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-111000000 -226000000 1189000000 1328000000 556000000 426000000 305000000 -79000000 169000000 279000000 122000000 1200000000 356000000 55000000 50.40 4200000000 140000000 5800000000 6400000000 1000000000 1300000000 4.25 4.26 <div style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><b><a name="xbrlnote3">3. Other Significant Transactions and Events</a></b></font> </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="justify"> &#160; </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><b>A. Tax Audit Settlements</b></font> </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">During the fourth quarter of 2010, we reached a settlement with the U.S. Internal Revenue Service (IRS) related to issues we had appealed with respect to the audits of the Pfizer Inc. tax returns for the years 2002 through 2005, as well as the Pharmacia audit for the year 2003 through the date of merger with Pfizer (April 16, 2003). The IRS concluded its examination of the aforementioned tax years and issued a final Revenue Agent&#8217;s Report (RAR). We agreed with all of the adjustments and computations contained in the RAR. As a result of settling these audit years, in the fourth quarter of 2010, we reduced our unrecognized tax benefits by approximately $1.4 billion and reversed the related interest accruals by approximately $600 million. During 2010, we also recognized $320 million in tax benefits and reversed the related interest accruals of $140 million resulting from the resolution of certain tax positions pertaining to prior years with various foreign tax authorities as well as from the expiration of the statute of limitations. The aforementioned amounts had been classified in </font><font style="DISPLAY: inline; FONT-STYLE: italic"><i>Other taxes payable</i></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">, and the corresponding tax benefit was recorded in </font><font style="DISPLAY: inline; FONT-STYLE: italic"><i>Provision for taxes on Income </i></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(see </font><font style="DISPLAY: inline; FONT-STYLE: italic"><i>Note 7.Taxes on Income</i></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">). In the second quarter of 2008, we effectively settled certain issues common among multinational corporations with various foreign tax authorities primarily relating to tax years 2000 to 2005. As a result, we recognized $305 million in tax benefits in </font><font style="DISPLAY: inline; FONT-STYLE: italic"><i>Provision for taxes on income.</i></font> </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="justify"> &#160; </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><b>B. Asset Impairment Charges</b></font> </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">During 2010 we recorded the following intangible asset impairment charges in </font><font style="DISPLAY: inline; FONT-STYLE: italic"><i>Other deductions</i></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#8212;</font><font style="DISPLAY: inline; FONT-STYLE: italic"><i>net</i></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"> (see </font><font style="DISPLAY: inline; FONT-STYLE: italic"><i>Note 6. Other (Income)/Deductions</i></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#8212;</font><font style="DISPLAY: inline; FONT-STYLE: italic"><i>net</i></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">):</font> </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font> </div> <div> <table cellspacing="0" width="100%" cellpadding="0" style="FONT-SIZE: 10pt; FONT-FAMILY: times new roman"> <tr> <td width="1%" valign="top" align="left"> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#8226;</font> </div> </td> <td width="1%" valign="top" align="left"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160; </font> </td> <td width="76%" valign="top" align="left"> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We recorded $1.8 billion in 2010 related to intangible assets, including certain IPR&amp;D and Brand intangible assets that were acquired as part of our acquisition of Wyeth.&#160;These impairment charges primarily resulted from our updated estimate of the fair value of these assets, which was based upon updated forecasts, compared with their assigned fair values as of the Wyeth acquisition date, October&#160;15, 2009. Our updated forecasts of net cash flows for the impaired assets, reflect, among other things, the following: for IPR&amp;D assets, the impact of changes to the development programs, the projected development and regulatory timeframes and the risk associated with these assets; for Brand assets, the current competitive environment and planned investment support; and, for Developed Technology Rights, an increased competitive environment.</font> </div> </td> </tr> </table> </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font> </div> <div> <table cellspacing="0" width="100%" cellpadding="0" style="FONT-SIZE: 10pt; FONT-FAMILY: times new roman"> <tr> <td width="1%" valign="top" align="left"> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#8226;</font> </div> </td> <td width="1%" valign="top" align="left"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160; </font> </td> <td width="76%" valign="top" align="left"> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We recorded a charge of approximately $300&#160;million in the fourth quarter of 2010 associated with our product Thelin, as a result of our decisions to voluntarily withdraw Thelin in regions where it is approved and to discontinue clinical studies worldwide.</font> </div> </td> </tr> </table> </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="justify"> &#160; </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Of these amounts, about $1.4 billion related to our Biopharmaceutical segment and about $700 million related to our Diversified segment.</font> </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="justify"> &#160; </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Also, in the third quarter of 2010, we recorded a $212 million write-off of Wyeth-related inventory in </font><font style="DISPLAY: inline; FONT-STYLE: italic"><i>Cost of sales</i></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"> related to unfinished inventory acquired from Wyeth that became unusable after the acquisition date (which included a purchase accounting fair value adjustment of $104 million).</font> </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="justify"> &#160; </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In the fourth quarter of 2009, we recorded $417 million in asset impairment charges primarily associated with certain materials used in our research and development activities that were no longer considered recoverable. In the fourth quarter of 2008, we recorded $143 million in asset impairment charges related to certain equity investments and the exit of our Exubera product.