UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended July ~~3, 2005~~2, 2006 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from________to_______ COMMISSION FILE NUMBER 1-3619 ----
PFIZER INC. (Exact name of registrant as specified in its charter)

DELAWARE (State of Incorporation)	13-5315170 (I.R.S. Employer Identification No.)

235 East 42nd Street, New York, New York 10017 (Address of principal executive offices) (zip code) (212) 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 a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act (Check one): Large accelerated filer X Accelerated Filer Non-accelerated filer Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES NO X NO At ~~August 1, 2005, 7,370,501,376~~July 31, 2006, 7,291,451,351 shares of the issuer's voting common stock were outstanding.

FORM 10-Q

For the Quarter Ended
July ~~3, 2005~~2, 2006

Table of Contents

PART I. FINANCIAL INFORMATION	Page

Item 1.

Financial Statements:

Condensed Consolidated ~~Statement~~Statements of Income for the three months and six months ended July 2, 2006 and July 3, 2005 ~~and June 27, 2004~~	3

Condensed Consolidated Balance ~~Sheet~~Sheets at July ~~3, 2005~~2, 2006 and December 31, ~~2004~~2005	4

Condensed Consolidated ~~Statement~~Statements of Cash Flows for the six months ended July 2, 2006 and July 3, 2005 ~~and June 27, 2004~~	5

Notes to Condensed Consolidated Financial Statements	6

Review Report of Independent Registered Public Accounting Firm	1723

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations	1824

Item 3.
Quantitative and Qualitative Disclosures About Market Risk	52

Item 4.

Controls and Procedures	4252

PART II. OTHER INFORMATION

Item 1.
Legal Proceedings	53

~~Legal Proceedings~~Item 1A.
Risk Factors	4254

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds	4454

Item 3.
Defaults Upon Senior Securities	55

Item 4.
Submission of Matters to a Vote of Security Holders	55

Item 5.
Other Information	55

Item 6.

Exhibits	4455

Signature	4556

PART I.I - FINANCIAL INFORMATION

Item 1. Financial Statements.

PFIZER INC AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED ~~STATEMENT~~STATEMENTS OF INCOME
(UNAUDITED)

Three Months Ended
Six Months Ended
(millions of dollars, except per common share data)
July 3,
2005
June 27,
2004
July 3,
2005
June 27,
2004

Revenues
$
12,425
$
12,274
$
25,516
$
24,762

Costs and expenses:
Cost of sales^(a)
2,081
1,752
4,272
3,546
Selling, informational and administrative expenses^(a)
4,226
4,258
8,311
8,191
Research and development expenses^(a)
1,875
1,819
3,639
3,469
Amortization of intangible assets^(a)
859
830
1,741
1,653
Merger-related in-process research and development charges
260
--
262
955
Restructuring charges and merger-related costs
270
289
489
536
Other (income)/deductions - net
(207)
(102)
831
(145)

Income from continuing operations before (benefit)/provision for taxes on income, and minority interests
3,061
3,428
5,971
6,557

(Benefit)/provision for taxes on income
(413)
582
2,222
1,390

Minority interests
2
2
5
4

Income from continuing operations
3,472
2,844
3,744
5,163

Discontinued operations:
(Loss)/income from discontinued operations - net of tax
(9)
17
(22)
30
Gains on sales of discontinued operations - net of tax
--
2
41
2

Discontinued operations - net of tax
(9)
19
19
32
Net income
$
3,463
$
2,863
$
3,763
$
5,195

Earnings per common share - Basic:
Income from continuing operations
$
.47
$
.38
$
.51
$
.69
Discontinued operations - net of tax
--
--
--
--
Net income
$
.47
$
.38
$
.51
$
.69

Earnings per common share - Diluted:
Income from continuing operations
$
.47
$
.38
$
.51
$
.68
Discontinued operations - net of tax
--
--
--
--
Net income
$
.47
$
.38
$
.51
$
.68

Weighted-average shares used to calculate earnings per common share:
Basic
7,366
7,574
7,391
7,580

Diluted
7,418
7,664
7,445
7,672

Cash dividends paid per common share
$
.19
$
.17
$
.38
$
.34

		Three Months Ended				Six Months Ended
(millions of dollars, except per common share data)		July 2, 2006		July 3, 2005		July 2, 2006		July 3, 2005

Revenues	$	11,741	$	11,452	$	23,488	$	23,595

Costs and expenses:
Cost of sales^(a)		1,790		1,762		3,461		3,639
Selling, informational and administrative expenses^(a)		3,881		3,766		7,276		7,431
Research and development expenses^(a)		1,742		1,830		3,285		3,547
Amortization of intangible assets		823		856		1,648		1,736
Merger-related in-process research and development charges		513		260		513		262
Restructuring charges and merger-related costs		268		264		567		480
Other (income)/deductions - net		(359)		(198)		(615)		854

Income from continuing operations before provision/(benefit) for taxes on income and minority interests		3,083		2,912		7,353		5,646

Provision/(benefit) for taxes on income		790		(464)		1,052		2,111

Minority interests		3		1		5		4

Income from continuing operations		2,290		3,375		6,296		3,531

Discontinued operations:
Income from discontinued operations - net of tax		108		88		210		191
Gains on sales of discontinued operations - net of tax		17		--		20		41

Discontinued operations - net of tax		125		88		230		232

Net income	$	2,415	$	3,463	$	6,526	$	3,763

Earnings per common share - basic:
Income from continuing operations	$	0.31	$	0.46	$	0.86	$	0.48
Discontinued operations - net of tax		0.02		0.01		0.03		0.03
Net income	$	0.33	$	0.47	$	0.89	$	0.51

Earnings per common share - diluted:
Income from continuing operations	$	0.31	$	0.46	$	0.86	$	0.48
Discontinued operations - net of tax		0.02		0.01		0.03		0.03
Net income	$	0.33	$	0.47	$	0.89	$	0.51

Weighted-average shares used to calculate earnings per common share:
Basic		7,282		7,366		7,298		7,391

Diluted		7,305		7,418		7,330		7,445

Cash dividends paid per common share	$	0.24	$	0.19	$	0.48	$	0.38


^(a)	~~Includes~~Exclusive of amortization of intangible assets, except as disclosed in Note ~~9B,~~ 12B, Goodwill and Other Intangible ~~Assets:~~Assets: Other Intangible Assets.

See accompanying Notes to Condensed Consolidated Financial Statements.

PFIZER INC AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE ~~SHEET~~SHEETS
(UNAUDITED)

(millions of dollars)		July 3, 2005*		Dec. 31, 2004**		July 2, 2006*		Dec. 31, 2005**
ASSETS
Current Assets
Cash and cash equivalents	$	1,276	$	1,808	$	1,921	$	2,247
Short-term investments		13,293		18,085		12,829		19,979
Accounts receivable, less allowance for doubtful accounts: 2005 - $220; 2004 - $205		9,316		9,367
Accounts receivable, less allowance for doubtful accounts						9,275		9,103
Short-term loans		513		653		511		510
Inventories		6,480		6,660		6,392		5,478
Prepaid expenses and taxes		2,506		2,939		3,262		2,903
Assets held for sale		189		182
Assets of discontinued operations and other assets held for sale						6,804		6,659
Total current assets		33,573		39,694		40,994		46,879
Long-term investments and loans		3,247		3,873		2,387		2,497
Property, plant and equipment, less accumulated depreciation: 2005 - $8,982; 2004 - $8,534		17,673		18,385
Property, plant and equipment, less accumulated depreciation						16,483		16,233
Goodwill		23,627		23,756		21,057		20,985
Identifiable intangible assets, less accumulated amortization		29,782		33,251		26,134		26,244
Other assets, deferred taxes and deferred charges		4,425		4,725		4,495		4,860
Total assets	$	112,327	$	123,684	$	111,550	$	117,698

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term borrowings, including current portion of long-term debt: 2005 - $2,405; 2004 - $907	$	7,261	$	11,266
Short-term borrowings, including current portion of long-term debt					$	3,779	$	11,589
Accounts payable		2,100		2,672		1,740		2,073
Dividends payable		1,406		1,418		1,757		1,772
Income taxes payable		4,356		1,963		4,356		3,618
Accrued compensation and related items		1,469		1,939		1,399		1,602
Other current liabilities		5,934		7,136		5,655		6,564
Liabilities held for sale		40		64
Liabilities of discontinued operations and other liabilities held for sale						1,369		1,237
Total current liabilities		22,566		26,458		20,055		28,455

Long-term debt		5,517		7,279		5,450		6,347
Pension benefit obligations		2,852		2,821		2,721		2,681
Postretirement benefit obligations		1,444		1,450		1,447		1,424
Deferred taxes on income		11,479		12,632
Deferred taxes						10,369		10,392
Other noncurrent liabilities		3,141		4,766		3,019		2,635
Total liabilities		46,999		55,406		43,061		51,934

Shareholders' Equity
Preferred stock		180		193		152		169
Common stock		439		438		440		439
Additional paid-in capital		67,426		67,098		68,217		67,759
Employee benefit trust, at fair value		(1,052)		(1,229)		(700)		(923)
Treasury stock		(39,272)		(35,992)		(41,755)		(39,767)
Retained earnings		36,446		35,492		40,627		37,608
Accumulated other comprehensive income		1,161		2,278		1,508		479

Total shareholders' equity		65,328		68,278		68,489		65,764
Total liabilities and shareholders' equity	$	112,327	$	123,684	$	111,550	$	117,698

* Unaudited.

** Condensed from audited financial statements.

See accompanying Notes to Condensed Consolidated Financial Statements.

PFIZER INC AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED ~~STATEMENT~~STATEMENTS OF CASH FLOWS
(UNAUDITED)

		Six Months Ended				Six Months Ended
(millions of dollars)		July 3, 2005		June 27, 2004		July 2, 2006		July 3, 2005

Operating Activities:
Net income	$	3,763	$	5,195	$	6,526	$	3,763
Adjustments to reconcile net income to net cash provided by continuing operating activities:
Discontinued operations - net of tax		(19)		(32)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		2,776		2,517		2,694		2,776
Share-based compensation expense						326		79
Merger-related in-process research and development charges		262		955		513		262
Asset impairment charge and other costs associated with the suspension of Bextra sales		1,213		--
Deferred taxes		(127)		(222)
Other		49		463
Intangible asset impairments and other associated non-cash charges						--		1,213
Gains on disposal of investments, products and product lines						(114)		(53)
Gains on sales of discontinued operations						(31)		(65)
Deferred taxes from continuing operations						(438)		(931)
Other deferred taxes						45		93
Other non-cash adjustments						219		215
Changes in assets and liabilities (net of businesses acquired and divested)		(934)		(3,702)		(636)		(369)

Net cash provided by continuing operating activities		6,983		5,174
Net cash provided by operating activities						9,104		6,983

Investing Activities:
Purchases of property, plant and equipment		(997)		(961)		(887)		(997)
Purchases of short-term investments		(7,441)		(8,655)		(5,663)		(7,441)
Proceeds from redemptions of short-term investments		12,570		3,242		13,239		12,570
Purchases of long-term investments		(560)		(712)		(248)		(560)
Proceeds from sales of long-term investments		568		1,429		47		568
Purchases of other assets		(99)		(411)		(78)		(99)
Proceeds from sales of other assets		6		225		3		6
Acquisition of businesses, net of cash acquired		(255)		(1,443)
Proceeds from the sales of businesses and product lines		101		575
Proceeds from the sales of businesses, products and product lines						14		101
Acquisitions, net of cash acquired						(1,989)		(255)
Other investing activities		276		(59)		(116)		276

Net cash provided by/(used in) investing activities		4,169		(6,770)
Net cash provided by investing activities						4,322		4,169

Financing Activities:
Increase in short-term borrowings, net		90		3,360		938		90
Principal payments on short-term borrowings		(5,800)		(170)		(10,583)		(5,800)
Proceeds from issuances of long-term debt		2		1,588		1,054		2
Principal payments on long-term debt		(22)		(11)		(2)		(22)
Proceeds from common stock issuances		33		37
Purchases of common stock		(3,304)		(2,275)		(2,000)		(3,304)
Cash dividends paid		(2,930)		(2,562)		(3,468)		(2,930)
Stock option transactions and other		245		749		318		278

Net cash (used in)/provided by financing activities		(11,686)		716
Net cash used in financing activities						(13,743)		(11,686)
Effect of exchange-rate changes on cash and cash equivalents		2		12		(9)		2
Net decrease in cash and cash equivalents		(532)		(868)		(326)		(532)
Cash and cash equivalents at beginning of period		1,808		1,520		2,247		1,808

Cash and cash equivalents at end of period	$	1,276	$	652	$	1,921	$	1,276

Supplemental Cash Flow Information:
Cash paid during the period for:
Income taxes	$	1,296	$	1,853	$	921	$	1,296
Interest		329		194		414		329
Non-cash transaction:
Receivable from sale of business (received on June 28, 2004)	$	--	$	450

See accompanying Notes to Condensed Consolidated Financial Statements.

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

Note 1:1. Basis of Presentation

~~General~~

We prepared the condensed consolidated financial statements following the requirements of the Securities and Exchange Commission (SEC) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by accounting principles generally accepted in the United States of America (GAAP) can be condensed or omitted. Balance sheet amounts and operating results for subsidiaries operating outside the U.S. are as of and for the three-month and six-month periods ended May ~~29, 2005~~28, 2006 and May ~~23, 2004. The fiscal first quarter and six months of 2005 had three additional business days compared to the fiscal first quarter and six months of 2004.~~29, 2005.

We made certain reclassifications to the ~~2004~~2005 condensed consolidated financial statements to conform to the ~~2005~~2006 presentation. These reclassifications are primarily related to discontinued operations (see Note 3, Discontinued Operations) as well as to better reflect jurisdictional netting of deferred taxes.

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

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

The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in Pfizer's Annual Report on Form 10-K for the year ended December 31, ~~2004.~~2005.

Note 2. Acquisitions

On May 16, 2006, we completed the acquisition of all of the outstanding shares of Rinat Neuroscience Corp., a biologics company with several new central-nervous-system product candidates. In connection with the acquisition, as part of our preliminary purchase price allocation, we recorded $478 million, pre-tax, in ~~Share-Based Payments~~Merger-related in-process research and development charges.

On February 28, 2006, we completed the acquisition of the sanofi-aventis world-wide rights, including patent rights and production technology, to manufacture and sell Exubera, an inhaled form of insulin for use in adults with type 1 and type 2 diabetes, and the insulin-production business and facilities located in Frankfurt, Germany, previously jointly owned by Pfizer and sanofi-aventis, for approximately $1.4 billion (including transaction costs). In ~~accordance~~connection with the acquisition, as part of our preliminary purchase price allocation, we recorded an intangible asset for developed technology rights of approximately $1.0 billion, inventory valued at $218 million and goodwill of approximately $166 million, all of which have been allocated to our Human Health segment. The amortization of the developed technology rights will be primarily included in Cost of Sales. Given the size and complexity of the acquisition, the fair valuation and allocation work is still being finalized and is expected to be completed in the third quarter. To the extent that our estimates need to be adjusted, we will do so. Prior to the acquisition, in connection with our collaboration agreement with sanofi-aventis, we recorded a research and development milestone due to us from sanofi-aventis of approximately $118 million ($71 million, after tax) in the first quarter of 2006 in Research and development expenses upon the approval of Exubera in January 2006 by the Food and Drug Administration (FDA).

Note 3. Discontinued Operations

We evaluate our businesses and product lines periodically for strategic fit within our operations. As a result of our evaluation, we decided to sell a number of businesses and product lines, certain of which qualified for Discontinued operations treatment:

•	In June 2006, we entered into an agreement to sell our Consumer Healthcare business for approximately $16.6 billion in cash. This business comprises substantially all of our former Consumer Healthcare segment and other associated amounts, such as purchase-accounting impacts and merger-related costs, and restructuring and implementation costs related to our Adapting to Scale (AtS) productivity initiative, previously reported in the Corporate/Other segment. In addition, certain manufacturing facility assets and liabilities, which were previously part of our Human Health or Corporate/Other segment, are included in the planned sale of the Consumer Healthcare business. In connection with the decision to sell this business, for all periods presented, the operating results associated with this business that will be discontinued have been reclassified into Discontinued operations - net of tax in the condensed consolidated statements of income and the assets and liabilities associated with this business that will be sold have been reclassified into Assets/Liabilities of discontinued operations and other assets/liabilities held for sale, as appropriate, on the condensed consolidated balance sheets. The divestiture of the Consumer Healthcare business is expected to close in late 2006 and is subject to customary closing conditions, including receipt of regulatory approvals.

•	In the first quarter of 2005, we sold the second of three European generic pharmaceutical businesses, which had been included in our Human Health segment, for 70 million euros (approximately $93 million) and recorded a gain of $57 million ($36 million, net of tax) in Gains on sales of discontinued operations - net of tax in the condensed consolidated statement of income. In addition, we recorded an impairment charge of $9 million ($6 million, net of tax) related to the third European generic business in Income from discontinued operations - net of tax in the condensed consolidated statement of income for the six months ended July 3, 2005.

The following amounts, primarily related to our Consumer Healthcare business, have been segregated from continuing operations and included in Discontinued operations - net of tax in the condensed consolidated statements of income:

		Three Months Ended				Six Months Ended
(in millions)		July 2, 2006		July 3, 2005		July 2, 2006		July 3, 2005

Revenues	$	1,027	$	987	$	1,946	$	1,951

Pre-tax income	$	160	$	134	$	315	$	290
Provision for taxes on income		(52)		(46)		(105)		(99)
Income from operations of discontinued businesses - net of tax		108		88		210		191
Pre-tax gains on sales of discontinued businesses		26		--		31		65
Provision for taxes on gains		(9)		--		(11)		(24)
Gains on sales of discontinued businesses - net of tax		17		--		20		41
Discontinued operations-net of tax	$	125	$	88	$	230	$	232

The following assets and liabilities, primarily related to our Consumer Healthcare business, have been segregated and included in Assets of discontinued operations and other assets held for sale and Liabilities of discontinued operations and other liabilities held for sale, as appropriate, in the condensed consolidated balance sheets:

(in millions)		July 2, 2006		Dec. 31, 2005

Accounts receivable, less allowance for doubtful accounts	$	742	$	661
Inventories		567		561
Prepaid expenses and taxes		81		71
Property, plant and equipment - net		986		1,002
Goodwill		2,756		2,789
Identifiable intangible assets, less accumulated amortization		1,643		1,557
Other assets, deferred taxes and deferred charges		29		18
Assets of discontinued operations and other assets held for sale	$	6,804	$	6,659

Current liabilities	$	610	$	538
Other		759		699
Liabilities of discontinued operations and other liabilities held for sale	$	1,369	$	1,237

Net cash flows of our discontinued operations from each of the categories of operating, investing and financing activities were not significant for the six months ended July 2, 2006 and July 3, 2005.

Note 4. Adoption of New Accounting Standards

On January 1, 2006, we adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 123R, Share-Based Payment, as supplemented by the interpretation provided by SEC Staff Accounting Bulletin (SAB) No. 107, issued in March 2005. (SFAS 123R replaced SFAS 123, ~~Accounting for~~ Stock-Based Compensation, issued in 1995.) We have elected the modified prospective application transition method of adoption and, as such, prior-period financial statements have not been restated. Under this method, the fair value of all stock options granted or modified after adoption must be recognized in the consolidated statement of income and total compensation cost related to nonvested awards not yet recognized, determined under the original provisions of SFAS 123, must also be recognized in the consolidated statement of income.

Prior to January 1, 2006, we ~~elect to account~~accounted for ~~our stock-based compensation~~stock options under Accounting ~~Principles~~Principle Board Opinion (APB) No. 25, Accounting for Stock Issued to Employees~~. The~~, an elective accounting policy permitted by SFAS 123. Under this standard, since the exercise price of our stock options granted ~~equals~~is set equal to the market price on the date of ~~grant; therefore, there is no recorded compensation~~the grant, we did not record any expense ~~related~~ to ~~grants~~the condensed consolidated statement of ~~stock options.~~

The weighted-average fair value per stock option granted was $3.23 and $4.49 for the three months ended July 3, 2005 and June 27, 2004 and $5.15 and $6.88 for the six months ended July 3, 2005 and June 27, 2004. We estimated the fair values, as required under GAAP, using the Black-Scholes option-pricing model, modified for dividends and using the assumptions below. Pro forma compensation expenseincome related to stock options, ~~subject~~unless certain original grant date terms were subsequently modified. However, as required, we disclosed, in the Notes to ~~accelerated vesting upon retirement is recognized over~~Consolidated Financial Statements, the ~~period of employment up to the vesting date~~pro forma expense impact of the grant. In the first quarter of 2005, we changed our method of estimating expected dividend yield from historical patterns of dividend payments to a method that reflects a constant dividend yield during the expected term of the option.

Three Months Ended
Six Months Ended
July 3,
2005
June 27,
2004
July 3,
2005
June 27,
2004
Expected dividend yield
2.72%
2.57%
2.90%
2.90%
Risk-free interest rate
3.75%
2.07%
3.96%
3.32%
Expected stock price volatility
16.90%
20.43%
21.93%
22.15%
Expected term until exercise (years)
2.75
3.26
5.75
5.75

~~The following table shows the effect on results for the three-month and six-month periods ended July 3, 2005 and June 27, 2004~~stock option grants as if we had applied the fair-value-based recognition provisions of SFAS ~~123 to measure stock-based compensation expense~~123.

The adoption of SFAS 123R primarily impacted our accounting for ~~the option grants:~~

Three Months Ended
Six Months Ended
(millions of dollars, except per common share data)
July 3,
2005
June 27,
2004
July 3,
2005
June 27,
2004

Net income available to common shareholders used in the calculation of basic earnings per common share:
As reported under GAAP*
$
3,461
$
2,862
$
3,761
$
5,193
Compensation expense - net of tax
(104)
(147)
(252)
(273)
Pro forma
$
3,357
$
2,715
$
3,509
$
4,920

Basic earnings per common share:
As reported under GAAP*
$
.47
$
.38
$
.51
$
.69
Compensation expense - net of tax
(.01)
(.02)
(.04)
(.04)
Pro forma
$
.46
$
.36
$
.47
$
.65

Net income available to common shareholders used in the calculation of diluted earnings per common share:
As reported under GAAP*
$
3,461
$
2,862
$
3,761
$
5,192
Compensation expense - net of tax
(104)
(147)
(252)
(273)
Pro forma
$
3,357
$
2,715
$
3,509
$
4,919

Diluted earnings per common share:
As reported under GAAP*
$
.47
$
.38
$
.51
$
.68
Compensation expense - net of tax
(.02)
(.02)
(.04)
(.04)
Pro forma
$
.45
$
.36
$
.47
$
.64

*	Includes stock-based compensation expense, net of related tax benefits, of $53 million for the six months ended July 3, 2005 ($38 million for the three months ended July 3, 2005) and $40 million for the six months ended June 27, 2004 ($10 million for the three months ended June 27, 2004).

~~Net income available to common shareholders used in the calculation of basic earnings per common share represents net income reduced by preferred~~ stock dividends - net of tax. Net income available to common shareholders used in the calculation of diluted earnings per common share represents net income reduced by the incremental allocation of shares to the Employee Stock Ownership Plans (ESOPs) acquired as part of the Pharmacia acquisition.options (see Note 14, Share-Based Payments).

Note 2:5. Asset Impairment Charge ~~and Other Costs Associated with the Suspension of Bextra Sales~~

In the first six months of 2005, we recorded charges totaling $1.2 billion ($761 million, net of tax) in connection with the decision to suspend sales ~~and marketing~~ of Bextra. ~~This decision resulted from an April 7, 2005 request from the U.S. Food and Drug Administration (FDA), as part of its safety review of all COX-2 medicines.~~

The pre-tax ~~charges~~charge included $1.1 billion related to the impairment of developed technology rights ~~associated with Bextra~~ and $7 million related to the write-off of machinery and equipment, both of which ~~are~~were included in Other (income)/deductions - ~~net.~~net ~~In addition, in connection with the suspension, we also recorded $56 million in write-offs of inventory~~(see Note 12, Goodwill and ~~exit costs, included in~~ ~~Cost of sales~~Other Intangible Assets~~; $5 million related to the costs of administering the suspension of sales, included in~~ ~~Selling, informational and administrative expenses;~~ ~~and $173 million, for an estimate of customer returns, primarily included against~~ ~~Revenues.~~ ~~Substantially all of these charges were recorded in the first quarter of 2005.~~).

Note ~~3: Income Taxes~~

~~Income Tax Charge Associated with Repatriation Decision~~

~~In the first six months of 2005, we recorded an income tax charge of $1.7 billion, included in~~ ~~(Benefit)/provision for taxes on income~~~~, in connection with our decision to repatriate about $36.7 billion of foreign earnings in accordance with the~~ ~~American Jobs Creation Act of 2004~~ (the Jobs Act). In the first quarter of 2005, we recorded an initial estimated income tax charge of $2.2 billion based on the decision to repatriate $28.3 billion of foreign earnings; in the second quarter of 2005, we reduced our original estimate of the tax charge by $863 million and revised the repatriation of foreign earnings to $28.1 billion, principally as a result of guidance issued by the U.S. Treasury in May 2005. In the second quarter of 2005, we also recorded an additional tax charge of $373 million, primarily due to our decision to repatriate an additional $8.6 billion of foreign earnings.

As of July 3, 2005, we intend to continue to reinvest the earnings of our international subsidiaries and, therefore, we have not recorded a U.S. tax provision on the remaining amount of unremitted earnings.

~~Tax Contingencies~~

In the second quarter of 2005, we recorded a tax benefit of $586 million primarily related to the resolution of certain tax positions. We believe that the IRS audits of the Pfizer Inc. tax returns for the years 1999-2001 and the Warner-Lambert Company tax returns for the years 1999 through the date of the merger with Pfizer (June 19, 2000) are substantially complete. In connection with those audits, we are currently in the process of appealing one matter related to the tax deductibility of a breakup fee paid by Warner-Lambert Company in 2000.

~~The IRS has commenced the audit of the Pfizer Inc. tax returns for the years 2002 and 2003. The 2005 tax year is also currently under audit.~~

As previously disclosed, with respect to Pharmacia Corporation (formerly known as Monsanto Company), the IRS has completed and closed its income tax return examinations and appeals through 1999 and has commenced the audit of the tax returns for the years 2000 through the date of merger with Pfizer (April 16, 2003).

We periodically reassess the likelihood of assessments resulting from audits of federal, state and foreign income tax filings. We believe that our accruals for tax liabilities are adequate for all open years.

~~Note 4:~~6. Adapting to Scale Productivity Initiative

We recently launched a company-wide initiative, called Adapting to Scale (AtS), which involves a comprehensive review of our processes, organizations, systems and decision making. In the second quarter of 2005, in connection with this AtS initiative, we incurred and paid approximately $21 million in restructuring charges, primarily related to employee termination costs at our manufacturing facilities located in North America. We also incurred and paid approximately $33 million in implementation costs, included in ~~Cost of sales~~ ~~($1 million),~~ ~~Selling, informational and administrative expenses~~ ~~($21 million) and~~ ~~Research and development expenses~~ ~~($11 million), primarily related to system and process standardization and the expansion of shared services.~~

We now expect the costs associated with this multi-year effort to continue through 2008 and to total approximately $4 billion to $5 billion, on a pre-tax basis. These costs will include restructuring charges, such as asset impairments, exit costs and severance costs (including any related impacts to our benefit plans, such as settlements and curtailments) and associated implementation costs, such as accelerated depreciation charges, primarily associated with plant network optimization efforts, and expenses associated with system and process standardization and the expansion of shared services. Restructuring charges are included in ~~Restructuring charges and merger-related costs~~ ~~and implementation costs are included in~~ ~~Cost of sales~~, ~~Selling, informational and administrative expenses~~ or ~~Research and development expenses, as appropriate.~~

~~Note 5: Merger-Related Costs~~

We incurred the following ~~merger-related~~ costs ~~primarily~~ in connection with our ~~acquisition of Pharmacia Corporation (Pharmacia),~~Adapting to Scale (AtS) productivity initiative, which was ~~completed on April 16, 2003:~~

Three Months Ended
Six Months Ended
(millions of dollars)
July 3,
2005
June 27,
2004
July 3,
2005
June 27,
2004

Integration costs
$
191
$
150
$
297
$
254
Restructuring costs
58
139
171
282
Total merger-related costs - expensed
$
249
$
289
$
468
$
536
In connection with the acquisition of Pharmacia, Pfizer management approved plans to restructure and integrate the operations of both legacy Pfizer and legacy Pharmacia to combine operations, eliminate duplicative facilities and reduce costs. The restructuring of our operations as a result of our acquisition of Pharmacia is expected to continue through 2005 and includes consulting, systems integrations, severance, costs of vacating duplicative facilities, contract termination and other exit costs. Total merger-related expenditures expected to be incurred during 2003-2005 to achieve anticipated synergies are about $6 billion, on a pre-tax basis, with $5.3 billion incurred through July 3, 2005. The remaining costs expected to be incurred are primarily associated with asset impairments, exit costs and employee terminations.
~~Through April 15, 2004, we recorded restructuring costs associated with employee terminations and exiting certain activities of legacy Pharmacia as liabilities assumed~~launched in the purchase business combination and recorded an increase to goodwill. Changes to previous estimates of restructuring costs included as part of the purchase allocation of Pharmacia are recorded as a reduction to goodwill or an expense to operations, as appropriate. Restructuring costs incurred for legacy Pfizer and restructuring costs incurred after April 15, 2004 for legacy Pharmacia are charged to the results of operations.early 2005:
~~The components of merger-related restructuring costs associated with legacy Pfizer and legacy Pharmacia follow:~~
(millions of dollars)
Total
Utilization
Through
July 3,
2005
^(a)
Accrual at
July 3,
2005
^(b)

Costs capitalized through April 15, 2004:
Employee termination costs
$
1,535
$
1,499
$
36
Other
624
498
126
$
2,159
$
1,997
$
162
Costs expensed:
Employee termination costs
$
589
$
482
$
107
Asset impairments
368
368
--
Other
89
57
32

$
1,046
$
907
$
139
Three Months Ended
Six Months Ended
(millions of dollars)
July 2,
2006
July 3,
2005
July 2,
2006
July 3,
2005




Implementation costs^(a)
$
180
$
33
$
365
$
33
Restructuring charges^(b)
262
21
556
21
Total AtS costs
$
442
$
54
$
921
$
54

^(a)
~~Includes insignificant adjustments to original amounts established.~~Included in Cost of sales ($104 million), Selling, informational and administrative expenses ($58 million), Research and developmentexpenses ($40 million) and Other (income)/deductions - net ($22 million income) for the three months ended July 2, 2006 and included in Cost of sales ($228 million), Selling, informational and administrative expenses ($97 million), Research and developmentexpenses ($62 million) and Other (income)/deductions - net ($22 million income) for the six months ended July 2, 2006. Included in Cost of sales ($1 million), Selling, informational and administrative expenses ($21 million), and Research and developmentexpenses ($11 million) for the three months and six months ended July 3, 2005.
^(b)
Included in Restructuring charges and merger-related costs.
Included in Discontinued operations - net of tax are additional pre-tax AtS costs of $7 million and $15 million for the three months and six months ended July 2, 2006.
Through July 2, 2006, the restructuring charges primarily relate to our plant network optimization efforts and the restructuring of our U.S. marketing and worldwide research and development operations, while the implementation costs primarily relate to system and process standardization, as well as the expansion of shared services.
The components of restructuring charges associated with AtS follow:
(millions of dollars)
Costs
Incurred
Through
July 2,
2006
Utilization
Through
July 2,
2006
Accrual
as of
July 2,
2006
^(a)


Employee termination costs
$
635
$
528
$
107
Asset impairments
299
299
--
Other
61
22
39

