| UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549  FORM 10-Q

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

**For  the quarterly period ended March 28, 2004**

OR

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

For the transition  period from________to_______

COMMISSION FILE NUMBER  1-3619

----

**PFIZER  INC.**(Exact name of  registrant as specified in its charter)

                                                                                                                                                                                                                                                                                                                                                                                                                    |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| DELAWARE  (State of Incorporation)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | 13-5315170  (I.R.S. Employer Identification No.) |
| 235 East 42nd Street, New York, New York  10017  (212) 573-2323  (Registrant's telephone number)

Indicate by check mark whether the registrant (1)  has filed all reports required to be filed by Section 13 or 15(d) of the  Securities Exchange Act of 1934 during the preceding 12 months (or for such  shorter period that the registrant was required to file such reports) and (2)  has been subject to such filing requirements for the past 90 days.

YES    X             NO      

Indicate by check mark whether the registrant is an  accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

YES    X             NO      

At May 5, 2004, 7,630,536,483 shares of the  issuer's common stock were outstanding (voting).

  |

 

 

 

 

 

 

 

 

**FORM 10-Q**

**For theQuarter EndedMarch 28, 2004**

**Tableof Contents**

** **

| **PART  I.  FINANCIAL INFORMATION**                                                                           | Page       |
|-------------------------------------------------------------------------------------------------------------------------|------------|
|                                                                                                                    |       |
| Item 1.                                                                                                                 |       |
|                                                                                                                    |       |
| Financial Statements:                                                                                                   |       |
|                                                                                                                    |       |
| Condensed Consolidated  Statement of Income for the three months ended March 28, 2004 and March  30, 2003          | 3          |
|                                                                                                                    |       |
| Condensed Consolidated  Balance Sheet at March 28, 2004 and December 31, 2003                            | 4          |
|                                                                                                                    |       |
| Condensed Consolidated  Statement of Cash Flows for the three months ended March 28, 2004 and  March 30, 2003 | 5          |
|                                                                                                                    |       |
| Notes to Condensed  Consolidated Financial Statements                                                                   | 6          |
|                                                                                                                    |       |
| Independent Accountants' Review Report                                                                                  | 17         |
|                                                                                                                    |       |
| Item 2.                                                                                                                 |       |
|                                                                                                                    |       |
| Management's Discussion  and Analysis of Financial Condition and Results of Operations                                  | 18         |
|                                                                                                                    |       |
| Item 4.                                                                                                                 |       |
|                                                                                                                    |       |
| Disclosure Controls and  Procedures                                                                                     | 39         |
| ** **                                                                                                              | ** ** |
| **PART  II.  OTHER INFORMATION**                                                                              | ** ** |
| ** **                                                                                                              |       |
| Item 1.                                                                                                                 |       |
|                                                                                                                    |       |
| Legal Proceedings                                                                                                       | 40         |
|                                                                                                                    |       |
| Item 2.                                                                                                                 |       |
|                                                                                                                    |       |
| Changes in Securities,  Use of Proceeds and Issuer                                                                      | 42         |
| Purchases of Equity  Securities                                                                                         |       |
|                                                                                                                    |       |
| Item 4.                                                                                                                 |       |
| Submission of Matters  to a Vote of Security Holders                                                                    | 42         |
|                                                                                                                    |       |
| Item 6.                                                                                                                 |       |
|                                                                                                                    |       |
| Exhibits and Reports on  Form 8-K                                                                                       | 44         |
|                                                                                                                    |       |
| Signature                                                                                                               | 45         |
|                                                                                                                    |       |
| Certifications                                                                                                          | 48         |

**PARTI.  FINANCIAL INFORMATION**

Item 1. Financial Statements

PFIZER INC. ANDSUBSIDIARY COMPANIESCONDENSED CONSOLIDATED STATEMENT OF INCOME(UNAUDITED)
|                                                                                                                                                                                                                    |   | Three Months  Ended              |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------|
| (millions of dollars, except per common share data)                                                                                                                                                                     |   | March 28,   2004  |   | March 30,   2003  |
|                                                                                                                                                                                                                    |   |                             |   |   |
| Revenues                                                                                                                                                                                                           | $      | 12,487** **                 | $ | 8,506  |
|                                                                                                                                                                                                                    |   |                             |   |   |
| Costs and expenses:                                                                                                                                                                                                     |   |                             |   |   |
| Cost of sales                                                                                                                                                                        |   | 1,794                       |   | 1,058  |
| Selling, informational  and administrative expenses                                                                                                    |   | 3,933                       |   | 2,740  |
| Research and development  expenses                                                                                                                                                                       |   | 1,649                       |   | 1,218  |
| Merger-related  in-process research and development charges                                                                                       |   | 955                         |   | --  |
| Merger-related costs                                                                                                                                             |   | 247                         |   | 91  |
| Other  (income)/deductions-net                                                                                                                                   |   | 780                         |   | 183  |
|                                                                                                                                                                                                                    |   |                             |   |   |
| Income from  continuing operations before provision for taxes on income, minority  interests and cumulative effect of change in accounting principles            |   | 3,129                       |   | 3,216  |
|                                                                                                                                                                                                                    |   |                             |   |   |
| Provision for taxes on  income                                                                                                                                                                                          |   | 809                         |   | 761  |
|                                                                                                                                                                                                                    |   |                             |   |   |
| Minority interests                                                                                                                                                                                       |   | 2                           |   | --  |
|                                                                                                                                                                                                                    |   |                             |   |   |
| Income from  continuing operations before cumulative effect of change in accounting  principles                                                                       |   | 2,318                       |   | 2,455  |
|                                                                                                                                                                                                                    |   |                             |   |   |
| Discontinued operations:                                                                                                                                                                                                |   |                             |   |   |
| Income from operations  of discontinued businesses and product lines-net of tax                                                                                                                                    |   | 13                          |   | 38  |
| Gains on sales of  discontinued businesses and product lines-net of tax                                                                                                                                            |   | --                          |   | 2,202  |
|                                                                                                                                                                                                                    |   |                             |   |   |
| Discontinued  operations-net of tax                                                                                                                                        |   | 13                          |   | 2,240  |
|                                                                                                                                                                                                                    |   |                             |   |   |
| Income before cumulative  effect of change in accounting principles                                                                                                                  |   | 2,331                       |   | 4,695  |
|                                                                                                                                                                                                                    |   |                             |   |   |
| Cumulative effect of  change in accounting principles-net of tax                                                                                       |   | --                          |   | (30) |
|                                                                                                                                                                                                                    |   |                             |   |   |
| Net income                                                                                                                                             | $      | 2,331                       | $ | 4,665  |
|                                                                                                                                                                                                                    |   |                             |   |   |
| Earnings per common share - Basic:                                                                                                                                                                                      |   |                             |   |   |
| Income from  continuing operations before cumulative effect of change in accounting  principles                                                                                                | $      | .31                         | $ | .40  |
| Discontinued operations:                                                                                                                                                                                                |   |                             |   |   |
| Income from operations  of discontinued businesses and product lines-net of tax                                                                        |   | --                          |   | --  |
| Gains on sales of  discontinued businesses and product lines-net of tax                                                                                |   | --                          |   | .36  |
| Discontinued  operations-net of tax                                                                                                                                                            |   | --                          |   | .36  |
| Income before cumulative  effect of change in accounting principles                                                                                                                                      |   | .31                         |   | .76  |
| Cumulative effect of  change in accounting principles-net of tax                                                                                                           |   | --                          |   | --  |
| Net income                                                                                                                                                                 | $      | .31                         | $ | .76  |
|                                                                                                                                                                                                                    |   |                             |   |   |
| Earnings per common share - Diluted:                                                                                                                                                                                    |   |                             |   |   |
| Income from  continuing operations before cumulative effect of change in accounting  principles                                                                                                | $      | .30                         | $ | .40  |
| Discontinued operations:                                                                                                                                                                                                |   |                             |   |   |
| Income from operations  of discontinued businesses and product lines-net of tax                                                                        |   | --                          |   | --  |
| Gains on sales of  discontinued businesses and product lines-net of tax                                                                                |   | --                          |   | .36  |
| Discontinued  operations-net of tax                                                                                                                                                            |   | --                          |   | .36  |
| Income before cumulative  effect of change in accounting principles                                                                                                                                      |   | .30                         |   | .76  |
| Cumulative effect of  change in accounting principles-net of tax                                                                                                           |   | --                          |   | --  |
| Net income                                                                                                                                                                 | $      | .30                         | $ | .76  |
|                                                                                                                                                                                                                    |   |                             |   |   |
| Weighted average shares  used to calculate earnings per common share:                                                                                                                                                   |   |                             |   |   |
| Basic                                                                                                                                                                                                    |   | 7,586.4                     |   | 6,101.4  |
|                                                                                                                                                                                                                    |   |                             |   |   |
| Diluted                                                                                                                                                                                                                 |   | 7,678.5                     |   | 6,161.7  |
|                                                                                                                                                                                                                    |   |                             |   |   |
| Cash dividends paid per common share                                                                                                                                                                                    | $      | .17                         | $ | .15  |

See accompanying Notes toCondensed Consolidated Financial Statements.

PFIZER INC. ANDSUBISIDARY COMPANIESCONDENSED CONSOLIDATED BALANCE SHEET(UNAUDITED)
| (millions of dollars)                                                                                                                          |   | March 28,   2004* |   | Dec. 31,   2003** |
|------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|--------|-----------------------------|
| ASSETS                                                                                                                                         |   |                        |   |                        |
| Current Assets                                                                                                                                 |   |                        |   |                        |
| Cash and cash  equivalents                                                              | $      | 965                    | $      | 1,520                  |
| Short-term investments                                                                                                                    |   | 12,987                 |   | 10,432                 |
| Accounts receivable,  less allowance for doubtful accounts: $192 and $185                              |   | 10,415                 |   | 8,636                  |
| Short-term loans                                                              |   | 448                    |   | 391                    |
| Inventories                                                                                                      |   | 5,942                  |   | 5,699                  |
| Prepaid expenses and  taxes                                                                  |   | 3,052                  |   | 2,758                  |
| Assets of discontinued  businesses and product lines held for sale                                                    |   | 1,580                  |   | 1,241                  |
| Total current assets                                                     |   | 35,389                 |   | 30,677                 |
| Long-term investments  and loans                                                                                           |   | 5,430                  |   | 6,142                  |
| Property, plant and  equipment, less accumulated depreciation: $7,366 and $6,916                                                          |   | 17,703                 |   | 18,156                 |
| Goodwill                                                            |   | 24,264                 |   | 22,265                 |
| Identifiable intangible  assets, net                                                                                       |   | 35,190                 |   | 35,591                 |
| Other assets, deferred  taxes and deferred charges                                                     |   | 4,313                  |   | 3,944                  |
| Total assets                                                                       | $      | 122,289                | $      | 116,775                |
|                                                                                                                                           |   |                        |   |                        |
| LIABILITIES AND  SHAREHOLDERS' EQUITY                                                                                                          |   |                        |   |                        |
| Current Liabilities                                                                                                                            |   |                        |   |                        |
| Short-term borrowings,  including current portion of long-term debt: $932 and $726           | $      | 10,692                 | $      | 8,818                  |
| Accounts payable                                                                             |   | 2,479                  |   | 2,587                  |
| Dividends payable                                                                                 |   | 3                      |   | 1,300                  |
| Income taxes payable                                                                                                  |   | 1,948                  |   | 1,910                  |
| Accrued compensation  and related items                                                                                              |   | 1,636                  |   | 1,740                  |
| Accrued litigation  settlements                                                                                       |   | 714                    |   | 1,402                  |
| Other current  liabilities                                                                                                           |   | 6,857                  |   | 5,850                  |
| Liabilities of discontinued  businesses and product lines held for sale                                                                   |   | 308                    |   | 302                    |
| Total current liabilities                                                                    |   | 24,637                 |   | 23,909                 |
| Long-term debt                                                                                                             |   | 7,144                  |   | 5,755                  |
| Pension benefit  obligations                                             |   | 2,915                  |   | 2,858                  |
| Postretirement benefit  obligations                                                                                             |   | 1,464                  |   | 1,451                  |
| Deferred taxes                                                                                                   |   | 13,053                 |   | 13,012                 |
| Other noncurrent  liabilities                                                                                                                  |   | 4,028                  |   | 4,413                  |
| Total liabilities                                                                                      |   | 53,241                      |   | 51,398                 |
|                                                                                                                                           |   |                        |   |                        |
| Shareholders' Equity                                                                                                                           |   |                        |   |                        |
| Preferred stock                                                                                                                                |   | 211                    |   | 219                    |
| Common stock                                                                                                                                   |   | 436                    |   | 435                    |
| Additional paid-in  capital                                              |   | 66,767                 |   | 66,396                 |
| Retained earnings                                                                       |   | 31,707                 |   | 29,382                 |
| Accumulated other  comprehensive expense                                      |   | 1,729                  |   | 195                    |
| Employee benefit trust                                                                                                          |   | (1,532)                     |   | (1,898)                     |
| Treasury stock, at cost                                                                                                              |   | (30,270)                    |   | (29,352)                    |
|                                                                                                                                           |   |                        |   |                        |
| Total shareholders' equity                                                                                                      |   | 69,048                 |   | 65,377                 |
| Total liabilities and shareholders' equity                                              | $      | 122,289                | $      | 116,775                |

*    Unaudited.

**  Condensed from audited financialstatements.

See accompanying Notes toCondensed Financial Statements.

PFIZER INC. ANDSUBSIDIARY COMPANIESCONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS(UNAUDITED)
|                                                                                                                                                       |   | Three Months  Ended                    |
|------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------|
| (millions of dollars)                                                                                                                                      |   | March 28,    2004  |   | March 30,   2003  |
|                                                                                                                                                       |   |                                   |   |   |
| Operating  Activities:                                                                                                                                     |   |                                   |   |   |
| Net income                                                                                | $      | 2,331                             | $ | 4,665  |
| Adjustments to reconcile  net income to net cash provided by continuing operating activities:                                                              |   |                                   |   |   |
| Cumulative effect of  change in accounting principles                                                    |   | --                                |   | 30  |
| Income from operations  of discontinued businesses and product lines                                                                             |   | (13)                                   |   | (38) |
| Depreciation and  amortization                                                                      |   | 1,261                             |   | 269  |
| Merger-related  in-process research and development charges                          |   | 955                               |   | --  |
| Gains on sales of  discontinued businesses and product lines                                                                                     |   | --                                |   | (3,746) |
| Gains on sales of  products                                                                                                                 |   | --                                |   | (17) |
| Deferred income taxes                                                                                              |   | (284)                                  |   | 22  |
| Other                                                                                                                                            |   | 174                               |   | 177  |
| Changes in assets and  liabilities (net of businesses acquired and divested)              |   | (2,841)                                |   | 961  |
|                                                                                                                                                       |   |                                   |   |   |
| Net cash provided by continuing operating activities                            |   | 1,583                             |   | 2,323  |
|                                                                                                                                                       |   |                                   |   |   |
| Investing Activities:                                                                                                                                      |   |                                   |   |   |
| Purchases of property,  plant and equipment                                                                             |   | (472)                                  |   | (382) |
| Purchases of short-term  investments                                                                                                             |   | (4,603)                                |   | (5,295) |
| Proceeds from  redemptions of short-term investments                                                                    |   | 2,613                             |   | 2,727  |
| Purchases of long-term  investments                                                                                                         |   | (453)                                  |   | (356) |
| Proceeds from  redemptions of long-term investments                                                                |   | 816                               |   | 182  |
| Purchases of other  assets                                                                                                             |   | (153)                                  |   | (158) |
| Proceeds from sales of  other assets                                                                                              |   | 109                               |   | 80  |
| Acquisition of  businesses, net of cash acquired                                                                                  |   | (1,443)                                |   | --  |
| Proceeds from the sales  of businesses and product lines                                                                |   | --                                |   | 1,178  |
| Other investment  activities                                                                                                                               |   | (135)                                  |   | 141  |
|                                                                                                                                                       |   |                                   |   |   |
| Net cash used in investing activities                                                                              |   | (3,721)                                |   | (1,883) |
|                                                                                                                                                       |   |                                   |   |   |
| Financing Activities:                                                                                                                                      |   |                                   |   |   |
| Increase in short-term  borrowings-net                                                                                                                     |   | 1,776                             |   | 919  |
| Decrease in short-term  borrowings-net                                          |   | (106)                                  |   | (89) |
| Proceeds from issuances  of long-term debt                                                               |   | 1,524                             |   | 600  |
| Principal payments on  long-term debt                                                                                                                      |   | (3)                                    |   | (256) |
| Proceeds from common  stock issuances                                                |   | 17                                |   | 15  |
| Purchases of common  stock                                                      |   | (912)                                  |   | (598) |
| Cash dividends paid                                                                       |   | (1,282)                                |   | (906) |
| Stock option  transactions and other                                                                                                        |   | 569                               |   | 63  |
|                                                                                                                                                       |   |                                   |   |   |
| Net cash provided  by/(used in) financing activities                                                                                             |   | 1,583                             |   | (252) |
| Net cash provided by  discontinued operations                                                                 |   | --                                |   | 14  |
| Effect of exchange-rate  changes on cash and cash equivalents                                                                                         |   | --                                |   | (12) |
| Net increase/(decrease)  in cash and cash equivalents                                                                                                      |   | (555)                                  |   | 190  |
| Cash and cash  equivalents at beginning of period                                                                                 |   | 1,520                             |   | 1,878  |
|                                                                                                                                                       |   |                                   |   |   |
| Cash and cash equivalents  at end of period                                          | $      | 965                               | $ | 2,068  |
|                                                                                                                                                       |   |                                   |   |   |
| Supplemental Cash  Flow Information:                                                                                                                       |   |                                   |   |   |
| Cash paid during the  period for:                                                                                                                          |   |                                   |   |   |
| Income taxes                                                                                                                                          | $      | 796                               | $ | 312  |
| Interest                                                                                                 |   | 69                                |   | 65  |

See accompanying Notes toCondensed Financial Statements.