</font> </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="justify"> &#160; </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">For additional information on our accounting policy for reviewing long-lived assets for impairment, see </font><font style="DISPLAY: inline; FONT-STYLE: italic"><i>Note 1L. 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Legal Matters</b></font> </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="justify"> &#160; </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; TEXT-DECORATION: underline"><u>Asbestos Litigation Charge</u></font> </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We recorded additional charges of $701 million in the third quarter of 2010 and $620 million in the fourth quarter of 2010, for asbestos litigation related to our wholly owned subsidiary, Quigley Company, Inc. (see </font><font style="DISPLAY: inline; FONT-STYLE: italic"><i>Note 19. Legal Proceedings and Contingencies</i></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"> for additional information).</font> </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font> </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; TEXT-DECORATION: underline"><u>Bextra and Certain Other Investigations</u></font> </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In January 2009, we entered into an agreement-in-principle with the U.S. Department of Justice (DOJ) to resolve previously reported investigations regarding past off-label promotional practices concerning Bextra, as well as certain other investigations. In connection with these actions, in the fourth quarter of 2008, we recorded a charge of $2.3 billion, pre-tax and after-tax, in </font><font style="DISPLAY: inline; FONT-STYLE: italic"><i>Other deductions</i></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#8212;</font><font style="DISPLAY: inline; FONT-STYLE: italic"><i>net</i></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"> and such amount is included in O</font><font style="DISPLAY: inline; FONT-STYLE: italic"><i>ther current liabilities </i></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">in 2008. In the third quarter of 2009, we reached final resolution of this matter and no additional charge was recorded. The entire $2.3 billion was paid in 2009. We recorded a tax benefit of $174 million in the third quarter of 2009 as such resolution resulted in the receipt of information that raised our assessment of the likelihood of prevailing on the technical merits of our tax position. In addition, in September 2009, we settled state civil consumer protection allegations related to our past promotional practices concerning Geodon and recorded a charge of $33 million.</font> </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="justify"> &#160; </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; TEXT-DECORATION: underline"><u>Certain Product Litigation&#8212;Celebrex and Bextra</u></font> </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In October 2008, we reached agreements-in-principle to resolve the pending U.S. consumer fraud purported class action cases and more than 90% of the known U.S. personal injury claims involving Celebrex and Bextra, and we reached agreements to resolve substantially all of the claims of state attorneys general primarily relating to alleged Bextra promotional practices. In connection with these actions, in the third quarter of 2008, we recorded pre-tax charges of approximately:</font> </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font> </div> <div> <table cellspacing="0" width="100%" cellpadding="0" style="FONT-SIZE: 10pt; FONT-FAMILY: times new roman"> <tr> <td width="1%" valign="top" align="left"> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#8226;</font> </div> </td> <td width="1%" valign="top" align="left"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160; </font> </td> <td width="76%" valign="top" align="left"> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">$745 million applicable to all known U.S. personal injury claims;</font> </div> </td> </tr> </table> </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font> </div> <div> <table cellspacing="0" width="100%" cellpadding="0" style="FONT-SIZE: 10pt; FONT-FAMILY: times new roman"> <tr> <td width="1%" valign="top" align="left"> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#8226;</font> </div> </td> <td width="1%" valign="top" align="left"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160; </font> </td> <td width="76%" valign="top" align="left"> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">$89 million applicable to the pending U.S. consumer fraud purported class action cases; and</font> </div> </td> </tr> </table> </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font> </div> <div> <table cellspacing="0" width="100%" cellpadding="0" style="FONT-SIZE: 10pt; FONT-FAMILY: times new roman"> <tr> <td width="1%" valign="top" align="left"> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#8226;</font> </div> </td> <td width="1%" valign="top" align="left"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160; </font> </td> <td width="76%" valign="top" align="left"> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">$60 million applicable to agreements to resolve civil claims brought by 33 states and the District of Columbia, primarily relating to alleged Bextra promotional practices. Under these agreements, we made a payment of $60 million to the states and have adopted compliance measures that complement policies and procedures previously established by us.</font> </div> </td> </tr> </table> </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="justify"> &#160; </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">These litigation-related charges were recorded in 2008 in </font><font style="DISPLAY: inline; FONT-STYLE: italic"><i>Other deductions&#8212;net</i></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">. Virtually all of this amount was paid in 2009. During 2009, we recorded approximately $170 million in insurance recoveries in </font><font style="DISPLAY: inline; FONT-STYLE: italic"><i>Selling, informational and administrative expenses</i></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">.</font> </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="justify"> &#160; </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We believe that the charges of approximately $745 million will be sufficient to resolve all U.S. personal injury claims that were known at the time of the agreement-in-principle, including those that had not been settled at the time. However, additional charges may have to be taken in the future in connection with certain pending claims and unknown claims relating to Celebrex.