Pfizer 2009 Annual Report Download - page 33

Financial Review
Pfizer Inc. and Subsidiary Companies
Other (Income)/Deductions—Net
Other (income)/deductions—net changed favorably by $1.7 billion in 2009 compared to 2008, which primarily reflects:
•the non-recurrence of charges recorded in 2008 of approximately $2.3 billion related to the resolution of certain investigations
concerning Bextra and various other products;
•the non-recurrence of litigation-related charges recorded in 2008 of approximately $900 million associated with the resolution of certain
litigation involving our non-steroidal anti-inflammatory (NSAID) pain medicines; and
•a $482 million gain recorded in 2009 related to ViiV (see further discussion in the “Our Strategic Initiatives––Strategy and Recent
Transactions: Acquisitions, Dispositions, Licensing and Collaborations” section of this Financial Review),
partially offset by:
•higher interest expense of $717 million primarily associated with the $13.5 billion of senior unsecured notes that we issued in March
2009 and the approximately $10.5 billion of senior unsecured notes that we issued in June 2009, to partially finance the acquisition of
Wyeth;
•lower interest income of $542 million, primarily due to lower interest rates, partially offset by higher cash balances;
•asset impairment charges of $417 million, primarily associated with certain materials used in our research and development activities
that no longer are considered recoverable; and
•the non-recurrence of a one-time cash payment received in 2008 of $425 million, pre-tax, in exchange for the termination of a license
agreement, including the right to receive future royalties and a gain of $211 million related to the sale of a building in Korea.
Other (income)/deductions—net changed unfavorably by $3.8 billion in 2008 compared to 2007, primarily as a result of:
•the previously mentioned charges of approximately $3.2 billion recorded in 2008 related to the resolution of certain investigations
concerning Bextra and various other products and the resolution of certain litigation involving our NSAID pain medicines; and
•lower net interest income of $772 million in 2008 compared to $1.1 billion in 2007, due primarily to lower average net financial assets,
reflecting proceeds of $16.6 billion from the sale of our former consumer healthcare business in late December 2006, and lower interest
rates,
partially offset by:
•the receipt of a one-time cash payment of $425 million, pre-tax, in exchange for the termination of the previously mentioned license
agreement, including the right to receive future royalties; and
•a gain of $211 million related to the sale of a building in Korea.
Provision for Taxes on Income
Our overall effective tax rate for continuing operations was 20.3% in 2009, 17.0% in 2008 and 11.0% in 2007. The higher tax rate for
2009 compared to 2008 is primarily due to the increased tax costs associated with certain business decisions executed to finance
the Wyeth acquisition, partially offset by a tax benefit of $556 million related to the sale of one of our biopharmaceutical companies,
Vicuron, and a tax benefit of $174 million recorded in the third quarter of 2009 related to the resolution of certain investigations
concerning Bextra and various other products. This resulted in the receipt of information that raised our assessment of the likelihood
of prevailing on the technical merits of our tax position. The higher tax rate in 2009 also was partially offset by the decrease in
IPR&D charges, which generally are not deductible for tax purposes. Also, the 2008 tax rate reflects tax benefits of $305 million
related to favorable tax settlements for multiple tax years and $426 million related to the sale of one of our biopharmaceutical
companies, which were both recorded in the first half of 2008.
The higher tax rate in 2008 compared to 2007 reflects the impact of the resolution of certain legal matters in 2008 discussed above,
which were either not deductible or deductible at lower tax rates, higher acquired IPR&D expenses in 2008, which primarily are not
deductible for tax purposes, and the change in the jurisdictional mix of income, partially offset by the tax benefits recorded in 2008
discussed above. In addition, the tax rate in 2007 benefited from the impact of charges associated with our decision to exit Exubera.
Adjusted Income
General Description of Adjusted Income Measure
Adjusted income is an alternative view of performance used by management, and we believe that investors’ understanding of our
performance is enhanced by disclosing this performance measure. We report Adjusted income in order to portray the results of our
major operations—the discovery, development, manufacture, marketing and sale of prescription medicines for humans and animals,
consumer healthcare (over-the-counter) products, vaccines and nutritional products—prior to considering certain income statement
elements. We have defined Adjusted income as Net income attributable to Pfizer Inc. before the impact of purchase accounting for
acquisitions, acquisition-related costs, discontinued operations and certain significant items. The Adjusted income measure is not,
and should not be viewed as, a substitute for U.S. GAAP net income. Adjusted total costs represent the total of Adjusted cost of
sales, Adjusted SI&A expenses and Adjusted R&D expenses, which are income statement line items prepared on the same basis as
and are components of the overall Adjusted income measure.
2009 Financial Report 31