PFIZER INC. ANDSUBSIDIARY COMPANIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)

Note 1:  Basis of Presentation

We prepared the condensed consolidated financial statements followingthe requirements of the Securities and Exchange Commission (SEC) for interimreporting. As permitted under those rules, certain footnotes or other financialinformation that are normally required by accounting principles generallyaccepted in the United States of America (GAAP) can be condensed or omitted.Balance sheet amounts and operating results for subsidiaries operating outsidethe U.S. are as of and for the three-month periodended February 22, 2004 and February 23, 2003. We have made certainreclassifications to the 2003 condensed consolidated financial statements toconform to the 2004 presentation. This includes the results of operations, theassets and liabilities held for sale and cash flows related to certainbusinesses and product lines reported as discontinued operations during thethree months ended March 28, 2004 - See Note 12, "DiscontinuedOperations."

We are responsible for the unaudited financial statements included inthis document. The financial statements include all normal and recurringadjustments that are considered necessary for the fair presentation of ourfinancial position and operating results. 

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

The information included in this Quarterly Report on Form 10-Qshould be read in conjunction with the consolidated financial statements andaccompanying notes included in Pfizer's Annual Report on Form 10-K for theyear ended December 31, 2003.

On April 16, 2003 we completed our acquisition of PharmaciaCorporation (Pharmacia) in a stock-for-stock transaction accounted for underthe purchase method of accounting - See Note 3, "PharmaciaAcquisition." Starting with the date of acquisition, April 16, 2003,the Pharmacia assets acquired and liabilities assumed were recorded at theirrespective fair values and our results of operations include Pharmacia'sproduct sales and expenses from the acquisition date. Therefore, our operatingresults for the first three months of 2004 reflect the impact of theacquisition of Pharmacia as compared to the first three months of 2003, whichdo not.

In accordance with Statement of Financial Accounting Standards (SFAS)No. 123, *Accounting for Stock-BasedCompensation*, we elected to account for our stock-based compensationunder Accounting Principles Board Opinion (APB) No. 25, *Accounting for Stock Issued to Employees*.The exercise price of stock options granted equals the market price on the dateof grant. There is no recorded expense related to grants of stock options.

The weighted-average fairvalue per stock option granted was $6.88 for the three months endedMarch 28, 2004, and $7.17 for the three months ended March 30, 2003.We estimated the fair values, as required under GAAP, using the Black-Scholesoption-pricing model, modified for dividends and using the assumptions below.In the first quarter of 2004, we changed our method of estimating expectedstock price volatility to reflect market-based inputs under emerging stockoption valuation considerations. The Black-Scholes model is a tradingoption-pricing model that neither considers the non-traded nature of employeestock options, nor considers the restrictions on trading, the lack oftransferability or the ability of employees to forfeit the options prior toexpiry. If the model adequately permitted considerations of the uniquecharacteristics of employee stock options, the resulting estimate of the fairvalue of the stock options could be different.

|                                 | Three Months  Ended    |
|--------------------------------------|------------------------|
|                                 | March 28,  2004   | March 30,  2003 |
|                                 |                   |   |
| Expected dividend yield              | 2.90%                  | 3.11% |
| Risk-free interest rate              | 3.32%                  | 2.70% |
| Expected stock price volatility      | 22.15%                 | 32.60% |
| Expected term until exercise (years) | 5.75    | 5.50    |

 

The following tablesummarizes our results for the three months ended March 28, 2004 andMarch 30, 2003 as if we had recorded compensation expense for the optionsgrants:
|   |   | Three Months  Ended |  
(millions of dollars, except per common share data)

 

March 28,   2004 

 

March 30,   2003 

 
 

 

 

 

 

 
Net income available to  common shareholders used in the calculation of basic earnings per common  share:

 

 

 

 

 
As reported under GAAP*

$

2,330 

$

4,665 

 
Compensation expense

 

(126)

 

(112)

 
Pro forma

$

2,204 

$

4,553 

 
 

 

 

 

 

 
Basic earnings per  common share:

 

 

 

 

 
As reported under GAAP*

$

.31 

$

.76 

 
Compensation expense

 

(.02)

 

(.01)

 
Pro forma

$

.29 

$

.75 

 
 

 

 

 

 

 
Net income available to  common shareholders used in the calculation of diluted earnings per common  share:

 

 

 

 

 
As reported under GAAP*

$

2,330 

$

4,665 

 
Compensation expense

 

(126)

 

(112)

 
Pro forma

$

2,204 

$

4,553 

 
 

 

 

 

 

 
Diluted earnings per  common share:

 

 

 

 

 
As reported under GAAP*

$

.30 

$

.76 

 
Compensation expense

 

(.01)

 

(.02)

 
Pro forma

$

.29 

$

.74 

 
 

 

*

Includes stock-based compensation expense, net of  related tax benefits, of $29.2 million for the three months ended  March 28, 2004 and $8.7 million for the three months ended  March 30, 2003.

For the three months ended March 28, 2004, net income available tocommon shareholders used in the calculation of basic earnings per common sharerepresents net income reduced by preferred stock dividends-net of tax and netincome available to common shareholders used in the calculation of dilutedearnings per common share represents net income reduced by the incrementalallocation of shares to the Employee Stock Ownership Plan (ESOP) acquired aspart of the Pharmacia acquisition.

Note 2:  Adoption of New Accounting Standards

On January 1, 2004, we adopted the provisions of FASBInterpretation No. 46R (FIN 46R), *Consolidationof Variable Interest Entities.* FIN 46R replaces the same titledFIN 46 that was issued in January 2003. FIN 46R identifies whenentities must be consolidated**withthe financial statements of a company where the investors in an entity do nothave the characteristics of a controlling financial interest or the entity doesnot have sufficient equity at risk for the entity to finance its activitieswithout additional subordinated financial support. The adoption of FIN 46R didnot have a material impact on our consolidated financial statements. 

Note 3:  Pharmacia Acquisition

A.  Description of Acquisition

On April 16, 2003, Pfizeracquired Pharmacia for a purchase price of $55,972 million, which includedthe issuance of approximately 1.8 billion shares of Pfizer common stock,180 million options on Pfizer common stock, six thousand shares of PfizerSeries A convertible perpetual preferred stock (convertible into approximately15.5 million shares of Pfizer common stock) and vested share awards, as wellas transaction costs.

The acquisition has been accounted for as a purchase businesscombination. Under the purchase method of accounting, the assets acquired andliabilities assumed from Pharmacia are recorded at the date of acquisition, attheir respective fair values. The consolidated financial statements andreported results of operations of Pfizer issued after completion of theacquisition reflect these values.

B.  Allocationof Purchase Price

The purchase price hasbeen allocated based on an estimate of the fair value of assets acquired andliabilities assumed. 

(millions of dollars)

 

 

 

 

 

 

 

Book value of net  assets acquired

 

$

8,795 

Less:  existing  goodwill and other intangible assets

 

 

1,559 

Tangible book value of  net assets acquired

 

 

7,236 

Remaining allocation:

 

 

 

Increase inventory to  fair value

 

 

2,939 

Increase long-term  investments to fair value

 

 

40 

Decrease property,  plant and equipment to fair value

 

 

(288)

Record in-process  research and development charge

 

 

5,052 

Record identifiable  intangible assets

 

 

37,066 

Increase long-term debt  to fair value

 

 

(370)

Increase benefit plan  liabilities to fair value

 

 

(1,471)

Increase other net  assets to fair value

 

 

(483)

Restructuring costs  incurred through March 28, 2004

 

 

(2,685)

Tax adjustments

 

 

(13,293)

Goodwill

 

 

22,229 

Purchase price

 

$

55,972 

Since ourinterim allocation in the fourth quarter of 2003, our estimate has been revisedfor fixed assets ($727 million decrease). In addition, we recorded anadditional $1,107 million in restructuring charges.

The moresignificant revisions to our estimates relating to our initial allocation ofthe purchase price in the second quarter of 2003 include inventory($1,331 million increase), fixed assets ($1,099 million decrease) andidentifiable intangible assets ($560 million increase). In addition, werecorded an additional $1,918 million in restructuring charges. 

All of theserevisions reflect our greater understanding of Pharmacia net assets since theacquisition date.

Note 4:  Esperion Therapeutics, Inc.

On February 10, 2004, we completed the acquisition of EsperionTherapeutics, Inc. (Esperion), a biopharmaceutical company focused on thedevelopment of high-density-lipoprotein (HDL) cholesterol-targeted therapiesfor the treatment of cardiovascular disease, for $1.3 billion in cash(including transaction costs). The acquisition has been accounted for as apurchase business combination. The preliminary allocation of the purchase priceincludes in-process research and development of $920 million, which wasexpensed, and goodwill of $233 million, which has been allocated to ourpharmaceutical segment and is not deductible for tax purposes. Esperion did nothave any approved products.

Note 5:  Merger-Related Costs

We incurred the followingmerger-related costs primarily in connection with our acquisition of Pharmaciawhich was completed on April 16, 2003:

 

 

Three Months  Ended

(millions of dollars)

 

March 28,   2004 

 

March 30,   2003 

 

 

 

 

 

Integration costs:

 

 

 

 

Pharmacia

$

101 

$

80 

Other

 

3 

 

8 

Restructuring costs:

 

 

 

 

Pharmacia

 

143 

 

-- 

Other

 

-- 

 

3 

Total merger-related  costs - expensed

$

247 

$

91 

Total merger-related  costs - capitalized

$

1,107 

$

-- 

Integration costs represent external, incremental costs directly relatedto an acquisition, including expenditures for consulting and systemsintegration when incurred.

In connection with the acquisition of Pharmacia, Pfizer managementapproved plans throughout 2003 and during the first three months of 2004 torestructure the operations of both legacy Pfizer and legacy Pharmacia toeliminate duplicative facilities and reduce costs. The restructuring of ouroperations as a result of our acquisition of Pharmacia is expected to continuethrough 2005 and include severance, costs of vacating duplicative facilitiesand contract termination and other exit costs. Total merger-relatedexpenditures incurred during 2003-2005 are expected to be about$6.0 billion, on a pre-tax basis.

*Restructuring Costs Associated withLegacy Pfizer - Expensed*

We have recordedrestructuring costs associated with exiting certain activities of legacyPfizer, including severance, costs of vacating duplicative facilities andcontract termination and other costs. These costs have been recorded as acharge to the results of operations and are included in *Merger-related costs.*The components ofthe restructuring charges associated with the acquisition of Pharmacia, whichwere expensed, follow:

 

 

Provisions

 

 

 

 

(millions of dollars)

 

Year  2003

 

Three  Months Ended  March 28,  2004

 

Total

 

Utilization   Through   March 28,  2004 

 

Reserve*  March 28,  2004

 

 

 

 

 

 

 

 

 

 

 

Employee termination  costs

$

140

$

92

$

232

$

110

$

122

Asset impairments

 

21

 

42

 

63

 

63

 

--

Other

 

16

 

9

 

25

 

13

 

12

 

$

177

$

143

$

320

$

186

$

134

*Included in *Other currentliabilities.*

Through March 28, 2004, the employee termination costs representthe approved reduction of the legacy Pfizer work force by 2,091 people,mainly in corporate, manufacturing, distribution, sales and research. We notifiedaffected individuals and as of March 28, 2004, 1,452 employees wereterminated. *Asset impairments*primarilyinclude charges to writedown property, plant and equipment. *Other* primarily includes costs to exitcertain activities of legacy Pfizer.

*Restructuring Costs Associated withLegacy Pharmacia - Capitalized*

We have recorded$2,685 million of restructuring costs associated with employeeterminations and exiting certain activities of legacy Pharmacia. These costsare recognized as liabilities assumed in the purchase business combination.Accordingly, the restructuring charges incurred in the first year after theacquisition are considered part of the purchase price of Pharmacia and havebeen recorded as an increase to goodwill. These restructuring costs alsoinclude costs associated with relocation. Future restructuring chargesassociated with legacy Pharmacia will be charged to the results of operations.The components of the restructuring costs capitalized as a cost of theacquisition of Pharmacia follow:

 

 

Costs Incurred

 

 

 

 

(millions of dollars)

 

Year  2003

 

Three  Months Ended  March 28,  2004

 

Total

 

Utilization  Through  March 28,  2004

 

Reserve*  March 28,  2004

 

 

 

 

 

 

 

 

 

 

 

Employee termination  costs

$

1,289

$

263

$

1,552

$

1,315

$

237

Other

 

289

 

844

 

1,133

 

161

 

972

 

$

1,578

$

1,107

$

2,685

$

1,476

$

1,209

 

 

 

 

 

 

 

 

 

 

 

* Included in *Other  current liabilities.*

Through March 28, 2004, the employee termination costs representthe approved reduction of the legacy Pharmacia work force by13,045 people, mainly in corporate, manufacturing, distribution, sales andresearch. We notified affected individuals and as of March 28, 2004,11,596 employees were terminated. *Employeetermination costs*include accrued severance benefits and costsassociated with change-in-control provisions of certain Pharmacia employmentcontracts. *Other* includes coststo exit certain activities of legacy Pharmacia.

Note 6:  Inventories

The components ofinventories follow:

(millions of dollars)

 

March 28,  2004

 

Dec. 31,  2003

 

 

 

 

 

Finished goods

$

2,341

$

2,198

Work-in-process

 

2,445

 

2,204

Raw materials and  supplies

 

1,156

 

1,297

Total inventories

$

5,942

$

5,699

Note 7:  Goodwill and Other Intangible Assets

A.  Goodwill

The changes in thecarrying amount of goodwill for the three months ended March 28, 2004, bysegment, follow:

(millions of dollars)

 

Pharmaceutical

 

Consumer  Healthcare

 

Animal   Health 

 

Other 

 

Total

 

 

 

 

 

 

 

 

 

 

 

Balance,  December 31, 2003

$

19,487

$

2,615

$

78 

$

85 

$

22,265

Pharmacia goodwill  adjustments

 

1,642

 

155

 

(14)

 

(1)
 

1,782

Other*

 

232

 

30

 

29 

 

(74)

 

217

Balance, March 28,  2004

$

21,361

$

2,800

$

93 

$

10 

$

24,264

*Includes additions from acquisitions (primarily Esperion),reclassifications to *Assets of discontinuedbusinesses and product lines held for sale* and the impact of foreignexchange.

B.  Intangibles

The components ofidentifiable intangible assets follow:

 

 

Gross Carrying  Amount

 

 

Accumulated  Amortization

(millions of dollars)

 

March 28,   2004 

 

Dec. 31,   2003 

 

 

March 28,   2004 

 

Dec. 31,   2003 

 

 

 

 

 

 

 

 

 

 

**Amortized  intangible assets:**

 

 

 

 

 

 

 

 

 

Developed technology  rights

$

32,052 

$

31,566 

 

$

(3,186)

$

(2,364)

Trademarks

 

111 

 

107 

 

 

(71)

 

(68)

Other

 

575 

 

583 

 

 

(178)

 

(186)

Total amortized  intangible assets

 

32,738 

 

32,256 

 

 

(3,435)

 

(2,618)

**Unamortized  identifiable intangible assets:**

 

 

 

 

 

 

 

 

 

Brands

 

5,238 

 

5,305 

 

 

-- 

 

-- 

Trademarks

 

267 

 

266 

 

 

-- 

 

-- 

Other

 

382 

 

382 

 

 

-- 

 

-- 

Total unamortized  intangible assets

 

5,887 

 

5,953 

 

 

-- 

 

-- 

**Total  identifiable intangible assets**

$

38,625 

$

38,209 

 

$

(3,435)

$

(2,618)

Total amortization expense for finite-lived intangible assets was$843 million for the three months ended March 28, 2004 and isprimarily included in *Other(income)/deductions-net.*

The annual amortizationexpense expected for the years 2004 through 2009 is as follows:

 

(in millions of  dollars)

2004

$

3,337

 

2005

 

3,334

 

2006

 

3,228

 

2007

 

3,077

 

2008

 

2,563

 

2009

 

2,353

 

Note 8:  Financial Instruments

A.  Long-Term Debt

In February 2004, we issued:

-

$750 million senior unsecured notes, due  February 2014, which pay interest semi-annually, beginning on August 15,  2004, at a rate of 4.5%; and

 

 

-

$700 million senior unsecured notes, due March  2007, which pay interest semi-annually, beginning on September 15, 2004,  at a rate of 2.5%.