</font> </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="justify"> &#160; </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><b>D. Acquisitions</b></font> </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="justify"> &#160; </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; TEXT-DECORATION: underline"><u>Acquisition of FoldRx Pharmaceuticals, Inc.</u></font> </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">On October&#160;6, 2010, we completed our acquisition of FoldRx Pharmaceuticals, Inc. (FoldRx), a privately-held drug discovery and clinical development company, whose portfolio includes clinical and preclinical programs for investigational compounds to treat diseases caused by protein misfolding. FoldRx&#8217;s lead product candidate, tafamidis meglumine, is in registration in both the U.S. and the EU as a first-in-class oral therapy for the treatment of transthyretin amyloid polyneuropathy (ATTR-PN), a progressively fatal genetic neurodegenerative disease, for which liver transplant is the only treatment option currently available. The total consideration for the acquisition was approximately $400 million, which consisted of an upfront payment to FoldRx&#8217;s shareholders of about $200 million and contingent consideration with an estimated acquisition-date fair value of about $200 million. The contingent consideration consists of up to $455 million in additional payments that are contingent upon the attainment of future regulatory and commercial milestones. In connection with this acquisition, we recorded an asset of approximately $500 million in </font><font style="DISPLAY: inline; FONT-STYLE: italic"><i>Identifiable intangible assets</i></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#8212;</font><font style="DISPLAY: inline; FONT-STYLE: italic"><i>in-process research and development</i></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">. The goodwill resulting from the acquisition was approximately $60 million.</font> </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="justify"> &#160; </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The fair value of the contingent consideration of about $200 million at the acquisition date was estimated by utilizing a probability weighted income approach. We started with an estimate of the probability weighted potential cash payments by year, based on our expectation as to when the future regulatory and commercial milestones might be achieved, and then we discounted each of those projected payments to arrive as a present value amount. Subsequent to the acquisition date, we remeasure the contingent consideration liability at current fair value at every reporting period with changes recorded in </font><font style="DISPLAY: inline; FONT-STYLE: italic"><i>Other deductions&#8212;net</i></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"> in our consolidated statements of income.</font> </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="justify"> &#160; </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; TEXT-DECORATION: underline"><u>Other Acquisitions</u></font> </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We completed the following additional acquisitions during the year ended December&#160;31, 2008:</font> </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font> </div> <div> <table cellspacing="0" width="100%" cellpadding="0" style="FONT-SIZE: 10pt; FONT-FAMILY: times new roman"> <tr> <td width="1%" valign="top" align="left"> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#8226;</font> </div> </td> <td width="1%" valign="top" align="left"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160; </font> </td> <td width="76%" valign="top" align="left"> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In the fourth quarter of 2008, we completed the acquisition of a number of animal health product lines from Schering-Plough Corporation (Schering-Plough) for approximately $170 million.</font> </div> </td> </tr> </table> </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font> </div> <div> <table cellspacing="0" width="100%" cellpadding="0" style="FONT-SIZE: 10pt; FONT-FAMILY: times new roman"> <tr> <td width="1%" valign="top" align="left"> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#8226;</font> </div> </td> <td width="1%" valign="top" align="left"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160; </font> </td> <td width="76%" valign="top" align="left"> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In the second quarter of 2008, we acquired Encysive Pharmaceuticals Inc. (Encysive), a biopharmaceutical company whose main product was Thelin (see </font><font style="DISPLAY: inline; FONT-STYLE: italic"><i>Note 3B. Asset Impairment Charges</i></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">), through a tender offer, for approximately $200&#160;million, including transaction costs. In addition, in the second quarter of 2008, we acquired Serenex, Inc. (Serenex), a privately held biotechnology company. In connection with these acquisitions, we recorded approximately $170 million in </font><font style="DISPLAY: inline; FONT-STYLE: italic"><i>Acquisition-related in-process research and development charges</i></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"> and approximately $450 million in intangible assets.</font> </div> </td> </tr> </table> </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font> </div> <div> <table cellspacing="0" width="100%" cellpadding="0" style="FONT-SIZE: 10pt; FONT-FAMILY: times new roman"> <tr> <td width="1%" valign="top" align="left"> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#8226;</font> </div> </td> <td width="1%" valign="top" align="left"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160; </font> </td> <td width="76%" valign="top" align="left"> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In the first quarter of 2008, we acquired CovX, a privately held biotherapeutics company, and we acquired all the outstanding shares of Coley Pharmaceutical Group, Inc. (Coley), a biopharmaceutical company. In connection with these and two smaller acquisitions related to Animal Health, we recorded approximately $440 million in </font><font style="DISPLAY: inline; FONT-STYLE: italic"><i>Acquisition-related in-process research and development charges </i></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">in 2008. In 2010, we recorded $125 million and in 2009 we recorded $68 million in </font><font style="DISPLAY: inline; FONT-STYLE: italic"><i>Acquisition-related in-process research and development charges</i></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"> related to the resolution of certain contingencies and achievement of milestones associated with CovX.