$
995
$
849
$
146
^(a)
Included in Other current liabilities.
During the ~~first~~three months and six months ~~of 2005,~~ended July 2, 2006, we expensed ~~$72~~$166 million and $331 million for Employee termination costs~~$78~~, $58 million and $177 million for Asset impairments, and ~~$15~~$38 million and $48 million in ~~Other.~~ Other. Through July ~~3, 2005,~~2, 2006, Employee terminationcostsrepresent the approved reduction of the ~~legacy Pfizer and legacy Pharmacia work force~~workforce by ~~17,030~~5,096 employees, mainly in ~~corporate,~~ manufacturing, ~~distribution,~~ sales and research. We notified affected individuals and ~~15,901~~4,714 employees were terminated as of July ~~3, 2005.~~2, 2006. Employee termination costs are recorded as incurred and include accrued severance benefits, pension and ~~costs associated with change-in-control provisions of certain Pharmacia employment contracts.~~postretirement benefits. Asset impairmentsprimarily include charges to write off inventory and write down property, plant and equipment. Other primarily includes costs to exit certain ~~activities of legacy Pfizer and legacy Pharmacia.~~activities.
~~Note 6:  Comprehensive Income/(Expense)~~
~~The components of comprehensive income/(expense) follow:~~

Three Months Ended
Six Months Ended
(millions of dollars)
July 3,
2005
June 27,
2004
July 3,
2005
June 27,
2004

Net income
$
3,463
$
2,863
$
3,763
$
5,195
Other comprehensive income/(expense):
Net unrealized gain/(loss) on available-for-sale securities arising during the period - net of tax
(31)
35
(105)
183
Currency translation adjustment and other
(717)
(1,624)
(1,012)
(238)
Total other comprehensive income/(expense)
(748)
(1,589)
(1,117)
(55)
Total comprehensive income/(expense)
$
2,715
$
1,274
$
2,646
$
5,140
~~Note 7:  Financial Instruments~~
~~Derivative Financial Instruments and Hedging Activities~~
~~During the first six months of 2005, we entered into the following incremental or new derivative and hedging activities:~~
~~Financial Instrument~~
~~Hedge Type~~
~~Hedged Item~~
~~Notional Amount~~
~~(millions of dollars)~~
~~Maturity Date~~
~~Forward-exchange contracts~~
~~Cash flow~~
~~Euro available-for-sale investments~~
           ~~$1,917~~
~~Through 2005~~
~~Forward-exchange contracts~~
~~Cash flow~~
~~Swedish krona available-for-sale investments~~
                ~~706~~
~~Through 2005~~
~~Forward-exchange contracts~~
~~Cash flow~~
~~Danish krone available-for-sale investments~~
                ~~327~~
~~Through 2005~~
~~There was no material ineffectiveness in any hedging relationship reported in earnings in the first six months of 2005.~~
~~Current Portion of Long-Term Debt~~
~~In July 2005, we decided to exercise Pfizer's option to call, at par-value plus accrued interest, $1 billion of senior unsecured floating-rate notes, which are included in~~ ~~Short-term borrowings~~ ~~at July 3, 2005. Notice to call has been given to the Trustees and the notes will be redeemed in September 2005.~~
~~Note 8:  Inventories~~
~~The components of inventories follow:~~
(millions of dollars)
July 3,
2005
Dec. 31,
2004
Finished goods
$
2,380
$
2,643
Work-in-process
2,844
2,703
Raw materials and supplies
1,256
1,314
Total inventories
$
6,480
$
6,660
~~A reclassification was made in 2004 from~~ ~~Finished goods~~ to ~~Work-in-process~~ ~~to better reflect the stage of completion.~~
Note 9:7.  Merger-Related Costs
We incurred the following merger-related costs:
Three Months Ended
Six Months Ended
(millions of dollars)
July 2,
2006
July 3,
2005
July 2,
2006
July 3,
2005


Integration costs
$
3
$
191
$
5
$
293
Restructuring charges
3
52
6
166
Total merger-related costs^(a)
$
6
$
243
$
11
$
459
^(a)
Included in Restructuring charges and merger-related costs. Amounts in 2005 primarily relate to our acquisition of Pharmacia Corporation (Pharmacia), which was completed on April 16, 2003.
Included in Discontinued operations - net of tax are additional pre-tax merger-related costs of $4 million and $5 million for the three months and six months ended July 2, 2006 and $9 million and $16 million for the three months and six months ended July 3, 2005.
Restructuring charges included severance, costs of vacating duplicative facilities, contract termination and other exit costs.
Note 8.  Taxes on Income
A.  Taxes on Income
On January 23, 2006, the Internal Revenue Service (IRS) issued final regulations on Statutory Mergers and Consolidations, which impacted certain prior-period transactions. In the first quarter of 2006, we recorded a tax benefit of $217 million, reflecting the total impact of these regulations.
In the first six months of 2005, we recorded an income tax charge of $1.7 billion, included in Provision/(benefit) for taxes on income, in connection with our decision to repatriate about $37 billion of foreign earnings in accordance with the American Jobs Creation Act of 2004 (the Jobs Act). In the first quarter of 2005, we recorded an initial estimate of $2.2 billion based on the decision to repatriate $28.3 billion of foreign earnings; in the second quarter of 2005, we reduced our original estimate of the tax charge by $490 million, due primarily to guidance issued by the U.S. Treasury in the second quarter of 2005, partially offset by our decision to increase the amount of the repatriation.
B.Tax Contingencies
On January 25, 2006, the Company was notified by the IRS Appeals Division that a resolution had been reached on the matter that we were in the process of appealing related to the tax deductibility of a breakup fee paid by Warner-Lambert Company in 2000. As a result, in the first quarter of 2006 we recorded a tax benefit of approximately $441 million related to the resolution of this issue.
In the second quarter of 2005, we recorded a tax benefit of $586 million primarily related to the resolution of certain tax positions.
The IRS is currently conducting audits of the Pfizer Inc. tax returns for the years 2002, 2003 and 2004. The 2005 and 2006 tax years are also currently under audit under the IRS Compliance Assurance Process, a recently introduced real-time audit process.
With respect to Pharmacia Corporation, the IRS has completed audits of the tax returns for the years 2000 through 2002 and is currently conducting an audit for the 2003 tax year through the date of the merger with Pfizer (April 16, 2003).
We periodically reassess the likelihood of assessments resulting from audits of federal, state and foreign income tax filings. We believe that our accruals for tax liabilities are adequate for all open years.
Note 9.  Comprehensive Income
The components of comprehensive income/(expense) follow:
Three Months Ended
Six Months Ended
(millions of dollars)
July 2,
2006
July 3,
2005
July 2,
2006
July 3,
2005


Net income
$
2,415
$
3,463
$
6,526
$
3,763
Other comprehensive income/(expense):
Currency translation adjustment and other^(a)
688
(708)
998
(985)
Net unrealized gains/(losses) on derivative financial instruments^(b)
22
(8)
93
(27)
Net unrealized gains/(losses) on available-for-sale securities^(b)
(36)
(48)
(33)
(119)
Minimum pension liability^(b)
(17)
16
(29)
14
Total other comprehensive income/(expense)
657
(748)
1,029
(1,117)
Total comprehensive income
$
3,072
$
2,715
$
7,555
$
2,646

^(a)
Includes changes in currency translation adjustments of $19 million and $21 million for the three months and six months ended July 2, 2006, and ($17) million and ($25) million for the three months and six months ended July 2, 2005 related to discontinued operations.

^(b)
Amounts associated with discontinued operations are not significant.

Note 10.  Financial Instruments
A.  Long-Term Debt
On February 22, 2006, we issued the following Japanese yen fixed-rate bonds, to be used for general corporate purposes:
•
$508 million equivalent, senior unsecured notes, due February 2011, which pay interest semi-annually, beginning on August 22, 2006, at a rate of 1.2%; and
•
$466 million equivalent, senior unsecured notes, due February 2016, which pay interest semi-annually, beginning on August 22, 2006, at a rate of 1.8%.
The notes were issued under a $5 billion debt shelf registration filed with the SEC in November 2002. As of July 2, 2006, we had the ability to borrow approximately $1 billion by issuing debt securities under that debt shelf registration statement.
In May 2006, we decided to exercise Pfizer's option to call, at par-value plus accrued interest, $1 billion of senior unsecured floating-rate notes, which were included in Long-term debt as of December 31, 2005 and included in Short-term debt as of July 2, 2006. Notice to call was given to the Trustees and the notes were redeemed early in the third quarter of 2006.
B.  Derivative Financial Instruments and Hedging Activities
There was no material ineffectiveness in any hedging relationship reported in earnings in the first six months of 2006.
Foreign Exchange Risk
During the first six months of 2006, we entered into the following new or incremental hedging or offset activities:
Instrument^(a)
Primary
Balance Sheet
Caption
^(b)

Hedge
Type
^(c)

Hedged or Offset Item
Notional Amount as of
July 2, 2006
(millions of dollars)
Maturity Date
Forward
OCL
--
Short-term foreign currency assets and liabilities^(d)
$1,074
2006
Forward
Prepaid
CF
Euro intercompany loan

792
2006
LT yen debt
LTD
NI
Yen net investments
523
2011
LT yen debt
LTD
NI
Yen net investments
480
2016
^(a)
Forward = Forward-exchange contracts; LT yen debt = Long-term yen debt
^(b)
The primary balance sheet caption indicates the financial statement classification of the fair value amount associated with the financial instrument used to hedge foreign exchange risk. OCL = Other current liabilities; Prepaid = Prepaid expenses and taxes; LTD = Long-term debt
^(c)
CF = Cash flow hedge; NI = Net investment hedge
^(d)
Forward-exchange contracts used to offset short-term foreign currency assets and liabilities were primarily for intercompany transactions in euros, Japanese yen, Canadian dollars, U.K. pounds and Australian dollars.
These foreign exchange instruments serve to protect us against the impact of the translation into U.S. dollars of certain foreign exchange denominated transactions.
Note 11.  Inventories
The components of inventories follow:
(millions of dollars)
July 2,
2006
Dec. 31,
2005

Finished goods
$
2,223
$
1,742
Work-in-process
3,153
2,379
Raw materials and supplies
1,016
1,357
Total inventories^(a)
$
6,392
$
5,478

^(a)
Increase primarily due to the acquisition of sanofi-aventis' Exubera inventory, the build-up of inventory in advance of product launches and the impact of foreign exchange.

Note 12.  Goodwill and Other Intangible Assets
A.  Goodwill
The changes in the carrying amount of goodwill by segment for the six months ended July ~~3, 2005~~2, 2006 follow:
(millions of dollars)
Human
Health
Consumer
Healthcare
Animal
Health
Other
Total

Balance, December 31, 2004
$
20,966
$
2,701
$
79
$
10
$
23,756
Other^(a)
(159)
53
(23)
--
(129)
Balance, July 3, 2005
$
20,807
$
2,754
$
56
$
10
$
23,627
(millions of dollars)
Human
Health
Animal
Health
Other
Total

Balance, December 31, 2005
$
20,919
$
56
$
10
$
20,985
Additions^(a)
166
--
--
166
Other^(b)
(99)
5
--
(94)
Balance, July 2, 2006
$
20,986
$
61
$
10
$
21,057

^(a)
Primarily ~~foreign exchange and reductions~~related to Exubera.
^(b)
Includes a reduction to goodwill ~~as a result~~related to the resolution of ~~adjusting~~ certain ~~purchase accounting liabilities.~~tax positions, partially offset by the impact of foreign exchange.
B.  Other Intangible Assets
The components of identifiable intangible assets, primarily included in our Human Health segment, follow:
July 3, 2005
December 31, 2004
July 2, 2006
Dec. 31, 2005
(millions of dollars)
Gross
Carrying
Amount
Accumulated
Amortization
Gross
Carrying
Amount
Accumulated
Amortization
Gross
Carrying
Amount
Accumulated
Amortization
Gross
Carrying
Amount
Accumulated
Amortization

Finite-lived intangible assets:
Developed technology rights
$
31,087
$
(7,311)
$
33,137
$
(5,967)
$
32,426
$
(10,637)
$
30,729
$
(8,810)
Brands
1,002
(35)
1,037
(14)
887
(73)
885
(51)
License agreements
165
(25)
158
(17)
155
(34)
152
(27)
Trademarks
156
(93)
134
(90)
109
(69)
106
(65)
Other^(a)
470
(197)
390
(186)
518
(247)
446
(203)
Total amortized finite-lived intangible assets
32,880
(7,661)
34,856
(6,274)
34,095
(11,060)
32,318
(9,156)
Indefinite-lived intangible assets:
Brands
3,944
--
4,012
--
2,990
--
2,990
--
License agreements
326
--
356
--
Trademarks
231
--
235
--
79
--
79
--
Other^(b)
62
--
66
--
30
--
13
--
Total indefinite-lived intangible assets
4,563
--
4,669
--
3,099
--
3,082
--
Total identifiable intangible assets
$
37,443
$
(7,661)
$
39,525
$
(6,274)
$
37,194
$
(11,060)
$
35,400
$
(9,156)

Total identifiable intangible assets, less accumulated amortization
$
26,134
$
~~29,782~~
$
~~33,251~~26,244

^(a)
Includes patents, non-compete agreements, customer contracts and other intangible assets.
^(b)
Includes pension-related intangible assets.
In the first six months of 2006, we acquired the sanofi-aventis worldwide rights, including patent rights and production technology, to manufacture and sell Exubera. In connection with the acquisition, we recorded an intangible asset for developed technology rights of approximately $1.0 billion. The amortization of these developed technology rights will be primarily included in Cost of Sales.
In the first six months of 2005, we recorded an impairment charge of $1.1 billion in Other (income)/deductions - netrelated to the developed technology rights for Bextra, a ~~COX-2-selective~~selective COX-2 inhibitor ~~(see Note 2,~~ ~~Asset Impairment Charge and Other Costs Associated~~(included in our Human Health segment) in connection with the ~~Suspension~~decision to suspend sales of ~~Bextra Sales~~~~) which was~~Bextra. In addition, in connection with the suspension, we recorded $7 million related to the write-off of machinery and equipment included in Other (income)/deductions - net.; $56 million in write-offs of inventory and exit costs, included in Cost of sales; $5 million related to the costs of administering the suspension of sales, included in Selling, informational and administrative expenses; and $173 million for an estimate of customer returns, primarily included against Revenues. Substantially all of these charges were recorded in the first quarter of 2005.
Amortization expense related to acquired intangible assets that contribute to our ability to sell, manufacture, research, market and distribute our products are included in Amortization of intangible assets as they benefit multiple business functions. Amortization expense related to acquired intangible assets that are associated with a single function are included in Cost of sales, Selling, informational and administrative expenses or Research and development expenses, as appropriate. Total amortization expense for finite-lived intangible assets was ~~$876~~$848 million and ~~$847~~$874 million for the three months ended July 2, 2006 and July 3, 2005, and ~~June 27, 2004~~$1.7 billion and $1.8 ~~billion and $1.7~~ billion for the six months ended July 2, 2006 and July 3, 2005.
Included in Discontinued operations - net of tax is additional pre-tax amortization expense for finite-lived intangible assets of $4 million and $3 million for the three months ended July 2, 2006 and July 3, 2005 and ~~June 27, 2004.~~$7 million and $5 million for the six months ended July 2, 2006 and July 3, 2005.
The annual amortization expense expected for the fiscal years ~~2005~~2006 through ~~2010~~2011 is ~~$3.5 billion in 2005,~~ $3.4 billion in ~~2006, $3.4~~2006; $3.3 billion in ~~2007,~~2007; $2.7 billion in ~~2008,~~2008; and $2.5 billion in 2009, 2010 and ~~$2.4 billion in 2010.~~2011.
Note ~~10:~~13.  Benefit Plans
The components of net periodic benefit cost of the U.S. and international pension plans and the postretirement plans, which provide medical and life insurance benefits to retirees and their eligible dependents, for the three months ended July 2, 2006 and July 3, 2005 ~~and June 27, 2004~~ follow:
Pension Plans
Pension Plans
U.S. Qualified
U.S. Supplemental
(Non-Qualified)
International
Postretirement Plans
U.S. Qualified
U.S. Supplemental
(Non-Qualified)
International
Postretirement Plans
(millions of dollars)
2005
2004
2005
2004
2005
2004
2005
2004
2006
2005
2006
2005
2006
2005
2006
2005
Service cost
$
80
$
73
$
10
$
9
$
76
$
62
$
10
$
10
$
92
$
80
$
11
$
10
$
75
$
76
$
12
$
10
Interest cost
102
98
14
14
78
72
28
31
112
102
15
14
76
78
31
28
Expected return on plan assets
(149)
(143)
--
--
(80)
(70)
(5)
(6)
(154)
(149)
--
--
(79)
(80)
(6)
(5)
Amortization of:
Prior service costs/(gains)
3
4
1
1
--
(1)
(1)
1
Net transition obligation/(asset)
--
--
--
--
1
(1)
--
--
Prior service costs/(credits)
2
3
(1)
1
--
--
1
(1)
Net transition obligation
--
--
--
--
1
1
--
--
Actuarial losses
25
23
9
9
23
14
5
6
28
25
10
9
25
23
8
5
Curtailments and settlements - net
--
--
--
--
10
(18)
--
--
21
--
1
--
7
10
12
--
Special termination benefits
--
--
--
--
3
--
--
--
4
--
--
--
7
3
2
--
Less: amounts included in discontinued operations
(4)
(4)
(1)
(1)
(4)
(4)
(1)
(1)
Net periodic benefit costs
$
61
$
55
$
34
$
33
$
111
$
58
$
37
$
42
$
101
$
57
$
35
$
33
$
108
$
107
$
59
$
36
The components of net periodic benefit cost of the U.S. and international pension plans and the postretirement plans, which provide medical and life insurance benefits to retirees and their eligible dependents, for the six months ended July 2, 2006 and July 3, 2005 ~~and June 27, 2004~~ follow:
Pension Plans
Pension Plans
U.S. Qualified
U.S. Supplemental
(Non-Qualified)
International
Postretirement Plans
U.S. Qualified
U.S. Supplemental
(Non-Qualified)
International
Postretirement Plans
(millions of dollars)
2005
2004
2005
2004
2005
2004
2005
2004
2006
2005
2005
2005
2006
2005
2006
2005
Service cost
$
159
$
144
$
19
$
17
$
153
$
130
$
19
$
20
$
186
$
159
$
22
$
19
$
149
$
153
$
24
$
19
Interest cost
206
195
29
29
158
143
56
62
224
206
30
29
150
158
63
56
Expected return on plan assets
(297)
(286)
--
--
(161)
(141)
(11)
(11)
(315)
(297)
--
--
(156)
(161)
(14)
(11)
Amortization of:
Prior service costs/(gains)
7
8
1
1
(1)
4
--
1
Prior service costs/(credits)
4
7
(1)
1
--
(1)
1
--
Net transition obligation
--
--
--
--
1
1
--
--
--
--
--
--
1
1
--
--
Actuarial losses
51
49
19
18
48
27
10
12
59
51
21
19
51
48
17
10
Curtailments and settlements - net
--
--
--
--
10
(19)
--
--
25
--
--
--
9
10
15
--
Special termination benefits
--
--
--
--
10
--
--
--
10
--
--
--
11
10
5
--
Less: amounts included in discontinued operations
(8)
(8)
(1)
(1)
(8)
(7)
(2)
(2)
Net periodic benefit costs
$
126
$
110
$
68
$
65
$
218
$
145
$
74
$
84
$
185
$
118
$
71
$
67
$
207
$
211
$
109
$
72
For the first six months of ~~2005,~~2006, we contributed from the Company's general assets, ~~$2 million to our U.S. qualified pension plans, $212 million to our international pension plans, $111~~$59 million to our U.S. supplemental (non-qualified) pension plans, $294 million to our international pension plans, and ~~$83~~$88 million to our postretirement plans. AsIn July 2006, we made voluntary tax-deductible contributions in excess of ~~July 3, 2005,~~minimum funding requirements of $450 million to certain of our U.S. qualified pension plans and voluntary tax-deductible contributions of $90 million to certain of our postretirement plans.
During 2006, we expect to contribute, from the Company's general assets, ~~during 2005,~~ a total ~~(inclusive~~of $453 million to our U.S. qualified pension plans, $76 million to our U.S. supplemental (non-qualified) pension plans, $449 million to our international pension plans and $253 million to our postretirement plans. Contributions expected to be made for 2006 are inclusive of amounts contributed during the first six months of ~~2005)~~2006 and voluntary contributions made in July 2006. The contributions from the Company's general assets include direct employer benefit payments. Amounts associated with discontinued operations are not significant.
Note 14.  Share-Based Payments
Our compensation programs can include share-based payments. In 2006 and 2005, the primary share-based awards and their generalterms and conditions are as follows:
•
Stock options, which entitle the holder to purchase, at the end of a vesting term, a specified number of shares of Pfizer common stock at a price per share set equal to the market price of Pfizer common stock on the date of grant.
•
Restricted stock units (RSUs), which entitle the holder to receive, at the end of a vesting term, a specified number of shares of Pfizer common stock, including shares resulting from dividend equivalents paid on such RSUs.
•
Performance share awards (PSAs) and performance-contingent share awards (PCSAs), which entitle the holder to receive, at the end of a vesting term, a number of shares of Pfizer common stock, within a range of shares from zero to a specified maximum, calculated using a non-discretionary formula that measures Pfizer's performance relative to an industry peer group.
•
Restricted stock grants, which entitle the holder to receive, at the end of a vesting term, a specified number of shares of Pfizer common stock, and which also entitle the holder to receive dividends paid on such grants.
The Company's shareholders approved the Pfizer Inc. 2004 Stock Plan (the 2004 Plan) at the Annual Meeting of $2Shareholders held on April 22, 2004 and, effective upon that approval, new stock option and other share-based awards may be granted only under the 2004 Plan. The 2004 Plan allows a maximum of 3 million shares to ~~our U.S. qualified pension~~be awarded to any employee per year and 475 million shares in total. RSUs, PSAs, PCSAs and restricted stock grants count as three shares while stock options count as one share under the 2004 Plan toward the maximums.
In the past, we had various employee stock and incentive plans ~~$396 million to our international pension plans, $137 million to our U.S. supplemental (non-qualified) pension~~under which stock options and other share-based awards were granted. Stock options and other share-based awards that were granted under prior plans and ~~$166~~were outstanding on April 22, 2004 continue in accordance with the terms of the respective plans.
As of July 2, 2006, 305 million shares were available for award, which include 26 million shares available for award under the legacy Pharmacia Long-Term Incentive Plan, which reflects award cancellations returned to the pool of available shares for legacy Pharmacia commitments.
Although not required to do so, historically, we have used authorized and unissued shares and, to a lesser extent, shares held in our ~~postretirement plans.~~Employee Benefit Trust to satisfy our obligations under these programs.
~~Note 11:  Earnings Per Common Share~~A.  Impact on Net Income
~~Basic~~The components of share-based compensation expense and the associated tax benefit follow:
Three Months Ended
Six Months Ended
(millions of dollars)
July 2,
2006
July 3,
2005
July 2,
2006
July 3,
2005




Stock option expense
$
100
$
--
$
221
$
--
Restricted stock unit expense
50
37
90
51
Performance share awards and performance-contingent share awards expense
4
20
15
28
Share-based payment expense
154
57
326
79
Tax benefit for share-based compensation expense
(45)
(20)
(93)
(27)
Share-based payment expense, net of tax
$
109
$
37
$
233
$
52
Included in Discontinued operations - net of tax is additional share-based compensation expense as shown in the following table:
Three Months Ended
Six Months Ended
(millions of dollars)
July 2,
2006

July 3,
2005

July 2,
2006

July 3,
2005

Share-based payment expense
$
7
$
2
$
15
$
3
Tax benefit for share-based compensation expense
(2)
(1)
(5)
(1)
Share-based payment expense, net of tax
$
5
$
1
$
10
$
2
Amounts capitalized as part of inventory cost were not significant. In the three months and six months ended July 2, 2006, the impact of modifications under the AtS productivity initiative to share-based awards was not significant and, in the three months and six months ended July 3, 2005, the impact of modifications under the Pharmacia restructuring program was not significant. Generally, these modifications resulted in an acceleration of vesting either in accordance with plan terms or at management's discretion.
B.  Stock Options
Stock options, which entitle the holder to purchase, at the end of a vesting term, a specified number of shares of Pfizer common stock at a price per share set equal to the market price of Pfizer common stock on the date of grant, are accounted for at fair value at the date of grant in the income statement beginning in 2006. These fair values are generally amortized on an even basis over the vesting term into Cost of sales, Selling, informational and administrative expenses and Research and development expenses, as appropriate.
In 2005 and earlier years, stock options were accounted for under APB No. 25 using the intrinsic value method in the income statement and fair value information was disclosed. In these disclosures of fair value, we allocated stock option compensation expense based on the nominal vesting period, rather than the expected time to achieve retirement eligibility. In 2006, we changed our method of allocating stock option compensation expense to a method based on the substantive vesting period for all new awards, while continuing to allocate outstanding nonvested awards not yet recognized as of December 31, 2005 under the nominal vesting period method. Specifically, under this prospective change in accounting policy, compensation expense related to stock options granted prior to 2006 that are subject to accelerated vesting upon retirement eligibility is being recognized over the vesting term of the grant, even though the service period after retirement eligibility is not considered to be a substantive vesting requirement. The impact of this change was not significant.
All employees may receive stock option grants. In virtually all instances, stock options vest after three years of continuous service from the grant date and have a contractual term of ten years; for certain members of management, vesting typically occurs in equal annual installments after three, four and five years from the grant date. In all cases, even for stock options that are subject to accelerated vesting upon voluntary retirement, stock options must be held for at least one year from grant date before any vesting may occur. In the event of a divestiture, options held by employees of the divested business are immediately vested and are exercisable from three months to their remaining term, depending on various conditions.
The fair value of each stock option grant is estimated on the grant date using the Black-Scholes-Merton option-pricing model, which incorporates a number of valuation assumptions noted in the following table, shown at their weighted-average values:
Three Months Ended
Six Months Ended
July 2,
2006
July 3,
2005
July 2,
2006
July 3,
2005


Expected dividend yield ^(a)
3.66%

2.72%

3.66%

2.90%
Risk-free interest rate ^(b)
4.59%

3.75%
4.59%
3.96%
Expected stock price volatility ^(c)
24.50%

16.90%
24.50%
21.93%
Expected term ^(d) (years)
6

2.75
6
5.75
^(a)
Determined using a constant dividend yield during the expected term of the option.
^(b)
Determined using the extrapolated yield on U.S. Treasury zero-coupon issues.
^(c)
Determined using implied volatility, after consideration of historical volatility.
^(d)
Determined using historical exercise and post-vesting termination patterns.
In the first quarter of 2006, we changed our method of estimating expected stock price volatility to reflect market-based inputs under emerging stock option valuation considerations. We use the implied volatility in a long-term traded option, after consideration of historical volatility. In 2005, we used an average term structure of volatility quoted to us by financial institutions, after consideration of historical volatility.
The following table summarizes all stock option activity during the six months ended July 2, 2006:
Shares (thousands)
Weighted-
Average
Exercise
Price
Per Share
Weighted-
Average
Remaining
Contractual
Term
(years)
Aggregate
Intrinsic
Value^(a)
(millions)
Outstanding, January 1, 2006
627,404
$33.51
Granted
68,699
26.20
Exercised
(17,764)
15.52
Forfeited
(4,987)
31.37
Cancelled
(36,909)
32.43
Outstanding, July 2, 2006
636,443
33.31
5.5
$286
Vested and expected to vest^(b), July 2, 2006
627,736
33.34
5.5
286
Exercisable, July 2, 2006
436,636
34.50
4.1
286
^(a)
Market price of underlying stock less exercise price.
^(b)
The number of options expected to vest takes into account an estimate of expected forfeitures.
The following table provides data related to all stock option activity:
Three Months Ended
Six Months Ended
(millions of dollars, except per stock option amounts and years)
July 2,
2006

July 3,
2005

July 2,
2006

July 3,
2005

Weighted-average grant date fair value per stock option
$
5.42
$
3.23
$
5.42
$
5.15
Aggregate intrinsic value on exercise
$
66
$
210
$
171
$
296
Cash received upon exercise
$
109
$
160
$
267
$
262
Tax benefits realized related to exercise
$
20
$
80
$
53
$
103
Total compensation cost related to nonvested stock options not yet recognized, pre-tax^(a)
$
567
N/A
$
567
N/A
Weighted-average period in years over which stock option compensation cost is expected to be recognized^(b)
1.6
N/A
1.6
N/A


^(a)
The total compensation cost related to our Consumer Healthcare business is $27 million.

^(b)
The planned divestiture of our Consumer Healthcare business does not have a significant impact on this weighted-average period.

C.  Restricted Stock Units
RSUs, which entitle the holder to receive, at the end of a vesting term, a specified number of shares of Pfizer common stock, including shares resulting from dividend equivalents paid on such RSUs, are accounted for at fair value at the date of grant. Most RSUs vest in substantially equal portions each year over five years of continuous service; the fair value related to each year's portion is then amortized evenly into Cost of sales, Selling, informational and administrative expenses and Research and development expenses, as appropriate. For certain members of senior and key management, vesting may occur after three years of continuous service.
The fair value of each RSU grant is estimated on the grant date using the average price of Pfizer common stock on the date of grant.
The following table summarizes all RSU activity during the six months ended July 2, 2006:
(thousands of shares)
Shares

Weighted-Average
Grant Date Fair
Value Per Share

Nonvested, January 1, 2006
12,803
$26.89
Granted
12,682
26.15
Vested
(3,300)
27.31
Reinvested dividend equivalents
307
25.01
Forfeited
(782)
26.06
Nonvested, July 2, 2006
21,710
26.36
The following table provides data related to all RSU activity:
Three Months Ended
Six Months Ended
(millions of dollars, except per RSU amounts and years)
July 2,
2006

July 3,
2005

July 2,
2006

July 3,
2005

Weighted-average grant date fair value per RSU
$
25.75
$
27.53
$
26.35
$
26.24
Total fair value of shares vested
$
1
$
1
$
90
$
1
Total compensation cost related to nonvested RSU awards not yet recognized, pre-tax^(a)
$
388
N/A
$
388
N/A
Weighted-average period in years over which RSU cost is expected to be recognized^(b)
4.3
N/A
4.3
N/A


^(a)
The total compensation cost related to our Consumer Healthcare business is $20 million.

^(b)
The planned divestiture of our Consumer Healthcare business does not have a significant impact on this weighted-average period.

