Exhibit 13

Financial Review
Pfizer Inc and Subsidiary Companies

Introduction

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

• Overview of Consolidated Operating Results. This section provides a general description of Pfizer’s business; an overview of our 2005 performance; a summary of our new productivity initiative; information about our operating environment; and a discussion of our expectations for 2006.

• Accounting Policies. This section, beginning on page 5, discusses those accounting policies that are considered important in understanding Pfizer’s financial statements. For additional accounting policies, including those considered to be critical accounting policies, see Notes to Consolidated Financial Statements—Note 1, Significant Accounting Policies.

• Acquisitions and Dispositions. This section, beginning on page 9, discusses significant acquisitions and dispositions made by Pfizer during 2005, 2004 and 2003.

• Analysis of the Consolidated Statement of Income. This section, beginning on page 11, provides an analysis of our products and revenues for the three years ended December 31, 2005; an overview of important product developments; a discussion about our costs and expenses; an analysis of the financial statement impact of our discontinued operations and dispositions during the period; and a discussion of Adjusted income, an alternative view of performance used by management.

• Financial Condition, Liquidity and Capital Resources. This section, beginning on page 27, provides an analysis of our balance sheet as of December 31, 2005 and 2004, and cash flows for the three years ended December 31, 2005, as well as a discussion of our outstanding debt and commitments that existed as of December 31, 2005. Included in the discussion of outstanding debt is a discussion of the amount of financial capacity available to fund Pfizer’s future commitments.

• Recently Issued Accounting Standards. This section, beginning on page 30, discusses accounting standards that we have not yet adopted and the expected impact to Pfizer upon adoption.

• Forward-Looking Information and Factors That May Affect Future Results. This section, beginning on page 31, provides a description of the risks and uncertainties that could cause actual results to differ materially from those discussed in forward-looking statements set forth in this report relating to the financial results, operations and business prospects of the Company. Such forward-looking statements are based on management’s current expectations about future events, which are inherently susceptible to uncertainty and changes in circumstances. Also included in this section are discussions of Financial Risk Management, Foreign Exchange Risk, Interest Rate Risk and Legal Proceedings and Contingencies.

Overview of Consolidated Operating Results

Our Business

We are a research-based, global pharmaceutical company that discovers, develops, manufactures and markets leading prescription medicines for humans and animals, as well as many of the world’s best known consumer healthcare products. Our longstanding value proposition has been to prove that our medicines cure or treat disease, including symptoms and suffering, and this remains our core mission. We have expanded our value proposition to also show that not only can our medicines cure or treat disease, but that they can also markedly improve health systems by reducing overall healthcare costs, improving societies’ economic well-being and increasing effective prevention and treatment of disease. We generate revenue through the sale of our products, as well as through alliance agreements by co-promoting products discovered by other companies.

Our Human Health segment represented 86% of our total revenues in 2005 and, therefore, developments relating to the pharmaceutical industry can have a significant impact on our operations.

Our 2005 Performance

Our performance in 2005 was impacted by the loss of exclusivity in the U.S. of certain key medicines (Diflucan, Neurontin, Accupril/Accuretic and Zithromax), uncertainty related to Celebrex and the suspension of Bextra sales, which collectively reduced our worldwide revenues by $5.7 billion compared with 2004. Partially offsetting these impacts was the solid aggregate performance of the balance of our portfolio of patent-protected medicines.

Specifically, in 2005,

• Our total revenues decreased 2% to $51.3 billion from 2004. Revenues of major products with lost exclusivity in the U.S. (Diflucan, Neurontin and Accupril/Accuretic during 2004 and Zithromax in November 2005) declined by 44% from 2004. These four products represented 8% of our Human Health revenues and 7% of our total revenues for the year ended December 31, 2005 compared to 13% of our Human Health revenues and 12% of our total revenues for the year ended December 31, 2004. Uncertainty related to Celebrex and the suspension of Bextra sales have resulted in a significant decline in prescription volume in the arthritis and pain market, resulting in a 63% decline in revenues in those products from 2004. These declines were partially offset by an aggregate revenue increase of 11% in the balance of our portfolio of our patent-protected products. Our portfolio of medicines includes four of the world’s 25 best-selling medicines, with six medicines that lead their therapeutic areas (see further discussion in the “Human Health-Selected Product Descriptions” section of this Financial Review).

• Our net income was $8.1 billion compared with $11.4 billion in 2004. Our 2005 results reflect in-process research and development (IPR&D) charges of $1.7 billion, primarily related to our acquisitions of Vicuron Pharmaceuticals, Inc. (Vicuron) and Idun Pharmaceuticals, Inc. (Idun); asset impairment and other charges of $1.2 billion associated with the suspension of sales of Bextra; restructuring charges and merger-related costs

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	of $943 million associated with our integration of Pharmacia Corporation (Pharmacia), an acquisition in 2003; restructuring and implementation costs of $780 million associated with our new productivity initiative; increased pressure on our cost of sales; and an effective tax rate of 29.7%, reflecting our repatriation of foreign earnings; partially offset by $800 million in cost savings from our new productivity initiative. Our 2004 results reflect IPR&D charges of $1.1 billion, primarily related to our acquisition of Esperion Therapeutics, Inc. (Esperion); an asset impairment charge of $691 million related to the Depo-Provera brand; restructuring charges and merger-related costs of $1.2 billion associated with the integration of Pharmacia; $369 million in connection with certain litigation-related charges; and an effective tax rate of 19%. Both years benefited from the cost savings associated with the Pharmacia acquisition.
•	We launched a company-wide productivity initiative, called Adapting to Scale (AtS), which involves a comprehensive review of our processes, organizations, systems and decision-making. We achieved annual cost savings under the AtS productivity initiative of approximately $800 million in 2005 and expect this program to yield annual cost savings of about $4 billion by 2008. We also achieved approximately $4.2 billion in annual cost savings as a result of our integration of Pharmacia. See further discussion in the “Our Adapting to Scale Productivity Initiative and Merger-Related Synergies” section of this Financial Review.
•	We acquired Vicuron, a biopharmaceutical company focused on the development of novel anti-infectives, for approximately $1.9 billion in cash and Idun, a biopharmaceutical company focused on the discovery and development of therapies to control apoptosis (cell death), for approximately $298 million in cash. We expect that these strategic acquisitions will strengthen and broaden our existing pharmaceutical capabilities.

Our Adapting to Scale Productivity Initiative and Merger-Related Synergies

Our multi-year productivity initiative, called Adapting to Scale (AtS), to increase efficiency and streamline decision-making across the Company, was launched in the first quarter of 2005. It follows the integration of Warner-Lambert and Pharmacia, which resulted in the tripling of Pfizer’s revenues over the past six years. The integration of those two companies resulted in a combined expense reduction of approximately $6 billion, inclusive of $4.2 billion in Pharmacia-related synergies that were achieved through 2005. The new AtS productivity initiative is expected to yield $4 billion in cost savings on an annual basis by 2008, based on a top-to-bottom business review completed during the first half of 2005.

During 2005, cost savings from our AtS productivity initiative were approximately $800 million, mainly attributable to the Human Health business. We expect annual cost savings to accelerate over the next three years, with about $2 billion in savings targeted for 2006, about $3.5 billion in 2007 and about $4 billion upon completion in 2008. These savings are expected to be realized in procurement, operating expenses and facilities, among other sources. We plan to use the cost savings we generate, in part, to fund key investments, including new product launches and the development of the many promising new medicines in our pipeline. The Company expects that the aggregate cost of implementing this initiative through 2008 will be approximately $4 billion to $5 billion on a pre-tax basis.

Projects in various stages of implementation include:

• Reorganizing Pfizer Global Research & Development (PGRD) to increase efficiency and effectiveness in bringing new therapies to patients-in-need while reducing the cost of research and development. PGRD is being reorganized into eleven therapeutic areas—cardiovascular, metabolic, and endocrine; central nervous system; inflammation; allergy and respiratory; infectious diseases; pain; gastrointestinal and hepatitis; oncology; urology and sexual health; ophthalmology; and dermatology. Each therapeutic area will have three co-leaders: a Research leader whose expertise is in preclinical compounds; a Development leader whose expertise is in clinical studies; and a Commercial leader whose expertise is in marketing. Discovery Research will retain its existing structure of six drug-candidate-discovery sites. Development will move toward single sites for most therapeutic areas.

• The continuation of our optimization of Pfizer Global Manufacturing’s plant network, which began with the acquisition of Pharmacia, to ensure that the Company’s manufacturing facilities are aligned with current and future product needs. During 2005, 14 sites were identified for rationalization (Angers and Val de Reuil, France; Arecibo and Cruce Davila, Puerto Rico; Augusta, Georgia; Corby and Morpeth, U.K.; Holland, Michigan; Jakarta, Indonesia; Orangeville, Canada; Parsippany, New Jersey; Tsukuba, Japan; Stockholm and Uppsala-Fyrislund, Sweden). In addition, there have been extensive reductions in site operations in Sandwich, U.K. (the planned closure of drug product, distribution and fermentation operations); Lincoln and Omaha, Nebraska sites; and Puerto Rico sites (staff reductions), with smaller staff reductions in Groton, Connecticut and Lititz, Pennsylvania.

• Realigning our European marketing teams and implementing initiatives designed to improve the effectiveness of our field force in Japan. During the third quarter of 2005, we completed a major reorganization of the U.S. field force, reshaping the management structure to be more responsive to commercial trends as the Medicare Modernization Act takes effect and driving greater sales-force accountability in preparation for the upcoming launch of new medicines.

• Pursuing savings in information technology resulting from significant reductions in application software (already reduced from over 8,000 at the time of the Pharmacia acquisition in 2003 to fewer than 3,000) and data centers (to be reduced from 17 to 4), as well as rationalization of service providers, while enhancing our ability to invest in innovative technology opportunities to further propel our growth.

• Reducing costs in purchased goods and services. Purchasing initiatives will focus on rationalizing suppliers, leveraging the approximately $16 billion of goods and services that Pfizer purchases annually, improving demand management to optimize levels of outside services needed and strategic sourcing from lower-cost sources. For example, savings from demand management will be derived in part from reductions in travel, entertainment, consulting and other external service expenses. Facilities savings are being found in site rationalization, energy conservation, and renegotiated service contracts.

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Our Business Environment

There are a number of industry-wide factors that may affect our business and should be considered along with the information presented in the section “Forward-Looking Information and Factors That May Affect Future Results.” Such industry-wide factors include continuing pricing pressures both in the U.S. and internationally, pressures on selective COX-2 inhibitor products, the increasing regulatory scrutiny of drug safety, the adoption of new direct-to-consumer (DTC) advertising guidelines, lower prescription growth rates and increased branded and generic competition in certain therapeutic areas. It is important to recognize that our near-term future products reflect investments we made approximately ten years ago through our in-house research and development operations or reflect more recent investments in development and acquisitions or collaborations. Looking beyond our portfolio of leading medicines, we are positioning Pfizer to fulfill our vision to serve the public’s health needs more fully, not just through the treatment of diseases, but also through the promotion of health.

We believe that there are future opportunities for revenue generation for our products, including:

• Current demographics of developed countries that indicate that people are living longer and, therefore, will have a greater need for the most effective medicines;

• The large number of untreated patients within our various therapeutic categories. For example, of the tens of millions of Americans who need medical therapy for high cholesterol, we estimate only about one-fourth are actually receiving treatment;

• Refocusing the debate on health policy to address the cost of disease that remains untreated and the benefits of investing in prevention and wellness to not only improve health, but save money;

• The promise of technology to improve upon existing therapies and to introduce treatments where none currently exist;

• Developments and growth in Pfizer’s presence in emerging markets worldwide; and

• Worldwide emphasis on the need to find solutions to difficult problems in healthcare systems.

We have known that we would face loss of exclusivity in the U.S. of several key products in a very short period of time. As a result, we have been remaking our Company to meet changing times and we are addressing our challenges through the following actions:

• Enhancing a product portfolio intended to transcend the volatility of individual products or markets;

• Pursuing a large number of new product launches, indications and completed clinical trials;

• Increasing our research and development (R&D) productivity;

• Emphasizing the clinical benefits of our medicines;

• Launching new global positionings of our products, where necessary;

• Acquiring the rights to promising medicines;

• Defending our patents aggressively;

• Marketing generic versions of certain of our products after our compounds face generic competition;

• Guarding the integrity of our products in an increasingly predatory atmosphere evidenced by the growing problem of counterfeit drugs;

• Addressing the wide array of patient populations through our innovative access and affordability programs;

• Aligning our research, development and marketing functions in search of new medical opportunities as part of a fully integrated portfolio-planning process; and

• Streamlining many of our basic functions to capitalize on our unmatched size and reach.

Continuing Pricing Pressures

A rise in Consumer Directed Health Plans has increased consumer sensitization to the cost of healthcare. Consumers are aware of global price differences resulting from price controls imposed by foreign governments and have become more willing to seek less expensive alternatives, such as switching to generics and sourcing medicines across national borders. Both U.S. and international governmental regulations mandating prices or price controls can impact our revenues, and we continue to work within the current legal and pricing structures to minimize the impact on our revenues. For example, we have taken steps to assure that medicines intended for Canadian consumption are in fact used for that purpose. Managed care organizations, as well as government agencies, with their significant purchasing power, continue to seek discounts on our products which has served to slow our revenue growth.

The enactment of the Medicare Prescription Drug Improvement and Modernization Act of 2003 (which went into effect in 2006) regarding prescription drug benefits for Medicare beneficiaries expands access to medicines that patients need. While expanded access may potentially result in increased sales of our products, such increases may be offset by increased pricing pressures due to the enhanced purchasing power of the private sector providers that will negotiate on behalf of Medicare beneficiaries in the future. We believe that our medicines provide significant value for both providers and patients not only from the improved treatment of diseases, but also from a reduction in other healthcare costs such as hospitalization or emergency room costs, increased patient productivity and a better quality of life.

Defending Our Intellectual Property Rights

The loss of patent protection with respect to any of our major products can have a material adverse effect on future revenues and our results of operations. Our performance in 2005 was impacted by loss of U.S. exclusivity of four major products—Diflucan, Neurontin, and Accupril/Accuretic during 2004 and Zithromax in November 2005. In addition, we face the loss of U.S. exclusivity for Zoloft during 2006 and Norvasc and Zyrtec during 2007. These seven products represented 33% of our Human Health revenues and 29% of our total revenues for the year ended December 31, 2004. Zithromax, Zoloft, Norvasc and Zyrtec represented 26% of our Human Health revenues and 22% of our total company revenues for the year ended December 31, 2005.

Intellectual property legal protections and remedies are a significant factor in our business. Many of our products have a

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composition-of-matter or compound patent and may also have additional patents. Additional patents can include additional composition-of-matter patents, processes for making the compound or additional indications or uses. As such, each of our products has varying patents expiring at varying dates, thereby strengthening our patent protection. However, once the patent protection period has expired, generic pharmaceutical manufacturers generally produce similar products and sell those products for a lower price. This price competition can substantially decrease our revenues.

Patents covering our products are subject to challenges from time to time. Increasingly, generic pharmaceutical manufacturers are launching their products “at-risk”—before the final resolution of legal proceedings challenging their generic products. Wherever appropriate, we aggressively defend our patent rights against such challenges (details of these matters are described in Notes to the Consolidated Financial Statements—Note 18, Legal Proceedings and Contingencies).

Product Competition

We face the loss of U.S. exclusivity for Zoloft during 2006 and Norvasc and Zyrtec during 2007. In addition, some of our products face competition in the form of new branded products or generic drugs, which treat similar diseases or indications. We have been able to limit the impact on revenues by highlighting the proven track record of safety and efficacy of our products. For example, the success of Lipitor is the result of an unprecedented array of clinical data supporting both efficacy and safety.

Expansion and Productivity of Development Pipeline

Discovery and development of new products, as well as the development of additional uses for existing products, are imperative for the continued strong operation of our businesses. The numerous filings, approvals and launches of new Pfizer products and product enhancements during 2005 and in early 2006 evidenced a productive period of R&D. The opportunities for improving human health remain abundant. As the world’s largest privately funded biomedical operation, and through our global scale, we are developing and delivering innovative medicines that will benefit patients around the world. We will continue to make the investments necessary to serve patients’ needs and to generate long-term growth. A good example of this is our torcetrapib/atorvastatin (Lipitor) development program whose objective is to provide clear evidence that substantially raising HDL-cholesterol and further lowering LDL-cholesterol can reduce cardiovascular risk beyond what can be currently achieved with existing treatments.

During 2005, we continued to successfully introduce new products, including Macugen, Revatio, Zmax and Lyrica in the U.S. In December 2004 and during 2005, we or our development partners submitted six New Drug Applications (NDAs) to the U.S. Food and Drug Administration (FDA) for important new drug candidates: Exubera, indiplon, Sutent (Sunitinib Malate), Zeven (dalbavancin), Eraxis (anidulafungin) and Champix (varenicline). We continue to make progress toward our goal of filing 20 major new medicines in the U.S. in the five-year period ending in 2006. However, we now believe we will achieve 19 of those filings by the end of 2006. Even so, we believe that our track record of 19 NDA filings in five years evidences one of the highest levels of productivity in our industry. In February 2006, the FDA approved Eraxis for treatment of candidemia and invasive candidiasis, and for treatment of esophageal candidiasis. In January 2006, the FDA and the European Commission approved Exubera (inhaled human insulin) for treatment of type 1 and type 2 diabetes in adults, and the FDA approved Sutent for advanced kidney cancer and gastrointestinal stromal tumors.

Our financial strength enables us to conduct research on a scale that can help redefine medical practice. We have combined that ability with a fully integrated portfolio-planning approach that aligns our research, development, and marketing functions in the search for new medical opportunities. We have over 200 novel concepts in development across multiple therapeutic areas, and we are leveraging our status as the industry’s partner of choice to expand our licensing operations. This is enabling us to strengthen our core cardiovascular and neuroscience portfolios, as well as to expand other therapeutic areas, including oncology and ophthalmology. Our R&D pipeline included, as of February 10, 2006, 235 projects in development: 152 new molecular entities and 83 product-line extensions. In addition, we have more than 400 projects in discovery research. During 2005, 47 new compounds were advanced from discovery research into preclinical development, 30 preclinical development candidates progressed into Phase 1 human testing and 12 Phase 1 clinical development candidates advanced into Phase 2 proof-of-concept trials.

Reducing attrition has been a key focus on our R&D productivity improvement effort. For several years, we have been revising the quality hurdles for candidates entering development and throughout the development process. As the quality of candidates has improved, the development attrition rate has begun to fall. At our current internal discovery output of chemical entities and at the attrition rates we are seeing for these high quality candidates, we believe we will improve our overall success rates to 1 in 11 versus the historical industry rate of 1 in 20 to 25. This would allow us to double our productivity without doubling our R&D investment. Given the multi-year nature of pharmaceutical R&D, it will take some time before the full impact of these changes is realized.

While a significant portion of R&D is done internally, we do enter into agreements with other companies to co-develop promising compounds. These co-development and alliance agreements allow us to capitalize on these compounds to expand our pipeline of potential future products. We have more than 1,000 alliances across the entire spectrum of the discovery, development and commercialization process. Our R&D covers a wide spectrum of therapeutic areas as discussed in the “Product Developments” section of this Financial Review. Due to our strength in marketing and our global reach, we are able to attract other organizations that may have promising compounds and can benefit from our strength and skills. Over the past two years, we have invested $4.4 billion in acquisitions for these purposes. For example, in 2005, the acquisition of Vicuron builds on Pfizer’s extensive experience in anti-infectives and demonstrates our commitment to strengthen and broaden our pharmaceutical business through strategic product acquisitions. By acquiring Vicuron, Pfizer looks forward to bringing to patients around the world two important new medicines that at the date of the acquisition were under review by the FDA. In February 2006, Eraxis was approved by the FDA.

Our Expectations for 2006

While our revenue and income will likely continue to be tempered in the near term due to patent expirations and other factors, we will continue to make the investments necessary to sustain long-

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term growth. We remain confident that Pfizer has the organizational strength and resilience, as well as the financial depth and flexibility, to succeed in the long term. However, no assurance can be given that the industry-wide factors described above or other significant factors will not have a material adverse effect on our business and financial results.

Given these and other factors, at current exchange rates and reflecting management’s current assessment, for 2006 we expect Adjusted income of approximately $15 billion, Adjusted diluted EPS of approximately $2.00, reported Net income of approximately $11.4 to $11.7 billion, reported diluted EPS of approximately $1.52 to $1.56 and over $16 billion in cash flow from operations, all of which do not reflect the purchase accounting impacts of a pending business-development transaction, as well as any potential impacts in connection with a business for which we are exploring strategic options. We expect 2006 revenues to be comparable to 2005. The growth of three key products—Lipitor, Celebrex and Lyrica—is expected to contribute significantly to our 2006 revenues. Our forecasted financial performance in 2006 is subject to a number of factors and uncertainties—as described in the “Forward Looking Information and Factors That May Affect Future Results” section below. Some of these factors and uncertainties may persist over our planning horizon.

A reconciliation of forecasted 2006 Adjusted income and Adjusted diluted EPS to forecasted 2006 reported Net income and reported diluted EPS follows:

($ BILLIONS, EXCEPT PER-SHARE AMOUNTS)	NET INCOME(a)			DILUTED EPS(a)
Forecasted Adjusted income/diluted EPS	~	$15.0		~	$2.00
Intangible amortization, net of tax		(2.3	)		(0.31	)
Adapting to scale costs(b)		(1.4-1.7	)		(0.19-0.23	)
Resolution of certain tax positions		0.4			0.06
Forecasted reported Net income/diluted EPS	~	$11.4 – $11.7		~	$1.52 – $1.56

(a)	Does not reflect the purchase accounting impacts of a pending business-development transaction, as well as any potential impacts in connection with a business for which we are exploring strategic options.
(b)	About 15% is expected to be incurred in Selling, informational and administrative expense (SI&A), about 10% in Research and development expense and about 5% in Cost of sales with the balance in Restructuring charges and merger-related costs.