The notes were issued under a $5 billion debt shelf registrationstatement filed with the SEC in November 2002.

B.  Derivative Financial Instruments and HedgingActivities

During the first threemonths ended March 28, 2004, we entered into the following new interestrate derivatives:

Financial Instrument

 

Hedge Type

 

Hedged or Offset Item

 

Notional Amount  (millions of dollars)

 

Maturity Date

 

 

 

 

 

 

 

 

 

Swaps

 

Fair value

 

U.S. dollar fixed rate  debt (1)

 

            $750

 

2014

Swaps

 

Fair value

 

U.S. dollar fixed rate  debt (1)

 

              700

 

2007

 

 

 

 

 

 

 

 

 

(1)

Serves to reduce exposure to long-term U.S. dollar  interest rates by effectively converting fixed rates associated with  long-term debt obligations to floating rates.

 
There was no material ineffectiveness in any hedging relationshipreported in earnings in the first three months of 2004.

Note 9:  Benefit Plans

Components of NetPeriodic Benefit Costs

The components of netperiodic benefit cost of the U.S. and international pension plans and thepostretirement plans for the three months ended March 28, 2004 andMarch 30, 2003 follow:

 

 

Pension Plans

 

 

 

 

U.S. Qualified

 

U.S. Supplemental  (non-qualified)

 

International

 

Postretirement  Plans

(millions of dollars)

 

2004 

 

2003 

 

2004

 

2003

 

2004 

 

2003 

 

2004 

 

2003

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service cost

$

71 

$

46 

$

8

$

7

$

68 

$

41 

$

10 

$

5

Interest cost

 

97 

 

67 

 

15

 

13

 

71 

 

40 

 

31 

 

15

Expected return on plan  assets

 

(143)

 

(75)

 

--

 

--

 

(71)

 

(41)

 

(5)

 

--

Amortization of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Prior service costs

 

4 

 

4 

 

--

 

--

 

5 

 

2 

 

-- 

 

3

Net transition asset

 

-- 

 

--

 

--

 

--

 

2 

 

-- 

 

-- 

 

--

Actuarial (gains)/losses

 

26 

 

29 

 

9

 

8

 

13 

 

9 

 

6 

 

5

Curtailments and  settlements-net

 

-- 

 

1 

 

--

 

1

 

(1)

 

2 

 

-- 

 

1

Net periodic benefit  costs

$

55 

$

72 

$

32

$

29

$

87 

$

53 

$

42 

$

29

Note10:  Comprehensive Income

 

 

Three Months  Ended

(millions of dollars)

 

March 28,   2004 

 

 

March 30,   2003 

 

 

 

 

 

 

Net income

$

2,331 

 

$

4,665 

Other comprehensive  income/(expense):

 

 

 

 

 

Holding gain/(loss) on  investment securities arising during period-net of tax

 

148 

 

 

(26)

Currency translation  adjustment and hedges

 

1,386 

 

 

659 

Total other  comprehensive income/(expense)

 

1,534 

 

 

633 

Total comprehensive income

$

3,865 

 

$

5,298 

The change in currencytranslation adjustment and hedges included in *Accumulatedother comprehensive expense* for the first three months of 2004 was:

(millions of dollars)

 

2004

 

 

 

Opening balance

$

632

Translation adjustment and  hedges

 

1,386

Ending balance

$

2,018

 

Note 11:  Earnings Per Common Share

Basic and dilutedearnings per common share (EPS) were computed using the following common sharedata:

 

 

Three Months  Ended

(millions of dollars)

 

March 28,   2004 

 

March 30,   2003 

 

 

 

 

 

**EPS  Numerator - Basic:**

 

 

 

 

Income from continuing  operations before cumulative effect of change in accounting principles

$

2,318 

$

2,455 

 

 

 

 

 

Less:  Preferred stock dividends - net of  tax

 

1 

 

-- 

 

 

 

 

 

Income available to  common shareholders from continuing operations before cumulative effect of  change in accounting principles

 

2,317 

 

2,455 

 

 

 

 

 

Discontinued operations:

 

 

 

 

Income from operations  of discontinued businesses and product lines-net of tax

 

13 

 

38 

Gains on sales of discontinued  businesses and product lines-net of tax

 

-- 

 

2,202 

 

 

 

 

 

Discontinued  operations-net of tax

 

13 

 

2,240 

 

 

 

 

 

Income available  to common shareholders before cumulative effect of change in accounting  principles

 

2,330 

 

4,695 

 

 

 

 

 

Cumulative effect of  change in accounting principles-net of tax

 

-- 

 

(30)

 

 

 

 

 

Net income available to  common shareholders

$

2,330 

$

4,665 

 

 

 

 

 

**EPS  Denominator - Basic:**

 

 

 

 

Weighted average number  of common shares outstanding

 

7,586.4 

 

6,101.4 

 

 

 

 

 

**EPS  Numerator - Diluted:**

 

 

 

 

Income from continuing  operations before cumulative effect of change in accounting principles

$

2,318 

$

2,455 

 

 

 

 

 

Less:  ESOP allocation - net of tax

 

1 

 

-- 

 

 

 

 

 

Income available to  common shareholders from continuing operations before cumulative effect of  change in accounting principles

 

2,317 

 

2,455 

 

 

 

 

 

Discontinued operations:

 

 

 

 

Income from operations  of discontinued businesses and product lines-net of tax

 

13 

 

38 

Gains on sales of  discontinued businesses and product lines-net of tax

 

-- 

 

2,202 

 

 

 

 

 

Discontinued  operations-net of tax

 

13 

 

2,240 

 

 

 

 

 

Income available  to common shareholders before cumulative effect of change in accounting  principles 

 

2,330 

 

4,695 

 

 

 

 

 

Cumulative effect of  change in accounting principles-net of tax

 

-- 

 

(30)

 

 

 

 

 

Net income available to  common shareholders

$

2,330 

$

4,665 

 

 

 

 

 

**EPS  Denominator - Diluted:**

 

 

 

 

Weighted average number  of common shares outstanding

 

7,586.4 

 

6,101.4 

Common share  equivalents--stock options, stock issuable under employee compensation plans  and convertible preferred stock

 

92.1 

 

60.3 

Weighted average number  of common shares outstanding and common share equivalents

 

7,678.5 

 

6,161.7 

Stock options and stock issuable under employee compensation plansrepresenting equivalents of 193 million shares of common stock during thethree months ended March 28, 2004 and 289 million shares of commonstock during the three months ended March 30, 2003 had exercise pricesgreater than the average market price of our common stock. These common stockequivalents were outstanding during the three months ended March 28, 2004and March 30, 2003 but were excluded from the computation of diluted EPSfor this period because their inclusion would have had an antidilutive effect.

Also, in the diluted computation for the three months endedMarch 28, 2004, income from continuing operations and net income arereduced by the incremental contribution to the ESOP, which was acquired as partof the Pharmacia acquisition. This contribution is the after-tax differencebetween the income that the ESOP would have received in preferred stockdividends and the dividend on the common shares assumed to have beenoutstanding.

Note 12:  Discontinued Operations

We evaluate ourbusinesses and product lines on an ongoing basis for strategic fit within ouroperations. As a result of our evaluation, in the first three months of 2004,we decided to sell the following businesses and product lines:

-

In January 2004, we agreed to sell 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 sale was completed on  April 23, 2004. The Diagnostics business was acquired in connection with  our acquisition of Pharmacia in April 2003. We recorded $153 million in  revenues from this business in 2003. 

 

 

-

In March 2004, we decided to sell certain non-core  consumer products marketed primarily in Europe by our Consumer Healthcare  segment. The majority of these products are small brands, sold in single  markets only and include certain products that became a part of Pfizer in  April 2003 in connection with our acquisition of Pharmacia. We recorded  $103 million in revenues for all of these products in 2003. 

 

 

-

In March 2004, we  decided to sell certain European generic pharmaceutical businesses. The  European generic businesses were included in our Pharmaceutical segment and  became a part of Pfizer in April 2003, in connection with our acquisition of  Pharmacia. We recorded $94 million in revenues from these businesses in  2003. 

 

 

-

In March 2004, we  decided to sell our surgical ophthalmic business and in April 2004, we agreed  to sell this business for $450 million in cash. The surgical ophthalmic  business was included in our Pharmaceutical segment and became a part of  Pfizer in April 2003 in connection with our acquisition of Pharmacia. We  recorded $102 million in revenues from these products in 2003. 

We have included the results of operations of these businesses andproduct lines in discontinued operations for the three months endedMarch 28, 2004. Due to the timing of our acquisition of Pharmacia in April2003, there were no results relating to these businesses and product linesincluded in our consolidated results of operations for the three months endedMarch 30, 2003 except for those relating to certain legacy Pfizer non-coreconsumer healthcare products which have been included in discontinued operationsfor the three months ended March 30, 2003.

The significant assetsand liabilities relating to these businesses and product lines includeintangible assets, goodwill, property, plant and equipment, inventory, accountsreceivable, accrued liabilities and deferred taxes.

 

As a result of ourevaluation, in 2003 we sold the following businesses and product lines:

-

In March 2003, we sold the Adams confectionery products business, formerly part of  our Consumer Healthcare segment, for $4.2 billion in cash. We recognized  a gain on the sale of this business of $3,091 million  ($1,824 million net of tax) in the consolidated statement of income for  the first three months of 2003.

 

 

-

In March 2003, we sold the Schick-Wilkinson Sword  shaving products business, formerly part of our Consumer Healthcare segment,  for $930 million in cash. We recognized a gain on the sale of this  business of $462 million ($262 million net of tax) in the  consolidated statement of income for the first three months of 2003.

 

 

-

In March 2003, we  sold the oral contraceptives Estrostep and Loestrin, formerly part of our  Pharmaceutical 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 recognized a gain on the sale of these  two products of $193 million ($116 million net of tax) in the  consolidated statement of income for the first three months of 2003. 

 

 

-

In April 2003, we  completed the sale of the hormone replacement therapy femhrt, formerly part  of our Pharmaceutical 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 recognized a gain on the  sale of this product in our second quarter 2003 results.

These businesses and product lines are reported as discontinuedoperations in the three months ended March 30, 2003.

The following amountshave been segregated from continuing operations and reported as discontinuedoperations:

 

 

Three Months  Ended

(millions of dollars)

 

March 28,  2004

 

March 30,  2003

 

 

 

 

 

Revenues

$

150

$

624

 

 

 

 

 

Pre-tax income

$

20

$

62

Provision for taxes on  income

 

7

 

24

Income from operations  of discontinued businesses and product lines-net of tax

 

13

 

38

Pre-tax gains on sales of discontinued businesses  and product lines

 

--

 

3,746

Provision for taxes on gains 

 

--

 

1,544

Gains on sales of  discontinued businesses and product lines-net of tax

 

--

 

2,202

Discontinued operations-net of tax

$

13

$

2,240

Note 13:  Segment Information

We operate in thefollowing three business segments:

*Pharmaceutical*

 

 

-

The Pharmaceutical  segment 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.

We operate several other businesses which include the manufacture ofempty soft-gelatin capsules, contract manufacturing and bulk pharmaceuticalchemicals. Due to the size of these businesses, they are grouped into the"Other" category. 

Revenues andprofits/(losses) by segment for the three months ended March 28, 2004 andMarch 30, 2003 were as follows:

(millions of dollars)

 

 

 

Pharma-  ceutical

 

Consumer  Healthcare

 

Animal  Health

 

Other

(a)

 

Consolidated

 

 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Revenues

2004

 

 

$11,041

 

$804

 

$428

 

$  214 

 

$

12,487

 

 
 

2003

 

 

7,546

 

579

 

269

 

112 

 

 

8,506

 

 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Segment profit/(loss)

2004

 

 

$  3,601

 

$157

 

$  45

 

$(674)

(b)

$

3,129

(c)

 
 

2003

 

 

3,404

 

133

 

35

 

(356)

(b)

 

3,216

 

 
 

 

(a)

Includes Capsugel, Pfizer CentreSource and  Corporate/Other.

 

 

(b)

Includes interest income/(expense), corporate expenses,  other income/(expense), certain performance-based compensation expenses not  allocated to the operating segments and merger-related costs.

 

 

(c)

Equals income from continuing operations before  provision for taxes on income, minority interests and cumulative effect of  change in accounting principles. Segment profit/(loss) includes the impact of  purchase accounting for acquisitions.

Revenues for each groupof similar products are as follows:

 

 

Three Months  Ended

(millions of dollars)

 

March 28,  2004

 

March 30,  2003

 

  % Change

** **

 

 

 

 

 

 

**PHARMACEUTICAL**

 

 

 

 

 

 

Cardiovascular and metabolic diseases

$

4,291

$

3,559

 

21 

Central nervous system disorders

 

1,947

 

1,610

 

21 

Arthritis and pain

 

1,176

 

89

 

M+

Infectious and respiratory diseases

 

1,234

 

1,088

 

13 

Urology

 

636

 

475

 

34 

Oncology

 

243

 

--

 

-- 

Ophthalmology

 

279

 

--

 

-- 

Endocrine disorders

 

219

 

--

 

-- 

All other

 

872

 

394

 

121 

Alliance revenue

 

144

 

331

 

(56)

Total Pharmaceutical

 

11,041

 

7,546

 

46 

**CONSUMER  HEALTHCARE**

 

804

 

579

 

39 

**ANIMAL  HEALTH**

 

428

 

269

 

59 

**OTHER**

 

214

 

112

 

91 

Total revenues

$

12,487

$

8,506

 

47 

 

 

 

 

 

 

 

M+  Change greater than one thousand  percent.

Note 14:  Subsequent Events

Action of Board of Directors

On April 22, 2004, our board of directors declared a $.17 pershare second quarter 2004 cash dividend on our common stock, payable onJune 4, 2004 to shareholders of record on May 14, 2004.

INDEPENDENT ACCOUNTANTS'REVIEW REPORT

 

To the Shareholders and Board of Directors of Pfizer Inc.:

We have reviewed the condensed consolidated balance sheet of PfizerInc. and Subsidiary Companies as of March 28, 2004 and the relatedcondensed consolidated statements of income for the three-month periods endedMarch 28, 2004 and March 30, 2003 and cash flows for the three-monthperiods then ended. These condensed consolidated financial statements are theresponsibility of the Company's management. 

We conducted our review in accordance with standards established by theAmerican Institute of Certified Public Accountants.  A review of interimfinancial information consists principally of applying analytical procedures tofinancial data and making inquiries of persons responsible for financial andaccounting matters.  It is substantially less in scope than an audit conductedin accordance with auditing standards generally accepted in the United States of America, the objective of which is theexpression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modificationsthat should be made to the condensed consolidated financial statements referredto above for them to be in conformity with accounting principles generallyaccepted in the United  States of America.

We have previously audited, in accordance with auditing standardsgenerally accepted in the United States of America, the consolidated balancesheet of Pfizer Inc. and Subsidiary Companies as of December 31, 2003, and therelated consolidated statements of income, shareholders' equity and cash flowsfor the year then ended (not presented herein); and in our report datedFebruary 26, 2004, we expressed an unqualified opinion on thoseconsolidated financial statements.  In our opinion, the information set forthin the accompanying condensed consolidated balance sheet as of December 31,2003, is fairly stated, in all material respects, in relation to theconsolidated balance sheet from which it has been derived.