D.  Performance Share Awards (PSAs) and Performance-Contingent Share Awards (PCSAs)
PSAs in 2006 and PCSAs prior to 2006 entitle the holder to receive, at the end of a vesting term, a number of shares of Pfizer common stock, within a specified range of shares, calculated using a non-discretionary formula that measures Pfizer's performance relative to an industry peer group. PSAs are accounted for at fair value at the date of grant in the income statement beginning with grants in 2006. Further, PSAs are generally amortized on an even basis over the vesting term into Cost of sales, Selling, informational and administrative expenses and Research and development expenses, as appropriate. For grants in 2005 and earlier years, PCSA grants are accounted for using the intrinsic value method in the income statement.
Senior and other key members of management may receive PSA and PCSA grants. In most instances, PSA grants vest after three years and PCSA grants vest after five years of continuous service from the grant date. In certain instances, PCSA grants vest over two to four years of continuous service from the grant date. The vesting terms are equal to the contractual terms.
The 2004 Plan limitations on the maximum amount of share-based awards apply to all awards including PCSA and PSA grants. In 2001, our shareholders approved the 2001 Performance-Contingent Share Award Plan (the 2001 Plan), allowing a maximum of 12.5 million shares to be awarded to all participants. This maximum was applied to awards for performance periods beginning after January 1, 2002 through 2004. The 2004 Plan is the only plan under which share-based awards may be granted in the future.
PSA grants made in 2006 will vest and be paid based on a non-discretionary formula that measures our performance using relative total shareholder return over a performance period relative to an industry peer group. If our minimum performance in the measure is below the threshold level relative to the peer group, then no shares will be paid. PCSA grants made prior to 2006 will vest and be paid based on a non-discretionary formula, which measures our performance using relative total shareholder return and relative change in diluted earnings per common share (EPS) ~~were computed~~over a performance period relative to an industry peer group. If our minimum performance in the measures is below the threshold level relative to the peer group, then no shares will be paid.
As of January 1, 2006, we measure PSA grants at fair value using the average price of Pfizer common stock on the date of grant times the target number of shares. The target number of shares is determined by reference to the fair value of share-based awards to similar employees in the industry peer group. We measure PCSA grants at intrinsic value whereby the probable award was allocated over the term of the award, then the resultant shares are adjusted to the fair value of our common stock at each accounting period until the date of payment.
The following ~~common share data:~~table summarizes all PSA and PCSA activity during the six months ended July 2, 2006, with the shares granted representing the maximum award that could be achieved:

Three Months Ended
Six Months Ended
(millions)
July 3,
2005
June 27,
2004
July 3,
2005
June 27,
2004

EPS Numerator - Basic:
Income from continuing operations
$
3,472
$
2,844
$
3,744
$
5,163
Less:  Preferred stock dividends - net of tax
2
1
2
2
Income available to common shareholders from continuing operations
3,470
2,843
3,742
5,161
Discontinued operations - net of tax
(9)
19
19
32
Net income available to common shareholders
$
3,461
$
2,862
$
3,761
$
5,193

EPS Denominator - Basic:
Weighted-average number of common shares outstanding
7,366
7,574
7,391
7,580

EPS Numerator - Diluted:
Income from continuing operations
$
3,472
$
2,844
$
3,744
$
5,163
Less:  ESOP contribution - net of tax
2
1
2
3
Income available to common shareholders from continuing operations
3,470
2,843
3,742
5,160
Discontinued operations - net of tax
(9)
19
19
32
Net income available to common shareholders
$
3,461
$
2,862
$
3,761
$
5,192

EPS Denominator - Diluted:
Weighted-average number of common shares outstanding
7,366
7,574
7,391
7,580
Common share equivalents: stock options, restricted stock units, stock issuable under employee compensation plans and convertible preferred stock
52
90
54
92
Weighted-average number of common shares outstanding and common share equivalents
7,418
7,664
7,445
7,672
(thousands of shares)
Shares

Weighted-Average
Grant Date
Value Per Share

Nonvested, January 1, 2006
13,366
$23.32
Granted
1,539
26.19
Vested
(1,583)
26.20
Forfeited^(a)
(1,513)
26.20
Nonvested, July 2, 2006
11,809
23.82
^(a)
Forfeited includes 345 thousand shares that were forfeited by retirees. At the discretion of the Compensation Committee of the Company's Board of Directors, $9 million in cash was paid to such retirees, which amount was equivalent to the fair value of the forfeited shares pro rated for the portion of the performance period that was completed prior to retirement.
~~Outstanding~~The following table provides data related to all PSA and PCSA activity:
Three Months Ended
Six Months Ended
(millions of dollars, except per PCSA amounts and years)
July 2,
2006

July 3,
2005

July 2,
2006

July 3,
2005

Weighted-average grant date intrinsic value per PCSA
$
23.47
$
27.10
$
23.47
$
27.10
Total intrinsic value of vested PCSA shares
$
--
$
--
$
50
$
56
Total compensation cost related to nonvested PSA grants not yet recognized, pre-tax^(a)
$
17
N/A
$
17
N/A
Weighted-average period in years over which PSA cost is expected to be recognized^(b)
2.5
N/A
2.5
N/A

^(a)
The total compensation cost related to our Consumer Healthcare business is nominal.

^(b)
The planned divestiture of our Consumer Healthcare business does not have a significant impact on this weighted-average period.

We entered into forward-purchase contracts that partially offset the potential impact on net income of our obligation under the pre-2006 PCSAs. At settlement date we will, at the option of the counterparty to each of the contracts, either receive our own stock ~~options, representing about 513 million~~or settle the contracts for cash. Other contract terms are as follows:
Per Share
Maximum
Maturity (years)
(thousands of shares)
Purchase
Price

July 2,
2006

Dec. 31,
2005

3,051
$33.85
0.4
--
3,051
33.84
--
0.4
The financial statements include the following items related to these contracts:
Prepaid expenses and ~~519 million~~taxes includes:
fair value of these contracts
Other (income)/deductions - net includes:
changes in the fair value of these contracts
E.  Restricted Stock
Restricted stock grants, which entitle the holder to receive, at the end of a vesting term, a specified number of shares of Pfizer common stock, ~~during~~and which also entitle the ~~three-month~~holder to receive dividends paid on such grants, are accounted for at fair value at the date of grant.
Senior and ~~six-month periods~~key members of management received restricted stock awards prior to 2005. In most instances, restricted stock grants vest after three years of continuous service from the grant date. The vesting terms are equal to the contractual terms.
These awards have not been significant.
F.  Transition Information
The following table shows the effect on results for the three months and six months ended July 3, 2005 ~~and about 280 million shares~~as if we had applied the fair-value-based recognition provisions of ~~common stock during~~SFAS 123R to measure stock-based compensation expense for the three-month and six-month periods ended June 27, 2004, had exercise prices greater than the average market price of our common stock. These options were excluded from the computation of diluted EPS for these periods because their inclusion would have had an antidilutive effect.option grants:
(millions of dollars, except per common share data)

Three Months
Ended
July 3,2005

Six Months
Ended
July 3,2005

Net income available to common shareholders used in the calculation of basic earnings per common share:
As reported under GAAP^(a)
$
3,461
$
3,761
Compensation expense - net of tax^(b)
(104)
(252)
Pro forma
$
3,357
$
3,509
Basic earnings per common share:
As reported under GAAP^(a)
$
0.47
$
0.51
Compensation expense - net of tax^(b)
(0.01)
(0.04)
Pro forma
$
0.46
$
0.47
Net income available to common shareholders used in the calculation of diluted earnings per common share:
As reported under GAAP^(a)
$
3,461
$
3,761
Compensation expense - net of tax^(b)
(104)
(252)
Pro forma
$
3,357
$
3,509
Diluted earnings per common share:
As reported under GAAP^(a)
$
0.47
$
0.51
Compensation expense - net of tax^(b)
(0.02)
(0.04)
Pro forma
$
0.45
$
0.47
Also, in the diluted computation, income from continuing operations and net income are reduced by the incremental contribution to the ESOPs, which were acquired as part of our Pharmacia acquisition. This contribution is the after-tax difference between the income that the ESOPs would have received in preferred stock dividends and the dividend on the common shares assumed to have been outstanding.
^(a)
Includes stock-based compensation expense, net of related tax effects, of $38 million and $53 million for the three months and six months ended July 3, 2005.
^(b)
Pro forma compensation expense related to stock options that are subject to accelerated vesting upon retirement is recognized over the period of employment up to the vesting date of the grant.
Note ~~12:~~15.  Earnings Per Common Share
Basic and diluted EPS were computed using the following common share data:
Three Months Ended
Six Months Ended
(millions)
July 2,
2006
July 3,
2005
July 2,
2006
July 3,
2005

EPS Numerator - Basic:
Income from continuing operations
$
2,290
$
3,375
$
6,296
$
3,531
Less:  Preferred stock dividends - net of tax
2
2
3
2
Income available to common shareholders from continuing operations
2,288
3,373
6,293
3,529
Discontinued operations - net of tax
125
88
230
232
Net income available to common shareholders
$
2,413
$
3,461
$
6,523
$
3,761

EPS Denominator - Basic:
Weighted-average number of common shares outstanding
7,282
7,366
7,298
7,391

EPS Numerator - Diluted:
Income from continuing operations
$
2,290
$
3,375
$
6,296
$
3,531
Less:  ESOP contribution - net of tax
1
2
2
2
Income available to common shareholders from continuing operations
2,289
3,373
6,294
3,529
Discontinued operations - net of tax
125
88
230
232
Net income available to common shareholders
$
2,414
$
3,461
$
6,524
$
3,761

EPS Denominator - Diluted:
Weighted-average number of common shares outstanding
7,282
7,366
7,298
7,391
Common share equivalents: stock options, restricted stock units, stock issuable under employee compensation plans and convertible preferred stock
23
52
32
54
Weighted-average number of common shares outstanding and common share equivalents
7,305
7,418
7,330
7,445
Outstanding stock options, representing about 592 million shares and 591 million shares of common stock during the three-month and six-month periods ended July 2, 2006 and about 513 million shares and 519 million shares of common stock during the three-month and six-month periods ended July 3, 2005, had exercise prices greater than the average market price of our common stock. These options were excluded from the computation of diluted EPS for these periods because their inclusion would have had an anti-dilutive effect.
Also, in the diluted computation, income from continuing operations and net income are reduced by the incremental contribution to the ESOPs, which were acquired as part of our Pharmacia acquisition. This contribution is the after-tax difference between the income that the ESOPs would have received in preferred stock dividends and the dividend on the common shares assumed to have been outstanding.
Note 16.  Segment Information
We operate in the following business segments:
Human Health

•
The Human Health segment, which represents our pharmaceutical business, includes treatments for cardiovascular and metabolic diseases, central nervous system disorders, arthritis and pain, infectious and respiratory diseases, urogenital conditions, cancer, eye disease, endocrine disorders and allergies.
~~Consumer Healthcare~~ The Human Health segment also includes our contract manufacturing and bulk pharmaceutical chemicals business.

•
~~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 prevention and treatments for diseases in livestock and companion animals.
Segment profit/(loss) is measured based on income from continuing operations before provision for taxes on income and minority ~~interests and certain~~interests. Certain costs, such as significant impacts of purchase accounting for acquisitions, merger-related costs and ~~restructuring charges and merger-related costs.~~costs related to our AtS productivity initiative, are included in Corporate/Other only. This methodology is utilized by management to evaluate ~~each business. Certain income/(expense) items that are excluded from the operating segments' profit/(loss) are considered corporate items and therefore are included in~~ ~~Corporate/Other~~.our businesses.
Revenues and profit/(loss) by segment for the three months and six months ended July 2, 2006 and July 3, 2005, ~~and June 27, 2004,~~ follow:
Three Months Ended
Six Months Ended
Three Months Ended
Six Months Ended
(millions of dollars)
July 3,
2005
June 27,
2004
July 3,
2005
June 27,
2004
July 2,
2006
July 3,
2005

July 2,
2006

July 3,
2005

Revenues:
Human Health
$
10,638
$
10,704
$
22,078
$
21,745
$
10,999
$
10,723
$
22,099
$
22,236
Consumer Healthcare
969
869
1,914
1,673
Animal Health
578
484
1,073
912
583
578
1,094
1,073
Corporate/Other^(a)
240
217
451
432
159
151
295
286
Total revenues
$
12,425
$
12,274
$
25,516
$
24,762
$
11,741
$
11,452
$
23,488
$
23,595

Profit/(loss):
Segment profit/(loss)^(b)
Human Health
$
4,568
$
4,614
$
9,935
$
9,937
$
5,046
$
4,581
$
10,794
$
9,966
Consumer Healthcare
129
154
288
313
Animal Health
123
89
203
155
117
123
215
203
Corporate/Other^(a)
(1,759)
^(b)
(1,429)
^(c)
(4,455)
^(b)
(3,848)
^(c)
(2,080)
^(c)
(1,792)
^(d)
(3,656)
^(c)
(4,523)
^(d)
Total profit/(loss)
$
3,061
$
3,428
$
5,971
$
6,557
$
3,083
$
2,912
$
7,353
$
5,646

^(a)
~~Includes certain income/(expense) items that are excluded from~~Corporate/Other includes the ~~operating segment profit/(loss) that are considered corporate items and, therefore, are included in~~manufacturing of empty two-piece gelatin capsules. Corporate/Other~~. These items include~~ also includes interest income/(expense), corporate expenses (e.g., corporate administration costs), other income/(expense) ~~items,~~(e.g., realized gains and losses attributable to our investments in debt and equity securities), certain ~~equity-based~~performance-based compensation expenses not allocated to the business segments, share-based payments, significant impacts of purchase accounting for acquisitions, certain milestone payments, ~~Adapting to Scale restructuring charges and implementation costs,~~ merger-related costs, ~~and~~ intangible asset ~~impairments.~~impairments and costs related to our AtS productivity initiative.
^(b)
Segment profit/(loss) equals income from continuing operations before provision for taxes on income and minority interests. Certain costs, such as significant impacts of purchase accounting for acquisitions, merger-related costs and costs related to our AtS productivity initiative, are included in Corporate/Other only. This methodology is utilized by management to evaluate our businesses.
^(c)
For the three months and six months ended July 2, 2006, Corporate/Other includes (i) significant impacts of purchase accounting for acquisitions of $1.3 billion and $2.1 billion, including acquired in-process research and development charges and incremental intangible asset amortization and other charges, (ii) merger-related costs of $6 million and $11 million, (iii) restructuring charges and implementation costs associated with the AtS productivity initiative of $442 million and $921 million, (iv) gain on disposals of investments and other of $23 million and $74 million, and (v) a research and development milestone due to us from sanofi-aventis of approximately $118 million in the first quarter of 2006.
^(d)
For the three months and six months ended July 3, 2005, Corporate/Other includes (i) significant impacts of purchase accounting for acquisitions of $1.1 billion and $1.9 billion, including acquired in-process ~~research and development,~~R&D charges, incremental intangible asset amortization and other charges, (ii) merger-related costs of ~~$249~~$243 million and ~~$468~~$459 million, (iii) costs associated with the suspension of Bextra's sales ~~and marketing~~ in the first quarter of 2005 of $1.2 billion, and (iv) restructuring charges and implementation costs associated with the ~~Adapting to Scale~~AtS productivity initiative of $54 million in the second quarter of ~~2005 of $54 million.~~
^(c)
~~For the three months and six months ended June 27, 2004,~~ ~~Corporate/Other~~ includes (i) significant impacts of purchase accounting for acquisitions of $820 million and $2.6 billion, including acquired in-process research and development, incremental intangible asset amortization and other charges, (ii) merger-related costs of $289 million and $536 million and (iii) the operating results of a divested legacy Pharmacia research facility of $32 million and $64 million.2005.
Revenues for each group of similar products follow:
Three Months Ended
Six Months Ended
Three Months Ended
Six Months Ended
(millions of dollars)
July 3,
2005
June 27,
2004
%
Change
July 3,
2005
June 27,
2004
%
Change
July 2,
2006
July 3,
2005

%
Change

July 2,
2006
July 3,
2005

%
Change

HUMAN HEALTH
Cardiovascular and metabolic diseases
$
4,471
$
3,899
15%
$
9,197
$
8,085
14%
$
4,769
$
4,471
7%
$
9,517
$
9,197
3%
Central nervous system disorders
1,537
2,036
(24)
3,129
3,983
(21)
1,643
1,537
7
3,287
3,129
5
Arthritis and pain
547
1,146
(52)
1,184
2,322
(49)
627
549
14
1,268
1,188
7
Infectious and respiratory diseases
1,101
1,125
(2)
2,583
2,360
9
835
1,102
(24)
1,772
2,585
(31)
Urology
626
583
7
1,328
1,218
9
660
626
6
1,323
1,328
--
Oncology
513
369
39
992
680
46
540
513
5
1,010
992
2
Ophthalmology
341
291
17
674
570
18
352
341
3
689
674
2
Endocrine disorders
263
223
18
521
443
18
232
263
(12)
478
521
(8)
All other
991
894
11
1,980
1,801
10
1,017
1,073
(5)
2,107
2,132
(1)
Alliance revenue
248
138
79
490
283
73
324
248
31
648
490
32
Total Human Health
10,638
10,704
(1)
22,078
21,745
2
10,999
10,723
3
22,099
22,236
(1)
CONSUMER HEALTHCARE
969
869
12
1,914
1,673
14
ANIMAL HEALTH
578
484
19
1,073
912
18
583
578
1
1,094
1,073
2
OTHER
240
217
11
451
432
5
159
151
6
295
286
4
Total revenues
$
12,425
$
12,274
1
$
25,516
$
24,762
3
$
11,741
$
11,452
3
$
23,488
$
23,595
--
~~Note 13:  Discontinued Operations~~
We evaluate our businesses and product lines periodically for strategic fit within our operations. In the first quarter of 2004, we decided to sell a number of businesses and product lines, and the related assets and liabilities were recorded in ~~Assets held for sale~~ ~~and~~ ~~Liabilities held for sale~~~~. As of July 3, 2005, all of these businesses and product lines had been sold, except for one European generics pharmaceutical business, which was sold on July 4, 2005.~~
~~The impact of these divested businesses and product lines was not material to the consolidated operating results of Pfizer Inc in the periods presented.~~
REVIEW REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of Pfizer Inc:
We have reviewed the condensed consolidated balance sheet of Pfizer Inc and Subsidiary Companies as of July ~~3, 2005,~~2, 2006, the related condensed consolidated statements of income for the three-month and six-month periods ended July 2, 2006 and July 3, 2005, ~~and June 27, 2004,~~ and the related condensed consolidated statements of cash flows for the six-month periods ended July 2, 2006 and July 3, ~~2005 and June 27, 2004.~~2005. These condensed consolidated financial statements are the responsibility of the Company's management.
We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.
We have previously audited, in accordance with standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Pfizer Inc and Subsidiary Companies as of December 31, ~~2004,~~2005, and the related consolidated statements of income, shareholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated February 24, ~~2005,~~2006, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, ~~2004,~~2005, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
KPMG LLP
New York, New York
August ~~8, 2005~~11, 2006
Item 2.  Management's Discussion and Analysis of Financial Condition and Results of ~~Operations.~~Operations (MD&A)
Introduction
Our MD&A is provided in addition to the accompanying condensed consolidated financial statements and footnotes to assist readers in understanding Pfizer's results of operations, financial condition and cash flows. The MD&A is organized as follows:
•
Overview of Consolidated Operating Results. This section, beginning on page 26, provides a general description of Pfizer's business; discusses significant acquisitions made during the first six months of 2006, as well as the planned disposition of the Consumer Healthcare business; provides information about our operating environment; and summarizes our productivity initiative.
•
Revenues. This section, beginning on page 29, provides an analysis of our products and revenues for the three months and six months ended July 2, 2006 and July 3, 2005, as well as an overview of important product developments.
•
Costs and Expenses. This section, beginning on page 39, provides a discussion about our costs and expenses.
•
Provision/(Benefit) for Taxes on Income. This section, beginning on page 40, provides a discussion of items impacting our tax provision for the periods presented.
•
Adjusted Income. This section, beginning on page 41, provides a discussion of an alternative view of performance used by management.
•
Financial Condition, Liquidity and Capital Resources. This section, beginning on page 45, provides an analysis of our balance sheets as of July 2, 2006 and December 31, 2005, and cash flows for the six months ended July 2, 2006 and July 3, 2005, as well as a discussion of our outstanding debt and commitments that existed as of July 2, 2006 and December 31, 2005. Included in the discussion of outstanding debt is a discussion of the amount of financial capacity available to help fund Pfizer's future commitments.
•
Outlook. This section, beginning on page 49, provides a discussion of forecasted financial performance.
•
Forward-Looking Information and Factors That May Affect Future Results. This section, beginning on page 50, provides a description of the risks and uncertainties that could cause actual results to differ materially from those discussed in forward-looking statements set forth in this report relating to the financial results, operations and business prospects of the Company. Such forward-looking statements are based on management's current expectations about future events, which are inherently susceptible to uncertainty and changes in circumstances. Also included in this section is a discussion of Legal Proceedings and Contingencies.
Components of the Condensed Consolidated Statement of Income follow:
Second Quarter
First Six Months
Three Months Ended
Six Months Ended
(millions of dollars, except per common share data)
2005
2004
% Change
2005
2004
% Change
July 2,
2006
July 3,
2005
% Change
July 2,
2006
July 3,
2005
% Change
Revenues
$
12,425
$
12,274
1%
$
25,516
$
24,762
3%
$
11,741
$
11,452
3%
$
23,488
$
23,595
--%

Cost of sales
2,081
1,752
19
4,272
3,546
20
1,790
1,762
2
3,461
3,639
(5)
% of revenues
16.7
%
14.3
%
16.7
%
14.3
%
15.2
%
15.4
%
14.7
%
15.4
%

Selling, informational and administrative expenses
4,226
4,258
(1)
8,311
8,191
1
3,881
3,766
3
7,276
7,431
(2)
% of revenues
34.0
%
34.7
%
32.6
%
33.1
%
33.1
%
32.9
%
31.0
%
31.5
%

Research and development expenses
1,875
1,819
3
3,639
3,469
5
1,742
1,830
(5)
3,285
3,547
(7)
% of revenues
15.1
%
14.8
%
14.3
%
14.0
%
14.8
%
16.0
%
14.0
%
15.0
%

Amortization of intangible assets
859
830
3
1,741
1,653
5
823
856
(4)
1,648
1,736
(5)
% of revenues
6.9
%
6.8
%
6.8
%
6.7
%
7.0
%
7.5
%
7.0
%
7.4
%

Merger-related in-process research and development charges
260
--
*
262
955
(73)
513
260
97
513
262
96
% of revenues
2.1
%
--
1.0
%
3.9
%
4.4
%
2.3
%
2.2
%
1.1
%

Restructuring charges and merger-related costs
270
289
(6)
489
536
(9)
268
264
2
567
480
18
% of revenues
2.2
%
2.4
%
1.9
%
2.2
%
2.3
%
2.3
%
2.4
%
2.0
%

Other (income)/deductions - net
(207)
(102)
105
831
(145)
*
(359)
(198)
81
(615)
854
(172)
Income from continuing operations before (benefit)/provision for taxes on income and minority interests
3,061
3,428
(11)
5,971
6,557
(9)
Income from continuing operations before provision/(benefit) for taxes on income, and minority interests
3,083
2,912
6
7,353
5,646
30
% of revenues
24.6
%
27.9
%
23.4
%
26.5
%
26.3
%
25.4
%
31.3
%
23.9
%

(Benefit)/provision for taxes on income
(413)
582
*
2,222
1,390
60
Provision/(benefit) for taxes on income
790
(464)
*
1,052
2,111
(50)

Effective tax rate
(13.5)
%
17.0
%
37.2
%
21.2
%
25.6
%
(15.9)
%
14.3
%
37.4
%

Minority interests
2
2
8
5
4
20
3
1
154
5
4
67

Income from continuing operations
3,472
2,844
22
3,744
5,163
(27)
2,290
3,375
(32)
6,296
3,531
78
% of revenues
27.9
%
23.2
%
14.7
%
20.9
%
19.5
%
29.5
%
26.8
%
15.0
%

Discontinued operations - net of tax
(9)
19
*
19
32
(38)
125
88
43
230
232
--

Net income
$
3,463
$
2,863
21
$
3,763
$
5,195
(28)
$
2,415
$
3,463
(30)
$
6,526
$
3,763
73
% of revenues
27.9
%
23.3
%
14.7
%
21.0
%
20.6
%
30.2
%
27.8
%
15.9
%

Earnings per common share - Basic:
Earnings per common share - basic:
Income from continuing operations
$
.47
$
.38
24
$
.51
$
.69
(26)
$
0.31
$
0.46
(33)
$
0.86
$
0.48
79
Discontinued operations - net of tax
--
--
--
--
--
--
0.02
0.01
100
0.03
0.03
--
Net income
$
.47
$
.38
24
$
.51
$
.69
(26)
$
0.33
$
0.47
(30)
$
0.89
$
0.51
75

Earnings per common share - Diluted:
Earnings per common share - diluted:
Income from continuing operations
$
.47
$
.38
24
$
.51
$
.68
(25)
$
0.31
$
0.46
(33)
$
0.86
$
0.48
79
Discontinued operations - net of tax
--
--
--
--
--
--
0.02
0.01
100
0.03
0.03
--
Net income
$
.47
$
.38
24
$
.51
$
.68
(25)
$
0.33
$
0.47
(30)
$
0.89
$
0.51
75

Cash dividends paid per common share
$
.19
$
.17
$
.38
$
.34
$
0.24
$
0.19
$
0.48
$
0.38

* Calculation not meaningful
OVERVIEW OF OUR CONSOLIDATED OPERATING RESULTS
Our Business
We are a research-based, global pharmaceutical company that discovers, develops, manufactures and markets leading prescription medicines for humans and ~~animals, as well as many of the world's best known consumer healthcare products.~~animals. Our longstanding value proposition has been to prove that our medicines ~~cure or~~ treat disease, including symptoms and suffering, and this remains our core mission. ~~But we~~We have ~~now~~ expanded our value proposition to also show that ~~our medicines~~ not only can ~~cure or~~our medicines treat disease, but that they can also ~~can~~ markedly improve health systems by reducing overall healthcare costs, improving societies' economic well-being and increasing effective prevention and treatment of disease. We generate revenue through the sale of our products, as well as through alliance agreements by ~~copromoting~~co-promoting products discovered by other companies.
~~Our Expectation for 2005~~Acquisitions
~~Results~~An area where we are expanding aggressively is in ~~2005~~biologics, large-molecule approaches to treating disease where small molecules are not available or effective. On May 16, 2006, we completed the acquisition of all of the outstanding shares of Rinat Neuroscience Corp., a biologics company with several new central-nervous-system product candidates. In connection with the acquisition, as part of our preliminary purchase price allocation, we recorded $478 million, pre-tax, in Merger-related in-process research and development charges.
On February 28, 2006, we completed the acquisition of the sanofi-aventis world-wide rights, including patent rights and production technology, to manufacture and sell Exubera, an inhaled form of insulin for use in adults with type 1 and type 2 diabetes, and the insulin-production business and facilities located in Frankfurt, Germany, previously jointly owned by Pfizer and sanofi-aventis, for approximately $1.4 billion (including transaction costs). In connection with the acquisition, as part of our preliminary purchase price allocation, we recorded an intangible asset for developed technology rights of approximately $1.0 billion, inventory valued at $218 million and goodwill of approximately $166 million, all of which have been allocated to our Human Health segment. The amortization of the developed technology rights will be primarily included in Cost of Sales. Given the size and complexity of the acquisition, the fair valuation and allocation work is still being finalized and is expected to be completed in the third quarter. To the extent that our estimates need to be adjusted, we will do so. Prior to the acquisition, in connection with our collaboration agreement with sanofi-aventis, we recorded a research and development milestone due to us from sanofi-aventis of approximately $118 million ($71 million, after tax) in the first quarter of 2006 in Research and development expenses upon the approval of Exubera in January 2006 by the Food and Drug Administration (FDA).
Discontinued Operations
We evaluate our businesses and product lines periodically for strategic fit within our operations. We sold or are in the process of selling the following businesses that do not fit our strategic goals:
•
In June 2006, we entered into an agreement to sell our Consumer Healthcare business to Johnson & Johnson for approximately $16.6 billion in cash. This business comprises substantially all of our former Consumer Healthcare segment and other associated amounts, such as purchase-accounting impacts and merger-related costs, and restructuring and implementation costs related to our Adapting to Scale (AtS) productivity initiative, previously reported in the Corporate/Other segment. In addition, certain manufacturing facility assets and liabilities, which were previously part of our Human Health or Corporate/Other segment, are included in the planned sale of the Consumer Healthcare business. In connection with the decision to sell this business, for all periods presented, the operating results associated with this business that will be discontinued have been reclassified into Discontinued operations - net of tax in the condensed consolidated statements of income and the assets and liabilities associated with this business that will be sold have been reclassified into Assets/Liabilities of discontinued operations and other assets/liabilities held for sale, as appropriate, on the condensed consolidated balance sheets. The divestiture of the Consumer Healthcare business is expected to close in late 2006 and is subject to customary closing conditions, including receipt of regulatory approvals.
•
In the first quarter of 2005, we sold the second of three European generic pharmaceutical businesses which had been included in our Human Health segment for 70 million euros (approximately $93 million) and recorded a gain of $57 million ($36 million, net of tax) in Gains on sales of discontinued operations - net of tax in the condensed consolidated statement of income. In addition, we recorded an impairment charge of $9 million ($6 million, net of tax) related to the third European generic business in Income from discontinued operations - net of tax in the condensed consolidated statement of income for the six months ended July 3, 2005.
Our Operating Environment
We are navigating a period of significant change for the Company. Aggressive cost-cutting efforts, coupled with investments in business development and significantly improved research and development (R&D) productivity, are preparing us to transition to the next-generation Pfizer. Our strategy is to drive growth in our in-line medicines and to invest in promising new medicines.
We have a broad presence in the healthcare industry, with important medicines in many major therapeutic areas. While we continue to look for the most innovative products to fill gaps in our portfolio, we also continue to face a challenging and dynamically changing environment in our pharmaceutical business. This includes the loss of exclusivity of major products, uncertainty concerning selective COX-2 inhibitor products, increasing regulatory scrutiny of drug safety, the adoption of new direct-to-consumer advertising guidelines and lower prescription growth rates and increased competition in certain therapeutic areas.
We believe that the strong aggregate performance of our in-line product portfolio and the potential of our new-product pipeline demonstrate our ability to generate new revenues. Our performance in 2006 has been, and will continue to be, substantially adversely impacted by loss of U.S. exclusivity of ~~four major products --~~Neurontin, Diflucan ~~Neurontin,~~ and Accupril/Accuretic ~~during~~in 2004, ~~and~~ Zithromax in November ~~2005.~~2005 and Zoloft at the end of June 2006. In addition, we face a substantial adverse impact on our performance from the loss of U.S. exclusivity for ~~Zoloft during 2006 and~~ Norvasc and Zyrtec during ~~2007.~~2007 and Camptosar and Inspra in 2008. These ~~seven~~nine products represented ~~33%~~31% of our Human Health revenues and 29% of our total revenues for the year ended December 31, ~~2004.~~2005. In addition, some of our products face competition in the form of new branded products or generic drugs, which treat similar diseases or indications. Revenues in 2006 have also ~~have~~ been, and may continue to be, impacted by ~~publicity and regulatory actions~~uncertainty regarding ~~COX-2-selective~~selective COX-2 inhibitor products (see further discussion in the section ~~"Selected~~"Human Health--Selected Product Descriptions"). Our total revenues increased 3% in the three months ended July 2, 2006 and were flat in the six months ended July 2, 2006 as compared to the same periods in 2005.
~~Mitigating~~Partially offsetting these impacts in the ~~first half of 2005~~three months and six months ended July 2, 2006 was the ~~strong~~solid aggregate performance ~~across~~in the balance of our broad portfolio of patent-protected medicines. Our portfolio of medicines includes ~~four~~three of the world's 25 best-selling medicines, with 11four medicines that lead their therapeutic areas. Our ~~total revenue growth of 3% in the first half of 2005 compared to the same period in 2004 reflected~~results reflect two underlying forces. First, Pfizer markets the broadest array of in-line and recently launched products in the industry; and second, Pfizer is a business going through ~~the natural~~a process of ~~reinventing itself.~~transformation. We are addressing the loss of exclusivity of a number of products ~~a situation that we have long planned for,~~ by advancing a number of internally developed, in-licensed and ~~copromoted~~co-promoted product candidates. So far this year, we have launched three new medicines in the U.S.--Sutent, Eraxis and Chantix, and initial supplies of Exubera will be available in the U.S. in September 2006. In June 2006, we received an approvable letter from the FDA for Zeven (dalbavancin) and now expect approval and launch in 2007. In June 2006, after certain decisions by the FDA, we notified Neurocrine Biosciences, Inc. (Neurocrine) that we are returning the development and marketing rights for indiplon to Neurocrine.
We believe we have important competitive advantages that will serve us well and distinguish us from others in our industry. Our product portfolio and pipeline demonstrate the benefits of Pfizer's scale and our skill at leveraging the opportunities it provides us. Scale also enhances our status as 'partner of choice' with other companies who have promising product candidates and technologies, as well as giving us influence as a global purchaser of goods and services. InWe continue to build on and enhance our Research & Development capabilities through acquisitions and collaborations. Through targeted acquisitions, licensing opportunities and internal development, we are augmenting our commercial portfolio. We have also made progress with our Adapting to Scale productivity initiative, which is a broad-based, company-wide effort to leverage our scale and strength more robustly and increase our productivity. (See further discussion in the ~~second quarter of 2005, we entered into a definitive agreement~~section "Adapting to acquire Vicuron Pharmaceuticals, a biopharmaceutical company focused on the development of novel anti-infectives, for approximately $1.9 billion in cash. The transaction is subject to normal closing conditions.
~~Our strategic~~Scale Productivity Initiative and ~~operating flexibility allows us to marshal and focus resources when and where they are needed, to change with a changing environment and to recognize and seize emerging opportunities.~~Merger-Related Synergies.")
Adapting to Scale Productivity Initiative and Merger-Related Synergies
During 2005 and the ~~second quarter~~first six months of ~~2005, Pfizer~~2006, we made progress with our multi-year productivity initiative, called Adapting to Scale (AtS), designed to increase efficiency and streamline ~~decision making~~decision-making across the Company. ~~The initiative is expected to yield $4 billion in cost savings on an annual basis by 2008, based on a top-to-bottom business review completed during the first half of 2005.~~
This initiative, ~~first announced~~launched in ~~April,~~early 2005, follows the integration of Warner-Lambert and Pharmacia Corporation (Pharmacia), which resulted in the tripling of Pfizer's revenues over the past ~~five~~six years. The integration of those two companies ~~is expected to result~~resulted in a combined annual expense reduction of approximately $6 ~~billion in 2005, inclusive of $4.2 billion in Pharmacia-related synergies that are expected~~billion.
We continue to ~~be achieved this year.~~
~~During 2005, we anticipate~~expect that cost savings from our ~~new~~AtS productivity initiative will ~~approximate $400 million. We expect that cost savings will accelerate over the following three years, with about~~be in excess of $2 billion in ~~savings targeted in~~ 2006, ~~about $3.5 billion in 2007 and~~growing to about $4 billion annually upon completion in ~~2008.~~2008, notwithstanding the planned divestiture of our Consumer Healthcare business and the expense reductions associated with that business. These ~~total~~ savings ~~of $4 billion~~ are expected to be realized in procurement, operating expenses and facilities, among other sources. ~~Among other potential uses, we~~Savings realized during the second quarter and first six months of 2006 total approximately $500 million and $1 billion. We plan to use the cost savings we generate, in part, to fund key investments, including new product launches and the development of the many promising new medicines in our pipeline. The Company ~~now~~ expects that the aggregate cost of implementing this initiative through 2008 will be approximately $4 billion to $5 billion on a pre-tax ~~basis, reflecting the results~~basis.
Projects in various stages of ~~our detailed~~ implementation ~~planning in the second quarter.~~
Pfizer is reducing costs in purchased goods and services. Purchasing initiatives will focus on rationalizing suppliers, leveraging the approximately $16 billion of goods and services that Pfizer purchases annually, improving demand management to optimize levels of outside services needed, and strategic sourcing from lower-cost sources. For example, savings from demand management will be derived in part from reductions in travel, entertainment, consulting and other external service expenses. Facilities savings are being found in site rationalization, energy conservation, and renegotiated service contracts.
~~While some projects are already underway, during the second half of 2005 Pfizer will accelerate the implementation of changes, including:~~include:
•
Reorganizing Pfizer Global Research & Development (PGRD) to ~~reduce costs, speed decision making,~~increase efficiency and ~~concentrate resources on projects that have demonstrated~~effectiveness in bringing new therapies to patients-in-need while reducing the ~~highest likelihood of success. Through this initiative, PGRD is moving toward an operating model focused on therapeutic areas from the earliest stages~~cost of research and development. PGRD has been reorganized into ~~development~~eleven therapeutic areas: cardiovascular, metabolic, and ~~throughout product life cycles.~~endocrine; central nervous system; inflammation; allergy and respiratory; infectious diseases; pain; gastrointestinal and hepatitis; oncology; urology and sexual health; ophthalmology; and dermatology. Discovery Research will retain its existing structure of six drug-candidate discovery sites. Development will move toward single sites for most therapeutic areas.