Accounting Policies

We consider the following accounting policies important in understanding our operating results and financial condition. For additional accounting policies, see Notes to the Consolidated Financial Statements—Note 1, Significant Accounting Policies.

Estimates and Assumptions

In preparing the consolidated financial statements, we use certain estimates and assumptions that affect reported amounts and disclosures. For example, estimates are used when accounting for deductions from revenues (such as rebates, discounts, incentives and product returns), depreciation, amortization, employee benefits, contingencies and asset and liability valuations. Our estimates are often based on complex judgments, probabilities and assumptions that we believe to be reasonable, but that are inherently uncertain and unpredictable. Assumptions may be incomplete or inaccurate and unanticipated events and circumstances may occur. It is also possible that other professionals, applying reasonable judgment to the same facts and circumstances, could develop and support a range of alternative estimated amounts. We are also subject to other risks and uncertainties that may cause actual results to differ from estimated amounts, such as changes in the healthcare environment, competition, foreign exchange, litigation, legislation and regulations. These and other risks and uncertainties are discussed throughout this Financial Review, particularly in the section “Forward-Looking Information and Factors That May Affect Future Results.”

Contingencies

We and certain of our subsidiaries are involved in various patent, product liability, consumer, commercial, securities, environmental and tax litigations and claims; government investigations; and other legal proceedings that arise from time to time in the ordinary course of our business. We record accruals for such contingencies to the extent that we conclude their occurrence is probable and the related damages are estimable. We consider many factors in making these assessments. Because litigation and other contingencies are inherently unpredictable and excessive verdicts do occur, these assessments can involve a series of complex judgments about future events and can rely heavily on estimates and assumptions (see Notes to the Consolidated Financial Statements—Note 1B, Significant Accounting Policies: Estimates and Assumptions). We record anticipated recoveries under existing insurance contracts when assured of recovery.

Acquisitions

Our consolidated financial statements and results of operations reflect an acquired business after the completion of the acquisition and are not restated. We account for acquired businesses using the purchase method of accounting which requires that the assets acquired and liabilities assumed be recorded at the date of acquisition at their respective fair values. Any excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill. Amounts allocated to acquired IPR&D are expensed at the date of acquisition. When we acquire net assets that do not constitute a business under generally accepted accounting principles in the U.S. (GAAP), no goodwill is recognized.

The judgments made in determining the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact our results of operations. Accordingly, for significant items, we typically obtain assistance from third party valuation specialists.The valuations are based on information available near the acquisition date and are based on expectations and assumptions that have been deemed reasonable by management.

There are several methods that can be used to determine the fair value of assets acquired and liabilities assumed. For intangible assets, including IPR&D, we typically use the “income method.” This method starts with a forecast of all of the expected future net cash flows. These cash flows are then adjusted to present value by applying an appropriate discount rate that reflects the risk factors associated with the cash flow streams. Some of the more significant estimates and assumptions inherent in the income

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method or other methods include: the amount and timing of projected future cash flows; the amount and timing of projected costs to develop the IPR&D into commercially viable products; the discount rate selected to measure the risks inherent in the future cash flows; and the assessment of the asset’s life cycle and the competitive trends impacting the asset, including consideration of any technical, legal, regulatory, or economic barriers to entry, as well as expected changes in standards of practice for indications addressed by the asset.

Determining the useful life of an intangible asset also requires judgment as different types of intangible assets will have different useful lives and certain assets may even be considered to have indefinite useful lives. For example, the useful life of the right associated with a pharmaceutical product’s exclusive patent will be finite and will result in amortization expense being recorded in our results of operations over a determinable period. However, the useful life associated with a brand that has no patent protection but that retains, and is expected to retain, a distinct market identity could be considered to be indefinite and the asset would not be amortized.

Revenues

Revenue Recognition—We record revenue from product sales when the goods are shipped and title passes to the customer. At the time of sale, we also record estimates for a variety of sales deductions, such as rebates, discounts and incentives, and product returns.

Deductions from Revenues—Our gross product sales are subject to a variety of deductions, primarily representing rebates and discounts to government agencies, wholesalers and managed care organizations with respect to our pharmaceutical products. These deductions represent estimates of the related obligations and, as such, judgment is required when estimating the impact of these sales deductions on gross sales for a reporting period.

Specifically:

• In the U.S., we record provisions for pharmaceutical Medicaid and contract rebates based upon our actual experience ratio of rebates paid and actual prescriptions written during prior quarters. We apply the experience ratio to the respective period’s sales to determine the rebate accrual and related expense. This experience ratio is evaluated regularly to ensure that the historical trends are as current as practicable. As appropriate, we will adjust the ratio to better match our current experience or our expected future experience. In assessing this ratio, we consider current contract terms, such as changes in formulary status and discount rates. If our ratio is not indicative of future experience, our results could be materially affected.

• Provisions for pharmaceutical chargebacks (primarily discounts to federal government agencies) closely approximate actual as we settle these deductions generally within 2-3 weeks of incurring the liability.

• Outside of the U.S., the majority of our pharmaceutical rebates are contractual or legislatively-mandated and our estimates are based on actual invoiced sales within each period; both of these elements help to reduce the risk of variations in the estimation process. Some European countries base their rebates on the government’s unbudgeted pharmaceutical spending and we use an estimated allocation factor against our actual invoiced sales to project the expected level of reimbursement. We obtain third party information that helps us monitor the adequacy of these accruals. If our estimates are not indicative of actual unbudgeted spending, our results could be materially affected.

• We record sales incentives as a reduction of revenues at the time the related revenues are recorded or when the incentive is offered, whichever is later. We estimate the cost of our sales incentives based on our historical experience with similar incentives programs.

Historically, our adjustments to actual have not been material; on a quarterly basis, they generally have been less than 0.5% of net sales and can result in a net increase to income or a net decrease to income. The sensitivity of our estimates can vary by program, type of customer and geographic location. However, estimates associated with U.S. Medicaid and contract rebates are most at-risk for material adjustment because of the extensive time delay between the recording of the accrual and its ultimate settlement, an interval that can range up to one year. Because of this time lag, in any given quarter, our adjustments to actual can incorporate revisions of several prior quarters.

Alliances — We have agreements to co-promote pharmaceutical products discovered by other companies. Revenue is earned when our co-promotion partners ship the related product and title passes to their customer. Alliance revenue is primarily based upon a percentage of our co-promotion partners’ net sales. Generally, expenses for selling and marketing these products are included in Selling, informational and administrative expenses.

Long-lived Asset Impairment Analysis

We review all of our long-lived assets, including goodwill and other intangible assets, for impairment indicators at least annually and we perform detailed impairment testing for goodwill and indefinite-lived assets annually and for all other long-lived assets whenever impairment indicators are present. Examples of those events or circumstances that may be indicative of impairment include:

• A significant adverse change in legal factors or in the business climate that could affect the value of the asset. For example, a successful challenge of our patent rights resulting in generic competition earlier than expected.

• A significant adverse change in the extent or manner in which an asset is used. For example, restrictions imposed by the FDA or other regulatory authorities that affect our ability to manufacture or sell a product.

• A projection or forecast that demonstrates losses associated with an asset. For example, a change in a government reimbursement program that results in an inability to sustain projected product revenues and profitability.

Our impairment review process is as follows:

• For finite-lived intangible assets, such as developed technology rights, whenever impairment indicators are present, we will perform an in-depth review for impairment. We will calculate the undiscounted value of the projected cash flows associated

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	with the asset and compare this estimated amount to the carrying amount of the asset. If the carrying amount is found to be greater, we will record an impairment loss for the excess of book value over the asset’s fair value. Fair value is generally calculated by applying an appropriate discount rate to the undiscounted cash flow projections to arrive at net present value. In addition, in all cases of an impairment review, we will re-evaluate the remaining useful life of the asset and modify it, as appropriate.
•	For indefinite-lived intangible assets, such as brands, each year and whenever impairment indicators are present, we will calculate the fair value of the asset and record an impairment loss for the excess of book value over fair value, if any. Fair value is generally measured as the net present value of projected cash flows. In addition, in all cases of an impairment review, we will re-evaluate the remaining useful life of the asset and determine whether continuing to characterize the asset as having an indefinite life is appropriate.
•	For goodwill, which includes amounts related to our Human Health, Consumer Healthcare and Animal Health segments, each year and whenever impairment indicators are present, we will calculate the fair value of each business segment and calculate the implied fair value of goodwill by subtracting the fair value of all the identifiable net assets other than goodwill and record an impairment loss for the excess of book value of goodwill over the implied fair value, if any.
•	For other long-lived assets, such as property, plant and equipment, we apply procedures similar to those for finite-lived intangible assets to determine if an asset is impaired. Long-term investments and loans are subject to periodic impairment reviews and whenever impairment indicators are present. For these assets, fair value is typically determined by observable market quotes or the expected present value of future cash flows. When necessary, we record charges for impairments of long-lived assets for the amount by which the fair value is less than the carrying value of these assets.
•	For non-current deferred tax assets, we provide a valuation allowance when we believe that the assets are not recoverable based on an assessment of estimated future taxable income that incorporates ongoing, prudent, feasible tax planning strategies.

The value of intangible assets is determined primarily using the “income method,” which starts with a forecast of all the expected future net cash flows (see “Acquisitions” above). Accordingly, the potential for impairment for these intangible assets may exist if actual revenues are significantly less than those initially forecasted or actual expenses are significantly more than those initially forecasted.

Some of the more significant estimates and assumptions inherent in the intangible asset impairment estimation process include: the amount and timing of projected future cash flows; the discount rate selected to measure the risks inherent in the future cash flows; and the assessment of the asset’s life cycle and the competitive trends impacting the asset, including consideration of any technical, legal, regulatory, or economic barriers to entry as well as expected changes in standard of practice for indications addressed by the asset.

The implied fair value of goodwill is determined by first estimating the fair value of the associated business segment. To estimate the fair value of each business segment, we generally use the “market approach,” where we compare the segment to similar businesses or “guideline” companies whose securities are actively traded in public markets or which have recently been sold in a private transaction; or the “income approach,” where we use a discounted cash flow model in which cash flows anticipated over several periods, plus a terminal value at the end of that time horizon, are discounted to their present value using an appropriate rate of return.

Some of the more significant estimates and assumptions inherent in the goodwill impairment estimation process using the “market approach” include: the selection of appropriate guideline companies; the determination of market value multiples for the guideline companies and the subsequent selection of an appropriate market value multiple for the business segment based on a comparison of the business segment to the guideline companies; and the determination of applicable premiums and discounts based on any differences in ownership percentages, ownership rights, business ownership forms, or marketability between the segment and the guideline companies; and/or knowledge of the terms and conditions of comparable transactions; and when considering the “income approach,” include: the required rate of return used in the discounted cash flow method, which reflects capital market conditions and the specific risks associated with the business segment. Other estimates inherent in the “income approach” include long-term growth rates and cash flow forecasts for the business segment.

A single estimate of fair value results from a complex series of judgments about future events and uncertainties and relies heavily on estimates and assumptions (see “Estimates and Assumptions” above). The judgments made in determining an estimate of fair value can materially impact our results of operations. As such, for significant items, we often obtain assistance from third party valuation specialists. The valuations are based on information available as of the impairment review date and are based on expectations and assumptions that have been deemed reasonable by management.

Share-Based Payments

Our compensation programs can include share-based payments.

Stock options, which entitle the holder to purchase shares of Pfizer stock at a pre-determined price at the end of a vesting term, are accounted for under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, an elective accounting policy permitted by SFAS No. 123, Accounting for Stock-Based Compensation. Under this policy, since the exercise price of stock options granted is set equal to the market price on the date of the grant, we do not record any expense to the income statement related to the grants of stock options, unless certain original grant-date terms are subsequently modified.

For disclosure purposes only, we estimate the fair value of employee stock options, as required under GAAP, using the Black-Scholes-Merton option-pricing model. We believe that it is difficult to accurately measure the value of an employee stock option (see “Estimates and Assumptions” above). Our estimates of employee stock option values rely on estimates of factors we input into the model. The key factors involve an estimate of future uncertain

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events. The key factors influencing the estimation process, among others, are the expected term of the option, the expected stock price volatility factor and the expected dividend yield.

In the first quarter of 2005, we changed our method of estimating expected dividend yield from historical patterns of dividend payments to a method that reflects a constant dividend yield during the expected term of the option. In the first quarter of 2004, we began using quoted implied volatility to determine the expected stock price volatility factor. We believe that these market-based inputs provide a better estimate of our future stock price movements and are consistent with emerging employee stock option valuation considerations. Also, of significance, is our expected term until exercise factor. We continue to use historical exercise patterns as our best estimate of future exercise patterns. Once employee stock option values are determined, current accounting practices do not permit them to be changed, even if the estimates used are different from actual.

The pro forma effect on net income and diluted earnings per common share for the years ended 2005, 2004 and 2003 is set forth in Notes to the Consolidated Financial Statements—see Note 1P, Significant Accounting Policies: Share-Based Payments. Additionally, see our discussion in the “Recently Issued Accounting Standards” section of this Financial Review.

Beginning in 2006, we will report the value of stock options in our income statement. See our discussion in “Recently Issued Accounting Standards” section of this Financial Review.

Benefit Plans

We provide defined benefit pension plans and defined contribution plans for the majority of our employees worldwide. In the U.S., we have both qualified and supplemental (non-qualified) defined benefit plans and defined contribution plans, as well as other postretirement benefit plans, consisting primarily of healthcare and life insurance for retirees.

A U.S. qualified plan meets the requirements of certain sections of the Internal Revenue Code and, generally, contributions to qualified plans are tax deductible. It typically provides benefits to a broad group of employees and may not discriminate in favor of highly compensated employees in its coverage, benefits or contributions.

We also provide benefits through non-qualified U.S. retirement plans to certain employees. These supplemental plans, which generally are not funded, will provide, out of our general assets, an amount substantially equal to the amounts that would have been payable under the defined benefit qualified pension plans, in the absence of legislation limiting pension benefits and earnings that may be considered in calculating pension benefits. In addition, we provide medical and life insurance benefits to retirees and their eligible dependents through our postretirement plans, which, in general, are also unfunded obligations.

In 2005, we made required U.S. qualified plan contributions of $3 million and voluntary tax-deductible contributions in excess of minimum requirements of $49 million to our U.S. pension plans. In 2004, we made required U.S. qualified plan contributions of $29 million and voluntary tax-deductible contributions in excess of minimum requirements of $52 million to our U.S. pension plans. In the aggregate, the U.S. qualified pension plans are overfunded on an accumulated benefit obligation measurement basis as of December 31, 2005 and 2004.

Outside the U.S., in general, we fund our defined benefit plans to the extent that tax or other incentives exist and we have accrued liabilities on our consolidated balance sheets to reflect those plans that are not fully funded.

The accounting for benefit plans is highly dependent on actuarial estimates, assumptions and calculations which result from a complex series of judgments about future events and uncertainties (see “Estimates and Assumptions” above). The assumptions and actuarial estimates required to estimate the employee benefit obligations for the defined benefit and postretirement plans, include discount rate; expected salary increases; certain employee-related factors, such as turnover, retirement age and mortality (life expectancy); expected return on assets; and healthcare cost trend rates. Our assumptions reflect our historical experiences and our best judgment regarding future expectations that have been deemed reasonable by management. The judgments made in determining the costs of our benefit plans can materially impact our results of operations. As such, we often obtain assistance from actuarial experts to aid in developing reasonable assumptions and cost estimates.

Our assumption for the expected long-term rate of return-on-assets in our U.S. pension plans, which determines net periodic benefit cost, is 9% for 2006 and 2005. The assumption for the expected return-on-assets for our U.S. and international plans reflects our actual historical return experience and our long-term assessment of forward-looking return expectations by asset classes, which is used to develop a weighted-average expected return based on the implementation of our targeted asset allocation in our respective plans. The expected return for our U.S. plans and the majority of our international plans is applied to the fair market value of plan assets at each year end. For our international plans that use a market-related value of plan assets to calculate net periodic pension cost, shifting to fair market value of plan assets would serve to decrease our 2006 international pension plans’ pre-tax expense by approximately $29 million. As a sensitivity measure, holding all other assumptions constant, the effect of a one-percentage-point decline in the return-on-assets assumption would be an increase in our 2006 U.S. qualified pension plan pre-tax expense of approximately $71 million.

The following table shows the expected versus actual rate of return on plan assets for the U.S. qualified pension plans:

	2005			2004			2003
Expected annual rate of return		9.0	%		9.0	%		9.0	%
Actual annual rate of return		10.1			11.5			21.4

The discount rate used in calculating our U.S. pension benefit obligations at December 31, 2005, is 5.8%, which represents a 0.2 percentage-point decline from our December 31, 2004, rate of 6.0%. The discount rate for our U.S. defined benefit and postretirement plans is based on a yield curve constructed from a portfolio of high quality corporate bonds rated AA or better for which the timing and amount of cash flows approximate the estimated payouts of the plans. For our international plans, the discount rates are set by benchmarking against investment

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grade corporate bonds rated AA or better. Holding all other assumptions constant, the effect of this 0.2 percentage-point decrease in the discount rate assumption is an increase in our 2006 U.S. qualified pension plan pre-tax expense of approximately $25 million and an increase in the U.S. qualified pension plans’ projected benefit obligations at December 31, 2005, of approximately $220 million.

Acquisitions and Dispositions

Pharmacia Acquisition

On April 16, 2003, we acquired Pharmacia in a stock-for-stock transaction valued at approximately $56 billion. For the year ended December 31, 2003, about 7¹/₂ months of results of operations of Pharmacia’s international operations (which conformed to Pfizer’s international operations fiscal year end of November 30th) and about 8¹/₂ months of results of operations of Pharmacia’s U.S. operations were included in our consolidated financial statements.

Our operating results for the years ended December 31, 2005 and 2004, reflect the impact of the acquisition of Pharmacia throughout the entire period, as compared to the year ended December 31, 2003, which reflects the impact of the acquisition of Pharmacia from April 16, 2003.

The impact of purchase accounting relating to the Pharmacia acquisition resulted in a number of significant non-cash charges to the income statement for the years ended December 31, 2005, 2004 and 2003. The non-cash charges for 2005 and 2004 include incremental amortization of about $3.3 billion relating to intangible assets adjusted to fair value. The non-cash charges in 2003 include non-recurring IPR&D ($5.1 billion); incremental cost of sales (non-recurring $2.7 billion) from the sale of acquired inventory adjusted to fair value; and incremental amortization ($2.3 billion) of tangible and intangible assets adjusted to fair value. See also the discussions under the heading “Merger-Related In-Process Research and Development Charges” in the “Costs and Expenses” section of this Financial Review.

In connection with the acquisition, we took actions to integrate and restructure the Pharmacia operations in order to increase our profitability through cost savings and operating efficiencies. To achieve the savings, we incurred certain merger-related expenditures of about $5.4 billion through December 31, 2005. See also the discussions under the heading “Merger-Related Costs” in the “Costs and Expenses” section of this Financial Review. As a result of these activities and the combining of operations, it is not possible to provide separate results of operations for Pharmacia for the period after the acquisition date.

As a result of the acquisition of Pharmacia, regulatory authorities required us to divest several products and a product candidate. In April 2003, we sold Cortaid, an anti-itch cream, for $35.8 million in cash. Also in April 2003, we sold the product candidate for overactive bladder, darifenacin, for $225 million. We received $50 million in cash upon closing in April 2003 and an additional $100 million in 2004 (with an additional $75 million contingent upon when, and if, darifenacin receives regulatory approvals). These net proceeds are included in Other income/(deductions)—net, in the respective years.

Other Acquisitions

On September 14, 2005, we completed the acquisition of all of the outstanding shares of Vicuron, a biopharmaceutical company focused on the development of novel anti-infectives, for approximately $1.9 billion in cash (including transaction costs). At the date of acquisition, Vicuron had two products under NDA review by the FDA: Eraxis (anidulafungin) for fungal infections and Zeven (dalbavancin) for Gram-positive infections. The allocation of the purchase price includes IPR&D of approximately $1.4 billion, which was expensed in Merger-related in-process research and development charges, and goodwill of $243 million, which has been allocated to our Human Health segment. Neither of these items is deductible for tax purposes. In February 2006, Eraxis was approved by the FDA.

On April 12, 2005, we completed the acquisition of all outstanding shares of Idun, a biopharmaceutical company focused on the discovery and development of therapies to control apoptosis, and on August 15, 2005, we completed the acquisition of all outstanding shares of Bioren Inc. (Bioren), which focuses on technology for optimizing antibodies. The aggregate cost of these and other smaller acquisitions was approximately $340 million in cash (including transaction costs) for 2005. In connection with these transactions, we expensed $262 million of IPR&D, which was included in Merger-related in-process research and development charges.

On September 30, 2004, we completed the acquisition of Campto/Camptosar (irinotecan), from sanofi-aventis for approximately $525 million in cash (including transaction costs). Additional payments of up to $63 million will be payable upon obtaining regulatory approvals for additional indications in certain European countries. In connection with the acquisition, we recorded an intangible asset for developed technology rights of $445 million.

On February 10, 2004, we completed the acquisition of all the outstanding shares of Esperion, a biopharmaceutical company, for $1.3 billion in cash (including transaction costs). The allocation of the purchase price includes IPR&D of approximately $920 million, which was expensed in Merger-related in-process research and development charges, and goodwill of $239 million, which was allocated to our Human Health segment. Neither of these items was deductible for tax purposes.

In 2004, we also completed several other acquisitions. The total purchase price associated with these transactions was approximately $430 million. In connection with these transactions, we expensed $151 million of IPR&D, which was included in Merger-related in-process research and development charges, and recorded $206 million in intangible assets, primarily brands (indefinite-lived) and developed technology rights.

In January 2006, we announced an agreement to acquire the sanofi-aventis worldwide rights, including patent rights and production technology, to manufacture and sell Exubera, an inhaled form of insulin for use in adults with type 1 and type 2 diabetes, and the insulin-production business and facilities located in Frankfurt, Germany, previously jointly owned by Pfizer and sanofi-aventis, for approximately $1.3 billion.

