10-Q 1 a50063064.htm PFIZER INC. 10-Q a50063064.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 October 2, 2011
 
OR
 
TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _______ to _______
 
COMMISSION FILE NUMBER 1-3619
 
----
 
PFIZER INC.
(Exact name of registrant as specified in its charter)
 
DELAWARE
(State of Incorporation)
13-5315170
(I.R.S. Employer Identification No.)
 
235 East 42nd Street, New York, New York  10017
(Address of principal executive offices)  (zip code)
(212) 733-2323
(Registrant’s telephone number)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
YES x     NO o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YES x     NO o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one):
 
Large Accelerated filer x Accelerated filer  o Non-accelerated filer  o Smaller reporting company o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
YES  o    NO x 
 
At November 7, 2011, 7,686,966,786 shares of the issuer’s voting common stock were outstanding.
 
 
 

 
 
FORM 10-Q
 
For the Quarter Ended
October 2, 2011
 
Table of Contents
 
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2

 
 
PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

PFIZER INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
 
   
Three Months Ended
   
Nine Months Ended
 
(MILLIONS, EXCEPT PER COMMON SHARE DATA)
 
Oct. 2,
2011
   
Oct. 3,
2010
   
Oct. 2,
2011
   
Oct. 3,
2010
 
   
                       
Revenues
  $ 17,193     $ 15,995     $ 50,679     $ 49,703  
                                 
Costs and expenses:
                               
Cost of sales(a) 
    3,679       3,790       11,177       11,676  
Selling, informational and administrative expenses(a) 
    4,621       4,599       14,097       13,776  
Research and development expenses(a) 
    2,188       2,188       6,516       6,590  
Amortization of intangible assets
    1,397       1,156       4,168       3,972  
Acquisition-related in-process research and development
charges
    ––       ––       ––       74  
Restructuring charges and certain acquisition-related costs
    1,101       499       2,474       2,090  
Other deductions––net
    538       2,349       1,778       3,036  
                                 
Income from continuing operations before provision for taxes on income
    3,669       1,414       10,469       8,489  
                                 
Provision for taxes on income
    1,235       558       3,223       3,165  
                                 
Income from continuing operations
    2,434       856       7,246       5,324  
                                 
Discontinued operations:
                               
(Loss)/income from discontinued operations––net of tax
    (13 )     26       39       76  
Gain/(loss) on sale of discontinued operations––net of tax
    1,328       (11 )     1,316       (9 )
Discontinued operations––net of tax
    1,315       15       1,355       67  
                                 
Net income before allocation to noncontrolling interests
    3,749       871       8,601       5,391  
                                 
Less: net income attributable to noncontrolling interests
    11       5       31       24  
                                 
Net income attributable to Pfizer Inc.
  $ 3,738     $ 866     $ 8,570     $ 5,367  
                                 
Earnings per share––basic:(b)
                               
Income from continuing operations attributable to Pfizer Inc.
common shareholders
  $ 0.31     $ 0.11     $ 0.92     $ 0.66  
Discontinued operations––net of tax
    0.17       ––       0.17       0.01  
Net income attributable to Pfizer Inc. common shareholders
  $ 0.48     $ 0.11     $ 1.09     $ 0.67  
                                 
Earnings per share––diluted:(b)
                               
Income from continuing operations attributable to Pfizer Inc.
common shareholders
  $ 0.31     $ 0.11     $ 0.91     $ 0.66  
Discontinued operations––net of tax
    0.17       ––       0.17       0.01  
Net income attributable to Pfizer Inc. common shareholders
  $ 0.48     $ 0.11     $ 1.08     $ 0.66  
                                 
Weighted-average shares used to calculate earnings per common share:
                               
Basic
    7,770       8,027       7,877       8,045  
Diluted
    7,810       8,057       7,925       8,079  
                                 
Cash dividends paid per common share
  $ 0.20     $ 0.18     $ 0.60     $ 0.54  
(a)
Exclusive of amortization of intangible assets, except as disclosed in Note 11B. Goodwill and Other Intangible Assets: Other Intangible Assets.
(b)
EPS amounts may not add due to rounding.

See accompanying Notes to Condensed Consolidated Financial Statements.
 
 
3

 
 
PFIZER INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS

(millions of dollars)
 
Oct. 2,
2011
   
Dec. 31,
2010
 
   
(Unaudited)
       
Assets
           
Cash and cash equivalents
  $ 3,706     $ 1,735  
Short-term investments
    25,257       26,277  
Accounts receivable, less allowance for doubtful accounts
    15,749       14,426  
Short-term loans
    184       467  
Inventories
    8,426       8,275  
Taxes and other current assets
    9,288       8,394  
Assets of discontinued operations and other assets held for sale
    122       1,439  
Total current assets
    62,732       61,013  
Long-term investments and loans
    9,468       9,747  
Property, plant and equipment, less accumulated depreciation
    17,721       18,645  
Goodwill
    45,409       43,928  
Identifiable intangible assets, less accumulated amortization
    55,597       57,555  
Taxes and other noncurrent assets
    5,205       4,126  
Total assets
  $ 196,132     $ 195,014  
                 
Liabilities and Shareholders’ Equity
               
Short-term borrowings, including current portion of long-term debt
  $ 5,637     $ 5,603  
Accounts payable
    3,765       3,994  
Dividends payable
    ––       1,601  
Income taxes payable
    2,215       951  
Accrued compensation and related items
    1,999       2,080  
Other current liabilities
    14,240       14,256  
Liabilities of discontinued operations
    ––       151  
Total current liabilities
    27,856       28,636  
                 