•
Continuing our optimization of ~~Pfizer Global Manufacturing's plant~~Pfizer's network of plants, which began with the acquisition of Pharmacia, to ensure that the Company's manufacturing facilities are aligned with current and future product needs. We have focused on innovation and delivering value through a simplified supply ~~needs. Since December 2004, Pfizer has announced~~network. During 2005 and through the ~~divestiture~~first six months of ~~facilities in Augusta, GA; Holland, MI; Angers~~2006, 18 sites were identified for rationalization (Angers and ~~Val-de-Reuil,~~Val de Reuil, France; ~~Morpeth, U.K.; and Stockholm, Sweden, as well as several smaller facilities. In addition, plants in~~ Arecibo ~~Caguas,~~ and Cruce Davila, Puerto Rico; Augusta, Georgia; Bangkok, Thailand; Corby and Morpeth, U.K.; Groton, Connecticut; Holland, Michigan; Jakarta, Indonesia; Seoul, Korea; Orangeville, Canada; Parsippany, New Jersey; Tlalpan, Mexico; Tsukuba, Japan; and Stockholm and Uppsala-Fyrislund, Sweden). In addition, there have been extensive consolidations and realignments of operations resulting in streamlined operations and staff reductions. In particular, Sandwich, U.K.~~, are being restructured. Since 2003, Pfizer has announced plans to reduce the number of plants in its global network by more than 25 percent.~~; Lincoln and Omaha, Nebraska sites; Puerto Rico sites; Lititz, Pennsylvania; and Brooklyn, N.Y. have undergone notable staff reductions.

•
~~Increasing productivity by redesigning~~Realigning our European marketing teams and implementing initiatives designed to improve the effectiveness of our field force in Japan. During 2005, we completed a major reorganization of the U.S. field force, reshaping the management structure to ~~reflect~~be more responsive to commercial trends as the Medicare Modernization Act takes effect and driving greater sales-force accountability in preparation for the launch of new ~~Medicare regions and to respond to changing market dynamics, while respecting the time demands of physicians.~~
•
~~Reorganizing commercial support across the European region to increase focus on the needs of emerging customers and eliminate redundancy and duplicative activities.~~medicines.

•
Pursuing savings in information technology ~~(IT)~~ resulting from significant reductions in application software (already significantly reduced from ~~about~~over 8,000 applications at the time of the Pharmacia acquisition in ~~2003 to about 4,000 today, with considerable further reductions planned)~~2003) and data centers (to be reduced from 17 to 4), as well as rationalization of service providers, while enhancing our ability to invest in innovative ITtechnology opportunities to further propel our growth.
•
Reducing costs in purchased goods and services. Purchasing initiatives are focusing on rationalizing suppliers, leveraging the approximately $16 billion of goods and services that Pfizer purchases annually and improving demand management to optimize levels of outside services needed and strategic sourcing from lower-cost sources. For example, savings from demand management are being derived in part from reductions in travel, entertainment, consulting and other external service expenses. Facilities savings are being found in site rationalization, energy conservation and renegotiated service contracts.
REVENUES
Worldwide revenues by segment and geographic area for the three months and six months ended July 2, 2006 and July 3, 2005 follow:
Three Months Ended
Worldwide
U.S.
International
% Change in Revenues
July 2,
July 3,
July 2,
July 2,
July 2,
July 3,
Worldwide
U.S.
International
(millions of dollars)
2006
2005
2006
2005
2006
2005
06/05
06/05
06/05

Human Health
$
10,999
$
10,723
$
5,781
$
5,419
$
5,218
$
5,304
3
7
(2)
Animal Health
583
578
262
263
321
315
1
--
2
Other
159
151
51
46
108
105
6
9
4
Total Revenues
$
11,741
$
11,452
$
6,094
$
5,728
$
5,647
^(a)
$
5,724
^(a)
3
6
(1)
^(a)
Includes revenue from Japan of $852 million (7.3% of total revenues) and $877 million (7.7% of total revenues) for the three months ended July 2, 2006 and July 3, 2005.
Six Months Ended
Worldwide
U.S.
International
% Change in Revenues
July 2,
July 3,
July 2,
July 2,
July 2,
July 3,
Worldwide
U.S.
International
(millions of dollars)
2006
2005
2006
2005
2006
2005
06/05
06/05
06/05

Human Health
$
22,099
$
22,236
$
12,121
$
11,656
$
9,978
$
10,580
(1)
4
(6)
Animal Health
1,094
1,073
491
482
603
591
2
2
2
Other
295
286
98
90
197
196
4
9
1
Total Revenues
$
23,488
$
23,595
$
12,710
$
12,228
$
10,778
^(b)
$
11,367
^(b)
--
4
(5)
^(b)
Includes revenue from Japan of $1.6 billion (6.7% of total revenues) and $1.7 billion (7.4% of total revenues) for the six months ended July 2, 2006 and July 3, 2005.
Human Health Revenues
Pfizer's Human Health business continued to show solid performance in many of our products, although revenue declines from loss of exclusivity on major products and other challenges tempered our growth in the three months ended July 2, 2006 and more than offset that performance for the six months ended July 2, 2006, as shown in the following table:
Human Health Revenues

(millions of dollars, except % growth)
Three
Months
Ended July 2,
2006

Impact on
Total
Human Health
06/05
% Growth
Six Months
Ended July 2,
2006

Impact on
Total
Human Health
06/05
% Growth

In-Line Products^(a)and New Products^(b)
$
9,827
6
%
$
$19,596
4
%
Loss-of-exclusivity products and Bextra^(c)
1,172
(3)
2,503
(5)
Total Human Health revenues
$
10,999
3
%
$
$22,099

(1)
%
^(a)
In-Line Products is defined as worldwide revenues for the three months and six months ended July 2, 2006 of all Human Health products other than those referred to in notes (b) and (c).
^(b)
New Products is defined as worldwide revenues for the three months and six months ended July 2, 2006 of products launched since the beginning of 2004--Caduet, Eraxis, Exubera, Inspra, Lyrica, Macugen, Olmetec, Onsenal, Revatio, Sutent and Zmax.
^(c)
Loss-of-Exclusivity Products and Bextra is defined as worldwide revenues for the three months and six months ended July 2, 2006 of products that have lost U.S. exclusivity since the beginning of 2004--Accupril/Accuretic, Diflucan, Neurontin, Zithromax and Zoloft--and of Bextra, sales of which were suspended in 2005.
Total Human Health revenues increased 1%3% in the second quarter and 3%were down 1% in the first six months of ~~2005,~~2006, as compared to the same periods in ~~2004.~~ 2005, primarily due to:
•
the solid aggregate performance of our broad portfolio of patent-protected medicines;
•
an aggregate increase in revenues from new products launched in 2005 and within the first six months of 2006 of approximately $294 million for the second quarter of 2006 and $507 million for the first six months of 2006; and
•
an increase in revenues due to price changes of about 3.7% and 3.6% in the second quarter and first six months of 2006;
partially offset in the second quarter of 2006 and more than offset in the first six months of 2006 by:
•
a decrease in revenue from the loss of U.S. exclusivity of Zithromax in November 2005 of $260 million for the second quarter of 2006 and $807 million for the first six months of 2006;
•
the continued decline in revenue by $61 million for the second quarter of 2006 and $179 million for the first six months of 2006 of Neurontin, Diflucan and Accupril/Accuretic, which lost U.S. exclusivity in 2004;
•
the strengthening of the U.S. dollar relative to many foreign currencies, especially the euro, which decreased revenue by $195 million for the second quarter of 2006 and $534 million for the first six months of 2006; and
•
lower revenue for Zoloft, which has lost exclusivity in many European markets, by $90 million for the second quarter of 2006 and $156 million for the first six months of 2006.
The ~~revenue increases reflect a number of positive and negative factors. Positive impacts include~~ three ~~additional business days in our fiscal calendar in the first quarter~~months and six months ~~of 2005~~ended July 2, 2006 were also impacted by increased competition and the overall market decline, as branded prescriptions in the U.S. declined 2% and 3% compared to the ~~same periods in 2004, strong performances by Lipitor, Zithromax~~three months and other product lines, and the weakening of the U.S. dollar relative to a number of foreign currencies. Such impacts were offset in part by sales declines for Celebrex and Bextra, due to recent regulatory actions, as well as for Neurontin, Diflucan and Accupril/Accuretic, due to recent generic competition in the U.S.
~~Changes in foreign exchange rates increased revenues in the second quarter of 2005 by $335 million or 2.7% and increased revenues in the first~~ six months of 2005 by $734 million or 3.0% compared to the same periods in 2004. The foreign exchange impact on the second quarter and first six months of 2005 revenue growth was due to the weakening of the U.S. dollar relative to many foreign currencies, especially the euro. However, due to the recent strengthening of the dollar, and in combination with the factors stated above, we now expect 2005 revenues for the full year, at current foreign exchange rates, to evidence a modest decline relative to 2004.
~~The impact of price changes on revenues was 3.6% in the second quarter of 2005 and 2.6% in the first six months of~~ended July 3, 2005.
The loss of patent protection with respect to any of our major products could have a material adverse effect on revenue and net income. We expect a substantial impact from the loss of exclusivity of certain major products over the next few years.Geographically:
~~Deductions from Revenues~~
•
in the U.S., Human Health revenues increased 7% and 4% in the three months and six months ended July 2, 2006 compared to the same periods in 2005 primarily due to revenues from new products and growth in Lipitor and Celebrex sales, partially offset by the loss of exclusivity of Zithromax in November 2005; and
•
in our international markets, Human Health revenues declined in the three months and six months ended July 2, 2006 compared to the same periods in 2005 by 2% and 6%, primarily due to the unfavorable impact of foreign exchange of $195 million (all of the decline) and $534 million (5 percentage points of the decline) and lower revenues of Zoloft due to the loss of exclusivity in many key international markets.
As is typical in the pharmaceutical industry, our gross product sales are subject to a variety of deductions, primarily representing rebates and discounts to government agencies, wholesalers and managed care ~~organizations.~~organizations with respect to our pharmaceutical products. These deductions represent estimates of the related ~~liabilities~~obligations and, as such, judgment is required when estimating the impact of these sales deductions on gross sales for a reporting period. Historically, our adjustments to actual have not been material; on a quarterly basis, they generally have been less than ~~0.5%~~1% of Human Health net sales and can result in either a net increase or a net decrease to income.
Rebates under Medicaid and related state programs reduced revenues by $169 million and $374 million in the three months and six months ended July 2, 2006 and $324 million and $699 million ~~for~~in the three months and six months ended July 3, ~~2005~~2005. The decrease in Medicaid and ~~$323~~related state program rebates is due primarily to the impact of the Medicare Prescription Drug Improvement and Modernization Act of 2003 (the Medicare Act), effective January 1, 2006. Performance-based contract rebates reduced revenues by $368 million and ~~$671~~$911 million ~~for~~in the three months and six months ended ~~June 27, 2004. Performance-based contracts also provide for rebates to several customers. Contract rebates reduced revenues by $575~~July 2, 2006 and $573 million and $1.2 billion ~~for~~in the three months and six months ended July 3, 2005. The decrease in performance-based contract rebates is due primarily to the expiration of our contract with Express Scripts Inc. on December 31, 2005 and ~~$530 million and $976 million for~~reduced managed care rebates related to Zithromax, which lost exclusivity in the ~~three months and six months ended June 27, 2004.~~U.S in November 2005. These contracts are with managed care customers, including health maintenance organizations and pharmacy benefit managers, who receive rebates based on the achievement of contracted performance terms for products. Rebates are product-specific and, therefore, for any given year are impacted by the mix of products sold. Chargebacks (primarily discounts to U.S. federal government agencies) reduced revenues by $335 million and $688 million in the three months and six months ended July 2, 2006 and $298 million and $592 million ~~for~~in the three months and six months ended July 3, ~~2005 and $303 million and $574 million for the three months and six months ended June 27, 2004.~~2005.
Our accruals for Medicaid rebates, contract rebates and chargebacks totaled $1.6 billion atas of July ~~3, 2005 and $1.7~~2, 2006, a decrease from $1.8 billion atas of December 31, ~~2004.~~2005 due primarily to the impact of the Medicare Act.
Human Health--Selected Product Revenues ~~by Country~~
~~Revenues by country for the second quarter and first six months of 2005 and the changes from the same periods in 2004 follow:~~

Second Quarter
(millions of dollars)
2005
% of
Revenues
2004
% of
Revenues
%
Change

United States
$
6,186
49.8
%
$
6,595
53.7
%
(6)%
Japan
901
7.3
821
6.7
10
All other
5,338
42.9
4,858
39.6
10
Consolidated
$
12,425
100.0
%
$
12,274
100.0
%
1


First Six Months
(millions of dollars)
2005
% of
Revenues
2004
% of
Revenues
%
Change

United States
$
13,163
51.6
%
$
13,744
55.5
%
(4)%
Japan
1,783
7.0
1,549
6.3
15
All other
10,570
41.4
9,469
38.2
12
Consolidated
$
25,516
100.0
%
$
24,762
100.0
%
3
~~Geographic Revenues by Segment~~
~~Geographic revenues by segment for the second quarter and first six months of 2005 and the changes from the same periods in 2004 follow:~~

Second Quarter
Revenues
% Change in Revenues
U.S.
International
U.S.
International
(millions of dollars)
2005
2004
2005
2004
05/04
05/04

Human Health
$
5,387
$
5,886
$
5,251
$
4,818
(8)%
9%
Consumer Healthcare
463
421
506
448
10
13
Animal Health
263
217
315
267
21
18
Other
73
71
167
146
3
14
Total Revenues
$
6,186
$
6,595
$
6,239
$
5,679
(6)
10


First Six Months
Revenues
% Change in Revenues
U.S.
International
U.S.
International
(millions of dollars)
2005
2004
2005
2004
05/04
05/04

Human Health
$
11,593
$
12,348
$
10,485
$
9,397
(6)%
12%
Consumer Healthcare
946
838
968
835
13
16
Animal Health
482
416
591
496
16
19
Other
142
142
309
290
(1)
7
Total Revenues
$
13,163
$
13,744
$
12,353
$
11,018
(4)
12
Revenue information for several of our major Human Health products ~~which includes three additional business days in our fiscal calendar in the first quarter and six months of 2005 compared to the same periods in 2004, follows:~~follow:

Second Quarter
First Six Months
(millions of dollars)
Product
Primary Indications
2005
% Change
from 2004
2005
% Change
from 2004

Cardiovascular and
metabolic diseases:
Lipitor
Reduction of LDL cholesterol
$2,858
21%
$5,932
22%
Norvasc
Hypertension
1,156
12
2,331
7
Cardura
Hypertension/Benign prostatic hyperplasia
155
(4)
309
--
Accupril/Accuretic
Hypertension/Congestive heart failure
73
(53)
173
(50)
Caduet
Reduction of LDL cholesterol and hypertension
41
M+
73
143
Central nervous
system disorders:
Zoloft
Depression and anxiety disorders
796
1
1,641
3
Neurontin
Epilepsy and post-herpetic neuralgia
161
(79)
343
(77)
Geodon
Schizophrenia and acute manic or mixed episodes associated with bipolar disorder
145
32
282
42
Xanax/Xanax XR
Anxiety/Panic disorders
104
21
206
20
Aricept**
Alzheimer's disease
86
16
170
18
Relpax
Migraine headaches
50
34
103
53
Lyrica
Epilepsy, post-herpetic neuralgia and diabetic peripheral neuropathy
38
*
58
*
Arthritis and pain:
Celebrex
Arthritis pain and inflammation, acute pain
401
(45)
813
(46)
Bextra
Arthritis pain and inflammation
(42)
*
14
(97)
Infectious and
respiratory diseases:
Zithromax
Bacterial infections
424
14
1,221
46
Zyvox
Bacterial infections
153
39
296
43
Diflucan
Fungal infections
129
(55)
267
(55)
Vfend
Fungal infections
91
28
179
33
Urology:
Viagra
Erectile dysfunction
391
1
829
3
Detrol/Detrol LA
Overactive bladder
222
22
474
22
Oncology:
Camptosar
Metastatic colorectal cancer
233
58
445
87
Ellence
Breast cancer
96
10
186
11
Aromasin
Advanced breast cancer
58
86
113
107
Ophthalmology:
Xalatan/Xalacom
Glaucoma and ocular hypertension
341
17
673
18
Endocrine disorders:
Genotropin
Replacement of human growth hormone
201
12
404
12
All other:
Zyrtec/Zyrtec-D
Allergies
355
16
697
15
Alliance revenue:
Aricept, Macugen, Mirapex, Rebif and Spiriva
Alzheimer's disease (Aricept), neovascular (wet) age-related macular degeneration (Macugen), Parkinson's disease (Mirapex), multiple sclerosis (Rebif), chronic obstructive pulmonary disease (Spiriva)
248
79
490
73
Three Months Ended
Six Months Ended
(millions of dollars)
Product
Primary Indications
July 2,
2006

% Change
from 2005

July 2,
2006

% Change
from 2005
Cardiovascular and
metabolic diseases:
Lipitor
Reduction of LDL cholesterol
$3,123
9%
$6,230
5%
Norvasc
Hypertension
1,158
--
2,341
--
Cardura
Hypertension/Benign prostatic hyperplasia
139
(10)
265
(14)
Caduet
Reduction of LDL cholesterol and hypertension
80
92
157
116
Accupril/Accuretic
Hypertension/Congestive heart failure
69
(6)
137
(21)
Central nervous
system disorders:
Zoloft
Depression and certain anxiety disorders
706
(11)
1,485
(9)
Lyrica
Epilepsy, post-herpetic neuralgia and diabetic peripheral neuropathy
271
606
463
693
Geodon/Zeldox
Schizophrenia and acute manic or mixed episodes associated with bipolar disorder
165
14
347
23
Neurontin
Epilepsy and post-herpetic neuralgia
123
(23)
250
(27)
Aricept^(a)
Alzheimer's disease
88
3
170
--
Xanax/Xanax XR
Anxiety/Panic disorders
79
(24)
161
(22)
Relpax
Migraine headaches
67
35
133
29
Arthritis and pain:
Celebrex
Arthritis pain and inflammation, acute pain
471
17
962
18
Infectious and
respiratory diseases:
Zyvox
Bacterial infections
167
9
353
19
Zithromax/Zmax
Bacterial infections
166
(61)
425
(65)
Vfend
Fungal infections
118
30
235
32
Diflucan
Fungal infections
110
(14)
217
(19)
Urology:
Viagra
Erectile dysfunction
394
1
784
(5)
Detrol/Detrol LA
Overactive bladder
255
15
515
9
Oncology:
Camptosar
Metastatic colorectal cancer
238
2
450
1
Ellence
Breast cancer
86
(11)
159
(15)
Aromasin
Breast cancer
75
31
145
29
Sutent
Metastatic renal cell carcinoma (mRCC) and malignant gastrointestinal stromal tumors (GIST)
36
*
52
*
Ophthalmology:
Xalatan/Xalacom
Glaucoma and ocular hypertension
351
3
688
2
Endocrine disorders:
Genotropin
Replacement of human growth hormone
191
(5)
388
(4)
All other:
Zyrtec/Zyrtec-D
Allergies
377
6
798
15
Alliance revenue:
Aricept, Macugen, Mirapex, Olmetec, Rebif and Spiriva
Alzheimer's disease (Aricept), neovascular (wet) age-related macular degeneration (Macugen), Parkinson's disease (Mirapex), hypertension (Olmetec), multiple sclerosis (Rebif), chronic obstructive pulmonary disease (Spiriva)
324
31
648
32
*^(a)
~~Calculation not meaningful.~~
**
Represents direct sales under license agreement with Eisai Co., Ltd.
M+*
~~Change greater than one-thousand percent.~~ Calculation not meaningful.
Certain amounts and percentages may reflect rounding adjustments.
~~Selected~~Human Health--Selected Product Descriptions:
•
Lipitor, for the treatment of elevated cholesterol levels in the blood, is the most widely used treatment for lowering cholesterol and the best-selling pharmaceutical product of any kind in the ~~world. After eight years on~~world, reaching over $6.2 billion in worldwide sales in the ~~market, it continues~~first six months of 2006, an increase of 5% compared to ~~generate double-digit revenue growth. Year-to-date~~the same period in 2005. In the U.S. ~~new prescriptions for~~, sales of $3.8 billion represent growth of 7% over the previous year's first six months. Internationally, Lipitor ~~grew 10%,~~sales in ~~a strong growth market.With its ability~~the first six months of 2006 increased 3% compared to ~~bring~~ the vast majority of patients to target cholesterol goals across the full dosing range, with an excellent safety profile and proven range of cardiovascular benefits, Lipitor continues to gain wide physician and patient acceptance.same period in 2005.

~~There continues~~Lipitor began to beface competition in the U.S. from generic pravastatin (Pravachol) in April 2006 and generic simvastatin (Zocor) in June 2006 as well as other competitive pressures. In April 2006, we launched a new advertising campaign for Lipitor that highlights its strong benefit profile and advantageous formulary positioning. Scientific data continue to reinforce the trend toward the use of higher dosages of statins for greater cholesterol reduction.
New clinical findings continue to demonstrate the benefit of Lipitor on a wide range of endpoints, helping to support its differentiation versus the competition and maintain its rank as the world's top-selling medicine. Recently, data from the Stroke Prevention by Aggressive Reduction in Cholesterol Levels (SPARCL) clinical trial in stroke prevention were presented at the European Stroke Congress in Brussels and published in The New England Journal of Medicine. SPARCL assessed treatment with Lipitor 80 mg compared to placebo in a population of patients who have had a prior stroke but did not have coronary heart disease. SPARCL is the first major study designed to evaluate this patient population. In the trial, Lipitor was shown to significantly reduce the risk of an ~~opportunity for further growth~~additional stroke by 16% and major coronary events such as heart attack, cardiac death or resuscitated cardiac arrest, by 35% compared to placebo. An analysis of the ~~cholesterol-lowering market. Worldwide, millions~~SPARCL data was designed and conducted after the study ended to explore the types of ~~people with high cholesterol are not diagnosed, are not treated,~~strokes, ischemic or ~~are treated with~~hemorrhagic, that occurred among patients in the study. The vast majority of strokes in this trial were ischemic while the number who experienced hemorrhagic was very small. Patients taking Lipitor experienced a ~~dose inadequate~~22% reduction in the risk of ischemic stroke. There were more patients in the Lipitor group who experienced hemorrhagic stroke (2.3%) compared to ~~achieve their cholesterol goals. Evolving~~patients taking placebo (1.4%). There was no difference in the number of deaths from hemorrhagic stroke between the two treatment ~~guidelines continue~~groups. The SPARCL findings represent important information for physicians and patients as up to ~~encourage~~one in five Americans who survive a first stroke will have another stroke within five years, according to data from the ~~broad use of statin therapy.~~National Stroke Association.

In addition, based on evolving clinical evidence, including landmark Lipitor studies (Anglo-Scandinavian Cardiac Outcomes Trial (ASCOT_LLA), Treating to New Targets (TNT) and IDEAL), the ~~Australian Government Pharmaceutical Benefits Advisory Committee recently reviewed comprehensive data on~~American Heart Association and the ~~clinical and cost-effective benefits~~American College of ~~Lipitor compared~~Cardiology now state that it is reasonable to ~~simvastatin and concluded~~bring LDL-cholesterol levels to below 70 mg/dL for very high-risk patients, levels that Lipitor ~~is more effective at lowering cholesterol. We believe this~~has been proven to beachieve within a ~~very positive endorsement~~favorable safety profile along with providing incremental cardiovascular benefits for patients. In addition, a pre-specified pharmacoeconomic analysis of the ~~benefits~~IDEAL study showed that one out of every six heart attacks, strokes, or cardiovascular procedures could be avoided for heart-disease patients treated with intensive Lipitor therapy (80 mg) instead of standard doses of Zocor (20-40 mg).
In May 2006, the European Commission approved Lipitor for ~~millions~~the prevention of cardiovascular events such as heart attacks and strokes in patients ~~around~~who are at a higher risk for experiencing a first cardiovascular event and have other risk factors such as diabetes or high blood pressure. This label change, based on data from ASCOT-LLA clinical trials and Collaborative Atorvastatin Diabetes Study, is already in effect in the ~~world by an independent official government advisory committee. This review of our data may have significant implications for other governments when considering the efficacy~~U.S., Canada, U.K., and ~~cost effectiveness of Lipitor.~~France and will impact 12 European Union (E.U.) markets.

See Part II, Other Information; Item 1, Legal Proceedings, of this Form 10-Q for a discussion of recent developments with respect to certain patent litigation relating to Lipitor.
•
Norvasc is the world's most-prescribed branded medicine for treating hypertension. The reduced rate of growth in sales in the first six months of 2005 compared to same period in 2004 (7% in 2005 as compared to 9% in 2004) is attributable to patent expirations in several European Union (E.U.) member countries. Norvasc maintains exclusivity in many ~~other~~ major markets globally, including the U.S., Japan, Canada and ~~Australia.~~Australia, but has experienced patent expirations in many E.U. countries. Norvasc sales in the first six months of 2006 were even with those in the same period in 2005. See Part II, Other Information; Item 1, Legal Proceedings, of this Form 10-Q for a discussion of certain recent patent litigation relating to Norvasc.
•
Exubera, the first ever inhaled human insulin therapy for glycemic control received approvals from both the FDA and the European Commission for the treatment of adults with type 1 and type 2 diabetes in January 2006. Millions of people with diabetes are not achieving or maintaining acceptable blood sugar levels, despite the availability of current therapies. Exubera meets a critical medical need by offering a highly effective and needle-free alternative to diabetes pills and insulin injections to manage this complicated, debilitating disease. Exubera was launched in Germany and Ireland in May 2006. In the U.S., a comprehensive physician and patient education and training program began on July 24, 2006, and is being rolled out in phases. The manufacturing process for Exubera is extremely complex and we are continuing to build inventory while working at production capacity at the Exubera manufacturing facilities. Initial supplies of Exubera will be available across the U.S. beginning in September 2006. See Part II, Other Information; Item 1, Legal Proceedings, of this Form 10-Q for a discussion of certain recent patent litigation relating to Exubera.

•
Zoloft, which has lost exclusivity in many European markets, experienced a 9% revenue decline in the first six months of 2006 compared to the same period in 2005. It is the most-prescribed antidepressant in the U.S. It is indicated for the treatment of ~~depression,~~major depressive disorder, panic disorder, obsessive-compulsive disorder (OCD) in adults and children, post-traumatic stress disorder (PTSD), premenstrual dysphoric disorder (PMDD) and social anxiety disorder (SAD). Zoloft is approved for acute and long-term use in all of these indications, with the exception of ~~PMDD, and~~PMDD. It is the only approved agent for the long-term treatment of PTSD and SAD, an important differentiating feature as these disorders tend to be chronic. Zoloft lost exclusivity in the U.S. at the end of June 2006. Zoloft was approved in Japan in April 2006 for the indications of depression/depressed state and panic disorder.
Geodon/Zeldox, a psychotropic agent, is a dopamine and serotonin receptor antagonist indicated for the treatment of schizophrenia and acute manic or mixed episodes associated with bipolar disorder. It is available in both an oral capsule and rapid-acting intramuscular formulation. In the U.S., Geodon hit an all-time new prescription share weekly high of 7.3% during June 2006 and is the second-fastest-growing atypical anti-psychotic medication. In the first six months of 2006, total Geodon worldwide sales grew 23% compared to the same period in 2005.
Geodon growth is due to the better understanding by clinicians of its efficacy, increased benefits from optimal dosing, and its favorable metabolic profile, as confirmed by the Clinical Antipsychotic Trials of Intervention Effectiveness (CATIE) trial. The CATIE schizophrenia study, supported by the National Institute of Mental Health and published in the New England Journal of Medicine, confirms that Geodon is an effective anti-psychotic and is less likely to worsen weight, lipids, and glucose metabolism than other agents. In fact, Geodon was associated with some improvement in these metabolic parameters. These findings are noteworthy because of the higher prevalence of metabolic issues among patients with schizophrenia and are consistent with previous Pfizer-sponsored clinical trials involving Geodon.