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Dispositions

We evaluate our businesses and product lines periodically for strategic fit within our operations. As a result of our evaluation, we decided to sell a number of businesses and product lines and we recorded certain of these results in Discontinued operations for 2005, 2004 and 2003, as appropriate. All of these sales were completed as of December 31, 2005. The more significant disposals include:

• In the third quarter of 2005, we sold the last of three European generic pharmaceutical businesses which we had included in our Human Health segment and had become a part of Pfizer in April 2003 in connection with our acquisition of Pharmacia, for 4.7 million euro (approximately $5.6 million) and recorded a loss of $3 million ($2 million, net of tax) in Gains on sales of discontinued operations–net of tax in the consolidated statement of income for 2005.

• In the first quarter of 2005, we sold the second of three European generic pharmaceutical businesses which we had included in our Human Health segment and had become a part of Pfizer in April 2003 in connection with our acquisition of Pharmacia, for 70 million euro (approximately $93 million) and recorded a gain of $57 million ($36 million, net of tax) in Gains on sales of discontinued operations–net of tax in the consolidated statement of income for 2005. In addition, we recorded an impairment charge of $9 million ($6 million, net of tax) related to the third European generic business in (Loss)/income from discontinued operations–net of tax in the consolidated statement of income for 2005.

• In the fourth quarter of 2004, we sold the first of three European generic pharmaceutical businesses which we had included in our Human Health segment and had become a part of Pfizer in April 2003 in connection with our acquisition of Pharmacia, for 53 million euro (approximately $65 million). In addition, we recorded an impairment charge of $61 million ($37 million, net of tax), relating to a European generic business which was later sold in 2005, and is included in (Loss)/income from discontinued operations–net of tax in the consolidated statement of income for 2004.

• In the third quarter of 2004, we sold certain non-core consumer product lines marketed in Europe by our Consumer Healthcare segment for 135 million euro (approximately $163 million) in cash. We recorded a gain of $58 million ($41 million, net of tax) in Gains on sales of discontinued operations–net of tax in the consolidated statement of income for 2004. The majority of these products were small brands sold in single markets only and included certain products that became a part of Pfizer in April 2003 in connection with our acquisition of Pharmacia.

• In the second quarter of 2004, we sold our surgical ophthalmic business for $450 million in cash. The surgical ophthalmic business was included in our Human Health segment and became a part of Pfizer in April 2003 in connection with our acquisition of Pharmacia. The results of this business were included in (Loss)/income from discontinued operations–net of tax.

• In the second quarter of 2004, we sold our in-vitro allergy and autoimmune diagnostics testing (Diagnostics) business, formerly included in the “Corporate/Other” category of our segment information, for $575 million in cash. The Diagnostics business was acquired in April 2003 in connection with our acquisition of Pharmacia. The results of this business were included in (Loss)/income from discontinued operations–net of tax.

• In the second quarter of 2003, we completed the sale of the hormone replacement therapy femhrt, formerly part of our Human Health segment, for $160 million in cash with a right to receive up to $63.8 million contingent on femhrt retaining market exclusivity until the expiration of its patent. We recorded a gain on the sale of this product of $139 million ($83 million, net of tax) in Gains on sales of discontinued operations–net of tax in the consolidated statement of income for 2003.

• In the first quarter of 2003, we sold the oral contraceptives Estrostep and Loestrin, formerly part of our Human Health segment, for $197 million in cash with a right to receive up to $47.3 million contingent on Estrostep retaining market exclusivity until the expiration of its patent. We recorded a gain on the sale of these two products of $193 million ($116 million, net of tax) in Gains on sales of discontinued operations–net of tax in the consolidated statement of income for 2003.

• In the first quarter of 2003, we sold the Adams confectionery products business, formerly part of our Consumer Healthcare segment, for $4.2 billion in cash. We recorded a gain on the sale of this business of $3.1 billion ($1.8 billion, net of tax) in Gains on sales of discontinued operations–net of tax in the consolidated statement of income for 2003.

• In the first quarter of 2003, we sold the Schick-Wilkinson Sword shaving products business, formerly part of our Consumer Healthcare segment, for $930 million in cash. We recorded a gain on the sale of this business of $462 million ($262 million, net of tax) in Gains on sales of discontinued operations–net of tax in the consolidated statement of income for 2003.

In 2005, we earned $29 million of income ($18 million, net of tax) and in 2004, we earned $17 million of income ($10 million, net of tax), both amounts relating to the 2003 sale of the femhrt, Estrostep and Loestrin product lines, which was recorded in Gains on sales of discontinued operations – net of tax in the consolidated statement of income for the applicable year.

Net cash flows of our discontinued operations from each of the categories of operating, investing and financing activities were not significant for 2005, 2004 and 2003.

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Analysis of the Consolidated Statement of Income

	YEAR ENDED DEC. 31,									% CHANGE
(MILLIONS OF DOLLARS)	2005			2004			2003(a)			05/04			04/03
Revenues	$	51,298		$	52,516		$	44,736			(2	)		17
Cost of sales		8,525			7,541			9,589			13			(21	)
% of revenues		16.6	%		14.4	%		21.4	%
SI&A expenses		16,997			16,903			15,108			1			12
% of revenues		33.1	%		32.2	%		33.8	%
R&D expenses		7,442			7,684			7,487			(3	)		3
% of revenues		14.5	%		14.6	%		16.7	%
Amortization of intangible assets		3,409			3,364			2,187			1			54
% of revenues		6.6	%		6.4	%		4.9	%
Merger-related IPR&D charges		1,652			1,071			5,052			54			(79	)
% of revenues		3.2	%		2.0	%		11.3	%
Restructuring charges and merger-related costs		1,392			1,193			1,058			17			13
% of revenues		2.7	%		2.3	%		2.4	%
Other (income)/deductions — net		347			753			1,009			(54	)		(25	)
Income from continuing operations(b)		11,534			14,007			3,246			(18	)		332
% of revenues		22.5	%		26.7	%		7.3	%
Provision for taxes on income		3,424			2,665			1,614			28			65
Effective tax rate		29.7	%		19.0	%		49.7	%
Minority interest		16			10			3			59			222
Discontinued operations — net of tax		16			29			2,311			(45	)		(99	)
Cumulative effect of a change in accounting principles — net of tax		(25	)		—			(30	)		*			*
Net income	$	8,085		$	11,361		$	3,910			(29	)		191
% of revenues		15.8	%		21.6	%		8.7	%

(a)	The results of operations in 2003 include Pharmacia’s product sales and expenses from the acquisition date (April 16, 2003).
(b)	Represents income from continuing operations before provision for taxes on income, minority interests, discontinued operations and cumulative effect of a change in accounting principles.
*	Calculation not meaningful.
	Percentages in this table and throughout the Financial Review may reflect rounding adjustments.

Revenues

Total revenues decreased 2% to $51.3 billion in 2005 primarily due to the loss of U.S. exclusivity of certain key products, the suspension of the sales of Bextra and the uncertainty related to Celebrex. These decreases were partially offset by the solid aggregate performance in the balance of our broad portfolio of patent-protected medicines. In 2005, Lipitor, Norvasc, Zoloft and Zithromax each delivered at least $2 billion in revenues, while Celebrex, Viagra, Xalatan/Xalacom and Zyrtec each surpassed $1 billion.

Total revenues increased 17% to $52.5 billion in 2004 primarily due to the inclusion of Pharmacia results from the full year 2004 (2003 reflected only 8½ months of domestic and 7½ months of international Pharmacia product sales), strong performances by a number of our in-line products and newly launched products across major businesses and regions and the weakening of the U.S. dollar relative to many foreign currencies. In 2004, the Company’s top five medicines – Lipitor, Norvasc, Zoloft, Celebrex and Neurontin – each delivered at least $2 billion in revenues, while Zithromax, Viagra, Zyrtec, Bextra and Xalatan/Xalacom each surpassed $1 billion.

Changes in foreign exchange rates increased total revenues in 2005 by $945 million or 1.8% compared to 2004 and increased total revenues in 2004 by $1.4 billion or 3.2% compared to 2003. The foreign exchange impact on 2005 and 2004 revenue growth was due to the weakening of the U.S. dollar relative to many foreign currencies, especially the euro, which accounted for about 35% of the impact in 2005 and about 50% in 2004. The revenues of legacy Pharmacia products, recorded from the acquisition date of April 16, 2003, until the anniversary date of the transaction in 2004, were treated as incremental volume and did not have a foreign exchange impact.

Revenues exceeded $500 million in each of 12 countries outside the U.S. in 2005 and in each of ten countries outside the U.S. in 2004. The U.S. was the only country to contribute more than 10% of total revenues in each year.

Pfizer’s policy relating to the supply of pharmaceutical inventory at domestic wholesalers, and in major international markets, is to maintain stocking levels under one month on average and to keep monthly levels consistent from year to year based on patterns of utilization. Pfizer has historically been able to closely monitor these customer stocking levels by purchasing information from our customers directly or by obtaining other third party information. Pfizer believes its data sources to be directionally reliable, but cannot verify its accuracy. Further, as Pfizer does not control this third party data, we cannot be assured of continuing access. Unusual buying patterns and utilization are promptly investigated.

We completed the harmonization of Pharmacia’s trade-inventory practices in 2003. However, such harmonization of trade-inventory practices with those of legacy Pfizer negatively impacted revenues by approximately $500 million in 2003.

Rebates under Medicaid and related state programs reduced revenues by $1.3 billion in 2005, $1.4 billion in 2004 and $800 million in 2003. Performance-based contract rebates reduced revenues by $2.3 billion in 2005, $2.2 billion in 2004 and $1.9 billion in 2003. These contracts are with managed care customers, including health maintenance organizations and pharmacy benefit managers, who receive rebates based on the achievement of contracted performance terms for products. Rebates are product-specific and, therefore, for any given year are impacted by the mix of products sold. Chargebacks (primarily discounts to U.S. federal government agencies) reduced revenues by $1.3 billion in both 2005 and 2004, and $874 million in 2003. Medicaid rebates, contract rebates and chargebacks in 2003 only include Pharmacia as of April 16, 2003. In addition, chargebacks were impacted by the launch of certain generic products in 2005 and 2004 by our Greenstone subsidiary.

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Our accruals for Medicaid rebates, contract rebates and chargebacks totaled $1.8 billion and $1.7 billion at December 31, 2005 and 2004.

Revenues by Business Segment

We operate in the following business segments:

• Human Health

— The Human Health segment, which represents our pharmaceutical business, includes treatments for cardiovascular and metabolic diseases, central nervous system disorders, arthritis and pain, infectious and respiratory diseases, urogenital conditions, cancer, eye disease, endocrine disorders and allergies.

• Consumer Healthcare

— The Consumer Healthcare segment includes self-medications for oral care, upper respiratory health, tobacco dependence, gastrointestinal health, skin care, eye care and hair growth.

• Animal Health

— The Animal Health segment includes treatments for diseases in livestock and companion animals.

Total Revenues by Business Segment

Change in Geographic Revenues

	YEAR ENDED DEC. 31,												% CHANGE
	U.S.						INTERNATIONAL						U.S.						INTERNATIONAL
(MILLIONS OF DOLLARS)	2005		2004		2003		2005		2004		2003		05/04			04/03			05/04		04/03
Revenues:
Human Health	$	23,443	$	26,583	$	24,100	$	20,841	$	19,550	$	15,325		(12	)		10			7		28
Consumer Healthcare		1,941		1,780		1,649		1,937		1,736		1,300		9			8			12		34
Animal Health		993		878		738		1,213		1,075		860		13			19			13		25
Other		287		298		308		643		616		456		(4	)		(3	)		4		35
Total Revenues	$	26,664	$	29,539	$	26,795	$	24,634	$	22,977	$	17,941		(10	)		10			7		28

Human Health

Revenues of our Human Health segment were as follows:

	YEAR ENDED DEC. 31,						% CHANGE
(MILLIONS OF DOLLARS)	2005		2004		2003		05/04			04/03
Human Health	$	44,284	$	46,133	$	39,425		(4	)		17

Our pharmaceutical business is the largest in the world. Revenues from this segment contributed 86% of our total revenues in 2005 and 88% in each of 2004 and 2003. At the end of 2005, six of our pharmaceutical products were number one in their respective therapeutic categories based on revenue.

We recorded product sales of more than $1 billion for each of eight products in 2005, each of ten products in 2004 and each of nine products in 2003. These products represented 64% in 2005, 69% in 2004 and 70% in 2003 of our Human Health business.

In 2005, Human Health revenues declined. The loss of U.S. exclusivity on certain key products (primarily Neurontin) has resulted in a decline in 2005 worldwide revenues for those products of approximately $2.8 billion in comparison to 2004. In addition, the uncertainty and patient concerns relating to selective COX-2 inhibitors and the suspension of sales of Bextra have resulted in a decline in our selective COX-2 inhibitor worldwide revenues of $2.9 billion (down 63%) in comparison to 2004. Despite these events, we were able to offset approximately $4.0 billion of those declines through our in-line products coupled with new product launches.

2005 was also impacted by increased competition and the overall market decline as branded prescriptions in the U.S. declined 5% in 2005 compared to 2004. An example is the erectile-dysfunction market, with total prescriptions declining 3% in 2005 versus 10% growth in 2004. The second half of 2005 also exhibited significant change in growth trends relative to the first half of the year in a number of U.S. therapeutic markets.

Effective January 1, 2006, January 1, 2005 and January 2, 2004, we increased the published prices for certain U.S. pharmaceutical products. These price increases had no material effect on wholesaler inventory levels in comparison to the prior year.

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Revenues — Major Human Health Products

		YEAR ENDED DEC. 31,							% CHANGE
(MILLIONS OF DOLLARS)
PRODUCT	PRIMARY INDICATIONS	2005			2004		2003		05/04			04/03
Cardiovascular and metabolic diseases:
Lipitor	Reduction of LDL cholesterol	$	12,187		$	10,862	$	9,231		12			18
Norvasc	Hypertension		4,706			4,463		4,336		5			3
Cardura	Hypertension/Benign prostatic hyperplasia		586			628		594		(7	)		6
Accupril/Accuretic	Hypertension/Congestive heart failure		294			665		706		(56	)		(6	)
Caduet	Reduction of LDL cholesterol and hypertension		185			50		—		272			—
Central nervous system disorders:
Zoloft	Depression and certain anxiety disorders		3,256			3,361		3,118		(3	)		8
Neurontin	Epilepsy and post-herpetic neuralgia		639			2,723		2,702		(77	)		1
Geodon/Zeldox	Schizophrenia and acute manic or mixed episodes associated with bipolar disorder		589			467		353		26			32
Xanax/Xanax XR	Anxiety/Panic disorders		409			378		238		8			59
Aricept(a)	Alzheimer’s disease		346			308		254		12			22
Lyrica	Epilepsy, post-herpetic neuralgia and diabetic peripheral neuropathy		291			13		—		M+			*
Relpax	Migraine headaches		233			169		85		38			99
Arthritis and pain:
Celebrex(b)	Arthritis pain and inflammation, acute pain		1,730			3,302		1,883		(48	)		75
Bextra(b)	Arthritis pain and inflammation		(61	)		1,286		687		*			87
Infectious and respiratory diseases:
Zithromax/Zmax	Bacterial infections		2,025			1,851		2,010		9			(8	)
Zyvox	Bacterial infections		618			463		181		33			156
Diflucan	Fungal infections		498			945		1,176		(47	)		(20	)
Vfend	Fungal infections		397			287		200		38			44
Urology:
Viagra	Erectile dysfunction		1,645			1,678		1,879		(2	)		(11	)
Detrol/Detrol LA	Overactive bladder		988			904		544		9			66
Oncology:
Camptosar	Metastatic colorectal cancer		910			554		299		64			86
Ellence	Breast cancer		367			344		216		7			59
Aromasin	Breast cancer		247			143		58		73			145
Ophthalmology:
Xalatan/Xalacom	Glaucoma and ocular hypertension		1,372			1,227		668		12			84
Endocrine disorders:
Genotropin	Replacement of human growth hormone		808			736		481		10			53
All other:
Zyrtec/Zyrtec-D	Allergies		1,362			1,287		1,338		6			(4	)
Alliance revenue(c)	Alzheimer’s disease (Aricept), neovascular (wet) age-related macular degeneration (Macugen), Parkinson’s disease (Mirapex), hypertension (Olmetec), multiple sclerosis (Rebif) and chronic obstructive pulmonary disease (Spiriva)		1,065			721		759		48			(5	)

(a)	Represents direct sales under license agreement with Eisai Co., Ltd.
(b)	Includes direct sales under license agreement with Pharmacia prior to the acquisition.
(c)	Includes alliance revenue for Celebrex and Bextra under co-promotion agreements with Pharmacia prior to the acquisition.
M+	Change greater than one-thousand percent.
*	Calculation not meaningful.

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Financial Review
Pfizer Inc and Subsidiary Companies

Human Health — Selected Product Descriptions
•	Lipitor, for the treatment of elevated cholesterol levels in the blood, is the most widely used treatment for lowering cholesterol and the best-selling pharmaceutical product of any kind in the world reaching over $12 billion in sales in 2005, an increase in worldwide sales of 12% compared to 2004. Despite the substantial growth in 2005, Lipitor performance has slowed, particularly in the second half of 2005. This performance reflects a slowdown in the lipid-lowering market as a whole and increased competition. Despite this market slowdown, Lipitor still accounts for more than 39% of all lipid-lowering prescriptions, more than 2.5 times larger than its nearest competitor. Lipitor will face competition in the U.S. from generic pravastatin (Pravachol) beginning in April 2006 and generic simvastatin (Zocor) beginning in June 2006. While we cannot predict what will happen in any specific market, we have found that in certain European countries, Lipitor has continued to grow despite the introduction of generic simvastatin.
	In September 2005, the FDA approved the use of Lipitor to reduce the risk of stroke and myocardial infarction in patients with type 2 diabetes and multiple risk factors for coronary heart disease. The FDA’s decision was based on the findings of the Collaborative Atorvastatin Diabetes Study (CARDS), a landmark trial of more than 2,800 patients with type 2 diabetes, near-normal cholesterol, and at least one other risk factor, such as high blood pressure or smoking. CARDS showed that patients using Lipitor experienced 48% fewer strokes than those on placebo. The CARDS study’s steering committee stopped the trial nearly two years earlier than planned because of the clinical benefits among patients who took Lipitor.
	In addition, the FDA expanded the Lipitor label to include data on the reduction in the incidence of stroke in patients with multiple risk factors, as shown in the Anglo-Scandinavian Cardiac Outcomes Trial (ASCOT) clinical trial. The ASCOT trial found that Lipitor reduced the relative risk of stroke by 26% compared to placebo. The study involved people with normal or borderline cholesterol and no prior history of heart disease with controlled high blood pressure and at least three other risk factors for heart disease, such as family history, age over 55, smoking, diabetes, and obesity. Patients with multiple risk factors, including diabetes, face a greater threat of heart attack and stroke. Reducing their risk of such cardiovascular events is extremely important.
	In March 2005, the Treating to New Targets (TNT) clinical study/ trial was presented at the American College of Cardiology meeting and was published simultaneously in the New England Journal of Medicine. TNT was the first large-scale study to show that patients with established coronary disease who reduce and maintain their cholesterol with Lipitor well below currently recommended levels experience significantly fewer heart attacks and strokes than those who lower their cholesterol to recommended levels. The results of TNT, the longest and largest study to date of Lipitor 80 mg efficacy and safety, were achieved safely and build upon the well-established safety profile of Lipitor’s highest dose. Over the course of the following eight months, a total of eight TNT sub-group analyses were presented at the scientific sessions of the American Heart Association and American Diabetes Association, further demonstrating the efficacy and safety of long-term therapy with Lipitor 80 mg in specific patient populations.
	The recently published IDEAL study, involving 8,888 patients with established coronary heart disease, assessed the efficacy of Lipitor 80 mg for secondary prevention of cardiovascular events compared with simvastatin (Zocor) 20/40 mg. On the primary endpoint, reduction in the risk of a major coronary event, Lipitor 80 mg achieved an 11% risk reduction compared with simvastatin 20/40 mg. This difference fell short of statistical significance, however (p=0.07 vs. significance at p=0.05). Lipitor achieved statistically significant improvements in major secondary endpoints compared with simvastatin, including a 13% reduction in major cardiovascular events and a 17% reduction in non-fatal heart attacks.
	In December 2005, the U.S. District Court for the District of Delaware determined that two U.S. patents covering atorvastatin, the active ingredient in Lipitor, are valid and infringed by the product of generic manufacturer Ranbaxy Laboratories Limited, thus protecting Lipitor’s exclusivity until June 2011. In addition, in October 2005, the United Kingdom’s High Court of Justice upheld the exclusivity of the basic patent covering atorvastatin. The ruling prevents Ranbaxy from introducing a generic version of atorvastatin in the U.K. until the patent expires in November 2011. Both the U.S. and the U.K. decisions have been appealed. (See Note 18. Note to Consolidated Financial Statements-Legal Proceedings and Contingencies.)
•	Norvasc is the world’s most-prescribed branded medicine for treating hypertension. It achieved a 5% growth in sales in 2005 compared to 2004, despite patent expirations in many European Union (E.U.) countries. Norvasc maintains exclusivity in many major markets globally, including the U.S., Japan, Canada and Australia.
	In January 2006, the U.S. District Court for the Northern District of Illinois upheld Pfizer’s U.S. patent covering amlodipine besylate, the active ingredient in Norvasc, which had been challenged by the generic manufacturer Apotex Inc. The decision is subject to possible appeal. (See Notes to Consolidated Financial Statements—Note 18, Legal Proceedings and Contingencies.)
•	Zoloft, which will lose U.S. market exclusivity in June 2006, is the most-prescribed antidepressant in the U.S. It is indicated for the treatment of major depressive disorder, panic disorder, obsessive-compulsive disorder (OCD) in adults and children, post-traumatic stress disorder (PTSD), premenstrual dysphoric disorder (PMDD) and social anxiety disorder (SAD). Zoloft is approved for acute and long-term use in all of these indications, with the exception of PMDD. It is the only approved agent for the long-term treatment of PTSD and SAD, an important differentiating feature as these disorders tend to be chronic.
	In the U.S., in February 2005, Pfizer implemented FDA instructions that require the makers of all currently marketed antidepressants, including tricyclic agents, monoamine oxidase (MAO) inhibitors, selective reuptake inhibitors such as Zoloft, selective norepinephrine reuptake inhibitors and atypical antidepressants, to include a black-box warning that antidepressants increased the risk of suicidal thinking and behavior in children and adolescents in pooled, short-term studies. In the nine completed clinical trials of Zoloft involving children and adolescents, which included studies of Zoloft in children diagnosed with depression, OCD, or both, no suicides occurred. The trials found no statistically significant differences between Zoloft-treated children and adolescents and placebo controls in their rates of suicide attempts or ideation.