</font> </div> </td> </tr> </table> </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font> </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><b>E. Equity-Method Investments</b></font> </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="justify"> &#160; </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; TEXT-DECORATION: underline"><u>Investment in Laborat&#243;rio Teuto Brasileiro, an Equity-Method Investment</u></font> </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In the fourth quarter of 2010, we consummated our partnership to develop and commercialize generic medicines with Laborat&#243;rio Teuto Brasileiro S.A. (Teuto) a leading generics company in Brazil. As part of the transaction, we acquired a 40 percent equity stake in Teuto, and entered into a series of commercial agreements. The partnership is expected to enhance our position in Brazil, a key emerging market, by providing access to Teuto&#8217;s portfolio of products. Through this partnership, we expect to also have access to significant distribution networks in rural and suburban areas in Brazil and the opportunity to register and commercialize Teuto&#8217;s products in various markets outside of Brazil. Under the terms of our purchase agreement with Teuto, we made an upfront payment at the closing of approximately $230 million (subject to certain post-closing adjustments). In addition, Teuto will be eligible to receive a performance-based milestone payment from us in 2012 of up to approximately $200 million. We have an option to acquire the remaining 60 percent of Teuto&#8217;s shares beginning in 2014, and Teuto&#8217;s shareholders have an option to sell their 60 percent stake to us beginning in 2015.</font> </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="justify"> &#160; </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We are accounting for our interest in Teuto as an equity method investment due to the significant influence we have over the operations of Teuto through our board representation, minority veto rights and 40% voting interest. Our investment in Teuto is reported as a private equity investment in </font><font style="DISPLAY: inline; FONT-STYLE: italic"><i>Long-term investments and loans</i></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"> in our consolidated balance sheet as of December&#160;31, 2010. Our share of Teuto&#8217;s income and expenses is recorded in </font><font style="DISPLAY: inline; FONT-STYLE: italic"><i>Other deductions</i></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#8212;</font><font style="DISPLAY: inline; FONT-STYLE: italic"><i>net</i></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">.</font> </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="justify"> &#160; </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; TEXT-DECORATION: underline"><u>Formation of ViiV, an Equity-Method Investment</u></font> </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In the fourth quarter of 2009, we and GlaxoSmithKline plc (GSK) created a new company, ViiV Healthcare Limited (ViiV), which is focused solely on research, development and commercialization of human immunodeficiency virus (HIV) medicines. Under the agreement, we and GSK have contributed certain existing HIV-related products, pipeline assets and research assets to ViiV and will perform R&amp;D and manufacturing services. The R&amp;D Services Agreement provides that we will perform R&amp;D services for pipeline and marketed products contributed by us and that such services be billed at our internal cost plus a profit margin. After two and a half years, either party may terminate this agreement with six months&#8217; notice. The Contract Manufacturing Agreement provides that we will manufacture and supply products to ViiV for four years at a price that incorporates a profit margin. Prior to the agreed termination date, ViiV may terminate this agreement at any time with approximately one-year&#8217;s notice. Further, Pfizer and GSK have entered into a 3-year Research Alliance Agreement with ViiV under which each party, at its sole discretion, may conduct research programs in order to achieve Proof of Concept for an HIV Therapy Compound. ViiV will have a right of first negotiation on compounds that reach Proof of Concept.</font> </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="justify"> &#160; </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We recognized a gain of approximately $482 million in connection with the formation, which was recorded in </font><font style="DISPLAY: inline; FONT-STYLE: italic"><i>Other deductions</i></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#8212;</font><font style="DISPLAY: inline; FONT-STYLE: italic"><i>net </i></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">in the fourth quarter of 2009. Since we currently hold a 15% equity interest in ViiV, we have an indirect retained interest in the contributed assets; as such, 15% of the gain, or $72 million, is the portion of the gain associated with that indirect retained interest. In valuing our investment in ViiV (which includes the indirect retained interest in the contributed assets), we used discounted cash flow techniques, utilizing an 11% discount rate and a terminal year growth factor of 3%.</font> </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="justify"> &#160; </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We currently hold a 15% equity interest and GSK holds an 85% equity interest in ViiV. The equity interests will be adjusted in the event that specified sales and regulatory milestones are achieved. Our equity interest in ViiV could vary from 9% to 30.5%, and GSK&#8217;s equity interest could vary from 69.5% to 91%, depending upon the milestones achieved with respect to the original assets contributed to ViiV by us and by GSK. Each company also may be entitled to preferential dividend payments to the extent that specific sales thresholds are met in respect of the marketed products and pipeline assets originally contributed.</font> </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="justify"> &#160; </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We are accounting for our interest in ViiV as an equity method investment due to the significant influence we have over the operations of ViiV through our board representation and minority veto rights. Our investment in ViiV is reported as a private equity investment in </font><font style="DISPLAY: inline; FONT-STYLE: italic"><i>Long-term investments and loans</i></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"> in our consolidated balance sheets as of December&#160;31, 2010 and 2009. Our share of ViiV&#8217;s income and expenses is recorded in </font><font style="DISPLAY: inline; FONT-STYLE: italic"><i>Other deductions&#8212;net.