InThe U.S. Patent and Trademark Office granted a five-year extension to the ~~E.U., the Committee for Human Medicinal Products (CHMP) is conducting a review of 12 antidepressants, including Zoloft, regarding their use in children and adolescents.~~Geodon U.S. patent, extending its exclusivity to 2012.
In the U.S., in February 2005, Pfizer implemented FDA instructions that require the makers of all currently marketed antidepressants, including tricyclic agents, monoamine oxidase (MAO) inhibitors, selective serotonin reuptake inhibitors such as Zoloft, selective norepinephrine reuptake inhibitors and atypical antidepressants, to include a black-box warning that antidepressants increased the risk of suicidal thinking and behavior in children and adolescents in pooled, short-term studies. In the nine completed clinical trials of Zoloft involving children and adolescents, which included studies of Zoloft in children diagnosed with depression, OCD, or both, no suicides occurred. The trials found no statistically significant differences between Zoloft-treated children and adolescents and placebo controls in their rates of suicide attempts or ideation.
•
~~Neurontin,~~ for use in adjunctive therapy for epilepsy, is also approved in more than 60 markets for the treatment of a range of neuropathic pain conditions. Neurontin has also been approved for the management of post-herpetic neuralgia (PHN), a persistent, painful condition that affects many people in the aftermath of the viral infection commonly known as shingles. Neurontin was the first oral medication approved in the U.S. for the treatment of PHN.
In the latter half of 2004, Ivax Corporation (Ivax), Alpharma Inc. (Alpharma) and Teva Pharmaceuticals Industries Ltd. (Teva) launched generic versions of Neurontin (gabapentin) at-risk, despite ongoing patent litigation. We are aggressively pursuing our claims of patent infringement against Ivax, Alpharma, Teva and other generic manufacturers. Following those at-risk launches, we launched generic gabapentin through Greenstone, our U.S. generic pharmaceutical subsidiary. However, the introduction of generic versions of gabapentin caused a 77% reduction in the first six months of 2005 Neurontin sales as compared to the same period in 2004.
•
~~Geodon~~, a psychotropic agent, is a dopamine and serotonin receptor antagonist indicated for the treatment of schizophrenia and acute manic or mixed episodes associated with bipolar disorder. Available in both an oral capsule and rapid-acting intramuscular formulation, Geodon is now launched in 49 countries, where more than five million prescriptions have been written for more than one million patients worldwide. In the U.S., weekly new and total prescription shares for Geodon continue to grow and Geodon is now the second fastest growing atypical antipsychotic, achieving a new market share high of 6.5% for new prescriptions in May 2005.
•
Lyrica achieved $463 million in worldwide revenue in the first six months of 2006. It was approved by the European Commission on March 27, 2006, to treat generalized anxiety disorder (GAD) in adults, thereby providing a new treatment option for the approximately 12 million Europeans living with GAD.

Lyrica was approved by the FDA in June 2005 for adjunctive therapy for adults with partial onset seizures. This ~~latest~~ indication ~~builds~~built on the earlier FDA approval of Lyrica for two of the most common forms of neuropathic ~~pain -- diabetic~~pain--diabetic peripheral neuropathy, a chronic neurologic condition affecting ~~nearly~~about three million Americans, and ~~postherpetic~~post-herpetic neuralgia. Lyrica was launched in the U.S., Canada, and Italy in September 2005 and is now approved in 50more than 60 countries ~~outside~~and is currently available in more than 30 markets. More than 1 million patients have now been prescribed Lyrica since its introduction. Lyrica has already gained a 9.8% new prescription share of the total U.S. ~~In the U.K., Germany, and Mexico, Lyrica is~~anti-epileptic market in June 2006, continuing its performance as one of ~~the~~Pfizer's most successful epilepsy or neuropathic pain launches ever. A regulatory filing has been submitted in the E.U. for use of Lyrica in treatment of generalized anxiety disorder. Pfizer plans to launch Lyrica in the U.S. this fall.pharmaceutical launches.

•
Celebrex and Bextra
Celebrex achieved an 18% increase in worldwide sales in the first six months of 2006 compared to the same period in 2005. In the first half of 2006, Celebrex delivered two consecutive quarters of double-digit sales growth and reached a monthly new prescription share high of 11.1% in June 2006. Strong clinical data continue to support Celebrex as an important medicine for patients with arthritis. The SUCCESS-1 study (Successive Celecoxib Efficacy and Safety Study), recently published in the American Journal of Medicine, showed that people with osteoarthritis who take Celebrex experience significantly fewer gastrointestinal problems than patients who take non-specific non-steroidal anti-inflammatory drugs (NSAIDs).

OnPfizer began to reintroduce branded advertising in the U.S. in April 7,2006 in alignment with our new Direct-to-Consumer (DTC) advertising principles, highlighting Celebrex's strong clinical profile and benefits. In July 2005, the FDA ~~announced~~approved a ~~decision to require boxed warnings~~sixth indication for Celebrex--ankylosing spondylitis--a form of potential cardiovascular risk for all COX-2 pain relievers and all prescription non-steroidal anti-inflammatory drugs (NSAIDs), including older non-specific drugs such as ibuprofen and naproxen. On July 29,spinal arthritis that affects more than one million people in the U.S.
In 2005, ~~Pfizer and the FDA finalized the~~in accordance with decisions by applicable regulatory authorities, we implemented label changes for ~~Celebrex.~~Celebrex in the U.S. and the E.U., and we suspended sales of Bextra in the U.S., E.U., Canada and many other countries. The ~~final~~revised U.S. label for Celebrex contains a boxed warning of potential serious cardiovascular and gastrointestinal risks ~~for Celebrex~~ that ~~will be~~is consistent with warnings for all other prescription ~~NSAIDs.~~NSAIDS. The ~~boxed warning provides that~~revised E.U. label for Celebrex ~~is contraindicated for~~and all other COX-2 medicines includes a restriction on use by patients ~~who recently have undergone coronary artery bypass graft surgery. The label recommends that Celebrex be prescribed at the lowest effective dose for the shortest duration consistent~~ with ~~individual patient treatment goals.~~established heart disease or stroke and additional warnings to physicians regarding use by patients with cardiovascular risk factors. Pfizer is continuing to conduct additional clinical studies evaluating the benefits and risks of Celebrex.
In Pfizer is supporting Cleveland Clinic's 20,000-patient prospective study to definitively evaluate the ~~E.U., in June 2005, the CHMP concluded its COX-2 referral process and recommended that both~~relative safety of Celebrex and ~~Dynastat (parecoxib) remain available to patients. The European Medicines Evaluation Agency (EMEA) has required new labeling for all COX-2 drugs that includes a restriction on use for~~two older pain medications in patients with ~~established~~ heart disease or ~~stroke and additional warnings to physicians regarding use in patients with cardiovascular risk factors.~~
~~Further, the FDA decided that while Bextra's cardiovascular risk could not be differentiated from other NSAIDs, the additional, increased~~at high risk of rare but serious skin reactions associated with Bextra, already described in its label, warranted its withdrawal from the market. In 2004, we recorded $1.3 billion in revenue for Bextra. We respectfully disagree with the FDA's position regarding the relative risk/benefit profile of Bextra. However, in deference to the regulatory agency's view, we suspended sales of the medicine pending further discussions with the FDA. In addition, at the request of European and other regulators, we suspended sales of Bextra in the E.U., Canada and many other markets around the world.heart disease.
In connection with the decision to suspend sales of Bextra in the U.S., E.U., and certain other markets, we recorded certain charges totaling $1.2 billion ($761 million, net of tax) in the first six months of 2005. These pre-tax charges included $1.1 billion related to the impairment of developed technology rights associated with Bextra and $7 million related to the write-off of machinery and equipment, both of which are included in ~~Other (income)/deductions-net~~~~; $56 million in write-offs of inventory and exit costs, included in~~ ~~Cost of sales~~~~; $5 million related to the costs of administering the suspension of sales, included in~~ ~~Selling, informational and administrative expenses;~~ ~~and $173 million, for an estimate of customer returns, primarily included against~~ ~~Revenues.~~ ~~Substantially all of these charges were recorded in the first quarter of 2005.~~
The market for pain relievers has shown considerable change since the withdrawal of Vioxx in September 2004. Sales of Celebrex began to decline in the late 2004. However, following the FDA and EMEA regulatory reviews of these medicines in February 2005, the market for prescription pain relievers indicated lower, but stabilizing levels compared to pre-Vioxx withdrawal levels. We do not expect the additional labeling information for Celebrex to further impact 2005 revenues. Revenues from Celebrex in 2005, prior to the FDA's decision in April 2005, were already expected to be significantly lower than in 2004. In December 2004, we submitted a New Drug Application to the FDA for Dynastat. We plan to continue the regulatory process for this medicine. On July 29, 2005, the FDA approved a new indication for Celebrex for the relief of the signs and symptoms associated with ankylosing spondylitis, a form of arthritis that affects the spine.
•
Zithromax ~~is the world's largest selling antibiotic as well as the leading branded product~~experienced a 66% decline in the U.S. respiratory-infection market. Zithromax is first-line therapy for a number of key indications, including acute exacerbations of chronic bronchitis, community-acquired pneumonia, sinusitis, and otitis media. Zithromax performance was strong in the first six months of 2005, based on its clear benefits as well as an active flu season in the first quarter of 2005.
~~Although Zithromax has experienced patent expirations in certain countries, it retains basic patent protection in the U.S. until November 2005.~~
•
~~Diflucan~~ ~~is a systemic antifungal. The decrease in~~worldwide sales in the first six months of ~~2005~~2006 compared to the same period ~~in 2004 is mainly due to loss~~ of ~~exclusivity~~2005, reflecting the expiration of its composition-of-matter patent in the U.S. in November 2005 and the end of Pfizer's active sales promotion in July ~~2004.~~2005. During the fourth quarter of 2005, four generic versions of oral solid azithromycin were launched, including one authorized generic by Pfizer's Greenstone subsidiary. Through the first six months of 2006, generic azithromycin constituted 97.6% of the total oral solid azithromycin adult prescription volume.
•
Eraxis, an antifungal approved to treat candidemia and other forms of Candida infections (intra-abdominal abscesses and peritonitis), as well as esophageal candidiasis, was launched mid-June 2006 in the U.S. Candidemia is the most deadly of the common hospital-acquired bloodstream infections with a mortality rate of approximately 40%.
•
Viagra remains the leading treatment for erectile dysfunction and one of the world's most recognized pharmaceutical ~~brands. The increase~~brands, with more than 58.9% of U.S. total prescriptions in the erectile dysfunction market through June 2006. Viagra sales declined 5% worldwide in the first six months of ~~2005~~2006 compared to the same period in ~~2004, reflects~~2005. We expect to see continued pressure on sales in the ~~stabilization~~U.S. More than 45 states have either eliminated erectile-dysfunction coverage or have enacted "Preferred Drug Lists" that have the potential to limit Pfizer sales to state Medicaid programs, and Medicare coverage will end in 2007. Effective January 1, 2006, federal funds may not be used for reimbursement of erectile-dysfunction medications by the ~~market after the introduction of two competing products. Viagra maintains a strong leadership position~~Medicaid program.
Pfizer has introduced new branded and unbranded advertising to encourage men with ~~more than 60% of worldwide sales of phosphodiesterase-5 inhibitors for the twelve months ending May 2005.~~erectile dysfunction to talk to their physicians about their condition and specifically about Viagra.

•
Sutent isa breakthrough oral multi-targeted tyrosine kinase inhibitor that combines anti-angiogenic and anti-tumor activity to simultaneously inhibit the blood supply to tumors and directly attack tumor cells. Sutent wasapproved by the FDA in January 2006 for metastatic renal cell carcinoma (mRCC) and gastrointestinal stromal tumors (GIST) and has recorded $52 million in sales worldwide in the first half of 2006. In the five months following approval, Sutent has been prescribed to more than 6,000 patients. Sutent has received accelerated regulatory reviews and earlier-than-anticipated approvals or registration in several countries in Asia and Latin America and is expected to launch in many more markets worldwide over the coming months. On July ~~8, 2005,~~27, 2006, Sutent received conditional marketing authorization for both the ~~FDA~~mRCC and GIST indications in Europe from the European Commission. The conditional approval process is designed to get treatments with favorable benefit/risk profiles for life-threatening indications to target patient populations earlier; final approval is contingent on the provision of additional supportive information. This is the first time the European Commission has approved ~~an update to~~a new oncology drug under the Viagra label to reflect rare post-marketing reports of non-arteritic anterior ischemic optic neuropathy (NAION) in patients taking PDE5 inhibitor medications. The updated label will note that in rare instances, men taking PDE5 inhibitors, including Viagra, reported a sudden decrease or loss of vision in one or both eyes and that it is not possible to determine whether these events are related directly to these medicines, to the patient's underlying vascular risk factors, to a combination of these factors, or other factors. Most of the reported NAION cases occurred in Viagra users with underlying anatomic or vascular risk factors associated with the development of NAION.conditional approval process.

•
Camptosar ~~is a semisynthetic camptothecin derivative that works by inhibiting the topoisomerase 1 enzyme, which is involved in cancer cell replication. Camptosar~~ is indicated as first-line therapy for metastatic colorectal cancer in combination with 5-fluorouracil and leucovorin. It is also indicated as second-line therapy for patients in whom metastatic colorectal cancer has recurred or progressed despite following initial fluorouracil-based therapy. Camptosar is for intravenous use only. Revenue ~~growth of 87%~~ in the first six months of ~~2005~~2006 increased 1% to $450 million compared to the same period in 2005. Among current oncology medications, the National Comprehensive Cancer Network, an alliance of 19 of the world's leading cancer centers, has issued guidelines recommending Camptosar as an option across all lines of treatment for advanced colorectal cancer.
•
Xalatan/Xalacom, a prostaglandin analogue used to lower the intraocular pressure associated with glaucoma and ocular hypertension, is the most-prescribed branded glaucoma medicine in the world. Clinical data showing its advantages in treating intra-ocular pressure compared with beta blockers should support the continued growth of this important medicine. Xalacom, the only fixed combination prostaglandin (Xalatan) and beta blocker, is available primarily in European markets. Xalatan/Xalacom sales grew 2% in the first six months of 2006 compared to the same period in 2005.
•
Zyrtec provides strong, rapid and long-lasting relief for seasonal and year-round allergies and hives with once-daily dosing. Zyrtec continues to be the most-prescribed antihistamine in the U.S. in a challenging market. Sales increased 15% in the first six months of 2006 compared to the same period in 2005. In February 2006, we began a new DTC advertising campaign featuring new insight that allergy symptoms can worsen over time due to exposure to new allergens.
•
Caduet, the first multi-target single pill combining Norvasc and Lipitor, recorded worldwide revenues in the amount of $157 million with a growth rate of 116% for the first six months of 2006 compared to the same period in 2005. Caduet launched in the U.S. in May 2004 and continues to grow at significantly higher rates than the overall U.S. cardiovascular market. Caduet is also available in Mexico, Chile, Brazil, Philippines, Singapore, Malaysia, India, Korea, Canada and most recently, Caduet was ~~impacted~~launched in ~~part by Pfizer's acquisition of marketing rights~~South Africa, Peru and Venezuela. In total, Caduet has now received approvals in 42 markets with drug applications pending in 19 additional markets. During 2006, Caduet is expected to ~~Campto/Camptosar~~launch in ~~Europe~~France, Spain, Austria and ~~Asia (except Japan) in late 2004.~~Turkey.

~~Xalatan/Xalacom,~~ a prostaglandin analogue used to lower the intraocular pressure associated with glaucoma and ocular hypertension, is the most-prescribed branded glaucoma medicine in the world. Clinical data showing its advantages in treating intra-ocular pressure compared with beta blockers should support the continued growth of this important medicine.
~~Zyrtec~~Chantix/Champix, ~~provides strong, rapid and long-lasting relief~~the first new prescription treatment for ~~seasonal and year-round allergies and hives with once-daily dosing. Zyrtec continues~~smoking cessation in nearly a decade, became available to ~~be the most-prescribed antihistamine~~patients in the U.S. in late July 2006. On July 28, 2006, the Committee for Medicinal Products for Human Use (CHMP) issued a ~~challenging market. The increase~~positive opinion recommending that the European Commission grant marketing authorization for Champix in sales in the first six months of 2005 compared to the same period in 2004 is attributable to stabilization in the prescription antihistamine market subsequent to the Rx to OTC switch of loratadine as the majority of the managed care plans have completed their formulary tier changes in this category.Europe.
~~Consumer Healthcare~~
Revenues of our Consumer Healthcare business, which include three additional business days in our fiscal calendar in the first quarter and six months of 2005 compared to the same periods in 2004, follow:

Second Quarter
First Six Months
(millions of dollars)
2005
2004
% Change
2005
2004
% Change

Consumer Healthcare
$
969
$
869
12%
$
1,914
$
1,673
14%
~~The increase in Consumer Healthcare revenues in the second quarter and first six months of 2005, as compared to the same periods in 2004, was attributable to:~~
•
the 16% increase in the second quarter and 18% increase in the first six months of 2005 in sales of Listerine mouthwash, which benefited from the U.S. launches of Listerine Advanced in September 2004 and Listerine Whitening in April 2005, as well as the international roll-out of Listerine Citrus in 2005;
•
~~growth from Sudafed and other upper-respiratory products, Zantac, and tobacco dependence products;~~
•
~~inclusion of sales from the recently acquired Purell brand; and~~
•
~~the favorable impact of the weakening of the U.S. dollar relative to many foreign currencies.~~
Animal Health
Revenues of our Animal Health business ~~which include three additional business days in our fiscal calendar~~ in the ~~first quarter~~three months and six months ~~of 2005~~ended July 2, 2006 compared to the ~~same periods in 2004,~~three months and six months ended July 3, 2005 follow:
Second Quarter
First Six Months
Three Months Ended
Six Months Ended
(millions of dollars)
2005
2004
% Change
2005
2004
% Change
July 2,
2006
July 3,
2005
% Change

July 2,
2006
July 3,
2005
% Change

Livestock products
$
354
$
288
23%
$
657
$
553
19%
$
359
$
354
1%
$
671
$
657
2 %
Companion animal products
224
196
14
416
359
16
224
224
--
423
416
2
Total Animal Health
$
578
$
484
19
$
1,073
$
912
18
$
583
$
578
1
$
1,094
$
1,073
2
The increase in Animal Health revenues in the ~~second quarter~~three months and ~~first~~ six months ~~of 2005,~~ended July 2, 2006, as compared to the same periods in ~~2004,~~2005, was primarily attributable to:
•
in livestock, the continued performance of Draxxin (for treatment of respiratory disease in cattle and swine) in Europe and ~~robust results~~ in the U.S.~~, which benefited from favorable dairy economics, as well as strong sales of Excede (an antimicrobial aimed at treating respiratory disease in beef, non-lactating cattle~~; and ~~swine) launched in the U.S. during the third quarter of 2004;~~

•
in companion animal, ~~increased promotional activities throughout our markets resulted~~the continued good performance of Revolution (a parasiticide for dogs and cats), which had double-digit revenue growth in ~~Rimadyl, Revolution~~the U.S. for both the second quarter and ~~Clavamox growing at double-digit rates for the~~first six months of ~~2005; and~~2006;
partially offset by:

•
a decline in U.S. Rimadyl revenues due to lower than anticipated NSAID market growth and intense branded competition, as well as increased generic competition in the ~~favorable~~European companion animal market; and
•
the unfavorable impact of the ~~weakening~~strengthening of the U.S. dollar relative to many foreign currencies.
~~COSTS AND EXPENSES~~
~~Cost of Sales~~
Cost of sales grew 19% in the second quarter of 2005 and 20% for the first six months of 2005, and increased as a percentage of revenues, as compared with the prior year periods. The primary drivers of these increases were adverse changes in geographic, segment and product mix, and production volume, which reflect the loss of exclusivity of certain major products in the U.S. and lower year-over-year sales of COX-2 products, and the unfavorable impact of foreign exchange. In the first quarter of 2005, we also recorded charges for write-offs of inventory and exit costs related to the suspension of Bextra sales (see Note 2, ~~Asset Impairment Charge and Other Costs Associated with the Suspension of Bextra Sales~~).
~~Cost of sales as a percentage of revenues will remain under pressure throughout the remainder of 2005.~~
~~Selling, Informational and Administrative Expenses~~
Selling, informational and administrative expenses decreased 1% in the second quarter and increased 1% in the first six months of 2005, as compared to the same periods in 2004, reflecting an increase year-over-year in merger-related synergies, partially offset by the unfavorable impact of foreign exchange.
~~Research and Development Expenses~~
Research and development (R&D) expenses increased 3% in the second quarter and 5% in the first six months of 2005, as compared to the same periods in 2004. This was attributable to continued investment to support long-term growth, the advancement of our portfolio and the unfavorable impact of foreign exchange.
Product Developments
We continue to invest in R&D to provide future sources of revenue through the development of new products, as well as through additional uses for existing in-line and alliance products. We have a broad and deep pipeline of medicines in development. However, there are no assurances as to when, or if, we will receive regulatory approval for additional indications for existing products or any of our other products in development.
Certain significant regulatory actions by, and filings pending with, the FDA and other regulatory authorities follow:
Recent FDA Approvals:
Product
Indication

Date Approved

~~Celebrex~~Chantix
~~For the relief of the signs and symptoms associated with ankylosing spondylitis~~Nicotine-receptor partial agonist for smoking cessation
~~July 2005~~May 2006

~~Lyrica~~Genotropin
~~Add-on therapy for adult epilepsy patients with partial onset seizures~~Treatment of short stature and growth problems resulting from Turner's syndrome
~~June 2005~~May 2006

~~Revatio~~Geodon
~~Oral treatment for adult pulmonary arterial hypertension (PAH)~~Liquid oral suspension
~~June 2005~~March 2006

~~Zmax~~Eraxis
~~Single dose version~~Treatment of ~~Zithromax for acute bacterial sinusitis~~candidemia and ~~community-acquired pneumonia.~~invasive candidiasis
~~June 2005~~February 2006
Treatment of esophageal candidiasis
February 2006

~~Zyvox~~Exubera
~~For the treatment~~Inhaled form of ~~bacterial infections~~insulin for use in ~~pediatric patients~~adults with type 1 and type 2 diabetes
~~May 2005~~January 2006

~~Depo-SubQ Provera~~Sutent
~~Subcutaneous formulations to treat endometriosis pain~~Treatment of mRCC and GIST
~~March 2005~~
~~Ellence~~
~~Adjuvant long-term cancer treatment~~
~~March 2005~~January 2006
Pending U.S. New Drug Applications (NDAs) and Supplemental Filings:
Product
Indication

Date Submitted

~~Genotropin~~Celebrex
Juvenile rheumatoid arthritis
June 2006
Lipitor
Secondary prevention of cardiovascular (CV) events in patients with established coronary artery disease (CAD)
May 2006
Fesoterodine
Treatment of ~~short stature and growth problems resulting from Turner's syndrome~~overactive bladder
~~June~~March 2006
Aricept
Treatment of severe Alzheimer's disease
August 2005

Vfend
Pediatric filing
June 2005

~~Indiplon~~Zeven (dalbavancin)
~~Modified-release tablets for treatment~~Treatment of ~~multiple aspects of insomnia~~
~~May 2005~~
~~Immediate-release capsules for treatment of multiple aspects of insomnia~~
~~April 2005~~
~~Exubera~~
~~Inhaled form of insulin for type 1 and type 2 diabetes~~
~~February 2005~~
~~Dynastat~~
~~Injectable prodrug of valdecoxib for acute pain~~Gram-positive bacterial infections
December 2004
We received "not-approvable" letters from the FDA for Oporia for the prevention of post-menopausal osteoporosis in September 2005 and for the treatment of vaginal atrophy in January 2006. We are currently in discussions with the FDA regarding these letters, and we continue to develop Oporia. In March 2006, we received a "not-approvable" letter for Fragmin for use in oncology patients, and we are currently in discussions with the FDA regarding this letter as well. In September 2005, we received a "not-approvable" letter for Dynastat (parecoxib), an injectable prodrug for valdecoxib for the treatment of acute pain. We have had discussions with the FDA regarding this letter, and we are developing plans to seek to address the FDA's concerns
In June 2006, after certain decisions by the FDA, we notified Neurocrine that we are returning the development and marketing rights for indiplon, a medicine in development to treat insomnia, to Neurocrine. This includes both the collaboration to develop and co-market indiplon in the U.S., as well as Pfizer's exclusive license to develop and market indiplon outside of the U.S.
In June 2006, the FDA designated as approvable the NDA for Zeven (dalbavancin). We now anticipate a successful resolution of outstanding issues to allow final FDA approval and launch in 2007.
In the third quarter of 2006, we completed the acquisition of exclusive worldwide rights to the new drug candidate fesoterodine, for treatment of overactive bladder, from Schwarz Pharma AG for approximately $100 million in cash, which will be expensed in the third quarter of 2006. Additional payments of up to $110 million will be payable upon regulatory approvals in the U.S. and Europe and other performance milestones. In March 2006, Schwarz submitted an NDA for fesoterodine with both the FDA and the European Medicines Evaluation Agency (EMEA). Also in the third quarter of 2006, we reached an agreement with Bayer Pharmaceuticals Corporation to acquire exclusive worldwide rights for several compounds for treatment of obesity and diabetes.
~~Aromasin~~
~~Treatment for early breast cancer~~
~~December 2004~~
~~Oporia~~
~~Vaginal atrophy~~
~~December 2004~~
~~Selective estrogen modulator for the prevention of post-menopausal osteoporosis~~
~~August 2004~~
~~Norvasc~~
~~Reduction of cardiovascular risk, including risk of coronary heart disease, myocardial infarction, cardiovascular procedures and strokes~~
~~August 2004~~
~~Fragmin~~
~~Use in oncology patients to reduce cardiac toxicity associated with chemotherapy~~
~~March 2004~~
Other Regulatory Approvals and Filings:
~~Other Regulatory Approvals and Filings:~~
Product
Description of Event
Date Approved
Date Submitted


~~Revatio~~Zmax
Approval in the E.U. for ~~treating PAH~~sustained release form
~~July 2005~~June 2006
--
Lipitor
Approval in the E.U. for primary prevention of CV events in high coronary heart disease risk patients without established CAD
May 2006
--
Sutent
Approval in Canada for GIST
May 2006
--
~~Lyrica~~Aromasin
Approval in Canada for early breast cancer
May 2006
--
Vfend
Approval in Canada for the powder form oral suspension
May 2006
--
Revatio
Approval in Canada for treating pulmonary arterial hypertension
May 2006
--
Zyvox
Approval in Japan for methicillin-resistant staphylococcus aureus
April 2006
--
Zoloft
Approval in Japan for treatment of depression
April 2006
--
Detrol/Detrol LA
Approval in Japan for treatment of overactive bladder
April 2006
--
Celebrex
Submitted in the E.U. for the treatment of ankylosing spondylitis
--
April 2006
Lyrica
Approval in the E.U. for treatment of GAD in adults
March 2006
--
Application submitted in the E.U. for the treatment of broad neuropathic pain
~~June~~--
January 2006
Fesoterodine
Application submitted in the E.U. for treatment of overactive bladder
--
March 2006
Chantix/Champix
Application submitted in Canada for smoking cessation
--
February 2006
Application submitted in the E.U. for smoking cessation^(a)
--
November 2005
Exubera
Approval in the E.U. as an inhaled form of insulin for use in adults with type 1 and 2 diabetes
January 2006
--
Application submitted in Canada as an inhaled form of insulin for use in adults with type 1 and 2 diabetes
--
April 2006

Macugen
Approval in ~~Canada and Brazil~~E.U. for age-related macular degeneration (AMD)
~~May 2005~~January 2006
--
Application submitted in Switzerland for AMD
--
January 2005
Application submitted in ~~the E.U. and~~ Australia for AMD
--
September 2004

~~Fragmin~~Sutent
~~Approval in the E.U. for treatment of deep vein thrombosis in cancer patients~~
~~April 2005~~
--
~~Vfend~~
~~Approval in Japan for treatment of aspergillosis~~
~~April 2005~~
--
~~Approval for treatment of serious, invasive, fluconazole-resistant candida infections and first-line treatment of candidemia in non-neutropenic patients was granted in the E.U.~~
~~January 2005~~
--
~~Geodon~~
Application submitted in the E.U. for ~~treating manic bipolar disorder~~mRCC and GIST^(b)
--
August 2005
Application submitted in Canada for mRCC
--
December ~~2004~~2005
--
Somavert
Application submitted in Japan for acromegaly
--
May 2005

Genotropin
Application submitted in Japan for treatment of short stature and growth problems
--
July 2004
~~Neurontin~~^(a)
~~Application submitted~~On July 28, 2006, the CHMP issued a positive opinion recommending that the European Commission grant marketing authorization for Champix in ~~Japan for epilepsy~~
--
~~April 2004~~Europe.
~~Exubera~~^(b)
~~Application submitted~~On July 27, 2006, Sutent received conditional marketing authorization for both the mRCC and GIST indications in Europe from the ~~E.U. as an inhaled form~~European Commission. The conditional approval process is designed to get treatments with favorable benefit/risk profiles for life-threatening indications to target patient populations earlier; final approval is contingent on the provision of ~~insulin for type 1 and type 2 diabetes~~
--
~~February 2004~~additional supportive information. This is the first time the European Commission has approved a new oncology drug under the conditional approval process.
Ongoing or planned clinical trials for additional uses and dosage forms for our products include:
Product
Indication

~~Celebrex~~
~~Sporadic adenomatous polyposis - a precancerous condition caused by growths (polyps) in the intestines~~
~~Cardiovascular benefits in osteoarthritis patients at high cardiovascular risk~~
Camptosar IV
Adjuvant colorectal cancer ~~in patients with liver metastasis~~
Gastric cancer