14     2005 Financial Report

Financial Review
Pfizer Inc and Subsidiary Companies

•	Neurontin, for use in adjunctive therapy for epilepsy, is also approved in more than 60 markets for the treatment of a range of neuropathic pain conditions. Neurontin has also been approved for the management of post-herpetic neuralgia (PHN), a painful condition that affects many people in the aftermath of the viral infection commonly known as shingles. Neurontin was the first oral medication approved in the U.S. for the treatment of PHN. The introduction of generic versions of gabapentin in the U.S. in late 2004 caused a 77% reduction in Neurontin sales for 2005 as compared to 2004.
•	Geodon/Zeldox, a psychotropic agent, is a dopamine and serotonin receptor antagonist indicated for the treatment of schizophrenia and acute manic or mixed episodes associated with bipolar disorder. Available in both an oral capsule and rapid-acting intramuscular formulation, Geodon has been launched in 59 countries, where more than 7 million prescriptions have been written for more than 1.3 million patients worldwide. In the U.S., Geodon hit an all-time new prescription share weekly high of 6.1% during December 2005 and is now the second-fastest-growing atypical anti-psychotic medication. In 2005, total Geodon prescriptions grew 23% compared to 2004.
	The Clinical Antipsychotic Trials of Intervention Effectiveness schizophrenia study, supported by the National Institute of Mental Health and recently published in the New England Journal of Medicine, confirms that Geodon is an effective anti-psychotic and is less likely to worsen weight, lipids, and glucose metabolism than other agents. In fact, Geodon was associated with some improvement in these metabolic parameters. These findings are noteworthy because of the higher prevalence of metabolic issues among patients with schizophrenia and are consistent with previous Pfizer-sponsored clinical trials involving Geodon.
•	Lyrica was approved by the FDA in June 2005 for adjunctive therapy for adults with partial onset seizures. This latest indication builds on the earlier FDA approval of Lyrica for two of the most common forms of neuropathic pain—diabetic peripheral neuropathy, a chronic neurologic condition affecting nearly three million Americans, and post-herpetic neuralgia. Lyrica was launched in the U.S., Canada, and Italy in September 2005 and is now approved in more than 50 countries and is currently available in more than 30 markets. Market penetration has been rapid; after one and a half years of Lyrica sales, Germany and the U.K. posted Lyrica sales shares of 14.5% and 11.5%, respectively, in the anti-epileptic drug market, surpassing those of many established competitors in both countries. Since its September 2005 launch in the U.S., more than 500,000 prescriptions have been written for Lyrica as of December 23, 2005. Lyrica has already gained more than a 7% new-prescription share of the U.S. anti-epileptic market as of December 23, 2005, continuing its performance as one of Pfizer’s most successful pharmaceutical launches.
	Clinical evidence favorable to Lyrica continues to accumulate. The September 2005 edition of Epilepsia focused on the medication’s lack of interactions with other drugs. The December 2005 edition of Epilepsia published a study showing a significant seizure reduction in line with that seen in the three previously published pivotal epilepsy studies.
•	Celebrex and Bextra
	On April 7, 2005, the FDA announced a decision to require boxed warnings of potential cardiovascular risk for all COX-2 pain relievers and all prescription NSAIDs, including older non-specific drugs such as ibuprofen and naproxen. On July 29, 2005, Pfizer and the FDA finalized the label changes for Celebrex. The final U.S. label contains a boxed warning of potential serious cardiovascular and gastrointestinal risks for Celebrex that are consistent with warnings for all other prescription NSAIDs. The boxed warning provides that Celebrex is contraindicated for patients who recently have undergone coronary artery bypass graft surgery. The label recommends that Celebrex be prescribed at the lowest effective dose for the shortest duration consistent with individual patient treatment goals. Pfizer is continuing to conduct additional clinical studies evaluating the benefits and risks of Celebrex. Pfizer is supporting Cleveland Clinic’s 20,000 patient prospective study to definitively evaluate the relative safety of Celebrex and two older pain medications in patients with heart disease or at high risk of heart disease.
	In June 2005, the Committee for Human Medicinal Products (CHMP) concluded its COX-2 referral process and recommended that both Celebrex and Dynastat (parecoxib) remain available to patients. The European Medicines Evaluation Agency (EMEA) has required new labeling for all COX-2 drugs that includes a restriction on use for patients with established heart disease or stroke and additional warnings to physicians regarding use in patients with cardiovascular risk factors. This new labeling was implemented for all COX-2 medicines across the E.U. in July of 2005.
	The market for pain relievers has changed since the withdrawal of Vioxx in September 2004. Sales of Celebrex began to decline in late 2004 due to physician and patient concerns surrounding selective COX-2 inhibitors. Also contributing to the decline in sales of Celebrex was the voluntary suspension of DTC advertising in the U.S. beginning in December 2004. Pfizer plans to reintroduce branded advertising in 2006, in alignment with our new DTC advertising principles, highlighting Celebrex’s unique clinical profile and benefits.
	In September 2005, with full implementation of revised labeling, Pfizer began to focus renewed attention on Celebrex, with the goal of making the pain reliever available to increased numbers of patients. In July 2005, the FDA approved a sixth indication for Celebrex—ankylosing spondylitis—a form of spinal arthritis that affects more than one million people in the U.S.
	In April 2005, the FDA decided that while Bextra’s cardiovascular risk could not be differentiated from other NSAIDs, the additional, increased risk of rare but serious skin reactions associated with Bextra, already described in its label, warranted its withdrawal from the market. In 2004, we recorded $1.3 billion in revenue for Bextra. We respectfully disagree with the FDA’s position regarding the relative risk/benefit profile of Bextra. However, in deference to the regulatory agency’s view, we suspended sales of the medicine. In addition, at the request of European and other regulators, we suspended sales of Bextra in the E.U., Canada and many other markets around the world.
	In connection with the decision to suspend sales of Bextra in the U.S., the E.U., and certain other markets, we recorded certain charges totaling $1.2 billion ($769 million, net of tax) in 2005. These pre-tax charges included $1.1 billion related to the impairment of developed technology rights associated with Bextra and $5 million related to the write-off of machinery and equipment, both of which are included in Other (income)/deductions—net; $73 million in write-offs of inventory and exit costs, included in Cost of sales; $8 million related to

2005 Financial Report     15

Financial Review
Pfizer Inc and Subsidiary Companies

	the costs of administering the suspension of sales, included in Selling, informational and administrative expenses; and $212 million for an estimate of customer returns, primarily included against Revenues.
•	Zithromax, whose composition of matter patent in the U.S. expired in November 2005, remained the number-one prescribed oral antibiotic during 2005, despite the end of active sales promotion in July, when the U.S. sales force began promoting Zmax. During the fourth quarter of 2005, four generic versions of oral solid azithromycin were launched, including one authorized generic by Pfizer’s Greenstone subsidiary. The generics launched two weeks later than expected, which led to higher than expected sales of Zithromax in the fourth quarter of 2005. After seven weeks of generic availability, generic azithromycin constituted 90% of the total oral solid azithromycin adult prescription volume. Pfizer’s generic had captured 49% of total generic prescriptions.
•	Zmax, a single-dose, sustained-release form of azithromycin for adults, was introduced in the U.S. in August 2005 for treatment of mild-to-moderate acute bacterial sinusitis and community-acquired pneumonia in adult patients appropriate for oral therapy due to susceptible pathogens. Single-dose Zmax delivers higher azithromycin serum concentrations during the first 24 hours than Zithromax and assures complete compliance compared to multi-dose regimes, demonstrating a clear benefit of the new medication.
•	Diflucan is a systemic antifungal. The decrease in sales in 2005 compared to 2004 is mainly due to loss of exclusivity in the U.S. in July 2004.
•	Viagra remains the leading treatment for erectile dysfunction and one of the world’s most recognized pharmaceutical brands, with more than 60% of U.S. sales in its market of phosphodiesterase-5 (PDE5) inhibitors through November 2005.
	2005 Viagra sales declined 2% worldwide from 2004, reflecting aggressive competition, as well as negative growth for oral erectile dysfunction treatments in several major markets. We expect to see continued pressure on sales in the U.S. More than 35 states have enacted “Preferred Drug Lists” that have the potential to limit Pfizer sales to state Medicaid programs and Medicare coverage will end in 2007. Effective January 1, 2006, federal funds may not be used for reimbursement of erectile dysfunction medications by the Medicaid program.
	Pfizer has begun to introduce new branded advertising compliant with our DTC advertising guidelines to highlight the unique clinical profile for Viagra, as well as new unbranded advertising to address the needs of potential new patients who may be hesitant to try any medication for erectile dysfunction.
	On July 8, 2005, the FDA approved an update to the Viagra label to reflect rare post-marketing reports of non-arteritic anterior ischemic optic neuropathy (NAION) in patients taking PDE5 inhibitor medications. The updated label notes that in rare instances, men taking PDE5 inhibitors, including Viagra, reported a sudden decrease or loss of vision in one or both eyes and that it is not possible to determine whether these events are related directly to these medicines, to the patient’s underlying vascular risk factors, to a combination of these factors, or other factors. Most of the reported NAION cases occurred in Viagra users with underlying anatomic or vascular risk factors associated with the development of NAION.
•	Camptosar is a semisynthetic camptothecin derivative that works by inhibiting the topoisomerase 1 enzyme, which is involved in cancer cell replication. Camptosar is indicated as first-line therapy for metastatic colorectal cancer in combination with 5-fluorouracil and leucovorin. It is also indicated as second-line therapy for patients in whom metastatic colorectal cancer has recurred or progressed despite following initial fluorouracil-based therapy. Camptosar is for intravenous use only. Revenue growth of 64% in 2005 compared to 2004 was impacted in part by Pfizer’s acquisition of marketing rights to Campto/Camptosar in Europe and Asia (except Japan) in late 2004. Among current oncology medications, the National Comprehensive Cancer Network, an alliance of 19 of the world’s leading cancer centers, has issued guidelines recommending Camptosar as an option across all lines of treatment for advanced colorectal cancer.
•	Xalatan/Xalacom, a prostaglandin analogue used to lower the intraocular pressure associated with glaucoma and ocular hypertension, is the most-prescribed branded glaucoma medicine in the world. Clinical data showing its advantages in treating intra-ocular pressure compared with beta blockers should support the continued growth of this important medicine. Xalacom, the only fixed combination prostaglandin (Xalatan) and beta blocker, is available primarily in European markets. In 2005, Xalatan/Xalacom experienced sales growth of 12% compared to 2004.
•	Zyrtec provides strong, rapid and long-lasting relief for seasonal and year-round allergies and hives with once-daily dosing. Zyrtec continues to be the most-prescribed antihistamine in the U.S. in a challenging market. The increase in sales in 2005 compared to 2004 is attributable to stabilization in the prescription antihistamine market subsequent to the Rx to over-the-counter switch of loratadine as the majority of the managed care plans have completed their formulary tier changes in this category.
•	Caduet, a single pill combining Lipitor and Norvasc, has successfully completed the Mutual Recognition Procedure (MRP) in the E.U. and is the first multi-target combination product to receive a broad approval for prevention of cardiovascular events in the E.U. Caduet is now approved in the following E.U. countries: France, Spain, Portugal, Austria, Iceland, Luxembourg, Cyprus, the Czech Republic, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia. It is indicated for prevention of cardiovascular events in hypertensive patients with three concomitant cardiovascular risk factors, normal to mildly elevated cholesterol levels, without clinically evident coronary heart disease, where combined use of amlodipine and low dose atorvastatin is considered appropriate, and in accordance with current treatment guidelines. The Caduet Marketing Authorization application has been officially withdrawn from the MRP in Belgium, Denmark, Estonia, Ireland, Italy, Netherlands, Norway, the U.K., Sweden, Germany, Finland and Greece. These countries had reservations as to whether the benefit of Caduet, the first cardiovascular, multi-target, fixed combination product, had been demonstrated, based upon current European regulatory guidelines for fixed combination products. As a result, these countries did not mutually recognize the proposed label and Pfizer decided to withdraw the application from these countries. Pfizer will continue to explore regulatory approval opportunities for Caduet.

16     2005 Financial Report

Financial Review
Pfizer Inc and Subsidiary Companies

•	Alliance revenue reflects revenue primarily associated with our co-promotion of Aricept, Macugen, Rebif and Spiriva.
	—	Aricept, discovered and developed by our alliance partner Eisai Co., Ltd, is the world’s leading medicine to treat symptoms of Alzheimer’s disease.
	—	Macugen, discovered and developed by our alliance partner OSI Pharmaceuticals, Inc. (OSI), for the treatment of neovascular (wet) age-related macular degeneration (AMD).
	—	Rebif, discovered and developed by Serono S.A. (Serono), is used to treat symptoms of relapsing forms of multiple sclerosis. Pfizer co-promotes Rebif with Serono in the U.S.
	—	Spiriva, discovered and developed by our alliance partner Boehringer Ingelheim (BI), is used to treat chronic obstructive pulmonary disease, a chronic respiratory disorder that includes chronic bronchitis and emphysema.
Alliances allow us to co-promote or license these products for sale in certain countries. Under the co-promotion agreements, these products are marketed and promoted with our alliance partners. We provide funding through cash, staff and other resources to sell, market, promote and further develop these products.
Recent Product Launches
We continue to invest in clinical research for our in-line medicines, increasing the value of our medicines to patients and their healthcare providers. We are also reinvigorating our portfolio by launching a series of new medicines or existing medicines in new markets. The following highlights the achievements for several of these products in 2005:
•	Macugen, for treatment of AMD, the leading cause of blindness in people over 60, was launched in the U.S. in January 2005 and approved in the E.U. in 2006. While new competitors are expected to enter the market, Macugen has a strong foothold with more than 40,000 patients treated to date. Macugen’s favorable safety profile has been maintained for more than two years of clinical testing and marketing.
•	Revatio, for treatment of pulmonary arterial hypertension (PAH) was approved by the FDA in June 2005 and by the EMEA in November 2005.
•	Zmax, for treatment of mild-to-moderate acute bacterial sinusitis and community acquired pneumonia in adult patients appropriate for oral therapy due to susceptible pathogens was launched in the U.S. in August 2005.
•	Lyrica, for add-on therapy for adult epilepsy patients with partial onset seizures, as well as neuropathic pain due to diabetic neuropathy and post-herpetic neuralgia, was launched in the U.S. in September 2005 with more than 500,000 prescriptions written as of December 23, 2005. Lyrica has already gained more than a 7% new-prescription share of the U.S. anti-epileptic market as of December 23, 2005.

Consumer Healthcare
Revenues of our Consumer Healthcare business follow:

	YEAR ENDED DEC. 31,						% CHANGE
(MILLIONS OF DOLLARS)	2005		2004		2003		05/04	04/03
Consumer Healthcare	$	3,878	$	3,516	$	2,949	10	19

Our Consumer Healthcare business is one of the largest in the world.

On February 7, 2006, we announced that we are exploring strategic options for our Consumer Healthcare business, including a possible sale or spin-off of the business.

The increase in Consumer Healthcare revenues in 2005, as compared to 2004, was attributable to:

•	the 11% increase in 2005 in sales of Listerine mouthwash, which benefited from the U.S. launch of Listerine Whitening in April 2005, as well as continued strong performance in international markets;
•	the 13% growth from upper-respiratory products, 55% growth from Zantac, and 15% growth from tobacco dependence products;
•	inclusion of Purell sales in 2005 following the acquisition of the Purell brand in November 2004; and
•	the favorable impact of the weakening of the U.S. dollar relative to many foreign currencies.
The increase in Consumer Healthcare revenues in 2004, as compared to 2003, was attributable to:
•	the 22% increase in 2004 in sales of Listerine mouthwash, which benefited from the U.S. launch of Natural Citrus flavor in September 2003 and the launch of Listerine Advanced in September 2004;
•	the favorable impact of the weakening of the U.S. dollar relative to many foreign currencies; and
•	the inclusion of Pharmacia product revenues for a full year in 2004.

Animal Health

Revenues of our Animal Health business follow:

	YEAR ENDED DEC. 31,						% CHANGE
(MILLIONS OF DOLLARS)	2005		2004		2003		05/04	04/03
Livestock products	$	1,379	$	1,200	$	970	15	24
Companion animal products		827		753		628	10	20
Total Animal Health	$	2,206	$	1,953	$	1,598	13	22

Our Animal Health business is one of the largest in the world.

The increase in Animal Health revenues in 2005, as compared to 2004, was attributable to:

• in livestock, the continued performance of Excede (long acting anti-infective) in the U.S. and Draxxin (for treatment of respiratory disease in cattle and swine) in Europe and in the U.S., as well as Spectramast (antibiotic formulated to treat clinical mastitis), which was launched in the U.S. in May 2005;

• in companion animal, increased promotional activities throughout our markets resulted in Revolution (a parasiticide for dogs and cats) and Clavamox (an antibiotic for dogs and cats) growing at double-digit rates in 2005, and the launch of Simplicef (small animal anti-infective) in the U.S. in the fourth quarter of 2004; and

• the favorable impact of the weakening of the U.S. dollar relative to many foreign currencies.

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Financial Review
Pfizer Inc and Subsidiary Companies

The increase in Animal Health revenues in 2004, as compared to 2003, despite the impact on the cattle industry following the discovery of BSE (bovine spongiform encephalopathy or mad cow disease) in the U.S., was attributable to:
•	in livestock, the launch of a new claim for Bovishield (protects pregnant cows and fetal and nursing calves against viral diseases) in the U.S. during the fourth quarter of 2003; the launch of Draxxin in Europe during the first quarter of 2004; and the third quarter of 2004 launch of Excede in the U.S.;
•	in companion animal, Rimadyl (for relief of arthritis pain in dogs and for post-operative treatment), Revolution and Clavamox all grew at double-digit rates in 2004;
•	the favorable impact of the weakening of the U.S. dollar relative to many foreign currencies; and
•	the inclusion of Pharmacia product revenues, which are reflected in both product categories, for a full year in 2004.

Product Developments

We continue to invest in R&D to provide future sources of revenue through the development of new products, as well as through additional uses for existing in-line and alliance products. We have a broad and deep pipeline of medicines in development. We have 10 new products (Lyrica, Macugen, Revatio, Zmax, Champix, Sutent, Eraxis, Exubera, indiplon and Zeven) that recently have been approved or are undergoing regulatory review in the U.S. and/or the E.U. We launched, or intend to launch, these new products in markets once regulatory approvals are received. However, there are no assurances as to when, or if, we will receive regulatory approval for these or any of our other products in development. Significant regulatory actions by, and filings pending with, the FDA and other regulatory authorities follow:

Recent FDA Approvals
PRODUCT	INDICATION	DATE APPROVED
Eraxis	Treatment of candidemia and invasive candidiasis	February 2006
	Treatment of esophageal candidiasis	February 2006
Exubera	Inhaled form of insulin for use in adults with type 1 and type 2 diabetes	January 2006
Sutent	Treatment of metastatic renal cell carcinoma (mRCC) and malignant gastrointestinal stromal tumors (GIST)	January 2006
Aromasin	Treatment of early breast cancer in post-menopausal women	October 2005
Lipitor	Reduce the risk of stroke and myocardial infarction in patients with type 2 diabetes	September 2005
Norvasc	For treatment of angiographically documented coronary artery disease	September 2005
Celebrex	For the relief of the signs and symptoms associated with ankylosing spondylitis	July 2005
Lyrica	Add-on therapy for adult epilepsy patients with partial onset seizures	June 2005
Revatio	Oral treatment for adult PAH	June 2005
Zmax	Single dose version of Zithromax for acute bacterial sinusitis and community-acquired pneumonia	June 2005
Zyvox	For the treatment of bacterial infections in pediatric patients	May 2005
Depo-SubQ Provera	Subcutaneous formulations to treat pain associated with endometriosis	March 2005
Ellence	Adjuvant long-term cancer treatment	March 2005

Pending U.S. New Drug Applications (NDAs) and Supplemental Filings
	PRODUCT	INDICATION	DATE SUBMITTED
	Champix	Nicotine-receptor partial agonist for smoking cessation	November 2005
	Aricept	Treatment of severe Alzheimer’s disease	August 2005
	Genotropin	Treatment of short stature and growth problems resulting from Turner’s syndrome	June 2005
	Vfend	Pediatric filing	June 2005
	Indiplon	Modified-release tablets for treatment of multiple aspects of insomnia	May 2005
		Immediate-release capsules for treatment of multiple aspects of insomnia	April 2005
	Zeven	Treatment of Gram-positive bacterial infections	December 2004
	Norvasc	Reduction of cardiovascular risk, including risk of coronary heart disease, myocardial infarction, cardiovascular procedures and strokes	August 2004
	Fragmin	Use in oncology patients to reduce cardiac toxicity associated with chemotherapy	March 2004

In September 2005, we received “not-approvable” letters from the FDA for Oporia for the prevention of post-menopausal osteoporosis, and Dynastat (parecoxib), an injectable prodrug for valdecoxib for the treatment of acute pain. In January 2006, we received a “not-approvable” letter from the FDA for Oporia for the treatment of vaginal atrophy. Pfizer is currently in discussions with the FDA regarding these “not-approvable” letters and we continue to develop both of these compounds.