Long-term debt
    35,399       38,410  
Pension benefit obligations
    5,734       6,194  
Postretirement benefit obligations
    3,059       3,035  
Noncurrent deferred tax liabilities
    20,415       18,628  
Other taxes payable
    6,900       6,245  
Other noncurrent liabilities
    6,239       5,601  
Total liabilities
    105,602       106,749  
                 
Commitments and Contingencies
               
                 
Preferred stock
    46       52  
Common stock
    445       444  
Additional paid-in capital
    71,235       70,760  
Employee benefit trusts
    (3 )     (7 )
Treasury stock
    (28,586 )     (22,712 )
Retained earnings
    48,121       42,716  
Accumulated other comprehensive loss
    (1,211 )     (3,440 )
Total Pfizer Inc. shareholders’ equity
    90,047       87,813  
Equity attributable to noncontrolling interests
    483       452  
Total shareholders’ equity
    90,530       88,265  
Total liabilities and shareholders’ equity
  $ 196,132     $ 195,014  

See accompanying Notes to Condensed Consolidated Financial Statements.
 
 
4

 
 
PFIZER INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 
   
Nine Months Ended
 
(millions of dollars)
 
Oct. 2,
2011
   
Oct. 3,
2010
 
             
Operating Activities:
           
Net income before allocation to noncontrolling interests
  $ 8,601     $ 5,391  
Adjustments to reconcile net income before allocation to noncontrolling interests to net
  cash provided by operating activities:
               
Depreciation and amortization
    6,656       6,493  
Share-based compensation expense
    347       351  
Asset write-offs and impairment charges
    773       2,956  
     Acquisition-related in-process research and development charges
    ––       74  
     (Gain)/loss on sale of discontinued operations
    (1,683 )     9  
Deferred taxes from continuing operations
    693       1,277  
     Other deferred taxes
    175       ––  
Other non-cash adjustments
    26       (135 )
Benefit plan contributions in excess of expense
    (283 )     (706 )
Other changes in assets and liabilities, net of acquisitions and divestitures
    (326 )     (10,514 )
                 
Net cash provided by operating activities
    14,979       5,196  
                 
Investing Activities:
               
Purchases of property, plant and equipment
    (1,062 )     (966 )
Purchases of short-term investments
    (13,456 )     (5,018 )
Proceeds from redemptions and sales of short-term investments––net
    17,458       9,493  
Purchases of long-term investments
    (3,446 )     (2,674 )
Proceeds from redemptions and sales of long-term investments
    2,001       3,822  
Acquisitions, net of cash acquired
    (3,188 )     ––  
Proceeds from sale of business
    2,376       ––  
Other investing activities
    618       496  
                 
Net cash provided by investing activities
    1,301       5,153  
                 
Financing Activities:
               
Increase in short-term borrowings
    9,613       4,686  
Principal payments on short-term borrowings––net
    (10,069 )     (9,265 )
Principal payments on long-term debt
    (3,486 )     (4 )
Purchases of common stock
    (5,789 )     (1,000 )
Cash dividends paid
    (4,710 )     (4,544 )
Other financing activities
    84       32  
                 
Net cash used in financing activities
    (14,357 )     (10,095 )
Effect of exchange-rate changes on cash and cash equivalents
    48       (56 )
Net increase in cash and cash equivalents
    1,971       198  
Cash and cash equivalents at beginning of period
    1,735       1,978  
                 
Cash and cash equivalents at end of period
  $ 3,706     $ 2,176  
                 
Supplemental Cash Flow Information:
Cash paid during the period for:
               
Income taxes
  $ 1,539     $ 11,519  
Interest
    1,872       2,039  

See accompanying Notes to Condensed Consolidated Financial Statements.
 
 
5

 
 
PFIZER INC. AND SUBSIDIARY COMPANIES
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 28, 2011, and August 29, 2010. We have made certain reclassification adjustments to conform prior-period amounts to the current presentation, primarily related to discontinued operations (see Note 4. Discontinued Operations) and segment reporting (see Note 15. Segment, Product and Geographic Area Information).

On January 31, 2011, we completed the tender offer for all of the outstanding shares of common stock of King Pharmaceuticals, Inc. (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 outstanding shares of King for approximately $300 million in cash (for additional information, see Note 3. Acquisition of King Pharmaceuticals, Inc.). Commencing from January 31, 2011, our financial statements include the assets, liabilities, operating results and cash flows of King. Therefore, in accordance with our domestic and international reporting periods, our condensed consolidated financial statements for the nine months ended October 2, 2011 reflect approximately eight months of King’s U.S. operations and approximately seven months of King’s international operations.

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

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

The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2010.

Note 2. Adoption of New Accounting Standards
 
The provisions of the following new accounting standards were adopted as of January 1, 2011 and did not have a significant impact on our condensed consolidated financial statements:

New guidelines that address the recognition and presentation of the annual fee paid by pharmaceutical companies beginning on January 1, 2011 to the U.S. Treasury as a result of U.S. Healthcare Legislation. As a result of adopting this new standard, we are recording the annual fee ratably throughout the year in the Selling, informational and administrative expenses line item in our condensed consolidated statement of income.

An amendment to the guidelines that address the accounting for multiple-deliverable arrangements to enable companies to account for certain products or services separately rather than as a combined unit.

Note 3. Acquisition of King Pharmaceuticals, Inc.

On January 31, 2011 (the acquisition date), we completed the tender offer for all of 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).

King’s principal businesses consist 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.