~~Xalatan (new~~
~~delivery device)~~Geodon/Zeldox
~~Ocular~~Bipolar relapse prevention, bipolar pediatric
Lyrica
Fibromyalgia, generalized anxiety disorder
Sutent
Breast cancer
Revatio
Pediatric pulmonary arterial hypertension
Macugen
Diabetic macular edema
Zyvox
Catheter-related infections
Bone and joint infections
Drug candidates in late-stage development include Sutent, or SU-11248, an angiogenesis inhibitor for treatment of gastrointestinal stromal tumors and metastatic renal cell carcinoma; varenicline, a nicotine-receptor partial agonist for smoking cessation; maraviroc (UK-427,857), a CCR-5 receptor antagonist for HIV; torcetrapib/atorvastatin, a combination CETP inhibitor/statin for heart disease; asenapine, for schizophrenia and bipolar disorder, under co-development with Akzo Nobel's Organon healthcare unit; ~~and~~ Zithromax/chloroquine for treatment of ~~malaria. The Company anticipates filing~~malaria; PF-3512676, a toll-like receptor 9 agonist for non-small cell lung cancer developed in partnership with Coley Pharmaceutical Group, Inc.; and CP-675,206, an ~~NDA with the FDA~~anti-CTLA4 monoclonal antibody for ~~Sutent in August 2005.~~melanoma. The FDA has granted fast-track designation for maraviroc's clinical development program. ~~Pfizer has entered into an agreement to acquire Vicuron Pharmaceuticals, a company with two promising anti-infectives in regulatory review. The transaction is subject to normal closing conditions.~~
Torcetrapib/atorvastatin, ~~a fixed combination of~~which combines the new chemical entity torcetrapib (a CETP inhibitor discovered by Pfizer that raises ~~HDL-cholesterol)~~HDL cholesterol) with atorvastatin (Lipitor), iscontinuing in global Phase 3 clinical trials. This comprehensive 12,000-subject ~~Phase 3~~development program includes three comparative atherosclerotic imaging trials ~~(coronary~~(a coronary intravascular ultrasound study and two carotid ~~ultrasound)~~ultrasound studies), as well as a full range of blood-lipid efficacy studies comparing torcetrapib/atorvastatin to Lipitor, other statins and fibrates. ~~The~~We anticipate completion of the three ongoing imaging trials by the end of this year. Assuming that we see the expected improvements over the comparative agent (Lipitor) in these imaging studies, we plan to file the torcetrapib/atorvastatin NDA in 2007.
In addition to these Phase 3 studies, the development program ~~is also enrolling 13,000 patients in~~includes a definitive mortality and morbidity ~~trial.~~trial that is enrolling 15,000 patients.
Despite effective treatments, cardiovascular disease remains the number one killer ~~worldwide. The~~worldwide with a residual relative risk of 60% to 70% after treatment with statins. Therefore, the primary objective of the torcetrapib/atorvastatin development program is to provide clear evidence ~~of the cardiovascular benefits of~~that substantially raising ~~HDL-cholesterol~~HDL cholesterol and further lowering ~~of LDL-cholesterol over the established clinical benefits of LDL-cholesterol lowering provided by Lipitor alone.~~LDL cholesterol can reduce cardiovascular risk beyond what can be achieved with current treatments. Torcetrapib is being ~~initially~~ developed ~~in fixed combination~~ with atorvastatin ~~for scientific, medical, regulatory, business,~~in order to rigorously test this hypothesis and ~~ethical reasons.~~the new CETP inhibition mechanism of action. This development program represents a major commitment by Pfizer to significantly advance the understanding of lipids and atherosclerosis in order to provide an important new tool for patients and prescribers in preventing and treating the global burden of cardiovascular ~~disease~~.
~~The clinical~~disease. In addition to the torcetrapib/atorvastatin development program, ~~for the selective cytotoxic agent edotecarin was terminated in the first quarter of 2005; development rights for edotecarin were returned~~Pfizer plans to ~~Banyu Pharmaceuticals, Inc.~~
Pfizer's participation in the clinical development programs for capravirine, a non-nucleoside reverse transcriptase inhibitor for HIV, and Daxas, a phosphodiesterase-4 inhibitor for chronic obstructive pulmonary disease and asthma, was terminated in the second quarter 2005; development rights were returneddevelop torcetrapib as concurrent therapy to ~~Shiongi & Co. Ltd and Altana Pharma, Inc. respectively.~~be used with other statins or lipid-lowering medications.
Additional product-related programs are in various stages of discovery and development.
Recent Collaborations:
We have entered into promising research collaborations with NicOx S.A. in ophthalmic disorders, NOXXON Pharma AG in obesity, and Incyte Corporation for CCR2 antagonists for use in a broad range of diseases.
COSTS AND EXPENSES
Cost of Sales
Cost of sales increased 2% and decreased 5% in the three months and six months ended July 2, 2006 as compared to the same periods in 2005. Cost of sales as a percentage of revenues decreased in the three months and six months ended July 2, 2006 as compared to the same periods in 2005. The decrease reflects a favorable geographic mix, representing a greater portion of sales in the U.S.; operational efficiencies, reflecting savings related to our AtS productivity initiative; the favorable impact on expenses of foreign exchange; as well as the impact in the prior-year period of inventory write-offs of $56 million related to the suspension of Bextra sales, partially offset by higher costs related to our AtS productivity initiative.
Selling, Informational and Administrative Expenses
Selling, informational and administrative expenses increased 3% and decreased 2% in the three months and six months ended July 2, 2006, as compared to the same periods in 2005. The increase in the three months ended July 2, 2006 reflected higher costs related to our AtS productivity initiative and expenses related to share-based payments, partially offset by savings related to our AtS productivity initiative and the favorable impact on expenses of foreign exchange. The decrease in the six months ended July 2, 2006 reflected savings related to our AtS productivity initiative and the favorable impact on expenses of foreign exchange.
Research and Development Expenses
R&D expenses decreased 5% and 7% in the three months and six months ended July 2, 2006, as compared to the same periods in 2005, reflecting savings related to our AtS productivity initiative, a R&D milestone due to us from sanofi-aventis (approximately $118 million, pre-tax, in the first quarter of 2006) and the favorable impact on expenses of foreign exchange.
Merger-Related In-Process Research and Development Charges
The estimated fair value of ~~merger-related~~ Merger-related in-process research and development ~~charge~~scharges (IPR&D) is expensed at acquisition date. In ~~2005, we expensed~~2006, IPR&D of $513 million, pre-tax, was recorded in the second quarter and first six months of 2006 primarily related to our acquisition of Rinat on May 16, 2006, as compared to $262 million, pre-tax, recorded in the first six months of ~~IPR&D,~~2005, which primarily related to our acquisition of Idun Pharmaceuticals, Inc. on April 12, 2005. ~~In 2004, we expensed $955 million of IPR&D, primarily related to our acquisition of Esperion Therapeutics, Inc. on February 10, 2004.~~
Adapting to Scale Initiative
~~We recently~~In connection with the AtS productivity initiative, which was launched ~~a company-wide initiative, called Adapting to Scale (AtS), which involves~~in early 2005, Pfizer management has performed a comprehensive review of our processes, organizations, systems and ~~decision making. In the second quarter of 2005,~~decision-making procedures, in ~~connection with this AtS initiative, we incurred~~a company-wide effort to improve performance and ~~paid approximately $21 million in restructuring charges, primarily related~~efficiency. We continue to ~~employee termination costs at our manufacturing facilities located in North America. We also incurred and paid approximately $33 million in implementation costs, included in~~ ~~Cost of sales~~ ~~($1 million),~~ ~~Selling, informational and administrative expenses~~ ~~($21 million) and~~ ~~Research and development expenses~~ ~~($11 million), primarily related to system and process standardization and the expansion of shared services.~~
~~We now~~ expect the costs associated with this multi-year effort to continue through 2008 and to total approximately $4 billion to $5 billion, on a pre-tax basis. ~~These costs~~We continue to expect that cost savings from our AtS productivity initiative will be in excess of $2 billion in 2006, growing to about $4 billion annually upon completion in 2008, notwithstanding the planned divestiture of our Consumer Healthcare business and the expense reductions associated with that business. Savings realized during the second quarter and first six months of 2006 total approximately $500 million and $1 billion, respectively. The actions associated with the AtS productivity initiative will include restructuring charges, such as asset impairments, exit costs and severance costs (including any related impacts to our benefit plans, including settlements and curtailments) and associated implementation costs, such as accelerated depreciation charges, primarily associated with plant network optimization efforts, and expenses associated with system and process standardization and the expansion of shared ~~services. Restructuring charges are included~~services (see Notes to the Condensed Consolidated Financial Statements - Note 6, Adapting to Scale Productivity Initiative).
We incurred the following costs in ~~Restructuring charges and merger-related costs~~ ~~and implementation costs are included in~~ ~~Cost of sales~~, ~~Selling, informational and administrative expenses~~ or ~~Research and development expenses, as appropriate.~~connection with our AtS productivity initiative:

Three Months Ended
Six Months Ended
(millions of dollars)
July 2,
2006
July 3,
2005
July 2,
2006
July 3,
2005

Implementation costs^(a)
$
180
$
33
$
365
$
33
Restructuring charges^(b)
262
21
556
21
Total AtS costs
$
442
$
54
$
921
$
54
^(a)
Included in Cost of sales ($104 million), Selling, informational and administrative expenses ($58 million), Research and developmentexpenses ($40 million) and in Other (income)/deductions - net ($22 million income) for the three months ended July 2, 2006 and included in Cost of sales ($228 million), Selling, informational and administrative expenses ($97 million), Research and developmentexpenses ($62 million) and in Other (income)/deductions - net ($22 million income) for the six months ended July 2, 2006. Included in Cost of sales ($1 million), Selling, informational and administrative expenses ($21 million), and Research and developmentexpenses ($11 million) for the three months and six months ended July 3, 2005.
^(b)
Included in Restructuring charges and merger-related costs.
Merger-Related Costs
In connection with acquisitions, we typically restructure and integrate the operations of the acquired companies to eliminate duplicative facilities and reduce costs. In certain instances, legacy Pfizer operations may be impacted by restructuring actions.
We incurred the following merger-related ~~costs primarily in connection with our acquisition of Pharmacia, which was completed on April 16, 2003:~~costs:
Three Months Ended
Six Months Ended
Three Months Ended
Six Months Ended
(millions of dollars)
July 3,
2005
June 27,
2004
July 3,
2005
June 27,
2004
July 2,
2006
July 3,
2005
July 2,
2006
July 3,
2005

Integration costs
$
191
$
150
$
297
$
254
$
3
$
191
$
5
$
293
Restructuring costs
58
139
171
282
Total merger-related costs - expensed
$
249
$
289
$
468
$
536
Restructuring charges
3
52
6
166
Total merger-related costs^(a)
$
6
$
243
$
11
$
459
In connection with the acquisition of Pharmacia, Pfizer management approved plans to restructure and integrate the operations of both legacy Pfizer and legacy Pharmacia to combine operations, eliminate duplicative facilities and reduce costs. The restructuring of our operations as a result of our acquisition of Pharmacia is expected to continue through 2005 and includes consulting, systems integrations,
^(a)
Included in Restructuring charges and merger-related costs. Amounts in 2005 primarily relate to our acquisition of Pharmacia Corporation (Pharmacia), which was completed on April 16, 2003.
Restructuring charges included severance, costs of vacating duplicative facilities, contract termination and other exit costs. Total merger-related expenditures expected to be incurred during 2003-2005 to achieve anticipated synergies are about $6 billion, on a pre-tax basis, with $5.3 billion incurred through July 3, 2005. The remaining costs expected to be incurred are primarily associated with asset impairments, exit costs and employee terminations. The integration of Warner-Lambert and Pharmacia is expected to result in a combined expense reduction of $6 billion in 2005, inclusive of $4.2 billion of Pharmacia-related synergies that are expected to be achieved this year.
Through April 15, 2004, we recorded restructuring costs associated with employee terminations and exiting certain activities of legacy Pharmacia as liabilities assumed in the purchase business combination and recorded an increase to goodwill. Changes to previous estimates of restructuring costs included as part of the purchase allocation of Pharmacia are recorded as a reduction to goodwill or an expense to operations, as appropriate. Restructuring costs incurred for legacy Pfizer and restructuring costs incurred after April 15, 2004 for legacy Pharmacia are charged to the results of operations.
~~The components of merger-related restructuring costs associated with legacy Pfizer and legacy Pharmacia follow:~~
(millions of dollars)
Total
Utilization
Through
July 3,
2005
^(a)
Accrual at
July 3,
2005
^(b)

Costs capitalized through April 15, 2004:
Employee termination costs
$
1,535
$
1,499
$
36
Other
624
498
126
$
2,159
$
1,997
$
162
Costs expensed:
Employee termination costs
$
589
$
482
$
107
Asset impairments
368
368
--
Other
89
57
32
$
1,046
$
907
$
139
^(a)
~~Includes insignificant adjustments to original amounts established.~~
^(b)
~~Included in~~ ~~Other current liabilities.~~
~~During the first six months of 2005, we expensed $72 million for~~ ~~Employee termination costs,~~ ~~$78 million for~~ ~~Asset impairments~~ ~~and $15 million in~~ ~~Other.~~ ~~Through July 3, 2005,~~ ~~Employee termination costs~~ represent the approved reduction of the legacy Pfizer and legacy Pharmacia work force by 17,030 employees, mainly in corporate, manufacturing, distribution, sales and research. We notified affected individuals and 15,901 employees were terminated as of July 3, 2005. ~~Employee termination costs~~ ~~include accrued severance benefits and costs associated with change-in-control provisions of certain Pharmacia employment contracts.~~ ~~Asset impairments~~ ~~primarily include charges to write down property, plant and equipment.~~ ~~Other~~ ~~primarily includes costs to exit certain activities of legacy Pfizer and legacy Pharmacia.~~
Other (Income)/Deductions - Net
In the first six ~~months~~month of 2005, we recorded impairment charges of $1.1 billion related to the developed technology rights for Bextra, a ~~COX-2-selective~~selective COX-2 inhibitor, and $7 million related to the write-off of machinery and equipment, ~~(see Note 2,~~ ~~Asset Impairment Charge and Other Costs Associated with the Suspension of Bextra Sales~~), both of which are included in Other (income)/deductions - net.
~~In addition, in connection with the suspension of Bextra sales, we recorded $56 million in write-offs of inventory and exit costs, included in~~ ~~Cost of sales~~~~; $5 million related to the costs of administering the suspension of sales, included in~~ ~~Selling, informational and administrative expenses;~~ ~~and $173 million, for an estimate of customer returns, primarily included against~~ ~~Revenues.~~ Substantially all of these charges were recorded in the first quarter of 2005.
PROVISION/(BENEFIT)~~/PROVISION~~ FOR TAXES ON INCOME
InOn January 25, 2006, the Company was notified by the Internal Revenue Service (IRS) Appeals Division that a resolution had been reached on the matter that we were in the process of appealing related to the tax deductibility of a breakup fee paid by the Warner-Lambert Company in 2000. As a result, in the first ~~six months~~quarter of ~~2005,~~2006 we recorded ~~an income~~a tax ~~charge~~benefit of ~~$1.7 billion, included in~~ ~~(Benefit)/provision for taxes~~approximately $441 million related to the resolution of this issue.
On January 23, 2006, the IRS issued final regulations on ~~income~~~~, in connection with our decision to repatriate about $36.7 billion of foreign earnings in accordance with the~~ ~~American Jobs Creation Act of 2004~~ ~~(the Jobs Act).~~Statutory Mergers and Consolidations, which impacted certain prior-period transactions. In the first quarter of ~~2005,~~2006, we recorded ~~an initial estimated income~~a tax ~~charge~~benefit of ~~$2.2 billion based on~~$217 million, reflecting the ~~decision to repatriate $28.3 billion~~total impact of foreign earnings. In the second quarter of 2005, we reduced our original estimate of the tax charge by $863 million and revised the repatriation of foreign earnings to $28.1 billion, principally as a result of guidance issued by the U.S. Treasury in May 2005. In the second quarter of 2005, we also recorded an additional tax charge of $373 million, primarily due to our decision to repatriate an additional $8.6 billion of foreign earnings.these regulations.
In the second quarter of 2005, we recorded a tax benefit of $586 million primarily related to the resolution of certain tax positions.
Our effective tax rate for continuing operations was ~~37.2%~~14.3% for the first six months of ~~2005~~2006 compared to ~~21.2%~~37.4% in the same period in ~~2004.~~2005. The ~~increase~~lower tax rate for the first six months of 2006 is primarily due to tax benefits related to the resolution of the tax matter and the change in ~~the effective~~tax regulations as discussed above. The higher tax rate for the first six months of 2005 is primarily due to the ~~previously mentioned tax~~recording of a $1.7 billion charge ~~associated with the repatriation of~~related to our decision to repatriate certain foreign earnings under the American Jobs Creation Act of 2004 (the Jobs Act). (See Notes to Condensed Consolidated Financial Statements--Note 8, Taxes on Income).
DISCONTINUED OPERATIONS - NET OF TAX
In June 2006, we entered into an agreement to sell our Consumer Healthcare business and this business has been presented as a ~~$262 million non-deductible charge~~discontinued operation. The increase in pre-tax income for ~~IPR&D,~~discontinued operations of 19% and 9% for the ~~most part relating~~three months and six months ended July 2, 2006 compared to ~~our acquisition of Idun Pharmaceuticals Inc., partially offset by~~ the ~~tax benefit of $586 million~~same periods in 2005 is primarily due to pre-tax losses from discontinued operations in 2005 related to certain European generics businesses, our in-vitro allergy and autoimmune diagnostics testing, and surgical ophthalmics, as well as femhrt women's health product lines, while pre-tax income from our Consumer Healthcare business increased 10% and decreased 2% for the ~~resolution of certain tax positions. Income taxes in the first~~three months and six months ~~of 2004 were impacted by a $955 million non-deductible charge for IPR&D, primarily relating~~ended July 2, 2006, compared to ~~our acquisition of Esperion.~~
~~As of July 3, 2005, we intend to continue to reinvest~~ the ~~earnings of our international subsidiaries and, therefore, we have not recorded a U.S. tax provision on the remaining amount of unremitted earnings.~~same periods in 2005.
ADJUSTED INCOME
General Description of Adjusted Income Measure
Adjusted income is an alternative view of performance used by management and we believe that investors' understanding of our performance is enhanced by disclosing this performance measure. The Company reports Adjusted income in order to portray the results of our major operations--the discovery, development, manufacture, marketing and sale of prescription medicines for humans and ~~animals, as well as our over-the-counter products--prior~~animals--prior to considering certain income statement elements. We have defined Adjusted income as Net income before ~~discontinued operations,~~ significant impact of purchase accounting for acquisitions, merger-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.
The Adjusted income measure is an important internal measurement for Pfizer. We measure the performance of the overall Company on this basis. The following are examples of how the Adjusted income measure is utilized.
•
Senior management receives a monthly analysis of the operating results of our Company that is prepared on an Adjusted income basis;

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

•
Annual and long-term compensation, including annual cash bonuses, merit-based salary adjustments and stock options, for various levels of management, is based on financial measures that include Adjusted income. The Adjusted income measure currently represents a significant portion of target objectives that are utilized to determine the annual compensation for various levels of management, although the actual weighting of the objective may vary by level of management and job responsibility and may be considered in the determination of certain long-term compensation plans. The portion of senior management's bonus, merit-based salary increase and stock option awards based on the Adjusted income measure ranges from 10% to 30%.
Despite the importance of this measure to management in goal setting and performance measurement, we stress that Adjusted income is a non-GAAP financial measure that has no standardized meaning prescribed by U.S. GAAP and, therefore, has limits in its usefulness to investors. Because of its non-standardized definition, Adjusted income (unlike U.S. GAAP Net income) may not be comparable with the calculation of similar measures for other companies. Adjusted income is presented solely to permit investors to more fully understand how management assesses the performance of our Company.
We also recognize that, as an internal measure of performance, the Adjusted income measure has limitations and we do not restrict our performance-management process solely to this metric. A limitation of the Adjusted income measure is that it provides a view of our Company's operations without including all events during a period such as the effects of an acquisition, merger-related costs or amortization of purchased intangibles and does not provide a comparable view of our performance to other companies in the pharmaceutical industry. We also use other specifically tailored tools designed to ensure the highest levels of performance in our Company. For example, our R&D organization has productivity targets, upon which its effectiveness is measured. In addition, for senior levels of management, a portion of their long-term compensation is based on U.S. GAAP Net income.
Purchase Accounting Adjustments
Adjusted income is calculated prior to considering certain significant purchase-accounting impacts, such as those related to our acquisitions of Pharmacia, Rinat, Idun, and ~~Esperion~~sanofi-aventis' rights to Exubera, as well as ~~net-asset~~net asset acquisitions. These impacts can include charges for purchased in-process ~~research and development,~~R&D, the incremental charge to cost of sales from the sale of acquired inventory that was written up to fair value and the incremental charges related to the amortization of finite-lived intangible assets for the increase to fair value. Therefore, the Adjusted income measure includes the revenues earned upon the sale of the acquired products without considering the aforementioned significant charges.
Certain of the purchase-accounting adjustments associated with a business combination, such as the amortization of intangibles acquired in connection with our acquisition of Pharmacia, can occur for up to 40 years (these assets have a weighted-average useful life of approximately 10nine years), but this presentation provides an alternative view of our performance that is used by management to internally assess business performance. We believe the elimination of amortization attributable to acquired intangible assets provides management and investors an alternative view of our business results by trying to provide a degree of parity to internally developed intangible assets for which research and development costs have been previously expensed.
However, a completely accurate comparison of internally developed intangible assets and acquired intangible assets cannot be achieved through Adjusted income. This component of Adjusted income is derived solely with the impacts of the items listed in the first paragraph of this section. We have not factored in the impacts of any other differences in experience that might have occurred if Pfizer had discovered and developed those intangible assets on its own and this approach does not intend to be representative of the results that would have occurred in those circumstances. For example, our research and development costs in total, and in the periods presented, may have been different; our speed to commercialization and resulting sales, if any, may have been different; or our costs to manufacture may have been different. In addition, our marketing efforts may have been received differently by our customers. As such, in total, there can be no assurance that our Adjusted income amounts would have been the same as presented had Pfizer discovered and developed the acquired intangible assets.
Merger-Related Costs
Adjusted income is calculated prior to considering integration and restructuring costs associated with business combinations because these costs are unique to each transaction and represent costs that were incurred to restructure and integrate ~~two~~ businesses as a result of the acquisition decision. For additional clarity, only restructuring and integration activities that are associated with a purchase business combination or a net-asset acquisition are included in merger-related costs. We have not factored in the impacts onof synergies that would have resulted had these costs not been incurred.
We believe that viewing income prior to considering these charges provides investors with a useful additional perspective because the significant costs incurred in a business combination result primarily from the need to eliminate duplicate assets, activities or employees--a natural result of acquiring a fully integrated set of activities. For this reason, we believe that the costs incurred to convert disparate systems, to close duplicative facilities or to eliminate duplicate positions (for example, in the context of a business combination) can be viewed differently from those costs incurred in other, more normal business contexts.
The integration and restructuring costs associated with a business combination may occur over several years with the more significant impacts ending within three years of the transaction. Because of the need for certain external approvals for some actions, the span of time needed to achieve certain restructuring and integration activities can be lengthy. For example, due to the highly regulated nature of the pharmaceutical business, the closure of excess facilities can take several years as all manufacturing changes are subject to extensive validation and testing and must be approved by the FDA. In other situations, we may be required by local laws to obtain approvals prior to terminating certain employees. This approval process can delay the termination action.
Discontinued Operations
Adjusted income is calculated prior to considering the results of operations included in discontinued operations, such as our Consumer Healthcare business which we have agreed to sell, as well as any related gains or losses on the sale of ~~businesses and product lines included in discontinued operations as well as the related results of~~such operations. We believe that this presentation is meaningful to investors because, while we review our businesses and product lines ~~on an ongoing basis~~periodically for strategic fit with our operations, we do not build or run our businesses with an intent to sell them.
Certain Significant Items
Adjusted income is calculated prior to considering certain significant items. Certain significant items represent substantive, unusual items that are evaluated on an individual basis. Such evaluation considers both the quantitative and the qualitative aspect of their unusual nature. Unusual, in this context, may represent items that are not part of our ongoing business; items that, either as a result of their nature or size, we would not expect to occur as part of our normal business on a regular basis; items that would be non-recurring; or items that relate to products we no longer sell. While not all-inclusive, examples of items that could be included as certain significant items would be a major non-acquisition-related restructuring charge and associated implementation costs for a program which is specific in nature with a defined term, such as those related to our ~~recently announced Adapting to Scale~~AtS productivity initiative; costs associated with a significant recall of one of our products; charges related to sales or disposals of products or facilities that do not qualify as discontinued operations as defined by U.S. GAAP; certain intangible asset impairments; adjustments related to the resolution of certain tax positions; the impact of adopting certain significant, event-driven tax legislation, such as charges attributable to the repatriation of foreign earnings in accordance with the Jobs Act; or possible charges related to legal matters, such as certain of those discussed in Legal Proceedings in our Form 10-K and in Part II: Other Information; Item 1, Legal Proceedings included in our Form 10-Q filings. Normal, ongoing defense costs of the Company or settlements and accruals on legal matters made in the normal course of our business would not be considered a certain significant item.
Reconciliation
A reconciliation between Net income, as reported under U.S. GAAP, and Adjusted income follows:
Second Quarter
First Six Months
Three Months Ended
Six Months Ended
(millions of dollars)
2005
2004
% Incr./
(Decr.)
2005
2004
% Incr./
(Decr.)
July 2,
2006
July 3,
2005
% Incr./
(Decr.)

July 2,
2006
July 3,
2005
% Incr./
(Decr.)

Reported Net income
$
3,463
$
2,863
21%
$
3,763
$
5,195
(28)%
Discontinued operations - net of tax
9
(19)
*
(19)
(32)
(38)
Reported net income
$
2,415
$
3,463
(30)%
$
6,526
$
3,763
73%
Purchase accounting adjustments - net of tax
816
523
56
1,438
2,036
(29)
1,085
815
33
1,666
1,436
16
Merger-related costs - net of tax
178
224
(20)
330
351
(6)
2
172
(99)
5
320
(98)
Discontinued operations - net of tax
(125)
(88)
43
(230)
(232)
--
Certain significant items - net of tax
(1,042)
20
*
1,913
40
M+
286
(1,042)
(127)
46
1,913
(98)
Adjusted income
$
3,424
$
3,611
(5)
$
7,425
$
7,590
(2)
$
3,663
$
3,320
10
$
8,013
$
7,200
11

*
~~Calculation not meaningful.~~
M+
~~Change greater than one-thousand percent.~~
Certain amounts and percentages may reflect rounding adjustments.
Adjusted income as shown above excludes the following items:
Second Quarter
First Six Months
Three Months Ended
Six Months Ended
(millions of dollars)
2005
2004
2005
2004
July 2,
2006
July 3,
2005

July 2,
2006
July 3,
2005

Discontinued operations, pre-tax:
Loss/(income) from discontinued operations^(a)
$
14
$
(25)
$
33
$
(45)
Gains on sales of discontinued operations^(a)
--
(3)
(65)
(3)
Total discontinued operations pre-tax
14
(28)
(32)
(48)
Income taxes
(5)
9
13
16
Total discontinued operations - net of tax
9
(19)
(19)
(32)
Purchase accounting adjustments, pre-tax:
In-process research and development charges^(b)
260
--
262
955
Intangible amortization and other^(c)
828
820
1,683
1,623
In-process research and development charges^(a)
$
513
$
260
$
513
$
262
Intangible amortization and other^(b)
801
826
1,611
1,680
Total purchase accounting adjustments, pre-tax
1,088
820
1,945
2,578
1,314
1,086
2,124
1,942
Income taxes
(272)
(297)
(507)
(542)
(229)
(271)
(458)
(506)
Total purchase accounting adjustments - net of tax
816
523
1,438
2,036
1,085
815
1,666
1,436
Merger-related costs, pre-tax:
Integration costs^(d)
191
150
297
254
Restructuring costs^(d)
58
139
171
282
Integration costs^(c)
3
191
5
293
Restructuring charges^(c)
3
52
6
166
Total merger-related costs, pre-tax
249
289
468
536
6
243
11
459
Income taxes
(71)
(65)
(138)
(185)
(4)
(71)
(6)
(139)
Total merger-related costs - net of tax
178
224
330
351
2
172
5
320
Discontinued operations, pre-tax:
Income from discontinued operations^(d)
(160)
(134)
(315)
(290)
Gains on sales of discontinued operations^(d)
(26)
--
(31)
(65)
Total discontinued operations, pre-tax
(186)
(134)
(346)
(355)
Income taxes
61
46
116
123
Total discontinued operations - net of tax
(125)
(88)
(230)
(232)
Certain significant items, pre-tax
Asset impairment charges and other costs associated with the suspension of selling Bextra^(e)
--
--
1,213
--
Operating results of divested legacy Pharmacia research facility^(f)
--
32
--
64
Restructuring charges--Adapting to Scale^(d)
21
--
21
--
Implementation costs--Adapting to Scale^(g)
33
--
33
--
Asset impairment charges ^(e)
--
--
--
1,213
Sanofi-aventis research and development milestone^(f)
--
--
(118)
--
Restructuring charges - Adapting to Scale^(c)
262
21
556
21
Implementation costs - Adapting to Scale^(g)
180
33
365
33
Gain on disposals of investments and other^(h)
(23)
--
(74)
--
Total certain significant items, pre-tax
54
32
1,267
64
419
54
729
1,267
Income taxes
(20)
(12)
(467)
(24)
(133)
(20)
(242)
(467)
Resolution of certain tax positions^(h)
(586)
--
(586)
--
Tax impact of the repatriation of foreign earnings^(h)
(490)
--
1,699
--
Resolution of certain tax positions⁽ⁱ⁾
--
(586)
(441)
(586)
Tax impact of the repatriation of foreign earnings⁽ⁱ⁾
--
(490)
--
1,699
Total certain significant items - net of tax
(1,042)
20
1,913
40
286
(1,042)
46
1,913
Total discontinued operations, purchase accounting adjustments, merger-related costs and certain significant items - net of tax

$
(39)
$
748
$
3,662
$
2,395
Total purchase accounting adjustments, merger-related costs, discontinued operations and certain significant items - net of tax

$
1,248
$
(143)
$
1,487
$
3,437

^(a)
~~Included in~~ ~~Discontinued operations - net of tax.~~
^(b)
Included in Merger-related in-process research and development charges.
^(c)(b)
Included primarily in Amortization of intangible assets.
^(d)(c)
Included in Restructuring charges and merger-related costs.
^(d)
Discontinued operations - net of tax includes $109 million and $97 million related to the Consumer Healthcare business for the three months ended July 2, 2006 and July 3, 2005 and $211 million and $213 million for the six months ended July 2, 2006 and July 3, 2005. These amounts do not include a substantial prospective gain on the planned divestiture.
(e)
Included in Cost of sales ($56 million), Selling informational and administrative expenses ($5 million) andOther (income)/deductions - net($ ($1.2 billion). for the six months ended July 3, 2005.
^(f)
Included in Research and development ~~expenses.~~expenses.
^(g)
Included in Cost of sales ($104 million), Selling, informational and administrative expenses ($58 million), Research and developmentexpenses ($40 million) and in Other (income)/deductions - net ($22 million income) for the three months ended July 2, 2006 and included in Cost of sales ($228 million), Selling, informational and administrative expenses ($97 million), Research and developmentexpenses ($62 million) and in Other (income)/deductions - net ($22 million income) for the six months ended July 2, 2006. Included in Cost of sales ($1 million), Selling, informational and administrative expenses ($21 million), and Research and development expenses ($11 million). for the three months and six months ended July 3, 2005.
^(h)
Included in ~~(Benefit)~~Other (income)/~~provision~~deductions - net.
(i)
Included in Provision/(benefit) for taxes on income.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Net Financial ~~Asset Position~~Assets
Our net financial asset position follows:
(millions of dollars)
July 3,
2005
Dec. 31,
2004
July 2,
2006
Dec. 31,
2005