On September 14, 2005, Pfizer completed the acquisition of Vicuron. Zeven (dalbavancin), one of the key product candidates acquired in the Vicuron acquisition, is a new injectable antibiotic to treat Gram-positive infections. The FDA has designated as approvable the NDA for Zeven. We anticipate a rapid and successful resolution of outstanding issues to allow final NDA approval in the coming months. Eraxis (anidulafungin), also acquired in the Vicuron acquisition, was approved by the FDA in February 2006. The addition of these two medications will broaden Pfizer’s existing portfolio of anti-infectives, where the Company has a long history of providing patients and physicians with lifesaving medicines.

An NDA for Champix (varenicline), a nicotine-receptor partial agonist for smoking cessation was submitted to the FDA in November 2005. In December 2005, the FDA granted Champix priority-review status.

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	Other Regulatory Approvals and Filings:
PRODUCT		DESCRIPTION OF EVENT	DATE APPROVED	DATE SUBMITTED
	Exubera	Approved in the E.U. as an inhaled form of insulin for use in adults with type 1 and type 2 diabetes	January 2006	—
	Macugen	Approved in the E.U. for AMD	January 2006	—
		Approval in Canada and Brazil for AMD	May 2005	—
		Application submitted in Switzerland for AMD	—	January 2005
		Application submitted in Australia for AMD	—	September 2004
	Zoloft	Approval in Japan for treatment of depression	January 2006	—
	Detrol/Detrol LA	Approval in Japan for treatment of overactive bladder	January 2006	—
	Revatio	Approval in the E.U. for treating PAH	November 2005	—
		Application submitted in Canada for treating PAH	—	December 2004
	Caduet	Approval in Canada for cardiovascular event prevention	November 2005	—
		Approval in certain E.U. countries for cardiovascular event prevention	July 2005	—
	Champix	Application submitted in the E.U. for smoking cessation	—	November 2005
	Sutent	Application submitted in Canada for mRCC and GIST	—	November 2005
		Application submitted in the E.U. for mRCC and GIST	—	August 2005
	Geodon/Zeldox	Approval in the E.U. for treating manic or mixed episodes of moderate severity in bipolar disorder	October 2005	—
	Somavert	Approval in Canada for Acromegaly	October 2005	—
		Application submitted in Japan for Acromegaly	—	May 2005
	Aromasin	Approval in the E.U. for treating early breast cancer in post-menopausal women	August 2005	—
	Aricept	Approval in Canada for fast dissolving tablet	July 2005	—
	Lyrica	Approval in Canada for neuropathic pain	June 2005	—
		Application submitted in the E.U. for treatment of generalized anxiety disorder (GAD) in adults	—	June 2005
	Fragmin	Approval in the E.U. for treatment of deep vein thrombosis in cancer patients	April 2005	—
	Vfend	Approval in Japan for treatment of aspergillosis	April 2005	—
		Approval was granted in the E.U. for treatment of serious, invasive, fluconazole-resistant candida infections and first-line treatment of candidemia in non-neutropenic patients.	January 2005	—
	Zmax	Application submitted in the E.U. for sustained release	—	October 2004
	Genotropin	Application submitted in Japan for treatment of short stature and growth problems	—	July 2004
	Neurontin	Application submitted in Japan for epilepsy	—	April 2004

In January 2006, the CHMP, the scientific committee of the EMEA, finalized its scientific assessment and issued a positive opinion recommending that marketing authorization be granted by the European Commission for Lyrica for the treatment of GAD in adults. The approval requires final authorization from the European Commission.

Ongoing or planned clinical trials for additional uses and dosage forms for our products include:

PRODUCT	INDICATION
Celebrex	Sporadic adenomatous polyposis — a precancerous condition caused by growths (polyps) in the intestines
Camptosar IV	Adjuvant colorectal cancer
	Gastric cancer
Geodon/Zeldox	Bipolar relapse prevention
Macugen	Diabetic macular edema
Xalatan (new delivery device)	Ocular hypertension
Zyvox	Catheter-related infections
	Bone and joint infections

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Drug candidates in late-stage development include maraviroc (UK-427,857), a CCR-5 receptor antagonist for HIV; torcetrapib/atorvastatin, a combination CETP inhibitor/statin for heart disease; asenapine, for schizophrenia and bipolar disorder, under co-development with Akzo Nobel’s Organon healthcare unit; Zithromax/chloroquine for treatment of malaria; PF-3512676, a toll-like receptor 9 agonist for non-small cell lung cancer developed in partnership with Coley Pharmaceutical Group, Inc. (Coley); and ticilimumab (CP-675,206), an anti-CTLA4 monoclonal antibody for melanoma. The FDA has granted fast-track designation for maraviroc’s clinical development program.

Torcetrapib/atorvastatin, which combines the new chemical entity torcetrapib (a CETP inhibitor discovered by Pfizer that raises HDL-cholesterol) with atorvastatin (Lipitor), is continuing in global Phase 3 clinical trials. This comprehensive 12,000-subject development program includes three comparative atherosclerotic imaging trials (a coronary intravascular ultrasound study and two carotid ultrasound studies), as well as a full range of blood-lipid efficacy studies comparing torcetrapib/atorvastatin to Lipitor, other statins and fibrates. In addition to these Phase 3 studies, the development program includes a definitive mortality and morbidity trial that is enrolling 13,000 patients.

Despite effective treatments, cardiovascular disease remains the number one killer worldwide with a residual relative risk of 60% to 70% after treatment with statins. Therefore, the primary objective of the torcetrapib/atorvastatin development program is to provide clear evidence that substantially raising HDL-cholesterol and further lowering LDL-cholesterol can reduce cardiovascular risk beyond what can be achieved with current treatments. Torcetrapib will be developed with atorvastatin in order to rigorously test this hypothesis and the new CETP inhibition mechanism of action. This development program represents a major commitment by Pfizer to significantly advance the understanding of lipids and atherosclerosis in order to provide an important new tool for patients and prescribers in preventing and treating the global burden of cardiovascular disease.

On November 21, 2005, Pfizer announced an agreement to purchase development, manufacturing and marketing rights of drugs to treat chronic inflammatory conditions from Incyte Corporation (Incyte). Milestone payments of up to $803 million could potentially be made to Incyte. Under the collaborative research and license agreement, Pfizer will receive exclusive rights to Incyte’s portfolio of CCR2 antagonist compounds. The agreement is subject to regulatory approval.

In May 2005, we announced an agreement to collaborate with Renovis Pharmaceuticals, Inc. (Renovis) for the research and development of antagonists of vanilloid receptor 1 for the treatment of neuropathic and other types of chronic pain. Under the terms of the agreement, we expensed a payment of $10 million made in the second quarter of 2005, which was included in Research and development expenses. Additional milestone payments of $175 million could potentially be made to Renovis based upon clinical trials, regulatory filing and approvals, as well as the attainment of certain agreed upon sales levels.

In March 2005, we announced a license agreement with Coley for ProMune, ProMune combination products and ProMune vaccine products for the treatment, control and prevention of cancer. Under the terms of the agreement, we expensed a payment of $50 million made in the first quarter of 2005, which was included in Research and development expenses, and purchased $10 million of Coley’s common stock. Additional milestone payments of $455 million could potentially be made to Coley based upon clinical trials, regulatory approvals and the launch of a ProMune product by Pfizer.

In January 2005, we entered into a collaborative research and license agreement with Rigel Pharmaceuticals, Inc. (Rigel) to identify, develop and commercialize Syk tyrosine kinase inhibitors for the use in diagnosis, treatment and prevention of certain allergy and respiratory conditions. Under the terms of the agreement we expensed a payment of $10 million made in the first quarter of 2005, which was included in Research and development expenses, and purchased $5 million of Rigel’s common stock. Additional milestone payments of $130 million could potentially be made to Rigel based upon development stages, clinical trials, regulatory approvals and the successful commercialization of a product.

In October 2003, we announced a global agreement to collaborate with Organon for asenapine, a treatment for schizophrenia and bipolar disorder. Under the terms of the agreement, we expensed a payment of $100 million made in the fourth quarter of 2003, which was included in Research and development expenses. Additional milestone payments of $270 million could potentially be made to Organon based upon regulatory approvals and launch of asenapine in the U.S., E.U., and Japan, as well as the attainment of certain agreed-upon sales levels.

In December 2002, we announced an agreement with Neurocrine for indiplon, for the treatment of insomnia. Under the terms of the agreement, we expensed a payment of $100 million made in the first quarter of 2003, which was included in Research and development expenses. Additional milestone payments of $300 million could potentially be made to Neurocrine based on worldwide regulatory submissions and approvals. In 2005 and 2004, we expensed $70 million and $21 million in milestone payments (of the $300 million), which were included in Research and development expenses.

Also in December 2002, we announced an agreement with Eyetech Pharmaceuticals, Inc. (Eyetech) for Macugen (pegaptanib sodium), a treatment for AMD, which was approved by the FDA in December 2004 and by the E.U. in January 2006, and diabetic macular edema (DME), both leading causes of blindness. Eyetech was subsequently acquired by OSI Pharmaceuticals, Inc. Under the terms of the agreement we expensed a payment of $100 million in the first quarter of 2003, which was included in Research and development expenses. Additional milestone payments up to $195.5 million could potentially be made to OSI based on worldwide regulatory submissions and approvals. OSI also has the potential to receive an additional $450 million in milestone payments, which are contingent upon successful commercialization of Macugen and attainment of agreed-upon sales levels. In 2004, based on certain regulatory submissions and approvals, we expensed $16 million in milestone payments, which were included in Research and development expenses and in connection with the approval, we capitalized as an intangible

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asset, a $90 million milestone payment (all amounts were included in the $195.5 million).

Additional product-related programs are in various stages of discovery and development.

Costs and Expenses

Cost of Sales

Cost of sales increased 13% in 2005 and decreased 21% in 2004 while revenues decreased 2% in 2005 and increased 17% in 2004.

Cost of sales in 2005 compared to 2004 increased as a result of:

• unfavorable geographic, segment and product mix, and adverse changes in production volume, among other factors, which reflect the loss of U.S. exclusivity for certain of our pharmaceutical products and the uncertainty regarding the selective COX-2 inhibitors;

• $124 million related to implementation costs of our new AtS productivity initiative; and

• $73 million in write-offs of inventory and exit costs related to suspension of sales and marketing of Bextra.

Cost of sales in 2004 (which includes legacy Pharmacia’s product portfolio for the entire period) compared to 2003 decreased as a result of:

•	impact of purchase accounting in 2003, which reflected the incremental charge of $2.7 billion from the sale of inventory acquired from Pharmacia, adjusted to fair value;
•	merger-related cost savings; and
•	favorable product mix,
partially offset by:
•	higher product costs attributable to legacy Pharmacia products; and
•	the unfavorable impact of the weakening of the U.S. dollar relative to many foreign currencies.

Selling, Informational and Administrative (SI&A) Expenses

SI&A expenses increased 1% in 2005 which reflects the unfavorable impact of foreign exchange and $156 million in AtS expenses, partially offset by an increase in merger-related synergies and the impact of the Company’s AtS productivity initiative. Marketing expenses of our pharmaceutical products decreased compared to 2004, due primarily to lower spending on products which have lost exclusivity and the withdrawal of Bextra.

In 2004, SI&A expenses increased 12%, mainly due to the full year inclusion of Pharmacia SI&A-related activities, partially offset by cost synergies from Pharmacia-related restructuring activities. Marketing expenses of our pharmaceutical products included costs in 2004 primarily for supporting new product introductions such as Caduet, Lyrica, Inspra and Somavert and increased promotion due to new product competition largely offset by the realization of merger synergies.

Research and Development (R&D) Expenses

R&D expenses decreased 3% in 2005 and increased 3% in 2004. The decline in 2005 reflects the initial benefits associated with the AtS productivity initiative, partially offset by increased portfolio support and $50 million in AtS expenses. We have consolidated our infrastructure support systems into global centers of excellence that now support the entire R&D enterprise. More importantly, the mix of expenses has changed over the past three years. For example, while our capital expenditures and information technology expenses were approximately one-third of our budget in 2002, our 2006 budget will be less than 17% of the R&D budget. As a result, we are taking funds previously used to support R&D and utilizing them in our development of compounds. In 2004, year-over-year growth of R&D expenses is attributable to the inclusion of Pharmacia-related activities and increased support of the advanced-stage development portfolio, partially offset by cost synergies from Pharmacia-related restructuring activities.

R&D expense also includes payments for intellectual property rights of $156 million in 2005, $160 million in 2004 and $380 million in 2003. Additionally, see our discussion in the “Product Developments” section of this Financial Review.

Merger-Related In-Process Research and Development Charges

The estimated value of merger-related IPR&D is expensed at the acquisition date. In 2005, we expensed $1.7 billion of IPR&D, primarily related to our acquisition of Vicuron on September 14, 2005 ($1.4 billion) and our acquisition of Idun on April 12, 2005 ($250 million). In 2004, we expensed $1.1 billion of IPR&D, primarily related to our acquisition of Esperion ($920 million). In 2003, we expensed $5.1 billion of IPR&D related to our acquisition of Pharmacia.

Merger-Related Costs

We incurred the following merger-related costs, primarily in connection with our acquisition of Pharmacia which was completed on April 16, 2003:

	YEAR ENDED DEC. 31,
(MILLIONS OF DOLLARS)	2005		2004			2003
Integration costs(a):
Pharmacia	$	538	$	475		$	838
Other		12		21			33
Restructuring costs(a):
Pharmacia		390		704			177
Other		3		(7	)		10
Total merger-related costs—expensed	$	943	$	1,193		$	1,058
Total merger-related costs—capitalized	$	—	$	581		$	1,578

^(a) Included in Restructuring charges and merger-related costs.

Integration costs represent external, incremental costs directly related to an acquisition, including expenditures for consulting and systems integration.

In connection with the acquisition of Pharmacia, Pfizer management approved plans to restructure and integrate the operations of both legacy Pfizer and legacy Pharmacia to combine

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operations, eliminate duplicative facilities and reduce costs. As of December 31, 2005, the restructuring of our operations as a result of our acquisition of Pharmacia is substantially complete. Restructuring charges included severance, costs of vacating duplicative facilities, contract termination and other exit costs. Total merger-related expenditures (income statement and balance sheet) incurred during 2002-2005 to achieve these synergies were $5.4 billion, on a pre-tax basis.

The restructuring of our operations resulting from our merger with Warner-Lambert was substantially complete as of December 31, 2003. Accordingly, we did not incur significant integration or restructuring charges in 2005 and 2004 directly related to our merger with Warner-Lambert.

Cost synergies from the Pharmacia acquisition were $4.2 billion in 2005, $3.6 billion in 2004 and $1.3 billion in 2003. Synergies come from a broad range of sources, including a streamlined organization, reduced operating expenses, and procurement savings.

Restructuring Costs Associated with Legacy Pharmacia — Capitalized

We recorded, through April 15, 2004, restructuring costs associated primarily with employee terminations and exiting certain activities of legacy Pharmacia. These costs were recognized as liabilities assumed in the purchase business combination. Accordingly, these costs were considered part of the purchase price of Pharmacia and have been recorded as an increase to goodwill (see Notes to Consolidated Financial Statements—Note 2A, Acquisitions: Pharmacia Corporation). At December 31, 2005, liabilities for restructuring costs incurred but not paid totaled $132 million and are included in Other current liabilities. Restructuring charges after April 15, 2004 associated with legacy Pharmacia are charged to the results of operations. Changes to previous estimates of restructuring charges that were included as part of the purchase price allocation of Pharmacia are recorded as a reduction of goodwill or as an expense to operations, as appropriate.

The majority of the restructuring costs related to employee terminations (see Notes to Consolidated Financial Statements—Note 5B, Merger-Related Costs: Restructuring Costs—Pharmacia). Through December 31, 2005, employee termination costs totaling $1.5 billion represent the approved reduction of the legacy Pharmacia work force by 12,768 employees mainly in corporate, manufacturing, distribution, sales and research. We notified affected individuals and 12,589 employees were terminated as of December 31, 2005. Employee termination costs include accrued severance benefits and costs associated with change-in-control provisions of certain Pharmacia employment contracts.

Restructuring Costs Associated with Legacy Pfizer and Legacy Pharmacia — Expensed

Through December 31, 2005, we have recorded, in total, $1.3 billion of restructuring costs ($390 million recorded in 2005). These restructuring costs were associated with exiting certain activities of legacy Pfizer and legacy Pharmacia (from April 16, 2004), including severance, costs of vacating duplicative facilities, contract termination and other exit costs. At December 31, 2005, liabilities for restructuring costs incurred but not paid totaled $119 million and are included in Other current liabilities.

The majority of the restructuring costs related to employee terminations (see Notes to Consolidated Financial Statements—Note 5B, Merger-Related Costs: Restructuring Costs—Pharmacia). Through December 31, 2005, employee termination costs totaling $625 million ($108 million recorded in 2005) represent the approved reduction of the legacy Pfizer and legacy Pharmacia (from April 16, 2004) work force by 4,476 employees, mainly in corporate, manufacturing, distribution, sales and research. We notified affected individuals and 4,082 employees were terminated as of December 31, 2005. Employee termination costs include accrued severance benefits and costs associated with change-in-control provisions of certain Pharmacia employment contracts.

Adapting to Scale Initiative

In connection with the AtS productivity initiative, Pfizer management has performed a comprehensive review of our processes, organizations, systems and decision-making procedures, in a company-wide effort to improve performance and efficiency. We expect the costs associated with this multi-year effort to continue through 2008 and to total approximately $4 billion to $5 billion, on a pre-tax basis. The actions associated with the AtS productivity initiative will include restructuring charges, such as asset impairments, exit costs and severance costs (including any related impacts to our benefit plans, including settlements and curtailments) and associated implementation costs, such as accelerated depreciation charges, primarily associated with plant network optimization efforts, and expenses associated with system and process standardization and the expansion of shared services.

We incurred the following costs in connection with our AtS initiative, which was launched in the first quarter of 2005:

	YEAR ENDED
	DEC. 31,
(MILLIONS OF DOLLARS)	2005
Implementation costs(a)		$	330
Restructuring charges(b)			450
Total AtS costs		$	780

(a)	Included in Cost of sales ($124 million), Selling, informational and administrative expenses ($156 million), and Research and development expenses ($50 million).
(b)	Included in Restructuring charges and merger-related costs.

Through December 31, 2005, the restructuring charges primarily relate to employee termination costs at our manufacturing facilities in North America and in our U.S. marketing and worldwide research and development operations, and the implementation costs primarily relate to system and process standardization, as well as the expansion of shared services.

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The components of restructuring charges associated with AtS follow:

				UTILIZATION			ACCRUAL
	COSTS			THROUGH			AS OF
	INCURRED			DEC. 31,			DEC. 31,
(MILLIONS OF DOLLARS)	2005			2005			2005(a)
Employee termination costs		$	305		$	166		$	139
Asset impairments			131			131			—
Other			14			3			11
		$	450		$	300		$	150

^(a) Included in Other current liabilities.

Through December 31, 2005, Employee termination costs represent the approved reduction of the workforce by 2,602 employees, mainly in manufacturing, sales and research. We notified affected individuals and 2,425 employees were terminated as of December 31, 2005. Employee termination costs are recorded as incurred and include accrued severance benefits, pension and postretirement benefits. Asset impairments primarily include charges to write off inventory and write down property, plant and equipment. Other primarily includes costs to exit certain activities.

Other (Income)/Deductions — Net

In 2005, Pfizer recorded impairment charges of $1.1 billion related to the developed technology rights for Bextra, a selective COX-2 inhibitor, and $5 million related to the write-off of machinery and equipment. In 2004, we recorded an impairment charge of $691 million related to the Depo-Provera brand and a litigation-related charge of $369 million related to the resolution of claims against Quigley Company, Inc., a wholly-owned subsidiary of Pfizer. In 2003, we recorded charges totaling $1.4 billion to cover the resolution of two legacy Warner-Lambert legal matters relating to Rezulin personal injury claims and a government investigation of marketing practices relating to Neurontin. See also Notes to Consolidated Financial Statements—Note 6, Other (Income)/Deductions—Net.

Taxes on Income

In 2005, we recorded an income tax charge of $1.7 billion, included in Provision for taxes on income, in connection with our decision to repatriate approximately $37 billion of foreign earnings in accordance with the American Jobs Creation Act of 2004 (the Jobs Act). The Jobs Act created a temporary incentive for U.S. corporations to repatriate accumulated income earned abroad by providing an 85% dividend-received deduction for certain dividends from controlled foreign corporations in 2005. In addition, during 2005, we recorded a tax benefit of $586 million, primarily related to the resolution of certain tax positions.

Our overall effective tax rate for continuing operations was 29.7% in 2005, 19.0% in 2004 and 49.7% in 2003. The higher tax rate in 2005 compared to 2004 was attributable to the previously mentioned tax charge associated with the repatriation of foreign earnings and higher non-deductible charges for merger-related IPR&D, primarily relating to our acquisition of Vicuron and Idun in 2005, partially offset by the tax benefit of $586 million related to the resolution of certain tax positions. The lower tax rate in 2004 compared to 2003 was attributable to decreased non-deductible merger-related IPR&D charges.

On January 25, 2006, the Company was notified by the IRS Appeals Division that a resolution had been reached on one matter that we were in the process of appealing related to the tax deductibility of a breakup fee paid by the Warner-Lambert Company in 2000. As a result, in the first quarter of 2006, we will record favorable adjustments of approximately $450 million.

On January 23, 2006, the IRS issued final regulations on Statutory Mergers and Consolidations, which impact certain prior period transactions. The regulations could result in benefits ranging from approximately $75 million to $214 million in the first quarter of 2006 subject to certain management decisions.