 
6

 
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
The following table summarizes the provisional amounts recognized for assets acquired and liabilities assumed as of the acquisition date:
(millions of dollars)
 
Amounts
Recognized as of
Acquisition Date
(Provisional)
 
       
Working capital, excluding inventories
  $ 174  
Inventories
    340  
Property, plant and equipment
    412  
Identifiable intangible assets, excluding in-process research and development
    1,822  
In-process research and development
    312  
Net tax accounts
    (389 )
All other long-term assets and liabilities, net
    101  
Total identifiable net assets
    2,772  
Goodwill
    783  
Net assets acquired/total consideration transferred
  $ 3,555  

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 believe will result from combining the operations of King with the operations of Pfizer;

any intangible assets that do 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 tax purposes. While the allocation of goodwill among reporting units is not complete, we expect that substantially all of the goodwill will be related to our biopharmaceutical reporting units (see Note 11. Goodwill and Other Intangible Assets for additional information).

The assets and liabilities arising from contingencies recognized at acquisition date, some of which are subject to change, are not significant to Pfizer’s condensed consolidated financial statements.

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

Amounts for intangibles and inventory, pending finalization of valuation efforts;

Amounts for income tax assets, receivables and liabilities pending the filing of King’s pre-acquisition tax returns and the receipt of information from taxing authorities, which may change certain estimates and assumptions used; and

The allocation of goodwill among reporting units.

 
7

 
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
Revenues from King are included in Pfizer’s condensed consolidated statements of income from the acquisition date, January 31, 2011, through Pfizer’s third-quarter 2011 domestic and international quarter-ends and were $357 million for the third quarter of 2011 and $938 million in the first nine months of 2011. We are no longer able to provide the results of operations attributable to King as those operations have now been substantially integrated into the larger Pfizer operation.

The following table presents supplemental pro forma information as if the acquisition of King had occurred on January 1, 2010:
   
Pro Forma Consolidated Results
 
   
Three Months
Ended
   
Nine Months Ended
 
(millions of dollars, except per share  data)
 
Oct. 3,
2010
   
Oct. 2,
2011
   
Oct. 3,
2010
 
                   
Revenues
  $ 16,335     $ 50,788     $ 50,749  
Net income attributable to Pfizer Inc. common shareholders
    854       8,769       5,163  
Diluted earnings per share attributable to Pfizer Inc. common shareholders
    0.11       1.11       0.64  

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 $18 million in the third quarter of 2010, $6 million in the first nine months of 2011 and $98 million in the first nine months of 2010).

Additional amortization expense (approximately $48 million in the third quarter of 2010, $15 million in the first nine months of 2011 and $136 million in the first nine months of 2010) related to the fair value of identifiable intangible assets acquired.

Additional depreciation expense (approximately $9 million in the third quarter of 2010, $3 million in the first nine months of 2011 and $26 million in the first nine months of 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 (addition of $33 million charge in the third quarter of 2010, elimination of $146 million charge in the first nine months of 2011 and addition of $146 million charge in the first nine months of 2010).

Adjustment for acquisition-related costs directly attributable to the acquisition (addition of $11 million of charges in the third quarter of 2010, elimination of $205 million of charges in the first nine months of 2011 and addition of $205 million of charges in the first nine months of 2010, reflecting charges incurred by both King and Pfizer).

Note 4. Discontinued Operations
 
We evaluate our businesses and product lines periodically for their strategic fit within our operations. In 2011, we decided to sell our Capsugel business. In connection with the decision to sell this business, for all periods presented, the operating results associated with this business have been reclassified into Discontinued operations––net of tax in the Condensed Consolidated Statements of Income, and the assets and liabilities associated with this business have been reclassified into Assets of discontinued operations and other assets held for sale and Liabilities of discontinued operations, as appropriate, in the Condensed Consolidated Balance Sheets.
 
On April 4, 2011, we announced that we had entered into an agreement to sell Capsugel to an affiliate of Kohlberg Kravis Roberts & Co. L.P. for approximately $2.4 billion in cash. The transaction closed on August 1, 2011.
 
 
8

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

The following amounts, substantially all of which relate to our Capsugel business, have been segregated from continuing operations and included in Discontinued operations—net of tax in our Condensed Consolidated Statements of Income:
   
Three Months Ended
   
Nine Months Ended
 
(millions of dollars)
 
Oct. 2,
2011
   
Oct. 3,
2010
   
Oct. 2,
2011
   
Oct. 3,
2010
 
                         
Revenues
  $ 116     $ 176     $ 507     $ 545  
                                 
Pre-tax (loss)/income from discontinued operations
  $ (7 )   $ 29     $ 78     $ 106  
Provision for taxes on income(a)
    6       3       39       30  
(Loss)/income from discontinued operations––net of tax
    (13 )     26       39       76  
Pre-tax gain/(loss) on sale of discontinued operations
    1,695       (12 )     1,683       (9 )
Provision/(benefit) for taxes on income(b)
    367       (1 )     367       ––  
Discontinued operations––net of tax
  $ 1,315     $ 15     $ 1,355     $ 67  
(a)
Includes a deferred tax expense of $13 million for the first nine months of 2011.
(b)
Includes a deferred tax expense of $162 million for the third quarter and first nine months of 2011.