</i></font> </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="justify"> &#160; </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><b>F. Adjustment of Prior Years&#8217; Liabilities for Product Returns</b></font> </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Revenues in 2008 include a reduction recorded in the third quarter of 2008 of $217 million, pre-tax, to adjust our prior years' liabilities for product returns. After a detailed review in 2008 of our returns experience, we determined that our previous accounting methodology for product returns needed to be revised as the lag time between product sale and return was longer than we previously had assumed. Although fully recorded in 2008, virtually all of the adjustment relates back several years.</font> </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font> </div> </div> <div style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><b><a name="xbrlnote14">14. Equity</a></b></font> </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="justify"> &#160; </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><b>A. Common Stock</b></font> </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">During 2009, in connection with our acquisition of Wyeth on October&#160;15, 2009 (see </font><font style="DISPLAY: inline; FONT-STYLE: italic"><i>Note 2. Acquisition of Wyeth</i></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">), we issued approximately 1.3 billion shares of common stock, which were previously held as Pfizer treasury stock, to former Wyeth shareholders to partially fund the acquisition. The excess of the average cost of Pfizer treasury stock issued over the fair value of the stock portion of the consideration transferred to acquire Wyeth was recorded as a reduction to </font><font style="DISPLAY: inline; FONT-STYLE: italic"><i>Retained Earnings</i></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">. We purchase our common stock via privately negotiated transactions or in open market purchases as circumstances and prices warrant. Purchased shares under each of the share-purchase plans, which are authorized by our Board of Directors, are available for general corporate purposes.</font> </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="justify"> &#160; </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">On June&#160;23, 2005, we announced that the Board of Directors authorized a $5 billion share-purchase plan (the 2005 Stock Purchase Plan). On June&#160;26, 2006, we announced that the Board of Directors increased the authorized amount of shares to be purchased under the 2005 Stock Purchase Plan from $5 billion to $18 billion. On January&#160;23, 2008, we announced that the Board of Directors had authorized a new $5 billion share-purchase plan, to be funded by operating cash flows that may be utilized from time to time. In total, under the 2005 and 2008 Stock Purchase Plans, through December&#160;31, 2010, we purchased approximately 771&#160;million shares for approximately $19.0 billion. We purchased approximately 61&#160;million shares of our common stock during 2010 at an average price per share of $16.46. We did not purchase any shares of our common stock in 2009 and, during 2008 we purchased approximately 26&#160;million shares of our common stock at an average price per share of $18.96.</font> </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="justify"> &#160; </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">On February&#160;1, 2011, we announced that the Board of Directors authorized a new $5 billion share-repurchase plan, which, together with the balance remaining under the 2008 Stock Purchase Plan, increased our total current authorization to $9 billion.</font> </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="justify"> &#160; </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><b>B. Preferred Stock</b></font> </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The Series A convertible perpetual preferred stock is held by an Employee Stock Ownership Plan (Preferred ESOP) Trust and provides dividends at the rate of 6.25%, which are accumulated and paid quarterly. The per share stated value is $40,300 and the preferred stock ranks senior to our common stock as to dividends and liquidation rights. Each share is convertible, at the holder&#8217;s option, into 2,574.87 shares of our common stock with equal voting rights. The conversion option is indexed to our common stock and requires share settlement, and, therefore, is reported at the fair value at the date of issuance. We may redeem the preferred stock at any time or upon termination of the Preferred ESOP, at our option, in cash, in shares of common stock or, a combination of both at a price of $40,300 per share.</font> </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font> </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><b>C. Employee Stock Ownership Plans</b></font> </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We have two employee stock ownership plans (collectively, the ESOPs), the Preferred ESOP and another that holds common stock of the company (Common ESOP). As of January&#160;1, 2008, the legacy Pharmacia U.S. savings plan was merged with the Pfizer Savings Plan. Prior to the merger, a portion of the matching contributions for legacy Pharmacia U.S. savings plan participants was funded through the ESOPs.</font> </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="justify"> &#160; </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Allocated shares held by the Common ESOP are considered outstanding for the earnings per share (EPS) calculations and the eventual conversion of allocated preferred shares held by the Preferred ESOP is assumed in the diluted EPS calculation. As of December&#160;31, 2010, the Preferred ESOP held preferred shares with a stated value of approximately $52 million, convertible into approximately 3&#160;million shares of our common stock. As of December&#160;31, 2010, the Common ESOP held approximately 4&#160;million shares of our common stock. As of December&#160;31, 2010, all preferred and common shares held by the ESOPs have been allocated to the Pharmacia U.S. and certain Puerto Rico savings plan participants.</font> </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="justify"> &#160; </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><b>D. Employee Benefit Trust</b></font> </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The Pfizer Inc. Employee Benefit Trust (EBT) was established in 1999 to fund our employee benefit plans through the use of its holdings of Pfizer Inc. stock. Our consolidated balance sheets reflect the fair value of the shares owned by the EBT as a reduction of </font><font style="DISPLAY: inline; FONT-STYLE: italic"><i>Shareholders&#8217; equity. </i></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Beginning in May 2009, the Company began using the shares held in the EBT to help fund the Company&#8217;s matching contribution in the Pfizer Savings Plan.