Discontinued Operations

See our discussion in the “Acquisitions and Dispositions” section of this Financial Review for a complete discussion of dispositions. The following amounts have been segregated from continuing operations and reported as discontinued operations, and in 2003, primarily related to the disposition of the Adams confectionery products business and the Schick-Wilkinson Sword business:

	YEAR ENDED DEC. 31,
(MILLIONS OF DOLLARS)	2005			2004			2003
Revenues	$	55		$	405		$	1,214
Pre-tax (loss)/income		(33	)		(39	)		43
(Benefit) from/provision for taxes(a)		(2	)		(17	)		17
(Loss)/income from discontinued operations—net of tax		(31	)		(22	)		26
Pre-tax gains on sales of discontinued operations		77			75			3,885
Provision for taxes on gains(b)		30			24			1,600
Gains on sales of discontinued operations—net of tax		47			51			2,285
Discontinued operations—net of tax	$	16		$	29		$	2,311

(a)	Includes a deferred tax expense of $23 million in 2005, a deferred tax benefit of $15 million in 2004 and a deferred tax expense of $8 million in 2003.
(b)	Includes a deferred tax expense of nil in 2005 and 2004, and $744 million in 2003.

Adjusted Income

General Description of Adjusted Income Measure

Adjusted income is an alternative view of performance used by management and we believe that investors’ understanding of our performance is enhanced by disclosing this performance measure. The Company reports Adjusted income in order to portray the results of our major operations—the discovery, development, manufacture, marketing and sale of prescription medicines for humans and animals, as well as our over-the-counter products—prior to considering certain income statement elements. We have defined Adjusted income as Net income before significant impact of purchase accounting for acquisitions, merger-related costs, discontinued operations, the cumulative effect of a change in accounting principles and certain significant items. The Adjusted income measure is not, and should not be viewed as, a substitute for U.S. GAAP Net income.

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The Adjusted income measure is an important internal measurement for Pfizer. We measure the performance of the overall Company on this basis. The following are examples of how the Adjusted income measure is utilized.

• Senior management receives a monthly analysis of the operating results of our Company that is prepared on an Adjusted income basis;

• The annual budgets of our Company are prepared on an Adjusted income basis; and

• Annual and long-term compensation, including annual cash bonuses, merit-based salary adjustments and stock options, for various levels of management, is based on financial measures that include Adjusted income. The Adjusted income measure currently represents a significant portion of target objectives that are utilized to determine the annual compensation for various levels of management, although the actual weighting of the objective may vary by level of management and job responsibility and may be considered in the determination of certain long-term compensation plans. The portion of senior management’s bonus, merit-based salary increase and stock option awards based on the Adjusted income measure ranges from 10% to 30%.

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

We also recognize that, as an internal measure of performance, the Adjusted income measure has limitations and we do not restrict our performance-management process solely to this metric. A limitation of the Adjusted income measure is that it provides a view of our Company’s operations without including all events during a period such as the effects of an acquisition, merger-related costs or amortization of purchased intangibles and does not provide a comparable view of our performance to other companies in the pharmaceutical industry. We also use other specifically tailored tools designed to ensure the highest levels of performance in our Company. For example, our R&D organization has productivity targets, upon which its effectiveness is measured. In addition, for senior levels of management, a portion of their long-term compensation is based on U.S. GAAP Net income.

Purchase Accounting Adjustments

Adjusted income is calculated prior to considering certain significant purchase-accounting impacts, such as those related to our acquisitions of Pharmacia, Vicuron and Esperion as well as net-asset acquisitions. These impacts can include charges for purchased IPR&D, the incremental charge to cost of sales from the sale of acquired inventory that was written up to fair value and the incremental charges related to the amortization of finite-lived intangible assets for the increase to fair value. Therefore, the Adjusted income measure includes the revenues earned upon the sale of the acquired products without considering the aforementioned significant charges.

Certain of the purchase-accounting adjustments associated with a business combination, such as the amortization of intangibles acquired in connection with our acquisition of Pharmacia, can occur for up to 40 years (these assets have a weighted-average useful life of approximately nine years), but this presentation provides an alternative view of our performance that is used by management to internally assess business performance. We believe the elimination of amortization attributable to acquired intangible assets provides management and investors an alternative view of our business results by trying to provide a degree of parity to internally developed intangible assets for which research and development costs have been previously expensed.

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

Merger-Related Costs

Adjusted income is calculated prior to considering integration and restructuring costs associated with business combinations because these costs are unique to each transaction and represent costs that were incurred to restructure and integrate two businesses as a result of the acquisition decision. For additional clarity, only restructuring and integration activities that are associated with a purchase business combination or a net-asset acquisition are included in merger-related costs. We have not factored in the impacts of synergies that would have resulted had these costs not been incurred.

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

The integration and restructuring costs associated with a business combination may occur over several years with the more significant impacts ending within three years of the transaction. Because of the need for certain external approvals for some actions, the span of time needed to achieve certain restructuring and integration activities can be lengthy. For example, due to the

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highly regulated nature of the pharmaceutical business, the closure of excess facilities can take several years as all manufacturing changes are subject to extensive validation and testing and must be approved by the FDA. In other situations, we may be required by local laws to obtain approvals prior to terminating certain employees. This approval process can delay the termination action.

Discontinued Operations

Adjusted income is calculated prior to considering gains or losses on the sale of businesses and product lines included in discontinued operations as well as the related results of operations. We believe that this presentation is meaningful to investors because, while we review our businesses and product lines periodically for strategic fit with our operations, we do not build or run our businesses with an intent to sell them.

Cumulative Effect of a Change in Accounting Principles

Adjusted income is calculated prior to considering cumulative effect of a change in accounting principles. The cumulative effect of a change in accounting principles is generally one time in nature and not expected to occur as part of our normal business on a regular basis.

Certain Significant Items

Adjusted income is calculated prior to considering certain significant items. Certain significant items represent substantive, unusual items that are evaluated on an individual basis. Such evaluation considers both the quantitative and the qualitative aspect of their unusual nature. Unusual, in this context, may represent items that are not part of our ongoing business; items that, either as a result of their nature or size, we would not expect to occur as part of our normal business on a regular basis; items that would be non-recurring; or items that relate to products we no longer sell. While not all-inclusive, examples of items that could be included as certain significant items would be a major non-acquisition-related restructuring charge and associated implementation costs for a program which is specific in nature with a defined term, such as those related to our AtS initiative; costs associated with a significant recall of one of our products; charges related to sales or disposals of products or facilities that do not qualify as discontinued operations as defined by U.S. GAAP; certain intangible asset impairments; adjustments related to the resolution of certain tax positions; the impact of adopting certain significant, event-driven tax legislation, such as charges attributable to the repatriation of foreign earnings in accordance with the Jobs Act; or possible charges related to legal matters, such as certain of those discussed in Legal Proceedings in our Form 10-K and in Part II: Other Information; Item 1, Legal Proceedings included in our Form 10-Q filings. Normal, ongoing defense costs of the Company or settlements and accruals on legal matters made in the normal course of our business would not be considered a certain significant item.

Reconciliation

A reconciliation between Net income, as reported under U.S. GAAP, and Adjusted income follows:

	YEAR ENDED DEC. 31,									% CHANGE
(MILLIONS OF DOLLARS)		2005			2004			2003			05/04		04/03
Reported net income	$	8,085		$	11,361		$	3,910			(29	)	191
Purchase accounting adjustments—net of tax		3,973			3,389			8,666			17		(61	)
Merger-related costs—net of tax		624			786			659			(21	)	19
Discontinued operations—net of tax		(16	)		(29	)		(2,311	)		(45	)	(99	)
Cumulative effect of a change in accounting principles—net of tax		25			—			30			*		*
Certain significant items—net of tax		2,310			629			1,358			268		(54	)
Adjusted income	$	15,001		$	16,136		$	12,312			(7	)	31

* Calculation not meaningful.

2005 Financial Report     25

Financial Review

Pfizer Inc and Subsidiary Companies

Adjusted income as shown above excludes the following items:
	YEAR ENDED DEC. 31,
(MILLIONS OF DOLLARS)		2005			2004			2003
Purchase accounting adjustments, pre-tax:
In-process research and development charges(a)	$	1,652		$	1,071		$	5,052
Intangible amortization and other(b)		3,295			3,285			2,336
Sale of acquired inventory written up to fair value(c)		4			40			2,747
Total purchase accounting adjustments, pre-tax		4,951			4,396			10,135
Income taxes		(978	)		(1,007	)		(1,469	)
Total purchase accounting adjustments—net of tax		3,973			3,389			8,666
Merger-related costs, pre-tax:
Integration costs(d)		550			496			871
Restructuring costs(d)		393			697			187
Total merger-related costs, pre-tax		943			1,193			1,058
Income taxes		(319	)		(407	)		(399	)
Total merger-related costs—net of tax		624			786			659
Discontinued operations, pre-tax:
Loss/(income) from discontinued operations(e)		33			39			(43	)
Gains on sales of discontinued operations(e)		(77	)		(75	)		(3,885	)
Total discontinued operations, pre-tax		(44	)		(36	)		(3,928	)
Income taxes		28			7			1,617
Total discontinued operations—net of tax		(16	)		(29	)		(2,311	)
Cumulative effect of a change in accounting principles—net of tax		25			—			30
Certain significant items, pre-tax:
Asset impairment charges(f)		1,240			702			—
Restructuring charges—Adapting to Scale(d)		450			—			—
Implementation costs—Adapting to Scale(g)		330			—			—
Gain on disposals of investments(h)		(134	)		—			—
Litigation-related charges(h)		—			369			1,402
Contingent income earned from the prior year sale of a product-in-development(h)		—			(100	)		—
Operating results of divested legacy Pharmacia research facility(i)		—			64			—
Total certain significant items, pre-tax		1,886			1,035			1,402
Income taxes		(654	)		(406	)		(44	)
Resolution of certain tax positions(j)		(586	)		—			—
Tax impact of the repatriation of foreign earnings(j)		1,664			—			—
Total certain significant items—net of tax		2,310			629			1,358
Total purchase accounting adjustments, merger-related costs, discontinued operations, cumulative effect of a change in accounting principles and certain significant items—net of tax	$	6,916		$	4,775		$	8,402

(a)	Included in Merger-related in-process research and development charges. (See Notes to Consolidated Financial Statements—Note 2, Acquisitions.)
(b)	Included primarily in Amortization of intangible assets. (See Notes to Consolidated Financial Statements—Note 12, Goodwill and Other Intangible Assets.)
(c)	Included in Cost of sales. (See Notes to Consolidated Financial Statements—Note 2, Acquisitions.)
(d)	Included in Restructuring charges and merger-related costs. (See Notes to Consolidated Financial Statements—Note 4, Adapting to Scale Initiative and Note 5, Merger-Related Costs.)
(e)	Included in Discontinued operations—net of tax. (See Notes to Consolidated Financial Statements—Note 3, Dispositions.)
(f)	In 2005, primarily Cost of sales ($73 million), Selling, informational and administrative expenses ($8 million) and Other (income)/deductions—net ($1.2 billion) related to the suspension of sales of Bextra. In 2004, primarily Other (income)/deductions—net related to an impairment charge related to the Depo-Provera brand. (See Notes to Consolidated Financial Statements—Note 12B, Goodwill and Other Intangible Assets: Other Intangible Assets.)
(g)	Included in Cost of Sales ($124 million), Selling, informational and administrative expenses ($156 million), and Research and development expenses ($50 million) for 2005. (See Notes to Consolidated Financial Statements—Note 4, Adapting to Scale Initiative.)
(h)	Included in Other (income)/deductions—net. (See Notes to Consolidated Financial Statements—Note 6, Other (Income)/Deductions—Net.)
(i)	Included in Research and development expenses.
(j)	Included in Provision for taxes on income. (See Notes to Consolidated Financial Statements—Note 7, Taxes on Income.)

26     2005 Financial Report

Financial Review
Pfizer Inc and Subsidiary Companies

Financial Condition, Liquidity and Capital Resources

Net Financial Assets

Our net financial asset position as of December 31 follows:

(MILLIONS OF DOLLARS)	2005		2004
Financial assets:
Cash and cash equivalents	$	2,247	$	1,808
Short-term investments		19,979		18,085
Short-term loans		510		653
Long-term investments and loans		2,497		3,873
Total financial assets		25,233		24,419
Debt:
Short-term borrowings		11,589		11,266
Long-term debt		6,347		7,279
Total debt		17,936		18,545
Net financial assets	$	7,297	$	5,874

We rely largely on operating cash flow, short-term commercial paper borrowings and long-term debt to provide for the working capital needs of our operations, including our R&D activities. We believe that we have the ability to obtain both short-term and long-term debt to meet our financing needs for the foreseeable future.

Impact of Repatriation of Foreign Earnings

In 2005, under the Jobs Act, we repatriated to the U.S. approximately $37 billion in cash from foreign earnings (see the “Taxes on Income” section of this Financial Review). This cash is being used for domestic expenditures relating to advertising and marketing activities, research and development activities, capital assets and other asset acquisitions and non-executive compensation in accordance with the provisions of the Jobs Act (as in effect on December 31, 2005). The repatriation resulted in a decrease in short-term and long-term investments held overseas as the cash was repatriated and an increase in short-term borrowings overseas used to fund the repatriation.

Investments

Our short-term and long-term investments consist primarily of high quality, liquid investment-grade available-for-sale debt securities. Our long-term investments include debt securities that totaled $906 million as of December 31, 2005, which have maturities ranging substantially from 1 to 10 years. Wherever possible, cash management is centralized and intercompany financing is used to provide working capital to our operations. Where local restrictions prevent intercompany financing, working capital needs are met through operating cash flows and/or external borrowings.

Long-Term Debt Issuance

In November 2005, Pfizer issued $1.0 billion of senior unsecured floating-rate notes at LIBOR, less a nominal amount, with an initial maturity of 13 months. The debt holders have the option to extend the term of the notes by one month, each month, during the five-year maximum term of the notes. In addition, the adjustment to LIBOR increases each December by a nominal amount. The notes are callable by us at par plus accrued interest to date every six months, with a notice not less than thirty days, but not more than sixty days. The LIBOR-based floating-rate notes bear an interest rate of 4.33% as of December 31, 2005. The floating-rate notes were issued through an international subsidiary. They are guaranteed as to principal and interest by Pfizer Inc through the maturity date of the notes. These notes were issued to fund certain international subsidiaries’ dividends paid in 2005 to Pfizer in connection with our repatriation strategy.

On February 22, 2006, we issued the following Japanese yen fixed-rate bonds, which will be used for current general corporate purposes:

• $508 million equivalent, senior unsecured notes, due February 2011, which pay interest semi-annually, beginning on August 22, 2006, at a rate of 1.2%; and

• $466 million equivalent, senior unsecured notes, due February 2016, which pay interest semi-annually, beginning on August 22, 2006, at a rate of 1.8%.

The notes were issued under a $5 billion debt shelf registration filed with the SEC in November 2002. Such yen debt is designated as a hedge of our yen net investments.

Long-Term Debt Redemption

In July 2005, we decided to exercise Pfizer’s option to call, at par-value plus accrued interest, $1 billion of senior unsecured floating-rate notes, which were included in Long-term debt at December 31, 2004. Notice to call was given to the Trustees and the notes were redeemed in September 2005.

Credit Ratings

Two major corporate debt-rating organizations, Moody’s Investors Services (Moody’s) and Standard & Poor’s (S&P), assign ratings to our short-term and long-term debt. The following chart reflects the current ratings assigned to the Company’s senior unsecured non-credit enhanced long-term debt and commercial paper issued directly by the Company or by affiliates with a guarantee from the Company by each of these agencies:

NAME OF RATING AGENCY	COMMERCIAL PAPER		LONG-TERM DEBT
			RATING		OUTLOOK
Moody’s		P-1		Aaa		Negative
S&P		A1+		AAA		Stable

In early April 2005, following the market withdrawal of Bextra and the FDA’s decision requiring new labeling for Celebrex, Moody’s placed our Aaa rating under review for possible downgrade.The review was completed in June 2005 when Moody’s removed Pfizer from review status and reaffirmed our Aaa rating. However, Moody’s maintained our rating outlook as negative. This reflects Moody’s overall negative rating outlook for the major pharmaceutical sector and, specifically, their concern that lower product sales, potentially unfavorable outcomes of patent litigation, or a shift towards a more aggressive financial profile could result in Pfizer’s financial metrics falling below those appropriate for a Aaa-rated company.

Our superior credit ratings are primarily based on our diversified product portfolio, our strong operating cash flow, our substantial financial assets, our strong late-stage product pipeline and on our desire to maintain a prudent financial profile. Our access to financing at favorable rates would be affected by a substantial downgrade in our credit ratings.

2005 Financial Report     27

Financial Review
Pfizer Inc and Subsidiary Companies

Debt Capacity

We have available lines of credit and revolving-credit agreements with a group of banks and other financial intermediaries. We maintain cash balances and short-term investments in excess of our commercial paper and other short-term borrowings. At December 31, 2005, we had access to $3.0 billion of lines of credit, of which $1.1 billion expire within one year. Of these lines of credit, $2.8 billion are unused, of which our lenders have committed to loan us $1.7 billion at our request. $1.5 billion of the unused lines of credit, which expire in 2010, may be used to support our commercial paper borrowings.

As of February 24, 2006, we had the ability to borrow approximately $1 billion by issuing debt securities under our existing debt shelf registration statement filed with the SEC in November 2002.

Goodwill and Other Intangible Assets

At December 31, 2005, goodwill totaled $23.8 billion (20% of our total assets) and other intangible assets, net of accumulated amortization, totaled $27.8 billion (24% of our total assets).

The components of goodwill and other identifiable intangible assets, by segment, at December 31, 2005 follow:

(MILLIONS OF DOLLARS)	HUMAN HEALTH		CONSUMER HEALTHCARE			ANIMAL HEALTH			OTHER			TOTAL
Goodwill	$	20,919		$	2,789		$	56		$	10		$	23,774
Finite-lived intangible assets, net		22,883			201			175			101			23,360
Indefinite-lived intangible assets		2,834			1,342			246			4			4,426

Finite-lived intangible assets, net include $22.0 billion related to developed technology rights and $1.0 billion related to brands.

Indefinite-lived intangible assets include $3.9 billion related to brands.

Developed Technology Rights

Developed technology rights represent the amortized value associated with developed technology, which has been acquired from third parties, and which can include the right to develop, use, market, sell and/or offer for sale the product, compounds and intellectual property that we have acquired with respect to products, compounds and/or processes that have been completed. We possess a well-diversified portfolio of hundreds of developed technology rights across therapeutic categories primarily representing the amortized value of the commercialized products included in our Human Health segment that we acquired in connection with our Pharmacia acquisition in 2003. While the Arthritis and Pain therapeutic category represents about 28% of the total amortized value of developed technology rights at December 31, 2005, the balance of the amortized value is evenly distributed across the following Human Health therapeutic product categories: Ophthalmology; Oncology; Urology; Infectious and Respiratory Diseases; Endocrine Disorders categories; and, as a group, the Cardiovascular and Metabolic Diseases; Central Nervous System Disorders and All Other categories. The significant components include values determined for Celebrex, Detrol, Xalatan, Genotropin, Zyvox, and Campto/Camptosar. Also included in this category are the post-approval milestone payments made under our alliance agreements for certain Human Health products, such as Rebif, Spiriva, Celebrex (prior to our acquisition of Pharmacia) and Macugen. These rights are all subject to our impairment review process explained above.

In 2005, we recorded an impairment charge of $1.1 billion related to the developed technology rights for Bextra, a selective COX-2 inhibitor (see Notes to Consolidated Financial Statements—Note 6, Other (Income)/Deductions—Net).

Brands

Significant components of brands include values determined for Depo-Provera contraceptive, Xanax, Medrol and tobacco dependence products.

In 2004, we recorded an impairment charge of $0.7 billion related to the Depo-Provera brand (See Notes to Consolidated Financial Statements—Note 6, Other (Income)/Deductions—Net).

Selected Measures of Liquidity and Capital Resources

The following table sets forth certain relevant measures of our liquidity and capital resources as of December 31:

(MILLIONS OF DOLLARS, EXCEPT RATIOS AND PER COMMON SHARE DATA)	AS OF DECEMBER 31,
	2005		2004
Cash and cash equivalents and short-term investments and loans	$	22,736	$	20,546
Working capital(a)	$	13,448	$	12,630
Ratio of current assets to current liabilities		1.47:1		1.48:1
Shareholders’ equity per common share(b)	$	8.96	$	9.19

(a)	Working capital includes assets and liabilities held for sale, which were not significant, as of December 31, 2005 and December 31, 2004.
(b)	Represents total shareholders’ equity divided by the actual number of common shares outstanding (which excludes treasury shares, and those held by our employee benefit trust).

The increase in working capital in 2005 as compared to 2004 was primarily due to:

•	an increase in net current financial assets of $1.9 billion, primarily reflecting a shift from long-term investments to short-term investments, which was effected as part of our repatriation strategy under the Jobs Act;
•	an increase in accounts receivable of $398 million, which is a result of revenue growth in our international markets, growth of our generic product sales and the impact of their longer payment terms, and increased alliance-related receivables due in part to the launch of Macugen in 2005 and growth in Spiriva revenues;
partially offset by:
•	the timing of tax obligations and payments, reflected in a $1.6 billion increase in income taxes payable.

28      2005 Financial Report

Financial Review
Pfizer Inc and Subsidiary Companies

Summary of Cash Flows

(MILLIONS OF DOLLARS)	YEAR ENDED DEC. 31,
	2005			2004			2003
Cash provided by/(used in):
Operating activities	$	14,733		$	16,340		$	11,727
Investing activities		(5,072	)		(9,422	)		4,850
Financing activities		(9,222	)		(6,629	)		(16,909	)
Effect of exchange-rate changes on cash and cash equivalents		—			(1	)		(26	)
Net increase/(decrease) in cash and cash equivalents	$	439		$	288		$	(358	)

Operating Activities

Our net cash provided by continuing operating activities was $14.7 billion in 2005 compared to $16.3 billion in 2004. The decrease in net cash provided by operating activities was primarily attributable to:

•	the payment of $1.7 billion in taxes associated with the repatriation of approximately $37 billion of foreign earnings under the Jobs Act; as well as
•	the timing of other receipts and payments in the ordinary course of business.
Our net cash provided by continuing operating activities was $16.3 billion in 2004 compared to $11.7 billion in 2003. The increase in net cash provided by operating activities was primarily attributable to:
•	higher current period income from operations, net of non-cash items, which reflects the increased revenues attributable to Pharmacia products for the full-year 2004 compared to recording sales of Pharmacia products in 2003 from the April 16, 2003 acquisition date;
•	lower voluntary pension plan contributions; and
•	timing of tax payments,
partially offset by:
•	litigation-related payments in 2004 related to Rezulin and Neurontin that were accrued in 2003.