Financial assets:
Cash and cash equivalents
$
1,276
$
1,808
$
1,921
$
2,247
Short-term investments
13,293
18,085
12,829
19,979
Short-term loans
513
653
511
510
Long-term investments and loans
3,247
3,873
2,387
2,497
Total financial assets
18,329
24,419
17,648
25,233
Debt:
Short-term borrowings
7,261
11,266
3,779
11,589
Long-term debt
5,517
7,279
5,450
6,347
Total debt
12,778
18,545
9,229
17,936
Net financial assets
$
5,551
$
5,874
$
8,419
$
7,297
We rely largely on operating cash flow, short-term commercial paper borrowings and long-term debt to provide for the working capital needs of our operations, including our R&D activities. In addition, the proceeds from the repatriation of foreign earnings are being utilized to finance domestic activities over a multi-year time horizon, thereby reducing our reliance on short-term borrowings. This is expected to result in an overall decrease in our short-term borrowings by the end of 2005. We believe that we have the ability to obtain both short-term and long-term debt to meet our financing needs for the foreseeable future.
~~Expected Impact of Repatriation of Foreign Earnings~~
Based on our decision to repatriate foreign earnings totaling about $36.7 billion in accordance with the Jobs Act, the use of proceeds includes domestic expenditures relating to advertising and marketing activities, research and development activities, capital assets and other asset acquisitions and non-executive compensation in accordance with the provisions of the Jobs Act (as in effect on July 3, 2005). During the second quarter of 2005, we repatriated approximately $10 billion. At July 3, 2005, our international subsidiaries held cash and cash equivalents and short-term investments totaling in excess of $14 billion. Additionally, our international subsidiaries are expected to generate cash flows during 2005, which, together with third-party borrowings as required, will be available to fund the balance of the repatriation.
Investments
Our short-term and long-term investments consist primarily of high-quality, liquid investment-grade available-for-sale debt securities. Wherever possible, cash management is centralized and intercompany financing is used to provide working capital to our operations. Where local restrictions prevent intercompany financing, working capital needs are met through operating cash flows and/or external borrowings. Our portfolio of short-term investments was reduced in the first six months of 2006 and the proceeds were primarily used to pay down short-term borrowings.
Long-Term Debt ~~Capacity~~
~~Our short-term borrowings are rated P-1 by~~On February 22, 2006, we issued the following Japanese yen fixed-rate bonds, to be used for general corporate purposes:
•
$508 million equivalent, senior unsecured notes, due February 2011, which pay interest semi-annually, beginning on August 22, 2006, at a rate of 1.2%; and
•
$466 million equivalent, senior unsecured notes, due February 2016, which pay interest semi-annually, beginning on August 22, 2006, at a rate of 1.8%.
The notes were issued under a $5 billion debt shelf registration filed with the SEC in November 2002. Such yen debt is designated as a hedge of our yen net investments.
In May 2006, we decided to exercise Pfizer's option to call, at par-value plus accrued interest, $1 billion of senior unsecured floating-rate notes, which were included in Long-term debt as of December 31, 2005 and included in Short-term debt as of July 2, 2006. Notice to call was given to the Trustees and the notes were redeemed in the third quarter of 2006.
Credit Ratings
Two major corporate debt-rating organizations, Moody's Investors ~~Service~~Services (Moody's) and ~~A-1+ by~~ Standard & Poor's (S&P)~~. Our~~, assign ratings to our short-term and long-term debt. The following chart reflects the current ratings assigned to the Company's senior unsecured non-credit enhanced long-term debt ~~is rated Aaa~~and commercial paper issued directly by ~~Moody's and AAA~~the Company or by ~~S&P. Moody's and S&P are major corporate debt-rating organizations.~~ affiliates with a guarantee from the Company by each of these agencies:
Long-Term-Debt
Name of Rating Agency
Commercial Paper
Rating
Outlook
Moody's
P-1
Aaa
Negative
S&P
A1+
AAA
Stable
In early April 2005, following the market withdrawal of Bextra and the FDA's decision requiring new labeling for Celebrex, Moody's placed our Aaa rating under review for possible downgrade. The review was completed in June 2005 when Moody's removed Pfizer from review status and reaffirmed our Aaa rating. However, Moody's maintained our rating outlook as negative. ~~S&P has also~~Following our announcement in June 2006 of the agreement to sell our Consumer Healthcare business and our target to purchase up to $17 billion of Pfizer stock in 2006 and 2007, Moody's again reaffirmed our ~~AAA~~Aaa rating with a negative outlook. The negative outlook reflects Moody's overall general negative rating outlook for the major pharmaceutical sector and, ~~maintains~~specifically, its concern that disappointing product sales, setbacks in development of key pipeline products, or a shift towards a more aggressive financial profile, including an increased pace of share purchase levels, could result in Pfizer's financial metrics falling below those appropriate for a Aaa-rated company.
S&P views our rating outlook as ~~stable.~~stable, while they note a slowdown in sales and earnings growth as a result of major patent expirations and increased competition. S&P relies on Pfizer's excellent position in the worldwide pharmaceutical market, highlighted by its diverse drug portfolio and deep product pipeline, together with our superior financial profile and cash-generating ability.
Our superior credit ratings are primarily based on our diversified product portfolio, our strong operating cash flow, our substantial financial assets, our strong late-stage product pipeline and on our desire to maintain a prudent financial profile. Our access to financing at favorable rates would be affected by a substantial downgrade in our credit ratings.
Debt Capacity
We have available lines of credit and revolving-credit agreements with a group of banks and other financial intermediaries. We maintain cash balances and short-term investments in excess of our commercial paper and other short-term borrowings. At July ~~3, 2005,~~2, 2006, we had access to ~~$3.3~~$3.6 billion of lines of credit, of which ~~$1.4~~$1.1 billion expire within one year. Of these lines of credit, ~~$3.0~~$3.3 billion are unused, of which our lenders have committed to loan us ~~$1.6~~$2.1 billion at our request. ~~$1.5~~$2.0 billion of the unused lines of credit, ~~relate~~which expire in 2011, may be used to support our commercial paper borrowings.
AtAs of July ~~3, 2005,~~2, 2006, we had the ability to borrow approximately ~~$2.0~~$1 billion by issuing debt securities under our existing debt shelf registration statement filed with the SEC in November 2002.
~~In July 2005, we decided to exercise Pfizer's option to call, at par-value plus accrued interest, $1 billion of senior unsecured floating-rate notes, which are included in~~ ~~Short-term borrowings~~ ~~at July 3, 2005. Notice to call has been given to the Trustees and the notes will be redeemed in September 2005.~~
Goodwill and Other Intangible Assets
At July ~~3, 2005,~~2, 2006, goodwill totaled ~~$23.6~~$21.1 billion (19% of our total assets) and other intangible assets, net of accumulated amortization, totaled ~~$29.8~~$26.1 billion ~~(25%~~(23% of our total assets). The largest components of goodwill and other intangible assets were acquired in connection with our acquisition of Pharmacia. ~~Other~~In the first quarter of 2006, we acquired the sanofi-aventis worldwide rights, including patent rights and production technology, to manufacture and sell Exubera. In connection with the acquisition, we recorded an intangible asset for developed technology rights of approximately $1.0 billion and goodwill of approximately $166 million. Finite-lived intangible assets, ~~included $23.8~~net include $21.8 billion ofrelated to developed technology rights and ~~$4.0~~$814 million related to brands. Indefinite-lived intangible assets include $3.0 billion ~~of indefinite-lived~~related to brands.
The developed technology rights primarily represent the amortized acquisition-date fair value of the commercialized products that we acquired from Pharmacia. We acquired a well-diversified portfolio of developed technology rights across the therapeutic categories displayed in the table of major Human Health products in the "Revenues" section of MD&A. While the Arthritis and Pain therapeutic category represents about 27% of the total value of developed technology rights at July ~~3, 2005,~~2, 2006, the balance of the value is evenly distributed across the following Human Health therapeutic product categories: Ophthalmology; Oncology; Urology; Infectious and Respiratory Diseases; Endocrine Disorders categories; and, as a group, the Cardiovascular and Metabolic Diseases; Central Nervous System Disorders and All Other categories.
SELECTED MEASURES OF LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth certain relevant measures of our liquidity and capital resources:

July 3,
2005
Dec. 31,
2004

Cash and cash equivalents and short-term investments and loans (millions of dollars)
$
15,082
$
20,546

Working capital (millions of dollars)^(a)
$
11,007
$
13,236

Current ratio^(b)
1.49:1
1.50:1

Shareholders' equity per common share^(c)
$
8.91
$
9.19

^(a)
Working capital includes assets and liabilities held for sale at July 3, 2005 and December 31, 2004.
^(b)
Current ratio is the proportion of current assets to current liabilities.
^(c)
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).
(millions of dollars, except ratios and per common share data)
July 2,
2006
Dec. 31,
2005

Cash and cash equivalents and short-term investments and loans
$
15,261
$
22,736

Working capital^(a)
$
20,939
$
18,424

Ratio of current assets to current liabilities
2.04:1
1.65:1

Shareholders' equity per common share^(b)
$
9.43
$
8.98
^(a)
Working capital includes assets of discontinued operations and other assets held for sale of $6.8 billion and $6.7 billion and liabilities of discontinued operations and other liabilities held for sale of $1.4 billion and $1.2 billion, as of July 2, 2006 and December 31, 2005.
^(b)
Represents total shareholders' equity divided by the actual number of common shares outstanding (which excludes treasury shares and those held by our employee benefit trust).
The ~~decrease~~increase in working capital ~~from~~as of July 2, 2006 as compared to December 31, ~~2004 to July 3,~~ 2005 was primarily ~~reflects:~~due to:
•
~~payment~~a general reduction in payables and accruals of ~~cash dividends on common and preferred stock -- $2.9 billion;~~about $1.0 billion, reflecting timing;

•
~~purchases~~an increase in inventories of ~~our common stock -- $3.3 billion;~~$914 million, which is primarily due to the acquisition of sanofi-aventis' Exubera inventory, the build-up of inventory in advance of product launches and the impact of foreign exchange;

•
~~purchases~~an increase in net current financial assets of ~~property, plant~~$335 million primarily due to the pay down of short-term borrowings, partially offset by the redemption of short-term investments; and ~~equipment -- $1.0 billion;~~

•
a ~~reclassification~~decrease in Medicaid rebate and contract rebate accruals of $1$130 million primarily due to the impact of the Medicare Act;
partially offset by:
•
the expected timing of tax obligations of about $527 million.
Net Cash Provided by Operating Activities
During the first six months of 2006, net cash provided by operating activities was $9.1 billion, as compared to $7.0 billion in the same period of 2005. The increase in net cash provided by operating activities was primarily attributable to:
•
higher current period income from ~~long-term~~operations, net of non-cash items,
partially offset by:
•
the timing of other receipts and payments in the ordinary course of business.
The net cash flows associated with discontinued operations were not significant.
Net Cash Provided by Investing Activities
During the first six months of 2006, net cash provided by investing activities was $4.3 billion, as compared to $4.2 billion in the same period in 2005. The increase in net cash provided by investing activities was primarily attributable to:
•
higher net redemptions of investments in 2006 (a positive change in cash and cash equivalents of $2.2 billion); in 2006, the proceeds of which were utilized to repay debt and in 2005, the proceeds of which were used to ~~current portion~~fund the repatriation of ~~long-term debt~~foreign earnings as a result of ~~our decision~~the Jobs Act,
partially offset by:
•
the acquisition of Rinat and sanofi-aventis' rights to ~~call~~Exubera in 2006 compared to the ~~debt;~~acquisition of Idun in 2005 (an increased use of cash of $1.7 billion).
The net cash flows associated with discontinued operations were not significant.
Net Cash Used in Financing Activities
During the first six months of 2006, net cash used in financing activities was $13.7 billion, as compared to $11.7 billion in the same period in 2005. The increase in net cash used in financing activities was primarily attributable to:
•
net repayments of $8.6 billion on total borrowings in 2006, compared to $5.7 billion in 2005, and

•
an increase in ~~taxes payable~~cash dividends paid of $538 million as ~~a result~~compared to the first six months of 2005 primarily due to an increase in the ~~$1.7 billion charge in connection with our decision to repatriate foreign earnings in accordance with the Jobs Act;~~dividend rate,
partially offset by:
~~cash from current-period operations.~~
~~Net Cash Provided by Operating Activities~~
During the first six months of 2005, net cash provided by continuing operating activities was $7.0 billion, as compared to $5.2 billion in the same period in 2004. The increase in net cash provided by operating activities was primarily driven by the timing of income tax payments and accounts receivable collections. In the cash flows statement, ~~Other~~ ~~includes adjustments for non-cash items such as valuation adjustments.~~ ~~Changes in assets and liabilities, net of businesses acquired and divested~~ ~~in 2005 includes an accrual for the $1.7 billion income tax charge (not yet paid) associated with our repatriation of foreign earnings.~~
~~Net Cash Provided by/(Used in) Investing Activities~~
During the first six months of 2005, net cash provided by investing activities was $4.2 billion, compared to net cash used of $6.8 billion in the same period in 2004. The change from net cash used in 2004 to net cash provided by investing activities in 2005 was primarily attributable to:
•
net redemptions of $5.1 billion from investments in 2005 primarily used to provide funds for the repatriation of foreign earnings in accordance with the Jobs Act compared to net purchases of $4.7 billion of investments in 2004, and

•
~~net cash used for acquisitions~~lower purchases of common stock in ~~2005~~the first six months of ~~$255 million~~2006 of $2.0 billion as compared to ~~cash used for acquisitions in 2004~~$3.3 billion the first six months of ~~$1.4 billion.~~2005.
~~Net Cash Provided by/(Used in) Financing Activities~~
~~During the first six months of 2005,~~The net cash ~~used in financing activities was $11.7~~flows associated with discontinued operations were not significant.
In June 2005, we announced a $5 billion ~~as compared~~share-purchase program which is being funded by operating cash flows. Through July 2, 2006, we purchased approximately 102 million shares under that program for approximately $2.5 billion. In June 2006, the Board of Directors increased our share-purchase authorization from $5 billion to ~~net cash provided by financing activities of $716 million in the same period in 2004. The increase in net cash used in financing activities in 2005 was primarily attributable to:~~$18 billion.
•
net repayments of $5.7 billion on total borrowings in 2005 (funds from the repatriation of foreign earnings were used to finance domestic activities, thereby reducing our reliance on short-term borrowings) as compared to total net borrowings of $4.8 billion in 2004, and
•
~~an increase of $1.0 billion in purchases of our common stock in 2005 as compared to the same period in 2004.~~
In October 2004, we announced a $5 billion share-purchase ~~program. We~~program, which we completed ~~this share-purchase program by purchasing approximately $2.4 billion of the Company's stock~~ in the second quarter of ~~2005.~~2005 and was funded from operating cash flows. In ~~June 2005, Pfizer's Board of Directors authorized a new $5 billion share-purchase program. No purchases were made~~total, under the ~~new~~October 2004 program, ~~as of July 3, 2005.~~we purchased approximately 185 million shares.
OFF-BALANCE SHEET ARRANGEMENTS
In the ordinary course of business and in connection with the sale of assets and businesses, we often indemnify our counterparties against certain liabilities that may arise in connection with a transaction or related to activities prior to a transaction. These indemnifications typically pertain to environmental, tax, employee and/or product-related matters, and patent infringement claims. If the indemnified party were to make a successful claim pursuant to the terms of the indemnification, we would be required to reimburse the loss. These indemnifications are generally subject to threshold amounts, specified claim periods and other restrictions and limitations. Historically, we have not ~~generally~~ paid significant amounts under these provisions and atas of July ~~3, 2005,~~2, 2006, recorded amounts for the estimated fair value of these indemnifications are not ~~material.~~significant.
Certain of our ~~copromotion~~co-promotion or license agreements ~~include additional provisions that~~ give our ~~alliance~~licensors or partners the ~~right~~rights to negotiate for, or in some cases to obtain, under certain financial conditions, ~~copromotion~~co-promotion or other rights in specified countries with respect to certain of our products.
RECENTLY ~~ISSUED~~ADOPTED ACCOUNTING STANDARDS
~~Share-Based Payment~~
~~In December 2004,~~On January 1, 2006, we adopted the ~~Financial Accounting Standards Board (FASB) issued~~provisions of Statement of Financial Accounting Standards (SFAS) No. 123R, Share-Based Payment,~~. SFAS~~as supplemented by the guidance provided by Staff Accounting Bulletin (SAB) 107, issued in March 2005. (SFAS 123R replaces SFAS 123,Stock-Based Compensation~~. SFAS 123R requires that the fair value~~, issued in 1995.) (See Notes to Condensed Consolidated Financial Statements - Note 4, Adoption of the grant of employee stock options be reported as an expense. We plan to adopt SFAS 123R, when required, beginning in the first quarter of 2006. (We had previously disclosed an intention to adopt, when required, in mid-2005, but the SEC delayed the required effective date). Determining the impact of SFAS 123R on our future results of operations requires a number of complex estimates about future events. For example, such an assessment would require a prediction about the number of options to be granted, primarily in February of next year,New Accounting Standards, and a forecast, as of the grant date, of our stock price, the market-based stock price volatility and the risk-free interest rate, all of which can be highly variable and difficult to predict. As such, currently, we cannot reasonably estimate the impact of SFAS 123R on our results of operations in 2006.Note 14, Share-Based Payments).
~~Conditional Asset Retirement Obligations~~RECENTLY ISSUED ACCOUNTING STANDARDS
In ~~March 2005,~~June 2006, the FASB issued Interpretation No. ~~47,~~48 (FIN 48), Accounting for ~~Conditional Asset Retirement Obligations~~Uncertainty in Income Taxes ~~(FIN 47). FIN 47 clarifies that conditional obligations meet the definition~~, an interpretation of ~~an asset retirement obligation in~~ SFAS ~~143,~~109, Accounting for ~~Asset Retirement Obligations~~Income Taxes,. FIN 48 provides guidance relative to the recognition, derecognition and ~~therefore should be recognized if their fair value is reasonably estimable. We plan to adopt FIN 47 in the fourth quarter~~measurement of ~~2005. We do not expect the~~tax positions for financial statement purposes. The standard also requires expanded disclosures. The provisions of FIN ~~47 to have a material~~48 are effective for fiscal years beginning after December 15, 2006. The Company is currently in the process of evaluating the impact on ~~our consolidated~~the financial ~~statements.~~statements of adopting FIN 48.
OUTLOOK
Results in ~~2005~~2006 have been, and will continue to be, impacted by the loss of U.S. exclusivity of ~~four major products--Diflucan, Neurontin, and Accupril/Accuretic during 2004 and Zithromax in November 2005.~~certain key products since the beginning of 2004. Revenues also have been, and may continue to be, impacted by ~~publicity~~uncertainty related to selective COX-2 inhibitors, as well as lower prescription growth or increased competition in key markets in the U.S. Second quarter 2006 results reflect a solid operating performance with robust revenue growth of many key in-line and ~~regulatory actions regarding COX-2-selective inhibitors. Full-year revenues are now expected to evidence~~new products, further leveraged by tempered operating expenses in Adjusted income. Second-quarter and year-to-date results benefited as well from a ~~modest decline relative to 2004,~~number of seasonalization factors, including the impact of production variances and geographic mix on cost of sales, the timing of promotional expenditures for new-product launches and of expenditures for research and development programs, as ~~growth from other product lines generally offsets these factors, but revenues at current foreign exchange rates would be negatively impacted in~~well as the effective tax rate. In the second half of ~~2005 by~~2006, some of these factors are expected to reverse direction.
The anticipated growth of four products--Lipitor, Celebrex, Lyrica and Geodon--is expected to contribute significantly to our 2006 revenues. At current exchange rates, we are targeting achievement of our revenue goals for these four products and continue to expect 2006 aggregate revenues to be comparable to overall revenues in 2005. We are targeting Lipitor sales of about $13 billion this year, although it is an ambitious goal in light of the recent ~~strengthening~~introduction of generic simvastatin in the U.S., as well as other competitive pressures. New clinical data, educational campaigns on Lipitor that highlight its strong benefit profile and advantageous formulary positioning are expected to contribute to growth. We continue to expect full-year Celebrex revenues of at least $2 billion, although it is an ambitious target given the ongoing pressures in the arthritis market. Celebrex remains an important treatment option for millions of arthritis patients. In the first six months of 2006, Geodon delivered excellent results and we continue to expect full-year Geodon revenues of about $800 million. Lyrica has exceeded our high initial expectations and we now expect Lyrica revenues to be more than $1 billion in 2006. The contribution of new products is expected to continue to accelerate as we launch new products throughout the year.
We expect our cash flow from operations to exceed $16 billion in 2006. Our expected cash flow from operations over the next 30 months and the expected after-tax proceeds from the sale of our Consumer Healthcare business of about $13.5 billion will together amount to approximately $34 billion, after capital expenditures and dividends. We have allocated about $17 billion of these resources for the possible acquisition of products and technologies that will drive long-term growth of the ~~U.S. dollar against major foreign currencies.~~business. Further, we expect to purchase up to $7 billion of our stock in 2006 and up to an additional $10 billion in 2007 under our recently expanded share-purchase program.
~~In 2005, we anticipate merger-related synergies~~We expect AtS-related cost savings in excess of $6$2 billion ~~related to Warner-Lambert ($1.8 billion) and Pharmacia ($4.2 billion,~~in 2006, an increase of ~~$600 million~~at least $1.2 billion over ~~2004 synergies). We also expect to achieve approximately $400 million in cost savings during~~ 2005 ~~from our recently announced AtS productivityinitiative.~~savings.
Given these and other factors, a reconciliation, at current exchange rates ~~we expect 2005~~and reflecting management's current assessment for 2006, of forecasted 2006 Adjusted income ~~of approximately $14.6 billion, adjusted~~and Adjusted diluted EPS ~~of approximately $1.98 per share,~~to forecasted 2006 reported Net income ~~of approximately $9.1 billion,~~ and reported diluted EPS ~~of approximately $1.24 per share,~~follows:
($ billions, except per-share amounts)
Net Income^(a)
Diluted EPS^(a)

Forecasted Adjusted income/diluted EPS
~$14.7
~$2.00
Purchase accounting impacts, net of tax^(b)
(2.9)
(0.40)
Adapting to scale costs, net of tax
(1.1)
(0.15)
Income from discontinued operations, net of tax^(c)
0.5
0.07
Equity sales/other
0.2
0.02
Resolution of certain tax positions
0.4
0.06
Forecasted reported Net income/diluted EPS
~$11.8
~$1.60
^(a)
Includes the Consumer Healthcare business as discontinued operations and excludes the effects of other business-development transactions not completed as of the endof the second quarter of 2006 and the potential impact from a substantial prospective gain on the divestiture of Pfizer Consumer Healthcare.
^(b)
Increase in purchase accounting impacts versus the prior estimate reflects Merger-related in-process research and development charges associated primarily with the Rinat acquisition.
^(c)
Primarily reflects the reclassification of Pfizer Consumer Healthcare to discontinued operations.
Our forecasted financial performance in 2006 is subject to a number of factors and uncertainties--as described in the ~~"Cautionary~~"Forward Looking Information and Factors That May Affect Future Results" section below.
~~A reconciliation~~ Some of ~~targeted 2005 Adjusted income~~these factors and ~~Adjusted diluted EPS to targeted 2005 reported Net income and reported diluted EPS follows:~~
(billions of dollars, except per-share amounts)
Targeted
Net
Income
Targeted
Diluted
EPS

Targeted Adjusted income/diluted EPS
$
14.6
$
1.98
Intangible amortization and other
(2.3)
(.31)
In-process R&D charges (primarily Idun)
(0.3)
(.04)
Merger-related costs/productivity initiative costs
(1.0)
(.14)
Asset impairment charges and other costs associated with suspension of selling Bextra
(0.8)
(.10)
Tax impact on repatriation of foreign earnings
(1.7)
(.23)
Resolution of certain tax positions
0.6
.08
Targeted reported Net income/diluted EPS
$
9.1
$
1.24
Pfizer's estimates of 2005 reported Net income of $9.1 billion and reported diluted earnings per share of about $1.24 have been revised from the prior guidance of $7.7 billion and about $1.04. The revision is principally attributable to the resolution of certain tax positions (increase to Net income and diluted EPS of $0.6 billion and $0.08), a revised estimate of the cost of repatriating foreign earnings (net reduction in taxes from $2.2 billion and $0.30 EPS impact to $1.7 billion and $0.23) and a revised estimate of merger-related costs/productivity initiative costs (reduction from an after-tax cost of $1.4 billion and $0.18 EPS impact to $1.0 billion and $0.14). These estimates do not reflect the impact of any pending acquisitions, such as Vicuron Pharmaceuticals.
~~We expect to spend approximately $8 billion on research and development in 2005 and approximately $2.2 billion in capital expenditures for the full year 2005 (revised from~~uncertainties may persist over our ~~initial estimate of $2.7 billion).~~planning horizon.
~~CAUTIONARY~~FORWARD-LOOKING INFORMATION AND FACTORS THAT MAY AFFECT FUTURE RESULTS
Our disclosure and analysis in this report, including but not limited to the information discussed in the Outlook section above, contain forward-looking information about our Company's financial results and estimates, business prospects, in-line products and ~~products in research~~product candidates that involve substantial risks and ~~uncertainties.~~uncertainties, including, without limitation, information about the Company's agreement to sell its Consumer Healthcare business to Johnson & Johnson and the use of sale proceeds, as well as about the Company's stock-purchase plans. From time to time, we also may provide oral or written forward-looking statements in other materials we release to the public. Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historic or current facts. They use words such as "will," "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," ~~"target"~~"target," "forecast" and other words and terms of similar meaning in connection with any discussion of future operating or financial ~~performance.~~performance or business prospects. In particular, these include statements relating to future actions, prospective products or product approvals, future performance or results of current and anticipated products, sales efforts, expenses, interest rates, foreign exchange rates, the outcome of contingencies, such as legal proceedings, and financial results. Among the factors that could cause actual results to differ materially are the following:
•
the success of research and development activities;

•
decisions by regulatory authorities regarding whether and when to approve our drug applications as well as their decisions regarding labeling and other matters that could affect the availability or commercial potential of our products;
•
the impact of the FDA's decision to require a boxed warning including expanded risk information and the European Medicines Evaluation Agency's decision to require expanded risk information in the Celebrex label;

•
the speed with which regulatory authorizations, pricing ~~approval~~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 and competitor products;

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

•
trends toward managed care and healthcare cost containment;

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

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

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

•
contingencies related to actual or alleged environmental contamination;

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

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

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

•
interest rate and ~~foreign currency exchange rate~~foreign-currency exchange-rate fluctuations;

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

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

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

•
growth in costs and expenses;