</font> </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="justify"> &#160; </div> </div> <div style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><b><a name="xbrlnote18">18. Insurance</a></b></font> </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="justify"> &#160; </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="left"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Our insurance coverage reflects market conditions (including cost and availability) existing at the time it is written, and our decision to obtain insurance coverage or to self-insure varies accordingly. Depending upon the cost and availability of insurance and the nature of the risk involved, the amount of self-insurance may be significant. The cost and availability of coverage have resulted in self-insuring certain exposures, including product liability. If we incur substantial liabilities that are not covered by insurance or substantially exceed insurance coverage and that are in excess of existing accruals, there could be a material adverse effect on our results of operations in any particular period (see </font><font style="DISPLAY: inline; FONT-STYLE: italic"><i>Note 19. Legal Proceedings and Contingencies</i></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">).</font> </div> <div style="MARGIN-RIGHT: 0pt; margin-left: 0pt; display: block; text-indent: 0pt" align="justify"> &#160; </div> </div> <div style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"> <div align="left" style="MARGIN-RIGHT: 0pt; margin-left: 0pt; text-indent: 0pt; display: block"> <b><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">A. Consolidation and Basis of Presentation</font></b> </div> <div align="left" style="MARGIN-RIGHT: 0pt; margin-left: 0pt; text-indent: 0pt; display: block"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The consolidated financial statements include our parent company and all subsidiaries, including those operating outside the United States (U.S.) and are prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). The decision whether or not to consolidate an entity requires consideration of majority voting interests, as well as effective economic or other control over the entity. Typically, we do not seek control by means other than voting interests. For subsidiaries operating outside the U.S., the financial information is included as of and for the year ended November&#160;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 reclassification adjustments to conform prior period amounts to the current presentation, primarily related to our Consolidated Statements of Cash Flows.</font> </div> <div align="justify" style="MARGIN-RIGHT: 0pt; margin-left: 0pt; text-indent: 0pt; display: block"> &#160; </div> <div align="left" style="MARGIN-RIGHT: 0pt; margin-left: 0pt; text-indent: 0pt; display: block"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">On October&#160;15, 2009, we completed our acquisition of Wyeth in a cash-and-stock transaction valued on that date at approximately $68 billion. Commencing from the acquisition date, our financial statements reflect the assets, liabilities, operating results and cash flows of Wyeth. As a result, and in accordance with our domestic and international fiscal year-ends, our consolidated financial statements for the year ended December&#160;31, 2009 reflect approximately two-and-a-half months of the fourth calendar quarter of 2009 in the case of Wyeth&#8217;s U.S. operations and approximately one-and-a-half months of the fourth calendar quarter of 2009 in the case of Wyeth&#8217;s international operations.</font> </div> <div align="justify" style="MARGIN-RIGHT: 0pt; margin-left: 0pt; text-indent: 0pt; display: block"> &#160; </div> </div> <div style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"> <div align="left" style="MARGIN-RIGHT: 0pt; margin-left: 0pt; text-indent: 0pt; display: block"> <b><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">B. New Accounting Standards</font></b> </div> <div align="left" style="MARGIN-RIGHT: 0pt; margin-left: 0pt; text-indent: 0pt; display: block"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The provisions of the following new accounting standards were adopted as of January&#160;1, 2010 and did not have a significant impact on our consolidated financial statements:</font> </div> <div align="left" style="MARGIN-RIGHT: 0pt; margin-left: 0pt; text-indent: 0pt; display: block"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font> </div> <div> <table cellpadding="0" width="100%" cellspacing="0" style="FONT-SIZE: 10pt; FONT-FAMILY: times new roman"> <tr> <td align="left" valign="top" width="1%"> <div align="left" style="MARGIN-RIGHT: 0pt; margin-left: 0pt; text-indent: 0pt; display: block"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#8226;</font> </div> </td> <td align="left" valign="top" width="1%"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160; </font> </td> <td align="left" valign="top" width="76%"> <div align="left" style="MARGIN-RIGHT: 0pt; margin-left: 0pt; text-indent: 0pt; display: block"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">An amendment to the recognition and measurement guidance for the transfers of financial assets.</font> </div> </td> </tr> </table> </div> <div align="left" style="MARGIN-RIGHT: 0pt; margin-left: 0pt; text-indent: 0pt; display: block"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font> </div> <div> <table cellpadding="0" width="100%" cellspacing="0" style="FONT-SIZE: 10pt; FONT-FAMILY: times new roman"> <tr> <td align="left" valign="top" width="1%"> <div align="left" style="MARGIN-RIGHT: 0pt; margin-left: 0pt; text-indent: 0pt; display: block"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#8226;</font> </div> </td> <td align="left" valign="top" width="1%"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160; </font> </td> <td align="left" valign="top" width="76%"> <div align="left" style="MARGIN-RIGHT: 0pt; margin-left: 0pt; text-indent: 0pt; display: block"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">An amendment to the guidelines for determining the primary beneficiary in a variable interest entity.</font> </div> </td> </tr> </table> </div> <div align="justify" style="MARGIN-RIGHT: 0pt; margin-left: 0pt; text-indent: 0pt; display: block"> &#160; </div> <div align="left" style="MARGIN-RIGHT: 0pt; margin-left: 0pt; text-indent: 0pt; display: block"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">As of January&#160;1, 2009, we adopted a new accounting standard that retains the purchase method of accounting for acquisitions but requires a number of changes to that method, including changes in the way assets and liabilities are recognized in purchase accounting. Specifically, they require the capitalization of in-process research and development assets at fair value and require the expensing of transaction costs as incurred. The adoption of these provisions did not have an impact on our consolidated financial statements upon adoption, but they did significantly impact our accounting for the acquisition of Wyeth in 2009. For additional information, see </font><font style="DISPLAY: inline; FONT-STYLE: italic"><i>Note 2. Acquisition of Wyeth</i></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">.