In the cash flow statement, Other non-cash adjustments includes adjustments for non-cash items such as valuation adjustments.

Investing Activities

Our net cash used by investing activities was $5.1 billion in 2005 compared to $9.4 billion in 2004. The decrease in net cash used by investing activities was primarily attributable to:

•	a decrease in net purchases of investments (a decreased use of $4.9 billion), due primarily to higher redemptions of investments in 2005 to provide funds for the repatriation of foreign earnings in accordance with the Jobs Act; and
•	lower purchases of plant, property and equipment (a decreased use of $495 million),
partially offset by:
•	lower proceeds from the sales of business, product lines and other products (a decreased provision of cash of $1.1 billion).
Our net cash used in investing activities was $9.4 billion in 2004 compared to net cash provided by investing activities of $4.9 billion in 2003. The increase in net cash used in investing activities was primarily attributable to:
•	an increase in net purchases of investments (an increased use of $6.1 billion);
•	net cash paid of $2.3 billion relating to the acquisitions of Esperion, Campto/Camptosar, and other entities compared to cash and cash equivalents acquired in the Pharmacia acquisition of $1.8 billion (an increased use of $4.1 billion); and
•	a decrease in the proceeds from the sale of business and product lines (an increased use of $4.3 billion).

Financing Activities

Our net cash used in financing activities increased to $9.2 billion in 2005 compared to $6.6 billion in 2004. The increase in net cash used in financing activities was primarily attributable to:

•	net repayments of $321 million on total borrowings in 2005 as compared to total net borrowings of $4.1 billion in 2004, as funds from the repatriation of foreign earnings were used to finance domestic activities, thereby reducing our reliance on short-term borrowings;
•	an increase in cash dividends paid of $473 million as compared to 2004 due to an increase in the dividend rate; and
•	a decrease of $610 million in the proceeds from the exercise of employee stock options,
partially offset by:
•	a decrease of $2.9 billion in purchases of our common stock in 2005 as compared to the same period in 2004.
Our net cash used in financing activities, decreased to $6.6 billion in 2004 compared to $16.9 billion in 2003. The decrease in net cash used in financing activities was primarily attributable to:
•	a decrease in common stock purchases under our share-purchase programs of $6.4 billion; and
•	an increase in net borrowings of $4.7 billion, due primarily to an increase in net short-term borrowings of $2.9 billion (including the November 2004 issuance of $1.0 billion in senior floating-rate unsecured notes) and net long-term debt of $1.8 billion (including the issuances in February 2004 of $1.5 billion in senior unsecured notes and in September 2004 of $1.0 billion in senior unsecured floating-rate notes),
partially offset by:
•	an increase in cash dividends paid of $729 million as compared to 2003 due to an increase in the dividend rate.

2005 Financial Report     29

Financial Review
Pfizer Inc and Subsidiary Companies

In June 2005, we announced a new $5 billion share-purchase program which is being funded by operating cash flows. During 2005, we purchased approximately 22 million shares under the new program.

In October 2004, we announced a $5 billion share-purchase program, which we completed in the second quarter of 2005 and was funded from operating cash flows. In total, under the October 2004 program, we purchased approximately 185 million shares.

In December 2003, we announced a $5 billion share-purchase program, which we completed in October 2004 and was funded from operating cash flows. In total, under the December 2003 program, we purchased approximately 146 million shares.

A summary of common stock purchases follows:

(MILLIONS OF SHARES AND DOLLARS, EXCEPT PER-SHARE DATA)	SHARES OF COMMON STOCK PURCHASED		AVERAGE PER-SHARE PRICE PAID			TOTAL COST OF COMMON STOCK PURCHASED
2005:
June 2005 program		22		$	22.38		$	493
October 2004 program		122			27.20			3,304
Total		144					$	3,797
2004:
October 2004 program		63		$	26.79		$	1,696
December 2003 program		145			34.14			4,963
Total		208					$	6,659

Contractual Obligations

Payments due under contractual obligations at December 31, 2005 mature as follows:

			YEARS
(MILLIONS OF DOLLARS)	TOTAL		WITHIN 1			OVER 1 TO 3		OVER 3 TO 5		AFTER 5
Long-term debt(a)	$	6,347		$	—	$	2,667	$	958	$	2,722
Other long-term liabilities reflected on our balance sheet under GAAP(b)		3,054			268		561		552		1,673
Lease commitments(c)		1,285			240		409		247		389
Purchase obligations(d)		1,474			892		379		149		54

(a)	Long-term debt consists of senior unsecured notes, floating-rate unsecured notes, foreign denominated notes and other borrowings and mortgages.
(b)	Includes expected payments relating to our unfunded U.S. supplemental (non-qualified) pension plans, postretirement plans and deferred compensation plans.
(c)	Includes operating and capital lease obligations.
(d)	Purchase obligations represent agreements to purchase goods and services that are enforceable and legally binding and include amounts relating to advertising, information technology services and employee benefit administration services.

In 2006, we expect to spend approximately $2.2 billion on property, plant and equipment.

Off-Balance Sheet Arrangements

In the ordinary course of business and in connection with the sale of assets and businesses, we often indemnify our counterparties against certain liabilities that may arise in connection with a transaction or related to activities prior to a transaction. These indemnifications typically pertain to environmental, tax, employee and/or product-related matters, and patent infringement claims. If the indemnified party were to make a successful claim pursuant to the terms of the indemnification, we would be required to reimburse the loss. These indemnifications are generally subject to threshold amounts, specified claim periods and other restrictions and limitations. Historically, we have not paid significant amounts under these provisions and as of December 31, 2005, recorded amounts for the estimated fair value of these indemnifications are not material.

Certain of our co-promotion or license agreements give our licensors or partners the right to negotiate for, or in some cases to obtain, under certain financial conditions, co-promotion or other rights in specified countries with respect to certain of our products.

Dividends on Common Stock

We declared dividends of $6.0 billion in 2005 and $5.2 billion in 2004 on our common stock. In 2005, we increased our annual dividend to $0.76 per share from $0.68 per share in 2004. In December 2005, our Board of Directors declared a first-quarter 2006 dividend of $0.24 per share. The 2006 cash dividend marks the 39th consecutive year of dividend increases.

Our current dividend provides a return to shareholders while maintaining sufficient capital to invest in growing our businesses. Our dividends are funded from operating cash flows and short-term commercial paper borrowings; are based on our profitability; and are not restricted by debt covenants. To the extent we have additional capital in excess of investment opportunities, we typically offer a return to our shareholders through a stock repurchase program. We believe the Company’s profitability and access to financial markets provides sufficient capability for the Company to pay current and future dividends.

Recently Issued Accounting Standards

In December 2004, Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No.123R, Share-Based Payment. SFAS 123R replaces SFAS123, Stock-Based Compensation issued in 1995. SFAS 123R requires that the fair value of the grant of employee stock options be reported as an expense. Historically, we have disclosed in our footnotes the pro forma expense effect of the grants (see Notes to Consolidated Financial Statements—Note 1P, Significant Accounting Policies: Share-Based Payments). We adopted SFAS 123R as of January 1, 2006. The estimated impact of adopting SFAS 123R on operations for 2006 is $330 million in expense, net of tax. The estimate was determined in January 2006, and is based, in part, on a projection of our common stock price and other option valuation assumptions for the fourth week in February 2006, the expected time of our largest annual grant of stock option awards.

30      2005 Financial Report

Financial Review
Pfizer Inc and Subsidiary Companies

The estimated impact of adopting SFAS 123R on our financial position, including the short-term and long-term deferred tax assets related to unvested options at adoption date, is expected to be immaterial.

Forward-Looking Information and Factors That May Affect Future Results

The Securities and Exchange Commission encourages companies to disclose forward-looking information so that investors can better understand a company’s future prospects and make informed investment decisions. This report and other written or oral statements that we make from time to time contain such forward-looking statements that set forth anticipated results based on management’s plans and assumptions. Such forward-looking statements involve substantial risks and uncertainties. We have tried, wherever possible, to identify such statements by using words such as “will,” “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “target,” “forecast” and other words and terms of similar meaning in connection with any discussion of future operating or financial performance. In particular, these include statements relating to future actions, prospective products or product approvals, future performance or results of current and anticipated products, sales efforts, expenses, interest rates, foreign exchange rates, the outcome of contingencies, such as legal proceedings, and financial results. Among the factors that could cause actual results to differ materially are the following:

• the success of research and development activities;

• decisions by regulatory authorities regarding whether and when to approve our drug applications as well as their decisions regarding labeling and other matters that could affect the availability or commercial potential of our products;

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

• competitive developments affecting our current growth products;

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

• difficulties or delays in manufacturing;

• trade buying patterns;

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

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

• trends toward managed care and health care cost containment;

• possible U.S. legislation or regulatory action affecting, among other things, pharmaceutical pricing and reimbursement, including under Medicaid and Medicare, the importation of prescription drugs that are marketed outside the U.S. and sold at prices that are regulated by governments of various foreign countries, and the involuntary approval of prescription medicines for over-the-counter use;

• the potential impact of the Medicare Prescription Drug, Improvement and Modernization Act of 2003;

• legislation or regulations in markets outside the U.S. affecting product pricing, reimbursement or access;

• contingencies related to actual or alleged environmental contamination;

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

• legal defense costs, insurance expenses, settlement costs and the risk of an adverse decision or settlement related to product liability, patent protection, governmental investigations, ongoing efforts to explore various means for resolving asbestos litigation and other legal proceedings;

• the Company’s ability to protect its patents and other intellectual property both domestically and internationally;

• interest rate and foreign currency exchange rate fluctuations;

• governmental laws and regulations affecting domestic and foreign operations, including tax obligations;

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

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

• growth in costs and expenses;

• changes in our product, segment and geographic mix; and

• the impact of acquisitions, divestitures, restructurings, product withdrawals and other unusual items, including the impact of the possible sale or spin-off of our Consumer Healthcare business and our ability to realize the projected benefits of our Adapting to Scale multi-year productivity initiative.

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

We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in our Forms 10-Q, 8-K and 10-K reports to the Securities and Exchange Commission.

Certain risks, uncertainties and assumptions are discussed here and under the heading entitled “Risk Factors and Cautionary Factors That May Affect Future Results” in Item 1 of our Annual Report on Form 10-K for the year ended December 31, 2005, which will be filed in March 2006. We note these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider any such list to be a complete set of all potential risks or uncertainties.

2005 Financial Report     31

Financial Review
Pfizer Inc and Subsidiary Companies

This report includes discussion of certain clinical studies relating to various in-line products and/or product candidates. These studies typically are part of a larger body of clinical data relating to such products or product candidates, and the discussion herein should be considered in the context of the larger body of data.

Financial Risk Management

The overall objective of our financial risk management program is to seek a reduction in the potential negative earnings effects from changes in foreign exchange and interest rates arising in our business activities. We manage these financial exposures through operational means and by using various financial instruments. These practices may change as economic conditions change.

Foreign Exchange Risk—A significant portion of our revenues and earnings are exposed to changes in foreign exchange rates. We seek to manage our foreign exchange risk in part through operational means, including managing same currency revenues in relation to same currency costs, and same currency assets in relation to same currency liabilities.

Foreign exchange risk is also managed through the use of foreign currency forward-exchange contracts. These contracts are used to offset the potential earnings effects from mostly intercompany short-term foreign currency assets and liabilities that arise from operations. We also use foreign currency forward-exchange contracts and foreign currency swaps to hedge the potential earnings effects from short and long-term foreign currency investments and loans and intercompany loans.

Foreign currency put options are sometimes purchased to reduce a portion of the potential negative effects on earnings related to certain of our significant anticipated intercompany inventory purchases for up to two years. In early 2003, these purchased options hedged Japanese yen versus the U.S. dollar.

In addition, under certain market conditions, we protect against possible declines in the reported net assets of our Japanese yen and certain euro functional currency subsidiaries.

Our financial instrument holdings at year-end were analyzed to determine their sensitivity to foreign exchange rate changes. The fair values of these instruments were determined as follows:

• foreign currency forward-exchange contracts and currency swaps-net present values

• foreign receivables, payables, debt and loans-changes in exchange rates

In this sensitivity analysis, we assumed that the change in one currency’s rate relative to the U.S. dollar would not have an effect on other currencies’ rates relative to the U.S. dollar. All other factors were held constant.

If there were an adverse change in foreign exchange rates of 10%, the expected effect on net income related to our financial instruments would be immaterial. For additional details, see Notes to Consolidated Financial Statements—Note 9D, Financial Instruments: Derivative Financial Instruments and Hedging Activities.

Interest Rate Risk—Our U.S. dollar interest-bearing investments, loans and borrowings are subject to interest rate risk. We are also subject to interest rate risk on euro investments and short-term currency swaps, and on Japanese yen short and long-term borrowings and short-term currency swaps. We invest and borrow primarily on a short-term or variable-rate basis. From time to time, depending on market conditions, we will fix interest rates either through entering into fixed rate investments and borrowings or through the use of derivative financial instruments such as interest rate swaps.

Our financial instrument holdings at year-end were analyzed to determine their sensitivity to interest rate changes. The fair values of these instruments were determined by net present values.

In this sensitivity analysis, we used the same change in interest rate for all maturities. All other factors were held constant.

If there were an adverse change in interest rates of 10%, the expected effect on net income related to our financial instruments would be immaterial.

Legal Proceedings and Contingencies

We and certain of our subsidiaries are involved in various patent, product liability, consumer, commercial, securities, environmental and tax litigations and claims; government investigations; and other legal proceedings that arise from time to time in the ordinary course of our business. We do not believe any of them will have a material adverse effect on our financial position.

We record accruals for such contingencies to the extent that we conclude their occurrence is probable and the related damages are estimable. If a range of liability is probable and estimable and some amount within the range appears to be a better estimate than any other amount within the range, we accrue that amount. If a range of liability is probable and estimable and no amount within the range appears to be a better estimate than any other amount within the range, we accrue the minimum of such probable range. Many claims involve highly complex issues relating to causation, label warnings, scientific evidence, actual damages and other matters. Often these issues are subject to substantial uncertainties and, therefore, the probability of loss and an estimation of damages are difficult to ascertain. Consequently, we cannot reasonably estimate the maximum potential exposure or the range of possible loss in excess of amounts accrued for these contingencies. These assessments can involve a series of complex judgments about future events and can rely heavily on estimates and assumptions (see Notes to Consolidated Financial Statements—Note 1B, Significant Accounting Policies: Estimates and Assumptions). Our assessments are based on estimates and assumptions that have been deemed reasonable by management. Litigation is inherently unpredictable, and excessive verdicts do occur. Although we believe we have substantial defenses in these matters, we could in the future incur judgments or enter into settlements of claims that could have a material adverse effect on our results of operations in any particular period.

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

32     2005 Financial Report

Management’s Report on Internal Control Over Financial Reporting

Management’s Report

We prepared and are responsible for the financial statements that appear in our 2005 Financial Report. These financial statements are in conformity with accounting principles generally accepted in the United States of America, and therefore, include amounts based on informed judgments and estimates. We also accept responsibility for the preparation of other financial information that is included in this document.

Report on Internal Control Over Financial Reporting

The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America. The Company’s internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2005. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework. Based on our assessment and those criteria, management believes that the Company maintained effective internal control over financial reporting as of December 31, 2005.

The Company’s independent auditors have issued their auditors’ report on management’s assessment of the Company’s internal control over financial reporting. That report appears in our 2005 Financial Report under the heading, Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting.

Henry A. McKinnell
Chairman and
Chief Executive Officer

Alan G. Levin	Loretta V. Cangialosi
Principal Financial Officer	Principal Accounting Officer
February 24, 2006

Audit Committee’s Report

The Audit Committee reviews the Company’s financial reporting process on behalf of the Board of Directors. Management has the primary responsibility for the financial statements and the reporting process, including the system of internal controls.

In this context, the Committee has met and held discussions with management and the independent registered public accounting firm regarding the fair and complete presentation of the Company’s results and the assessment of the Company’s internal control over financial reporting. The Committee has discussed significant accounting policies applied by the Company in its financial statements, as well as alternative treatments. Management represented to the Committee that the Company’s consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America, and the Committee has reviewed and discussed the consolidated financial statements with management and the independent registered public accounting firm. The Committee discussed with the independent registered public accounting firm matters required to be discussed by Statement of Auditing Standards No. 61, Communication With Audit Committees.

In addition, the Committee has reviewed and discussed with the independent registered public accounting firm the auditor’s independence from the Company and its management. As part of that review, the Committee received the written disclosures and letter required by the Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees and by all relevant professional and regulatory standards relating to KPMG’s independence from the Company. The Committee also has considered whether the independent registered public accounting firm’s provision of non-audit services to the Company is compatible with the auditor’s independence. The Committee has concluded that the independent registered public accounting firm is independent from the Company and its management.

The Committee reviewed and discussed Company policies with respect to risk assessment and risk management.

The Committee discussed with the Company’s internal auditors and the independent registered public accounting firm the overall scope and plans for their respective audits. The Committee met with the internal auditors and the independent registered public accounting firm, with and without management present, to discuss the results of their examinations, the evaluations of the Company’s internal controls, and the overall quality of the Company’s financial reporting.

In reliance on the reviews and discussions referred to above, the Committee recommended to the Board of Directors, and the Board has approved, that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005, for filing with the Securities and Exchange Commission. The Committee has selected and the Board of Directors has ratified, subject to shareholder ratification, the selection of the Company’s independent registered public accounting firm.

W.R. Howell
Chair, Audit Committee

February 24, 2006

The Audit Committee’s Report shall not be deemed to be filed or incorporated by reference into any Company filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically incorporates the Audit Committee’s Report by reference therein.

2005 Financial Report     33

Report of Independent Registered Public Accounting Firm on the Consolidated Financial Statements

To the Board of Directors and Shareholders of Pfizer Inc:

We have audited the accompanying consolidated balance sheets of Pfizer Inc and Subsidiary Companies as of December 31, 2005 and 2004, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2005. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Pfizer Inc and Subsidiary Companies as of December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2005, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Pfizer Inc and Subsidiary Companies’ internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 24, 2006 expressed an unqualified opinion on management’s assessment of, and the effective operation of, internal control over financial reporting.

KPMG LLP
New York, NY

February 24, 2006

Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting

To the Board of Directors and Shareholders of Pfizer Inc:

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, that Pfizer Inc and Subsidiary Companies maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Pfizer Inc and Subsidiary Companies’ management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that Pfizer Inc and Subsidiary Companies maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also, in our opinion, Pfizer Inc and Subsidiary Companies maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Pfizer Inc and Subsidiary Companies as of December 31, 2005 and 2004, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2005, and our report dated February 24, 2006 expressed an unqualified opinion on those consolidated financial statements.

KPMG LLP
New York, NY

February 24, 2006

34     2005 Financial Report

Consolidated Statements of Income
Pfizer Inc and Subsidiary Companies

	YEAR ENDED DECEMBER 31,
(MILLIONS, EXCEPT PER COMMON SHARE DATA)	2005			2004			2003
Revenues	$	51,298		$	52,516		$	44,736
Costs and expenses:
Cost of sales(a)		8,525			7,541			9,589
Selling, informational and administrative expenses(a)		16,997			16,903			15,108
Research and development expenses(a)		7,442			7,684			7,487
Amortization of intangible assets		3,409			3,364			2,187
Merger-related in-process research and development charges		1,652			1,071			5,052
Restructuring charges and merger-related costs		1,392			1,193			1,058
Other (income)/deductions—net		347			753			1,009
Income from continuing operations before provision for taxes on income, minority interests and cumulative effect of a change in accounting principles		11,534			14,007			3,246
Provision for taxes on income		3,424			2,665			1,614
Minority interests		16			10			3
Income from continuing operations before cumulative effect of a change in accounting principles		8,094			11,332			1,629
Discontinued operations:
(Loss)/income from discontinued operations—net of tax		(31	)		(22	)		26
Gains on sales of discontinued operations—net of tax		47			51			2,285
Discontinued operations—net of tax		16			29			2,311
Income before cumulative effect of a change in accounting principles		8,110			11,361			3,940
Cumulative effect of a change in accounting principles—net of tax		(25	)		—			(30	)
Net income	$	8,085		$	11,361		$	3,910
Earnings per common share—basic
Income from continuing operations before cumulative effect of a change in accounting principles	$	1.10		$	1.51		$	0.22
Discontinued operations		—			—			0.32
Income before cumulative effect of a change in accounting principles		1.10			1.51			0.54
Cumulative effect of a change in accounting principles		—			—			—
Net income	$	1.10		$	1.51		$	0.54
Earnings per common share—diluted
Income from continuing operations before cumulative effect of a change in accounting principles	$	1.09		$	1.49		$	0.22
Discontinued operations		—			—			0.32
Income before cumulative effect of a change in accounting principles		1.09			1.49			0.54
Cumulative effect of a change in accounting principles		—			—			—
Net income	$	1.09		$	1.49		$	0.54
Weighted-average shares—basic		7,361			7,531			7,213
Weighted-average shares—diluted		7,411			7,614			7,286

^(a) Exclusive of amortization of intangible assets, except as disclosed in Note 1K, Amortization of Intangible Assets, Depreciation and Certain Long-Lived Assets.

See Notes to Consolidated Financial Statements which are an integral part of these statements.