 

KPMG LLP

New York, New YorkMay 7, 2004

Item 2.  Management's Discussion andAnalysis of Financial Condition and Results of Operations (MD&A)

The components of theCondensed Consolidated Statement of Income follow:

 

 

First Quarter

(millions of dollars, except per common share data)

 

2004    

 

2003   

% Change

 

 

 

 

 

 

Revenues

$

12,487   

$

8,506   

47

 

 

 

 

 

 

Cost of sales

 

1,794   

 

1,058   

69

% of revenues

 

14.4%

 

12.4%

 

 

 

 

 

 

 

Selling, informational  and administrative expenses

 

3,933   

 

2,740   

44

% of revenues

 

31.5%

 

32.2%

 

 

 

 

 

 

 

Research and development  expenses

 

1,649   

 

1,218   

35

% of revenues

 

13.2%

 

14.3%

 

 

 

 

 

 

 

Merger-related  in-process research and development charges

 

955   

 

--   

--

% of revenues

 

7.7%

 

--   

 

 

 

 

 

 

 

Merger-related costs

 

247   

 

91   

170

% of revenues

 

2.0%

 

1.1%

 

 

 

 

 

 

 

Other  (income)/deductions-net

 

780   

 

183   

327

 

 

 

 

 

 

Income from continuing  operations before provision for taxes on income, minority interests and  cumulative effect of change in accounting principles

 

3,129   

 

3,216   

(3)

% of revenues

 

25.1%

 

37.8%

 

 

 

 

 

 

 

Provision for taxes on  income

 

809   

 

761   

6

 

 

 

 

 

 

Effective tax rate

 

25.8%

 

23.7%

 

 

 

 

 

 

 

Income from continuing  operations before cumulative effect of change in accounting principles

 

2,318   

 

2,455   

(6)

% of revenues

 

18.6%

 

28.9%

 

 

 

 

 

 

 

Discontinued  operations-net of tax

 

13   

 

2,240   

(99)

 

 

 

 

 

 

Income before cumulative  effect of change in accounting principles

 

2,331   

 

4,695   

(50)

% of revenues

 

18.7%

 

55.2%

 

 

 

 

 

 

 

Cumulative effect of  change in accounting principles-net of tax

 

--   

 

(30)  

*

 

 

 

 

 

 

Net income

$

2,331   

$

4,665   

(50)

% of revenues

 

18.7%

 

54.8%

 

 

 

 

 

 

 

Earnings per common  share - Basic:

 

 

 

 

 

Income from continuing  operations before cumulative effect of change in accounting principles

$

.31   

$

.40   

(23)

Discontinued  operations-net of tax

 

--   

 

.36   

*

Cumulative effect of  change in accounting principles-net of tax

 

--   

 

--   

--

Net income

$

.31   

$

.76   

(59)

 

 

 

 

 

 

Earnings per common  share - Diluted:

 

 

 

 

 

Income from continuing  operations before cumulative effect of change in accounting principles

$

.30   

$

.40   

(25)

Discontinued  operations-net of tax

 

--   

 

.36   

*

Cumulative effect of  change in accounting principles-net of tax

 

--   

 

--   

--

Net income

$

.30   

$

.76   

(61)

 

 

 

 

 

 

Cash dividends paid per  common share

$

.17   

$

.15   

 

 

 

 

 

 

 

*  Calculation not meaningful.

Percentages in the table may reflect rounding  adjustments.

OVERVIEW

We are a research-based,global pharmaceutical company that discovers, develops, manufactures andmarkets leading prescription medicines for humans and animals, as well as manyof the world's best known consumer healthcare products. We generate revenuethrough the sale of our products as well as through alliance agreements bycopromoting products discovered by other companies.

*PharmaciaAcquisition*

On April 16, 2003, by acquiring Pharmacia Corporation (Pharmacia),wefurthered our position as the world's largest pharmaceutical company, with thescientific depth, global marketing strength and financial resources to takegreater advantage of new opportunities and to bring innovative new products tomarket faster. We acquired Pharmacia in a stock-for-stock transactionvalued atapproximately $56 billion. This non-cash transaction was accounted for as apurchase business combination under accounting principles generally accepted inthe United States of America (GAAP).

The results of operationsdiscussed below include Pharmacia's product sales and expenses from theacquisition date. Therefore, our operating results for the first three monthsof 2004 as compared to the first three months of 2003 reflect the impact of theacquisition of Pharmacia.

In connection with theacquisition, we continue to take actions to integrate and restructure thePharmacia operations in order to increase our profitability through costsavings and operating efficiencies. To achieve the savings, we have incurredcertain merger-related expenditures of about $4.0 billion during the yearended December 31, 2003 and through March 28, 2004, which are discussed in more detail inthe "Costs and Expenses" section. As a result of these activities andthe combining of operations, it is not possible to provide separate results ofoperations for Pharmacia for the period after the acquisition date.

*EsperionAcquisition*

On February 10, 2004 wecompleted the acquisition of Esperion Therapeutics, Inc. (Esperion), abiopharmaceutical company focused on the development ofhigh-density-lipoprotein (HDL) cholesterol-targeted therapies for the treatmentof cardiovascular disease, for $1.3 billion in cash (including transactioncosts). The acquisition has been accounted for as a purchase businesscombination. The preliminary allocation of the purchase price includesin-process research and development of $920 million, which was expensedand goodwill of $233 million, which has been allocated to ourpharmaceutical segment and is not deductible for tax purposes. Esperion did nothave any approved products.

*Other Financial Impacts*

During the first three months of 2004, we decided to sell certainbusinesses and product lines that were primarily acquired in connection withour acquisition of Pharmacia because they do not fit within our strategicplans. Specifically, in January 2004, we agreed to sell our in-vitro allergyand autoimmune diagnostics testing business for $575 million in cash(closed on April 23, 2004). In March 2004, we decided to sell our surgicalophthalmic business which, in April 2004, we agreed to sell for$450 million in cash (a transaction expected to close in the third quarterof 2004). In addition, in March 2004 we decided to sell certain non-coreconsumer healthcare products primarily marketed in Europe and certain Europeangeneric businesses. All of these businesses and product lines are reported asdiscontinued operations in the three months ended March 28, 2004 and inthe comparable prior period where applicable.

During the first threemonths of 2003, we sold the Adamsconfectionery business, the Schick-Wilkinson Sword shaving products businessand certain women's health product lines, which in the aggregate, increased netincome by $2,202 million after tax. These divestitures are reported asdiscontinued operations in the three months ended March 30, 2003.

In the first three monthsof 2003, we incurred non-cash charges, which reduced net income by$30 million after tax in connection with our January 1, 2003 adoption of Statement of Financial AccountingStandards (SFAS) No. 143, *Accounting forAsset Retirement Obligations*. This charge was reported as acumulative effect of a change in accounting principle.

REVENUES

Revenues increased 47% in the first quarter of 2004, as compared to thefirst quarter of 2003.

The revenue increase was primarily due to the inclusion of Pharmaciaresults, strong performances by a number of our in-line products and newlylaunched products across major businesses and regions and the weakening of theU.S. dollar relative to many other currencies. Eleven products--Lipitor, Norvasc,Zoloft, Celebrex, Neurontin, Zithromax, Viagra, Diflucan, Zyrtec, Bextra andXalatan/Xalcom--each achieved revenues of more than $250 million in thequarter.

Changes in foreign exchange rates increased revenues in the firstquarter of 2004 by $436 million or 5.1% compared to the same period in2003. The foreign exchange impact on the first quarter 2004 revenue growth,relative to the same period last year, is associated with legacy Pfizerrevenues only and primarily reflects the weakening of the U.S. dollar againstmajor currencies. The revenues of legacy Pharmacia products, recorded as of theacquisition date of April 16, 2003, do not affect the impact from foreignexchange, given their treatment as incremental volume.

The loss of patent protection with respect to any of our majorproducts, including those described in the Legal Proceedings section, couldhave a material adverse effect on our projected revenues and net income.

Revenues by Country 

Revenues by country forthe first quarter and the changes over the prior year were as follows:

 

 

First Quarter

(millions of dollars)

 

2004

 

% of  Revenues

 

 

2003

 

% of  Revenues

 

% Change

 

 

 

 

 

 

 

 

 

 

 

 

United States

$

7,149

 

57.3

 

$

5,433

 

63.9

 

32

Japan

 

728

 

5.8

 

 

474

 

5.6

 

54

All other

 

4,610

 

36.9

 

 

2,599

 

30.5

 

77

Consolidated

$

12,487

 

100.0

 

$

8,506

 

100.0

 

47

Revenues by Segment

Revenues by segment forthe first quarter and the changes over the prior year were as follows:

 

 

First Quarter

(millions of dollars)

 

2004

 

% of  Revenues

 

 

2003

 

% of  Revenues

 

% Change

 

 

 

 

 

 

 

 

 

 

 

 

Pharmaceutical

 

 

 

 

 

 

 

 

 

 

 

U.S.

$

6,462

 

51.7

 

$

4,882

 

57.4

 

32

International

 

4,579

 

36.7

 

 

2,664

 

31.3

 

72

Worldwide

 

11,041

 

88.4

 

 

7,546

 

88.7

 

46

 

 

 

 

 

 

 

 

 

 

 

 

Consumer Healthcare

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

416

 

3.3

 

 

378

 

4.4

 

10

International

 

388

 

3.1

 

 

201

 

2.4

 

93

Worldwide

 

804

 

6.4

 

 

579

 

6.8

 

39

 

 

 

 

 

 

 

 

 

 

 

 

Animal Health

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

199

 

1.6

 

 

129

 

1.5

 

55

International

 

229

 

1.8

 

 

140

 

1.7

 

63

Worldwide

 

428

 

3.4

 

 

269

 

3.2

 

59

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

72

 

0.7

 

 

44

 

0.6

 

65

International

 

142

 

1.1

 

 

68

 

0.7

 

108

Worldwide

 

214

 

1.8

 

 

112

 

1.3

 

91

 

 

 

 

 

 

 

 

 

 

 

 

Total

$

12,487

 

100.0

 

$

8,506

 

100.0

 

47

Pharmaceutical

Worldwide revenues of thePharmaceutical segment follow:

 

 

First Quarter

(millions of dollars)

 

  2004

 

2003

 

% Change

** **

 

 

 

 

 

 

**PHARMACEUTICAL**

 

 

 

 

 

 

Cardiovascular and metabolic diseases

$

4,291

$

3,559

 

21 

Central nervous system disorders

 

1,947

 

1,610

 

21 

Arthritis and pain

 

1,176

 

89

 

M+

Infectious and respiratory diseases

 

1,234

 

1,088

 

13 

Urology

 

636

 

475

 

34 

Oncology

 

243

 

--

 

-- 

Ophthalmology

 

279

 

--

 

-- 

Endocrine disorders

 

219

 

--

 

-- 

All other

 

872

 

394

 

121 

Alliance revenue

 

144

 

331

 

(56)

Total Pharmaceutical

$

11,041

$

7,546

 

46 

M+  Change greater than one thousand percent.

Revenue information forseveral of our major pharmaceutical products follow:

 

 

 

First Quarter

Product

Primary Indications

 

millions  of dollars

 

% Change from 2003

 

 

 

 

 

 

**Cardiovascular  and  metabolic diseases:**

 

 

 

 

 

 

 

Lipitor

Reduction of LDL  cholesterol 

$

2,497

 

 

19 

 

Norvasc

Hypertension

 

1,141

 

 

16 

 

Accupril/Accuretic

Hypertension/Congestive  heart failure

 

191

 

 

12 

 

Cardura

Hypertension/Benign  prostatic hyperlasia

 

148

 

 

10 

 

Caduet

Reduction of LDL  cholesterol and hypertension

 

28

 

 

-- 

 

**Central  nervous   system disorders:**

 

 

 

 

 

 

 

Zoloft

Depression and anxiety  disorders

 

810

 

 

7 

 

Neurontin

Epilepsy and  neuropathic pain

 

696

 

 

12 

 

Geodon

Schizophrenia

 

88

 

 

14 

 

Xanax/Xanax XR

Anxiety/Panic disorders

 

86

 

 

-- 

 

Aricept*

Alzheimer's disease

 

71

 

 

30 

 

Relpax

Migraine headaches

 

30

 

 

(7)

 

**Arthritis  and pain:**

 

 

 

 

 

 

 

Celebrex

Arthritis pain and  inflammation

 

769

 

 

M+

 

Bextra

Arthritis pain and  inflammation

 

270

 

 

-- 

 

**Infectious  and  respiratory diseases:**

 

 

 

 

 

 

 

Zithromax

Bacterial infections

 

466

 

 

(15)

 

Diflucan

Fungal infections

 

304

 

 

6 

 

Vfend

Fungal infections

 

64

 

 

81 

 

Zyvox

Bacterial infections

 

97

 

 

-- 

 

**Urology:**

 

 

 

 

 

 

 

Viagra

Erectile dysfunction

 

416

 

 

(12)

 

Detrol/Detrol LA

Overactive bladder

 

206

 

 

-- 

 

**Oncology:**

 

 

 

 

 

 

 

Camptosar

Metastic colorectal  cancer

 

91

 

 

-- 

 

Ellence

Breast cancer

 

80

 

 

-- 

 

**Ophthalmology:**

 

 

 

 

 

 

 

Xalatan/Xalcom

Glaucoma

 

279

 

 

-- 

 

**Endocrine  disorders:**

 

 

 

 

 

 

 

Genotropin

Replacement of human  growth hormone

 

179

 

 

-- 

 

**All  other:**

 

 

 

 

 

 

 

Zyrtec

Allergies

 

299

 

 

2 

 

**Alliance  revenue**:**

 

 

 

 

 

 

 

Aricept, Spiriva, Rebif and Mirapex

Alzheimer's disease  (Aricept), chronic obstructive pulmonary disease (Spiriva), multiple  sclerosis (Rebif), Parkinson's disease (Mirapex)

 

144

 

 

(56)

 

 

 

 
*

Represents direct sales under license agreement with  Eisai Co., Ltd.

 
**

Alliance revenue in 2003 included Celebrex and  Bextra under copromotion agreements with Pharmacia.

 
M+

Change greater than one thousand percent.

 
**Selected Product Updates:**

*Lipitor*

Lipitor continues to maintain its position as the leading statin. Theshare of U.S. total prescriptions of lipid-lowering drugs held by Lipitor was43.4% in March 2004. Despite the challenges of multiple new competitors(Crestor, Zetia, Vytorin/Inegy, and generics), Lipitor achieved 9% growth intotal prescriptions in the U.S. lipid-lowering market in March 2004. Inaddition, despite Crestor launches in the U.K., Canada, the Netherlands, andrecently in the U.S., Lipitor continues post double-digit sales growth,including 14% sales growth in the U.S. in the first quarter of 2004, comparedto the same period in 2003.

*Norvasc*

Norvasc's success has been driven by its outstanding efficacy,once-daily dosing, consistent 24-hour control of hypertension and angina, andexcellent safety and tolerability. Beyond Norvasc's current leadership, therecontinues to be an opportunity for growth. Hypertension affects about50 million Americans and one billion people worldwide. In 2003, both theNational Heart, Lung, and Blood Institute (NHLBI) in the U.S. and the EuropeanSociety of Hypertension-European Society of Cardiology issued new hypertensionguidelines that call for early and aggressive blood-pressure management andacknowledge that the majority of patients may require two or more medicationsto reach their blood-pressure targets. The new NHLBI guidelines include theHealthy People 2010 goal, which is to have 50% of hypertensive Americans reachthe blood-pressure goal of 140/90 mm Hg or less. Currently 69% of Americanadults with hypertension are not at their blood-pressure goal.

*Zoloft*

Zoloft has proven efficacy, safety, and tolerability in treating moodand anxiety disorders and is approved for the broadest range of such disordersof any antidepressant. This breadth of coverage is important from a clinicalperspective, as these mental disorders are widespread and evidence significantco-morbidity.

*Neurontin*

Neurontin has been approved in more than 60 markets for treatment of arange of neuropathic-pain conditions. Pfizer is focusing both on educationalinitiatives targeted at improving the management of neuropathic pain andefforts to ensure that Neurontin is effectively prescribed and that therecommended dose of 1,800 mg per day is achieved over a period of 15 days.To support these efforts, new 600 mg and 800 mg scored tablets wereintroduced in the first quarter of 2004, making it easier for the patient toachieve the recommended dose of 1,800 mg/day. Since the launch of thescored tablets and our focus on the recommended dose of 1,800 mg/day, we haveseen increases in tablet sales and increases in the number of physicians of allspecialities (primary-care physicians, neurologists, and pain specialists)prescribing 1,800 mg/day.

*Celebrex*

Celebrex is the No. 1 COX-2-specific inhibitor in the world,having the broadest range of approved indications. It provides strong efficacy,excellent tolerability, and a proven safety profile in providing relief for thepain and inflammation of osteoarthritis, rheumatoid arthritis, acute pain, andprimary dysmenorrhea. Since its launch in 1999, Celebrex has accumulated morethan 10 million patient years of use and more than 149 millionprescriptions worldwide, demonstrating efficacy and tolerability among apatient population whose need for long-term, effective relief of pain andinflammation is great and growing.

*Bextra*

In February 2004, Bextra achieved a 9.4% share of new prescriptions inthe U.S. NSAID market.  Additional Bextra studies in acute pain for a U.S.supplemental filing are expected to be completed in 2004.

*Zithromax*

The decrease in sales compared to the same period in 2003 is primarilydue to a weak respiratory season in the U.S. during the first quarter.

*Diflucan*

Diflucan sales were adversely impacted by the entry of generic oralfluconazole products after Diflucan lost patent protection in much of Europe in2003 as well as in Japan, the U.K., and Germany. In the U.S., the FDA grantedDiflucan six months of market exclusivity through July 29, 2004, as a resultof pediatric testing**.**

*Viagra*

The decrease in sales compared to the same period in 2003 reflects theimpact from the launch of two competitors in the U.S. market in the second halfof 2003 and a change in wholesaler stocking given the reduction in revenues andmarket share. In markets outside the U.S. where we have faced competition formore than a year, Viagra sales grew 8%. Viagra continues to be studied inpulmonary arterial hypertension (PAH). European regulatory authorities recentlygranted orphan-drug status for the use of Viagra, pending regulatory submissionand approval, for the treatment of PAH, thus providing ten years of exclusivityfor that indication.

*Xalatan/Xalcom*

Xalatan, a prostaglandin indicated for the treatment of open-angleglaucoma and ocular hypertension, is the No. 1 prescribed glaucomamedication in all promoted markets, including the U.S., Europe, and Japan. Itis the first and only prostaglandin with a first-line indication for thetreatment of elevated eye pressure. Xalcom consists of Xalatan with the betablocker timolol. Future Xalatan/Xalcom global sales growth will come throughmarket expansion. While the U.S. glaucoma market has been experiencing low unitgrowth, about one third of diagnosed glaucoma patients are untreated. In addition,only 10-15% of ocular-hypertensive patients (a high-risk group for developingglaucoma, based on the study described above) are currently being treated inthe U.S. Several comparative clinical trials and recent European GlaucomaSociety guidelines support Xalatan use in newly treated patients before lessefficacious and/or poorly tolerated therapies.

*Zyrtec*

The increase in sales compared to the same period in 2003 was achieveddespite the 16% decline in year-to-date new prescriptions in the antihistaminemarket due to the availability of multiple over-the-counter (OTC) branded andprivate-label loratadine (Claritin) products since December 2002. Zyrtecremains the only prescription antihistamine with a syrup formulation and, as ofMarch 2004, became the only prescription antihistamine with a chewableformulation as well.

Consumer Healthcare

Revenues of our ConsumerHealthcare business follow:

 

 

First Quarter

(millions of dollars)

 

2004

 

2003

% Change

 

 

 

 

 

 

Consumer Healthcare

$

804

$

579

39

The increase in consumerhealthcare revenues in the first quarter of 2004, as compared to the prior yearperiod, was primarily due to the inclusion of Pharmacia products as well as:

-

the 12% increase in the first quarter of 2004 in  sales of Listerine mouthwash, which benefited from the recent U.S. launch of  Natural Citrus flavor

 

 

-

the 13% and 20% increases in the first quarter of  2004 of Benadryl and Sudafed due to a strong cough/cold season

 

 

-

the favorable impact of the weakening of the U.S.  dollar against major currencies

 

Animal Health

Revenues of our AnimalHealth business were as follows:

 

 

First Quarter

(millions of dollars)

 

2004

 

2003

% Change

 

 

 

 

 

 

Livestock products

$

266

$

145

83

Companion animal products

 

162

 

124

31

Total Animal Health

$

428

$

269

59

The increase in animal health revenues in the first quarter of 2004 ascompared with the prior year period was primarily due to the inclusion ofPharmacia products, which are reflected in both product categories, and thefavorable impact of the weakening of the U.S. dollar against major currencies.

Livestock productrevenues increased 83% in the first quarter of 2004, as compared with the prioryear period, with key performance as follows:

-

Cattle biologicals grew 19% over the prior year period  driven by the launch of Spirovac (for the prevention of bacterial infection  of the reproductive tract) in the first quarter of last year in the U.S., and  a new claim for Bovishield (protects pregnant cows and fetal and nursing  calves against viral diseases) launched in the U.S. during the fourth quarter  of last year

 

 

-

Performance also reflects the launch of Draxxin (for  treatment of respiratory disease in cattle and swine) in Europe during the  first quarter of 2004

partially offset by:

-

Swine vaccine sales decline of 11% in the first  quarter of 2004, as compared with prior year period, due to competitive  market conditions in the U.S.

 

 

-

The impact of the bovine spongiform encephalopathy  issue (mad cow disease) and generic and branded competition

Companion animal productrevenues increased 31% in the first quarter of 2004, as compared with the prioryear period, with key brand performance as follows: 

-

Revolution (for protection against fleas and  heartworm) sales grew 39% in the first quarter of 2004 due to increased  promotional efforts (especially in feline) throughout our markets

 

 

-

Clavamox/Synulox (an antibiotic for dogs and cats)  sales grew 21% in the first quarter of 2004 primarily due to increased  promotional activities in the U.S.

 

 

-

Rimadyl (for relief of arthritis pain in dogs and  for post-operative pain) sales grew 20% in the first quarter of 2004 due to  increased promotional efforts throughout our markets and the launch of an  injectable form in the U.S.

 

COSTS AND EXPENSES

Cost of Sales

Cost of sales increased 69% in the first quarter of 2004 as comparedwith the prior year period, while revenues increased 47% in the first quarterof 2004.

Overall, our cost ofsales in the first quarter of 2004 was impacted by:

-

change in product mix, given the addition of legacy  Pharmacia's product portfolio, which has a higher product cost relative to  legacy Pfizer's product portfolio

 

 

-

the impact of reflecting cost of goods sold for  Celebrex and Bextra from the April 16, 2003 acquisition date of  Pharmacia, compared to recognizing alliance revenue for the copromotion of  Celebrex and Bextra prior to April 16, 2003, which had no cost of goods  sold recorded by Pfizer

 

 

-

the unfavorable impact of foreign exchange largely  due to the weakening of the dollar relative to the euro

Selling, Informational and Administrative Expenses

Selling, informational and administrative expenses (SI&A) increased44% in the first quarter of 2004, as compared with the prior year period,mainly due to incremental expenditures associated with the consolidation ofPharmacia-SI&A related activities from the acquisition date, partiallyoffset by cost synergies from Pharmacia-related restructuring activities.Marketing expenses of our pharmaceutical products increased 46% in the firstquarter of 2004 and included costs associated with support for new productintroductions and in light of new product competition.

Research and Development Expenses

Research and development (R&D) expenses increased 35% in the firstquarter of 2004, as compared with the prior year period. Year over year growthfor first quarter R&D spending is attributable to the incrementalexpenditures associated with the consolidation of Pharmacia-related activitysubsequent to the acquisition date and increased support of the advanced-stagedevelopment portfolio partially offset by cost synergies from Pharmacia relatedrestructuring activities.

*ProductDevelopments*

We continue to invest inR&D to provide future sources of revenue through the development of newproducts, as well as through additional uses for existing in-line and allianceproducts. We possess a broad and deep pipeline of medicines in development. Wehave five new products that were recently approved or are undergoing regulatoryreview in the U.S. and/or E.U. (Inspra, Caduet, pregabalin, Exubera, Daxas). Wehave launched, or intend to launch, these products in new markets onceregulatory 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 newproducts.

Certain significantregulatory actions by and filings pending with, the FDA follow:

**RecentFDA Approvals:**

**Product**

**Indication**

** **

**Date  Approved**

 

 

 

 

Zyrtec

Chewable tablets for  treatment of seasonal and perennial allergic rhinitis and chronic idiopathic  urticaria in children aged two years and older

 

March 2004

 

 

 

 

Caduet

Single product that  combines cholesterol-lowering and anti-hypertensive medications in Lipitor  and Norvasc

 

January 2004

 

 

 

 

Spiriva

Chronic obstructive  pulmonary disease

 

January 2004

 

 

 

 

Zithromax

Acute bacterial  sinusitis

 

January 2004

**Pending U.S. New Drug Applications(NDAs) and Supplemental Filings:**

**Product**

**Indication**

** **

**Date  Submitted**

 

 

 

 

Vfend

Treating invasive  candidiasis and candidemia

 

March 2004

 

 

 

 

Depo-Provera

Injectable formulations  to treat endometriosis

 

December 2003

 

Subcutaneous  formulation for contraception

 

June 2003

 

 

 

 

Zyvox

Use in  penicillin-resistant streptococcus pneumonia infections in patients with  pneumonia

 

December 2003

 

 

 

 

Bextra

Migraine

 

November 2003

 

 

 

 

pregabalin

Neuropathic pain,  add-on epilepsy, and generalized anxiety disorder

 

October 2003

 

 

 

 

Geodon

Acute mania in bipolar  disorder

 

October 2003

 

Oral suspension dosage  form

 

September 2002

 

 

 

 

Diflucan

Use in children to  treat fungal infections

 

October 2003

 

 

 

 

Fragmin

Use to prevent the  formulation of venous blood clots

 

February 2003

 

 

 

 

Viracept

Use in children with  HIV

 

June 2003

 

 

 

 

Cardura XL

Benign prostatic  hyperplasia (enlarged prostate)

 

April 2001

**Other Regulatory Approvals andFilings:**

**Product/Compound  in Development**

**Description  of Event**

** **

**Date  Approved**

** **

**Date  Submitted**

 

 

 

 

 

 

Inspra

Received marketing  approval in The Netherlands

 

March 2004

 

--

 

 

 

 

 

 

Caduet

Received marketing  approval in Brazil

 

February 2004

 

--

 

 

 

 

 

 

Vfend

Approval of a powder  for oral suspension (POS) formulation was granted in the E.U.

 

February 2004

 

--

 

 

 

 

 

 

Exubera 

Filing submitted in the  E.U.

 

--

 

February 2004

 

 

 

 

 

 

Daxas  (roflumilast)

Filing submitted in the  E.U.

 

--

 

February 2004

**Ongoingor planned clinical trials for additional uses and dosage forms for ourproducts include:**

**Product**

**Indication**

 

 

Viagra

Pulmonary arterial  hypertension in both children and adults

 

 

Celebrex

Sporadic adenomatous  polyposis--a precancerous condition caused by growths in the intestines

 

Bladder cancer

 

Barrett's esophagus--a  precancerous condition caused by repeated damage from stomach acid  regurgitation

 

Actinic keratosis--a  precancerous skin growth caused by overexposure to sunlight

 

Ankylosing  spondylitis--an inflammation of the spine

 

Chronic lower back pain

 

 

Bextra

Acute pain, including  gout

 

 

Zithromax

Sustained release  Zithromax (bacterial infections)

 

Cystic fibrosis

 

Drug resistant malaria  (combination with chloroquine)

 

 

Vfend

Candidemia in  non-neuropenic patients

 

Fungal infections in immuno-compromised patients

 

 

Camptosar IV

Use in children

 

Adjuvant colorectal  cancer

 

Gastric cancer

 

 

Fragmin

Use in oncology  patients to reduce cardiac toxicity associated with chemotherapy

 

 

Xalatan (new  formulation)

Ocular hypertension

Advanced-stage clinicalstudies are continuing for several agents including: 

-

indiplon for the treatment of insomnia, under  co-development with Neurocrine Biosciences, Inc. (Neurocrine)

 

 

-

Macugen for age-related macular degeneration and  macular edema, under co-development with Eyetech Pharmaceuticals, Inc.  (Eyetech)

 

 

-

capravirine for HIV/AIDS in treatment-experienced  patients

 

 

-

SU-11,248 an agent that blocks certain kinases for  treatment of gastrointestinal tumors and other cancers

 

 

-

edotecarin for glioma (brain tumor) and colorectal  cancer

 

 

-

lasofoxifene for osteoporosis and other indications

 

 

-

varenicline for smoking cessation

 

 

-

Exubera, an inhalable form of insulin for  Type 1 and Type 2 diabetes under co-development, co-manufacture,  and co-marketing with Aventis Pharma (Aventis), with the participation of  Nektar Therapeutics

 

 

-

Parecoxib (Dynastat), an injectable COX-2 inhibitor  for pain and inflammation

 

 

-

Lipitor-torcetrapib for cholesterol disorders and  atherosclerosis

 

 

-

Daxas (roflumilast) for chronic obstructive  pulmonary disease and asthma under co-development with Altana Pharma

 

 

-

Zithromax/chloroquine combination for malaria

 

 

-

sumanirole for Parkinson's disease

 

 

-

asenapine for schizophrenia and bipolar disorders,  under co-development with the Organon healthcare unit of Akzo-Nobel

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

MERGER-RELATED IN-PROCESS RESEARCH AND DEVELOPMENTCHARGES

We recorded a charge of $955 million in the first quarter of 2004based on our preliminary estimate of the portion of the purchase priceallocated to in-process research and development which included$920 million for Esperion and two animal health businesses. Aproject-by-project valuation is being performed by independent valuationspecialists to determine the fair value of research and development projectsthat were in-process, but not yet completed. The final valuations are expectedto be completed as soon as possible but no later than one year from therespective acquisition dates. To the extent that our estimates need to beadjusted, we will do so. No additional charges for in-process research anddevelopment relating to Pharmacia are expected.

MERGER-RELATED COSTS

We incurred the followingmerger-related costs primarily in connection with our acquisition of Pharmaciawhich was completed on April 16, 2003:

 

 

Three Months Ended

(millions of dollars)

 

March 28,   2004 

 

March 30,   2003 

 

 

 

 

 

Integration costs:

 

 

 

 

Pharmacia

$

101 

$

80 

Other

 

3 

 

8 

Restructuring costs:

 

 

 

 

Pharmacia

 

143 

 

-- 

Other

 

-- 

 

3 

Total merger-related  costs - expensed

$

247 

$

91 

Total merger-related  costs - capitalized

$

1,107 

$

-- 

Integration costs represent external, incremental costs directlyrelated to an acquisition including expenditures for consulting and systemsintegration when incurred.

Restructuring costs represent costs associated with asset write-offs,exit activities, employee termination costs and certain relocation costs.

Cost synergies resulting from the acquisition of Pharmacia totaled morethan $800 million in the first quarter of 2004 and are expected to beabout $3.4 billion in full-year 2004 and about $4 billion in fullyear 2005. Synergies stem from a broad range of sources, including astreamlined organization, reduced operating expenses and procurement savings.

In connection with the acquisition of Pharmacia, Pfizer managementapproved plans throughout 2003 and during the first three months of 2004 torestructure the operations of both legacy Pfizer and legacy Pharmacia toeliminate duplicative facilities and reduce costs. The restructuring of ouroperations as a result of our acquisition of Pharmacia is expected to continuethrough 2005 and is expected to include severance, costs of vacatingduplicative facilities and contract termination and other exit costs. Totalmerger-related expenditures (income statement and balance sheet) incurredduring 2003-2005 to achieve these synergies are expected to be about$6.0 billion, on a pre-tax basis.

*Restructuring Costs Associated withLegacy Pfizer - Expensed*

During the first three months of 2004, we recorded $143 million ofrestructuring costs associated with exiting certain activities of legacyPfizer, including severance, costs of vacating duplicative facilities andcontract termination and other exit costs. Through March 28, 2004, we haverecorded, in total, $320 million of restructuring costs and atMarch 28, 2004, liabilities for restructuring costs incurred but not paidtotaled $134 million and are included in *Othercurrent liabilities*.

The majority of the restructuring costs are related to employeeterminations. Through March 28, 2004, employee termination costs totaling$232 million ($92 million recorded in the first three months of 2004)represent the approved reduction of the legacy Pfizer work force by2,091 employees, mainly in corporate, manufacturing, distribution, salesand research. We notified affected individuals and 1,452 employees wereterminated as of March 28, 2004.

*Restructuring Costs Associated withLegacy Pharmacia - Capitalized*

During the first three months of 2004, we recorded $1,107 millionof restructuring costs associated with employee terminations and exitingcertain activities of legacy Pharmacia. These costs were recognized asliabilities assumed in the purchase business combination. Accordingly, therestructuring charges incurred in the first year after the acquisition areconsidered part of the purchase price of Pharmacia and have been recorded as anincrease to goodwill. Through March 28, 2004, we have recorded, in total,$2,685 million of restructuring costs and at March 28, 2004,liabilities for restructuring costs incurred but not paid totaled$1,209 million and are included in *Othercurrent liabilities*. Future restructuring charges associated withlegacy Pharmacia will be charged to the results of operations.

The majority of the restructuring costs are related to employeeterminations. Through March 28, 2004, employee termination costs totaling$1,552 million ($263 million recorded in the first three months of2004) represent the approved reduction of the legacy Pharmacia work force by13,045 employees mainly in corporate, manufacturing, distribution, salesand research. We notified affected individuals and 11,596 employees wereterminated as of March 28, 2004. Employee termination costs includeaccrued severance benefits and costs associated with change-in-controlprovisions of certain Pharmacia employment contracts. 

Restructuring charges are recorded when specific decisions to exitactivities are approved and incurred. Reductions to our estimates ofrestructuring charges relating to legacy Pharmacia that were originallyrecorded as goodwill will be recorded as an adjustment to goodwill. Increasesto the estimates of completing the currently approved restructuring plans orcosts related to new restructuring initiatives relating to legacy Pharmaciasubsequent to April 15, 2004 will be recorded in our results of operations.

OTHER (INCOME)/DEDUCTIONS-NET

Other (income)/deductions-net includes amortization expense of$807 million (primarily relating to intangible assets acquired fromPharmacia) in the first quarter of 2004 and copromotion charges and paymentsfor intellectual property rights of $255 million in the first quarter of2003.

TAXES ON INCOME

The estimated effective tax rate (ETR) used in calculating full-year2004 income from continuing operations before cumulative effect of change inaccounting principles is 25.8%. The projected full-year 2004 ETR is lower thanthe 49.7% ETR related to our 2003 income from continuing operations beforecumulative effect of change in accounting principles primarily due to thedecreased merger-related in-process research and development charges, which arenot deductible.

DISCONTINUED OPERATIONS

We evaluate ourbusinesses and product lines on an ongoing basis for strategic fit within ouroperations. As a result of our evaluation, in the first three months of 2004,we either sold or decided to sell the following businesses and product lines:

-

In January 2004, we agreed to sell 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 sale was completed on  April 23, 2004. The Diagnostics business was acquired in connection with  our acquisition of Pharmacia in April 2003. We recorded $153 million in  revenues from this business in 2003. 

 

 

-

In March 2004, we decided to sell certain non-core  consumer products marketed primarily in Europe by our Consumer Healthcare  segment. The majority of these products are small brands, sold in single  markets only and include certain products that became a part of Pfizer in  April 2003 in connection with our acquisition of Pharmacia. We recorded  $103 million in revenues for all of these products in 2003. 

 

 

-

In March 2004, we  decided to sell certain European generic pharmaceutical businesses. The  European generic businesses were included in our Pharmaceutical segment and  became a part of Pfizer in April 2003, with our acquisition of Pharmacia. We  recorded $94 million in revenues from these businesses in 2003. 

 

 

 

-

In March 2004, we  decided to sell our surgical ophthalmic business and in April 2004, we agreed  to sell this business for $450 million in cash. The surgical ophthalmic  business was included in our Pharmaceutical segment and became a part of  Pfizer in April 2003 in connection with our acquisition of Pharmacia. We  recorded $102 million in revenues from these products in 2003.

 

We have included the results of operations of these businesses andproduct lines in discontinued operations for three months ended March 28,2004. Due to the timing of our acquisition of Pharmacia in April 2003, therewere no results relating to these businesses and product lines included in ourconsolidated results of operations for the three months ended March 30, 2003except for those relating to certain legacy Pfizer non-core consumer healthcareproducts which have been included in discontinued operations for the threemonths ended March 30, 2003.

The significant assetsand liabilities relating to these businesses and product lines includeintangible assets, goodwill, property, plant and equipment, inventory, accountsreceivable, accrued liabilities and deferred taxes.

As a result of ourevaluation, in 2003 we sold the following businesses and product lines:

-

In March 2003, we sold  the Adams confectionery products business, formerly part of our Consumer  Healthcare segment, for $4.2 billion in cash. We recognized a gain on  the sale of this business of $3,091 million ($1,824 million net of  tax) in the consolidated statement of income for the first three months of  2003.

 

 

-

In March 2003, we sold the Schick-Wilkinson Sword  shaving products business, formerly part of our Consumer Healthcare segment,  for $930 million in cash. We recognized a gain on the sale of this business  of $462 million ($262 million net of tax) in the consolidated  statement of income for the first three months of 2003.

 

 

-

In March 2003, we sold the oral contraceptives  Estrostep and Loestrin, formerly part of our Pharmaceutical 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 recognized a gain on the sale of these two products of  $193 million ($116 million net of tax) in the consolidated  statement of income for the first three months of 2003.

 

 

-

In April 2003, we completed the sale of the hormone  replacement therapy femhrt, formerly part of our Pharmaceutical 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 recognized a gain on the sale of this product in our second  quarter 2003 results.

These businesses and product lines are reflected as discontinuedoperations in the three months ended March 30, 2003.

The following have beensegregated from continuing operations and reported as discontinued operations:

 

 

Three Months  Ended

(millions of dollars)

 

March 28,  2004

 

March 30,  2003

 

 

 

 

 

Revenues

$

150

$

624

 

 

 

 

 

Pre-tax income

$

20

$

62

Provision for taxes on  income

 

7

 

24

Income from operations  of discontinued businesses and product lines-net of tax

 

13

 

38

Pre-tax gains on sales  of discontinued businesses and product lines

 

--

 

3,746

Provision for taxes on gains 

 

--

 

1,544

Gains on sales of  discontinued businesses and product lines-net of tax

 

--

 

2,202

Discontinued operations-net of tax

$

13

$

2,240

 

ADJUSTED INCOME

The Company reports adjusted income in order to portray the results ofits major operations--the discovery, development, manufacture, marketing, andsale of market-leading prescription medicines for humans and animals, as wellas many of the world's best-known over-the-counter products. We believeinvestors' understanding of our performance is enhanced by disclosing adjustedincome, defined as net income excluding discontinued operations, the cumulativeeffect of changes in accounting principles, significant impacts of purchaseaccounting for acquisitions, merger-related costs and certain significantitems. Management itself analyzes the company's performance on this basis. 

We have excluded significant purchase-accounting impacts, such as thoserelated to our acquisitions of Pharmacia and Esperion. These impacts caninclude charges for purchased in-process research and development, theincremental charge to cost of sales from the sale of acquired inventory thatwas written up to fair value, and the incremental charges related to theamortization of finite-lived intangible assets and  depreciation of fixedassets for the increase to fair value. We believe that excluding these non-cashcharges provides a better view of our economic performance.

The costs to integrate and restructure the operations of acquiredbusinesses, such as Pharmacia, can be significant. We have excluded integrationand restructuring costs from adjusted income because these costs are unique tothe transactions and typically occur over several years due to the global andhighly regulated nature of our business.

Pfizer excludes gains or losses on the sale of businesses and productlines included in discontinued operations as well as the related results ofoperations. While we review our businesses and product lines on an ongoingbasis for strategic fit with our operations, we do not build or run ourbusinesses with an intent to sell them and, therefore, we have excluded suchgains or losses on sales of businesses or product lines from adjusted income.

Certain significant items represent substantive unusual andnon-recurring items. For example, significant charges that relate to thesettlement of legal matters would be considered a certain significant item. 

In 2004, we revised our basis for adjusted income such that we nolonger exclude certain items from adjusted income. For example, copromotioncharges and payments for intellectual-property rights for unapproved productsbeing developed by third parties and the contribution of divestitures werepreviously excluded in the calculation of adjusted income. We have revised ourprevious 2003 basis for adjusted income to conform to the 2004 presentation.

A reconciliation between net income, as reported under GAAP, andadjusted income follows:

 

 

First Quarter

(millions of dollars)

 

2004 

 

2003 

% Incr./  (Decr.)

 

 

 

 

 

 

Reported net income

$

2,331 

$

4,665 

(50)

Discontinued  operations-net of tax

 

(13)

 

(2,240)

(99)

Cumulative effect of  change in accounting principles-net of tax

 

-- 

 

30 

* 

Purchase accounting  adjustments-net of tax

 

1,513 

 

-- 

* 

Merger-related  costs-net of tax

 

126 

 

56 

126 

Certain significant  items-net of tax

 

19 

 

-- 

* 

Adjusted income

$

3,976 

$

2,511 

58 

 

 

 

 

 

 

*Calculation not  meaningful.

 

 

 

 

 

 

Adjusted income as shownabove excludes the following items:

 

 

First Quarter

(millions of dollars)

 

2004 

 

2003 

 

 

 

 

 

*Discontinued  operations, pre-tax:*

 

 

 

 

Income from operations  of discontinued businesses and product lines(a)

$

(20)

$

(62)

Gains on sales of  discontinued businesses and product lines(a)

 

-- 

 

(3,746)

Total discontinued  operations pre-tax

 

(20)

 

(3,808)

Income taxes

 

7 

 

1,568 

*Total  discontinued operations-net of tax*

 

(13)

 

(2,240)

*Cumulative  effect of change in accounting principles-net of tax*

 

-- 

 

30 

*Purchase  accounting adjustments, pre-tax:*

 

 

 

 

In-process research and  development(b)

 

955 

 

-- 

Intangible amortization  and other(c)

 

803 

 

-- 

Total purchase  accounting adjustments, pre-tax

 

1,758 

 

-- 

Income taxes

 

(245)

 

-- 

*Total  purchase accounting adjustments-net of tax*

 

1,513 

 

-- 

*Merger-related  costs, pre-tax:*

 

 

 

 

Integration costs--Pharmacia(d)

 

101 

 

80 

Integration  costs--Other(d)

 

3 

 

8 

Restructuring  charges--Pharmacia(d)

 

143 

 

-- 

Restructuring  charges--Other(d)

 

-- 

 

3 

Total merger-related  costs, pre-tax

 

247 

 

91 

Income taxes

 

(121)

 

(35)

*Total  merger-related costs-net of tax*

 

126 

 

56 

*Certain  significant items, pre-tax*

 

 

 

 

Operating results of  legacy Pharmacia research facility held for sale(e)

 

32 

 

-- 

Total certain  significant items, pre-tax

 

32 

 

-- 

Income taxes

 

(13)

 

-- 

*Total  certain significant items,-net of tax*

 

19 

 

-- 

*Total  discontinued operations, cumulative effect of change in accounting  principle,  purchase accounting adjustments, merger-related costs and certain  significant items-net of tax*

  $

1,645 

$

(2,154)

* *

 

 

 

 

(a)

Included in *Discontinued  operations-net of tax*.

 
(b)

Included in *Merger-related  in-process research and development charges*.

 
(c))

Included primarily in *Other (income)/deductions-net*.

 
(d)

Included in *Merger-related  costs*.

 
(e)

Included in *Research  and development expenses*.

 
 

RECLASSIFICATION OF SELECTED HISTORICAL RESULTS

Pfizer has classified certain revenues and expenses differently fromprior performance reports. In accordance with generally accepted accountingprinciples applied in the United States, Pfizer has classified the results ofbusinesses and product lines that the company intends to divest as DiscontinuedOperations and restated 2003 results accordingly. These are not restatements oferrors in our financial statements.

In addition, as detailedabove, the company revised its definitions of adjusted income. The previous2003 measures have been restated accordingly. The adjustments principallyrelate to the exclusion of the income from operations of discontinuedbusinesses and product lines and the inclusion of copromotion charges andpayments for intellectual-property rights for unapproved products beingdeveloped by third parties. A reconciliation of the impacts of theseclassifications for 2003 follows (certain amounts may reflect roundingadjustments):

Impact of  Reclassifications

 

 

 

Three Months  Ended  March 30, 2003

 

(millions of dollars)

 

Revenues 

 

Adjusted   Income 

 

 

 

 

 

 

 

Originally reported

$

8,525 

$

2,744 

 

Discontinued businesses  and product lines

 

(19)

 

(38)

*

Certain significant  items

 

0 

 

(195)

 

Restated

$

8,506 

$

2,511 

 

 

 

 

 

 

 

*

Includes income from operations (net of tax) of  $5 million for the 2004 discontinued businesses and product lines and  $33 million for the 2003 discontinued businesses and product lines  during the three months ended March 30, 2003.

 
 

 

 

Three Months  Ended  June 29, 2003

 

(millions of dollars)

 

Revenues 

 

Adjusted   Income 

 

 

 

 

 

 

 

Originally reported

$

9,993 

$

2,374 

 

Discontinued businesses  and product lines

 

(93)

 

-- 

*

Purchase accounting  impacts related to 2004 discontinued operations

 

-- 

 

(20)

 

Certain significant  items 

 

-- 

 

(10)

 

Restated

$

9,900

$

2,344 

 

 

 

 

 

 

 

*

Includes the income from operations (net of tax) of  $0 million for the 2004 discontinued businesses and product lines and  $0 million for the 2003 discontinued businesses and product lines during  the three months ended June 29, 2003.

 
 

 

 

 

Three Months  Ended  September 28, 2003

 

(millions of dollars)

 

Revenues 

 

Adjusted   Income 

 

 

 

 

 

 

 

Originally reported

$

12,504 

$

3,636 

 

Discontinued businesses  and product lines

 

(156)

 

2 

*

Purchase accounting  impacts related to 2004 discontinued operations

 

-- 

 

(26)

 

Certain significant  items

 

-- 

 

64 

 

Restated

$

12,348 

$

3,676 

 

 

 

 

 

 

 

*

Includes income from operations (net of tax) of  $2 million for the 2004 discontinued businesses and product lines and a  $4 million loss from operations for the 2003 discontinued businesses and  product lines during the three months ended September 28, 2003.

 
 

 

 

Three Months  Ended  December 31, 2003

 

 

Year  Ended  December 31, 2003

 
(millions of dollars)

 

Revenues 

 

Adjusted   Income 

 

 

Revenues 

 

Adjusted   Income 

 

 

 

 

 

 

 

 

 

 

 

 

Originally reported

$

14,167 

$

3,968 

 

$

45,188 

$

12,722 

 

Discontinued businesses  and product lines

 

(186)

 

9 

*

 

(452)

 

(26)

*

Purchase accounting  impacts related to 2004 discontinued operations

 

-- 

 

(30)

 

 

-- 

 

(76)

 

Certain significant  items 

 

-- 

 

(165)

 

 

-- 

 

(308)

 

Restated

$

13,981 

$

3,782 

 

$

44,736 

$

12,312 

 

 

 

 

 

 

 

 

 

 

 

 

*

Includes income from operations (net of tax) of  $3 million and $10 million for the 2004 discontinued businesses and  product lines during the three months and twelve months ended  December 31, 2003 and a $12 million loss from operations and  $16 million income from operations for the 2003 discontinued businesses  and product lines during the three months and twelve months ended  December 31, 2003.

 
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Our net financial assetposition was as follows:

(millions of dollars)

 

March 28,  2004

 

Dec. 31,  2003

 

 

 

 

 

Financial assets:

 

 

 

 

Cash and cash  equivalents

$

965

$

1,520

Short-term investments

 

12,987

 

10,432

Short-term loans

 

448

 

391

Long-term investments  and loans

 

5,430

 

6,142

Total financial assets

$

19,830

$

18,485

Debt:

 

 

 

 

Short-term borrowings

$

10,692

$

8,818

Long-term debt

 

7,144

 

5,755

Total debt

$

17,836

$

14,573

Net financial assets

$

1,994

$

3,912

 

We rely largely on operating cash flow, short-term commercial paperborrowings and long-term debt to provide for the working capital needs of ouroperations, including our R&D activities. Our short-term and long-terminvestments consist primarily of high quality, liquid investment-grade debtsecurities. Wherever possible, cash management is centralized and intercompanyfinancing is used to provide working capital to our operations. Where localrestrictions prevent intercompany financing, working capital needs are metthrough operating cash flows and/or external borrowings.

Our short-term borrowings are rated P1 by Moody's Investors Service(Moody's) and A-1+ by Standard & Poor's (S&P). Also, our long-term debthas been rated Aaa by Moody's and AAA by S&P for more than 17 years.Moody's and S&P are the major corporate debt-rating organizations. Oursuperior credit ratings are primarily based on our diversified productportfolio, our strong operating cash flows and our substantial financialassets. Our access to short-term financing at favorable rates would be affectedby a substantial downgrade in our credit ratings.

We have available lines of credit and revolving-credit agreements witha group of banks and other financial intermediaries. We maintain cash balancesand short-term investments in excess of our commercial paper borrowings andhave access to $2.7 billion of lines of credit, of which $2.2 billionexpire within one year. Of these lines of credit, $2.3 billion are unused,of which our lenders have committed to loan us $1.0 billion at ourrequest.

At March 28, 2004, we had the ability to borrow approximately$3.0 billion by issuing debt securities under our $5 billion debtshelf registration statement filed with the SEC in November 2002.

In February 2004, weissued the following debt under our debt shelf registration, which will be usedfor current general corporate purposes, including the refinancing of existingdebt:

-

$750 million senior unsecured notes, due February  2014, which pay interest semi-annually, beginning on August 15, 2004, at a  rate of 4.5%; and

 

 

-

$700 million senior unsecured notes, due March 2007,  which pay interest semi-annually, beginning on September 15, 2004, at a rate  of 2.5%

Selected measures ofliquidity and capital resources:

 

 

March 28,  2004

 

Dec. 31,  2003

 

 

 

 

 

Cash and cash  equivalents and short-term loans and investments (millions of dollars)

$

14,400

$

12,343

 

 

 

 

 

Working capital (millions of dollars)*

$

10,752

$

6,768 

 

 

 

 

 

Current ratio**

 

1.44:1

 

1.28:1

 

 

 

 

 

Shareholders' equity per common share***

$

9.11

$

8.63

 

 

 

 

 

 

 

*

Working capital includes assets and liabilities of  discontinued businesses held for sale at March 28, 2004 and  December 31, 2003.