The following assets and liabilities, which in 2010 include the assets and liabilities related to our Capsugel business, have been segregated and included in Assets of discontinued operations and other assets held for sale and Liabilities of discontinued operations, as appropriate, in our Condensed Consolidated Balance Sheets:
(millions of dollars)
 
Oct. 2,
2011
   
Dec. 31,
2010
 
             
Accounts receivable
  $ ––     $ 186  
Inventories
    ––       130  
Taxes and other current assets
    12       47  
Property, plant and equipment
    110       1,009  
Goodwill
    ––       19  
Identifiable intangible assets
    ––       3  
Taxes and other noncurrent assets
    ––       45  
Assets of discontinued operations and other assets held for sale
  $ 122     $ 1,439  
                 
Current liabilities
  $ ––     $ 124  
Other liabilities
    ––       27  
Liabilities of discontinued operations
  $ ––     $ 151  

The net cash flows of our discontinued operations for each of the categories of operating, investing and financing activities were not significant for the first nine months of 2011 or 2010.

Note 5. Costs Associated with Cost-Reduction and Productivity Initiatives and Acquisition Activity

We incur significant costs in connection with acquiring businesses and restructuring and integrating acquired businesses and in connection with our global cost-reduction and productivity initiatives. For example:

for 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; and

for our acquisition activity, we typically incur costs that can include transaction costs, integration costs (such as expenditures for consulting and the integration of systems and processes) and restructuring charges, related to employees, assets and activities that will not continue in the combined company.

On February 1, 2011, we announced a new research and productivity initiative to accelerate our strategies to improve innovation and overall productivity in R&D by prioritizing areas with the greatest scientific and commercial promise, utilizing appropriate risk/return profiles and focusing on areas with the highest potential to deliver value in the near term and over time.

 
9

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

We incurred the following costs in connection with our cost-reduction and productivity initiatives and acquisition activity, such as King (acquired in 2011) and Wyeth (acquired in 2009):
   
Three Months Ended
   
Nine Months Ended
 
(millions of dollars)
 
Oct. 2,
2011
   
Oct. 3,
2010
   
Oct. 2,
2011
   
Oct. 3,
2010
 
                         
Transaction costs(a)
  $ 5     $ ––     $ 28     $ 13  
Integration costs(b)
    187       231       567       650  
Restructuring charges(c):
                               
Employee termination costs
    770       27       1,626       603  
Asset impairments
    99       174       157       677  
Other
    40       67       96       147  
Restructuring charges and certain acquisition-related costs
    1,101       499       2,474       2,090  
Additional depreciation––asset restructuring(d):
                               
Cost of sales
    68       241       411       367  
Selling, informational and administrative expenses
    39       27       69       190  
Research and development expenses
    146       25       378       45  
Total additional depreciation––asset restructuring
    253       293       858       602  
Implementation costs(e):
                               
    Selling, informational and administrative expenses     11       ––       11       ––  
Research and development expenses
    8       ––       28       ––  
Total implementation costs
    19       ––       39       ––  
Total costs associated with cost-reduction and productivity initiatives and
acquisition activity
  $ 1,373     $ 792     $ 3,371     $ 2,692  
(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 October 2, 2011, Employee termination costs represent the expected reduction of the workforce by approximately 57,800 employees, mainly in manufacturing and sales and research, of which approximately 41,000 employees have been terminated as of October 2, 2011. Employee termination costs are generally recorded when the actions are probable and estimable and include accrued severance benefits, pension and postretirement benefits, many of which may be paid out during periods after termination. Asset impairments primarily include charges to write down property, plant and equipment to fair value. Other primarily includes costs to exit certain assets and activities.

The restructuring charges in 2011 are associated with the following:

 
For the three months ended October 2, 2011, Primary Care operating segment ($473 million), Specialty Care and Oncology operating segment ($186 million), Established Products and Emerging Markets operating segment ($65 million), Animal Health and Consumer Healthcare operating segment ($30 million), Nutrition operating segment ($2 million), research and development operations ($47 million income), manufacturing operations ($47 million) and Corporate ($153 million).

 
For the nine months ended October 2, 2011, Primary Care operating segment ($606 million), Specialty Care and Oncology operating segment ($228 million), Established Products and Emerging Markets operating segment ($80 million), Animal Health and Consumer Healthcare operating segment ($44 million), Nutrition operating segment ($4 million), research and development operations ($426 million), manufacturing operations ($203 million) and Corporate ($288 million).

The restructuring charges in 2010 are associated with the following:

 
For the three months ended October 3, 2010, Primary Care operating segment ($14 million), Specialty Care and Oncology operating segment ($53 million), Established Products and Emerging Markets operating segment ($14 million), Nutrition operating segment ($1 million), research and development operations ($17 million), manufacturing operations ($161 million) and Corporate ($8 million).

 
For the nine months ended October 3, 2010, Primary Care operating segment ($1 million), Specialty Care and Oncology operating segment ($99 million), Established Products and Emerging Markets operating segment ($23 million), Animal Health and Consumer Healthcare operating segment ($33 million), Nutrition operating segment ($12 million income), research and development operations ($239 million), manufacturing operations ($970 million) and Corporate ($74 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 and productivity initiatives.

 
10

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

The components of restructuring charges associated with all of our cost-reduction and productivity initiatives and acquisition activity follow:
   
Costs Incurred
   
Activity
   
Accrual
 
(millions of dollars)
    2005-2011    
Through
Oct. 2,
2011(a)
   
As of
Oct. 2,
2011(b)
 
                     
Employee termination costs
  $ 10,437     $ 7,720     $ 2,717  
Asset impairments
    2,465       2,465       ––  
Other
    996       889       107  
Total restructuring charges
  $ 13,898     $ 11,074     $ 2,824  
(a)
Includes adjustments for foreign currency translation.
(b)
Included in Other current liabilities ($1.7 billion) and Other noncurrent liabilities ($1.1 billion).