2005 Financial Report     35

Consolidated Balance Sheets
Pfizer Inc and Subsidiary Companies

	AS OF DECEMBER 31,
(MILLIONS, EXCEPT PREFERRED STOCK ISSUED AND PER COMMON SHARE DATA)	2005			2004
Assets
Current Assets
Cash and cash equivalents	$	2,247		$	1,808
Short-term investments		19,979			18,085
Accounts receivable, less allowance for doubtful accounts: 2005—$183; 2004—$205		9,765			9,367
Short-term loans		510			653
Inventories		6,039			6,660
Prepaid expenses and taxes		3,196			2,333
Assets held for sale		160			182
Total current assets		41,896			39,088
Long-term investments and loans		2,497			3,873
Property, plant and equipment, less accumulated depreciation		17,090			18,385
Goodwill		23,774			23,756
Identifiable intangible assets, less accumulated amortization		27,786			33,251
Other assets, deferred taxes and deferred charges		4,522			4,725
Total assets	$	117,565		$	123,078
Liabilities and Shareholders’ Equity
Current Liabilities
Short-term borrowings, including current portion of long-term debt: 2005—$778; 2004—$907	$	11,589		$	11,266
Accounts payable		2,226			2,672
Dividends payable		1,772			1,418
Income taxes payable		3,617			1,963
Accrued compensation and related items		1,720			1,939
Other current liabilities		7,522			7,136
Liabilities held for sale		2			64
Total current liabilities		28,448			26,458
Long-term debt		6,347			7,279
Pension benefit obligations		2,717			2,821
Postretirement benefit obligations		1,443			1,450
Deferred taxes		10,240			12,026
Other noncurrent liabilities		2,743			4,766
Total liabilities		51,938			54,800
Shareholders’ Equity
Preferred stock, without par value, at stated value; 27 shares authorized; issued: 2005—4,193; 2004—4,779		169			193
Common stock, $0.05 par value; 12,000 shares authorized; issued: 2005—8,784; 2004—8,754		439			438
Additional paid-in capital		67,622			67,098
Employee benefit trust		(923	)		(1,229	)
Treasury stock, shares at cost; 2005—1,423; 2004—1,281		(39,767	)		(35,992	)
Retained earnings		37,608			35,492
Accumulated other comprehensive income		479			2,278
Total shareholders’ equity		65,627			68,278
Total liabilities and shareholders’ equity	$	117,565		$	123,078

See Notes to Consolidated Financial Statements which are an integral part of these statements.

36      2005 Financial Report

Consolidated Statements of Shareholders’ Equity
Pfizer Inc and Subsidiary Companies

																											ACCUM.
													EMPLOYEE														OTHER
	PREFERRED STOCK					COMMON STOCK				ADDITIONAL			BENEFIT TRUST					TREASURY STOCK									COMPRE-
(MILLIONS, EXCEPT									PAID-IN															RETAINED			HENSIVE
PREFERRED SHARES)	SHARES STATED VALUE					SHARES		PAR VALUE			CAPITAL		SHARES			FAIR VALUE		SHARES			COST			EARNINGS			INC./(EXP.)			TOTAL
Balance, January 1, 2003	—			$ —		6,829	$	341	$		9,368		(58	)	$	(1,786	)	(667	)	$	(16,341	)	$	30,243		$	(1,875	)	$	19,950
Comprehensive income:
Net income																								3,910						3,910
Total other compre-
hensive income—net of tax																											2,070			2,070
Total comprehensive income																														5,980
Pharmacia acquisition	6,019			242		1,817		91			55,402																			55,735
Cash dividends declared —
common stock																								(4,764	)					(4,764	)
preferred stock																								(7	)					(7	)
Stock option transactions						52		3			1,199		5			175		(1	)		(20	)								1,357
Purchases of common stock																		(407	)		(13,037	)								(13,037	)
Employee benefit trust
transactions—net											287		(1	)		(287	)	1			—									—
Preferred stock conversions
and redemptions	(574	)		(23	)						23							—			6									6
Other						4		—			117							1			40									157
Balance, December 31, 2003	5,445			219		8,702		435			66,396		(54	)		(1,898	)	(1,073	)		(29,352	)		29,382			195			65,377
Comprehensive income:
Net income																								11,361						11,361
Total other compre-
hensive income—net of tax																											2,083			2,083
Total comprehensive income																														13,444
Cash dividends declared —
common stock																								(5,243	)					(5,243	)
preferred stock																								(8	)					(8	)
Stock option transactions						47		3			886		9			323		—			(16	)								1,196
Purchases of common stock																		(208	)		(6,659	)								(6,659	)
Employee benefit trust
transactions—net											(346	)	(1	)		346		—			—									—
Preferred stock conversions
and redemptions	(666	)		(26	)						27							—			9									10
Other						5		—			135							—			26									161
Balance, December 31, 2004	4,779			193		8,754		438			67,098		(46	)		(1,229	)	(1,281	)		(35,992	)		35,492			2,278			68,278
Comprehensive income:
Net income																								8,085						8,085
Total other compre-
hensive expense—net of tax																											(1,799	)		(1,799	)
Total comprehensive income																														6,286
Cash dividends declared —
common stock																								(5,960	)					(5,960	)
preferred stock																								(9	)					(9	)
Stock option transactions						24		1			342		7			193		—			(6	)								530
Purchases of common stock																		(143	)		(3,797	)								(3,797	)
Employee benefit trust
transactions—net											(113	)	(1	)		113		1			—									—
Preferred stock conversions
and redemptions	(586	)		(24	)						37							—			6									19
Other						6		—			258							—			22									280
Balance, December 31, 2005	4,193		$	169		8,784	$	439	$		67,622		(40	)	$	(923	)	(1,423	)	$	(39,767	)	$	37,608		$	479		$	65,627

See Notes to Consolidated Financial Statements which are an integral part of these statements.

2005 Financial Report     37

Consolidated Statements of Cash Flows
Pfizer Inc and Subsidiary Companies

	YEAR ENDED DECEMBER 31,
(MILLIONS OF DOLLARS)	2005			2004			2003
Operating Activities
Net Income	$	8,085		$	11,361		$	3,910
Adjustments to reconcile net income to net cash provided by continuing operating activities:
Depreciation and amortization		5,576			5,093			4,025
Merger-related in-process research and development charges		1,652			1,071			5,052
Charge for fair value mark-up of acquired inventory sold		—			40			2,747
Intangible asset impairments and other associated non-cash charges		1,240			702			—
Gains on disposal of investments, products and product lines		(188	)		(16	)		(85	)
Loss/(income) from discontinued operations		33			39			(43	)
Gains on sales of discontinued operations		(77	)		(75	)		(3,885	)
Cumulative effect of a change in accounting principles		40			—			47
Deferred taxes from continuing operations		(1,384	)		(1,579	)		(104	)
Other deferred taxes		8			(15	)		735
Other non-cash adjustments		334			558			588
Changes in assets and liabilities, net of effect of businesses acquired and divested:
Accounts receivable		(803	)		(465	)		207
Inventories		72			(542	)		(200	)
Prepaid and other assets		582			(640	)		(918	)
Accounts payable and accrued liabilities		(729	)		(704	)		909
Income taxes payable		172			827			(541	)
Other liabilities		120			685			(717	)
Net cash provided by continuing operating activities		14,733			16,340			11,727
Investing Activities
Purchases of property, plant and equipment		(2,106	)		(2,601	)		(2,629	)
Purchases of short-term investments		(28,040	)		(17,499	)		(9,931	)
Proceeds from redemptions of short-term investments		26,779			11,723			12,060
Purchases of long-term investments		(687	)		(1,329	)		(1,883	)
Proceeds from sales of long-term investments		1,309			1,570			356
Purchases of other assets		(431	)		(327	)		(788	)
Proceeds from sales of other assets		12			6			360
Proceeds from sales of businesses, product lines and other products		127			1,276			5,602
Acquisitions, net of cash acquired		(2,104	)		(2,263	)		—
Cash and cash equivalents acquired through acquisition of Pharmacia		—			—			1,789
Other investing activities		69			22			(86	)
Net cash (used in)/provided by investing activities		(5,072	)		(9,422	)		4,850
Financing Activities
Increase in short-term borrowings, net		1,124			2,466			194
Principal payments on short-term borrowings		(1,427	)		(288	)		(946	)
Proceeds from issuances of long-term debt		1,021			2,586			600
Principal payments on long-term debt		(1,039	)		(664	)		(439	)
Purchases of common stock		(3,797	)		(6,659	)		(13,037	)
Cash dividends paid		(5,555	)		(5,082	)		(4,353	)
Stock option transactions and other		451			1,012			1,072
Net cash used in financing activities		(9,222	)		(6,629	)		(16,909	)
Effect of exchange-rate changes on cash and cash equivalents		—			(1	)		(26	)
Net increase/(decrease) in cash and cash equivalents		439			288			(358	)
Cash and cash equivalents at beginning of year		1,808			1,520			1,878
Cash and cash equivalents at end of year	$	2,247		$	1,808		$	1,520
Supplemental Cash Flow Information
Non-cash transactions:
Acquisition of Pharmacia, net of transaction costs	$	—		$	—		$	55,871
Cash paid during the period for:
Income taxes	$	4,713		$	3,388		$	2,905
Interest		649			496			350

See Notes to Consolidated Financial Statements which are an integral part of these statements.

38      2005 Financial Report

Notes to Consolidated Financial Statements
Pfizer Inc and Subsidiary Companies

1. Significant Accounting Policies

A. Consolidation and Basis of Presentation

The consolidated financial statements include our parent company and all subsidiaries, including those operating outside the U.S. and are prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). For subsidiaries operating outside the U.S., the financial information is included as of and for the year ended November 30 for each year presented. Substantially all unremitted earnings of international subsidiaries are free of legal and contractual restrictions. All significant transactions among our businesses have been eliminated.

We made certain reclassifications to the 2004 and 2003 consolidated financial statements to conform to the 2005 presentation.

On April 16, 2003, we completed our acquisition of Pharmacia Corporation (Pharmacia) in a stock-for-stock transaction accounted for under the purchase method of accounting (see Note 2A,  Acquisitions: Pharmacia Corporation). Starting at the date of acquisition, the assets acquired and liabilities assumed were recorded at their respective fair values and our results of operations included Pharmacia’s product sales and expenses from the acquisition date. Therefore, approximately 7 1/2 months of results of operations of Pharmacia’s international operations and about 8 1/2 months of results of operations of Pharmacia’s U.S. operations were included in our consolidated financial statements for the year ended December 31, 2003.

B. Estimates and Assumptions

In preparing the consolidated financial statements, we use certain estimates and assumptions that affect reported amounts and disclosures. For example, estimates are used when accounting for deductions from revenues (such as rebates, discounts, incentives and product returns), depreciation, amortization, employee benefits, contingencies and asset and liability valuations. Our estimates are often based on complex judgments, probabilities and assumptions that we believe to be reasonable but that are inherently uncertain and unpredictable. Assumptions may be incomplete or inaccurate and unanticipated events and circumstances may occur. It is also possible that other professionals, applying reasonable judgment to the same facts and circumstances, could develop and support a range of alternative estimated amounts. We are also subject to other risks and uncertainties that may cause actual results to differ from estimated amounts, such as changes in the healthcare environment, competition, foreign exchange, litigation, legislation and regulations. These and other risks and uncertainties are discussed in the accompanying Financial Review, which is unaudited, under the headings “Our Business Environment” and “Forward-Looking Information and Factors That May Affect Future Results.”

C. Contingencies

We and certain of our subsidiaries are involved in various patent, product liability, consumer, commercial, securities, environmental and tax litigations and claims; government investigations; and other legal proceedings that arise from time to time in the ordinary course of our business. We record accruals for such contingencies to the extent that we conclude their occurrence is probable and the related damages are estimable. We consider many factors in making these assessments. Because litigation and other contingencies are inherently unpredictable and excessive verdicts do occur, these assessments can involve a series of complex judgments about future events and can rely heavily on estimates and assumptions (see Note 1B, Significant Accounting Policies: Estimates and Assumptions). We record anticipated recoveries under existing insurance contracts when assured of recovery.

D. New Accounting Standards

As of December 31, 2005, we adopted the provisions of Financial Accounting Standards Board (FASB) Interpretation No. 47,  Accounting for Conditional Asset Retirement Obligations (FIN 47). FIN 47 clarifies that conditional obligations meet the definition of an asset retirement obligation in Statement of Financial Accounting Standards (SFAS) No. 143, Accounting for Asset Retirement Obligations (SFAS 143), and therefore should be recognized if their fair value is reasonably estimable. As a result of adopting FIN 47, we recorded a non-cash pre-tax charge of $40 million ($25 million, net of tax). This charge was reported in Cumulative effect of a change in accounting principles—net of tax in the fourth quarter of 2005. As of January 1, 2003, we adopted the provisions of SFAS 143, which broadly addresses financial accounting requirements for retirement obligations associated with tangible long-lived assets. As a result of adopting SFAS 143, we recorded a non-cash pre-tax charge of $47 million ($30 million, net of tax) for the change in accounting for costs associated with the eventual retirement of certain manufacturing and research facilities. This charge was reported in Cumulative effect of a change in accounting principles—net of tax in the first quarter of 2003. In accordance with these standards, we record accruals for legal obligations associated with the retirement of tangible long-lived assets, including obligations under the doctrine of promissory estoppel and those that are conditioned upon the occurrence of future events. We recognize these obligations using management’s best estimate of fair value.

As of January 1, 2004, we adopted the provisions of FASB Interpretation No. 46R (FIN 46R), Consolidation of Variable Interest Entities. FIN 46R provides additional guidance as to when certain entities need to be consolidated for financial reporting purposes. The adoption of FIN 46R did not have a material impact on our consolidated financial statements.

E. Acquisitions

Our consolidated financial statements and results of operations reflect an acquired business after the completion of the acquisition and are not restated. We account for acquired businesses using the purchase method of accounting which requires that the assets acquired and liabilities assumed be recorded at the date of acquisition at their respective fair values. Any excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill. Amounts allocated to acquired in-process research and development (IPR&D) are expensed at the date of acquisition. When we acquire net assets that do not constitute a business under GAAP, no goodwill is recognized.

F. Foreign Currency Translation

For most international operations, local currencies have been determined to be the functional currencies. The effects of converting non-functional currency assets and liabilities into the

2005 Financial Report     39

Notes to Consolidated Financial Statements
Pfizer Inc and Subsidiary Companies

functional currency are recorded in Other (income)/deductions—net. We translate functional currency assets and liabilities to their U.S. dollar equivalents at rates in effect at the balance sheet date and record these translation adjustments in Shareholders’ equity – Accumulated other comprehensive income. We translate functional currency statement of income amounts at average rates for the period.

For operations in highly inflationary economies, we translate monetary items at rates in effect at the balance sheet date, with translation adjustments recorded in Other (income)/deductions—net, and nonmonetary items at historical rates.

G. Revenues

Revenue Recognition—We record revenue from product sales when the goods are shipped and title passes to the customer. At the time of sale, we also record estimates for a variety of sales deductions, such as sales rebates, discounts and incentives, and product returns.

Deductions From Revenues—Gross product sales are subject to a variety of deductions that are generally estimated and recorded in the same period that the revenue is recognized.

In the U.S., we record provisions for Medicaid and contract rebates based upon our actual experience ratio of rebates paid and actual prescriptions during prior quarters. We apply the experience ratio to the respective period’s sales to determine the rebate accrual and related expense. This experience ratio is evaluated regularly to ensure that the historical trends are as current as practicable. As appropriate, we will adjust the ratio to better match our current experience or our expected future experience. In assessing this ratio, we consider current contract terms, such as changes in formulary status and discount rates.

Our provisions for chargebacks (primarily discounts to U.S. federal government agencies) closely approximate actual as we settle these deductions generally within 2-3 weeks of incurring the liability.

Outside of the U.S., the majority of our rebates are contractual or legislatively-mandated and our estimates are based on actual invoiced sales within each period; both of these elements help to reduce the risk of variations in the estimation process. Some European countries base their rebates on the government’s unbudgeted pharmaceutical spending and we use an estimated allocation factor based on historical payments against our actual invoiced sales to project the expected level of reimbursement. We obtain third-party information that helps us to monitor the adequacy of these accruals.

We record sales incentives as a reduction of revenues at the time the related revenues are recorded or when the incentive is offered, whichever is later. We estimate the cost of our sales incentives based on our historical experience with similar incentive programs.

Other current liabilities include accruals for Medicaid rebates, contract rebates and chargebacks of $1.8 billion at December 31, 2005 and $1.7 billion at December 31, 2004.

Alliances—We have agreements to co-promote pharmaceutical products discovered by other companies. Revenue is earned when our co-promotion partners ship the related product and title passes to their customer. Alliance revenue is primarily based upon a percentage of our co-promotion partners’ net sales. Generally, expenses for selling and marketing these products are included in Selling, informational and administrative expenses.

H. Cost of Sales and Inventories

We value inventories at cost or fair value, if lower. Cost is determined as follows:

• finished goods and work in process at average actual cost; and

• raw materials and supplies at average or latest actual cost.

I. Selling, Informational and Administrative Expenses

Selling, informational and administrative costs are expensed as incurred. Among other things, these expenses include the costs of marketing, advertising, shipping and handling, information technology and non-plant employee compensation.

Advertising expenses relating to production costs are expensed as incurred and the costs of radio time, television time and space in publications are expensed when the related advertising occurs. Advertising expenses totaled approximately $3.5 billion in 2005 and 2004, and $2.9 billion in 2003.

J. Research and Development Expenses

Research and development (R&D) costs are expensed as incurred. These expenses include the costs of our proprietary R&D efforts, as well as costs incurred in connection with our third-party collaboration efforts. Pre-approval milestone payments made by us to third parties under contracted R&D arrangements are expensed when the specific milestone has been achieved. Once the product receives regulatory approval, we record any subsequent milestone payments in Identifiable intangible assets, less accumulated amortization and amortize them evenly over the remaining agreement term or the expected product life cycle, whichever is shorter. We have no third-party R&D arrangements that result in the recognition of revenue.

K. Amortization of Intangible Assets, Depreciation and Certain Long-Lived Assets

Long-lived assets include:

• goodwill—Goodwill represents the difference between the purchase price of a business acquisition and the fair value of its net assets. Goodwill is not amortized.

• identifiable intangible assets—These acquired assets are recorded at our cost. Intangible assets with finite lives are amortized evenly over their estimated useful lives. Intangible assets with indefinite lives are not amortized.

• property, plant and equipment—These assets are recorded at original cost and increased by the cost of any significant improvements after purchase. We depreciate the cost evenly over the assets’ estimated useful lives. For tax purposes, accelerated depreciation methods are used as allowed by tax laws.

Amortization expense related to acquired intangible assets that contribute to our ability to sell, manufacture, research, market and distribute products, compounds and intellectual property are included in Amortization of intangible assets as they benefit

40      2005 Financial Report

Notes to Consolidated Financial Statements
Pfizer Inc and Subsidiary Companies

multiple business functions. Amortization expense related to intangible assets that are associated with a single function and depreciation of property, plant and equipment are included in Cost of sales, Selling, informational and administrative expenses and Research and development expenses, as appropriate.

We review all of our long-lived assets, including goodwill and other intangible assets, for impairment at least annually and whenever events or circumstances present an indication of impairment. When necessary, we record charges for impairments of long-lived assets for the amount by which the present value of future cash flows, or some other fair value measure, is less than the carrying value of these assets.

L. Merger-Related In-Process Research and Development Charges and Restructuring Charges and Merger-Related Costs

When recording acquisitions (see Note 1E, Significant Accounting Polices: Acquisitions), we immediately expense amounts related to acquired IPR&D in Merger-related in-process research and development charges.

Also, in connection with an acquisition of a business enterprise, we may review the associated operations and implement plans to restructure and integrate. For restructuring charges associated with a business acquisition that are identified in the first year after the acquisition date, the related costs are recorded as additional goodwill as they are considered to be liabilities assumed in the acquisition. All other restructuring charges, all integration costs and any charges related to our pre-existing businesses impacted by the acquisition are included in Restructuring charges and merger-related costs.

M. Cash Equivalents

Cash equivalents include items almost as liquid as cash, such as certificates of deposit and time deposits with maturity periods of three months or less when purchased. If items meeting this definition are part of a larger investment pool, we classify them as Short-term investments.

N. Investments

Realized gains or losses on sales of investments are determined by using the specific identification cost method.

O. Income Tax Contingencies

We account for income tax contingencies using an asset recognition model. In our initial evaluation of tax positions taken related to tax law, we assess the likelihood of prevailing on the interpretation of that tax law. When we consider that a tax position is probable of being sustained on audit based solely on the technical merits of the position, we record the benefit. These assessments can be complex and we often obtain assistance from external advisors.

Under the asset recognition model, if our initial assessment fails to result in the recognition of a tax benefit, we regularly monitor our position and subsequently recognize the tax benefit if there are changes in tax law or analogous case law that sufficiently raise the likelihood of prevailing on the technical merits of the position to probable; if the statute of limitations expires; or if there is a completion of an audit resulting in a settlement of that tax year with the appropriate agency.

P. Share-Based Payments

Our compensation programs can include share-based payments.

Stock options, which entitle the holder to purchase shares of Pfizer stock at a pre-determined price at the end of a vesting term, are accounted for under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, an elective accounting policy permitted by SFAS No. 123, Accounting for Stock-Based Compensation. Under this policy, since the exercise price of stock options granted is set equal to the market price on the date of the grant, we do not record any expense to the income statement related to the grants of stock options, unless certain original grant-date terms are subsequently modified.

2005 Financial Report     41

Notes to Consolidated Financial Statements
Pfizer Inc and Subsidiary Companies

For disclosure purposes only, we estimated the fair value of employee stock options, as required under GAAP, using the Black-Scholes-Merton option-pricing model and using the assumptions as described in Note 14E, Equity and Stock Plans: Share-Based Payments. The following table shows the effect on results for 2005, 2004 and 2003 if we had applied the fair-value-based recognition provisions of SFAS 123 to measure stock-based compensation expense for the option grants: