulatory approval. In February 2012, we completed our acquisition of Alacer, a company that manufactures, markets and distributes Emergen-C , a line of effervescent, powdered drink mix vitamin supplements that is the largest-selling branded vitamin C line in the U.S. In December 2011, we completed our acquisition of the consumer healthcare business of Ferrosan, a Danish company engaged in the sale of science-based consumer healthcare products, including dietary supplements and lifestyle products, primarily in the Nordic region and the emerging markets of Russia and Central and Eastern Europe. For additional information, see the Notes to Consolidated Financial Statements — Note 2A. Acquisitions, Divestitures, Collaborative Arrangements and Equity-Method Investments: Acquisitions in our 2012 Financial Report and the Overview of Our Performance, Operating Environment, Strategy and Outlook — Our Business Development Initiatives section of the MD&A in our 2012 Financial Report.

For additional information regarding the revenues of our Animal Health and Consumer Healthcare operating segments, see the Analysis of the Consolidated Statements of Income — Other Product Revenues section of the MD&A in our 2012 Financial Report.

Nutrition

On November 30, 2012, we completed the sale of our Nutrition business to Nestlé for $11.85 billion in cash. Pfizer Nutrition was a business that sold infant nutritionals, including infant milk formula brands for newborns and toddlers, in certain markets outside the U.S. and Canada. For additional information, see the Notes to Consolidated Financial Statements — Note 2B. Acquisitions, Divestitures, Collaborative Arrangements and Equity-Method Investments: Divestitures in our 2012 Financial Report.

Research and Development

Innovation by our research and development (R&D) operations is very important to our success. As a result, and also because we are predominantly a human health company, the vast majority of our research and development spending is associated with human health products, compounds and activities. Our goal is to discover, develop and bring to market innovative products that address major unmet medical needs. We spent $7.9 billion in 2012, $9.1 billion in 2011 and $9.5 billion in 2010 on research and development.

Biopharmaceutical R&D

We conduct research internally and also through contracts with third parties, through collaborations with universities and biotechnology companies and in cooperation with other pharmaceutical firms. We also seek out promising compounds and innovative technologies developed by third parties to incorporate into our discovery and development processes or projects, as well as our product lines, through collaborations, alliance and license agreements, acquisitions and other arrangements.

Drug discovery and development is time-consuming, expensive and unpredictable. According to the Pharmaceutical Research and Manufacturers of America (PhRMA), out of 5,000-10,000 screened compounds, only 250 enter preclinical testing, five enter human clinical trials and one is approved by the FDA. The process from early discovery or design to development to regulatory approval can take more than 10 years. Drug candidates can fail at any stage of the process, and candidates may not receive regulatory approval even after many years of research.

As of year-end 2012, we had 276 projects in research and development, ranging from discovery through registration, of which 78 programs are in Phase 1 through registration, with the remainder of the projects in pre-clinical development. At year-end 2012, our Phase 3 portfolio contained 17 programs. Development of a single compound is often pursued as part of multiple different programs. While these new candidates may or may not eventually receive regulatory approval, new drug candidates entering clinical development phases are the foundation for future products.


6


In addition to discovering and developing new products, our research operations seek to add value to our existing products by improving their effectiveness and by discovering new uses or indications for them.

Information concerning several of our drug candidates in development, as well as supplemental filings for existing products, is set forth in the Analysis of the Consolidated Statements of Income — Product Developments — Biopharmaceutical section of the MD&A in our 2012 Financial Report, which is incorporated by reference.

Our competitors also devote substantial funds and resources to research and development. We also compete against numerous small biotechnology companies in developing potential drug candidates. The extent to which our competitors are successful in their research could result in erosion of the sales of our existing products and potential sales of products in development, as well as unanticipated product obsolescence. See Item 1A. Risk Factors — Competitive Products below.

We continue to closely evaluate our global research and development function and pursue strategies intended to improve innovation and overall productivity in R&D by prioritizing areas that we believe have the greatest scientific and commercial promise, utilizing appropriate risk/return profiles, and focusing on areas that we believe have the highest potential to deliver value in the near term and over time. To that end, our research primarily focuses on five high-priority areas that have a mix of small and large molecules — immunology and inflammation; oncology; cardiovascular and metabolic diseases; neuroscience and pain; and vaccines. In addition to reducing the number of disease areas of focus, we have realigned and reduced our research and development footprint, and outsourced certain functions that do not drive competitive advantage for Pfizer. For additional information, see the Overview of Our Performance, Operating Environment, Strategy and Outlook — Our Strategy section of the MD&A in our 2012 Financial Report.

For additional information regarding our R&D operations, see the Analysis of the Consolidated Statements of Income — Research and Development section of the MD&A in our 2012 Financial Report.
International Operations

We have significant operations outside the United States. For the developed markets, these operations for human pharmaceutical products are managed through the same business units as our U.S. operations (i.e., Primary Care, Specialty Care, Oncology and Established Products). Our operations in emerging markets for human pharmaceutical products are managed through the Emerging Markets business unit within the Established Products and Emerging Markets segment. Our Animal Health and Consumer Healthcare operating segments manage their operations worldwide.

Revenues from operations outside the U.S. of $35.9 billion accounted for 61% of our total revenues in 2012. Revenues exceeded $500 million in each of 16 countries outside the U.S. in 2012 and 2011, and in each of 17 countries outside the U.S. in 2010. The U.S. is our largest national market, comprising 39% of total revenues in 2012, 41% of total revenues in 2011 and 44% of total revenues in 2010. Japan is our second-largest national market, with 10% of total revenues in 2012, 9% of total revenues in 2011 and 8% of total revenues in 2010.

For a geographic breakdown of revenues, see the table captioned Geographic Information in the Notes to Consolidated Financial Statements — Note 18. Segment, Geographic and Other Revenue Information in our 2012 Financial Report, and the table captioned Revenues by Segment and Geographic Area in the MD&A in our 2012 Financial Report. Those tables are incorporated by reference.

Our international businesses are subject, in varying degrees, to a number of risks inherent in carrying on business in other countries. These include, among other things, currency fluctuations, capital and exchange control regulations, expropriation and other restrictive government actions. See Item 1A. Risk Factors — Risks Affecting International Operations below. Our international businesses are also subject to government-imposed constraints, including laws and regulations on pricing, reimbursement, and access to our products. See Government Regulation and Price Constraints below for a discussion of these matters.

Depending on the direction of change relative to the U.S. dollar, foreign currency values can increase or decrease the reported dollar value of our net assets and results of operations. In 2012, both revenues and net income were unfavorably impacted by foreign exchange in general, as foreign currency movements relative to the U.S. dollar decreased our revenues and net income in many countries. While we cannot predict with certainty future changes in foreign exchange rates or the effect they will have on us, we attempt to mitigate their impact through operational means and by using various financial instruments, depending upon market conditions. For additional information, see the Notes to Consolidated Financial Statements — Note 7E. Financial Instruments: Derivative Financial Instruments and Hedging Activities in our 2012 Financial Report, as well as the

7


Forward-Looking Information and Factors That May Affect Future Results — Financial Risk Management section of the MD&A in our 2012 Financial Report. Those sections of our 2012 Financial Report are incorporated by reference.

Marketing

In our global biopharmaceutical businesses, we promote our products to healthcare providers and patients. Through our marketing organizations, we explain the approved uses, benefits and risks of our products to healthcare providers, such as doctors, nurse practitioners, physician assistants, pharmacists, hospitals, Pharmacy Benefit Managers (PBMs), Managed Care Organizations (MCOs), employers and government agencies. We also market directly to consumers in the U.S. through direct-to-consumer advertising that communicates the approved uses, benefits and risks of our products while motivating people to have meaningful conversations with their doctors. In addition, we sponsor general advertising to educate the public on disease awareness, prevention and wellness, important public health issues, and our patient assistance programs.

Our biopharmaceutical businesses include five human health, customer-focused business units: Primary Care, Specialty Care (including vaccines), Oncology, Established Products and Emerging Markets. We operate in customer-focused business units within our biopharmaceutical businesses to better meet the diverse needs of physicians, patients and our customers while seeking to maximize value for our Company and our shareholders.

Our U.S. Primary Care operations are structured into regional units in order to create a more flexible organization to identify and address local market dynamics and customer needs. Our structure is designed to align the sales, marketing, and medical functions to work closely to meet the needs of key customer groups while seeking to ensure common coordination, focus and accountability across the organizations.

Our prescription pharmaceutical products are sold principally to wholesalers, but we also sell directly to retailers, hospitals, clinics, government agencies and pharmacies, and in the case of Prevnar 13 , directly to individual provider offices in the U.S. We seek to gain access to healthcare authority, PBM and MCO formularies. Formularies are lists of approved medicines available to members that are tiered according to co-pay amounts and reimbursed by the respective PBM or MCO. We also work with MCOs, PBMs, employers and other healthcare providers to assist them with disease management, patient education and other tools that help their medical treatment routines.

During 2012, Pfizer revenues from our three largest biopharmaceutical wholesalers were as follows:

•
McKesson, Inc. — 12% of our total revenues (and 28% of our total U.S. revenues);
•
Cardinal Health, Inc. — 9% of our total revenues (and 23% of our total U.S. revenues); and
•
AmerisourceBergen Corporation — 7% of our total revenues (and 17% of our total U.S. revenues).

Sales to these wholesalers were concentrated in the biopharmaceutical businesses. In addition, our Consumer Healthcare operating segment generates a significant portion of its sales from several large customers, the loss of any one or more of which could have a material adverse effect on the Consumer Healthcare operating segment.

Each of our global Animal Health and Consumer Healthcare operating segments utilizes its own sales and marketing organizations to promote its products, and each occasionally uses distributors in smaller markets.

Our Animal Health operating segment’s advertising and promotions are generally targeted to veterinary healthcare professionals, livestock producers and pet owners. Animal Health products are sold directly to veterinarians and livestock producers, as well as through distributors and retail outlets.

Our Consumer Healthcare operating segment’s advertising and promotions are generally disseminated to consumers through television, print, digital and other media advertising, as well as through in-store promotion. Consumer Healthcare products are sold through a wide variety of channels, including distributors, pharmacies, retail chains and grocery and convenience stores.
Patents and Intellectual Property Rights

Our products are sold around the world under brand-name, logo and certain product design trademarks that we consider, in the aggregate, to be of material importance. Trademark protection continues in some countries for as long as the mark is used and, in other countries, for as long as it is registered. Registrations generally are for fixed, but renewable, terms.


8


We own or license a number of U.S. and foreign patents. These patents cover pharmaceutical and other products and their uses, pharmaceutical formulations, product manufacturing processes and intermediate chemical compounds used in manufacturing.

Patents for individual products extend for varying periods according to the date of patent filing or grant and the legal term of patents in the various countries where patent protection is obtained. The actual protection afforded by a patent, which can vary from country to country, depends upon the type of patent, the scope of its coverage and the availability of legal remedies in the country. Further, patent term extension may be available in many major countries to compensate for a regulatory delay in approval of the product. For additional information, see Government Regulation and Price Constraints — Intellectual Property below.

In the aggregate, our patent and related rights are of material importance to our businesses in the U.S. and most other countries. Based on current product sales, and considering the vigorous competition with products sold by others, the patent rights we consider most significant in relation to our business as a whole, together with the year in which the U.S. basic product patent expires (including, where applicable, the additional six-month pediatric exclusivity period and/or the granted patent term extension), are those for the drugs set forth in the table below. The basic patents for these products in other large markets may expire in the same, earlier or later years.
 
Drug
  
U.S. Basic Product Patent Expiration Year (1)(2)(3)
Detrol
 
2012 (2)
Viagra
 
2012 (3)
Celebrex
  
2014
Zyvox
  
2015
Lyrica
  
2018
Bosulif
 
2019
Chantix
  
2020
Inlyta
 
2020
Xeljanz
 
2020
Sutent
  
2021
Eliquis
 
2023
Xalkori
  
2029
(1) With respect to the products in this table, the corresponding European and Japanese patent expiration dates are generally within one year before or after the U.S. dates indicated, except as follows:
•
With respect to Japan, the patent expiration year for Celebrex is 2019, for Zyvox is 2019, for Lyrica is 2022, for Champix is 2022, and for Sutent is 2024. For Detrol , post-marketing surveillance in Japan extends until 2014.
•
With respect to major European markets, the patent expiration year for Xalkori is 2025. For Lyrica , regulatory exclusivity in Europe extends until 2014.

(2) As a result of certain patent litigation settlements, we expect generic competition for Detrol LA to commence in the U.S. no earlier than January 1, 2014, except in limited circumstances, and no later than March 1, 2014.

(3) In some instances, there are later-expiring patents relating to our products directed to particular forms or compositions, to methods of manufacturing, or to use of the drug in the treatment of particular diseases or conditions. For example, in addition to the basic product patent covering Viagra , it is also covered by a U.S. method-of-treatment patent which, including the six-month pediatric exclusivity period associated with Revatio which has the same active ingredient as Viagra , expires in 2020. However, in some cases, such patents may not protect our drug from generic competition after the expiration of the basic patent.

We co-promote Aricept with Eisai Co., Ltd. (Eisai). We lost exclusivity for Aricept 5mg and 10mg tablets in the U.S. in November 2010, and in the majority of European markets in February 2012 and April 2012. We expect to lose exclusivity for the Aricept 23mg tablet in the U.S. in July 2013. For additional information, including a description of certain of our other co-

9


promotion agreements and their expiration dates, see the Analysis of the Consolidated Statements of Income — Biopharmaceutical — Selected Product Descriptions and the Overview of Our Performance, Operating Environment, Strategy and Outlook — The Loss or Expiration of Intellectual Property Rights sections of the MD&A in our 2012 Financial Report and Item 1A. Risk Factors — Dependence on Key In-Line Products below.

We lost exclusivity for Lipitor in the U.S. in November 2011. Lipitor lost exclusivity in Japan in June 2011, Australia in April 2012 and most of developed Europe in March 2012 and May 2012. In the U.S., Europe, Japan and Australia, Lipitor now faces multi-source generic competition. In other international markets, Lipitor has lost exclusivity in certain countries and will lose exclusivity at various times in other countries.

We lost exclusivity for Xalatan in the U.S. in March 2011. We lost exclusivity for Xalatan and Xalacom in the majority of European markets in January 2012. We lost exclusivity for Geodon in the U.S. in March 2012. We lost exclusivity in the U.S. in September 2012 for Revatio tablet, and in June 2012 for Detrol immediate release ( Detrol IR ). We lost exclusivity for Detrol in most European markets in September 2012. Aromasin , Effexor/Effexor XR (extended-release formulation of Effexor ), Zosyn , Protonix , Norvasc and Vfend tablets are examples of other Pfizer products that face generic competition in the U.S. We also lost exclusivity for Caduet in the U.S. in November 2011, and in the majority of European markets in March and May 2012.

For additional information, see the Overview of Our Performance, Operating Environment, Strategy and Outlook — The Loss or Expiration of Intellectual Property Rights section of the MD&A in our 2012 Financial Report.

Companies have filed applications with the FDA seeking approval of products that we believe infringe our patents covering, among other products, Viagra , Lyrica , Sutent , Rapamune , EpiPen , Torisel , Pristiq , and Embeda extended-release capsules .

The expiration of a basic product patent or loss of patent protection resulting from a legal challenge normally results in significant competition from generic products against the originally patented product and can result in a significant reduction in revenues for that product in a very short period of time. In some cases, however, we can continue to obtain commercial benefits from product manufacturing trade secrets; patents on uses for products; patents on processes and intermediates for the economical manufacture of the active ingredients; patents for special formulations of the product or delivery mechanisms; and conversion of the active ingredient to OTC products.

Biotechnology Products

Our biotechnology products, including BeneFIX , ReFacto , Xyntha, Enbrel and the Prevnar/Prevenar family, may face competition from biosimilars (also referred to as “follow-on biologics”). Such biosimilars would reference biotechnology products approved under the U.S. Public Health Service Act. Additionally, the FDA has approved a biosimilar recombinant human growth hormone that referenced our biotechnology product, Genotropin, which was approved under the U.S. Federal Food, Drug and Cosmetic Act.

Abbreviated legal pathways for the approval of biosimilars exist in certain international markets and, since the passage of the ACA, a framework for such approval exists in the U.S. The regulatory implementation of these ACA provisions is ongoing and expected to take several years. However, the FDA has begun to clarify its expectations for approval via the biosimilar pathway with the issuance of three draft guidance documents in February 2012. See Government Regulation and Price Constraints — Biosimilars for additional information on the ACA’s approval framework for biosimilars.

In Europe, the European Commission has granted marketing authorizations for several biosimilars pursuant to a set of general and product class-specific guidelines for biosimilar approvals issued over the past few years, and in Japan the regulatory authority has granted marketing authorizations for certain biosimilars, including somatropin (the recombinant human growth hormone in our Genotropin product), pursuant to a guideline for biosimilar approvals issued in 2009.

If competitors are able to obtain marketing approval for biosimilars referencing our biotechnology products, our biotechnology products may become subject to competition from biosimilars, with attendant competitive pressure, and price reductions could follow. Expiration or successful challenge of applicable patent rights could trigger this competition, assuming any relevant exclusivity period has expired. However, unlike small molecule generics, biologics currently have additional barriers to entry related to the manufacture of such products, and biosimilars are not necessarily identical to the reference products. Therefore, generic competition with respect to biologics may not be as significant. As part of our business strategy, we are developing biosimilar medicines using our expertise in biologics and our regulatory, commercial and manufacturing strengths. As such, a better-defined biosimilars approval pathway will assist us in pursuing approval of our own biosimilar products in the U.S. See Item 1A. Risk Factors — Biotechnology Products below.

10



We may face more litigation with respect to the validity and/or scope of patents relating to our biotechnology products with substantial revenue. Likewise, as we enter the biosimilars area and seek to launch products, patents may be asserted against us.

International

One of the main limitations on our operations in some countries outside the U.S. is the lack of effective intellectual property protection for our products. Under international and U.S. free trade agreements in recent years, global protection of intellectual property rights has been improving. The World Trade Organization Agreement on Trade Related Aspects of Intellectual Property (WTO-TRIPs) required participant countries to amend their intellectual property laws to provide patent protection for pharmaceutical products by 2005, with an extension until 2016 for least-developed countries. A number of countries have made improvements. We have experienced significant growth in our businesses in some of those countries. We include further patent protection improvement among the factors we consider for continued business expansion in other participant countries. For additional information, see Government Regulation and Price Constraints — Intellectual Property below.

Competition

Our businesses are conducted in intensely competitive and often highly regulated markets. Many of our human prescription pharmaceutical products face competition in the form of branded or generic drugs that treat similar diseases or indications. The principal forms of competition include efficacy, safety, ease of use, and cost effectiveness. Though the means of competition vary among product categories and business groups, demonstrating the value of our products is a critical factor for success in all of our principal businesses.

Our competitors include other worldwide research-based drug companies, smaller research companies with more limited therapeutic focus, and generic drug and consumer healthcare manufacturers. We compete with other companies that manufacture and sell products that treat diseases or indications similar to those treated by our major products.

This competition affects our core product business, which is focused on applying innovative science to discover and market products that satisfy unmet medical needs and provide therapeutic improvements. Our emphasis on innovation is underscored by our multi-billion-dollar investment in research and development, as well as our business development transactions, both designed to result in a strong product pipeline. Our investment in research does not stop with drug approval; we continue to invest in further understanding the value of our products for the conditions they treat, as well as potential new applications. We seek to protect the health and well-being of patients by striving to ensure that medically sound knowledge of the benefits and risks of our medicines is understood and communicated to patients, physicians and global health authorities. We also seek to continually enhance the organizational effectiveness of all of our biopharmaceutical functions, including coordinating support for our salespersons’ efforts to accurately and ethically launch and promote our products to our customers.

Operating conditions have become more challenging under the mounting global pressures of competition, industry regulation and cost containment. We continue to take measures to evaluate, adapt and improve our organization and business practices to better meet customer and public needs. We have taken an industry-leading role in evolving our approaches to U.S. direct-to-consumer advertising; interactions with, and payments to, healthcare professionals; and medical education grants. We also continue to sponsor programs to address patient affordability and access barriers, as we strive to advance fundamental health system change through support for better healthcare solutions.

While our Animal Health operating segment is a market leader in nearly all of the major regions and sectors in which it operates, it faces competition from other animal health businesses, including those that are business units of other large pharmaceutical companies. The principal drivers of competition vary depending on the particular region, species, product category or individual product, and may include new product development, quality, price, service and effective promotion to veterinary professionals, pet owners and livestock producers.

Our Consumer Healthcare operating segment faces competition from OTC business units in other major pharmaceutical and consumer packaged goods companies, as well as retailers who carry their own private label brands. Our competitive position is affected by several factors, including, among others, the amount and effectiveness of our and our competitors’ promotional resources; customer acceptance; product quality; our and our competitors’ introduction of new products, ingredients, claims, dosage forms, or other forms of innovation; and pricing, regulatory and legislative matters (such as product labeling, patient access and prescription to OTC switches).


11


Managed Care Organizations

The growth of MCOs in the U.S. has been a major factor in the competitive makeup of the healthcare marketplace. Approximately 260 million people in the U.S. now participate in some form of managed care. Because of the size of the patient population covered by MCOs, the marketing of prescription drugs to them and the PBMs that serve many of those organizations continues to grow in importance.

MCOs can include medical insurance companies, medical plan administrators, health maintenance organizations, alliances of hospitals and physicians and other physician organizations (e.g., staff or group model health maintenance organizations). The purchasing power of MCOs has increased in recent years due to the growing numbers of patients enrolled in MCOs. At the same time, those organizations have been consolidating into fewer, even larger entities. This consolidation enhances both their purchasing strength and importance to us.

The growth of MCOs has increased pressure on drug prices. One objective of MCOs is to contain and, where possible, reduce healthcare expenditures. MCOs typically use formularies, volume purchases and long-term contracts to negotiate discounts from pharmaceutical providers. Also, MCOs use their purchasing power and their ability to influence market share and volume of prescription drugs to negotiate for lower supplier prices. They also emphasize primary and preventive care, out-patient treatment and procedures performed at doctors’ offices and clinics. Hospitalization and surgery, typically the most expensive forms of treatment, are carefully managed. Since the use of certain drugs can reduce the need for hospitalization, professional therapy, or even surgery, such drugs can become favored first-line treatments for certain diseases.

As discussed above under Marketing , MCOs and PBMs typically develop formularies, which are lists of approved medicines available to members that are tiered according to co-pay amounts and reimbursed by the respective PBM or MCO. Formularies typically are based on the prices and therapeutic benefits, or a combination of the two, of the available products. Due to their generally lower cost, generic medicines typically are placed in lowest cost tiers. The breadth of the products covered by formularies can vary considerably from one MCO to another, and many formularies include alternative and competitive products for treatment of particular medical problems. MCOs use a variety of means to encourage patients’ use of products listed on their formularies.

Exclusion of a product from a formulary or other MCO-implemented restrictions can significantly impact drug usage in the MCO patient population. Consequently, pharmaceutical companies compete to gain access to formularies for their products. Unique product features, such as greater efficacy, better patient ease of use, or fewer side effects, are generally beneficial to achieving access to formularies. However, lower overall cost of therapy is also an important factor. We have been generally, although not universally, successful in having our major products included on MCO formularies.

The impact that MCOs have on drug prices and volumes has increased as a result of their role in negotiating on behalf of Medicare beneficiaries in connection with the Medicare Outpatient Prescription Drug Benefit, Medicare Part D, which took effect January 1, 2006. MCOs and PBMs negotiate directly with pharmaceutical manufacturers on behalf of the federal government for product access on Medicare Prescription Drug Plans’ (PDPs) formularies. We have been generally, although not universally, successful in having our major products that are used by the senior population included on the formularies of the Medicare PDPs.

Generic Products

One of the biggest competitive challenges that we face is from generic pharmaceutical manufacturers. Upon the expiration or loss of patent protection for a product, especially a small molecule product, we can lose the major portion of revenues for that product in a very short period of time. Several such competitors make a regular practice of challenging our product patents before their expiration. Unlike us, generic competitors often operate without large research and development expenses, as well as without costs of conveying medical information about products to the medical community. In addition, the FDA approval process exempts generics from costly and time-consuming clinical trials to demonstrate their safety and efficacy, allowing generic manufacturers to rely on the safety and efficacy data of the innovator product. Generic products need only demonstrate a level of availability in the body equivalent to that of the innovator product. This means that generic competitors can market a competing version of our product after the expiration or loss of our patent and often charge much less.

In addition, our patent-protected products can face competition in the form of generic versions of competitors’ branded products that lose their market exclusivity.

As noted above, MCOs that focus primarily on the immediate cost of drugs often favor generics over brand-name drugs. Many governments also encourage the use of generics as alternatives to brand-name drugs in their healthcare programs,

12


including Medicaid in the U.S. Laws in the U.S. generally allow, and in some cases require, pharmacists to substitute, for brand-name drugs, generic drugs that have been rated under government procedures to be therapeutically equivalent to brand-name drugs. The substitution must be made unless the prescribing physician expressly forbids it. In the U.S., Pfizer’s Greenstone subsidiary and Pfizer Injectables sell generic versions of Pfizer’s, as well as certain competitors’, solid oral dose and sterile injectable pharmaceutical products, respectively, upon loss of exclusivity, as appropriate.

Raw Materials

Raw materials essential to our businesses are purchased worldwide in the ordinary course of business from numerous suppliers. In general, these materials are available from multiple sources. No serious shortages or delays of raw materials were encountered in 2012, and none are expected in 2013. However, select materials have, from time to time, increased in price due to short-term imbalances between supply and demand. We have successfully secured the materials necessary to meet our requirements in these circumstances, but generally at higher prices than those historically paid.

Government Regulation and Price Constraints

In the United States

General. Pharmaceutical companies are subject to extensive regulation by national, state and local agencies in the countries in which they do business. Of particular importance in the U.S. is the FDA, which has jurisdiction over our biopharmaceutical products and administers requirements covering the testing, safety, effectiveness, manufacturing, labeling, marketing, advertising and post-marketing surveillance of these products. The FDA also regulates our Consumer Healthcare and Animal Health products. Other federal agencies, including the U.S. Department of Agriculture and the U.S. Drug Enforcement Administration, also regulate some of our products.

In addition, many of our activities are subject to the jurisdiction of other federal regulatory and enforcement departments and agencies, such as the Department of Health and Human Services (HHS) Office of the Inspector General, the Federal Trade Commission (FTC) (which also has the authority to regulate the advertising of consumer healthcare products, including OTC drugs and dietary supplements), the Department of Justice (DOJ) and the SEC. Individual states, acting through their attorneys general, have become active as well, seeking to regulate the marketing of prescription drugs under state consumer protection and false advertising laws.

We are subject to possible administrative and legal proceedings and actions by these various governmental bodies. See the Notes to Consolidated Financial Statements — Note 17. Commitments and Contingencies in our 2012 Financial Report. Such actions may involve product seizures and other civil and criminal sanctions.
Healthcare Reform. In March 2010, the ACA was enacted in the U.S. The provisions of the ACA are effective on various dates. The principal provisions affecting the biopharmaceutical industry include:
•
an increase, from 15.1% to 23.1%, in the minimum rebate on branded prescription drugs sold to Medicaid beneficiaries (effective January 1, 2010);
•
extension of Medicaid prescription drug rebates to drugs dispensed to enrollees in certain Medicaid managed care organizations (effective March 23, 2010);
•
expansion of the types of institutions eligible for the “Section 340B discounts” for outpatient drugs provided to hospitals serving a disproportionate share of low-income individuals and meeting the qualification criteria under Section 340B of the Public Health Service Act of 1944 (effective January 1, 2010);
•
discounts on branded prescription drug sales to Medicare Part D participants who are in the Medicare “coverage gap,” also known as the “doughnut hole” (effective January 1, 2011); and
•
a 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 (effective January 1, 2011, with the total fee to be paid each year by the pharmaceutical industry increasing annually through 2018).

As of February 2013, the Congressional Budget Office estimates that the ACA will result in the coverage of 27 million previously uninsured individuals by 2017. Approximately half of this would occur through an expansion of the Medicaid program. Effective in 2014, individuals with incomes below 133% of the federal poverty level (FPL) would be eligible for Medicaid. The remainder would be covered with private sector coverage, either through their employers or new state-based Health Insurance Exchanges (Health Insurance Exchanges). With limited exceptions, individuals who fail to purchase health

13


insurance will pay a penalty, which is an obligation commonly referred to as the individual mandate. Individuals with incomes between 100%-400% of the FPL will be eligible for subsidies to help pay for coverage.

The U.S. Supreme Court reached a decision in June 2012 that upheld all provisions of the ACA with the exception of the Medicaid expansion. Now, states can choose not to expand their Medicaid populations without losing federal funding for their existing Medicaid populations. The Congressional Budget Office estimates that the new state flexibility is likely to result in six million fewer new Medicaid enrollees than were initially expected to enroll as a result of the eligibility expansion and that half of these people are expected to gain coverage through Health Insurance Exchanges, and the remaining three million are likely to remain uninsured.

The ACA specifies certain benefits and services that must be covered for health insurers to qualify to participate in the Health Insurance Exchanges. The general categories of benefits and services that must be covered include: ambulatory patient services; emergency services; hospitalization; maternity and newborn care; mental health and substance use disorder services, including behavioral health treatment; prescription drugs; rehabilitative and habilitative services and devices; laboratory services; preventive and wellness services and chronic disease management; and pediatric services including oral and vision care. Regulators have provided additional guidance to states on the types of benefits and services that must be covered.
Expanding insurance coverage and other costs are expected to result in a relatively modest gain in overall pharmaceutical industry sales, as the newly insured are principally young and relatively healthy. At the same time, the rebates, discounts, taxes and other costs associated with the ACA are a significant cost to the industry.

The ACA created the Independent Payment Advisory Board (IPAB), a 15-member panel appointed by the President, subject to Senate confirmation. The IPAB is charged with developing proposals to “reduce the per capita rate of growth in Medicare spending” in the event that the actual Medicare per capita growth rate exceeds a specified target. Unless Congress acts to alter the proposals, the proposals will be automatically implemented. However, the IPAB cannot directly ration care, raise premiums, increase cost sharing, or otherwise restrict benefits or modify eligibility. If the IPAB fails to act, the Secretary of HHS is directed to prepare such proposals. The IPAB is prohibited by statute from making payment reductions to certain sectors such as hospitals and home health agencies, which increases the risk that the IPAB will propose to limit access to pharmaceutical treatments or mandate price controls for our products.

The ACA also established the Patient Centered Outcomes Research Institute (PCORI), a federally funded, private, non-profit corporation empowered to fund and disseminate comparative effectiveness research (CER) and build infrastructure for improved outcomes analysis. PCORI has no authority to impose formulary changes directly in government-funded health programs. However, we expect that due to the PCORI, as well as the underlying market demand for data-driven differentiation, CER studies will have growing influence on access. Overseeing and managing the PCORI is an advisory board drawn from multiple and varied stakeholder organizations, including the pharmaceutical industry. Pfizer’s Chief Medical Officer currently serves as an industry representative on the advisory board.

Changes in Marketing Activity Disclosure . The ACA expands the government’s investigative and enforcement authority and increases the penalties for fraud and abuse, including amendments to both the False Claims Act and the Anti-Kickback Statute to make it easier to bring suit under these statutes. The ACA also allocates additional resources and tools for the government to police healthcare fraud, with expanded subpoena power for HHS, additional funding to investigate fraud and abuse across the healthcare system, and expanded use of Recovery Audit Contractors for enforcement.

After significant delays, starting in 2013, pharmaceutical manufacturers will be required to record any transfers of value made to doctors and teaching hospitals and to disclose such data to HHS, with the initial disclosure to HHS due no later than March 31, 2013. Data collection and reporting will begin with the issuance of final guidance or regulations anticipated before the end of the first quarter of 2013. In addition to civil penalties for failure to report transfers of value to physicians or teaching hospitals, there will be criminal penalties if a manufacturer intentionally makes false statements in such reports. The payment data across biopharmaceutical and medical device companies will be posted by HHS on a publicly available website. This increased access to such data by fraud and abuse investigators, industry critics and media will draw attention to our collaborations with reported entities and will importantly provide opportunities to underscore the critical nature of our collaborations for developing medicine and exchanging scientific information. This national payment transparency effort, industry commitment to uphold voluntary codes of conduct (such as the updated PhRMA Code on Interactions with Healthcare Professionals and PhRMA Guiding Principles Direct to Consumer Advertisements About Prescription Medicines ) and rigorous internal training and compliance efforts will complement existing laws and regulations to help ensure ethical collaboration and truthful product communications.

14


Medicare. Medicare Part D went into effect on January 1, 2006. Elderly and disabled beneficiaries have access to the Medicare drug benefit through private plans approved by the federal government. Beneficiaries with low incomes and modest assets are eligible for assistance with Medicare Part D plan premiums and cost sharing. Nationally, the share of such beneficiaries with comprehensive drug coverage increased from 59% in 2005 to over 90% in 2011. Medicare beneficiaries report high levels of satisfaction, with an overwhelming majority saying the program works well. In addition, the program costs less than originally expected.
The ACA made some important changes to the drug benefit, which include, in particular, phasing out the coverage gap by 2020. Prior to the ACA, beneficiaries who reached a certain level of spending on prescription medications (the Medicare Part D coverage gap or “doughnut hole”) had to pay 100% of the cost of their drugs until personal out-of-pocket spending reached a level qualifying them for catastrophic coverage. The Medicare Part D Coverage Gap Discount Program uses public and private funding to relieve the financial burden facing beneficiaries who fall into this coverage gap. Beginning in 2011, branded pharmaceutical companies paid 50% of the cost of the branded drugs in the gap and the government paid 7% of the cost of the generic drugs in the gap. As a result, rather than paying 100% of the total cost of their drugs when they reached the coverage gap, enrollees paid 50% of the total cost of branded drugs and 93% of the total cost of generic drugs. The contribution from the government for generic drugs grew to 14% in 2012, and will grow steadily over time until reaching 75% in 2020. In addition, starting in 2013, the 50% discount from branded pharmaceutical companies will be supplemented by a contribution from the government, which will also grow steadily over time until reaching 25% in 2020. That means that by 2020, enrollees will pay only 25% of the cost of their branded and generic drugs in the gap.

Biosimilars. The ACA also created a framework for the approval of biosimilars (also known as follow-on biologics) following the expiration of 12 years of exclusivity for the innovator biologic, with a potential six-month pediatric extension. Under the ACA, biosimilar applications may not be submitted until four years after the approval of the reference, innovator biologic. The FDA is responsible for implementation of the legislation, which will require the FDA to address such key topics as the type and extent of data needed to establish biosimilarity; the data required to achieve interchangeability compared to biosimilarity; the naming convention for biosimilars; the tracking and tracing of adverse events; and the acceptability of data using a non-U.S. licensed comparator to demonstrate biosimilarity and/or interchangeability with a U.S.-licensed reference product. The FDA has begun to address some of these issues with the February 2012 release of three draft guidance documents. Specifically, the FDA has clarified that biosimilar applicants may use a non-U.S. licensed comparator in certain studies to support a demonstration of biosimilarity to a U.S.-licensed reference product.

Medicaid and Related Matters. Federal law requires branded pharmaceutical companies to provide rebates to state Medicaid agencies. The ACA brought about major changes in the Medicaid program. Collectively, the measures (i) increased federal rebates paid by manufacturers on branded drugs within the traditional Medicaid program from 15.1% to 23.1%, and for generic drugs from 11% to 13% of Average Manufacturer Price (AMP); (ii) expanded Medicaid drug rebates to cover drugs provided through managed Medicaid plans; and (iii) changed the rebate rates for line extensions or new formulations of solid oral dosage form drugs. Post-implementation of ACA, the Centers for Medicare and Medicaid Services (CMS) withdrew its former, detailed AMP-calculation rules, and new CMS AMP guidance was published in proposed rule form in January 2012. A final rule is expected in mid-2013. The law also creates a federal upper limit under the Medicaid program for generic drugs at 175% of AMP. In addition, the law expanded the types of entities eligible for the “Section 340B discounts” for outpatient drugs that began in 2010.
The majority of states use preferred drug lists to restrict access to certain medicines to Medicaid beneficiaries. Restrictions exist for some Pfizer products in certain states. Access in the Medicaid managed care program is typically determined by the health plans providing coverage for Medicaid recipients contracting for the provision of services in the state. Given states’ current and potential ongoing fiscal crises, a growing number of states are considering a variety of cost-control strategies, including capitated managed care plans that typically contain cost by restricting access to certain treatments.
The ACA expands Medicaid coverage in 2014. The Congressional Budget Office estimates between seven and 13 million additional people will be enrolled in Medicaid by 2014.
We also must give discounts or rebates on purchases or reimbursements of pharmaceutical products by certain other federal and state agencies and programs. See the discussion regarding rebates in the Analysis of the Consolidated Statements of Income — Revenues — Overview section of the MD&A in our 2012 Financial Report and in the Notes to Consolidated Financial Statements — Note 1G. Basis of Presentation and Significant Accounting Policies: Revenues in our 2012 Financial Report, which are incorporated by reference.
PDUFA Reauthorization. The Prescription Drug User Fee Act (PDUFA) was first enacted in 1992 to provide the FDA with additional resources to speed the review of important new medicines. Prior to PDUFA, inadequate funding of the FDA drug review process led to a backlog of application reviews and lengthy review times. PDUFA revolutionized the review

15


process for new drugs and biologics without compromising high approval standards for demonstration of product safety, quality and efficacy. PDUFA expires every five years and must be reauthorized by Congress. PDUFA IV expired on September 30, 2012, and was renewed as Title I of the FDA Safety and Innovation Act (FDASIA). In addition to PDUFA V, FDASIA included a range of provisions important to the industry, including new user fee requirements for biosimilar products and generics. The PDUFA V reauthorization reflected months of discussion between the FDA, industry and other stakeholders such as patient groups and consumers. The current PDUFA V agreement focuses on improving the efficiency and predictability of the review process, strengthening the agency regulatory science base and enhancing benefit-risk assessment and post-approval safety surveillance.

Budget Control Act of 2011 . In August 2011, the federal Budget Control Act of 2011 (the Budget Control Act) was enacted in the U.S. The Budget Control Act includes provisions to raise the U.S. Treasury Department’s borrowing limit, known as the debt ceiling, and provisions to reduce the federal deficit by $2.4 trillion between 2012 and 2021. Deficit-reduction targets include $900 billion of discretionary spending reductions associated with HHS and various agencies charged with national security, but those discretionary spending reductions do not include programs such as Medicare and Medicaid or direct changes to pharmaceutical pricing, rebates or discounts. The Office of Management and Budget (OMB) is responsible for identifying the remaining $1.5 trillion of deficit reductions, which will be divided evenly between defense and non-defense spending. Under this OMB review process, Social Security, Medicaid, Veteran Benefits and certain other spending categories are excluded from consideration, but reductions in payments to Medicare providers may be made, although any such reductions are prohibited by law from exceeding 2% of the originally budgeted amount. Additionally, certain payments to Medicare Part D plans, such as low-income subsidy payments, are exempt from reduction. While we do not know the specific nature of the spending reductions under the Budget Control Act that will affect Medicare, we do not expect that those reductions will have a material adverse impact on our results of operations. However, any significant spending reductions affecting Medicare, Medicaid or other publicly funded or subsidized health programs that may be implemented, and/or any significant additional taxes or fees that may be imposed on us, as part of any broader deficit-reduction effort or legislative replacement for the Budget Control Act, could have an adverse impact on our results of operations.

Federal Debt Ceiling.  Enforcement of the U.S. federal debt ceiling has been suspended through May 18, 2013. If the U.S. federal government fails to suspend enforcement of the debt ceiling beyond May 18, 2013 or to increase the debt ceiling and, as a result, is unable to satisfy its financial obligations, including under Medicare, Medicaid and other publicly funded or subsidized health programs, our results of operations could be adversely impacted.
Outside the United States
We encounter similar regulatory and legislative issues in most other countries. In Europe, Canada, Japan, China, South Korea and some other international markets, governments provide healthcare at low direct cost to consumers and regulate pharmaceutical prices or patient reimbursement levels to control costs for the government-sponsored healthcare system. This international patchwork of price regulation has led to different prices and some third-party trade in our products between countries.
Europe. The approval of new drugs across the EU may be achieved using the Mutual Recognition Procedure/Decentralized Procedure or EU Commission/European Medicines Agency (EMA) Centralized Procedure. These procedures apply in the EU member states, plus the European Economic Area countries, Norway and Iceland. The use of these procedures generally provides a more rapid and consistent approval process across the member states than was the case when the approval processes were operating independently within each country.
Since the EU does not have jurisdiction over patient reimbursement or pricing matters in its member states, we continue to work with individual countries on such matters across the region.
The world economy in 2012 faced ongoing challenges and, in particular, continuing uncertainty around the solvency of governments. As a result, global growth has remained low, with many EU countries experiencing a second recession in recent years. One of the consequences of the economic challenges for almost all world economies has been an increase in public debt as a proportion of gross domestic product, arising from increased government spending and reduced tax receipts. For many developed economies, particularly in Europe, this has exacerbated existing fiscal imbalances and has created doubt in investment markets about the sustainability of public debt levels in a number of European countries, further raising the cost of borrowing, with the result that financial support has been necessary from the EU to Greece, Portugal, Ireland and Spain and from the International Monetary Fund in the cases of Greece, Portugal and Ireland. Stringent austerity measures have been implemented in many European countries with the aim of closing the fiscal gap, in particular in Spain and Italy.
Under these macroeconomic conditions, Pfizer continues to face widespread downward pressures on international pricing and reimbursement, particularly in developed European markets, Japan and in certain emerging markets. all of which have a

16


large government share of pharmaceutical spending and are facing a difficult fiscal environment. Specific pricing pressures in 2012 included measures to reduce pharmaceutical prices and expenditures in Spain, Italy, France, Greece, Ireland, Portugal and Japan.
Formal processes of international reference pricing (IRP) between EU countries add to the regional impact of price cuts in individual countries. Price variations also have arisen from exchange rate fluctuations between the euro and other European currencies, and these also are exacerbated by international reference pricing systems. The downward pricing pressure resulting from this dynamic can be expected to continue as a result of reforms to IRP policies, emergency measures targeting pharmaceuticals in some European countries and ongoing exchange rate turbulence.
In January 2007, a new EU Regulation on Medicines for Pediatric Use became effective. This introduced obligations on pharmaceutical companies to conduct research on their medicines for children and, subject to various conditions, offered the possibility of incentives for so doing, including exclusivity extensions. The aim of this regulation is to improve the health of children in the EU through high-quality research, stimulating the development of new medicines, creating infrastructure to enable authorized use and improving the information on medicines for children. A Pediatric Committee was created within the EMA to provide scientific opinions and input on development plans for medicines for use with children. In line with this regulation, Pfizer is conducting a number of pediatric research programs for its in-line and development products.
In July 2012, new pharmacovigilance legislation came into force in the EU, which included many new and revised requirements that impact Pfizer’s global safety system. Key changes include the establishment of a new Pharmacovigilance Risk Assessment Committee within the EMA, with wide responsibility for reviewing and making recommendations on product safety issues for the EU authorities. Accordingly, it will be possible for regulators in the EU to require pharmaceutical companies to conduct post-authorization efficacy studies, both at the time of approval and at any time afterwards in light of scientific developments. There are also additional requirements to include statements in product labeling with regard to adverse drug reaction reporting and additional monitoring of products. The new legislation also introduces significantly greater transparency of the safety review process.
The new legislation forms part of a three-part “pharmaceutical package” to amend the existing EU pharmaceutical legislation. The second part, the Falsified Medicines Directive, is a Directive aimed at preventing falsified medicines from entering into the legal supply chain. Notably, the Directive imposes new obligations on all parties in the distribution chain, including importers, traders, manufacturers, distributors, and any operator who repackages a product. Member states must transpose the Directive into national law and apply its provisions from January 2013 onwards. The Directive also provides the legal basis of a number of implementation measures to be adopted by the European Commission. Most of these implementation measures are expected to be adopted between 2013 and 2014 and will not be applicable until three years after the date of publication. The third part of the package concerned the provision of information on prescription medicines to patients, which proved controversial and has been discontinued.
Transparency is a key theme and priority for the European Commission and EMA in the pharmaceutical area, particularly with regard to clinical trial results and data submitted for marketing authorization in the EU. Recently, the EMA has disclosed significantly more of such data, upon request, than in previous years, and the EMA announced its intention to publish additional data in the future.
At the end of the third quarter of 2010, the Commissioner for Industry and Entrepreneurship of the European Commission announced the launch of a process on corporate responsibility in the pharmaceutical industry. The process, which is expected to officially conclude in mid-April 2013, included three independent platforms: (i) transparency and ethics in the sector; (ii) access to medicines in Africa; and (iii) access to medicines in Europe in the context of pricing and reimbursement. No specific outcomes have yet been determined following the work undertaken by the platforms, but these discussions are likely to drive requests for future change, for example, on transparency and ethics in the pharmaceutical area.
Canada . Health Canada (HC) is the government agency that provides regulatory and marketing approval for drugs and therapeutic products in Canada. In October 2012, the Federal Minister of Health announced the government’s intention to (i) re-introduce the Legislative and Regulatory Modernization (LRM) regulatory framework (which was originally presented to Parliament in October 2010) and (ii) introduce “Orphanet” to Canada. Orphanet is an international consortium of countries that seeks to improve the diagnosis, care and treatment of patients with rare disorders. The upcoming LRM regulatory framework is the most significant drug regulatory system reform in Canada in over 50 years and is expected to overhaul Canada’s Food and Drugs Act and Regulations. The LRM supports a “lifecycle” regulatory approach and is focused on strengthening evidence-based decision-making, good regulatory planning, licensing, post-licensing, accountability, authority and enforcement. Through this framework, HC intends to improve the market authorization process and implement necessary regulatory frameworks.
Introductory “non-excessive” prices and price increases are controlled by the federal Patented Medicines Prices Review Board. However, reimbursement is under provincial jurisdiction. As provinces continue to face budget pressure from growing

17


healthcare expenditures, many provincial governments have developed pricing and purchasing strategies (including product listing agreements and a pan-Canadian purchasing alliance initiative) to obtain better drug prices. The private sector is also attempting to exert its negotiating power on drug manufacturers.

The 2004 Federal Provincial Territorial (FPT) Health Accord that sets out the Canada Health Transfers payment (a budgetary mechanism, that provides for funding to provincial governments by the federal government), plus commitments on health policy initiatives expires on March 31, 2014. In advance of the 2014 expiration of the FPT Health Accord, the federal government announced, in December 2011, a new funding framework that confirms its health transfer funding policy until 2024, and, assuming Canada achieves its projected gross domestic product growth target of 3%, provides for funding growth of 6% annually through 2016-2017.
Asia. The regulatory environment in Asia presents multiple issues for companies trying to achieve simultaneous global development and registration (i.e., marketing products at the same time as in the U.S., Europe, Canada and elsewhere). While each country in Asia has its unique regulatory concerns, there are a number of regulatory issues that are common among the majority of countries in Asia. For example, with the exception of Japan, health authorities in Asia generally require marketing approval by a recognized regulatory authority (e.g., the U.S. FDA) before they begin to conduct their application review process and/or issue their final approval. Proof of reference country approval is usually satisfied by submitting a Certificate of Pharmaceutical Product, a legal document that is issued by the competent health authority certifying that the company’s product has satisfied its country’s registration requirements and manufacturing standards. Often, this requirement delays marketing authorization in Asia by 12-15 months following marketing authorization in the U.S. and Europe.
Another common regulatory issue in Asia is the requirement for local clinical data in the country’s population in order to receive final marketing approval. Each of Japan, China, South Korea, Taiwan, India and Vietnam has regulations that in some form require clinical studies in the country (e.g., China requires a prescribed number of Chinese patients regardless of the product, therapeutic area or disease population). Although some agencies have shown flexibility based on scientific rationale related to ethnicity assessments, it is not uncommon for companies to be required to duplicate costly clinical trials in Asia pursuant to these regulations. This can further add to marketing approval delays compared to the U.S. and Europe. Additionally, similar requirements for local clinical data exist outside of Asia in countries such as Mexico and Russia, where we try to ensure their inclusion in global clinical studies, where feasible, or conduct additional studies there, which further delays marketing authorization in those countries.
In Japan, the government is aiming to reduce the drug lag (i.e., drugs are often launched in Japan years after the EU and U.S. markets) in a two-pronged approach: reducing regulatory agency review times and establishing a new pilot pricing premium. The pilot pricing premium provides a financial incentive for drug development in Japan. While economic conditions and government debt levels continue to put pressure on healthcare costs resulting in cost containment (particularly in the off-patent sector), the recent extension of the pilot pricing premium for innovative products is encouraging.
In South Korea, the national health insurance deficit prompted the government to make significant price cuts in the off-patent sector, effective April 2012. We continue to work with a committee established by the government to improve the pricing system for innovative new drugs.
The controlling regulatory agency in China is the State Food and Drug Administration (SFDA). SFDA’s scope of responsibilities is similar to that of the FDA and EMA. Two key agencies within SFDA are the Center for Drug Evaluation (CDE) and the National Institutes for Food and Drug Control (NIFDC). The CDE, which is analogous to the FDA’s Center for Drug Evaluation and Research, is primarily responsible for the technical review of product applications, including clinical trial applications and new drug applications, and drafting technical guidance documents. NIFDC is the quality testing arm of SFDA, responsible for the testing of pharmaceuticals, biologics and medical devices nationwide.
China’s regulatory system is unique in many ways, and its drug development and registration requirements are not always consistent with international standards. As a result, it is not uncommon to see treatments entering the market in China two to five years after first marketing in the U.S. and Europe. There are three main contributing elements for this delay: (i) clinical trial authorization approval times that are five to 10 times longer than international standards and add greater than 12 months to development time; (ii) significant local Chinese patient number requirements for biologic products, regardless of product characteristics or disease prevalence; and (iii) although the SFDA has improved its framework for more transparency, a formal agency consultation structure, which would enable manufacturers to better align with the agency on the complexities of its drug development requirements and policies, has not been established.
Intellectual Property . While the global intellectual property environment has improved following WTO-TRIPS, our future business growth depends on further progress in intellectual property protection (see Patents and Intellectual Property Rights above). In emerging market countries in particular, governments have used intellectual property policies as a tool for

18


reducing the price of imported medicines, as well as to protect their national pharmaceutical industries. There is considerable political pressure to weaken existing intellectual property protection and resist implementation of any further protection, which has led to policies such as more restrictive standards and more difficult procedures for patenting biopharmaceutical inventions, restrictions on patenting certain types of inventions (e.g., new medical treatment methods) and failure to implement effective regulatory data protection. Our industry advocacy efforts focus on seeking a more balanced business environment for foreign manufacturers.
In December 2012, the EU approved an EU Patent Package, which was agreed to by 25 out of 27 EU member states (excluding Italy and Spain, which opted out but which are free to opt back in). This will create a Unitary EU patent, i.e., a uniform patent with equal effect that will be granted, transferred, and enforced in a unitary way through participating member states. Patent grants will continue to be granted through the existing European Patent Office, but a new court system will be set up to enforce such patents and hear revocation actions. The central Division of the new court will be in Paris, although a section based in London will hear chemical and pharmaceutical cases. The new regime reduces the translation requirement, should allow patentees to obtain pan-European injunctions and damages, and should reduce forum-shopping in Europe for patent holders seeking to enforce their patents, as well as generic manufacturers alleging patent invalidity or non-infringement. The EU Patent Package will enter into force on January 1, 2014 or, after 13 European countries have ratified it, whichever is later.
Canada’s intellectual property regime for drugs provides some level of patent protection and data exclusivity, but is generally perceived to be less predictable than the intellectual property regimes of comparable countries. Through intense negotiations as part of the Canada/EU Comprehensive Economic & Trade Agreement (CETA), the Canadian intellectual property regime may be further enhanced by EU demands to align their respective intellectual property regimes. Canada recently joined the Trans-Pacific Trade Partnership (TPP), and it is expected that more pressure to improve its intellectual property regime will arise if nothing results from the CETA agreement.
In China, the intellectual property environment has improved, although effective enforcement and adequate legal remedies remain areas of concern. The government has taken steps to protect intellectual property rights in conformity with World Trade Organization (WTO) provisions, and several companies, including Pfizer, have established research and development centers in China due to increased confidence in China’s intellectual property environment. Despite this, China remained on the U.S. Department of Commerce Priority Watch List for 2012. Further, the standards for patentability in China remain more restrictive than in other major markets, including the U.S., Europe and Japan. Also, while a framework exists for protecting patents for 20 years, enforcement mechanisms are often lacking or inconsistent, such as the absence of effective patent linkage mechanisms and preliminary injunctions, impractical evidentiary burdens, and heightened sufficiency standards used to invalidate patents at the enforcement stage.
Additionally, true regulatory data protection remains elusive in China. The Center for Drug Evaluation provides protection against reliance on data by generic applicants for a fixed period of time. Following its WTO accession in 2001, China revised its laws to incorporate concepts from the WTO-TRIPS, and China’s relevant laws establish a six-year period of protection against unfair commercial use of undisclosed test and other data of products containing a new chemical ingredient. However, the current regulations are ambiguous as to how data protection is implemented in practice in China. For example, certain key concepts such as “new chemical ingredient” and “unfair commercial use” are undefined.
In Brazil and other Latin American countries, backlogs at patent agencies have presented challenges for the protection of certain products. The lack of regulatory data protection and difficulties in protecting certain types of inventions, such as new medical uses of drug products, may limit the commercial lifespan of some pharmaceutical products.
In India, policies favoring compulsory licensing of patents, the increasing tendency of the Indian Patent Office to revoke pharmaceutical patents in opposition proceedings, and restrictive standards for patentability of pharmaceutical products have made it difficult to protect many of our inventions. India and other countries such as Israel maintain a system of pre-grant patent oppositions that delay the granting of patents and add an additional challenge in our ability to protect our products through patents.

In South Korea, the laws and regulations for the patent-regulatory approval linkage system were finalized and implemented as part of the United States-Korea Free Trade Agreement in 2012. The Korean patent-regulatory approval linkage system includes biologics.

19




Environmental Law Compliance

Most of our operations are affected by national, state and/or local environmental laws. We have made, and intend to continue to make, the expenditures necessary for compliance with applicable laws. We also are cleaning up environmental contamination from past industrial activity at certain sites. See the Notes to Consolidated Financial Statements — Note 17. Commitments and Contingencies in our 2012 Financial Report. As a result, we incurred capital and operational expenditures in 2012 for environmental compliance purposes and for the clean-up of certain past industrial activity as follows:

•
environment-related capital expenditures — $27 million; and
•
other environment-related expenses — $157 million.

While capital expenditures or operating costs for environmental compliance, including compliance with potential legislation and potential regulation related to climate change, cannot be predicted with certainty, we have no reason to believe they will have a material effect on our capital expenditures or competitive position.

While there can be no assurance that physical risks to our facilities and supply chain due to climate change will not occur in the future, we have reviewed the potential for these risks and have concluded that, because of our facility locations and our existing distribution networks, we do not believe these risks are material in the near term.

Tax Matters

The discussion of tax-related matters in the Notes to Consolidated Financial Statements — Note 5. Tax Matters in our 2012 Financial Report, is incorporated by reference.

Employees

In our innovation-intensive business, our employees are vital to our success. We believe we have good relationships with our employees. As of December 31, 2012, we employed approximately 91,500 people in our operations throughout the world, including approximately 9,300 people in our Animal Health operations.

Disclosure Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012

Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 (ITRSHRA) requires disclosure by public companies of certain transactions involving the Government of Iran or other entities and individuals targeted by certain U.S. sanctions administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC). In some instances, ITRSHRA requires companies to disclose these types of transactions, even if they were permissible under U.S. law or were conducted by a non-U.S. affiliate in accordance with the local law under which such entity operates.

As a global biopharmaceutical company, we conduct business in multiple jurisdictions throughout the world. During 2012, our activities included supplying life-saving medicines, nutritional supplements and other medical products (Pfizer products) for patient and consumer use in Iran and Syria. U.S. law allows us to seek and rely on licenses issued by OFAC to supply Pfizer products to customers in these countries, for both human and animal use. We ship these Pfizer products pursuant to such licenses, and we conduct our activities in accordance with our internal policies, which follow requirements set forth in the laws of the U.S. and other applicable jurisdictions. We will continue our global activities to improve the health and well-being of humans and animals in a manner consistent with applicable laws and our internal policies.

To our knowledge, none of our activities during 2012 are required to be disclosed pursuant to ITRSHRA, with the following possible exceptions:

(1)
Pursuant to U.S. government authorizations, during 2012, our Animal Health business unit, through a non-U.S. affiliate, shipped Pfizer products to authorized customers in Iran. These shipments were backed by letters of credit issued by Bank Tejarat to a non-U.S. company acquired by Pfizer in 2011. The letters of credit were issued by Bank Tejarat and the Pfizer products were shipped to customers in Iran prior to the Bank’s designation as a Specially Designated National (SDN) under Executive Order 13382. After Bank Tejarat’s designation, Pfizer’s non-U.S. affiliate sought payment from Bank Tejarat by presenting shipping documentation to the non-U.S. affiliate’s bank in Europe

20


and, as a result, subsequently received certain payments. Not all funds related to these transactions have been received from Bank Tejarat. Where required, we have requested U.S. government authorization to process the funds received and to be received. For funds received in 2012, our estimated gross revenues associated with these transactions were euro 222,962. Other than as set forth in the Notes to Consolidated Financial Statements — Note 18. Segment, Geographic and Other Revenue Information , including the tables therein captioned Selected income statement information, Geographic Information and Significant Product Revenues in our 2012 Financial Report and in the table captioned Revenues by Segment and Geographic Area in the MD&A in our 2012 Financial Report, we do not allocate net profit on a country-by-country or activity-by-activity basis and, thus, cannot provide specific net profits ascribable to this activity. Pfizer’s net profits attributable to these transactions in 2012 were a fraction of the gross revenues.
(2)
Pursuant to U.S. government authorizations, during 2012, our Emerging Markets business unit, through a non-U.S. affiliate, shipped Pfizer products to authorized customers in Iran. The shipments were backed by letters of credit issued by Bank Tejarat prior to its designation as an SDN under Executive Order 13382. As a result of the shipments, which also occurred prior to Bank Tejarat’s designation, Pfizer’s non-U.S. affiliate sought payment from Bank Tejarat by presenting shipping documentation to the non-U.S. affiliate’s bank in Europe. In some cases, the presentation of documents occurred before Bank Tejarat’s designation, and in other cases after such designation. Not all funds related to these transactions have been received from Bank Tejarat. We have received U.S. government authorization for several of the foregoing transactions with Bank Tejarat and, where required, have requested U.S. government authorization for the other transactions with Bank Tejarat. For funds received in 2012, our estimated gross revenues associated with these transactions were euro 397,071. As noted above, we do not allocate net profits on a country-by-country or activity-by-activity basis and, thus, cannot provide specific net profits ascribable to this activity. Pfizer’s net profits attributable to these transactions in 2012 were a fraction of the gross revenues.
(3)
Pursuant to U.S. government authorizations, during 2012, our Emerging Markets business unit, through a non-U.S. affiliate, shipped Pfizer products to an authorized customer in Syria. These shipments were backed by a letter of credit issued by Syria International Islamic Bank (SIIB) prior to SIIB’s designation as an SDN under Executive Order 13382. As a result of the shipment, which occurred prior to SIIB’s designation as an SDN, Pfizer’s non-U.S. affiliate sought payment from SIIB by presenting shipping documentation to the non-U.S. affiliate’s bank in Europe. Both the presentation of documents and the resulting payment occurred after SIIB was designated as an SDN. Where required, we have requested U.S. government authorization to process the funds received. Our estimated gross revenues in 2012 associated with this transaction were euro 315,960. As noted above, we do not allocate net profits on a country-by-country or activity-by-activity basis and, thus, cannot provide specific net profits ascribable to this activity. Pfizer’s net profits attributable to this transaction in 2012 were a fraction of the gross revenues.

We have informed our customers that, in connection with future transactions with Pfizer, Bank Tejarat, SIIB and any other banks designated as SDNs under Executive Order 13382 are not to be used.


21


ITEM 1A.
RISK FACTORS

The statements in this Section describe the major risks to our business and should be considered carefully. In addition, these statements constitute our cautionary statements under the Private Securities Litigation Reform Act of 1995.

Our disclosure and analysis in this 2012 Form 10-K and in our 2012 Annual Report to Shareholders contain forward-looking statements that set forth anticipated results based on management’s plans and assumptions. From time to time, we also provide forward-looking statements in other materials we release to the public, as well as oral forward-looking statements. Such forward-looking statements involve substantial risks and uncertainties. We have tried, wherever possible, to identify such statements by using words such as “will,” “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “target,” “forecast”, “goal”, “objective” and other words and terms of similar meaning, or by using future dates in connection with any discussion of, among other things, our anticipated future operating or financial performance, business plans and prospects, in-line products and product candidates, strategic reviews, capital allocation, business-development plans and plans relating to share repurchases and dividends. In particular, these include statements relating to future actions, business plans and prospects, prospective products or product approvals, future performance or results of current and anticipated products, sales efforts, expenses, interest rates, foreign exchange rates, the outcome of contingencies, such as legal proceedings, plans relating to share repurchases and dividends, government regulation and financial results, including, in particular, the financial guidance set forth in the Overview of Our Performance, Operating Environment, Strategy and Outlook — Our Financial Guidance for 2013 section of the MD&A in our 2012 Financial Report and the anticipated costs and cost reductions set forth in the Analysis of the Consolidated Statements of Income — Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives section of the MD&A in our 2012 Financial Report.

We cannot guarantee that any forward-looking statement will be realized, although we believe we have been prudent in our plans and assumptions. Achievement of anticipated results is subject to substantial risks, uncertainties and inaccurate assumptions. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could vary materially from past results and those anticipated, estimated or projected. You should bear this in mind as you consider forward-looking statements, and you are cautioned not to put undue reliance on forward-looking statements.

We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in our Form 10-Q and 8-K reports and our other filings with the SEC. Also note that we provide the following cautionary discussion of risks, uncertainties and possibly inaccurate assumptions relevant to our businesses. These are factors that, individually or in the aggregate, may cause our actual results to differ materially from expected and historical results. We note these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider the following to be a complete discussion of all potential risks or uncertainties.

U.S. Healthcare Reform/Healthcare Legislation

As mentioned above under Government Regulation and Price Constraints , the ACA was enacted by Congress in March 2010 and its provisions become effective on various dates. We expect that the rebates, discounts, taxes and other costs resulting from the ACA over time will have a significant effect on our expenses and profitability in the future. See the discussion under the Overview of Our Performance, Operating Environment, Strategy and Outlook — Our Operating Environment — U.S. Healthcare Legislation section of the MD&A in our 2012 Financial Report and in Item 1. Business under the caption Government Regulation and Price Constraints . Furthermore, the IPAB created by the ACA to reduce the per capita rate of growth in Medicare spending, could potentially limit access to certain treatments or mandate price controls for our products. Moreover, expanded government investigative authority may increase the costs of compliance with new regulations and programs. We also face the uncertainties that might result from any modification, repeal or invalidation of any of the provisions of the ACA.

U.S. Deficit Reduction and Debt Ceiling Actions

As discussed above under Government Regulation and Price Constraints — Budget Control Act of 2011 , while we do not know the specific nature of the spending reductions under the Budget Control Act that will affect Medicare, we do not expect that those reductions will have a material adverse impact on our results of operations. However, any significant spending reductions affecting Medicare, Medicaid or other publicly funded or subsidized health programs that may be implemented,

22


and/or any significant additional taxes or fees that may be imposed on us, as part of any broader deficit-reduction effort or legislative replacement to the Budget Control Act, could have an adverse impact on our results of operations.

Similarly, as discussed above under Government Regulation and Price Constraints — Federal Debt Ceiling , the possible failure of the U.S. federal government to suspend enforcement of the federal debt ceiling beyond May 18, 2013 or to increase the federal debt ceiling, and any resulting inability of the federal government to satisfy its financial obligations, including making payments under Medicare, Medicaid and other publicly funded or subsidized health programs could have an adverse impact on our results of operations.

Pricing Pressures and Government Regulation

U.S. and foreign governmental regulations mandating price controls and limitations on patient access to our products impact our business, and our future results could be adversely affected by changes in such regulations or policies. In the U.S., many of our biopharmaceutical products are subject to increasing pricing pressures. Such pressures have increased as a result of the 2003 Medicare Modernization Act (2003 MMA) due to the enhanced purchasing power of the private sector plans that negotiate on behalf of Medicare beneficiaries. In addition, if the 2003 MMA or the ACA were amended to impose direct governmental price controls and access restrictions, it would have a significant adverse impact on our business. Furthermore, MCOs, as well as Medicaid and other government agencies, continue to seek price discounts. Some states have implemented, and other states are considering, price controls or patient access constraints under the Medicaid program, and some states are considering price-control regimes that would apply to broader segments of their populations that are not Medicaid-eligible. Other matters also could be the subject of U.S. federal or state legislative or regulatory action that could adversely affect our business, including, among others, changes in patent laws, restrictions on U.S. 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 cost differences and minimizes the therapeutic differences among pharmaceutical products and restricts access to innovative medicines. Further, there continue to be legislative proposals to amend U.S. laws to allow the importation into the U.S. of prescription drugs, which can be sold at prices that are regulated by the governments of various foreign countries. In addition to well-documented safety concerns, such as the increased risk of counterfeit products entering the supply chain, such importation could impact pharmaceutical prices in the U.S.

The prohibition against the use of federal funds for reimbursement of erectile dysfunction medications by the Medicaid program, which became effective January 1, 2006, and the similar federal funding prohibition for the Medicare Part D program, which became effective January 1, 2007, has had an adverse effect on our business. Any prohibitions on the use of federal funds for reimbursement of other classes of drugs in the future may also have an adverse effect.

We encounter similar regulatory and legislative issues in most other countries. In Europe, Canada, China, South Korea and some other international markets, governments provide healthcare at low direct cost to consumers and regulate pharmaceutical prices or patient reimbursement levels to control costs for government-sponsored healthcare systems. In particular, there were government-mandated price reductions for certain biopharmaceutical products in Japan and certain European and emerging market countries in 2012, and we anticipate continuing pricing pressures in Japan, Europe and emerging markets in 2013. This international patchwork of price regulation has led to different prices and some third-party trade in our products between countries. As a result, it is expected that pressures on the pricing component of operating results will continue. The adoption of restrictive price controls in new jurisdictions or more restrictive ones in existing jurisdictions, failure to obtain timely or adequate government-approved pricing or formulary placement where required for our products or obtaining such pricing or placement at unfavorable pricing could also adversely impact revenue. In our vaccines business, we participate in a tender process in many countries for participation in national immunization programs. Failure to secure participation in national immunization programs or to obtain acceptable pricing in the tender process could adversely affect our business.

Managed Care Trends

MCOs and other private insurers frequently adopt their own payment or reimbursement reductions. Consolidation among MCOs has increased the negotiating power of these entities. Private third-party payers, as well as governments, increasingly employ formularies to control costs by negotiating discounted prices in exchange for formulary inclusion. Failure to obtain timely or adequate pricing or formulary placement for our products or obtaining such pricing or placement at unfavorable pricing could adversely impact revenue. In addition to formulary tier co-pay differentials, private health insurance companies and self-insured employers have been raising co-payments required from beneficiaries, particularly for branded pharmaceuticals and biotechnology products. Private health insurance companies also are increasingly imposing utilization management tools, such as requiring prior authorization for a branded product if a generic product is available or requiring the patient to first fail on one or more generic products before permitting access to a branded medicine. As the U.S. payer market

23


concentrates further and as more drugs become available in generic form, biopharmaceutical companies may face greater pricing pressure from private third-party payers, who will continue to drive more of their patients to use lower cost generic alternatives.

Generic Competition

Competition from manufacturers of generic drugs is a major challenge for us around the world, and the loss or expiration of intellectual property rights can have a significant adverse effect on our revenues. Upon the expiration or loss of patent protection for one of our products, or upon the “at-risk” launch (despite pending patent infringement litigation against the generic product) by a generic manufacturer of a generic version of one of our patented products, we can lose the major portion of revenues for that product in a very short period of time, which can adversely affect our business. As discussed above, a number of our current products are expected to face significantly increased generic competition over the next few years.

Also, the patents covering several of our medicines, including Viagra , Lyrica , Sutent , Rapamune , EpiPen , Torisel , Pristiq and Embeda extended-release capsules are being challenged by generic manufacturers. In addition, our patent-protected products may face competition in the form of generic versions of competitors’ branded products that lose their market exclusivity.

Competitive Products

We cannot predict with accuracy the timing or impact of the introduction of competitive products or their possible effect on our sales. Products that compete with ours, including some of our best-selling medicines, are launched from time to time. Competitive product launches have occurred in recent years, and certain potentially competitive products are in various stages of development, some of which have been filed for approval with the FDA and with regulatory authorities in other countries.

Dependence on Key In-Line Products

We recorded direct product revenues of more than $1 billion for each of 10 biopharmaceutical products in 2012: Lyrica , Lipitor , Enbrel , Prevnar 13/Prevenar 13 , Celebrex , Viagra , Norvasc , Zyvox , Sutent , and the Premarin family. Those products accounted for 49% of our total biopharmaceutical revenues in 2012. If these products or any of our other major products were to become subject to problems such as loss of patent protection, changes in prescription growth rates, material product liability litigation, unexpected side effects, regulatory proceedings, publicity affecting doctor or patient confidence, pressure from existing competitive products, changes in labeling or, if a new, more effective treatment should be introduced, the adverse impact on our revenues could be significant. As noted, patents covering several of our best-selling medicines have recently expired or will expire in the next few years (including some of our billion-dollar and previously billion-dollar products such as Lipitor and Xalatan/Xalacom ), and patents covering a number of our best-selling medicines are the subject of pending legal challenges. In addition, our revenues could be significantly impacted by the timing and rate of commercial acceptance of key new products.

Further, our Alliance revenues will be adversely affected by the termination or expiration of collaboration agreements that we have entered into and that we may enter into from time to time. For example, our rights to Aricept in Japan returned to Eisai in December 2012; our collaboration with Boehringer Ingelheim for Spiriva expires on a country-by-country basis between 2012 and 2016, including the expiration in certain EU markets, Canada and Australia in 2012; our U.S. and Canada collaboration agreement with Amgen Inc. (Amgen) for Enbrel will expire in October 2013 (our exclusive rights to Enbrel outside the U.S. and Canada will not be affected by the expiration of the co-promotion agreement with Amgen); and our collaboration agreement with EMD Serono Inc. (Serono) to co-promote Rebif in the U.S. will expire either at the end of 2013 or the end of 2015, depending on the outcome of pending litigation between us and Serono concerning the interpretation of the agreement. See the Analysis of the Consolidated Statements of Income — Biopharmaceutical — Selected Product Descriptions and Overview of Our Performance, Operating Environment, Strategy and Outlook — The Loss or Expiration of Intellectual Property Rights sections of the MD&A in our 2012 Financial Report for additional information on the expirations of these agreements.

Research and Development Investment

The discovery and development of safe, effective new products, and the development of additional uses for existing products, are necessary for the continued strength of our business. Our product lines must be replenished over time in order to offset revenue losses when products lose their exclusivity, as well as to provide for revenue and earnings growth. Our growth potential depends in large part on our ability to identify and develop new products or new indications for existing products

24


that address unmet medical needs and receive reimbursement from payers, either through internal research and development or through collaborations, acquisitions, joint ventures or licensing or other arrangements with third parties. However, balancing current growth and investment for the future remains a major challenge. Our ongoing investments in new product introductions and in research and development for new products and existing product extensions could exceed corresponding sales growth. This could produce higher costs without a proportional increase in revenues.

Additionally, our research and development investment plans and resources may not be correctly matched between science and markets, and failure to invest in the right technology platforms, therapeutic segments, product classes, geographic markets and/or in-licensing and out-licensing opportunities in order to deliver a robust pipeline could adversely impact the productivity of our pipeline. Further, even if the areas with the greatest market attractiveness are identified, the science may not work for any given program despite the significant investment required for research and development.

In 2011, we announced a focus on fewer disease areas where we believe we can deliver the greatest medical and commercial success, as well as the implementation of our R&D footprint reduction by moving forward on our productivity initiatives. There can be no assurance that this strategy will deliver the desired result in the targeted timeframe or at all, which could affect profitability in the future.

Development, Regulatory Approval and Marketing of Products

The outcome of the lengthy and complex process of identifying new compounds and developing new products is inherently uncertain and involves a high degree of risk. Drug discovery and development is time-consuming, expensive and unpredictable. The process from early discovery or design to development to regulatory approval can take many years. Drug candidates can fail at any stage of the process. There can be no assurance as to whether or when we will receive regulatory approval for new products or for new indications or dosage forms for existing products. Decisions by regulatory authorities regarding labeling, ingredients and other matters could adversely affect the availability or commercial potential of our products, and there is no assurance that any of our late stage pipeline products will receive regulatory approval and/or be commercially successful or that recently approved products will be approved in other markets and/or be commercially successful. There is also a risk that we may not adequately address existing regulatory agency findings concerning the adequacy of our regulatory compliance processes and systems or implement sustainable processes and procedures to maintain regulatory compliance and to address future regulatory agency findings, should they occur.

There are many considerations that can affect the marketing of our products around the world. Regulatory delays, the inability to successfully complete or adequately design and implement clinical trials within the anticipated quality, time and cost guidelines or in compliance with applicable regulatory expectations, claims and concerns about safety and efficacy, new discoveries, patent disputes and claims about adverse side effects are a few of the factors that can adversely affect the realization of research and development and product-related, forward-looking statements. Further, claims and concerns about safety and efficacy can result in a negative impact on product sales, product recalls or withdrawals, and/or consumer fraud, product liability and other litigation and claims. Also, increasing regulatory scrutiny of drug safety and efficacy, with regulatory authorities increasingly focused on product safety and the risk/benefit profile of products as they relate to already-approved products, has resulted in a more challenging, expensive and lengthy regulatory approval process due to requests for, among other things, additional clinical trials prior to granting approval or increased post-approval requirements, such as risk evaluation and mitigation strategies (see Post-Approval Data below).

In addition, failure to put in place adequate controls and/or resources for effective collection, reporting and management of adverse events from clinical trials and post-marketing surveillance (see Post-Approval Data below), in compliance with current and evolving regulatory requirements could result in risks to patient safety, regulatory actions and risks to product sales.

Post-Approval Data

As a condition to granting marketing approval of a product, the FDA may require a company to conduct additional clinical trials. The results generated in these Phase IV trials could result in loss of marketing approval, changes in product labeling, and/or new or increased concerns about the side effects or efficacy of a product. The Food and Drug Administration Amendments Act of 2007 (the FDAAA) gave the FDA enhanced post-market authority, including the explicit authority to require post-market studies and clinical trials, labeling changes based on new safety information, and compliance with FDA-approved risk evaluation and mitigation strategies. The FDA’s exercise of its authority under the FDAAA has in some cases resulted, and in the future could result, in delays or increased costs during product development, clinical trials and regulatory review, increased costs to comply with additional post-approval regulatory requirements and potential restrictions on sales of approved products. Non-U.S. regulatory agencies often have similar authority and may impose comparable costs. For

25


example, a post-marketing study as part of a post-approval commitment to marketing authorization is becoming more common in China, where the SFDA requires additional clinical data in the Chinese population in order to further assess the safety and efficacy of a product, sometimes independent of the level of global clinical data available. Post-marketing studies, whether conducted by us or by others and whether mandated by regulatory agencies or voluntary, and other emerging data about marketed products, such as adverse event reports, may also adversely affect sales of our products. Further, the discovery of significant problems with a product similar to one of our products that implicate (or are perceived to implicate) an entire class of products could have an adverse effect on sales of the affected products. Accordingly, new data about our products, or products similar to our products, could negatively impact demand for our products due to real or perceived side effects or uncertainty regarding efficacy and, in some cases, could result in updated labeling, restrictions on use, product withdrawal or recall. Furthermore, new data and information, including information about product misuse, may lead government agencies, professional societies, practice management groups or organizations involved with various diseases to publish guidelines or recommendations related to the use of our products or the use of related therapies or place restrictions on sales. Such guidelines or recommendations may lead to lower sales of our products.

Patent Protection

Our long-term success largely depends on our ability to market technologically competitive products. We rely and expect to continue to rely on a combination of intellectual property, including patent, trademark, trade dress, copyright, trade secret and domain name protection laws, as well as confidentiality and license agreements with our employees and others, to protect our intellectual property and proprietary rights. If we fail to obtain and maintain adequate intellectual property protection, we may not be able to prevent third parties from launching generic versions of our products, using our proprietary technologies or from marketing products that are very similar or identical to ours. Our currently pending or future patent applications may not result in issued patents, or be granted on a timely basis. Similarly, any term extensions that we seek may not be granted on a timely basis, if at all. In addition, our issued patents may not contain claims sufficiently broad to protect us against third parties with similar technologies or products or provide us with any competitive advantage, including exclusivity in a particular product area. The scope of our patent claims also may vary between countries, as individual countries have distinctive patent laws. We may be subject to challenges by third parties regarding our intellectual property, including, among others, claims regarding validity, enforceability, scope and effective term.

Our ability to enforce our patents also depends on the laws of individual countries and each country’s practice with respect to enforcement of intellectual property rights, and the extent to which certain sovereigns may seek to engage in a policy of routine compulsory licensing of pharmaceutical intellectual property as a result of local political pressure or in the case of national emergencies. In addition, mechanisms exist in much of the world permitting some form of challenge by competitors or generic drug marketers to our patents prior to, or immediately following, the expiration of any regulatory exclusivity, and generic companies are increasingly employing aggressive strategies, such as “at risk” launches to challenge our patent rights. Further, if we are unable to maintain our existing license agreements or other agreements pursuant to which third parties grant us rights to intellectual property, including because such agreements expire or are terminated, our operating results and financial condition could be materially adversely affected. 

Likewise, in the U.S. and other countries, we currently hold issued trademark registrations and have trademark applications pending, any of which may be the subject of a governmental or third party objection, which could prevent the maintenance or issuance of the same. As our products mature, our reliance on our trademarks to differentiate us from our competitors increases and as a result, if we are unable to prevent third parties from adopting, registering or using trademarks and trade dress that infringe, dilute or otherwise violate our trademark rights, our business could be materially adversely affected. We actively seek to protect our proprietary information, including our trade secrets and proprietary know-how, by requiring our employees, consultants, other advisors and other third parties to execute proprietary information and confidentiality agreements upon the commencement of their employment, engagement or other relationship. Despite these efforts and precautions, we may be unable to prevent a third party from copying or otherwise obtaining and using our trade secrets or our other intellectual property without authorization, and legal remedies in some countries may not adequately compensate us for the damages caused by such unauthorized use. Further, others may independently and lawfully develop substantially similar or identical products that circumvent our intellectual property by means of alternative designs or processes or otherwise.

26



Biotechnology Products

As discussed above in Patents and Intellectual Property and Government Regulation and Price Constraints — Biosimilars , abbreviated legal pathways for the approval of biosimilars exist in certain international markets and, since the passage of the ACA, a framework for such approval exists in the U.S. If competitors are able to obtain marketing approval for biosimilars referencing our biotechnology products, our biotechnology products may become subject to competition from biosimilars, with attendant competitive pressure. The expiration or successful challenge of applicable patent rights could trigger this competition, assuming any relevant exclusivity period has expired. We may face more litigation with respect to the validity and/or scope of patents relating to our biotechnology products with substantial revenue.

We are developing biosimilar medicines. The developing pathway for registration and approval of biosimilar products in the U.S. could diminish the value of our past and future investments in biosimilars. Other risks related to our development of biosimilars include the potential for steeper than anticipated price erosion due to increased competitive intensity, coupled with high costs associated with clinical development or intellectual property challenges that may preclude timely commercialization of our potential biosimilar products. There is also a risk of lower prescriptions of biosimilars due to potential concerns over comparability with innovator medicines.

Research Studies

Decisions about research studies made early in the development process of a drug candidate can have a substantial impact on the marketing strategy and payer reimbursement possibilities once the drug receives approval. For example, more detailed studies can lead to approval for a broader set of indications that may impact the marketing and payer reimbursement process, but each additional indication must be balanced against the time and resources required to demonstrate benefit and the potential delays to approval of the primary indication. We try to plan clinical trials prudently and to reasonably foresee challenges, but there is no guarantee that an optimal balance between speed, trial conduct and desired outcome will be achieved each time. The quality of our decisions in this area could affect our future results.

Foreign Exchange and Interest Rate Risk

Significant portions of our revenues and earnings, as well as our substantial international net assets, are exposed to changes in foreign exchange rates. 61% of our total 2012 revenues were derived from international operations, including 26% from the Europe region and 21% from the Japan and the rest of Asia region. As we operate in multiple foreign currencies, including the euro, the Japanese yen, the U.K. pound, the Chinese renminbi, 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 weakens against a specific foreign currency, our revenues will increase, having a positive impact, and our overall expenses will increase, having a negative impact, on net income. Likewise, if the U.S. dollar strengthens against a specific foreign currency, our revenues will decrease, having a negative impact, and our overall expenses will decrease, having a positive impact, on net income. Therefore, significant changes in foreign exchange rates, including the impact of possible currency devaluations in countries experiencing high inflation rates, can impact our results and our financial guidance.

In addition, our interest-bearing investments and borrowings are subject to risk from changes in interest rates and foreign exchange rates. These risks and the measures we have taken to help contain them are discussed in the Forward-Looking Information and Factors That May Affect Future Results — Financial Risk Management section of the MD&A in our 2012 Financial Report. For additional details, see the Notes to Consolidated Financial Statements — Note 7E. Financial Instruments: Derivative Financial Instruments and Hedging Activities in our 2012 Financial Report. Those sections of our 2012 Financial Report are incorporated by reference.

Notwithstanding our efforts to foresee and mitigate the effects of changes in fiscal circumstances, we cannot predict with certainty changes in currency and interest rates, inflation or other related factors affecting our businesses.

Risks Affecting International Operations

Our international operations also could be affected by currency fluctuations, capital and exchange controls, expropriation and other restrictive government actions, changes in intellectual property legal protections and remedies, trade regulations and procedures and actions affecting approval, production, pricing, and marketing of, reimbursement for and access to our products, as well as by political unrest, unstable governments and legal systems and inter-governmental disputes. Any of these changes could adversely affect our business.


27


Many emerging markets have experienced growth rates in excess of the world’s largest markets, leading to an increased contribution to the industry’s global performance. As a result, we have been employing strategies to grow in emerging markets. However, there is no assurance that our strategies in emerging markets will be successful or that these countries will continue to sustain these growth rates. In addition, some emerging market countries may be particularly vulnerable to periods of financial instability or significant currency fluctuations or may have limited resources for healthcare spending, which, as discussed above, can adversely affect our results.

Specialty Pharmaceuticals

Specialty pharmaceuticals are medicines that treat rare or life-threatening conditions that typically have smaller patient populations. The growing availability and use of innovative specialty pharmaceuticals, combined with their relative higher cost as compared to other types of pharmaceutical products, has generated payer interest in developing cost-containment strategies targeted to this sector. While the impact on us of payers’ efforts to control access to and pricing of specialty pharmaceuticals has been limited to date, our growing portfolio of specialty products, combined with the increasing use of health technology assessment in markets around the world, and the deteriorating finances of certain governments, may lead to a more significant adverse business impact in the future.

Animal Health

The Animal Health operating segment may be impacted by, among other things, emerging restrictions and bans on the use of antibacterials in food-producing animals; perceived adverse effects on human health linked to the consumption of food derived from animals that utilize our products; increased regulation or decreased governmental support relating to the raising, processing or consumption of food-producing animals; an outbreak of infectious disease carried by animals; adverse weather conditions and the availability of natural resources; adverse global economic conditions; and failure of the R&D, acquisition and licensing efforts to generate new products. See Global Economic Conditions below.

Consumer Healthcare

The Consumer Healthcare operating segment may be impacted by economic volatility, the timing and severity of the cough, cold and flu season, generic or store brand competition affecting consumer spending patterns and market share gains of competitors’ branded products or generic store brands. In addition, regulatory and legislative outcomes regarding the safety, efficacy or unintended uses of specific ingredients in our Consumer Healthcare products may require withdrawal and/or reformulation of certain products (e.g., cough/cold products). See Global Economic Conditions below.

Global Economic Conditions

In addition to industry-specific factors, we, like other businesses, continue to face the effects of the challenging economic environment, which have impacted our biopharmaceutical operations in the U.S. and Europe, including the countries that use the euro, affecting the performance of products such as Lyrica , Enbrel , Prevnar 13/Prevenar 13 and Celebrex , and in a number of emerging markets. We believe that patients, experiencing the effects of the challenging economic environment, including high unemployment levels, and increases in co-pays, sometimes switch to generic products, delay treatments, skip doses or use less effective treatments to reduce their costs. Challenging economic conditions in the U.S. also have increased the number of patients in the Medicaid program, under which sales of pharmaceuticals are subject to substantial rebates and, in many states, to formulary restrictions limiting access to brand-name drugs, including ours. In addition, we continue to experience pricing pressure in various markets around the world, including in developed European markets, Japan and in a number of emerging markets, with government-mandated reductions in prices for certain biopharmaceutical products and government-imposed access restrictions in certain countries.

The challenging global economic environment has not had, nor do we anticipate it will have, a material impact on our liquidity or capital resources. Due to our significant operating cash flows, financial assets, access to capital markets and available lines of credit and revolving credit agreements, we continue to believe that we have the ability to meet our liquidity needs for the foreseeable future. As market conditions change, we continue to monitor our liquidity position. However, there can be no assurance that our liquidity or capital resources will not be affected by possible future changes in global financial markets and global economic conditions.

Other potential impacts of these challenging economic conditions include declining sales; increased costs; changes in foreign exchange rates; a decline in the value of, or a lower rate of return on, our financial assets and pension plan investments, which may require us to increase our pension funding obligations; adverse government actions; delays or failures

28


in the performance of customers, suppliers, and other third parties on whom we may depend for the performance of our business; and the risk that our allowance for doubtful accounts may not be adequate.

Outsourcing

We outsource certain services to third parties in areas including transaction processing, accounting, information technology, manufacturing, clinical trial execution, non-clinical research, safety services and other areas. For example, during 2012, we implemented the transfer of approximately 200 on-going clinical trials to two strategic partners (clinical research organizations or CROs), and any issues with either or both of these CROs may adversely impact the progression of our clinical trial programs. Outsourcing of services to third parties could also expose us to sub-optimal quality of service delivery, which may result in missed deadlines, supply disruptions, non-compliance or reputational harm, all with potential negative implications for our results.

We continue to pursue a multi-year initiative to outsource some transaction-processing activities within certain accounting processes and are migrating to a consistent enterprise resource planning system across the organization. These are enhancements of ongoing activities to support the growth of our financial shared service capabilities and standardize our financial systems. If any difficulties in the migration to or in the operation of the new system were to occur, they could adversely affect our operations, including, among other ways, through a failure to meet demand for our products, or adversely affect our ability to meet our financial reporting obligations.

Interactions with Healthcare Professionals and Government Officials

Risks and uncertainties apply where we provide something of value to a healthcare professional and/or government official, which, if found to be improper, could potentially result in government enforcement actions and penalties. These risks may increase as non-U.S. jurisdictions adopt new anti-bribery laws and regulations.

Difficulties of Our Wholesale Distributors

In 2012, our largest wholesale distributor accounted for approximately 12% of our total revenue (and 28% of our total U.S. revenue), and our top three wholesale distributors accounted for approximately 28% of our total revenue (and 68% of our total U.S. revenue). If one of our significant wholesale distributors should encounter financial or other difficulties, such distributor might decrease the amount of business that it does with us, and we might be unable to collect all the amounts that the distributor owes us on a timely basis or at all, which could negatively impact our results of operations.

Product Manufacturing and Marketing Risks

Difficulties or delays in product manufacturing or marketing could affect future results through regulatory actions, shut-downs, approval delays, withdrawals, recalls, penalties, supply disruptions or shortages, reputational harm, product liability, unanticipated costs or otherwise. Examples of such difficulties or delays include, but are not limited to, the inability to increase production capacity commensurate with demand; the failure to predict market demand for, or to gain market acceptance of, approved products; the possibility that the supply of incoming materials may be delayed or become unavailable and that the quality of incoming materials may be substandard and not detected; the possibility that we may fail to maintain appropriate quality standards throughout the internal and external supply network and/or comply with current Good Manufacturing Practices and other applicable regulations; or risk to supply chain continuity as a result of natural or man-made disasters at our facilities or at a supplier or vendor.

Counterfeit Products

A counterfeit medicine is one that has been deliberately and fraudulently mislabeled as to its identity and source. A counterfeit Pfizer medicine, therefore, is one manufactured by someone other than Pfizer, but which appears to be the same as an authentic Pfizer medicine. Counterfeit medicines pose a risk to patient health and safety because of the conditions under which they are manufactured — in unregulated, unlicensed, uninspected and often unsanitary sites — as well as the lack of regulation of their contents. Failure to mitigate the threat of counterfeit medicines, which is exacerbated by the complexity of our supply chain, could adversely impact our business, by, among other things, causing the loss of patient confidence in the Pfizer name and in the integrity of our medicines.

29



Cost and Expense Control/Unusual Events/Intangible Assets and Goodwill

Growth in costs and expenses, changes in product, segment and geographic mix and the impact of acquisitions, divestitures, restructurings, product withdrawals, recalls and other unusual events that could result from evolving business strategies, evaluation of asset realization and organizational restructuring could adversely affect future results. Such risks and uncertainties include, in particular, our ability to realize the projected benefits of our cost-reduction and productivity initiatives, including those related to our research and development function.

In addition, our consolidated balance sheet contains significant amounts of intangible assets, including goodwill. For IPR&D assets, the risk of failure is significant, and there can be no certainty that these assets will ultimately yield successful products. The nature of the biopharmaceutical business is high-risk and requires that we invest in a large number of projects in an effort to achieve a successful portfolio of approved products. Our ability to realize value on these significant investments is often contingent upon, among other things, regulatory approvals and market acceptance. As such, we expect that many of these IPR&D assets will become impaired and be written off at some time in the future. For goodwill, we have seven reporting units with associated goodwill balances and, while we do not believe that the risk of goodwill impairment for any of our reporting units is significant at this time, all reporting units can confront events and circumstances that can lead to a goodwill impairment charge (such as, among other things, unanticipated competition, an adverse action or assessment by a regulator, a significant adverse change in legal matters or in the business climate and/or a failure to replace the contributions of products that lose exclusivity).

Changes in Laws and Accounting Standards

Our future results could be adversely affected by changes in laws and regulations, including, among others, changes in accounting standards, taxation requirements (including tax rate changes, new tax laws and revised tax law and regulatory interpretations, including changes affecting the taxation by the U.S. of income earned outside the U.S. that may result from pending and possible future proposals), competition laws, privacy laws and environmental laws in the U.S. and other countries.

Terrorist Activity

Our future results could be adversely affected by changes in business, political and economic conditions, including the cost and availability of insurance, due to the threat of terrorist activity in the U.S. and other parts of the world and related U.S. military action overseas.

Legal Proceedings

We and certain of our subsidiaries are involved in various patent, product liability, consumer, commercial, securities, antitrust, environmental, employment and tax litigations and claims, government investigations and other legal proceedings that arise from time to time in the ordinary course of our business. Litigation is inherently unpredictable, and excessive verdicts do occur. Although we believe we have substantial defenses in these matters, we could in the future incur judgments, enter into settlements of claims or revise our expectations regarding the outcomes of certain matters, and such developments could have a material adverse effect on our results of operations in the period in which the amounts are accrued and/or our cash flows in the period in which the amounts are paid.

Our activities relating to the sale and marketing and the pricing of our products are subject to extensive regulation under the U.S. Federal Food, Drug, and Cosmetic Act, the Medicaid Drug Rebate Program, the U.S. Foreign Corrupt Practices Act (FCPA) and other federal and state statutes, including those discussed elsewhere in this 2012 Form 10-K, as well as anti-kickback and false claims laws, and similar laws in foreign jurisdictions. Like many companies in our industry, we have from time to time received inquiries and subpoenas and other types of information demands from government authorities, and been subject to claims and other actions related to our business activities brought by governmental authorities, as well as by consumers and private payers. In some instances, we have incurred significant expense, civil payments, fines and other adverse consequences as a result of these claims, actions and inquiries. For example, these claims, actions and inquiries may relate to alleged failures to accurately interpret or identify or prevent non-compliance with the laws and regulations associated with the dissemination of product information (approved and unapproved), potentially resulting in government enforcement and damage to our reputation. This risk may be heightened by digital marketing, including social media, mobile applications and blogger outreach.


30


In connection with the resolution of certain U.S. government investigations concerning various products in September 2009, we entered into a Corporate Integrity Agreement (CIA) with the Office of the Inspector General of the U.S. Department of Health and Human Services, which is effective through December 31, 2014. In connection with the resolution of our FCPA matters in August 2012, one of our subsidiaries entered into a Deferred Prosecution Agreement (DPA) with the U.S. Department of Justice, which has a term of approximately two years. In the CIA and DPA, we agreed to implement and/or maintain certain compliance program elements to promote compliance with federal healthcare program and FDA requirements, and anti-bribery and anti-corruption and other applicable laws. A material failure to comply with the CIA or DPA could result in severe sanctions against us.

Patent claims include challenges to the coverage and/or validity of our patents on various products or processes. Although we believe we have substantial defenses to these challenges with respect to all our material patents, there can be no assurance as to the outcome of these matters, and a loss in any of these cases could result in a loss of patent protection for the drug at issue, which could lead to a significant loss of sales of that drug and could materially affect future results of operations.

Business Development Activities

We expect to continue to enhance our in-line products and product pipeline through acquisitions, licensing and alliances. See the Overview of Our Performance, Operating Environment, Strategy and Outlook — Our Business Development Initiatives section of the MD&A in our 2012 Financial Report, which is incorporated by reference. However, these enhancement plans are subject to the availability and cost of appropriate opportunities and competition from other pharmaceutical companies that are seeking similar opportunities and our ability to successfully identify, structure and execute transactions.

Information Technology and Security

Significant disruptions of information technology systems or breaches of information security could adversely affect our business. We rely to a large extent upon sophisticated information technology systems to operate our business. In the ordinary course of business, we collect, store and transmit large amounts of confidential information, and it is critical that we do so in a secure manner to maintain the confidentiality and integrity of such confidential information. We also have outsourced significant elements of our operations to third parties, including significant elements of our information technology infrastructure, and as a result we are managing many independent vendor relationships with third parties who may or could have access to our confidential information. The size and complexity of our information technology systems, and those of our third party vendors with whom we contract, make such systems potentially vulnerable to service interruptions. The size and complexity of our and our vendors’ systems and the large amounts of confidential information that is present on them also makes them potentially vulnerable to security breaches from inadvertent or intentional actions by our employees or vendors, or from attacks by malicious third parties. We and our vendors could be susceptible to third party attacks on our information security systems, which attacks are of ever increasing levels of sophistication and are made by groups and individuals with a wide range of motives and expertise, including criminal groups, “hactivists,” and others. While we have invested heavily in the protection of data and information technology, there can be no assurance that our efforts will prevent service interruptions or security breaches in our systems that could adversely affect our business operations and/or result in the loss of critical or sensitive information, and any such interruption or breach could result in financial, legal, business and reputational harm to us.

Failure to Realize the Anticipated Benefits of Strategic Initiatives and Acquisitions

Our future results may be affected by (i) the impact of, and our ability to successfully execute, any strategic alternative we may decide to pursue with regard to our remaining ownership stake in Zoetis, as well as any other corporate strategic initiatives we may pursue in the future, and (ii) our ability to realize the projected benefits of any acquisitions, divestitures or other initiatives we may pursue in the future.


31


ITEM 1B.
UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2.
PROPERTIES

In 2012, we continued to consolidate our operations to achieve efficiencies and to dispose of excess space. Presently, we have 654 owned and leased properties, amounting to approximately 51 million square feet, down from a total of approximately 59 million square feet at the end of 2011. Our goal is to continue with further consolidation in 2013.

In addition to our 654 properties, there are approximately 170 properties that relate to our Animal Health operating segment, amounting to approximately 2 million square feet, including properties relating to veterinary medicine research and development operations (which have been transferred to our subsidiary Zoetis in connection with the IPO) in Kalamazoo, MI, San Diego, CA, Charles City, IA, College Park, MD, Lincoln, NE, and Durham, NC in the U.S.; Victoria, British Columbia in Canada; Louvain-la-Neuve and Zaventem, Belgium; Olot, Spain; Sao Paulo and Guarulhos, Brazil; Melbourne, Australia; Mumbai and New Delhi, India; and Jilin, China.

Pfizer’s corporate headquarters are in New York City. With the exception of the Specialty Care business unit (which is headquartered in Collegeville, Pennsylvania), our biopharmaceutical units also are headquartered in New York City. Our other business units are headquartered in Madison, New Jersey.

In 2012, we successfully disposed of surplus space, exiting or reducing our real estate space in certain locations in the U.S., Europe, and Asia. Further, active marketing of properties for sale is continuing in a number of locations.

Our biopharmaceutical and other businesses expect to continue to own and lease space around the world for sales and marketing, customer service and administrative support functions. In many locations, these businesses will be co-located to achieve synergies and operational efficiencies.

Our Worldwide R&D facilities support our R&D organizations around the world, with heavy concentration in North America. In 2012, we continued with the implementation of our previously announced R&D facility changes, including the sale of our Sandwich, U.K. site with a lease back of space for Clinical Supplies Research and Manufacturing, and completion of the moves of our Cardiovascular, Metabolic and Endocrine Disease (CVMED) and Neuroscience research units from our research campus in Groton, CT to Cambridge, MA.

Our Pfizer Global Supply (PGS) Division is headquartered in various locations, with leadership teams primarily in New York, NY and in Peapack, NJ. PGS operates 84 plants around the world (25 of which relate to our Animal Health operating segment), which manufacture products for our commercial divisions. Locations with major manufacturing facilities include Belgium, China, Germany, Ireland, Italy, Japan, Puerto Rico, Singapore and the U.S. Our Global Supply Division’s plant network strategy is expected to result in the exit of eight of these sites over the next several years. PGS also operates multiple distribution facilities around the world.

In general, we believe that our properties are well-maintained, adequate and suitable for their current requirements and for our operations in the foreseeable future. See the Notes to Consolidated Financial Statements — Note 9. Property, Plant and Equipment in our 2012 Financial Report, which provides amounts invested in land, buildings and equipment and which is incorporated by reference. See also the discussion in the Notes to Consolidated Financial Statements — Note 15. Lease Commitments in our 2012 Financial Report, which is also incorporated by reference.




32


ITEM 3.
LEGAL PROCEEDINGS

Certain legal proceedings in which we are involved are discussed in the Notes to Consolidated Financial Statements — Note 17. Commitments and Contingencies in our 2012 Financial Report, which is incorporated by reference.

ITEM 4.
MINE SAFETY DISCLOSURES

Not applicable.


33


EXECUTIVE OFFICERS OF THE COMPANY

The executive officers of the Company are set forth in this table. Each holds the office or offices indicated until his or her successor is chosen and qualified at the regular meeting of the Board of Directors to be held on the date of the 2013 Annual Meeting of Shareholders. Each of the executive officers is a member of the Pfizer Executive Leadership Team.

Name
 
Age
 
Position
Ian C. Read
 
59

 
Chairman and Chief Executive Officer since December 2011. President and Chief Executive Officer from December 2010 until December 2011. Senior Vice President, Group President of the Worldwide Biopharmaceutical Businesses (Primary Care, Specialty Care, Oncology, Established Products and Emerging Markets), from 2006 through December 2010. Since joining Pfizer in 1978 as an operational auditor, Mr. Read has held various positions of increasing responsibility in pharmaceutical operations. He worked in Latin America through 1995, holding positions including Chief Financial Officer, Pfizer Mexico, and Country Manager, Pfizer Brazil. In 1996, Mr. Read was appointed President of Pfizer’s International Pharmaceuticals Group, with responsibility for Latin America and Canada. He became Executive Vice President, Europe in 2000, was named a Corporate Vice President in 2001, and assumed responsibility for Canada, in addition to Europe, in 2002. Mr. Read later became accountable for operations in both the Africa/Middle East region and Latin America as well. Currently a Director of Kimberly-Clark Corporation. Serves on the Boards of Pharmaceutical Research and Manufacturers of America (PhRMA), and the Partnership for New York City. Our Director since December 2010.
 
 
 
 
 
Olivier Brandicourt
 
57

 
President and General Manager, Pfizer Emerging Markets and Established Products since June 2012. President and General Manager of Pfizer Primary Care from 2009 until June 2012. In early 2009, served as President and General Manager of Pfizer Specialty Care. Senior Vice President and General Manager of U.S. Pratt Business Unit from 2007 until 2008. Managing Director of the United Kingdom/Ireland Pfizer subsidiary from 2004 to 2007.
 
 
 
 
 
Frank A. D’Amelio
 
55

 
Executive Vice President, Business Operations and Chief Financial Officer since December 2010. Senior Vice President and Chief Financial Officer from September 2007 until December 2010. Prior to joining Pfizer he was Senior Executive Vice President of Integration and Chief Administrative Officer of Alcatel-Lucent from November 2006 until August 2007. Chief Operating Officer of Lucent Technologies from January 2006 until November 2006. Chairman and Director of Zoetis. Director of Humana, Inc. and Chair of the Humana Audit Committee. He is a Director of the Independent College Fund of New Jersey.
 
 
 
 
 
Mikael Dolsten
 
54

 
President of Worldwide Research and Development since December 2010. Senior Vice President; President of Worldwide Research and Development from May 2010 until December 2010. Senior Vice President; President of Pfizer BioTherapeutics Research & Development Group from October 2009 until May 2010. He was Senior Vice President of Wyeth and President, Wyeth Research from June 2008 until October 2009. He was a Private Equity Partner at Orbimed Advisors, LLC from January 2008 until June 2008. Dr. Dolsten was Global Head, Corporate Division Pharma Research and Discovery, of Boehringer Ingelheim Corporation from 2003 to 2007.


34


Name
 
Age
 
Position
 
 
 
 
 
Geno J. Germano
 
52

 
President and General Manager, Pfizer Specialty Care and Oncology since December 2010. President and General Manager, Specialty Care from October 2009 until December 2010. President, U.S. Pharmaceuticals and Women’s Health Care Unit, Wyeth Pharmaceuticals from 2008 through October 2009. President and General Manager, U.S. Pharmaceutical Business Unit, Wyeth Pharmaceuticals from 2007 through 2008. Executive Vice President and General Manager, Pharmaceutical Business Unit, Wyeth Pharmaceuticals from 2004 through 2007. Currently a Director of Zoetis, Member of the Board of Trustees for Albany College of Pharmacy and Health Sciences and Member of the Board of Directors of BIO – Biotechnology Industry Organization.
 
 
 
 
 
Charles H. Hill III
 
57

 
Executive Vice President, Worldwide Human Resources since December 2010. Senior Vice President, Human Resources for Worldwide Biopharmaceuticals Businesses from 2008 through December 2010. Vice President, Human Resources, Worldwide Pharmaceutical Operations from 2004 through 2008. Currently a Director of Zoetis and Chair of the Zoetis Compensation Committee.
 
 
 
 
 
Douglas M. Lankler
 
47

 
Executive Vice President, Chief Compliance and Risk Officer since February 2011. Executive Vice President, Chief Compliance Officer from December 2010 until February 2011. Senior Vice President and Chief Compliance Officer from January 2010 until December 2010. Senior Vice President, Deputy General Counsel and Chief Compliance Officer from August 2009 until January 2010. Senior Vice President, Associate General Counsel and Chief Compliance Officer from October 2006 until August 2009. Prior to October 2006, Mr. Lankler held various positions of increasing responsibility within the Pfizer Legal Division.
 
 
 
 
 
Freda C. Lewis-Hall
 
58

 
Executive Vice President, Chief Medical Officer since December 2010. Senior Vice President, Chief Medical Officer from May 2009 until December 2010. Previously, she was Chief Medical Officer and Executive Vice President, Medicines Development at Vertex Pharmaceuticals from June 2008 until May 2009. Dr. Lewis-Hall was Senior Vice President, U.S. Pharmaceuticals, Medical Affairs for Bristol-Myers Squibb Company from 2003 until May 2008.
 
 
 
 
 
Anthony J. Maddaluna
 
60

 
Executive Vice President; President, Pfizer Global Supply since January 2013. President, Pfizer Global Supply from 2011 until December 2012. Senior Vice President, Strategy & Supply Network Transformation from 2009 until December 2010. Vice President, Strategy & Supply Network Transformation from 2008 until 2009.  Vice President and Team Leader, Europe from 1998 until 2008 including responsibility for global logistics and strategic planning from 2005 through 2008.  Mr. Maddaluna held a number of positions of increasing responsibility in manufacturing before being named General Manager of Pfizer Pharmaceuticals Inc. in Puerto Rico from 1994 until 1998. Mr. Maddaluna represents Pfizer on the National Association of Manufacturers (NAM) and is a member of the NAM Executive Committee. Mr. Maddaluna joined Pfizer in 1975.
 
 
 
 
 
Laurie J. Olson
 
49

 
Executive Vice President, Strategy, Portfolio and Commercial Operations since July 2012. Senior Vice President - Strategy and Portfolio Management from 2011 until July 2012. Senior Vice President - Portfolio Management and Analytics from 2008 until 2010. Since joining Pfizer in 1987 as an Analyst in the Company's marketing research organization, Ms. Olson has served in a variety of marketing leadership positions with increasing responsibility in both the Company’s U.S. and global commercial organizations.


35


Name
 
Age
 
Position
 
 
 
 
 
Amy W. Schulman
 
52

 
Executive Vice President and General Counsel since December 2010 and Business Unit Lead, Consumer Healthcare for Pfizer since August 2012.   Executive Vice President and General Counsel; President and General Manager, Nutrition from December 2010 until November 2012. Senior Vice President and General Counsel from June 2008 until December 2010. Ms. Schulman was a partner at the law firm of DLA Piper from 1997 until joining Pfizer in June 2008. Currently a Director of Zoetis and Chair of the Zoetis Corporate Governance Committee, Member of the Board of Directors of Wesleyan University and the Brooklyn Academy of Music.
 
 
 
 
 
Sally Susman
 
51

 
Executive Vice President, Policy, External Affairs and Communications of Pfizer since December 2010. Senior Vice President, Policy, External Affairs and Communications from December 2009 until December 2010. Senior Vice President and Chief Communications Officer from February 2008 until December 2009. Prior to joining Pfizer, Ms. Susman held senior level positions at The Estee Lauder Companies, including Executive Vice President from 2004 to January 2008.
 
 
 
 
 
John D. Young
 
48

 
President and General Manager, Pfizer Primary Care since June 2012. Primary Care Business Unit’s Regional President for Europe and Canada from 2009 until June 2012. UK Country Manager from 2007 until 2009. Since joining Pfizer in 1987, Mr. Young has held a number of positions of increasing responsibility in sales and marketing management before being appointed Country Manager for Australia/New Zealand in 2004.



36


PART II
 
ITEM 5.
MARKET FOR THE COMPANY’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The principal market for our Common Stock is the New York Stock Exchange (NYSE). Our stock is also listed on the NYSE Euronext Brussels Exchange, the London Stock Exchange and the SIX Swiss Stock Exchange, as well as various United States regional stock exchanges. Additional information required by this item is incorporated by reference from the table captioned Quarterly Consolidated Financial Data (Unaudited) in our 2012 Financial Report.

The following table provides certain information with respect to our purchases of shares of the Company’s Common Stock during the fourth fiscal quarter of 2012:
Issuer Purchases of Equity Securities (a)  

Period
Total Number of
    Shares Purchased (b)     
 
Average
Price
Paid per
    Share (b)     
 
Total Number of
Shares Purchased as
Part of Publicly
    Announced Plan (a)     
 
Approximate
Dollar Value of
Shares that May
Yet Be Purchased
    Under the Plan (a)     
October 1, 2012
Through
October 28, 2012
36,961,538

 
$
25.33

 
36,902,797

 
$
14,264,821,207

October 29, 2012
Through
November 30, 2012
52,404,279

 
$
24.39

 
51,587,525

 
$
13,007,534,929

December 1, 2012
Through
December 31, 2012
47,745,688

 
$
25.30

 
47,491,654

 
$
11,805,897,162

Total
137,111,505

 
$
24.96

 
135,981,976

 
 
_____________________ 
(a)
On December 12, 2011, we announced that the Board of Directors had authorized a $10 billion share-purchase plan (the December 2011 Stock Purchase Plan). On November 1, 2012, we announced that the Board of Directors had authorized an additional $10 billion share-purchase plan, which became effective on November 30, 2012.
(b)
In addition to amounts purchased under the December 2011 Stock Purchase Plan, these columns reflect the following transactions during the fourth fiscal quarter of 2012: (i) the surrender to Pfizer of 1,078,047 shares of common stock to satisfy tax withholding obligations in connection with the vesting of restricted stock and restricted stock units issued to employees; (ii) the open market purchase by the trustee of 32,674 shares of common stock in connection with the reinvestment of dividends paid on common stock held in trust for employees who were granted performance share awards and who deferred receipt of such awards; and (iii) the surrender to Pfizer of 18,808 shares of common stock to satisfy tax withholding obligations in connection with the vesting of performance share awards issued to employees.

ITEM 6.
SELECTED FINANCIAL DATA

Information required by this item is incorporated by reference from the discussion under the heading Financial Summary in our 2012 Financial Report.

ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Information required by this item is incorporated by reference from the discussion under the heading Financial Review in our 2012 Financial Report.

ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Information required by this item is incorporated by reference from the discussion under the Forward-Looking Information and Factors That May Affect Future Results — Financial Risk Management section of the MD&A in our 2012 Financial Report.

37



ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Information required by this item is incorporated by reference from the Report of Independent Registered Public Accounting Firm on the Consolidated Financial Statements in our 2012 Financial Report and from the consolidated financial statements, related notes and supplementary data in our 2012 Financial Report.

ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A.
CONTROLS AND PROCEDURES

Disclosure Controls

As of the end of the period covered by this 2012 Form 10-K, we carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective in alerting them in a timely manner to material information required to be disclosed in our periodic reports filed with the SEC.

Internal Control over Financial Reporting

Management’s report on the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act), and the related report of our independent registered public accounting firm, are included in our 2012 Financial Report under the headings Management’s Report on Internal Control Over Financial Reporting and Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting , respectively, and are incorporated by reference.

Changes in Internal Controls

During our most recent fiscal quarter, there has not been any change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. However, we do wish to highlight some changes which, taken together, are expected to have a favorable impact on our controls over a multi-year period. We continue to pursue a multi-year initiative to outsource some transaction-processing activities within certain accounting processes and are migrating to a consistent enterprise resource planning system across the organization. These are enhancements of ongoing activities to support the growth of our financial shared service capabilities and standardize our financial systems. None of these initiatives is in response to any identified deficiency or weakness in our internal control over financial reporting.

ITEM 9B.
OTHER INFORMATION

Not applicable.


38


PART III
 
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information about our Directors is incorporated by reference from the discussion under the heading Proposals Requiring Your Vote — Item 1 — Election of Directors in our 2013 Proxy Statement. Information about compliance with Section 16(a) of the Exchange Act is incorporated by reference from the discussion under the heading Securities Ownership — Section 16(a) Beneficial Ownership Reporting Compliance in our 2013 Proxy Statement. Information about the Pfizer Policies on Business Conduct governing our employees, including our Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer, and the Code of Business Conduct and Ethics governing our Directors, is incorporated by reference from the discussions under the headings Governance of the Company — Governance Information — Pfizer Policies on Business Ethics and Conduct and — Code of Conduct for Directors in our 2013 Proxy Statement. Information regarding the procedures by which our stockholders may recommend nominees to our Board of Directors is incorporated by reference from the discussion under the headings Governance of the Company — Governance Information — Criteria for Board Membership and Requirements for Submitting Proxy Proposals and Nominating Directors in our 2013 Proxy Statement. Information about our Audit Committee, including the members of the Committee, and our Audit Committee financial experts, is incorporated by reference from the discussion under the heading Governance of the Company — Board and Committee Information — The Audit Committee in our 2013 Proxy Statement. The balance of the information required by this item is contained in the discussion entitled Executive Officers of the Company in Part I of this 2012 Form 10-K.

ITEM 11.
EXECUTIVE COMPENSATION

Information about Director and executive compensation is incorporated by reference from the discussion under the headings Governance of the Company — Compensation of Non-Employee Directors ; Executive Compensation ; and Governance of the Company — Board and Committee Information — Compensation Committee — Compensation Committee Interlocks and Insider Participation in our 2013 Proxy Statement.

ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Information required by this item is incorporated by reference from the discussion under the headings Executive Compensation — Equity Compensation Plan Information and Securities Ownership in our 2013 Proxy Statement.

ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Information about certain relationships and transactions with related parties is incorporated by reference from the discussion under the headings Related Person Transactions; Indemnification — Transactions with Related Persons in our 2013 Proxy Statement. Information about director independence is incorporated by reference from the discussion under the heading Governance of the Company — Governance Information — Director Independence in our 2013 Proxy Statement.

ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES

Information about the fees for professional services rendered by our independent registered public accounting firm in 2012 and 2011 is incorporated by reference from the discussion under the heading Proposals Requiring Your Vote — Item 2 — Ratification of Independent Registered Public Accounting Firm — Audit and Non-Audit Fees in our 2013 Proxy Statement. Our Audit Committee’s policy on pre-approval of audit and permissible non-audit services of our independent registered public accounting firm is incorporated by reference from the discussion under the heading Proposals Requiring Your Vote — Item 2 — Ratification of Independent Registered Public Accounting Firm — Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm in our 2013 Proxy Statement.


39


PART IV
 
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES

15(a)(1) Financial Statements. The following consolidated financial statements, related notes, report of independent registered public accounting firm and supplementary data from our 2012 Financial Report are incorporated by reference into Item 8 of Part II of this 2012 Form 10-K:
•
Report of Independent Registered Public Accounting Firm on the Consolidated Financial Statements
•
Consolidated Statements of Income
•
Consolidated Statements of Comprehensive Income
•
Consolidated Balance Sheets
•
Consolidated Statements of Equity
•
Consolidated Statements of Cash Flows
•
Notes to Consolidated Financial Statements
•
Quarterly Consolidated Financial Data (Unaudited)

15(a)(2) Financial Statement Schedules. Schedules are omitted because they are not required or because the information is provided elsewhere in the financial statements. The financial statements of unconsolidated subsidiaries are omitted because, considered in the aggregate, they would not constitute a significant subsidiary.

15(a)(3) Exhibits. These exhibits are available upon request. Requests should be directed to our Corporate Secretary, Pfizer Inc., 235 East 42nd Street, New York, NY 10017-5755. The exhibit numbers preceded by an asterisk (*) indicate exhibits filed with this 2012 Form 10-K. All other exhibit numbers indicate exhibits filed by incorporation by reference. Exhibit numbers 10.1 through 10.24 are management contracts or compensatory plans or arrangements.
3.1
 
Our Restated Certificate of Incorporation dated April 12, 2004, is incorporated by reference from our 10-Q report for the period ended March 28, 2004 (File No. 001-03619).
 
 
 
3.2
 
Amendment dated May 1, 2006 to Restated Certificate of Incorporation dated April 12, 2004, is incorporated by reference from our 10-Q report for the period ended July 2, 2006 (File No. 001-03619).
 
 
 
3.3
 
Our By-laws, as amended April 22, 2010, are incorporated by reference from our 10-Q report for the period ended April 4, 2010 (File No. 001-03619).
 
 
 
4.1
 
Indenture, dated as of January 30, 2001, between us and The Chase Manhattan Bank, is incorporated by reference from our 8-K report filed on January 30, 2001 (File No. 001-03619).
 
 
 
4.2
 
First Supplemental Indenture, dated as of March 24, 2009, between us and The Bank of New York Mellon (successor to JPMorgan Chase Bank, N.A. (formerly JPMorgan Chase Bank, formerly The Chase Manhattan Bank)), as Trustee, to Indenture dated as of January 30, 2001, is incorporated by reference from our 10-Q report for the period ended June 28, 2009 (File No. 001-03619).
 
 
 
4.3
 
Second Supplemental Indenture, dated as of June 2, 2009, between us and The Bank of New York Mellon (successor to JPMorgan Chase Bank, N.A. (formerly JPMorgan Chase Bank, formerly The Chase Manhattan Bank)), as Trustee, to Indenture dated as of January 30, 2001, is incorporated by reference from our 8-K report filed on June 3, 2009 (File No. 001-03619).
 
 
 
4.4
 
Indenture, dated as of April 10, 1992, between Wyeth and The Bank of New York Mellon (as successor to JPMorgan Chase Bank, N.A.), as Trustee, is incorporated by reference from Wyeth’s Registration Statement on Form S-3 (File No. 33-57339), filed on January 18, 1995.
 
 
 
4.5
 
Supplemental Indenture, dated as of October 13, 1992, between Wyeth and The Bank of New York Mellon (as successor to JPMorgan Chase Bank, N.A.), as Trustee, is incorporated by reference from Wyeth’s Registration Statement on Form S-3 (File No. 33-57339), filed on January 18, 1995.
 
 
 
4.6
 
Fifth Supplemental Indenture, dated as of December 16, 2003, between Wyeth and The Bank of New York Mellon (as successor to JPMorgan Chase Bank, N.A.), as Trustee, is incorporated by reference from Wyeth’s 2003 10-K report (File No. 001-01225).

40


4.7
 
Sixth Supplemental Indenture, dated as of November 14, 2005, between Wyeth and The Bank of New York Mellon (as successor to JPMorgan Chase Bank, N.A.), as Trustee, is incorporated by reference from Wyeth’s 8-K report filed on November 15, 2005 (File No. 001-01225).
 
 
 
4.8
 
Seventh Supplemental Indenture, dated as of March 27, 2007, between Wyeth and The Bank of New York Mellon (as successor to JPMorgan Chase Bank, N.A.), as Trustee, is incorporated by reference from Wyeth’s 8-K report filed on March 28, 2007 (File No. 001-01225).
 
 
 
4.9
 
Eighth Supplemental Indenture, dated as of October 30, 2009, between Wyeth, us and The Bank of New York Mellon (as successor to JPMorgan Chase Bank, formerly The Chase Manhattan Bank), as Trustee, to Indenture dated as of April 10, 1992 (as amended on October 13, 1992), is incorporated by reference from our 8-K report filed on November 3, 2009 (File No. 001-03619).
 
 
 
4.10
 
Except as set forth in Exhibits 4.1-9 above, the instruments defining the rights of holders of long-term debt securities of the Company and its subsidiaries have been omitted. 1  
 
 
 
10.1
 
2001 Stock and Incentive Plan is incorporated by reference from our Proxy Statement for the 2001 Annual Meeting of Shareholders (File No. 001-03619).
 
 
 
10.2
 
Pfizer Inc. 2004 Stock Plan, as Amended and Restated is incorporated by reference from our 2011 10-K Report (File No. 001-03619).
 
 
 
10.3
 
Form of Stock Option Grant Notice and Summary of Key Terms is incorporated by reference from our 10-Q report for the period ended September 26, 2004 (File No. 001-03619).
 
 
 
10.4
 
Form of Performance-Contingent Share Award Grant Notice is incorporated by reference from our 10-Q report for the period ended September 26, 2004 (File No. 001-03619).
 
 
 
*10.5
 
Form of Executive Grant Letter.
 
 
 
10.6
 
Amended and Restated Nonfunded Supplemental Retirement Plan, together with all material Amendments is incorporated by reference from our 2011 10-K Report (File No. 001-03619).
 
 
 
*10.7
 
Amended and Restated Nonfunded Deferred Compensation and Supplemental Savings Plan.
 
 
 
*10.8
 
Executive Annual Incentive Plan.
 
 
 
*10.9
 
Amended and Restated Deferred Compensation Plan.
 
 
 
10.10
 
Non-Employee Directors’ Retirement Plan (frozen as of October 1996) is incorporated by reference from our 1996 10-K report (File No. 001-03619).
 
 
 
10.11
 
Restricted Stock Plan for Non-Employee Directors is incorporated by reference from our 1996 10-K report (File No. 001-03619).
 
 
 
10.12
 
Amended and Restated Wyeth Supplemental Employee Savings Plan (effective as of January 1, 2005), together with all material Amendments is incorporated by reference from our 2011 10-K Report (File No. 001-03619).
 
 
 
10.13
 
Amended and Restated Wyeth Supplemental Executive Retirement Plan (effective as of January 1, 2005), together with all material Amendments is incorporated by reference from our 2011 10-K Report (File No. 001-03619).
 
 
 
10.14
 
Wyeth Directors’ Deferral Plan (as amended through December 15, 2007) is incorporated by reference from Wyeth’s 2007 10-K report (File No. 001-01225).
 
 
 
10.15
 
The form of Indemnification Agreement with each of our non-employee Directors is incorporated by reference from our 1996 10-K report (File No. 001-03619).
 
 
 

1 We agree to furnish to the SEC, upon request, a copy of each instrument with respect to issuances of long-term debt of the Company and its subsidiaries.


41


10.16
 
The form of Indemnification Agreement with each of the Named Executive Officers identified in our 2013 Proxy Statement is incorporated by reference from our 1997 10-K report (File No. 001-03619).
 
 
 
10.17
 
Letter to Frank A. D’Amelio regarding replacement pension benefit dated August 22, 2007 is incorporated by reference from our 8-K report filed on August 22, 2007 (File No. 001-03619).
 
 
 
10.18
 
Executive Severance Plan is incorporated by referenced from our 8-K report filed on February 20, 2009 (File No. 001-03619).
 
 
 
10.19
 
Annual Retainer Unit Award Plan (for Non-Employee Directors) (frozen as of March 1, 2006) as amended, is incorporated by reference from our 2008 10-K report (File No. 001-03619).
 
 
 
10.20
 
Nonfunded Deferred Compensation and Unit Award Plan for Non-Employee Directors, as amended, is incorporated by reference from our 10-Q report for the period ended July 3, 2011 (File No. 001-03619).
 
 
 
10.21
 
Form of Special Award Letter Agreement is incorporated by reference from our 8-K report filed on October 28, 2009 (File No. 001-03619).
 
 
 
10.22
 
Offer Letter to G. Mikael Dolsten, dated April 6, 2009, is incorporated by reference from our 10-Q report for the period ended April 3, 2011 (File No. 001-03619).
 
 
 
10.23
 
Offer Letter to Geno J. Germano, dated April 6, 2009, is incorporated by reference from our 10-Q report for the period ended April 3, 2011 (File No. 001-03619).
 
 
 
10.24
 
Warner-Lambert Company 1996 Stock Plan, as amended, is incorporated by reference from Warner-Lambert's 1999 10-K report (File No. 001-03608).
 
 
 
*12
 
Computation of Ratio of Earnings to Fixed Charges.
 
 
 
*13
 
Portions of the 2012 Financial Report, which, except for those sections incorporated by reference, are furnished solely for the information of the SEC and are not to be deemed “filed.”
 
 
 
*21
 
Subsidiaries of the Company.
 
 
 
*23
 
Consent of KPMG LLP, Independent Registered Public Accounting Firm.
 
 
 
*24
 
Power of Attorney (included as part of signature page).
 
 
 
*31.1
 
Certification by the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
*31.2
 
Certification by the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
*32.1
 
Certification by the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
*32.2
 
Certification by the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
*101.INS
 
XBRL Instance Document
 
 
 
*101.SCH
 
XBRL Taxonomy Extension Schema
 
 
 
*101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase
 
 
 
*101.LAB
 
XBRL Taxonomy Extension Label Linkbase
 
 
 
*101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase
 
 
 
*101.DEF
 
XBRL Taxonomy Extension Definition Document





42


SIGNATURES

Under the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report was signed on behalf of the Registrant by the authorized person named below.

 
Pfizer Inc.
 
 
 
Dated: February 28, 2013
By:
 
/s/    M ATTHEW  L EPORE
 
 
 
Matthew Lepore
Vice President and Corporate Secretary,
Chief Counsel – Corporate Governance

We, the undersigned directors and officers of Pfizer Inc., hereby severally constitute Amy W. Schulman and Matthew Lepore, and each of them singly, our true and lawful attorneys with full power to them and each of them to sign for us, in our names in the capacities indicated below, any and all amendments to this Annual Report on Form 10-K filed with the Securities and Exchange Commission.

Under the requirements of the Securities Exchange Act of 1934, this report was signed by the following persons on behalf of the Registrant and in the capacities and on the date indicated.

Signature
  
Title
 
Date
 
 
 
 
 
/ S /    I AN  C. R EAD
Ian C. Read
  
Chairman, Chief Executive Officer and Director
(Principal Executive Officer)
 
February 28, 2013
 
 
 
 
 
/ S /    F RANK  A. D’A MELIO
Frank A. D’Amelio
  
Executive Vice President, Business Operations and
Chief Financial Officer (Principal Financial Officer)
 
February 28, 2013
 
 
 
 
 
/ S /    L ORETTA  V. C ANGIALOSI
Loretta V. Cangialosi
  
Senior Vice President—Controller
(Principal Accounting Officer)
 
February 28, 2013
 
 
 
 
 
/ S /    D ENNIS  A. A USIELLO
Dennis A. Ausiello
  
Director
 
February 28, 2013
 
 
 
 
 
/ S /    M. A NTHONY  B URNS
M. Anthony Burns
  
Director
 
February 28, 2013
 
 
 
 
 
/ S /    W. D ON  C ORNWELL
W. Don Cornwell
  
Director
 
February 28, 2013
 
 
 
 
 
/ S /    F RANCES  D. F ERGUSSON
Frances D. Fergusson
  
Director
 
February 28, 2013
 
 
 
 
 
/ S /    W ILLIAM  H. G RAY,  III
William H. Gray, III
  
Director
 
February 28, 2013
 
 
 
 
 
/ S /    H ELEN  H. H OBBS
Helen H. Hobbs
  
Director
 
February 28, 2013

43


Signature
  
Title
 
Date
 
 
 
 
 
/ S /    C ONSTANCE  J. H ORNER
Constance J. Horner
  
Director
 
February 28, 2013
 
 
 
 
 
/ S /    S UZANNE  N ORA  J OHNSON
Suzanne Nora Johnson
  
Director
 
February 28, 2013
 
 
 
 
 
/ S /    J AMES  M. K ILTS
James M. Kilts
  
Director
 
February 28, 2013
 
 
 
 
 
/ S /    G EORGE  A. L ORCH
George A. Lorch
  
Director
 
February 28, 2013
 
 
 
 
 
/ S /    J OHN  P. M ASCOTTE
John P. Mascotte
  
Director
 
February 28, 2013
 
 
 
 
 
/ S /    S TEPHEN  W. S ANGER
Stephen W. Sanger
  
Director
 
February 28, 2013
 
 
 
 
 
/ S /    M ARC  T ESSIER -L AVIGNE
Marc Tessier-Lavigne
  
Director
 
February 28, 2013



44


Exhibit 10.5

PFIZER LOGO

May 2012                


«FIRST_NAME» «LAST_NAME»
«ADDRESS1»
«ADDRESS2»
«ADDRESS3»
«ADDRESS4»
«CITY», «STATE» «POSTAL»
«COUNTRY»



Dear «FIRST_NAME»:

On behalf of all our stakeholders, I want to thank you for the important role you play in Pfizer’s continued success. I am pleased to inform you that on February 23, 2012, Pfizer’s Compensation Committee of the Board of Directors approved the following grant under Pfizer’s Executive Long-Term Incentive Program (“Program”).

Award Type
Grant Price
   
Shares (#)

Dates
5-Year Total Shareholder Return Units (“5-YR TSRUs”)

$21.03
«M_5Yr_TSRU»
Grant Date – February 23, 2012
Vesting Date* – February 23, 2015
Settlement Date – February 23, 2017
7-Year Total Shareholder Return Units (“7-YR TSRUs”)

$21.03
«M_7Yr_TSRU»
Grant Date – February 23, 2012
Vesting Date* – February 23, 2015
Settlement Date – February 23, 2019
Performance Share Awards (“PSAs”)
N/A
«PFE_PS»
Grant Date – February 23, 2012
Vesting Date* – February 23, 2015
Performance Period: January 1, 2012 through December 31, 2014
Restricted Stock Units (“RSUs”)
N/A
«RSU»
Grant Date – February 23, 2012
Vesting Date* – February 23, 2015
*This is also referred to as the date the restrictions lapse.

The enclosed Points of Interest document provides you with more detailed information about your grant and contains general information about the Program, applicable income tax consequences, and points of contact. This long-term incentive grant is governed by the terms and conditions set forth in this letter, the Points of Interest document and the Pfizer Inc 2004 Stock Plan, as amended and restated. It is important for you to read these materials, and it is recommended that you consult a qualified financial or tax advisor before making any decisions regarding the disposition of the stock resulting from the vesting of these awards.

These awards help you build ownership in Pfizer and a greater stake in the Company’s future success. I have great confidence in Pfizer’s future, and I look forward to working with you toward that future.

Sincerely,

Ian C. Read
Chairman and
Chief Executive Officer


Exhibit 10.7
PFIZER INC NONFUNDED DEFERRED COMPENSATION AND SUPPLEMENTAL SAVINGS PLAN
Amended and Restated as of January 1, 2012

SECTION 1 .         CONTINUATION AND PURPOSE OF THE PLAN .
1.1     Continuation . There is hereby continued for the benefit of Members an unfunded plan of deferred compensation known as the “Pfizer Inc Nonfunded Deferred Compensation and Supplemental Savings Plan.”
1.2     Purpose . The purpose of this Plan is to provide a means by which an Eligible Employee may, in certain circumstances, elect to defer receipt of a portion of his “Regular Earnings,” and such other deferrals as determined by the Company in accordance with Section 4.2.
1.3     Description of the Plan . The Plan became effective July 1, 1983, was amended and restated effective February 1, 2002, and was again amended and restated effective January 1, 2008, except as otherwise provided herein, to reflect: (i) the merger of Pharmacia Savings Plus Plan into the Plan, and (ii) the enactment of Code Section 409A and corresponding regulations, and (iii) certain other administrative design changes. The provisions of this restated and amended Plan shall govern Accounts on and after January 1, 2008 except with respect to Grandfathered Amounts. Except as specifically otherwise provided herein, the Grandfathered Amounts for Members who were Participants in the Pharmacia Savings Plus Plan on December 31, 2004 shall be governed by the provisions of the Pharmacia Savings Plus Plan as amended and restated effective July 1, 2002; the Grandfathered Amounts with respect to Members in this Plan on December 31, 2004, shall be governed by the provisions of this Plan as amended and restated effective February 1, 2002; and, for the period from January 1, 2005 through December 31, 2007 the provisions of this amended and restated Plan shall govern, except to the extent the provisions of this Plan are inconsistent with the administrative practices, policies, election forms and participant communications designed for reasonable good faith compliance with Code Section 409A during that interim period, which are incorporated herein by reference. The Plan was further amended and restated effective January 1, 2012 (except where provided otherwise) (i) to reflect the implementation of the Retirement Savings Contribution under the Pfizer Savings Plan that is eligible to be contributed to the Plan for a Member, effective January 1, 2011, and (ii) to provide that Members in the Pfizer Savings Plan for Residents of Puerto Rico are eligible to participate in the Plan as a result of the enactment of the Internal Revenue Code for a New Puerto Rico and certain other clarifying amendments.
For purposes of the Employee Retirement Income Security Act of 1974 (“ERISA”), as amended, the Plan shall be treated as two separate, unfunded plans. One plan shall be an “excess benefit plan” within the meaning of Section 3(36) of ERISA, and shall be comprised of accruals under the Plan that are made solely because of the applicable limitations under Section 415 of the Code, plus earnings thereon. All other accruals under the Plan, plus earnings thereon, shall be treated as made under a separate “top-hat” plan maintained by the Company primarily for the purpose of providing deferred compensation to a select group of management or highly compensated employees, within the meanings of Sections 201(a)(2), 301(a)(3) and 401(a)(1) of ERISA. The Company shall be able to separately account for excess benefit plan accruals and earnings thereon, top-hat plan accruals and earnings thereon, and Special Accruals and earnings thereon.




SECTION 2 .         DEFINITIONS .
The following words and phrases as used in this Plan have the following means:
2.1     Account . The term “Account” shall mean a Member’s individual account(s), as described in Section 5.1 of the Plan.
2.2     Annual Enrollment . The term “Annual Enrollment” shall mean the time period, as determined by the Committee in its sole and absolute discretion, prior to the beginning of a Plan Year in which Eligible Employees can elect to enroll or change their deferral elections under the Plan with respect to Regular Earnings expected to be earned in the next succeeding Plan Year. Notwithstanding the foregoing, the Annual Enrollment period for any Plan Year shall not extend beyond December 31 st of the Plan Year immediately preceding the Plan Year that the election is with respect to.
2.3     Beneficiary . The term “Beneficiary” means the beneficiary on file for this Plan, or if none is on file, the person or entity who is the “Beneficiary” under the Qualified Plan, and with respect to Grandfathered Amounts under the Pharmacia Savings Plus Plan, the person or entity who is the “beneficiary” under the rules of that plan.
2.4     Board of Directors . The term “Board of Directors” means the Board of Directors of the Company.
2.5     Code . The term “Code” means the Internal Revenue Service Code of 1986, as amended.
2.6     Committee . The term “Committee” means the Committee, as described in the Qualified Plan, or any other person or entity that the Committee has authorized to act on its behalf under the Plan.
2.7     Company . The term “Company” means Pfizer Inc, a Delaware corporation, and any successor corporation.
2.8     Controlled Group. The term “Controlled Group” means the Company and any other entity with which the Company would be considered a single employer under Code section 414 (b) or (c), provided that, in applying Code sections 1563(a)(1), (2) and (3) and for purposes of determining a controlled group of corporations under section 414(b), "50 percent " shall be used instead of "80 percent", and in applying Treas. Reg. section 1.414(c)-2 for purposes of determining trades or businesses that are under common control for purposes of Code section 414(c), "50 percent" shall be used instead of "80 percent" each place it appears in Treas. Reg. section 1.414(c)-2. In addition, solely for purposes of determining a Separation from Service, the foregoing sentence shall be applied by using 30 percent instead of 50 percent.
2.9     Disability . Prior to January 1, 2012, the term “Disability” means a disability where the Employee is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that (i) can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months or is receiving income replacement benefits for a period of not less than three (3) months under an accident and health plan covering employees of the Company by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, and (ii) also satisfies the requirements of a "Disability" as defined under the Qualified Plan.
Effective as of January 1, 2012, a Member will be considered to have incurred a “Disability” for all purposes under the Plan if the Member’s Disability as set forth in the preceding paragraph relates to an illness, injury or impairment for which the Member was on an approved leave of absence in accordance with a Company short-term disability program and such leave commenced prior to January 1, 2012 (including if such Member subsequently returns to work and then goes out on another approved leave relating to the same illness, injury or impairment as of or after January 1, 2012).




2.10     Eligible Employee . The term “Eligible Employee” means any “Member” as defined under a Qualified Plan who:
(i) (a) in the year he or she first becomes eligible to participate in the Plan (as determined in accordance with consistent rules established by the Committee in its sole and absolute discretion and in accordance with Section 409A) in any month of that year: (1) is projected to receive Compensation (as defined in the Qualified Plan) for that Plan Year in excess of the limitation of Section 401(a)(17) of the Code or Section 1081.01(a)(12) of the PR Code or whose account under the Qualified Plan is projected to be credited during that Plan Year with “annual additions,” as defined in Section 415(c)(2) of the Code or Section 1081.01(a)(11) of the PR Code equal to the maximum permitted under Section 415(c)(1)(A) of the Code or Section 1081.01(a)(11) of the PR Code, respectively; and (2) who is an employee of an Employer who: (A) has reached the point in time when he or she has been projected to have Compensation (as defined in the Qualified Plan) in excess of the Limitation under Section 401(a)(17) of the Code or Section 1081.01(a)(12) of the PR Code, or (B) has reached the point in time when he or she has Compensation (as defined in the Qualified Plan) equal to the amount of Compensation at which point he or she was projected to reach the Section 415(c)(2) or Section 1081.01(a)(11) of the PR Code Limitation on annual additions under the Qualified Plan; or (b) in any subsequent year an Eligible Employee who in any prior year was an Eligible Employee under the Plan and who the Company determines in an Annual Enrollment (based on elections in effect and salary projections on the last business day of the calendar year of the Annual Enrollment (or as otherwise determined based on consistent rules established by the Committee in its sole and absolute discretion and in accordance with Section 409A) is expected to have annualized Compensation for the subsequent Plan Year in excess of the limitation of Section 401(a)(17) of the Code or Section 1081.01(a)(12) of the PR Code, or is expected in the next succeeding Plan Year to have his or her Account under the Qualified Plan credited with annual additions in excess of the maximum amount permitted under Section 415(c)(1)(A) of the Code or Section 1081.01(a)(11) of the PR Code and who is an Employee and has an election to defer Excess Regular Earnings under the Plan in effect at the time he or she had been projected to reach the limitation under Section 401(a)(17) or Section 1081.01(a)(12) of the PR Code or Section 415(c)(1)(A) of the Code or Section 1081.01(a)(11) of the PR Code;
(ii) who receives a Retirement Savings Contribution under a Qualified Plan for that Plan Year and (A) is projected to receive Compensation in excess of the Limitations of Section 401(a)(17) of the Code or Section 1081.01(a)(12) of the PR Code, or (B) whose Account under a Qualified Plan is projected to be credited during that Plan Year with annual additions in excess of the maximum amount permitted under Section 415(c)(1)(A) of the Code or Section 1081.01(a)(11) of the PR Code, or
(iii) any other person who is a member of a select group of management or highly compensated employees of the Company and who is designated by the Committee or an authorized officer of the Company (or his or her delegate) as an Eligible Employee to receive accruals under the Plan in accordance with Article 4.
2.11     ELT . The term “ELT” means the Chief Executive Officer of the Company and the team composed of his or her direct reports or any of their properly authorized delegates.
2.12     Employer . The term “Employer” means the Company and any other member of the Controlled Group which is also an “Associate Company” under the Qualified Plan.
2.13     Employer Accrual . The term “Employer Accrual” means the amounts described in Section 4.1.
2.14     Excess Regular Earnings . The term “Excess Regular Earnings” means:
(i) with respect to the first year that an Eligible Employee is eligible to participate in the Plan (as determined in accordance with consistent rules established by the Committee in its sole and absolute discretion and in accordance with Section 409A), (a) the portion of an Eligible Employee’s Regular Earnings




earned after the point in time when the Eligible Employee was projected to exceed the Limitation on compensation taken into account under Section 401(a)(17) of the Code or Section 1081.01(12) of the PR Code, (b) all Regular Earnings that the Eligible Employee receives after the point in time that the Eligible Employee was projected to exceed the Limitation on contributions to defined contribution plans under Section 415(c)(1)(A) of the Code or Section 1081.01(11) of the PR Code, to the extent not included in (a) above, (c) any bonus elected to be deferred under the Pfizer Inc Deferred Compensation Plan, in accordance with the rules under that Plan and Section 409A, or (d) any other compensation determined by the Committee to be Excess Regular Earnings for purposes of this Plan; and,

(ii) for an Eligible Employee who was an Eligible Employee in the immediately preceding prior Plan Year or who is not in his or her first year of eligibility to participate in the Plan, (a) the portion of Regular Earnings earned during a Plan Year that based on the Eligible Employee’s Qualified Plan elections and Compensation (as defined in the Qualified Plan) in effect during the last business day of the calendar year of the Annual Enrollment (or as otherwise determined based on consistent rules established by the Committee in its sole and absolute discretion and in accordance with Section 409A) were projected to exceed the Limitation on compensation taken into account under Section 401(a)(17) of the Code or Section 1081.01(a)(12) of the PR Code, (b) all Regular Earnings that the Member has received after the point in time that the Member was projected to become subject to the Limitation on contributions to defined contribution plans under Section 415(c)(1)(A) of the Code or Section 1081.01(a)(11) of the PR Code, to the extent not included in (a) above, (c) any bonus eligible to be deferred under the Pfizer Inc Deferred Compensation Plan, in accordance with the rules under that Plan and Section 409A, or (d) any other compensation determined by the Committee to be Excess Regular Earnings for purposes of this Plan.
2.15     Excess Regular Earnings Deferrals . The term “Excess Regular Earnings Deferrals” means the portion of a Member’s Excess Regular Earnings that the Member elects to defer under the terms of the Plan.
2.16     Grandfathered Amounts . The term “Grandfathered Amounts” shall mean the portion of the Member’s Account that reflects the amount that was earned and vested (within the meaning of Section 409A of the Code and regulations thereunder) under the Plan prior to 2005 (and earnings thereon), or with respect to Accounts transferred from the Pharmacia Savings Plus Plan, the portion of the Member’s Account that reflects the amount that was earned and vested (within the meaning of Section 409A of the Code and regulations thereunder) under the Pharmacia Savings Plus Plan prior to 2005 (and earnings thereon).
2.17     Key Employee . The term “Key Employee” means an Employee treated as a “specified employee” as of his or her Separation from Service under Section 409A(a)(2)(B)(i) of the Code, i.e. , a key employee (as defined in Section 416(i) of the Code without regard to paragraph (5) thereof) of the Company or its affiliates. Key Employees shall be determined in accordance with Section 409A using an identification date of February 28 th in any year . A listing of Key Employees as of an identification date shall be effective for the 12-month period beginning on the March 1 following the identification date ..
2.18     Limitation(s) . The term “Limitation(s)” means the limitation on contributions to defined contribution plans under Section 415(c)(1)(A) of the Code or Section 1081.01(a)(11) of the PR Code, and on compensation taken into account under Section 401(a)(17) of the Code or Section 1081.01(a)(12) of the PR Code, and with respect to Eligible Employees who are a select group of management or highly compensated employees, within the meanings of Sections 201(a)(2) and 401(a)(1) of ERISA and are eligible to defer their bonuses under the Pfizer Deferred Compensation Plan, such other Code or Qualified Plan limits that prevent the deferred bonuses as being recognized as Regular Earnings under the Qualified Plan.
2.19     Member . The term Member means an Eligible Employee who has Excess Regular Earnings Deferrals or a Retirement Savings Contribution made to the Plan or is otherwise credited with an Employer Accrual.




2.20     Payment Option . The term “Payment Option” means the following forms of payment under which an Eligible Employee may elect to receive amounts credited to his Account upon his Separation from Service with the Controlled Group: (i) single sum payable in the January following the Member’s Separation from Service with the Controlled Group, or (ii) substantially equal annual installment payments over a period of two (2) to twenty (20) years, with the first installment to be paid the January following the Member’s Separation from Service. Where payment of the Account is made in installment payments, the first installment shall be a fraction of the value of the Member’s Account as of the applicable valuation date, the numerator of which is one (1) and the denominator of which is the total number of installments remaining to be paid at that time. Each subsequent installment shall be calculated in the same manner, except that the denominator shall be reduced by the number of installments that have been paid previously. Unless otherwise provided under this Plan, including in the event of death, Disability and or a payment due to Unforeseeable Emergency, if a payment election is not timely made in accordance with the requirements of Section 409A the Member shall be deemed to have elected to receive payment of his or her Account in a single lump sum payment to be paid in the January following the Member’s Separation from Service. Notwithstanding anything in this Section 2.20 or the Pharmacia Savings Plus Plan to the contrary, effective January 1, 2007, the Account of any Member who has Separated from Service and is no longer living at the time his benefits commence shall be paid in a single lump sum the January following the Member’s death, provided, however, that payment of Grandfathered Amounts to Beneficiaries under the Pharmacia Savings Plus Plan shall be governed under the terms of that plan.
2.21     Pfizer Deferred Compensation Plan . The term “Pfizer Deferred Compensation Plan” shall mean the Pfizer Inc Deferred Compensation Plan, a bonus deferral program, or its successor.
2.22     Pfizer Match Fund . The term “Pfizer Match Fund” shall mean the investment fund known as the Pfizer Match Fund under a Qualified Plan, or its successor.
2.23     Pharmacia Savings Plus Plan . The term Pharmacia Savings Plus Plan means the Pharmacia Savings Plus + Plan, effective July 1, 1999, as subsequently amended and restated effective July 1, 2002 which was merged into this Plan effective January 1, 2008.
2.24     Plan . The term “Plan” means this “Pfizer Inc Nonfunded Deferred Compensation and Supplemental Savings Plan,” as set forth herein and as amended from time to time.
2.25     Plan Year . The term “Plan Year” means the calendar year.
2.26     Prior Plan . The term “Prior Plan” means: (i) with respect to Grandfathered Amounts attributable to the Plan, the Plan as in effect on October 3, 2004, which has not been materially modified (attached hereto as Exhibit A), and (ii) with respect to Grandfathered Amounts attributable to the Pharmacia Savings Plus Plan, the Pharmacia Savings Plus Plan as in effect on October 3, 2004, which has not been materially modified (attached hereto as Exhibit B).
2.27     PR Code . The term “PR Code” means the Internal Revenue Code for a New Puerto Rico , (also known as the New Puerto Rico Tax Code of 2011) as may be amended from time to time.
2.28     Qualified Military Service . The term “ Qualified Military Service ” means any service in the uniformed services (as defined in chapter 43 of title 38, United States Code) where the Eligible Employee’s right to reemployment is protected by law.
2.29     Qualified Plan . The term “Qualified Plan” means the Pfizer Savings Plan, the Pfizer Savings Plan for Residents of Puerto Rico, and the Searle Puerto Rico Savings Plan 1165(e) as each may be amended from time to time.
2.30     Regular Earnings . The term “Regular Earnings” shall have the meaning given such term under a Qualified Plan. For Eligible Employees who are eligible to defer their bonus under the Pfizer




Deferred Compensation Plan, the term “Regular Earnings” shall also include such deferred amounts as determined by the Committee.
2.31     Retirement . The term “Retirement” means a termination of employment with an Employer after the Eligible Employee has attained either (i) age 65, or (ii) age 55 with at least 10 Years of Service (as determined in accordance with the Qualified Plan pursuant to which the Member received his or her Retirement Savings Contributions).
2.32     Retirement Savings Contribution. The term “Retirement Savings Contribution” means the automatic Company contribution made to a Retirement Savings Eligible Employee’s Account under a Qualified Plan in accordance therewith.
2.33     Retirement Savings Eligible Employee. The term “Retirement Savings Eligible Employee” means an Eligible Employee eligible in accordance with a Qualified Plan for a Retirement Savings Contribution.

2.34      Section 409A . The term “Section 409A” shall mean Section 409A of the Code and the regulations and other guidance issued thereunder by the U.S. Treasury or Internal Revenue Service.

2.35     Separation from Service . The term “Separation from Service” or “Separates from Service” means a “separation from service” within the meaning of Section 409A.

2.36     Special Accrual . The term “Special Accrual” means a special lump sum accrual amount made pursuant to a Written Agreement as provided for in Section 4.2 of the Plan.
2.37     Unforeseeable Emergency . The term “Unforeseeable Emergency” means a severe financial hardship to the Member resulting from an illness or accident of the Member, the Member’s spouse, or dependent (as defined in Section 152(a) of the Code); the Member’s loss of property due to casualty; or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the Member’s control, within the meaning of Section 409A. Withdrawals for Unforseeable Emergencies are only available to Members who were Participants in, and with respect to the portion of a Member’s Account that was credited under, the Pharmacia Savings Plus Plan (as adjusted for earnings and losses) on December 31, 2007 and other than Grandfathered Amounts that are governed under the distribution rules of that Prior Plan.

2.38     Written Agreement . The term “Written Agreement” shall have the meaning ascribed to it in Section 4.2.
SECTION 3 .         PARTICIPATION .
3.1     Designation of Eligible Employees . The Committee in its sole and absolute discretion will designate as Eligible Employees those employees who satisfy the terms of Section 2.10 and are eligible to participate in the Plan.    
3.2     Election to Make Excess Regular Earnings Deferrals .
(a)     Initial Election . An Eligible Employee may elect to begin making Excess Regular Earnings Deferrals by filing an election with the Committee or its authorized designee in accordance with this Section 3.2 and the requirements of Section 409A and any rules established by the Committee. Deferral elections for Excess Regular Earnings Deferrals in the year in which an employee first becomes eligible to participate in the Plan (as determined in accordance with consistent rules established by the Committee in its sole and absolute discretion and in accordance with Section 409A) may be made within 30 days of his or her first becoming eligible to participate in the Plan or another account balance plan required to be aggregated with this Plan under Section 409A, provided that such elections shall apply only with respect to Regular Earnings received subsequent to the date of receipt of election by the Committee and with such paycheck as




determined administratively practicable by the Committee. If no such election is made, an Eligible Employee may not make Excess Regular Earnings Deferrals to the Plan in the year he or she first becomes eligible to participate in the Plan (as determined in accordance with consistent rules established by the Committee in its sole and absolute discretion and in accordance with Section 409A) but may make Excess Regular Earnings Deferrals in subsequent Plan Years to the extent he/or she submits a proper and timely election to do so under the Plan during a subsequent Annual Enrollment and consistent with rules established by the Committee in its sole and absolute discretion and in accordance with Section 409A.
(b)     Subsequent Elections . For Plan Years after the first Plan Year in which the Eligible Employee participates in the Plan, an Eligible Employee may make Excess Regular Earnings Deferrals to the Plan to the extent he/or she submits a proper and timely election to do so under the Plan during an Annual Enrollment ending prior to such Plan Year (or at such other time as the Committee shall permit for Employees who are treated (and eligible to be treated) as in their first year of eligibility under uniform rules established by the Committee in accordance with Section 409A).
3.3     Amendment or Suspension of Election . Except as otherwise provided in this Section 3.3, once made, a Member may not change his or her existing Excess Regular Earnings Deferrals election under this Plan during the Plan Year until the next Annual Enrollment. Notwithstanding the foregoing, if a Member receives a hardship withdrawal under the Qualified Plan, incurs a Disability or obtains a distribution under Section 6.4 on account of an Unforeseeable Emergency during a year, his or her Excess Regular Earnings Deferral election shall be cancelled.
3.4     Amount of Elections . Each election for Excess Regular Earnings Deferrals to the Plan filed by an Eligible Employee must specify the amount of Excess Regular Earnings Deferrals in a whole percentage from 1% to 20% of the Member’s Excess Regular Earnings (from 1% to 15% for Members located in Puerto Rico) unless the Committee establishes a lesser percentage for the Plan Year.
3.5      Retirement Savings Contributions . Effective for Plan Years beginning on or after January 1, 2011, any Retirement Savings Eligible Employee who receives a Retirement Savings Contribution under a Qualified Plan that is projected to be in excess of any applicable Limitations, shall become a Member under the Plan and such excess Retirement Savings Contributions shall be credited to his or her Account under the Plan.
Retirement Savings Contributions shall be subject to a vesting schedule as set forth below:
(a) General . A Member shall become 100% vested in his Retirement Savings Contributions upon the attainment of 3 Years of Service (as determined in accordance with the Qualified Plan pursuant to which such Member’s Retirement Savings Contributions were made).

Notwithstanding the foregoing, a Member shall become 100% vested in his Retirement Savings Contributions in the event of his or her Retirement, Disability or death (including death while serving Qualified Military Service); provided that effective January 1, 2012, “Disability” shall also include for purposes of this Section 3.5(a) only, a Member’s Separation from Service due to the failure to return to work after the expiration of short term disability benefits, or because his position is filled while he is on an approved leave of absence while receiving short term disability benefits.

(b) Forfeiture of Nonvested Contributions . The nonvested portion of a Member’s Account shall be forfeited upon the occurrence of the earlier of: (i) the date upon which the Member takes a complete distribution of his or her Account, or (ii) the date upon which the Member incurs five consecutive One-Year Periods of Severance (as determined in accordance with the Qualified Plan pursuant to which such Member’s Retirement Savings Contributions were made).

(c) Vesting for Zoetis and Nutritionals Employees . Notwithstanding the foregoing, (i) effective as of the “Zoetis Benefits Date” (as such term is defined in Appendix B hereto), any Member




employed by Zoetis Inc, shall become 100% vested in his Retirement Savings Contributions Account, and (ii) effective as of the “Nestle Closing Date” (as such term is defined in Appendix A hereto) any Nestle Employee who is not vested in his or her Retirement Savings Account shall become 100% vested.
SECTION 4 .         EMPLOYER ACCRUALS .
4.1     General Rule .
An Employer Accrual will be credited to a Member’s Account with respect to the eligible portion of Excess Regular Earnings Deferrals of such Member at the Member’s applicable percentage rate of “Matching Contributions” with respect to “After-Tax Contributions,” “Before-Tax Contributions,” and Roth 401(k) Contributions under the Qualified Plan. The Employer Accrual shall be credited as soon as practicable following the payroll period for which the Excess Regular Earnings Deferrals are made. An Employer Accrual (based on the Member’s matching contribution formula under the Qualified Plan) also will be credited to the Account of a Member who elects to defer a percent of his or her bonus that otherwise would have been deferred under the Pfizer Deferred Compensation Plan, subject to the requirements of Section 409A. Such Employer Accrual shall be credited as soon as practical following the payroll period in which the bonus is deferred. In no event shall a Special Accrual be subject to Employer Accruals under this Section 4.1. Notwithstanding anything in this Section 4.1 to the contrary, for purposes of any distribution or withdrawal under the Plan, except as otherwise provided under Section 5.4, the amounts distributed or withdrawn shall be valued as of the last business day of the calendar quarter preceding the calendar quarter of the distribution or withdrawal.
4.2 Special Accrual for Recruitment Purposes

Effective September 1, 2007, the Company may, in its sole and absolute discretion, credit an amount to the Account of an Eligible Employee, provided that a member of the ELT approves such credit (but such ELT member cannot approve such credit for him or herself).

(a)    This credit to the Eligible Employee's Account shall be made at the time, and subject to any restrictions, specified in the written agreement or agreement that is evidenced in a writing from the ELT member (the “Written Agreement”), with the Eligible Employee. At such time, the Eligible Employee shall become a Member if he is not already a Member. Such Written Agreement cannot include any election on the part of the Eligible Employee unless such election satisfies the requirements of Code section 409A and the election provisions have been approved by the ELT member or a member of the Committee.
 
(b)    Such credit shall be invested as specified in the Written Agreement, or, if no such investment election is specified, as provided in accordance with Section 5.4 of the Plan except that no portion of this credit shall be considered Employer Accruals that are subject to a deemed investment in the Pfizer Match Fund. No portion of this credit is eligible for an Employer Accrual under the Plan unless an Employer Accrual for such credit is expressly provided for under the terms of the Written Agreement.
 
(c)    Such credit, as adjusted for any investment gains or losses, shall be paid in accordance with Sections 5.2, 6.1 and 6.2 of the Plan or as otherwise determined under the Written Agreement; provided that nothing herein (other than if the Written Agreement specifies to the contrary) shall be interpreted so not as to afford the opportunity for the Member to change his time and form of payment election in accordance with Section 409A if such right has been so provided by the ELT member and approved by the Committee.
SECTION 5 .         INDIVIDUAL ACCOUNT .
5.1     Creation of Accounts . The Company will maintain an Account under the Plan in the name of each Member. Each Member’s Account will be credited with the amount of the Member’s Excess Regular




Earnings Deferrals, Employer Accruals, Retirement Savings Contributions, Special Accruals and will be adjusted for earnings and losses thereon.
5.2     Payment Option Election . Except with respect to a Special Accrual and to the extent otherwise provided: (a) in a Written Agreement or (b) in this Section 5.2, at the time a Member is first eligible to elect to make Excess Regular Earnings Deferrals under the Plan or has a Retirement Savings Contribution credited to his or her Account under the Plan, the Member shall elect the particular Payment Option that is to apply to amounts credited to the Member’s Account (other than Grandfathered Amounts). For a Payment Option election to be effective, it must be made (i) within 30 days of the date the Employee is first eligible to participate in the Plan (as determined in accordance with consistent rules established by the Committee in its sole and absolute discretion and in accordance with Section 409A). Notwithstanding the foregoing: (1) any Member who has a Special Accrual under the Plan who has a right to elect a form of payment pursuant to the Written Agreement and as approved by an ELT member and the Committee shall only have 30 days from the date of initial eligibility (whether that date is with respect to the Special Accrual or with respect to the Excess Regular Earnings Deferrals, whichever is earlier) to elect his or her Payment Option for all non-Grandfathered amounts which he or she has the right to elect a Payment Option for under the Plan; and (2) any Eligible Employee who becomes eligible to participate in an account balance plan that must be aggregated with the Plan under Section 409A of the Code before he or she otherwise would become eligible to participate in this Plan has 30 days from the date he or she first becomes eligible to participate in such other plan to elect his or her Payment Option under the Plan. In the absence of a timely election (except as otherwise may be required pursuant to a Written Agreement), the Member shall be deemed to have made a Payment Option to receive his or her Account under the Plan in a single lump sum payment in the January after his or her Separation from Service (other than with respect to Grandfathered Amounts). In addition, unless otherwise provided pursuant to a Written Agreement (and as approved by an ELT member and the Committee) a Member shall be deemed to have made a Payment Option election to receive the portion of his or her Account attributable to his or her Special Accrual under the Plan in a single lump sum payment in the January after his or her Separation from Service. Except as provided in Section 5.3 below, or if payment is subsequently re-deferred in accordance with Section 6.8 and subject to the rules on Key Employee payments as provided in Section 6.5, any Payment Option election made or deemed made under the Plan shall apply with respect to a Member’s entire Account under the Plan (except with respect to Grandfathered Amounts).
5.3     Exceptions to Binding Payment Option Election . Notwithstanding any Payment Option elected (or deemed elected): (i) if the value of a Member’s account on the last business day of the calendar year of the Member’s Separation from Service (excluding Grandfathered Amounts credited to the Member’s Account) is $10,000 or less the Member’s Payment Option election shall be paid in a lump sum in the January following the Member’s termination; (ii) if a Member incurs a Disability, the Member’s Account (except with respect to Grandfathered Amounts which shall be payable under the terms of that Prior Plan) shall be paid in accordance with the Payment Option the January after the Member has been determined to have incurred a Disability; (iii) if a Member who was a Participant in the Pharmacia Savings Plus Plan requests a distribution on account of an Unforeseeable Emergency the portion of the Member’s Account attributable to amounts accrued under the Pharmacia Savings Plus Plan (as adjusted for earnings and losses and other than Grandfathered amounts, which shall be paid in accordance with the terms of that Prior Plan) to the extent requested on account of the Unforeseeable Emergency shall be paid in a lump sum the next business day after the Unforeseeable Emergency (in accordance with uniform rules established by the Committee and in accordance with 409A); (iv) if a Member ceases to be an Eligible Employee and subsequently becomes eligible to participate in the Plan, he or she may elect a new Payment Option that shall apply with respect to any amounts credited to his or her Accounts under the Plan after the date of his or her re-eligibility (provided the Employee becomes an Eligible Employee in a different calendar year than the year in which he or she ceased to be an Eligible Employee), and if no such election the portion of the Account accrued with respect to the new eligibility period shall be paid in a single lump sum in the January after Separation from Service (or as otherwise required in this Section 5.3); (v) if a Member has a Special Accrual under the Plan any Payment Option election made or deemed made by the Member in accordance with Section 5.2, the exceptions to the Payment Option elected as provided for in this Section 5.3 (or Section 6.8) shall not apply to amounts attributable to the Special Accrual unless otherwise provided in the terms of the




Written Agreement as approved by an ELT member and the Committee; and (vi) if a Member dies before distribution of his or her entire Account, the Payment Option election shall be cancelled and the entire account (except with respect to Grandfathered Amounts under the Pharmacia Savings Plus Plan which shall be paid pursuant to the terms of that plan) shall be paid in a single lump sum distribution the January following the Member’s death. Effective January 1, 2007, the immediately preceding sentence shall also apply with respect to amounts accrued under the Pharmacia Savings Plus Plan (as adjusted for earnings and losses) other than Grandfathered Amounts under that plan.
5.4     Investments . All Excess Regular Earnings Deferrals and Retirement Savings Contributions will be credited with an amount equal to the amount which would have been earned had such amounts been actually invested in one or more of the “Funds” (other than the Pfizer Match Fund available for investment under the Qualified Plan, as the Member may be defaulted into or elect from time to time, in one percent (1%) increments. To the extent no investment election is provided with respect to a Special Accrual when such Special Accrual is credited to the Plan or otherwise, the Special Accrual shall be deemed to be invested in the default fund under the Plan. The portion of the Member’s Account attributable to Employer Accruals shall be deemed to be invested in the Pfizer Match Fund. Rules similar to those which govern the Qualified Plan shall apply for purposes of determining the value of the deemed investments (but based on this Plan’s valuation dates) and the timing, frequency and permissibility of investment transfers. No provision of this Plan shall require the Company or any other Employer to actually invest any amount in any “Fund” or in any other investment vehicle. The Plan is an unfunded plan that is not subject to the funding requirements of ERISA, meaning that there are no actual investments held in a trust. The Accounts represent unsecured obligations of the Company, and no funds are set aside from the Company’s general assets to cover such Accounts. The Plan is subject to the full faith and credit of the Company, and Members would be general creditors in the event of the Company’s insolvency. Except as otherwise provided in this Section, distributions and withdrawals from the Plan are valued as of the last business day of the calendar quarter preceding the calendar quarter of the distribution. Withdrawals on account of an Unforeseeable Emergency are valued as of the last business day of the month preceding the day that the withdrawal request is received. Payments that would otherwise be made but are delayed on account of a Member being a Key Employee are valued on the distribution date.
With respect to a Member subject to Section 16 of the Securities Exchange Act of 1934, an election to transfer a portion of his Account into, or out of, the Pfizer company stock funds, shall be permitted only if the Member has not elected during the immediately preceding six (6) months to transfer out of, or into, such funds within this Plan, any Pfizer company stock funds under the Qualified Plan or the unit account within any compensation plan maintained by the Company for the benefit of its non-employee directors.
SECTION 6 .        DISTRIBUTION OF ACCOUNTS .
6.1     Distribution of Benefits . Unless otherwise specifically provided for in the Plan, distribution of a Member’s Grandfathered Amounts shall be paid in accordance with the distribution provisions of the Prior Plans. Except as otherwise provided in this Section and the Plan, a Member shall be paid the balance of his Account following his or her Separation of Service in accordance with the Payment Option or Payment Options elected (or deemed elected by the Member) by the Member as permitted under the Plan. A Member may have different Payment Option elections with respect to the portions of his or her Account, for example, for a Special Accrual or for a Member who was ineligible or a period of time and subsequently became eligible and was permitted or deemed to have made a new Payment Option election under the Plan with respect to future accruals under the Plan and in accordance with Section 409A.
6.2.     Benefits Subject to Withholding . The benefits payable under this Plan shall be subject to the deduction of any federal, state, or local income taxes, employment taxes or other taxes which are required to be withheld from such payments by applicable laws and regulations. Any employment taxes owed by the Member with respect to any deferral, accrual or benefit payable under this Plan may be withheld from other compensation of the Member in the year in which such tax liability accrues.




6.3     Disability . Notwithstanding any elected Payment Option or deemed elected Payment Option (made or deemed made), if the Member incurs a Disability under the Plan, the balance of the Member’s Account shall be paid in accordance with the Payment Option elected the January following the Disability, except with respect to Grandfathered Amounts shall be payable in accordance with the terms of that Prior Plan.

6.4     Distributions on Account of Unforeseeable Emergency . Notwithstanding any elected Payment Option or deemed elected Payment Option made (or deemed made) by a Member who was a Participant in the Pharmacia Savings Plus Plan, upon the occurrence of an Unforeseeable Emergency, a Member may withdraw all or any portion of his or her Account balance attributable to amounts accrued under the Pharmacia Savings Plus Plan (as adjusted for earnings and losses) provided that the amounts distributed with respect to an Unforeseeable Emergency (including any Grandfathered Amounts distributed under the rules of the Pharmacia Savings Plus Plan) may not exceed the amounts necessary to satisfy such Unforeseeable Emergency plus amounts necessary to pay taxes reasonably anticipated as a result of the distribution, after taking into account the extent to which such hardship is or may be relieved through reimbursement or compensation by insurance or otherwise or by liquidation of the Member’s assets (to the extent the liquidation of such assets would not itself cause severe financial hardship) or by cessation of deferrals under the Plan. Distributions of Grandfathered Amounts for a hardship or unforeseeable emergency shall be governed by the terms of the Prior Plan.

6.5     Delay for Key Employees . Notwithstanding anything in the Plan to the contrary, distributions (other than distributions of Grandfathered Amounts) may not be made to a Key Employee upon a Separation from Service before the date which is six (6) months after the date of the Key Employee's Separation from Service (or, if earlier, the date of death of the Key Employee). Any payments that would otherwise be made during this period of delay shall be accumulated and paid on the day that is six (6) months following the Member’s Separation from Service (or, if earlier, the January following the Member’s death).

6.6     Distributions upon Death . Notwithstanding any elected Payment Option or deemed elected Payment Option made (or deemed made) by the Member, if a Member dies before distribution of his or her Account balance has begun any remaining balance shall be distributed in a lump sum payment to the Member’s Beneficiary the January following the calendar year in which the Member’s death occurs. Effective January 1, 2007, the immediately preceding sentence also applies with respect to amounts accrued under the Pharmacia Savings Plus Plan (as adjusted for earnings and losses) other than Grandfathered Amounts under that plan.

6.7     Change in Control . Notwithstanding any provision in the Plan or the Pharmacia Savings Plus Plan to the contrary, a Member’s Payment Option election or a Member’s deemed Payment Option election, for Member’s who were Participants in the Pharmacia Savings Plus Plan and with respect to amounts accrued under the Pharmacia Savings Plus Plan on or after January 1, 2005 (as adjusted for earnings and losses) only, such portion of the Member’s Account under the Plan shall be distributed in an immediate lump sum payment upon the occurrence of a Change in Control that is a “Change in Control Event.” For these amounts a “Change in Control Event” means an event described in Code section 409A(a)(2)(A)(v) or otherwise under Section 409A. With respect to Grandfathered amounts under the Pharmacia Savings Plus Plan, Change in Control shall have the meaning defined in that Prior Plan and such Grandfathered Amounts distributed in accordance with the terms of that Prior Plan.
6.8      Redeferrals . Notwithstanding any elected Payment Option or deemed elected Payment Option made (or deemed made), except with respect to Special Accruals for which the Member was not provided with a redeferral option under the Written Agreement, a Member may make one or more subsequent elections to change form of a distribution for a deferred amount, provided that such an election shall be effective only if the following conditions are satisfied:
(a)
The election may not take effect for at least twelve (12) months;





(b) The election must be made at least twelve (12) months before payments would have otherwise begun; and

(c) In the case of an election to change the form of a distribution upon a Member’s Separation from Service, a distribution may not be made earlier than at least five (5) years from the date the distribution (or, with respect to installments, the first scheduled installment) would have otherwise been made.

Members who have elected to receive their distribution (or portion thereof) in installments may not change the corresponding election once their installment distributions have begun.

Members who pursuant to a Written Agreement are permitted to specify a Payment Option with respect to a Special Accrual shall also have the redeferral rights provided in this Section 6.8 except as otherwise provided in the Written Agreement.

6.9     Effect of Taxation . If a portion of the Member’s Account balance is includible in income under Section 409A, such portion shall be distributed immediately to the Member.

6.10     Permitted Delays . Notwithstanding the foregoing, any payment on account of a Member under the Plan shall be delayed upon the Committee's reasonable anticipation of one or more of the following events:

(a)    The Company's deduction with respect to such payment would be eliminated by application of Code section 162(m); or

(b)    The making of the payment would violate federal securities laws or other applicable law;

provided, that any payment delayed pursuant to this Section 6.10 shall be paid in accordance with Section 409A.

SECTION 7 .         NATURE OF INTEREST OF MEMBER .
Participation in this Plan will not create, in favor of any Member, any rights or lien in or against any of the assets of the Company or any Employer, and all amounts of Excess Regular Earnings, Retirement Savings Contributions, Special Accruals and Employer Accruals deferred hereunder shall at all times remain an unrestricted asset of the Company or the Employer. A Member’s rights to benefits payable under the Plan are not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, or encumbrance. Nothing contained in this Plan, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind, or a fiduciary relationship, between any Employer and a Member or any person, and the Company’s and each Employer’s promise to pay benefits hereunder shall at all times remain unfunded as to the Member.
SECTION 8 .         BENEFICIARY DESIGNATION .
A Member’s beneficiary under this Plan will automatically be the same as such Member’s beneficiary under the Qualified Plan unless a separate designation of beneficiary form for this Plan has been properly filed with the Committee or its authorized designee in accordance with any rule established by the Committee and received prior to the death of the Member. In the absence of a designation of specific beneficiary under either the Qualified Plan or this Plan, which beneficiary survives the Member, upon the Member’s death, except to the extend as may otherwise be provided with respect to amounts attributable to accruals made under the Pharmacia Savings Plus Plan prior to January 1, 2007 (including Grandfathered Amounts) which shall be governed by the terms of that Plan, payment of his Account shall be made to the Member’s estate in a lump sum in the January following the Member’s death.





SECTION 9 .         ADMINISTRATION .
9.1     Committee . This Plan will be administered by the Committee.
9.2     Powers of the Committee . The Committee’s powers under this Plan are the same as are described in the Qualified Plan and include, but are not limited to, the power:
(a)    to determine who are Eligible Employees for purposes of participation in the Plan;
(b)    to interpret the terms and provisions of the Plan and the Prior Plans and to determine any and all questions arising under the Plan or Prior Plans, including without limitation, the right to remedy possible ambiguities, inconsistencies, or omissions by a general rule or particular decision; and
(c)    to adopt rules consistent with the Plan or Prior Plans.
9.3     Claims Procedure . Effective January 1, 2008, this Section 9.3 and Section 9.4 shall apply with respect to a Member’s entire Account under the Plan including Grandfathered Amounts under this Plan and the Pharmacia Savings Plus Plan. Any request by a Member or any other person for any benefit alleged to be due under the Plan shall be known as a “Claim” and the Member or other person making a Claim, or the authorized representative of either, shall be known as a “Claimant.” The Committee has sole discretion to determine whether a communication from an individual shall be a Claim for purposes of this Section 9.3 and Section 9.4. To the extent of their responsibility to review benefit claims or to review the denial of benefit claims, the Committee and the reviewer shall have full authority to interpret and apply, in their discretion, the provisions of the Plan. The decisions of the Committee and reviewer shall be final and binding upon any and all Claimants, including, but not limited to, Members and their Beneficiaries, and any other individuals making a Claim or requesting review of a Claim through or under them, and shall be afforded the maximum deference permitted by law. A Member may not maintain a court action over a disputed claim until he or she has exhausted the Plan’s claims procedures.
Claimant may submit a written application to the Committee for payment of any benefit that he believes may be due him under the Plan, in accordance with Plan procedures. Such application shall include a general description of the benefit which the Claimant believes is due, the reasons the Claimant believes such benefit is due and any information as the Committee may reasonably request. The Committee will process the Claimant’s application within ninety (90) days of the receipt of the Claim by the Committee unless special circumstances require an extension of time for processing the Claim. In such event, written notice of the extension shall be furnished to the Claimant prior to the termination of the initial ninety (90) day period but in no event shall the extension exceed a period of ninety (90) days from the end of such initial period. The notice shall indicate the special circumstances requiring an extension of time and the date by which the Plan expects to render the final decision. If the Committee has not determined the Claimant’s eligibility for a Plan benefit within this ninety (90) day period (one hundred eighty (180) day period if circumstances require an extension of time), the Claim is deemed denied. A Claim is considered approved only if such approval is memorialized by the Committee in writing.
If a Claim is denied in whole or in part, the notice of denial shall set forth (i) the specific reason or reasons for the denial, (ii) specific reference to the pertinent Plan provisions on which the denial is based, (iii) a description of any additional material or information necessary for the Claimant to perfect the Claim and an explanation of why such material or information is necessary, (iv) an explanation of the Plan’s claim review procedure, and (v) an explanation that, if an adverse determination is made on review, the Claimant may have a right to bring civil action under Section 502(a) of ERISA. Within sixty (60) days of the receipt of a notice of denial of a Claim in whole or in part or a deemed denial, a Claimant (i) may request a review upon written application to the




Committee, (ii) may review documents pertinent to the Claim, and (iii) may submit issues and comments in writing to the Committee. The Claimant shall be provided upon request and free of charge, reasonable access to all documents, records and other information relevant to the Claimant’s Claim for benefits.
The Committee will review a Claim for which a request for review has been made and render a decision not later than sixty (60) days after receipt of a request for review; provided, however, that if special circumstances require extension of a time for processing, a decision shall be rendered no later than one hundred and twenty (120) days after receipt of the request for review. Written notice of any such extension shall be furnished to the Claimant within sixty (60) days after receipt of request for review. The Committee’s decision shall be in writing and shall set forth (i) the specific reason or reasons for the denial on review, (ii) specific reference to the pertinent Plan provisions on which the denial on review is based, (iii) an explanation that the Claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the Claimant’s Claim for benefits, and (iv) an explanation that if an adverse determination is made on review, the Claimant may have the right to bring a civil action under Section 502(a) of ERISA. If the decision on review is not furnished within the applicable time, the Claim shall be deemed denied on review.

9.4     Limitation on Period for Filing Claims . No claim for benefits based upon a claim that contributions were not properly made under this Plan shall be approved under this Plan, and no action may be brought for benefits under this Plan pursuant to the denial of such a claim pursuant to Section 9.3 of this Plan, unless such claim for benefits is duly filed under Section 9.3 of this Plan no later than the last day of the second Plan Year beginning after the Plan Year in which the claim alleges that the contributions should have been credited.
SECTION 10 .     NO EMPLOYMENT RIGHTS .
No provisions of the Plan or any action taken by the Company, the Board of Directors, the Committee, or any of their properly authorized representatives shall give any person any right to be retained in the employ of any Employer, and the right and power of the Company or any Employer to dismiss or discharge any Member is specifically reserved.
SECTION 11 .     AMENDMENT, SUSPENSION, AND TERMINATION .
The Board of Directors or its authorized designee shall have the rights to amend, suspend, or terminate the Plan at any time, except that the Committee may make non-substantive administrative changes to this Plan so as to conform with or take advantage of governmental requirements, statutes or regulations. Except as provide in the next sentence, no amendment, modification or termination shall, without the consent of a Member, adversely affect the amount of the Member’s benefits in his or her Account as of the date of such amendment, modification or termination. Upon termination of the Plan, distribution of the balances in Accounts shall be made to Members and Beneficiaries in the manner and at the time described in the Plan (or the Prior Plan) unless the Board of Directors of the Company or its designee determines in its sole and absolute discretion that all such amounts shall be distributed upon termination and in accordance with the requirements under Section 409A. Upon termination of the Plan, no further deferrals of eligible compensation shall be permitted; however, earnings, gains and losses shall continue to be credited to Account balances in accordance with the Plan until the Account balances are fully distributed.

In the event the Plan is terminated, the Committee shall continue to administer the Plan in accordance with the relevant provisions thereof until the Member’s benefits have been paid hereunder. Notwithstanding the foregoing, no amendment of the Plan shall apply to Grandfathered Amounts, unless the amendment specifically provides that it applies to such amounts. The purpose of this restriction is to prevent a Plan amendment from resulting in an inadvertent “material modification” to Grandfathered Amounts.





SECTION 12 .         PROVISIONS GOVERNED BY CODE SECTION 409A
Notwithstanding anything herein to the contrary, the terms of the Plan are intended to, and shall be interpreted and applied so as to, comply in all respects with the provisions of Section 409A. Any provision of this Plan governing the timing or form of payment of benefits hereunder may be modified by the Plan Administrator if, and to the extent deemed necessary or advisable, to comply with Section 409A including, but not limited to, a 6-month delay in payment to a Key Employee, which shall be paid as provided in Section 6.5. Nothing in this Section shall be construed as an admission that any of the benefits payable under this Plan (or any predecessor Plan) constitutes “deferred compensation” subject to the provisions of Section 409A.





Pfizer Supplemental Savings Plan as in effect on 12/31/04. Except as otherwise specifically provided for in the Plan, the provisions of this Plan shall apply to Grandfathered Amounts covered under the Pfizer Supplemental Savings Plan on 12/31/2004.
PFIZER INC
NONFUNDED DEFERRED COMPENSATION AND SUPPLEMENTAL SAVINGS PLAN

Amended and Restated as of February 1, 2002
SECTION 1          CONTINUATION AND PURPOSE OF THE PLAN .
1.1     Continuation . There is hereby continued for the benefit of Members an unfunded plan of deferred compensation known as the “Pfizer Inc Nonfunded Deferred Compensation and Supplemental Savings Plan.”
1.2     Purpose . The purpose of this Plan is to provide a means by which an Eligible Employee may, in certain circumstances, elect to defer receipt of a portion of his “Regular Earnings.” The Plan also provides that the Company will, in certain instances, credit the Account of a Member with Employer Accruals.
1.3     Description of the Plan . The Plan became effective July 1, 1983 and is amended and restated effective February 1, 2002, except as otherwise provided herein. For purposes of the Employee Retirement Income Security Act of 1974 (“ERISA”), as amended, the Plan shall be treated as two separate, unfunded plans. One plan shall be an “excess benefit plan” within the meaning of Section 3(36) of ERISA, and shall be comprised of accruals under the Plan that are made solely because of the applicable limitations under Section 415 of the Code, plus earnings thereon. All other accruals under the Plan, plus earnings thereon, shall be treated as made under a separate “top-hat” plan maintained by the Company primarily for the purpose of providing deferred compensation to a select group of management or highly compensated employees, within the meanings of Sections 201(a)(2) and 401(a)(1) of ERISA. Separate accounts shall be maintained under the Plan for each Member, as applicable, to account for excess benefit plan accruals and earnings, and top-hat plan accruals and earnings.
SECTION 2 .         DEFINITIONS .
The following words and phrases as used in this Plan have the following means:
2.1     Account . The term “Account” shall mean a Member’s individual account(s), as described in Section 5 of the Plan.
2.2     Board of Directors . The term “Board of Directors” means the Board of Directors of the Company.
2.3     Code . The term “Code” means the Internal Revenue Service Code of 1986, as amended.
2.4     Committee . The term “Committee” means the Committee, as described in the Qualified Plan, or any other person or entity that the Committee has authorized to act on its behalf under the Plan.
2.5     Company . The term “Company” means Pfizer Inc, a Delaware corporation, and any successor corporation.
2.6     Controlled Group . The term “Controlled Group” means the Company and any other entity in which the Company owns directly or indirectly 30 percent or more of the value or voting power.
2.7     Eligible Employee . The term “Eligible Employee” means any “Member” under the Qualified Plan (i) who receives Regular Earnings for any Plan Year in excess of the limitation of Section




401(a)(17) of the Code, (ii) whose account under the Qualified Plan is credited with “annual additions,” as defined in Section 415(c)(2) of the Code, during any Plan Year equal to the maximum permitted under Section 415(c)(1)(A) of the Code, (iii) who is otherwise credited with Employer Accruals, or (iv) who is a member of a select group of management or highly compensated employees and is designated as an Eligible Employee by the Committee.
2.8     Employer . The term “Employer” means the Company and any other member of the Controlled Group which is also an “Associate Company” under the Qualified Plan.
2.9     Employer Accrual . The term “Employer Accrual” means the amounts described in Section 4.
2.10     Excess Regular Earnings . The term “Excess Regular Earnings” means (i) the portion of a Member’s Regular Earnings earned during a Plan Year that exceeds the Limitation on compensation taken into account under Section 401(a)(17) of the Code, (ii) all Regular Earnings earned after the Member becomes subject to the Limitation on contributions to defined contribution plans under Section 415(c)(1)(A) of the Code, to the extent not included in (i) above, (iii) a bonus deferred under the Pfizer Inc Deferred Compensation Plan, or (iv) any other compensation determined by the Committee to be compensation for purposes of this Plan .
2.11     Excess Regular Earnings Deferrals . The term “Excess Regular Earnings Deferrals” means the portion of a Member’s Excess Regular Earnings that the Member elects to defer under the terms of the Plan.
2.12     Limitation(s) . The term “Limitation(s)” means the limitation on contributions to defined contribution plans under Section 415(c)(1)(A) of the Code, and on compensation taken into account under Section 401(a)(17) of the Code.
2.13     Member . The term Member means an Eligible Employee who elects to have Excess Regular Earnings Deferrals made to the Plan or is otherwise credited with an Employer Accrual.
2.14     Payment Options . The term “Payment Option” means the following forms of payment under which a Member may elect to receive amounts credited to his Account upon his termination of employment with the Controlled Group: (i) single sum payable as soon as practicable following the end of the Plan Year in which the Member terminates employment with the Controlled Group, or (ii) substantially equal annual installment payments over a period of two to twenty years commencing as soon as practicable following the end of the Plan Year in which the Member terminates employment with the Controlled Group. Where payment of the Account is made in installment payments, the first installment shall be a fraction of the value of the Member’s Account as of the applicable valuation date, the numerator of which is one (1) and the denominator of which is the total number of installments remaining to be paid at that time. Each subsequent installment shall be calculated in the same manner, except that the denominator shall be reduced by the number of installments that have been paid previously.
2.15     Plan . The term “Plan” means the “Pfizer Inc Nonfunded Deferred Compensation and Supplemental Savings Plan,” as set forth herein and as amended from time to time.
2.16     Plan Year . The term “Plan Year” means the calendar year.
2.17     Qualified Plan . The term “Qualified Plan” means the Pfizer Savings Plan, as amended from time to time.
2.18     Regular Earnings . The term “Regular Earnings” shall have the meaning given such term under the Qualified Plan.






SECTION 3 .         PARTICIPATION .
3.1     Designation of Eligible Employees . The Committee in its sole and absolute discretion will designate as Eligible Employees those employees who satisfy the terms of Section 2.7 and are eligible to participate in the Plan. The Committee in its sole and absolute discretion may terminate the designation of an employee as an Eligible Employee at any time.
3.2     Election to Make Excess Regular Earnings Deferrals . An Eligible Employee may elect at any time after becoming eligible to begin making Excess Regular Earnings Deferrals by filing an election with the Committee or its authorized designee in accordance with this Section 3 and any rules established by the Committee. Such election will be effective on a prospective basis beginning with the payroll period that occurs as soon as administratively practicable following receipt of the election by the Committee or its authorized designee.
3.3     Amendment or Suspension of Election . Members may change (including, suspend) their existing Excess Regular Earnings Deferrals election under this Plan during the Plan Year by filing a new election in accordance with the prescribed administrative guidelines. Such new election will be effective on a prospective basis beginning with the payroll period that occurs as soon as administratively practicable following receipt of the election by the Committee or its authorized designee. A Member shall not be permitted to make up suspended Excess Regular Earnings Deferrals, and during any period in which a Member’s Excess Regular Earnings Deferrals are suspended, the Employer Accruals under the Plan with respect to Excess Regular Earnings Deferrals shall also be suspended. A Member who receives a hardship withdrawal under the Qualified Plan shall be suspended from making Excess Regular Earnings Deferrals hereunder for a period of six (6) months from the date of such withdrawal.
3.4     Amount of Elections . Each election filed by an Eligible Employee must specify the amount of Excess Regular Earnings Deferrals in a whole percentage from 1% to 20% of the Member’s Excess Regular Earnings unless the Committee establishes a lesser percentage for the Plan Year; provided, however, that, with respect to an Eligible Employee who is also eligible to participate in the Qualified Plan, the rate of Excess Regular Earnings Deferrals hereunder for any payroll period shall not exceed the rate at which the Member was contributing to the Qualified Plan on a combined pre-tax and post-tax basis for the current year.
SECTION 4 .         EMPLOYER ACCRUALS .
4.1     General Rule .
An Employer Accrual will be credited to a Member’s Account with respect to the eligible portion of Excess Regular Earnings Deferrals of such Member at the applicable rate of “Matching Contributions” with respect to “After-Tax Contributions” and “Before-Tax Contributions” under the Qualified Plan. The Employer Accrual shall be credited as soon as practicable following the payroll period for which the Excess Regular Earnings Deferrals are made. The eligible portion of a Member’s Excess Regular Earnings Deferrals shall be limited to six percent (6%) of such Excess Regular Earnings for each payroll period. In addition, an Employer Accrual will be credited as of the end of each Plan Year to a Member’s Account equal to the difference between (i) the amount that would have been credited to the Member’s account under the Qualified Plan as a “Matching Contribution,” including Additional Contribution, if any, if the Limitations were not applicable to the Member under the Qualified Plan during such Plan Year and (ii) the “Matching Contributions,” including Additional Contributions, if any, actually credited to the Member’s account under the Qualified Plan during such Plan Year. Lastly, an Employer Accrual will be credited to the Account of a Member who elects to defer his bonus under the Warner-Lambert Company Incentive Compensation Plan (“ICP”). The amount of such Employer Accrual will be equal to the product of: (i) six percent (6%) of the bonus deferred under the ICP, and (ii) the applicable rate of “Matching Contributions” with respect to “After-Tax Contributions” and “Before-Tax Contributions” under the Qualified Plan. The Employer Accrual shall be credited as soon as practical following the payroll period in which the bonus is deferred.





4.2     Special Employer Accrual for Certain Former Warner-Lambert Employees .
In the case of any Eligible Employee who (i) was an “Eligible Participant” under the Warner-Lambert Savings and Stock Plan as in effect on January 31, 2002 (the “Warner-Lambert Plan”), (ii) is a participant under the Warner-Lambert Enhanced Severance Plan on May 15, 2003, (iii) has completed at least three years of Plan membership (including Warner-Lambert Plan membership) under the Qualified Plan as of May 15, 2003, and (iv) was an Eligible Employee on May 15, 2003, an Employer Accrual shall be credited to such Eligible Employee’s Account in an amount equal to the difference between (a) and (b) below:
(a)    the “Matching Contribution” which would have been made to the Eligible Employee’s account under the Qualified Plan with respect to the period June 1, 2002 through May 15, 2003 if such “Matching Contribution” had been based on the terms of Article 5 of the Warner-Lambert Plan, assuming an additional matching contribution rate of 65%; and
(b)    the “Matching Contribution” actually made to the Eligible Employee’s account under the Qualified Plan with respect to the period June 1, 2002 through May 15, 2003.
This Employer Accrual shall be credited as soon as practicable following the payroll period which includes May 15, 2003.
4.3     Special Employer Accrual for Certain Former Agouron Employees .
In the case of any Eligible Employee who (i) was an “Eligible Employee” under the Agouron Pharmaceuticals, Inc. 401(k) Plan as in effect on January 31, 2002 (the “Agouron Plan”), (ii) was a participant under the Warner-Lambert Enhanced Severance Plan on May 15, 2003, and (iii) was an Eligible Employee on May 15, 2003, an Employer Accrual shall be credited to such Eligible Employee’s Account in an amount equal to the difference between (a) and (b) below:
(a)    the “Matching Contribution” which would have been made to the Eligible Employee’s account under the Qualified Plan with respect to the period June 1, 2002 through May 15, 2003 if such “Matching Contribution” had been based on the terms of Article 6.4 of the Agouron Plan, assuming an additional matching contribution rate of 35%; and
(b)    the “Matching Contribution” actually made to the Eligible Employee’s Account under the Qualified Plan with respect to the period June 1, 2002 through May 15, 2003.
This Employer Accrual shall be credited as soon as practicable following the payroll period which includes May 15, 2003.
SECTION 5 .         INDIVIDUAL ACCOUNT .
5.1     Creation of Accounts . The Company will maintain an Account under the Plan in the name of each Member. Each Member’s Account will be credited with the amount of the Member’s Excess Regular Earnings Deferrals, Employer Accruals, and will be adjusted for earnings and losses thereon. In the case of Members covered under both the “excess benefit” and “top-hat” portions of the Plan, separate accounts will be maintained to reflect the Members’ interest in each such portion of the Plan.
5.2     Payment Account Option Election . Each Member shall elect the particular Payment Option that is to apply to amounts credited to the Member’s Account. In order for a Payment Option election to be effective, it must be made (i) no later than ninety (90) days (one hundred and eighty (180) days for employment terminations on or after January 1, 2003) prior to the date the Member terminates employment with the Controlled Group, and (ii) in a taxable year preceding the taxable year in which payment would otherwise be made or commence. In the absence of a timely election, payment of the Member’s Account will be made in accordance with the most recent Payment Option election which satisfies the requirements of the immediately preceding sentence or, in the absence of any such Payment Option election, in five (5) substantially equal annual installments commencing as soon as practicable




following the end of the Plan Year in which the Member terminates employment with the Controlled Group. The foregoing notwithstanding, in any case where the value of the Member’s Plan Account is less than ten percent (10%) of the value of the Member’s interest in both the Plan and the Qualified Plan, payment of the Member’s Account shall be made in a lump sum as soon as practicable following the end of the Plan Year in which the Member terminates employment with the Controlled Group. Upon a Member becoming “Disabled,” as determined under the Qualified Plan, the balance of the Member’s Account shall be paid in a lump sum as soon as practicable after such determination is made.
5.3     Investments . All Excess Regular Earnings Deferrals will be credited with an amount equal to the amount which would have been earned had such amounts been actually invested in one or more of the “Funds” (other than the Pfizer Match Fund) available for investment under the Qualified Plan, as the Member may elect from time to time, in one percent (1%) increments. The portion of the Member’s Account attributable to Employer Accruals shall be deemed to be invested in the Pfizer Match Fund. Rules similar to those which govern the Qualified Plan shall apply for purposes of determining the value of the deemed investments and the timing, frequency and permissibility of investment transfers, except that no diversification of Employer Accruals which are deemed to be invested in the Pfizer Match Fund shall be permitted. No provision of this Plan shall require the Company or any other Employer to actually invest any amount in any “Fund” or in any other investment vehicle. The Plan is an unfunded plan that is not subject to the funding requirements of ERISA, meaning that there are no actual investments held in a trust. The Accounts represent unsecured obligations of the Company, and no funds are set aside from the Company’s general assets to cover such Accounts. The Plan is subject to the full faith and credit of the Company, and Members would be general creditors in the event of the Company’s insolvency.
With respect to a Member subject to Section 16 of the Securities Exchange Act of 1934, an election to transfer a portion of his Account into, or out of, the “Pfizer Company Stock Fund” shall be permitted only if the Member has not elected during the immediately preceding six months to transfer out of, or into, such Fund within this Plan, the Pfizer Company Stock Fund under the Qualified Plan or the unit account within the Pfizer Inc Nonfunded Deferred Compensation and Unit Award Plan for Non-Employee Directors, the Pfizer Inc Retainer Units Award Plan for Non-Employee Directors, or the Pfizer Inc Deferred Compensation Plan.
SECTION 6 .         PAYMENT .
6.1     Payment of Benefits . A Member shall be paid the balance of his Account following termination of employment in accordance with the Payment Option elected by the Member. Upon the death of a Member, the Member’s beneficiary shall be paid the balance of the Member’s Account in a lump sum as soon as practicable after the death of the Member.
6.2.     Benefits Subject to Withholding . The benefits payable under this Plan shall be subject to the deduction of any federal, state, or local income taxes, employment taxes or other taxes which are required to be withheld from such payments by applicable laws and regulations. Any employment taxes owed by the Member with respect to any deferral, accrual or benefit payable under this Plan may be withheld from other compensation of the Member in the year in which such tax liability accrues.
SECTION 7 .         NATURE OF INTEREST OF MEMBER .
Participation in this Plan will not create, in favor of any Member, any rights or lien in or against any of the assets of the Company or any Employer, and all amounts of Excess Regular Earnings deferred hereunder shall at all times remain an unrestricted asset of the Company or the Employer. A Member’s rights to benefits payable under the Plan are not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, or encumbrance. Nothing contained in this Plan, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind, or a fiduciary relationship, between any Employer and a Member or any person, and the Company’s and each Employer’s promise to pay benefits hereunder shall at all times remain unfunded as to the Member.





SECTION 8 .         BENEFICIARY DESIGNATION .
A Member’s beneficiary under this Plan will automatically be the same as such Member’s beneficiary under the Qualified Plan unless a separate designation of beneficiary form for this Plan has been properly filed with the Committee or its authorized designee in accordance with any rule established by the Committee. In the absence of a designation of specific beneficiary under either the Qualified Plan or this Plan, which beneficiary survives the Member, upon the Member’s death, payment of his Account shall be made to his estate in a lump sum as soon as practicable.
SECTION 9 .         ADMINISTRATION .
9.1     Committee . This Plan will be administered by the Committee.
9.2     Powers of the Committee . The Committee’s powers under this Plan are the same as are described in the Qualified Plan and include, but are not limited to, the power:
(i)
to determine who are Eligible Employees for purposes of participation in the Plan;
(ii)
to interpret the terms and provisions of the Plan and to determine any and all questions arising under the Plan, including without limitation, the right to remedy possible ambiguities, inconsistencies, or omissions by a general rule or particular decision; and
(iii)
to adopt rules consistent with the Plan.
9.3     Claims Procedure . The Committee shall make, in its sole discretion, all determinations arising in the administration, construction or interpretation of the Plan including the right to construe disputed or doubtful Plan terms and provisions, and any such determination shall be conclusive and binding on all persons, except as otherwise provided by law. Any claim by a Member or any other person for any benefit alleged to be due under the Plan shall be made in writing to the Committee. Within 90 days of the filing of such claim, unless special circumstances require an extension of such period, such person will be given notice in writing of the approval or denial of the claims. If the claim is denied, the notice will set forth the reason for the denial, the Plan provisions on which the denial is based, an explanation of what other material or information, if any, is needed to perfect the claim, and an explanation of the claims review procedure. The claimant may request a review of such denial within 60 days of the date of receipt of such denial by filing notice in writing with the Committee. The claimant will have the right to review pertinent Plan documents and to submit issues and comments in writing. The Committee will respond in writing to a request for review within 60 days of receiving it, unless special circumstances require an extension of such period. The Committee, in its discretion, may request a meeting to clarify any matters deemed appropriate.
9.4     Limitation on Period for Filing Claims . No claim for benefits based upon a claim that contributions were not properly made under this Plan shall be approved under this Plan, and no action may be brought for benefits under this Plan pursuant to the denial of such a claim pursuant to Section 9.3 of this Plan, unless such claim for benefits is duly filed under Section 9.3 of this Plan no later than the last day of the second Plan Year beginning after the Plan Year in which the claim alleges that the contributions should have been credited.
SECTION 10 .     NO EMPLOYMENT RIGHTS .
No provisions of the Plan or any action taken by the Company, the Board of Directors, the Committee, or any of their properly authorized representatives shall give any person any right to be retained in the employ of any Employer, and the right and power of the Company or any Employer to dismiss or discharge any Member is specifically reserved.





SECTION 11 .     AMENDMENT, SUSPENSION, AND TERMINATION .
The Board of Directors or its authorized designee shall have the rights to amend, suspend, or terminate the Plan at any time, except that the Committee may make non-substantive administrative changes to this Plan so as to conform with or take advantage of governmental requirements, statutes or regulations. No amendment, modification or termination shall, without the consent of a Member, adversely affect the amount of the Member’s benefits in his or her Account as of the date of such amendment, modification or termination. Any modification, amendment or termination may accelerate the time at which any Member is entitled to a distribution. In the event the Plan is terminated, the Committee shall continue to administer the Plan in accordance with the relevant provisions thereof until the Member’s benefits have been paid hereunder.





Pharmacia Savings Plus Plan as in effect on 12/31/04. Except as otherwise specifically provided for in the Plan, the provisions of this Plan shall apply to Grandfathered Amounts transferred from the Pharmacia Savings Plus Plan
Pharmacia Savings Plus+Plan
Amended & Restated Effective as of July 1, 2002

PURPOSE
In recognition of the services provided by certain key employees, the Board of Directors of Pharmacia & Upjohn, Inc. (“P&U”) adopted a deferred compensation plan (the “Plan”) to make additional retirement benefits and increased financial security, on a tax-deferred basis, available to those individuals, effective July 1, 1999. Under the Plan, P&U provided a vehicle that will allow additional future compensation to be paid to key employees so that such employees may be retained and their productive efforts encouraged.
Effective September 22, 1999, the Board of Directors of P&U amended and restated the Plan to permit a new Affiliate, Sugen, Inc., to join the Plan as a “Company” and permit its Eligible Employees, as defined below, to make an Incentive Deferral, as defined below, as well as other forms of Compensation Deferrals, as defined below, when and if eligible.
On March 31, 2000, the Board of Directors of P&U amended and restated the Plan to reflect the transaction by which P&U became a wholly-owned subsidiary of Pharmacia Corporation (“Pharmacia”). On December 7, 2000, the Board of Directors of Pharmacia amended the Plan to (i) require deferral under this Plan of any incentive compensation earned under the Pharmacia Corporation Cash Long-Term Incentive Plan and (ii) permit deferral under this Plan of benefits payable under the Pharmacia Corporation Key Executive Pension Plan or payment under any other individual contractual pension arrangements for key executives at the Participant’s election. The Plan was subsequently amended to reflect the Company’s adoption of the Pharmacia Corporation Long-Term Performance Share Unit Incentive Plan, effective January 1, 2002.
Effective July 1, 2002, the Plan was amended to conform to Pharmacia’s Retirement Choice Program by including a “restoration” arrangement and a “bonus deferral” arrangement. Also effective July 1, 2002, the Plan was amended to assume the obligations of the Pharmacia Corporation ERISA Parity Savings and Investment Plan and to make certain other changes relating to a Change in Control of Pharmacia. Accordingly, the Plan, as amended and restated as of the Amendment Effective Date, as defined below, now reads as follows:
DEFINITIONS
Account . “Account” means, with respect to a Participant, the account established on the books of the Company pursuant to Section 5.1 and recording the benefit due to the Participant under the Plan.
Affiliate . “Affiliate” means any firm, partnership, or corporation that directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with Pharmacia. “Affiliate” also includes any other organization similarly related to Pharmacia that is designated as such by the Board.
Base Salary . “Base Salary” means the sum of an Eligible Employee’s W-2 compensation paid by the Company to the Eligible Employee including any pre-tax deferrals and benefits deducted from gross income including, but not limited to, any amounts that are excluded from gross income under section 125, 402(e)(3), or 132(f) of the Code and any deferrals under this Plan. “Base Salary” shall exclude any one-time or other special bonuses, moving and relocation expenses, stock options, or severance payments.




Base Salary Deferral . “Base Salary Deferral” means the portion of a Participant’s Base Salary that the Participant has elected to defer pursuant to Article 4.
Bonus . “Bonus” means any bonus or other incentive compensation awarded by the Company to the Eligible Employee under such plans as specifically refer to this Plan and under such other plans as Pharmacia’s Senior Vice President Human Resources may from time to time designate.
Bonus Deferral . “Bonus Deferral” means the portion of a Participant’s Bonus that the Participant has elected to defer pursuant to Article 4.
Beneficiary . “Beneficiary” means the person or persons designated as such in accordance with Section 10.3.
Board . “Board” means the Board of Directors of Pharmacia.
Cause . “Cause” means, if applicable to the Participant, the definition of that term used in the written employment agreement between the Participant and the Company or an Affiliate as in effect on the date of the Participant’s termination of employment or in the Company’s Change in Control Severance Benefit Plan. Otherwise, the term “Cause” shall mean (i) a material breach by the Participant of the Participant’s duties and responsibilities (other than as a result of incapacity due to physical or mental illness) which is demonstrably willful and deliberate on the part of the Participant, which is committed in bad faith or without reasonable belief that such breach is in the best interests of the Company or an Affiliate, and which is not remedied within 30 days after receipt of written notice from the Company or an Affiliate specifying such breach; or (ii) the Participant’s conviction of a felony which is materially and demonstrably injurious to the Company or an Affiliate.
Change in Control . “Change in Control” means:
(1)    the acquisition by any individual, entity, or group (a “Person”), including any “person” within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), of beneficiary ownership within the meaning of Rule 13d-3 promulgated under the Exchange Act, of 33% or more of either (i) the then outstanding shares of Common Stock of Pharmacia (the “Outstanding Company Common Stock”) or (ii) the combined voting power of the then outstanding securities of Pharmacia entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”): provided, however, that the following acquisitions of Outstanding Company Common Stock or Outstanding Company Voting Securities shall not constitute a Change in Control: (A) any acquisition by Pharmacia, (B) any acquisition by an employee benefit plan (or related trust) sponsored or maintained by Pharmacia or any corporation controlled by Pharmacia, or (C) any acquisition by any corporation pursuant to a reorganization, merger, or consolidation involving Pharmacia, if, immediately after such reorganization, merger, or consolidation, each of the conditions described in clauses (i), (ii), and (iii) of subsection (3) of this Section shall be satisfied; and provided further that, for purposes of clause (A), if any Person (other than Pharmacia or any employee benefit plan (or related trust) sponsored or maintained by Pharmacia or any corporation controlled by Pharmacia) shall become the beneficial owner of 33% or more of the Outstanding Company Common Stock or 33% or more of the Outstanding Company Voting Securities by reason of any acquisition of Outstanding Company Common Stock or Outstanding Company Voting Securities by Pharmacia and such Person shall, after such acquisition by Pharmacia, becomes the beneficial owner of any additional shares of the Outstanding Company Stock or any additional Outstanding Voting Securities and such beneficial ownership is publicly announced, such additional beneficial ownership shall constitute Change in Control;
(2)    individuals who, as of the date hereof, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of such Board; provided, however, that any individual who becomes a director of Pharmacia subsequent to the date hereof whose election, or nomination for election by Pharmacia’s stockholders, was approved by the vote of at least three-quarters of the directors then comprising




the Incumbent Board (either by a specific vote or by approval of the proxy statement of Pharmacia in which such person is named as a nominee for director, without objection to such nomination) shall be deemed to have been a member of the Incumbent Board; and provided further, that no individual who was initially elected as a director of Pharmacia as a result of an actual or threatened election contest, as such terms are used in Rule 14a‑11 of Regulation 14A promulgated under the Exchange Act, or any other actual or threatened solicitation of proxies or consents by or on behalf of any Person other than the Board shall be deemed to have been a member of the Incumbent Board;
(3)    approval by the stockholders of Pharmacia of a reorganization, merger, or consolidation involving Pharmacia unless, in any such case, immediately after such reorganization, merger, or consolidation, (i) more than 50% of the then outstanding shares of common stock of the corporation resulting from such reorganization, merger, or consolidation and more than 50% of the combined voting power of the then outstanding securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals or entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such reorganization, merger, or consolidation and in substantially the same proportions relative to each other as their ownership, immediately prior to such reorganization, merger, or consolidation, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (ii) no Person (other than Pharmacia, any employee benefit plan (or related trust) sponsored or maintained by Pharmacia or the corporation resulting from such reorganization, merger, or consolidation (or any corporation controlled by Pharmacia), or any Person which beneficially owned, immediately prior to such reorganization, merger, or consolidation, directly or indirectly, 33% or more of the Outstanding Company Common Stock or the Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 33% or more of the then outstanding shares of common stock of such corporation or 33% or more of the combined voting power of the then outstanding securities of such corporation entitled to vote generally in the election of directors, and (iii) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger, or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such reorganization, merger, or consolidation; or
(4)    (i) approval by the stockholders of Pharmacia of a plan of complete liquidation or dissolution of Pharmacia or (ii) the sale or other disposition of all or substantially all of the assets of Pharmacia other than to a corporation with respect to which, immediately after such sale or other disposition, (A) more than 50% of the then outstanding shares of common stock thereof and more than 50% of the combined voting power of the then outstanding securities thereof entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such sale or other disposition and in substantially the same proportions relative to each other as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (B) no Person (other than Pharmacia, any employee benefit plan (or related trust) sponsored or maintained by Pharmacia or such corporation (or any corporation controlled by Pharmacia), or any Person which beneficially owned, immediately prior to such sale or other disposition, directly or indirectly, 33% or more of the Outstanding Company Common Stock or the Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 33% or more of the then outstanding shares of common stock thereof entitled to vote generally in the election of directors, and (C) at least a majority of the members of the board of directors thereof were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such sale or other disposition (or were approved directly or indirectly by the Incumbent Board).
CIC Consummation . “CIC Consummation” means the consummation of a transaction approved by stockholders as described in paragraphs (3) or (4) of the definition of Change in Control.
Code . “Code” means the Internal Revenue Code of 1986, as amended from time to time.




Committee . “Committee” means the Compensation Committee appointed by the Board which shall administer the Plan and which also may act for the Company or the Board in making decisions and performing specified duties under the Plan. The Committee may delegate any or all of its duties under the Plan in which case the term “Committee” shall apply to the Committee’s delegate to the same extent as it would have applied to the Committee.
Company . “Company” means Pharmacia and any Affiliate that is authorized by the Board to adopt the Plan and to cover its Eligible Employees and whose designation as such has become effective upon acceptance of such status by the board of directors of the Affiliate. An Affiliate may revoke its acceptance of such designation at any time, but until such acceptance has been revoked, all the provisions of the Plan and amendments thereto shall apply to the Eligible Employees of the Affiliate. In the event the designation is revoked by the board of directors of an Affiliate, the Plan shall be deemed terminated only with respect to such Affiliate.
Company Contributions . “Company Contributions” means those matching contributions credited to the Participant’s Account by the Company at a rate equal to the matching contribution rate under the Savings Plan applicable to the Participant. “Company Contributions” shall be deemed to have been made in phantom shares of the Voting Securities valued on the basis of the closing price of the Voting Securities on the principal exchange on which the Voting Securities are traded on the day the Company Contribution is credited to the Participant’s Account.
Compensation Deferral . “Compensation Deferral” means that portion of Base Salary and/or Bonus as to which a Participant has made an irrevocable election to defer receipt until the Plan Year following the Participant’s Termination Date, except as otherwise specifically provided herein.
Disabled . “Disabled” means a mental or physical condition that qualifies a Participant for total and permanent disability benefits under a Company sponsored long term disability plan.
Earnings Crediting Options . “Earnings Crediting Options” means the deemed investment options selected by the Participant from time to time pursuant to which deemed earnings are credited to the Participant’s Account.
Effective Date . “Effective Date” means the effective date of the Plan which is July 1, 1999. “Amendment Effective Date” means July 1, 2002.
Eligible Employee . “Eligible Employee” means, with respect to the “bonus deferral” portion of the Plan, an Employee who is eligible to participate in the Savings Plan and whose annualized rate of Base Salary, determined at the time of enrollment, exceeds the compensation limit of section 401(a)(17) of the Code, as in effect from time to time. “Eligible Employee” means, with respect to the “restoration” portion of the Plan, either an Employee who meets the definition of Eligible Employee in the preceding sentence or an Employee whose annualized rate of Base Salary, determined at the time of enrollment, exceeds the compensation limit of section 401(a)(17) of the Code, as in effect from time to time, when combined with the Employee’s most recently paid Bonus. “Eligible Employee” means with respect to the “rollover” portion of the Plan, an Employee who meets the definition in the preceding sentence and who is eligible for a rollover as described in Section 6.3.
Employee . “Employee” means any individual employed by the Company on a regular, full-time basis (in accordance with the personnel policies and practices of the Employer), including citizens of the United States employed outside of their home country and resident aliens employed in the United States; provided, however, that to qualify as an “Employee” for purposes of the Plan, the individual must be a member of a group of “key management or other highly compensated employees” within the meaning of Sections 201, 301, and 401 of the Employee Retirement Income Security Act of 1974, as amended.




Enrollment Agreement . “Enrollment Agreement” means the authorization form, which an Eligible Employee files with the Committee to participate under Article 4 of the Plan.
Participant . “Participant” means an Eligible Employee who has filed a completed and executed Enrollment Agreement with the Committee or its designee or is otherwise automatically participating in the Plan in accordance with the provisions of Article 4 or by reason of a “rollover” pursuant to Section 6.3. In the event of the death or incompetency of a Participant, the term shall mean his personal representative or guardian. An individual shall remain a Participant until that individual has received full distribution of all amounts credited to the Participant’s Account.
Pharmacia . “Pharmacia” means Pharmacia Corporation and any successor by merger or otherwise.
Plan . “Plan” means this plan, called the Pharmacia Savings Plus+Plan, as amended from time to time.
Plan Year . “Plan Year” means the 12 month period beginning on each January 1 and ending on the following December 31 except that the first Plan Year of this amended and restated Plan shall begin on the Amended Effective Date and end on the following December 31.
Retirement Date . “Retirement Date” means the date that the Participant attains age 50.
Rollover Deferral . “Rollover Deferral” means the amount credited to the Participant under this Plan pursuant to Section 6.3.
Savings Plan . “Savings Plan” means the Pharmacia Savings Plan, as it may be amended from time to time, and any successor thereof.
Termination Date . “Termination Date” means the date of termination of a Participant’s service with the Company and its Affiliates and shall be determined without reference to any compensation continuation arrangement or severance benefit arrangement that may be applicable.
Voting Securities . “Voting Securities” means the common securities of Pharmacia, which carry the right to vote generally in the election of directors.
ADMINISTRATION OF THE PLAN AND DISCRETION
3.1    Subject to the terms of the Plan, the Committee shall have full power and authority to interpret the Plan, to prescribe, amend, and rescind any rules, forms, and procedures as it deems necessary or appropriate for the proper administration of the Plan and to make any other determinations and to take any other such actions as it deems necessary or advisable in carrying out its duties under the Plan. All action taken by the Committee arising out of, or in connection with, the administration of the Plan or any rules adopted thereunder, shall, in each case, lie within its sole discretion, and shall be final, conclusive, and binding upon the Company, the Board, all Employees, all Beneficiaries of Employees, and all persons and entities having an interest therein.
3.2    The Committee may adjust the phantom shares of Voting Securities to reflect a change in corporate capitalization (such as a stock split or stock dividend), or a corporate transaction (such as a merger, consolidation, separation, reorganization, or partial or complete liquidation), or to reflect equitably the occurrence of any extraordinary event, any change in applicable accounting rules or principles, any change in Pharmacia’s method of accounting, any change in applicable law, any change due to a merger, consolidation, acquisition, reorganization, combination of shares, or other changes in Pharmacia’s corporate structure or share, or any other change of similar nature.




3.3    The Company shall indemnify and hold harmless each member of the Committee from any and all claims, losses, damages, expenses (including counsel fees), and liability (including any amounts paid in settlement of any claim or any other matter with the consent of the Board) arising from any act or omission of such member, except when the same is due to gross negligence or willful misconduct.
3.4    Any decisions, actions, or interpretations to be made under the Plan by the Company, the Board, or the Committee shall be made in its respective sole discretion, not as a fiduciary and need not be uniformly applied to similarly situated individuals and shall be final, binding, and conclusive on all persons interested in the Plan.
PARTICIPATION
4.1     Election to Participate . Each Eligible Employee shall be offered the opportunity to participate in the portion or portions of the Plan for which he is eligible on an annual basis or as otherwise determined by the Committee. An Eligible Employee may enroll in the Plan for a Plan Year by filing a completed and fully executed Enrollment Agreement with the Committee or its designee by the last day of November of the preceding year for which the election is to be effective or such other time as the Committee determines (for the Plan Year beginning on the Amendment Effective Date, the executed Enrollment Agreement shall be due no later than June 20, 2002 or such other time as the Committee determines). For an Eligible Employee who begins employment with the Company after the end of the enrollment period, such Eligible Employee shall have 31 days after being hired to file a completed and fully executed Enrollment Agreement with the Committee or its designee. Participation in this Plan shall be automatic for any Eligible Employee with a Rollover Deferral.
(a)     Restoration Portion . With respect to the “restoration” portion of the Plan, each active Participant shall irrevocably elect on an Enrollment Agreement (i) whether to convert his or her pre-tax deferrals under the Savings Plan to after-tax deferrals under the Savings Plan upon reaching the annual elective deferral limit under section 402(g) of the Code; (ii) if the Participant does elect to convert pre-tax deferrals under the Savings Plan to after-tax deferrals under the Savings Plan, whether to convert the after-tax deferrals under the Savings Plan to pre-tax deferrals under the Plan upon reaching either the annual addition limit under section 415 of the Code or the annual compensation limit under section 401(a)(17) of the Code; and (iii) if the Participant has otherwise elected to make after-tax deferrals under the Savings Plan, whether to convert these after-tax deferrals to pre-tax deferrals under the Plan upon reaching either the annual elective deferral limit under section 402(g) of the Code, the annual addition limit under section 415 of the Code, or the annual compensation limit under section 401(a)(17) of the Code.
(b)     Bonus Deferral Portion . With respect to the “bonus deferral” portion of the Plan, an active Participant shall irrevocably elect on an Enrollment Agreement (i) whether to defer all or a percentage of his or her Bonus under the Plan, and (ii) whether to defer an additional percentage of his or her Base Salary under the Plan over and above the amount deferred under the “restoration” portion of the Plan. Any amount elected to be deferred under the Plan shall be made in whole percentages.
(c)     Rollover Portion . With respect to the “rollover” portion of the Plan each Participant shall elect on an Enrollment Agreement the Earnings Crediting Options for his or her Account if the Participant does not already have an election in effect. Until such election is provided, the Committee shall determine the Earnings Crediting Options applicable to the Participant’s Account.
The Committee may establish minimum or maximum amounts that may be deferred under this Section and may change such standards from time to time. Any such limits shall be communicated by the Committee to the Participants prior to the commencement of a Plan Year. Each Eligible Employee shall also provide in the Enrollment Agreement such other information as the Committee shall require.




4.2     Company Contributions . The Company shall credit to each Participant’s Account a Company Contribution based upon the amount of the Participant’s Base Salary Deferral and/or Bonus Deferral. Company Contributions shall be credited as frequently as determined by the Committee acting on behalf of the Company. Unless otherwise determined by the Committee, Participants who participate in Option 1 under Pharmacia’s Retirement Choice Program shall receive a dollar for dollar matching contribution on a payroll period basis for each dollar that they defer under the Plan up to 5% of their Compensation and Participants who participate in Option 2 under Pharmacia’s Retirement Choice Program shall receive an age-weighted matching contribution identical to the matching contribution offered under the Savings Plan up to 5% of their Compensation.
ACCOUNTS
5.1     Creation of Accounts . The Committee shall establish and maintain separate Accounts with respect to each Participant. The amount of the Participant’s Compensation Deferral and Rollover Deferral shall be credited by the Company to the Participant’s Account no later than the first day of the month following the month in which such Compensation would otherwise have been paid and immediately upon rollover pursuant to Section 6.3. The Participant’s Account shall be reduced by the amount of payments made by the Company to the Participant or the Participant’s Beneficiary pursuant to this Plan.
5.2     Compensation Deferrals . A Participant’s Account shall be credited with Compensation Deferrals in the following amount and manner:
(a)     Restoration Portion . If a Participant elects to convert his or her pre-tax deferrals under the Savings Plan directly to pre-tax deferrals under the Plan upon reaching the annual elective deferral limit under section 402(g) of the Code, the Participant’s Base Salary Deferrals shall commence on the date on which the attainment of the annual elective deferral limit under section 402(g) of the Code would have been reached if the Participant’s before-tax contribution rate under the Savings Plan that was in effect on the last day of the applicable enrollment period remained in effect throughout the remainder of the Plan Year. The amount of such Base Salary Deferrals shall be equal to the total percentage of Compensation that the Participant has elected to defer as pre-tax and after-tax deferrals under the Savings Plan. If a Participant elects to convert his or her pre-tax deferrals under the Savings Plan to after-tax deferrals under the Savings Plan upon reaching the annual elective deferral limit under section 402(g) of the Code, the Participant’s Base Salary Deferrals shall commence on the date on which the attainment of the annual addition limit under section 415 of the Code or the annual compensation limit under section 401(a)(17) of the Code would have been reached if the Participant’s before and after-tax contribution rates under the Savings Plan that were in effect on the last day of the applicable enrollment period remained in effect throughout the remainder of the Plan Year. The amount of such Base Salary Deferrals shall be equal to the percentage that the Participant has elected to defer as before-tax and after-tax deferrals under the Savings Plan.
(b)     Bonus Deferral Portion . If a Participant has elected to defer all or a portion of his or her Bonus, the Participant’s Bonus Deferral shall commence on the date that the Participant would otherwise have received such Bonus in an amount equal to the percentage elected by the Participant. If a Participant has elected to make additional Base Salary Deferrals under the “bonus deferral” portion of the Plan, the Participant’s additional Base Salary Deferrals shall commence on the date on which the attainment of the annual elective deferral limit under section 402(g) of the Code, the annual addition limit under section 415 of the Code, or the annual compensation limit under section 401(a)(17) of the Code would have been reached if the Participant’s before and after-tax contribution rates under the Savings Plan that were in effect on the last day of the applicable enrollment period remained in effect throughout the remainder of the Plan Year in an amount equal to the percentage that the Participant has elected to defer under the “bonus deferral” portion of the Plan. The combined maximum amount that a Participant may defer under the Plan and the Savings Plan shall be 80% of the Participant’s Base Salary.




5.3     Earnings on Accounts . A Participant’s Account shall be credited with earnings in accordance with the Earnings Crediting Options elected by the Participant from time to time. Participants may allocate the sums credited to their Account among the Earnings Crediting Options available under the Plan only in whole percentages; provided, however, that the Company Contribution shall be deemed to be invested, and shall remain, in phantom shares of Voting Securities until the Participant reaches age 50. No Rollover Deferral shall be required to be deemed invested in phantom shares of Voting Securities. The deemed rate of return, positive or negative, credited under each Earnings Crediting Option is based upon the actual investment performance of the corresponding investment portfolios of the Savings Plan, or such other investment fund(s) as the Committee may designate from time to time, and shall equal the total return of such investment fund net of asset based charges, including, without limitation, money management fees, fund expenses, mortality and expense risk insurance contract charges, and such other administrative expenses as the Committee determines should be charged to the Participants’ Accounts. The Committee reserves the right, on a prospective basis, to add or delete Earnings Crediting Options; provided, however, that, following a CIC Consummation, the Committee (a) may not alter the Earnings Crediting Options (except to the extent that a change is made to the corresponding investment portfolios of the Savings Plan or, if such Plan is terminated, the comparable plan in which Employees of the Company are eligible to participate) and (b) may not increase any of the expenses charged to a Participant’s Account except to the extent such expenses apply to the corresponding investment portfolio maintained under the Savings Plan and are charged to Participants in that plan.
5.4     Earnings Crediting Options . Notwithstanding that the rates of return credited to Participants’ Account under the Earnings Crediting Options are based upon the actual performance of the corresponding portfolios of Savings Plan, or such other investment funds as the Committee may designate, the Company shall not be obligated to invest any Compensation deferred by Participants under this Plan, Company Contributions, or any other amounts, in such portfolios or in any other investment funds.
5.5     Changes in Earnings Crediting Options . A Participant may change the Earnings Crediting Options to which the Participant’s Account is deemed to be allocated with whatever frequency is determined by the Committee which shall not be less than four times per Plan Year. Each such change may include (a) reallocation of the Participant’s existing Account in whole percentages and/or (b) change in investment allocation of amounts to be credited to the Participant’s Account in the future, as the Participant may elect. Following a CIC Consummation, the Committee shall not reduce the frequency of permitted changes.
5.6     Valuation of Accounts . The value of a Participant’s Account as of any date shall equal the amounts theretofore credited to such Account, including any earnings (positive or negative) deemed to be earned on such Account in accordance with Section 5.3 through the day preceding such date, less the amounts deducted from such Account.
5.7     Statement of Account . The Committee shall provide to each Participant, not less frequently than quarterly, a statement setting forth in reasonable detail the balance standing to the credit of each Participant in the Participant’s Account and the amount credited to and debited from such Account since the prior statement.
DISTRIBUTION OF ACCOUNTS
6.1     Distribution . Benefits shall be distributed in the Plan Year following (i) the Participant’s Retirement or (ii) the Plan Year in which occurs the Participant’s Termination Date, other than on account of death or becoming Disabled, as follows:
(a)     Benefits Upon Retirement . In the case of a Participant whose Service with the Employer terminates on or after his Retirement Date, the Participant’s Account shall be distributed in one of the following methods, as elected by the Participant in writing either in the Enrollment Agreement or in a separate election made at least three months prior to the beginning of the Plan Year in which distribution is to




occur: (i) in a lump sum; or (ii) in annual installments not in excess of 15, as elected by the Participant. Any lump-sum benefit payable in accordance with this paragraph shall be paid in, but not later than January 31 of the Plan Year following the Plan Year in which occurs the Participant’s Retirement Date valued as of the last business day of the Plan Year preceding the date of payment. Annual installment payments, if any, shall commence not later than January 31 of the Plan Year following the Plan Year in which occurs the Participant’s Retirement and each remaining installment shall be paid no later than each January 31 thereafter. Each such installment shall be in an amount equal to (i) the value of the Participant’s Account as of the last business day of the Plan Year preceding the date of payment, divided by (ii) the number of annual installment payments elected by the Participant in the Enrollment Agreement or election form that remain to be paid. A Participant may change the election regarding the manner of payment of the Participant’s Account at any time prior to the October 1 preceding the Plan Year in which occurs the later of the Participant’s Retirement Date and his or her Termination Date. If a Participant has made a timely election but his Termination Date occurs prior to the end of the Plan Year in which the election was made, then payment will be made pursuant to his or her prior election unless the Participant’s Termination Date is after a CIC Consummation (in which case the Participant’s most recent election shall be given effect). Such election may also specify that payment shall be made or commence as of the beginning of any later Plan Year (but not beyond the Plan Year in which the Participant attains age 65) in the event of a CIC Consummation prior to the Participant’s Termination Date.
(b)     Benefits Upon Termination of Employment . In the case of a Participant whose Termination Date occurs prior to the Participant’s Retirement Date, other than on account of becoming Disabled or by reason of death, the Participant’s Account shall be distributed in a lump sum by January 31 of the Plan Year following the Participant’s Termination Date valued as of the last business day of the Plan Year preceding the date of payment; provided, however, that, following a CIC Consummation, if the Participant’s termination is not for Cause the Participant’s Account shall be distributed in (i) a lump sum or (ii) annual installments not in excess of 15, as elected by the Participant and such lump sum shall be paid or such installments shall commence as of the beginning of any later Plan Year (but not later than January 31 of such year) selected by the Participant (but not beyond the Plan Year in which the Participant attains age 65). Any such election as to method and timing of payments following a CIC Consummation shall be made at least twelve (12) months prior to the date payment is to be made or commence, otherwise payments shall be made in one lump sum as specified in the first sentence of this paragraph (b); provided, however, that any such election made before October 1, 2002, shall be given effect if the Participant’s Termination Date is after a CIC Consummation.
(c)     Benefits Upon Change in Control . Within six months after a Change in Control, or if the Committee determines that a Change in Control is imminent, but in no event after a CIC Consummation, the Committee may determine to distribute a Participant’s Account in a lump sum by January 31 of the Plan Year following the Change in Control or the date of the Committee’s decision regarding the imminency of the Change in Control valued as of the last business day of the Plan Year preceding the date of payment.
(d)     Post Change in Control Elections . Any election as to the time of payment made by a Participant pursuant to paragraphs 6.3(a) or (b) above that would take effect after a CIC Consummation may be changed by the Participant subject to the following limitations: (1) the election must be made at least twelve (12) months prior to the date that payment was scheduled to be made, (2) the election can be made only to further defer payment to the beginning of a Plan Year that is at least two (2) years later. After a Participant’s Termination Date, he shall be entitled to no more than three (3) such elections to defer payment.
6.2     Form of Distributions . Any distribution made to or on behalf of a Participant from the Participant’s Account shall be in cash except that, to the extent the Account is deemed invested in phantom shares of Voting Securities, a Participant may elect, in the manner prescribed by the Committee, to receive Voting Securities. Where a distribution will be in an amount that is less than the entire balance of any such Account, the distribution shall be made pro rata from each of the Earnings Crediting Options to which such Account is then allocated.




6.3     Rollovers . Any distribution that is payable from or amount credited to any Eligible Employee under the Pharmacia Supplemental Pension Plan, the Pharmacia Key Executive Pension Plan, the Pharmacia Annual Incentive Plan, the Pharmacia Cash Long-Term Incentive Plan, the Pharmacia Long-Term Performance Share Unit Incentive Plan, any individual contractual pension arrangements, any arrangement or plans that expressly provide for deferral pursuant to this Plan and such other plans as may be from time to time designated by Pharmacia’s Senior Vice President Human Resources may be or shall be further deferred under this Plan in the manner set forth in such plans and in accordance with procedures established from time to time by the Committee or its delegate. All such amounts shall be credited to the Participant’s Account as Rollover Deferrals.
6.4     Pharmacia Corporation ERISA Parity Savings and Investment Plan . Effective July 1, 2002, this Plan shall assume all rights and obligations of the Pharmacia Corporation ERISA Parity Savings and Investment Plan (the “Parity Plan”). Any amount accrued under the Parity Plan shall be payable exclusively under this Plan in accordance with this Plan’s terms and provisions. The amount credited to a Participant’s account under the Parity Plan as of July 1, 2002 shall be the opening balance of a Participant’s Account under this Plan on such date. Any participants under the Parity Plan who have commenced receiving distributions under the Parity Plan prior to July 1, 2002 shall be entitled to continue receiving the same form of distribution that they have been receiving under the Parity Plan.
DISABILITY
In the event a Participant becomes Disabled, the Participant’s right to make any further deferrals under this Plan shall terminate as of the date for which the Participant first receives long-term disability benefits from the Company. A Participant who becomes Disabled shall be entitled to elect, within 90 days after receiving the first long-term disability benefit, but in any event prior to the end of the current Plan Year, to be treated as a Participant who has attained his or her Retirement Date, in which case the provisions of Section 6.1(a) shall be applicable, or else shall be treated as not having incurred a Termination Date until the Participant would otherwise have attained his or her Retirement Date in which case the provisions of Section 6.1(a) shall be applicable when the Participant would otherwise have actually been eligible under that provision. The Participant’s Account shall continue to be credited with earnings in accordance with Section 5.3 until such Account is fully distributed.
OTHER WITHDRAWALS
A Participant may, by written request on a form provided by the Committee, withdraw all or any portion of any of his Accounts as of the end of any calendar quarter, provided that the Participant shall forfeit 10% of the amount withdrawn as a penalty. Such penalty shall not apply if (a) the Participant provides the Company with written notice of withdrawal (which shall be irrevocable) at least one year prior to the year in which payment to the Participant is to be made, (b) such payment is for the Participant’s entire Account and (c) the Participant’s Base Salary Deferrals and Bonus Deferrals shall be suspended for one calendar year.
SURVIVOR BENEFITS
9.1     Death of Participant Prior to the Commencement of Benefits . In the event of a Participant’s death prior to the commencement of benefits in accordance with Article 6, benefits shall be paid to the Participant’s Beneficiary, as determined under Section 10.3, as provided in Section 8.2 in lieu of any benefits otherwise payable under the Plan to or on behalf of such Participant.
9.2     Survivor Benefits . In the case of a Participant who dies prior to the commencement of benefits pursuant to Section 6.1, distribution of such Account shall be made, as elected by the Participant in




the Enrollment Agreement or as may have been changed by the Participant, (a) in a lump sum as soon as practicable following the Participant’s death (subject to the Beneficiary’s rights to obtain payment in accordance with Articles 8 and 10), or (b) in the manner and at such time as such Account would otherwise have been distributed in accordance with Section 6.1(a) had the Participant lived and retired on the earliest possible date. The amount of any lump sum benefit payable in accordance with this Section shall equal the value of such Account as of the last business day of the calendar month immediately preceding the date on which such benefit is paid. The amount of any annual installment benefit payable in accordance with this Section shall equal (a) the value of such Account as of the last business day of the calendar month immediately preceding the date on which such installment is paid, divided by (b) the number of annual installments remaining to be paid pursuant to the election of the Participant in the Enrollment Agreement or as may have been changed by the Participant.
9.3     Death of Participant After Benefits Have Commenced . In the event a Participant dies after annual installment benefits payable under Section 6.1 from the Participant’s Account has commenced, but before the entire balance of such Account has been paid, any remaining installments shall continue to be paid to the Participant’s Beneficiary, as determined under Section 10.3, at such times and in such amounts as they would have been paid to the Participant had he survived, subject to such Beneficiary’s rights to obtain payment in accordance with Articles 8 and 10.
EMERGENCY BENEFIT
In the event that the Committee, upon written request of a Participant, determines that the Participant has suffered an “unforeseeable emergency” (or any similar circumstance under which a payment would be permitted, without causing the imposition of federal income taxes on Participant Accounts that have not been paid, pursuant to Revenue Procedure 92-65 or any successor Revenue Procedure, Revenue Ruling, regulation or other applicable administrative determination issued by the Internal Revenue Service), the Company shall pay to the Participant from the Participant’s Account, as soon as practicable following such determination, an amount necessary to meet the emergency, after deduction of any and all taxes as may be required pursuant to Section 11.8 (the “Emergency Benefit”), based on the value of the Participant’s Account as of the last business day of the month preceding the date of the distribution.
MISCELLANEOUS
11.1     Amendment and Termination . The Plan may be amended, suspended, discontinued, or terminated at any time by action of the Board or its delegate; provided, however, that no such amendment, suspension, discontinuance, or termination shall reduce or in any manner adversely affect the rights of any Participant or Beneficiary with respect to benefits that are payable or may become payable under the Plan based upon the balance of the Participant’s Accounts as of the effective date of such amendment, suspension, discontinuance, or termination. After a CIC Consummation, no amendment to the Plan may be made to this Section, Sections 5.3, 5.5, 5.7, 6.1, 6.2, 6.3 or 11.11, or Articles 8, 9 or 10; provided, however, that changes may be made to Section 6.1 but only to the extent such changes are necessary, in the Committee’s reasonable judgment, upon the advice of nationally recognized legal counsel, to fulfill the intent of this Plan to defer federal income taxation of Participants with respect to their Accounts until such Accounts are paid in accordance with the terms of the Plan.
11.2     Claims Procedure .
(a)     Claim . A person who believes that he is being denied a benefit to which he is entitled under the Plan (hereinafter referred to as a “Claimant”) may file a written request for such benefit with the Committee, setting forth the claim.




(b)     Claim Decision . Upon receipt of a claim, the Committee shall advise the Claimant that a reply will be forthcoming within ninety days and shall, in fact, deliver such reply within such period. The Committee may, however, extend the reply period for an additional ninety days for reasonable cause.
If the claim is denied in whole or in part, the Claimant shall be provided a written opinion, using language calculated to be understood by the Claimant, setting forth:
(i)    The specific reason or reasons for such denial;
(ii)    The specific reference to pertinent provisions of this Agreement on which such denial is based;
(iii)    A description of any additional material or information necessary for the Claimant to perfect his claim and an explanation why such material or such information is necessary;
(iv)    Appropriate information as to the steps to be taken if the Claimant wishes to submit the claim for review; and
(v)    The time limits for requesting a review under subsection (c) and for review under subsection (d) hereof, including a statement of the Claimant’s right to bring a civil action under section 502(a) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) following an adverse benefit determination on review.
(c)     Request for Review . Within sixty days after the receipt by the Claimant of the written opinion described above, the Claimant may request in writing that the Committee review the determination of the Committee. The Claimant or his duly authorized representative may, but need not, review the pertinent documents and submit written documents, records, comments and other information related to the claim for consideration by the Committee and shall be entitled to review, upon request without charge, copies of documents, records and all other information relevant to his claim. If the Claimant does not request a review of the initial determination within such sixty-day period, the Claimant shall be barred and estopped from challenging the determination.
(d)     Review of Decision . ithin sixty days after the Committee’s receipt of a request for review, the Committee shall review the initial determination. After considering all materials presented by the Claimant, the Committee shall render a written opinion, written in a manner calculated to be understood by the Claimant, setting forth the specific reasons for the decision, specific references to the pertinent provisions of this Agreement on which the decision is based, informing the Claimant of his right to receive, upon request and free of charge, reasonable access to and copies of all documents, records, and other information relevant to his benefits, and informing the Claimant of his right to bring a civil action under section 502(a) of ERISA. If special circumstances require that the sixty day time period be extended, the Committee shall so notify the Claimant and shall render the decision as soon as possible, but no later than one hundred twenty days after receipt of the request for review.
11.3     Designation of Beneficiary . Each Participant may designate a Beneficiary or Beneficiaries (which Beneficiary may be an entity other than a natural person) to receive any payments which may be made following the Participant’s death. Such designation may be changed or canceled at any time without the consent of any such Beneficiary. Any such designation, change or cancellation must be made in a form approved by the Committee and shall not be effective until received by the Committee, or its designee. If no Beneficiary has been named, or the designated Beneficiary or Beneficiaries shall have predeceased the Participant, the Beneficiary shall be the Participant’s estate. If a Participant designates more than one Beneficiary, the interests of such Beneficiaries shall be paid in equal shares, unless the Participant has specifically designated otherwise.




11.4     Limitation of Participant’s Right . Nothing in this Plan shall be construed as conferring upon any Participant any right to continue in the employment of the Company, nor shall it interfere with the rights of the Company to terminate the employment of any Participant and/or to take any personnel action affecting any Participant without regard to the effect which such action may have upon such Participant as a recipient or prospective recipient of benefits under the Plan. Any amounts payable hereunder shall not be deemed salary or other compensation to a Participant for the purposes of computing benefits to which the Participant may be entitled under any other arrangement established by the Employer for the benefit of its employees.
11.5     Obligations to Company . If a Participant becomes entitled to a distribution of benefits under the Plan, and if at such time the Participant has outstanding any debt, obligation, or other liability representing an amount owing to the Employer, then the Employer may offset such amount owed to it against the amount of benefits otherwise distributable. Such determination shall be made by the Committee.
11.6     Nonalienation of Benefits . Except as expressly provided herein, no Participant or Beneficiary shall have the power or right to transfer (otherwise than by will or the laws of descent and distribution), alienate, or otherwise encumber the Participant’s interest under the Plan. The Company’s obligations under this Plan are not assignable or transferable except to (a) any corporation or partnership which acquires all or substantially all of the Company’s assets or (b) any corporation or partnership into which the Company may be merged or consolidated. The provisions of the Plan shall inure to the benefit of each Participant and the Participant’s Beneficiaries, heirs, executors, administrators, or successors in interest.
11.7     Protective Provisions . Each Participant shall cooperate with the Employer by furnishing any and all information reasonably requested by the Employer in order to facilitate the payment of benefits hereunder. If a Participant refuses to cooperate, the Employer shall have no further obligation to the Participant under the Plan, other than payment to such Participant of the then current balance of the Participant’s Account in accordance with his prior elections.
11.8     Withholding Taxes . The Company may make such provisions and take such action as it may deem necessary or appropriate for the withholding of any taxes which the Company is required by any law or regulation of any governmental authority, whether federal, state or local, to withhold in connection with any benefits under the Plan, including, but not limited to, the withholding of appropriate sums from any amount otherwise payable to the Participant (or his Beneficiary). Each Participant, however, shall be responsible for the payment of all individual tax liabilities relating to any such benefits.
11.9     Unfunded Status of Plan . The Plan is intended to constitute an “unfunded” plan of deferred compensation for Participants. Benefits payable hereunder shall be payable out of the general assets of the Company, and no segregation of any assets whatsoever for such benefits shall be made. Notwithstanding any segregation of assets or transfer to a grantor trust, with respect to any payments not yet made to a Participant, nothing contained herein shall give any such Participant any rights to assets that are greater than those of a general creditor of the Company. In the event that the Committee determines that a Change in Control is imminent, the Committee shall cause the Company to create and fund a grantor trust of the Company that shall serve as the vehicle for paying all benefits due under the Plan and the amount contributed by the Company shall be the amount the Committee determines would then be due if the Plan were to terminate and all benefits were then to be paid in lump sum. If a Change in Control shall not have occurred within six months of such contribution by the Company, the Board may adopt a resolution to the effect that a Change in Control is not imminent and, in that event, up to all amounts contributed to the Trust and all earnings thereon, shall be repaid to the Company at the direction of the Board.
11.10     Severability . If any provision of this Plan is held unenforceable, the remainder of the Plan shall continue in full force and effect without regard to such unenforceable provision and shall be applied as though the unenforceable provision were not contained in the Plan.
11.11     Governing Law . The Plan shall be construed in accordance with and governed by the laws of the state of New Jersey, without reference to the principles of conflict of laws, to the extent not preempted




by ERISA; provided, however, that upon a CIC Consummation any court or tribunal that adjudicates any dispute, controversy or claim arising between a Participant and the Committee, its delegate, the Company or an Affiliate (or any successor to either), relating to or concerning the provisions of this Plan, will apply a de novo standard of review to any determinations made by such person. Such de novo standard shall apply notwithstanding the grant of full discretion hereunder to any such person or characterization of any decision as final, binding or conclusive on any party.

11.12     Headings . Headings are inserted in this Plan for convenience of reference only and are to be ignored in the construction of the provisions of the Plan.
11.13     Gender, Singular, and Plural . All pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, or neuter, as the identity of the person or persons may require. As the context may require, the singular may read as the plural and the plural as the singular.
11.14     Notice . Any notice or filing required or permitted to be given to the Committee under the Plan shall be sufficient if in writing and hand delivered, or sent by registered or certified mail, to the Human Resources Department, or to such other entity as the Committee may designate from time to time. Such notice shall be deemed given as to the date of delivery, or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification.





Exhibit 10.8
Pfizer Inc. Executive Annual Incentive Plan

I PURPOSE

The purpose of the Pfizer Inc. Executive Annual Incentive Plan (the "Plan") is to attract and retain highly qualified individuals; to obtain from each the best possible performance; to establish performance goals based on objective criteria; to further underscore the importance of achieving business objectives for the short and long term; and to include in such individual’s compensation package an annual incentive component which is tied directly to the achievement of those objectives. Such component is intended to qualify as performance-based compensation under Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), and would be deductible by the Company. In addition, each annual incentive award earned under the Plan on or after January 1, 2005, the receipt of which is not otherwise deferred under an eligible Plan of the Company in accordance with Section 409A of the Code, is intended to be exempt from Section 409A as a “short-term deferral” of compensation.

II DEFINITIONS

For the purposes of the Plan, the following terms shall have the following meanings:

ADJUSTED NET INCOME: Income before cumulative effect of accounting changes as shown on the audited Consolidated Statement of Income of the Company; provided, however, that if income before cumulative effect of accounting changes is not shown on such Statement, then Adjusted Net Income shall mean net income as shown on such Statement.

AWARDS: The annual incentive awards made pursuant to the Plan.

BOARD OF DIRECTORS: The Board of Directors of Pfizer Inc.

COMMITTEE: The Executive Compensation Committee of the Board of Directors or any successor thereto. The Committee shall consist solely of two or more "outside directors" within the meaning of Section 162(m) of the Code.

COMPANY: Pfizer Inc. and its subsidiary Companies.

ELIGIBLE EMPLOYEE: An employee who is a member of the Company’s Corporate Management Committee.

Grandfathered Benefits: Plan benefits that were earned and vested as of December 31, 2004 within the meaning of Section 409A. Grandfathered Benefits are subject to the distribution rules in effect prior to the amendment of the Plan Effective on January 1, 2008.

SECTION 409A: Section 409A of the Code and the regulations and other guidance issued thereunder by the U.S. Treasury or Internal Revenue Service.

III EFFECTIVE DATE; TERM

The Plan is effective as of January 1, 1997, subject to approval by the affirmative vote of a majority of shares voting at the Company’s 1997 Annual Meeting of Shareholders, and shall remain in effect until such time as it shall be terminated by the Committee.

IV AMOUNTS AVAILABLE FOR AWARDS

Awards with respect to any taxable year of the Company shall not exceed the limitations specified in Section VI of the Plan.





V ELIGIBILITY FOR AWARDS

The Committee may grant an award to an Eligible Employee if there is positive Adjusted Net Income.

The Committee shall give consideration to the contribution made by the Eligible Employee to achievement of the Company's established objectives and such other matters as it shall deem relevant.

In the discretion of the Committee, Awards may be made to Eligible Employees who have retired or whose employment has terminated after the beginning of the year for which an Award is made, subject to Section VIII regarding the timing of payment and the Committee’s certification as to the achievement of the established objectives for such performance period, or to the designee or estate of an Eligible Employee who died during such period.

VI DETERMINATION OF AMOUNTS OF AWARDS

The Committee has sole authority to determine the amount of any Award. The maximum Award payable to an individual is .30% (three tenths of one percent) of Adjusted Net Income for such year. The Committee has authority to exercise discretion within the above maximum in determining the amount of individual Awards.

VII FORM OF AWARDS

Awards under the Plan shall be made in cash subject to the limitations set forth in Section VI.

VIII PAYMENT OF AWARDS

Awards may be made at any time following the end of the Company’s taxable year; provided, however, that no Awards shall be made until the Committee receives a report from the Company’s independent auditors stating the amount of Adjusted Net Income for the year. The Committee shall certify, in writing, that the amount of any such Award does not exceed the limitation under Section VI. Notwithstanding the foregoing, any Award earned during the taxable year commencing January 1, 2005 or later, the receipt of which is not otherwise deferred under an eligible Plan of the Company in accordance with Section 409A, shall be paid prior to the 15 th day of the 3 rd month of the taxable year immediately following the taxable year in which the Award was earned, and as such shall be exempt from Section 409A as a “short-term deferral” of compensation.

IX SPECIAL AWARDS AND OTHER PLANS

Nothing contained in the Plan shall prohibit the Company from establishing other special awards or incentive compensation plans providing for the payment of incentive compensation to employees (including Eligible Employees).

X ADMINISTRATION, AMENDMENT AND INTERPRETATION OF THE PLAN

The Committee shall administer the Plan. The Committee shall have full power to construe and interpret the Plan, establish and amend rules and regulations for its administration, and perform all other acts relating to the Plan, including the delegation of administrative responsibilities, that it believes reasonable and proper and in conformity with the purposes of the Plan.

The Committee shall have the right to amend the Plan from time to time or to repeal it entirely or to direct the discontinuance of Awards either temporarily or permanently; provided, however, that (i) no amendment of the Plan shall operate to annul, without the consent of the Eligible Employee, an Award already made hereunder, and (ii) no amendment of the Plan that changes the maximum Award determined payable to any Eligible Employee, as set forth in Section VI, or materially amends the definition of Adjusted Net Income shall be effective before approval by the affirmative vote of a majority of shares voting at a meeting of the shareholders of the Company.





Any decision made, or action taken, by the Committee arising out of or in connection with the interpretation and/or administration of the Plan shall be final, conclusive and binding on all persons affected thereby.

Notwithstanding the foregoing, no amendment of the Plan shall apply to Awards that were earned and vested (within the meaning of Section 409A) under the Plan prior to January 1, 2005, unless the amendment specifically provides that it applies to such amounts. The purpose of this restriction is to prevent a Plan amendment from resulting in an inadvertent "material modification" to amounts that are Grandfathered Benefits.

XI RIGHTS OF ELIGIBLE EMPLOYEES

Neither the Plan, nor the adoption or operation of the Plan, nor any documents describing or referring to the Plan (or any part hereof) shall confer upon any employee any right to continue in the employ of the Company.

No individual to whom an Award has been made or any other party shall have any interest in the cash or any other asset of the Company prior to such amount being paid.

No right or interest of any Eligible Employee in the Plan shall be assignable or transferable, or subject to any claims of any creditor or subject to any lien.

XII MISCELLANEOUS

All Awards under the Plan are subject to withholding, where applicable, for federal, state and local taxes.

Any provision of the Plan that is prohibited or unenforceable shall be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of the Plan.

The Plan and the rights and obligations of the parties to the Plan shall be governed by, and construed and interpreted in accordance with, the law of the State of Delaware (without regard to principles of conflicts of law). Notwithstanding anything herein to the contrary, the terms of the Plan are intended to, and shall be interpreted and applied so as to ensure that the Plan provides only for the “short-term deferral” of compensation and as such shall be exempt from 409A. Any provision of this Plan governing the timing or form of payment of benefits hereunder may be modified by the Committee if, and to the extent deemed necessary or advisable, to ensure such exemption from Section 409A. Nothing in this Section XII shall be construed as an admission that any of the benefits payable under this Plan constitute “deferred compensation” subject to the provisions of Section 409A.






Exhibit 10.9
Pfizer Inc Deferred Compensation Plan,
as Amended and Restated, effective January 1, 2008

Article 1. Purpose

1.1     Pfizer Inc, a Delaware corporation (the “Company”), established, effective as of December 1, 1997, a deferred compensation plan for key employees as described herein, which shall be known as the “Pfizer Deferred Compensation Plan” (the “Plan”). The Plan is hereby amended and restated as of January 1, 2008 to continue to permit eligible Employees to defer receipt of certain compensation pursuant to the terms and provisions set forth below. The Plan is intended (1) to comply with Section 409A (as defined below) (except with respect to amounts covered by Appendix A), and (2) to be “a plan which is unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees” within the meaning of sections 201(2), 301(a)(3) and 401(a)(1) of ERISA. Notwithstanding any other provision of this Plan, this Plan shall be interpreted, operated and administered in a manner consistent with these intentions.

1.2      Purpose. The purpose of the Plan is to provide certain key employees of the Company with the opportunity to voluntarily defer a portion of their compensation, subject to the terms of the Plan. By adopting the Plan, the Company desires to enhance its ability to attract and retain key employees.

Article 2. Definitions

Whenever used herein, the following terms when capitalized shall have the meaning set forth below:

“Account” means a bookkeeping account established by the Company for each Participant electing to defer eligible Compensation under the Plan.

“Affiliate” means any corporation or other entity that is treated as a single employer with the Company under section 414 of the Code.

“Award” means the Annual Incentive Plan Award or the Global Performance Plan Award based on an assessment of performance, payable by the Company to a Participant for the Participant’s services during a given calendar year of the Company under the Pfizer Inc Executive Annual Incentive Plan, Pfizer Inc Annual Incentive Plan or the Pfizer Inc Global Performance Plan, as may be in effect from time to time or the Short-Term Shift Award payable by the Company pursuant to the Company’s Executive Long-term Incentive Program. Awards shall be deemed earned only upon formal announcement thereof by the Company.

“Board” or “Board of Directors” means the Board of Directors of the Company

“Change in Control” shall mean the occurrence of any of the following events:

i
at any time during a two-year period, at least a majority of the Company’s Board of Directors shall cease to consist of “Continuing Directors” (meaning directors of the Company who either were directors at the beginning of such two-year period or who subsequently became directors and whose election, or nomination for election by the Company’s stockholders, was approved by a majority of the then Continuing Directors); or

ii
any “person” or “group” (as determined for purposes of Section 13(d)(3) of the Securities Exchange Act of 1934), except any majority-owned subsidiary of the Company or any employee benefit plan of the Company or any trust or investment manager thereunder, shall have acquired “beneficial ownership” (as determined for purposes of Securities and Exchange Commission (“SEC”) Regulation 13d-3) of shares of Common Stock of the Company having 15% or more of the voting power of all outstanding shares of capital stock of the Company, unless such acquisition





is approved by a majority of the directors of the Company in office immediately preceding such acquisition; or

iii
a merger or consolidation occurs to which the Company is a party, whether or not the Company is the surviving corporation, in which outstanding shares of Common Stock of the Company are converted into shares of another company (other than a conversion into shares of voting common stock of the successor corporation or a holding company thereof representing 80% of the voting power or all capital stock thereof outstanding immediately after the merger or consolidation) or other securities (of either the Company or another company) or cash or other property; or (iv) the sale of all, or substantially all, of the Company’s assets occurs; or (v) the stockholders of the Company approve a plan of complete liquidation of the Company.

“Code” means the Internal Revenue Code of 1986, as amended.

“Committee” means the Compensation Committee of the Board or the Executive Leadership Team , as appropriate, and any successor thereto or properly authorized delegee thereof.

“Company” means Pfizer Inc, a Delaware corporation (including any and all subsidiaries), and any successor thereto.

“Compensation” means the gross Salary, Awards, Long-Term Incentive Awards, and other payments which may be eligible for deferral under the Plan, which are payable to a Participant with respect to services performed while working during a specified period, not including compensation earned for services outside of the U.S. (unless on temporary assignment of 30 days or less) and remaining on a U.S. payroll.

“Deferral Election Form” means a written form provided by the Committee pursuant to which an eligible Employee may elect to defer amounts under the Plan.

“Disability” means when a Participant (1) is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, (2) is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than three months under an accident and health plan that covers Employees.

“Employee” means a salaried employee of the Company . who has been selected for participation under Section 4.1.

“ERISA” means the Employee Retirement Income Security Act of 1974.

“Federal Long-term Rate” means the 30-year constant maturity U.S. Treasury Rate from the Federal Reserve Bank for the previous month.

“Grandfathered Benefits” means Plan benefits that were earned and vested as of December 31, 2004 within the meaning of Section 409A. Grandfathered Benefits are subject to the distribution rules in effect prior to this amendment and restatement that are summarized on Exhibit A.

“Key Employee” means an Employee treated as a “specified employee” as of his or her Separation from Service under Code Section 409A(a)(2)(B)(i), i.e., a key employee (as defined in Code section 416(i) without regard to paragraph (5) thereof) of the Company or its Affiliates if the Company’s stock is publicly traded on an established securities market or otherwise. Key Employees shall be determined in accordance with Section 409A and applicable guidance thereunder. Key Employees shall also include those key employees who are eligible for the Company’s Executive Long-Term Incentive Program as “specified employees” for the 12 month period following the specified employee effective date, if not already included pursuant to the foregoing. Key Employees shall be determined in





accordance with Section 409A using a December 31 identification date and the listing of Key Employees as of any such identification date shall be effective for the 12-month period beginning on the effective date following the identification date. Notwithstanding the foregoing, the Committee may, under the alternative permissible methods allowable under Section 409A, adopt an alternative identification and effective date for purposes of determining which employees are Key Employees.

“Long-Term Incentive Award Payouts” means payouts of any Performance-Contingent Share Awards, Performance Share Awards, or Restricted Stock Units in cash or shares of Company stock.

“Participant” means an eligible Employee who has elected to participate in the Plan and make deferrals under Article IV.

“Salary” means all regular, basic wages, before reduction for amounts deferred pursuant to the Plan or any other plan of the Company, payable in cash to a Participant for services to be rendered during the calendar year, exclusive of any Awards, Long-Term Incentive Awards, other special fees, awards, or incentive compensation, allowance, or amounts designated by the Company as payment toward or reimbursement of expenses.

“Section 409A” means Section 409A of the Code and the regulations and other guidance issued thereunder by the U.S. Treasury or Internal Revenue Service.

“Separation from Service” means a “separation from service” within the meaning of Section 409A.

“Unforeseeable Emergency” means a severe financial hardship to a Participant resulting from an illness or accident of the Participant, the Participant’s spouse, or a dependent (as defined in Code section 152(a)) of the Participant, loss of the Participant’s property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant.

Article 3. Administration

3.1    Authority of the Committee . The Plan shall initially be administered by the Committee. Subject to the terms of this Plan, the Committee may appoint a successor committee to administer the Plan.

Subject to the provisions herein, the Committee shall have the exclusive discretion to select Employees for participation in the Plan; to determine the terms and conditions of each Employee’s participation in the Plan; to make, in its sole discretion, all determinations arising in the administration, construction or interpretation of the Plan including the right to construe disputed or doubtful Plan terms and provisions, and any such determination shall be conclusive and binding on all persons, except as otherwise provided by law; to construe and interpret any agreement or instrument entered into under the Plan; to establish, amend, or waive rules and regulations for the Plan’s administration; to amend (subject to the provisions of Article 9 herein) the terms and conditions of the Plan and any agreement entered into under the Plan; and to make other determinations which may be necessary or advisable for the administration of the Plan. Subject to the terms of the Plan, the Committee may delegate any or all of its authority granted under the Plan to one or more executives of the Company.

3.2      Claims Procedure . If a request for benefits by a Participant or beneficiary is wholly or partially denied, the Committee will provide such claimant written notice setting forth the denial. A review procedure is available upon written notice of the denial of the claim, and includes the right to examine pertinent documents and submit issues and comments in writing to the Committee. The decision on review will be made within 90 days after receipt of the request for review, unless circumstances warrant an extension of time not to exceed an additional 90 days, and shall be in writing. If a decision on review is not made within such period, the Participant’s claim shall be deemed denied.

3.3      Decisions Binding . All determinations and decisions of the Committee as to any disputed question arising under the Plan shall be final, conclusive and binding on all parties.






Article 4. Eligibility and Participation

4.1      Eligibility . Employees eligible to participate in the Plan include solely those executives selected by the Committee in its sole discretion who comprise a select group of “management or highly compensated employees,” such that the Plan will qualify for treatment as a “Top hat” plan within the meaning of Sections 201, 301 and 401 of ERISA.

In the event a Participant no longer meets the requirements for participation in the Plan, such Participant shall become an inactive Participant, retaining all the rights described under the Plan, except the right to make any further deferrals, until such time as the Participant again becomes an active Participant.

4.2      Participation . Participation in the Plan shall be determined annually by the Committee based upon the criteria set forth in Section 4.1 herein. Subject to Section 4.3, Employees who are chosen to participate in the Plan with respect to any given year shall be so notified in writing in advance of any required time to properly elect deferral for such year.

4.3      Partial Year Eligibility . In the event that an Employee first becomes eligible to participate in the Plan or another account balance plan required to be aggregated with this Plan under Section 409A during a calendar year, in the sole discretion of the Committee, such Employee may be notified as soon as practicable in writing by the Company and provided with a “Deferral Election Form,” (or such other form approved by the Committee from time to time in accordance with Section 409A for the purpose of making elections to defer Compensation under the Plan) which must be completed by the Employee as set forth in Section 5.2 herein.

4.4    No Right to Participate . No Employee shall have the right to be selected as a Participant, or, having been so selected for any given year, to be selected again as a Participant for any other year.

Article 5. Deferral Opportunity and Distributions

5.1    Amount Which May Be Deferred . A Participant may elect to defer up to one hundred percent (100%) of eligible components of Compensation, including but not limited to Salary, Awards and Long-Term Incentive Award Payouts, in any given year; provided, that the Committee shall have sole discretion to designate which components of Compensation are eligible for deferral elections under the Plan in any such year, and such Compensation shall not include any stock, stock option, stock appreciation right or other equity-based compensation which is not treated as deferred compensation pursuant to Treas. Reg. §1.409A-1(a)(5) or other applicable authority. The minimum amount of any single eligible component of Compensation (other than Performance Share Awards) which may be deferred in any given year is ten percent (10%) of each such component; provided that the minimum amount of Performance Share Awards that can be deferred in any year is twenty five percent (25%). In addition, an election to defer Compensation in any given year must be expressed by each Participant in increments of ten percent (10%) of the applicable component of Compensation, except that Performance Share Awards must be deferred in 25% increments.

5.2    Deferral Election In order to elect to defer Compensation earned during a year, an eligible Employee shall file an irrevocable Deferral Election Form with the Committee before the beginning of such year. Notwithstanding the foregoing, (1) if the Committee determines that any component of Compensation qualifies as “performance-based compensation” under Section 409A, an eligible Employee may elect to defer a portion of such Compensation by filing a Deferral Election Form at such later time up until the date six months before the end of the performance period as permitted by the Committee, and (2) in the first year in which an Employee becomes eligible to participate in this Plan or any other account balance plan required to be aggregated with this Plan under Section 409A, a deferral election may be made with respect to services to be performed subsequent to the election and within the same year only if such election is made within 30 days after the date the Employee first becomes eligible to participate in this or any other account balance plan required to be aggregated with this Plan under Section 409A.

Participants shall make the following irrevocable elections on each “Deferral Election Form”:






(a)    The amount to be deferred with respect to each eligible component of Compensation for the specified year;

(b)
The length of the deferral period with respect to each eligible component of Compensation or the date or event upon which the Compensation is to be paid in the future, pursuant to the terms of Section 5.3 and 5.4 herein;

(c)    The form or method for payment of the Compensation; and

(d)
The form or method for payment of the Compensation to a beneficiary in the event of the death of the Participant as designated in Section 6.4.

5.3    Length of Deferral. Subject to the remaining Sections of this Article 5, the deferral period elected by each Participant with respect to deferrals of Compensation for any given year will begin upon deferral and end as selected by the Participant on a Deferral Election Form from among the following choices as specified by the Committee from time to time:

(a)    upon the Participant’s Separation from Service;
(b)    upon on a specific date identified by the Participant; or
(c)    the earlier of (a) or (b).

If a Participant elected to defer Compensation but fails to select a length of deferral, the Participant shall be deemed to have elected (a), to be payable on January 31 of the year following (a). Notwithstanding anything in this Section 5.3 to the contrary, a specified date for a deferral period must be at least one (1) year following the end of the calendar year in which the Compensation is earned and no later than five (5) years following the Participant’s retirement.

5.4.    Form or Method for Payment of the Compensation . A Participant shall elect on a Deferral Election Form to have the portion of his or her Account related to amounts deferred under the Deferral Election Form (and earnings thereon) distributed in a lump sum or in annual installments over a period of no less than 2, and no more than 15, years with payments commencing upon the Participant’s Separation from Service or specified date as elected by the Participant on the Deferral Election Form. If the Participant fails to elect the form and method of payment on the Deferral Election Form, the form and method shall be a single lump sum.

5.5    Cancellation of Election for Disability or Distribution for Unforeseeable Emergency . If a Participant incurs a Disability or obtains a distribution under Section 5.3 on account of an Unforeseeable Emergency during a year, his or her deferral election for such year shall be cancelled.

5.6    Distribution upon Separation from Service or upon a Specified Date. If a Participant has elected on a Deferral Election Form to have the portion of his or her Account related to amounts deferred under the Deferral Election Form (and earnings thereon) paid to the Participant upon a Separation from Service, upon a specified date, or upon the earlier of the specified date or Separation from Service, then the Distribution shall commence upon such Separation from Service or the specified date, as applicable, and be made in the manner specified in Section 5.4.

5.7    Delay for Key Employees. Notwithstanding the foregoing, distributions may not be made to a Key Employee upon a Separation from Service before the date which is 6 months after the date of the Key Employee's Separation from Service (or, if earlier, the date of death of the Key Employee). Any payments that would otherwise be made during this period of delay shall be accumulated and paid as of the date that is six months after the Participant’s Separation from Service (or, if earlier, the first day of the month after the Participant’s death).

5.8    Distribution upon Disability . Notwithstanding the election made by a Participant on a Deferral Election Form under Sections 5.2, 5.3 and 5.4, if a Participant incurs a Disability while in payment status, but before full distribution of his or her Account balance, any remaining Account balance shall continue to be distributed in





accordance with the Particpant’s election made on the Deferral Election Form under Sections 5.2, 5.3 and 5.4 hereof. If a Participant incurs a Disability prior to commencing receipt of any portion of his or her Account balance, the Participant’s Account balance shall be distributed in accordance with the Particpant’s election made on the Deferral Election Form under Sections 5.2, 5.3 and 5.4 hereof.
 
5.9    Distributions upon Death . A Participant shall elect on a Deferral Election Form to have the portion of his or her Account remaining in the Account at his or her death (and earnings thereon), distributed in either a lump sum or in a continuation of the installment election made on the Deferral Election Form as filed under Section 5.4, commencing upon the Participant’s death to the Participant’s beneficiary in accordance with Section 6.4. If the Participant fails to elect the form and method of payment, the form and method shall be a continuation of the installments.

5.10    Withdrawals for Unforeseeable Emergency. Notwithstanding the election made by a Participant on a Deferral Election Form under Sections 5.2, 5.3 and 5.4, upon the occurrence of an Unforeseeable Emergency, a Participant may withdraw all or any portion of his or her Account balance provided that the amounts distributed with respect to an Unforeseeable Emergency may not exceed the amounts necessary to satisfy such Unforeseeable Emergency plus amounts necessary to pay taxes reasonably anticipated as a result of the distribution, after taking into account the extent to which such hardship is or may be relieved through reimbursement or compensation by insurance or otherwise or by liquidation of the Participant’s assets (to the extent the liquidation of such assets would not itself cause severe financial hardship) or by cessation of deferrals under the Plan. “Unforeseeable Emergency” means for this purpose a severe financial hardship to a Participant resulting from an illness or accident of the Participant, the Participant’s spouse, or a dependent (as defined in Code section 152(a)) of the Participant, loss of the Participant’s property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant.

5.11    Change in Control . Notwithstanding any provision in the Plan to the contrary or the election made by a Participant on a Deferral Election Form under Sections 5.2, 5.3 and 5.4, a Participant's Account balance under the Plan shall be distributed in an immediate lump sum payment upon the occurrence of a Change in Control that is a “Change in Control Event.” A “Change in Control Event” means an event described in Code section 409A(a)(2)(A)(v) or otherwise under Section 409A.

5.12    Timing of Payments . For purposes of Section 5.6, 5.8 and 5.9, payment will be deemed to be made upon a Separation from Service, Disability or death, as applicable if payment is made upon the date on which the event occurs or upon a date that is within 90 days of such event and the Participant does not have any control over when the payment is actually paid. For purposes of a payment on a specified date under Section 5.6, a payment will be deemed to be made upon a specified date if payment is made on such date, later in the calendar year containing such specified date, or, if later, the 15 th day of the 3 rd month following such specified date. The Participant will have no control over when the payment is actually paid.

5.13    Changes in Time or Form of Distribution. Notwithstanding the election made by a Participant on a Deferral Election Form under Sections 5.2, 5.3 and 5.4, a Participant may make one or more subsequent elections to change the time or form of a distribution for a deferred amount, provided that such an election shall be effective only if the following conditions are satisfied:

(a)
The election may not take effect until at least twelve (12) months after the date on which the election is made;

(b)
In the case of an election to change the time or form of a distribution under Sections 5.6, a distribution may not be made earlier than at least five (5) years from the date the distribution would have otherwise been made; and

(c)
In the case of an election to change the time or form of a distribution under Section 5.6, the election must be made at least twelve (12) months before the date the distribution is scheduled to be paid.






5.14    Effect of Taxation . If a portion of the Participant's Account balance is includible in income under Section 409A, such portion shall be distributed immediately to the Participant.

5.15    Permitted Delays . Notwithstanding the foregoing, any payment to a Participant under the Plan may be delayed upon the Committee's reasonable anticipation of one or more of the following events:

(a)
The Company's deduction with respect to such payment would be eliminated by application of Code section 162(m); or

(b)
The making of the payment would violate Federal securities laws or other applicable law;

provided, that (i) the Company treats any such delays to similarly situated Participants on a reasonably consistent basis, (ii) no election may be provided to a Participant with respect to the timing of such delayed payment, and (iii) any payment delayed pursuant to this Section 5.15 shall otherwise be paid in accordance with Section 409A.

5.16      Pre-2005 Deferrals . Notwithstanding the foregoing, Appendix A governs the distribution of amounts that were earned and vested (within the meaning of Section 409A and regulations thereunder) under the Plan prior to 2005 (and earnings thereon) and are exempt from the requirements of Section 409A.

5.17      Rehires. If a Participant ceases to be eligible to participate and subsequently again becomes eligible to participate, he or she may, in the sole discretion of the Committee, make an election in accordance with Sections 5.2, 5.3 and 5.4 on a Deferral Election Form that shall apply with respect to any amounts credited to his or her Account under the Plan after the date of his or her re-eligibility (provided the Employee becomes so eligible in a different calendar year than the year in which he or she ceased to be eligible), and if no such payment election is made, the portion of the Account accrued with respect to the new eligibility period shall be paid in accordance with the election on the Deferral Election Form for those amounts deferred prior to the Participant ceasing to be eligible to participate.

Article 6. Deferred Compensation Accounts

6.1    Participants’ Accounts. The Company shall establish and maintain an individual bookkeeping Account for deferrals made by each Participant under Article 5 herein. Each Account shall be credited as of the date the amount deferred otherwise would have become due and payable to the Participant.

6.2      Interest on Deferred Amounts . Compensation deferred under Article 5 shall accrue, in the sole discretion of the Committee, either (i) interest on a basis to be specified by the Committee, at a rate equal to the return choice(s) selected by the Participant from among the alternatives specified by the Committee from time to time, or (2) dividends or dividend equivalents as determined by the Committee. Interest or dividends, as applicable, credited on deferred amounts (less the amount of any debits for any losses) shall be credited to the Participant's Account and paid out to Participants at the same time and in the same manner as the underlying deferred amounts from such Account.

6.3      Charges against Accounts . There shall be charged against each Participant’s Account any payments made to the Participant or to his or her beneficiary.

6.4      Designation of Beneficiary . Each Participant may designate a beneficiary or beneficiaries (who may be named contingently or successively) who, upon the Participant’s death, will receive the amounts that otherwise would have been paid to the Participant under the Plan. All designations shall be signed by the Participant, and shall be in such form as prescribed by the Committee. Each designation shall be effective as of the date received from the Participant by the Global Long-Term Incentive Compensation group of the Company or its designee.






Participants may change their beneficiary designations on a form prescribed by the Committee. The payment of amounts deferred under the Plan shall be in accordance with the last unrevoked written designation of beneficiary that has been signed by the Participant and delivered by the Participant to the Global Long-Term Incentive Compensation group or its designee prior to the Participant’s death.

In the event that all the beneficiaries named by a Participant pursuant to this Section 6.4 predecease the Participant, the deferred amounts that would have been paid to the Participant or the Participant’s beneficiaries shall be paid to the Participant’s estate in a lump sum.

In the event a Participant does not designate a beneficiary, or for any reason such designation is ineffective, in whole or in part, the amounts that otherwise would have been paid to the Participant or the Participant’s beneficiaries under the Plan shall be paid to the Participant’s estate in a lump sum.

In the event the beneficiary of a Participant should die prior to the final payment of the deferred amounts, the amounts that otherwise would have ben paid to such beneficiary under the Plan shall be paid to the beneficiary’s estate in a lump sum.

Article 7. Rights of Participants

7.1    Contractual Obligation. The Plan shall create a contractual obligation on the part of the Company to make payments from the Participant’s accounts when due. Payment of account balances shall be made out of the general funds of the Company.

7.2    Unsecured Interest. No Participant or party claiming an interest in deferred amounts or contributions through a Participant shall have any interest whatsoever in any specific asset of the Company. To the extent that any party acquires a right to receive payments under the Plan, such right shall be equivalent to that of an unsecured general creditor of the Company.

7.3    Employment. Nothing in the Plan shall interfere with nor limit in any way the right of the Company to terminate any Participant’s employment at any time, nor confer upon any Participant any right to continue in the employ of the Company.

Article 8. Withholding of Taxes

The Company shall withhold from an employee’s regular compensation from the Company an amount sufficient to satisfy foreign, Federal, state, and local income or other withholding tax requirements with regard to amounts deferred under the Plan. However, the Company reserves the right to institute alternative methods for satisfying the applicable income and withholding tax requirements.

Article 9. Amendment and Termination

9.1    Amendment or Termination . The Company reserves the right to amend or terminate the Plan when, in the sole discretion of the Company, such amendment or termination is advisable, pursuant to a resolution or other action taken by the Committee. The Plan may also be amended to the extent such amendment is required under applicable law or is required to avoid having amounts deferred under the Plan included in the income of Participants or beneficiaries for federal income tax purposes prior to distribution.

Notwithstanding the foregoing, no amendment of the Plan shall apply to amounts that were earned and vested (within the meaning of Section 409A) under the Plan prior to 2005, unless the amendment specifically provides that it applies to such amounts. The purpose of this restriction is to prevent a Plan amendment from resulting in an inadvertent "material modification" to amounts that are Grandfathered Benefits.

9.2    Effect of Amendment or Termination . Except as provided in the next sentence, no amendment or termination of the Plan shall adversely affect the rights of any Participant to amounts credited to his or her





Account as of the effective date of such amendment or termination, without such Participant’s consent. Upon termination of the Plan, distribution of balances in Accounts shall be made to Participants and beneficiaries in the manner and at the time described in Article V, unless the Company determines in its sole discretion that all such amounts shall be distributed upon termination in accordance with the requirements under Section 409A. Upon termination of the Plan, no further deferrals of eligible Compensation shall be permitted; however, earnings, gains and losses shall continue to be credited to Account balances in accordance with the Plan until the Account balances are fully distributed.

Article 10. Miscellaneous

10.1    Notice. Any notice or filing required or permitted to be given to the Company under the Plan shall be sufficient if in writing and hand delivered, or sent by registered or certified mail to the Global Long-Term Incentive Compensation group of the Company. Notice to the Global Long-Term Incentive Compensation group , if mailed, shall be addressed to the principal executive offices of the Company. Notices shall be deemed given as of the date of delivery, or if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification.

10.2    Nontransferability. articipants’ rights to deferred amounts and interest earned thereon under the Plan may not be sold, transferred, assigned, or otherwise alienated or hypothecated other than by will or by will or by the laws of descent and distribution. In no event shall the Company make any payment under the Plan to any assignee or creditor of a Participant.

10.3    Severability. In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included.

10.4    Gender and Number. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine; the plural shall include the singular, and the singular shall include the plural.

10.5    Costs of the Plan. All costs of implementing and administering the Plan shall be borne by the Company.

10.6      Applicable Law. The plan shall be construed and enforced in accordance with the laws of the State of New York. Notwithstanding anything herein to the contrary, the terms of the Plan are intended to, and shall be interpreted and applied so as to, comply in all respects with Section 409A. Any provision of this Plan governing the timing or form of payment of benefits hereunder may be modified by the Committee if, and to the extent deemed necessary or advisable, to comply with Section. Nothing in this Section 10.6 shall be construed as an admission that any of the benefits payable under this Plan constitutes “deferred compensation” subject to the provisions of Section 409A.

10. 7     Successors. All obligation of the Company under the Plan shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company.







APPENDIX A

GRANDFATHERED BENEFITS

Distribution of amounts that were earned and vested (within the meaning of Section 409A) under the Plan prior to 2005 (and earnings thereon) and are exempt from the requirements of Section 409A shall be made in accordance with the Plan terms as in effect on December 31, 2004 as set forth in this Appendix A.

Pfizer Inc Deferred Compensation Plan

Article 1. Purpose

1.1     Pfizer Inc, a Delaware corporation (the “Company”), hereby establishes, effective as of December 1, 1997, a deferred compensation plan for key employees as described herein, which shall be known as the “Pfizer Deferred Compensation Plan” ( the “Plan”).

1.2     Purpose. The purpose of the Plan is to provide certain key employees of the Company with the opportunity to voluntarily defer a portion of their compensation, subject to the terms of the Plan. By adopting the Plan, the Company desires to enhance its ability to attract and retain key employees.

Article 2. Definitions

Whenever used herein, the following terms when capitalized shall have the meaning set forth below:

a
“Award” means the Annual Incentive Award based on an assessment of performance, payable by the Company to a Participant for the Participant’s services during a given calendar year of the Company. Awards shall be deemed earned only upon formal announcement thereof by the Company.

b
“Board” or “Board of Directors” means the Board of Directors of the Company

c
“Change in Control” shall mean the occurance of any of the following events:

i
at any time during a two-year period, at least a majority of the Company’s Board of Directors shall cease to consist of “Continuing Directors” (meaning directors of the Company who either were directors at the beginning of such two-year period or who subsequently became directors and whose election, or nomination for election by the Company’s stockholders, was approved by a majority of the then Continuing Directors); or

ii
any “person” or “group” (as determined for purposes of Section 13(d)(3) of the Securities Exchange Act of 1934), except any majority-owned subsidiary of the Company or any employee benefit plan of the Company or any trust or investment manager thereunder, shall have acquired “beneficial ownership” (as determined for purposes of Securities and Exchange Commission (“SEC”) Regulation 13d-3) of shares of Common Stock of the Company having 15% or more of the voting power of all outstanding shares of capital stock of the Company, unless such acquisition is approved by a majority of the directors of the Company in office immediately preceding such acquisition; or

iii
a merger or consolidation occurs to which the Company is a party, whether or not the Company is the surviving corporation, in which outstanding shares of Common Stock of the Company are converted into shares of another company (other than a conversion into shares of voting common stock of the successor corporation or a holding company thereof representing 80% of the voting power or all capital stock thereof outstanding immediately after the merger or consolidation) or other securities (of either the Company or another company) or cash or other property; or (iv) the





sale of all, or substantially all, of the Company’s assets occurs; or (v) the stockholders of the Company approve a plan of complete liquidation of the Company.

d
“Code” means the Internal Revenue Code of 1986, as amended.

e
“Committee” means the Executive Compensation Committee of the Board or the Employee Compensation and Management Development Committee, as appropriate, and any successor thereto.

f
“Company” means Pfizer Inc, a Delaware corporation (including any and all subsidiaries), and any successor thereto.

g
“Compensation” means the gross Salary, Award, Long-Term Incentive Awards, and other payments which may be eligible for deferral under the Plan, which are payable to a Participant with respect to services performed during a specified period.

h
“Disability” means a disability which would qualify the Participant for Long-Term Disability benefits under the Pfizer Long Term Disability Plan and, as such plan may be amended from time to time.

i
“Employee” means a salaried employee of the Company.

j
“ERISA” means the Employee Retirement Income Security Act of 1974.

k
“Federal Long-term Rate” means the 30-year constant maturity U.S. Treasury Rate from the Federal Reserve Bank for the previous month.

l
“Long-Term Incentive Awards” means Performance-Contingent Share Awards or earnings from stock option exercises.

m
“Participant” means an Employee who has elected to participate in the Plan.

n
“Salary” means all regular, basic wages, before reduction for amounts deferred pursuant to the Plan or any other plan of the Company, payable in cash to a Participant for services to be rendered during the calendar year, exclusive of any Bonus, Long-Term Awards, other special fees, awards, or incentive compensation, allowance, or amounts designated by the Company as payment toward or reimbursement of expenses.

Article 3. Administration

3.1     Authority of the Committee. The Plan shall initially be administered by the Committee. Subject to the terms of this Plan, the Committee may appoint a successor committee to administer the Plan.

Subject to the provisions herein, the Committee shall have the exclusive discretion to select Employees for participation in the Plan; to determine the terms and conditions of each Employee’s participation in the Plan; to make, in its sole discretion, all determinations arising in the administration, construction or interpretation of the Plan including the right to construe disputed or doubtful Plan terms and provisions, and any such determination shall be conclusive and binding on all persons, except as otherwise provided by law; to construe and interpret any agreement or instrument entered into under the Plan; to establish, amend, or waive rules and regulations for the Plan’s administration; to amend (subject to the provisions of Article 9 herein) the terms and conditions of the Plan and any agreement entered into under the Plan; and to make other determinations which may be necessary or advisable for the administration of the Plan. Subject to the terms of the Plan, the Committee may delegate any or all of its authority granted under the Plan to one or more executives of the Company.

3.2     Claims Procedure. If a request for benefits by a Participant or beneficiary is wholly or partially denied, the Committee will provide such claimant written notice setting forth the denial. A review procedure is available upon written notice of the denial of the claim, and includes the right to examine pertinent documents and





submit issues and comments in writing to the Committee. The decision on review will be made within 90 days after receipt of the request for review, unless circumstances warrant an extension of time not to exceed an additional 90 days, and shall be in writing. If a decision on review is not made within such period, the Participant’s claim shall be deemed denied.

3.3     Decisions Binding. All determinations and decisions of the Committee as to any disputed question arising under the Plan shall be final, conclusive and binding on all parties.

Article 4. Eligibility and Participation

4.1     Eligibility. Employees eligible to participate in the Plan include key policy and decision makers of the Company, as selected by the Committee in its sole discretion. It is the intent of the Company to extend eligibility only to those executives who comprise a select group of “management or highly compensated employees,” such that the Plan will qualify for treatment as a “Top hat” plan within the meaning of Sections 201, 301 and 401 of ERISA.

In the event a Participant no longer meets the requirements for participation in the Plan, such Participant shall become an inactive Participant, retaining all the rights described under the Plan, except the right to make any further deferrals, until such time as the Participant again becomes an active Participant.

4.2     Participation. Participation in the Plan shall be determined annually by the Committee based upon the criteria set forth in Section 4.1 herein. Employees who are chosen to participate in the Plan in any given year shall be so notified in writing.

4.3     Partial Year Eligibility. In the event than an Employee first becomes eligible to participate in the Plan during any given year, such Employee shall as soon as practicable be so notified in writing by the Company and provided with an “Election to Defer Form,” which must be completed by the Employee as set forth in Section 5.2 herein; provided, however, that such Employee may make an election to defer with respect to only that portion of his or her Compensation for such year which is to be paid after the date of filing of the deferral election.

4.4     No Right to Participate. No Employee shall have the right to be selected as a Participant, or, having been so selected for any given year, to be selected again as a Participant for any other year.

Article 5. Deferral Opportunity

5.1     Amount Which May Be Deferred. A Participant may elect to defer up to one hundred percent (100%) of eligible components of Compensation, including but not limited to Salary, Award and Long-Term Awards, in any given year; provided, that the Committee shall have sole discretion to designate which components of Compensation are eligible for deferral elections under the Plan in any such year. The minimum amount of any single eligible component of Compensation which may be deferred in any given year is ten percent (10%) of each such component. In addition, an election to defer Compensation in any given year must be expressed by each Participant in increments of ten percent (10%) of the applicable component of Compensation.

5.2     Deferral Election. Participants shall make their elections to defer Compensation under the Plan for a given calendar year not later than (a) thirty (30) days prior to the beginning of such calendar year or (b) if Participants are notified after the beginning of the calendar year of their selection to participate in the plan for such calendar year or a partial calendar year, within thirty (30) days of receipt of such notice. All deferral elections shall be irrevocable; shall relate solely to amounts earned after the filing of a deferral election with the Committee; and shall be made on an “Election to Defer Form,” as described herein.

Participants shall make the following irrevocable elections on each “Election to Defer Form”.

(a)    The amount to be deferred with respect to each eligible component of Compensation for the specified year;






(b)    The length of the deferral period with respect to each eligible component of Compensation, pursuant to the terms of Section 5.3 herein;

5.3    Length of Deferral. The deferral periods elected by each Participant with respect to deferrals of Compensation for any given year shall be selected from among the choices specified by the Committee. The Committee shall specify one or more deferral periods which are at least one (1) year following the end of the calendar year in which the Compensation is earned, and no greater than five (5) years following retirement.

5.4    Payment of Deferred Amounts. Subject to the provisions of Section 5.5 and Section 9 of the Plan, Participants shall receive payment of deferred amounts, together with interest earned thereon, at the end of the deferred period in a single lump-sum cash payment, unless otherwise elected. If alternative methods for receiving payments are approved by the Committee, election of the method of payment shall be made by the Participant within the same time periods as required in Section 5.2 of the Plan.

(a)    Lump-Sum Payment. A lump sum payment shall be made in cash within sixty (60) days of the end of the deferral period by the Participant, as described in Sections 5.2 and 5.3 herein.

(b)    Installment Payments. If approved by the Committee, Participants may elect payout in annual installments, with a minimum number of installments of two (2), and a maximum of fifteen (15). The initial payment shall be made in cash within sixty (60) days after the commencement date selected by the Participant pursuant to Sections 5.2 and 5.3 herein. The remaining installment payments shall be made in cash each year thereafter, until the Participant’s entire deferred compensation account has been paid. Interest shall accrue on the deferred amounts in the Participant’s deferred compensation account immediately prior each such payment, multiplied by a fraction, the numerator of which is one (1), and the denominator of which is the number of installment payments remaining.

(c)    Alternative Payment Schedule. If approved by the Committee, a Participant may elect an alternate payment schedule.
    
5.5    Change in Control. Notwithstanding any provision contained in the Plan, in the event of a Change in Control, all participants shall be entitled to an immediate lump sum payment of their deferred amounts, together with interest earned thereon.

Article 6. Deferred Compensation Accounts

6.1    Participants’ Accounts. The Company shall establish and maintain an individual bookkeeping account for deferrals made by each Participant under Article 5 herein. Each account shall be credited as of the date the amount deferred otherwise would have become due and payable to the Participant.

6.2     Interest on Deferred Amounts. Compensation deferred under Article 5 shall accrue interest on a basis to be specified by the Committee, at a rate equal to the return choice(s) selected by the Participant from among the alternatives specified by the Committee from time to time. Interest credited on deferred amounts (less the amount of any debits for any losses) shall be paid out to Participants at the same time and in the same manner as the underlying deferred amounts.

6.3     Charges Against Accounts. There shall be charged against each Participant’s deferred compensation account any payments made to the Participant or to his or her beneficiary.

6.4     Designation of Beneficiary. Each Participant may designate a beneficiary or beneficiaries (who may be named contingently or successively) who, upon the Participant’s death, will receive the amounts that otherwise would have been paid to the Participant under the Plan. All designations shall be signed by the Participant, and shall be in such form as prescribed by the Committee. Each designation shall be effective as of the date received from the Participant by the Senior Vice President - Employee Resources of the Company.






Participants may change their beneficiary designations on a form prescribed by the Committee. The payment of amounts deferred under the Plan shall be in accordance with the last unrevoked written designation of beneficiary that has been signed by the Participant and delivered by the Participant to the Senior Vice President - Employee Resources prior to the Participant’s death.

In the event that all the beneficiaries named by a Participant pursuant to this Section 6.4 predecease the Participant, the deferred amounts that would have been paid to the Participant or the Participant’s beneficiaries shall be paid to the Participant’s estate.

In the event a Participant does not designate a beneficiary, or for any reason such designation is ineffective, in whole or in part, the amounts that otherwise would have been paid to the Participant or the Participant’s beneficiaries under the Plan shall be paid to the Participant’s estate.

Article 7. Rights of Participants

7.1    Contractual Obligation. The Plan shall create a contractual obligation on the part of the Company to make payments from the Participant’s accounts when due. Payment of account balances shall be made out of the general funds of the Company.

7.2    Unsecured Interest. No Participant, or party claiming an interest in deferred amounts or contributions through a Participant, shall have any interest whatsoever in any specific asset of the Company. To the extent that any party acquires a right to receive payments under the Plan, such right shall be equivalent to that of an unsecured general creditor of the Company.

7.3    Employment. Nothing in the Plan shall interfere with nor limit in any way the right of the Company to terminate any Participant’s employment at any time, nor confer upon any Participant any right to continue in the employ of the Company.

Article 8. Withholding of Taxes

The Company shall withhold from an employee’s regular compensation from the Company an amount sufficient to satisfy foreign, Federal, state, and local income or other withholding tax requirements with regard to amounts deferred under the Plan. However, the Company reserves the right to institute alternative methods for satisfying the applicable income and withholding tax requirements.

Article 9. Amendment and Termination

The Company hereby reserves the right to amend, modify or terminate the Plan at any time by action of the Committee. Except as described below in this Article 9, no such amendment, modification or termination shall in any material manner adversely effect any Participant’s rights to deferred amounts, contributions or interest earned thereon, without the consent of the Participant.

The Plan is intended to be an unfunded plan maintained primarily to provide deferred compensation benefits for a select group of “management or highly compensated employees” within the meaning of Sections 201, 301 and 401 of ERISA, and therefore to be exempt from the provisions of Parts 2,3 and 4 of Title I of ERISA. Accordingly, the Committee may terminate the Plan and commence termination payout for all or certain Participants, or remove certain employees as Participants, if it is determined by the United States Department of Labor or a court of competent jurisdiction that the Plan constitutes an employee pension benefit plan within the meaning of Section 3(2) of ERISA which is not so exempt. If payout is commenced pursuant to the operation of this Article 9, the payment of such amounts shall be made in a lump sum regardless of the manner selected by each Participant under Section 5.4 herein as applicable.








Article 10. Miscellaneous

10.1 Notice. Any notice or filing required or permitted to be given to the Company under the Plan shall be sufficient if in writing and hand delivered, or sent by registered or certified mail to the Senior Vice President - Employee Resources of the Company. Notice to the Senior Vice President - Employee Resources, if mailed, shall be addressed to the principal executive offices of the Company. Notices shall be deemed given as of the date of delivery, or if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification.

10.2 Nontransferability. Participants’ rights to deferred amounts and interest earned thereon under the Plan may not be sold, transferred, assigned, or otherwise alienated or hypothecated other than by will or by will or by the laws of descent and distribution. In no event shall the Company make any payment under the Plan to any assignee or creditor of a Participant.

10.3 Severability. In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included.

10.4 Gender and Number. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine; the plural shall include the singular, and the singular shall include the plural.

10.5 Costs of the Plan. All costs of implementing and administering the Plan shall be borne by the Company.

10.6 Applicable Law. The plan shall be construed and enforced in accordance with the laws of the State of New York.

10.7 Successors. All obligation of the Company under the Plan shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company.





Exhibit 12

PFIZER INC. AND SUBSIDIARY COMPANIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

 
Year Ended December 31,
(IN MILLIONS, EXCEPT RATIOS)
2012

2011

2010

2009

2008

 
 
 
 
 
 
Determination of earnings:
 
 
 
 
 
Income from continuing operations before provision for taxes on income, noncontrolling interests and cumulative effect of a change in accounting principles
$
12,080

$
12,304

$
9,471

$
10,723

$
9,520

Less:
 
 
 
 
 
Net income attributable to noncontrolling interests
28

40

31

9

22

Income attributable to Pfizer Inc.
12,052

12,264

9,440

10,714

9,498

Add:
 
 
 
 
 
Fixed charges
1,640

1,813

1,930

1,358

647

Total earnings as defined
$
13,692

$
14,077

$
11,370

$
12,072

$
10,145

 
 
 
 
 
 
Fixed charges:
 
 
 
 
 
Interest expense (a)
$
1,524

$
1,681

$
1,797

$
1,232

$
516

Preferred stock dividends (b)
4

5

6

7

8

Rents (c)
112

127

127

119

123

Fixed charges
1,640

1,813

1,930

1,358

647

Capitalized interest
41

50

36

34

46

 
 
 
 
 
 
Total fixed charges
$
1,681

$
1,863

$
1,966

$
1,392

$
693

 
 
 
 
 
 
Ratio of earnings to fixed charges
8.1

7.6

5.8

8.7

14.6

(a)  
Interest expense includes amortization of debt premium, discount and expenses. Interest expense does not include interest related to uncertain tax positions of $268 million for 2012; $343 million for 2011; $389 million for 2010; $337 million for 2009; and $333 million for 2008.
(b)  
Preferred stock dividends related to our Series A convertible perpetual preferred stock held by an Employee Stock Ownership Plan Trust.
(c)  
Rents included in the computation consist of one-third of rental expense, which we believe to be a conservative estimate of an interest factor in our leases, which are not material.

All financial information before 2012 reflects Capsugel (the sale of which closed on August 1, 2011) as a discontinued operation. The financial information for the years ended December 31, 2012, 2011, 2010 and 2009 reflects the Nutrition business, which was acquired in 2009 and which the Company sold on November 30, 2012, as a discontinued operation.




Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

EXHIBIT 13
 
 
Pfizer Inc. 2012 Financial Report
 
 


Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

INTRODUCTION

Our Financial Review is provided to assist readers in understanding the results of operations, financial condition and cash flows of Pfizer Inc. (the Company). It should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements. The discussion in this Financial Review contains forward-looking statements that involve substantial risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, such as those discussed in Part 1, Item 1A, “Risk Factors” of our 2012 Annual Report on Form 10-K and in the “Forward-Looking Information and Factors That May Affect Future Results”, “Our Operating Environment” and “Our Strategy” sections of this Financial Review.

The Financial Review is organized as follows:
•
Overview of Our Performance, Operating Environment, Strategy and Outlook . This section, beginning on page 2, provides information about the following: our business; our 2012 performance; our operating environment; our strategy; our business development initiatives, such as acquisitions, dispositions, licensing and collaborations; and our financial guidance for 2013.
•
Significant Accounting Policies and Application of Critical Accounting Estimates . This section, beginning on page 10, discusses those accounting policies and estimates that we consider important in understanding Pfizer’s consolidated financial statements. For additional discussion of our accounting policies, see Notes to Consolidated Financial Statements— Note 1. Basis of Presentation and Significant Accounting Policies .
•
Analysis of the Consolidated Statements of Income. This section begins on page 15, and consists of the following sections:
◦
Revenues. This sub-section, beginning on page 15, provides an analysis of our revenues and products for the three years ended December 31, 2012, including an overview of research and development expenses and important biopharmaceutical product developments.
◦
Costs and Expenses . This sub-section, beginning on page 28, provides a discussion about our costs and expenses.
◦
Provision for Taxes on Income. This sub-section, beginning on page 33, provides a discussion of items impacting our tax provisions.
◦
Discontinued Operations. This sub-section, on page 34, provides an analysis of the financial statement impact of our discontinued operations.
◦
Adjusted Income . This sub-section, beginning on page 34, provides a discussion of an alternative view of performance used by management.
•
Analysis of the Consolidated Statements of Comprehensive Income. This section, on page 38, provides a discussion of changes in certain components of other comprehensive income.
•
Analysis of the Consolidated Balance Sheets. This section, beginning on page 38, provides a discussion of changes in certain balance sheet accounts.
•
Analysis of the Consolidated Statements of Cash Flows. This section, beginning on page 39, provides an analysis of our consolidated cash flows for the three years ended December 31, 2012.
•
Analysis of Financial Condition, Liquidity and Capital Resources . This section, beginning on page 40, provides an analysis of selected measures of our liquidity and of our capital resources as of December 31, 2012 and December 31, 2011, as well as a discussion of our outstanding debt and other commitments that existed as of December 31, 2012. Included in the discussion of outstanding debt is a discussion of the amount of financial capacity available to help fund Pfizer’s future activities.
•
New Accounting Standards . This section, on page 44, discusses accounting standards that we have recently adopted, as well as those that recently have been issued, but not yet adopted.
•
Forward-Looking Information and Factors That May Affect Future Results . This section, beginning on page 44, provides a description of the risks and uncertainties that could cause actual results to differ materially from those discussed in forward-looking statements presented in this Financial Review relating to, among other things, our anticipated financial and operating performance, business plans and prospects, in-line products and product candidates, strategic reviews, capital allocation, business-development plans, and plans relating to share repurchases and dividends. 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 are discussions of Financial Risk Management and Legal Proceedings and Contingencies.


2012 Financial Report    
 
 
1

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

OVERVIEW OF OUR PERFORMANCE, OPERATING ENVIRONMENT, STRATEGY AND OUTLOOK

Our Business

Our mission is to apply science and our global resources to improve health and well-being at every stage of life. We strive to set the standard for quality, safety and value in the discovery, development and manufacturing of medicines for people and animals. Our diversified global healthcare portfolio includes human and animal biologic and small molecule medicines and vaccines, as well as many of the world’s best-known consumer products. Every day, we work across developed and emerging markets to advance wellness, prevention, treatments and cures that challenge the most feared diseases of our time. We also collaborate with healthcare providers, governments and local communities to support and expand access to reliable, affordable healthcare around the world. Our revenues are derived from the sale of our products, as well as through alliance agreements, under which we co-promote products discovered by other companies (Alliance revenues).

The majority of our revenues come from the manufacture and sale of biopharmaceutical products. The biopharmaceutical industry is highly competitive and we face a number of industry-specific challenges, which can significantly impact our results. These factors include, among others: the loss or expiration of intellectual property rights, the regulatory environment and pipeline productivity, pricing and access pressures, and increasing competition among branded products. (For more information about these challenges, see the “Our Operating Environment” section of this Financial Review.)

The financial information included in our consolidated financial statements for our subsidiaries operating outside the United States (U.S.) is as of and for the year ended November 30 for each year presented.

References to developed markets include the U.S., Western Europe, Japan, Canada, Australia, Scandinavia, South Korea, Finland and New Zealand; and references to Emerging Markets include the rest of the world, including, among other countries, China, Brazil, Mexico, Turkey, Russia and India.

On February 6, 2013, an initial public offering (IPO) of our subsidiary, Zoetis Inc. (Zoetis), was completed, pursuant to which we sold 99.015 million shares of Zoetis in exchange for the retirement of approximately $2.5 billion of Pfizer commercial paper issued on January 10, 2013. The IPO represented approximately 19.8% of the total outstanding Zoetis shares. On February 1, 2013, Zoetis shares began trading on the New York Stock Exchange under the symbol "ZTS." Prior to and in connection with the IPO, Zoetis completed a $3.65 billion senior notes offering and we transferred to Zoetis substantially all of the assets and liabilities of our Animal Health business. (For additional information, see Notes to Consolidated Financial Statements–– Note 19A. Subsequent Events: Zoetis Debt Offering and Initial Public Offering. )

On November 30, 2012, we completed the sale of our Nutrition business to Nestlé for $11.85 billion in cash and recognized a gain of approximately $4.8 billion, net of tax, in Gain/(loss) on sale of discontinued operations––net of tax . The operating results of this business are reported as Income/(loss) from discontinued operations––net of tax in our consolidated statements of income for all periods presented. In addition, in our consolidated balance sheet as of December 31, 2011, the assets and liabilities associated with this discontinued operation are classified as Assets of discontinued operations and other assets held for sale and Liabilities of discontinued operations , as appropriate. (For additional information, see Notes to Consolidated Financial Statements–– Note 2B. Acquisitions, Divestitures, Collaborative Arrangements and Equity-Method Investments: Divestitures and see the “Our Business Development Initiatives” and “Discontinued Operations” sections of this Financial Review.)

On August 1, 2011, we completed the sale of our Capsugel business for approximately $2.4 billion in cash and recognized a gain of approximately $1.3 billion, net of tax, in G ain/(loss) on sale of discontinued operations––net of tax . The operating results of this business are reported as Income/(loss) from discontinued operations––net of tax in our consolidated statements of income for the years ended December 31, 2011 and December 31, 2010. (For additional information, see Notes to Consolidated Financial Statements–– Note 2B. Acquisitions, Divestitures, Collaborative Arrangements and Equity-Method Investments: Divestitures and see the “Our Business Development Initiatives” and “Discontinued Operations” sections of this Financial Review.)

The assets, liabilities, operating results and cash flows of acquired businesses, such as King Pharmaceuticals, Inc. (King) (acquired on January 31, 2011), are included in our results on a prospective basis only commencing from the acquisition date. As such, our consolidated financial statements for the year ended December 31, 2011 reflect approximately 11 months of King’s U.S. operations and approximately 10 months of King’s international operations. (For additional information about these acquisitions, see Notes to Consolidated Financial Statements–– Note 2A. Acquisitions, Divestitures, Collaborative Arrangements and Equity-Method Investments: Acquisitions and see the “Our Business Development Initiatives” section of this Financial Review.)

Our 2012 Performance

Revenues decreased 10% in 2012 to $59.0 billion , compared to $65.3 billion in 2011 , which reflects an operational decline of $4.8 billion or 8%, primarily the result of the loss of exclusivity of Lipitor in most major markets, including the U.S. on November 30, 2011 and most of developed Europe in March and May 2012, and the unfavorable impact of foreign exchange of $1.5 billion, or 2%. Lipitor and other product losses of exclusivity, as well as the final-year terms of our collaboration agreements in certain markets for Spiriva, negatively impacted revenues by approximately $7.7 billion, or 12%, in 2012 compared to 2011.


2
 
 
2012 Financial Report

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

The following table provides the significant impacts on revenues for 2012 as compared to 2011 :
  
 
2012 v. 2011
(MILLIONS OF DOLLARS)
 
Increase/
(Decrease)

 
%
Change

Lipitor (a)
 
$
(5,629
)
 
(59
)
Geodon/Zeldox (a)
 
(669
)
 
(65
)
Xalatan/Xalacom (a)
 
(444
)
 
(36
)
Caduet (a)
 
(280
)
 
(52
)
Effexor
 
(253
)
 
(37
)
Zosyn/Tazocin
 
(152
)
 
(24
)
Aromasin (a)
 
(151
)
 
(42
)
Aricept (b)
 
(124
)
 
(28
)
Detrol/Detrol LA (a)
 
(122
)
 
(14
)
Celebrex
 
196

 
8

Lyrica
 
465

 
13

Alliance revenues (a)
 
(138
)
 
(4
)
All other biopharmaceutical products (c)
 
525

 
7

Animal Health products
 
115

 
3

Consumer Healthcare products
 
184

 
6

(a)  
Lipitor and Caduet lost exclusivity in the U.S. in November 2011 and various other major markets in 2011 and 2012. Xalatan lost exclusivity in the U.S. in March 2011 and in the majority of European markets in January 2012. Aromasin lost exclusivity in the U.S. in April 2011, in the majority of European markets in July 2011 and in Japan in November 2011. Geodon lost exclusivity in the U.S. in March 2012. Detrol immediate release (Detrol IR) lost exclusivity in the U.S. in June 2012. Detrol lost exclusivity in most European markets in September 2012. We lost exclusivity for Aricept 5mg and 10mg tablets, which are included in Alliance revenues, in the U.S. in November 2010 and in the majority of European markets in February 2012 and April 2012. Lower revenues for Spiriva in certain European countries, Canada and Australia reflect final-year terms of our collaboration agreements in those markets.
(b)  
Represents direct sales under license agreement with Eisai Co., Ltd.
(c)  
Includes the “All other” category included in the Revenues — Major Biopharmaceutical Products table presented in this Financial Review, which includes sales of generic atorvastatin.

Income from continuing operations was $9.5 billion in 2012 compared to $8.4 billion in 2011 , primarily reflecting, among other items:
•
a settlement with the U.S. Internal Revenue Service and the resolution of certain foreign tax audits in 2012, all of which related to multiple tax years, which resulted in a tax benefit of approximately $1.1 billion and $310 million, respectively, representing tax and interest (see further discussion in Notes to Consolidated Financial Statements–– Note 5A. Tax Matters: Taxes on Income from Continuing Operations );
•
purchase accounting charges that were approximately $1.8 billion (pre-tax) lower in 2012 than 2011;
•
acquisition-related costs that were approximately $1.0 billion (pre-tax) lower in 2012 than 2011; and
•
charges related to our non-acquisition related cost-reduction and productivity initiatives that were approximately $645 million (pre-tax) lower in 2012 than 2011,
partially offset by:
•
the loss of exclusivity of Lipitor, as well as certain other products, resulting in lower revenues and associated expenses (see also "The Loss or Expiration of Intellectual Property Rights" section of this Financial Review);
•
charges for certain legal matters that were approximately $1.4 billion (pre-tax) higher in 2012 than 2011 (see further discussion in the “Costs and Expenses––Other Deductions––Net” section of this Financial Review and Notes to Consolidated Financial Statements–– Note 4. Other Deductions––Net ); and
•
charges in 2012 associated with the separation of Zoetis of $325 million (pre-tax) (see further discussion in the “Costs and Expenses––Selling, Informational and Administrative (SI&A) Expenses" and "Other Deductions––Net” sections of this Financial Review and Notes to Consolidated Financial Statements–– Note 4. Other Deductions––Net ).

Also, see the “Discontinued Operations” section of this Financial Review.


2012 Financial Report    
 
 
3

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

Our Operating Environment

U.S. Healthcare Legislation

Principal Provisions Affecting Us

In March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (together, the U.S. Healthcare Legislation, and also known as the Affordable Care Act), was enacted in the U.S. In June 2012, the U.S. Supreme Court upheld the constitutionality of the requirement in the U.S. Healthcare Legislation for Americans to have insurance (called the individual mandate) (for additional information, see the “Government Regulation and Price Constraints” section of our 2012 Annual Report on
Form 10-K). This legislation has resulted in both current and longer-term impacts on us, as discussed below.

Certain provisions of the U.S. Healthcare Legislation became effective in 2010 or in 2011, while other provisions will become effective on various dates. The principal provisions affecting us provide for the following:
•
an increase, from 15.1% to 23.1%, in the minimum rebate on branded prescription drugs sold to Medicaid beneficiaries (effective January 1, 2010);
•
extension of Medicaid prescription drug rebates to drugs dispensed to enrollees in certain Medicaid managed care organizations (effective March 23, 2010);
•
expansion of the types of institutions eligible for the “Section 340B discounts” for outpatient drugs provided to hospitals serving a disproportionate share of low-income individuals and meeting the qualification criteria under Section 340B of the Public Health Service Act of 1944 (effective January 1, 2010);
•
discounts on branded prescription drug sales to Medicare Part D participants who are in the Medicare “coverage gap,” also known as the “doughnut hole” (effective January 1, 2011); and
•
a 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 (effective January 1, 2011, with the total fee to be paid each year by the pharmaceutical industry increasing annually through 2018).

Impacts to our 2012 Results

We recorded the following amounts in 2012 as a result of the U.S. Healthcare Legislation:
•
$593 million recorded as a reduction to Revenues, related to the higher, extended and expanded rebate provisions and the Medicare “coverage gap” discount provision; and
•
$336 million recorded in Selling, informational and administrative expenses , related to the fee payable to the federal government referred to above.

Impacts to our 2011 Results

We recorded the following amounts in 2011 as a result of the U.S. Healthcare Legislation:
•
$648 million recorded as a reduction to Revenues, related to the higher, extended and expanded rebate provisions and the Medicare “coverage gap” discount provision; and
•
$248 million recorded in Selling, informational and administrative expenses , related to the fee payable to the federal government referred to above.

Other Impacts

•
Individual Mandate —The financial impact of U.S. healthcare reform may be affected by certain additional developments over the next few years, including pending implementation guidance relating to the U.S. Healthcare Legislation and certain healthcare reform proposals. In addition, the U.S. Healthcare Legislation requires that, except in certain circumstances, individuals obtain health insurance beginning in 2014, and it also provides for an expansion of Medicaid coverage in 2014. It is expected that, as a result of these provisions, there will be a substantial increase in the number of Americans with health insurance beginning in 2014, a significant portion of whom will be eligible for Medicaid. We anticipate that this will increase demand for pharmaceutical products overall. However, because of the substantial mandatory rebates we pay under the Medicaid program and because a significant percentage of the Americans who will be included in the coverage expansion are expected to be young, we do not anticipate that implementation of the coverage expansion will generate significant additional revenues for Pfizer. In June 2012, the U.S. Supreme Court upheld the constitutionality of all provisions of the U.S. Healthcare Legislation, with the exception of the provisions concerning Medicaid expansion; as a result of the Court's ruling regarding Medicaid, states can choose not to expand their Medicaid populations without losing federal funding for their existing Medicaid populations. The Congressional Budget Office estimates that the new state flexibility is likely to result in six million fewer new Medicaid enrollees than were initially expected to enroll as a result of the eligibility expansion and that half of these people are expected to gain coverage through Health Insurance Exchanges, and the remaining three million are likely to remain uninsured.
•
Biotechnology Products— The U.S. Healthcare Legislation also created a framework for the approval of biosimilars (also known as follow-on biologics) following the expiration of 12 years of exclusivity for the innovator biologic, with a potential six-month pediatric extension. Under the U.S. Healthcare Legislation, biosimilars applications may not be submitted until four years after the approval of the reference,

4
 
 
2012 Financial Report

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

innovator biologic. The U.S. Food and Drug Administration (FDA) is responsible for implementation of the legislation, which will require the FDA to address such key topics as the type and extent of data needed to establish biosimilarity; the data required to achieve interchangeability compared to biosimilarity; the naming convention for biosimilars; the tracking and tracing of adverse events; and the acceptability of data using a non-U.S. licensed comparator to demonstrate biosimilarity and/or interchangeability with a U.S.-licensed reference product. The FDA has begun to address some of these issues with the February 2012 release of three draft guidance documents. Specifically, the FDA has clarified that biosimilar applicants may use a non-U.S. licensed comparator in certain studies to support a demonstration of biosimilarity to a U.S.-licensed reference product. If competitors are able to obtain marketing approval for biosimilars referencing our biotechnology products, our biotechnology products may become subject to competition from biosimilars, with attendant competitive pressure, and price reductions could follow. Expiration or successful challenge of applicable patent rights could trigger this competition, assuming any relevant exclusivity period has expired. As part of our business strategy, we are developing biosimilar medicines using our expertise in biologics and our regulatory, commercial and manufacturing strengths. As such, a better-defined biosimilars approval pathway will assist us in pursuing approval of our own biosimilar products in the U.S.
The Loss or Expiration of Intellectual Property Rights

As is inherent in the biopharmaceutical industry, the loss or expiration of intellectual property rights can have a significant adverse effect on our revenues. Many of our products have multiple patents that expire at varying dates, thereby strengthening our overall patent protection. However, once patent protection has expired or has been lost prior to the expiration date as a result of a legal challenge, we lose exclusivity on these products, and generic pharmaceutical manufacturers generally produce similar products and sell them for a lower price. This price competition can substantially decrease our revenues for products that lose exclusivity, often in a very short period of time. While small molecule products are impacted in such a manner, biologics currently have additional barriers to entry related to the manufacture of such products and, unlike small molecule generics, biosimilars are not necessarily identical to the reference products. Therefore, generic competition with respect to biologics may not be as significant. A number of our current products are expected to face significantly increased generic competition over the next few years.

Our financial results in 2012 and our financial guidance for 2013, as applicable, reflect the impact of the loss of exclusivity of various products and the expiration of certain alliance product contract rights discussed below (see the “Our Financial Guidance for 2013” section of this Financial Review). Specifically:
•
Lipitor in the U.S. –– We lost exclusivity for Lipitor in the U.S. in November 2011. The entry of multi-source generic competition in the U.S. began in May 2012, with attendant increased competitive pressures. Through the end of 2011, sales of Lipitor in the U.S. were reported in our Primary Care business unit. Beginning in 2012, sales of Lipitor in the U.S. were reported in our Established Products business unit.
Lipitor in international markets—Lipitor lost exclusivity in Japan in June 2011 (with generic competition occurring in November 2011), Australia in April 2012 and most of developed Europe in March 2012 and May 2012. In Europe, Japan and Australia, Lipitor now faces multi-source generic competition. In other international markets, Lipitor has lost exclusivity in certain countries and will lose exclusivity at various times in other countries.
Prior to loss of exclusivity, sales of Lipitor in each market except for those in Emerging Markets, are reported in our Primary Care business unit. Typically, as of the beginning of the fiscal year following loss of exclusivity in a market, sales of Lipitor in that market, except for those in Emerging Markets, are reported in our Established Products business unit. Sales of Lipitor in the U.S. and Japan have been reported in our Established Products business unit since January 1, 2012, and sales of Lipitor in developed Europe began to be reported in our Established Products business unit on January 1, 2013.
•
Other recent loss of exclusivity impacts—In the U.S., we lost exclusivity for Vfend tablets in February 2011, for Xalatan in March 2011 and for Geodon in March 2012. The basic U.S. patent (including the six-month pediatric exclusivity period) for Protonix expired in January 2011. The basic patent for Vfend tablets in Brazil expired in January 2011. We lost exclusivity for Aromasin in the U.S. in April 2011, in the majority of European markets in July 2011 and in Japan in November 2011. We lost exclusivity for Xalatan and Xalacom in the majority of European markets in January 2012. We lost exclusivity for Aricept in the majority of European markets in February 2012 and April 2012. Caduet lost exclusivity in the U.S. in November 2011 and in the majority of European markets in March and May 2012. We lost exclusivity in the U.S. in September 2012 for Revatio tablet, and in June 2012 for Detrol IR. Detrol lost exclusivity in most European markets in September 2012.
In addition, we expect to lose exclusivity for various other products in various markets over the next few years. For additional information, including with regard to the expiration of the patents for various products in the U.S., European Union (EU) and Japan, see the “Patents and Intellectual Property Rights” section of our 2012 Annual Report on Form 10-K.
We will continue to aggressively defend our patent rights whenever we deem appropriate. For a discussion of certain recent developments with respect to patent litigation, see Notes to Consolidated Financial Statements— Note 17. Commitments and Contingencies .

In Alliance revenues, we expect to be negatively impacted by the following over the next few years:
•
Aricept—Our rights to Aricept in Japan returned to Eisai Co., Ltd. in December 2012. We expect to lose exclusivity for the Aricept 23mg tablet in the U.S. in July 2013.
•
Spiriva—Our collaboration with Boehringer Ingelheim (BI) for Spiriva expires on a country-by-country basis between 2012 and 2016, including the expiration in certain EU markets and Canada and Australia in 2012, which adversely impacted our 2012 results. We expect to experience a graduated decline in revenues from Spiriva through 2016.
•
Enbrel—Our U.S. and Canada collaboration agreement with Amgen Inc. for Enbrel will expire in October 2013. While we are entitled to royalties for 36 months thereafter, we expect that those royalties will be significantly less than our current share of Enbrel profits from U.S. and Canada sales. Outside the U.S. and Canada, our exclusive rights to Enbrel continue in perpetuity.

2012 Financial Report    
 
 
5

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

•
Rebif—Our collaboration agreement with EMD Serono Inc. (Serono) to co-promote Rebif in the U.S. will expire either at the end of 2013 or the end of 2015, depending on the outcome of pending litigation between Pfizer and Serono concerning the interpretation of the agreement. We believe that we are entitled to a 24-month extension of the agreement to the end of 2015. Serono believes that we are not entitled to the extension and that the agreement will expire at the end of 2013. In October 2011, the Philadelphia Court of Common Pleas sustained our preliminary objections and dismissed Serono’s complaint, and Serono has appealed the decision to the Superior Court of Pennsylvania. For additional information, see Notes to Consolidated Financial Statements–– Note 17. Commitments and Contingencies .

Pipeline Productivity and Regulatory Environment

The discovery and development of safe, effective new products, as well as the development of additional uses for existing products, are necessary for the continued strength of our businesses. We are confronted by increasing regulatory scrutiny of drug safety and efficacy, even as we continue to gather safety and other data on our products, before and after the products have been launched. Our product lines must be replenished over time in order to offset revenue losses when products lose their exclusivity, as well as to provide for revenue and earnings growth. We devote considerable resources to research and development (R&D) activities. These activities involve a high degree of risk and may take many years, and with respect to any specific research and development project, there can be no assurance that the development of any particular product candidate or new indication for an in-line product will achieve desired clinical endpoints and safety profile, will be approved by regulators or will be successful commercially. We continue to closely evaluate our global research and development function and pursue strategies intended to improve innovation and overall productivity in R&D by prioritizing areas that we believe have the greatest scientific and commercial promise, utilizing appropriate risk/return profiles and focusing on areas that we believe have the highest potential to deliver value in the near term and over time.

During the development of a product, we conduct clinical trials to provide data on the drug’s safety and efficacy to support the evaluation of its overall benefit-risk profile for a particular patient population. In addition, after a product has been approved and launched, we continue to monitor its safety as long as it is available to patients, and post-marketing trials may be conducted, including trials requested by regulators and trials that we do voluntarily to gain additional medical knowledge. For the entire life of the product, we collect safety data and report potential problems to the FDA. The FDA and regulatory authorities in other jurisdictions may evaluate potential safety concerns and take regulatory actions in response, such as updating a product’s labeling, restricting the use of a product, communicating new safety information to the public, or, in rare cases, removing a product from the market.

Pricing and Access Pressures

Governments, managed care organizations and other payer groups continue to seek increasing discounts on our products through a variety of means, such as leveraging their purchasing power, implementing price controls, and demanding price cuts (directly or by rebate actions). In particular, we continue to face widespread downward pressures on international pricing and reimbursement, particularly in developed European markets, Japan and in certain emerging markets, all of which have a large government share of pharmaceutical spending and are facing a difficult fiscal environment. Specific pricing pressures in 2012 included measures to reduce pharmaceutical prices and expenditures in Spain, Italy, France, Greece, Ireland, Portugal and Japan. Also, health insurers and benefit plans continue to limit access to certain of our medicines by imposing formulary restrictions in favor of the increased use of generics. In prior years, Presidential advisory groups tasked with reducing healthcare spending have recommended and legislative changes have been proposed that would allow the U.S. government to directly negotiate prices with pharmaceutical manufacturers on behalf of Medicare beneficiaries, which we expect would restrict access to and reimbursement for our products. There also continue to be legislative proposals to amend U.S. laws to allow the importation into the U.S. of prescription drugs from outside the U.S., which can be sold at prices that are regulated by the governments of various foreign countries. If importation of medicines is allowed, an increase in cross-border trade in medicines subject to foreign price controls in other countries could occur and negatively impact our revenues.

In August 2011, the federal Budget Control Act of 2011 (the Budget Control Act) was enacted in the U.S. The Budget Control Act includes provisions to raise the U.S. Treasury Department’s borrowing limit, known as the debt ceiling, and provisions to reduce the federal deficit by $2.4 trillion between 2012 and 2021. Deficit-reduction targets include $900 billion of discretionary spending reductions associated with the Department of Health and Human Services and various agencies charged with national security, but those discretionary spending reductions do not include programs such as Medicare and Medicaid or direct changes to pharmaceutical pricing, rebates or discounts. The Office of Management and Budget (OMB) is responsible for identifying the remaining $1.5 trillion of deficit reductions, which will be divided evenly between defense and non-defense spending. Under this OMB review process, Social Security, Medicaid, Veteran Benefits and certain other spending categories are excluded from consideration, but reductions in payments to Medicare providers may be made, although any such reductions are prohibited by law from exceeding 2% of the originally budgeted amount. Additionally, certain payments to Medicare Part D plans, such as low-income subsidy payments, are exempt from reduction. While we do not know the specific nature of the spending reductions under the Budget Control Act that will affect Medicare, we do not expect that those reductions will have a material adverse impact on our results of operations. However, any significant spending reductions affecting Medicare, Medicaid or other publicly funded or subsidized health programs that may be implemented, and/or any significant additional taxes or fees that may be imposed on us, as part of any broader deficit-reduction effort or legislative replacement for the Budget Control Act, could have an adverse impact on our results of operations.

Enforcement of the U.S. federal debt ceiling has been suspended through May 18, 2013. If the U.S. federal government fails to suspend enforcement of the debt ceiling beyond May 18, 2013 or to increase the debt ceiling and, as a result, is unable to satisfy its financial obligations, including under Medicare, Medicaid and other publicly funded or subsidized health programs, our results of operations could be adversely impacted.


6
 
 
2012 Financial Report

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

Competition Among Branded Products

Many of our products face competition in the form of branded products, which treat similar diseases or indications. These competitive pressures can have an adverse impact on our results of operations.
The Global Economic Environment

In addition to the industry-specific factors discussed above, we, like other businesses, continue to face the effects of the challenging economic environment, which have impacted our biopharmaceutical operations in the U.S. and Europe, including the countries that use the euro, affecting the performance of products such as Lyrica, Enbrel, Prevnar 13/Prevenar 13 and Celebrex, and in a number of emerging markets. We believe that patients, experiencing the effects of the challenging economic environment, including high unemployment levels, and increases in co-pays, sometimes switch to generic products, delay treatments, skip doses or use less effective treatments to reduce their costs. Challenging economic conditions in the U.S. also have increased the number of patients in the Medicaid program, under which sales of pharmaceuticals are subject to substantial rebates and, in many states, to formulary restrictions limiting access to brand-name drugs, including ours. In addition, we continue to experience pricing pressure in various markets around the world, including in developed European markets, Japan and in a number of emerging markets, with government-mandated reductions in prices for certain biopharmaceutical products and government-imposed access restrictions in certain countries.

Significant portions of our revenues and earnings 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 U.K. pound, the Chinese renminbi, 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 weakens against a specific foreign currency, our revenues will increase, having a positive impact, and our overall expenses will increase, having a negative impact, on net income. Likewise, if the U.S. dollar strengthens against a specific foreign currency, our revenues will decrease, having a negative impact, and our overall expenses will decrease, having a positive impact on net income. Therefore, significant changes in foreign exchange rates can impact our results and our financial guidance.

Despite the challenging financial markets, Pfizer maintains a strong financial position. Due to our significant operating cash flows, financial assets, access to capital markets and available lines of credit and revolving credit agreements, we continue to believe that we have the ability to meet our liquidity needs for the foreseeable future. Our long-term debt is rated investment grade by both Standard & Poor’s (S&P) and Moody’s Investors Service. As market conditions change, we continue to monitor our liquidity position. We have taken and will continue to take a conservative approach to our financial investments. Both short-term and long-term investments consist primarily of high-quality, highly liquid, well-diversified, available-for-sale debt securities. For further discussion of our financial condition, see the “Analysis of Financial Condition, Liquidity and Capital Resources” section of this Financial Review.

Our Strategy

We believe that our medicines provide significant value for both healthcare providers and patients, not only from the improved treatment of diseases but also from a reduction in other healthcare costs, such as emergency room or hospitalization costs, as well as improvements in health, wellness and productivity. We continue to actively engage in dialogues about the value of our products and how we can best work with patients, physicians and payers to prevent and treat disease and improve outcomes. We will work within the current legal and pricing structures, as well as continue to review our pricing arrangements and contracting methods with payers, to maximize access to patients and minimize any adverse impact on our revenues.

On November 30, 2012, we completed the sale of our Nutrition business to Nestlé. On February 6, 2013, we completed the sale of approximately 19.8% of our ownership stake in Zoetis through an initial public offering. We may in the future make a tax-free distribution to our shareholders of all or a portion of our remaining equity interest in Zoetis, which may include one or more distributions effected as a dividend to all Pfizer shareholders, one or more distributions in exchange for Pfizer shares or other securities, or any combination thereof. We will consider all alternatives to maximize the after-tax return for our shareholders, including a tax-free distribution to our shareholders.  If pursued, any disposition would be subject to various conditions, including receipt of any necessary regulatory or other approvals and the existence of satisfactory market conditions.

If we decide to fully separate Zoetis, then, following such separation, Pfizer will be a global biopharmaceutical company with an innovative core (our Primary Care, Specialty Care and Oncology units) and a value core (our Established Products unit) in developed markets, with different cost structures and operating drivers. Our Emerging Markets unit has a geographic focus that includes both the innovative and value cores in those markets. The innovative core includes a portfolio of innovative, largely patent-protected, in-line products and an R&D organization focused on continuing to build a robust pipeline of highly differentiated product candidates in areas of unmet medical needs. The value core includes a portfolio of products that have lost exclusivity or are approaching the loss of exclusivity that help meet the global need for less expensive, quality medicines. In addition, we have a complementary Consumer Healthcare business with several well-known brands.

In response to the challenging operating environment, we have taken and continue to take many steps to strengthen our Company and better position ourselves for the future. We believe in a comprehensive approach to our challenges—organizing our business to maximize research, development and commercial opportunities, improving the performance of our innovative core, making the right capital allocation decisions, and protecting our intellectual property.


2012 Financial Report    
 
 
7

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

We continue to closely evaluate our global research and development function and pursue strategies intended to improve innovation and overall productivity in R&D by prioritizing areas that we believe have the greatest scientific and commercial promise, utilizing appropriate risk/return profiles and focusing on areas that we believe have the highest potential to deliver value in the near term and over time. To that end, our research primarily focuses on five high-priority areas that have a mix of small and large molecules—immunology and inflammation; oncology; cardiovascular and metabolic diseases; neuroscience and pain; and vaccines. In addition to reducing the number of disease areas of focus, we have realigned and reduced our research and development footprint and outsourced certain functions that do not drive competitive advantage for Pfizer. For additional information, see the “Our Financial Guidance for 2013” and “Costs and Expenses—Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives” sections of this Financial Review.

While a significant portion of R&D is done internally, we continue to seek to expand our pipeline by entering into agreements with other companies to develop, license or acquire promising compounds, technologies or capabilities. Collaboration, alliance and license agreements and acquisitions allow us to capitalize on these compounds to expand our pipeline of potential future products. In addition, collaborations and alliances allow us to share risk and to access external scientific and technological expertise.

For information about our pending new drug applications (NDA) and supplemental filings, see the “Revenues—Product Developments—Biopharmaceutical” section of this Financial Review.

We continue to build on our broad portfolio of businesses through various business development transactions. See the “Our Business Development Initiatives” section of this Financial Review for information on our recent transactions and strategic investments that we believe complement our businesses.

We continue to aggressively defend our patent rights against increasingly aggressive infringement whenever appropriate (see Notes to Consolidated Financial Statements— Note 17. Commitments and Contingencies ), and we will continue to support efforts that strengthen worldwide recognition of patent rights while taking necessary steps to ensure appropriate patient access. In addition, we will continue to employ innovative approaches to prevent counterfeit pharmaceuticals from entering the supply chain and to achieve greater control over the distribution of our products, and we will continue to participate in the generics market for our products, whenever appropriate, once they lose exclusivity.

We remain focused on achieving an appropriate cost structure for the Company. For information regarding our cost-reduction and productivity initiatives, see the “Costs and Expenses—Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives” section of this Financial Review.

Our strategy also includes directly enhancing shareholder value through dividends and share repurchases. On December 17, 2012, our Board of Directors declared a first-quarter 2013 dividend of $0.24 per share, an increase from the $0.22 per-share quarterly dividend paid during 2012. Also, on November 30, 2012, a new $10 billion share repurchase plan, to be utilized over time, became effective.

Our Business Development Initiatives

We are committed to capitalizing on growth opportunities by advancing our own pipeline and maximizing the value of our in-line products, as well as through various forms of business development, which can include alliances, licenses, joint ventures, dispositions and acquisitions. We view our business development activity as an enabler of our strategies, and we seek to generate profitable revenue growth and enhance shareholder value by pursuing a disciplined, strategic and financial approach to evaluating business development opportunities. We are especially interested in opportunities in our five high-priority therapeutic areas—immunology and inflammation; oncology; cardiovascular and metabolic diseases; neuroscience and pain; and vaccines––and in emerging markets and established products. We assess our businesses and assets as part of our regular, ongoing portfolio review process and also continue to consider business development activities for our businesses.

The most significant recent transactions and events are described below.
•
On February 6, 2013, an initial public offering of Zoetis was completed, pursuant to which we sold 99.015 million shares of Zoetis in exchange for the retirement of approximately $2.5 billion of Pfizer commercial paper issued on January 10, 2013. The IPO represented approximately 19.8% of the total outstanding Zoetis shares. For additional information, see Notes to Consolidated Financial Statements–– Note 19A. Subsequent Events: Zoetis Debt Offering and Initial Public Offering.
•
On November 30, 2012, we completed the sale of our Nutrition business to Nestlé for $11.85 billion in cash. For additional information, see Notes to Consolidated Financial Statements— Note 2B. Acquisitions, Divestitures, Collaborative Arrangements and Equity-Method Investments: Divestitures .
•
On November 27, 2012, we completed our acquisition of NextWave Pharmaceuticals Incorporated (NextWave), a privately held, specialty pharmaceutical company. As a result of the acquisition, Pfizer now holds exclusive North American rights to Quillivant XR™ (methylphenidate hydrochloride), the first once-daily liquid medication approved in the U.S. for the treatment of ADHD. The total consideration for the acquisition was approximately $442 million. For additional information, see Notes to Consolidated Financial Statements— Note 2A. Acquisitions, Divestitures, Collaborative Arrangements and Equity-Method Investments: Acquisitions .
•
On October 31, 2012, our equity-method investee, ViiV Healthcare Limited (ViiV), acquired the remaining 50% of Shionogi-ViiV Healthcare LLC, its equity-method investee, from Shionogi & Co., Ltd. (Shionogi) in consideration for a 10% interest in ViiV (newly issued shares) and contingent consideration in the form of future royalties. For additional information, see Notes to Consolidated Financial Statements— Note 2D. Acquisitions, Divestitures, Collaborative Arrangements and Equity-Method Investments: Equity-Method Investments .

8
 
 
2012 Financial Report

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

•
On September 6, 2012, Pfizer and Zhejiang Hisun Pharmaceuticals Co., Ltd., a leading Chinese pharmaceutical company, created a new company, Hisun Pfizer Pharmaceuticals Company Limited (HPP), to develop, manufacture and commercialize off-patent pharmaceutical products in China and global markets. HPP was established with registered capital of $250 million. For additional information, see Notes to Consolidated Financial Statements— Note 2D. Acquisitions, Divestitures, Collaborative Arrangements and Equity-Method Investments: Equity-Method Investments.
•
On August 13, 2012, we announced that we entered into an agreement with AstraZeneca for the global over-the-counter (OTC) rights for Nexium, a leading prescription drug currently approved to treat the symptoms of gastroesophageal reflux disease. We made an upfront payment of $250 million to AstraZeneca, and AstraZeneca is eligible to receive milestone payments of up to $550 million based on product launches and level of sales as well as royalty payments based on sales. A marketing authorization application for OTC Nexium in a 20mg tablet form was filed with the European Medicines Agency in June 2012. A new drug application filing for OTC Nexium in the U.S. in a 20mg delayed-release capsule is targeted for the first half of 2013. For additional information, see Notes to Consolidated Financial Statements— Note 2A. Acquisitions, Divestitures, Collaborative Arrangements and Equity-Method Investments: Acquisitions .
•
On March 12, 2012, Biocon and Pfizer announced the conclusion of their October 18, 2010 alliance to commercialize Biocon’s biosimilar versions of insulin and insulin analog products. The companies agreed that, due to the individual priorities for their respective biosimilars businesses, each company would move forward independently.
•
On February 26, 2012, we completed our acquisition of Alacer Corp. (Alacer), a company that manufactures, markets and distributes Emergen-C, a line of effervescent, powdered drink mix vitamin supplements that is the largest-selling branded vitamin C line in the U.S. For additional information, see Notes to Consolidated Financial Statements— Note 2A. Acquisitions, Divestitures, Collaborative Arrangements and Equity-Method Investments: Acquisitions.
•
On December 1, 2011, we completed our acquisition of the consumer healthcare business of Ferrosan Holding A/S (Ferrosan), a Danish company engaged in the sale of science-based consumer healthcare products, including dietary supplements and lifestyle products, primarily in the Nordic region and the emerging markets of Russia and Central and Eastern Europe. Our acquisition of Ferrosan’s consumer healthcare business strengthens our presence in dietary supplements with a new set of brands and pipeline products. For additional information, see Notes to Consolidated Financial Statements— Note 2A. Acquisitions, Divestitures, Collaborative Arrangements and Equity-Method Investments: Acquisitions.
•
On November 30, 2011, we completed our acquisition of Excaliard Pharmaceuticals, Inc. (Excaliard), a privately owned biopharmaceutical company. Excaliard‘s lead compound, EXC-001, a Phase 2 compound, is an antisense oligonucleotide designed to interrupt the process of skin fibrosis by inhibiting expression of connective tissue growth factor (CTGF). The total consideration for the acquisition was approximately $174 million. For additional information, see Notes to Consolidated Financial Statements— Note 2A. Acquisitions, Divestitures, Collaborative Arrangements and Equity-Method Investments: Acquisitions .
•
In October 2011, we entered into an agreement with GlycoMimetics, Inc. for their investigational compound GMI-1070. GMI-1070 is a pan-selectin antagonist currently in Phase 2 development for the treatment of vaso-occlusive crisis associated with sickle cell disease. GMI-1070 has received Orphan Drug and Fast Track status from the FDA. Under the terms of the agreement, Pfizer received an exclusive worldwide license to GMI-1070 for vaso-occlusive crisis associated with sickle cell disease and for other diseases for which the drug candidate may be developed. GlycoMimetics is responsible for completion of the ongoing Phase 2 trial under Pfizer’s oversight, and Pfizer is responsible for all further development and commercialization. GlycoMimetics is entitled to payments up to approximately $340 million, including an upfront payment as well as development, regulatory and commercial milestones. GlycoMimetics is also eligible for royalties on any sales.
•
On September 20, 2011, we completed our cash tender offer for the outstanding shares of Icagen, Inc. (Icagen), resulting in an approximate 70% ownership of the outstanding shares of Icagen, a biopharmaceutical company focused on discovery, development and commercialization of novel, orally-administered small molecule drugs that modulate ion channel targets. On October 27, 2011, we acquired all of the remaining shares of Icagen. For additional information, see Notes to Consolidated Financial Statements— Note 2A. Acquisitions, Divestitures, Collaborative Arrangements and Equity-Method Investments: Acquisitions .
•
On August 1, 2011, we sold our Capsugel business for approximately $2.4 billion in cash. For additional information, see Notes to Consolidated Financial Statements— Note 2B. Acquisitions, Divestitures, Collaborative Arrangements and Equity-Method Investments: Divestitures .
•
On January 31, 2011 (the acquisition date), we completed a tender offer for the outstanding shares of common stock of King and acquired approximately 92.5% of the outstanding shares for approximately $3.3 billion in cash. On February 28, 2011, we acquired the remaining shares of King for approximately $300 million in cash. As a result, the total fair value of consideration transferred for King was approximately $3.6 billion in cash ($3.2 billion, net of cash acquired). For additional information, see Notes to Consolidated Financial Statements— Note 2A. Acquisitions, Divestitures, Collaborative Arrangements and Equity-Method Investments: Acquisitions.
•
On November 8, 2010, we consummated our partnership to develop and commercialize generic medicines with Laboratório Teuto Brasileiro S.A. (Teuto) a leading generics company in Brazil. As part of the transaction, we acquired a 40% equity stake in Teuto, and entered into a series of commercial agreements. The partnership is enhancing our position in Brazil, a key emerging market, by providing access to Teuto’s portfolio of products. Through this partnership, we have access to significant distribution networks in rural and suburban areas in Brazil and the opportunity to register and commercialize Teuto’s products in various markets outside Brazil. For additional information, see also Notes to Consolidated Financial Statements— Note 2D. Acquisitions, Divestitures, Collaborative Arrangements and Equity-Method Investments: Equity-Method Investments .
•
On October 6, 2010, we completed our acquisition of FoldRx Pharmaceuticals, Inc. (FoldRx), a privately held drug discovery and clinical development company. FoldRx’s lead product candidate, Vyndaqel (tafamidis meglumine), was approved in the EU in November 2011 and our new drug application was accepted for review in the U.S. in February 2012. This product is a first-in-class oral therapy for the treatment of transthyretin familial amyloid polyneuropathy (TTR-FAP), a progressively fatal genetic neurodegenerative disease, for which

2012 Financial Report    
 
 
9

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

liver transplant is the only treatment option currently available. Our acquisition of FoldRx has increased our presence in the growing rare medical disease market, which complements our Specialty Care unit. For additional information regarding Vyndaqel (tafamidis meglumine), see the “Product Developments—Biopharmaceutical” section of this Financial Review. The total consideration for the acquisition was approximately $400 million. For additional information about the acquisition, see Notes to Consolidated Financial Statements— Note 2A. Acquisitions, Divestitures, Collaborative Arrangements and Equity-Method Investments: Acquisitions .
Our Financial Guidance for 2013

We forecast 2013 revenues of $56.2 billion to $58.2 billion, Reported diluted earnings per common share (EPS) of $1.50 to $1.65 and Adjusted diluted EPS of $2.20 to $2.30. The exchange rates assumed in connection with the 2013 financial guidance are as of mid-January 2013. For an understanding of Adjusted income and Adjusted diluted EPS (both non-GAAP financial measures), see the “Adjusted Income” section of this Financial Review.

The 2013 financial guidance reflects the benefit of a full-year contribution from Zoetis. We plan to update this guidance in April 2013 to reflect the impact of the recent initial public offering (IPO) of an approximate 19.8% ownership interest in Zoetis. For additional information on the IPO, see Notes to Consolidated Financial Statements— Note 19A. Subsequent Events: Zoetis Debt Offering and Initial Public Offering .

The following table provides a reconciliation of 2013 Adjusted income and Adjusted diluted EPS guidance to 2013 Reported net income attributable to Pfizer Inc. and Reported diluted EPS attributable to Pfizer Inc. common shareholders guidance:
 
 
Full-Year 2013 Guidance
(BILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
 
Net Income (a)
 
Diluted EPS (a)
Adjusted income/adjusted diluted EPS (b)  guidance
 
~$15.4 - $16.1
 
~$2.20 - $2.30
Purchase accounting impacts of transactions completed as of December 31, 2012
 
(3.4)
 
(0.49)
Acquisition-related costs
 
(0.4 - 0.5)
 
(0.06 - 0.07)
Non-acquisition-related restructuring costs (c)
 
(0.5 - 0.8)
 
(0.8 - 0.12)
Costs associated with the separation of Zoetis (d)
 
(0.2)
 
(0.2)
Reported net income attributable to Pfizer Inc./diluted EPS guidance (d)
 
~$10.5 - $11.6
 
~$1.50 - $1.65
(a)  
Does not assume the completion of any business development transactions not completed as of December 31, 2012, including any one-time upfront payments associated with such transactions, and excludes the potential effects of the resolution of litigation-related matters not substantially resolved as of December 31, 2012 .
(b)  
For an understanding of Adjusted income and Adjusted diluted EPS, see the “Adjusted Income” section of this Financial Review.
(c)  
Includes amounts related to our initiatives to reduce R&D spending, including our realigned R&D footprint, and amounts related to other cost-reduction and productivity initiatives. In our reconciliation between Net income attributable to Pfizer Inc. , as reported under principles generally accepted in the United States of America (U.S. GAAP), and Adjusted income, and in our reconciliation between diluted EPS, as reported under U.S. GAAP, and Adjusted diluted EPS, these amounts are categorized as Certain Significant Items (see the “Adjusted Income––Reconciliation” section of this Financial Review).
(d)  
Reported Diluted EPS guidance includes a $0.02 unfavorable impact for certain non-recurring costs that we expect to incur related to the separation of Zoetis, including new branding, the creation of a standalone infrastructure, site separation and certain legal registration and patent assignment costs.

Our 2013 financial guidance is subject to a number of factors and uncertainties—as described in the “Forward-Looking Information and Factors That May Affect Future Results”, “Our Operating Environment” and “Our Strategy” sections of this Financial Review and in Part I, Item 1A, “Risk Factors”, of our 2012 Annual Report on Form 10-K.

SIGNIFICANT ACCOUNTING POLICIES AND APPLICATION OF CRITICAL ACCOUNTING ESTIMATES

For a description of our significant accounting policies, see Notes to Consolidated Financial Statements–– Note 1. Basis of Presentation and Significant Accounting Policies .

Of these policies, the following are considered critical to an understanding of Pfizer’s Consolidated Financial Statements as they require the application of the most difficult, subjective and complex judgments: (i) Acquisitions (Note 1D); (ii) Fair Value (Note 1E); (iii) Revenues (Note 1G); (iv) Asset Impairment Reviews (Note 1K); (v) Benefit Plans (Note 1P); and (vi) Contingencies, including Tax Contingencies (Note 1O) and Legal and Environmental Contingencies (Note 1Q).

Below are some of our critical accounting estimates. See also Estimates and Assumptions (Note 1C) for a discussion about the risks associated with estimates and assumptions.

Acquisitions and Fair Value

For a discussion about the application of Fair Value to our recent acquisitions, see Notes to Consolidated Financial Statements— Note 2A. Acquisitions, Divestitures, Collaborative Arrangements and Equity-Method Investments: Acquisitions .
For a discussion about the application of Fair Value to our investments, see Notes to Consolidated Financial Statements— Note 7A. Financial Instruments: Selected Financial Assets and Liabilities .


10
 
 
2012 Financial Report

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

For a discussion about the application of Fair Value to our benefit plan assets, see Notes to Consolidated Financial Statements–– Note 11D. Pension and Postretirement Benefit Plans and Defined Contribution Plans: Plan Assets .

For a discussion about the application of Fair Value to our asset impairment reviews, see “Asset Impairment Reviews” below.
Revenues

As is typical in the biopharmaceutical industry, our gross product sales are subject to a variety of deductions that are generally estimated and recorded in the same period that the revenues are recognized and primarily represent rebates and discounts to government agencies, wholesalers, distributors and managed care organizations with respect to our biopharmaceutical products. See also Notes to Consolidated Financial Statements–– Note 1G. Basis of Presentation and Significant Accounting Policies: Revenues for a detailed description of the nature of our sales deductions and our procedures for estimating our obligations. For example,
•
For Medicaid, Medicare and performance-based contract rebates, we use experience ratios, which may be adjusted to better match our current experience or our expected future experience.
•
For contractual or legislatively mandated deductions outside the U.S., we use estimated allocation factors, based on historical payments and some third-party reports, to project the expected level of reimbursement.
•
For chargebacks, we closely approximate actual as we settle these deductions generally within two to five weeks after incurring the liability.
•
For sales returns, we perform calculations in each market that incorporate the following, as appropriate: local returns policies and practices; returns as a percentage of sales; an understanding of the reasons for past returns; estimated shelf life by product; an estimate of the amount of time between shipment and return or lag time; and any other factors that could impact the estimate of future returns, such as loss of exclusivity, product recalls or a changing competitive environment.
•
For sales incentives, we use our historical experience with similar incentives programs to predict customer behavior.

If any of our ratios, factors, assessments, experiences or judgments are not indicative or accurate predictors of our future experience, our results could be materially affected. Although the amounts recorded for these sales deductions are heavily dependent on estimates and assumptions, historically, our adjustments to actual have not been material; on a quarterly basis, they generally have been less than 1.0% of biopharmaceutical net sales and can result in a net increase to income or a net decrease to income. The sensitivity of our estimates can vary by program, type of customer and geographic location. However, estimates associated with U.S. Medicaid and performance-based contract rebates are most at-risk for material adjustment because of the extensive time delay between the recording of the accrual and its ultimate settlement, an interval that can generally range up to one year. Because of this time lag, in any given quarter, our adjustments to actual can incorporate revisions of several prior quarters.

Asset Impairment Reviews

We review all of our long-lived assets, including goodwill and other intangible assets, for impairment indicators throughout the year and we perform impairment testing for goodwill and indefinite-lived assets annually and for all other long-lived assets whenever impairment indicators are present. When necessary, we record charges for impairments of long-lived assets for the amount by which the fair value is less than the carrying value of these assets. Our impairment review processes are described in the Notes to Consolidated Financial Statements–– Note 1K. Basis of Presentation and Significant Accounting Policies: Amortization of Intangible Assets, Depreciation and Certain Long-Lived Assets .

Examples of events or circumstances that may be indicative of impairment include:
•
A significant adverse change in legal factors or in the business climate that could affect the value of the asset. For example, a successful challenge of our patent rights would likely result in generic competition earlier than expected.
•
A significant adverse change in the extent or manner in which an asset is used. For example, restrictions imposed by the FDA or other regulatory authorities could affect our ability to manufacture or sell a product.
•
A projection or forecast that demonstrates losses or reduced profits associated with an asset. This could result, for example, from a change in a government reimbursement program that results in an inability to sustain projected product revenues and profitability. This also could result from the introduction of a competitor’s product that results in a significant loss of market share or the inability to achieve the previously projected revenue growth, as well as the lack of acceptance of a product by patients, physicians and payers. For in-process research and development (IPR&D) projects, this could result from, among other things, a change in outlook based on clinical trial data, a delay in the projected launch date or additional expenditures to commercialize the product.

Intangible Assets Other than Goodwill

As a result of our intangible asset impairment review work, we recognized a number of impairments of intangible assets other than goodwill.

We recorded the following intangible asset impairment charges in Other deductions––net:
•
In 2012 , $872 million , reflecting (i) $393 million of IPR&D assets, primarily related to compounds that targeted autoimmune and inflammatory diseases (full write-off) and, to a lesser extent, compounds related to pain treatment; (ii) $175 million related to our Consumer Healthcare indefinite-lived brand assets, primarily Robitussin, a cough suppressant; (iii) $279 million related to Developed Technology Rights, a charge comprised of impairments of various products, none of which individually exceeded $45 million ; and (iv) $25 million of finite-lived brands. The intangible asset impairment charges for 2012 reflect, among other things, the impact of new scientific

2012 Financial Report    
 
 
11

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

findings, updated commercial forecasts, changes in pricing, an increased competitive environment, litigation uncertainties regarding intellectual property and declining gross margins. The impairment charges in 2012 are associated with the following: Worldwide Research and Development ( $303 million ); Consumer Healthcare ( $200 million ); Primary Care ( $135 million ); Established Products ( $83 million ); Specialty Care ( $56 million ); Emerging Markets ( $56 million ) and Animal Health ( $39 million ).
•
In 2011 , $851 million , the majority of which relates to intangible assets that were acquired as part of our acquisition of Wyeth. These impairment charges reflect (i) $475 million of IPR&D assets, primarily related to two compounds for the treatment of certain autoimmune and inflammatory diseases; (ii) $193 million related to our biopharmaceutical indefinite-lived brand, Xanax; and (iii) $183 million related to Developed Technology Rights comprising the impairment of five assets. The intangible asset impairment charges for 2011 reflect, among other things, the impact of new scientific findings and an increased competitive environment. The impairment charges in 2011 are associated with the following: Worldwide Research and Development ( $394 million ); Established Products ( $193 million ); Specialty Care ( $135 million ); Primary Care ( $56 million ); Oncology ( $56 million ) and Animal Health ( $17 million ).
•
In 2010, $1.8 billion, the majority of which relates to intangible assets that were acquired as part of our acquisition of Wyeth. These impairment charges reflect (i) $945 million of IPR&D assets, primarily Prevnar 13/Prevenar 13 Adult, a compound for the prevention of pneumococcal disease in adults age 50 and older, and Neratinib, a compound for the treatment of breast cancer; (ii) $292 million of indefinite-lived Brands, primarily related to Robitussin, a cough suppressant; and (iii) $540 million of Developed Technology Rights, primarily Thelin, a product that treated pulmonary hypertension, and Protonix, a product that treats erosive gastroesophageal reflux disease. These impairment charges, most of which occurred in the third quarter of 2010, reflect, among other things, the following: for IPR&D assets, the impact of changes to the development programs, the projected development and regulatory time-frames and the risk associated with these assets; for Brand assets, the current competitive environment and planned investment support; and, for Developed Technology Rights, in the case of Thelin, we voluntarily withdrew the product in regions where it was approved and discontinued all clinical studies worldwide, and for the others, an increased competitive environment. The impairment charges in 2010 are generally associated with the following: Specialty Care ($708 million); Oncology ($396 million); Consumer Healthcare ($292 million); Established Products ($182 million); Primary Care ($145 million); and Worldwide Research and Development ($54 million).

For a description of our accounting policy, see Notes to Consolidated Financial Statements–– Note 1K. Basis of Presentation and Significant Accounting Policies: Amortization of Intangible Assets, Depreciation and Certain Long-Lived Assets .

When we are required to determine the fair value of intangible assets other than goodwill, we use an income approach, specifically the multi-period excess earnings method, also known as the discounted cash flow method. We start with a forecast of all the expected net cash flows associated with the asset, which includes the application of a terminal value for indefinite-lived assets, and then we apply 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 projections and the impact of technological risk associated with in-process research and development assets, as well as the selection of a long-term growth rate; 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.

While all intangible assets other than goodwill can confront events and circumstances that can lead to impairment, in general, intangible assets other than goodwill that are most at risk of impairment include in-process research and development assets (approximately $700 million as of December 31, 2012 ) and newly acquired or recently impaired indefinite-lived brand assets (approximately $2.3 billion as of December 31, 2012 ). In-process research and development assets are high-risk assets, as research and development is an inherently risky activity. Newly acquired and recently impaired indefinite-lived assets are more vulnerable to impairment as the assets are recorded at fair value and are then subsequently measured at the lower of fair value or carrying value at the end of each reporting period. As such, immediately after acquisition or impairment, even small declines in the outlook for these assets can negatively impact our ability to recover the carrying value and can result in an impairment charge.
•
Some of our indefinite-lived Consumer Healthcare brands, mainly Robitussin and Chapstick, have fair values that approximate their combined carrying value of about $900 million, which reflects impairment charges that were taken in the fourth quarter and first quarter of 2012. These assets continue to be at risk for future impairment. Any negative change in the undiscounted cash flows, discount rate and/or tax rate could result in an impairment charge. We re-considered and confirmed the classification of these assets as indefinite-lived. We will continue to closely monitor these assets.
•
One of our indefinite-lived biopharmaceutical brands, Xanax, was written down to its fair value of $1.2 billion at the end of 2011. This asset continues to be at risk for future impairment. Any negative change in the undiscounted cash flows, discount rate and/or tax rate could result in an impairment charge. Xanax, which was launched in the mid-1980’s and acquired in 2003, must continue to remain competitive against its generic challengers or the associated asset may become impaired again. We re-considered and confirmed the classification of this asset as indefinite-lived. We will continue to closely monitor this asset.

Goodwill

As a result of our goodwill impairment review work, we concluded that none of our goodwill is impaired as of December 31, 2012 , and we do not believe the risk of impairment is significant at this time.

For a description of our accounting policy, see Notes to Consolidated Financial Statements— Note 1K. Basis of Presentation and Significant Accounting Policies: Amortization of Intangible Assets, Depreciation and Certain Long-Lived Assets .

When we are required to determine the fair value of a reporting unit, as appropriate for the individual reporting unit, we may use the market approach, the income approach or a weighted-average combination of both approaches.

12
 
 
2012 Financial Report

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

•
The market approach is a historical approach to estimating fair value and relies primarily on external information. Within the market approach are two methods that we may use:
◦
Guideline public company method—this method employs market multiples derived from market prices of stocks of companies that are engaged in the same or similar lines of business and that are actively traded on a free and open market and the application of the identified multiples to the corresponding measure of our reporting unit’s financial performance.
◦
Guideline transaction method—this method relies on pricing multiples derived from transactions of significant interests in companies engaged in the same or similar lines of business and the application of the identified multiples to the corresponding measure of our reporting unit’s financial performance.
The market approach is only appropriate when the available external information is robust and deemed to be a reliable proxy for the specific reporting unit being valued; however, these assessments may prove to be incomplete or inaccurate. Some of the more significant estimates and assumptions inherent in this approach include: the selection of appropriate guideline companies and transactions and the determination of applicable premiums and discounts based on any differences in ownership percentages, ownership rights, business ownership forms or marketability between the reporting unit and the guideline companies and transactions.
•
The income approach is a forward-looking approach to estimating fair value and relies primarily on internal forecasts. Within the income approach, the method that we use is the discounted cash flow method. We start with a forecast of all the expected net cash flows associated with the reporting unit, which includes the application of a terminal value, and then we apply a reporting unit-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 technological risk and competitive, legal and/or regulatory forces on the projections, as well as the selection of a long-term growth rate; 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.

Specifically:
•
When we estimate the fair value of our five biopharmaceutical reporting units, we rely solely on the income approach. We use the income approach exclusively as many of our products are sold in multiple reporting units and as one reporting unit is geographic-based while the others are product and/or customer-based. Further, the projected cash flows from a single product may reside in up to three reporting units at different points in future years and the discounted cash flow method would reflect the movement of products among reporting units. As such, the use of the comparable guideline company method was not practical or reliable. However, on a limited basis and as deemed reasonable, we attempt to corroborate our outcomes with the market approach. For the income approach, we use the discounted cash flow method.
•
When we estimate the fair value of our Consumer Healthcare reporting unit, we use a combination of approaches and methods. We use the income approach and the market approach, which we weight equally in our analysis. We weight them equally as we have equal confidence in the appropriateness of the approaches for this reporting unit. For the income approach, we use the discounted cash flow method and for the market approach, we use both the guideline public company method and the guideline transaction method, which we weight equally to arrive at our market approach value.
•
When we estimate the fair value of our Animal Health reporting unit, we use the income approach, relying exclusively on the discounted cash flow method. We rely exclusively on the income approach as the discounted cash flow method provides a more reliable outlook of the business. However, on a limited basis and as deemed reasonable, we attempt to corroborate our outcomes with the market approach. (See also Notes to Consolidated Financial Statements–– Note 19A. Subsequent Events: Zoetis Debt Offering and Initial Public Offering. )

While all reporting units can confront events and circumstances that can lead to impairment, we do not believe that the risk of goodwill impairment for any of our reporting units is significant at this time.

Our Consumer Healthcare reporting unit has the narrowest difference between fair value and book value. However, we estimate that it would take a significant negative change in the undiscounted cash flows, the discount rate and/or the market multiples in the consumer industry for the Consumer Healthcare reporting unit goodwill to be impaired. Our Consumer Healthcare reporting unit performance and consumer healthcare industry market multiples are highly correlated with the overall economy and our specific performance is also dependent on our and our competitors’ innovation and marketing effectiveness, and on regulatory developments affecting claims, formulations and ingredients of our products.

For all of our reporting units, there are a number of future events and factors that may impact future results and that could potentially have an impact on the outcome of subsequent goodwill impairment testing. For a list of these factors, see the “Forward-Looking Information and Factors That May Affect Future Results” section of this Financial Review.
Benefit Plans

The majority of our employees worldwide are covered by defined benefit pension plans, defined contribution plans or both. In the U.S., we have both qualified and supplemental (non-qualified) defined benefit plans, as well as other postretirement benefit plans, consisting primarily of healthcare and life insurance for retirees (see Notes to Consolidated Financial Statements— Note 1P. Basis of Presentation and Significant Accounting Policies: Pension and Postretirement Benefit Plans and Note 11. Pension and Postretirement Benefit Plans and Defined Contribution Plans ). Beginning on January 1, 2011, for employees hired in the U.S. and Puerto Rico after December 31, 2010, we no longer offer a defined benefit plan and, instead, offer an enhanced benefit under our defined contribution plan. In addition to the standard matching contribution by the Company, the enhanced benefit provides an automatic Company contribution for such eligible employees based on age

2012 Financial Report    
 
 
13

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

and years of service. Also, on May 8, 2012, we announced to employees that as of January 1, 2018, Pfizer will transition its U.S. and Puerto Rico employees from its defined benefit plans to an enhanced defined contribution savings plan.

The accounting for benefit plans is highly dependent on actuarial estimates, assumptions and calculations, which result from a complex series of judgments about future events and uncertainties. The assumptions and actuarial estimates required to estimate the employee benefit obligations for the defined benefit and postretirement plans may include the discount rate; expected salary increases; certain employee-related factors, such as turnover, retirement age and mortality (life expectancy); expected return on assets; and healthcare cost trend rates.
 
Our assumptions reflect our historical experiences and our best judgment regarding future expectations that have been deemed reasonable by management. The judgments made in determining the costs of our benefit plans can materially impact our results of operations.
The following table provides the expected versus actual rate of return on plan assets and the discount rate used to determine the benefit obligations for the U.S. qualified pension plans:

 
2012
 
2011
 
2010
Expected annual rate of return
 
8.5
%
 
8.5
%
 
8.5
%
Actual annual rate of return
 
12.7

 
3.4

 
10.8

Discount rate
 
4.3

 
5.1

 
5.9


The assumption for the expected rate of return on assets for our U.S. and international plans reflects our actual historical return experience and our long-term assessment of forward-looking return expectations by asset classes, which is used to develop a weighted-average expected return based on the implementation of our targeted asset allocation in our respective plans (see Notes to Consolidated Financial Statements— Note 11D. Pension and Postretirement Benefit Plans and Defined Contribution Plans: Plan Assets for asset allocation ranges and actual asset allocations for 2012 and 2011). The expected return for our U.S. plans and the majority of our international plans is applied to the fair market value of plan assets at each year end. Holding all other assumptions constant, the effect of a 0.5 percentage-point decline in the return-on-assets assumption would increase our 2013 U.S. qualified pension plans’ pre-tax expense by approximately $60 million.

The discount rate used in calculating our U.S. defined benefit plan obligations as of December 31, 2012 is 4.3%, which represents a 0.8 percentage-point decrease from our December 31, 2011 rate of 5.1%. The discount rate for our U.S. defined benefit plans is determined annually and evaluated and modified to reflect at year-end the prevailing market rate of a portfolio of high-quality corporate bond investments rated AA or better that would provide the future cash flows needed to settle benefit obligations as they come due. For our international plans, the discount rates are set by benchmarking against investment grade corporate bonds rated AA or better, including where there is sufficient data, a yield curve approach. These rate determinations are made consistent with local requirements. Holding all other assumptions constant, the effect of a 0.1 percentage-point decrease in the discount rate assumption would increase our 2013 U.S. qualified pension plans’ pre-tax expense by approximately $26 million and increase the U.S. qualified pension plans’ projected benefit obligations as of December 31, 2012 by approximately $266 million.

Contingencies

For a discussion about income tax contingencies, see Notes to Consolidated Financial Statements— Note 5D. Tax Matters: Tax Contingencies.

For a discussion about legal and environmental contingencies, guarantees and indemnifications, see Notes to Consolidated Financial Statements— Note 17. Commitments and Contingencies . 



14
 
 
2012 Financial Report

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

ANALYSIS OF THE CONSOLIDATED STATEMENTS OF INCOME
  
 
Year Ended December 31,
 
% Change
(MILLIONS OF DOLLARS)
 
2012

 
2011

 
2010

 
12/11

 
11/10

Revenues
 
$
58,986

 
$
65,259

 
$
65,165

 
(10
)%
 
—
 %
Cost of sales
 
11,334

 
14,076

 
14,788

 
(19
)%
 
(5
)%
% of revenues
 
19.2
%
 
21.6
%
 
22.7
%
 
 
 
 
Selling, informational and administrative expenses
 
16,616

 
18,832

 
18,973

 
(12
)%
 
(1
)%
% of revenues
 
28.2
%
 
28.9
%
 
29.1
%
 
 
 
 
Research and development expenses
 
7,870

 
9,074

 
9,483

 
(13
)%
 
(4
)%
% of revenues
 
13.3
%
 
13.9
%
 
14.6
%
 
 
 
 
Amortization of intangible assets
 
5,175

 
5,544

 
5,364

 
(7
)%
 
3
 %
% of revenues
 
8.8
%
 
8.5
%
 
8.2
%
 
 
 
 
Restructuring charges and certain acquisition-related costs
 
1,880

 
2,930

 
3,145

 
(36
)%
 
(7
)%
% of revenues
 
3.2
%
 
4.5
%
 
4.8
%
 
 
 
 
Other deductions—net
 
4,031

 
2,499

 
3,941

 
61
 %
 
(37
)%
Income from continuing operations before provision for taxes on income
 
12,080

 
12,304

 
9,471

 
(2
)%
 
30
 %
% of revenues
 
20.5
%
 
18.9
%
 
14.5
%
 
 
 
 
Provision for taxes on income
 
2,562

 
3,909

 
1,153

 
(34
)%
 
239
 %
Effective tax rate
 
21.2
%
 
31.8
%
 
12.2
%
 
 
 
 
Plus: Discontinued operations—net of tax
 
5,080

 
1,654

 
(30
)
 
207
 %
 
*

Less: Net income attributable to noncontrolling interests
 
28

 
40

 
31

 
(30
)%
 
29
 %
Net income attributable to Pfizer Inc.
 
$
14,570

 
$
10,009

 
$
8,257

 
46
 %
 
21
 %
% of revenues
 
24.7
%
 
15.3
%
 
12.7
%
 
 
 
 
Percentages may reflect rounding adjustments.
*
Calculation not meaningful.
Revenues-Overview

Total revenues were $59.0 billion in 2012 , a decrease of 10% compared to 2011 , due to:
•
an operational decline of $4.8 billion, or 8%, primarily due to the loss of exclusivity of certain products, including Lipitor, in most major markets; and
•
the unfavorable impact of foreign exchange, which decreased revenues by approximately $1.5 billion, or 2%.

Total revenues were $65.3 billion in 2011 , relatively flat compared to 2010 . Revenues were impacted by:
•
the favorable impact of foreign exchange, which increased revenues by approximately $1.9 billion, or 3%; and
•
the inclusion of revenues of $1.3 billion, or 2%, from our acquisition of King,
largely offset by:
•
an operational decline of $2.9 billion, or 4%, primarily due to the loss of exclusivity of certain products.

Revenues in 2012 in comparison with 2011 were negatively impacted by product losses of exclusivity, most notably Lipitor in most major markets, as well as the final-year terms of our collaboration agreements in certain markets for Spiriva. Collectively, these factors negatively impacted revenues by approximately $7.7 billion, or 12%.
In 2012, Lyrica, Lipitor, Enbrel, Prevnar 13/Prevenar 13, Celebrex and Viagra each delivered at least $2 billion in revenues, while Norvasc, Zyvox, Sutent and the Premarin family each surpassed $1 billion in revenues. Lipitor lost exclusivity in Japan in June 2011 (with generic competition occurring in November 2011), the U.S. in November 2011 (with multi-source generic entry occurring in May 2012), Australia in April 2012 and most of developed Europe in March 2012 and May 2012.

In 2011, Lipitor, Lyrica, Enbrel, Prevnar 13/Prevenar 13 and Celebrex each delivered at least $2 billion in revenues, while Viagra, Norvasc, Zyvox, Xalatan/Xalacom (Xalatan lost exclusivity in the U.S. in March 2011), Sutent, Geodon/Zeldox, and the Premarin family each surpassed $1 billion in revenues.

In 2010, Lipitor, Enbrel, Lyrica, Prevnar 13/Prevenar 13 and Celebrex each delivered at least $2 billion in revenues, while Viagra, Xalatan/Xalacom, Effexor (Effexor XR lost exclusivity in the U.S. in July 2010), Norvasc, Prevnar/Prevenar (7-valent), Zyvox, Sutent, the Premarin family, Geodon/Zeldox and Detrol/Detrol LA each surpassed $1 billion in revenues.

2012 Financial Report    
 
 
15

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

Revenues exceeded $500 million in each of 16 countries outside the U.S. in 2012 and 2011, and in each of 17 countries outside the U.S. in 2010. The U.S. and Japan were the only countries to contribute more than 10% of total revenue in 2012. The U.S. was the only country to contribute more than 10% of total revenues in 2011 and 2010.

Our policy relating to the supply of pharmaceutical inventory at domestic wholesalers, and in major international markets, is to generally maintain stocking levels under one month on average and to keep monthly levels consistent from year to year based on patterns of utilization. We historically have been able to closely monitor these customer stocking levels by purchasing information from our customers directly or by obtaining other third-party information. We believe our data sources to be directionally reliable but cannot verify their accuracy. Further, as we do not control this third-party data, we cannot be assured of continuing access. Unusual buying patterns and utilization are promptly investigated.
 
As is typical in the biopharmaceutical industry, our gross product sales are subject to a variety of deductions, that generally are estimated and recorded in the same period that the revenues are recognized and primarily represent rebates and discounts to government agencies, wholesalers, distributors and managed care organizations with respect to our pharmaceutical products. These deductions represent estimates of the related obligations and, as such, judgment and knowledge of market conditions and practice are required when estimating the impact of these sales deductions on gross sales for a reporting period. Historically, our adjustments to actual results have not been material to our overall business. On a quarterly basis, our adjustments to actual results generally have been less than 1% of biopharmaceutical net sales and can result in either a net increase or a net decrease in income. Product-specific rebate charges, however, can have a significant impact on year-over-year individual product growth trends.
The following table provides information about certain deductions from revenues:
  
 
Year Ended December 31,
(BILLIONS OF DOLLARS)
 
2012

 
2011

 
2010

Medicaid and related state program rebates (a)
 
$
0.9

 
$
1.2

 
$
1.3

Medicare rebates (a)
 
0.7

 
1.4

 
1.3

Performance-based contract rebates (a), (b)
 
2.2

 
3.5

 
2.6

Chargebacks (c)
 
3.6

 
3.2

 
3.0

Sales allowances (d)
 
4.7

 
4.9

 
4.5

Total
 
$
12.1

 
$
14.2

 
$
12.7

(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 pharmacy benefit managers, who receive rebates based on the achievement of contracted performance terms and claims under these contracts.
(c)  
Chargebacks primarily represent reimbursements to wholesalers for honoring contracted prices to third parties.
(d)  
Sales allowances primarily represent pharmaceutical rebates, discounts and price reductions that are contractual or legislatively mandated outside the U.S.

The total rebates, chargebacks and sales allowances for 2012 were lower than 2011, primarily as a result of:
•
the impact of decreased Medicaid, Medicare and performance-based contract rebates contracted for Lipitor and certain other products that have lost exclusivity;
•
changes in product mix; and
•
the impact on chargebacks of decreased sales for certain products that have lost exclusivity,
partially offset by, among other factors:
•
an increase in chargebacks for our branded products as a result of increasing competitive pressures.
Our accruals for Medicaid rebates, Medicare rebates, performance-based contract rebates, sales allowances and chargebacks were $3.8 billion as of December 31, 2012 and $4.8 billion as of December 31, 2011, and substantially all are included in Other current liabilities in our Consolidated Balance Sheets. 


16
 
 
2012 Financial Report

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

Revenues by Segment and Geographic Area
The following table provides Worldwide revenues by operating segment, business unit and geographic area:
 
 
Year Ended December 31,
 
% Change
 
 
Worldwide
 
U.S.
 
International
 
Worldwide
 
U.S.
 
International
(MILLIONS OF
DOLLARS)
 
2012

 
2011 (a)

 
2010

 
2012

 
2011 (a)

 
2010

 
2012

 
2011 (a)

 
2010

 
12/11

 
11/10

 
12/11

 
11/10

 
12/11

 
11/10

Biopharmaceutical revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Primary Care Operating Segment
 
$
15,558

 
$
22,670

 
$
23,328

 
$
8,191

 
$
12,819

 
$
13,536

 
$
7,367

 
$
9,851

 
$
9,792

 
(31
)
 
(3
)
 
(36
)
 
(5
)
 
(25
)
 
1

Specialty Care
 
14,151

 
15,245

 
15,021

 
6,206

 
6,870

 
7,419

 
7,945

 
8,375

 
7,602

 
(7
)
 
1

 
(10
)
 
(7
)
 
(5
)
 
10

Oncology
 
1,310

 
1,323

 
1,414

 
573

 
391

 
506

 
737

 
932

 
908

 
(1
)
 
(6
)
 
47

 
(23
)
 
(21
)
 
3

SC&O Operating Segment
 
15,461

 
16,568

 
16,435

 
6,779

 
7,261

 
7,925

 
8,682

 
9,307

 
8,510

 
(7
)
 
1

 
(7
)
 
(8
)
 
(7
)
 
9

Emerging Markets
 
9,960

 
9,295

 
8,662

 
—

 
—

 
—

 
9,960

 
9,295

 
8,662

 
7

 
7

 
—

 
—

 
7

 
7

Established Products
 
10,235

 
9,214

 
10,098

 
4,738

 
3,627

 
4,501

 
5,497

 
5,587

 
5,597

 
11

 
(9
)
 
31

 
(19
)
 
(2
)
 
—

EP&EM Operating Segment
 
20,195

 
18,509

 
18,760

 
4,738

 
3,627

 
4,501

 
15,457

 
14,882

 
14,259

 
9

 
(1
)
 
31

 
(19
)
 
4

 
4

 
 
51,214

 
57,747

 
58,523

 
19,708

 
23,707

 
25,962

 
31,506

 
34,040

 
32,561

 
(11
)
 
(1
)
 
(17
)
 
(9
)
 
(7
)
 
5

Other product  revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Animal Health
 
4,299

 
4,184

 
3,575

 
1,771

 
1,648

 
1,382

 
2,528

 
2,536

 
2,193

 
3

 
17

 
7

 
19

 
—

 
16

Consumer Healthcare
 
3,212

 
3,028

 
2,748

 
1,526

 
1,490

 
1,408

 
1,686

 
1,538

 
1,340

 
6

 
10

 
2

 
6

 
10

 
15

Other operating segments
 
7,511

 
7,212

 
6,323

 
3,297

 
3,138

 
2,790

 
4,214

 
4,074

 
3,533

 
4

 
14

 
5

 
12

 
3

 
15

Other (b)
 
261

 
300

 
319

 
81

 
88

 
103

 
180

 
212

 
216

 
(13
)
 
(6
)
 
(8
)
 
(15
)
 
(15
)
 
(2
)
Total Revenues
 
$
58,986

 
$
65,259

 
$
65,165

 
$
23,086

 
$
26,933

 
$
28,855

 
$
35,900

 
$
38,326

 
$
36,310

 
(10
)
 
—

 
(14
)
 
(7
)
 
(6
)
 
6

(a)  
For 2011, includes King commencing on the acquisition date of January 31, 2011.
(b)  
Includes revenues generated primarily from Pfizer CentreSource, our contract manufacturing and bulk pharmaceutical chemical sales organization.

Biopharmaceutical Revenues

Revenues from biopharmaceutical products contributed approximately 87% of our total revenues in 2012 , 88% of our total revenues in 2011 and 90% of our total revenues in 2010 .

We recorded direct product sales of more than $1 billion for each of 10 biopharmaceutical products in 2012 , each of 12 biopharmaceutical products in 2011 and each of 15 biopharmaceutical products in 2010 . These products represent 49% of our revenues from biopharmaceutical products in 2012 , 56% of our revenues from biopharmaceutical products in 2011 and 60% of our revenues from biopharmaceutical products in 2010 .

2012 v. 2011

Worldwide revenues from biopharmaceutical products in 2012 were $51.2 billion , a decrease of 11% compared to 2011 , primarily due to:
•
the decrease of $7.6 billion in operational revenues from Lipitor, Geodon, Xalatan, Caduet, Aromasin and Detrol, and lower Alliance revenues for Aricept, all due to loss of exclusivity in certain markets, and from lower Alliance revenues for Spiriva due to the final-year terms of our collaboration agreements in certain European countries, Canada and Australia; lower revenues for Effexor and Zosyn/Tazocin; and
•
the unfavorable impact of foreign exchange of $1.3 billion, or 2%,
partially offset by:
•
an increase in operational revenues in developed markets for certain biopharmaceutical products, particularly Lyrica, Celebrex, and Enbrel, and in revenues from emerging markets.
Geographically,
•
in the U.S., revenues from biopharmaceutical products decreased 17% in 2012, compared to 2011, primarily reflecting lower revenues from Lipitor, Geodon, Caduet, Xalatan and Aromasin, all due to loss of exclusivity; lower Alliance revenues due to loss of exclusivity of Aricept 5mg and 10mg tablets in November 2010; and lower revenues from Effexor, Zosyn and Detrol/Detrol LA. The impact of these adverse factors was partially offset by the strong performance of certain other biopharmaceutical products, lower reductions related to rebates and the lower reduction in revenues related to the U.S. Healthcare Legislation.

2012 Financial Report    
 
 
17

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

•
in our international markets, revenues from biopharmaceutical products decreased 7% in 2012, compared to 2011, primarily due to the loss of exclusivity of Lipitor in most of developed Europe and the unfavorable impact of foreign exchange of 3%. Operationally, revenues decreased 4% in 2012, compared to 2011. In addition to Lipitor, the decrease in operational revenues was driven by Xalatan/Xalacom, Aricept and Aromasin, all due to loss of exclusivity in certain markets, as well as lower Alliance revenues, primarily due to the loss of exclusivity of Aricept in many major European markets, and lower revenues for Spiriva in certain European countries, Canada and Australia (reflecting the final-year terms of our Spiriva collaboration agreements relating to those countries), as well as lower revenues for Norvasc and Effexor. The impact of these adverse factors was partially offset by the strong operational growth of Lyrica, Prevnar 13/Prevenar 13 and Enbrel.

During 2012, international revenues from biopharmaceutical products represented 62% of total revenues from biopharmaceutical products, compared to 59% in 2011.

Primary Care Operating Segment
•
Primary Care unit revenues decreased 31% in 2012 compared to 2011, reflecting lower operational revenues of 30%, primarily due to the losses of exclusivity of Lipitor in most major markets, as well as the resulting shift in the reporting of U.S. and Japan Lipitor revenues to the Established Products unit beginning January 1, 2012. These factors impacted Primary Care operational revenues by approximately $5.6 billion, or 25%, in 2012.
Collectively, the decline in worldwide revenues for Lipitor and for certain other Primary Care unit products that lost exclusivity in various markets in 2012 and 2011, as well as the resulting shift in the reporting of certain product revenues to the Established Products unit, reduced Primary Care unit revenues by $7.9 billion, or 35%, in comparison with 2011.
The impact of these declines was slightly offset by the strong operational growth of Lyrica in developed markets and Celebrex and Viagra in the U.S.

Specialty Care and Oncology Operating Segment
•
Specialty Care unit revenues decreased 7% compared to 2011, due to lower operational revenues of 5%, as well as the adverse impact of foreign exchange. Operational revenues were negatively impacted by the decline in the Prevnar/Prevenar family in the U.S. and developed Europe, as the pediatric catch-up dose opportunity declined significantly in 2012 compared to 2011, with fewer children eligible to receive the catch-up dose. Additionally, utilization of Prevnar/Prevenar in older adults remains modest at this time.
Specialty Care unit revenues were also unfavorably impacted by the losses of exclusivity of Vfend and Xalatan in the U.S. in February and March 2011, respectively, and the resulting shift in the reporting of Vfend and Xalatan U.S. revenues to the Established Products unit beginning January 1, 2012, as well as the loss of exclusivity of Xalatan and Xalacom in the majority of European markets in January 2012, and Geodon in the U.S. in March 2012. Collectively, these developments reduced Specialty Care unit revenues by $1.1 billion, or 7%, in comparison with 2011.
Operational revenues were favorably impacted by the growth of Benefix, Rebif, ReFacto/Xyntha, Enbrel and Zyvox.
•
Oncology unit revenues decreased 1%, compared to 2011, primarily due to the unfavorable impact of foreign exchange of 3%. Operational revenues were positively impacted by the launches of Inlyta and Xalkori in the U.S. and certain other developed markets, partially offset by the unfavorable impact of the loss of exclusivity of Aromasin in the majority of European markets in the second half of 2011 and the resulting shift in the reporting of such revenues to the Established Products unit beginning January 1, 2012. This loss of exclusivity reduced Oncology unit revenues by $229 million, or 17%, in comparison with 2011.
Operational revenues were also favorably impacted by the growth of Sutent, primarily in the U.S. and emerging markets.

Established Products and Emerging Markets Operating Segment
•
Established Products unit revenues increased 11% compared to 2011, due to higher operational revenues of 13%, partially offset by a 2% unfavorable impact of foreign exchange. The increase in Established Products unit operational revenues in 2012 was mainly due to the shift in the reporting of branded Lipitor revenues in the U.S. and Japan from the Primary Care unit, totaling $1.4 billion, to the Established Products unit beginning January 1, 2012, as well as recent launches of generic versions of certain Pfizer branded primary care and specialty care products, and by contributions from the sales of the authorized generic version of Lipitor in the U.S. by Watson Pharmaceuticals, Inc. (Watson). The agreement with Watson was terminated by mutual consent in January 2013.
Operational revenues were unfavorably impacted by the entry of multi-source generic competition in the U.S. for donepezil (Aricept) in May 2011, as well as the continuing decline of revenues of certain products that previously lost exclusivity and the impact of ongoing pricing pressures, primarily in South Korea and developed Europe.
•
Emerging Markets unit revenues increased 7% compared to 2011, due to higher operational revenues of 12%, partially offset by a 5% unfavorable impact of foreign exchange. The increase in Emerging Markets unit operational revenues in 2012 was primarily due to volume growth in China, Brazil and Russia, as a result of more targeted promotional efforts for key innovative and established products, including Lipitor, Norvasc and Lyrica.

Total revenues from established products in both the Established Products and Emerging Markets units were $14.4 billion, with $4.2 billion generated in emerging markets in 2012.

18
 
 
2012 Financial Report

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

2011 v. 2010

Worldwide revenues from biopharmaceutical products in 2011 were $57.7 billion , a decrease of 1% compared to 2010 , primarily due to:
•
the decrease of $4.7 billion in operational revenues from Lipitor, Effexor, Protonix, Xalatan, Caduet, Vfend, Aromasin and Zosyn/Tazocin, and lower Alliance revenues for Aricept, all due to loss of exclusivity in certain markets; and
•
a reduction in revenues due to the U.S. Healthcare Legislation that was $359 million larger in 2011 than in 2010,
partially offset by:
•
the solid performance of Lyrica, the Prevnar/Prevenar family and Enbrel;
•
the inclusion of operational revenues from legacy King products of approximately $950 million, which favorably impacted biopharmaceutical revenues by 2%; and
•
the favorable impact of foreign exchange of $1.7 billion, or 3%.
Geographically,
•
in the U.S., revenues from biopharmaceutical products decreased 9% in 2011, compared to 2010, reflecting lower revenues from Lipitor, Protonix, Effexor, Zosyn, Xalatan, Vfend, Caduet and Aromasin, all due to loss of exclusivity, lower Alliance revenues due to loss of exclusivity of Aricept 5mg and 10mg tablets in November 2010 and lower revenues from Detrol/Detrol LA, as well as the reduction in revenues due to the U.S. Healthcare Legislation that was $359 million larger in 2011 than in 2010. The impact of these adverse factors was partially offset by the strong performance of certain other biopharmaceutical products and the addition of U.S. revenues from legacy King products of approximately $904 million in 2011.
•
in our international markets, revenues from biopharmaceutical products increased 5% in 2011, compared to 2010, reflecting the favorable impact of foreign exchange of 6% in 2011, partially offset by a net operational decrease. Operationally, revenues were favorably impacted by increases in the Prevenar family, Lyrica, Enbrel, Celebrex and Alliance revenues and unfavorably impacted by declines in Lipitor, Effexor, Norvasc and Xalatan/Xalacom. International revenues from legacy King products were not significant to our international revenues in 2011.
During 2011, international revenues from biopharmaceutical products represented 59% of total revenues from biopharmaceutical products, compared to 56% in 2010.

Primary Care Operating Segment
•
Primary Care unit revenues decreased 3% in 2011 compared to 2010, due to lower operational revenues of 6%, partially offset by the favorable impact of foreign exchange of 3%. Primary Care unit revenues were favorably impacted by higher revenues from certain patent-protected products, including Lyrica, Celebrex, Pristiq and Spiriva (in Alliance revenues), among others, as well as the addition of revenues from legacy King products of $404 million, or 2%, in 2011. Operational revenues in 2011 were negatively impacted by the loss of exclusivity of Lipitor and Caduet in the U.S. in November 2011, Lipitor in various other developed markets during 2010, as well as Aricept 5mg and 10mg tablets in the U.S. in November 2010. Taken together, these losses of exclusivity reduced Primary Care unit revenues by approximately $2.1 billion, or 9%, in comparison with 2010.
Specialty Care and Oncology Operating Segment
•
Specialty Care unit revenues increased 1% compared to 2010, due to the favorable impact of foreign exchange of 3%, partially offset by lower operational revenues of 2%. Operational revenues were favorably impacted by strong growth in the Prevnar/Prevenar family and Enbrel, and unfavorably impacted by the loss of exclusivity of Vfend and Xalatan in the U.S. in February and March 2011, respectively. Collectively, these losses of exclusivity reduced Specialty Care unit revenues by $624 million, or 4%, in comparison with 2010.
•
Oncology unit revenues decreased 6% compared to 2010, due to lower operational revenues of 10%, partially offset by the favorable impact of foreign exchange of 4%. The decrease in the Oncology unit operational revenues in 2011 was primarily due to the transfer of Aromasin’s U.S. business to the Established Products unit effective January 1, 2011, as a result of its loss of exclusivity in April 2011. This loss of exclusivity reduced Oncology unit revenues by $160 million, or 11%, in comparison with 2010.

Established Products and Emerging Markets Operating Segment
•
Established Products unit revenues decreased 9% in 2011 compared to 2010, due to lower operational revenues of 13%, partially offset by a 4% favorable impact of foreign exchange. The decrease in Established Products unit operational revenues in 2011 was mainly due to the loss of exclusivity of Effexor XR, Protonix and Zosyn in the U.S. Taken together, these losses of exclusivity decreased Established Products unit revenues by $1.7 billion, or 17%, in comparison with 2010. These declines were partially offset by the addition of revenues from legacy King products of $546 million, or 5%, in 2011.
•
Emerging Markets unit revenues increased 7% compared to 2010, due to higher operational revenues of 5%, as well as a 2% favorable impact of foreign exchange. The increase in Emerging Markets unit operational revenues in 2011 was due to growth in certain key innovative brands, primarily the Prevenar family, Lyrica, Enbrel, Celebrex, Vfend and Zyvox. These increases were partially offset by lower revenues from Lipitor, which lost exclusivity in Brazil in August 2010 and Mexico in December 2010, as well as the impact of price reductions for certain products in certain emerging market countries. These losses of exclusivity reduced Emerging Market unit revenues by $118 million, or 1%, in comparison with 2010.

Total revenues from established products in both the Established Products and Emerging Markets units were $13.0 billion, with $3.8 billion generated in emerging markets in 2011.

2012 Financial Report    
 
 
19

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

Other Product Revenues

2012 v. 2011

Animal Health Operating Segment
•
Animal Health unit revenues increased 3% in 2012, compared to 2011, reflecting higher operational revenues of 6%, partially offset by the unfavorable impact of foreign exchange of 3%. Operational revenues from Animal Health products were favorably impacted by the solid performance in both the livestock and companion animal portfolios.
Consumer Healthcare Operating Segment
•
Consumer Healthcare unit revenues increased 6% in 2012, compared to 2011, reflecting higher operational revenues of 8%, partially offset by the unfavorable impact of foreign exchange of 2%. The operational revenue increase was primarily due to the addition of products from the acquisitions of the consumer healthcare business of Ferrosan in December 2011 and Alacer Corp. in February 2012.
2011 v. 2010

Animal Health Operating Segment
•
Animal Health unit revenues increased 17% in 2011, compared to 2010, reflecting higher operational revenues of 14% and the favorable impact of foreign exchange of 3%. Operational revenues from Animal Health products were favorably impacted by approximately $329 million, or 9%, due to the addition of revenues from legacy King animal health products. Legacy Pfizer products grew 7% primarily driven by improving market conditions and resulting increased demand for products across the livestock business, as well as deeper market penetration in emerging markets. This was partially offset by the adverse impact of required product divestitures in 2010 related to the acquisition of Wyeth.
Consumer Healthcare Operating Segment
•
Consumer Healthcare unit revenues increased 10% in 2011, compared to 2010, reflecting higher operational revenues of 8% and the favorable impact of foreign exchange of 2%. The operational revenue increase in 2011 was primarily driven by increased sales of core brands including Advil, Caltrate and Robitussin, as well as the temporary voluntary withdrawal of Centrum in Europe in the third quarter of 2010, which had an adverse impact on 2010 revenues. 
Revenues—Major Biopharmaceutical Products
The following table provides revenue information for several of our major biopharmaceutical products:
 
  
(MILLIONS OF DOLLARS)

 
PRIMARY INDICATIONS
 
Year Ended December 31,
 
% Change
PRODUCT
2012

 
2011

 
2010

 
12/11

 
11/10

Lyrica
 
Epilepsy, post-herpetic neuralgia and diabetic peripheral neuropathy, fibromyalgia, neuropathic pain due to spinal cord injury
 
$
4,158

 
$
3,693

 
$
3,063

 
13

 
21

Lipitor
 
Reduction of LDL cholesterol
 
3,948

 
9,577

 
10,733

 
(59
)
 
(11
)
Enbrel (Outside the U.S. and Canada)
 
Rheumatoid, juvenile rheumatoid and psoriatic arthritis, plaque psoriasis and ankylosing spondylitis
 
3,737

 
3,666

 
3,274

 
2

 
12

Prevnar 13/Prevenar 13
 
Vaccine for prevention of pneumococcal disease
 
3,718

 
3,657

 
2,416

 
2

 
51

Celebrex
 
Arthritis pain and inflammation, acute pain
 
2,719

 
2,523

 
2,374

 
8

 
6

Viagra
 
Erectile dysfunction
 
2,051

 
1,981

 
1,928

 
4

 
3

Norvasc
 
Hypertension
 
1,349

 
1,445

 
1,506

 
(7
)
 
(4
)
Zyvox
 
Bacterial infections
 
1,345

 
1,283

 
1,176

 
5

 
9

Sutent
 
Advanced and/or metastatic renal cell carcinoma (mRCC), refractory gastrointestinal stromal tumors (GIST) and advanced pancreatic neuroendocrine tumor
 
1,236

 
1,187

 
1,066

 
4

 
11

Premarin family
 
Menopause
 
1,073

 
1,013

 
1,040

 
6

 
(3
)
Genotropin
 
Replacement of human growth hormone
 
832

 
889

 
885

 
(6
)
 
—

Xalatan/Xalacom
 
Glaucoma and ocular hypertension
 
806

 
1,250

 
1,749

 
(36
)
 
(29
)
BeneFIX
 
Hemophilia
 
775

 
693

 
643

 
12

 
8

Detrol/Detrol LA
 
Overactive bladder
 
761

 
883

 
1,013

 
(14
)
 
(13
)
Vfend
 
Fungal infections
 
754

 
747

 
825

 
1

 
(9
)

20
 
 
2012 Financial Report

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

Chantix/Champix
 
An aid to smoking cessation treatment
 
670

 
720

 
755

 
(7
)
 
(5
)
Pristiq
 
Depression
 
630

 
577

 
466

 
9

 
24

ReFacto AF/Xyntha
 
Hemophilia
 
584

 
506

 
404

 
15

 
25

Zoloft
 
Depression and certain anxiety disorders
 
541

 
573

 
532

 
(6
)
 
8

Revatio
 
Pulmonary arterial hypertension (PAH)
 
534

 
535

 
481

 
—

 
11

Medrol
 
Inflammation
 
523

 
510

 
455

 
3

 
12

Zosyn/Tazocin
 
Antibiotic
 
484

 
636

 
952

 
(24
)
 
(33
)
Zithromax/Zmax
 
Bacterial infections
 
435

 
453

 
415

 
(4
)
 
9

Effexor
 
Depression and certain anxiety disorders
 
425

 
678

 
1,718

 
(37
)
 
(61
)
Prevnar/Prevenar (7-valent)
 
Vaccine for prevention of pneumococcal disease
 
399

 
488

 
1,253

 
(18
)
 
(61
)
Fragmin
 
Anticoagulant
 
381

 
382

 
341

 
—

 
12

Relpax
 
Treat the symptoms of migraine headache
 
368

 
341

 
323

 
8

 
6

Rapamune
 
Immunosuppressant
 
346

 
372

 
388

 
(7
)
 
(4
)
Cardura
 
Hypertension/Benign prostatic hyperplasia
 
338

 
380

 
413

 
(11
)
 
(8
)
Tygacil
 
Antibiotic
 
335

 
298

 
324

 
12

 
(8
)
Aricept (a)
 
Alzheimer's disease
 
326

 
450

 
454

 
(28
)
 
(1
)
Xanax XR
 
Anxiety disorders
 
274

 
306

 
307

 
(10
)
 
—

BMP2
 
Development of bone and cartilage
 
263

 
340

 
400

 
(23
)
 
(15
)
Sulperazon
 
Antibiotic
 
262

 
218

 
213

 
20

 
2

Diflucan
 
Fungal infections
 
259

 
265

 
278

 
(2
)
 
(5
)
Caduet
 
Reduction of LDL cholesterol and hypertension
 
258

 
538

 
527

 
(52
)
 
2

Neurontin
 
Seizures
 
235

 
289

 
322

 
(19
)
 
(10
)
Dalacin/Cleocin
 
Antibiotic for bacterial infections
 
232

 
192

 
214

 
21

 
(10
)
Unasyn
 
Injectable antibacterial
 
228

 
231

 
244

 
(1
)
 
(5
)
Metaxalone/Skelaxin (b)
 
Muscle relaxant
 
223

 
203

 
—

 
10

 
*

Inspra
 
High blood pressure
 
214

 
195

 
157

 
10

 
24

Toviaz
 
Overactive bladder
 
207

 
187

 
137

 
11

 
36

Somavert
 
Acromegaly
 
197

 
183

 
157

 
8

 
17

Alliance revenues (c)
 
Various
 
3,492

 
3,630

 
4,084

 
(4
)
 
(11
)
All other (d)
 
Various
 
8,289

 
8,584

 
8,118

 
(3
)
 
6

(a)  
Represents direct sales under license agreement with Eisai Co., Ltd.
(b)  
Legacy King product. King’s operations are included in our financial statements commencing from the acquisition date of January 31, 2011. Therefore, our results for 2010 do not include King’s results of operations.
(c)  
Enbrel (in the U.S. and Canada), Spiriva, Rebif, Aricept and Exforge.
(d)  
Includes sales of generic atorvastatin.
*
Calculation not meaningful.
Certain amounts and percentages may reflect rounding adjustments.

Biopharmaceutical—Selected Product Descriptions

•
Lyrica is indicated for the management of post-herpetic neuralgia, neuropathic pain associated with diabetic peripheral neuropathy, the management of fibromyalgia, neuropathic pain due to spinal cord injury, and as adjunctive therapy for adult patients with partial onset seizures in the U.S. For certain countries outside the U.S., Lyrica is indicated for neuropathic pain (peripheral and central), the management of fibromyalgia, adjunctive treatment of epilepsy and general anxiety disorder. Lyrica recorded increases in worldwide revenues of 13% in 2012, compared to 2011. There was strong operational performance in international markets in 2012, including Japan, where Lyrica was launched in 2010 as the first product approved for the peripheral neuropathic pain (NeP) indication. Internationally, Lyrica revenues increased 14% in 2012, compared to 2011, with the growth due to a focus on enhancing the neuropathic pain diagnosis and treatment rates, the successful re-launch of the general anxiety disorder indication in the EU and physician education regarding neuropathic pain in Japan. Foreign exchange had an unfavorable impact on international revenues of 5% in 2012, compared to 2011. In the U.S., revenues increased 10% in 2012, compared to 2011. Notwithstanding these increases, U.S. revenues continue to be affected by increased competition from generic versions of competitive medicines, as well as managed care pricing and formulary pressures.

2012 Financial Report    
 
 
21

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

•
Lipitor , for the treatment of elevated LDL-cholesterol levels in the blood, recorded worldwide revenues of $3.9 billion, a decrease of 59%, in 2012, compared to 2011 due to:
◦
the impact of loss of exclusivity in Japan in June 2011 (with generic competition occurring in November 2011), the U.S. (with generic competition occurring in November 2011 and multi-source generic competition occurring in May 2012), Australia in April 2012 and most of developed Europe in March 2012 and May 2012;
▪
the continuing impact of an intensely competitive lipid-lowering market with competition from generics and branded products worldwide; and
▪
increased payer pressure worldwide, including the need for flexible rebate policies.

Geographically,
◦ in the U.S., branded Lipitor revenues were $932 million, a decrease of 81% in 2012, compared to 2011; and
◦
in our international markets, branded Lipitor revenues were $3.0 billion, a decrease of 34% in 2012, compared to 2011. Foreign exchange had an unfavorable impact on international revenues of $70 million in 2012, compared to 2011.

See the “Our Operating Environment” section of this Financial Review for a discussion concerning losses of exclusivity for Lipitor in various markets.
•
Enbrel , for the treatment of moderate-to-severe rheumatoid arthritis, polyarticular juvenile rheumatoid arthritis, psoriatic arthritis, plaque psoriasis and ankylosing spondylitis, a type of arthritis affecting the spine, recorded increases in worldwide revenues, excluding the U.S. and Canada, of 2% in 2012, compared to 2011, primarily due to the overall growth in the anti-tumor necrosis factor (TNF) biologic market, partially offset by the unfavorable impact of foreign exchange.
Under our co-promotion agreement with Amgen Inc. (Amgen), we co-promote Enbrel in the U.S. and Canada and share in the profits from Enbrel sales in those countries, which we include in Alliance revenues. Our co-promotion agreement with Amgen will expire in October 2013, and, subject to the terms of the agreement, we are entitled to a royalty stream for 36 months thereafter, which we expect will be significantly less than our current share of Enbrel profits from U.S. and Canadian sales. Following the end of the royalty period, we will not be entitled to any further revenues from Enbrel sales in the U.S. and Canada. Our exclusive rights to Enbrel outside the U.S. and Canada will not be affected by the expiration of the co-promotion agreement with Amgen.
•
Prevnar 13/Prevenar 13 is our 13-valent pneumococcal conjugate vaccine for the prevention of various syndromes of pneumococcal disease in infants and young children and in adults 50 years of age and older. Prevnar 13/Prevenar 13 for use in infants and young children is marketed in the U.S. for the prevention of invasive pneumococcal disease caused by the 13 serotypes in Prevnar 13 and otitis media caused by the seven serotypes in Prevnar, and in the EU and many other international markets for the prevention of invasive pneumococcal disease, otitis media and pneumococcal pneumonia caused by the vaccine serotypes. In 2011, we received approval of Prevnar 13/Prevenar 13 for use in adults 50 years of age and older in the U.S. for the prevention of pneumococcal pneumonia and invasive pneumococcal disease caused by the 13 serotypes in Prevnar 13, and in the EU for the prevention of invasive pneumococcal disease caused by the vaccine serotypes. To date, Prevenar 13 for use in adults 50 years of age and older has been approved in over 55 countries. On January 25, 2013, the U.S. FDA granted approval for the expansion of Prevnar 13 for use in children ages 6 through 17 years for active immunization for the prevention of invasive disease caused by the 13 vaccine serotypes. EU approval for use in children 6 through 17 years of age was received on January 7, 2013. Worldwide revenues for Prevnar 13/Prevenar 13 increased 2% in 2012, compared to 2011. In the U.S., revenues for Prevnar 13 decreased 2% in 2012, compared to 2011. Developed Europe Prevenar 13 revenues also were lower in 2012, compared to 2011. Revenues in the U.S. and developed Europe declined as the pediatric catch-up dose commercial opportunity declined significantly in 2012 compared to 2011, with fewer children eligible to receive the catch-up dose. In addition, utilization in older adults is modest at this time.
We currently are conducting the Community-Acquired Pneumonia Immunization Trial in Adults (CAPiTA) to fulfill requirements in connection with the FDA’s approval of the Prevnar 13 adult indication under its accelerated approval program. CAPiTA is an efficacy trial involving subjects 65 years of age and older that is designed to evaluate whether Prevnar 13 is effective in preventing the first episode of community-acquired pneumonia caused by the serotypes contained in the vaccine. We estimate that this event-driven trial will be completed in 2013. At its regular meeting held on February 22, 2012, the U.S. Centers for Disease Control and Prevention’s Advisory Committee on Immunization Practices (ACIP) indicated that it will defer voting on a recommendation for the routine use of Prevnar 13 in adults 50 years of age and older until the results of CAPiTA, as well as data on the impact of pediatric use of Prevnar 13 on the disease burden and serotype distribution among adults, are available. The rate of uptake for the use of Prevnar 13 in adults 50 years of age and older has been impacted by ACIP’s decision to defer voting on a recommendation for the routine use of Prevnar 13 in that population. At its regular meeting held on June 20, 2012, ACIP voted to recommend the use of Prevnar 13 for adults 19 years of age and older with immuno-compromising conditions such as HIV infections, cancer, advanced kidney disease and other immuno-compromising conditions. This recommendation is based on the disproportionate burden of invasive pneumococcal disease in this patient population.
•
Celebrex , 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 markets in the EU, recorded an increase in worldwide revenues of 8% in 2012, compared to 2011. Strong operational performance in the U.S. was primarily driven by price increases, as well as strong market growth, partially offset by continued share erosion due to ongoing generic pressures and higher rebates. However, Celebrex continued to slow the volume erosion due to strong Direct to Customer investment and field force promotion. Strong operational performance in international markets was driven by volume and share growth in Japan and emerging markets in the low back pain indication, partially offset by lower developed Europe revenues in 2012 compared to 2011. Celebrex is supported by continued educational and promotional efforts highlighting its efficacy and safety profile for appropriate patients.

22
 
 
2012 Financial Report

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

•
Viagra is indicated for the treatment for erectile dysfunction. Viagra worldwide revenues increased 4% in 2012, compared to 2011, primarily due to the increase in U.S. revenues, partially offset by branded and generic competitive pressure in developed Europe, other developed markets and emerging markets. The increase in the U.S. more than offset the decrease in international markets due to operational factors and the adverse impact of foreign exchange.
•
Norvasc , for treating hypertension, lost exclusivity in the U.S. and other major markets in 2007 and in Canada in 2009. Norvasc worldwide revenues decreased 7% in 2012, compared to 2011.
•
Zyvox is the world’s best-selling branded agent among those used to treat serious Gram-positive pathogens, including methicillin-resistant staphylococcus-aureus. Zyvox worldwide revenues increased 5% in 2012, compared to 2011, primarily due to growth in both developed and emerging markets.
•
Sutent is indicated for the treatment of advanced renal cell carcinoma, including metastatic renal cell carcinoma (mRCC); gastrointestinal stromal tumors after disease progression on, or intolerance to, imatinib mesylate; and advanced pancreatic neuroendocrine tumor. Sutent worldwide revenues increased 4% in 2012, compared to 2011, due to strong operational performance driven in the U.S. by price increases and in other, non-European developed markets by volume growth due to targeted marketing efforts, and in emerging markets, by increased market share, partially offset by the unfavorable impact of foreign exchange. We continue to seek to drive operational revenue and prescription growth, supported by cost-effectiveness, efficacy and therapy management data. As of December 31, 2012, Sutent was the most prescribed oral mRCC therapy in the U.S.
•
Our Premarin family of products helps women address moderate-to-severe menopausal symptoms. It recorded an increase in worldwide revenues of 6% in 2012, compared to 2011. U.S. revenues increased 7% in 2012, compared to 2011, primarily due to favorable wholesaler inventory levels, price increases in January and July 2012, favorable rebates and the launch of multichannel marketing support in 2012. Internationally, revenues decreased 2% compared to 2011. The decline was attributable to the unfavorable impact of foreign exchange of 7% offset by the increase in operational revenues of 5%.
•
Genotropin , one of the world’s leading human growth hormones, is used in children for the treatment of short stature with growth hormone deficiency, Prader-Willi Syndrome, Turner Syndrome, Small for Gestational Age Syndrome, Idiopathic Short Stature (in the U.S. only) and Chronic Renal Insufficiency (outside the U.S. only), as well as in adults with growth hormone deficiency. Genotropin is supported by a broad platform of innovative injection-delivery devices and patient-support programs. Genotropin worldwide revenues decreased 6% compared to 2011.
•
Xalabrands consists of Xalatan , a prostaglandin, which is a branded agent used to reduce elevated eye pressure in patients with open-angle glaucoma or ocular hypertension, and Xalacom, a fixed combination prostaglandin (Xalatan) and beta blocker (timolol) available outside the U.S. Xalatan/Xalacom worldwide revenues decreased 36% in 2012, compared to 2011. Lower revenues were due primarily to the loss of exclusivity in the U.S. in March 2011 and in the majority of European markets in January 2012.
•
BeneFIX and ReFacto AF/Xyntha are hemophilia products using state-of-the-art manufacturing that assist patients with their lifelong bleeding disorders. BeneFIX is the only available recombinant factor IX product for the treatment of hemophilia B, while ReFacto AF/Xyntha is a recombinant factor VIII product for the treatment of hemophilia A. Both products are indicated for the control and prevention of bleeding in patients with these disorders and in some countries are also indicated for prophylaxis in certain situations, such as surgery. BeneFIX recorded an increase in worldwide revenues of 12% in 2012, compared to 2011, primarily as a result of increases in the U.S. due to a launch of the new 3000 International Unit vial and price increases. ReFacto AF/Xyntha recorded an increase in worldwide revenues of 15% in 2012, compared to 2011, driven by the successful transition of patients to Xyntha as a result of securing a government contract in Australia, continued patient conversion to Xyntha in the U.S., as well as the successful launch of the ReFacto AF dual chamber syringe in several European countries.
•
Detrol/Detrol LA, a muscarinic receptor antagonist, is one of the leading branded medicines worldwide for overactive bladder. Detrol LA is an extended-release formulation taken once a day. Detrol/Detrol LA worldwide revenues decreased 14% in 2012, compared to 2011, primarily due to increased branded competition, a shift in promotional focus to our Toviaz product in most major markets and the loss of exclusivity for Detrol IR in the U.S. in June 2012. Generic competition for Detrol LA in the U.S. is expected in the first quarter of 2014.
•
Vfend is a broad-spectrum agent for treating yeast and molds. Vfend worldwide revenues increased 1% in 2012, compared to 2011 primarily due to U.S. market growth attributable to a fungal meningitis outbreak and double-digit growth in Latin America and China, largely offset by the unfavorable impact of foreign exchange and supply constraints. International revenues increased 1% in 2012, compared to 2011. Revenues in the U.S. in 2012 increased 3% compared to the same period in 2011, primarily due to the aforementioned meningitis outbreak and lower Medicaid rebates in 2012 compared to 2011, partially offset by the loss of exclusivity of Vfend tablets and the launch of generic voriconazole (generic Vfend) in February 2011.
•
Chantix/Champix is an aid to smoking-cessation treatment in adults 18 years of age and older. Chantix/Champix worldwide revenues decreased 7% in 2012, compared to 2011, primarily due to negative media exposure across several key markets and macro-economic decline, which decreased patient willingness to pay out of pocket. We are continuing our educational and promotional efforts, which are focused on addressing the significant health consequences of smoking highlighting the Chantix/Champix benefit-risk proposition, emphasizing the importance of the physician-patient dialogue in helping patients quit smoking and identifying alternative treatment-funding models.
•
Pristiq is approved for the treatment of major depressive disorder in the U.S. and in various other countries. Pristiq has also been approved for treatment of moderate-to-severe vasomotor symptoms (VMS) associated with menopause in Thailand, Mexico, the Philippines and Ecuador. Pristiq recorded an increase in worldwide revenues of 9% in 2012, compared to 2011, primarily due to price increases, as well as market growth, partially offset by lower prescription share in the U.S.

2012 Financial Report    
 
 
23

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

•
Revatio is for the treatment of pulmonary arterial hypertension (PAH). Worldwide revenues remained relatively flat in 2012, compared to 2011. 2012 revenues were impacted by the unfavorable impact of foreign exchange, partially offset by an increased PAH awareness driving earlier diagnosis in the U.S. and EU. In the U.S., Revatio tablet lost exclusivity in September 2012, and Revatio intravenous injection will lose exclusivity in May 2013.
•
Zosyn / Tazocin , our broad-spectrum intravenous antibiotic, faces generic global competition. U.S. exclusivity was lost in September 2009. Zosyn/Tazocin recorded a decrease in worldwide revenues of 24% in 2012, compared to 2011.
•
Effexor , an antidepressant for treating adult patients with major depressive disorder, generalized anxiety disorder, social anxiety disorder and panic disorder, faces generic competition in most markets. It recorded a decrease in worldwide revenues of 37% in 2012, compared to 2011.
•
Prevnar/Prevenar (7-valent), our 7-valent pneumococcal conjugate vaccine for preventing invasive, and, in certain international markets, non-invasive pneumococcal disease in infants and young children, recorded a decrease in worldwide revenues of 18% in 2012, compared to 2011. Many markets have transitioned from the use of Prevnar/Prevenar (7-valent) to Prevnar 13/Prevenar 13, resulting in lower revenues for Prevnar/Prevenar (7-valent). We expect this trend to continue.
•
Caduet is a single-pill therapy combining Lipitor and Norvasc for the prevention of cardiovascular events. Caduet worldwide revenues decreased 52% in 2012, compared to 2011, primarily due to the loss of U.S. exclusivity in November 2011.
•
Xalkori, for the treatment of patients with locally advanced or metastatic non-small cell lung cancer (NSCLC) that is anaplastic lymphoma kinase (ALK)-positive as detected by an FDA-approved test, was approved by the FDA in August 2011. In developed markets, Xalkori has also been approved in Japan, South Korea, Canada and Switzerland, and it received conditional marketing authorization in the EU in October 2012. In addition, it has been filed or approved in more than 25 emerging markets, including China. Xalkori recorded worldwide revenues of $123 million in 2012, with 66% of those revenues generated in the U.S. market.
•
Inlyta, for the treatment of patients with advanced renal cell carcinoma after failure of a prior systemic treatment, has been approved in the U.S., Switzerland, Japan, Canada, Australia, South Korea and the EU (exact indications vary by region). Inlyta recorded worldwide revenues of $100 million in 2012.
•
Xeljanz (in the U.S.) was approved by the FDA in November 2012 for the treatment of adult patients with moderately to severely active rheumatoid arthritis who have had an inadequate response or intolerance to methotrexate, to be used as monotherapy or in combination with methotrexate or other nonbiologic disease-modifying antirheumatic drugs.
•
Alliance revenues worldwide decreased 4% in 2012, compared to 2011, mainly due to the loss of exclusivity for Aricept 5mg and 10mg tablets in the U.S. in November 2010 and the entry of multi-source generic competition in the U.S. in May 2011, as well as the loss of exclusivity in many major European markets in February 2012, and lower revenues for Spiriva in certain European countries, Canada and Australia due to the expiration of our collaboration with BI in those countries, partially offset by the strong performance of Enbrel and Rebif in the U.S. We expect that the Aricept 23mg tablet will have exclusivity in the U.S. until July 2013. See the “The Loss or Expiration of Intellectual Property Rights” section of this Financial Review for a discussion regarding the expiration of various contract rights relating to Aricept, Spiriva, Enbrel and Rebif. Eliquis (apixaban) has been jointly developed and commercialized by Pfizer and Bristol-Myers Squibb (BMS). In 2012, Eliquis (apixaban) was approved to reduce the risk of stroke and systemic embolism in patients with nonvalvular atrial fibrillation in the 27 countries of the EU, plus Iceland and Norway, Canada, Japan and the U.S., and it was launched for that indication in the U.S. in January 2013. The two companies share commercialization expenses and profit/losses equally on a global basis.
•
Embeda —We met with the FDA in May 2012 to discuss our proposal for reintroduction of Embeda to the market. The required stability programs are underway, and we are working toward a submission with the FDA in the first half of 2013.

See Notes to Consolidated Financial Statements— Note 17. Commitments and Contingencies for a discussion of recent developments concerning patent and product litigation relating to certain of the products discussed above.

Research and Development

Research and Development Operations

Innovation is critical to the success of our company and drug discovery and development is time-consuming, expensive and unpredictable, particularly for human health products. As a result, and also because we are predominately a human health company, the vast majority of our R&D spending is associated with human health products, compounds and activities.

24
 
 
2012 Financial Report

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

The following table provides additional information by operating segment about our research and development expenses (see also Notes to Consolidated Financial Statements–– Note 18. Segment, Geographic and Other Revenue Information ):
 
 
Research and Development Expenses
 
 
Year Ended December 31,
 
% Change
(MILLIONS OF DOLLARS)
 
2012

 
2011

 
2010

 
12/11

 
11/10

Primary Care (a)
 
$
1,009

 
$
1,307

 
$
1,473

 
(23
)
 
(11
)
Specialty Care and Oncology (a)
 
1,401

 
1,561

 
1,624

 
(10
)
 
(4
)
Established Products and Emerging Markets (a)
 
403

 
441

 
452

 
(9
)
 
(2
)
Other (a), (b)
 
693

 
425

 
428

 
63

 
(1
)
Worldwide Research and Development/Pfizer Medical (c)
 
2,835

 
3,337

 
3,709

 
(15
)
 
(10
)
Corporate and Other (d)
 
1,529

 
2,003

 
1,797

 
(24
)
 
11

Total Research and Development Expenses
 
$
7,870

 
$
9,074

 
$
9,483

 
(13
)
 
(4
)
(a)  
Our operating segments, in addition to their sales and marketing responsibilities, are responsible for certain development activities. Generally, these responsibilities relate to additional indications for in-line products and IPR&D projects that have achieved proof-of-concept. R&D spending may include upfront and milestone payments for intellectual property rights.
(b)  
Includes the Animal Health operating segment and the Consumer Healthcare operating segment. The increase in 2012 primarily relates to a $250 million payment to AstraZeneca to obtain the exclusive global over-the-counter rights to Nexium.
(c)  
Worldwide Research and Development is generally responsible for human health research projects until proof-of-concept is achieved, and then for transitioning those projects to the appropriate business unit for possible clinical and commercial development. R&D spending may include upfront and milestone payments for intellectual property rights. This 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. Worldwide Research and Development is also responsible for all human-health-related regulatory submissions and interactions with regulatory agencies, including all safety event activities. Pfizer Medical is responsible for external affairs relating to all therapeutic areas, providing Pfizer-related medical information to healthcare providers, patients and other parties, and quality assurance and regulatory compliance activities, which include conducting clinical trial audits and readiness reviews. The decreases in 2012 compared to 2011 and in 2011 compared to 2010 result from cost savings associated with the R&D productivity initiative announced on February 1, 2011 (see the “Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives” section of this Financial Review).
(d)  
Corporate and other includes unallocated costs, primarily facility costs, information technology, share-based compensation, and restructuring related costs. The decrease in 2012 primarily results from cost savings associated with the R&D productivity initiative announced on February 1, 2011 and to a lesser extent from lower charges relating to implementing our cost-reduction and productivity initiatives (see the “Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives” section of this Financial Review).
Our human health R&D spending is conducted through a number of matrix organizations––Research Units, within our Worldwide Research and Development organization, are generally responsible for research assets (assets that have not yet achieved proof-of-concept); Business Units are generally responsible for development assets (assets that have achieved proof-of-concept); and science-based and other platform-services organizations.

We take a holistic approach to our human health R&D operations and manage the operations on a total-company basis through our matrix organizations described above. Specifically, a single committee, co-chaired by members of our R&D and commercial organizations, is accountable for aligning resources among all of our human health R&D projects and for ensuring that our company is focusing its R&D resources in the areas where we believe that we can be most successful and maximize our return on investment. We believe that this approach also serves to maximize accountability and flexibility.

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.

Our 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 such as Pharmaceutical Sciences, Chemistry, Drug Safety, and Development Operations, 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.

Generally, we do not disaggregate total R&D expense by development phase or by therapeutic area since, as described above, we do not manage a significant portion of our R&D operations by development phase or by therapeutic area. Further, as we are able to adjust a significant portion of our spending quickly, as conditions change, also as described above, we believe that any prior-period information about R&D expense by development phase or by therapeutic area would not necessarily be representative of future spending.

Product Developments—Biopharmaceutical

We continue to invest in R&D to provide potential future sources of revenues through the development of new products, as well as through additional uses for in-line and alliance products. Notwithstanding our efforts, there are no assurances as to when, or if, we will receive regulatory approval for additional indications for existing products or any of our other products in development.

We continue to closely evaluate our global research and development function and pursue strategies intended to improve innovation and overall productivity in R&D by prioritizing areas that we believe have the greatest scientific and commercial promise, utilizing appropriate risk/return profiles and focusing on areas that we believe have the highest potential to deliver value in the near term and over time. To that end, our

2012 Financial Report    
 
 
25

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

research primarily focuses on five high-priority areas that have a mix of small and large molecules—immunology and inflammation; oncology; cardiovascular and metabolic diseases; neuroscience and pain; and vaccines. In addition to reducing the number of disease areas of focus, we have realigned and reduced our research and development footprint and outsourced certain functions that do not drive competitive advantage for Pfizer.

Our development pipeline, which is updated quarterly, can be found at www.pfizer.com/pipeline. It includes an overview of our research and a list of compounds in development with targeted indication, phase of development and, for late-stage programs, mechanism of action. The information currently in our development pipeline is accurate as of February 28, 2013.

The following series of tables provides information about significant regulatory actions by, and filings pending with, the FDA and regulatory authorities in the EU and Japan, as well as additional indications and new drug candidates in late-stage development.
RECENT FDA APPROVALS
PRODUCT
INDICATION
DATE APPROVED
Eliquis (Apixaban) (a)
Prevention of stroke and systemic embolism in patients with nonvalvular atrial fibrillation
December 2012
Xeljanz (Tofacitinib)
Treatment of moderate-to-severe active rheumatoid arthritis
November 2012
Bosulif (Bosutinib)
Treatment of previously treated chronic myelogenous leukemia
September 2012
Lyrica (Pregabalin) Capsules CV
Treatment of neuropathic pain due to spinal cord injury
June 2012
Elelyso (Taliglucerase Alfa) (b)
Treatment of adults with a confirmed diagnosis of type 1 Gaucher disease
May 2012
Inlyta (Axitinib)
Treatment of advanced renal cell carcinoma after failure of one prior systemic therapy
January 2012
(a)  
This indication for Eliquis (apixaban) was developed and is being commercialized in collaboration with BMS.
(b)  
In November 2009, we entered into a license and supply agreement with Protalix BioTherapeutics, which provides us exclusive worldwide rights, except in Israel, to develop and commercialize Elelyso (taliglucerase alpha) for the treatment of Gaucher disease.

PENDING U.S. NEW DRUG APPLICATIONS (NDA) AND SUPPLEMENTAL FILINGS
PRODUCT
INDICATION
DATE FILED*
Bazedoxifene-conjugated estrogens
Treatment of symptoms associated with menopause and osteoporosis
December 2012
Tafamidis meglumine (a)
Treatment of transthyretin familial amyloid polyneuropathy (TTR-FAP)
February 2012
Genotropin (b)
Replacement of human growth hormone deficiency (Mark VII multidose disposable device)
December 2009
Celebrex (c)
Chronic pain
October 2009
Remoxy (d)
Management of moderate-to-severe pain when a continuous, around-the-clock opioid analgesic is needed for an extended period of time
August 2008
Spiriva (e)
Respimat device for chronic obstructive pulmonary disease
January 2008
Viviant (f)
Osteoporosis treatment and prevention
August 2006
* The dates set forth in this column are the dates on which the FDA accepted our submissions.
(a)  
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. We are continuing to work with the FDA to define a path forward.
(b)  
In April 2010, we received a “complete response” letter from the FDA for the Genotropin Mark VII multidose disposable device submission. In August 2010, we submitted our response to address the requests and recommendations included in the FDA letter. In April 2011, we received a second “complete response” letter from the FDA, requesting additional information. We are working to address the FDA's requests for additional information.
(c)  
In June 2010, we received a “complete response” letter from the FDA for the Celebrex chronic pain supplemental NDA. The supplemental NDA remains pending while we await the completion of ongoing studies to determine next steps.
(d)  
In 2005, King entered into an agreement with Pain Therapeutics, Inc. (PT) to develop and commercialize Remoxy. In August 2008, the FDA accepted the NDA for Remoxy that had been submitted by King and PT. In December 2008, the FDA issued a “complete response” letter. In March 2009, King exercised its right under the agreement with PT to assume sole control and responsibility for the development of Remoxy. In December 2010, King resubmitted the NDA for Remoxy with the FDA. In June 2011, we and PT announced that a “complete response” letter was received from the FDA with regard to the resubmission of the NDA. We have been working to address the issues raised in the letter, which primarily relate to manufacturing. We have analyzed the results from two, recently completed bioavailability studies, as well as data from other experiments that were conducted to optimize the formulation composition and analytical methods for Remoxy. While we have gained important insights from this work, in the fourth quarter of 2012 we initiated a confirmatory bioavailability study to assess the pharmacokinetic profile of modified Remoxy formulation compositions. Preliminary results from the initial phase of this study are undergoing analysis. We believe the results of this study will provide us with greater clarity as to whether or not we will be able to adequately address the questions raised in the “complete response” letter received from the FDA. We continue to target a late-March 2013 meeting with the FDA to discuss our plan to address the June 2011 “complete response" letter.
(e)  
Boehringer Ingelheim (BI), our alliance partner, holds the NDAs for Spiriva Handihaler and Spiriva Respimat. In September 2008, BI received a “complete response” letter from the FDA for the Spiriva Respimat submission. The FDA is seeking additional data, and we are coordinating with BI, which is working with the FDA to provide the additional information. A full response will be submitted to the FDA upon the completion of planned and ongoing studies.

26
 
 
2012 Financial Report

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

(f)  
Two “approvable” letters were received by Wyeth in April and December 2007 from the FDA for Viviant (bazedoxifene), for the prevention of post-menopausal osteoporosis, that set forth the additional requirements for approval. In May 2008, Wyeth received an “approvable” letter from the FDA for the treatment of post-menopausal osteoporosis. The FDA is seeking additional data, and we have been systematically working through these requirements and seeking to address the FDA's concerns. A full response will be provided to the FDA. In February 2008, the FDA advised Wyeth that it expects to convene an advisory committee to review the pending NDAs for both the treatment and prevention indications after we submit our response to the “approvable” letters. In April 2009, Wyeth received approval in the EU for CONBRIZA (the EU trade name for Viviant) for the treatment of post-menopausal osteoporosis in women at increased risk of fracture. Viviant was also approved in Japan in July 2010 for the treatment of post-menopausal osteoporosis and in South Korea in November 2011 for the treatment and prevention of post-menopausal osteoporosis.

REGULATORY APPROVALS AND FILINGS IN THE EU AND JAPAN
PRODUCT
DESCRIPTION OF EVENT
DATE APPROVED
DATE FILED*
Eliquis (Apixaban) (a)
Approval in Japan for prevention of ischemic stroke and systemic embolism in patients with nonvalvular atrial fibrillation

December 2012
—
Toviaz
Approval in Japan for treatment of overactive bladder
December 2012
—
Eliquis (Apixaban) (a)
Approval in the EU for prevention of stroke and systemic embolism in patients with nonvalvular atrial fibrillation

November 2012
—
Xalkori (Crizotinib)
Conditional marketing authorization in the EU for treatment of previously treated ALK-positive advanced non-small cell lung cancer
October 2012
—
Inlyta (Axitinib)
Approval in the EU for treatment of advanced renal cell carcinoma after failure of prior systemic treatment
September 2012
—
Sutent
Approval in Japan for treatment of pancreatic neuroendocrine tumor
August 2012
—
Bazedoxifene-conjugated estrogens
Application filed in the EU for treatment of symptoms associated with menopause and osteoporosis
—
July 2012
Prevenar 13 Infant
Application filed in Japan for prevention of invasive pneumococcal disease in infants and young children
—
July 2012
Lyrica (Pregabalin)
Approval in Japan for treatment of fibromyalgia
June 2012
—
Inlyta (Axitinib)
Approval in Japan for treatment of renal cell carcinoma not indicated for curative resection, metastatic renal cell carcinoma
June 2012
—
Xalkori (Crizotinib)
Approval in Japan for treatment of ALK-positive advanced non-small cell lung cancer
March 2012
—
Lyrica (Pregabalin)
Application filed in Japan for treatment of neuropathic pain: peripheral neuropathic pain, central neuropathic pain
—
March 2012
Tofacitinib
Application filed in Japan for treatment of rheumatoid arthritis
—
December 2011
Tofacitinib
Application filed in the EU for treatment of moderate-to-severe active rheumatoid arthritis
—
November 2011
Bosutinib (b)
Application filed in the EU for treatment of previously treated chronic myelogenous leukemia
—
August 2011
*
For applications in the EU, the dates set forth in this column are the dates on which the European Medicines Agency (EMA) validated our submissions.
(a)  
This indication for Eliquis (apixaban) was developed and is being commercialized in collaboration with BMS.
(b)  
In January 2013, the EMA's Committee for Medicinal Products for Human Use (CHMP) issued an opinion recommending that bosutinib be granted conditional approval for treatment of previously treated chronic myelogenous leukemia. The initial application was for the treatment of newly diagnosed chronic myelogenous leukemia.

LATE-STAGE CLINICAL PROGRAMS FOR ADDITIONAL USES AND DOSAGE FORMS
FOR IN-LINE AND IN-REGISTRATION PRODUCTS
PRODUCT
INDICATION
Eliquis (Apixaban)
For the prevention and treatment of venous thromboembolism, which is being developed in collaboration with BMS
Inlyta (Axitinib)
Oral and selective inhibitor of vascular endothelial growth factor (VEGF) receptor 1, 2 & 3 for the treatment of adjuvant renal cell carcinoma (Asia only)
Lyrica (Pregabalin)
Peripheral neuropathic pain; CR (once-a-day) dosing
Sutent
Adjuvant renal cell carcinoma
Tofacitinib
A JAK kinase inhibitor for the treatment of psoriasis and ulcerative colitis
Xalkori (Crizotinib)
An oral ALK and c-Met inhibitor for the treatment of ALK-positive 1st and 2nd line (supports potential full approval in the U.S.) non-small cell lung cancer
Zithromax/chloroquine
Malaria


2012 Financial Report    
 
 
27

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

NEW DRUG CANDIDATES IN LATE-STAGE DEVELOPMENT
CANDIDATE
INDICATION
ALO-02
A Mu-type opioid receptor agonist for the management of moderate-to-severe pain when a continuous, around-the-clock opioid analgesic is needed for an extended period of time
Dacomitinib
A pan-HER tyrosine kinase inhibitor for the treatment of previously treated advanced non-small cell lung cancer
Inotuzumab ozogamicin
An antibody drug conjugate, consisting of an anti-CD22 monotherapy antibody linked to a cytotoxic agent, calicheamycin, for the treatment of aggressive Non-Hodgkin's Lymphoma and acute lymphoblastic leukemia
MnB rLP2086
(PF-05212366)
A prophylactic vaccine for prevention of Neisseria meningitidis  serogroup B invasive disease in adolescents and young adults (ages 11 - 25)
Palbociclib (PD-0332991)
An oral and selective reversible inhibitor of the CDK 4 and 6 kinases for the treatment of patients with ER positive, HER2 negative advanced breast cancer
Tanezumab (a)
An anti-nerve growth factor monoclonal antibody for the treatment of pain (on clinical hold)
(a)  
Following requests by the FDA in 2010, we suspended and subsequently terminated worldwide the osteoarthritis, chronic low back pain and painful diabetic peripheral neuropathy studies of tanezumab. The FDA's requests followed a small number of reports of osteoarthritis patients treated with tanezumab who experienced the worsening of osteoarthritis leading to total joint replacement and also reflected the FDA's concerns regarding the potential for such events in other patient populations. In December 2010, the FDA placed a clinical hold on all other anti-nerve growth factor therapies under clinical investigation in the U.S. Studies of tanezumab in cancer pain were allowed to continue. Extensive analyses were undertaken of all total joint replacements reported in studies of tanezumab. The results of these analyses and the conclusions drawn were provided to the FDA. On March 12, 2012, the FDA's Arthritis Advisory Committee met to discuss the future development of nerve growth factor inhibitors, including tanezumab. The Committee voted that there is a role for the ongoing development of nerve growth factor inhibitors in conditions such as osteoarthritis and for the management of pain associated with conditions other than osteoarthritis for which there are no agents with demonstrated analgesic effect. We submitted a Clinical Hold Complete Response to the FDA on July 31, 2012. On August 28, 2012, the FDA removed the clinical hold completely from the tanezumab program for all indications. On December 14, 2012, the FDA placed a new partial clinical hold on the development of nerve growth factor inhibitors, including tanezumab. The partial clinical hold was based on peripheral nervous system effects observed in animal studies conducted with nerve growth factor inhibitors by other companies. Current and future studies of tanezumab in cancer pain are not affected by this partial clinical hold. We intend to work with the FDA to determine the appropriate path forward.

Additional product-related programs are in various stages of discovery and development. Also, see the discussion in the “Our Business Development Initiatives” section of this Financial Review.

COSTS AND EXPENSES

Cost of Sales
 
 
Year Ended December 31,
 
% Change
(MILLIONS OF DOLLARS)
 
2012

 
2011

 
2010

 
12/11

 
11/10

Cost of sales
 
$
11,334

 
$
14,076

 
$
14,788

 
(19
)
 
(5
)
2012 v. 2011

Cost of sales decreased 19% in 2012 , compared to 2011 , primarily due to:
•
lower purchase accounting charges, primarily reflecting the fair value adjustments to acquired inventory from Wyeth and King that was subsequently sold;
•
lower costs related to our cost-reduction and productivity initiatives and acquisition-related costs, as well as the benefits generated from the ongoing productivity initiatives to streamline the manufacturing network;
•
reduced manufacturing volumes related to products that lost exclusivity in various markets; and
•
the favorable impact of foreign exchange of 3%,
partially offset by:
•
an unfavorable shift in geographic, product and business mix due to products that lost exclusivity in various markets.
2011 v. 2010

Cost of sales decreased 5% in 2011 , compared to 2010 , primarily due to:
•
lower purchase accounting charges, primarily reflecting the fair value adjustments to acquired inventory from Wyeth that was subsequently sold; and
•
savings associated with our cost-reduction and productivity initiatives,
partially offset by:
•
the addition of costs from legacy King’s operations;
•
the Puerto Rico excise tax (for additional information, see the “Provision for Taxes on Income” section of this Financial Review);

28
 
 
2012 Financial Report

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

•
a shift in geographic and business mix; and
•
the unfavorable impact of foreign exchange of 2% in 2011.

Selling, Informational and Administrative (SI&A) Expenses
 
 
Year Ended December 31,
 
% Change
(MILLIONS OF DOLLARS)
 
2012

 
2011

 
2010

 
12/11

 
11/10

Selling, informational and administrative expenses
 
$
16,616

 
$
18,832

 
$
18,973

 
(12
)
 
(1
)

2012 v. 2011

SI&A expenses decreased 12% in 2012 , compared to 2011 , primarily due to:
•
savings generated from a reduction in the field force and a decrease in promotional spending, both partly in response to product losses of exclusivity;
•
more streamlined corporate support functions; and
•
the favorable impact of foreign exchange of 2%,
partially offset by:
•
costs associated with the separation of Zoetis employees, net assets and operations from Pfizer.

2011 v. 2010

SI&A expenses were largely unchanged in 2011 , compared to 2010 , primarily due to:
•
the fee provided for under the U.S. Healthcare Legislation beginning in 2011;
•
the addition of legacy King operating costs; and
•
the unfavorable impact of foreign exchange of 2%,
offset by:
•
savings associated with our cost-reduction and productivity initiatives.

Research and Development (R&D) Expenses
 
 
Year Ended December 31,
 
% Change
(MILLIONS OF DOLLARS)
 
2012

 
2011

 
2010

 
12/11

 
11/10

Research and development expenses
 
$
7,870

 
$
9,074

 
$
9,483

 
(13
)
 
(4
)
2012 v. 2011

R&D expenses decreased 13% in 2012 , compared to 2011 , primarily due to:
•
savings generated by the discontinuation of certain therapeutic areas and R&D programs in connection with our previously announced cost-reduction and productivity initiatives; and
•
lower charges related to implementing our cost-reduction and productivity initiatives,
partially offset by:
•
a $250 million payment to AstraZeneca to obtain the exclusive global over-the-counter rights to Nexium.

2011 v. 2010

R&D expenses decreased 4% in 2011 , compared to 2010 , primarily due to:
•
savings associated with our cost-reduction and productivity initiatives,
partially offset by:
•
higher charges related to implementing our cost-reduction and productivity initiatives;
•
the addition of legacy King expenses; and
•
the unfavorable impact of foreign exchange of 1%.

R&D expenses also include payments for intellectual property rights of $371 million in 2012 , $306 million in 2011 and $393 million in 2010 (for further discussion, see the “Our Business Development Initiatives” section of this Financial Review).

2012 Financial Report    
 
 
29

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives
 
 
Year Ended December 31,
 
% Change
(MILLIONS OF DOLLARS)
 
2012

 
2011

 
2010

 
12/11

 
11/10
Costs associated with acquisitions and cost-reduction/productivity initiatives
 
$
2,855

 
$
4,512

 
$
3,926

 
(37
)
 
15

We incur significant costs in connection with acquiring, integrating and restructuring businesses and in connection with our global cost-reduction and productivity initiatives. For example:
•
In connection with acquisition activity, we typically incur costs associated with executing the transactions, integrating the acquired operations (which may include expenditures for consulting and the integration of systems and processes), and restructuring the combined company (which may include charges related to employees, assets and activities that will not continue in the combined company); and
•
In connection with our cost-reduction and productivity initiatives, we typically incur costs and charges associated with site closings and other facility rationalization actions, workforce reductions and the expansion of shared services, including the development of global systems.

All of our businesses and functions may be impacted by these actions, including sales and marketing, manufacturing and research and development, as well as groups such as information technology, shared services and corporate operations. Since the acquisition of Wyeth on October 15, 2009, our cost-reduction initiatives announced on January 26, 2009, but not completed as of December 31, 2009, were incorporated into a comprehensive plan to integrate Wyeth’s operations to generate cost savings and to capture synergies across the combined company. In addition, on February 1, 2011, among our ongoing cost reduction/productivity initiatives, we announced a new research and productivity initiative to accelerate our strategies to improve innovation and productivity in R&D by prioritizing areas that we believe have the greatest scientific and commercial promise, utilizing appropriate risk/return profiles and focusing on areas that we believe have the highest potential to deliver value in the near term and over time.

Cost-Reduction Goals

With respect to the January 26, 2009 announcements, and our acquisition of Wyeth on October 15, 2009, in the aggregate, we achieved our cost-reduction goal by the end of 2011, a year earlier than expected, and are continuing to generate cost reductions.

With respect to the R&D productivity initiative announced on February 1, 2011, we met our goal to achieve significant reductions in our annual research and development expenses by the end of 2012. Adjusted R&D expenses were $7.3 billion in 2012, and we expect adjusted R&D expenses to be approximately $6.5 billion to $7.0 billion in 2013. For an understanding of adjusted research and development expenses, see the “Adjusted Income” section of this Financial Review.
In addition to these major initiatives, we continuously monitor our organizations for cost reduction and/or productivity opportunities.

Total Costs

Through December 31, 2012, we incurred approximately $14.8 billion (pre-tax) in cost-reduction and acquisition-related costs (excluding transaction costs) in connection with the aforementioned initiatives. This $14.8 billion is a component of the $15.6 (pre-tax) billion in total restructuring charges incurred from the beginning of our cost-reduction and productivity initiatives in 2005 through December 31, 2012. See Notes to Consolidated Financial Statements— Note 3. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives for more information. In 2013, we expect to incur approximately $500-$800 million (after tax) in costs in connection with our ongoing cost-reduction/productivity initiatives and have reflected those costs, as well as the related expected cost reductions of approximately $1.0 billion (pre-tax), in our 2013 financial guidance. See also the “Our Financial Guidance for 2013” section of this Financial Review.

Key Activities

The targeted cost reductions were achieved through the following actions and we continue to generate cost reductions through similar actions:
•
The closing of duplicative facilities and other site rationalization actions Company-wide, including research and development facilities, manufacturing plants, sales offices and other corporate facilities. Among the more significant actions are the following:
◦
Manufacturing: After the acquisition of Wyeth, our manufacturing sites totaled 75. Other acquisitions have added 21 manufacturing sites and we have subsequently exited 12 sites, resulting in 84 sites supporting continuing operations as of December 31, 2012 . Our plant network strategy will result in the exit of a further eight sites over the next several years. These site counts exclude five Nutrition business-related manufacturing sites as the Nutrition business was sold in 2012. See Notes to Consolidated Financial Statements— Note 2B. Acquisitions, Divestitures, Collaborative Arrangements and Equity-Method Investments: Divestitures for more information.
◦
Research and Development: After the acquisition of Wyeth, we operated in 20 R&D sites and announced that we would close a number of sites. We have completed a number of site closures, including our Sandwich, U.K. research and development facility, except for a small presence. In addition, in 2011, we rationalized several other sites to reduce and optimize the overall R&D footprint. We disposed of our toxicology site in Catania, Italy; exited our R&D sites in Aberdeen and Gosport, U.K.; and disposed of a vacant site in

30
 
 
2012 Financial Report

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

St. Louis, MO. We still maintain laboratories in St. Louis, MO, that focus on the areas of biologics and indications discovery. We are presently marketing for sale, lease or sale/lease-back, either a portion of or all of certain of our R&D campuses. Locations with R&D operations are in the U.S., Europe, Canada and China, with five major research sites in addition to a number of specialized units. We also re-prioritized our commitments to disease areas and have discontinued certain therapeutic areas and R&D programs as part of our R&D productivity initiative. In 2011 and 2012 our research has primarily focused on five high-priority areas that have a mix of small and large molecules—immunology and inflammation; oncology; cardiovascular and metabolic diseases; neuroscience and pain; and vaccines.
•
Workforce reductions across all areas of our business and other organizational changes, primarily in the U.S. field force, manufacturing, R&D and corporate functions. We identified areas for a reduction in workforce across all of our businesses. In January 2009, when Pfizer and Wyeth entered into the merger agreement, the workforce of the two companies totaled approximately 130,000. We have exceeded our original target to reduce the combined Pfizer/Wyeth workforce 15%, or 19,500, within three years. By the end of 2011, we achieved a reduction of 26,300, and by the end of 2012, we achieved a reduction of 38,500. In 2012, the workforce declined by 12,200, from 103,700 to 91,500, primarily in manufacturing, R&D and corporate functions. The aforementioned workforce reductions include the impact of acquisitions and divestitures subsequent to the Wyeth acquisition.
•
The increased use of shared services and centers of excellence.
•
Procurement savings.
The following table provides the components of costs associated with acquisitions and cost-reduction/productivity initiatives:
 
 
Year Ended December 31,
(MILLIONS OF DOLLARS)
 
2012

 
2011

 
2010

Transaction costs (a)
 
$
1

 
$
30

 
$
22

Integration costs (b)
 
405

 
725

 
1,001

Restructuring charges (c) :
 


 


 
 
Employee termination costs
 
997

 
1,794

 
1,062

Asset impairments
 
328

 
256

 
869

Exit costs
 
149

 
125

 
191

Restructuring charges and certain acquisition-related costs
 
1,880

 
2,930

 
3,145

Additional depreciation––asset restructuring, recorded in our consolidated
statements of income as follows (d) :
 
 
 
 
 
 
    Cost of sales
 
267

 
555

 
520

    Selling, informational and administrative expenses
 
20

 
75

 
227

    Research and development expenses
 
296

 
605

 
34

Total additional depreciation––asset restructuring
 
583

 
1,235

 
781

Implementation costs, recorded in our consolidated
statements of income as follows (e) :
 
 
 
 
 
 
    Cost of sales
 
31

 
250

 
—

    Selling, informational and administrative expenses
 
129

 
25

 
—

    Research and development expenses
 
232

 
72

 
—

Total implementation costs
 
392

 
347

 
—

Total costs associated with acquisitions and cost-reduction/productivity initiatives
 
$
2,855

 
$
4,512

 
$
3,926

(a)  
Transaction costs represent external costs directly related to acquired businesses and primarily include expenditures for banking, legal, accounting and other similar services.
(b)  
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.
(c)  
From the beginning of our cost-reduction and transformation initiatives in 2005 through December 31, 2012 , Employee termination costs represent the expected reduction of the workforce by approximately 62,200 employees, mainly in manufacturing, sales and research, of which approximately 51,700 employees have been terminated as of December 31, 2012 . In 2012 , substantially all employee termination costs represent additional costs with respect to approximately 4,800 employees.
The restructuring charges in 2012 are associated with the following:
•
Primary Care operating segment ( $295 million ), Specialty Care and Oncology operating segment ( $175 million ), Established Products and Emerging Markets operating segment ( $125 million ), Animal Health operating segment ( $59 million ), Consumer Healthcare operating segment ( $45 million ), research and development operations ( $6 million income), manufacturing operations ( $265 million ) and Corporate ( $516 million ).
The restructuring charges in 2011 are associated with the following:
•
Primary Care operating segment ( $593 million ), Specialty Care and Oncology operating segment ( $220 million ), Established Products and Emerging Markets operating segment ( $110 million ), Animal Health operating segment ( $45 million ), Consumer Healthcare operating segment ( $8 million ), research and development operations ( $490 million ), manufacturing operations ( $287 million ) and Corporate ( $422 million ).
The restructuring charges in 2010 are associated with the following:
•
Primary Care operating segment ( $71 million ), Specialty Care and Oncology operating segment ( $197 million ), Established Products and Emerging Markets operating segment ( $43 million ), Animal Health operating segment ( $34 million ), Consumer Healthcare operating segment ( $12 million ), research and development operations ( $297 million ), manufacturing operations ( $1.1 billion ) and Corporate ( $350 million ).

2012 Financial Report    
 
 
31

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

(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 and productivity initiatives.
The following table provides the components of and changes in our restructuring accruals:
(MILLIONS OF DOLLARS)
 
Employee
Termination
Costs

 
Asset
Impairment
Charges

 
Exit Costs

 
Accrual

Balance, January 1, 2011
 
$
2,149

 
$
—

 
$
101

 
$
2,250

Provision
 
1,794

 
256

 
125

 
2,175

Utilization and other (a)
 
(1,518
)
 
(256
)
—

(134
)
 
(1,908
)
Balance, December 31, 2011 (b)
 
2,425

 
—

 
92

 
2,517

Provision
 
997

 
328

 
149

 
1,474

Utilization and other (a)
 
(1,629
)
 
(328
)
 
(84
)
 
(2,041
)
Balance, December 31, 2012 (c)
 
$
1,793

 
$
—

 
$
157

 
$
1,950

(a)  
Includes adjustments for foreign currency translation.
(b)  
Included in Other current liabilities ($ 1.6 billion ) and Other noncurrent liabilities ($ 930 million ).
(c)  
Included in Other current liabilities ( $1.2 billion ) and Other noncurrent liabilities ( $731 million ).
Other Deductions—Net
 
 
Year Ended December 31,
 
% Change
(MILLIONS OF DOLLARS)
 
2012

 
2011

 
2010

 
12/11
 
11/10

Other deductions—net
 
$
4,031

 
$
2,499

 
$
3,941

 
61
 
(37
)
2012 v. 2011

Other deductions—net changed unfavorably by 61% in 2012 , compared to 2011 , which primarily reflects:
•
charges for litigation-related matters that were approximately $1.4 billion higher in 2012 than in 2011, primarily due to a $491 million charge resulting from an agreement-in-principle with the U.S. Department of Justice to resolve an investigation into Wyeth's historical promotional practices in connection with Rapamune, a $450 million settlement of a lawsuit by Brigham Young University related to Celebrex, and charges related to Chantix litigation (for additional information, see Notes to Consolidated Financial Statements— Note 17. Commitments and Contingencies ); and
•
royalty-related income that was approximately $100 million lower in 2012 than in 2011.
2011 v. 2010

Other deductions––net changed favorably by 37% in 2011 , compared to 2010 , which primarily reflects:
•
asset impairment charges that were approximately $888 million higher in 2010 than in 2011, (see below); and
•
charges for litigation-related matters that were $939 million higher in 2010 than in 2011, which reflects charges recorded in 2010 for asbestos litigation related to our wholly owned subsidiary, Quigley Company, Inc. (for additional information, see Notes to Consolidated Financial Statements— Note 17. Commitments and Contingencies ),
partially offset by:
•
a lower net gain on asset disposals in 2011 than in 2010.

For information about the asset impairment charges, see the “Significant Accounting Policies and Application of Critical Accounting Estimates—Asset Impairment Reviews” section of this Financial Review, as well as Notes to Consolidated Financial Statements Note 4. Other Deductions—Net and Note 10B. Goodwill and Other Intangible Assets: Other Intangible Assets.



32
 
 
2012 Financial Report

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

PROVISION FOR TAXES ON INCOME
 
 
Year Ended December 31,
 
% Change
(MILLIONS OF DOLLARS)
 
2012

 
2011

 
2010

 
12/11

 
11/10
Provision for taxes on income
 
$
2,562

 
$
3,909

 
$
1,153

 
(34
)
 
239
Effective tax rate on continuing operations
 
21.2
%
 
31.8
%
 
12.2
%
 
 
 
 

During the third quarter of 2012, we reached a multi-year settlement with the U.S. Internal Revenue Service (IRS) with respect to the audits of the Pfizer Inc. tax returns for the years 2006 through 2008. The IRS concluded the examination of the aforementioned tax years and issued a final Revenue Agent's Report (RAR). We agreed with all the adjustments and computations contained in the RAR. As a result of settling these audit years, we recorded a tax benefit of approximately $1.1 billion, representing tax and interest (see Notes to Consolidated Financial Statements— Note 5A. Tax Matters: Taxes on Income from Continuing Operations ).

During the fourth quarter of 2010, we reached a multi-year settlement with the IRS related to issues we had appealed with respect to the audits of the Pfizer Inc. tax returns for the years 2002 through 2005, as well as the Pharmacia audit for the year 2003 through the date of merger with Pfizer (April 16, 2003). The IRS concluded its examination of the aforementioned tax years and issued a final RAR. We agreed with all of the adjustments and computations contained in the RAR. As a result of settling these audit years, we recorded a tax benefit of approximately $2.0 billion, representing tax and interest (see Notes to Consolidated Financial Statements— Note 5A. Tax Matters: Taxes on Income from Continuing Operations ).

2012 v. 2011

The lower effective tax rate in 2012 compared to 2011 is primarily the result of:
•
a multi-year settlement with the IRS in 2012 that resulted in a tax benefit of approximately $1.1 billion, representing tax and interest; and
•
the resolution of certain prior-period tax positions in 2012 with various foreign tax authorities, and from the expiration of certain statutes of limitations that resulted in tax benefits of approximately $310 million, representing tax and interest,
partially offset by:
•
the impact of the expiration of the U.S. research and development tax credit on December 31, 2011; and
•
the non-deductibility of the 2012 legal charge related to Rapamune (see the "Other Deductions—Net" section of this Financial Review).

For additional details about the resolution of certain tax positions, see Notes to Consolidated Financial Statements— Note 5A. Tax Matters: Taxes on Income from Continuing Operations .

2011 v. 2010

The higher effective tax rate in 2011 compared to 2010 is primarily the result of:
•
the non-recurrence of a multi-year settlement with the IRS that resulted in a tax benefit in 2010 of approximately $2.0 billion, representing tax and interest; and
•
the non-recurrence of a $460 million tax benefit, representing tax and interest, related to the resolution of certain prior-period tax positions in 2010 with various foreign tax authorities, as well as from the expiration of the statutes of limitations,
partially offset by:
•
the decrease and jurisdictional mix of certain impairment charges related to assets acquired in connection with the Wyeth acquisition; and
•
the change in the jurisdictional mix of earnings.

For additional details about the resolution of certain tax positions, see Notes to Consolidated Financial Statements— Note 5A. Tax Matters: Taxes on Income from Continuing Operations .

Changes in Tax Laws and Tax Rulings

We have been granted an incentive tax ruling in Belgium, effective December 1, 2012, that provides for incentive tax rates on certain of our Belgium earnings through 2017. The expected impact in 2013 is not significant and is reflected in our financial guidance for 2013.
On January 3, 2013, the President of the United States signed into law the American Taxpayer Relief Act of 2012 (the 2012 Act), which extends the U.S. research and development tax credit for tax years 2012 and 2013, as well as other provisions. Given the enactment date of the 2012 Act, the 2012 Act had no impact on our 2012 results. The expected impact in 2013 is not significant and is reflected in our financial guidance for 2013.
On August 10, 2010, the President of the United States signed into law the Education Jobs and Medicaid Assistance Act of 2010 (the 2010 Act), which includes education and Medicaid funding provisions, the cost of which is offset with revenues that result from changes to certain aspects of the tax treatment of the foreign-source income of U.S.-based companies. Given the effective dates of the various provisions of the 2010 Act, it had no impact on our 2010 results. The 2010 Act did not have a significant negative impact on our results in 2011 or 2012 and is

2012 Financial Report    
 
 
33

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

not expected to have a significant negative impact on our results in 2013. The impact of the 2010 Act is recorded in Provision for taxes on income. The expected impact in 2013 is reflected in our financial guidance for 2013.
On October   25, 2010, the Governor of Puerto Rico signed into law Act 154 to modify the Puerto Rico source-of-income rules and implement an excise tax on the purchase of products by multinational corporations and their subsidiaries from their Puerto Rico affiliates that is effective from 2011 through 2016. Act 154 had no impact on our results in 2010, since it did not become effective until 2011. Act 154 had a negative impact on our results in 2011 and 2012. Act 154 will continue to negatively impact our results through 2016. The impact of Act 154 is recorded in Cost of sales and Provision for taxes on income. The expected impact in 2013 is reflected in our financial guidance for 2013.

DISCONTINUED OPERATIONS

For additional information about our discontinued operations, see Notes to Consolidated Financial Statements— Note 2B. Acquisitions, Divestitures, Collaborative Arrangements and Equity-Method Investments: Divestitures .
The following table provides the components of Discontinued operations — net of tax :
 
 
Year Ended December 31, (a)   
(MILLIONS OF DOLLARS)
 
2012

 
2011

 
2010

Revenues
 
$
2,258

 
$
2,673

 
$
2,643

Pre-tax income/(loss) from discontinued operations
 
414

 
487

 
(50
)
Provision/(benefit) for taxes on income (b)
 
117

 
137

 
(31
)
Income/(loss) from discontinued operations––net of tax
 
297

 
350

 
(19
)
Pre-tax gain/(loss) on sale of discontinued operations
 
7,123

 
1,688

 
(11
)
Provision for taxes on income (c)
 
2,340

 
384

 
—

Gain/(loss) on sale of discontinued operations––net of tax
 
4,783

 
1,304

 
(11
)
Discontinued operations—net of tax
 
$
5,080

 
$
1,654

 
$
(30
)
(a)  
Includes the Nutrition business for all periods presented (through November 30, 2012) and the Capsugel business for 2011 (through August 1, 2011) and 2010 only. The net loss in 2010 includes the impairment of an indefinite-lived Brand intangible asset in the Nutrition business of approximately $385 million.
(b)  
Includes a deferred tax expense of $24 million for 2012 , a deferred tax benefit of $43 million for 2011 , and a deferred tax benefit of $156 million for 2010 . These deferred tax provisions include deferred income taxes related to investments in certain foreign subsidiaries, resulting from our intention not to hold these subsidiaries indefinitely.
(c)  
Includes a deferred tax expense of $1.4 billion for 2012 and $190 million for 2011 . These deferred tax provisions include deferred tax expense of $2.2 billion for 2012 and $190 million for 2011 on certain current-year funds earned outside the U.S. that will not be indefinitely reinvested overseas.

ADJUSTED INCOME

General Description of Adjusted Income Measure

Adjusted income is an alternative view of performance used by management, and we believe that investors’ understanding of our performance is enhanced by disclosing this performance measure. We report Adjusted income in order to portray the results of our major operations––the discovery, development, manufacture, marketing and sale of prescription medicines for humans and animals, consumer healthcare (over-the-counter) products, and vaccines––prior to considering certain income statement elements. We have defined Adjusted income as Net income attributable to Pfizer Inc. before the impact of purchase accounting for acquisitions, acquisition-related costs, discontinued operations and certain significant items. The Adjusted income measure is not, and should not be viewed as, a substitute for U.S. GAAP net income.

The Adjusted income measure is an important internal measurement for Pfizer. We measure the performance of the overall Company on this basis in conjunction with other performance metrics. The following are examples of how the Adjusted income measure is utilized:
•
senior management receives a monthly analysis of our operating results that is prepared on an Adjusted income basis;
•
our annual budgets are prepared on an Adjusted income basis; and
•
senior management’s annual compensation is derived, in part, using this Adjusted income measure. Adjusted income is one of the performance metrics utilized in the determination of bonuses under the Pfizer Inc. Executive Annual Incentive Plan that is designed to limit the bonuses payable to the Executive Leadership Team (ELT) for purposes of Internal Revenue Code Section 162(m). Subject to the Section 162(m) limitation, the bonuses are funded from a pool based on the achievement of three financial metrics, including adjusted diluted earnings per share, which is derived from Adjusted income. Since 2011, this metric accounts for 40% of the bonus pool made available to ELT members and other members of senior management and will constitute a factor in determining each of these individual’s bonus.

Despite the importance of this measure to management in goal setting and performance measurement, Adjusted income is a non-GAAP financial measure that has no standardized meaning prescribed by U.S. GAAP and, therefore, has limits in its usefulness to investors. Because of its non-standardized definition, Adjusted income (unlike U.S. GAAP net income) may not be comparable to the calculation of similar measures of other companies. Adjusted income is presented solely to permit investors to more fully understand how management assesses performance.


34
 
 
2012 Financial Report

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

We also recognize that, as an internal measure of performance, the Adjusted income measure has limitations, and we do not restrict our performance-management process solely to this metric. A limitation of the Adjusted income measure is that it provides a view of our operations without including all events during a period, such as the effects of an acquisition or amortization of purchased intangibles, and does not provide a comparable view of our performance to other companies in the biopharmaceutical industry. We also use other specifically tailored tools designed to achieve the highest levels of performance. For example, our R&D organization has productivity targets, upon which its effectiveness is measured. In addition, the earn-out of Performance Share Award grants is determined based on a formula that measures our performance using relative total shareholder return.

Purchase Accounting Adjustments

Adjusted income is calculated prior to considering certain significant purchase accounting impacts resulting from business combinations and net asset acquisitions. These impacts, primarily associated with Pharmacia (acquired in 2003), Wyeth (acquired in 2009) and King (acquired in 2011), can include the incremental charge to cost of sales from the sale of acquired inventory that was written up to fair value, amortization related to the increase in fair value of the acquired finite-lived intangible assets, depreciation related to the increase/decrease in fair value of the acquired fixed assets, amortization related to the increase in fair value of acquired debt, and the fair value changes associated with contingent consideration. Therefore, the Adjusted income measure includes the revenues earned upon the sale of the acquired products without considering the acquisition cost of those products.

Certain of the purchase accounting adjustments can occur through 20 or more years, but this presentation provides an alternative view of our performance that is used by management to internally assess business performance. We believe the elimination of amortization attributable to acquired intangible assets provides management and investors an alternative view of our business results by trying to provide a degree of parity to internally developed intangible assets for which research and development costs previously have been expensed.

However, a completely accurate comparison of internally developed intangible assets and acquired intangible assets cannot be achieved through Adjusted income. This component of Adjusted income is derived solely from the impacts of the items listed in the first paragraph of this section. We have not factored in the impacts of any other differences in experience that might have occurred if we had discovered and developed those intangible assets on our own, and this approach does not intend to be representative of the results that would have occurred in those circumstances. For example, our research and development costs in total, and in the periods presented, may have been different; our speed to commercialization and resulting sales, if any, may have been different; or our costs to manufacture may have been different. In addition, our marketing efforts may have been received differently by our customers. As such, in total, there can be no assurance that our Adjusted income amounts would have been the same as presented had we discovered and developed the acquired intangible assets.

Acquisition-Related Costs

Adjusted income is calculated prior to considering transaction, integration, restructuring and additional depreciation costs associated with business combinations because these costs are unique to each transaction and represent costs that were incurred to restructure and integrate two businesses as a result of the acquisition decision. For additional clarity, only transaction costs, additional depreciation and restructuring and integration activities that are associated with a business combination or a net-asset acquisition are included in acquisition-related costs. We have made no adjustments for the resulting synergies.

We believe that viewing income prior to considering these charges provides investors with a useful additional perspective because the significant costs incurred in connection with a business combination result primarily from the need to eliminate duplicate assets, activities or employees––a natural result of acquiring a fully integrated set of activities. For this reason, we believe that the costs incurred to convert disparate systems, to close duplicative facilities or to eliminate duplicate positions (for example, in the context of a business combination) can be viewed differently from those costs incurred in other, more normal, business contexts.

The integration and restructuring costs associated with a business combination may occur over several years, with the more significant impacts ending within three years of the transaction. Because of the need for certain external approvals for some actions, the span of time needed to achieve certain restructuring and integration activities can be lengthy. For example, due to the highly regulated nature of the pharmaceutical business, the closure of excess facilities can take several years, as all manufacturing changes are subject to extensive validation and testing and must be approved by the FDA and/or other global regulatory authorities.

Discontinued Operations

Adjusted income is calculated prior to considering the results of operations included in discontinued operations, as well as any related gains or losses on the sale of such operations such as the sale of our Capsugel business, which we sold in August 2011, and the sale of our Nutrition business, which we sold in November 2012. We believe that this presentation is meaningful to investors because, while we review our businesses and product lines for strategic fit with our operations, we do not build or run our businesses with the intent to sell them. (Restatements due to discontinued operations do not impact compensation or change the Adjusted income measure for the compensation of the restated periods but are presented here on a restated basis for consistency across all periods.)

Certain Significant Items

Adjusted income is calculated prior to considering certain significant items. Certain significant items represent substantive, unusual items that are evaluated on an individual basis. Such evaluation considers both the quantitative and the qualitative aspect of their unusual nature. Unusual, in this context, may represent items that are not part of our ongoing business; items that, either as a result of their nature or size, we would not expect to occur as part of our normal business on a regular basis; items that would be non-recurring; or items that relate to products

2012 Financial Report    
 
 
35

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

we no longer sell. While not all-inclusive, examples of items that could be included as certain significant items would be a major non-acquisition-related restructuring charge and associated implementation costs for a program that is specific in nature with a defined term, such as those related to our non-acquisition-related cost-reduction and productivity initiatives; amounts related to certain disposals of businesses, products or facilities that do not qualify as discontinued operations under U.S. GAAP; amounts associated with transition service agreements in support of discontinued operations after sale; certain intangible asset impairments; adjustments related to the resolution of certain tax positions; the impact of adopting certain significant, event-driven tax legislation; or charges related to certain legal matters, such as certain of those discussed in Notes to Consolidated Financial Statements— Note 17. Commitments and Contingencies and in Part II—Other Information; Item 1. Legal Proceedings in our Quarterly Reports on Form 10-Q filings. Normal, ongoing defense costs of the Company or settlements of and accruals for legal matters made in the normal course of our business would not be considered certain significant items.

Reconciliation

The following table provides a reconciliation of Net income attributable to Pfizer Inc. , as reported under U.S. GAAP, and Non-GAAP Adjusted income:
 
 
Year Ended December 31,
 
% Change
(MILLIONS OF DOLLARS)
 
2012

 
2011

 
2010

 
12/11

 
11/10

GAAP Reported net income attributable to Pfizer Inc.
 
$
14,570

 
$
10,009

 
$
8,257

 
46

 
21

Purchase accounting adjustments—net of tax
 
3,598

 
5,000

 
6,011

 
(28
)
 
(17
)
Acquisition-related costs—net of tax
 
756

 
1,457

 
2,844

 
(48
)
 
(49
)
Discontinued operations—net of tax
 
(5,080
)
 
(1,654
)
 
30

 
(207
)
 
*

Certain significant items—net of tax
 
2,632

 
3,027

 
420

 
(13
)
 
*

Non-GAAP Adjusted income (a)
 
$
16,476

 
$
17,839

 
$
17,562

 
(8
)
 
2

(a)  
The effective tax rate on Non-GAAP Adjusted income was 29.3% in 2012 , 29.6% in 2011 and 29.9% in 2010 . The effective tax rate for 2012 compared with the prior-year reflects the impact of the change in the jurisdictional mix of earnings and the expiration of the U.S. research and development tax credit, and the favorable impact of the resolution of certain prior-period tax positions in 2012 with various foreign tax authorities, and from the expiration of certain statutes of limitations.
*
Calculation not meaningful.
Certain amounts and percentages may reflect rounding adjustments.
The following table provides a reconciliation of Reported diluted EPS, as reported under U.S. GAAP, and Non-GAAP Adjusted diluted EPS:
 
 
Year Ended December 31,
 
% Change
 
 
2012

 
2011

 
2010

 
12/11

 
11/10

Earnings per common share—diluted (a)
 
 
 
 
 
 
 
 
 
 
GAAP Reported income from continuing operations attributable to Pfizer Inc. common shareholders
 
$
1.26

 
$
1.06

 
$
1.03

 
19

 
3

Income from discontinued operations—net of tax
 
0.68

 
0.21

 
—

 
224

 
*

GAAP Reported net income attributable to Pfizer Inc. common shareholders
 
1.94

 
1.27

 
1.02

 
53

 
25

Purchase accounting adjustments—net of tax
 
0.48

 
0.64

 
0.74

 
(25
)
 
(14
)
Acquisition-related costs—net of tax
 
0.10

 
0.19

 
0.35

 
(47
)
 
(46
)
Discontinued operations—net of tax
 
(0.68
)
 
(0.21
)
 
—

 
(224
)
 
*

Certain significant items—net of tax
 
0.35

 
0.38

 
0.05

 
(8
)
 
*

Non-GAAP Adjusted income attributable to Pfizer Inc. common shareholders (b)
 
$
2.19

 
$
2.27

 
$
2.18

 
(4
)
 
4

(a)  
EPS amounts may not add due to rounding.
(b)  
Reported and Adjusted diluted earnings per share in 2012 and 2011 were significantly impacted by the decrease in the number of shares outstanding, primarily due to the Company's ongoing share repurchase program.
*
Calculation not meaningful.
Certain amounts and percentages may reflect rounding adjustments.


36
 
 
2012 Financial Report

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

Adjusted income, as shown above, excludes the following items:
 
 
Year Ended December 31,
(MILLIONS OF DOLLARS)
 
2012

 
2011

 
2010

Purchase accounting adjustments
 
 
 
 
 
 
Amortization, depreciation and other (a)
 
$
4,952

 
$
5,523

 
$
5,314

Cost of sales, primarily related to fair value adjustments of acquired inventory
 
5

 
1,230

 
2,822

Total purchase accounting adjustments, pre-tax
 
4,957

 
6,753

 
8,136

Income taxes (b)
 
(1,359
)
 
(1,753
)
 
(2,125
)
Total purchase accounting adjustments—net of tax
 
3,598

 
5,000

 
6,011

 
 
 
 
 
 
 
Acquisition-related costs
 
 
 
 
 
 
Transaction costs (c)
 
1

 
30

 
22

Integration costs (c)
 
405

 
725

 
1,001

Restructuring charges (c)
 
279

 
601

 
2,122

Additional depreciation—asset restructuring (d)
 
282

 
623

 
781

Total acquisition-related costs, pre-tax
 
967

 
1,979

 
3,926

Income taxes (b)
 
(211
)
 
(522
)
 
(1,082
)
Total acquisition-related costs—net of tax
 
756

 
1,457

 
2,844

 
 
 
 
 
 
 
Discontinued operations
 
 
 
 
 
 
(Income)/loss from operations—net of tax
 
(297
)
 
(350
)
 
19

(Gain)/loss on sale of discontinued operations
 
(4,783
)
 
(1,304
)
 
11

Total discontinued operations—net of tax
 
(5,080
)
 
(1,654
)
 
30

 
 
 
 
 
 
 
Certain significant items
 
 
 
 
 
 
Restructuring charges (e)
 
1,195

 
1,574

 
—

Implementation costs and additional depreciation—asset restructuring (f)
 
693

 
959

 
—

Certain legal matters (g)
 
2,191

 
822

 
1,703

Certain asset impairment charges (h)
 
884

 
856

 
1,752

Inventory write-off (i)
 
28

 
8

 
212

Costs associated with the separation of Zoetis (j)
 
325

 
35

 
—

Other
 
8

 
93

 
(102
)
Total certain significant items, pre-tax
 
5,324

 
4,347

 
3,565

Income taxes (b)
 
(2,692
)
 
(1,320
)
 
(3,145
)
Total certain significant items—net of tax
 
2,632

 
3,027

 
420

Total purchase accounting adjustments, acquisition-related costs, discontinued operations and certain significant items—net of tax
 
$
1,906

 
$
7,830

 
$
9,305

(a)  
Included primarily in Amortization of intangible assets (see Notes to Consolidated Financial Statements— Note 10. Goodwill and Other 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. In addition, income taxes for Certain significant items in 2012 includes a $1.1 billion tax benefit, representing tax and interest, as a result of a settlement with the IRS related to audits for tax years 2006-2008. Amounts in 2010 include a $2.0 billion tax benefit, representing tax and interest, as a result of a settlement with the IRS of certain audits covering tax years 2002-2005. See Notes to Consolidated Financial Statements— Note 5A. Tax Matters: Taxes on Income from Continuing Operations .
(c)  
Included in Restructuring charges and certain acquisition-related costs (see Notes to Consolidated Financial Statements— Note 3. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives ).
(d)  
Represents the impact of changes in the estimated useful lives of assets involved in restructuring actions related to acquisitions. For 2012, included in Cost of sales ($267 million), Selling informational and administrative expenses ($9 million) and Research and development expenses ($6 million). For 2011, included in Cost of sales ($555 million), Selling, informational and administrative expenses ($45 million) and Research and development expenses ($23 million). For 2010, included in Cost of sales ($520 million), Selling, informational and administrative expenses ($227 million) and Research and development expenses ($34 million).
(e)  
Represents restructuring charges incurred for our cost-reduction and productivity initiatives. Included in Restructuring charges and certain acquisition-related costs (see Notes to Consolidated Financial Statements— Note 3. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives ).
(f)  
Amounts primarily relate to our cost-reduction and productivity initiatives (see Notes to Consolidated Financial Statements— Note 3. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives ). For 2012, included in Cost of sales ($31 million), Selling, informational and administrative expenses ($140 million) and Research and development expenses ($522 million). For 2011, included in Cost of sales ($250 million), Selling, informational and administrative expenses ($55 million) and Research and development expenses ($654 million).
(g)  
Included in Other deductions—net (see the “Other Deductions—Net” section of this Financial Review and Notes to Consolidated Financial Statements— Note 4. Other Deductions—Net ) .

2012 Financial Report    
 
 
37

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

(h)  
Substantially all included in Other deductions—net (see the “Other Deductions—Net” section of this Financial Review and Notes to Consolidated Financial Statements— Note 4. Other Deductions—Net ) .
(i)  
Included in Cost of sales (see also the “Costs and Expenses––Cost of Sales” section of this Financial Review) .
(j)  
Costs incurred in connection with the initial public offering of a 19.8% ownership stake in Zoetis. Includes expenditures for banking, legal, accounting and similar services, as well as costs associated with the separation of Zoetis employees, net assets and operations from Pfizer, such as consulting and systems costs. For 2012, included in Costs of sales ($6 million), Selling, informational and administrative expenses ($194 million) and Other deductions—net ($125 million). For 2011, substantially all included in Other deductions—net .

ANALYSIS OF THE CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Changes in the components of Accumulated other comprehensive loss reflect the following:
2012
For Foreign currency translation adjustments , reflects the weakening of several foreign currencies against the U.S. dollar, primarily the euro, the Japanese yen, the Australian dollar and the Brazilian real.
For Unrealized holding gains/(losses) on derivative financial instruments , reflects the impact of fair value adjustments. See also Notes to Consolidated Financial Statements— Note 7A. Financial Instruments: Selected Financial Assets and Liabilities .
For Benefit plans: Actuarial losses , reflects the impact of changes in actuarial assumptions and the difference between actual return on plan assets and expected return on plan assets. See also Notes to Consolidated Financial Statements— Note 11. Pension and Postretirement Benefit Plans and Defined Contribution Plans .

2011
For Foreign currency translation adjustments , reflects the strengthening of several foreign currencies against the U.S. dollar, primarily the euro, the Japanese yen, the British pound, and the Australian dollar .
For Unrealized holding gains/(losses) on derivative financial instruments , reflects the impact of fair value adjustments. See also Notes to Consolidated Financial Statements— Note 7A. Financial Instruments: Selected Financial Assets and Liabilities .
For Benefit plans: Actuarial losses , reflects the impact of changes in actuarial assumptions and the difference between actual return on plan assets and expected return on plan assets. See also Notes to Consolidated Financial Statements— Note 11. Pension and Postretirement Benefit Plans and Defined Contribution Plans .

2010
For Foreign currency translation adjustments , reflects the weakening of several foreign currencies against the U.S. dollar, primarily the euro and the British pound .
For Unrealized holding gains/(losses) on derivative financial instruments , reflects the impact of fair value adjustments. See also Notes to Consolidated Financial Statements— Note 7A. Financial Instruments: Selected Financial Assets and Liabilities .
For Benefit plans: Actuarial losses , reflects the impact of changes in actuarial assumptions and the difference between actual return on plan assets and expected return on plan assets. See also Notes to Consolidated Financial Statements— Note 11. Pension and Postretirement Benefit Plans and Defined Contribution Plans .

ANALYSIS OF THE CONSOLIDATED BALANCE SHEETS

For information about certain of our financial assets and liabilities, including Cash and cash equivalents, Short-term investments, Long-term investments, Short-term borrowings, including current portion of long-term debt , and Long-term debt , see “Analysis of Financial Condition, Liquidity and Capital Resources” below.
For Assets of discontinued operations and other assets held for sale , the decrease reflects the sale of our Nutrition business (see Notes to Consolidated Financial Statements— Note 2B. Acquisitions, Divestitures, Collaborative Arrangements and Equity-Method Investments: Divestitures ).
Many changes in our asset and liability accounts as of December 31, 2012 , compared to December 31, 2011 , reflect, among other things, increases associated with our acquisitions of Alacer Corp., Ferrosan Holding A/S and NextWave Pharmaceuticals, Inc. (see Notes to Consolidated Financial Statements— Note 2A. Acquisitions, Divestitures, Collaborative Arrangements and Equity-Method Investments: Acquisitions ) and decreases due to the impact of foreign exchange.
For Accounts Receivable, net , see “Selected Measures of Liquidity and Capital Resources: Accounts Receivable” below.
For Property, plant and equipment, less accumulated depreciation , the change also reflects depreciation in excess of capital additions.
For Identifiable intangible assets, less accumulated amortization, the change also reflects amortization and asset impairments (see Notes to Consolidated Financial Statements— Note 4. Other Deductions—Net ).
For Accounts payable , the change also reflects an increase in Value Added Tax (VAT) payables.
For Other current liabilities and Other noncurrent liabilities , the changes also reflect a decrease in restructuring-related liabilities and the impact of lower revenues on expense levels. Other noncurrent liabilities also reflects the impact of fair value adjustments on derivative financial instruments.

38
 
 
2012 Financial Report

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

For Pension benefit obligations and Postretirement benefit obligations , the changes also reflect the lowering of the discount rate, partially offset by the impact of $938 million of company contributions (see Notes to Consolidated Financial Statements— Note 11. Pension and Postretirement Benefit Plans and Defined Contribution Plans ).
For Other taxes payable, the change also reflects the impact of a number of audit settlements (see Notes to Consolidated Financial Statements— Note 5A. Tax Matters: Taxes on Income from Continuing Operations ).

ANALYSIS OF THE CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 
Year Ended December 31,
 
% Change
(MILLIONS OF DOLLARS)
 
2012

 
2011

 
2010

 
12/11

 
11/10

Cash provided by/(used in):
 
 
 
 
 
 
 
 
 
 
Operating activities
 
$
17,054

 
$
20,240

 
$
11,454

 
(16
)
 
77

Investing activities
 
6,154

 
1,843

 
(492
)
 
234

 
*

Financing activities
 
(15,999
)
 
(20,607
)
 
(11,174
)
 
(22
)
 
84

Effect of exchange-rate changes on cash and cash equivalents
 
(2
)
 
(29
)
 
(31
)
 
(93
)
 
(6
)
Net increase/(decrease) in Cash and cash equivalents
 
7,207

 
1,447

 
(243
)
 
*

 
*

*
Calculation not meaningful.

Operating Activities

2012 v. 2011

Our net cash provided by operating activities was $17.1 billion in 2012 , compared to $20.2 billion in 2011 . The decrease in net cash provided by operating activities was primarily attributable to:
•
the loss of exclusivity of Lipitor, as well as certain other products, resulting in lower revenues and associated expenses (see also “The Loss or Expiration of Intellectual Property Rights” section of this Financial Review), partially offset by spending reductions resulting from our company-wide cost-reduction initiatives;
•
payments made in connection with certain legal matters; and
•
the timing of receipts and payments in the ordinary course of business.

2011 v. 2010

Our net cash provided by operating activities was $20.2 billion in 2011 , compared to $11.5 billion in 2010 . The increase in net cash provided by operating activities was primarily attributable to: 
•
income tax payments made in 2010 of approximately $11.8 billion, primarily associated with certain business decisions executed to finance the Wyeth acquisition, including the decision to repatriate certain funds earned outside the U.S., compared with $2.9 billion in 2011; and
•
the timing of receipts and payments in the ordinary course of business.

In 2010, the cash flow line item called Other tax accounts, net, reflects the $11.8 billion tax payment described above.

Investing Activities

2012 v. 2011

Our net cash provided by investing activities was $6.2 billion in 2012 , compared to $1.8 billion in 2011 . The increase in net cash provided by investing activities was primarily attributable to:
•
net proceeds from the sale of our Nutrition business of $11.85 billion in 2012 compared to net proceeds from the sale of our Capsugel business of $2.4 billion in 2011 (see Notes to Consolidated Financial Statements–– Note 2B. Acquisitions, Divestitures, Collaborative Arrangements and Equity-Method Investments: Divestitures ); and
•
cash paid of $1.1 billion, net of cash acquired, for our acquisitions of Alacer, Ferrosan and NextWave in 2012 (see Notes to Consolidated Financial Statements–– Note 2A. Acquisitions, Divestitures, Collaborative Arrangements and Equity-Method Investments: Acquisitions ), compared to $3.3 billion cash paid, net of cash acquired, in 2011, for our acquisitions of King, Icagen and Excaliard,
partially offset by:
•
net purchases of investments of $3.4 billion in 2012, compared to net proceeds from redemptions and sales of investments of $4.1 billion in 2011, which were primarily used to finance our acquisition of King.


2012 Financial Report    
 
 
39

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

2011 v. 2010

Our net cash provided by investing activities was $1.8 billion in 2011 , compared to $492 million net cash used in 2010 . The increase in net cash provided by investing activities was primarily attributable to:
•
net proceeds from redemptions, purchases and sales of investments of $4.1 billion in 2011, which were primarily used to finance our acquisition of King, compared to net proceeds from redemptions, purchases and sales of investments of $1.2 billion in 2010; and
•
net proceeds of $2.4 billion received from the sale of Capsugel in 2011 (see Notes to Consolidated Financial Statements— Note 2B. Acquisitions, Divestitures, Collaborative Arrangements and Equity-Method Investments: Divestitures),
partially offset by:
•
cash paid of $3.3 billion, net of cash acquired, for our acquisitions of King, Icagen and Excaliard in 2011, compared to $273 million paid for our acquisitions of FoldRx, Vetnex and Synbiotics in 2010.

Financing Activities

2012 v. 2011

Our net cash used in financing activities was $16.0 billion in 2012 , compared to $20.6 billion in 2011 . The decrease in net cash used in financing activities was primarily attributable to:
•
net repayments of borrowings of $1.7 billion in 2012, compared to net repayments of borrowings of $5.5 billion in 2011;
•
purchases of our common stock of $8.2 billion in 2012, compared to $9.0 billion in 2011; and
•
increased proceeds from the exercise of stock options,
slightly offset by:
•
higher cash dividends paid.

2011 v. 2010

Our net cash used in financing activities was $20.6 billion in 2011 , compared to $11.2 billion in 2010 . The increase in net cash used in financing activities was primarily attributable to:
•
net repayments of borrowings of $5.5 billion in 2011, compared to net repayments of borrowings of $4.2 billion in 2010; and
•
purchases of our common stock of $9.0 billion in 2011, compared to $1.0 billion in 2010.

ANALYSIS OF FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

We rely largely on operating cash flows, short-term investments, short-term commercial paper borrowings and long-term debt to provide for our liquidity requirements. We believe that we have the ability to obtain both short-term and long-term debt to meet our financing needs for the foreseeable future. Due to our significant operating cash flows as well as our financial assets, access to capital markets and available lines of credit and revolving credit agreements, we further believe that we have the ability to meet our liquidity needs for the foreseeable future, which include:
•
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.

With regard to share repurchases, the Company's new $10 billion share-purchase plan became effective on November 30, 2012. (For additional information about the new share-purchase plan, see the “Share-Purchase Plans” section of this Financial Review.)

Our long-term debt is rated investment grade by both Standard & Poor’s (S&P) and Moody’s Investors Service (Moody's). See the “Credit Ratings” section below. As market conditions change, we continue to monitor our liquidity position. We have taken and will continue to take a conservative approach to our financial investments. Both short-term and long-term investments consist primarily of high-quality, highly liquid, well-diversified, available-for-sale debt securities.


40
 
 
2012 Financial Report

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

Selected Measures of Liquidity and Capital Resources
The following table provides certain relevant measures of our liquidity and capital resources:
 
 
As of December 31,
(MILLIONS OF DOLLARS, EXCEPT RATIOS AND PER COMMON SHARE DATA)
 
2012

 
2011

Selected financial assets:
 
 
 
 
Cash and cash equivalents (a)
 
$
10,389

 
$
3,182

Short-term investments (a)
 
22,319

 
23,270

Long-term investments
 
14,149

 
9,814

 
 
46,857

 
36,266

Debt:
 
 

 
 

Short-term borrowings, including current portion of long-term debt
 
6,424

 
4,016

Long-term debt
 
31,036

 
34,926

 
 
37,460

 
38,942

Net financial assets (liabilities) (b)
 
$
9,397

 
$
(2,676
)
 
 
 
 
 
Working capital (c)
 
$
32,796

 
$
31,908

Ratio of current assets to current liabilities
 
2.15:1

 
2.10:1

Total Pfizer Inc. shareholders' equity per common share (d)
 
$
11.17

 
$
10.85

(a)  
See Notes to Consolidated Financial Statements–– Note 7. Financial Instruments for a description of assets held and for a description of credit risk related to our financial instruments held.
(b)  
Net financial assets increased during 2012 primarily related to the $11.85 billion proceeds received from the sale of the Nutrition business. For additional information, see the “Analysis of the Consolidated Statements of Cash Flows ” section of this Financial Review.
(c)  
Working capital includes net assets held for sale of $70 million as of December 31, 2012 and $4.1 billion as of December 31, 2011 .
(d)  
Represents total Pfizer Inc. shareholders’ equity divided by the actual number of common shares outstanding (which excludes treasury shares and shares held by our employee benefit trust).

For additional information about the sources and uses of our funds, see the “Analysis of the Consolidated Balance Sheets ” and “ Analysis of the Consolidated Statements of Cash Flows ” sections of this Financial Review.

Subsequent Events

On January 28, 2013, our then wholly owned subsidiary, Zoetis, issued $3.65 billion aggregate principal amount of senior notes, net of an original issue debt discount of $10 million. The notes have a weighted-average effective interest rate of 3.30%, and mature at various dates as follows: 1.15% Notes due 2016 ($400 million); 1.875% Notes due 2018 ($749 million); 3.25% Notes due 2023 ($1.349 billion); and 4.7% Notes due 2043 ($1.142 billion). On February 6, 2013, Zoetis also entered into a commercial paper program with a capacity of up to $1.0 billion. No amounts are currently outstanding under this program.

Also on January 28, 2013, we transferred to Zoetis substantially all of the assets and liabilities of our Animal Health business in exchange for all of the Class A and Class B common stock of Zoetis, $1.0 billion of the $3.65 billion senior notes and an amount of cash equal to substantially all of the cash proceeds received by Zoetis from the remaining $2.65 billion senior notes issued. The $1.0 billion of senior notes received by Pfizer were exchanged by Pfizer for the retirement of Pfizer commercial paper issued in December 2012, and the cash proceeds received by Pfizer of approximately $2.5 billion are restricted to debt repayment, dividends and/or stock buybacks, in all cases to be completed by mid-2014.

On February 6, 2013, an initial public offering (IPO) of Zoetis was completed, pursuant to which we sold 99.015 million shares of Zoetis in exchange for the retirement of approximately $2.5 billion of Pfizer commercial paper issued on January 10, 2013.

In summary, as a result of the above transactions, we received approximately $6.1 billion of cash (of which approximately $2.5 billion is restricted to debt repayment, dividends and/or stock buybacks, in all cases to be completed by mid-2014) and incurred approximately $3.65 billion in Zoetis long-term debt. For additional information, see Notes to Consolidated Financial Statements— Note 19A. Subsequent Events: Zoetis Debt Offering and Initial Public Offering.

Two major corporate debt-rating organizations, Moody’s and S&P, assign ratings to the Zoetis short-term and long-term debt. A security rating is not a recommendation to buy, sell or hold securities and the rating is subject to revision or withdrawal at any time by the rating organization. Each rating should be evaluated independently of any other rating.

2012 Financial Report    
 
 
41

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

The following table provides the current ratings assigned by these rating agencies to the Zoetis commercial paper and senior unsecured non-credit-enhanced long-term debt:
NAME OF RATING AGENCY
Zoetis
Commercial Paper
 
Zoetis
Long-term Debt
Date of Action
Rating
 
Rating
Outlook
Moody’s
P-2
 
Baa2
Stable
January 2013
S&P
A-3
 
BBB-
Stable
January 2013

Domestic and International Short-Term Funds
 
Many of our operations are conducted outside the U.S., and significant portions of our cash, cash equivalents and short-term investments are held internationally. We generally hold approximately 10%-30% of these short-term funds in U.S. tax jurisdictions. The amount of funds held in U.S. tax jurisdictions can fluctuate due to the timing of receipts and payments in the ordinary course of business and due to other reasons, such as business-development activities. As part of our ongoing liquidity assessments, we regularly monitor the mix of domestic and international cash flows (both inflows and outflows). Repatriation of overseas funds can result in additional U.S. federal, state and local income tax payments. We record U.S. deferred tax liabilities for certain unremitted earnings, but when amounts earned overseas are expected to be indefinitely reinvested outside the U.S., no accrual for U.S. taxes is provided.

A substantial portion of the proceeds related to the sale of our Nutrition business to Nestlé is located outside the U.S. We have provided deferred taxes on certain current-year funds earned outside the U.S. that will not be indefinitely reinvested. We expect that the proceeds from the sale will primarily be used for share repurchases, as well as other value-creating opportunities. For additional information regarding our sale of the Nutrition business to Nestlé, see Notes to Consolidated Financial Statements–– Note 2B. Acquisitions, Divestitures, Collaborative Arrangements and Equity-Method Investments: Divestitures .

Accounts Receivable

We continue to monitor developments regarding government and government agency receivables in several European markets where economic conditions remain challenging and uncertain. Historically, payments from a number of these European governments and government agencies extend beyond the contractual terms of sale and the year-over-year trend is worsening.

We believe that our allowance for doubtful accounts is appropriate. Our assessment is based on an analysis of the following: (i) payments received to date; (ii) the consistency of payments from customers; (iii) direct and observed interactions with the governments (including court petitions) and with market participants (for example, the factoring industry); and (iv) various third-party assessments of repayment risk (for example, rating agency publications and the movement of rates for credit default swap instruments).

As of December 31, 2012 , we had about $1.2 billion in aggregate gross accounts receivable from governments and/or government agencies in Italy, Spain, Greece, Portugal and Ireland, where economic conditions remain challenging and uncertain. Such receivables in excess of one year from the invoice date, totaling $274 million, were as follows: $128 million in Italy; $105 million in Greece; $25 million in Portugal; $10 million in Spain; and $6 million in Ireland.

Although certain European governments and government agencies sometimes delay payments beyond the contractual terms of sale, we seek to appropriately balance repayment risk with the desire to maintain good relationships with our customers and to ensure a humanitarian approach to local patient needs.

We will continue to closely monitor repayment risk and, when necessary, we will continue to adjust our allowance for doubtful accounts.

Our assessments about the recoverability of accounts receivables can result from a complex series of judgments about future events and uncertainties and can rely heavily on estimates and assumptions. For information about the risks associated with estimates and assumptions, see Notes to Consolidated Financial Statements–– Note 1C. Basis of Presentation and Significant Accounting Policies: Estimates and Assumptions .

Credit Ratings

Two major corporate debt-rating organizations, Moody’s and S&P, assign ratings to Pfizer short-term and long-term debt. A security rating is not a recommendation to buy, sell or hold securities and the rating is subject to revision or withdrawal at any time by the rating organization. Each rating should be evaluated independently of any other rating.

42
 
 
2012 Financial Report

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

The following table provides the current ratings assigned by these rating agencies to Pfizer commercial paper and senior unsecured non-credit-enhanced long-term debt:
NAME OF RATING AGENCY
Pfizer
Commercial Paper
 
Pfizer
Long-term Debt
Date of Last Action
Rating
 
Rating
Outlook
Moody’s
P-1
 
A1
Stable
October 2009
S&P
A1+
 
AA
Stable
October 2009

See "Subsequent Events" above for information about a January 2013 Zoetis debt offering and the Zoetis commercial paper program.

Debt Capacity

We have available lines of credit and revolving credit agreements with a group of banks and other financial intermediaries. We maintain cash and cash equivalent balances and short-term investments in excess of our commercial paper and other short-term borrowings. As of December 31, 2012 , we had access to $9.1 billion of lines of credit, of which $2.0 billion expire within one year. Of these lines of credit, $8.4 billion are unused, of which our lenders have committed to loan us $7.1 billion at our request. Also, $7.0 billion of our unused lines of credit, all of which expire in 2016, may be used to support our commercial paper borrowings.

In December 2012, Zoetis entered into a revolving credit agreement providing for a five-year $1.0 billion senior unsecured revolving credit facility, which became effective in February 2013 and expires in December 2017.

See "Subsequent Events" above for information about a January 2013 Zoetis debt offering and the Zoetis commercial paper program.

Global Economic Conditions

The challenging economic environment has not had, nor do we anticipate it will have, a significant impact on our liquidity. Due to our significant operating cash flows, financial assets, access to capital markets and available lines of credit and revolving credit agreements, we continue to believe that we have the ability to meet our liquidity needs for the foreseeable future. As markets change, we continue to monitor our liquidity position. There can be no assurance that the challenging economic environment or a further economic downturn would not impact our ability to obtain financing in the future.

Contractual Obligations
Payments due under contractual obligations as of December 31, 2012, mature as follows:
 
 
 
 
Years
(MILLIONS OF DOLLARS)
 
Total

 
2013

 
2014-2015

 
2016-2017

 
Thereafter

Long-term debt, including current portion (a)
 
$
33,485

 
$
2,449

 
$
6,987

 
$
6,356

 
$
17,693

Interest payments on long-term debt obligations (b)
 
17,980

 
1,494

 
2,675

 
2,137

 
11,674

Other long-term liabilities reflected on our consolidated balance sheet under U.S. GAAP (c)
 
5,034

 
474

 
899

 
892

 
2,769

Lease commitments (d)
 
1,288

 
190

 
304

 
164

 
630

Purchase obligations and other (e)
 
3,534

 
1,500

 
1,439

 
277

 
318

Uncertain tax positions (f)
 
80

 
80

 
—

 
—

 
—

(a)  
Long-term debt consists of senior unsecured notes, including fixed and floating rate, foreign currency denominated, and other notes.
(b)  
Our calculations of expected interest payments incorporate only current period assumptions for interest rates, foreign currency translation rates and hedging strategies (see Notes to Consolidated Financial Statements— Note 7. Financial Instruments ), and assume that interest is accrued through the maturity date or expiration of the related instrument.
(c)  
Includes expected payments relating to our unfunded U.S. supplemental (non-qualified) pension plans, postretirement plans and deferred compensation plans. Excludes amounts relating to our U.S. qualified pension plans and international pension plans, all of which have a substantial amount of plan assets, because the required funding obligations are not expected to be material and/or because such liabilities do not necessarily reflect future cash payments, as the impact of changes in economic conditions on the fair value of the pension plan assets and/or liabilities can be significant; however, we currently anticipate contributing approximately $343 million to these plans in 2013. Also excludes $3.9 billion of liabilities related to the fair value of derivative financial instruments, legal matters, employee terminations, environmental matters and other, most of which do not represent contractual obligations. See also our liquidity discussion above in this "Analysis of Financial Condition, Liquidity and Capital Resources" section, as well as the Notes to Consolidated Financial Statements— Note 3. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives, Note 7A. Financial Instruments: Selected Financial Assets and Liabilities, Note 11E. Pension and Postretirement Benefit Plans and Defined Contribution Plans: Cash Flows, and Note 17. Commitments and Contingencies.
(d)  
Includes operating and capital lease obligations.
(e)  
Includes agreements to purchase goods and services that are enforceable and legally binding and includes amounts relating to advertising, information technology services, employee benefit administration services, and potential milestone payments deemed reasonably likely to occur.
(f)  
Includes amounts reflected in Income taxes payable only. We are unable to predict the timing of tax settlements related to our noncurrent obligations for uncertain tax positions as tax audits can involve complex issues and the resolution of those issues may span multiple years, particularly if subject to negotiation or litigation.

2012 Financial Report    
 
 
43

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

The above table excludes amounts for potential milestone payments under collaboration, licensing or other arrangements, unless the payments are deemed reasonably likely to occur. Payments under these agreements generally become due and payable only upon the achievement of certain development, regulatory and/or commercialization milestones, which may span several years and which may never occur.

In 2013, we expect to spend approximately $1.5 billion on property, plant and equipment. Planned capital spending mostly represents investment to maintain existing facilities and capacity. We rely largely on operating cash flows to fund our capital investment needs. Due to our significant operating cash flows, we believe we have the ability to meet our capital investment needs and anticipate no delays to planned capital expenditures.

See "Subsequent Events" above for information about a January 2013 Zoetis debt offering. If we were to incorporate the 2013 Zoetis debt offering into our contractual obligations table above, total payments due would increase by $5.8 billion, representing expected principal and interest obligations of $223 million in 2013 through 2014, $629 million in 2015 through 2016 and $4.9 billion thereafter.

Off-Balance Sheet Arrangements

In the ordinary course of business and in connection with the sale of assets and businesses, we often indemnify our counterparties against certain liabilities that may arise in connection with a transaction or that are related to activities prior to a transaction. These indemnifications typically pertain to environmental, tax, employee and/or product-related matters, and patent-infringement claims. If the indemnified party were to make a successful claim pursuant to the terms of the indemnification, we would be required to reimburse the loss. These indemnifications generally are subject to threshold amounts, specified claim periods and other restrictions and limitations. Historically, we have not paid significant amounts under these provisions and, as of December 31, 2012 , recorded amounts for the estimated fair value of these indemnifications are not significant.

Certain of our co-promotion or license agreements give our licensors or partners the rights to negotiate for, or in some cases to obtain under certain financial conditions, co-promotion or other rights in specified countries with respect to certain of our products.

Share-Purchase Plans

On December 12, 2011, we announced that the Board of Directors had authorized a $10 billion share-purchase plan (the December 2011 Stock Purchase Plan). On November 1, 2012, we announced that the Board of Directors had authorized an additional $10 billion share-purchase plan, which became effective on November 30, 2012.

In 2012, we purchased approximately 349 million shares of our common stock for approximately $8.2 billion . In 2011, we purchased approximately 459 million shares of our common stock for approximately $9.0 billion . In 2010, we purchased approximately 61 million shares of our common stock for approximately $1.0 billion . After giving effect to share purchases through year-end 2012, our remaining share-purchase authorization is approximately $11.8 billion at December 31, 2012 .

Dividends on Common Stock

We paid dividends on our common stock of $6.5 billion in 2012 and $6.2 billion in 2011. In December 2012, our Board of Directors declared a first-quarter 2013 dividend of $0.24 per share, payable on March 5, 2013, to shareholders of record at the close of business on February 1, 2013. The first-quarter 2013 cash dividend will be our 297 th consecutive quarterly dividend.

Our current and projected dividends provide a return to shareholders while maintaining sufficient capital to invest in growing our businesses and increasing shareholder value. Our dividends are not restricted by debt covenants. While the dividend level remains a decision of Pfizer’s Board of Directors and will continue to be evaluated in the context of future business performance, we currently believe that we can support future annual dividend increases, barring significant unforeseen events.

NEW ACCOUNTING STANDARDS

Recently Adopted Accounting Standards

See Notes to Consolidated Financial Statements— Note 1B. Basis of Presentation and Significant Accounting Policies: Adoption of New Accounting Standards.

Recently Issued Accounting Standards, Not Adopted as of December 31, 2012

None

FORWARD-LOOKING INFORMATION AND FACTORS THAT MAY AFFECT FUTURE RESULTS

This report and other written or oral statements that we make from time to time contain forward-looking statements that set forth anticipated results based on management’s plans and assumptions. Such forward-looking statements involve substantial risks and uncertainties. We have tried, wherever possible, to identify such statements by using words such as “will,” “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,”

44
 
 
2012 Financial Report

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

“believe,” “target,” “forecast,” “goal”, “objective” and other words and terms of similar meaning or by using future dates in connection with any discussion of, among other things, our anticipated future operating or financial performance, business plans and prospects, in-line products and product candidates, strategic reviews, capital allocation, business-development plans and plans relating to share repurchases and dividends. In particular, these include statements relating to future actions, business plans and prospects, prospective products or product approvals, future performance or results of current and anticipated products, sales efforts, expenses, interest rates, foreign exchange rates, the outcome of contingencies, such as legal proceedings, plans relating to share repurchases and dividends, government regulation and financial results, including, in particular, the financial guidance set forth in the “Our Financial Guidance for 2013” section of this Financial Review and the anticipated costs and cost reductions set forth in the “ Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives ” section of this Financial Review. Among the factors that could cause actual results to differ materially from past and projected future results are the following:
•
the outcome of research and development activities including, without limitation, the ability to meet anticipated
clinical trial commencement and completion dates, regulatory submission and approval dates, and launch dates for
product candidates;
•
decisions by regulatory authorities regarding whether and when to approve our drug applications, as well as their
decisions regarding labeling, ingredients and other matters that could affect the availability or commercial potential of
our products;
•
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;
•
the success of external business-development activities;
•
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 of an abbreviated legal pathway to approve biosimilar products, which could subject
our biologic products to competition from biosimilar products in the U.S., with attendant competitive pressures, after
the expiration of any applicable exclusivity period and patent rights;
•
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;
•
the impact of the U.S. Budget Control Act of 2011 (the Budget Control Act) and the deficit-reduction actions to be
taken pursuant to the Budget Control Act in order to achieve the deficit-reduction targets provided for therein, and the
impact of any broader deficit-reduction efforts;
•
the possible failure of the U.S. federal government to suspend enforcement of the federal debt ceiling beyond May 18, 2013 or to increase the federal debt ceiling and any resulting inability of the federal government to satisfy its financial obligations, including under Medicare, Medicaid and other publicly funded or subsidized health programs;
•
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 or repeal of any of the provisions
thereof;
•
U.S. 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;
direct-to-consumer advertising and interactions with healthcare professionals; and 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;
•
legislation or regulatory action in markets outside the U.S. affecting pharmaceutical product pricing, reimbursement or
access, including, in particular, continued government-mandated price reductions for certain biopharmaceutical
products in certain European and emerging market countries;
•
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 and unstable governments and legal systems;
•
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;

2012 Financial Report    
 
 
45

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

•
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 protection, government investigations, consumer, commercial,
securities, antitrust, environmental and 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;
•
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;
•
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;
•
changes in U.S. generally accepted accounting principles;
•
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;
•
our ability to successfully implement any strategic alternative that we decide to pursue with regard to our remaining
approximately 80% ownership stake in Zoetis Inc. and the impact thereof; and
•
the impact of acquisitions, divestitures, restructurings, product recalls and 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.

We cannot guarantee that any forward-looking statement will be realized, although we believe we have been prudent in our plans and assumptions. Achievement of anticipated results is subject to substantial risks, uncertainties and inaccurate assumptions. Should known or unknown risks or uncertainties materialize or should underlying assumptions prove inaccurate, actual results could vary materially from past results and those anticipated, estimated or projected. Investors should bear this in mind as they consider forward-looking statements.

We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in our Form 10-Q, 8-K and 10-K reports and our other filings with the SEC.

Certain risks, uncertainties and assumptions are discussed here and under the heading entitled “Risk Factors” in Part I, Item 1A. of our Annual Report on Form 10-K for the year ended December 31, 2012, which will be filed in February 2013. We note these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider any such list to be a complete set of all potential risks or uncertainties.

This report includes discussion of certain clinical studies relating to various in-line products and/or product candidates. These studies typically are part of a larger body of clinical data relating to such products or product candidates, and the discussion herein should be considered in the context of the larger body of data. In addition, clinical trial data are subject to differing interpretations, and, even when we view data as sufficient to support the safety and/or effectiveness of a product candidate or a new indication for an in-line product, regulatory authorities may not share our views and may require additional data or may deny approval altogether.
Financial Risk Management

The overall objective of our financial risk management program is to seek to minimize the impact of foreign exchange rate movements and interest rate movements on our earnings. We manage these financial exposures through operational means and by using various financial instruments. These practices may change as economic conditions change.

46
 
 
2012 Financial Report

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

Foreign Exchange Risk

A significant portion of our revenues and earnings is 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.

Foreign exchange risk is also managed through the use of foreign currency forward-exchange contracts. These contracts are used to offset the potential earnings effects from mostly intercompany short-term foreign currency assets and liabilities that arise from operations. Foreign currency swaps are used to offset the potential earnings effects from foreign currency debt. We also use foreign currency forward-exchange contracts and foreign currency swaps to hedge the potential earnings effects from short-term and long-term foreign currency investments, third-party loans and intercompany loans.

In addition, under certain market conditions, we protect against possible declines in the reported net investments of our Japanese yen subsidiaries. In these cases, we use currency swaps or foreign currency debt.

Our financial instrument holdings at year-end were analyzed to determine their sensitivity to foreign exchange rate changes. The fair values of these instruments were determined using various methodologies. For additional details, see Notes to Consolidated Financial Statements— Note 7A. Financial Instruments: Selected Financial Assets and Liabilities. In this sensitivity analysis, we assumed that the change in one currency’s rate relative to the U.S. dollar would not have an effect on other currencies’ rates relative to the U.S. dollar; all other factors were held constant. If the dollar were to appreciate against all other currencies by 10%, the expected adverse impact on net income related to our financial instruments would be immaterial. For additional details, see Notes to Consolidated Financial Statements— Note 7E. Financial Instruments: Derivative Financial Instruments and Hedging Activities .

Interest Rate Risk

Our U.S. dollar interest-bearing investments, loans and borrowings are subject to interest rate risk. We also are subject to interest rate risk on euro debt, investments and currency swaps, U.K. debt and currency swaps, Japanese yen short and long-term borrowings and currency swaps. We seek to invest, loan and borrow primarily on a short-term or variable-rate basis. From time to time, depending on market conditions, we will fix interest rates either through entering into fixed-rate investments and borrowings or through the use of derivative financial instruments such as interest rate swaps. In light of current market conditions, our current borrowings are primarily on a long-term, fixed-rate basis. We may change this practice as market conditions change.

Our financial instrument holdings at year-end were analyzed to determine their sensitivity to interest rate changes. The fair values of these instruments were determined using various methodologies. For additional details, see Notes to Consolidated Financial Statements— Note 7A. Financial Instruments: Selected Financial Assets and Liabilities . In this sensitivity analysis, we used a one hundred basis point parallel shift in the interest rate curve for all maturities and for all instruments; all other factors were held constant. If there were a one hundred basis point decrease in interest rates, the expected adverse impact on net income related to our financial instruments would be immaterial.

Contingencies

Legal Matters

We and certain of our subsidiaries are subject to numerous contingencies arising in the ordinary course of business, such as patent litigation, product liability and other product-related litigation, commercial litigation, environmental claims and proceedings, government investigations and guarantees and indemnifications (see Notes to Consolidated Financial Statements— Note 17. Commitments and Contingencies).

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

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

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


2012 Financial Report    
 
 
47

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

Tax Matters

We and certain of our subsidiaries are subject to numerous contingencies arising in the ordinary course of business for tax matters (see Notes to Consolidated Financial Statements— Note 5D. Tax Matters: Tax Contingencies).

We account for income tax contingencies using a benefit recognition model. If our initial assessment fails to result in the recognition of a tax benefit, we regularly monitor our position and subsequently recognize the tax benefit: (i) if there are changes in tax law, analogous case law or there is new information that sufficiently raise the likelihood of prevailing on the technical merits of the position to more likely than not; (ii) if the statute of limitations expires; or (iii) if there is a completion of an audit resulting in a favorable settlement of that tax year with the appropriate agency. We regularly re-evaluate our tax positions based on the results of audits of federal, state and foreign income tax filings, statute of limitations expirations, changes in tax law or receipt of new information that would either increase or decrease the technical merits of a position relative to the “more-likely-than-not” standard.

Our assessments are based on estimates and assumptions that have been deemed reasonable by management, but our estimates of unrecognized tax benefits and potential tax benefits may not be representative of actual outcomes, and variation from such estimates could materially affect our financial statements in the period of settlement or when the statutes of limitations expire, as we treat these events as discrete items in the period of resolution. Finalizing audits with the relevant taxing authorities can include formal administrative and legal proceedings, and, as a result, it is difficult to estimate the timing and range of possible changes related to our uncertain tax positions, and such changes could be significant.

48
 
 
2012 Financial Report

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

Management’s Report
We prepared and are responsible for the financial statements that appear in our 2012 Financial Report. These financial statements are in conformity with accounting principles generally accepted in the United States of America and, therefore, include amounts based on informed judgments and estimates. We also accept responsibility for the preparation of other financial information that is included in this document.
Report on Internal Control Over Financial Reporting
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America. The Company’s internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2012. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework. Based on our assessment and those criteria, management believes that the Company maintained effective internal control over financial reporting as of December 31, 2012.
The Company’s independent auditors have issued their auditors’ report on the Company’s internal control over financial reporting. That report appears in our 2012 Financial Report under the heading, Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting.

 
 
 
Ian Read
 
 
Chairman and Chief Executive Officer
 
 
 
Frank D’Amelio
 
Loretta Cangialosi
Principal Financial Officer
 
Principal Accounting Officer
 
 
 
February 28, 2013
 
 


2012 Financial Report    
 
 
49

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

The Audit Committee reviews the Company’s financial reporting process on behalf of the Board of Directors. Management has the primary responsibility for the financial statements and the reporting process, including the system of internal controls.
In this context, the Committee has met and held discussions with management and the independent registered public accounting firm regarding the fair and complete presentation of the Company’s results and the assessment of the Company’s internal control over financial reporting. The Committee has discussed significant accounting policies applied by the Company in its financial statements, as well as alternative treatments. Management has represented to the Committee that the Company’s consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America, and the Committee has reviewed and discussed the consolidated financial statements with management and the independent registered public accounting firm. The Committee has discussed with the independent registered public accounting firm matters required to be discussed under applicable Public Company Accounting Oversight Board standards.
In addition, the Committee has reviewed and discussed with the independent registered public accounting firm the auditor’s independence from the Company and its management. As part of that review, the Committee has received the written disclosures and the letter required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the Audit Committee concerning independence, and the Committee has discussed the independent registered public accounting firm’s independence from the Company.
The Committee also has considered whether the independent registered public accounting firm’s provision of non-audit services to the Company is compatible with the auditor’s independence. The Committee has concluded that the independent registered public accounting firm is independent from the Company and its management.
As part of its responsibilities for oversight of the Company’s Enterprise Risk Management process, the Committee has reviewed and discussed Company policies with respect to risk assessment and risk management, including discussions of individual risk areas, as well as an annual summary of the overall process.
The Committee has discussed with the Company’s Internal Audit Department and independent registered public accounting firm the overall scope of and plans for their respective audits. The Committee meets with the Chief Internal Auditor, Chief Compliance and Risk Officer and representatives of the independent registered public accounting firm, in regular and executive sessions to discuss the results of their examinations, the evaluations of the Company’s internal controls, and the overall quality of the Company’s financial reporting and compliance programs.
In reliance on the reviews and discussions referred to above, the Committee has recommended to the Board of Directors, and the Board has approved, that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012, for filing with the SEC. The Committee has selected, and the Board of Directors has ratified, the selection of the Company’s independent registered public accounting firm for 2013.
 
W. Don Cornwell
Chair, Audit Committee
 
February 28, 2013
The Audit Committee Report does not constitute soliciting material, and shall not be deemed to be filed or incorporated by reference into any Company filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically incorporates the Audit Committee Report by reference therein.
 


50
 
 
2012 Financial Report

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

The Board of Directors and Shareholders of Pfizer Inc.:
We have audited the accompanying consolidated balance sheets of Pfizer Inc. and Subsidiary Companies as of December 31, 2012 and 2011, and the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the years in the three-year period ended December 31, 2012. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Pfizer Inc. and Subsidiary Companies as of December 31, 2012 and 2011, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2012, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Pfizer Inc. and Subsidiary Companies’ internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 28, 2013 expressed an unqualified opinion on the effective operation of the Company’s internal control over financial reporting.
 
 
KPMG LLP
New York, New York
 
February 28, 2013


2012 Financial Report    
 
 
51

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

The Board of Directors and Shareholders of Pfizer Inc.:
We have audited the internal control over financial reporting of Pfizer Inc. and Subsidiary Companies as of December 31, 2012, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Pfizer Inc. and Subsidiary Companies’ management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Pfizer Inc. and Subsidiary Companies maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Pfizer Inc. and Subsidiary Companies as of December 31, 2012 and 2011, and the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the years in the three-year period ended December 31, 2012, and our report dated February 28, 2013 expressed an unqualified opinion on those consolidated financial statements.
 
 
KPMG LLP
New York, New York
 
February 28, 2013

 



52
 
 
2012 Financial Report

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

 
 
Year Ended December 31,
(MILLIONS, EXCEPT PER COMMON SHARE DATA)
 
2012

 
2011

 
2010

Revenues
 
$
58,986

 
$
65,259

 
$
65,165

Costs and expenses:
 
 

 
 

 
 
Cost of sales (a)
 
11,334

 
14,076

 
14,788

Selling, informational and administrative expenses (a)
 
16,616

 
18,832

 
18,973

Research and development expenses (a)
 
7,870

 
9,074

 
9,483

Amortization of intangible assets
 
5,175

 
5,544

 
5,364

Restructuring charges and certain acquisition-related costs
 
1,880

 
2,930

 
3,145

Other deductions––net
 
4,031

 
2,499

 
3,941

Income from continuing operations before provision for taxes on income
 
12,080

 
12,304

 
9,471

Provision for taxes on income
 
2,562

 
3,909

 
1,153

Income from continuing operations
 
9,518

 
8,395

 
8,318

Discontinued operations:
 
 
 
 
 
 
Income/(loss) from discontinued operations––net of tax
 
297

 
350

 
(19
)
Gain/(loss) on sale of discontinued operations––net of tax
 
4,783

 
1,304

 
(11
)
Discontinued operations––net of tax
 
5,080

 
1,654

 
(30
)
Net income before allocation to noncontrolling interests
 
14,598

 
10,049

 
8,288

Less: Net income attributable to noncontrolling interests
 
28

 
40

 
31

Net income attributable to Pfizer Inc.
 
$
14,570

 
$
10,009

 
$
8,257

 
 
 
 
 
 
 
Earnings per common share––basic ( b)
 
 

 
 

 
 

Income from continuing operations attributable to Pfizer Inc. common shareholders
 
$
1.27

 
$
1.07

 
$
1.03

Discontinued operations––net of tax
 
0.68

 
0.21

 
—

Net income attributable to Pfizer Inc. common shareholders
 
$
1.96

 
$
1.28

 
$
1.03

Earnings per common share––diluted (b)
 
 

 
 

 


Income from continuing operations attributable to Pfizer Inc. common shareholders
 
$
1.26

 
$
1.06

 
$
1.03

Discontinued operations––net of tax
 
0.68

 
0.21

 
—

Net income attributable to Pfizer Inc. common shareholders
 
$
1.94

 
$
1.27

 
$
1.02

 
 
 
 
 
 
 
Weighted-average shares––basic
 
7,442

 
7,817

 
8,036

Weighted-average shares––diluted
 
7,508

 
7,870

 
8,074

 
 
 
 
 
 
 
Cash dividends paid per common share
 
$
0.88

 
$
0.80

 
$
0.72

(a)  
Exclusive of amortization of intangible assets, except as disclosed in Note 1K. Basis of Presentation and Significant Accounting Policies: Amortization of Intangible Assets, Depreciation and Certain Long-Lived Assets.
(b)  
EPS amounts may not add due to rounding.

See Notes to Consolidated Financial Statements, which are an integral part of these statements.

2012 Financial Report    
 
 
53

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

 
 
Year Ended December 31,
(MILLIONS OF DOLLARS)
 
2012

 
2011

 
2010

Net income before allocation to noncontrolling interests
 
$
14,598

 
$
10,049

 
$
8,288

 
 
 

 
 

 
 

Foreign currency translation adjustments
 
$
(811
)
 
$
796

 
$
(3,534
)
Reclassification adjustments (a)
 
(207
)
 
(127
)
 
(7
)
 
 
(1,018
)
 
669

 
(3,541
)
Unrealized holding gains/(losses) on derivative financial instruments
 
684

 
(502
)
 
(1,043
)
Reclassification adjustments for realized (gains)/losses (b)  
 
(263
)
 
239

 
702

 
 
421

 
(263
)
 
(341
)
Unrealized holding gains/(losses) on available-for-sale securities
 
135

 
(143
)
 
7

Reclassification adjustments for realized (gains)/losses (b)  
 
3

 
15

 
(141
)
 
 
138

 
(128
)
 
(134
)
Benefit plans: Actuarial losses, net
 
(2,232
)
 
(2,459
)
 
(1,426
)
Reclassification adjustments related to amortization (c)  
 
473

 
284

 
262

Reclassification adjustments related to curtailments and settlements, net (c)
 
317

 
355

 
266

Other
 
22

 
(100
)
 
88

 
 
(1,420
)
 
(1,920
)
 
(810
)
Benefit plans: Prior service credits and other
 
25

 
106

 
550

Reclassification adjustments related to amortization (c)  
 
(69
)
 
(69
)
 
(42
)
Reclassification adjustments related to curtailments and settlements, net (c)
 
(130
)
 
(91
)
 
(49
)
Other
 
(3
)
 
3

 
5

 
 
(177
)
 
(51
)
 
464

Other comprehensive loss, before tax
 
(2,056
)
 
(1,693
)
 
(4,362
)
Tax benefit on other comprehensive loss (d)  
 
(225
)
 
(959
)
 
(375
)
Other comprehensive loss before allocation to noncontrolling interests
 
$
(1,831
)
 
$
(734
)
 
$
(3,987
)
 
 
 
 
 
 
 
 
 
 

 
 

 
 

Comprehensive income before allocation to noncontrolling interests
 
$
12,767

 
$
9,315

 
$
4,301

Less: Comprehensive income/(loss) attributable to noncontrolling interests
 
21

 
(5
)
 
36

Comprehensive income attributable to Pfizer Inc.
 
$
12,746

 
$
9,320

 
$
4,265

(a)  
For 2012 and 2011, reclassified to Gain/(loss) on sale of discontinued operations—net of tax .
(b)  
Reclassified into Other deductions—net in the consolidated statements of income.
(c)  
Generally reclassified into Cost of sales, Selling, informational and administrative expenses, and/or Research and development expenses , as appropriate, in the consolidated statements of income.
(d)  
See Note 5E. Tax Matters: Taxes on Items of Other Comprehensive Income/(Loss).

See Notes to Consolidated Financial Statements, which are an integral part of these statements.


54
 
 
2012 Financial Report

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

 
 
As of December 31,
(MILLIONS, EXCEPT PREFERRED STOCK ISSUED AND PER COMMON SHARE DATA)
 
2012

 
2011


 

 

Assets
 

 

Cash and cash equivalents
 
$
10,389

 
$
3,182

Short-term investments
 
22,319

 
23,270

Accounts receivable, less allowance for doubtful accounts, 2012—$374; 2011—$226
 
12,378

 
13,058

Inventories
 
7,063

 
6,610

Taxes and other current assets
 
9,196

 
9,380

Assets of discontinued operations and other assets held for sale
 
70

 
5,317

Total current assets
 
61,415

 
60,817

Long-term investments
 
14,149

 
9,814

Property, plant and equipment, less accumulated depreciation
 
14,461

 
15,921

Goodwill
 
44,672

 
44,569

Identifiable intangible assets, less accumulated amortization
 
46,013

 
51,184

Taxes and other noncurrent assets
 
5,088

 
5,697

Total assets
 
$
185,798

 
$
188,002

 
 
 
 
 
Liabilities and Equity
 
 

 
 

Short-term borrowings, including current portion of long-term debt: 2012—$2,449; 2011—$6
 
$
6,424

 
$
4,016

Accounts payable
 
4,264

 
3,678

Dividends payable
 
1,734

 
1,796

Income taxes payable
 
1,010

 
1,009

Accrued compensation and related items
 
2,046

 
2,120

Other current liabilities
 
13,141

 
15,066

Liabilities of discontinued operations
 
—

 
1,224

Total current liabilities
 
28,619

 
28,909

 
 
 
 
 
Long-term debt
 
31,036

 
34,926

Pension benefit obligations
 
7,830

 
6,355

Postretirement benefit obligations
 
3,493

 
3,344

Noncurrent deferred tax liabilities
 
21,593

 
18,861

Other taxes payable
 
6,610

 
6,886

Other noncurrent liabilities
 
4,939

 
6,100

Total liabilities
 
104,120

 
105,381

 
 
 
 
 
Commitments and Contingencies
 


 


 
 
 
 
 
Preferred stock, without par value, at stated value; 27 shares authorized; issued:
    2012—967; 2011—1,112
 
39

 
45

Common stock, $0.05 par value; 12,000 shares authorized; issued: 2012—8,956;
    2011—8,902
 
448

 
445

Additional paid-in capital
 
72,608

 
71,423

Employee benefit trusts
 
(1
)
 
(3
)
Treasury stock, shares at cost: 2012—1,680; 2011—1,327
 
(40,121
)
 
(31,801
)
Retained earnings
 
54,240

 
46,210

Accumulated other comprehensive loss
 
(5,953
)
 
(4,129
)
Total Pfizer Inc. shareholders’ equity
 
81,260

 
82,190

Equity attributable to noncontrolling interests
 
418

 
431

Total equity
 
81,678

 
82,621

Total liabilities and equity
 
$
185,798

 
$
188,002

 
See Notes to Consolidated Financial Statements, which are an integral part of these statements.


2012 Financial Report    
 
 
55

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

 
 
PFIZER INC. SHAREHOLDERS
 
 
Preferred Stock
 
Common Stock
 
 
 
Employee Benefit Trusts
 
Treasury Stock
 
 
 
 
 
 
 
(MILLIONS, 
EXCEPT PREFERRED
SHARES)
 
Shares

 
Stated Value

 
Shares

 
Par Value

 
Add’l
Paid-In
Capital

 
Shares

 
Fair Value

 
Shares

 
Cost

 
Retained Earnings

 
Accum.
Other
Comp. Inc./
(Loss)

 
Share -
holders’
Equity

 
Non-controlling Interests

 
Total
Equity

Balance, January 1, 2010
 
1,511

 
$
61

 
8,869

 
$
443

 
$
70,497

 
(19
)
 
$
(333
)
 
(799
)
 
$
(21,632
)
 
$
40,426

 
$
552

 
$
90,014

 
$
432

 
$
90,446

Net income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
8,257

 
 
 
8,257

 
31

 
8,288

Other comprehensive
loss, net of tax
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(3,992
)
 
(3,992
)
 
5

 
(3,987
)
Cash dividends declared:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(5,964
)
 
 
 
(5,964
)
 
 
 
(5,964
)
Preferred stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(3
)
 
 
 
(3
)
 
 
 
(3
)
Noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(17
)
 
(17
)
Share-based payment transactions
 
 
 
 
 
2

 
—

 
209

 
1

 
14

 
(5
)
 
(82
)
 
 
 
 
 
141

 
 
 
141

Purchases of common stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(61
)
 
(1,000
)
 
 
 
 
 
(1,000
)
 
 
 
(1,000
)
Employee benefit trust transactions—net
 
 
 
 
 
 
 
 
 
(19
)
 
16

 
292

 
 
 
 
 
 
 
 
 
273

 
 
 
273

Preferred stock conversions and redemptions
 
(232
)
 
(9
)
 
 
 
 
 
(1
)
 
 
 
 
 
—

 
2

 
 
 
 
 
(8
)
 
 
 
(8
)
Other
 
 
 
 
 
5

 
1

 
74

 
2

 
20

 
1

 
—

 
—

 
 
 
95

 
1

 
96

Balance, December 31, 2010
 
1,279

 
52

 
8,876

 
444

 
70,760

 
—

 
(7
)
 
(864
)
 
(22,712
)
 
42,716

 
(3,440
)
 
87,813

 
452

 
88,265

Net income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10,009

 
 
 
10,009

 
40

 
10,049

Other comprehensive
loss, net of tax
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(689
)
 
(689
)
 
(45
)
 
(734
)
Cash dividends declared:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(6,512
)
 
 
 
(6,512
)
 
 
 
(6,512
)
Preferred stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(3
)
 
 
 
(3
)
 
 
 
(3
)
Noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(19
)
 
(19
)
Share-based payment transactions
 
 
 
 
 
23

 
1

 
594

 
 
 
 
 
(5
)
 
(90
)
 
 
 
 
 
505

 
 
 
505

Purchases of common stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(459
)
 
(9,000
)
 
 
 
 
 
(9,000
)
 
 
 
(9,000
)
Preferred stock conversions and redemptions
 
(167
)
 
(7
)
 
 
 
 
 
(2
)
 
 
 
 
 
—

 
1

 
 
 
 
 
(8
)
 
 
 
(8
)
Other
 
 
 
 
 
3

 
—

 
71

 
—

 
4

 
1

 
—

 
—

 
 
 
75

 
3

 
78

Balance, December 31, 2011
 
1,112

 
45

 
8,902

 
445

 
71,423

 
—

 
(3
)
 
(1,327
)
 
(31,801
)
 
46,210

 
(4,129
)
 
82,190

 
431

 
82,621

Net income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
14,570

 
 
 
14,570

 
28

 
14,598

Other comprehensive loss, net of tax
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1,824
)
 
(1,824
)
 
(7
)
 
(1,831
)
Cash dividends declared:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(6,537
)
 
 
 
(6,537
)
 
 
 
(6,537
)
Preferred stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(3
)
 
 
 
(3
)
 
 
 
(3
)
Noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(9
)
 
(9
)
Share-based payment transactions
 
 
 
 
 
52

 
3

 
1,150

 
 
 
 
 
(4
)
 
(97
)
 
 
 
 
 
1,056

 
 
 
1,056

Purchases of common stock
 
 
 
 
 
 
 
 
 

 
 
 
 
 
(349
)
 
(8,228
)
 
 
 
 
 
(8,228
)
 
 
 
(8,228
)
Preferred stock conversions and redemptions
 
(145
)
 
(6
)
 
 
 
 
 
(3
)
 
 
 
 
 
—

 
1

 
 
 
 
 
(8
)
 
 
 
(8
)
Other
 
 
 
 
 
2

 
—

 
38

 
—

 
2

 
—

 
4

 
—

 
 
 
44

 
(25
)
 
19

Balance, December 31, 2012
 
967

 
$
39

 
8,956

 
$
448

 
$
72,608

 
—

 
$
(1
)
 
(1,680
)
 
$
(40,121
)
 
$
54,240

 
$
(5,953
)
 
$
81,260

 
$
418

 
$
81,678

See Notes to Consolidated Financial Statements, which are an integral part of these statements.


56
 
 
2012 Financial Report

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

 
 
Year Ended December 31,
(MILLIONS)
 
2012

 
2011

 
2010

 
 
 
 
 
 
 
Operating Activities
 
 
 
 
 
 
Net income before allocation to noncontrolling interests
 
$
14,598

 
$
10,049

 
$
8,288

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

 
 

 
 
Depreciation and amortization
 
7,611

 
8,907

 
8,399

Asset write-offs and impairment charges
 
1,299

 
1,198

 
3,486

Share-based compensation expense
 
481

 
419

 
405

(Gain)/loss on sale of discontinued operations
 
(7,123
)
 
(1,688
)
 
11

Deferred taxes from continuing operations
 
739

 
307

 
2,109

Deferred taxes from discontinued operations
 
1,459

 
147

 
(156
)
Benefit plan contributions (in excess of)/less than expense
 
135

 
(1,769
)
 
(677
)
Other non-cash adjustments, net
 
(203
)
 
(172
)
 
(49
)
Other changes in assets and liabilities, net of acquisitions and divestitures:
 
 
 
 
 
 
Accounts receivable
 
275

 
(66
)
 
(608
)
Inventories
 
(631
)
 
1,084

 
2,917

Other assets
 
83

 
701

 
(818
)
Accounts payable
 
579

 
(367
)
 
(301
)
Other liabilities
 
(3,438
)
 
1,508

 
1,114

Other tax accounts, net
 
1,190

 
(18
)
 
(12,666
)
Net cash provided by operating activities
 
17,054

 
20,240

 
11,454

 
 
 
 
 
 
 
Investing Activities
 
 

 
 

 
 
Purchases of property, plant and equipment
 
(1,327
)
 
(1,660
)
 
(1,513
)
Purchases of short-term investments
 
(24,018
)
 
(18,447
)
 
(11,082
)
Proceeds from redemptions and sales of short-term investments
 
25,302

 
14,176

 
5,699

Net proceeds from redemptions and sales of short-term investments with
original maturities of 90 days or less
 
1,459

 
10,874

 
5,950

Purchases of long-term investments
 
(11,145
)
 
(4,620
)
 
(4,128
)
Proceeds from redemptions and sales of long-term investments
 
4,990

 
2,147

 
4,737

Acquisitions, net of cash acquired
 
(1,050
)
 
(3,282
)
 
(273
)
Proceeds from sale of businesses
 
11,850

 
2,376

 
—

Other investing activities
 
93

 
279

 
118

Net cash provided by/(used in) investing activities
 
6,154

 
1,843

 
(492
)
 
 
 
 
 
 
 
Financing Activities
 
 

 
 

 
 
Proceeds from short-term borrowings
 
7,995

 
12,810

 
6,400

Principal payments on short-term borrowings
 
(3
)
 
(3,826
)
 
(9,249
)
Net payments on short-term borrowings with original maturities of 90 days or less
 
(8,204
)
 
(7,540
)
 
(1,297
)
Principal payments on long-term debt
 
(1,513
)
 
(6,986
)
 
(6
)
Purchases of common stock
 
(8,228
)
 
(9,000
)
 
(1,000
)
Cash dividends paid
 
(6,534
)
 
(6,234
)
 
(6,088
)
Other financing activities
 
488

 
169

 
66

Net cash used in financing activities
 
(15,999
)
 
(20,607
)
 
(11,174
)
Effect of exchange-rate changes on cash and cash equivalents
 
(2
)
 
(29
)
 
(31
)
Net increase/(decrease) in cash and cash equivalents
 
7,207

 
1,447

 
(243
)
Cash and cash equivalents, beginning
 
3,182

 
1,735

 
1,978

 
 
 
 
 
 
 
Cash and cash equivalents, ending
 
$
10,389

 
$
3,182

 
$
1,735

 
 
 
 
 
 
 
Supplemental Cash Flow Information
 
 

 
 

 
 
Cash paid during the period for:
 
 

 
 

 
 
Income taxes
 
$
2,430

 
$
2,938

 
$
11,775

Interest
 
1,873

 
2,085

 
2,155


See Notes to Consolidated Financial Statements, which are an integral part of these statements.

2012 Financial Report    
 
 
57

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 


Note 1. Basis of Presentation and Significant Accounting Policies

A. Basis of Presentation

The consolidated financial statements include our parent company and all subsidiaries, and are prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). The decision whether or not to consolidate an entity requires consideration of majority voting interests, as well as effective economic or other control over the entity. Typically, we do not seek control by means other than voting interests. For subsidiaries operating outside the United States (U.S.), the financial information is included as of and for the year ended November 30 for each year presented. Substantially all unremitted earnings of international subsidiaries are free of legal and contractual restrictions. All significant transactions among our businesses have been eliminated.

We have made certain reclassification adjustments to conform prior-period amounts to the current presentation, primarily related to certain inventories (see Note 8. Inventories ) and certain investments (see Note 7. Financial Instruments). As of the third quarter of 2012 , the Animal Health and Consumer Healthcare business units are no longer managed as a single operating segment.

Pfizer previously announced its intention to initiate an initial public offering (IPO) of up to a 19.8% stake in Zoetis Inc. (Zoetis), a subsidiary of Pfizer, and on February 6, 2013, an IPO of Zoetis was completed, pursuant to which we sold 99.015 million shares of Zoetis, which represented approximately 19.8% of the total outstanding Zoetis shares. For additional information, see Note 19A. Subsequent Events: Zoetis Debt Offering and Initial Public Offering .

On November 30, 2012, we completed the sale of our Nutrition business to Nestlé and recognized a gain related to the sale of this business in Gain/(loss) on sale of discontinued operations––net of tax in the consolidated statement of income for the year ended December 31, 2012. The operating results of this business are reported as Income/(loss) from discontinued operations––net of tax in the consolidated statements of income for all periods presented. In addition, in the consolidated balance sheet as of December 31, 2011, the assets and liabilities associated with this business are classified as Assets of discontinued operations and other assets held for sale and Liabilities of discontinued operations, as appropriate. For additional information, see Note 2B. Acquisitions, Divestitures, Collaborative Arrangements and Equity-Method Investments: Divestitures . Prior period amounts have been restated.

On August 1, 2011, we completed the sale of our Capsugel business and recognized a gain related to the sale of this business in G ain/(loss) on sale of discontinued operations––net of tax in the consolidated statement of income for the year ended December 31, 2011. The operating results of this business are reported as Income/(loss) from discontinued operations––net of tax in the consolidated statements of income for the years ended December 31, 2011 and 2010. For additional information, see Note 2B. Acquisitions, Divestitures, Collaborative Arrangements and Equity-Method Investments: Divestitures .

On January 31, 2011, we acquired King Pharmaceuticals, Inc. (King). Commencing from the acquisition date, our financial statements reflect the assets, liabilities, operating results and cash flows of King, and, in accordance with our domestic and international reporting periods, our consolidated financial statements for the year ended December 31, 2011 reflect approximately 11 months of King’s U.S. operations and approximately 10 months of King’s international operations. For additional information, see Note 2A. Acquisitions, Divestitures, Collaborative Arrangements and Equity-Method Investments: Acquisitions .

B. Adoption of New Accounting Standards

The provisions of the following new accounting and disclosure standards were adopted as of January 1, 2012:
•
Presentation of comprehensive income in financial statements. As a result of adopting this new standard, we have presented separate Consolidated Statements of Comprehensive Income.
•
An amendment to the guidelines on the measurement and disclosure of fair value that is consistent between U.S. GAAP and International Financial Reporting Standards. The adoption of this new standard did not have a significant impact on our financial statements.

C. Estimates and Assumptions

In preparing the consolidated financial statements, we use certain estimates and assumptions that affect reported amounts and disclosures, including amounts recorded and disclosed in connection with acquisitions. These estimates and underlying assumptions can impact all elements of our financial statements. For example, in the consolidated statements of income, estimates are used when accounting for deductions from revenues (such as rebates, chargebacks, sales returns and sales allowances), determining the cost of inventory that is sold, allocating cost in the form of depreciation and amortization, and estimating restructuring charges and the impact of contingencies. On the consolidated balance sheets, estimates are used in determining the valuation and recoverability of assets, such as accounts receivables, investments, inventories, fixed assets and intangible assets (including acquired in-process research & development (IPR&D) assets and goodwill), and estimates are used in determining the reported amounts of liabilities, such as taxes payable, benefit obligations, accruals for contingencies, rebates, chargebacks, sales returns and sales allowances, and restructuring reserves, all of which also impact the consolidated statements of income.

Our estimates are often based on complex judgments, probabilities and assumptions that we believe to be reasonable but that can be inherently uncertain and unpredictable. If our estimates and assumptions are not representative of actual outcomes, our results could be materially impacted.

58
 
 
2012 Financial Report

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

As future events and their effects cannot be determined with precision, our estimates and assumptions may prove to be incomplete or inaccurate, or unanticipated events and circumstances may occur that might cause us to change those estimates and assumptions. We are subject to risks and uncertainties that may cause actual results to differ from estimated amounts, such as changes in the healthcare environment, competition, litigation, legislation and regulations. We regularly evaluate our estimates and assumptions using historical experience and expectations about the future. We adjust our estimates and assumptions when facts and circumstances indicate the need for change. Those changes generally will be reflected in our financial statements on a prospective basis unless they are required to be treated retrospectively under relevant accounting standards. It is possible that other professionals, applying reasonable judgment to the same facts and circumstances, could develop and support a range of alternative estimated amounts.

D. Acquisitions

Our consolidated financial statements include the operations of an acquired business after the completion of the acquisition. We account for acquired businesses using the acquisition method of accounting, which requires, among other things, that most assets acquired and liabilities assumed be recognized at their estimated fair values as of the acquisition date and that the fair value of acquired IPR&D be recorded on the balance sheet. Transaction costs are expensed as incurred. Any excess of the consideration transferred over the assigned values of the net assets acquired is recorded as goodwill. When we acquire net assets that do not constitute a business as defined in U.S. GAAP, no goodwill is recognized and acquired IPR&D is expensed.

Contingent consideration in business acquisitions is included as part of the acquisition cost and is recognized at fair value as of the acquisition date. Fair value is generally estimated by using a probability-weighted income approach. Any liability resulting from contingent consideration is remeasured to fair value at each reporting date until the contingency is resolved. These changes in fair value are recognized in earnings in Other deductions––net .

Amounts recorded for acquisitions can result from a complex series of judgments about future events and uncertainties and can rely heavily on estimates and assumptions. For information about the risks associated with estimates and assumptions, see Note 1C. Basis of Presentation and Significant Accounting Policies: Estimates and Assumptions .

E. Fair Value

We are often required to measure certain assets and liabilities at fair value, either upon initial recognition or for subsequent accounting or reporting. For example, we use fair value extensively in the initial recognition of net assets acquired in a business combination and when accounting for and reporting on certain financial instruments. We estimate fair value using an exit price approach, which requires, among other things, that we determine the price that would be received to sell an asset or paid to transfer a liability in an orderly market. The determination of an exit price is considered from the perspective of market participants, considering the highest and best use of non-financial assets and, for liabilities, assuming that the risk of non-performance will be the same before and after the transfer.

When estimating fair value, depending on the nature and complexity of the asset or liability, we may use one or all of the following approaches:
• Income approach, which is based on the present value of a future stream of net cash flows.
•
Market approach, which is based on market prices and other information from market transactions involving identical or comparable assets or liabilities.
•
Cost approach, which is based on the cost to acquire or construct comparable assets less an allowance for functional and/or economic obsolescence.

Our fair value methodologies depend on the following types of inputs:
•
Quoted prices for identical assets or liabilities in active markets (Level 1 inputs).
•
Quoted prices for similar assets or liabilities in active markets or quoted prices for identical or similar assets or liabilities in markets that are not active or are directly or indirectly observable (Level 2 inputs).
•
Unobservable inputs that reflect estimates and assumptions (Level 3 inputs).

A single estimate of fair value can result from a complex series of judgments about future events and uncertainties and can rely heavily on estimates and assumptions. For information about the risks associated with estimates and assumptions, see Note 1C. Basis of Presentation and Significant Accounting Policies: Estimates and Assumptions.

F. Foreign Currency Translation

For most of our international operations, local currencies have been determined to be the functional currencies. We translate functional currency assets and liabilities to their U.S. dollar equivalents at exchange rates in effect as of the balance sheet date and we translate functional currency income and expense amounts to their U.S. dollar equivalents at average exchange rates for the period. The U.S. dollar effects that arise from changing translation rates are recorded in Other comprehensive income/(loss) . The effects of converting non-functional currency assets and liabilities into the functional currency are recorded in Other deductions––net . For operations in highly inflationary economies, we translate monetary items at rates in effect as of the balance sheet date, with translation adjustments recorded in Other deductions––net , and we translate non-monetary items at historical rates.


2012 Financial Report    
 
 
59

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

G. Revenues

Revenue Recognition —We record revenues from product sales when the goods are shipped and title passes to the customer. At the time of sale, we also record estimates for a variety of sales deductions, such as sales rebates, discounts and incentives, and product returns. When we cannot reasonably estimate the amount of future product returns and/or other sales deductions, we record revenues when the risk of product return and/or additional sales deductions has been substantially eliminated. We record sales of certain of our vaccines to the U.S. government as part of the Pediatric Vaccine Stockpile program; these rules require that for fixed commitments made by the U.S. government, we record revenues when risk of ownership for the completed product has been passed to the U.S. government. There are no specific performance obligations associated with products sold under this program.

Deductions from Revenues–– As is typical in the biopharmaceutical industry, our gross product sales are subject to a variety of deductions that generally are estimated and recorded in the same period that the revenues are recognized and primarily represent rebates and discounts to government agencies, wholesalers, distributors and managed care organizations with respect to our biopharmaceutical products. These deductions represent estimates of the related obligations.

Specifically:
•
In the U.S., we record provisions for pharmaceutical Medicaid, Medicare and performance-based contract rebates based upon our experience ratio of rebates paid and actual prescriptions written during prior quarters. We apply the experience ratio to the respective period’s sales to determine the rebate accrual and related expense. This experience ratio is evaluated regularly to ensure that the historical trends are as current as practicable. In addition, to account for the impacts of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (together, U.S. Healthcare Legislation), we also consider the increase in minimum rebate and extension of Medicaid prescription drug rebates for drugs dispensed to enrollees. We estimate discounts on branded prescription drug sales to Medicare Part D participants in the Medicare “coverage gap,” also known as the “doughnut hole,” based on historical experience of beneficiary prescriptions and consideration of the utilization that is expected to result from the discount in the coverage gap. We evaluate this estimate regularly to ensure that the historical trends and future expectations are as current as practicable. For performance-based contract rebates, we also consider current contract terms, such as changes in formulary status and discount rates.
•
Outside the U.S., the majority of our pharmaceutical rebates, discounts and price reductions (collectively, sales allowances) are contractual or legislatively mandated and our estimates are based on actual invoiced sales within each period; both of these elements help to reduce the risk of variations in the estimation process. Some European countries base their rebates on the government’s unbudgeted pharmaceutical spending, and we use an estimated allocation factor (based on historical payments) and total revenues by country against our actual invoiced sales to project the expected level of reimbursement. We obtain third-party information that helps us to monitor the adequacy of these accruals.
•
Provisions for pharmaceutical chargebacks (primarily reimbursements to wholesalers for honoring contracted prices to third parties) closely approximate actual as we settle these deductions generally within two to five weeks of incurring the liability.
•
Provisions for pharmaceutical returns are based on a calculation for each market that incorporates the following, as appropriate: local returns policies and practices; returns as a percentage of sales; an understanding of the reasons for past returns; estimated shelf life by product; an estimate of the amount of time between shipment and return or lag time; and any other factors that could impact the estimate of future returns, such as loss of exclusivity, product recalls or a changing competitive environment. Generally, returned products are destroyed, and customers are refunded the sales price in the form of a credit.
•
We record sales incentives as a reduction of revenues at the time the related revenues are recorded or when the incentive is offered, whichever is later. We estimate the cost of our sales incentives based on our historical experience with similar incentives programs.

Our accruals for Medicaid rebates, Medicare rebates, performance-based contract rebates, sales allowances and chargebacks were $3.8 billion as of December 31, 2012, and $4.8 billion as of December 31, 2011, and substantially all are included in Other current liabilities .

Amounts recorded for sales deductions can result from a complex series of judgments about future events and uncertainties and can rely heavily on estimates and assumptions. For information about the risks associated with estimates and assumptions, see Note 1C. Basis of Presentation and Significant Accounting Policies: Estimates and Assumptions.

Taxes collected from customers relating to product sales and remitted to governmental authorities are presented on a net basis; that is, they are excluded from Revenues .

Collaborative Arrangements— Payments to and from our collaboration partners are presented in our consolidated statements of income based on the nature of the arrangement (including its contractual terms), the nature of the payments and applicable accounting guidance. Under co-promotion agreements, we record the amounts received from our partners as alliance revenues, a component of Revenues, when our co-promotion partners are the principal in the transaction and we receive a share of their net sales or profits. Alliance revenues are recorded when our co-promotion partners ship the product and title passes to their customers. The related expenses for selling and marketing these products are included in Selling, informational and administrative expenses. In collaborative arrangements where we manufacture a product for our partner, we record revenues when our partner sells the product and title passes to its customer. All royalty payments to collaboration partners are included in Cost of sales .
 

60
 
 
2012 Financial Report

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

H. Cost of Sales and Inventories

We carry inventories at the lower of cost or market. The cost of finished goods, work in process and raw materials is determined using average actual cost. We regularly review our inventories for impairment and reserves are established when necessary.

I. Selling, Informational and Administrative Expenses

Selling, informational and administrative costs are expensed as incurred. Among other things, these expenses include the internal and external costs of marketing, advertising, shipping and handling, information technology and legal defense.

Advertising expenses totaled approximately $2.9 billion in 2012, $3.7 billion in 2011 and $3.8 billion in 2010. Production costs are expensed as incurred and the costs of radio time, television time and space in publications are expensed when the related advertising occurs.

J. Research and Development Expenses

Research and development (R&D) costs are expensed as incurred. These expenses include the costs of our proprietary R&D efforts, as well as costs incurred in connection with certain licensing arrangements. Before a compound receives regulatory approval, we record upfront and milestone payments made by us to third parties under licensing arrangements as expense. Upfront payments are recorded when incurred, and milestone payments are recorded when the specific milestone has been achieved. Once a compound receives regulatory approval , we record any milestone payments in Identifiable intangible assets, less accumulated amortization and, unless the asset is determined to have an indefinite life, we amortize the payments on a straight-line basis over the remaining agreement term or the expected product life cycle, whichever is shorter.

K. Amortization of Intangible Assets, Depreciation and Certain Long-Lived Assets

Long-lived assets include:
•
Goodwill —Goodwill represents the excess of the consideration transferred for an acquired business over the assigned values of its net assets. Goodwill is not amortized.
•
Identifiable intangible assets, less accumulated amortization —These acquired assets are recorded at cost. Intangible assets with finite lives are amortized on a straight-line basis over their estimated useful lives. Intangible assets with indefinite lives that are associated with marketed products are not amortized until a useful life can be determined. Intangible assets associated with IPR&D projects are not amortized until approval is obtained in a major market, typically either the U.S. or the European Union (EU), or in a series of other countries, subject to certain specified conditions and management judgment. The useful life of an amortizing asset generally is determined by identifying the period in which substantially all of the cash flows are expected to be generated.
•
Property, plant and equipment, less accumulated depreciation —These assets are recorded at cost and are increased by the cost of any significant improvements after purchase. Property, plant and equipment assets, other than land and construction in progress, are depreciated on a straight-line basis over the estimated useful life of the individual assets. Depreciation begins when the asset is ready for its intended use. For tax purposes, accelerated depreciation methods are used as allowed by tax laws.

Amortization expense related to finite-lived acquired intangible assets that contribute to our ability to sell, manufacture, research, market and distribute products, compounds and intellectual property are included in Amortization of intangible assets as they benefit multiple business functions. Amortization expense related to intangible assets that are associated with a single function and depreciation of property, plant and equipment are included in Cost of sales, Selling, informational and administrative expenses and Research and development expenses, as appropriate.

We review all of our long-lived assets for impairment indicators throughout the year and we perform detailed testing whenever impairment indicators are present. In addition, we perform impairment testing for goodwill and indefinite-lived assets at least annually. When necessary, we record charges for impairments.

Specifically:
•
For finite-lived intangible assets, such as Developed Technology Rights, and for other long-lived assets, such as property, plant and equipment, whenever impairment indicators are present, we calculate the undiscounted value of the projected cash flows associated with the asset, or asset group, and compare this estimated amount to the carrying amount. If the carrying amount is found to be greater, we record an impairment loss for the excess of book value over fair value. In addition, in all cases of an impairment review, we re-evaluate the remaining useful lives of the assets and modify them, as appropriate.
•
For indefinite-lived intangible assets, such as Brands and IPR&D assets, when necessary, we determine the fair value of the asset and record an impairment loss, if any, for the excess of book value over fair value. In addition, in all cases of an impairment review other than for IPR&D assets, we re-evaluate whether continuing to characterize the asset as indefinite-lived is appropriate.
•
For goodwill, when necessary, we determine the fair value of each reporting unit and compare that value to its book value. If the carrying amount is found to be greater, we then determine the implied fair value of goodwill by subtracting the fair value of all the identifiable net assets other than goodwill from the fair value of the reporting unit and record an impairment loss, if any, for the excess of the book value of goodwill over the implied fair value.


2012 Financial Report    
 
 
61

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

Impairment reviews can involve a complex series of judgments about future events and uncertainties and can rely heavily on estimates and assumptions. For information about the risks associated with estimates and assumptions, see Note 1C. Basis of Presentation and Significant Accounting Policies: Estimates and Assumptions.

L. Restructuring Charges and Certain Acquisition-Related Costs

We may incur restructuring charges in connection with acquisitions when we implement plans to restructure and integrate the acquired operations or in connection with our cost-reduction and productivity initiatives. Included in Restructuring charges and certain acquisition-related costs are all restructuring charges, as well as certain other costs associated with acquiring and integrating an acquired business. (If the restructuring action results in a change in the estimated useful life of an asset, that incremental impact is classified in Cost of sales, Selling, informational and administrative expenses and Research and development expenses , as appropriate). Termination costs are a significant component of our restructuring charges and are generally recorded when the actions are probable and estimable. Transaction costs, such as banking, legal, accounting and other costs incurred in connection with a business acquisition are expensed as incurred .

Amounts recorded for restructuring charges and other associated costs can result from a complex series of judgments about future events and uncertainties and can rely heavily on estimates and assumptions. For information about the risks associated with estimates and assumptions, see Note 1C. Basis of Presentation and Significant Accounting Policies: Estimates and Assumptions.

M. Cash Equivalents and Statement of Cash Flows

Cash equivalents include items almost as liquid as cash, such as certificates of deposit and time deposits with maturity periods of three months or less when purchased. If items meeting this definition are part of a larger investment pool, we classify them as Short-term investments .

Cash flows associated with financial instruments designated as fair value or cash flow hedges may be included in operating, investing or financing activities, depending on the classification of the items being hedged. Cash flows associated with financial instruments designated as net investment hedges are classified according to the nature of the hedge instrument. Cash flows associated with financial instruments that do not qualify for hedge accounting treatment are classified according to their purpose and accounting nature.

N. Investments and Derivative Financial Instruments

Many, but not all, of our financial instruments are carried at fair value. For example, substantially all of our cash equivalents, short-term investments and long-term investments are classified as available-for-sale securities and are carried at fair value, with changes in unrealized gains and losses, net of tax, reported in Other comprehensive loss (see Note 6. Accumulated Other Comprehensive Loss, Excluding Noncontrolling Interests) . Derivative financial instruments are carried at fair value in various balance sheet categories (see Note 7A. Financial Instruments: Selected Financial Assets and Liabilities ), with changes in fair value reported in current earnings or deferred for qualifying hedging relationships. Virtually all of our valuation measurements for investments and derivative financial instruments are based on 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.

Realized gains or losses on sales of investments are determined by using the specific identification cost method.

Investments where we have significant influence over the financial and operating policies of the investee are accounted for under the equity method. Under the equity method, we record our share of the investee's income and expenses, in Other deductions — net . The excess of the cost of the investment over our share of the equity of the investee as of the acquisition date is allocated to the identifiable assets of the investee, with any remaining allocated to goodwill. Such investments are initially recorded at cost, which typically does not include amounts of contingent consideration.

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 in the statement of income, and a new cost basis in the investment is established.

Impairment reviews can involve a complex series of judgments about future events and uncertainties and can rely heavily on estimates and assumptions. For information about the risks associated with estimates and assumptions, see Note 1C. Basis of Presentation and Significant Accounting Policies: Estimates and Assumptions.

O. Deferred Tax Assets and Liabilities and Income Tax Contingencies

Deferred tax assets and liabilities are recognized for the expected future tax consequences of differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates and laws. We provide a valuation allowance when we believe that our deferred tax assets are not recoverable based on an assessment of estimated future taxable income that incorporates ongoing, prudent and feasible tax-planning strategies.

We account for income tax contingencies using a benefit recognition model. If we consider that a tax position is more likely than not to be sustained upon audit, based solely on the technical merits of the position, we recognize the benefit. We measure the benefit by determining the amount that is greater than 50% likely of being realized upon settlement, presuming that the tax position is examined by the appropriate taxing authority that has full knowledge of all relevant information.

62
 
 
2012 Financial Report

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

Under the benefit recognition model, if our initial assessment fails to result in the recognition of a tax benefit, we regularly monitor our position and subsequently recognize the tax benefit: (i) if there are changes in tax law, analogous case law or there is new information that sufficiently raise the likelihood of prevailing on the technical merits of the position to more-likely-than-not; (ii) if the statute of limitations expires; or (iii) if there is a completion of an audit resulting in a favorable settlement of that tax year with the appropriate agency. We regularly re-evaluate our tax positions based on the results of audits of federal, state and foreign income tax filings, statute of limitations expirations, changes in tax law or receipt of new information that would either increase or decrease the technical merits of a position relative to the more-likely-than-not standard. Liabilities associated with uncertain tax positions are classified as current only when we expect to pay cash within the next 12 months. Interest and penalties, if any, are recorded in Provision for taxes on income and are classified on our consolidated balance sheet with the related tax liability.

Amounts recorded for valuation allowances and income tax contingencies can result from a complex series of judgments about future events and uncertainties and can rely heavily on estimates and assumptions. For information about the risks associated with estimates and assumptions, see Note 1C. Basis of Presentation and Significant Accounting Policies: Estimates and Assumptions.

P. Pension and Postretirement Benefit Plans

The majority of our employees worldwide are covered by defined benefit pension plans, defined contribution plans or both. In the U.S., we have both qualified and supplemental (non-qualified) defined benefit plans, as well as other postretirement benefit plans, consisting primarily of healthcare and life insurance for retirees. Beginning on January 1, 2011, for employees hired in the U.S. and Puerto Rico after December 31, 2010, we no longer offer a defined benefit plan and, instead, offer an enhanced benefit under our defined contribution plan. On May 8, 2012, we announced to employees that as of January 1, 2018, Pfizer will transition its U.S. and Puerto Rico employees from its defined benefit plans to an enhanced defined contribution savings plan. We recognize the overfunded or underfunded status of each of our defined benefit plans as an asset or liability on our consolidated balance sheet. The obligations are generally measured at the actuarial present value of all benefits attributable to employee service rendered, as provided by the applicable benefit formula. Our pension and other postretirement obligations may include assumptions such as long-term rate of return on plan assets, expected employee turnover and participant mortality. For our pension plans, the obligation may also include assumptions as to future compensation levels. For our other postretirement benefit plans, the obligation may include assumptions as to the expected cost of providing the healthcare and life insurance benefits, as well as the extent to which those costs are shared with the employee or others (such as governmental programs). Plan assets are measured at fair value. Net periodic benefit costs are recognized, as required, into Cost of sales, Selling, informational and administrative expenses and Research and development expenses , as appropriate.

Amounts recorded for pension and postretirement benefit plans can result from a complex series of judgments about future events and uncertainties and can rely heavily on estimates and assumptions. For information about the risks associated with estimates and assumptions, see Note 1C. Basis of Presentation and Significant Accounting Policies: Estimates and Assumptions.

Q. Legal and Environmental Contingencies

We and certain of our subsidiaries are subject to numerous contingencies arising in the ordinary course of business, such as patent litigation, product liability and other product-related litigation, commercial litigation, environmental claims and proceedings, government investigations and guarantees and indemnifications. We record accruals for these contingencies to the extent that we conclude that a loss is both probable and reasonably estimable. If some amount within a range of loss appears to be a better estimate than any other amount within the range, we accrue that amount. Alternatively, when no amount within a range of loss appears to be a better estimate than any other amount, we accrue the lowest amount in the range. We record anticipated recoveries under existing insurance contracts when recovery is assured.

Amounts recorded for contingencies can result from a complex series of judgments about future events and uncertainties and can rely heavily on estimates and assumptions. For information about the risks associated with estimates and assumptions, see Note 1C. Basis of Presentation and Significant Accounting Policies: Estimates and Assumptions.

R. Share-Based Payments

Our compensation programs can include share-based payments. Generally, grants under share-based payment programs are accounted for at fair value and these fair values are generally amortized on a straight-line basis over the vesting terms into Cost of sales, Selling, informational and administrative expenses and Research and development expenses , as appropriate.

Amounts recorded for share-based compensation can result from a complex series of judgments about future events and uncertainties and can rely heavily on estimates and assumptions. For information about the risks associated with estimates and assumptions, see Note 1C. Basis of Presentation and Significant Accounting Policies: Estimates and Assumptions .

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

A. Acquisitions

NextWave Pharmaceuticals, Inc.
On November 27, 2012, we completed our acquisition of NextWave Pharmaceuticals Incorporated (NextWave), a privately held, specialty pharmaceutical company. As a result of this acquisition, Pfizer now holds exclusive North American rights to Quillivant XR™ (methylphenidate hydrochloride), the first once-daily liquid medication approved in the U.S. for the treatment of attention deficit hyperactivity disorder. Quillivant

2012 Financial Report    
 
 
63

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

XR received approval from the U.S. Food and Drug Administration on September 27, 2012, and was launched in the U.S. on January 14, 2013. The total consideration for the acquisition was approximately $442 million , which consisted of upfront payments to NextWave's shareholders of about $278 million and contingent consideration with an estimated acquisition-date fair value of about $164 million . The contingent consideration consists of up to $425 million in additional payments that are contingent upon attainment of certain revenue milestones. In connection with this Established Products acquisition, we recorded approximately $516 million in Identifiable intangible assets , consisting primarily of $472 million in Developed technology rights and $44 million in In-process research and development , $165 million in net deferred tax liabilities and $91 million in Goodwill. The allocation of the consideration transferred to the assets acquired and the liabilities assumed has not been finalized.

Nexium Over-the-Counter Rights

On August 13, 2012, we announced that we entered into an agreement with AstraZeneca for the global over-the-counter (OTC) rights for Nexium, a leading prescription drug currently approved to treat the symptoms of gastroesophageal reflux disease. Under the terms of the agreement, we acquired the exclusive global rights to market Nexium for the OTC indications, which are subject to regulatory approval. We made an upfront payment of $250 million to AstraZeneca, and AstraZeneca is eligible to receive milestone payments of up to $550 million based on product launches and level of sales, as well as royalty payments based on sales. The upfront payment for this Consumer Healthcare asset acquisition was expensed and included in Research and development expenses in our consolidated statement of income for the year ended December 31, 2012.

Alacer Corp.

On February 26, 2012, we completed our acquisition of Alacer Corp., a company that manufactures, markets and distributes Emergen-C, a line of effervescent, powdered drink mix vitamin supplements that is the largest-selling branded vitamin C line in the U.S. In connection with this Consumer Healthcare acquisition, we recorded $181 million in Identifiable intangible assets , consisting primarily of the Emergen-C indefinite-lived brand, $69 million in net deferred tax liabilities and $192 million in Goodwill . The allocation of the consideration transferred to the assets acquired and the liabilities assumed has been finalized.

Ferrosan Holding A/S

On December 1, 2011, we completed our acquisition of the consumer healthcare business of Ferrosan Holding A/S (Ferrosan), a Danish company engaged in the sale of science-based consumer healthcare products, including dietary supplements and lifestyle products, primarily in the Nordic region and the emerging markets of Russia and Central and Eastern Europe. This acquisition is reflected in our consolidated financial statements beginning in the first fiscal quarter of 2012 . Our acquisition of Ferrosan’s consumer healthcare business increases our presence in dietary supplements with a new set of brands and pipeline products. Also, we believe that the acquisition allows us to expand the marketing of Ferrosan’s brands through Pfizer’s global footprint and provide greater distribution and scale for certain Pfizer brands, such as Centrum and Caltrate, in Ferrosan’s key markets. In connection with this Consumer Healthcare acquisition, we recorded $362 million in Identifiable intangible assets, consisting of indefinite-lived and finite-lived brands, $94 million in net deferred tax liabilities and $322 million in Goodwill . The allocation of the consideration transferred to the assets acquired and the liabilities assumed has been finalized.

Excaliard

On November 30, 2011, we completed our acquisition of Excaliard Pharmaceuticals, Inc. (Excaliard), a privately owned biopharmaceutical company. Excaliard's lead compound, EXC-001, a Phase 2 compound, is an antisense oligonucleotide designed to interrupt the process of skin fibrosis by inhibiting expression of connective tissue growth factor (CTGF). The total consideration for the acquisition was approximately $174 million , which consisted of an upfront payment to Excaliard's shareholders of about $86 million and contingent consideration with an estimated acquisition-date fair value of about $88 million . The contingent consideration consists of up to $230 million in additional payments that are contingent upon the attainment of certain regulatory and revenue milestones. Payments under the contingent consideration arrangement were $30 million in 2012 as a regulatory milestone was reached. In connection with this Worldwide Research and Development acquisition, we recorded approximately $257 million in Identifiable intangible assets––In-process research and development, approximately $87 million in net deferred tax liabilities and approximately $8 million in Goodwill .

Icagen

On September 20, 2011, we completed our cash tender offer for the outstanding shares of Icagen, Inc. (Icagen), resulting in an approximate 70% ownership of the outstanding shares of Icagen, a biopharmaceutical company focused on discovery, development and commercialization of novel orally-administered small molecule drugs that modulate ion channel targets. On October 27, 2011, we acquired all of the remaining shares of Icagen. In connection with this Worldwide Research and Development acquisition, we recorded approximately $19 million in Identifiable intangible assets .

King Pharmaceuticals, Inc.

Description of the Transaction

On January 31, 2011 (the acquisition date), we completed a tender offer for the outstanding shares of common stock of King at a purchase price of $14.25 per share in cash and acquired approximately 92.5% of the outstanding shares. On February 28, 2011, we acquired all of the remaining shares of King for $14.25 per share in cash. As a result, the total fair value of consideration transferred for King was approximately $3.6 billion in cash ( $3.2 billion , net of cash acquired).


64
 
 
2012 Financial Report

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

King’s principal businesses consisted of a prescription pharmaceutical business focused on delivering new formulations of pain treatments designed to discourage common methods of misuse and abuse; the Meridian auto-injector business for emergency drug delivery, which develops and manufactures the EpiPen; an established products portfolio; and an animal health business that offers a variety of feed-additive products for a wide range of species.

Recording of Assets Acquired and Liabilities Assumed
The following table provides the assets acquired and liabilities assumed from King: 
(MILLIONS OF DOLLARS)
 
Amounts
Recognized as of
Acquisition Date
(Final)

Working capital, excluding inventories
 
$
155

Inventories
 
340

Property, plant and equipment
 
412

Identifiable intangible assets, excluding in-process research and development
 
1,806

In-process research and development
 
303

Net tax accounts
 
(328
)
All other long-term assets and liabilities, net
 
102

Total identifiable net assets
 
2,790

Goodwill (a)
 
765

Net assets acquired/total consideration transferred
 
$
3,555

(a)  
Goodwill recorded as of the acquisition date totaled $720 million for our three biopharmaceutical operating segments and $45 million for our Animal Health operating segment. (Since the acquisition of King, we have revised our operating segments. See Note 18A. Segment, Geographic and Other Revenue Information: Segment Information. )

As of the acquisition date, the fair value of accounts receivable approximated the book value acquired. The gross contractual amount receivable was $200 million , virtually all of which was expected to be collected.

Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. Specifically, the goodwill recorded as part of the acquisition of King includes the following:
•
the expected synergies and other benefits that we believed would result from combining the operations of King with the operations of Pfizer;
•
any intangible assets that did not qualify for separate recognition, as well as future, yet unidentified projects and products; and
•
the value of the going-concern element of King’s existing businesses (the higher rate of return on the assembled collection of net assets versus if Pfizer had acquired all of the net assets separately).

Goodwill is not amortized and is not deductible for income tax purposes (see Note 10A. Goodwill and Other Intangible Assets: Goodwill for additional information).

The assets and liabilities arising from contingencies recognized as of the acquisition date are not significant to Pfizer’s consolidated financial statements.

Actual and Pro Forma Impact of Acquisition

Revenues from King are included in Pfizer's consolidated statements of income from the acquisition date, January 31, 2011, through Pfizer’s domestic and international year-ends and were $1.3 billion in 2011. We are not able to provide the results of operations attributable to King in 2011 as those operations had been substantially integrated into the larger Pfizer operation shortly after the acquisition.
The following table provides supplemental pro forma information:
 
 
Unaudited Pro Forma
Consolidated Results (a)
 
 
Year Ended December 31,
(MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA)
 
2011

 
2010

Revenues
 
$
65,368

 
$
66,540

Net income attributable to Pfizer Inc.
 
10,228

 
8,013

Diluted earnings per share attributable to Pfizer Inc. common shareholders
 
1.30

 
0.99

(a)  
The pro forma information for December 31, 2011 and 2010 assumes that the acquisition of King occurred on January 1, 2010.

2012 Financial Report    
 
 
65

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

The unaudited pro forma consolidated results do not purport to project the future results of operations of the combined company nor do they reflect the expected realization of any cost savings associated with the acquisition. The unaudited pro forma consolidated results reflect the historical financial information of Pfizer and King, adjusted for the following pre-tax amounts:
•
Elimination of King's historical intangible asset amortization expense (approximately $6 million in 2011 and $116 million in 2010).
•
Additional amortization expense (approximately $15 million in 2011 and $190 million in 2010) related to the fair value of identifiable intangible assets acquired.
•
Additional depreciation expense (approximately $3 million in 2011 and $35 million in 2010) related to the fair value adjustment to property, plant and equipment acquired.
•
Adjustment related to the fair value adjustments to acquisition-date inventory estimated to have been sold (elimination of $160 million charge in 2011 and addition of $160 million charge in 2010).
•
Adjustment for acquisition-related costs directly attributable to the acquisition (elimination of $224 million of charges in 2011 and addition of $224 million of charges in 2010, reflecting charges incurred by both King and Pfizer).

FoldRx Pharmaceuticals, Inc.

On October 6, 2010, we completed our acquisition of FoldRx Pharmaceuticals, Inc. (FoldRx), a privately held drug discovery and clinical development company. FoldRx's lead product candidate, Vyndaqel (tafamidis meglumine), is a first-in-class oral therapy for the treatment of transthyretin familial amyloid polyneuropathy (TTR-FAP). The total consideration for the acquisition was approximately $400 million , which consisted of an upfront payment to FoldRx's shareholders of approximately $200 million and contingent consideration with an estimated acquisition-date fair value of approximately $200 million . The contingent consideration consists of up to $455 million in additional payments that are contingent upon the attainment of certain regulatory and revenue milestones. Payments under the contingent consideration arrangement were $225 million in 2012, as a regulatory milestone was achieved. In connection with this Specialty Care acquisition, we recorded approximately $500 million in Identifiable intangible assets––In-process research and development, approximately $160 million in net deferred tax liabilities and approximately $60 million in Goodwill. In 2012, we recorded a decrease in the fair value of the contingent consideration of approximately $42 million and in 2011, we recorded an increase in the fair value of the contingent consideration of approximately $85 million .

B. Divestitures

Nutrition Business

On November 30, 2012, we completed the sale of our Nutrition business to Nestlé for $11.85 billion in cash, and recognized a gain of approximately $4.8 billion , net of tax, in Gain/(loss) on sale of discontinued operations––net of tax . The divested business includes:
•
our former Nutrition operating segment and certain prenatal vitamins previously commercialized by the Pfizer Consumer Healthcare operating segment; and
•
other associated amounts, such as direct manufacturing costs, enabling support functions and other costs not charged to the business, purchase-accounting impacts, acquisition-related costs, impairment charges, restructuring charges and implementation costs associated with our cost reduction/productivity initiatives, all of which are reported outside our operating segment results.

The operating results of this business are reported as Income/(loss) from discontinued operations––net of tax in the consolidated statements of income for all periods presented. In addition, in the consolidated balance sheet as of December 31, 2011, the assets and liabilities associated with this discontinued operation are classified as Assets of discontinued operations and other assets held for sale and Liabilities of discontinued operations , as appropriate.

While the full purchase price of $11.85 billion was received on November 30, the sale of the business was not completed in certain non-U.S. jurisdictions where regulatory review of the transaction remains ongoing. In these jurisdictions, which represent a relatively small portion of the Nutrition business, we continue to operate the business on an interim basis pending regulatory approval or divestiture to a third party buyer. These interim arrangements, pursuant to which Pfizer operates the business for the net economic benefit of Nestlé and is indemnified by Nestlé against any risk associated with such operations during the interim period, are expected to conclude by the end of 2013 and the sale of these certain jurisdictions are expected to be completed by the end of 2013. As such, and as we have already received all of the expected proceeds from the sale, and as Nestlé is contractually obligated to complete the transaction (or permit us to divest the delayed businesses to a third party buyer on its behalf) regardless of the outcome of any pending regulatory reviews, we have treated these delayed-close businesses as sold for accounting purposes.

In connection with the sale transaction, we also entered into certain transitional agreements designed to ensure and facilitate the orderly transfer of business operations to the buyer. These agreements primarily relate to administrative services, which are generally to be provided for a period of 2 to 18 months. We will also manufacture and supply certain prenatal vitamin products for a transitional period. These agreements are not material and none confers upon us the ability to influence the operating and/or financial policies of the Nutrition business subsequent to the sale.


66
 
 
2012 Financial Report

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

Capsugel Business

On August 1, 2011, we completed the sale of our Capsugel business for approximately $2.4 billion in cash and recognized a gain of approximately $1.3 billion, net of tax, in Gain/(loss) on sale of discontinued operations––net of tax . The operating results of this business are reported as Income/(loss) from discontinued operations––net of tax for 2011 and 2010.

Discontinued Operations
The following table provides the components of Discontinued operations—net of tax :
 
 
Year Ended December 31, (a)
(MILLIONS OF DOLLARS)
 
2012

 
2011

 
2010

Revenues
 
$
2,258

 
$
2,673

 
$
2,643

Pre-tax income/(loss) from discontinued operations
 
414

 
487

 
(50
)
Provision/(benefit) for taxes on income (b)
 
117


137

 
(31
)
Income/(loss) from discontinued operations––net of tax
 
297

 
350

 
(19
)
Pre-tax gain/(loss) on sale of discontinued operations
 
7,123

 
1,688

 
(11
)
Provision for taxes on income (c)
 
2,340

 
384

 
—

Gain/(loss) on sale of discontinued operations––net of tax
 
4,783

 
1,304

 
(11
)
Discontinued operations––net of tax
 
$
5,080

 
$
1,654

 
$
(30
)
(a)  
Includes the Nutrition business for all periods presented (through November 30, 2012) and the Capsugel business for 2011 (through August 1, 2011) and 2010 only. The net loss in 2010 includes the impairment of an indefinite-lived Brand intangible asset in the Nutrition business of approximately $385 million (pre-tax).
(b)  
Includes a deferred tax expense of $24 million for 2012 , a deferred tax benefit of $43 million for 2011 , and a deferred tax benefit of $156 million for 2010 . These deferred tax provisions include deferred taxes related to investments in certain foreign subsidiaries resulting from our intention not to hold these subsidiaries indefinitely.
(c)  
Includes a deferred tax expense of $1.4 billion for 2012 and $190 million for 2011 . These deferred tax provisions include deferred tax expense of $2.2 billion for 2012 and $190 million for 2011 on certain current-year funds earned outside the U.S. that will not be indefinitely reinvested overseas.

The following table provides the components of Assets of discontinued operations and other assets held for sale  and Liabilities of discontinued operations :
 
 
As of December 31,
(MILLIONS OF DOLLARS)
 
2012

 
2011

Accounts receivable, less allowance for doubtful accounts
 
$
—

 
$
550

Other current assets
 
—

 
419

Property, plant and equipment, less accumulated depreciation
 
70

 
1,118

Goodwill
 
—

 
498

Identifiable intangible assets, less accumulated amortization
 
—

 
2,648

Other noncurrent assets
 
—

 
84

Assets of discontinued operations and other assets held for sale
 
$
70

 
$
5,317

 
 
 
 
 
Current liabilities
 
$
—

 
$
385

Other liabilities
 
—

 
839

Liabilities of discontinued operations
 
$
—

 
$
1,224


The net cash flows of our discontinued operations for each of the categories of operating, investing and financing activities are not significant for any period presented, except that investing activities includes the proceeds from the sale of these businesses.

C. Collaborative Arrangements

In the normal course of business, we enter into collaborative arrangements with respect to in-line medicines, as well as medicines in development that require completion of research and regulatory approval. Collaborative arrangements are contractual agreements with third parties that involve a joint operating activity, typically a research and/or commercialization effort, where both we and our partner are active participants in the activity and are exposed to the significant risks and rewards of the activity. Our rights and obligations under our collaborative arrangements vary. For example, we have agreements to co-promote pharmaceutical products discovered by us or other companies, and we have agreements where we partner to co-develop and/or participate together in commercializing, marketing, promoting, manufacturing and/or distributing a drug product.

2012 Financial Report    
 
 
67

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

The following table provides the amounts and classification of payments (income/(expense)), between us and our collaboration partners:
 
 
Year Ended December 31,
(MILLIONS OF DOLLARS)
 
2012

 
2011

 
2010

Revenues —Revenues (a)
 
$
1,231

 
$
1,029

 
$
710

Revenue s—Alliance revenues (b)
 
3,492

 
3,630

 
4,084

Total revenues from collaborative arrangements
 
4,723

 
4,659

 
4,794

Cost of sales (c)
 
(362
)
 
(420
)
 
(124
)
Selling, informational and administrative expenses (d)
 
(290
)
 
(237
)
 
(131
)
Research and development expenses (e)
 
(74
)
 
(299
)
 
(316
)
Other deductions—net
 
(15
)
 
34

 
37

(a)  
Represents sales to our partners of products manufactured by us.
(b)  
Substantially all relate to amounts earned from our partners under co-promotion agreements.
(c)  
Primarily relates to royalties earned by our partners and cost of sales associated with inventory purchased from our partners.
(d)  
Represents net reimbursements to our partners for selling, informational and administrative expenses incurred.
(e)  
Primarily related to net reimbursements, as well as upfront payments and pre-approval milestone payments earned by our partners. The upfront and milestone payments were as follows: $44 million in 2012, $210 million in 2011 and $147 million in 2010.
The amounts disclosed in the above table do not include transactions with third parties other than our collaboration partners, or other costs associated with the products under the collaborative arrangements. In addition, during 2012 and 2011, we paid $29 million and $61 million , respectively, in post-approval milestones to collaboration partners. These payments were recorded in Identifiable intangible assets –– Developed technology rights .

D. Equity-Method Investments

ViiV Healthcare Limited (ViiV)

On October 31, 2012, our equity-method investee, ViiV, acquired the remaining 50% of Shionogi-ViiV Healthcare LLC, its equity-method investee, from Shionogi & Co., Ltd. (Shionogi) in consideration for a 10% interest in ViiV (newly issued shares) and contingent consideration in the form of future royalties. As a result of this transaction, ViiV recorded a gain associated with the step-up on the 50% interest previously held by ViiV. Also, Pfizer's equity interest in ViiV was reduced from 15% to 13.5% and GlaxoSmithKline plc's equity interest was reduced from 85% to 76.5% . As a result of the above, we recognized a gain of $44 million , which was recorded in Other deductions –– net , in the fourth quarter of 2012. Our investment in ViiV is accounted for under the equity method due to the significant influence that we have over the operations of ViiV through our board representation and minority veto rights.

Investment in Hisun Pfizer Pharmaceuticals Company Limited

On September 6, 2012, Pfizer and Zhejiang Hisun Pharmaceuticals Co., Ltd., a leading Chinese pharmaceutical company, created a new company, Hisun Pfizer Pharmaceuticals Company Limited (HPP), to develop, manufacture and commercialize off-patent pharmaceutical products in China and global markets. In accordance with our international reporting periods, this transaction was accounted for in the fourth quarter of 2012 . HPP was established with registered capital of $250 million . Zhejiang Hisun Pharmaceuticals holds a 51% equity interest and Pfizer holds a 49% equity interest in HPP. In 2013, the parties will contribute select existing products to HPP, which will have a broad portfolio covering cardiovascular disease, infectious disease, oncology, mental health, and other therapeutic areas. See also Note 19B. Subsequent Events: Hisun Pfizer Pharmaceuticals Company Limited (HPP). The parties will also contribute manufacturing sites, cash and other relevant assets. Our investment in HPP is accounted for under the equity method due to the significant influence that we have over the operations of HPP through our board representation, minority veto rights and 49% voting interest.

Investment in Laboratório Teuto Brasileiro

On November 8, 2010, we consummated our partnership to develop and commercialize generic medicines with Laboratório Teuto Brasileiro S.A. (Teuto) a leading generics company in Brazil. As part of the transaction, we acquired a 40% equity stake in Teuto, and entered into a series of commercial agreements. The partnership is enhancing our position in Brazil, a key emerging market, by providing access to Teuto’s portfolio of products. Through this partnership, we have access to significant distribution networks in rural and suburban areas in Brazil, and the opportunity to register and commercialize Teuto’s products in various markets outside Brazil. Under the terms of our purchase agreement with Teuto, we made an upfront payment at the closing of approximately $230 million . On May 23, 2012, we made a performance-based milestone payment to Teuto of $91.5 million , which was recorded as an additional investment in Teuto. We have an option to acquire the remaining 60% of Teuto’s shares beginning in 2014, and Teuto’s shareholders have an option to sell their 60% stake to us beginning in 2015. The portion of the total arrangement consideration that was allocated to the net call/put option, based on relative fair values of the 40% equity investment and the net option, is being accounted for at cost and will be evaluated for impairment on an ongoing basis. Our investment in Teuto is accounted for under the equity method due to the significant influence we have over the operations of Teuto through our board representation, minority veto rights and 40% voting interest.



68
 
 
2012 Financial Report

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

Note 3. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives

We incur significant costs in connection with acquiring, integrating and restructuring businesses and in connection with our global cost-reduction and productivity initiatives. For example:
•
In connection with acquisition activity, we typically incur costs associated with executing the transactions, integrating the acquired operations (which may include expenditures for consulting and the integration of systems and processes), and restructuring the combined company (which may include charges related to employees, assets and activities that will not continue in the combined company); and
•
In connection with our cost-reduction and productivity initiatives, we typically incur costs and charges associated with site closings and other facility rationalization actions, workforce reductions and the expansion of shared services, including the development of global systems.

All of our businesses and functions may be impacted by these actions, including sales and marketing, manufacturing and research and development, as well as groups such as information technology, shared services and corporate operations. Since the acquisition of Wyeth on October 15, 2009, our cost-reduction initiatives announced on January 26, 2009, but not completed as of December 31, 2009, were incorporated into a comprehensive plan to integrate Wyeth’s operations to generate cost savings and to capture synergies across the combined company. In addition, among our ongoing cost reduction/productivity initiatives, on February 1, 2011, we announced a new productivity initiative to accelerate our strategies to improve innovation and productivity in R&D by prioritizing areas that we believe have the greatest scientific and commercial promise, utilizing appropriate risk/return profiles and focusing on areas that we believe have the highest potential to deliver value in the near term and over time.
The following table provides the components of costs associated with acquisitions and cost-reduction/productivity initiatives:

 
Year Ended December 31,
(MILLIONS OF DOLLARS)
 
2012

 
2011

 
2010

Transaction costs (a)
 
$
1

 
$
30

 
$
22

Integration costs (b)
 
405

 
725

 
1,001

Restructuring charges: (c)
 
 
 
 
 
 
Employee termination costs
 
997

 
1,794

 
1,062

Asset impairments
 
328

 
256

 
869

Exit costs
 
149

 
125

 
191

Restructuring charges and certain acquisition-related costs
 
1,880

 
2,930

 
3,145

Additional depreciation––asset restructuring   recorded in our
consolidated statements of income as follows: (d)
 
 
 
 
 
 
Cost of sales
 
267

 
555

 
520

Selling, informational and administrative expenses
 
20

 
75

 
227

Research and development expenses
 
296

 
605

 
34

Total additional depreciation––asset restructuring
 
583

 
1,235

 
781

Implementation costs recorded in our consolidated
statements of income as follows: (e)
 
 
 
 
 
 
Cost of sales
 
31

 
250

 
—

Selling, informational and administrative expenses
 
129

 
25

 
—

Research and development expenses
 
232

 
72

 
—

Total implementation costs
 
392

 
347

 
—

Total costs associated with acquisitions and cost-reduction/productivity initiatives
 
$
2,855

 
$
4,512

 
$
3,926

(a)  
Transaction costs represent external costs directly related to acquired businesses and primarily include expenditures for banking, legal, accounting and other similar services.
(b)  
I ntegration costs represent external, incremental costs directly related to integrating acquired businesses, and primarily include expenditures for consulting and the integration of systems and processes.
(c)  
From the beginning of our cost-reduction and transformation initiatives in 2005 through December 31, 2012 , Employee termination costs represent the expected reduction of the workforce by approximately 62,200 employees, mainly in manufacturing, sales and research, of which approximately 51,700 employees have been terminated as of December 31, 2012 . In 2012 , substantially all employee termination costs represent additional costs with respect to approximately 4,800 employees.
The restructuring charges in 2012 are associated with the following:
•
Primary Care operating segment ( $295 million ), Specialty Care and Oncology operating segment ( $175 million ), Established Products and Emerging Markets operating segment ( $125 million ), Animal Health operating segment ( $59 million ), Consumer Healthcare operating segment ( $45 million ), research and development operations ( $6 million income), manufacturing operations ( $265 million ) and Corporate ( $516 million ).

2012 Financial Report    
 
 
69

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

The restructuring charges in 2011 are associated with the following:
•
Primary Care operating segment ( $593 million ), Specialty Care and Oncology operating segment ( $220 million ), Established Products and Emerging Markets operating segment ( $110 million ), Animal Health operating segment ( $45 million ), Consumer Healthcare operating segment ( $8 million ), research and development operations ( $490 million ), manufacturing operations ( $287 million ) and Corporate ( $422 million ).
The restructuring charges in 2010 are associated with the following:
•
Primary Care operating segment ( $71 million ), Specialty Care and Oncology operating segment ( $197 million ), Established Products and Emerging Markets operating segment ( $43 million ), Animal Health operating segment ( $34 million ), Consumer Healthcare operating segment ( $12 million ), research and development operations ( $297 million ), manufacturing operations ( $1.1 billion ) and Corporate ( $350 million ).
(d)  
Additional depreciation––asset restructuring represents the impact of changes in the estimated useful lives of assets involved in restructuring actions.
(e)  
Implementation costs represent external, incremental costs directly related to implementing our non-acquisition-related cost-reduction/productivity initiatives.
The following table provides the components of and changes in our restructuring accruals:
(MILLIONS OF DOLLARS)
 
Employee
Termination
Costs

 
Asset
Impairment
Charges

 
Exit Costs

 
Accrual

Balance, January 1, 2011
 
$
2,149

 
$
—

 
$
101

 
$
2,250

Provision
 
1,794

 
256

 
125

 
2,175

Utilization and other (a)
 
(1,518
)
 
(256
)
—

(134
)
 
(1,908
)
Balance, December 31, 2011 (b)
 
2,425

 
—

 
92

 
2,517

Provision
 
997

 
328

 
149

 
1,474

Utilization and other (a)
 
(1,629
)
 
(328
)
 
(84
)
 
(2,041
)
Balance, December 31, 2012 (c)
 
$
1,793

 
$
—

 
$
157

 
$
1,950

(a)  
Includes adjustments for foreign currency translation.
(b)  
Included in Other current liabilities ( $1.6 billion ) and Other noncurrent liabilities ( $930 million ).
(c)  
Included in Other current liabilities ( $1.2 billion ) and Other noncurrent liabilities ( $731 million ).

Total restructuring charges incurred from the beginning of our cost-reduction and productivity initiatives in 2005 through December 31, 2012 were $15.6 billion .

The asset impairment charges included in restructuring charges for 2012 primarily relate to assets held for sale and are based on an estimate of fair value, which was determined to be lower than the carrying value of the assets prior to the impairment charge.
The following table provides additional information about the long-lived assets held for sale that were impaired in 2012:
 
 
Fair Value (a)
 
Year Ended December 31,
 
 
 
2012
(MILLIONS OF DOLLARS)
 
Amount

 
Level 1

 
Level 2

 
Level 3

 
Impairment
Long-lived assets (b)
 
$
139

 
$
—

 
$
139

 
$
—

 
$
210

(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 1E. Basis of Presentation and Significant Accounting Policies: Fair Value .
(b)  
Reflects property, plant and equipment and other long-lived held-for-sale assets written down to their fair value of $139 million , less costs to sell of $3 million (a net of $136 million ), in 2012 . The impairment charges of $210 million are included in Restructuring charges and certain acquisition-related costs . Fair value is determined primarily using a market approach, with various inputs, such as recent sales transactions.


70
 
 
2012 Financial Report

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

Note 4. Other Deductions—Net

The following table provides components of Other deductions––net :
 
 
Year Ended December 31,
(MILLIONS OF DOLLARS)
 
2012

 
2011

 
2010

Interest income (a)
 
$
(383
)
 
$
(456
)
 
$
(400
)
Interest expense (a)
 
1,524

 
1,681

 
1,797

Net interest expense
 
1,141

 
1,225

 
1,397

Royalty-related income
 
(469
)
 
(569
)
 
(579
)
Net gain on asset disposals (b)
 
(52
)
 
(15
)
 
(243
)
Certain legal matters, net (c)
 
2,220

 
784

 
1,723

Certain asset impairment charges (d)
 
927

 
902

 
1,790

Costs associated with the separation of Zoetis (e)
 
125

 
33

 
—

Other, net
 
139

 
139

 
(147
)
Other deductions––net
 
$
4,031

 
$
2,499

 
$
3,941

(a)  
2012 v. 2011 –– Interest income decreased due to lower average cash balances and lower interest rates earned on investments. Interest expense decreased due to lower debt balances and the effective conversion of some fixed-rate liabilities to floating-rate liabilities. 2011 v. 2010 –– Interest income increased due to higher cash balances and higher interest rates earned on investments. Interest expense decreased due to lower long- and short-term debt balances and the effective conversion of some fixed-rate liabilities to floating rate liabilities. Capitalized interest expense totaled $ 41 million in 2012 , $ 50 million in 2011 and $ 36 million in 2010 .
(b)  
Net gains include realized gains and losses on sales of available-for-sale securities: in 2012 , 2011 and 2010 , gross realized gains were $ 39 million , $ 79 million and $ 153 million , respectively. Gross realized losses were $ 6 million in 2012 , $ 73 million in 2011 and $ 12 million in 2010 . Proceeds, primarily from the sale of available-for-sale securities, were $ 19 billion in 2012 , $ 10.2 billion in 2011 and $ 5.3 billion in 2010 . In 2010, also includes gains on sales of certain investments and businesses.
(c)  
In 2012 , primarily includes a $491 million charge resulting from an agreement-in-principle with the U.S. Department of Justice to resolve an investigation into Wyeth's historical promotional practices in connection with Rapamune, a $450 million settlement of a lawsuit by Brigham Young University related to Celebrex, and charges related to hormone-replacement therapy litigation and Chantix litigation. In 2011 , primarily includes charges related to hormone-replacement therapy litigation. In 2010 , includes a $1.3 billion charge for asbestos litigation related to our wholly owned subsidiary, Quigley Company, Inc. (See Note 17. Commitments and Contingencies. )
(d)  
In 2012 , includes intangible asset impairment charges of $872 million , reflecting (i) $393 million of IPR&D assets, primarily related to compounds that targeted autoimmune and inflammatory diseases (full write-off) and, to a lesser extent, compounds related to pain treatment; (ii) $175 million related to our Consumer Healthcare indefinite-lived brand assets, primarily Robitussin, a cough suppressant; (iii) $279 million related to Developed Technology Rights, a charge comprised of impairments of various products, none of which individually exceeded $45 million ; and (iv) $25 million of finite-lived brands. The intangible asset impairment charges for 2012 reflect, among other things, the impact of new scientific findings, updated commercial forecasts, changes in pricing, an increased competitive environment, litigation uncertainties regarding intellectual property and declining gross margins. The impairment charges in 2012 are associated with the following: Worldwide Research and Development ( $303 million ); Consumer Healthcare ( $200 million ); Primary Care ( $135 million ); Established Products ( $83 million ); Specialty Care ( $56 million ); Emerging Markets ( $56 million ) and Animal Health ( $39 million ). In addition, in 2012 , also includes charges of approximately $55 million for certain investments. These investment impairment charges reflect the difficult global economic environment.
In 2011 , includes intangible asset impairment charges of $851 million , the majority of which relates to intangible assets that were acquired as part of our acquisition of Wyeth. These impairment charges reflect (i) $475 million of IPR&D assets, primarily related to two compounds for the treatment of certain autoimmune and inflammatory diseases; (ii) $193 million related to our biopharmaceutical indefinite-lived brand, Xanax; and (iii) $183 million related to Developed Technology Rights comprising the impairment of five assets. The intangible asset impairment charges for 2011 reflect, among other things, the impact of new scientific findings and an increased competitive environment. The impairment charges in 2011 are associated with the following: Worldwide Research and Development ( $394 million ); Established Products ( $193 million ); Specialty Care ( $135 million ); Primary Care ( $56 million ); Oncology ( $56 million ) and Animal Health ( $17 million ). In addition, in 2011 , also includes charges of approximately $51 million for certain investments. These investment impairment charges reflect the difficult global economic environment.
In 2010, includes intangible asset impairment charges of $1.8 billion , the majority of which relates to intangible assets that were acquired as part of our acquisition of Wyeth. These impairment charges reflect (i) $945 million of IPR&D assets, primarily Prevnar 13/Prevenar 13 Adult, a compound for the prevention of pneumococcal disease in adults age 50 and older, and Neratinib, a compound for the treatment of breast cancer; (ii) $292 million of indefinite-lived Brands, primarily related to Robitussin; and (iii) $540 million of Developed Technology Rights, primarily Thelin, a product that treated pulmonary hypertension, and Protonix, a product that treats erosive gastroesophageal reflux disease. These impairment charges, most of which occurred in the third quarter of 2010, reflect, among other things, the following: for IPR&D assets, the impact of changes to the development programs, the projected development and regulatory time-frames and the risk associated with these assets; for Brand assets, the current competitive environment and planned investment support; and, for Developed Technology Rights, in the case of Thelin, we voluntarily withdrew the product in regions where it was approved and discontinued all clinical studies worldwide, and for the others, an increased competitive environment. The impairment charges in 2010 are generally associated with the following: Specialty Care ( $708 million ); Oncology ( $396 million ); Consumer Healthcare ( $292 million ); Established Products ( $182 million ); Primary Care ( $145 million ); and Worldwide Research and Development ( $54 million ).
(e)  
Costs incurred in connection with the initial public offering of a 19.8% ownership stake in Zoetis. Includes expenditures for banking, legal, accounting and similar services. (See Note 19A. Subsequent Events: Zoetis Debt Offering and Initial Public Offering.)

The asset impairment charges included in Other deductions––net in 2012 primarily relate to identifiable intangible assets and are based on estimates of fair value.


2012 Financial Report    
 
 
71

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

The following table provides additional information about the intangible assets that were impaired in 2012:
 
 
 
 
 
 
 
 
 
 
Year Ended December 31,

 
Fair Value (a)
 
2012
(MILLIONS OF DOLLARS)
 
Amount

 
Level 1
 
Level 2
 
Level 3
 
Impairment
Intangible assets––IPR&D (b)
 
$
54

 
$
—

 
$
—

 
$
54

 
$
393

Intangible assets––Other (b)
 
1,006

 
—

 
—

 
1,006

 
479

Total
 
$
1,060

 
$
—

 
$
—

 
$
1,060

 
$
872

(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 1E.      Basis of Presentation and Significant Accounting Policies: Fair Value .
(b)  
Reflects intangible assets written down to their estimated fair value of $1.1 billion in 2012 . The impairment charges of $872 million are included in Other deductions––net. Fair value is determined using the income approach, specifically the multi-period excess earnings method, also known as the discounted     cash flow method. We start with a forecast of all the expected net cash flows associated with the asset, which includes the application of a terminal value for indefinite-lived assets, and then we apply 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 projections and the impact of technological risk associated with IPR&D assets, as well as the selection of a long-term growth rate; the discount rate, which seeks to reflect the various risks inherent in the projected cash flows; and the tax rate, which seeks to incorporate the geographic diversity of the projected cash flows.

Note 5. Tax Matters

A. Taxes on Income from Continuing Operations
The following table provides the components of Income from continuing operations before provision for taxes on income :
 
 
Year Ended December 31,
(MILLIONS OF DOLLARS)
 
2012

 
2011

 
2010

United States
 
$
(4,732
)
 
$
(2,210
)
 
$
(2,256
)
International
 
16,812

 
14,514

 
11,727

Income from continuing operations before provision for taxes on income ( a), (b)
 
$
12,080

 
$
12,304

 
$
9,471

(a)  
2012 v. 2011 –– The increase in the domestic loss was primarily due to the reduction in revenues resulting from the loss of exclusivity of Lipitor, Geodon and certain other biopharmaceutical products; certain legal settlements and related charges, primarily associated with Rapamune, Celebrex, hormone-replacement therapy and Chantix; higher costs associated with the separation of Zoetis; and the payment to AstraZeneca to obtain the exclusive global over-the-counter rights to Nexium, partially offset by lower acquisition-related costs. The increase in international income was due to lower purchase accounting costs, lower acquisition-related costs, and lower charges related to cost-reduction and productivity initiatives, partially offset by the reduction in revenues resulting from the loss of exclusivity of Lipitor, Geodon and certain other biopharmaceutical products.
(b)  
2011 v. 2010 –– The decrease in the domestic loss was primarily due to the non-recurrence of a charge of $1.3 billion (pre-tax) in 2010 for asbestos litigation related to our wholly owned subsidiary, Quigley Company, Inc., partially offset by a reduction in revenues due to the loss of exclusivity for several biopharmaceutical products and the impact of the U.S. Healthcare Legislation. The increase in international income was due to the favorable impact of foreign exchange, lower impairment charges, as well as increased revenues from biopharmaceutical products, such as the Prevnar/Prevenar family, Enbrel and Celebrex.
The following table provides the components of Provision for taxes on income  based on the location of the taxing authorities:
 
 
Year Ended December 31,
(MILLIONS OF DOLLARS)
 
2012

 
2011

 
2010

United States
 
 
 
 
 
 
Current income taxes:
 
 
 
 
 
 
Federal
 
$
(752
)
 
$
1,349

 
$
(2,790
)
State and local
 
(44
)
 
207

 
(323
)
Deferred income taxes:
 
 
 
 
 
 
Federal
 
851

 
364

 
2,103

State and local
 
(328
)
 
(240
)
 
8

Total U.S. tax provision/(benefit)
 
(273
)
 
1,680

 
(1,002
)
International
 
 
 
 
 
 
Current income taxes
 
2,619

 
2,046

 
2,157

Deferred income taxes
 
216

 
183

 
(2
)
Total international tax provision
 
2,835

 
2,229

 
2,155

Provision for taxes on income (a), (b), (c), (d)
 
$
2,562

 
$
3,909

 
$
1,153

(a) In 2012 , the Provision for taxes on income was impacted by the following:

72
 
 
2012 Financial Report

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

•
U.S. tax expense of approximately $2.2 billion as a result of providing U.S. deferred income taxes on certain current-year funds earned outside the U.S. that will not be indefinitely reinvested overseas (see Note 5C. Tax Matters: Deferred Taxes );
•
U.S. tax benefits of approximately $1.1 billion , representing tax and interest, resulting from a multi-year settlement with the IRS with respect to audits of the Pfizer Inc. tax returns for the years 2006 through 2008, and international tax benefits of approximately $310 million , representing tax and interest, resulting from the resolution of certain tax positions pertaining to prior years with various foreign tax authorities, and from the expiration of certain statutes of limitations;
•
The non-deductibility of a $336 million fee payable to the federal government as a result of the U.S. Healthcare Legislation;
•
The non-deductibility of the $491 million legal charge associated with Rapamune litigation (see also Note 4. Other Deductions –– Net ); and
•
The expiration of the U.S. research and development tax credit on December 31, 2011.

(b) In 2011 , the Provision for taxes on income was impacted by the following:
•
U.S. tax expense of approximately $ 2.1 billion as a result of providing U.S. deferred income taxes on certain current-year funds earned outside the U.S. that will not be indefinitely reinvested overseas (see Note 5C. Tax Matters: Deferred Taxes );
•
International tax benefits of approximately $267 million , representing tax and interest, resulting from the resolution of certain prior-period tax positions with various foreign tax authorities and from the expiration of certain statutes of limitations, and U.S. tax benefits of approximately $80 million , representing tax and interest, resulting from the settlement of certain audits with the IRS; and
•
The non-deductibility of a $248 million fee payable to the federal government as a result of the U.S. Healthcare Legislation.

(c) In 2010 , the Provision for taxes on income was impacted by the following:
•
U.S. tax expense of approximately $2.5 billion as a result of providing U.S. deferred income taxes on certain current-year funds earned outside the U.S. that will not be indefinitely reinvested overseas (see Note 5C. Tax Matters: Deferred Taxes );
•
U.S. tax benefits of approximately $2.0 billion , representing tax and interest, resulting from a multi-year audit settlement with the IRS, and international tax benefits of approximately $460 million , representing tax and interest, resulting from the resolution of certain prior-period tax positions with various foreign tax authorities, and from the expiration of certain statutes of limitations; and
•
The write-off of approximately $270 million of deferred tax assets related to the Medicare Part D subsidy for retiree prescription drug coverage, resulting from the provisions of 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.

(d) In all years, federal, state and international net tax liabilities assumed or established as part of a business acquisition are not included in Provision for taxes on income (see Note 2A. Acquisitions, Divestitures, Collaborative Arrangements and Equity-Method Investments: Acquisitions ).

B. Tax Rate Reconciliation
The reconciliation of the U.S. statutory income tax rate to our effective tax rate for Income from continuing operations  follows:
 
 
Year Ended December 31,

 
2012

 
2011

 
2010

U.S. statutory income tax rate
 
35.0
 %
 
35.0
 %
 
35.0
 %
Taxation of non-U.S. operations (a), (b), (c)
 
(3.0
)
 
(3.1
)
 
2.5

Tax settlements and resolution of certain tax positions (d)
 
(12.0
)
 
(2.8
)
 
(26.3
)
U.S. Healthcare Legislation (d)
 
1.0

 
0.7

 
2.8

U.S. research and development tax credit and manufacturing deduction (d)
 
(0.3
)
 
(0.9
)
 
(2.3
)
Certain legal settlements and charges (d)
 
1.4

 
—

 
0.4

Acquired IPR&D
 
—

 
—

 
0.5

Wyeth acquisition-related costs
 
—

 
—

 
0.5

Sales of biopharmaceutical companies
 
—

 
0.2

 
—

All other––net
 
(0.9
)
 
2.7

 
(0.9
)
Effective tax rate for income from continuing operations
 
21.2
 %
 
31.8
 %
 
12.2
 %
(a)  
For taxation of non-U.S. operations, this rate impact reflects the income tax rates and relative earnings in the locations where we do business outside the United States, together with the cost of repatriation decisions, as well as changes in uncertain tax positions not included in the reconciling item called “Tax settlements and resolution of certain tax positions”. Specifically: (i) the jurisdictional location of earnings is a significant component of our effective tax rate each year as tax rates outside the U.S. are generally lower than the U.S. statutory income tax rate, and the rate impact of this component is influenced by the specific location of non-U.S. earnings and the level of such earnings as compared to our total earnings; (ii) the cost of repatriation decisions, and other U.S. tax implications of our foreign operations, is a significant component of our effective tax rate each year and generally offsets some of the reduction to our effective tax rate each year resulting from the jurisdictional location of earnings; and (iii) the impact of changes in uncertain tax positions not included in the reconciling item called “Tax settlements and resolution of certain tax positions” is a component of our effective tax rate each year that can result in either an increase or decrease to our effective tax rate. The jurisdictional mix of earnings, which includes the impact of the location of earnings as well as repatriation costs, can vary as a result of the repatriation decisions, as a result of operating fluctuations in the normal course of business and as a result of the extent and location of other income and expense items, such as restructuring charges, asset impairments and gains and losses on strategic business decisions. See also Note 5A. Tax Matters: Taxes on Income from Continuing Operations for the components of pre-tax income and Provision for taxes on income, which is based on the location of the taxing authorities, and for information about settlements and other items impacting Provision for taxes on income .

2012 Financial Report    
 
 
73

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

(b) In all periods presented, the reduction in the effective tax rate resulting from the jurisdictional location of earnings is largely due to generally lower tax rates as well as manufacturing and other incentives associated with our subsidiaries in Puerto Rico, Ireland and Singapore. We benefit from a Puerto Rican incentive grant that expires in 2029. Under the grant, we are partially exempt from income, property and municipal taxes. In Ireland, we benefited from an incentive tax rate effective through 2010 on income from manufacturing operations. In Singapore, we benefit from incentive tax rates effective through 2031 on income from manufacturing and other operations.
(c)  
2010 –– The rate impact in 2010 also includes the adjustments to increase our uncertain tax positions based on tax positions taken during a prior period (see also the reconciliation of our gross unrecognized tax benefits for 2010 in Note 5D. Tax Matters: Tax Contingencies , where substantially all of the prior period increases relate to non-U.S. jurisdictions). Without this impact, the rate impact in 2010 would have been approximately a 2.1% reduction of the U.S. statutory income tax rate.
(d)  
For a discussion about tax settlements and resolution of certain tax positions, the impact of U.S. Healthcare Legislation, the U.S. research and development tax credit and the impact of certain legal settlements and charges, see Note 5A. Tax Matters: Taxes on Income from Continuing Operations . We received no benefit from the U.S. research and development tax credit in 2012 as the credit expired on December 31, 2011 and was not extended until January 2013.

C. Deferred Taxes

Deferred taxes arise as a result of basis differentials between financial statement accounting and tax amounts.
The components of our deferred tax assets and liabilities, shown before jurisdictional netting, follow:
 
 
2012 Deferred Tax
 
2011 Deferred Tax
(MILLIONS OF DOLLARS)
 
Assets
 
(Liabilities)
 
Assets
 
(Liabilities)
Prepaid/deferred items
 
$
1,817

 
$
(119
)
 
$
1,659

 
$
(211
)
Inventories
 
330

 
(198
)
 
324

 
(52
)
Intangible assets
 
1,649

 
(14,187
)
 
1,713

 
(15,301
)
Property, plant and equipment
 
508

 
(1,485
)
 
226

 
(1,311
)
Employee benefits
 
5,042

 
(391
)
 
4,280

 
(524
)
Restructurings and other charges
 
784

 
(334
)
 
553

 
(95
)
Legal and product liability reserves
 
1,888

 
—

 
1,812

 
—

Net operating loss/credit carryforwards
 
3,439

 
—

 
4,381

 
—

Unremitted earnings (c)
 
—

 
(16,042
)
 
—

 
(11,699
)
State and local tax adjustments
 
385

 
—

 
476

 
—

All other
 
1,259

 
(504
)
 
1,105

 
(121
)
 
 
17,101

 
(33,260
)
 
16,529

 
(29,314
)
Valuation allowances
 
(1,102
)
 
—

 
(1,201
)
 
—

Total deferred taxes
 
$
15,999

 
$
(33,260
)
 
$
15,328

 
$
(29,314
)
Net deferred tax liability (a), (b)
 
 
 
$
(17,261
)
 
 
 
$
(13,986
)
(a)  
2012 v. 2011 –– The net deferred tax liability position increased, reflecting an increase in noncurrent deferred tax liabilities related to unremitted earnings, as well as a decrease in deferred tax assets related to net operating loss and credit carryforwards, partially offset by the reduction in noncurrent deferred tax liabilities resulting from the amortization of identifiable intangible assets and the increase in deferred tax assets related to employee benefits.
(b)  
In 2012 , included in Taxes and other current assets ( $3.6 billion ), Taxes and other noncurrent assets ( $700 million ), Other current liabilities ( $11 million ) and Noncurrent deferred tax liabilities ( $21.6 billion ). In 2011 , included in Taxes and other current assets ( $4.0 billion ), Taxes and other noncurrent assets ( $1.2 billion ), Other current liabilities ( $350 million ) and Noncurrent deferred tax liabilities ( $18.9 billion ).
(c)  
See Note 5A. Tax Matters: Taxes on Income from Continuing Operations and Note 2B. Acquisitions, Divestitures, Collaborative Arrangements and Equity-Method Investments: Divestitures.

We have carryforwards, primarily related to foreign tax credits, net operating and capital losses and charitable contributions, which are available to reduce future U.S. federal and state, as well as international, income taxes payable with either an indefinite life or expiring at various times from 2013 to 2032. Certain of our U.S. net operating losses are subject to limitations under Internal Revenue Code Section 382.

Valuation allowances are provided when we believe that our deferred tax assets are not recoverable based on an assessment of estimated future taxable income that incorporates ongoing, prudent and feasible tax planning strategies.

As of December 31, 2012 , we have not made a U.S. tax provision on approximately $73.0 billion of unremitted earnings of our international subsidiaries. As these earnings are intended to be indefinitely reinvested overseas, the determination of a hypothetical unrecognized deferred tax liability as of December 31, 2012 , is not practicable.

74
 
 
2012 Financial Report

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

D. Tax Contingencies

We are subject to income tax in many jurisdictions, and a certain degree of estimation is required in recording the assets and liabilities related to income taxes. All of our tax positions are subject to audit by the local taxing authorities in each tax jurisdiction. These tax audits can involve complex issues, interpretations and judgments and the resolution of matters may span multiple years, particularly if subject to negotiation or litigation. Our assessments are based on estimates and assumptions that have been deemed reasonable by management, but our estimates of unrecognized tax benefits and potential tax benefits may not be representative of actual outcomes, and variation from such estimates could materially affect our financial statements in the period of settlement or when the statutes of limitations expire. We treat these events as discrete items in the period of resolution.

For a description of our accounting policies associated with accounting for income tax contingencies, see Note 1O. Basis of Presentation and Significant Accounting Policies: Deferred Tax Assets and Liabilities and Income Tax Contingencies. For a description of the risks associated with estimates and assumptions, see Note 1C. Basis of Presentation and Significant Accounting Policies: Estimates and Assumptions.

Uncertain Tax Positions

As tax law is complex and often subject to varied interpretations, it is uncertain whether some of our tax positions will be sustained upon audit. As of December 31, 2012 and 2011, we had approximately $5.0 billion and $6.1 billion , respectively, in net liabilities associated with uncertain tax positions, excluding associated interest:
•
Tax assets associated with uncertain tax positions primarily represent our estimate of the potential tax benefits in one tax jurisdiction that could result from the payment of income taxes in another tax jurisdiction. These potential benefits generally result from cooperative efforts among taxing authorities, as required by tax treaties to minimize double taxation, commonly referred to as the competent authority process. The recoverability of these assets, which we believe to be more likely than not, is dependent upon the actual payment of taxes in one tax jurisdiction and, in some cases, the successful petition for recovery in another tax jurisdiction. As of December 31, 2012 and 2011, we had approximately $1.3 billion and $1.2 billion , respectively, in assets associated with uncertain tax positions. In 2012, these amounts were included in Taxes and other noncurrent assets ( $887 million ) and Noncurrent deferred tax liabilities ( $446 million ). In 2011, these amounts were included in Taxes and other noncurrent assets .
•
Tax liabilities associated with uncertain tax positions represent unrecognized tax benefits, which arise when the estimated benefit recorded in our financial statements differs from the amounts taken or expected to be taken in a tax return because of the uncertainties described above. These unrecognized tax benefits relate primarily to issues common among multinational corporations. Substantially all of these unrecognized tax benefits, if recognized, would impact our effective income tax rate.
The reconciliation of the beginning and ending amounts of gross unrecognized tax benefits follows:
(MILLIONS OF DOLLARS)
 
2012

 
2011

 
2010

Balance, beginning
 
$
(7,309
)
 
$
(6,759
)
 
$
(7,657
)
Acquisitions (a)
 
—

 
(72
)
 
(49
)
Divestitures (b)
 
85

 
—

 
—

Increases based on tax positions taken during a prior period (c)
 
(139
)
 
(502
)
 
(513
)
Decreases based on tax positions taken during a prior period (c), (d)
 
1,442

 
271

 
2,384

Decreases based on cash payments for a prior period
 
647

 
575

 
280

Increases based on tax positions taken during the current period (c)
 
(1,125
)
 
(855
)
 
(1,396
)
Impact of foreign exchange
 
78

 
(89
)
 
104

Other, net (c), (e)
 
6

 
122

 
88

Balance, ending (f)
 
$
(6,315
)
 
$
(7,309
)
 
$
(6,759
)
(a)  
The amount in 2011 primarily relates to the acquisition of King. See also Note 2A. Acquisitions, Divestitures, Collaborative Arrangements and Equity-Method Investments: Acquisitions.
(b)  
Primarily relates to the sale of our Nutrition business. See also Note 2B. Acquisitions, Divestitures, Collaborative Arrangements and Equity-Method Investments: Divestitures.
(c)  
Primarily included in Provision for taxes on income.
(d)  
Primarily related to effectively settling certain issues with the U.S. and foreign tax authorities. See also Note 5A. Tax Matters: Taxes on Income from Continuing Operations.
(e)  
Includes decreases as a result of a lapse of applicable statutes of limitations.
(f)  
In 2012, included in Income taxes payable ( $36 million ), Taxes and other current assets ( $30 million ), Taxes and other noncurrent assets ( $169 million ), Noncurrent deferred tax liabilities ( $231 million ) and Other taxes payable ( $5.8 billion ). In 2011, included in Income taxes payable ( $357 million ), Taxes and other current assets ( $11 million ), Taxes and other noncurrent assets ( $225 million ), Noncurrent deferred tax liabilities ( $677 million ) and Other taxes payable ( $6.0 billion ).
•
Interest related to our unrecognized tax benefits is recorded in accordance with the laws of each jurisdiction and is recorded in Provision for taxes on income in our consolidated statements of income. In 2012 , we recorded net interest income of $120 million primarily as a result of settling certain issues with the U.S. and various foreign tax authorities; in 2011 , we recorded net interest expense of $203 million ; and in 2010 , we recorded net interest income of $545 million , primarily as a result of settling certain issues with the U.S. and various foreign tax authorities. Gross accrued interest totaled $766 million as of December 31, 2012 (reflecting a decrease of approximately $63 million as a result of cash payments) and $951 million as of December 31, 2011 (reflecting a decrease of approximately $203 million as a result of cash payments). In 2012 , these amounts were included in Taxes and other current assets ( $14 million ) and Other taxes payable ( $752 million ). In

2012 Financial Report    
 
 
75

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

2011 , these amounts were included in Income taxes payable ( $120 million ), Taxes and other current assets ( $2 million ) and Other taxes payable ( $829 million ). Accrued penalties are not significant. See also Note 5A. Tax Matters: Taxes on Income from Continuing Operations.

Status of Tax Audits and Potential Impact on Accruals for Uncertain Tax Positions

The United States is one of our major tax jurisdictions and we are regularly audited by the IRS:
•
With respect to Pfizer Inc., tax years 2009-2010 are currently under audit. Tax years 2011-2012 are not under audit. All other tax years are closed.
•
With respect to Wyeth, tax years 2006 through the Wyeth acquisition date (October 15, 2009) are currently under audit. All other tax years are closed.
•
With respect to King, the audit for tax year 2008 has been effectively settled, and for Alpharma Inc. (a subsidiary of King), tax years 2005-2007 have been effectively settled. For King, tax years 2009 through the date of acquisition (January 31, 2011) are open, but not under audit. All other tax years are closed. The open tax years and audits for King and its subsidiaries are not material to Pfizer Inc.

In addition to the open audit years in the U.S., we have open audit years in other major tax jurisdictions, such as Canada (2001-2012), Japan (2007-2012), Europe (2007-2012, primarily reflecting Ireland, the United Kingdom, France, Italy, Spain and Germany), Latin America (1998-2012, primarily reflecting Brazil and Mexico) and Puerto Rico (2007-2012).

Any settlements or statutes of limitations expirations could result in a significant decrease in our uncertain tax positions. We estimate that it is reasonably possible that within the next twelve months, our gross unrecognized tax benefits, exclusive of interest, could decrease by as much as $150 million , as a result of settlements with taxing authorities or the expiration of the statutes of limitations. Our assessments are based on estimates and assumptions that have been deemed reasonable by management, but our estimates of unrecognized tax benefits and potential tax benefits may not be representative of actual outcomes, and variation from such estimates could materially affect our financial statements in the period of settlement or when the statutes of limitations expire, as we treat these events as discrete items in the period of resolution. Finalizing audits with the relevant taxing authorities can include formal administrative and legal proceedings, and, as a result, it is difficult to estimate the timing and range of possible changes related to our uncertain tax positions, and such changes could be significant.

E. Taxes on Items of Other Comprehensive Income/(Loss)
The following table provides the components of tax benefit on Other comprehensive loss :
 
 
Year Ended December 31,
(MILLIONS OF DOLLARS)
 
2012

 
2011

 
2010

Foreign currency translation adjustments (a)
 
$
110

 
$
(61
)
 
$
(165
)
Unrealized holding gains/(losses) on derivative financial instruments
 
246

 
(207
)
 
(342
)
Reclassification adjustments for realized (gains)/losses
 
(98
)
 
97

 
215

 
 
148

 
(110
)
 
(127
)
Unrealized holding gains/(losses) on available-for-sale securities
 
20

 
(17
)
 
(4
)
Reclassification adjustments for realized (gains)/losses
 
1

 
—

 
(18
)
 
 
21

 
(17
)
 
(22
)
Benefit plans: Actuarial losses, net
 
(721
)
 
(993
)
 
(504
)
Reclassification adjustments related to amortization
 
171

 
99

 
94

Reclassification adjustments related to curtailments and settlements, net
 
105

 
118

 
98

Other
 
15

 
29

 
82

 
 
(430
)
 
(747
)
 
(230
)
Benefit plans: Prior service credits and other
 
7

 
41

 
210

Reclassification adjustments related to amortization
 
(27
)
 
(27
)
 
(18
)
Reclassification adjustments related to curtailments and settlements, net
 
(51
)
 
(35
)
 
(19
)
Other
 
(3
)
 
(3
)
 
(4
)
 
 
(74
)
 
(24
)
 
169

Tax benefit on other comprehensive loss
 
$
(225
)
 
$
(959
)
 
$
(375
)
(a)  
Taxes are not provided for foreign currency translation adjustments relating to investments in international subsidiaries that will be held indefinitely.


76
 
 
2012 Financial Report

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

Note 6. Accumulated Other Comprehensive Loss, Excluding Noncontrolling Interests

The following table provides the changes, net of tax, in Accumulated other comprehensive income/(loss) :
 
 
Net Unrealized Gain/(Losses)
 
Benefit Plans
 
 
(MILLIONS OF DOLLARS)
 
Currency Translation Adjustment And Other

 
Derivative Financial Instruments

 
Available-For-Sale Securities

 
Actuarial Gains/(Losses)

 
Prior Service (Costs)/ Credits And Other

 
Accumulated Other Comprehensive Income/(Loss)

Balance, January 1, 2010
 
$
3,550

 
$
6

 
$
269

 
$
(3,367
)
 
$
94

 
$
552

Other comprehensive income/(loss) (a)
 
(3,381
)
 
(214
)
 
(112
)
 
(580
)
 
295

 
(3,992
)
Balance, December 31, 2010
 
169

 
(208
)
 
157

 
(3,947
)
 
389

 
(3,440
)
Other comprehensive income/(loss) (a)
 
775

 
(153
)
 
(111
)
 
(1,173
)
 
(27
)
 
(689
)
Balance, December 31, 2011
 
944

 
(361
)
 
46

 
(5,120
)
 
362

 
(4,129
)
Other comprehensive income/(loss) (a)
 
(1,121
)
 
273

 
117

 
(990
)
 
(103
)
 
(1,824
)
Balance, December 31, 2012
 
$
(177
)
 
$
(88
)
 
$
163

 
$
(6,110
)
 
$
259

 
$
(5,953
)
(a)  
Amounts do not include foreign currency translation adjustments attributable to noncontrolling interests of $7 million loss in 2012 , $45 million loss in 2011 and
$5 million income in 2010 .

As of December 31, 2012, we estimate that we will reclassify into 2013 income the following pre-tax amounts currently held in Accumulated other comprehensive loss : $4.7 million of the unrealized holding gains on derivative financial instruments; $609 million of actuarial losses related to benefit plan obligations and plan assets and other benefit plan items; and $62 million of prior service credits, primarily related to benefit plan amendments.


2012 Financial Report    
 
 
77

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

Note 7. Financial Instruments

A. Selected Financial Assets and Liabilities

The following table provides additional information about certain of our financial assets and liabilities:
 
 
As of December 31,
(MILLIONS OF DOLLARS)
 
2012

 
2011

Selected financial assets measured at fair value on a recurring basis (a)
 
 
 
 
Trading securities (b)
 
$
142

 
$
154

Available-for-sale debt securities (c)
 
32,584

 
29,179

Available-for-sale money market funds (d)
 
1,727

 
1,727

Available-for-sale equity securities, excluding money market funds (c)
 
263

 
317

Derivative financial instruments in receivable positions: (e)
 
 

 
 

Interest rate swaps
 
1,036

 
1,033

Foreign currency forward-exchange contracts
 
152

 
349

Foreign currency swaps
 
194

 
17

 
 
36,098

 
32,776

Other selected financial assets
 
 

 
 

Held-to-maturity debt securities, carried at amortized cost (c), (f)
 
1,513

 
1,587

Private equity securities, carried at equity method or at cost (f), (g)
 
1,239

 
1,020

 
 
2,752

 
2,607

Total selected financial assets
 
$
38,850

 
$
35,383

 
Financial liabilities measured at fair value on a recurring basis (a)
 
 

 
 

Derivative financial instruments in a liability position: (h)
 
 

 
 

Foreign currency swaps
 
$
428

 
$
1,396

Foreign currency forward-exchange contracts
 
243

 
355

Interest rate swaps
 
33

 
14

 
 
704

 
1,765

Other financial liabilities (i)
 
 

 
 

Short-term borrowings, carried at historical proceeds, as adjusted (f)
 
6,424

 
4,016

Long-term debt, carried at historical proceeds, as adjusted (j), (k)
 
31,036

 
34,926

 
 
37,460

 
38,942

Total selected financial liabilities
 
$
38,164

 
$
40,707

(a)  
We use a market approach in valuing financial instruments on a recurring basis. See also Note 1E. Basis of Presentation and Significant Accounting Policies: Fair Value . 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 or Level 3 inputs.
(b)  
Trading securities are held in trust for legacy business acquisition severance benefits.
(c)  
Gross unrealized gains and losses are not significant.
(d)  
Includes $408 million as of December 31, 2012 and $357 million as of December 31, 2011 of money market funds held in trust in connection with the asbestos litigation involving Quigley Company, Inc., a wholly owned subsidiary. As of December 31, 2011 , this amount includes approximately $625 million of money market funds that were 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. The amounts held in escrow at December 31, 2011 were released from restriction during 2012 and classified as part of Short-term investments.
(e)  
Designated as hedging instruments, except for certain contracts used as offsets; namely, foreign currency forward-exchange contracts with fair values of $102 million as of December 31, 2012 ; and foreign currency forward-exchange contracts with fair values of $169 million and interest rate swaps with fair values of $8 million as of December 31, 2011 .
(f)  
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 December 31, 2012 or December 31, 2011 . 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 priv ate equity securities at cost are based on Level 3 inputs, using a market approach.
(g)  
Our private equity securities represent investments in the life sciences sector.
(h)  
Designated as hedging instruments, except for certain contracts used as offsets; namely, foreign currency forward-exchange contracts with fair values of $141 million and foreign currency swaps with fair values of $129 million as of December 31, 2012 ; and foreign currency forward-exchange contracts with fair values of $141 million and foreign currency swaps with fair values of $123 million as of December 31, 2011 .
(i)  
Some carrying amounts may include adjustments for discount or premium amortization or for the effect of interest rate swaps designated as hedges.
(j)  
Includes foreign currency debt with fair values of $809 million as of December 31, 2012 and $919 million as of December 31, 2011 , which are used as hedging instruments.

78
 
 
2012 Financial Report

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

(k)  
The fair value of our long-term debt (not including the current portion of long-term debt) is $37.5 billion as of December 31, 2012 and $40.1 billion as of December 31, 2011 . The fair value measurements for our long-term debt are based on Level 2 inputs, using a market approach.

A single estimate of fair value can result from a complex series of judgments about future events and uncertainties and can rely heavily on estimates and assumptions. For a description of our general accounting policies associated with developing fair value estimates, see Note 1E. Basis of Presentation and Significant Accounting Policies: Fair Value . For a description of the risks associated with estimates and assumptions, see Note 1C. Basis of Presentation and Significant Accounting Policies: Estimates and Assumptions .

The following methods and assumptions were used to estimate the fair value of our financial assets and liabilities:
•
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 yield curves.
•
Available-for-sale money market funds—observable Net Asset Value 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 yield curves, 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 yield curves.
•
Private equity securities, excluding equity-method investments—application of the implied volatility associated with an observable biotech index to the carrying amount of our portfolio.
•
Short-term borrowings and long-term debt—third-party matrix-pricing model that uses significant inputs derived from or corroborated by observable market data and our own credit rating.

We periodically review the methodologies, inputs and outputs of third-party pricing services for reasonableness. Our procedures can include, for example, referencing other third-party pricing models, monitoring key observable inputs (like LIBOR interest rates) and selectively performing test-comparisons of values with actual sales of financial instruments.
The following table provides the classification of these selected financial assets and liabilities in our consolidated balance sheets:
 
 
As of December 31,
(MILLIONS OF DOLLARS)
 
2012

 
2011

Assets
 
 
 
 
Cash and cash equivalents
 
$
1,000

 
$
900

Short-term investments
 
22,319

 
23,270

Long-term investments
 
14,149

 
9,814

Taxes and other current assets (a)
 
296

 
357

Taxes and other noncurrent assets (b)
 
1,086

 
1,042

 
 
$
38,850

 
$
35,383

Liabilities
 
 

 
 

Short-term borrowings, including current portion of long-term debt
 
$
6,424

 
$
4,016

Other current liabilities (c)
 
330

 
459

Long-term debt
 
31,036

 
34,926

Other noncurrent liabilities (d)
 
374

 
1,306

 
 
$
38,164

 
$
40,707

(a)  
As of December 31, 2012 , derivative instruments at fair value include foreign currency forward-exchange contracts ( $152 million ) and foreign currency swaps ( $144 million ) and, as of December 31, 2011 , include foreign currency forward-exchange contracts ( $349 million ) and interest rate swaps ( $8 million ).
(b)  
As of December 31, 2012 , derivative instruments at fair value include interest rate swaps ( $1 billion ) and foreign currency swaps ( $50 million ) and, as of December 31, 2011 , include interest rate swaps ( $1 billion ) and foreign currency swaps ( $17 million ).
(c)  
At December 31, 2012 , derivative instruments at fair value include foreign currency forward-exchange contracts ( $243 million ) and foreign currency swaps ( $87 million ) and, as of December 31, 2011 , include foreign currency forward-exchange contracts ( $355 million ) and foreign currency swaps ( $104 million ).
(d)  
At December 31, 2012 , derivative instruments at fair value include foreign currency swaps ( $341 million ) and interest rate swaps ( $33 million ) and, as of December 31, 2011 , include foreign currency swaps ( $1.3 billion ) and interest rate swaps ( $14 million ).


2012 Financial Report    
 
 
79

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

In addition, we have long-term receivables where the determination of fair value employs 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. The differences between the estimated fair values and carrying values of these receivables were not significant as of December 31, 2012 or December 31, 2011 .

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

B. Investments in Debt Securities

The following table provides the contractual maturities of the available-for-sale and held-to-maturity debt securities:
 
 
Years
 
 

 
 
 

 
Over 1

 
Over 5

 
December 31,
2012

(MILLIONS OF DOLLARS)
 
Within 1

 
to 5

 
to 10

 
Total

Available-for-sale debt securities
 
 

 
 

 
 

 
 

Western European and other government debt (a)
 
$
13,671

 
$
2,084

 
$
—

 
$
15,755

Corporate debt (b)
 
1,085

 
4,468

 
1,741

 
7,294

Reverse repurchase agreements (c)
 
2,790

 
—

 
—

 
2,790

Western European, Scandinavian and other government agency debt (a)
 
2,348

 
415

 
—

 
2,763

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

 
2,492

 
43

 
2,535

U.S. government debt
 
688

 
197

 
—

 
885

Supranational debt (a)
 
168

 
394

 
—

 
562

Held-to-maturity debt securities
 
 

 
 

 
 

 
 

Certificates of deposit and other
 
1,240

 
273

 
—

 
1,513

Total debt securities
 
$
21,990

 
$
10,323

 
$
1,784

 
$
34,097

(a)  
All issued by above-investment-grade governments, government agencies or supranational entities, as applicable.
(b)  
Largely issued by above-investment-grade institutions in the financial services sector.
(c)  
Involving U.S. government securities.

C. Short-Term Borrowings

Short-term borrowings include amounts for commercial paper of $2.7 billion as of December 31, 2012 and 2011 . The weighted-average effective interest rate on short-term borrowings outstanding was 1.6% as of December 31, 2012 and 0.2% as of December 31, 2011 .


80
 
 
2012 Financial Report

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

D. Long-Term Debt

The following table provides the components of our senior unsecured long-term debt:
 
 
 
 
As of December 31,
(MILLIONS OF DOLLARS)
 
Maturity Date
 
2012

 
2011

6.20% (a)
 
March 2019
 
$
3,327

 
$
3,248

5.35% (a)
 
March 2015
 
3,065

 
3,069

7.20% (a)
 
March 2039
 
2,903

 
2,948

4.75% euro (b)
 
June 2016
 
2,638

 
2,583

5.75% euro (b)
 
June 2021
 
2,634

 
2,581

3.625% euro (b), (c)
 
June 2013
 
—

 
2,392

6.50% U.K . pound (b)
 
June 2038
 
2,407

 
2,306

5.95%
 
April 2037
 
2,086

 
2,088

5.50%
 
February 2014
 
1,832

 
1,893

5.50% (d)
 
March 2013
 
—

 
1,564

4.55% euro
 
May 2017
 
1,384

 
1,325

4.75% euro
 
December 2014
 
1,284

 
1,266

5.50%
 
February 2016
 
1,048

 
1,061

Notes and other debt with a weighted-average interest rate of 6.51% (e)
 
2021–2036
 
3,403

 
3,435

Notes and other debt with a weighted-average interest rate of 5.28% (f)
 
2014–2018
 
2,254

 
2,302

Foreign currency notes and other foreign currency debt with a weighted-
average interest rate of 2.48% (g)
 
2014-2016
 
771

 
865

Long-term debt
 
 
 
$
31,036

 
$
34,926

Current portion of long-term debt (not included above)
 
 
 
$
2,449

 
$
6

(a)  
Instrument is callable by us at any time at the greater of 100% of the principal amount or the sum of the present values of the remaining scheduled payments of principal and interest discounted at the U.S. Treasury rate plus 0.50% plus, in each case, accrued and unpaid interest.
(b)  
Instrument is callable by us at any time at the greater of 100% of the principal amount or the sum of the present values of the remaining scheduled payments of principal and interest discounted at a comparable government bond rate plus 0.20% plus, in each case, accrued and unpaid interest.
(c)  
At December 31, 2012, the note has been reclassified to Current portion of long-term debt .
(d)  
At December 31, 2012, the note had been called and is no longer outstanding.
(e)  
Contains debt issuances with a weighted-average maturity of approximately 17 years .
(f)  
Contains debt issuances with a weighted-average maturity of approximately 4 years .
(g)  
Contains debt issuances with a weighted-average maturity of approximately 3 years .

The following table provides the maturity schedule of our Long-term debt  outstanding as of December 31, 2012:
(MILLIONS OF DOLLARS)
 
2014

 
2015

 
2016

 
2017

 
After 2017

 
Total

Maturities
 
$
3,922

 
$
3,065

 
$
4,449

 
$
1,907

 
$
17,693

 
$
31,036


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, 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. 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. As of December 31, 2012 , the aggregate notional amount of foreign exchange derivative financial instruments hedging or offsetting foreign currency exposures is $45.6 billion . The derivative financial instruments primarily hedge or offset exposures in the euro, Japanese yen and U.K. pound. The maximum length of time over which we are hedging future foreign exchange cash flow relates to our $2.4 billion U.K. pound debt maturing in 2038.

All derivative contracts used to manage foreign currency risk are measured at fair value and are reported as assets or liabilities on the consolidated balance sheet. Changes in fair value are reported in earnings or in Other comprehensive income/(loss) , depending on the nature and purpose of the financial instrument (offset or hedge relationship) and the effectiveness of the hedge relationships, as follows:

2012 Financial Report    
 
 
81

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

•
We record in Other comprehensive income/(loss) the effective portion of the gains or losses on foreign currency forward-exchange contracts and foreign currency swaps that are designated as cash flow hedges and reclassify those amounts, as appropriate, into earnings in the same period or periods during which the hedged transaction affects earnings.
•
We recognize the gains and losses on forward-exchange contracts and foreign currency swaps that are used to offset the same foreign currency assets or liabilities immediately into earnings along with the earnings impact of the items they generally offset. These contracts essentially take the opposite currency position of that reflected in the month-end balance sheet to counterbalance the effect of any currency movement.
•
We recognize the gain and loss impact on foreign currency swaps designated as hedges of our net investments in earnings in three ways: over time—for the periodic net swap payments; immediately—to the extent of any change in the difference between the foreign exchange spot rate and forward rate; and upon sale or substantial liquidation of our net investments—to the extent of change in the foreign exchange spot rates.
•
We record in Other comprehensive income/(loss) the foreign exchange gains and losses related to foreign exchange-denominated debt designated as a hedge of our net investments in foreign subsidiaries and reclassify those amounts into earnings upon the sale or substantial liquidation of our net investments.
Any ineffectiveness is recognized immediately into earnings. There was no significant ineffectiveness for any period presented.

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. As of December 31, 2012 , the aggregate notional amount of interest rate derivative financial instruments is $11.6 billion . The derivative financial instruments primarily hedge U.S. dollar and euro fixed-rate debt.

All derivative contracts used to manage interest rate risk are measured at fair value and reported as assets or liabilities on the consolidated balance sheet. Changes in fair value are reported in earnings, as follows:
•
We recognize the gains and losses on interest rate swaps that are designated as fair value hedges in earnings upon the recognition of the change in fair value of the hedged risk. We recognize the offsetting earnings impact of fixed-rate debt attributable to the hedged risk also in earnings.

Any ineffectiveness is recognized immediately into earnings. There was no significant ineffectiveness for any period presented.


82
 
 
2012 Financial Report

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

The following table provides information about the gains/(losses) incurred to hedge or offset operational foreign exchange or interest rate risk:
 
 
Amount of
Gains/(Losses)
Recognized in OID (a), (b), (c)
 
Amount of
Gains/(Losses)
Recognized in OCL
(Effective Portion) (a), (d)
 
Amount of
Gains/(Losses)
Reclassified from
OCL into OID
(Effective Portion) (a), (d)
(MILLIONS OF DOLLARS)
 
Dec 31,
2012

 
Dec 31,
2011

 
Dec 31,
2012

 
Dec 31,
2011

 
Dec 31,
2012

 
Dec 31,
2011

Derivative Financial Instruments in Cash Flow Hedge Relationships:
 
 

 
 

 
 

 
 

 
 

 
 

Foreign currency swaps
 
$
—

 
$
—

 
$
676

 
$
(496
)
 
$
257

 
$
(243
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative Financial Instruments in Net Investment Hedge Relationships:
 
 

 
 

 
 

 
 

 
 

 
 

Foreign currency swaps
 
(4
)
 
7

 
200

 
(1,059
)
 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative Financial Instruments Not Designated as Hedges:
 
 

 
 

 
 

 
 

 
 

 
 

Foreign currency forward-exchange contracts
 
(61
)
 
(260
)
 
—

 
—

 
—

 
—

Foreign currency swaps
 
(7
)
 
106

 
—

 
—

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
Non-Derivative Financial Instruments in Net Investment Hedge Relationships:
 
 

 
 

 
 

 
 

 
 

 
 

Foreign currency short-term borrowings
 
—

 
—

 
—

 
940

 
—

 
—

Foreign currency long-term debt
 
—

 
—

 
88

 
(41
)
 
—

 
—

All other net
 
7

 
15

 
5

 
(4
)
 
6

 
4

 
 
$
(65
)
 
$
(132
)
 
$
969

 
$
(660
)
 
$
263

 
$
(239
)
(a)  
OID = Other (income)/deductions—net,   included in Other deductions—net in the consolidated statements of income . OCL = Other comprehensive loss, included in the   consolidated statements of comprehensive income .
(b)  
Also includes gains and losses attributable to the hedged risk in fair value hedge relationships.
(c)  
There was no significant ineffectiveness for any period presented.
(d)  
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 loss––Unrealized holding 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 loss––foreign currency translation adjustments.

For information about the fair value of our derivative financial instruments, and the impact on our consolidated balance sheets, see Note 7A. Financial Instruments: Selected Financial Assets and Liabilities above . Certain of our derivative instruments are covered by associated credit-support agreements that have credit-risk-related contingent features designed to reduce our counterparties’ exposure to our risk of defaulting on amounts owed. As of December 31, 2012 , the aggregate fair value of these derivative instruments that are in a net liability position is $451 million , for which we have posted collateral of $424 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 December 31, 2012 , we would have been required to post an additional $58 million of collateral to our counterparties. The collateral advanced receivables are reported in Cash and cash equivalents.

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 December 31, 2012 , we had $2.9 billion due from a well-diversified, highly rated group (S&P ratings of mostly A+ or better) of bank counterparties around the world. See Note 7B. Financial Instruments: Investments in Debt Securities above for details about 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 December 31, 2012 , we received cash collateral of $660 million against various counterparties. The collateral primarily supports the approximate fair value of our derivative contracts. With respect to the collateral received, which is included in Cash and cash equivalents, the obligations are reported in Short-term borrowings, including current portion of long-term debt.


2012 Financial Report    
 
 
83

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

Note 8. Inventories

The following table provides the components of Inventories :
 
 
As of December 31,
(MILLIONS OF DOLLARS)
 
2012

 
2011

Finished goods
 
$
2,529

 
$
2,311

Work-in-process
 
3,794

 
3,514

Raw materials and supplies
 
740

 
785

Inventories
 
$
7,063

 
$
6,610

Noncurrent inventories (not included above) (a)
 
$
761

 
$
800

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

Note 9. Property, Plant and Equipment

The following table provides the components of Property, plant and equipment :
 
 
Useful Lives

 
As of December 31,
(MILLIONS OF DOLLARS)
 
(Years)  

 
2012

 
2011

Land
 
—

 
$
597

 
$
737

Buildings
 
33-50   

 
11,420

 
12,089

Machinery and equipment
 
8-20   

 
10,795

 
10,882

Furniture, fixtures and other
 
3-12 1/2

 
3,962

 
4,235

Construction in progress
 
—

 
1,108

 
1,294

 
 
 
 
27,882

 
29,237

Less: Accumulated depreciation
 
 
 
13,421

 
13,316

Property, plant and equipment (a)
 
 
 
$
14,461

 
$
15,921

(a)  
The decrease in total property, plant and equipment is primarily due to depreciation, disposals, impairments and the impact of foreign exchange, partially offset by capital additions.

Note 10. Goodwill and Other Intangible Assets

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

 
Specialty
Care and
Oncology

 
Established
Products and
Emerging
Markets

 
Other Operating Segments (a)

 
Total

Balance, January 1, 2011
 
$
6,050

—

$
16,659

 
$
18,274

 
$
2,449

 
$
43,432

Additions (b)
 
129

 
300

 
321

 
55

 
805

Other (c)
 
50

 
138

 
151

 
(7
)
 
332

Balance, December 31, 2011
 
6,229

 
17,097

 
18,746

 
2,497

 
44,569

Additions (d)
 
—

 
—

 
91

 
514

 
605

Other (c)
 
(77
)
 
(212
)
 
(234
)
 
21

 
(502
)
Balance, December 31, 2012
 
$
6,152

 
$
16,885

 
$
18,603

 
$
3,032

 
$
44,672

(a)  
Reflects amounts associated with Animal Health and Consumer Healthcare.
(b)  
Primarily reflects the acquisition of King (see Note 2A. Acquisitions, Divestitures, Collaborative Arrangements and Equity-Method Investments: Acquisitions) .
(c)  
Primarily reflects the impact of foreign exchange.
(d)  
Related to our acquisitions of Ferrosan, Alacer and NextWave (see Note 2A. Acquisitions, Divestitures, Collaborative Arrangements and Equity-Method Investments: Acquisitions) .

As of December 31, 2012 and 2011, the gross goodwill balance was $45.2 billion and $45.1 billion , respectively. Accumulated goodwill impairment losses, generated entirely by our Animal Health operating segment in fiscal 2002, were $536 million as of December 31, 2012 and 2011.


84
 
 
2012 Financial Report

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

B. Other Intangible Assets

The following table provides the components of Identifiable intangible assets :
 
 
December 31, 2012
 
December 31, 2011
(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
 
$
73,112

 
$
(37,069
)
 
$
36,043

 
$
72,678

 
$
(31,922
)
 
$
40,756

Brands
 
1,873

 
(781
)
 
1,092

 
1,678

 
(687
)
 
991

License agreements and other
 
1,085

 
(793
)
 
292

 
1,048

 
(577
)
 
471

 
 
76,070

 
(38,643
)
 
37,427

 
75,404

 
(33,186
)
 
42,218

Indefinite-lived intangible assets
 
 

 
 

 
 

 
 

 
 

 
 

Brands
 
7,828

 
—

 
7,828

 
7,694

 
—

 
7,694

In-process research and development
 
688

 
—

 
688

 
1,200

 
—

 
1,200

Trademarks/Tradenames
 
70

 
—

 
70

 
72

 
—

 
72

 
 
8,586

 
—

 
8,586

 
8,966

 
—

 
8,966

Identifiable intangible assets (a)
 
$
84,656

 
$
(38,643
)
 
$
46,013

 
$
84,370

 
$
(33,186
)
 
$
51,184

(a)  
The decrease is primarily related to amortization, as well as impairment charges (see Note 4. Other Deductions — Net ), partially offset by the assets acquired as part of the acquisitions of NextWave, Ferrosan and Alacer (see Note 2A. Acquisitions, Divestitures, Collaborative Arrangements and Equity-Method Investments: Acquisitions ).

As of December 31, 2012 , our identifiable intangible assets are associated with the following, as a percentage of total identifiable intangible assets, less accumulated amortization:
•
Developed Technology Rights: Specialty Care ( 66% ); Established Products ( 19% ); Primary Care ( 13% ); Animal Health ( 1% ); and Oncology ( 1% );
•
Brands, finite-lived: Consumer Healthcare ( 64% ); Established Products ( 24% ); and Animal Health ( 12% );
•
Brands, indefinite-lived: Consumer Healthcare ( 66% ); and Established Products ( 34% ); and
•
IPR&D: Worldwide Research and Development ( 55% ); Established Products ( 20% ); Primary Care ( 12% ); Specialty Care ( 10% ); and Animal Health ( 3% ).

There are no percentages for our Emerging Markets business unit as it is a geographic-area unit, not a product-based unit. The carrying value of the assets associated with our Emerging Markets business unit is included within the assets associated with the other four biopharmaceutical business units.

For information about intangible asset impairments, see Note 4. Other Deductions — Net.

Developed Technology Rights

Developed technology rights represent the amortized cost associated with developed technology, which has been acquired from third parties and which can include the right to develop, use, market, sell and/or offer for sale the product, compounds and intellectual property that we have acquired with respect to products, compounds and/or processes that have been completed. We possess a well-diversified portfolio of hundreds of developed technology rights across therapeutic categories, primarily representing the commercialized products included in our five biopharmaceutical business units. Virtually all of these assets were acquired in connection with our Wyeth acquisition in 2009 and our Pharmacia acquisition in 2003. The more significant components of developed technology rights are the following (in order of significance): Prevnar 13/Prevenar 13 Infant and Enbrel and, to a lesser extent, Premarin, Prevnar 13/Prevenar 13 Adult, Effexor, Pristiq, Tygacil, BMP-2, Refacto AF and Benefix. Also included in this category are the post-approval milestone payments made under our alliance agreements for certain biopharmaceutical products.

Brands

Brands represent the amortized or unamortized cost associated with tradenames and know-how, as the products themselves do not receive patent protection. Most of these assets are associated with our Consumer Healthcare business unit. Virtually all of these assets were acquired in connection with our Wyeth acquisition in 2009 and our Pharmacia acquisition in 2003. The more significant components of indefinite-lived brands are the following (in order of significance): Advil, Xanax, Centrum and Medrol. The more significant components of finite-lived brands are the following (in order of significance): Depo-Provera, Advil Cold and Sinus and Idoform and Bifiform.


2012 Financial Report    
 
 
85

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

In-Process Research and Development

IPR&D assets represent research and development assets that have not yet received regulatory approval in a major market. The more significant components of IPR&D are a treatment for skin fibrosis and programs for the treatment of staph aureus infections and epilepsy, as well as a vaccine for the prevention of meningitidis serogroup B in adolescents and young adults.

IPR&D assets are required to be classified as indefinite-lived assets until the successful completion or the abandonment of the associated research and development effort. Accordingly, during the development period after the date of acquisition, these assets will not be amortized until approval is obtained in a major market, typically either the U.S. or the EU, or in a series of other countries, subject to certain specified conditions and management judgment. At that time, we will determine the useful life of the asset, reclassify the asset out of in-process research and development and begin amortization. If the associated research and development effort is abandoned, the related IPR&D assets will likely be written-off, and we will record an impairment charge.

Among the IPR&D assets reclassified to Developed Technology rights as a result of being approved in a major market were the following: in 2012, two IPR&D assets with a combined book value of approximately $160 million and, in late 2011, Prevenar 13 for adults age 50 years and older and Vyndaqel (tafamidis meglumine), with a combined book value of approximately $2.3 billion .
For information about impairments of IPR&D assets, see Note 4. Other Deductions––Net.
For IPR&D assets, the risk of failure is significant and there can be no certainty that these assets ultimately will yield a successful product. The nature of the biopharmaceutical business is high-risk and, as such, we expect that many of these IPR&D assets will become impaired and be written off at some time in the future.

Amortization

The weighted-average life of both our total finite-lived intangible assets and the largest component, Developed technology rights, is approximately 11 years. Total amortization expense for finite-lived intangible assets was $5.4 billion in 2012 , $5.8 billion in 2011 and $5.5 billion in 2010 .

The following table provides the annual amortization expense expected for the years 2013 through 2017:
(MILLIONS OF DOLLARS)
 
2013

 
2014

 
2015

 
2016

 
2017

Amortization expense
 
$
4,804

 
$
4,145

 
$
3,735

 
$
3,488

 
$
3,373


Note 11. Pension and Postretirement Benefit Plans and Defined Contribution Plans

The majority of our employees worldwide are covered by defined benefit pension plans, defined contribution plans or both. In the U.S., we have both qualified and supplemental (non-qualified) defined benefit plans. A qualified plan meets the requirements of certain sections of the Internal Revenue Code, and, generally, contributions to qualified plans are tax deductible. A qualified plan typically provides benefits to a broad group of employees with restrictions on discriminating in favor of highly compensated employees with regard to coverage, benefits and contributions. A supplemental (non-qualified) plan provides additional benefits to certain employees. In addition, we provide medical and life insurance benefits to certain retirees and their eligible dependents through our postretirement plans.

Beginning on January 1, 2011, for employees hired in the U.S. and Puerto Rico after December 31, 2010, we no longer offer a defined benefit plan and, instead, offer an enhanced benefit under our defined eligible contribution plan. In addition to the standard matching contribution by the Company, the enhanced benefit provides an automatic Company contribution for such eligible employees based on age and years of service.

On May 8, 2012, we announced to employees that as of January 1, 2018, Pfizer will transition its U.S. and Puerto Rico employees from its defined benefit plans to an enhanced defined contribution savings plan. As a result of this decision to freeze the U.S. and Puerto Rico defined benefit plans, a curtailment was triggered and we performed a re-measurement of the pension obligations and plan assets in the second quarter of 2012 , which had an immaterial impact to the funded status of the plans. For the year ended December 31, 2012 , we recorded, among other impacts, a curtailment gain of approximately $59 million in the consolidated statement of income.


86
 
 
2012 Financial Report

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

A.   Components of Net Periodic Benefit Costs and Changes in Other Comprehensive Loss

The following table provides the annual cost and changes in Other comprehensive loss  for our benefit plans:
 
 
Year Ended December 31,
 
 
Pension Plans
 
 
 
 
 
 
 
 
U.S.
Qualified (a)
 
U.S.
Supplemental
(Non-Qualified) (b)
 
International (c)
 
Postretirement
Plans (d)
(MILLIONS OF DOLLARS)
 
2012

 
2011

 
2010

 
2012

 
2011

 
2010

 
2012

 
2011

 
2010

 
2012

 
2011

 
2010

Service cost (e)
 
$
357

 
$
351

 
347

 
$
35

 
$
36

 
28

 
$
215

 
$
243

 
224

 
$
68

 
$
68

 
79

Interest cost (e)
 
697

 
734

 
740

 
62

 
72

 
77

 
406

 
443

 
418

 
182

 
195

 
211

Expected return on plan assets (e)
 
(983
)
 
(871
)
 
(782
)
 
—

 
—

 
—

 
(424
)
 
(437
)
 
(425
)
 
(46
)
 
(35
)
 
(31
)
Amortization of:
 
 

 
 

 
 
 
 

 
 

 
 
 
 

 
 

 
 
 
 

 
 

 
 
Actuarial losses (e)
 
306

 
145

 
151

 
41

 
36

 
29

 
93

 
86

 
67

 
33

 
17

 
15

Prior service credits
 
(10
)
 
(8
)
 
2

 
(3
)
 
(3
)
 
(2
)
 
(7
)
 
(5
)
 
(4
)
 
(49
)
 
(53
)
 
(38
)
Curtailments and settlements––net
 
83

 
95

 
(52
)
 
24

 
23

 
1

 
(9
)
 
—

 
(3
)
 
(65
)
 
(68
)
 
(23
)
Special termination benefits
 
8

 
23

 
73

 
30

 
26

 
180

 
5

 
5

 
6

 
6

 
3

 
19

 Net periodic benefit costs
 
458

 
469

 
479

 
189

 
190

 
313

 
279

 
335

 
283

 
129

 
127

 
232

Changes in Other comprehensive loss (f)
 
461

 
1,879

 
260

 
110

 
36

 
117

 
759

 
(365
)
 
152

 
267

 
421

 
(183
)
Total amount recognized in comprehensive income
 
$
919

 
$
2,348

 
$
739

 
$
299

 
$
226

 
$
430

 
$
1,038

 
$
(30
)
 
$
435

 
$
396

 
$
548

 
$
49

(a)  
2012 v. 2011 –– The decrease in net periodic benefit cost for our U.S. qualified plans was primarily driven by (i) higher expected return on plan assets (resulting from contributions made to the plan in 2011 that increased the plan asset base), (ii) lower interest costs, (iii) a decrease in special termination benefits, and (iv) lower curtailments and settlements –– net due to the curtailment gain resulting from the decision to freeze the defined benefit plans in the U.S. and Puerto Rico largely offset by an increase in the amounts amortized for actuarial losses (resulting from a decrease in the discount rate and lower than expected actual returns in 2011). 2011 v. 2010 –– The decrease in the U.S. qualified pension plans' net periodic benefit costs was largely driven by lower special termination benefits costs and higher expected returns due to contributions made to the plans, partially offset by lower curtailment gains and an increase in settlement costs associated with on-going restructuring efforts.
(b)  
2012 v. 2011 –– The net periodic benefit cost for our U.S. supplemental (non-qualified) pension plans was largely unchanged as the curtailment gain resulting from the decision to freeze the defined benefit plans in the U.S. and Puerto Rico was more than offset by higher settlement activity. 2011 v. 2010 –– The decrease in the U.S. supplemental (non-qualified) plans’ net periodic benefit costs was primarily driven by lower special termination benefits costs associated with Wyeth-related restructuring initiatives.
(c)  
2012 v. 2011 –– The decrease in net periodic benefit costs for our international pension plans was primarily driven by changes impacting our U.K. plans in 2011 (see (e) below) as well as higher curtailment gains resulting from ongoing restructuring initiatives. 2011 v. 2010 –– The increase in the international plans’ net periodic benefit costs as compared to the prior year was primarily driven by changes in assumptions, including the decrease in discount rates across most plans.
(d)  
2012 v. 2011 –– The net periodic benefit cost for our postretirement plans was largely unchanged, as an increase in amounts amortized for actuarial plan losses was partially offset by higher expected return on plan assets. 2011 v. 2010 –– The decrease in the postretirement plans’ net periodic benefit costs was due to the harmonization of the Wyeth postretirement medical program initiated in mid-2010 .
(e)  
The decrease in service cost in 2012 for our international plans is largely driven by restructuring activities in the U.K. and Ireland. The decrease in interest cost in 2012 and 2011 reflect lower interest rates during the periods. The increase in the expected return on plan assets in 2012 for our U.S. qualified plans is due to a higher plan asset base . The higher amortization of actuarial losses is due larger accumulated actuarial losses resulting from lower interest rates.
(f)  
For details, see our Consolidated Statements of Comprehensive Income and Note 6. Accumulated Other Comprehensive Loss, Excluding Noncontrolling Interests.

The following table provides the amounts in Accumulated other comprehensive loss  expected to be amortized into 2013 net periodic benefit costs:
  
 
Pension Plans
 
  
(MILLIONS OF DOLLARS)
 
U.S.
Qualified
 
U.S.
Supplemental
(Non-Qualified)
 
International 
 
Postretirement
Plans
Actuarial losses
 
$
(360
)
 
$
(54
)
 
$
(149
)
 
$
(46
)
Prior service credits and other
 
7

 
2

 
8

 
45

Total
 
$
(353
)
 
$
(52
)
 
$
(141
)
 
$
(1
)


2012 Financial Report    
 
 
87

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

B.   Actuarial Assumptions
The following table provides the weighted-average actuarial assumptions of our benefit plans:
(PERCENTAGES)
 
2012
 
2011
 
2010
Weighted-average assumptions used to determine benefit obligations
 
 
 
 
 
 
Discount rate:
 
 
 
 
 
 
U.S. qualified pension plans
 
4.3
%
 
5.1
%
 
5.9
%
U.S. non-qualified pension plans
 
3.9
%
 
5.0
%
 
5.8
%
International pension plans
 
3.8
%
 
4.7
%
 
4.8
%
Postretirement plans
 
4.1
%
 
4.8
%
 
5.6
%
Rate of compensation increase:
 
 
 
 
 
 
U.S. qualified pension plans
 
2.7
%
 
3.5
%
 
4.0
%
U.S. non-qualified pension plans
 
2.8
%
 
3.5
%
 
4.0
%
International pension plans
 
3.1
%
 
3.3
%
 
3.5
%
Weighted-average assumptions used to determine net periodic benefit cost
 
 
 
 
 
 
Discount rate:
 
 
 
 
 
 
U.S. qualified pension plans
 
5.1
%
 
5.9
%
 
6.3
%
U.S. non-qualified pension plans
 
5.0
%
 
5.8
%
 
6.2
%
International pension plans
 
4.7
%
 
4.8
%
 
5.1
%
Postretirement plans
 
4.8
%
 
5.6
%
 
6.0
%
Expected return on plan assets:
 
 
 
 
 
 
U.S. qualified pension plans
 
8.5
%
 
8.5
%
 
8.5
%
International pension plans
 
5.9
%
 
6.0
%
 
6.4
%
Postretirement plans
 
8.5
%
 
8.5
%
 
8.5
%
Rate of compensation increase:
 
 
 
 
 
 
U.S. qualified pension plans
 
3.5
%
 
4.0
%
 
4.0
%
U.S. non-qualified pension plans
 
3.5
%
 
4.0
%
 
4.0
%
International pension plans
 
3.3
%
 
3.5
%
 
3.6
%
The assumptions above are used to develop the benefit obligations at fiscal year-end and to develop the net periodic benefit cost for the subsequent fiscal year. Therefore, the assumptions used to determine net periodic benefit cost for each year are established at the end of each previous year, while the assumptions used to determine benefit obligations are established at each year-end.

The net periodic benefit cost and the benefit obligations are based on actuarial assumptions that are reviewed on an annual basis. We revise these assumptions based on an annual evaluation of long-term trends, as well as market conditions that may have an impact on the cost of providing retirement benefits.

The expected rates of return on plan assets for our U.S. qualified, international and postretirement plans represent our long-term assessment of return expectations, which we may change based on shifts in economic and financial market conditions. The 2012 expected rates of return for these plans reflect our long-term outlook for a globally diversified portfolio, which is influenced by a combination of return expectations for individual asset classes, actual historical experience and our diversified investment strategy. The historical returns are one of the inputs used to provide context for the development of our expectations for future returns. Using this information, we develop ranges of returns for each asset class and a weighted-average expected return for our targeted portfolio, which includes the impact of portfolio diversification and active portfolio management.

The following table provides the healthcare cost trend rate assumptions for our U.S. postretirement benefit plans:
 
 
2012

 
2011

Healthcare cost trend rate assumed for next year
 
7.5
%
 
7.8
%
Rate to which the cost trend rate is assumed to decline
 
4.5
%
 
4.5
%
Year that the rate reaches the ultimate trend rate
 
2027

 
2027



88
 
 
2012 Financial Report

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

The following table provides the effects as of December 31, 2012 of a one-percentage-point increase or decrease in the healthcare cost trend rate assumed for postretirement benefits:
(MILLIONS OF DOLLARS)
 
Increase

 
Decrease

Effect on total service and interest cost components
 
$
17

 
$
(16
)
Effect on postretirement benefit obligation
 
333

 
(293
)

Actuarial and other assumptions for pension and postretirement plans can result from a complex series of judgments about future events and uncertainties and can rely heavily on estimates and assumptions. For a description of the risks associated with estimates and assumptions, see Note 1C. Basis of Presentation and Significant Accounting Policies: Estimates and Assumptions .
 
C .Obligations and Funded Status
The following table provides an analysis of the changes in our benefit obligations, plan assets and funded status of our benefit plans:
  
 
Year Ended December 31,
 
 
Pension Plans
 
 
 
 
 
 
U.S. Qualified (a)
 
U.S. Supplemental
(Non-Qualified) (b)
 
International (c)
 
Postretirement
Plans (d)
(MILLIONS OF DOLLARS)
 
2012

 
2011

 
2012

 
2011

 
2012

 
2011

 
2012

 
2011

Change in benefit obligation (e)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Benefit obligation, beginning
 
$
14,835

 
$
13,035

 
$
1,431

 
$
1,401

 
$
8,891

 
$
8,965

 
$
3,900

 
$
3,582

Service cost
 
357

 
351

 
35

 
36

 
215

 
243

 
68

 
68

Interest cost
 
697

 
734

 
62

 
72

 
406

 
443

 
182

 
195

Employee contributions
 
—

 
—

 
—

 
—

 
9

 
12

 
58

 
45

Plan amendments
 
—

 
(73
)
 
—

 
(9
)
 
(1
)
 
4

 
(24
)
 
(28
)
Changes in actuarial assumptions and other
 
1,926

 
1,808

 
252

 
111

 
1,232

 
(516
)
 
259

 
300

Foreign exchange impact
 
—

 
—

 
—

 
—

 
(80
)
 
304

 
1

 
—

Acquisitions
 
(1
)
 
56

 
1

 
—

 
71

 
3

 
—

 
14

Curtailments
 
(605
)
 
(97
)
 
(80
)
 
(10
)
 
(101
)
 
(121
)
 
(11
)
 
17

Settlements
 
(485
)
 
(476
)
 
(121
)
 
(128
)
 
(33
)
 
(56
)
 
—

 
—

Special termination benefits
 
8

 
23

 
30

 
26

 
5

 
5

 
6

 
3

Benefits paid
 
(464
)
 
(526
)
 
(61
)
 
(68
)
 
(387
)
 
(395
)
 
(274
)
 
(296
)
Benefit obligation, ending (e)
 
16,268

 
14,835

 
1,549

 
1,431

 
10,227

 
8,891

 
4,165

 
3,900

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Change in plan assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fair value of plan assets, beginning
 
12,005

 
10,596

 
—

 
—

 
6,953

 
6,542

 
422

 
414

Actual gain on plan assets
 
1,464

 
398

 
—

 
—

 
668

 
176

 
85

 
9

Company contributions
 
20

 
1,969

 
182

 
196

 
383

 
475

 
353

 
250

Employee contributions
 
—

 
—

 
—

 
—

 
9

 
12

 
58

 
45

Foreign exchange impact
 
—

 
—

 
—

 
—

 
(35
)
 
197

 
—

 
—

Acquisitions
 
—

 
44

 
—

 
—

 
31

 
2

 
—

 
—

Settlements
 
(485
)
 
(476
)
 
(121
)
 
(128
)
 
(33
)
 
(56
)
 
—

 
—

Benefits paid
 
(464
)
 
(526
)
 
(61
)
 
(68
)
 
(387
)
 
(395
)
 
(274
)
 
(296
)
Fair value of plan assets, ending
 
12,540

 
12,005

 
—

 
—

 
7,589

 
6,953

 
644

 
422

Funded status—Plan assets less than benefit obligation
 
$
(3,728
)
 
$
(2,830
)
 
$
(1,549
)
 
$
(1,431
)
 
$
(2,638
)
 
$
(1,938
)
 
$
(3,521
)
 
$
(3,478
)
(a)  
The unfavorable change in the funded status of our U.S. qualified plans is primarily due to the decrease in the discount rate, partially offset by the curtailment resulting from the decision to freeze the defined benefit plans in the U.S. and Puerto Rico, and an increase in the actual gain on plan assets.
(b)  
Our U.S. supplemental (non-qualified) plans are generally not funded and these obligations, which are substantially greater than the annual cash outlay for these liabilities, will be paid from cash generated from operations.
(c)  
The unfavorable change in the funded status of our international plans is primarily due to changes in actuarial assumptions, partially offset by an increase in the actual gain on plan assets. Outside the U.S., in general, we fund our defined benefit plans to the extent that tax or other incentives exist.
(d)  
The funded status of our postretirement plans is largely unchanged as changes in actuarial assumptions were offset by the actual return on plan assets and increased contributions.
(e)  
For the U.S. and international pension plans, the benefit obligation is the projected benefit obligation. For the postretirement plans, the benefit obligation is the accumulated postretirement benefit obligation (ABO). The ABO for all of our U.S. qualified pension plans was $15.9 billion in 2012 and $13.8 billion in 2011 . The ABO for our U.S. supplemental (non-qualified) pension plans was $1.5 billion in 2012 and $1.2 billion 2011 . The ABO for our international pension plans was $9.4 billion in 2012 and $8.3 billion in 2011 .

2012 Financial Report    
 
 
89

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

The following table provides information as to how the funded status is recognized in our consolidated balance sheets:
  
 
As of December 31,
 
 
Pension Plans
 
 
 
 
 
 
U.S. Qualified
 
U.S. Supplemental
(Non-Qualified)
 
International
 
Postretirement
Plans
(MILLIONS OF DOLLARS)
 
2012

 
2011

 
2012

 
2011

 
2012

 
2011

 
2012

 
2011

Noncurrent assets (a)
 
$
—

 
$
—

 
$
—

 
$
—

 
$
124

 
$
327

 
$
—

 
$
—

Current liabilities (b)
 
—

 
—

 
(162
)
 
(130
)
 
(47
)
 
(41
)
 
(28
)
 
(134
)
Noncurrent liabilities (c)
 
(3,728
)
 
(2,830
)
 
(1,387
)
 
(1,301
)
 
(2,715
)
 
(2,224
)
 
(3,493
)
 
(3,344
)
Funded status
 
$
(3,728
)
 
$
(2,830
)
 
$
(1,549
)
 
$
(1,431
)
 
$
(2,638
)
 
$
(1,938
)
 
$
(3,521
)
 
$
(3,478
)
(a)  
Included primarily in Taxes and other noncurrent assets .
(b)  
Included in Accrued compensation and related items .
(c)  
Included in Pension benefit obligations and Postretirement benefit obligations , as appropriate.

The following table provides the pre-tax components of amounts recognized in Accumulated other comprehensive loss :

 
As of December 31,

 
Pension Plans
 
 
 
 

 
U.S. Qualified
 
U.S. Supplemental
(Non-Qualified)
 
International
 
Postretirement
Plans
(MILLIONS OF DOLLARS)
 
2012

 
2011

 
2012

 
2011

 
2012

 
2011

 
2012

 
2011

Actuarial losses (a)
 
$
(5,027
)
 
$
(4,638
)
 
$
(664
)
 
$
(566
)
 
$
(2,780
)
 
$
(2,020
)
 
$
(932
)
 
$
(759
)
Prior service (costs)/credits and other
 
51

 
123

 
14

 
26

 
(20
)
 
(21
)
 
374

 
468

Total
 
$
(4,976
)
 
$
(4,515
)
 
$
(650
)
 
$
(540
)
 
$
(2,800
)
 
$
(2,041
)
 
$
(558
)
 
$
(291
)
(a)  
The actuarial losses primarily represent the impact of changes in discount rates and other assumptions that result in cumulative changes in our projected benefit obligations as well as the cumulative difference between the expected return and actual return on plan assets. These actuarial losses are recognized in Accumulated other comprehensive loss and are amortized into net periodic benefit costs over an average period of 9.8 years for our U.S. qualified plans, an average period of 9.9 years for our U.S. supplemental (non-qualified) plans, an average period of 14.5 years for our international plans and an average period of 11.0 years for our postretirement plans.
The following table provides information related to the funded status of selected benefit plans:
 
 
 
As of December 31,
 
 
Pension Plans
 
 
U.S. Qualified
 
U.S. Supplemental (Non-Qualified)
 
International
(MILLIONS OF DOLLARS)
 
2012

 
2011

 
2012

 
2011

 
2012

 
2011

Pension plans with an accumulated benefit obligation in excess of plan assets:
 
 
 
 
 
 
 
 
 
 
 
 
Fair value of plan assets
 
$
12,540

 
$
12,005

 
$
—

 
$
—

 
$
2,776

 
$
2,529

Accumulated benefit obligation
 
15,870

 
13,799

 
1,465

 
1,225

 
5,056

 
4,446

Pension plans with a projected benefit obligation in excess of plan assets:
 
 
 
 
 
 
 
 
 
 
 
 
Fair value of plan assets
 
12,540

 
12,005

 
—

 
—

 
6,432

 
2,686

Projected benefit obligation
 
16,268

 
14,835

 
1,549

 
1,431

 
9,193

 
4,951

All of our U.S. plans and substantially all of our international plans were underfunded as of December 31, 2012.


90
 
 
2012 Financial Report

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

D. Plan Assets
The following table provides the components of plan assets:
  
 
  
 
Fair Value (a)
 
  
 
Fair Value (a)
(MILLIONS OF DOLLARS)
 
As of December 31, 2012

 
Level 1
 
Level  2
 
Level 3
 
As of December 31, 2011

 
Level  1
 
Level  2
 
Level 3
U.S. qualified pension plans
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
368

 
$
—

 
$
368

 
$
—

 
$
2,111

 
$
—

 
$
2,111

 
$
—

Equity securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Global equity securities
 
3,536

 
3,519

 
17

 
—

 
2,522

 
2,509

 
12

 
1

Equity commingled funds
 
2,215

 
—

 
2,215

 
—

 
1,794

 
—

 
1,794

 
—

Debt securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed income commingled funds
 
943

 
—

 
943

 
—

 
870

 
—

 
870

 
—

Government bonds
 
1,093

 
—

 
1,093

 
—

 
808

 
—

 
805

 
3

Corporate debt securities
 
2,414

 
—

 
2,411

 
3

 
1,971

 
—

 
1,966

 
5

Other investments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Private equity funds
 
866

 
—

 
—

 
866

 
920

 
—

 
—

 
920

Insurance contracts
 
348

 
—

 
348

 
—

 
353

 
—

 
353

 
—

Other
 
757

 
—

 
—

 
757

 
656

 
—

 
—

 
656

Total
 
12,540

 
3,519

 
7,395

 
1,626

 
12,005

 
2,509

 
7,911

 
1,585

International pension plans
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
299

 
—

 
299

 
—

 
299

 
—

 
299

 
—

Equity securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Global equity securities
 
1,723

 
1,638

 
85

 
—

 
1,513

 
1,432

 
81

 
—

Equity commingled funds
 
2,194

 
—

 
2,194

 
—

 
1,966

 
—

 
1,966

 
—

Debt securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed income commingled funds
 
825

 
—

 
825

 
—

 
785

 
—

 
785

 
—

Government bonds
 
914

 
—

 
914

 
—

 
956

 
—

 
956

 
—

Corporate debt securities
 
613

 
—

 
613

 
—

 
536

 
—

 
536

 
—

Other investments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Private equity funds
 
110

 
—

 
14

 
96

 
55

 
—

 
4

 
51

Insurance contracts
 
465

 
—

 
117

 
348

 
433

 
—

 
67

 
366

Other
 
446

 
—

 
57

 
389

 
410

 
—

 
62

 
348

Total
 
7,589

 
1,638

 
5,118

 
833

 
6,953

 
1,432

 
4,756

 
765

U.S. postretirement plans (b)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
28

 
—

 
28

 
—

 
19

 
—

 
19

 
—

Equity securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Global equity securities
 
79

 
79

 
—

 
—

 
24

 
24

 
—

 
—

Equity commingled funds
 
50

 
—

 
50

 
—

 
17

 
—

 
17

 
—

Debt securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed income commingled funds
 
20

 
—

 
20

 
—

 
8

 
—

 
8

 
—

Government bonds
 
25

 
—

 
25

 
—

 
8

 
—

 
8

 
—

Corporate debt securities
 
55

 
—

 
55

 
—

 
19

 
—

 
19

 
—

Other investments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Insurance contracts
 
350

 
—

 
350

 
—

 
312

 
—

 
312

 
—

Other
 
37

 
—

 
37

 
—

 
15

 
—

 
15

 
—

Total
 
$
644

 
$
79

 
$
565

 
$
—

 
$
422

 
$
24

 
$
398

 
$
—

(a)  
Fair values are determined based on valuation inputs categorized as Level 1, 2 or 3 (see Note 1E. Basis of Presentation and Significant Accounting Policies: Fair Value ).

2012 Financial Report    
 
 
91

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

(b)  
Reflects postretirement plan assets, which support a portion of our U.S. retiree medical plans.
The following table provides an analysis of the changes in our more significant investments valued using significant unobservable inputs:
 
 
Year Ended December 31,
 
 
U.S. Qualified Pension Plans
 
International Pension Plans
 
 
Private Equity Funds
 
Other
 
Insurance Contracts
 
Other
(MILLIONS OF DOLLARS)
 
2012

 
2011

 
2012

 
2011

 
2012

 
2011

 
2012

 
2011

Fair value, beginning
 
$
920

 
$
899

 
$
656

 
$
465

 
$
366

 
$
366

 
$
348

 
$
214

Actual return on plan assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets held, ending
 
4

 
(246
)
 
61

 
24

 
8

 
8

 
(14
)
 
(4
)
Assets sold during the period
 
—

 
55

 
—

 
(6
)
 
—

 
—

 
5

 
—

Purchases, sales and settlements, net
 
(58
)
 
212

 
40

 
173

 
(5
)
 
(12
)
 
50

 
120

Transfer into/(out of) Level 3
 
—

 
—

 
—

 
—

 
(5
)
 
(15
)
 
—

 
12

Exchange rate changes
 
—

 
—

 
—

 
—

 
(16
)
 
19

 
—

 
6

Fair value, ending
 
$
866

 
$
920

 
$
757

 
$
656

 
$
348

 
$
366

 
$
389

 
$
348


A single estimate of fair value can result from a complex series of judgments about future events and uncertainties and can rely heavily on estimates and assumptions. For a description of our general accounting policies associated with developing fair value estimates, see Note 1E. Basis of Presentation and Significant Accounting Policies: Fair Value. For a description of the risks associated with estimates and assumptions, see Note 1C. Basis of Presentation and Significant Accounting Policies: Estimates and Assumptions.

Specifically, the following methods and assumptions were used to estimate the fair value of our pension and postretirement plans’ assets:
•
Cash and cash equivalents, Equity commingled funds, Fixed-income commingled funds––observable prices.
•
Global equity securities—quoted market prices.
•
Government bonds, Corporate debt securities—observable market prices.
•
Other investments—principally unobservable inputs that are significant to the estimation of fair value. These unobservable inputs could include, for example, the investment managers’ assumptions about earnings multiples and future cash flows.
We periodically review the methodologies, inputs and outputs of third-party pricing services for reasonableness.

92
 
 
2012 Financial Report

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

The following table provides the long-term target asset allocations ranges and the percentage of the fair value of plan assets for benefit plans:
  
 
As of December 31,
  
 
Target
Allocation Percentage

 
Percentage of Plan Assets
(PERCENTAGES)
 
2012

 
2012

 
2011

U.S. qualified pension plans
 
 
 
 
 
 
Cash and cash equivalents
 
0-5

 
2.9
%
 
17.6
%
Equity securities
 
25-50

 
45.9
%
 
36.0
%
Debt securities
 
30-55

 
35.5
%
 
30.4
%
Real estate and other investments
 
10-15

 
15.7
%
 
16.0
%
Total
 
100
%
 
100
%
 
100
%
International pension plans
 
 
 
 
 
 
Cash and cash equivalents
 
0-5

 
3.9
%
 
4.4
%
Equity securities
 
25-50

 
51.6
%
 
50.0
%
Debt securities
 
30-55

 
31.0
%
 
32.7
%
Real estate and other investments
 
10-15

 
13.5
%
 
12.9
%
Total
 
100
%
 
100
%
 
100.0
%
U.S. postretirement plans
 
 
 
 
 
 
Cash and cash equivalents
 
0-5

 
4.4
%
 
4.6
%
Equity securities
 
10-35

 
20.1
%
 
9.7
%
Debt securities
 
5-30

 
15.5
%
 
8.1
%
Real estate, insurance contracts and other investments
 
55-70

 
60.0
%
 
77.6
%
Total
 
100
%
 
100
%
 
100
%

We utilize long-term asset allocation ranges in the management of our plans’ invested assets. Our long-term return expectations are developed based on a diversified, global investment strategy that takes into account historical experience, as well as the impact of portfolio diversification, active portfolio management, and our view of current and future economic and financial market conditions. As market conditions and other factors change, we may adjust our targets accordingly and our asset allocations may vary from the target allocations.

Our long-term asset allocation ranges reflect our asset class return expectations and tolerance for investment risk within the context of the respective plans’ long-term benefit obligations. These ranges are supported by analysis that incorporates historical and expected returns by asset class, as well as volatilities and correlations across asset classes and our liability profile. This analysis, referred to as an asset-liability analysis, also provides an estimate of expected returns on plan assets, as well as a forecast of potential future asset and liability balances.

The plans’ assets are managed with the objectives of minimizing pension expense and cash contributions over the long term. Asset liability studies are performed periodically in order to support asset allocations.

The investment managers of each separately managed account are permitted to use derivative securities as described in their investment management agreements.

Investment performance is reviewed on a monthly basis in total, as well as by asset class and individual manager, relative to one or more benchmarks. Investment performance and detailed statistical analysis of both investment performance and portfolio holdings are conducted, a large portion of which is presented to senior management on a quarterly basis. Periodic formal meetings are held with each investment manager to review the investments.

E. Cash Flows

It is our practice to fund amounts for our qualified pension plans that are at least sufficient to meet the minimum requirements set forth in applicable employee benefit laws and local tax laws.


2012 Financial Report    
 
 
93

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

The following table provides the expected future cash flow information related to our benefit plans:
  
 
Pension Plans
 
 
(MILLIONS OF DOLLARS)
 
U.S.Qualified
 
U.S. Supplemental
(Non-Qualified)
 
International
 
Postretirement Plans

Expected employer contributions:
 
 
 
 
 
 
 
 
2013
 
$
—

 
$
162

 
$
343

 
$
257

Expected benefit payments:
 
 
 
 
 
 
 
 
2013
 
$
1,115

 
$
162

 
$
444

 
$
295

2014
 
782

 
137

 
400

 
306

2015
 
796

 
116

 
417

 
313

2016
 
812

 
111

 
430

 
321

2017
 
856

 
114

 
442

 
329

2018–2022
 
4,595

 
561

 
2,396

 
1,748

The table reflects the total U.S. and international plan benefits projected to be paid from the plans or from our general assets under the current actuarial assumptions used for the calculation of the benefit obligation and, therefore, actual benefit payments may differ from projected benefit payments.
F. Defined Contribution Plans

We have savings and investment plans in several countries, including the U.S., U.K., Japan, Spain and the Netherlands. For the U.S. plans, employees may contribute a portion of their salaries and bonuses to the plans, and we match, largely in company stock or company stock units, a portion of the employee contributions. In the U.S., the matching contributions in company stock are sourced through open market purchases. Employees are permitted to subsequently diversify all or any portion of their company matching contribution. The contribution match for certain legacy Pharmacia U.S. participants is held in an employee stock ownership plan. We recorded charges related to our plans of $297 million in 2012 , $288 million in 2011 and $259 million in 2010 .

Note 12. Equity

A. Common Stock

We purchase our common stock through privately negotiated transactions or in open market purchases as circumstances and prices warrant. Purchased shares under each of the share-purchase plans, which are authorized by our Board of Directors, are available for general corporate purposes. On December 12, 2011, we announced that the Board of Directors had authorized a $10 billion share-purchase plan (the December 2011 Stock Purchase Plan). On November 1, 2012, we announced that the Board of Directors had authorized an additional $10 billion share-purchase plan, which became effective on November 30, 2012.

In 2012, we purchased approximately 349 million shares of our common stock for approximately $8.2 billion . In 2011, we purchased approximately 459 million shares of our common stock for approximately $9.0 billion . In 2010, we purchased approximately 61 million shares of our common stock for approximately $1 billion . After giving effect to share purchases through year-end 2012, our remaining share-purchase authorization is approximately $11.8 billion at December 31, 2012 .
B. Preferred Stock

The Series A convertible perpetual preferred stock is held by an Employee Stock Ownership Plan (Preferred ESOP) Trust and provides dividends at the rate of 6.25% , which are accumulated and paid quarterly. The per-share stated value is $40,300 and the preferred stock ranks senior to our common stock as to dividends and liquidation rights. Each share is convertible, at the holder’s option, into 2,574.87 shares of our common stock with equal voting rights. The conversion option is indexed to our common stock and requires share settlement, and, therefore, is reported at the fair value at the date of issuance. We may redeem the preferred stock at any time or upon termination of the Preferred ESOP, at our option, in cash, in shares of common stock, or a combination of both at a price of $40,300 per share.
C. Employee Stock Ownership Plans

We have two employee stock ownership plans (collectively, the ESOPs), the Preferred ESOP and another that holds common stock of the Company (Common ESOP).

Allocated shares held by the Common ESOP are considered outstanding for the earnings per share (EPS) calculations and the eventual conversion of allocated preferred shares held by the Preferred ESOP is assumed in the diluted EPS calculation. As of December 31, 2012 , the Preferred ESOP held preferred shares with a stated value of approximately $39 million , convertible into approximately 2 million shares of our common stock. As of December 31, 2012 , the Common ESOP held approximately 3 million shares of our common stock. As of December 31, 2012 , all preferred and common shares held by the ESOPs have been allocated to the Pharmacia U.S. and certain Puerto Rico savings plan participants.

94
 
 
2012 Financial Report

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

D. Employee Benefit Trust

The Pfizer Inc. Employee Benefit Trust (EBT) was established in 1999 to fund our employee benefit plans through the use of its holdings of Pfizer Inc. stock. Our consolidated balance sheets reflect the fair value of the shares owned by the EBT as a reduction of Equity. Beginning in May 2009, the Company began using the shares held in the EBT to help fund the Company’s matching contribution in the Pfizer Savings Plan.

Note 13. Share-Based Payments

Our compensation programs can include share-based payments, in the form of stock options, Restricted Stock Units (RSUs), Portfolio Performance Shares (PPSs), Performance Share Awards (PSAs) and Total Shareholder Return Units (TSRUs).

The Company’s shareholders approved the amendment and restatement of the 2004 Stock Plan at the Annual Meeting of Shareholders held on April 23, 2009. The primary purpose of the amendment was to increase the number of shares of common stock available for grants by 425 million shares. In addition, the amendment provided other changes, including that the number of stock options, Stock Appreciation Rights (SARs) (known as TSRUs) or other performance-based awards that may be granted to any one individual during any 36 -month period is limited to 8 million shares, and that RSUs, PPSs, PSAs and restricted stock grants count as 2 shares, while stock options and TSRUs count as 1 share, toward the maximums for the incremental 425 million shares. As of December 31, 2012 , 236 million shares were available for award. The 2004 Stock Plan, as amended, is the only Pfizer plan under which equity-based compensation may currently be awarded to executives and other employees.

Although not required to do so, we have used authorized and unissued shares and, to a lesser extent, shares held in our Employee Benefit Trust and treasury stock to satisfy our obligations under these programs.
A. Impact on Net Income
The following table provides the components of share-based compensation expense and the associated tax benefit:
 
 
Year Ended December 31,
(MILLIONS OF DOLLARS)
 
2012

 
2011

 
2010

Restricted stock units
 
$
235

 
$
228

 
$
211

Stock options
 
157

 
166

 
150

Total shareholder return units
 
35

 
17

 
28

Performance share awards
 
35

 
3

 
14

Portfolio performance shares
 
14

 
—

 
—

Directors’ compensation and other
 
5

 
5

 
2

Share-based payment expense
 
481

 
419

 
405

Tax benefit for share-based compensation expense
 
(149
)
 
(139
)
 
(129
)
Share-based payment expense, net of tax
 
$
332

 
$
280

 
$
276

Amounts capitalized as part of inventory cost and the impact of modifications under our cost-reduction and productivity initiatives to share-based awards were not significant for any period presented. Generally, the modifications resulted in an acceleration of vesting, either in accordance with plan terms or at management’s discretion.
B. Restricted Stock Units (RSUs)

RSUs are awarded to select employees and, when vested, entitle the holder to receive a specified number of shares of Pfizer common stock, including shares resulting from dividend equivalents paid on such RSUs. For RSUs granted during the periods presented, in virtually all instances, the units vest after three years of continuous service from the grant date.

We measure the value of RSU grants as of the grant date using the closing price of Pfizer common stock. The values determined through this fair value methodology generally are amortized on a straight-line basis over the vesting term into Cost of sales, Selling, informational and administrative expenses , and Research and development expenses , as appropriate.

2012 Financial Report    
 
 
95

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

The following table summarizes all RSU activity during 2012:
 
 
Shares 
(Thousands)

 
Weighted-
Average
Grant Date
Fair Value
Per Share

Nonvested, December 31, 2011
 
41,940

 
$
17.08

Granted
 
13,232

 
21.05

Vested
 
(15,464
)
 
15.09

Reinvested dividend equivalents
 
1,585

 
22.95

Forfeited
 
(3,433
)
 
19.17

Nonvested, December 31, 2012
 
37,860

 
$
19.34


The following table provides data related to all RSU activity:
(MILLIONS OF DOLLARS)
 
Year Ended December 31,
2012

 
2011

 
2010

Total fair value of shares vested
 
$
348

 
$
256

 
$
222

Total compensation cost related to nonvested RSU awards not yet recognized, pre-tax
 
$
258

 
$
264

 
$
230

Weighted-average period over which RSU cost is expected to be recognized (years)
 
1.2

 
1.3

 
1.4

 
C. Stock Options

Stock options are awarded to select employees and, when vested, entitle the holder to purchase a specified number of shares of Pfizer common stock at a price per share equal to the closing market price of Pfizer common stock on the date of grant.

All eligible employees may receive stock option grants. No stock options were awarded to senior and other key management in any period presented; however, stock options were awarded to certain other employees. In virtually all instances, stock options granted since 2005 vest after three years of continuous service from the grant date and have a contractual term of 10 years . In most cases, stock options must be held for at least 1 year from the grant date before any vesting may occur. In the event of a sale or restructuring, options held by employees are immediately vested and are exercisable for a period from three months to their remaining term, depending on various conditions.

We measure the value of stock option grants as of the grant date using, for virtually all grants, the Black-Scholes-Merton option-pricing model. The values determined through this fair value methodology generally are amortized on a straight-line basis over the vesting term into Cost of sales, Selling, informational and administrative expenses , and Research and development expenses , as appropriate.

The following table provides the weighted-average assumptions used in the valuation of stock options:
 
 
Year Ended December 31,
  
 
2012

 
2011

 
2010

Expected dividend yield (a)
 
4.10
%
 
4.14
%
 
4.00
%
Risk-free interest rate (b)
 
1.28
%
 
2.59
%
 
2.87
%
Expected stock price volatility (c)
 
23.78
%
 
25.55
%
 
26.85
%
Expected term (d)  (years)
 
6.50

 
6.25

 
6.25

(a)  
Determined using a constant dividend yield during the expected term of the option.
(b)  
Determined using the interpolated yield on U.S. Treasury zero-coupon issues.
(c)  
Determined using implied volatility, after consideration of historical volatility.
(d)  
Determined using historical exercise and post-vesting termination patterns.

96
 
 
2012 Financial Report

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

The following table summarizes all stock option activity during 2012:
 
 
Shares
(Thousands)

 
Weighted-Average
Exercise Price
Per Share

 
Weighted-Average
Remaining
Contractual Term
(Years)
 
Aggregate
Intrinsic
Value (a)
(Millions)

Outstanding, December 31, 2011
 
429,553

 
$
25.31

 
 
 
 
Granted
 
57,919

 
21.04

 
 
 
 
Exercised
 
(37,160
)
 
15.98

 
 
 
 
Forfeited
 
(6,881
)
 
19.12

 
 
 
 
Canceled
 
(60,476
)
 
35.96

 
 
 
 
Outstanding, December 31, 2012
 
382,955

 
$
24.00

 
5.0
 
$
1,230

Vested and expected to vest (b) , December 31, 2012
 
375,102

 
24.10

 
4.9
 
$
1,183

Exercisable, December 31, 2012
 
225,829

 
$
27.32

 
2.8
 
$
308

(a)  
Market price of underlying Pfizer common stock less exercise price.
(b)  
The number of options expected to vest takes into account an estimate of expected forfeitures.

The following table summarizes data related to all stock option activity:

 
Year Ended/As of
December 31,
(MILLIONS OF DOLLARS, EXCEPT PER STOCK OPTION AMOUNTS)
 
2012

 
2011

 
2010

Weighted-average grant date fair value per stock option
 
$
2.79

 
$
3.15

 
$
3.25

Aggregate intrinsic value on exercise
 
$
263

 
$
32

 
$
5

Cash received upon exercise
 
$
568

 
$
153

 
$
16

Tax benefits realized related to exercise
 
$
81

 
$
10

 
$
1

Total compensation cost related to nonvested stock options not yet recognized, pre-tax

 
$
148

 
$
177

 
$
178

Weighted-average period over which stock option compensation cost is expected to be recognized (years)
 
1.2

 
1.3

 
1.3


D. Total Shareholder Return Units (TSRUs)

TSRUs are awarded to senior and other key management. The contractual terms for TSRUs were for 5 years for certain awards and for 7 years for the balance of the awards in 2012 and 2011 , and for 5 years for all awards in 2010 . The target number of shares is determined by reference to the fair value of share-based awards to similar employees in the industry peer group.

We measure the value of TSRU grants as of the grant date using a Monte Carlo simulation model. The values determined through this fair value methodology generally are amortized on a straight-line basis over the vesting term into Cost of sales, Selling, informational and administrative expenses , and Research and development expenses , as appropriate.
The weighted-average assumptions used in the valuation of TSRUs follow:  

 
Year Ended December 31,
2012

 
2011

 
2010

Expected dividend yield (a)
 
4.10
%
 
4.15
%
 
3.99
%
Risk-free interest rate (b)
 
1.15
%
 
2.51
%
 
2.34
%
Expected stock price volatility (c)
 
23.80
%
 
25.55
%
 
26.76
%
Contractual term (years)
 
5.97

 
5.95

 
5.00

(a)  
Determined using a constant dividend yield during the expected term of the TSRU.
(b)  
Determined using the interpolated yield on U.S. Treasury zero-coupon issues.
(c)  
Determined using implied volatility, after consideration of historical volatility.

E. Performance Share Awards (PSAs)

PSAs are awarded to senior and other key management. PSAs vest after three years of continuous service from the grant date. The number of shares paid, if any, including shares resulting from dividend equivalents, depends upon the achievement of predetermined goals related to Pfizer ' s total share return as compared to an industry peer group, for the three-year performance period from the year of the grant date. The target number of shares is determined by reference to the value of share-based awards to similar employees in the industry peer group.

We measure the value of PSA grants as of the grant date using the intrinsic value method, for which we use the closing price of Pfizer common stock. The values are amortized on a straight-line basis over the probable vesting term into Cost of sales, Selling, informational and

2012 Financial Report    
 
 
97

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

administrative expenses , and Research and development expenses , as appropriate, and adjusted each reporting period, as necessary, to reflect changes in the price of Pfizer's common stock, changes in management's assessment of the probability that the specified performance criteria will be achieved and/or changes in management's assessment of the probable vesting term.

F. Portfolio Performance Shares (PPSs)

PPSs are awarded to select employees and, when vested, entitle the holder to receive, at the end of the performance period, a number of shares within a possible range of shares of Pfizer common stock, including shares resulting from dividend equivalents paid on such shares. For PPSs granted during the period presented, the awards vest after three years of continuous service from the grant date and the number of shares paid, if any, depends on the achievement of predetermined goals related to Pfizer ' s long-term product portfolio during a five year performance period from the year of the grant date. The target number of shares is determined by reference to competitive survey data.

We measure the value of PPS grants as of the grant date using the intrinsic value method, for which we use the closing price of Pfizer common stock. The values are amortized on a straight-line basis over the probable vesting term into Research and development expenses and adjusted each reporting period, as necessary, to reflect changes in the price of Pfizer's common stock, changes in management's assessment of the probability that the specified performance criteria will be achieved and/or changes in management's assessment of the probable vesting term.
The following table summarizes all PPS activity during 2012, with the shares representing the maximum award that could be achieved:
 
 
Shares 
(Thousands)

 
Weighted-
Average
Intrinsic
Value
Per Share

Nonvested, December 31, 2011
 
—

 
$
—

Granted
 
3,964

 
21.03

Vested
 
(2
)
 
22.42

Forfeited
 
(220
)
 
23.18

Nonvested, December 31, 2012
 
3,742

 
$
25.08

The following table provides data related to all PPS activity:
(MILLIONS OF DOLLARS)
 
Year Ended December 31,
2012

 
2011

 
2010

Total fair value of shares vested
 
$
—

 
$
—

 
$
—

Total compensation cost related to nonvested PPS awards not yet recognized, pre-tax
 
$
33

 
$
—

 
$
—

Weighted-average period over which nonvested PPS cost is expected to be recognized (years)
 
2.2

 
—

 
—




98
 
 
2012 Financial Report

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

Note 14. Earnings Per Common Share Attributable to Common Shareholders
The following table provides the detailed calculation of Earnings per common share:
 
 
Year Ended December 31,
(IN MILLIONS)
 
2012

 
2011

 
2010

EPS Numerator––Basic
 
 

 
 
 
 
Income from continuing operations
 
$
9,518

 
$
8,395

 
$
8,318

Less: Net income attributable to noncontrolling interests
 
28

 
40

 
31

Income from continuing operations attributable to Pfizer Inc.
 
9,490

 
8,355

 
8,287

Less: Preferred stock dividends––net of tax
 
2

 
2

 
2

Income from continuing operations attributable to Pfizer Inc. common shareholders
 
9,488

 
8,353

 
8,285

Discontinued operations––net of tax
 
5,080

 
1,654

 
(30
)
Net income attributable to Pfizer Inc. common shareholders
 
$
14,568

 
$
10,007

 
$
8,255

EPS Numerator––Diluted
 
 

 
 

 
 
Income from continuing operations attributable to Pfizer Inc. common shareholders and assumed conversions
 
$
9,490

 
$
8,355

 
$
8,287

Discontinued operations––net of tax
 
5,080

 
1,654

 
(30
)
Net income attributable to Pfizer Inc. common shareholders and assumed conversions
 
$
14,570

 
$
10,009

 
$
8,257

EPS Denominator
 
 

 
 

 
 
Weighted-average number of common shares outstanding––Basic
 
7,442

 
7,817

 
8,036

Common-share equivalents: stock options, stock issuable under employee compensation plans and convertible preferred stock
 
66

 
53

 
38

Weighted-average number of common shares outstanding––Diluted
 
7,508

 
7,870

 
8,074

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

177

 
272

 
413

(a)  
These common stock equivalents were outstanding for the years ended December 31, 2012 , 2011 and 2010 , but were not included in the computation of diluted EPS for those periods because their inclusion would have had an anti-dilutive effect.

Note 15. Lease Commitments

We lease properties and equipment for use in our operations. In addition to rent, the leases may require us to pay directly for taxes, insurance, maintenance and other operating expenses or to pay higher rent when operating expenses increase. Rental expense, net of sublease income, was $335 million in 2012 , $380 million in 2011 and $381 million in 2010 .

The future minimum rental commitments under non-cancelable operating leases follow:
(MILLIONS OF DOLLARS)
 
2013

 
2014

 
2015

 
2016

 
2017

 
After 2017

Lease commitments
 
$
184

 
$
162

 
$
132

 
$
85

 
$
74

 
$
618


Note 16. Insurance

Our insurance coverage reflects market conditions (including cost and availability) existing at the time it is written, and our decision to obtain insurance coverage or to self-insure varies accordingly. Depending upon the cost and availability of insurance and the nature of the risk involved, the amount of self-insurance may be significant. The cost and availability of coverage have resulted in self-insuring certain exposures, including product liability. If we incur substantial liabilities that are not covered by insurance or substantially exceed insurance coverage and that are in excess of existing accruals, there could be a material adverse effect on our results of operations or cash flows in the period in which the amounts are paid and/or accrued (see Note 17. Commitments and Contingencies ).


2012 Financial Report    
 
 
99

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

Note 17. Commitments and Contingencies

We and certain of our subsidiaries are subject to numerous contingencies arising in the ordinary course of business. For a discussion of our tax contingencies, see Notes to Consolidated Financial Statements–– Note 5D. Tax Matters: Tax Contingencies .

A. Legal Proceedings

Our non-tax contingencies include, among others, the following:
•
Patent litigation, which typically involves challenges to the coverage and/or validity of our patents on various products, processes or dosage forms. We are the plaintiff in the vast majority of these actions. An adverse outcome in actions in which we are the plaintiff could result in a loss of patent protection for the drug at issue, a significant loss of revenues from that drug and impairments of any associated assets.
•
Product liability and other product-related litigation, which can include personal injury, consumer, off-label promotion, securities-law, antitrust and breach of contract claims, among others, often involves highly complex issues relating to medical causation, label warnings and reliance on those warnings, scientific evidence and findings, actual, provable injury and other matters.
•
Commercial and other matters, which can include merger-related and product-pricing claims and environmental claims and proceedings, can involve complexities that will vary from matter to matter.
•
Government investigations, which often are related to the extensive regulation of pharmaceutical companies by national, state and local government agencies in the U.S. and in other countries. 
 
Certain of these contingencies could result in losses, including damages, fines and/or civil penalties, and/or criminal charges, which could be substantial.

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

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

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

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

A1. Legal Proceedings––Patent Litigation
 
Like other pharmaceutical companies, we are involved in numerous suits relating to our patents, including but not limited to those discussed below. Most of the suits involve claims by generic drug manufacturers that patents covering our products, processes or dosage forms are invalid and/or do not cover the product of the generic manufacturer. Also, counterclaims, as well as various independent actions, have been filed claiming that our assertions of, or attempts to enforce, our patent rights with respect to certain products constitute unfair competition and/or violations of antitrust laws. In addition to the challenges to the U.S. patents on a number of our products that are discussed below, we note that the patent rights to certain of our products are being challenged in various other countries.

ACTIONS IN WHICH WE ARE THE PLAINTIFF AND CERTAIN RELATED ACTIONS

Viagra (sildenafil)
In March 2010, we brought a patent-infringement action in the U.S. District Court for the Eastern District of Virginia against Teva Pharmaceuticals USA, Inc. (Teva USA) and Teva Pharmaceutical Industries Ltd. (Teva Pharmaceutical Industries), which had filed an

100
 
 
2012 Financial Report

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

abbreviated new drug application with the U.S. Food and Drug Administration (FDA) seeking approval to market a generic version of Viagra. Teva USA and Teva Pharmaceutical Industries assert the invalidity and non-infringement of the Viagra use patent, which (including the six -month pediatric exclusivity period resulting from the Company’s conduct of clinical studies to evaluate Revatio in the treatment of pediatric patients with pulmonary arterial hypertension; Viagra and Revatio have the same active ingredient, sildenafil) expires in 2020. In August 2011, the court ruled that our Viagra use patent is valid and infringed, thereby preventing Teva USA and Teva Pharmaceutical Industries from receiving FDA approval for a generic version of Viagra and from marketing its generic product in the U.S. before 2020. In September 2011, Teva USA and Teva Pharmaceutical Industries appealed the decision to the U.S. Court of Appeals for the Federal Circuit.

In October 2010 , we filed a patent-infringement action with respect to Viagra in the U.S. District Court for the Southern District of New York against Apotex Inc. and Apotex Corp., Mylan Pharmaceuticals Inc. and Mylan Inc., Actavis, Inc. and Amneal Pharmaceuticals LLC. These generic manufacturers have filed abbreviated new drug applications with the FDA seeking approval to market their generic versions of Viagra. They assert the invalidity and non-infringement of the Viagra use patent.

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

Sutent (sunitinib malate)
In May 2010, Mylan Pharmaceuticals Inc. notified us that it had filed an abbreviated new drug application with the FDA seeking approval to market a generic version of Sutent and challenging on various grounds the Sutent basic patent, which expires in 2021, and two other patents, which expire in 2020 and 2021. In June 2010, we filed suit against Mylan Pharmaceuticals Inc. in the U.S. District Court for the District of Delaware asserting the infringement of those three patents.

Lyrica (pregabalin)
Beginning in March 2009, several generic manufacturers notified us that they had filed abbreviated new drug applications with the FDA seeking approval to market generic versions of Lyrica capsules and, in the case of one generic manufacturer, Lyrica oral solution. Each of the generic manufacturers is challenging one or more of three patents for Lyrica: the basic patent, which expires in 2018, and two other patents, which expire in 2013 and 2018. Each of the generic manufacturers asserts the invalidity and/or the non-infringement of the patents subject to challenge. Beginning in April 2009, we filed actions against these generic manufacturers in the U.S. District Court for the District of Delaware asserting the infringement and validity of our patents for Lyrica. All of these cases were consolidated in the District of Delaware. In July 2012, the court held that all three patents are valid and infringed, thereby preventing the generic manufacturers from obtaining final FDA approval for their generic versions of Lyrica and from marketing those products in the U.S. prior to the expiration of the three patents. In August 2012, the generic manufacturers appealed the decision to the U.S. Court of Appeals for the Federal Circuit.

In November 2010, Novel Laboratories, Inc. (Novel) notified us that it had filed an abbreviated new drug application with the FDA seeking approval to market a generic version of Lyrica oral solution and asserting the invalidity and/or non-infringement of our three patents for Lyrica referred to above. In January 2011, we filed an action against Novel in the U.S. District Court for the District of Delaware asserting the validity and infringement of all three patents.

Apotex Inc. notified us, in May and June 2011, respectively, that it had filed abbreviated new drug applications with the FDA seeking approval to market generic versions of Lyrica oral solution and Lyrica capsules. Apotex Inc. asserts the invalidity and non-infringement of the basic patent, as well as the seizure patent that expires in 2013. In July 2011, we filed an action against Apotex Inc. in the U.S. District Court for the District of Delaware asserting the validity and infringement of the challenged patents in connection with both of the abbreviated new drug applications.

In October 2011, Alembic Pharmaceuticals Limited (Alembic) notified us that it had filed an abbreviated new drug application with the FDA seeking approval to market a generic version of Lyrica capsules and asserting the invalidity of the basic patent. In December 2011, we filed an action against Alembic in the U.S. District Court for the District of Delaware asserting the validity and infringement of the basic patent.

In December 2012, Wockhardt Limited (Wockhardt) notified us that it had filed an abbreviated new drug application with the FDA seeking approval to market a generic version of Lyrica oral solution and asserting the invalidity and non-infringement of the basic patent. In January 2013, we filed an action against Wockhardt in the U.S. District Court for the District of Delaware asserting the validity and infringement of the basic patent.

In February 2013, the Canadian Federal Court denied our application to prevent approval of a generic version of Lyrica in Canada, a decision that is not subject to appeal, and shortly thereafter generic versions of Lyrica became available in Canada.

Protonix (pantoprazole sodium)
Wyeth has a license to market Protonix in the U.S. from Nycomed GmbH (Nycomed), which owns the patents relating to Protonix. The basic patent (including the six -month pediatric exclusivity period) for Protonix expired in January 2011.
 
Following their respective filings of abbreviated new drug applications with the FDA, Teva USA and Teva Pharmaceutical Industries, Sun Pharmaceutical Advanced Research Centre Ltd. and Sun Pharmaceutical Industries Ltd. (collectively, Sun) and KUDCO Ireland, Ltd. (KUDCO Ireland) received final FDA approval to market their generic versions of Protonix 20mg and 40mg delayed-release tablets. Wyeth and Nycomed filed actions against those generic manufacturers in the U.S. District Court for the District of New Jersey, which subsequently were consolidated into a single proceeding, alleging infringement of the basic patent and seeking declaratory and injunctive relief. Following the court's denial of a preliminary injunction sought by Wyeth and Nycomed, Teva USA and Teva Pharmaceutical Industries and Sun launched

2012 Financial Report    
 
 
101

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

their generic versions of Protonix tablets at risk in December 2007 and January 2008, respectively. Wyeth launched its own generic version of Protonix tablets in January 2008, and Wyeth and Nycomed filed amended complaints in the pending patent-infringement action seeking compensation for damages resulting from Teva USA’s, Teva Pharmaceutical Industries’ and Sun's at-risk launches.
 
In April 2010, the jury in the pending patent-infringement action upheld the validity of the basic patent for Protonix. In July 2010, the court upheld the jury verdict, but it did not issue a judgment against Teva USA, Teva Pharmaceutical Industries or Sun because of their other claims relating to the patent that still are pending. Wyeth and Nycomed will continue to pursue all available legal remedies against those generic manufacturers, including compensation for damages resulting from their at-risk launches.
 
Separately, Wyeth and Nycomed are defendants in purported class actions brought by direct and indirect purchasers of Protonix in the U.S. District Court for the District of New Jersey. Plaintiffs seek damages, on behalf of the respective putative classes, for the alleged violation of antitrust laws in connection with the procurement and enforcement of the patents for Protonix. These purported class actions have been stayed pending resolution of the underlying patent litigation in the U.S. District Court for the District of New Jersey.
 
Rapamune (sirolimus)
In March 2010, Watson Laboratories Inc. - Florida (Watson Florida) notified us that it had filed an abbreviated new drug application with the FDA seeking approval to market a generic version of Rapamune. Watson Florida asserted the invalidity and non-infringement of a method-of-use patent which (including the six -month pediatric exclusivity period) expires in January 2014 and a solid-dosage formulation patent which (including the six-month pediatric exclusivity period) expires in 2018. In April 2010, we filed actions against Watson Florida and three other Watson entities in the U.S. District Courts for the District of Delaware and the Southern District of Florida asserting the infringement of the method-of-use patent. In June 2010, our action in the Southern District of Florida was transferred to the District of Delaware and consolidated with our pending action there. In January 2013, the court ruled that the method-of-use patent is valid and infringed, thereby preventing Watson Florida and the three other Watson entities from marketing a generic version of Rapamune in the U.S. prior to the expiration of that patent, subject to a possible appeal of the decision by Watson Florida and the three other Watson entities.

Tygacil (tigecycline)
In October 2009, Sandoz, Inc., a division of Novartis AG (Sandoz), notified Wyeth that it had filed an abbreviated new drug application with the FDA seeking approval to market a generic version of Tygacil. Sandoz asserts the invalidity and non-infringement of two of Wyeth’s patents relating to Tygacil, including the basic patent, which expires in 2016. In December 2009, Wyeth filed suit against Sandoz in the U.S. District Court for the District of Delaware asserting infringement of the basic patent. In January 2013, this action was settled on terms that are not material to Pfizer.

EpiPen
King Pharmaceuticals, Inc. (King) brought a patent-infringement action against Sandoz in the U.S. District Court for the District of New Jersey in July 2010 as the result of its abbreviated new drug application with the FDA seeking approval to market an epinephrine injectable product. Sandoz is challenging patents, which expire in 2025, covering the next-generation autoinjector for use with epinephrine that is sold under the EpiPen brand name.
 
Embeda (morphine sulfate/naltrexone hydrochloride extended-release capsules)
In August 2011, Watson Florida notified us that it had filed an abbreviated new drug application with the FDA seeking approval to market a generic version of Embeda extended-release capsules. Watson Florida asserts the invalidity and non-infringement of three formulation patents that expire in 2027. In October 2011, we filed an action against Watson Florida in the U.S. District Court for the District of Delaware asserting the infringement of, and defending against the allegations of the invalidity of, the three formulation patents.

Torisel (temsirolimus)
In December 2011, we brought patent-infringement actions in the U.S. District Court for the District of Delaware against Sandoz and Accord Healthcare, Inc. USA and certain of its affiliates (collectively, Accord) as a result of their abbreviated new drug applications with the FDA seeking approval to market generic versions of Torisel before the expiration of the basic patent in 2014. In May 2012, we brought an action in the same court against Sandoz for infringement of a formulation patent that expires in 2026. In September 2012, our actions against Sandoz and Accord were consolidated in the District of Delaware.

Pristiq (desvenlafaxine)
Beginning in May 2012, several generic manufacturers notified us that they had filed abbreviated new drug applications with the FDA seeking approval to market generic versions of Pristiq. Each of the generic manufacturers asserts the invalidity, unenforceability and/or non-infringement of one or both of two patents for Pristiq that expire in 2022 and in 2027. Beginning in June 2012, we filed actions against these generic manufacturers in the U.S. District Court for the District of Delaware and, in certain instances, also in other jurisdictions asserting the validity, enforceability and infringement of those patents.
 
ACTION IN WHICH WE WERE THE DEFENDANT
 
Lipitor (atorvastatin)
In the U.K., while the patent protection for Lipitor expired in November 2011, the exclusivity period was extended by six months to May 6, 2012 by virtue of the pediatric extension to the supplementary protection certificate. In September 2011, Dr. Reddy’s Laboratories (U.K.) Limited filed an action in the High Court of Justice seeking revocation of the six-month pediatric extension and damages resulting from the inability to launch its generic Lipitor product during the pediatric extension period in the U.K. and certain other European Union (EU) markets. The action was based upon the interpretation of the EU Pediatric Medicines Regulation. In December 2012, the court decided in our favor, rejecting Dr. Reddy's claim in its entirety. In January 2013, this action was settled on terms that are not material to Pfizer.


102
 
 
2012 Financial Report

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

A2. Legal Proceedings––Product Litigation
 
Like other pharmaceutical companies, we are defendants in numerous cases, including but not limited to those discussed below, related to our pharmaceutical and other products. Plaintiffs in these cases seek damages and other relief on various grounds for alleged personal injury and economic loss.
 
Asbestos
•
Quigley

Quigley Company, Inc. (Quigley), a wholly owned subsidiary, was acquired by Pfizer in 1968 and sold products containing small amounts of asbestos until the early 1970s. In September 2004, Pfizer and Quigley took steps that were intended to resolve all pending and future claims against Pfizer and Quigley in which the claimants allege personal injury from exposure to Quigley products containing asbestos, silica or mixed dust. We recorded a charge of $369 million pre-tax ( $229 million after-tax) in the third quarter of 2004 in connection with these matters.

In September 2004, Quigley filed a petition in the U.S. Bankruptcy Court for the Southern District of New York seeking reorganization under Chapter 11 of the U.S. Bankruptcy Code. In March 2005, Quigley filed a reorganization plan in the Bankruptcy Court that needed the approval of 75% of the voting claimants, as well as the Bankruptcy Court and the U.S. District Court for the Southern District of New York. In connection with that filing, Pfizer entered into settlement agreements with lawyers representing more than 80% of the individuals with claims related to Quigley products against Quigley and Pfizer. The agreements provide for a total of $430 million in payments, of which $215 million became due in December 2005 and has been and is being paid to claimants upon receipt by Pfizer of certain required documentation from each of the claimants. The reorganization plan provided for the establishment of a trust (the Trust) for the evaluation and, as appropriate, payment of all unsettled pending claims, as well as any future claims alleging injury from exposure to Quigley products.

In February 2008, the Bankruptcy Court authorized Quigley to solicit an amended reorganization plan for acceptance by claimants. According to the official report filed with the court by the balloting agent in July 2008, the requisite votes were cast in favor of the amended plan of reorganization.

The Bankruptcy Court held a confirmation hearing with respect to Quigley’s amended plan of reorganization that concluded in December 2009. In September 2010, the Bankruptcy Court declined to confirm the amended reorganization plan. As a result of the foregoing, Pfizer recorded additional charges for this matter of approximately $1.3 billion pre-tax (approximately $800 million after-tax) in 2010. Further, in order to preserve its right to address certain legal issues raised in the court’s opinion, in October 2010 , Pfizer filed a notice of appeal and motion for leave to appeal the Bankruptcy Court’s decision denying confirmation.

In March 2011, Pfizer entered into a settlement agreement with a committee (the Ad Hoc Committee) representing approximately 40,000 claimants in the Quigley bankruptcy proceeding (the Ad Hoc Committee claimants). Consistent with the additional charges recorded in 2010 referred to above, the principal provisions of the settlement agreement provide for a settlement payment in two installments and other consideration, as follows:
•
the payment to the Ad Hoc Committee, for the benefit of the Ad Hoc Committee claimants, of a first installment of $500 million upon receipt by Pfizer of releases of asbestos-related claims against Pfizer Inc. from Ad Hoc Committee claimants holding $500 million in the aggregate of claims (Pfizer began paying this first installment in June 2011);
•
the payment to the Ad Hoc Committee, for the benefit of the Ad Hoc Committee claimants, of a second installment of $300 million upon Pfizer’s receipt of releases of asbestos-related claims against Pfizer Inc. from Ad Hoc Committee claimants holding an additional $300 million in the aggregate of claims following the earlier of the effective date of a revised plan of reorganization and April 6, 2013;
•
the payment of the Ad Hoc Committee’s legal fees and expenses incurred in this matter up to a maximum of $19 million (Pfizer began paying these legal fees and expenses in May 2011); and
•
the procurement by Pfizer of insurance for the benefit of certain Ad Hoc Committee claimants to the extent such claimants with non-malignant diseases have a future disease progression to a malignant disease (Pfizer procured this insurance in August 2011).

Following the execution of the settlement agreement with the Ad Hoc Committee, Quigley filed a revised plan of reorganization and accompanying disclosure statement with the Bankruptcy Court in April 2011, which it amended in June 2012. In August 2012, the Bankruptcy Court authorized Quigley to solicit the revised plan of reorganization for acceptance by claimants. The balloting agent's preliminary tabulation report filed with the court reflects that the requisite number of asbestos-related claimants cast votes in favor of the revised plan. A class of claimants holding non-asbestos-related, unsecured claims voted against the revised plan. However, we believe that, under applicable bankruptcy law, the revised plan may be confirmed notwithstanding the vote of the non-asbestos-related claimants.

Under the revised plan, and consistent with the additional charges recorded in 2010 referred to above, we expect to contribute an additional amount to the Trust, if and when the Bankruptcy Court confirms the plan, of cash and non-cash assets (including insurance proceeds) with a value in excess of $550 million . The Bankruptcy Court must find that the revised plan meets the standards of the U.S. Bankruptcy Code before it confirms the plan. We expect that, if approved by claimants, confirmed by the Bankruptcy Court and the District Court and upheld on any subsequent appeal, the revised reorganization plan will result in the District Court entering a permanent injunction directing pending claims, as well as future claims, alleging asbestos-related personal injury from exposure to Quigley products to the Trust, subject to the recent decision of the Second Circuit discussed below. There is no assurance that the plan will be approved by claimants or confirmed by the courts.

In April 2012, the U.S. Court of Appeals for the Second Circuit affirmed a ruling by the U.S. District Court for the Southern District of New York that the Bankruptcy Court’s preliminary injunction in the Quigley bankruptcy proceeding does not prohibit actions directly against Pfizer Inc. for

2012 Financial Report    
 
 
103

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

alleged asbestos-related personal injury from exposure to Quigley products based on the “apparent manufacturer” theory of liability under Pennsylvania law. The Second Circuit’s decision is procedural and does not address the merits of the plaintiffs’ claims under Pennsylvania law. After the Second Circuit denied our petition for a rehearing, in September 2012, we filed a petition for certiorari with the U.S. Supreme Court seeking a reversal of the Second Circuit’s decision. In July 2012, the Second Circuit had granted a stay of its decision while the U.S. Supreme Court considers our petition for certiorari.

In a separately negotiated transaction with an insurance company in August 2004, we agreed to a settlement related to certain insurance coverage which provides for payments to an insurance proceeds trust established by Pfizer and Quigley over a ten -year period of amounts totaling $405 million . Most of these insurance proceeds, as well as other payments from insurers that issued policies covering Pfizer and Quigley, would be paid, following confirmation, to the Trust for the benefit of present unsettled and future claimants with claims arising from exposure to Quigley products.
•
Other Matters

Between 1967 and 1982, Warner-Lambert owned American Optical Corporation, which manufactured and sold respiratory protective devices and asbestos safety clothing. In connection with the sale of American Optical in 1982, Warner-Lambert agreed to indemnify the purchaser for certain liabilities, including certain asbestos-related and other claims. As of December 31, 2012 , approximately 66,400 claims naming American Optical and numerous other defendants were pending in various federal and state courts seeking damages for alleged personal injury from exposure to asbestos and other allegedly hazardous materials. Warner-Lambert is actively engaged in the defense of, and will continue to explore various means to resolve, these claims.

Warner-Lambert and American Optical brought suit in state court in New Jersey against the insurance carriers that provided coverage for the asbestos and other allegedly hazardous materials claims related to American Optical. A majority of the carriers subsequently agreed to pay for a portion of the costs of defending and resolving those claims. The litigation continues against the carriers who have disputed coverage or how costs should be allocated to their policies, and the court held that Warner-Lambert and American Optical are entitled to payment from each of those carriers of a proportionate share of the costs associated with those claims. Under New Jersey law, a special allocation master was appointed to implement certain aspects of the court’s rulings.

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

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

Celebrex and Bextra
Beginning in late 2004, actions, including purported class actions, were filed in various federal and state courts against Pfizer, Pharmacia Corporation (Pharmacia) and certain current and former officers, directors and employees of Pfizer and Pharmacia. These actions include (i) purported class actions alleging that Pfizer and certain current and former officers of Pfizer violated federal securities laws by misrepresenting the safety of Celebrex and Bextra, and (ii) purported class actions filed by persons who claim to be participants in the Pfizer or Pharmacia Savings Plan alleging that Pfizer and certain current and former officers, directors and employees of Pfizer or, where applicable, Pharmacia and certain former officers, directors and employees of Pharmacia, violated certain provisions of the Employee Retirement Income Security Act of 1974 (ERISA) by selecting and maintaining Pfizer stock or Pharmacia stock as an investment alternative when it allegedly no longer was a suitable or prudent investment option. In June 2005, the federal securities and ERISA actions were transferred for consolidated pre-trial proceedings to a Multi-District Litigation (In re Pfizer Inc. Securities, Derivative and "ERISA" Litigation MDL-1688) in the U.S. District Court for the Southern District of New York. In the consolidated federal securities action in the Multi-District Litigation, the court in March 2012 certified a class consisting of all persons who purchased or acquired Pfizer stock between October 31, 2000 and October 19, 2005. In November 2012, several institutional investors that had opted out of the certified class filed three, separate, multi-plaintiff actions in the Southern District of New York against the same defendants named in the consolidated class action, asserting allegations substantially similar to those asserted in the consolidated class action.

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

Hormone-Replacement Therapy

•
Personal Injury and Economic Loss Actions

Pfizer and certain wholly owned subsidiaries and limited liability companies, including Wyeth and King, along with several other pharmaceutical manufacturers, have been named as defendants in approximately 10,000 actions in various federal and state courts alleging personal injury or economic loss related to the use or purchase of certain estrogen and progestin medications prescribed for women to treat the symptoms of menopause. Although new actions are occasionally filed, the number of new actions was not significant in the fourth quarter

104
 
 
2012 Financial Report

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

of 2012, and we do not expect a substantial change in the rate of new actions being filed. Plaintiffs in these suits allege a variety of personal injuries, including breast cancer, ovarian cancer, stroke and heart disease. Certain co-defendants in some of these actions have asserted indemnification rights against Pfizer and its affiliated companies. The cases against Pfizer and its affiliated companies involve one or more of the following products, all of which remain approved by the FDA: femhrt (which Pfizer divested in 2003); Activella and Vagifem (which are Novo Nordisk products that were marketed by a Pfizer affiliate from 2000 to 2004); Premarin, Prempro, Aygestin, Cycrin and Premphase (which are legacy Wyeth products); and Provera, Ogen, Depo-Estradiol, Estring and generic MPA (which are legacy Pharmacia & Upjohn products). The federal cases have been transferred for consolidated pre-trial proceedings to a Multi-­District Litigation (In re Prempro Products Liability Litigation MDL-1507) in the U.S. District Court for the Eastern District of Arkansas. Certain of the federal cases have been remanded to their respective District Courts for further proceedings including, if necessary, trial.
 
This litigation consists of individual actions, a few purported statewide class actions and a purported provincewide class action in Quebec, Canada, a statewide class action in California and a nationwide class action in Canada. In March 2011, in an action against Wyeth seeking the refund of the purchase price paid for Wyeth’s hormone-replacement therapy products by individuals in the State of California during the period from January 1995 to January 2003, the U.S. District Court for the Southern District of California certified a class consisting of all individual purchasers of such products in California who actually heard or read Wyeth’s alleged misrepresentations regarding such products. This is the only hormone-replacement therapy action to date against Pfizer and its affiliated companies in the U.S. in which a class has been certified. In addition, in August 2011, in an action against Wyeth seeking damages for personal injury, the Supreme Court of British Columbia certified a class consisting of all women who were prescribed Premplus and/or Premarin in combination with progestin in Canada between January 1, 1997 and December 1, 2003 and who thereafter were diagnosed with breast cancer.

Pfizer and its affiliated companies have prevailed in many of the hormone-replacement therapy actions that have been resolved to date, whether by voluntary dismissal by the plaintiffs, summary judgment, defense verdict or judgment notwithstanding the verdict; a number of these cases have been appealed by the plaintiffs. Certain other hormone-replacement therapy actions have resulted in verdicts for the plaintiffs and have included the award of compensatory and, in some instances, punitive damages; each of these cases has been appealed by Pfizer and/or its affiliated companies. The decisions in a few of the cases that had been appealed by Pfizer and/or its affiliated companies or by the plaintiffs have been upheld by the appellate courts, while several other cases that had been appealed by Pfizer and/or its affiliated companies or by the plaintiffs have been remanded by the appellate courts to their respective trial courts for further proceedings. Trials of additional hormone-replacement therapy actions are underway or scheduled in 2013.

Most of the unresolved actions against Pfizer and/or its affiliated companies have been outstanding for more than five years and could take many more years to resolve. However, opportunistic settlements could occur at any time. The litigation process is time-consuming, as every hormone-replacement action being litigated involves contested issues of medical causation and knowledge of risk. Even though the vast majority of hormone-replacement therapy actions concern breast cancer, the underlying facts (e.g., medical causation, family history, reliance on warnings, physician/patient interaction, analysis of labels, actual, provable injury and other critical factors) can differ significantly from action to action, and the process of discovery has not yet begun for a majority of the unresolved actions. In addition, the hormone-replacement therapy litigation involves fundamental issues of science and medicine that often are uncertain and continue to evolve.

As of February 2013, Pfizer and its affiliated companies had settled, or entered into definitive agreements or agreements-in-principle to settle, approximately 95% of the hormone-replacement therapy actions pending against us and our affiliated companies. Since the inception of this litigation, we have recorded aggregate charges with respect to those actions, as well as with respect to the actions that have resulted in verdicts against us or our affiliated companies, of approximately $1.6 billion . In addition, we have recorded aggregate charges of approximately $100 million that provide for the expected costs to resolve all remaining hormone-replacement therapy actions against Pfizer and its affiliated companies, excluding the class actions and purported class actions referred to above. The approximately $100 million charges are an estimate and, while we cannot reasonably estimate the range of reasonably possible loss in excess of the amounts accrued for these contingencies given the uncertainties inherent in this product liability litigation, as described above, additional charges may be required in the future.

•
Government Inquiries; Action by the State of Nevada

Pfizer and/or its affiliated companies also have received inquiries from various federal and state agencies and officials relating to the marketing of their hormone-replacement products. In November 2008, the State of Nevada filed an action against Pfizer, Pharmacia & Upjohn Company and Wyeth in state court in Nevada alleging that they had engaged in deceptive marketing of their respective hormone-replacement therapy medications in Nevada in violation of the Nevada Deceptive Trade Practices Act. The action seeks monetary relief, including civil penalties and treble damages. In February 2010, the action was dismissed by the court on the grounds that the statute of limitations had expired. In July 2011, the Nevada Supreme Court reversed the dismissal and remanded the case to the district court for further proceedings.
 
Effexor

•
Personal Injury Actions

A number of individual lawsuits and multi-plaintiff lawsuits have been filed against us and/or our subsidiaries in various federal and state courts alleging personal injury as a result of the purported ingestion of Effexor.

•
Antitrust Actions

Beginning in May 2011, actions, including purported class actions, were filed in various federal courts against Wyeth and, in certain of the actions, affiliates of Wyeth and certain other defendants relating to Effexor XR, which is the extended-release formulation of Effexor. The plaintiffs in each of the class actions seek to represent a class consisting of all persons in the U.S. and its territories who directly purchased,

2012 Financial Report    
 
 
105

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

indirectly purchased or reimbursed patients for the purchase of Effexor XR or generic Effexor XR from any of the defendants from June 14, 2008 until the time the defendants’ allegedly unlawful conduct ceased. The plaintiffs in all of the actions allege delay in the launch of generic Effexor XR in the U.S. and its territories, in violation of federal antitrust laws and, in certain of the actions, the antitrust, consumer protection and various other laws of certain states, as the result of Wyeth fraudulently obtaining and improperly listing certain patents for Effexor XR, enforcing certain patents for Effexor XR, and entering into a litigation settlement agreement with a generic manufacturer with respect to Effexor XR. Each of the plaintiffs seeks treble damages (for itself in the individual actions or on behalf of the putative class in the purported class actions) for alleged price overcharges for Effexor XR or generic Effexor XR in the U.S. and its territories since June 14, 2008. All of these actions have been consolidated in the U.S. District Court for the District of New Jersey. In October 2012, the court stayed these actions pending the review by the U.S. Supreme Court of an action, to which the Company is not a party, involving a similar legal issue.

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

Neurontin

•
Off-Label Promotion Actions in the U.S.

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

In the Multi-District Litigation, in 2009, the court denied the plaintiffs’ renewed motion for certification of a nationwide class of all consumers and third-party payers who allegedly purchased or reimbursed patients for the purchase of Neurontin for off-label uses from 1994 through 2004. In May 2011, the court denied a motion to reconsider its class certification ruling.
 
In 2010, the Multi-District Litigation court partially granted our motion for summary judgment, dismissing the claims of all of the proposed class representatives for third-party payers and four of the six proposed class representatives for individual consumers. In June 2011, three third-party payer proposed class representatives appealed both the dismissal and the denial of class certification to the U.S. Court of Appeals for the First Circuit.

Also in the Multi-District Litigation, in February 2011, a third-party payer who was not included in the proposed class action appealed a dismissal order to the U.S. Court of Appeals for the First Circuit.

Plaintiffs are seeking certification of statewide classes of Neurontin purchasers in actions pending in California and Illinois. State courts in New York, Pennsylvania, Missouri and New Mexico have declined to certify statewide classes of Neurontin purchasers.

In January 2011, the U.S. District Court for the District of Massachusetts entered an order trebling a jury verdict against us in an action by a third-party payer seeking damages for the alleged off-label promotion of Neurontin in violation of the federal Racketeer Influenced and Corrupt Organizations (RICO) Act. The verdict was for approximately $47.4 million , which was subject to automatic trebling to $142.1 million under the RICO Act. In November 2010, the court had entered a separate verdict against us in the amount of $65.4 million , together with prejudgment interest, under California’s Unfair Trade Practices law relating to the same alleged conduct, which amount is included within and is not additional to the $142.1 million trebled amount of the jury verdict. In August 2011, we appealed the District Court’s judgment to the U.S. Court of Appeals for the First Circuit.

•
Personal Injury Actions in the U.S. and Certain Other Countries

A number of individual lawsuits have been filed against us in various U.S. federal and state courts and in certain other countries alleging suicide, attempted suicide and other personal injuries as a result of the purported ingestion of Neurontin. Certain of the U.S. federal actions have been transferred for consolidated pre-trial proceedings to the same Multi-District Litigation referred to in the first paragraph of the “Neurontin - Off-Label Promotion Actions in the U.S.” section above.

•
Antitrust Action in the U.S.

In January 2011, in a Multi-District Litigation (In re Neurontin Antitrust Litigation MDL-1479) that consolidates four actions, the U.S. District Court for the District of New Jersey certified a nationwide class consisting of wholesalers and other entities who purchased Neurontin directly from Pfizer and Warner-Lambert during the period from December 11, 2002 to August 31, 2008 and who also purchased generic gabapentin after it became available. The complaints allege that Pfizer and Warner-Lambert engaged in anticompetitive conduct in violation of the Sherman Act that included, among other things, submitting patents for listing in the Orange Book and prosecuting and enforcing certain

106
 
 
2012 Financial Report

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

patents relating to Neurontin, as well as engaging in off-label marketing of Neurontin. Plaintiffs seek compensatory damages on behalf of the class, which may be subject to trebling.

Lipitor

•
Whistleblower Action

In 2004, a former employee filed a “whistleblower” action against us in the U.S. District Court for the Eastern District of New York. The complaint remained under seal until September 2007, at which time the U.S. Attorney for the Eastern District of New York declined to intervene in the case. We were served with the complaint in December 2007. Plaintiff alleges off-label promotion of Lipitor in violation of the Federal Civil False Claims Act and the false claims acts of certain states, and he seeks treble damages and civil penalties on behalf of the federal government and the specified states as the result of their purchase, or reimbursement of patients for the purchase, of Lipitor allegedly for such off-label uses. Plaintiff also seeks compensation as a whistleblower under those federal and state statutes. In addition, plaintiff alleges that he was wrongfully terminated, in violation of the anti-retaliation provisions of applicable federal and New York law, and he seeks damages and the reinstatement of his employment. In 2009, the court dismissed without prejudice the off-label promotion claims and, in 2010, plaintiff filed an amended complaint containing off-label promotion allegations that are substantially similar to the allegations in the original complaint. In November 2012, the District Court dismissed the amended complaint. In December 2012, the plaintiff appealed the District Court's decision to the U.S. Court of Appeals for the Second Circuit.

•
Antitrust Actions

Beginning in November 2011, purported class actions relating to Lipitor were filed in various federal courts against Pfizer, certain affiliates of Pfizer, and, in most of the actions, Ranbaxy, among others. The plaintiffs in these various actions seek to represent nationwide, multi-state or statewide classes consisting of persons or entities who directly purchased, indirectly purchased or reimbursed patients for the purchase of Lipitor (or, in certain of the actions, generic Lipitor) from any of the defendants from March 2010 until the cessation of the defendants’ allegedly unlawful conduct (the Class Period). The plaintiffs allege delay in the launch of generic Lipitor, in violation of federal antitrust laws and/or state antitrust, consumer protection and various other laws, resulting from (i) the 2008 agreement pursuant to which Pfizer and Ranbaxy settled certain patent litigation involving Lipitor, and Pfizer granted Ranbaxy a license to sell a generic version of Lipitor in various markets beginning on varying dates, and (ii) in certain of the actions, the procurement and/or enforcement of certain patents for Lipitor. Each of the actions seeks, among other things, treble damages on behalf of the putative class for alleged price overcharges for Lipitor (or, in certain of the actions, generic Lipitor) during the Class Period. In addition, individual actions have been filed against Pfizer, Ranbaxy and certain of their affiliates, among others, that assert claims and seek relief for the plaintiffs that are substantially similar to the claims asserted and the relief sought in the purported class actions described above. These various actions have been consolidated for pre-trial proceedings in a Multi-District Litigation (In re Lipitor Antitrust Litigation MDL-2332) in the U.S. District Court for the District of New Jersey.

Chantix/Champix

•
Actions in the U.S.

A number of individual lawsuits have been filed against us in various federal and state courts alleging suicide, attempted suicide and other personal injuries as a result of the purported ingestion of Chantix, as well as economic loss. Plaintiffs in these actions seek compensatory and punitive damages and the disgorgement of profits resulting from the sale of Chantix. In October 2009, the federal cases were transferred for consolidated pre-trial proceedings to a Multi-District Litigation (In re Chantix (Varenicline) Products Liability Litigation MDL-2092) in the U.S. District Court for the Northern District of Alabama.

In late-November 2012, we began advanced settlement discussions with various law firms that represent the plaintiffs in the majority of these actions as well as persons who have asserted claims but not filed legal actions. As of February 2013, we had settled, or entered into definitive agreements or agreements-in-principle to settle, approximately 80% of the known Chantix claims in the U.S., including actions pending in the MDL and in state courts. In connection with these settlements and settlement agreements and agreements-in-principle, we recorded aggregate charges in 2012 of approximately $273 million . In addition, we recorded aggregate charges in 2012 of approximately $15 million that provide for the expected costs to resolve all remaining Chantix actions in the MDL and in state courts and all other known Chantix claims in the U.S. The approximately $15 million aggregate charges are an estimate, and while we cannot estimate the range of reasonably possible loss in excess of the amounts accrued given the uncertainties inherent in this litigation, as described below, additional charges may be required in the future in connection with certain pending actions and claims and unknown claims relating to Chantix.

The federal Chantix actions were consolidated in the MDL more than three years ago, and the unresolved Chantix federal and state actions and other known, unresolved Chantix claims could take many more years to resolve. However, opportunistic settlements could occur at any time. The litigation process is time-consuming, as every Chantix action being litigated involves contested issues of medical causation and knowledge of risk. Although the vast majority of Chantix actions allege neuropsychiatric injuries, the nature of the alleged injuries varies widely, from completed suicide to attempted suicide resulting in hospitalization to the exacerbation of pre-existing depression or anxiety. In addition to the widely varying types of injuries at issue, the underlying facts (e.g., medical causation; smoking, psychiatric and family history; reliance on warnings; physician/patient interaction; analysis of labels; actual, provable injury; and other critical factors) can differ significantly from action to action, and the process of discovery has not yet begun for a majority of the unresolved actions. In addition, the Chantix litigation involves fundamental issues of science and medicine that often are uncertain and continue to evolve. As a result of the foregoing factors, we are unable to estimate the range of reasonably possible loss in excess of the amounts accrued.


2012 Financial Report    
 
 
107

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

•
Actions in Canada

Beginning in December 2008, purported class actions were filed against us in the Ontario Superior Court of Justice (Toronto Region), the Superior Court of Quebec (District of Montreal), the Court of Queen’s Bench of Alberta, Judicial District of Calgary, and the Superior Court of British Columbia (Vancouver Registry) on behalf of all individuals and third-party payers in Canada who have purchased and ingested Champix or reimbursed patients for the purchase of Champix. Each of these actions asserts claims under Canadian product liability law, including with respect to the safety and efficacy of Champix, and, on behalf of the putative class, seeks monetary relief, including punitive damages. In June 2012, the Ontario Superior Court of Justice certified the Ontario proceeding as a class action, defining the class as consisting of the following: (i) all persons in Canada who ingested Champix during the period from April 2, 2007 to May 31, 2010 and who experienced at least one of a number of specified neuropsychiatric adverse events; (ii) all persons who are entitled to assert claims in respect of Champix pursuant to Canadian legislation as the result of their relationship with a class member; and (iii) all health insurers who are entitled to assert claims in respect of Champix pursuant to Canadian legislation. The Ontario Superior Court of Justice certified the class against Pfizer Canada Inc. only and ruled that the action against Pfizer Inc. should be stayed until after the trial of the issues that are common to the class members. The actions in Quebec, Alberta and British Columbia have been stayed in favor of the Ontario action, which is proceeding on a national basis.

Bapineuzumab
In June 2010, a purported class action was filed in the U.S. District Court for the District of New Jersey against Pfizer, as successor to Wyeth, and several former officers of Wyeth. The complaint alleges that Wyeth and the individual defendants violated federal securities laws by making or causing Wyeth to make false and misleading statements, and by failing to disclose or causing Wyeth to fail to disclose material information, concerning the results of a clinical trial involving bapineuzumab, a product in development for the treatment of Alzheimer’s disease. The plaintiff seeks to represent a class consisting of all persons who purchased Wyeth securities from May 21, 2007 through July 2008 and seeks damages in an unspecified amount on behalf of the putative class. In February 2012, the court granted the defendants’ motion to dismiss the complaint. In March 2012, the plaintiff filed a motion seeking the court’s permission to file an amended complaint. In December 2012, the court granted the plaintiff's motion and, in January 2013, the defendants filed a motion to dismiss the amended complaint.

In July 2010, a related action was filed in the U.S. District Court for the Southern District of New York against Elan Corporation (Elan), certain directors and officers of Elan, and Pfizer, as successor to Wyeth. Elan participated in the development of bapineuzumab until September 2009. The complaint alleges that Elan, Wyeth and the individual defendants violated federal securities laws by making or causing Elan to make false and misleading statements, and by failing to disclose or causing Elan to fail to disclose material information, concerning the results of a clinical trial involving bapineuzumab. The plaintiff seeks to represent a class consisting of all persons who purchased Elan call options from June 17, 2008 through July 29, 2008 and seeks damages in an unspecified amount on behalf of the putative class. In June 2011, the court granted Pfizer’s and Elan’s motions to dismiss the complaint. In July 2011, the plaintiff filed a supplemental memorandum setting forth the bases that the plaintiff believed supported amendment of the complaint. In August 2011, the court dismissed the complaint with prejudice. In February 2013, the U.S. Court of Appeals for the Second Circuit affirmed the District Court's dismissal of the complaint.

Thimerosal
Wyeth is a defendant in a number of suits by or on behalf of vaccine recipients alleging that exposure through vaccines to cumulative doses of thimerosal, a preservative used in certain childhood vaccines formerly manufactured and distributed by Wyeth and other vaccine manufacturers, caused severe neurological damage and/or autism in children. While several suits were filed as purported nationwide or statewide class actions, all of the purported class actions have been dismissed, either by the courts or voluntarily by the plaintiffs. In addition to the suits alleging injury from exposure to thimerosal, certain of the cases were brought by parents in their individual capacities for, among other things, loss of services and loss of consortium of the injured child.

The National Childhood Vaccine Injury Act (the Vaccine Act) requires that persons alleging injury from childhood vaccines first file a petition in the U.S. Court of Federal Claims asserting a vaccine-related injury. At the conclusion of that proceeding, petitioners may bring a lawsuit against the manufacturer in federal or state court, provided that they have satisfied certain procedural requirements. Also under the terms of the Vaccine Act, if a petition has not been adjudicated by the U.S. Court of Federal Claims within a specified time period after filing, the petitioner may opt out of the proceeding and pursue a lawsuit against the manufacturer by following certain procedures. Some of the vaccine recipients who have sued Wyeth to date may not have satisfied the conditions to filing a lawsuit that are mandated by the Vaccine Act. The claims brought by parents for, among other things, loss of services and loss of consortium of the injured child are not covered by the Vaccine Act.

In 2002, the Office of Special Masters of the U.S. Court of Federal Claims established an Omnibus Autism Proceeding with jurisdiction over petitions in which vaccine recipients claim to suffer from autism or autism spectrum disorder as a result of receiving thimerosal-containing childhood vaccines and/or the measles, mumps and rubella (MMR) vaccine. There currently are several thousand petitions pending in the Omnibus Autism Proceeding. Special masters of the court have heard six test cases on petitioners’ theories that either thimerosal-containing vaccines in combination with the MMR vaccine or thimerosal-containing vaccines alone can cause autism or autism spectrum disorder.
•
In February 2009, special masters of the U.S. Court of Federal Claims rejected the three cases brought on the theory that a combination of MMR and thimerosal-containing vaccines caused petitioners’ conditions. After these rulings were affirmed by the U.S. Court of Federal Claims, two of them were appealed by petitioners to the U.S. Court of Appeals for the Federal Circuit. In 2010, the Federal Circuit affirmed the decisions of the special masters in both of these cases.
•
In March 2010, special masters of the U.S. Court of Federal Claims rejected the three additional test cases brought on the theory that thimerosal-containing vaccines alone caused petitioners’ conditions. Petitioners did not seek review by the U.S. Court of Federal Claims of the decisions of the special masters in these latter three test cases, and judgments were entered dismissing the cases in April 2010.
•
Petitioners in each of the six test cases have filed an election to bring a civil action.

108
 
 
2012 Financial Report

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

Rebif
We have an exclusive collaboration agreement with EMD Serono, Inc. (Serono) to co-promote Rebif, a treatment for multiple sclerosis, in the U.S. In August 2011, Serono filed a complaint in the Philadelphia Court of Common Pleas seeking a declaratory judgment that we are not entitled to a 24 -month extension of the Rebif co-promotion agreement, which otherwise would terminate at the end of 2013. We disagree with Serono's interpretation of the agreement and believe that we have the right to extend the agreement to the end of 2015. In October 2011, the court sustained our preliminary objections and dismissed Serono’s complaint, and Serono has appealed the decision to the Superior Court of Pennsylvania.
 
Various Drugs: Co-Pay Programs
In March 2012, a purported class action was filed against Pfizer in the U.S. District Court for the Southern District of New York. The plaintiffs seek to represent a class consisting of all entities in the U.S. and its territories that have reimbursed patients for the purchase of certain Pfizer drugs for which co-pay programs exist or have existed. The plaintiffs allege that these programs violate the federal RICO Act and federal antitrust law by, among other things, providing an incentive for patients to use certain Pfizer drugs rather than less-expensive competitor products, thereby increasing the payers’ reimbursement costs. The plaintiffs seek treble damages on behalf of the putative class for their excess reimbursement costs allegedly attributable to the co-pay programs as well as an injunction prohibiting us from offering such programs. In July 2012, a substantially similar purported class action was filed against Pfizer in the U.S. District Court for the Southern District of Illinois, which action was stayed in October 2012 pending the outcome of the action in the Southern District of New York. Similar purported class actions have been filed against several other pharmaceutical companies.

A3. Legal Proceedings––Commercial and Other Matters

Average Wholesale Price Litigation
Pfizer, certain of its subsidiaries and other pharmaceutical manufacturers are defendants in actions in various state courts by a number of states, as well as one purported class action by certain employee benefit plans and other third-party payers, alleging that the defendants provided average wholesale price (AWP) information for certain of their products that was higher than the actual average prices at which those products were sold. The AWP is used to determine reimbursement levels under Medicare Part B and Medicaid and in many private-sector insurance policies and medical plans. The plaintiffs claim that the alleged spread between the AWPs at which purchasers were reimbursed and the actual sale prices was promoted by the defendants as an incentive to purchase certain of their products. In addition to suing on their own behalf, some of the plaintiff states seek to recover on behalf of individuals, private-sector insurance companies and medical plans in their states. These various actions allege, among other things, fraud, unfair competition, unfair trade practices and the violation of consumer protection statutes, and seek monetary and other relief, including civil penalties and treble damages.

Monsanto-Related Matters
In 1997, Monsanto Company (Former Monsanto) contributed certain chemical manufacturing operations and facilities to a newly formed corporation, Solutia Inc. (Solutia), and spun off the shares of Solutia. In 2000, Former Monsanto merged with Pharmacia & Upjohn Company to form Pharmacia Corporation (Pharmacia). Pharmacia then transferred its agricultural operations to a newly created subsidiary, named Monsanto Company (New Monsanto), which it spun off in a two-stage process that was completed in 2002. Pharmacia was acquired by Pfizer in 2003 and is now a wholly owned subsidiary of Pfizer.

In connection with its spin-off that was completed in 2002, New Monsanto assumed, and agreed to indemnify Pharmacia for, any liabilities related to Pharmacia’s former agricultural business. New Monsanto is defending and indemnifying Pharmacia in connection with various claims and litigation arising out of, or related to, the agricultural business.

In connection with its spin-off in 1997, Solutia assumed, and agreed to indemnify Pharmacia for, liabilities related to Former Monsanto's chemical businesses. As the result of its reorganization under Chapter 11 of the U.S. Bankruptcy Code, Solutia’s indemnification obligations related to Former Monsanto’s chemical businesses are limited to sites that Solutia has owned or operated. In addition, in connection with its spinoff that was completed in 2002, New Monsanto assumed, and agreed to indemnify Pharmacia for, any liabilities primarily related to Former Monsanto's chemical businesses, including, but not limited to, any such liabilities that Solutia assumed. Solutia's and New Monsanto's assumption of and agreement to indemnify Pharmacia for these liabilities apply to pending actions and any future actions related to Former Monsanto's chemical businesses in which Pharmacia is named as a defendant, including, without limitation, actions asserting environmental claims, including alleged exposure to polychlorinated biphenyls. Solutia and New Monsanto are defending and indemnifying Pharmacia in connection with various claims and litigation arising out of, or related to, Former Monsanto’s chemical businesses.

Trade Secrets Action in California
In 2004, Ischemia Research and Education Foundation (IREF) and its chief executive officer brought an action in California Superior Court, Santa Clara County, against a former IREF employee and Pfizer. Plaintiffs allege that defendants conspired to misappropriate certain information from IREF’s allegedly proprietary database in order to assist Pfizer in designing and executing a clinical study of a Pfizer drug. In 2008, the jury returned a verdict for compensatory damages of approximately $38.7 million . In March 2009, the court awarded prejudgment interest, but declined to award punitive damages. In July 2009, the court granted our motion for a new trial and vacated the jury verdict. In February 2013, the trial court's decision was affirmed by the California Court of Appeal, Sixth Appellate District.
 
Environmental Matters
In 2009, we submitted to the U.S. Environmental Protection Agency (EPA) a corrective measures study report with regard to Pharmacia Corporation's discontinued industrial chemical facility in North Haven, Connecticut and a revised site-wide feasibility study with regard to Wyeth’s discontinued industrial chemical facility in Bound Brook, New Jersey. In September 2010, our corrective measures study report with regard to the North Haven facility was approved by the EPA, and we commenced construction of the site remedy in late 2011 under an Updated Administrative Order on Consent with the EPA. In July 2011, we finalized an Administrative Settlement Agreement and Order on Consent for Removal Action with the EPA with regard to the Bound Brook facility. In May 2012, we completed construction of an interim

2012 Financial Report    
 
 
109

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

remedy to address the discharge of impacted groundwater from that facility to the Raritan River. In September 2012, the EPA issued a final remediation plan for the Bound Brook facility's main plant area, which is generally in accordance with one of the remedies evaluated in our revised site-wide feasibility study. The estimated costs of the site remedy for the North Haven facility and the site remediation for the Bound Brook facility are covered by accruals previously taken by us.

We are a party to a number of other proceedings brought under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (CERCLA or Superfund), and other state, local or foreign laws in which the primary relief sought is the cost of past and/or future remediation.

In February 2011, King received notice from the U.S. Department of Justice (DOJ) advising that the EPA has requested that DOJ initiate enforcement action seeking injunctive relief and penalties against King for alleged non-compliance with certain provisions of the federal Clean Air Act at its Bristol, Tennessee manufacturing facility. King has executed a tolling agreement with the DOJ in order to facilitate the possible resolution of this matter. We do not expect that any injunctive relief or penalties that may result from this matter will be material to Pfizer.

In October 2011, we voluntarily disclosed to the EPA potential non-compliance with certain provisions of the federal Clean Air Act at our Barceloneta, Puerto Rico manufacturing facility. We do not expect that any injunctive relief or penalties that may result from our voluntary disclosure will be material to Pfizer. Separately, in October 2012, the EPA issued an administrative complaint and penalty demand of $216,000 to resolve alleged non-compliance with similar provisions of the federal Clean Air Act that the EPA identified as part of its March 2010 inspection of the Barceloneta facility. We have commenced discussions with the EPA seeking to resolve this latter matter.

A4. Legal Proceedings––Government Investigations
 
Like other pharmaceutical companies, we are subject to extensive regulation by national, state and local government agencies in the U.S. and in the other countries in which we operate. As a result, we have interactions with government agencies on an ongoing basis. It is possible that criminal charges and substantial fines and/or civil penalties could result from government investigations. Among the investigations by government agencies is the matter discussed below.

The DOJ is conducting a civil investigation regarding Wyeth’s practices relating to the pricing for Protonix for Medicaid rebate purposes prior to Wyeth's acquisition by Pfizer. In 2009, the DOJ filed a civil complaint in intervention in two qui tam actions that had been filed under seal in the U.S. District Court for the District of Massachusetts. The complaint alleges that Wyeth’s practices relating to the pricing for Protonix for Medicaid rebate purposes between 2001 and 2006 violated the Federal Civil False Claims Act and federal common law. The two qui tam actions have been unsealed and the complaints include substantially similar allegations. In addition, in 2009, several states and the District of Columbia filed a complaint under the same docket number asserting violations of various state laws based on allegations substantially similar to those set forth in the civil complaint filed by the DOJ. We are exploring with the DOJ various ways to resolve this matter.

A5. Legal Proceedings––Certain Matters Resolved in 2012

As previously reported, during 2012, several matters, including those discussed below, were resolved or were the subject of definitive settlement agreements or settlement agreements-in-principle.

Rapamune
In October 2012, Wyeth entered into an agreement-in-principle with the DOJ to resolve the previously reported civil and criminal investigation with respect to Wyeth's promotional practices relating to Rapamune prior to Wyeth's acquisition by Pfizer. Under the agreement-in-principle, we will pay approximately $257 million to resolve the civil allegations and approximately $234 million to resolve the criminal allegations, and Wyeth will plead guilty to a misdemeanor misbranding offense under the U.S. Federal Food, Drug and Cosmetic Act. The resolution is subject to the execution of final settlement agreements by the parties as well as court approval, which is expected to occur in the coming months. In connection with the agreement-in-principle, we recorded a charge of $491 million , which is not deductible for income tax purposes, in the third quarter of 2012.

Celebrex
Pfizer and several predecessor and affiliated companies, including Monsanto Company (Monsanto), were defendants in an action brought by Brigham Young University (BYU) and a BYU professor in the U.S. District Court for the District of Utah alleging, among other things, breach by Monsanto of a 1991 research agreement with BYU. Plaintiffs claimed that research under that agreement led to the discovery of Celebrex and that, as a result, they were entitled to a share of the profits from Celebrex sales. Plaintiffs sought, among other things, compensatory and punitive damages and equitable relief. On April 28, 2012, the parties reached an agreement-in-principle to settle this action for $450 million , and we recorded a charge in that amount in the first quarter of 2012. In June 2012, the parties entered into a final settlement agreement, and the action was dismissed with prejudice by the court.

B. Guarantees and Indemnifications

In the ordinary course of business and in connection with the sale of assets and businesses, we often indemnify our counterparties against certain liabilities that may arise in connection with the transaction or related to activities prior to the transaction. These indemnifications typically pertain to environmental, tax, employee and/or product-related matters and patent-infringement claims. If the indemnified party were to make a successful claim pursuant to the terms of the indemnification, we would be required to reimburse the loss. These indemnifications are generally subject to threshold amounts, specified claim periods and other restrictions and limitations. Historically, we have not paid significant amounts under these provisions and, as of December 31, 2012 , recorded amounts for the estimated fair value of these indemnifications are not significant. See also Note 1E. Basis of Presentation and Significant Policies: Fair Value.

110
 
 
2012 Financial Report

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

C. Purchase Commitments

As of December 31, 2012 , we have agreements totaling $3.5 billion to purchase goods and services that are enforceable and legally binding and include amounts relating to advertising, information technology services, employee benefit administration services, and potential milestone payments deemed reasonably likely to occur.

Note 18. Segment, Geographic and Other Revenue Information

A. Segment Information

We manage our operations through five operating segments––Primary Care, Specialty Care and Oncology, Established Products and Emerging Markets, Animal Health, and Consumer Healthcare. (As of the third quarter of 2012 , the Animal Health and Consumer Healthcare business units are no longer managed as a single operating segment.) Each operating segment has responsibility for its commercial activities and for certain research and development activities related to in-line products and IPR&D projects that generally have achieved proof-of-concept.

On November 30, 2012, we completed the sale of our Nutrition business to Nestlé and recognized a gain on the sale of this business in Gain/(loss) on sale of discontinued operations––net of tax in the consolidated statement of income for the year ended December 31, 2012. The operating results of this business are reported as Income/(loss) from discontinued operations––net of tax in the consolidated statements of income for all periods presented. See Note 2B. Acquisitions, Divestitures, Collaborative Arrangements and Equity-Method Investments: Divestitures.

We regularly review our segments and the approach used by management to evaluate performance and allocate resources. Generally, products are transferred to the Established Products unit in the beginning of the fiscal year following loss of patent protection or marketing exclusivity.

Operating Segments

A description of each of our five operating segments follows:
•
Primary Care operating segment––includes revenues and earnings, as defined by management, from human prescription pharmaceutical products primarily prescribed by primary-care physicians, and may include products in the following therapeutic and disease areas: Alzheimer’s disease, cardiovascular (excluding pulmonary arterial hypertension), erectile dysfunction, genitourinary, major depressive disorder, pain, respiratory and smoking cessation. Examples of products in this unit in 2012 include Celebrex, Chantix/Champix, Eliquis, Lipitor (in certain EU countries and in Australia and New Zealand), Lyrica, Premarin, Pristiq and Viagra. All revenues and earnings for such products are allocated to the Primary Care unit, except those generated in Emerging Markets and those that are managed by the Established Products unit.
•
Specialty Care and Oncology operating segment––comprises the Specialty Care business unit and the Oncology business unit.
◦
Specialty Care––includes revenues and earnings, as defined by management, from human prescription pharmaceutical products primarily prescribed by physicians who are specialists, and may include products in the following therapeutic and disease areas: anti-infectives, endocrine disorders, hemophilia, inflammation, ophthalmology, pulmonary arterial hypertension, specialty neuroscience and vaccines. Examples of products in this unit in 2012 include BeneFIX, Enbrel, Genotropin, Geodon (outside the U.S.), the Prevnar/Prevenar family, ReFacto AF, Revatio (outside the U.S.), Tygacil, Vfend (outside the U.S. and South Korea), Vyndaqel (outside the U.S.), Xalatan (outside the U.S., Canada and South Korea), Xeljanz (in the U.S.), Xyntha and Zyvox. All revenues and earnings for such products are allocated to the Specialty Care unit, except those generated in Emerging Markets and those that are managed by the Established Products unit.
◦
Oncology––includes revenues and earnings, as defined by management, from human prescription pharmaceutical products addressing oncology and oncology-related illnesses. The products in this unit in 2012 include Inlyta, Sutent, Torisel, Xalkori, Mylotarg (in Japan) and Bosulif (in the U.S.). All revenues and earnings for such products are allocated to the Oncology unit, except those generated in Emerging Markets and those that are managed by the Established Products unit.
•
Established Products and Emerging Markets operating segment––comprises the Established Products business unit and the Emerging Markets business unit.
◦
Established Products–– includes revenues and earnings, as defined by management, from human prescription pharmaceutical products that have lost patent protection or marketing exclusivity in certain countries and/or regions. Typically, products are transferred to this unit in the beginning of the fiscal year following loss of patent protection or marketing exclusivity. However, in certain situations, products may be transferred to this unit at a different point than the beginning of the fiscal year following loss of patent protection or marketing exclusivity in order to maximize their value. This unit also excludes revenues and earnings generated in Emerging Markets. Examples of products in this unit in 2012 include Arthrotec, Effexor, Lipitor (in the U.S., Canada, South Korea and Japan), Medrol, Norvasc, Protonix, Relpax, Vfend (in the U.S. and South Korea), Xalatan (in the U.S., Canada and South Korea) and Zosyn/Tazocin.
◦
Emerging Markets––includes revenues and earnings, as defined by management, from all human prescription pharmaceutical products sold in Emerging Markets, including Asia (excluding Japan and South Korea), Latin America, the Middle East, Eastern Europe, Africa, Turkey and Central Europe.

2012 Financial Report    
 
 
111

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

•
Animal Health operating segment––includes worldwide revenues and earnings, as defined by management, from products and services to prevent and treat disease in livestock and companion animals, including anti-infectives, vaccines, parasiticides, medicinal feed additives, other pharmaceutical products and other non-pharmaceutical products.
•
Consumer Healthcare operating segment–– includes worldwide revenues and earnings, as defined by management, from non-prescription products in the following therapeutic categories: dietary supplements, pain management, respiratory and personal care. Products marketed by Consumer Healthcare include Advil, Caltrate, Centrum, ChapStick, Emergen-C, Preparation H and Robitussin.
 
Our chief operating decision maker uses the revenues and earnings of the five operating segments, among other factors, for performance evaluation and resource allocation. For the operating segments that comprise more than one business unit, a single segment manager has responsibility for those business units.

Other Costs and Business Activities
 
Certain costs are not allocated to our operating segment results, such as costs associated with the following:
•
Worldwide Research and Development (WRD), which is generally responsible for human health research projects until proof-of-concept is achieved and then for transitioning those projects to the appropriate business unit for possible clinical and commercial development. R&D spending may include upfront and milestone payments for intellectual property rights. This 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. WRD is also responsible for facilitating all human-health-related regulatory submissions and interactions with regulatory agencies, including all safety-event activities.
•
Pfizer Medical is responsible for external affairs relating to all therapeutic areas, providing Pfizer-related medical information to healthcare providers, patients and other parties, and quality assurance and regulatory compliance activities, which include conducting clinical trial audits and readiness reviews.
•
Corporate, which is responsible for platform functions such as finance, global real estate operations, human resources, legal, compliance, science and technology, worldwide procurement, worldwide public affairs and policy and worldwide technology. These costs also include compensation costs and other miscellaneous operating expenses not charged to our operating segments, as well as interest income and expense.
•
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 property, plant and equipment; (ii) acquisition-related activities, where we incur costs for restructuring, integration, implementation and executing the transaction; and (iii) certain significant items, which include non-acquisition-related restructuring costs, as well as costs incurred for legal settlements, asset impairments and sales of assets or businesses.

Segment Assets

We manage our assets on a total company basis, not by operating segment, as many of our operating assets are shared (such as our plant network assets) or commingled (such as accounts receivable, as many of our customers are served by multiple operating segments). Therefore, our chief operating decision maker does not regularly review any asset information by operating segment and, accordingly, we do not report asset information by operating segment. Total assets were approximately $186 billion as of December 31, 2012 and approximately $188 billion as of December 31, 2011 .


112
 
 
2012 Financial Report

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

Selected income statement information

The following table provides selected income statement information by reportable segment:
 
 
Revenues
 
R&D Expenses
 
Earnings (a)
 
Depreciation & Amortization (b)
 
 
Year Ended December 31,
 
Year Ended December 31,
 
Year Ended December 31,
 
Year Ended December 31,
(MILLIONS OF DOLLARS)
 
2012

 
2011 (c)

 
2010

 
2012

 
2011 (c)

 
2010

 
2012

 
2011 (c)

 
2010

 
2012

 
2011 (c)

 
2010

Reportable Segments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Primary Care (d)
 
$
15,558

 
$
22,670

 
$
23,328

 
$
1,009

 
$
1,307

 
$
1,473

 
$
9,613

 
$
15,001

 
$
15,773

 
$
244

 
$
247

 
$
201

Specialty Care and Oncology
 
15,461

 
16,568

 
16,435

 
1,401

 
1,561

 
1,624

 
10,499

 
10,789

 
10,571

 
406

 
419

 
432

Established Products and Emerging Markets (e)
 
20,195

 
18,509

 
18,760

 
403

 
441

 
452

 
11,218

 
9,417

 
10,100

 
410

 
422

 
418

Total reportable segments
 
51,214

 
57,747

 
58,523

 
2,813

 
3,309

 
3,549

 
31,330

 
35,207

 
36,444

 
1,060

 
1,088

 
1,051

Other operating segments (f)
 
7,511

 
7,212

 
6,323

 
693

 
425

 
428

 
1,919

 
2,009

 
1,565

 
245

 
232

 
197

Other business activities (g)
 
261

 
300

 
319

 
2,838

 
3,340

 
3,711

 
(2,891
)
 
(3,343
)
 
(3,735
)
 
116

 
153

 
197

Reconciling Items:
 
 

 
 

 
 
 
 

 
 

 
 
 
 

 
 

 
 
 
 
 
 
 
 
Corporate (h)
 
—

 
—

 
—

 
971

 
1,292

 
1,551

 
(6,240
)
 
(7,410
)
 
(7,966
)
 
485

 
540

 
617

Purchase accounting adjustments (i)
 
—

 
—

 
—

 
(3
)
 
(2
)
 
149

 
(4,957
)
 
(6,753
)
 
(8,136
)
 
5,022

 
5,525

 
5,436

Acquisition-related costs (j)
 
—

 
—

 
—

 
6

 
23

 
34

 
(967
)
 
(1,979
)
 
(3,926
)
 
283

 
624

 
781

Certain significant items (k)
 
—

 
—

 
—

 
522

 
654

 
18

 
(5,324
)
 
(4,347
)
 
(3,565
)
 
300

 
611

 
—

Other unallocated (l)
 
—

 
—

 
—

 
30

 
33

 
43

 
(790
)
 
(1,080
)
 
(1,210
)
 
100

 
134

 
120


 
$
58,986

 
$
65,259

 
$
65,165

 
$
7,870

 
$
9,074

 
$
9,483

 
$
12,080

 
$
12,304

 
$
9,471

 
$
7,611

 
$
8,907

 
$
8,399

(a)  
Income from continuing operations before provision for taxes on income.
(b)  
Certain production facilities are shared. Deprecation is allocated based on estimates of physical production.
(c)  
For 2011, includes King commencing on the acquisition date of January 31, 2011.
(d)  
Revenues and Earnings from the Primary Care segment decreased for 2012 as compared to the prior year, and earnings as a percentage of revenues also declined, primarily due to the loss of exclusivity of Lipitor in most major markets, and the subsequent shift in the reporting of Lipitor in those major markets to the Established Products business unit.
(e)  
Revenues and Earnings from the Established Products and Emerging Markets segment increased in 2012 as compared to the prior year, primarily due to additional products losing exclusivity and moving to the Established Products unit and increased operational sales in emerging markets, partially offset by unfavorable foreign exchange. Earnings as a percentage of revenue increased due to the change in the mix of products.
(f)  
Includes the Animal Health operating segment and the Consumer Healthcare operating segment. In 2012, higher R&D expenses and lower Earnings reflect the Consumer Healthcare acquisition of the over-the-counter (OTC) rights for Nexium (see Note 2A. Acquisitions, Divestitures, Collaborative Arrangements and Equity-Method Investments: Acquisitions ).
(g)  
Other business activities includes the revenues and operating results of Pfizer CentreSource, our contract manufacturing and bulk pharmaceutical chemical sales operation, and the research and development costs managed by our Worldwide Research and Development organization and our Pfizer Medical organization.
(h)  
Corporate for R&D expenses includes, among other things, administration expenses and compensation expenses associated with our research and development activities and for Earnings includes, among other things, administration expenses, interest income/(expense) and certain compensation and other costs not charged to our operating segments.
(i)  
Purchase accounting adjustments include certain charges related to the fair value adjustments to inventory, intangible assets and property, plant and equipment.
(j)  
Acquisition-related costs can include costs associated with acquiring, integrating and restructuring newly acquired businesses, such as transaction costs, integration costs, restructuring charges and additional depreciation associated with asset restructuring (see Note 3. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives for additional information).
(k)  
Certain significant items are substantive, 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.
For Earnings in 2012 , certain significant items includes: (i) restructuring charges and implementation costs associated with our cost-reduction initiatives that are not associated with an acquisition of $1.9 billion , (ii) charges for certain legal matters of $2.2 billion , (iii) certain asset impairment charges of $884 million , (iv) costs associated with the separation of Zoetis of $325 million and (v) other charges of $36 million (see Note 3. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives and Note 4. Other Deductions––Net for additional information).
For Earnings in 2011 , certain significant items includes: (i) restructuring charges and implementation costs associated with our cost-reduction initiatives that are not associated with an acquisition of $2.5 billion , (ii) certain asset impairment charges of $856 million , (iii) charges for certain legal matters of $822 million , (iv) other charges of $101 million and (v) costs associated with the separation of Zoetis of $35 million (see Note 3. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives and Note 4. Other Deductions––Net for additional information).
For Earnings in 2010 , certain significant items includes: (i) certain asset impairment charges of $1.8 billion , (ii) charges for certain legal matters of $1.7 billion , (iii) inventory write-off of $212 million and (iv) other income of $102 million (see Note 3. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives and Note 4. Other Deductions––Net for additional information).
For R&D in all periods presented, certain significant items primarily reflect additional depreciation––asset restructuring and implementation costs.
(l)  
Includes overhead expenses associated with our manufacturing and commercial operations not directly attributable to an operating segment.

2012 Financial Report    
 
 
113

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

B. Geographic Information

Revenues exceeded $500 million in each of 16 countries outside the U.S. in 2012 and 2011, and in each of 17 countries outside the U.S. in 2010. The U.S. and Japan were the only countries to contribute more than 10% of total revenue in 2012. The U.S. was the only country to contribute more than 10% of total revenue in 2011 and 2010.
The following table provides revenues by geographic area:
 
 
Year Ended December 31,
(MILLIONS OF DOLLARS)
 
2012

 
2011 (a)

 
2010

Revenues
 
 
 
 
 
 
United States
 
$
23,086

 
$
26,933

 
$
28,855

Developed Europe (b)
 
13,375

 
16,099

 
16,156

Developed Rest of World (c)
 
10,554

 
10,975

 
9,891

Emerging Markets (d)
 
11,971

 
11,252

 
10,263

Revenues
 
$
58,986

 
$
65,259

 
$
65,165

(a)  
For 2011, includes King commencing on the acquisition date of January 31, 2011.
(b)  
Developed Europe region includes the following markets: Western Europe, Finland and the Scandinavian countries. Revenues denominated in euros were $10 billion , $12 billion and $12 billion for 2012 , 2011 and 2010 , 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, the Middle East, Eastern Europe, Africa, Turkey and Central Europe.
Long-lived assets by geographic region follow:
 
 
As of December 31,
(MILLIONS OF DOLLARS)
 
2012

 
2011

 
2010

Property, plant and equipment, net
 
 
 
 
 
 
United States
 
$
7,262

 
$
7,893

 
$
8,508

Developed Europe (a)
 
5,121

 
5,866

 
7,000

Developed Rest of World (b)
 
847

 
903

 
853

Emerging Markets (c)
 
1,231

 
1,259

 
1,246

Property, plant and equipment, net
 
$
14,461

 
$
15,921

 
$
17,607

(a)  
Developed Europe region includes the following markets: Western Europe, Finland and the Scandinavian countries.
(b)  
Developed Rest of World region includes the following markets: Australia, Canada, Japan, New Zealand, and South Korea.
(c)  
Emerging Markets region includes, but is not limited to, the following markets: Asia (excluding Japan and South Korea), Latin America, Middle East, Africa, Central and Eastern Europe and Turkey.

C. Other Revenue Information

Significant Customers

We sell our products primarily to customers in the wholesale sector. In 2012 , sales to our three largest U.S. wholesaler customers represented approximately 12% , 9% and 7% of total revenues and, collectively, represented approximately 16% of total accounts receivable as of December 31, 2012 . In 2011 , sales to our three largest U.S. wholesaler customers represented approximately 13% , 11% and 9% of total revenues and, collectively, represented approximately 14% of total accounts receivable as of December 31, 2011 . For both years, these sales and related accounts receivable were concentrated in our three biopharmaceutical operating segments.


114
 
 
2012 Financial Report

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

Significant Product Revenues
The following table provides revenues by product:
 
 
Year Ended December 31,
(MILLIONS OF DOLLARS)
 
2012

 
2011 (a)

 
2010

Revenues from biopharmaceutical products:
 
 
 
 
 
 
Lyrica
 
$
4,158

 
$
3,693

 
$
3,063

Lipitor (b)
 
3,948

 
9,577

 
10,733

Enbrel (Outside the U.S. and Canada)
 
3,737

 
3,666

 
3,274

Prevnar 13/Prevenar 13
 
3,718

 
3,657

 
2,416

Celebrex
 
2,719

 
2,523

 
2,374

Viagra
 
2,051

 
1,981

 
1,928

Norvasc
 
1,349

 
1,445

 
1,506

Zyvox
 
1,345

 
1,283

 
1,176

Sutent
 
1,236

 
1,187

 
1,066

Premarin family
 
1,073

 
1,013

 
1,040

Genotropin
 
832

 
889

 
885

Xalatan/Xalacom
 
806

 
1,250

 
1,749

BeneFIX
 
775

 
693

 
643

Detrol/Detrol LA
 
761

 
883

 
1,013

Vfend
 
754

 
747

 
825

Chantix/Champix
 
670

 
720

 
755

Pristiq
 
630

 
577

 
466

ReFacto AF/Xyntha
 
584

 
506

 
404

Zoloft
 
541

 
573

 
532

Revatio
 
534

 
535

 
481

Medrol
 
523

 
510

 
455

Zosyn/Tazocin
 
484

 
636

 
952

Zithromax/Zmax
 
435

 
453

 
415

Effexor
 
425

 
678

 
1,718

Prevnar/Prevenar (7-valent)
 
399

 
488

 
1,253

Fragmin
 
381

 
382

 
341

Relpax
 
368

 
341

 
323

Rapamune
 
346

 
372

 
388

Cardura
 
338

 
380

 
413

Tygacil
 
335

 
298

 
324

Aricept (c)
 
326

 
450

 
454

Xanax XR
 
274

 
306

 
307

BMP2
 
263

 
340

 
400

Sulperazon
 
262

 
218

 
213

Diflucan
 
259

 
265

 
278

Caduet
 
258

 
538

 
527

Neurontin
 
235

 
289

 
322

Dalacin/Cleocin
 
232

 
192

 
214

Unasyn
 
228

 
231

 
244

Metaxalone/Skelaxin (d)
 
223

 
203

 
—

Inspra
 
214

 
195

 
157

Toviaz
 
207

 
187

 
137

Somavert
 
197

 
183

 
157

Alliance revenues (e)
 
3,492

 
3,630

 
4,084

All other biopharmaceutical products (f)
 
8,289

 
8,584

 
8,118

Total revenues from biopharmaceutical products
 
51,214

 
57,747

 
58,523

Revenues from other products:
 

 

 

Animal Health
 
4,299

 
4,184

 
3,575

Consumer Healthcare
 
3,212

 
3,028

 
2,748

Other (g)
 
261

 
300

 
319

Revenues
 
$
58,986

 
$
65,259

 
$
65,165

(a)  
For 2011 , includes King commencing on the acquisition date of January 31, 2011.

2012 Financial Report    
 
 
115

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

(b)  
Lipitor lost exclusivity in the U.S. in November 2011 and various other major markets in 2011 and 2012. This loss of exclusivity reduced branded worldwide revenues by $5.6 billion in 2012 , in comparison with 2011, and reduced branded worldwide revenues by $1.2 billion in 2011 , in comparison with 2010.
(c)  
Represents direct sales under license agreement with Eisai Co., Ltd.
(d)  
Legacy King product.
(e)  
Includes Enbrel (in the U.S. and Canada), Spiriva, Rebif, Aricept and Exforge.
(f)  
Includes sales of generic atorvastatin.
(g)  
Includes revenues generated primarily from Pfizer CentreSource, our contract manufacturing and bulk pharmaceutical chemical sales organization.

Note 19. Subsequent Events

A. Zoetis Debt Offering and Initial Public Offering

On January 28, 2013, our then wholly owned subsidiary, Zoetis, issued $3.65 billion aggregate principal amount of senior notes, net of an original issue debt discount of $10 million . The notes have a weighted-average effective interest rate of 3.30% , and mature at various dates as follows: 1.15% Notes due 2016 ( $400 million ); 1.875% Notes due 2018 ( $749 million ); 3.25% Notes due 2023 ( $1.349 billion ); and 4.7% Notes due 2043 ( $1.142 billion ). On February 6, 2013, Zoetis also entered into a commercial paper program with a capacity of up to $1.0 billion . No amounts are currently outstanding under this program.

Also on January 28, 2013, we transferred to Zoetis substantially all of the assets and liabilities of our Animal Health business in exchange for all of the Class A and Class B common stock of Zoetis, $1.0 billion of the $3.65 billion senior notes and an amount of cash equal to substantially all of the cash proceeds received by Zoetis from the remaining $2.65 billion senior notes issued. The $1.0 billion of senior notes received by Pfizer were exchanged by Pfizer for the retirement of Pfizer commercial paper issued in December 2012, and the cash proceeds received by Pfizer of approximately $2.5 billion are restricted to debt repayment, dividends and/or stock buybacks, in all cases to be completed by mid-2014.

On February 6, 2013, an initial public offering (IPO) of Zoetis was completed, pursuant to which we sold 99.015 million shares (all of the Class A common stock, including shares sold pursuant to the underwriters' overallotment option to purchase additional shares, which was exercised in full) of Zoetis in exchange for the retirement of approximately $2.5 billion of Pfizer commercial paper issued on January 10, 2013. The IPO represented approximately 19.8% of the total outstanding Zoetis shares. On February 1, 2013, Zoetis shares began trading on the New York Stock Exchange under the symbol “ZTS.” The excess of the consideration received over the net book value of our divested interest will be recorded in Additional paid-in capital.

In summary, as a result of the above transactions, we received approximately $6.1 billion of cash (of which approximately $2.5 billion is restricted to debt repayment, dividends and/or stock buybacks, in all cases to be completed by mid-2014) and incurred approximately $3.65 billion in Zoetis long-term debt.

We will continue to consolidate Zoetis as we have retained control over the entity, and we will reflect amounts attributable to noncontrolling interests for the divested portion. The net assets, operations and cash flows that comprise Zoetis are not the same as those of the Animal Health operating segment.

B. Hisun Pfizer Pharmaceuticals Company Limited (HPP)
 
On January 1, 2013, as previously announced, we contributed product rights associated with China and other assets to our 49% -owned equity-method investee, HPP, which had been formed on September 6, 2012. We expect to recognize a gain on the transfer of the assets in the first quarter of 2013.

C. Venezuela Currency Devaluation

On February 13, 2013, the Venezuelan government devalued its currency from a rate of 4.3 to 6.3 of Venezuelan currency to the U.S. dollar. We incurred a foreign currency loss immediately on the devaluation as a result of remeasuring the local balance sheets, and we will experience ongoing adverse impacts to earnings as our revenues and expenses will be translated into U.S, dollars at lower rates. The impacts are not expected to be significant.


116
 
 
2012 Financial Report

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

 
 
Quarter
(MILLIONS OF DOLLARS, EXCEPT PER COMMON SHARE DATA)
 
First
 
Second
 
Third
 
Fourth
2012
 
 
 
 
 
 
 
 
Revenues
 
$
14,885

 
$
15,057

 
$
13,976

 
$
15,068

Costs and expenses (a)
 
11,853

 
10,383

 
10,683

 
12,107

Restructuring charges and certain acquisition-related costs (b)
 
597

 
190

 
302

 
791

Income from continuing operations before provision/(benefit) for taxes on income
 
2,435

 
4,484

 
2,991

 
2,170

Provision/(benefit) for taxes on income
 
711

 
1,290

 
(119
)
 
680

Income from continuing operations
 
1,724

 
3,194

 
3,110

 
1,490

Discontinued operations—net of tax (c)
 
79

 
66

 
104

 
4,831

Net income before allocation to noncontrolling interests
 
1,803

 
3,260

 
3,214

 
6,321

Less: Net income attributable to noncontrolling interests
 
9

 
7

 
6

 
6

Net income attributable to Pfizer Inc.
 
$
1,794

 
$
3,253

 
$
3,208

 
$
6,315

Earnings per common share—basic:
 
 
 
 
 
 
 
 
Income from continuing operations attributable to Pfizer Inc. common shareholders
 
$
0.23

 
$
0.43

 
$
0.42

 
$
0.20

Discontinued operations—net of tax
 
0.01

 
0.01

 
0.01

 
0.66

Net income attributable to Pfizer Inc. common shareholders
 
$
0.24

 
$
0.44

 
$
0.43

 
$
0.86

Earnings per common share—diluted:
 
 
 
 
 
 
 
 
Income from continuing operations attributable to Pfizer Inc. common shareholders
 
$
0.23

 
$
0.42

 
$
0.41

 
$
0.20

Discontinued operations—net of tax
 
0.01

 
0.01

 
0.01

 
0.65

Net income attributable to Pfizer Inc. common shareholders
 
$
0.24

 
$
0.43

 
$
0.43

 
$
0.85

 
 
 
 
 
 
 
 
 
Cash dividends paid per common share
 
$
0.22

 
$
0.22

 
$
0.22

 
$
0.22

Stock prices
 
 
 
 
 
 
 
 
High
 
$
22.80

 
$
23.30

 
$
25.15

 
$
26.09

Low
 
$
20.75

 
$
21.40

 
$
22.00

 
$
23.55

(a)  
The fourth quarter of 2012 reflects historically higher Q4 costs in Cost of sales, Selling, informational and administrative expenses, Research and development expenses and Other deductions—net.
(b)  
The fourth quarter of 2012 reflects higher employee termination costs.
(c)  
The fourth quarter of 2012 reflects the gain on the sale of our Nutrition business.

Basic and diluted EPS are computed independently for each of the periods presented. Accordingly, the sum of the quarterly EPS amounts may not agree to the total for the year.

As of January 31, 2013, there were 207,223 holders of record of our common stock (New York Stock Exchange symbol PFE).

2012 Financial Report    
 
 
117

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

 
 
Quarter
(MILLIONS OF DOLLARS, EXCEPT PER COMMON SHARE DATA)
 
First

 
Second

 
Third

 
Fourth

2011
 
 
 
 
 
 
 
 
Revenues
 
$
16,024

 
$
16,485

 
$
16,609

 
$
16,141

Costs and expenses (a)
 
12,124

 
12,409

 
11,978

 
13,514

Restructuring charges and certain acquisition-related costs (b)
 
890

 
478

 
1,090

 
472

Income from continuing operations before provision for taxes on income
 
3,010

 
3,598

 
3,541

 
2,155

Provision for taxes on income (c)
 
874

 
1,077

 
1,216

 
742

Income from continuing operations
 
2,136

 
2,521

 
2,325

 
1,413

Discontinued operations—net of tax
 
98

 
97

 
1,424

 
35

Net income before allocation to noncontrolling interests
 
2,234

 
2,618

 
3,749

 
1,448

Less: Net income attributable to noncontrolling interests
 
12

 
8

 
11

 
9

Net income attributable to Pfizer Inc.
 
$
2,222

 
$
2,610

 
$
3,738

 
$
1,439

Earnings per common share—basic:
 
 
 
 
 
 
 
 
Income from continuing operations attributable to Pfizer Inc. common shareholders
 
$
0.27

 
$
0.32

 
$
0.30

 
$
0.18

Discontinued operations—net of tax
 
0.01

 
0.01

 
0.19

 
—

Net income attributable to Pfizer Inc. common shareholders
 
$
0.28

 
$
0.33

 
$
0.48

 
$
0.19

Earnings per common share—diluted:
 
 
 
 
 
 
 
 
Income from continuing operations attributable to Pfizer Inc. common shareholders
 
$
0.26

 
$
0.32

 
$
0.30

 
$
0.18

Discontinued operations—net of tax
 
0.01

 
0.01

 
0.18

 
—

Net income attributable to Pfizer Inc. common shareholders
 
$
0.28

 
$
0.33

 
$
0.48

 
$
0.19

 
 
 
 
 
 
 
 
 
Cash dividends paid per common share
 
$
0.20

 
$
0.20

 
$
0.20

 
$
0.20

Stock prices
 
 
 
 
 
 
 
 
High
 
$
20.57

 
$
21.45

 
$
20.95

 
$
21.90

Low
 
$
17.62

 
$
19.10

 
$
16.63

 
$
17.05

(a)  
The fourth quarter of 2011 reflects historically higher Q4 costs in Cost of sales and Selling, informational and administrative expenses , Research and development expenses and Other deductions—net .
(b)  
The third quarter of 2011 reflects higher employee termination costs.
(c)  
The third quarter of 2011 reflects the gain on the sale of Capsugel.

Basic and diluted EPS are computed independently for each of the periods presented. Accordingly, the sum of the quarterly EPS amounts may not agree to the total for the year.


118
 
 
2012 Financial Report

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 

 
 
Year Ended/As of December 31, (a)
(MILLIONS, EXCEPT PER COMMON SHARE DATA)
 
2012

 
2011

 
2010

 
2009

 
2008

Revenues
 
$
58,986

 
$
65,259

 
$
65,165

 
$
49,078

 
$
47,529

Research and development expenses (b)
 
7,870

 
9,074

 
9,483

 
7,887

 
8,557

Other costs and expenses
 
37,156

 
40,951

 
43,066

 
26,138

 
26,790

Restructuring charges and certain acquisition-related costs (c)
 
1,880

 
2,930

 
3,145

 
4,330

 
2,662

Income from continuing operations before provision for taxes on income
 
12,080

 
12,304

 
9,471

 
10,723

 
9,520

Provision for taxes on income
 
2,562

 
3,909

 
1,153

 
2,150

 
1,582

Income from continuing operations
 
9,518

 
8,395

 
8,318

 
8,573

 
7,938

Discontinued operations—net of tax (d)
 
5,080

 
1,654

 
(30
)
 
71

 
188

Less: Net income attributable to noncontrolling interests
 
28

 
40

 
31

 
9

 
22

Net income attributable to Pfizer Inc.
 
$
14,570

 
$
10,009

 
$
8,257

 
$
8,635

 
$
8,104

Effective tax rate—continuing operations
 
21.2
%
 
31.8
%
 
12.2
%
 
20.1
%
 
16.6
%
Depreciation and amortization (e)
 
$
7,611

 
$
8,907

 
$
8,399

 
$
4,757

 
$
5,090

Property, plant and equipment additions (e)
 
1,327

 
1,660

 
1,513

 
1,205

 
1,701

Cash dividends paid
 
6,534

 
6,234

 
6,088

 
5,548

 
8,541

Working capital
 
32,796

 
31,908

 
35,764

 
28,537

 
16,748

Property, plant and equipment, less accumulated depreciation
 
14,461

 
15,921

 
17,607

 
21,316

 
12,864

Total assets
 
185,798

 
188,002

 
195,014

 
212,949

 
111,148

Long-term debt
 
31,036

 
34,926

 
38,410

 
43,192

 
7,955

Long-term capital (f)
 
134,307

 
136,408

 
144,542

 
150,562

 
68,637

Total Pfizer Inc. shareholders’ equity
 
81,260

 
82,190

 
87,813

 
90,014

 
57,556

 
 
 
 
 
 
 
 
 
 
 
Earnings per common share—basic (g)
 
 
 
 
 
 
 
 
 
 
Income from continuing operations attributable to Pfizer Inc. common shareholders
 
$
1.27

 
$
1.07

 
$
1.03

 
$
1.22

 
$
1.18

Discontinued operations—net of tax
 
0.68

 
0.21

 
—

 
0.01

 
0.03

Net income attributable to Pfizer Inc. common shareholders
 
$
1.96

 
$
1.28

 
$
1.03

 
$
1.23

 
$
1.20

Earnings per common share—diluted (g)
 
 
 
 
 
 
 
 
 
 
Income from continuing operations attributable to Pfizer Inc. common shareholders
 
$
1.26

 
$
1.06

 
$
1.03

 
$
1.22

 
$
1.17

Discontinued operations—net of tax
 
0.68

 
0.21

 
—

 
0.01

 
0.03

Net income attributable to Pfizer Inc. common shareholders
 
$
1.94

 
$
1.27

 
$
1.02

 
$
1.23

 
$
1.20

 
 
 
 
 
 
 
 
 
 
 
Market value per share (December 31)
 
$
25.08

 
$
21.64

 
$
17.51

 
$
18.19

 
$
17.71

Return on Pfizer Inc. shareholders’ equity
 
17.83
%
 
11.78
%
 
10.39
%
 
13.42
%
 
13.22
%
Cash dividends paid per common share
 
$
0.88

 
$
0.80

 
$
0.72

 
$
0.80

 
$
1.28

Pfizer Inc. shareholders’ equity per common share (h)
 
$
11.17

 
$
10.85

 
$
10.96

 
$
11.19

 
$
8.56

Current ratio
 
2.15:1

 
2.10:1

 
2.21:1

 
1.75:1

 
1.61:1

 
 
 
 
 
 
 
 
 
 
 
Weighted-average shares—basic
 
7,442

 
7,817

 
8,036

 
7,007

 
6,727

Weighted-average shares—diluted
 
7,508

 
7,870

 
8,074

 
7,045

 
6,750

(a)  
For 2011, includes King commencing on the acquisition date of January 31, 2011. For 2009, includes Wyeth commencing on the acquisition date of October 15, 2009.
(b)  
Research and development expenses includes upfront and milestone payments for intellectual property rights of $371 million in 2012 , $306 million in 2011 ; $393 million in 2010 ; $489 million in 2009 ; and $377 million in 2008 .
(c)  
Restructuring charges and certain acquisition-related costs primarily includes the following:
2012 —Restructuring charges of $1.5 billion related to our cost-reduction and productivity initiatives.
2011 —Restructuring charges of $2.2 billion related to our acquisition of Wyeth and other cost-reduction initiatives.
2010 —Restructuring charges of $2.1 billion related to our acquisition of Wyeth and other cost-reduction initiatives.
2009 —Restructuring charges of $3.0 billion related to our cost-reduction initiatives.
2008 —Restructuring charges of $2.6 billion related to our cost-reduction initiatives.
(d)  
The sale of our Nutrition business closed on November 30, 2012. 2012, 2011, 2010 and 2009 reflect the Nutrition business, which was acquired in 2009, as a discontinued operation. All financial information before 2012 reflects Capsugel (the sale of which closed on August 1, 2011) as a discontinued operation.
(e)  
Includes discontinued operations.
(f)  
Defined as long-term debt, noncurrent deferred tax liabilities and total equity. In 2009 , increase reflects the long-term debt and deferred tax liabilities associated with the acquisition of Wyeth.
(g)  
EPS amounts may not add due to rounding.
(h)  
Represents total Pfizer Inc. shareholders’ equity divided by the actual number of common shares outstanding (which excludes treasury shares and those held by our employee benefit trusts). The increase in 2009 was due to the issuance of equity to partially finance the Wyeth acquisition.

2012 Financial Report    
 
 
119

Financial Review
Pfizer Inc. and Subsidiary Companies


 
 
 

 


Peer Group Performance Graph

The following graph assumes a $100 investment on December 31, 2007, and reinvestment of all dividends, in each of the Company's Common Shares, the S&P 500 Index, and a composite peer group of the major U.S.- and European-based pharmaceutical companies, which are: Abbott Laboratories, Amgen, AstraZeneca, Bristol-Myers Squibb Company, Eli Lilly and Company, GlaxoSmithKline, Johnson & Johnson and Merck and Co., Inc.

Five Year Performance
 
 
 
2007
 
2008
 
2009
 
2010
 
2011
 
2012
PFIZER        
 
100.0
 
83.1
 
90.0
 
90.3
 
116.3
 
140.0
PEER GROUP
 
100.0
 
84.7
 
95.6
 
95.2
 
111.5
 
123.4
S&P 500      
 
100.0
 
63.0
 
79.7
 
91.7
 
93.6
 
108.6
 

120
 
 
2012 Financial Report


Exhibit 21





SUBSIDIARIES OF THE COMPANY



The following is a list of subsidiaries of the Company as of December 31, 2012 (1) , omitting some subsidiaries which, considered in the aggregate, would not constitute a significant subsidiary.

Company
Where Incorporated
A. H. Robins (Philippines) Company, Inc.
Philippines
A.S. Ruffel (Private) Limited
Zimbabwe
A/O Pfizer
Russia
ACAHC LLC
Delaware
Agouron Pharmaceuticals, Inc.
California
AH Robins LLC
Delaware
AH USA 42 LLC
Delaware
AHP Holdings B.V.
Netherlands
AHP Holdings Pty. Limited
Australia
AHP Manufacturing B.V.
Netherlands
Alacer Corp.
California
Alacer East, LLC
Delaware
Allabinc de Mexico, S.A. de C.V.
Mexico
Alpha-Lux Investments S.àr.l.
Luxembourg
Alpharma (Bermuda) Investments Ltd.
Bermuda
Alpharma (Bermuda) Ltd
Bermuda
Alpharma (Bermuda), LLC
Delaware
Alpharma (Luxembourg) S.A.R.L. y Compania Limitada
Chile
Alpharma (Luxembourg) S.àr.l.
Luxembourg
Alpharma Animal Health (Beijing) Trading Co. Ltd.
People's Republic of China
Alpharma Animal Health (Hong Kong) Co. Limited
Hong Kong
Alpharma Animal Health (Shenzhou) Co., Ltd.
People's Republic of China
Alpharma Animal Health (Yantai) Co., Ltd.
People's Republic of China
Alpharma Animal Health Company
Texas
Alpharma Animal Health Italia S.r.l.
Italy
Alpharma Bermuda G.P.
Bermuda
Alpharma Canada Corporation
Canada
Alpharma de Argentina S.R.L.
Argentina
Alpharma do Brasil Ltda
Brazil
Alpharma Euro Holdings, LLC
Delaware
Alpharma Holdings (Barbados) SRL
Barbados
Alpharma Holdings Inc.
Delaware
Alpharma International (Luxembourg) Sarl
Luxembourg
Alpharma Ireland Limited
Ireland
Alpharma Operating, LLC
Delaware
Alpharma Pharmaceuticals (Thailand) Limited
Thailand
Alpharma Pharmaceuticals LLC
Delaware
Alpharma Specialty Pharma Inc.
Delaware

(1) This list reflects the subsidiaries of the Company as of December 31, 2012, and accordingly does not reflect any organizational or name changes which occurred in 2013 in connection with or as a result of the Zoetis Inc. initial public offering, completed on February 6, 2013 or otherwise.



Alpharma U.S. Inc.
Delaware
Alpharma USHP Inc.
Delaware
Alpharma, LLC
Delaware
American Food Industries LLC
Delaware
American Home Products Holdings (U.K.) Limited
United Kingdom
Andean Services S.A.
Colombia
Animal Health Holdings C.V.
Netherlands
Ayerst-Wyeth Pharmaceuticals LLC
Delaware
Barre Parent Corporation
Delaware
BINESA 2002, S.L.
Spain
Biocor Animal Health Inc.
Delaware
Bioren, Inc.
Delaware
BioRexis Pharmaceutical Corporation
Delaware
Blue Point Provider, S. de R.L. de C.V.
Mexico
Blue Umbrella First Aid, S. de R.L. de C.V.
Mexico
Blue Umbrella Services, S. de R.L. de C.V.
Mexico
Blue Whale Re Ltd.
Vermont
C.E. Commercial Holdings C.V.
Netherlands
C.E. Commercial Investments C.V.
Netherlands
C.E. Holdings Europe C.V.
Netherlands
C.P. Pharma Gyógyszerkereskedelmi Korlátolt Felelõsségû Társaság
Hungary
C.P. Pharma Services Corporation, S. de R.L. de C.V.
Mexico
C.P. Pharmaceuticals International C.V.
Netherlands
Carlerba - Produtos Químicos e Farmacêuticos, Lda.
Portugal
CICL Corporation
Delaware
COC I Corporation
Delaware
Coley Pharmaceutical GmbH
Germany
Coley Pharmaceutical Group, Inc.
Delaware
Coley Pharmaceutical Group, Ltd.
Canada
Compania Farmaceutica Upjohn, S.A.
Guatemala
Continental Farmaceutica SPRL
Belgium
Continental Pharma, Inc.
Belgium
CovX Research LLC
Delaware
Covx Technologies Ireland Limited
Ireland
Cyanamid de Argentina S.A.
Delaware
Cyanamid de Colombia, S.A.
Delaware
Cyanamid Inter-American Corporation
Delaware
Cyanamid of Great Britain Limited
United Kingdom
Design Group Sverige AB
Sweden
Distribuidora Mercantil Centro Americana, S.A
Delaware
Durgon Holdings Limited
British Virgin Islands
Egyptian Company for Animal Health LLC
Egypt
Embrex Bio-Tech Trade (Shanghai) Co., Ltd.
People's Republic of China
Embrex Europe Limited
United Kingdom
Embrex Poultry Health, LLC
North Carolina
Embrex, Inc.
North Carolina
Empresa Laboratories de Mexico S.A. de C.V.
Mexico
Encysive (UK) Limited
United Kingdom
Encysive Canada Inc.
Canada



Encysive Pharmaceuticals Inc.
Delaware
Esperion LUV Development, Inc.
Delaware
Eurovita Trading Limited
Ireland
Excaliard Pharmaceuticals, Inc.
Delaware
Farminova Produtos Farmaceuticos de Inovacao, Lda.
Portugal
Farmitalia Carlo Erba Limited
United Kingdom
Farmogene Productos Farmaceuticos Lda
Portugal
Ferrosan A/S
Denmark
Ferrosan AB
Sweden
Ferrosan Finance S.A.
Panama
Ferrosan Holding A/S
Denmark
Ferrosan International A/S
Denmark
Ferrosan Limited
United Kingdom
Ferrosan Norge AS
Norway
Ferrosan Poland Sp. z o.o. w likwidacji
Poland
Ferrosan S.R.L.
Romania
FoldRx Pharmaceuticals, Inc.
Delaware
Fort Dodge (Hong Kong) Limited
Hong Kong
Fort Dodge Animal Health Limited
United Kingdom
Fort Dodge Animal Health, S. de R.L. de C.V.
Mexico
Fort Dodge Asia Exports, Inc.
Delaware
Fort Dodge Australia Pty. Limited
Australia
Fort Dodge de Venezuela, C.A.
Venezuela
Fort Dodge Laboratories Inc.
Iowa
Fort Dodge Manufatura Ltda.
Brazil
Fort Dodge Saude Animal Ltda.
Brazil
G. D. Searle & Co. Limited
United Kingdom
G. D. Searle International Capital LLC
Delaware
G. D. Searle LLC
Delaware
Genetics Institute, LLC
Delaware
GenTrac, Inc.
Wisconsin
GI Europe, Inc.
Delaware
GI Japan, Inc.
Delaware
Grangematic Limited
Ireland
Greenstone LLC
Delaware
Hälseprodukter Forserum AB
Sweden
Haptogen Limited
United Kingdom
Icagen, Inc.
Delaware
ImmunoPharmaceutics, Inc.
California
Industrial Santa Agape, S.A.
Guatemala
Instituto Pasteur de Lisboa Virginio Leitao Vieira dos Santos & Filhos S.A.
Portugal
Interfarma - Produtos Quimicos e Farmaceuticos, Lda.
Portugal
International Affiliated Corporation LLC
Delaware
Invicta Farma, S.A.
Spain
JMI-Daniels Pharmaceuticals, Inc.
Florida
John Wyeth & Brother Limited
United Kingdom
Kiinteistö oy Espoon Pellavaniementie 14
Finland
King Pharmaceuticals Holdings LLC
Delaware
King Pharmaceuticals LLC
Delaware



King Pharmaceuticals Research and Development, Inc.
Delaware
Kommanditbolaget Hus Gron
Sweden
Korea Pharma Holding Company Limited
Hong Kong
Laboratoires Pfizer SA
Morocco
Laboratorio Teuto Brasileiro S.A.
Brazil
Laboratorios Parke Davis, S.L.
Spain
Laboratorios Pfizer Ltda.
Brazil
Laboratórios Pfizer, Lda.
Portugal
Laboratorios Wyeth LLC
Pennsylvania
Laboratorios Wyeth S.A.
Peru
Laboratorios Wyeth S.A.
Venezuela
LLC Ferrosan Consumer Health
Russia
Lothian Developments V SPRL
Belgium
MDP Holdings, Inc.
Delaware
Meridian Medical Technologies Limited
United Kingdom
Meridian Medical Technologies, Inc.
Delaware
Meridica Limited
United Kingdom
Mikjan Corporation
Arkansas
Monarch Pharmaceuticals Ireland Limited
Ireland
Monarch Pharmaceuticals, Inc.
Tennessee
MPP Trustee Limited
United Kingdom
MTG Divestitures LLC
Delaware
Neusentis Limited
United Kingdom
NextWave Pharmaceuticals Incorporated
Delaware
Nordic Sales Group AS
Norway
Nostrum Farma, S.A.
Spain
Nutrifarma Ferrosan Saðlik Ürün ve Hizmetieri A.Þ.
Turkey
O.C.T. (Thailand) Ltd.
Thailand
Oy Ferrosan AB
Finland
PAH 7V6 Holding Limited
Hong Kong
PAH Amazon Holdings Sarl
Luxembourg
PAH Brasil Participacoes Ltda
Brazil
PAH Central America 1 LLC
Delaware
PAH Central America 2 LLC
Delaware
PAH CHHK Holding B.V.
Netherlands
PAH Colombia Holdco I LLC
Pennsylvania
PAH Colombia S.A.S.
Colombia
PAH Colombia USP 2 LLC
Pennsylvania
PAH Costa Rica, SRL
Costa Rica
PAH CP LLC
Delaware
PAH Egypt Holding B.V.
Netherlands
PAH GDS LLC
Delaware
PAH HCP 1 LLC
Delaware
PAH HCP 2 LLC
Delaware
PAH Holdco SARL
Luxembourg
PAH Holdings LLC
Delaware
PAH India Holdco LLC
Delaware
PAH India Holding 1 B.V.
Netherlands
PAH Japan Holding B.V.
Netherlands
PAH Luxembourg 1 SARL
Luxembourg



PAH Luxembourg 2 SARL
Luxembourg
PAH Luxembourg 3 SARL
Luxembourg
PAH Luxembourg 5 SARL
Luxembourg
PAH Luxmex SARL
Luxembourg
PAH Mexico Holdco SARL
Luxembourg
PAH Netherlands 1 Cooperatief U.A.
Netherlands
PAH Netherlands 2 B.V.
Netherlands
PAH Netherlands T3 B.V.
Netherlands
PAH Nominee 2 B.V.
Netherlands
PAH Nominee 3 B.V.
Netherlands
PAH Nominee B.V.
Netherlands
PAH Oceania B.V.
Netherlands
PAH P&U 2 LLC
Delaware
PAH P&U LLC
Delaware
PAH Panama B.V.
Netherlands
PAH Panama LLC
Delaware
PAH PD LLC
Delaware
PAH PH LLC
Delaware
PAH PI LLC
Delaware
PAH PM LLC
Delaware
PAH Portugal Holding B.V.
Netherlands
PAH PP LLC
Delaware
PAH Russia Holding B.V.
Netherlands
PAH SBSS Lux Holding Sarl
Luxembourg
PAH Singapore Pte. Ltd.
Singapore
PAH Spain, S.L.
Spain
PAH Switzerland GmbH
Switzerland
PAH Tabor LLC
Delaware
PAH Treasury Center BVBA
Belgium
PAH Turkey Holding B.V.
Netherlands
PAH UK 2 Limited
United Kingdom
PAH USA 15 LLC
Delaware
PAH USA IN8 LLC
Delaware
PAH Velvet B.V.
Netherlands
PAH Venezuela Holding B.V.
Netherlands
PAH W LLC
Delaware
PAH WAH LLC
Delaware
PAH WAI 1 LLC
Delaware
PAH WAI 2 LLC
Delaware
PAH Weesp B.V.
Netherlands
PAH West Europe 2 SARL
Luxembourg
PAH West Europe SARL
Luxembourg
PAH WHC 2 LLC
Delaware
PAH WHC LLC
Delaware
PAH WHC Splitco LLC
Delaware
PAH WLC LLC
Delaware
Parke Davis Limited
Hong Kong
Parke Davis Productos Farmaceuticos Lda
Portugal
Parke, Davis & Company LLC
Michigan
Parkedale Pharmaceuticals, Inc.
Michigan



Parke-Davis Manufacturing Corp.
Delaware
P-D Co., LLC
Delaware
Peak Enterprises LLC
Delaware
PF Americas Holding C.V.
Netherlands
PF Asia Manufacturing Coöperatief U.A.
Netherlands
PF PR Holdings C.V.
Netherlands
PF PRISM C.V.
Netherlands
PF PRISM Holdings S.a.r.l.
Luxembourg
PF Prism S.á.r.l.
Luxembourg
Pfizer (Far East) Limited
Hong Kong
Pfizer (H.K.) Holding Limited
Hong Kong
Pfizer (Malaysia) Sdn Bhd
Malaysia
Pfizer (People's Republic of China) Research and Development Co. Ltd.
People's Republic of China
Pfizer (Perth) Pty Limited
Australia
Pfizer (S.A.S.)
France
Pfizer (Suzhou) Pharmaceutical Information Consultation Co., Ltd.
People's Republic of China
Pfizer (Thailand) Limited
Thailand
Pfizer (Wuhan) Research and Development Co. Ltd.
People's Republic of China
Pfizer AB
Sweden
Pfizer Africa & Middle East for Pharmaceuticals, Veterinary Products & Chemicals S.A.E.
Egypt
Pfizer Afrique de L'Ouest
Senegal
Pfizer AG
Switzerland
Pfizer AH LLC
Ukraine
Pfizer Alpine Holdings Cooperatief U.A.
Netherlands
Pfizer Animal Health (Ireland) Limited
Ireland
Pfizer Animal Health (Thailand) Limited
Thailand
Pfizer Animal Health Australia Manufacturing Pty. Ltd.
Australia
Pfizer Animal Health Australia Pty Ltd
Australia
Pfizer Animal Health Austria GmbH
Austria
Pfizer Animal Health B.V.
Netherlands
Pfizer Animal Health Canada Inc.
Canada
Pfizer Animal Health Chile S.A.
Chile
Pfizer Animal Health Cia. Ltda.
Ecuador
Pfizer Animal Health Czech Sro
Czech Republic
Pfizer Animal Health Finland Oy
Finland
Pfizer Animal Health Germany GmbH
Germany
Pfizer Animal Health Hungary 1 Kft
Hungary
Pfizer Animal Health India Limited
India
Pfizer Animal Health International (S.A.S.)
France
Pfizer Animal Health Italia S.r.l.
Italy
Pfizer Animal Health Japan K.K.
Japan
Pfizer Animal Health Korea Ltd.
Republic of Korea
Pfizer Animal Health Lithuania UAB
Lithuania
Pfizer Animal Health MA EEIG
United Kingdom
Pfizer Animal Health Malaysia Sdn. Bhd.
Malaysia
Pfizer Animal Health Manufacturing Italia S.r.l.
Italy
Pfizer Animal Health Mexico, S. de R.L. de C.V.
Mexico
Pfizer Animal Health New Zealand Limited
New Zealand



Pfizer Animal Health Panama S. de R.L.
Panama
Pfizer Animal Health Peru SRL
Peru
Pfizer Animal Health Philippines, Inc.
Philippines
Pfizer Animal Health Poland Sp z o.o.
Poland
Pfizer Animal Health S.A.
Belgium
Pfizer Animal Health S.R.L.
Romania
Pfizer Animal Health South Africa (Pty) Ltd.
South Africa
Pfizer Animal Health Taiwan Limited
Taiwan
Pfizer Animal Health UK 1 Ltd.
United Kingdom
Pfizer Animal Health Uruguay SRL
Uruguay
Pfizer Animal Pharma Private Limited
India
Pfizer ApS
Denmark
Pfizer AS
Norway
Pfizer Asia Limited
Taiwan
Pfizer Asia Manufacturing Pte. Ltd.
Singapore
Pfizer Asia Pacific Pte Ltd.
Singapore
Pfizer AsiaPac Holdings SARL
Luxembourg
Pfizer Asset Management Luxembourg SARL
Luxembourg
Pfizer Atlantic Holdings S.a.r.l.
Luxembourg
Pfizer Australia Holdings B.V.
Netherlands
Pfizer Australia Holdings Pty Limited
Australia
Pfizer Australia Investments B.V.
Netherlands
Pfizer Australia Investments Pty. Ltd.
Australia
Pfizer Australia Pty Limited
Australia
Pfizer B.V.
Netherlands
Pfizer Baltic Holdings B.V.
Netherlands
Pfizer BH D.o.o.
Bosnia and Herzegovina
Pfizer Biologics Ireland Holdings Limited
Ireland
Pfizer Biotech Corporation
Taiwan
Pfizer Biotechnology Ireland
Ireland
Pfizer Bolivia S.A.
Bolivia
Pfizer Business Enterprises C.V.
Netherlands
Pfizer Canada Inc.
Canada
Pfizer CentreSource Asia Pacific Pte. Ltd.
Singapore
Pfizer Chile S.A.
Chile
Pfizer Cia. Ltda.
Ecuador
Pfizer Colombia Spinco I LLC
Pennsylvania
Pfizer Commercial Holdings Coöperatief U.A.
Netherlands
Pfizer Consumer Healthcare GmbH
Germany
Pfizer Consumer Healthcare Ltd.
United Kingdom
Pfizer Continental Holdings SARL
Luxembourg
Pfizer Continental Services LLC
Delaware
Pfizer Cork Limited
Ireland
Pfizer Corporation
Panama
Pfizer Corporation Austria Gesellschaft m.b.H.
Austria
Pfizer Corporation Hong Kong Limited
Hong Kong
Pfizer Croatia d.o.o.
Croatia
Pfizer Deutschland GmbH
Germany
Pfizer Development LP
United Kingdom
Pfizer Development Services (UK) Limited
United Kingdom



Pfizer Distribution Company
Ireland
Pfizer Domestic Ventures Limited
Isle of Jersey
Pfizer Dominicana, S.A.
Dominican Republic
Pfizer East India B.V.
Netherlands
Pfizer Eastern Investments B.V.
Netherlands
Pfizer Egypt S.A.E.
Egypt
Pfizer Enterprises Inc.
Delaware
Pfizer Enterprises SARL
Luxembourg
Pfizer ESP Pty Ltd
Australia
Pfizer Europe Holdings SARL
Luxembourg
Pfizer Europe MA EEIG
United Kingdom
Pfizer Europe Services LLC
Delaware
Pfizer Export AB
Sweden
Pfizer Export Company
Ireland
Pfizer Finance GmbH & Co. KG
Germany
Pfizer Finance Holding S.r.l.
Italy
Pfizer Finance Italy S.r.l.
Italy
Pfizer Finance Share Service (Dalian) Co., Ltd.
People's Republic of China
Pfizer Finance Verwaltungs GmbH
Germany
Pfizer Financial Services N.V./S.A.
Belgium
Pfizer France Coöperatief U.A.
Netherlands
Pfizer France International Investments SAS
France
Pfizer France Investment Holdings
France
Pfizer Free Zone Panama, S. de R.L.
Panama
Pfizer Global Holdings B.V.
Netherlands
Pfizer Global Investments SARL
Luxembourg
Pfizer Global Supply
Ireland
Pfizer Global Supply Japan Inc.
Japan
Pfizer Global Trading
Ireland
Pfizer GmbH
Germany
Pfizer Gulf FZ-LLC
United Arab Emirates
Pfizer H.C.P. Corporation
New York
Pfizer Hayvan Saðliði Limited Þirketi
Turkey
Pfizer Health AB
Sweden
Pfizer Health Solutions Inc.
Delaware
Pfizer Healthcare Consultant (Shanghai) Co., Ltd
People's Republic of China
Pfizer Healthcare Ireland
Ireland
Pfizer Hellas Animal Health S.A.
Greece
Pfizer Hellas, A.E.
Greece
Pfizer Himalaya Holdings Coöperatief U.A.
Netherlands
Pfizer HK Service Company Limited
Hong Kong
Pfizer Holding France (S.C.A.)
France
Pfizer Holding Italy S.r.l.
Italy
Pfizer Holding Ventures
Ireland
Pfizer Holdings Europe
Ireland
Pfizer Holdings International Luxembourg (PHIL) Sarl
Luxembourg
Pfizer Holdings K.K.
Japan
Pfizer Holdings Luxembourg SARL
Luxembourg
Pfizer Holdings North America SARL
Luxembourg
Pfizer Holdings Turkey Limited
Isle of Jersey



Pfizer Holland Holdings B.V.
Netherlands
Pfizer Ilaclari Limited Sirketi
Turkey
Pfizer International Business Europe
Ireland
Pfizer International Investments Ltd.
Bermuda
Pfizer International LLC
New York
Pfizer International Luxembourg SA
Luxembourg
Pfizer International Operations (S.A.S.)
France
Pfizer International S. de R.L.
Panama
Pfizer International Sweden
Sweden
Pfizer International Trading (Shanghai) Limited
People's Republic of China
Pfizer Investment Capital
Ireland
Pfizer Investment Co. Ltd.
People's Republic of China
Pfizer Investment Holdings S.a.r.l.
Luxembourg
Pfizer Investments Netherlands B.V.
Netherlands
Pfizer Ireland Investments Limited
Ireland
Pfizer Ireland Pharmaceuticals
Ireland
Pfizer Ireland Ventures
Ireland
Pfizer Italia S.r.l.
Italy
Pfizer Japan Inc.
Japan
Pfizer Jersey Capital Limited
Isle of Jersey
Pfizer Jersey Company Limited
Isle of Jersey
Pfizer Jersey Finance Limited
Isle of Jersey
Pfizer Laboratories (Pty) Limited
South Africa
Pfizer Laboratories Limited
Kenya
Pfizer Limitada
Angola
Pfizer Limited
India
Pfizer Limited
Taiwan
Pfizer Limited
Tanzania
Pfizer Limited
Uganda
Pfizer Limited
United Kingdom
Pfizer LLC
Russia
Pfizer Luxco Holdings Sarl
Luxembourg
Pfizer Luxembourg Global Holdings SARL
Luxembourg
Pfizer Luxembourg SARL
Luxembourg
Pfizer Manufacturing Belgium N.V.
Belgium
Pfizer Manufacturing Deutschland GmbH
Germany
Pfizer Manufacturing Holdings Coöperatief U.A.
Netherlands
Pfizer Manufacturing Holdings LLC
Delaware
Pfizer Manufacturing Ireland
Ireland
Pfizer Manufacturing LLC
Delaware
Pfizer Manufacturing Services
Ireland
Pfizer Medical Technology Group (Belgium) N.V.
Belgium
Pfizer Medicamentos Genericos e Participacoes Ltda.
Brazil
Pfizer Mexico Luxco SARL
Luxembourg
Pfizer Mexico, S.A. de C.V.
Mexico
Pfizer Middle East for Pharmaceuticals, Animal Health and Chemicals S.A.E.
Egypt
Pfizer Namibia (Proprietary) Limited
Namibia
Pfizer New Zealand Limited
New Zealand
Pfizer North American Holdings Inc.
Delaware



Pfizer Olot, S.L.
Spain
Pfizer OTC B.V.
Netherlands
Pfizer Overseas LLC
Delaware
Pfizer Overseas Services Inc.
Delaware
Pfizer Oy
Finland
Pfizer Pacific Coöperatief U.A.
Netherlands
Pfizer Pacific Holdings B.V.
Netherlands
Pfizer Pacific Investments B.V.
Netherlands
Pfizer Pakistan Limited
Pakistan
Pfizer Parke Davis
Philippines
Pfizer Parke Davis (Thailand) Ltd.
Thailand
Pfizer Parke Davis Pte. Ltd.
Singapore
Pfizer PGM (S.A.S.)
France
Pfizer PGRD (S.A.S.)
France
Pfizer Pharm Algerie
Algeria
Pfizer Pharma GmbH
Germany
Pfizer Pharma Trade LLC
Egypt
Pfizer Pharmaceutical (Wuxi) Co., Ltd.
People's Republic of China
Pfizer Pharmaceutical India Pvt. Ltd.
India
Pfizer Pharmaceutical Trading Limited Liability Company (a/k/a Pfizer Kft. or Pfizer LLC)
Hungary
Pfizer Pharmaceuticals B.V.
Netherlands
Pfizer Pharmaceuticals Global Coöperatief U.A.
Netherlands
Pfizer Pharmaceuticals Israel Ltd.
Israel
Pfizer Pharmaceuticals Korea Limited
Republic of Korea
Pfizer Pharmaceuticals Limited
Cayman Islands
Pfizer Pharmaceuticals LLC
Delaware
Pfizer Pharmaceuticals Ltd.
People's Republic of China
Pfizer Pharmaceuticals Tunisie Sarl
Tunisia
Pfizer PHF
Ireland
Pfizer Philippines Holdings B.V.
Netherlands
Pfizer Pigments Inc.
Delaware
Pfizer Polska Sp. z.o.o.
Poland
Pfizer Precision Holdings SARL
Luxembourg
Pfizer Prev - Sociedade de Previdencia Privada
Brazil
Pfizer Private Limited
Malaysia
Pfizer Private Ltd.
Singapore
Pfizer Production LLC
Delaware
Pfizer Products Inc.
Connecticut
Pfizer Products India Private Limited
India
Pfizer Romania SRL
Romania
Pfizer S.A.
Peru
Pfizer S.A. (Belgium)
Belgium
Pfizer S.A.S.
Colombia
Pfizer S.G.P.S. Lda.
Portugal
Pfizer S.R.L.
Argentina
Pfizer Saidal Manufacturing
Algeria
Pfizer Salud Animal, S.L.
Spain
Pfizer Santé Animale SAS
France
Pfizer Santé Familiale SAS
France



Pfizer Saude Animal Lda.
Portugal
Pfizer Saudi Limited
Saudi Arabia
Pfizer Science and Technology Ireland Limited
Ireland
Pfizer Searle Investment Limited
Isle of Jersey
Pfizer Service Company BVBA
Belgium
Pfizer Service Company Ireland
Ireland
Pfizer Services 1 (S.N.C.)
France
Pfizer Services 3 (S.N.C.)
France
Pfizer Services 4 (S.N.C.)
France
Pfizer Services LLC
Delaware
Pfizer Shared Services
Ireland
Pfizer Shareholdings Intermediate SARL
Luxembourg
Pfizer Singapore Trading Pte. Ltd.
Singapore
Pfizer Spain Holdings Coöperatief U.A.
Netherlands
Pfizer Specialities Ghana
Ghana
Pfizer Specialties Limited
Nigeria
Pfizer Specialty UK Limited
United Kingdom
Pfizer Sterling Investments Limited
Isle of Jersey
Pfizer Strategic Investment Company Limited
Isle of Jersey
Pfizer Suzhou Animal Health Products Co., Ltd.
People's Republic of China
Pfizer Trading Polska sp.z.o.o.
Poland
Pfizer Transactions Ireland
Ireland
Pfizer Transactions LLC
Delaware
Pfizer Transactions Luxembourg SARL
Luxembourg
Pfizer Tunisie SA
Tunisia
Pfizer Ukraine
Ukraine
Pfizer Vaccines LLC
Delaware
Pfizer Venezuela, S.A.
Venezuela
Pfizer Warner Lambert Luxembourg SARL
Luxembourg
Pfizer WBB Australia Pty Ltd
Australia
Pfizer Zona Franca, S.A.
Costa Rica
Pfizer, Inc.
Philippines
Pfizer, S.A.
Costa Rica
Pfizer, S.A. de C.V.
Mexico
Pfizer, S.L.
Spain
Pfizer, spol. s r.o.
Czech Republic
Pharmacia & Upjohn Company LLC
Delaware
Pharmacia & Upjohn Company, Inc.
Delaware
Pharmacia & Upjohn LLC
Delaware
Pharmacia & Upjohn, S.A. de C.V.
Mexico
Pharmacia Brasil Ltda.
Brazil
Pharmacia de Centroamerica S.A.
Panama
Pharmacia GmbH
Germany
Pharmacia Grupo Pfizer, S.L.
Spain
Pharmacia Hepar LLC
Delaware
Pharmacia Holding AB
Sweden
Pharmacia Inter-American LLC
Michigan
Pharmacia International B.V.
Netherlands
Pharmacia International Inc.
South Dakota
Pharmacia Ireland
Ireland



Pharmacia Korea Ltd.
Republic of Korea
Pharmacia Laboratories Limited
United Kingdom
Pharmacia Limited
United Kingdom
Pharmacia LLC
Delaware
Pharmacia Malaysia Sdn Bhd
Malaysia
Pharmacia Searle Limited
United Kingdom
Pharmacia South Africa (Pty) Ltd
South Africa
PHIVCO Corp.
Delaware
PHIVCO Holdco S.à r.l.
Luxembourg
PHIVCO Luxembourg SARL
Luxembourg
PN Mexico LLC
Delaware
PN North America, S. de R.L. de C.V.
Mexico
PowderJect Research Limited
United Kingdom
PowderJect Vaccines, Inc.
Delaware
PowderMed Limited
United Kingdom
PowderMed, Inc.
Delaware
Prosec Forsakrings AB (Prosec Insurance Co. Ltd.)
Sweden
PT. Fort Dodge Indonesia
Indonesia
PT. Pfizer Indonesia
Indonesia
Purepac Pharmaceutical Holdings, Inc.
Delaware
PZR Ltd.
United Kingdom
PZR Property Limited
United Kingdom
Quigley Company, Inc.
New York
Renrall LLC
Wyoming
Rinat Neuroscience Corp.
Delaware
Rivepar (S.A.S.)
France
RMV Produtos Veterinarios Ltda.
Brazil
Roerig Produtos Farmaceuticos, Lda.
Portugal
Roerig S.A.
Chile
Roerig, S.A.
Venezuela
Sanidad Animal PAH Bolivia S.A.
Bolivia
Sao Cristovao Participacoes Ltda.
Brazil
Searle Laboratorios, Lda.
Portugal
Searle Ltd.
Bermuda
Servicios P&U, S. de R.L. de C.V.
Mexico
Shiley International
California
Shiley LLC
California
Sinergis Farma-Produtos Farmaceuticos, Lda.
Portugal
Site Realty, Inc.
Delaware
Solinor LLC
Delaware
STI International Limited
United Kingdom
Sugen, Inc.
Delaware
Sutumex, S.A. de C.V.
Mexico
Synbiotics Corporation
California
Synbiotics Europe S.A.S.
France
Tabor LLC
Delaware
The Pfizer Incubator LLC
Delaware
Thiakis Limited
United Kingdom
Trans-Europe Assurance Limited
Ireland
Upjohn Laboratorios Lda.
Portugal



US Oral Pharmaceuticals Pty Ltd
Australia
Vermont Whey Company
Vermont
Vesterålens Naturprodukter A/S
Denmark
Vesterålens Naturprodukter AB
Sweden
Vesterålens Naturprodukter AS
Norway
Vesterålens Naturprodukter OY
Finland
Vicuron Holdings LLC
Delaware
Vicuron Pharmaceuticals Italy S.r.l.
Italy
Vinci Farma, S.A.
Spain
Warner Lambert del Uruguay S.A.
Uruguay
Warner Lambert Ilac Sanayi ve Ticaret Limited Sirketi
Turkey
Warner Lambert Poland Sp.z.o.o. w likwidacji
Poland
Warner-Lambert (Tanzania), Limited
Tanzania
Warner-Lambert (Thailand) Limited
Thailand
Warner-Lambert Company AG
Switzerland
Warner-Lambert Company LLC
Delaware
Warner-Lambert de El Salvador, S.A. de C.V.
El Salvador
Warner-Lambert de Honduras, Sociedad Anonima
Honduras
Warner-Lambert de Puerto Rico, Inc.
Puerto Rico
Warner-Lambert Guatemala, Sociedad Anonima
Guatemala
Warner-Lambert, S.A.
Delaware
Whitehall International Inc.
New York
Whitehall Laboratories Inc.
Delaware
Whitehall Laboratorios S.A.
Uruguay
WL de Guatemala, Sociedad Anonima
Guatemala
W-L LLC
Delaware
Wyeth (Asia) Limited
Delaware
Wyeth (Far East) Limited
Hong Kong
Wyeth (Singapore) Pte. Ltd.
Singapore
Wyeth (Thailand) Ltd.
Thailand
Wyeth AB
Sweden
Wyeth Advertising Inc.
New York
Wyeth Australia Pty. Limited
Australia
Wyeth Ayerst Inc.
Delaware
Wyeth Ayerst SARL
Luxembourg
Wyeth Canada ULC
Canada
Wyeth Consumer Healthcare LLC
Pennsylvania
Wyeth Egypt Ltd.
Egypt
Wyeth Egypt Trading Ltd.
Egypt
Wyeth Europa Limited
United Kingdom
Wyeth Farma, S.A.
Spain
Wyeth Holdings Corporation
Maine
Wyeth Ilaclari, S. de R.L. de C.V.
Mexico
Wyeth Industria Farmaceutica Ltda.
Brazil
Wyeth KFT.
Hungary
Wyeth Korea, Inc.
Republic of Korea
Wyeth Lederle S.r.l.
Italy
Wyeth Lederle Vaccines S.A.
Belgium
Wyeth Limited
India
Wyeth LLC
Russia



Wyeth LLC
Delaware
Wyeth Pakistan Limited
Pakistan
Wyeth Pharmaceutical Co., Ltd.
People's Republic of China
Wyeth Pharmaceuticals Central America Services, S.A.
Panama
Wyeth Pharmaceuticals Company
Puerto Rico
Wyeth Pharmaceuticals FZ-LLC
United Arab Emirates
Wyeth Pharmaceuticals Inc.
Delaware
Wyeth Pharmaceuticals India Private Limited
India
Wyeth Pharmaceuticals Limited
Ireland
Wyeth Pharmaceuticals S. de R.L. de C.V.
Mexico
Wyeth Philippines, Co. Ltd.
Philippines
Wyeth Prev-Sociedade de Previdencia Privada
Brazil
Wyeth Puerto Rico, Inc.
Puerto Rico
Wyeth Regional Manufacturing (Singapore) PTE. LTD.
Singapore
Wyeth Research Ireland Limited
Ireland
Wyeth Subsidiary Illinois Corporation
Illinois
Wyeth Whitehall Export GmbH
Austria
Wyeth Whitehall SARL
Luxembourg
Wyeth, S. de R.L. de C.V.
Mexico
Wyeth-Ayerst (Asia) Limited
Delaware
Wyeth-Ayerst Promotions Limited
Delaware
Yusafarm D.O.O.
Serbia
Zoetis Inc.
Delaware







Exhibit 23
Consent of Independent Registered Public Accounting Firm

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

We consent to the incorporation by reference in this Form 10-K of Pfizer Inc. of our reports dated February 28, 2013, with respect to the consolidated balance
sheets of Pfizer Inc. and Subsidiary Companies as of December 31, 2012 and 2011, and the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2012, and the effectiveness of internal control over financial reporting as of December 31, 2012, which reports appear in the December 31, 2012 annual report on Form 10-K of Pfizer Inc. and Subsidiary Companies.

We also consent to the incorporation by reference of our reports in the following Registration Statements:

-Form S-8 dated October 27, 1983 (File No. 2-87473),
-Form S-8 dated March 22, 1990 (File No. 33-34139),
-Form S-8 dated January 24, 1991 (File No. 33-38708),
-Form S-8 dated November 18, 1991 (File No. 33-44053),
-Form S-8 dated May 27, 1993 (File No. 33-49631),
-Form S-8 dated May 19, 1994 (File No. 33-53713),
-Form S-8 dated October 5, 1994 (File No. 33-55771),
-Form S-8 dated December 20, 1994 (File No. 33-56979),
-Form S-8 dated March 29, 1996 (File No. 33-02061),
-Form S-8 dated September 25, 1997 (File No. 333-36371),
-Form S-8 dated April 24, 1998 (File No. 333-50899),
-Form S-8 dated April 22, 1999 (File No. 333-76839),
-Form S-8 dated June 19, 2000 (File No. 333-39610),
-Form S-8 dated April 27, 2001 (File No. 333-59660),
-Form S-8 dated April 27, 2001 (File No. 333-59654),
-Form S-8 dated April 16, 2003 (File No. 333-104581),
-Form S-8 dated April 16, 2003 (File No. 333-104582),
-Form S-8 dated November 18, 2003 (File No. 333-110571),
-Form S-8 dated December 18, 2003 (File No. 333-111333),
-Form S-8 dated April 26, 2004 (File No. 333-114852),
-Form S-8 dated March 1, 2007 (File No. 333-140987),
-Form S-4 dated March 27, 2009 (File No. 333-158237),
-Form S-8 dated October 16, 2009 (File No. 333-162519),
-Form S-8 dated October 16, 2009 (File No. 333-162520),
-Form S-8 dated October 16, 2009 (File No. 333-162521),
-Form S-8 dated March 1, 2010 (File No. 333-165121) and
-Form S-3 dated May 10, 2012 (File No. 333-181321).

/s/ KPMG LLP
New York, New York
February 28, 2013




Exhibit 31.1
Certification by the Chief Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, Ian C. Read, certify that:
1. I have reviewed this report on Form 10-K of Pfizer Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: February 28, 2013
/s/ IAN C. READ
Ian C. Read
Chairman and Chief Executive Officer


Exhibit 31.2
Certification by the Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, Frank A. D'Amelio, certify that:
1. I have reviewed this report on Form 10-K of Pfizer Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: February 28, 2013
/s/ FRANK A. D'AMELIO
Frank A. D'Amelio
Executive Vice President, Business Operations and Chief Financial Officer


Exhibit 32.1
Certification by the Chief Executive Officer Pursuant to 18 U. S. C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to 18 U. S. C. Section 1350, I, Ian C. Read, hereby certify that, to the best of my knowledge, the Annual Report on Form 10-K of Pfizer Inc. for the year ended December 31, 2012 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, and that the information contained in that Report fairly presents, in all material respects, the financial condition and results of operations of Pfizer Inc.
/s/ IAN C. READ
Ian C. Read
Chairman and Chief Executive Officer
February 28, 2013
This certification accompanies this Report on Form 10-K pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.


Exhibit 32.2
Certification by the Chief Financial Officer Pursuant to 18 U. S. C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to 18 U. S. C. Section 1350, I, Frank A. D’Amelio, hereby certify that, to the best of my knowledge, the Annual Report on Form 10-K of Pfizer Inc. for the year ended December 31, 2012 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, and that the information contained in that Report fairly presents, in all material respects, the financial condition and results of operations of Pfizer Inc.
/s/ FRANK A. D’AMELIO
Frank A. D’Amelio
Executive Vice President, Business Operations and
Chief Financial Officer
February 28, 2013
This certification accompanies this Report on Form 10-K pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.