 

 

**

Current ratio is the proportion of current assets to  current liabilities.

 

 

***

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 workingcapital from December 31, 2003 to March 28, 2004 primarily reflects:

-

cash from current period operations

 

 

-

cash receipts from long-term debt issuances under  our existing debt shelf registration -- $1,450 million

 

 

-

an increase in accounts receivable levels at the end  of the first quarter of 2004 that is comparable to the same period in 2003  and consistent with historic business trends which include organic sales  growth

partially offset by:

-

purchases of property, plant and equipment --  $472 million

 

 

-

purchases of our common stock -- $912 million

 

 

-

net cash paid to acquire Esperion and two animal  health businesses -- $1,443 million

 

 

-

cash dividends on common and preferred stock --  $1,282 million

Net Cash Provided by Operating Activities

During the first three months of 2004, net cash provided by continuingoperating activities was $1,583 million, as compared to$2,323 million in the 2003 period. The change in net cash provided byoperating activities in 2004 was primarily due to current period income fromoperations, net of non-cash items, which included the gain (net of related taxeffects) on the disposal of certain businesses and product lines in 2003 offsetby increases primarily in accounts receivable, inventory as well as payments ofaccrued litigation settlements.

Net Cash Used in Investing Activities

During the first threemonths of 2004, net cash used in investing activities of $3,721 million,as compared to $1,883 million in the 2003 period. The change in net cashused in investing activities in 2004 was primarily attributable to:

-

an increase in net purchases of short-term and  long-term investments (an increase of $1,115 million)

 

 

-

an increase in purchases of property, plant and  equipment (an increase of $90 million) due primarily to expenditures at  certain legacy Pharmacia manufacturing facilities

 

 

-

net cash paid of $1,443 million relating to the  acquisition of Esperion and two animal health businesses

offset by:

-

the 2003 proceeds from the sales of businesses and  product lines ($1,178 million)

Net Cash Provided by/(Used in) Financing Activities

During the first threemonths of 2004 net cash provided by financing activities was $1,583 million,as compared to net cash used of $252 million in the 2003 period. Thechange in net cash provided by/(used in) financing activities in 2004 wasprimarily attributable to:

-

an increase in stock options exercised (an increase  of $519 million)

 

 

-

an increase in net borrowings (an increase of  $2,017 million) due primarily to issuing, in February 2004,  $1,450 million in senior unsecured notes under our existing debt shelf  registration

partially offset by:

-

an increase in cash dividends paid (an increase of  $376 million) due to an increase in the dividend and a larger number of  shares outstanding resulting from the acquisition of Pharmacia

 

 

-

an increase in common share purchases (an increase  of $314 million) due to our share-purchase program

In December 2003, we announced a new $5 billion share-purchaseprogram which we expect to be completed by the end of 2004 and which will befunded from operating cash flows. During the first three months of 2004 wepurchased 24.8 million shares of common stock at a total cost of$912 million.

*Off-Balance Sheet Arrangements*

Legacy Pharmacia guaranteed certain transactions in which Monsanto, itsformer agricultural subsidiary, is involved. These guarantees continued afterPfizer's acquisition of Pharmacia and at March 28, 2004 includedapproximately $250 million of bank notes with maturities not later than2004 and $5 million of environmental guarantees, which are required untilMonsanto can obtain certain approvals.

Certain of our copromotion agreements include additional provisionsthat give our alliance partners the right to negotiate for or in some cases toobtain copromotion rights in specified countries with respect to certain of theCompany's products.

OUTLOOK

Our targets for strong financial performance throughout 2004 remainunchanged--2004 revenue of about $54 billion, adjusted income of$16.3 billion, and adjusted diluted EPS of $2.13 with achievement of thesetargets subject to many variables cited in the disclosure notice found in thisdocument, including foreign exchange. We now project 2004 reported net incomeof $11.9 billion and 2004 reported diluted EPS of $1.55. The differencebetween reported and adjusted diluted EPS is attributable to projectedincremental purchase-accounting-related intangible amortization/fixed assetdepreciation of $2.3 billion, or $.30 per share, merger-related costs of$1.2 billion, or $.15 per share, and in-process research anddevelopment expenses for Esperion and two animal health business acquisitionsof $955 million, or $.13 per share, which were recorded in the firstquarter of 2004. We plan to spend about $7.9 billion on R&D during2004. 

Our estimates for both reported and adjusted income for 2004 excludethe contributions of divestitures and include milestone payments to developmentpartners.

CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS

Our disclosure andanalysis in this report contain forward-looking information about our company'sfinancial results and estimates, business prospects and products in researchthat involve substantial risks and uncertainties. From time to time, we alsomay provide oral or written forward-looking statements in other materials werelease to the public. Forward-looking statements give our current expectationsor forecasts of future events. You can identify these statements by the factthat they do not relate strictly to historic or current facts. They use wordssuch as "anticipate," "estimate," "expect,""project," "intend," "plan," "believe,""will," and other words and terms of similar meaning in connectionwith any discussion of future operating or financial performance. Inparticular, these include statements relating to future actions, prospectiveproducts or product approvals, future performance or results of current andanticipated products, sales efforts, expenses, interest rates, foreign exchangerates, the outcome of contingencies, such as legal proceedings, and financialresults. Among the factors that could cause actual results to differ materiallyare the following:

-

the success of research and development activities  and 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

 

 

-

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 Medicaid and Medicare and 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

 

 

-

legal defense costs, insurance expense, settlement  costs and the risk of an adverse decision or settlement related to product  liability, patent protection, government investigations 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 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 mix

 

 

-

the impact of acquisitions, divestitures,  restructurings, product withdrawals and other unusual items, including our  ability to integrate and to obtain the anticipated results and synergies from  our acquisition of Pharmacia 

We cannot guarantee that any forward-looking statement will berealized, although we believe we have been prudent in our plans and assumptions.Achievement of future results is subject to risks, uncertainties and inaccurateassumptions. Should known or unknown risks or uncertainties materialize, orshould underlying assumptions prove inaccurate, actual results could varymaterially 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-lookingstatements, whether as a result of new information, future events or otherwise.You are advised, however, to consult any further disclosures we make on relatedsubjects in our Forms 10-Q, 8-K and 10-K reports to the Securities and ExchangeCommission. Our Form 10-K filing for the 2003 fiscal year listed various importantfactors that could cause actual results to differ materially from expected andhistoric results. We note these factors for investors as permitted by thePrivate Securities Litigation Reform Act of 1995. Readers can find them inItem 1 of that filing under the heading " Factors That May AffectFuture Results." We incorporate that section of that Form 10-K in thisfiling and investors should refer to it. You should understand that it is notpossible to predict or identify all such factors. Consequently, you should notconsider any such list to be a complete set of all potential risks oruncertainties.

Legal Proceedings and Contingencies

We and certain of our subsidiaries are involved in various patent,product liability, consumer, commercial, environmental, and tax litigations andclaims; government investigations; and other legal proceedings that arise fromtime to time in the ordinary course of our business. We do not believe any ofthem will have a material adverse effect on our financial position. Litigationis inherently unpredictable, and excessive verdicts do occur. Although webelieve we have valid defenses in these matters, we could in the future incurjudgments or enter into settlements of claims that could have a materialadverse effect on our results of operations in any particular period.

Patent claims include challenges to the coverage and/or validity of ourpatents on various products or processes. Although we believe that we havevalid 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 anyof these cases could result in a loss of patent protection for the drug atissue, which could lead to a significant loss of sales of that drug and couldmaterially affect future results of operations.

Item 4.  Disclosure Controls and Procedures

As of the end of the period covered by this report, we carried out anevaluation, under the supervision and with the participation of our principalexecutive officer and principal financial officer, of the effectiveness of thedesign and operation of our disclosure controls and procedures. Based on thisevaluation, our principal executive officer and principal financial officerconcluded that our disclosure controls and procedures are effective in alertingthem in a timely manner to material information required to be disclosed in ourperiodic reports filed with the SEC.

In addition, we reviewed our internal controls, and there have been nosignificant changes in our internal controls or in other factors that couldsignificantly affect those controls subsequent to the date of their most recentevaluation.

FORM 10-Q

PART II - OTHER INFORMATION

Item 1.  Legal Proceedings

Certain legal proceedings in which we are involved are discussed inNote 20 to the consolidated financial statements included in our 2003 FinancialReport and in Part I, Item 3, of our Annual Report on Form 10-K forthe year ended December 31, 2003. The following discussion is limited torecent developments concerning our legal proceedings and should be read inconjunction with those earlier Reports. Unless otherwise indicated, allproceedings discussed in those earlier Reports remain outstanding.

**Patent Matters**

Diflucan (fluconazole)

As previously reported, our basic product patent for fluconazole(Diflucan) expired in January 2004. The FDA has granted us pediatricexclusivity with respect to Diflucan, which extends our marketing exclusivityfor six months after the patent expiration date, through July 29, 2004.One of the generic manufacturers that has filed an abbreviated new drugapplication for fluconazole brought an action against the FDA challenging thegrant of pediatric exclusivity. The U.S. District Court for the District ofColumbia upheld the FDA's grant of pediatric exclusivity on March 10, 2004, andthe generic manufacturer appealed that decision. On April 26, 2004, theU.S. Court of Appeals for the District of Columbia affirmed the DistrictCourt's decision upholding the grant of pediatric exclusivity. 

Xalatan (latanoprost)

As previously reported, in November 2001, a generic manufacturernotified Pharmacia that it had filed an abbreviated new drug application withthe FDA seeking approval to market a product containing latanoprost, whichPharmacia markets as Xalatan. In December 2001, Pharmacia filed suit againstthe generic manufacturer in the U.S. District Court for the District of NewJersey alleging infringement of various patents relating to latanoprost thatare held by or licensed to Pharmacia. The generic manufacturer has admittedinfringement but claims that these patents are invalid and unenforceable. Thetrial of this matter was held in March 2004, and we are awaiting a decision.

Detrol (tolterodine)

As previously reported, in February 2004, a generic manufacturernotified us that it had filed an abbreviated new drug application with the FDAseeking approval to market tolterodine (Detrol). We filed a patent infringementsuit against the generic manufacturer in the U.S. District Court for the Districtof New Jersey on March 26, 2004.

Accupril (quinapril)

In January 1999, a generic manufacturer filed an abbreviated new drugapplication with the FDA seeking approval to market quinapril (Accupril). InMarch 1999, Warner-Lambert filed a patent infringement suit against the genericmanufacturer in the U.S. District Court for the District of New Jersey. InOctober 2003, the court granted our motions for summary judgment on variousissues, including with respect to infringement of our patent by the genericmanufacturer.  The trial on the remaining issues was held in May 2004, and weare awaiting a decision. In addition, several purported class actions have beenfiled in federal and state courts claiming that our assertions of or attemptsto enforce our patent rights with respect to quinapril violate federal andstate antitrust and deceptive practices laws.

**Product Liability Matters**

Asbestos

As of March 31, 2004: (i) approximately 169,900 claims namingPfizer and/or Quigley Company, Inc. (which is a subsidiary of Pfizer) andnumerous other defendants were pending in various federal and state courtsseeking damages for alleged asbestos exposure and exposure to other allegedlyhazardous materials, and (ii) approximately 135,500 claims naming AmericanOptical Corporation (which is a former subsidiary of Warner-Lambert) andnumerous other defendants were pending in various federal and state courtsseeking damages for alleged asbestos exposure and exposure to other allegedlyhazardous materials.

**Commercial Matters**

Qui Tam Action Relating to Manufacturing Practices

As previously reported, Pfizer, Pharmacia and other pharmaceuticalcompanies have been named in a *qui tam*action that was filed in the U. S. District Court for the Northern District ofTexas in June 2001 but not served on Pfizer and Pharmacia until 2003. Thecomplaint alleges that the defendants have generally failed to comply with goodmanufacturing practices mandated by the FDA, that as a consequence theirproducts sold to or reimbursed by the federal government are adulterated and/ormisbranded, and that the federal government is entitled to refunds of purchaseprices paid. In February 2004, the court granted the plaintiff's motion forleave to amend the complaint and denied defendants' consolidated motion todismiss as moot. The plaintiff filed an amended complaint in February 2004, anddefendants filed a consolidated motion to dismiss the amended complaint inApril 2004. To date, the federal government has not intervened in the action.We believe the claims with respect to Pfizer and Pharmacia are without merit.

NeoPharm Arbitration 

As previously reported, in 1999, Pharmacia and NeoPharm entered into anagreement to develop NeoPharm's technology for lipisome encapsulation ofcertain cancer drugs. In April 2002, NeoPharm filed a demand for arbitrationunder the agreement, alleging that Pharmacia had breached the agreement byfailing to use reasonable efforts to develop, market and sell the technology.NeoPharm sought specific performance and damages for lost profits. In May 2002,Pharmacia filed its response and asserted a counterclaim for rescission and thereturn of certain payments on the ground that NeoPharm had misrepresented thetechnology. On April 30, 2004, the arbitration panel rendered its decisionthat Pharmacia did not breach the agreement. The panel also denied NeoPharm'sclaims for specific performance and damages. At the same time, the panel deniedPharmacia's counterclaim for rescission.

**Tax Matters**

The Internal Revenue Service (IRS) has completed and closed its auditsof Pfizer Inc.'s tax returns through 1998 and Warner-Lambert Company through1998. The IRS is currently conducting audits of Pfizer Inc's tax returns forthe years 1999 through 2001 and Warner-Lambert Company for the years 1999through the date of merger (June 19, 2000). With respect to Pharmacia, theIRS is currently conducting audits of Pharmacia Inc.'s tax returns for theyears 1998 and 1999, while Pharmacia Inc.'s tax returns for 1995 through 1997which were under appeal have been completed. Pharmacia also has responsibilityfor the currently on-going IRS audit of its former agricultural subsidiaryMonsanto's tax returns for the years 1998 and 1999.

We believe that ouraccruals for tax liabilities are adequate for all open years

 

Item 2.

Changes in Securities,  Use of Proceeds and Issuer

 

Purchases of Equity  Securities

This table provides information with respect topurchases by the Company of shares of its Common Stock during the fiscal firstquarter of 2004:

Issuers Purchases of Equity Securities*

 

 

Period

Total Number  of      Shares Purchased**

Average  Price      Paid per Share**

Total Number  of    Shares Purchased as    Part of Publicly    Announced Plan*

Approximate  Dollar    Value of Shares that    May Yet Be Purchased    Under the Plan*

January 1, 2004 through January 31, 2004

2,578,712    

$36.41    

3,525,000  

$4,873,572,310  

February 1, 2004 through February 29, 2004

8,716,940    

$37.48    

12,135,000  

$4,550,913,760  

March 1, 2004 through March 28, 2004

13,729,081    

$36.47    

25,850,000  

$4,050,735,904  

Total

25,024,733    

$36.81    

25,850,000  

 

 

 

 

 

 

*

On December 15, 2003, the Company announced  that the Board of Directors authorized the purchase of up to $5 billion  of the Company's Common Stock (the "2003 Stock Purchase Plan").  Such purchases are expected to be completed by the end of 2004.

 

 

**

In addition to purchases under the 2003 Stock  Purchase Plan, this column reflects the following transactions during the  fiscal first quarter of 2004: (i) the deemed surrender to the Company of  224,120 shares of Common Stock to pay the exercise price and to satisfy  tax withholding obligations in connection with the exercise of employee stock  options, and (ii) the surrender to the Company of 25,613 shares of Common  Stock to satisfy tax withholding obligations in connection with the vesting  of restricted stock issued to employees.

 

Item 4.

Submission of Matters  to a Vote of Security Holders

The shareholders of thecompany voted on eight items at the Annual Meeting of Shareholders held onApril 22, 2004:

1.

 

the election of fifteen directors to terms ending in  2005

2.

 

a proposal to approve the appointment of KPMG LLP as  independent auditor for 2004

3.

 

a proposal to approve the Pfizer Inc. 2004 Stock  Plan

4.

 

a shareholder proposal requesting review of the  economic effects of the HIV/AIDS, tuberculosis and malaria pandemics on the  Company's business strategy

5.

 

a shareholder proposal relating to an annual report  on corporate resources devoted to supporting political entities or candidates

6.

 

a shareholder proposal seeking to impose term limits  on directors

7.

 

a shareholder proposal requesting a report on  increasing access to Pfizer products

8.

 

a shareholder proposal on *in vitro* testing

 

The nominees for directorswere elected based upon the following votes:

**Nominee**

**Votes  For**

**Votes  Withheld**

Michael S. Brown

6,402,288,172

116,943,283

M. Anthony Burns

6,330,740,631

188,490,824

Robert N. Burt

6,323,893,761

195,337,694

W. Don Cornwell

6,322,149,479

197,081,976

William H. Gray III

6,363,032,765

156,198,690

Constance J. Horner

6,356,677,577

162,553,878

William R. Howell

6,319,319,736

199,911,719

Stanley O. Ikenberry

6,355,798,076

163,433,379

George A. Lorch

6,370,298,296

148,933,159

Henry A. McKinnell

6,342,751,695

176,479,760

Dana G. Mead

6,400,020,991

119,210,464

Franklin D. Raines

6,393,181,305

126,050,150

Ruth J. Simmons

6,397,853,407

121,378,048

William C. Steere Jr.

6,354,309,397

164,922,058

Jean-Paul Valles

6,245,477,022

273,754,433

The proposal to approvethe appointment of KPMG LLP as independent auditors for 2004 received thefollowing votes:

-

6,237,591,622

 Votes for approval

-

235,143,794

 Votes against

-

46,496,039

 Abstentions

 

There were no broker non-votes for this item.

The proposal to approvethe Pfizer Inc. 2004 Stock Plan received the following votes:

-

4,716,082,472

 Votes for approval

-

457,845,073

 Votes against

-

62,929,951

 Abstentions

-

1,282,373,959

 Broker non-votes

The shareholder proposalrequesting review of the economic effects of the HIV/AIDS, tuberculosis andmalaria pandemics on the Company's business strategy received the followingvotes:

-

462,213,020

 Votes for approval

-

4,268,874,397

 Votes against

-

505,497,255

 Abstentions

-

1,282,646,783

 Broker non-votes

The shareholder proposalrelating to an annual report on corporate resources devoted to supportingpolitical entities or candidates received the following votes:

-

520,162,713

 Votes for approval

-

4,244,239,467

 Votes against

-

472,191,078

 Abstentions

-

1,282,638,197

 Broker non-votes

The shareholder proposalseeking to impose term limits on directors received the following votes:

-

177,708,514

 Votes for approval

-

4,983,930,379

 Votes against

-

74,976,525

 Abstentions

-

1,282,616,037

 Broker non-votes

The shareholder proposalrequesting a report on increasing access to Pfizer products received thefollowing votes:

-

238,610,025

 Votes for approval

-

4,556,606,150

 Votes against

-

441,397,254

 Abstentions

-

1,282,618,026

 Broker non-votes

The shareholder proposalon *in vitro* testing received thefollowing votes:

-

104,385,062

 Votes for approval

-

4,600,923,325

 Votes against

-

511,908,466

 Abstentions

-

1,302,014,602

 Broker non-votes

Two additionalshareholder proposals, one relating to political contributions and one relatingto stock options, that were submitted for consideration at the Annual Meetingwere not voted on because the respective shareholder proponents were notpresent at the meeting to introduce the proposals.

Item 6.

Exhibits and Reports on  Form 8-K

 

 

 

 

(a)

Exhibits

 

 

 

 

 

 

 

1)  Exhibit 3

-

Restated Certificate of Incorporation of Pfizer Inc.

 

 

 

 

 

2)  Exhibit 12

-

Ratio of Earnings to Fixed Charges and Ratio of  Earnings to Fixed Charges and Preferred Stock Dividends

 

 

 

 

 

3)  Exhibit 15

-

Accountants' Acknowledgment

 

 

 

 

 

4)  Exhibit 31.1

-

Certification by the Chief Executive Officer  Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

 

 

5)  Exhibit 31.2

-

Certification by the Chief Financial Officer  Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

 

 

6)  Exhibit 32.1

-

Certification by the Chief Executive Officer  Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906  of the Sarbanes-Oxley Act of 2002

 

 

 

 

 

7)  Exhibit 32.2

-

Certification by the Chief Financial Officer  Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906  of the Sarbanes-Oxley Act of 2002

 

 

 

 

(b)

Reports on Form 8-K

 

 

 

We filed a report on Form 8-K during the first  quarter ended March 28, 2004 on the following date for the purposes  specified:  On January 22, 2004, to report our financial  results for the fourth quarter and year ended December 31, 2003.

 

PFIZER INC. ANDSUBSIDIARY COMPANIES

SIGNATURE

Under the requirements ofthe Securities Exchange Act of 1934, this report was signed on behalf of theRegistrant by the authorized person named below.

 

 

Pfizer Inc.

 

 

(Registrant)

 

 

 

 

 

 

Dated:  May 7, 2004

 

/s/ Loretta  V. Cangialosi

 

 

 

 

 

Loretta V.  Cangialosi, Vice President, Controller  (Principal Accounting Officer and  Duly Authorized Officer)

 

Exhibit 12

PFIZER INC. ANDSUBSIDIARY COMPANIESRATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO FIXEDCHARGES AND PREFERRED STOCK DIVIDENDS

 

 

Three  Months  Ended  March 28,

 

 

Year Ended  December 31,

(in millions, except  ratios)

 

2004

 

 

2003

 

2002

 

2001

 

2000

 

1999

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Determination of  earnings:

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing  operations before provision for taxes on income, minority interests and  cumulative effect of change in accounting principles

$

3,129

 

$

3,246

$

11,766

$

9,963

$

5,471

$

6,945

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

Minority interests

 

2

 

 

3

 

6

 

14

 

13

 

5

Adjusted income

 

3,127

 

 

3,243

 

11,760

 

9,949

 

5,458

 

6,940

Fixed charges

 

114

 

 

491

 

365

 

359

 

478

 

463

Total earnings as  defined

$

3,241

 

$

3,734

$

12,125

$

10,308

$

5,936

$

7,403

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed charges:

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense (a)

$

58

 

$

270

$

251

$

266

$

381

$

364

Preferred stock  dividends (b)

 

3

 

 

10

 

--

 

--

 

--

 

--

Rents (c)

 

53

 

 

211

 

114

 

93

 

97

 

99

Fixed charges

 

114

 

 

491

 

365

 

359

 

478

 

463

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capitalized interest

 

4

 

 

20

 

28

 

56

 

46

 

40

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total fixed charges

$

118

 

$

511

$

393

$

415

$

524

$

503

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratio of earnings to  fixed charges

 

27.5

 

 

7.3

 

30.9

 

24.8

 

11.3

 

14.7

All financial data for2004 and 2003 reflect our in-vitro allergy and autoimmune diagnostics testingbusiness, European generic businesses and surgical ophthalmic business as wellas for 2004, 2003, 2002, 2001 and 2000 certain non-core consumer healthcareproducts (primarily marketed in Europe) which have been presented indiscontinued operations beginning in the three months ended March 28,2004.

All financial data for2003, 2002, 2001 and 2000 reflect our confectionery, shaving and fish-careproducts businesses as well as the Estrostep, Loestrin and femhrt women'shealth product lines as discontinued operations. 

We have not restatedperiods prior to 2000 for these discontinued operations because the data arenot available. After we reorganized our financial systems due to the mergerwith Warner-Lambert Company, the level of detail necessary to develop financialinformation for these discontinued operations for periods prior to 2000 was nolonger available.

(a)

Interest expense includes amortization of debt  premium, discount and expenses.

 

 

(b)

Preferred stock dividends are from our Series A  convertible perpetual preferred stock held by an Employee Stock Ownership  Plan assumed in connection with our acquisition of Pharmacia.

 

 

(c)

Rents included in the computation consist of  one-third of rental expense which we believe to be a conservative estimate of  an interest factor in our leases, which are not material.

Exhibit 15

ACCOUNTANTS'ACKNOWLEDGMENT

To the Shareholders and Board of Directors of Pfizer Inc.:

We hereby acknowledge our awareness of the incorporation by referenceof our report dated November 12, 2003, included within the QuarterlyReport on Form 10-Q of Pfizer Inc. for the quarter ended September 28,2003, in the following Registration Statements:

- Form S-8 dated October 27, 1983 (File No. 2-87473),

- Form S-8 dated March 22, 1990 (File No. 33-34139),

- Form S-8 dated January 24, 1991 (File No. 33-38708),

- Form S-8 dated November 18, 1991 (File No.33-44053),

- Form S-3 dated May 27, 1993 (File No. 33-49629),

- Form S-8 dated May 27, 1993 (File No. 33-49631),

- Form S-8 dated May 19, 1994 (File No. 33-53713),

- Form S-8 dated October 5, 1994 (File No. 33-55771),

- Form S-3 dated November 14, 1994 (File No. 33-56435),

- Form S-8 dated December 20, 1994 (File No. 33-56979),

- Form S-8 dated March 29, 1996 (File No. 33-02061),

- Form S-8 dated September 25, 1997 (File No. 333-36371),

- Form S-8 dated April 24, 1998 (File No. 333-50899), 

- Form S-8 dated April 22, 1999 (File No. 333-76839), 

- Form S-8 dated June 19, 2000 (File No. 333-90975),

- Form S-8 dated June 19, 2000 (File No. 333-39606),

- Form S-8 dated June 19, 2000 (File No. 333-39610),

- Form S-3 dated October 20, 2000 (File No. 333-48382),

- Form S-8 dated April 27, 2001 (File No. 333-59660), 

- Form S-8 dated April 27, 2001 (File No. 333-59654),

- Form S-3 dated October 30, 2002 (File No. 333-100853),

- Form S-3 dated December 26, 2002 (File No.33-56435),

- Form S-8 dated April 16, 2003 (File No. 333-104581),

- Form S-8 dated April 16, 2003 (File No. 333-104582).

- Form S-8 dated November 18, 2003 (File No.333-110571)

- Form S-8 dated December 18, 2003 (File No.333-111333) and

- Form S-8 dated April 26, 2004 (File No.333-114852).

Pursuant to Rule 436(c) under the Securities Act of 1933, such reportis not considered a part of a registration statement prepared or certified byan accountant or a report prepared or certified by an accountant within themeaning of Sections 7 and 11 of that Act.

KPMG LLP

New York, New YorkMay 7, 2004

**Exhibit31.1**

** **

**CERTIFICATIONBY THE CHIEF EXECUTIVE OFFICER PURSUANT TOSECTION 302 OF THE SARBANES-OXLEY ACT OF 2002**

I, Henry A. McKinnell,certify that:

1.

I have reviewed this report on Form 10-Q of Pfizer  Inc.;

 

 

2.

Based on my knowledge, this report does not contain  any untrue statement of a material fact or omit to state a material fact  necessary to make the statements made, in light of the circumstances under  which such statements were made, not misleading with respect to the period  covered by this report;

 

 

3.

Based on my knowledge, the financial statements, and  other financial information included in this report, fairly present in all  material respects the financial condition, results of operations and cash  flows of the registrant as of, and for, the periods presented in this report;

 

 

4.

The registrant's other certifying officer and I are  responsible for establishing and maintaining disclosure controls and  procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the  registrant and have:

 

 

 

a)

Designed such disclosure controls and procedures, or  caused such disclosure controls and procedures to be designed under our  supervision, to ensure that material information relating to the registrant,  including its consolidated subsidiaries, is made known to us by others within  those entities, particularly during the period in which this report is being  prepared;

 

 

 

b)

Evaluated the effectiveness of the registrant's  disclosure controls and procedures and presented in this report our  conclusions about the effectiveness of the disclosure controls and  procedures, as of the end of the period covered by this report based on such  evaluation; and

 

 

 

c)

Disclosed in this report any change in the  registrant's internal control over financial reporting that occurred during  the registrant's most recent fiscal quarter that has materially affected, or  is reasonably likely to materially affect, the registrant's internal control  over financial reporting; and

 

 

5.

The registrant's other certifying officer and I have  disclosed, based on our most recent evaluation of internal control over  financial reporting, to the registrant's auditors and the audit committee of  the registrant's board of directors (or persons performing the equivalent  functions):

 

 

 

a)

All significant deficiencies and material weaknesses  in the design or operation of internal control over financial reporting which  are reasonably likely to adversely affect the registrant's ability to record,  process, summarize and report financial information; and

 

 

 

b)

Any fraud, whether or not material, that involves  management or other employees who have a significant role in the registrant's  internal control over financial reporting.

 

 

 

 

Date:  May 7, 2004

 

/s/ Henry A. McKinnell

Henry A. McKinnell  Chairman of the Board  and Chief Executive Officer

 

**Exhibit31.2**

**CERTIFICATIONBY THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002**

I, David L. Shedlarz,certify that:

1.

I have reviewed this report on Form 10-Q of Pfizer  Inc.;

 

 

2.

Based on my knowledge, this report does not contain  any untrue statement of a material fact or omit to state a material fact  necessary to make the statements made, in light of the circumstances under  which such statements were made, not misleading with respect to the period  covered by this report;

 

 

3.

Based on my knowledge, the financial statements, and  other financial information included in this report, fairly present in all  material respects the financial condition, results of operations and cash  flows of the registrant as of, and for, the periods presented in this report;

 

 

4.

The registrant's other certifying officer and I are  responsible for establishing and maintaining disclosure controls and  procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the  registrant and have:

 

 

 

a)

Designed such disclosure controls and procedures, or  caused such disclosure controls and procedures to be designed under our  supervision, to ensure that material information relating to the registrant,  including its consolidated subsidiaries, is made known to us by others within  those entities, particularly during the period in which this report is being  prepared;

 

 

 

b)

Evaluated the effectiveness of the registrant's  disclosure controls and procedures and presented in this report our  conclusions about the effectiveness of the disclosure controls and  procedures, as of the end of the period covered by this report based on such  evaluation; and

 

 

 

c)

Disclosed in this report any change in the  registrant's internal control over financial reporting that occurred during  the registrant's most recent fiscal quarter that has materially affected, or  is reasonably likely to materially affect, the registrant's internal control  over financial reporting; and

 

 

5.

The registrant's other certifying officer and I have  disclosed, based on our most recent evaluation of internal control over  financial reporting, to the registrant's auditors and the audit committee of  the registrant's board of directors (or persons performing the equivalent  functions):

 

 

 

a)

All significant deficiencies and material weaknesses  in the design or operation of internal control over financial reporting which  are reasonably likely to adversely affect the registrant's ability to record,  process, summarize and report financial information; and

 

 

 

b)

Any fraud, whether or not material, that involves  management or other employees who have a significant role in the registrant's  internal control over financial reporting.

Date:  May 7, 2004

 

/s/ David L. Shedlarz

David L. Shedlarz  Executive Vice President and  Chief Financial Officer

 

 

**Exhibit32.1**

**Certificationby the Chief Executive Officer Pursuant to 18 U. S. C. Section 1350, asAdopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**

Pursuant to 18 U. S. C. Section 1350, I, Henry A. McKinnell, herebycertify that, to the best of my knowledge, the Quarterly Report of Pfizer Inc.on Form 10-Q for the quarter ended March 28, 2004 (the "Report") fullycomplies with the requirements of Section 13(a) or Section 15(d) of theSecurities Exchange Act of 1934, and that the information contained in thatReport fairly presents, in all material respects, the financial condition andresults of operations of Pfizer Inc.

 

/s/ Henry A.McKinnell             Henry A.McKinnellChairman of the Board and Chief Executive OfficerMay 7, 2004

This certification accompanies this Report on Form 10-Q pursuant toSection 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to theextent required by such Act, be deemed filed by the Company for purposes ofSection 18 of the Securities Exchange Act of 1934, as amended (the"Exchange Act"). Such certification will not be deemed to beincorporated by reference into any filing under the Securities Act of 1933, asamended, or the Exchange Act, except to the extent that the Companyspecifically incorporates it by reference.

 

 

**Exhibit32.2**

**Certificationby the Chief Financial Officer Pursuant to 18 U. S. C. Section 1350, as AdoptedPursuant to Section 906 of the Sarbanes-Oxley Act of 2002**

Pursuant to 18 U. S. C. Section 1350, I, David L. Shedlarz, herebycertify that, to the best of my knowledge, the Quarterly Report of Pfizer Inc.on Form 10-Q for the quarter ended March 28, 2004 (the "Report")fully complies with the requirements of Section 13(a) or Section 15(d) of theSecurities Exchange Act of 1934, and that the information contained in thatReport fairly presents, in all material respects, the financial condition andresults of operations of Pfizer Inc. 

/s/ David L.Shedlarz            David L. ShedlarzExecutive Vice President and Chief Financial OfficerMay 7, 2004

This certification accompanies this Report on Form 10-Q pursuant toSection 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to theextent required by such Act, be deemed filed by the Company for purposes ofSection 18 of the Securities Exchange Act of 1934, as amended (the"Exchange Act").  Such certification will not be deemed to be incorporatedby reference into any filing under the Securities Act of 1933, as amended, orthe Exchange Act, except to the extent that the Company specificallyincorporates it by reference.

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