Note 6. Other (Income)/Deductions—Net

The following table sets forth details related to amounts recorded in Other deductions––net:
   
Three Months Ended
   
Nine Months Ended
 
(millions of dollars)
 
Oct. 2,
2011
   
Oct. 3,
2010
   
Oct. 2,
2011
   
Oct. 3,
2010
 
                         
Interest income(a)
  $ (110 )   $ (100 )   $ (332 )   $ (297 )
Interest expense(a)
    423       427       1,285       1,338  
Net interest expense
    313       327       953       1,041  
Royalty-related income
    (135 )     (158 )     (447 )     (395 )
Net losses/(gains) on asset disposals
    18       (13 )     (8 )     (243 )
Certain legal matters, net(b)
    132       712       619       886  
Certain asset impairment charges(c)
    105       1,478       585       1,710  
Other, net
    105       3       76       37  
Other deductions––net
  $ 538     $ 2,349     $ 1,778     $ 3,036  
(a)
Interest income increased in both periods of 2011 primarily due to higher cash balances. Interest expense decreased in both periods of 2011 due to lower long- and short-term debt balances and the conversion of some fixed-rate liabilities to floating-rate liabilities.
(b)
In the first nine months of 2011, primarily relates to charges for hormone-replacement therapy litigation (see Note 14. Legal Proceedings and Contingencies). In both periods of 2010, primarily includes a charge for asbestos litigation related to our wholly owned subsidiary, Quigley Company, Inc. (See Note 14. Legal Proceedings and Contingencies).
(c)
Substantially all of these asset impairment charges are related to intangible assets, including in-process research and development (IPR&D) assets, that were acquired as part of our acquisition of Wyeth. The impairment charges are determined by comparing the estimated fair value of the assets as of the date of the impairment to their carrying values as of the same date. In the first nine months of 2011, we recorded impairment charges of $585 million, which included approximately $440 million of IPR&D assets, primarily related to two compounds for the treatment of certain autoimmune and inflammatory diseases, and approximately $145 million of Developed Technology Rights. These impairment charges reflect, among other things, the impact of new scientific findings and updated commercial forecasts. In the first nine months of 2010, we recorded impairment charges of $1.7 billion, which include (i) approximately $900 million of IPR&D assets, primarily Prevnar/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) approximately $600 million of indefinite-lived Brands, related to Third Age, infant formulas for the first 12-36 months of age, and Robitussin, a cough suppressant; and (iii) approximately $200 million of Developed Technology Rights, primarily 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 timeframes and the risk associated with these assets; for Brand assets, the current competitive environment and planned investment support; and, for Developed Technology Rights, an increased competitive environment.

Note 7. Taxes on Income

A. Taxes on Income

Our effective tax rate for continuing operations was 33.7% for the third quarter of 2011, compared to 39.5% for the third quarter of 2010, and in the first nine months of 2011 was 30.8%, compared to 37.3% in the first nine months of 2010. The decreases in the effective tax rate were primarily the result of:

the extension of the U.S. research and development credit, which was signed into law on December 17, 2010;
 
 
11

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

B. Tax Contingencies

We are subject to income tax in many jurisdictions, and a certain degree of estimation is required in recording the assets and liabilities related to income taxes. All of our tax positions are subject to audit by the local taxing authorities in each tax jurisdiction. These tax audits can involve complex issues, interpretations and judgments and the resolution of matters may span multiple years, particularly if subject to negotiation or litigation. As a result, our evaluation of tax contingencies can involve a series of complex judgments about future events and can rely heavily on estimates and assumptions deemed reasonable by management. However, if our estimates and assumptions are not representative of actual outcomes, our results could be materially impacted.
 
The United States (U.S.) is one of our major tax jurisdictions. The U.S. Internal Revenue Service (IRS) is currently auditing the 2006, 2007 and 2008 tax years for Pfizer Inc. The 2009 through 2011 tax years are not yet under audit. The tax years 2002 through 2005 are settled and closed with the IRS. All other tax years in the U.S. for Pfizer Inc. are closed under the statute of limitations.
 
With respect to Wyeth, during the first quarter of 2011, we reached a settlement with the IRS regarding the audits for the tax years 2002 through 2005. The settlement resulted in an income tax benefit to Pfizer of approximately $80 million for income tax and interest in the first quarter and first nine months of 2011. The tax years 2002 through 2005 are now settled and closed with the IRS. Tax years 2006 through the Wyeth acquisition date (October 15, 2009) are now under audit.
 
In addition to the open audit years in the U.S., we have open audit years in other major tax jurisdictions, such as Canada (1998-2011), Japan (2006-2011), Europe (1997-2011, primarily reflecting Ireland, the United Kingdom, France, Italy, Spain and Germany) and Puerto Rico (2006-2011).

Note 8. Comprehensive Income/(Loss)

The components of comprehensive income/(loss) follow:
   
Three Months Ended
   
Nine Months Ended
 
(millions of dollars)
 
Oct. 2,
2011
   
Oct. 3,
2010
   
Oct. 2,
2011
   
Oct. 3,
2010
 
                         
Net income before allocation to noncontrolling interests
  $ 3,749     $ 871     $ 8,601     $ 5,391  
Other comprehensive income/(loss):
                               
Currency translation adjustment and other
    (68 )     786       2,479       (4,105 )
Net unrealized (losses)/gains on derivative financial instruments
    (230 )     (59 )     (354 )     (300 )
Net unrealized (losses)/gains on available-for-sale securities
    (36 )     26       (48 )     (86 )
Benefit plan adjustments
    72       (45 )     151       239  
Total other comprehensive (loss)/income
    (262 )     708       2,228       (4,252 )
Total comprehensive income before allocation to noncontrolling interests
    3,487       1,579       10,829       1,139  
Less: comprehensive income attributable to noncontrolling interests
    7       5       35       23  
Comprehensive income attributable to Pfizer Inc.
  $ 3,480     $ 1,574     $ 10,794     $ 1,116  

 
12

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

Note 9. Financial Instruments

A. Selected Financial Assets and Liabilities

Information about certain of our financial assets and liabilities follows:
(millions of dollars)
 
Oct. 2,
2011
   
Dec. 31,
2010
 
Selected financial assets measured at fair value on a recurring basis(a) :
           
Trading securities
  $ 148     $ 173  
Available-for-sale debt securities(b)
    31,368       32,699  
Available-for-sale money market funds
    1,320       1,217  
Available-for-sale equity securities, excluding money market funds(b)
    317       230  
Derivative financial instruments in receivable positions(c):
               
Interest rate swaps
    963       603  
Foreign currency swaps
    133       128  
Foreign currency forward-exchange contracts
    123       494  
Total
    34,372       35,544  
Other selected financial assets(d):
               
Held-to-maturity debt securities, carried at amortized cost(b)
    1,204       1,178  
Private equity securities, carried at cost or equity method
    1,016       1,134  
Short-term loans, carried at cost
    184       467  
Long-term loans, carried at cost
    383       299  
Total
    2,787       3,078  
Total selected financial assets(e)
  $ 37,159     $ 38,622  
Selected financial liabilities measured at fair value on a recurring basis(a):
               
Derivative financial instruments in a liability position(f):
               
Foreign currency swaps
  $ 1,671     $ 623  
Foreign currency forward-exchange contracts
    426       257  
Interest rate swaps
    15       4  
Total
    2,112       884  
Other selected financial liabilities:
               
Short-term borrowings, carried at historical proceeds, as adjusted(d)
    5,637       5,603  
Long-term debt, carried at historical proceeds, as adjusted(g), (h)
    35,399       38,410  
Total
    41,036       44,013  
Total selected financial liabilities
  $ 43,148     $ 44,897  
(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. 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 $84 million as of October 2, 2011 and $105 million as of December 31, 2010 of investments that use Level 1 inputs in the calculation of fair value and $26 million that use Level 3 inputs as of October 2, 2011.
(b)
Gross unrealized gains and losses are not significant.
(c)
Designated as hedging instruments, except for certain foreign currency contracts used as offsets; namely, foreign currency forward-exchange contracts with fair values of $68 million and foreign currency swaps with fair values of $27 million at October 2, 2011; and foreign currency forward-exchange contracts with fair values of $326 million and foreign currency swaps with fair values of $17 million at December 31, 2010.
(d)
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 at October 2, 2011 or December 31, 2010.
(e)
The decrease in selected financial assets is primarily due to redemptions of investments, the proceeds from which were used to fund our acquisition of King (see Note 3. Acquisition of King Pharmaceuticals, Inc.)
(f)
Designated as hedging instruments, except for certain foreign currency contracts used as offsets; namely, foreign currency forward-exchange contracts with fair values of $113 million and foreign currency swaps with fair values of $82 million at October 2, 2011; and foreign currency forward-exchange contracts with fair values of $186 million and foreign currency swaps with fair values of $93 million at December 31, 2010.
(g)
Includes foreign currency debt with fair values of $919 million at October 2, 2011 and $880 million at December 31, 2010, which are used to hedge the exposure of certain foreign currency denominated net investments.
(h)
The fair value of our long-term debt is $40.1 billion at October 2, 2011 and $42.3 billion at December 31, 2010.

 
13

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

These selected financial assets and liabilities are presented in the Condensed Consolidated Balance Sheets as follows:
(millions of dollars)
 
Oct. 2,
2011
   
Dec. 31,
2010
 
Assets
           
Cash and cash equivalents
  $ 1,031     $ 906  
Short-term investments
    25,257       26,277  
Short-term loans
    184       467  
Long-term investments and loans
    9,468       9,747  
Taxes and other current assets(a)
    232       515  
Taxes and other noncurrent assets(b)
    987       710  
Total selected financial assets
  $ 37,159     $ 38,622  
Liabilities
               
Short-term borrowings, including current portion of long-term debt
  $ 5,637     $ 5,603  
Other current liabilities(c)
    701       339  
Long-term debt
    35,399       38,410  
Other noncurrent liabilities(d)
    1,411       545  
Total selected financial liabilities
  $ 43,148     $ 44,897  
(a)
At October 2, 2011, derivative instruments at fair value include foreign currency forward-exchange contracts ($123 million), foreign currency swaps ($88 million) and interest rate swaps ($21 million) and at December 31, 2010, include foreign currency forward-exchange contracts ($494 million) and foreign currency swaps ($21 million).
(b)
At October 2, 2011, derivative instruments at fair value include interest rate swaps ($942 million) and foreign currency swaps ($45 million) and at December 31, 2010, include interest rate swaps ($603 million) and foreign currency swaps ($107 million).
(c)
At October 2, 2011, derivative instruments at fair value include foreign currency forward-exchange contracts ($426 million) and foreign currency swaps ($275 million) and at December 31, 2010, include foreign currency forward-exchange contracts ($257 million), foreign currency swaps ($79 million) and interest rate swaps ($3 million).
(d)
At October 2, 2011, derivative instruments at fair value include foreign currency swaps ($1.4 billion) and interest rate swaps ($15 million) and at December 31, 2010, include foreign currency swaps ($544 million) and interest rate swaps ($1 million).

There were no significant impairments of financial assets recognized in the third quarter and first nine months of 2011 or 2010.

B. Investments in Debt Securities

The contractual maturities of the available-for-sale and held-to-maturity debt securities at October 2, 2011, follow:
   
Years
       
(millions of dollars)
 
Within 1
   
Over 1
to 5
   
Over 10
   
Total at
Oct. 2,
2011
 
Available-for-sale debt securities:
                       
Western European, U.S., Scandinavian and other government debt
  $ 15,215     $ 1,361     $ ––     $ 16,576  
Corporate debt
    1,675       2,495       ––       4,170  
Western European, Scandinavian and other government agency debt
    3,661       253       ––       3,914  
Federal Home Loan Mortgage Corporation and Federal National Mortgage
Association asset-backed securities
    ––       2,240       ––       2,240  
Supranational debt
    2,338       514               2,852  
Reverse repurchase agreements
    783       ––       ––       783  
U.S. government Federal Deposit Insurance Corporation
guaranteed debt
    623       13       16       652  
Other asset-backed securities
    2       74       10       86  
Certificates of deposit
    95       ––       ––       95  
Held-to-maturity debt securities:
                               
Certificates of deposit and other
    1,198       6       ––       1,204  
Total debt securities
  $ 25,590     $ 6,956     $ 26     $ 32,572  

C. Short-Term Borrowings
Short-term borrowings include amounts for commercial paper of $600 million as of October 2, 2011 and $1.2 billion as of December 31, 2010.

D. Derivative Financial Instruments and Hedging Activities
Foreign Exchange Risk—As of October 2, 2011, the aggregate notional amount of foreign exchange derivative financial instruments hedging or offsetting foreign currency exposures is $51.4 billion. The derivative financial instruments primarily hedge or offset exposures in the euro, Japanese yen and U.K. pound.
 
 
14

 
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
Interest Rate Risk—As of October 2, 2011, the aggregate notional amount of interest rate derivative financial instruments is $13.4 billion. The derivative financial instruments hedge U.S. dollar and euro fixed-rate debt.

Information about gains/(losses) incurred to hedge or offset foreign exchange or interest rate risk is as follows:
   
Amount of
Gains/(Losses)
Recognized in OID(a) (b) (c)
   
Amount of
Gains/(Losses)
Recognized in OCI
(Effective Portion)(a) (d)
   
Amount of
Gains/(Losses)
Reclassified from
OCI into OID
(Effective Portion)(a) (d)
 
(millions of dollars)
 
Oct. 2,
2011
   
Oct. 3,
2010
   
Oct. 2,
2011
   
Oct. 3,
2010
   
Oct. 2,
2011
   
Oct. 3,
2010
 
Three Months Ended:
                                   
Derivative Financial Instruments in Fair Value
Hedge Relationships(b)
                                   
Interest rate swaps
  $ ––     $ ––     $ ––     $ ––     $ ––     $ ––  
Foreign currency swaps
    (1 )     (1 )     ––       ––       ––       ––  
                                                 
Derivative Financial Instruments in Cash Flow
Hedge Relationships
                                               
Foreign currency swaps
  $ ––     $ ––     $ (1,047 )   $ 656     $ (654 )   $ 815  
Foreign currency forward-exchange contracts
    ––       ––       1       (1 )     1       ––  
                                                 
Derivative Financial Instruments in Net
Investment Hedge Relationships
                                               
Foreign currency swaps
  $ (1 )   $ 1     $ (118 )   $ (39 )   $ ––     $ ––  
                                                 
Derivative Financial Instruments Not
Designated as Hedges
                                               
Foreign currency swaps
  $ 29     $ 6     $ ––     $ ––     $ ––     $ ––  
Foreign currency forward-exchange contracts
    (75 )     419       ––       ––       ––       ––  
                                                 
Non-Derivative Financial Instruments in Net
Investment Hedge Relationships
                                               
Foreign currency short-term borrowings
  $ ––     $ ––     $ ––     $ (96 )   $ ––     $ ––  
Foreign currency long-term debt
    ––       ––       (42 )     (38 )     ––       ––  
Total
  $ (48 )   $ 425     $ (1,206 )   $ 482     $ (653 )   $ 815  
                                                 
Nine Months Ended:
                                               
Derivative Financial Instruments in Fair Value
Hedge Relationships(b)
                                               
Interest rate swaps
  $ ––     $ ––     $ ––     $ ––     $ ––     $ ––  
Foreign currency swaps
    (1 )     (1 )     ––       ––       ––       ––  
                                                 
Derivative Financial Instruments in Cash Flow
Hedge Relationships
                                               
Foreign currency swaps
  $ ––     $ ––     $ (516 )   $ (1,000 )   $ 76     $ (440 )
Foreign currency forward-exchange contracts
    ––       ––       4       (2 )     5       2  
                                                 
Derivative Financial Instruments in Net
Investment Hedge Relationships
                                               
Foreign currency swaps
  $ 14     $ ––     $ (1,076 )   $ (78 )   $ ––     $ ––  
                                                 
Derivative Financial Instruments Not
Designated as Hedges
                                               
Foreign currency swaps
  $ 72     $ 6     $ ––     $ ––     $ ––     $ ––  
Foreign currency forward-exchange contracts
    (392 )     (943 )     ––       ––       ––       ––  
                                                 
Non-Derivative Financial Instruments in Net
Investment Hedge Relationships
                                               
Foreign currency short-term borrowings
  $ ––     $ ––     $ 940     $ (195 )   $ ––     $ ––  
Foreign currency long-term debt
    ––       ––       (47 )     (72 )     ––       ––  
                                                 
Total
  $ (307 )   $ (938 )   $ (695 )   $ (1,347 )   $ 81     $ (438 )
(a)
OID = Other (income)/deductions—net, included in the income statement account, Other deductions—net. OCI = Other comprehensive income/(loss), included in the balance sheet account Accumulated other comprehensive loss.
(b)
Also includes gains and losses attributable to the hedged risk in fair value hedge relationships.
(c)
There was no significant ineffectiveness in the third quarter and first nine months of 2011 or 2010.
(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 income/(loss)––Net unrealized (losses)/gains 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/(loss)––Currency translation adjustment and other.
 
 
15

 
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
For information about the fair value of our derivative financial instruments, and the impact on our Condensed Consolidated Balance Sheets, see Note 9A. Financial Instruments: Selected Financial Assets and Liabilities. Certain of our derivative instruments are covered by associated credit-support agreements that have credit-risk-related contingent features designed to reduce our counterparties’ exposure to our risk of defaulting on amounts owed. The aggregate fair value of these derivative instruments that are in a liability position is $667 million, for which we have posted collateral of $662 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 October 2, 2011, we would have been required to post an additional $22 million of collateral to our counterparties. The collateral advanced receivables are reported in Cash and cash equivalents.

E. Credit Risk
On an ongoing basis, we review the creditworthiness of counterparties to our foreign exchange and interest rate agreements and do not expect to incur a significant loss from failure of any counterparties to perform under the agreements. There are no significant concentrations of credit risk related to our financial instruments with any individual counterparty. As of October 2, 2011, we had $3.3 billion due from a well-diversified, highly rated group (S&P ratings of primarily A+ or better) of bank counterparties around the world. See Note 9B. Financial Instruments: Investments in Debt Securities for a distribution of our investments.

In general, there is no requirement for collateral from customers. However, derivative financial instruments are executed under master netting agreements with financial institutions. These agreements contain provisions that provide for the ability for collateral payments, depending on levels of exposure, our credit rating and the credit rating of the counterparty. As of October 2, 2011, we received cash collateral of $647 million against various counterparties. The collateral primarily supports the approximate fair value of our derivative contracts. The collateral received obligations are reported in Short-term borrowings, including current portion of long-term debt.

Note 10. Inventories

The components of inventories follow:
(millions of dollars)
 
Oct. 2,
2011
   
Dec. 31,
2010
 
             
Finished goods
  $ 3,975     $ 3,665  
Work-in-process
    3,577       3,727  
Raw materials and supplies
    874       883  
Total inventories(a)
  $ 8,426     $ 8,275  
(a)
Certain amounts of inventories are in excess of one year’s supply. There are no recoverability issues associated with these amounts.

Note 11. Goodwill and Other Intangible Assets

A. Goodwill

The changes in the carrying amount of goodwill for the nine months ended October 2, 2011, follow:
 
(millions of dollars)
   Primary Care         Specialty Care and Oncology      Established Products and Emerging Markets       Animal Health and Consumer Healthcare       Nutrition       To be
allocated(a)
       Total  
    $                                       $    
Balance, December 31, 2010
                        $ 2,449     $ 496     $ 40,983     $ 43,928  
Additions(b)
                                      825       825  
Other(c)
                          15       11       630       656  
Balance, October 2, 2011
  $                       $ 2,464     $ 507     $ 42,438     $ 45,409  
(a)
The amount to be allocated includes the former Biopharmaceutical goodwill (see below), as well as newly acquired goodwill, substantially all from our acquisition of King, for which the allocation to reporting units is pending (see Note 3. Acquisition of King Pharmaceuticals, Inc. for additional information).
(b)
Substantially all of the amount relates to our acquisition of King and is subject to change until we complete the recording of the assets acquired and liabilities assumed from King (see Note 3. Acquisition of King Pharmaceuticals, Inc.). The allocation of King goodwill among our reporting units has not yet been completed, but will be completed within one year of the acquisition date.
(c)
Primarily reflects the impact of foreign exchange.
 
 
16

 
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
Our company was previously managed through two operating segments (Biopharmaceutical and Diversified), and is now managed through five operating segments (see Note 15. Segment, Product and Geographic Area Information for further information). As a result of this change, the goodwill previously associated with our Biopharmaceutical operating segment is required to be allocated among the Primary Care, Specialty Care and Oncology, and Established Products and Emerging Markets operating segments. The allocation of goodwill is a complex process that requires, among other things, that we determine the fair value of each reporting unit. Therefore, we have not yet completed the allocation, but we expect that it will be completed in the current year. While all reporting units can confront events and circumstances that can lead to impairments (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), in general, the increased number of Biopharmaceutical reporting units significantly increases our risk of goodwill impairment charges as smaller reporting units are inherently less able to absorb negative developments that might affect certain operating assets but not others.

B. Other Intangible Assets

The components of identifiable intangible assets follow:
   
Oct. 2, 2011
   
December 31, 2010
 
(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
  $ 71,288     $ (30,932 )   $ 40,356     $ 68,432     $ (26,223 )   $ 42,209  
Brands
    1,693       (569 )     1,124       1,626       (607 )     1,019  
License agreements
    589       (284 )     305       637       (248 )     389  
Trademarks and other
    558       (441 )     117       533       (324 )     209  
Total amortized finite-lived intangible assets
    74,128       (32,226 )     41,902       71,228       (27,402 )     43,826  
Indefinite-lived intangible assets:
                                               
Brands
    10,291             10,291       10,219             10,219  
In-process research and development
    3,332             3,332       3,438             3,438  
Trademarks
    72             72       72             72  
Total indefinite-lived intangible assets
    13,695             13,695       13,729