</font> </div> <div align="justify" style="MARGIN-RIGHT: 0pt; margin-left: 0pt; text-indent: 0pt; display: block"> &#160; </div> </div> <div style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"> <div align="left" style="MARGIN-RIGHT: 0pt; margin-left: 0pt; text-indent: 0pt; display: block"> <b><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">C. Estimates and Assumptions</font></b> </div> <div align="left" style="MARGIN-RIGHT: 0pt; margin-left: 0pt; text-indent: 0pt; display: block"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In preparing the consolidated financial statements, we use certain estimates and assumptions that affect reported amounts and disclosures, including amounts recorded in connection with acquisitions. These estimates and underlying assumptions can impact all elements of our financial statements. For example, in the consolidated statements of income, estimates are used when accounting for deductions from revenues (such as rebates, chargebacks, sales returns and sales allowances), determining cost of sales, allocating cost in the form of depreciation and amortization, and estimating restructuring charges and the impact of contingencies. On the consolidated balance sheets, estimates are used in determining the valuation and recoverability of assets, such as accounts receivables, investments, inventories, fixed assets and intangible assets (including acquired in-process research&#160;&amp; development (IPR&amp;D) assets, beginning in 2009, and goodwill), and estimates are used in determining the reported amounts of liabilities, such as taxes payable, benefit obligations, the impact of contingencies, rebates, chargebacks, sales returns and sales allowances, and restructuring reserves, all of which also will impact the consolidated statements of income.</font> </div> <div align="justify" style="MARGIN-RIGHT: 0pt; margin-left: 0pt; text-indent: 0pt; display: block"> &#160; </div> <div align="left" style="MARGIN-RIGHT: 0pt; margin-left: 0pt; text-indent: 0pt; display: block"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We regularly evaluate our estimates and assumptions using historical experience and other factors, including the economic environment. Our estimates often are based on complex judgments, probabilities and assumptions that we believe to be reasonable but that are inherently uncertain and unpredictable.</font> </div> <div align="justify" style="MARGIN-RIGHT: 0pt; margin-left: 0pt; text-indent: 0pt; display: block"> &#160; </div> <div align="left" style="MARGIN-RIGHT: 0pt; margin-left: 0pt; text-indent: 0pt; display: block"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">As future events and their effects cannot be determined with precision, our estimates and assumptions may prove to be incomplete or inaccurate, or unanticipated events and circumstances may occur that might cause us to change those estimates and assumptions. Market conditions, such as illiquid credit markets, volatile equity markets, dramatic fluctuations in foreign currency rates and economic downturn, can increase the uncertainty already inherent in our estimates and assumptions. We adjust our estimates and assumptions when facts and circumstances indicate the need for change. Those changes generally will be reflected in our financial statements on a prospective basis unless they are required to be treated retrospectively under the relevant accounting standard. It is possible that other professionals, applying reasonable judgment to the same facts and circumstances, could develop and support a range of alternative estimated amounts. We also are subject to other risks and uncertainties that may cause actual results to differ from estimated amounts, such as changes in the healthcare environment, competition, litigation, legislation and regulations. These and other risks and uncertainties are discussed in the accompanying Financial Review, which is unaudited, under the headings &#8220;Our Operating Environment&#8221;, &#8220;Our Strategy&#8221; and &#8220;Forward-Looking Information and Factors That May Affect Future Results&#8221; and in our 2010 Annual Report on Form 10-K under the caption, Part 1 Item&#160;1A. &#8220;Risk Factors.&#8221;</font> </div> <div align="justify" style="MARGIN-RIGHT: 0pt; margin-left: 0pt; text-indent: 0pt; display: block"> &#160; </div> </div> <div style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"> <div align="left" style="MARGIN-RIGHT: 0pt; margin-left: 0pt; text-indent: 0pt; display: block"> <b><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">E. Acquisitions</font></b> </div> <div align="left" style="MARGIN-RIGHT: 0pt; margin-left: 0pt; text-indent: 0pt; display: block"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Our consolidated financial statements include the operations of an acquired business after the completion of the acquisition. We account for acquired businesses using the acquisition method of accounting. The acquisition method of accounting for acquired businesses requires, among other things, that most assets acquired and liabilities assumed be recognized at their estimated fair values as of the acquisition date and that the fair value of acquired IPR&amp;D be recorded on the balance sheet. Also, transaction costs are expensed as incurred. Any excess of the purchase price over the assigned values of the net assets acquired is recorded as goodwill. For acquisitions consummated prior to January&#160;1, 2009, amounts allocated to IPR&amp;D were expensed at the date of acquisition. When we have acquired net assets that do not constitute a business under U.S. GAAP, no goodwill has been recognized.</font> </div> <div align="justify" style="MARGIN-RIGHT: 0pt; margin-left: 0pt; text-indent: 0pt; display: block"> &#160; </div> <div align="left" style="MARGIN-RIGHT: 0pt; margin-left: 0pt; text-indent: 0pt; display: block"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Contingent consideration is included within the acquisition cost and is recognized at its fair value on acquisition date. A liability resulting from contingent consideration is remeasured to fair value at each reporting date until the contingency is resolved. Changes in fair value are recognized in earnings.</font> </div> <div align="justify" style="MARGIN-RIGHT: 0pt; margin-left: 0pt; text-indent: 0pt; display: block"> &#160; </div> </div> <div style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"> <div align="left" style="MARGIN-RIGHT: 0pt; margin-left: 0pt; text-indent: 0pt; display: block"> <b><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">F. Fair Value</font></b> </div> <div align="left" style="MARGIN-RIGHT: 0pt; margin-left: 0pt; text-indent: 0pt; display: block"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We often are required to measure certain assets and liabilities at fair value, either upon initial measurement or for subsequent accounting or reporting. For example, we use fair value extensively in the initial measurement of net assets acquired in a business combination and when accounting for and reporting on certain financial instruments. We estimate fair value using an exit price approach, which requires, among other things, that we determine the price that would be received to sell an asset or paid to transfer a liability in an orderly market. The determination of an exit price is considered from the perspective of market participants, considering the highest and best use of assets and, for liabilities, assuming the risk of non-performance will be the same before and after the transfer. 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. When estimating fair value, depending on the nature and complexity of the asset or liability, we may use one or all of the following approaches:</font> </div> <div align="left" style="MARGIN-RIGHT: 0pt; margin-left: 0pt; text-indent: 0pt; display: block"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font> </div> <div> <table cellpadding="0" width="100%" cellspacing="0" style="FONT-SIZE: 10pt; FONT-FAMILY: times new roman"> <tr> <td align="left" valign="top" width="1%"> <div align="left" style="MARGIN-RIGHT: 0pt; margin-left: 0pt; text-indent: 0pt; display: block"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#8226;</font> </div> </td> <td align="left" valign="top" width="1%"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160; </font> </td> <td align="left" valign="top" width="76%"> <div align="left" style="MARGIN-RIGHT: 0pt; margin-left: 0pt; text-indent: 0pt; display: block"> <font style="DISPLAY: inline; 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display: block"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Market approach, which is based on market prices and other information from market transactions involving identical or comparable assets or liabilities.</font> </div> </td> </tr> </table> </div> <div align="left" style="MARGIN-RIGHT: 0pt; margin-left: 0pt; text-indent: 0pt; display: block"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font> </div> <div> <table cellpadding="0" width="100%" cellspacing="0" style="FONT-SIZE: 10pt; FONT-FAMILY: times new roman"> <tr> <td align="left" valign="top" width="1%"> <div align="left" style="MARGIN-RIGHT: 0pt; margin-left: 0pt; text-indent: 0pt; display: block"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#8226;</font> </div> </td> <td align="left" valign="top" width="1%"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160; </font> </td> <td align="left" valign="top" width="76%"> <div align="left" style="MARGIN-RIGHT: 0pt; margin-left: 0pt; text-indent: 0pt; display: block"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Cost approach, which is based on the cost to acquire or construct comparable assets less an allowance for functional and/or economic obsolescence.</font> </div> </td> </tr> </table> </div> <div align="justify" style="MARGIN-RIGHT: 0pt; margin-left: 0pt; text-indent: 0pt; display: block"> &#160; </div> <div align="left" style="MARGIN-RIGHT: 0pt; margin-left: 0pt; text-indent: 0pt; display: block"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">These fair value methodologies depend on the following types of inputs:</font> </div> <div align="left" style="MARGIN-RIGHT: 0pt; margin-left: 0pt; text-indent: 0pt; display: block"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font> </div> <div> <table cellpadding="0" width="100%" cellspacing="0" style="FONT-SIZE: 10pt; FONT-FAMILY: times new roman"> <tr> <td align="left" valign="top" width="1%"> <div align="left" style="MARGIN-RIGHT: 0pt; margin-left: 0pt; text-indent: 0pt; display: block"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#8226;</font> </div> </td> <td align="left" valign="top" width="1%"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160; </font> </td> <td align="left" valign="top" width="76%"> <div align="left" style="MARGIN-RIGHT: 0pt; margin-left: 0pt; text-indent: 0pt; display: block"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Quoted prices for identical assets or liabilities in active markets (called Level 1 inputs).</font> </div> </td> </tr> </table> </div> <div align="left" style="MARGIN-RIGHT: 0pt; margin-left: 0pt; text-indent: 0pt; display: block"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font> </div> <div> <table cellpadding="0" width="100%" cellspacing="0" style="FONT-SIZE: 10pt; FONT-FAMILY: times new roman"> <tr> <td align="left" valign="top" width="1%"> <div align="left" style="MARGIN-RIGHT: 0pt; margin-left: 0pt; text-indent: 0pt; display: block"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#8226;</font> </div> </td> <td align="left" valign="top" width="1%"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160; </font> </td> <td align="left" valign="top" width="76%"> <div align="left" style="MARGIN-RIGHT: 0pt; margin-left: 0pt; text-indent: 0pt; display: block"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Quoted prices for similar assets or liabilities in active markets or quoted prices for identical or similar assets or liabilities in markets that are not active or are directly or indirectly observable (called Level 2 inputs).</font> </div> </td> </tr> </table> </div> <div align="left" style="MARGIN-RIGHT: 0pt; margin-left: 0pt; text-indent: 0pt; display: block"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font> </div> <div> <table cellpadding="0" width="100%" cellspacing="0" style="FONT-SIZE: 10pt; 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text-indent: 0pt; display: block"> <b><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">G. Foreign Currency Translation</font></b> </div> <div align="left" style="MARGIN-RIGHT: 0pt; margin-left: 0pt; text-indent: 0pt; display: block"> <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">For most of our international operations, local currencies have been determined to be the functional currencies. We translate functional currency assets and liabilities to their U.S. dollar equivalents at rates in effect at the balance sheet date and record these translation adjustments in </font><font style="DISPLAY: inline; FONT-STYLE: italic"><i>Shareholders&#8217; equity&#8212;Accumulated other comprehensive (loss)/income</i></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">. We translate functional currency statement of income amounts to their U.S. dollar equivalents at average rates for the period. 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