10-Q 1 a6090863.htm PFIZER INC. 10-Q a6090863.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q

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

For the quarterly period ended September 27, 2009

OR

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

For the transition period from _______ to _______

COMMISSION FILE NUMBER 1-3619
 
----
 
PFIZER INC.
(Exact name of registrant as specified in its charter)
 
DELAWARE
(State of Incorporation)
13-5315170
(I.R.S. Employer Identification No.)
 
235 East 42nd Street, New York, New York  10017
(Address of principal executive offices)  (zip code)
(212) 733-2323
(Registrant’s telephone number)

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

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

Large Accelerated filer   X               Accelerated filer  ___              Non-accelerated filer  ___            Smaller reporting company  ___

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES  ___                            NO   X  

At November 2, 2009, 8,069,536,059 shares of the issuer’s voting common stock were outstanding.
 

 
FORM 10-Q
 
For the Quarter Ended
September 27, 2009
 
Table of Contents
 
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2

 

Item 1. Financial Statements
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
 
   
Three Months Ended
   
Nine Months Ended
 
(millions, except per common share data)
 
Sept. 27,
 2009
   
Sept. 28,
2008
   
Sept. 27,
2009
   
Sept. 28,
2008
 
   
                       
Revenues
  $ 11,621     $ 11,973     $ 33,472     $ 35,950  
                                 
Costs and expenses:
                               
Cost of sales(a) 
    1,789       2,122       4,953       6,397  
Selling, informational and administrative expenses(a) 
    3,282       3,523       9,508       10,878  
Research and development expenses(a) 
    1,632       1,885       5,032       5,642  
Amortization of intangible assets
    594       621       1,755       2,063  
Acquisition-related in-process research and development charges
    ––       13       20       567  
Restructuring charges and acquisition-related costs
    193       366       1,206       1,113  
Other (income)/deductions – net
    160       721       175       221  
                                 
Income from continuing operations before provision for taxes on income
    3,971       2,722       10,823       9,069  
                                 
Provision for taxes on income
    1,092       463       2,952       1,251  
                                 
Income from continuing operations
    2,879       2,259       7,871       7,818  
                                 
Discontinued operations - net of tax
    2       25       6       38  
                                 
Net income before allocation to noncontrolling interests
    2,881       2,284       7,877       7,856  
                                 
Less:  Net income attributable to noncontrolling interests
    3       6       9       18  
                                 
Net income attributable to Pfizer Inc.
  $ 2,878     $ 2,278     $ 7,868     $ 7,838  
                                 
Earnings per share – basic:
                               
Income from continuing operations attributable to Pfizer
        Inc. common shareholders
  $ 0.43     $ 0.34     $ 1.17     $ 1.16  
   Discontinued operations - net of tax
    ––                    
   Net income attributable to Pfizer Inc. common shareholders
  $ 0.43     $ 0.34     $ 1.17     $ 1.16  
                                 
Earnings per share – diluted:
                               
Income from continuing operations attributable to Pfizer
        Inc. common shareholders
  $ 0.43     $ 0.33     $ 1.16     $ 1.16  
Discontinued operations - net of tax
    ––       0.01              
Net income attributable to Pfizer Inc. common shareholders
  $ 0.43     $ 0.34     $ 1.16     $ 1.16  
                                 
Weighted-average shares used to calculate earnings per common share:
                               
Basic
    6,730       6,718       6,727       6,730  
Diluted
    6,762       6,736       6,758       6,750  
                                 
Cash dividends paid per common share
  $ 0.16     $ 0.32     $ 0.64     $ 0.96  
 
 
(a) Exclusive of amortization of intangible assets, except as disclosed in Note 10B. Goodwill and Other Intangible Assets:Other Intangible Assets.
 
See accompanying Notes to Condensed Consolidated Financial Statements.
3

CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

(millions of dollars)
 
Sept. 27,
2009*
   
Dec. 31,
2008**
 
Assets
           
Cash and cash equivalents
  $ 4,234     $ 2,122  
Short-term investments
    48,239       21,609  
Accounts receivable, less allowance for doubtful accounts.
    10,552       8,958  
Short-term loans
    791       824  
Inventories
    5,058       4,381  
Taxes and other current assets
    4,679       5,034  
Assets held for sale
    231       148  
Total current assets
    73,784       43,076  
Long-term investments and loans
    12,166       11,478  
Property, plant and equipment, less accumulated depreciation
    13,173       13,287  
Goodwill
    21,796       21,464  
Identifiable intangible assets, less accumulated amortization
    16,125       17,721  
Deferred taxes and other non-current assets
    4,250       4,122  
Total assets
  $ 141,294     $ 111,148  
                 
Liabilities and Shareholders’ Equity
               
Short-term borrowings, including current portion of long-term debt
  $ 6,954     $ 9,320  
Accounts payable
    2,481       1,751  
Dividends payable
    1       2,159  
Income taxes payable
    485       656  
Accrued compensation and related items
    1,678       1,667  
Deferred taxes
    1,816       414  
Other current liabilities
    10,577       11,042  
Total current liabilities
    23,992       27,009  
                 
Long-term debt
    32,402       7,963  
Pension benefit obligations
    4,647       4,235  
Postretirement benefit obligations
    1,605       1,604  
Deferred taxes
    2,419       2,959  
Other taxes payable
    6,843       6,568  
Other non-current liabilities
    3,136       3,070  
Total liabilities
    75,044       53,408  
                 
Preferred stock
    64       73  
Common stock
    443       443  
Additional paid-in capital
    70,373       70,283  
Employee benefit trust, at fair value
    (298 )     (425 )
Treasury stock
    (57,364 )     (57,391 )
Retained earnings
    54,835       49,142  
Accumulated other comprehensive expense
    (1,896 )     (4,569 )
Total Pfizer Inc. shareholders’ equity
    66,157       57,556  
Equity attributable to noncontrolling interests
    93       184  
Total shareholders’ equity
    66,250       57,740  
Total liabilities and shareholders’ equity
  $ 141,294     $ 111,148  
*      Unaudited.
**    Condensed from audited financial statements.

See accompanying Notes to Condensed Consolidated Financial Statements.
4

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 
   
Nine Months Ended
 
(millions of dollars)
 
Sept. 27,
2009
   
Sept. 28,
2008
 
   
           
Operating Activities
           
Net income before allocation to noncontrolling interests
  $ 7,877     $ 7,856  
Adjustments to reconcile net income before noncontrolling interests to net cash
provided by operating activities:
               
Depreciation and amortization
    2,983       3,912  
Share-based compensation expense
    258       263  
Acquisition-related in-process research and development charges
    20       567  
Deferred taxes from continuing operations
    1,121       580  
Other non-cash adjustments
    25       631  
Changes in assets and liabilities (net of businesses acquired and divested)
    (522 )     (1,544 )
   
               
Net cash provided by operating activities
    11,762       12,265  
   
               
Investing Activities
               
Purchases of property, plant and equipment
    (783 )     (1,312 )
Purchases of short-term investments
    (57,148 )     (22,369 )
Proceeds from sales and redemptions of short-term investments
    31,747       20,642  
Purchases of long-term investments
    (6,053 )     (5,292 )
Proceeds from sales and redemptions of long-term investments
    4,824       639  
Acquisitions, net of cash acquired
    ––       (962 )
Other investing activities
    508       (1,401 )
   
               
Net cash used in investing activities
    (26,905 )     (10,055 )
   
               
Financing Activities
               
Increase in short-term borrowings, net
    28,473       31,035  
Principal payments on other short-term borrowings, net
    (29,976 )     (28,518 )
Proceeds from issuances of long-term debt
    23,997       605  
Principal payments on long-term debt
    (910 )     (561 )
Purchases of common stock
    ––       (500 )
Cash dividends paid
    (4,268 )     (6,409 )
Other financing activities
    (101 )     41  
   
               
Net cash provided by/(used in) financing activities
    17,215       (4,307 )
                 
Effect of exchange-rate changes on cash and cash equivalents
    40       (44 )
                 
Net increase/(decrease) in cash and cash equivalents
    2,112       (2,141 )
Cash and cash equivalents at beginning of period
    2,122       3,406  
   
               
Cash and cash equivalents at end of period
  $ 4,234     $ 1,265  
   
               
Supplemental Cash Flow Information
               
Cash paid during the period for:
               
   Income taxes
  $ 1,748     $ 1,707  
   Interest
    723       541  
 
See accompanying Notes to Condensed Consolidated Financial Statements.
5

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
Note 1. Basis of Presentation

We prepared the condensed consolidated financial statements following the requirements of the Securities and Exchange Commission (SEC) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by accounting principles generally accepted in the United States of America (U.S. GAAP) can be condensed or omitted. Balance sheet amounts and operating results for subsidiaries operating outside the U.S. are as of and for the three-month and nine-month periods ended August 23, 2009, and August 24, 2008. Subsequent events have been evaluated through November 4, 2009.

On October 15, 2009, we completed our acquisition of Wyeth in a cash-and-stock transaction valued, based on the closing market price of Pfizer’s common stock on that date, at $50.40 per share of Wyeth common stock, or a total of approximately $68 billion. We have taken certain actions and incurred certain costs associated with the transaction prior to the acquisition closing date that are reflected in our financial statements. However, the assets acquired and liabilities assumed from Wyeth, the consideration paid to acquire Wyeth, as well as the results of Wyeth’s operations, are not reflected in our Condensed Consolidated Financial Statements as of and for the three and nine month periods ended September 27, 2009. See Note 14. Subsequent Event – Acquisition of Wyeth for additional information.

We made certain reclassifications to prior-period amounts to conform to the third-quarter and nine-month 2009 presentations related to the presentation of noncontrolling interests as a result of adopting a new accounting standard (see Note 2. Adoption of New Accounting Policies).

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

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

The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in Pfizer’s Annual Report on Form 10-K for the year ended December 31, 2008.

Note 2. Adoption of New Accounting Policies

The Financial Accounting Standards Board (FASB) has issued FASB Statement No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles (Statement 168). Statement 168 establishes the FASB Accounting Standards Codification (Codification) as a source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. As a result, these changes will have a significant impact on how companies reference U.S. GAAP in their financial statements and in their accounting policies for financial statements issued for interim and annual periods ending after September 15, 2009.  We have begun the process of implementing the Codification in this quarterly report by providing references to the Codification topics, as appropriate.

As of July 1, 2009, we adopted the provisions of FASB Accounting Standards Update (ASU) No. 2009-5 that provides additional guidance on measuring the fair value of liabilities in the absence of observable market information, transfer restrictions and non-performance risk assessment.  The adoption of these provisions did not have a significant impact on our consolidated financial statements.

As of March 30, 2009, we adopted the provisions of a new accounting standard issued by the FASB that amends the guidance for evaluating and measuring “other-than-temporary” impairments for available-for-sale or held-to-maturity debt securities. The adoption of these provisions did not have a significant impact on our consolidated financial statements.

As of March 30, 2009, we adopted the provisions of a new accounting standard issued by the FASB that provide additional guidance for estimating fair value in inactive markets and the identification of disorderly transactions. We adopted these provisions prospectively and they did not have a significant impact on our consolidated financial statements, but could impact the accounting for acquisitions after adoption, including our acquisition of Wyeth, and other events, balances and transactions measured at fair value.
 
6

PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
As of January 1, 2009, we adopted several new accounting standards issued by the FASB. The adoption of these new standards did not have a significant impact on our consolidated financial statements.  In summary, these provisions:

retain the purchase method of accounting for acquisitions, but require a number of changes, including changes in the way assets and liabilities are recognized in purchase accounting. They also change the recognition of assets acquired and liabilities assumed arising from contingencies, require the capitalization of in-process research and development costs at fair value and require the expensing of acquisition-related costs as incurred. The adoption of these provisions will impact the accounting for acquisitions after adoption, including our acquisition of Wyeth.

amend the factors considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset. Among other things, in the absence of historical experience, an entity will be required to consider assumptions used by market participants. The adoption of these provisions could impact the accounting for acquisitions after adoption, including our acquisition of Wyeth.

expand the use of fair value, and related disclosure requirements and specify a hierarchy of valuation techniques used to develop the fair value measures. The adoption of these provisions will impact the accounting for acquisitions after adoption, including our acquisition of Wyeth, and other events, balances and transactions measured at fair value.

provide guidance for the accounting, reporting and disclosure of noncontrolling interests, previously referred to as minority interests. A noncontrolling interest represents the portion of equity (net assets) in a subsidiary not attributable, directly or indirectly, to a parent. The adoption of these provisions resulted in a number of changes to the presentation of our consolidated financial statements, but the amounts associated with noncontrolling interests are not significant. The adoption of these provisions could impact our accounting for acquisitions after adoption where we do not acquire 100% of the entity, and our accounting for the deconsolidations of subsidiaries.

provide guidance on determining whether an arrangement constitutes a collaborative arrangement within the scope of the provisions; how costs incurred and revenues generated on sales to third parties should be reported in the income statement; how an entity should characterize payments on the income statement; and what participants should disclose in the notes to the financial statements about a collaborative arrangement. Accordingly, additional disclosures are provided in Note 4. Collaborative Arrangements.

provide guidance that maintenance deposits paid by a lessee and subsequently refunded only if a lessee fulfills a maintenance obligation will be accounted for as a deposit asset.

clarify how to account for certain transactions involving equity method investments in areas such as: how to determine the initial carrying value of the investment; how to allocate the difference between the investor’s carrying value and the investor’s share of the underlying equity of the investment; how to perform an impairment assessment of underlying intangibles held by the investee; how to account for the investee’s issuance of additional shares; and how to account for an investment on the cost method when it had been previously accounted for under the equity method. The adoption of these provisions could impact the accounting for equity method investments after adoption.

clarify the accounting for certain separately identifiable assets, which an acquirer does not intend to actively use but intends to hold to prevent its competitors from obtaining access to them. These provisions require an acquirer to account for a defensive intangible asset as a separate unit of accounting, which should be amortized to expense over the period the asset diminishes in value. The adoption of these provisions could impact the accounting for acquisitions after adoption, including our acquisition of Wyeth.

Note 3. Acquisitions
 
In the second quarter of 2008, we acquired Encysive Pharmaceuticals Inc. (Encysive), a biopharmaceutical company whose main asset is Thelin, which is used for the treatment of pulmonary arterial hypertension. The cost of acquiring Encysive, through a tender offer and subsequent merger, was approximately $200 million, including transaction costs. Upon our acquisition of Encysive, Encysive's change of control repurchase obligations under its outstanding $130 million 2.5% convertible notes were triggered and, as a result, Encysive repurchased the convertible notes in consideration for their par value plus accrued interest in June 2008. In addition, in the second quarter of 2008, we acquired Serenex, Inc. (Serenex), a privately held biotechnology company, whose main asset is SNX-5422, an oral Heat Shock Protein 90 (Hsp90) for the potential treatment of solid tumors and hematological malignancies and an extensive Hsp90 inhibitor compound library, which has potential uses in treating cancer, inflammatory and neurodegenerative diseases. In connection with these acquisitions, through the third quarter of 2008, we recorded approximately $170 million in Acquisition-related in-process research and development charges and approximately $450 million in intangible assets.
 
7

PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
In the first quarter of 2008, we acquired CovX, a privately held biotherapeutics company specializing in preclinical oncology and metabolic research and the developer of a biotherapeutics technology platform. Also in the first quarter of 2008, we acquired all the outstanding shares of Coley Pharmaceutical Group, Inc., (Coley), a biopharmaceutical company specializing in vaccines and drug candidates designed to fight certain cancers, allergy and asthma disorders, and autoimmune diseases, for approximately $230 million. In connection with these and two smaller acquisitions related to Animal Health, we recorded approximately $398 million in Acquisition-related in-process research and development charges during the first nine months of 2008. In the first nine months of 2009, we resolved a contingency associated with CovX and recorded $20 million in Acquisition-related in-process research and development charges. We did not consummate any acquisitions in the first nine months of 2009.

Note 4. 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 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.

Payments to or from our collaboration partners are presented in the statement 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 in their net sales or profits. Alliance revenues are recorded when our co-promotion partners ship the product and title passes to their customers. Expenses for selling and marketing these products are included in Selling, informational and administrative expenses. In 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 recorded as part of Cost of sales.

The amounts and classifications of payments (income/(expense)) between us and our collaboration partners follow:

   
Three Months Ended
   
Nine Months Ended
 
 
(millions of dollars)
 
Sept. 27,
2009
   
Sept. 28,
2008
   
Sept. 27,
2009
   
Sept. 28,
2008
 
Revenues – Revenues(a)
  $ 131     $ 143     $ 409     $ 369  
Revenues – Alliance revenues (b)
    692       571       1,872       1,622  
Total Revenues from collaborative arrangements
    823       714       2,281       1,991  
Cost of sales (c)
    (40 )     (62 )     (131 )     (129 )
Selling, informational and administrative expenses(d)
    27       38       24       57  
Research and development expenses(e)
    (58 )     (51 )     (302 )     (147 )
 
(a)
Represents sales to our partners of products manufactured by us.
(b)
Substantially all related to amounts earned from our partners under co-promotion agreements.
(c)
Primarily related to royalties earned by our partners and cost of sales associated with inventory purchased from our partners.
(d)
Represents net reimbursements from our partners and reimbursements to our partners for Selling, informational and administrative expenses incurred.
(e)
Primarily related to net reimbursements earned by our partners, except that the first nine months of 2009 also includes a $150 million milestone payment to one of our partners.

For the three months and nine months ended September 27, 2009, Other (income)/deductions-net, includes income of $20 million paid to us for the termination of a collaboration agreement.
 
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.
 
8

PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
Note 5. Pfizer Cost-Reduction Initiatives

The following costs were incurred in connection with all of our Pfizer cost-reduction initiatives, which began in 2005, and do not include any amounts related to Wyeth:

   
Three Months Ended
   
Nine Months Ended
 
(millions of dollars)
 
Sept. 27,
2009
   
Sept. 28,
2008
   
Sept. 27,
2009
   
Sept. 28,
2008
 
Implementation costs(a)
  $ 80     $ 378     $ 410     $ 1,140  
Restructuring charges(b)
    61       338       392       1,077  
Total costs related to our Pfizer cost-reduction initiatives
  $ 141     $ 716     $ 802     $ 2,217  
 
(a)
For the third quarter of 2009, included in Cost of sales ($23 million), Selling, informational and administrative expenses ($51 million), Research and development expenses ($5 million), and Other (income)/deductions - net ($1 million). For the third quarter of 2008, included in Cost of sales ($172 million), Selling, informational and administrative expenses ($95 million), Research and development expenses ($108 million) and Other (income)/deductions - net ($3 million). For the first nine months of 2009, included in Cost of sales ($144 million), Selling, informational and administrative expenses ($182 million), Research and development expenses ($78 million), and Other (income)/deductions - net ($6 million). For the first nine months of 2008, included in Cost of sales ($520 million), Selling, informational and administrative expenses ($270 million), Research and development expenses ($348 million) and Other (income)/deductions - net ($2 million).
(b)
Included in Restructuring charges and acquisition-related costs.
 
From the beginning of the Pfizer cost-reduction initiatives in 2005 through September 27, 2009, the restructuring charges primarily relate to our supply network transformation efforts and the restructuring of our worldwide marketing and research and development operations, and the implementation costs primarily relate to depreciation arising from the shortening of the useful lives of certain assets, as well as system and process standardization and the expansion of shared services.

The following components of restructuring charges are associated with all of our Pfizer cost-reduction initiatives, which began in 2005, and do not include any amounts related to Wyeth:

(millions of dollars)
 
Costs
Incurred Through
Sept. 27, 2009
   
Activity Through
 Sept. 27, 2009(a)
   
Accrual as of
 Sept. 27, 2009(b)
 
                   
Employee termination costs
  $ 5,350     $ 4,245     $ 1,105  
Asset impairments
    1,401       1,401        
Other
    524       438       86  
Total restructuring charges
  $ 7,275     $ 6,084     $ 1,191  
 
(a)
Includes adjustments for foreign currency translation.
(b)
Included in Other current liabilities ($712 million) and Other non-current liabilities ($479 million).
 
During the third quarter of 2009, we expensed $36 million for Employee termination costs, $17 million for Asset impairments and $8 million for Other. During the first nine months of 2009 we expensed $200 million for Employee termination costs, $108 million for Asset impairments and $84 million for Other. From June 2005 through September 27, 2009, Employee termination costs, net of the impact of a change in estimate, represent the expected reduction of the workforce by approximately 30,900 employees, mainly in manufacturing, sales and research, and approximately 26,300 of these employees have been terminated. Employee termination costs are recorded when the actions are probable and estimable and include accrued severance benefits, pension and postretirement benefits. Asset impairments primarily include charges to write down property, plant and equipment. Other primarily includes costs to exit certain activities.
 
9

PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
Note 6. Acquisition-Related Costs

We incurred the following acquisition-related costs primarily in connection with our acquisition of Wyeth:

   
Three Months Ended
    Nine Months Ended  
(millions of dollars)
 
Sept. 27,
2009
   
Sept. 28,
2008
   
Sept. 27,
2009
   
Sept. 28,
2008
 
Transaction costs (a)
  $ 19     $ ––     $ 572     $ ––  
Pre-integration costs and other(b)
    113       28       242       36  
Total acquisition-related costs(c)
  $ 132     $ 28     $ 814     $ 36  
 
(a)
Transaction costs include banking, legal, accounting and other costs directly related to our acquisition of Wyeth. Substantially all of the costs incurred to date are fees related to a $22.5 billion bridge term loan credit agreement entered into with certain financial institutions on March 12, 2009 to partially fund our acquisition of Wyeth. The bridge term loan credit agreement was terminated in June 2009 as a result of our issuance of approximately $24.0 billion of senior unsecured notes in the first half of 2009. All bridge term loan commitment fees have been expensed, and we are no longer subject to the covenants under that agreement (see Note 8D: Financial Instruments: Long-Term Debt).
(b)
Pre-integration costs and other in 2009 primarily represent external, incremental costs of integration planning that are directly related to our acquisition of Wyeth and include costs associated with preparing for systems and other integration activities. 2008 amounts relate to other restructuring charges.
(c)
Included in Restructuring charges and acquisition-related costs.

Note 7. Comprehensive Income/(Expense)

The components of comprehensive income/(expense) follow:

   
Three Months Ended
   
Nine Months Ended
 
(millions of dollars)
 
Sept. 27,
2009
   
Sept. 28,
2008
   
Sept. 27,
2009
   
Sept. 28,
2008
 
Net income before allocation to noncontrolling interests
  $ 2,881     $ 2,284     $ 7,877     $ 7,856  
Other comprehensive income/(expense):
                               
Currency translation adjustment and other
    599       (1,766 )     2,853       (1,232 )
Net unrealized gains/(losses) on derivative financial instruments
    (43 )     13       (210 )     41  
Net unrealized gains/(losses) on available-for-sale securities
    86       (25 )     312       (39 )
Benefit plan adjustments
    (459 )     159       (282 )     244  
Total other comprehensive gains/(loss)
    183       (1,619 )     2,673       (986 )
Total comprehensive income before allocation to
noncontrolling interests
    3,064       665       10,550       6,870  
Comprehensive (income)/loss attributable to
noncontrolling interests
    3       (8 )     (11 )     (31 )
Comprehensive income attributable to Pfizer Inc.
  $ 3,067     $ 657     $ 10,539     $ 6,839  
 
10

PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
Note 8. Financial Instruments

A. Selected Financial Assets and Liabilities

Information about certain of our financial assets and liabilities follows:

(millions of dollars)
 
Sept. 27,
2009
   
Dec. 31,
2008
 
Selected financial assets measured at fair value on a recurring basis (a) :
           
Trading securities (b)
  $ 181     $ 190  
Available-for-sale debt securities (c)
    50,915       30,061  
Available-for-sale money market funds
    7,581       398  
Available-for-sale equity securities, excluding money market funds (c)
    252       319  
Derivative financial instruments in receivable positions (d) :
               
Interest rate swaps
    370       732  
Foreign currency swaps
    670       128  
Foreign currency forward-exchange contracts
    489       399  
Total
    60,458       32,227  
Other selected financial assets (e):
               
Held-to-maturity debt securities, carried at amortized cost (c)
    3,779       2,349  
Short-term loans, carried at cost
    791       824  
Long-term loans, carried at cost
    1,194       1,568  
Private equity securities, carried at cost
    150       182  
Total
    5,914       4,923  
Total selected financial assets
  $ 66,372     $ 37,150  
Financial liabilities measured at fair value on a recurring basis (a):
               
Derivative financial instruments in a liability position (f):
               
Interest rate swaps
  $ 8     $ 7  
Foreign currency swaps
    647       153  
Foreign currency forward-exchange contracts
    1,020       1,083  
Total
    1,675       1,243  
Other financial liabilities (e) , (g):
               
Short-term borrowings, carried at historical proceeds, as adjusted (h)
    6,954       9,320  
Long-term debt, carried at historical proceeds, as adjusted (i)
    32,402       7,963  
Total
    39,356       17,283  
Total selected financial liabilities
  $ 41,031     $ 18,526  

(a)  
Fair values are determined based on valuation techniques categorized as follows: Level 1 means the use of quoted prices for identical instruments in active markets; Level 2 means the use of quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active or are directly or indirectly observable; Level 3 means the use of unobservable inputs. Virtually all of our financial assets and liabilities measured at fair value on a recurring basis use Level 2 inputs in the calculation of fair value, except that included in available-for-sale equity securities, excluding money market funds, are $159 million as of September 27, 2009 and $87 million as of December 31, 2008 of investments that use Level 1 inputs in the calculation of fair value. None of our financial assets and liabilities measured at fair value on a recurring basis are valued based on Level 3 inputs at September 27, 2009 or December 31, 2008.
(b)  
Trading securities are held in trust for legacy Pharmacia severance benefits.
(c)  
Gross unrealized gains and losses are not significant.
(d)  
Designated as hedging instruments except for certain foreign currency contracts used as offsets, namely, foreign currency swaps with fair values of $159 million and foreign currency forward-exchange contracts with fair values of $67 million at September 27, 2009; and foreign currency forward-exchange contracts with fair values of $175 million and foreign currency swaps with fair values of $32 million at December 31, 2008.
(e)  
The differences between the estimated fair values and carrying values of our financial assets and liabilities not measured at fair value on a recurring basis were not significant as of September 27, 2009 or December 31, 2008.
(f)  
Designated as hedging instruments except for certain foreign currency contracts used as offsets, namely, foreign currency forward-exchange contracts with fair values of $160 million at September 27, 2009; and foreign currency forward-exchange contracts with fair values of $836 million and foreign currency swaps with fair values of $76 million at December 31, 2008.
(g)  
The carrying amounts may include adjustments for discount or premium amortization or for the effect of interest rate swaps designated as hedges.
(h)  
Includes foreign currency borrowings with fair values of $1.1 billion at September 27, 2009 and $1.6 billion at December 31, 2008, which are used as hedging instruments.
(i)  
Includes foreign currency debt with fair values of $2.1 billion at September 27, 2009 and December 31, 2008, which is used as a hedging instrument.
 
11

PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
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 - matrix-pricing model using observable market quotes and credit ratings.

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

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

  
Derivative financial instruments (assets and liabilities) - matrix-pricing model using observable market quotes and credit ratings.

  
Held-to-maturity debt securities - matrix-pricing model using observable market quotes and credit ratings.

  
Short-term and long-term loans - discounted future cash flows using current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.

  
Private equity securities – application of the implied volatility associated with an observable biotech index to the carrying amount of our portfolio, and, to a lesser extent, performance multiples of comparable securities adjusted for company-specific information.

  
Short-term borrowings and long-term debt - matrix-pricing model using observable market quotes and our own credit rating.

In addition, we have long-term receivables where fair value uses discounted future cash flows, using current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.

These selected financial assets and liabilities are classified in our Condensed Consolidated Balance Sheets as follows:

(millions of dollars)
 
Sept. 27,
2009
   
Dec. 31,
2008
 
Assets
           
   Cash and cash equivalents
  $ 3,647     $ 1,980  
Short-term investments
    48,239       21,609  
Short-term loans
    791       824  
Long-term investments and loans
    12,166       11,478  
Other current assets (a)
    495       404  
Other non-current assets (b)
    1,034       855  
Total
  $ 66,372     $ 37,150  
Liabilities
               
Short-term borrowings
    6,954       9,320  
Other current liabilities (c)
    1,102       1,119  
Long-term debt
    32,402       7,963  
Other non-current liabilities (d)
    573       124  
Total
  $ 41,031     $ 18,526  

(a)
At September 27, 2009, derivative instruments at fair value comprised of foreign currency forward-exchange contracts ($489 million) and foreign currency swaps ($6 million) and, at December 31, 2008, comprised of foreign currency forward-exchange contracts ($398 million), interest rate swaps ($4 million), and foreign currency swaps ($2 million).
(b)
At September 27, 2009, derivative instruments at fair value comprised of foreign currency swaps ($664 million) and interest rate swaps ($370 million) and, at December 31, 2008, comprised of interest rate swaps ($729 million) and foreign currency swaps ($126 million).
(c)
At September 27, 2009, derivative instruments at fair value comprised of foreign currency forward-exchange contracts ($1 billion) and foreign currency swaps ($82 million) and, at December 31, 2008, comprised of foreign currency forward-exchange contracts ($1.1 billion) and foreign currency swaps ($36 million).
(d)
At September 27, 2009, derivative instruments at fair value comprised of foreign currency swaps ($565 million) and interest rate swaps ($8 million) and, at December 31, 2008, comprised of foreign currency swaps ($117 million) and interest rate swaps ($7 million).
 
 
12

PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
We regularly evaluate all of our financial assets for impairment. For investments in debt and equity securities, when a decline in fair value, if any, is determined to be other-than-temporary, an impairment charge is recorded and a new cost basis in the investment is established.  For loans, an impairment charge is recorded if it is probable that we will not be able to collect all amounts due according to the loan agreement. There were no significant impairments recognized in 2009 or 2008.

B. Investments in Debt and Equity Securities

Investments in debt securities reflect the investment of proceeds from the issuance of $13.5 billion of senior unsecured notes on March 24, 2009 and approximately $10.5 billion of senior unsecured notes on June 3, 2009, virtually all of which were used to partially finance our acquisition of Wyeth on October 15, 2009 (see Note 8D. Financial Instruments: Long-Term Debt).

Details of our investments follow:

   
Contractual Maturity (in years)
       
(millions of dollars)
 
Within 1
   
Over 1
to 5
   
Over 5
to 10
   
Over
10
   
Total as of
Sept. 27,
2009
 
Available-for-sale debt securities:
                             
U.S. government Federal Deposit Insurance
        Corporation guaranteed debt
  $     $ 1,760     $     $     $ 1,760  
Western European and other government debt
    33,924       2,432                   36,356  
Corporate debt
    3,071       1,914                   4,985  
Western European and other government agency debt
    2,771       786                   3,557  
Federal Home Loan Mortgage Corporation, Federal
   National Mortgage Association and Government National
Mortgage Association asset-backed securities
    200       2,995                   3,195  
Supranational debt
    328       388                   716  
Other asset-backed securities
    220       125                   345  
Certificates of deposit
    1                         1  
Held-to-maturity debt securities:
                                       
Certificates of deposit and other
    3,775       4                   3,779  
Total debt securities
  $ 44,290     $ 10,404     $     $     $ 54,694  
Trading securities
                                    181  
Available-for-sale money market funds (a)
                                    7,581  
Available-for-sale equity securities, excluding money market funds
                                    252  
Total
                                  $ 62,708  

(a)
Consisting of securities issued by the U.S. government and its agencies or instrumentalities and reverse repurchase agreements involving the same investments held.

C. Short-Term Borrowings

Short-term borrowings include amounts for commercial paper of $6.3 billion as of September 27, 2009. As of September 27, 2009, we had access to $8.3 billion of lines of credit, of which $6.2 billion expire within one year. Of these lines of credit, $8.2 billion are unused, of which our lenders have committed to loan us $7.0 billion at our request. Unused lines of credit of $7.0 billion, of which $5.0 billion expire in 2010 and $2.0 billion expire in 2013, may be used to support our commercial paper borrowings.

As a result of the issuances of senior unsecured notes in March and June 2009, the $22.5 billion bridge term loan credit agreement, which we entered into on March 12, 2009, to partially finance our acquisition of Wyeth, was terminated, and we are no longer subject to the covenants under that agreement.
 
13

PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
D. Long-Term Debt

We issued long-term debt in the first and second quarters of 2009, virtually all of the proceeds of which were used to partially finance our acquisition of Wyeth on October 15, 2009. The following table sets forth the amounts outstanding related to those issuances:

(millions of dollars)
 
Maturity Date
   
  Outstanding on
Sept. 27,
2009
 
Senior unsecured notes:
           
   Issued on March 24, 2009:
           
Floating rate notes at the three-month London Interbank Offering Rate (LIBOR), plus 1.95%
 
March 2011
   
$
1,250
 
4.45%(a)
 
March 2012
     
3,510
 
5.35%(a)
 
March 2015
     
2,997
 
6.20%(a)
 
March 2019
     
3,247
 
7.20%(a)
 
March 2039
     
2,552
 
   Issued on June 3, 2009:
             
3.625% euro (b)
 
June 2013
     
2,702
 
4.75% euro (b)
 
June 2016
     
2,920
 
5.75% euro (b)
 
June 2021
     
2,919
 
6.50% U.K. pound (b)
 
June 2038
     
2,371
 
Total long-term debt issued in 2009
       
$
24,468
 

(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 accrued and unpaid interest.

Long-term debt outstanding as of September 27, 2009, excluding the current portion of $50 million, matures in the following years:

(millions of dollars)
 
Total
   
2010
   
2011
   
2012
   
2013
   
After 2013
 
                                     
Long-term debt
  $ 32,402     $ ––     $ 2,600     $ 3,529     $ 2,709     $ 23,564  

E. Derivative Financial Instruments and Hedging Activities

On a regular basis, we seek to minimize the impact of foreign exchange rate movements and interest rate movements on our earnings. We manage these exposures through operational means and through the use of various financial instruments.

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 expected same-currency revenues in relation to same-currency costs and same-currency assets in relation to same-currency liabilities. Depending on market conditions, foreign exchange risk is also managed through the use of derivative financial instruments and foreign currency debt. These financial instruments serve to protect net income and net investments against the impact of the translation into U.S. dollars of certain foreign-exchange-denominated transactions. The aggregate notional amount of foreign exchange derivative financial instruments hedging or offsetting foreign currency exposures is $62.5 billion. The derivative financial instruments primarily hedge or offset exposures in euro, Japanese yen, U.K. pound and Canadian dollar.
 
14

PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
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 deferred, depending on the nature and purpose of the financial instrument (offset or hedge relationship) and the effectiveness of the hedge relationships, as follows:

  
We defer on the balance sheet 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 defer on the balance sheet foreign exchange gains and losses related to foreign-exchange-denominated debt designated as a hedge of our net investments 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 in the third quarter and the first nine months of 2009 or the third quarter and the first nine months of 2008.

Interest Rate Risk

Our interest-bearing investments, loans and borrowings are subject to interest rate risk. We invest and loan primarily on a short-term or variable-rate basis; however, due to the acquisition of Wyeth and 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. The aggregate notional amount of interest rate derivative financial instruments is $6.5 billion. The derivative financial instruments hedge U.S. fixed-rate debt 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 in the third quarter and the first nine months of 2009 or the third quarter and the first nine months of 2008.
 
15

PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
Information about gains/(losses) incurred to hedge or offset operational foreign exchange or interest rate risk is as follows:

   
Gains/(Losses)
 
(millions of dollars)
 
Three Months
Ended
Sept. 27, 2009
   
Nine Months
Ended
Sept. 27, 2009
 
 
Derivative Financial Instruments in Fair Value Hedge Relationships
           
Interest rate swaps
           
Recognized in OID (a)
  $ 5     $ (2 )
Foreign currency swaps
               
Recognized in OID (a)
    (2 )     (2 )
 
Derivative Financial Instruments in Cash Flow Hedge Relationships
               
U.S. Treasury interest rate locks
               
Recognized in OID (a)
  $ ––     $ (11 )
Recognized in OCI (a), (b)
    ––       (16 )
Reclassified from OCI to OID (a), (b)
    ––       ––  
Foreign currency swaps
               
Recognized in OID (a)
    ––       ––  
Recognized in OCI (a), (b)
    185       100  
Reclassified from OCI to OID (a), (b)
    245       400  
Foreign currency forward exchange contracts
               
Recognized in OID (a)
    ––       ––  
Recognized in OCI  (a), (b)
    (2 )     5  
Reclassified from OCI to OID (a), (b)
    2       17  
 
Derivative Financial Instruments in Net Investment Hedge Relationships
               
Foreign currency swaps
               
Recognized in OID (a)
  $ ––     $ (1 )
Recognized in OCI (a), (b)
    (40 )     (1 )
 
Derivative Financial Instruments Not Designated as Hedges
               
Foreign currency swaps
               
Recognized in OID (a)
  $ 3     $ 17  
Foreign currency forward-exchange contracts
               
Recognized in OID (a)
    (354 )     (795 )
 
Non-Derivative Financial Instruments Designated as Hedges
               
Foreign currency short-term borrowings
               
Recognized in OID (a)
  $ ––     $ ––  
Recognized in OCI (a), (b)
    (62 )     26  
Foreign currency long-term debt
               
Recognized in OID (a)
    ––       ––  
Recognized in OCI (a), (b)
    (111 )     ––  

(a)
OCI = Other comprehensive income /(expense), a balance sheet account. OID = Other (income)/deductions – net.
(b)
Amounts presented represent the effective portion of the gain or loss. For derivative financial instruments in cash flow hedge relationships, the effective portion is included in Other comprehensive income/(expense) – Net unrealized gains/(losses) on derivative financial instruments. For derivative financial instruments in net investment hedge relationships and for foreign currency debt designated as hedging instruments, the effective portion is included in Other comprehensive income/(expense) – Currency translation adjustment.

For information about the fair value of our derivative financial instruments, and the impact on our consolidated balance sheet, see Note 8A. Financial Instruments: Selected Financial Assets and Liabilities.
 
16

PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
Certain of our derivative instruments are covered by associated credit-support agreements that have credit-risk-related contingent features designed to reduce our counterparties’ exposure to our risk of defaulting on amounts owed. The aggregate fair value of these derivative instruments that are in a liability position is $813 million, for which we have posted collateral of $461 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 an A rating by Standard & Poor’s (S&P), or the equivalent rating by Moody’s Investors Service (Moody’s), on September 27, 2009, we would have been required to post an additional $140 million of collateral to our counterparties. If there had been a downgrade to below an A rating by S&P or the equivalent rating by Moody’s, on September 27, 2009, we would have been required to post an additional $168 million of collateral to our counterparties.

F. Credit Risk

On an ongoing basis, we review the creditworthiness of counterparties to 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.

At September 27, 2009, we have over $7 billion invested in a major money market fund rated Aaa by Moody’s and AAA by S&P, which invests in securities issued by the U.S. government and its agencies or instrumentalities and reverse repurchase agreements involving the same investments held.

Note 9. Inventories

The components of inventories follow:

(millions of dollars)
 
Sept. 27,
2009
   
Dec. 31,
2008
 
Finished goods
  $ 2,101     $ 2,024  
Work-in-process
    2,114       1,527  
Raw materials and supplies
    843       830  
Total inventories(a)
  $ 5,058     $ 4,381  

(a)
Certain amounts of inventories are in excess of one year’s supply. There are no recoverability issues associated with these quantities, and the amounts are not significant.
 
Note 10. Goodwill and Other Intangible Assets

A. Goodwill
 
The changes in the carrying amount of goodwill by segment for the nine months ended September 27, 2009 follow:

(millions of dollars)
 
Pharmaceutical
   
Animal
Health
   
Other
   
Total
 
Balance, December 31, 2008
  $ 21,317     $ 129     $ 18     $ 21,464  
Additions
    ––       ––       ––       ––  
Other(a)
    312       19       1       332  
Balance, September 27, 2009
  $ 21,629     $ 148     $ 19     $ 21,796  

(a)
Primarily related to the impact of foreign exchange, except that Pharmaceutical also includes a reclassification of approximately $150 million to Assets held for sale.
 
17

PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
B. Other Intangible Assets
 
The components of identifiable intangible assets, primarily included in our Pharmaceutical segment, follow:
 
   
Sept. 27, 2009
   
Dec. 31, 2008
 
(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
  $ 32,312     $ (20,040 )   $ 12,272     $ 31,484     $ (17,673 )   $ 13,811  
Brands
    1,016       (513 )     503       1,016       (487 )     529  
License agreements
    252       (95 )     157       246       (78 )     168  
Trademarks
    125       (87 )     38       118       (78 )     40  
Other(a)
    524       (304 )     220       531       (291 )     240  
Total
    34,229       (21,039 )     13,190       33,395       (18,607 )     14,788  
Indefinite-lived
intangible assets:
                                               
Brands
    2,865             2,865       2,860             2,860  
Trademarks
    68             68       70             70  
Other
    2             2       3             3  
Total
    2,935             2,935       2,933             2,933  
Total identifiable
    intangible assets
  $ 37,164     $ (21,039 )   $ 16,125 (b)   $ 36,328     $ (18,607 )   $ 17,721  

(a)
Includes patents, non-compete agreements, customer contracts and other intangible assets.
(b)
Decrease from December 31, 2008 is primarily related to amortization, partially offset by the impact of foreign exchange.

Amortization expense related to acquired intangible assets that contribute to our ability to sell, manufacture, research, market and distribute products, compounds and intellectual property is included in Amortization of intangible assets as these intangible assets benefit multiple business functions. Amortization expense related to acquired intangible assets that are associated with a single function is included in Cost of sales, Selling, informational and administrative expenses and Research and development expenses, as appropriate. Total amortization expense for finite-lived intangible assets was $626 million for the third quarter of 2009, $652 million for the third quarter of 2008, $1.9 billion for the first nine months of 2009 and $2.2 billion for the first nine months of 2008.
 
18

PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
Note 11. Pension and Postretirement Benefit Plans

The components of net periodic benefit costs of the U.S. and international pension plans and the postretirement plans, which provide medical and life insurance benefits to retirees and their eligible dependents, follow:

   
Pension Plans
       
   
U.S. Qualified
   
U.S. Supplemental
(Non-Qualified)
   
International
   
Postretirement
Plans
 
   
Sept. 27,
   
Sept. 28,
   
Sept. 27,
   
Sept. 28,
   
Sept. 27,
   
Sept. 28,
   
Sept. 27,
   
Sept. 28,
 
(millions of dollars)
 
2009
   
2008
   
2009
   
2008
   
2009
   
2008
   
2009
   
2008
 
For the Three Months Ended:
                                               
Service cost
  $ 51     $ 59     $ 5     $ 5     $ 46     $ 63     $ 7     $ 10  
Interest cost
    116       115       12       9       85       100       30       35  
Expected return on plan assets
    (115 )     (162 )                 (96 )     (111 )     (6 )     (8 )
Amortization of:
                                                               
   Actuarial losses
    51       8       7       7       6       10       4       6  
   Prior service costs/(credits)
    1             (1 )     (1 )     ––       1       (1 )     ––  
Curtailments and settlements – net
    47       9       2       8       1       ––       2       ––  
Special termination benefits
    5       5       ––             3       6       2       3  
Net periodic benefit costs
  $ 156     $ 34     $ 25     $ 28     $ 45     $ 69     $ 38     $ 46  
                                                                 
For the Nine Months Ended:
                                                               
Service cost
  $ 162     $ 179     $ 15     $ 17