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

•
the impact of acquisitions, divestitures, restructurings, product withdrawals and other unusual items, including our ability to ~~integrate and to obtain the anticipated results and synergies from our acquisition of Pharmacia, and our ability to~~ realize the projected benefits of our Adapting to Scale multi-year productivity ~~initiative.~~initiative and the ability of the Company and Johnson & Johnson to satisfy the conditions to closing the sale of the Company's Consumer Healthcare business, including receiving the required regulatory approvals.
We cannot guarantee that any forward-looking statement will be realized, although we believe we have been prudent in our plans and assumptions. Achievement of future results is subject to risks, uncertainties and inaccurate assumptions. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could ~~vary~~differ materially from past results and those anticipated, estimated or projected. Investors should bear this in mind as they consider forward-looking statements.
We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in our Forms 10-Q, 8-K and 10-K reports to the Securities and Exchange Commission. Our Form 10-K filing for the ~~2004~~2005 fiscal year listed various important factors that could cause actual results to differ materially from expected and historic results. We note these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. Readers can find them in Part I, Item 11A, of that filing under the heading ~~"Cautionary~~"Risk Factors and Cautionary Factors That May Affect Future Results." We incorporate that section of that Form 10-K in this filing and investors should refer to it. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider any such list to be a complete set of all potential risks or uncertainties.
This report includes discussion of certain clinical studies relating to various in-line products and/or product candidates. These studies typically are part of a larger body of clinical data relating to such products or product candidates, and the discussion herein should be considered in the context of the larger body of data.
Legal Proceedings and Contingencies
We and certain of our subsidiaries are involved in various patent, product liability, consumer, commercial, securities, environmental and tax litigations and claims; government investigations; and other legal proceedings that arise from time to time in the ordinary course of our business. We do not believe any of them will have a material adverse effect on our financial position.
We record accruals for such contingencies to the extent that we conclude their occurrence is probable and the related damages are estimable. If a range of liability is probable and estimable and some amount within the range appears to be a better estimate than any other amount within the range, we accrue that amount. If a range of liability is probable and estimable and no amount within the range appears to be a better estimate than any other amount within the range, we accrue the minimum of such probable range. Many claims involve highly complex issues relating to causation, label warnings, scientific evidence, actual damages and other matters. Often these issues are subject to substantial uncertainties and, therefore, the probability of loss and an estimation of damages are difficult to ascertain. Consequently, we cannot reasonably estimate the maximum potential exposure or the range of possible loss in excess of amounts accrued for these contingencies. These assessments can involve a series of complex judgments about future events and can rely heavily on estimates and assumptions. Our assessments are based on estimates and assumptions that have been deemed reasonable by management. Litigation is inherently unpredictable, and excessive verdicts do occur. Although we believe we have substantial defenses in these matters, we could in the future incur judgments or enter into settlements of claims that could have a material adverse effect on our results of operations in any particular period.
Patent claims include challenges to the coverage and/or validity of our patents on various products or processes. Although we believe we have substantial defenses to these challenges with respect to all our material patents, there can be no assurance as to the outcome of these matters, and a loss in any of these cases could result in a loss of patent protection for the drug at issue, which could lead to a significant loss of sales of that drug and could materially affect future results of operations.
Item 3.  Quantitative and Qualitative Disclosures About Market Risk.
Information required by this item is incorporated by reference from the discussion under the heading Financial Risk Management in our 2005 Financial Report, which is filed as exhibit 13 to our 2005 Form 10-K. We currently invest and borrow primarily on a short-term or effectively variable-rate basis.
Item 4.  Controls and Procedures.
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the Exchange Act)). Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective in alerting them in a timely manner to material information required to be disclosed in our periodic reports filed with the SEC.
During our most recent fiscal quarter, there has not ~~occurred~~been any change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. However, we do wish to highlight some changes which, taken together, are expected to have a favorable impact on our controls over a multi-year period. We continue to pursue a multi-year initiative to outsource some transaction-processing activities within certain accounting processes and are migrating to a consistent enterprise resource planning system across the organization. These are enhancements of on-going activities to support the growth of our financial shared service capabilities and standardize our financial systems. None of these initiatives is in response to any identified deficiency or weakness in our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1.  Legal ~~Proceedings.~~Proceedings
Certain legal proceedings in which we are involved are discussed in Note 1718 to the consolidated financial statements included in our ~~2004~~2005 Financial Report; Part I, Item 3, of our Annual Report on Form 10-K for the year ended December 31, ~~2004;~~2005; and Part II, Item 1, of our Quarterly Report on Form 10-Q for the quarter ended April ~~3, 2005.~~2, 2006. The following discussion is limited to certain recent developments concerning our legal proceedings and should be read in conjunction with those earlier Reports. Unless otherwise indicated, all proceedings discussed in those earlier Reports remain outstanding. Reference also is made to the Legal Proceedings and Contingencies section in Part I, Item 2, of this Form 10-Q.
~~Patent~~Product Liability Matters
~~Neurontin (gabapentin)~~Asbestos
As previously reported ~~Greenstone Ltd.~~with regard to the Chapter 11 bankruptcy case involving Quigley Company, Inc. (Quigley), a wholly owned subsidiary of Pfizer, ~~launched~~more than 75% of Quigley's claimants holding claims that represent more than two-thirds in value of claims against Quigley voted to accept Quigley's plan of reorganization. On August 9, 2006, in reviewing the voting tabulation methodology, the Bankruptcy Court ruled that certain votes that accepted the plan were not predicated upon the actual value of the claim. As a ~~generic version of Neurontin~~result, the reorganization plan was not accepted.
Quigley can adjust certain provisions in ~~October 2004 following the launches of gabapentin products by certain generic manufacturers. In October 2004, one of those generic manufacturers brought an action against Pfizer, Greenstone~~its reorganization plan and the ~~FDA challenging~~voting procedures to conform with the ~~launch~~Bankruptcy Court's ruling, and then possibly re-solicit the plan for acceptance or seek alternative remedies. These and other options are being considered.
If approved by ~~Greenstone.~~ the claimants and the courts, the reorganization plan will resolve all pending and future asbestos claims against Quigley and Pfizer in which claimants allege personal injury from exposure to Quigley products.
Patent Matters
Lipitor (atorvastatin)
As previously reported, in 2003, we filed suit in the U.S. District Court for the District of Delaware against Ranbaxy Laboratories Limited for infringement of both our basic product patent for atorvastatin and our patent covering the active enantiomeric form of the drug. Our basic product patent, including the additional six-month pediatric exclusivity period, expires in March 2010. Our enantiomer patent, including the additional six-month pediatric exclusivity period, expires in June 2011.
In ~~June~~late 2005, the District Court held that both patents are valid and infringed by Ranbaxy's generic atorvastatin product. In August 2006, a panel of the U.S. Court of Appeals for the Federal Circuit affirmed the District Court's decision with respect to our basic product patent. Subject to a possible request for a review by the full U.S. Court of ~~Columbia~~Appeals for the Federal Circuit ~~upheld Greenstone's right~~or an appeal to ~~sell an "authorized generic"~~the U.S. Supreme Court by Ranbaxy, this decision prevents Ranbaxy from marketing a generic version of ~~Neurontin.~~atorvastatin before March 2010.
~~Product Liability Matters~~
~~Rezulin~~The panel also ruled that one of the claims of our enantiomer patent is invalid on technical grounds. We are considering the possibility of seeking a review of the decision regarding our enantiomer patent by the full U.S. Court of Appeals for the Federal Circuit. In addition, the U.S. Patent and Trademark Office has a process for correcting technical defects in patents, and we plan to pursue that process with regard to our enantiomer patent.
As previously reported, in ~~April 2001, Louisiana Health Service Indemnity Company~~October 2005, in an action brought by Ranbaxy, the United Kingdom's High Court of Justice upheld our basic U.K. patent for Lipitor, which expires in November 2011, but ruled that a second patent covering the calcium salt of atorvastatin, which expires in July 2010, is invalid. In June 2006, the United Kingdom's Court of Appeal affirmed the lower court's decision. The ruling by the Court of Appeal prohibits Ranbaxy from marketing a generic version of atorvastatin in the U.K. before the expiration of our basic patent in November 2011, subject to a possible further appeal to the House of Lords.
Norvasc (amlodipine)
Synthon Pharmaceuticals, Inc. has filed an action against us in the U.S. District Court for the Eastern District of Virginia alleging that our sales of Norvasc and ~~Eastern States Health and Welfare Fund~~Caduet infringe Synthon's patent relating to the manufacture of amlodipine.
Exubera
In August 2006, Novo Nordisk filed ~~a consolidated complaint~~an action against ~~Warner-Lambert~~us in the U.S. District Court for the Southern District of New York ~~purportedly on behalf~~alleging that our sales of a class consisting of all health benefit providers that paid for or reimbursed patients for the purchase of Rezulin between February 1997 and April 2001. The action seeks to recover amounts paid for Rezulin by the health benefit providers on behalf of their plan participants during the specified period. In May 2005, an action was filed in the U.S. District Court for the Eastern District of Louisiana purportedly on behalf of a nationwide class of third-party payors that asserts claims and seeks damages that are substantially similar to those in the New York action. In July 2005, an action was filed by the Attorney General of the State of Louisiana in the Civil District Court for Orleans Parish, Louisiana, against Warner-Lambert and Pfizer seeking to recover amounts paid by the Louisiana Medicaid program for Rezulin and for medical services to treat persons allegedly injured by Rezulin.
~~Asbestos - Quigley~~
As previously reported, in September 2004, Quigley Company, Inc., a wholly owned subsidiary of Pfizer, filed a petition in the U.S. Bankruptcy Court for the Southern District of New York seeking reorganization under Chapter 11 of the U.S. bankruptcy code. In March 2005, Quigley filed its proposed reorganization plan with the Bankruptcy Court.
~~Commercial Matters~~
~~Zoloft~~
As previously reported, in July 2004, a purported representative action on behalf of all California residents who have used Zoloft as well as the general public was filed against the Company in Los Angeles Superior Court. The plaintiff alleged that the Company engaged in various practicesExubera infringe Novo Nordisk's patents relating to ~~Zoloft in violation~~inhaled insulin and methods of ~~California law, including false and misleading advertising and marketing, and sought restitution, disgorgement~~administration of profits and injunctive relief. In April 2005, the Company's motion to dismiss this action was granted without prejudice to the plaintiff's right to re-file if the plaintiff satisfies applicable standing requirements.
~~Celebrex and Bextra~~
As previously reported, the Company is a defendant in a number of product liability, consumer fraud, securities, fiduciary duty and ERISA (Employee Retirement Income Security Act of 1974) actions, including purported class and derivative actions, relating to Celebrex and Bextra. Certain current and former officers, directors and employees of Pfizer and Pharmacia also are named as defendants in some of those actions. Additional claims and suits, including purported class and derivative actions, asserting similar allegations and seeking similar relief have been brought during the first half of 2005. In June 2005, the federal securities, fiduciary duty and ERISA actions were transferred to the U.S. District Court for the Southern District of New York for consolidated pre-trial proceedings. In July 2005, an action was filed by the Attorney General of the State of Louisiana in the Civil District Court for Orleans Parish, Louisiana, against Pfizer seeking to recover amounts paid by the Louisiana Medicaid program for Celebrex and Bextra and for medical services to treat persons allegedly injured by Celebrex or Bextra; the action also seeks injunctive relief to prevent the sale of Celebrex and any resumption of the sale of Bextra in Louisiana.
As previously reported, we have received requests for information and documents from the U.S. Department of Justice and a group of state attorneys general concerning our COX-2 medicines. We also are responding to a request for similar information and documents from the staff of the Securities and Exchange Commission.
~~Environmental Matters~~
As previously reported, in April 2004, we received a letter from the Nebraska Department of Environmental Quality (NDEQ) proposing a civil penalty to settle certain alleged violations of Nebraska's hazardous waste regulations at our Lincoln, Nebraska manufacturing facility. In July 2005, this matter was resolved pursuant to a settlement that provides for a $75,000 civil penalty and the payment of $85,000 to fund several supplemental environmental projects in Nebraska. The Notices of Violation, which arose out of a voluntary self-disclosure that we made to the NDEQ in 2003, relate to the alleged improper disposal of a small amount of hazardous waste during the period 1997-2003. Corrective actions have been implemented.
In July 2005, the U.S. Environmental Protection Agency (EPA) proposed a civil penalty in the amount of $275,000 to settle certain alleged violations of the Federal Clean Air Act at our Kalamazoo, Michigan facility that were identified by the EPA during an inspection in 2004. We are in discussions with the EPA to resolve this matter, and we have implemented corrective actions to address the EPA's concerns.inhaled insulin.
Tax Matters
On January 25, 2006, the Company was notified by the IRS Appeals Division that a resolution had been reached on the matter that we were in the process of appealing related to the tax deductibility of a breakup fee paid by Warner-Lambert Company in 2000. As a result, in the first six months of 2006 we recorded a tax benefit of approximately $441 million related to the resolution of this issue.
In the second quarter of 2005, we recorded a tax benefit of $586 million primarily related to the resolution of certain tax positions. ~~In addition, we believe that the~~
The IRS is currently conducting audits of the Pfizer Inc. tax returns for the years ~~1999-2001~~2002, 2003 and the Warner-Lambert Company tax returns for the years 1999 through the date of the merger with Pfizer (June 19, 2000) are substantially complete. In connection with those audits, we are currently in the process of appealing one matter related to the tax deductibility of a breakup fee paid by Warner-Lambert Company in 2000.
~~The IRS has commenced the audit of the Pfizer Inc. tax returns for the years 2002 and 2003.~~2004. The 2005 and 2006 tax ~~year is~~years are also currently under audit ~~as we are voluntary participants in~~under the IRS Compliance Assurance ~~Program, which results in~~Process, a recently introduced real-time ~~tax audits.~~audit process.
~~As previously disclosed, with~~With respect to Pharmacia Corporation, ~~(formerly known as Monsanto Company),~~ the IRS has completed ~~and closed its income tax return examinations and appeals through 1999 and has commenced the audit~~audits of the tax returns for the years 2000 through 2002 and is currently conducting an audit for the year 2003 through the date of the merger with Pfizer (April 16, 2003).
We periodically reassess the likelihood of assessments resulting from audits of federal, state and foreign income tax filings. We believe that our accruals for tax liabilities are adequate for all open years.
Item 1A.  Risk Factors.
There have been no material changes from the risk factors disclosed in Part 1, Item 1A, of our 2005 Form 10-K.
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.
This table provides certain information with respect to our purchases of shares of Pfizer's common stock during the ~~fiscal second quarter of 2005:~~three months ended July 2, 2006:
Issuer Purchases of Equity Securities^(a)
Issuer Purchases of Equity Securities^(a)
Issuer Purchases of Equity Securities^(a)

Period
Total Number of
Shares Purchased^(b)
Average Price
Paid per Share^(b)
Total Number of
Shares Purchased as
Part of Publicly
Announced Plan^(a)
Approximate Dollar
Value of Shares that
May Yet Be Purchased
Under the Plan^(a)
Total Number of
Shares Purchased^(b)
Average Price
Paid per Share^(b)
Total Number of
Shares Purchased as
Part of Publicly
Announced Plan^(a)
Approximate Dollar
Value of Shares that
May Yet Be Purchased
Under the Plan^(a)
April 4, 2005 through April 30, 2005
9,071,376
$26.92
9,064,300
$2,140,228,105^(c)
May 1, 2005 through May 31, 2005
40,259,035
$27.90
40,217,200
$1,018,268,485^(c)
June 1, 2005 through
July 3, 2005
36,356,261
$28.06
36,287,600
$5,000,000,000^(d)
April 3, 2006 through
April 30, 2006
1,706,850
$24.77
1,694,000
$  3,464,989,094
May 1, 2006 through
May 31, 2006
19,479,336
$24.77
19,378,700
$  2,985,002,751
June 1, 2006 through
July 2, 2006
20,397,319
$23.43
20,391,300
$15,507,212,045
Total
85,686,672
$27.86
85,569,100
41,583,505
$24.11
41,464,000

^(a)
On October 28, 2004, Pfizer announced that the Board of Directors authorized the purchase of up to $5 billion of Pfizer's common stock (the "2004 Stock Purchase Plan"). Such purchases were completed during the second quarter of 2005. On June 23, 2005, Pfizer announced that the Board of Directors authorized a ~~new~~ $5 billion share-purchase plan (the "2005 Stock Purchase Plan"). ~~No purchases~~On June 26, 2006, Pfizer announced that the Board of ~~stock were made~~Directors increased the authorized amount of shares to be purchased under the 2005 Stock Purchase Plan ~~during the fiscal second quarter of 2005.~~from $5 billion to $18 billion.

^(b)
In addition to purchases under the ~~2004~~2005 Stock Purchase Plan, this column reflects the following transactions during the ~~fiscal second quarter of 2005:~~three months ended July 2, 2006: (i) the deemed surrender to Pfizer of ~~60,757~~26,580 shares of common stock to pay the exercise price and to satisfy tax withholding obligations in connection with the exercise of employee stock options, (ii) the open-market purchase by the trustee of ~~52,326~~83,891 shares of common stock in connection with the reinvestment of dividends paid on common stock held in trust for employees who were granted performance-contingent share awards and who deferred receipt of such awards and (iii) the surrender to Pfizer of ~~4,489~~9,034 shares of common stock to satisfy tax withholding obligations in connection with the vesting of restricted stock issued to employees.
Item 3.  Defaults Upon Senior Securities.
None
Item 4.  Submission of Matters to a Vote of Security Holders
None
Item 5.  Other Information.
None
^(c)
~~Under the 2004 Stock Purchase Plan.~~
^(d)
~~Under the 2005 Stock Purchase Plan.~~
Item 6.
Exhibits.

1)  Exhibit 3.1
-
Restated Certificate of Incorporation dated April 12, 2004
2)  Exhibit 3.2
-
Amendment dated May 1, 2006 to Restated Certificate of Incorporation dated April 12, 2004
3)  Exhibit 12
-
Computation of Ratio of Earnings to Fixed Charges

2)4)  Exhibit 15
-
Accountants' Acknowledgment

3)5)  Exhibit 31.1
-
Certification by the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

4)6)  Exhibit 31.2
-
Certification by the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

5)7)  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

6)8)  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
~~PFIZER INC. AND SUBSIDIARY COMPANIES~~
SIGNATURE
Under the requirements of the Securities Exchange Act of 1934, this report was signed on behalf of the Registrant by the authorized person named below.
Pfizer Inc.
(Registrant)


Dated:  August ~~8, 2005~~11, 2006
/s/ Loretta V. Cangialosi

Loretta V. Cangialosi, Vice President, Controller
(Principal Accounting Officer and
Duly Authorized Officer)
Exhibit 12
PFIZER INC. AND SUBSIDIARY COMPANIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Six
Months
Ended
July 3,
Year Ended December 31,
Six
Months
Ended
July 2,
Year Ended December 31,
(in millions, except ratios)
2005
2004
2003
2002
2001
2000
2006

2005
2004
2003
2002
2001

Determination of earnings:
Income from continuing operations before (benefit)/provision for taxes on income, minority interests and cumulative effect of change in accounting principles
$
5,971
$
14,007
$
3,246
$
11,766
$
9,963
$
5,471
Income from continuing operations before provision for taxes on income, minority interests and cumulative effect of a change in accounting principles
$
7,353
$
10,800
$
13,456
$
2,816
$
11,247
$
9,469
Less:
Minority interests
5
10
3
6
14
13
5
12
7
1
3
12
Adjusted income
5,966
13,997
3,243
11,760
9,949
5,458
Income adjusted for minority interest
7,348
10,788
13,449
2,815
11,244
9,457
Add:
Fixed charges
332
510
442
322
305
444
377
630
505
438
318
301
Total earnings as defined
$
6,298
$
14,507
$
3,685
$
12,082
$
10,254
$
5,902
$
7,725
$
11,418
$
13,954
$
3,253
$
11,562
$
9,758

Fixed charges:
Interest expense ^(a)
$
249
$
347
$
270
$
251
$
266
$
381
$
297
$
471
$
347
$
270
$
251
$
266
Preferred stock dividends ^(b)
7
12
10
--
--
--
7
14
12
10
--
--
Rents ^(c)
76
151
162
71
39
63
73
145
146
158
67
35
Fixed charges
332
510
442
322
305
444
377
630
505
438
318
301

Capitalized interest
7
12
20
28
56
46
15
17
12
20
28
56

Total fixed charges
$
339
$
522
$
462
$
350
$
361
$
490
$
392
$
647
$
517
$
458
$
346
$
357

Ratio of earnings to fixed charges
18.6
27.8
8.0
34.5
28.4
12.0
19.7
17.6
27.0
7.1
33.4
27.3
All financial information reflects ~~as applicable,~~ the following ~~businesses and product lines~~ as discontinued ~~operations:~~operations for all periods presented: the Consumer Healthcare business; for 2006, 2005, 2004 and 2003: certain European generics businesses; and for 2004 and 2003: our in-vitro allergy and autoimmune diagnostics testing, and surgical ~~ophthalmic, certain European generic pharmaceutical,~~ophthalmics.
All financial information reflects the following as discontinued operations for 2003, 2002, and 2001: our confectionery, shaving and fish-care products businesses, ~~certain non-core consumer healthcare products lines (primarily marketed in Europe) and~~as well as the Estrostep, Loestrin and femhrt women's health product ~~lines.~~
~~Historical ratios of earnings to fixed charges reflect revisions to historical period's rent expense,~~lines for all the ~~impact of which was not significant to any period.~~years presented.
^(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 reference of our report dated August ~~8, 2005,~~11, 2006, included within the Quarterly Report on Form 10-Q of Pfizer Inc. for the quarter ended July ~~3, 2005,~~2, 2006, 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-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-8 dated December 20, 1994 (File No. 33-56979),
- Form S-8 dated March 29, 1996 (File No. 333-02061),
- 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 16, 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),
- Form S-8 dated April 26, 2004 (File No.333-114852), and
- Form S-3 dated March 1, 2005 (File No. 333-123058).
Pursuant to Rule 436(c) under the Securities Act of 1933, such report is not considered a part of a registration statement prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of that Act.
KPMG LLP
New York, New York
August ~~8, 2005~~11, 2006
Exhibit 31.1
CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, ~~Henry A. McKinnell,~~Jeffrey B. Kindler, 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)
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

d)
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:  August ~~8, 2005~~11, 2006
/s/ ~~Henry A. McKinnell~~Jeffrey B. Kindler
~~Henry A. McKinnell~~Jeffrey B. Kindler
~~Chairman of the Board and~~ Chief Executive Officer
Exhibit 31.2
CERTIFICATION BY THE CHIEF FINANCIAL OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Alan G. Levin, 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)
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

d)
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:  August ~~8, 2005~~11, 2006
/s/ Alan G. Levin
Alan G. Levin
Senior Vice President and Chief Financial Officer
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
Pursuant to 18 U. S. C. Section 1350, I, ~~Henry A. McKinnell,~~Jeffrey B. Kindler, hereby certify that, to the best of my knowledge, the Quarterly Report of Pfizer Inc. on Form 10-Q for the quarter ended July ~~3, 2005~~2, 2006 (the "Report") fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, and that the information contained in that Report fairly presents, in all material respects, the financial condition and results of operations of Pfizer Inc.
/s/ ~~Henry A. McKinnell~~Jeffrey B. Kindler
~~Henry A. McKinnell~~Jeffrey B. Kindler
~~Chairman of the Board and~~ Chief Executive Officer
August ~~8, 2005~~11, 2006
This certification accompanies this Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.
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
Pursuant to 18 U. S. C. Section 1350, I, Alan G. Levin, hereby certify that, to the best of my knowledge, the Quarterly Report of Pfizer Inc. on Form 10-Q for the quarter ended July ~~3, 2005~~2, 2006 (the "Report") fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, and that the information contained in that Report fairly presents, in all material respects, the financial condition and results of operations of Pfizer Inc.
/s/ Alan G. Levin
Alan G. Levin
Senior Vice President and Chief Financial Officer
August ~~8, 2005~~11, 2006
This certification accompanies this Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.

(millions of dollars)		Total		Utilization Through July 3, 2005	^(a)		Accrual at July 3, 2005	^(b)

Costs capitalized through April 15, 2004:
Employee termination costs	$	1,535	$	1,499		$	36
Other		624		498			126
	$	2,159	$	1,997		$	162
Costs expensed:
Employee termination costs	$	589	$	482		$	107
Asset impairments		368		368			--
Other		89		57			32
	$	1,046	$	907		$	139

(millions of dollars)		Costs Incurred Through July 2, 2006		Utilization Through July 2, 2006		Accrual as of July 2, 2006	^(a)

Employee termination costs	$	635	$	528	$	107
Asset impairments		299		299		--
Other		61		22		39
	$	995	$	849	$	146

~~Financial Instrument~~	~~Hedge Type~~	~~Hedged Item~~	~~Notional Amount~~ ~~(millions of dollars)~~	~~Maturity Date~~
~~Forward-exchange contracts~~	~~Cash flow~~	~~Euro available-for-sale investments~~	~~$1,917~~	~~Through 2005~~
~~Forward-exchange contracts~~	~~Cash flow~~	~~Swedish krona available-for-sale investments~~	~~706~~	~~Through 2005~~
~~Forward-exchange contracts~~	~~Cash flow~~	~~Danish krone available-for-sale investments~~	~~327~~	~~Through 2005~~

(millions of dollars)		July 3, 2005		Dec. 31, 2004

Finished goods	$	2,380	$	2,643
Work-in-process		2,844		2,703
Raw materials and supplies		1,256		1,314
Total inventories	$	6,480	$	6,660

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

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

Instrument^(a)	Primary Balance Sheet Caption	^(b)	Hedge Type	^(c)	Hedged or Offset Item	Notional Amount as of July 2, 2006 (millions of dollars)	Maturity Date
Forward	OCL		--		Short-term foreign currency assets and liabilities^(d)	$1,074	2006
Forward	Prepaid		CF		Euro intercompany loan	792	2006
LT yen debt	LTD		NI		Yen net investments	523	2011
LT yen debt	LTD		NI		Yen net investments	480	2016

^(a)	Forward = Forward-exchange contracts; LT yen debt = Long-term yen debt
^(b)	The primary balance sheet caption indicates the financial statement classification of the fair value amount associated with the financial instrument used to hedge foreign exchange risk. OCL = Other current liabilities; Prepaid = Prepaid expenses and taxes; LTD = Long-term debt
^(c)	CF = Cash flow hedge; NI = Net investment hedge
^(d)	Forward-exchange contracts used to offset short-term foreign currency assets and liabilities were primarily for intercompany transactions in euros, Japanese yen, Canadian dollars, U.K. pounds and Australian dollars.

(millions of dollars)		Human Health		Consumer Healthcare		Animal Health		Other		Total

Balance, December 31, 2004	$	20,966	$	2,701	$	79	$	10	$	23,756
Other^(a)		(159)		53		(23)		--		(129)
Balance, July 3, 2005	$	20,807	$	2,754	$	56	$	10	$	23,627

^(a)	Primarily ~~foreign exchange and reductions~~related to Exubera.
^(b)	Includes a reduction to goodwill ~~as a result~~related to the resolution of ~~adjusting~~ certain ~~purchase accounting liabilities.~~tax positions, partially offset by the impact of foreign exchange.

		July 3, 2005				December 31, 2004				July 2, 2006				Dec. 31, 2005
(millions of dollars)		Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization

Finite-lived intangible assets:
Developed technology rights	$	31,087	$	(7,311)	$	33,137	$	(5,967)	$	32,426	$	(10,637)	$	30,729	$	(8,810)
Brands		1,002		(35)		1,037		(14)		887		(73)		885		(51)
License agreements		165		(25)		158		(17)		155		(34)		152		(27)
Trademarks		156		(93)		134		(90)		109		(69)		106		(65)
Other^(a)		470		(197)		390		(186)		518		(247)		446		(203)
Total amortized finite-lived intangible assets		32,880		(7,661)		34,856		(6,274)		34,095		(11,060)		32,318		(9,156)
Indefinite-lived intangible assets:
Brands		3,944		--		4,012		--		2,990		--		2,990		--
License agreements		326		--		356		--
Trademarks		231		--		235		--		79		--		79		--
Other^(b)		62		--		66		--		30		--		13		--
Total indefinite-lived intangible assets		4,563		--		4,669		--		3,099		--		3,082		--
Total identifiable intangible assets	$	37,443	$	(7,661)	$	39,525	$	(6,274)	$	37,194	$	(11,060)	$	35,400	$	(9,156)

^(a)	Includes patents, non-compete agreements, customer contracts and other intangible assets.
^(b)	Includes pension-related intangible assets.

		Pension Plans																Pension Plans
		U.S. Qualified				U.S. Supplemental (Non-Qualified)				International				Postretirement Plans				U.S. Qualified				U.S. Supplemental (Non-Qualified)				International				Postretirement Plans
(millions of dollars)		2005		2004		2005		2004		2005		2004		2005		2004		2006		2005		2006		2005		2006		2005		2006		2005

Service cost	$	80	$	73	$	10	$	9	$	76	$	62	$	10	$	10	$	92	$	80	$	11	$	10	$	75	$	76	$	12	$	10
Interest cost		102		98		14		14		78		72		28		31		112		102		15		14		76		78		31		28
Expected return on plan assets		(149)		(143)		--		--		(80)		(70)		(5)		(6)		(154)		(149)		--		--		(79)		(80)		(6)		(5)
Amortization of:
Prior service costs/(gains)		3		4		1		1		--		(1)		(1)		1
Net transition obligation/(asset)		--		--		--		--		1		(1)		--		--
Prior service costs/(credits)																		2		3		(1)		1		--		--		1		(1)
Net transition obligation																		--		--		--		--		1		1		--		--
Actuarial losses		25		23		9		9		23		14		5		6		28		25		10		9		25		23		8		5
Curtailments and settlements - net		--		--		--		--		10		(18)		--		--		21		--		1		--		7		10		12		--
Special termination benefits		--		--		--		--		3		--		--		--		4		--		--		--		7		3		2		--
Less: amounts included in discontinued operations																		(4)		(4)		(1)		(1)		(4)		(4)		(1)		(1)
Net periodic benefit costs	$	61	$	55	$	34	$	33	$	111	$	58	$	37	$	42	$	101	$	57	$	35	$	33	$	108	$	107	$	59	$	36

•	Stock options, which entitle the holder to purchase, at the end of a vesting term, a specified number of shares of Pfizer common stock at a price per share set equal to the market price of Pfizer common stock on the date of grant.

•	Restricted stock units (RSUs), which entitle the holder to receive, at the end of a vesting term, a specified number of shares of Pfizer common stock, including shares resulting from dividend equivalents paid on such RSUs.

•	Performance share awards (PSAs) and performance-contingent share awards (PCSAs), which entitle the holder to receive, at the end of a vesting term, a number of shares of Pfizer common stock, within a range of shares from zero to a specified maximum, calculated using a non-discretionary formula that measures Pfizer's performance relative to an industry peer group.

•	Restricted stock grants, which entitle the holder to receive, at the end of a vesting term, a specified number of shares of Pfizer common stock, and which also entitle the holder to receive dividends paid on such grants.

^(a)	Determined using a constant dividend yield during the expected term of the option.
^(b)	Determined using the extrapolated yield on U.S. Treasury zero-coupon issues.
^(c)	Determined using implied volatility, after consideration of historical volatility.
^(d)	Determined using historical exercise and post-vesting termination patterns.

	Shares (thousands)	Weighted- Average Exercise Price Per Share	Weighted- Average Remaining Contractual Term (years)	Aggregate Intrinsic Value^(a) (millions)
Outstanding, January 1, 2006	627,404	$33.51
Granted	68,699	26.20
Exercised	(17,764)	15.52
Forfeited	(4,987)	31.37
Cancelled	(36,909)	32.43
Outstanding, July 2, 2006	636,443	33.31	5.5	$286
Vested and expected to vest^(b), July 2, 2006	627,736	33.34	5.5	286
Exercisable, July 2, 2006	436,636	34.50	4.1	286

^(a)	Market price of underlying stock less exercise price.
^(b)	The number of options expected to vest takes into account an estimate of expected forfeitures.

			Three Months Ended				Six Months Ended
(millions of dollars, except per stock option amounts and years)			July 2, 2006		July 3, 2005		July 2, 2006		July 3, 2005

Weighted-average grant date fair value per stock option		$	5.42	$	3.23	$	5.42	$	5.15
Aggregate intrinsic value on exercise		$	66	$	210	$	171	$	296
Cash received upon exercise		$	109	$	160	$	267	$	262
Tax benefits realized related to exercise		$	20	$	80	$	53	$	103
Total compensation cost related to nonvested stock options not yet recognized, pre-tax^(a)		$	567		N/A	$	567		N/A
Weighted-average period in years over which stock option compensation cost is expected to be recognized^(b)			1.6		N/A		1.6		N/A

^(a)	The total compensation cost related to our Consumer Healthcare business is $27 million.
^(b)	The planned divestiture of our Consumer Healthcare business does not have a significant impact on this weighted-average period.

(thousands of shares)	Shares	Weighted-Average Grant Date Fair Value Per Share

Nonvested, January 1, 2006	12,803	$26.89
Granted	12,682	26.15
Vested	(3,300)	27.31
Reinvested dividend equivalents	307	25.01
Forfeited	(782)	26.06
Nonvested, July 2, 2006	21,710	26.36

			Three Months Ended				Six Months Ended
(millions of dollars, except per RSU amounts and years)			July 2, 2006		July 3, 2005		July 2, 2006		July 3, 2005

Weighted-average grant date fair value per RSU		$	25.75	$	27.53	$	26.35	$	26.24
Total fair value of shares vested		$	1	$	1	$	90	$	1
Total compensation cost related to nonvested RSU awards not yet recognized, pre-tax^(a)		$	388		N/A	$	388		N/A
Weighted-average period in years over which RSU cost is expected to be recognized^(b)			4.3		N/A		4.3		N/A

^(a)	The total compensation cost related to our Consumer Healthcare business is $20 million.
^(b)	The planned divestiture of our Consumer Healthcare business does not have a significant impact on this weighted-average period.

		Three Months Ended				Six Months Ended
(millions)		July 3, 2005		June 27, 2004		July 3, 2005		June 27, 2004

EPS Numerator - Basic:
Income from continuing operations	$	3,472	$	2,844	$	3,744	$	5,163
Less: Preferred stock dividends - net of tax		2		1		2		2
Income available to common shareholders from continuing operations		3,470		2,843		3,742		5,161
Discontinued operations - net of tax		(9)		19		19		32
Net income available to common shareholders	$	3,461	$	2,862	$	3,761	$	5,193

EPS Denominator - Basic:
Weighted-average number of common shares outstanding		7,366		7,574		7,391		7,580

EPS Numerator - Diluted:
Income from continuing operations	$	3,472	$	2,844	$	3,744	$	5,163
Less: ESOP contribution - net of tax		2		1		2		3
Income available to common shareholders from continuing operations		3,470		2,843		3,742		5,160
Discontinued operations - net of tax		(9)		19		19		32
Net income available to common shareholders	$	3,461	$	2,862	$	3,761	$	5,192

EPS Denominator - Diluted:
Weighted-average number of common shares outstanding		7,366		7,574		7,391		7,580
Common share equivalents: stock options, restricted stock units, stock issuable under employee compensation plans and convertible preferred stock		52		90		54		92
Weighted-average number of common shares outstanding and common share equivalents		7,418		7,664		7,445		7,672

(thousands of shares)	Shares	Weighted-Average Grant Date Value Per Share

Nonvested, January 1, 2006	13,366	$23.32
Granted	1,539	26.19
Vested	(1,583)	26.20
Forfeited^(a)	(1,513)	26.20
Nonvested, July 2, 2006	11,809	23.82


^(a)	Forfeited includes 345 thousand shares that were forfeited by retirees. At the discretion of the Compensation Committee of the Company's Board of Directors, $9 million in cash was paid to such retirees, which amount was equivalent to the fair value of the forfeited shares pro rated for the portion of the performance period that was completed prior to retirement.

			Three Months Ended				Six Months Ended
(millions of dollars, except per PCSA amounts and years)			July 2, 2006		July 3, 2005		July 2, 2006		July 3, 2005

Weighted-average grant date intrinsic value per PCSA		$	23.47	$	27.10	$	23.47	$	27.10
Total intrinsic value of vested PCSA shares		$	--	$	--	$	50	$	56
Total compensation cost related to nonvested PSA grants not yet recognized, pre-tax^(a)		$	17		N/A	$	17		N/A
Weighted-average period in years over which PSA cost is expected to be recognized^(b)			2.5		N/A		2.5		N/A

^(a)	The total compensation cost related to our Consumer Healthcare business is nominal.
^(b)	The planned divestiture of our Consumer Healthcare business does not have a significant impact on this weighted-average period.

	Per Share	Maximum Maturity (years)
(thousands of shares)	Purchase Price	July 2, 2006	Dec. 31, 2005

3,051	$33.85	0.4	--
3,051	33.84	--	0.4

(millions of dollars, except per common share data)		Three Months Ended July 3,2005		Six Months Ended July 3,2005

Net income available to common shareholders used in the calculation of basic earnings per common share:
As reported under GAAP^(a)	$	3,461	$	3,761
Compensation expense - net of tax^(b)		(104)		(252)
Pro forma	$	3,357	$	3,509
Basic earnings per common share:
As reported under GAAP^(a)	$	0.47	$	0.51
Compensation expense - net of tax^(b)		(0.01)		(0.04)
Pro forma	$	0.46	$	0.47
Net income available to common shareholders used in the calculation of diluted earnings per common share:
As reported under GAAP^(a)	$	3,461	$	3,761
Compensation expense - net of tax^(b)		(104)		(252)
Pro forma	$	3,357	$	3,509
Diluted earnings per common share:
As reported under GAAP^(a)	$	0.47	$	0.51
Compensation expense - net of tax^(b)		(0.02)		(0.04)
Pro forma	$	0.45	$	0.47

Human Health

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

~~Consumer Healthcare~~ The Human Health segment also includes our contract manufacturing and bulk pharmaceutical chemicals business.

•	~~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 prevention and treatments for diseases in livestock and companion animals.

^(a)	~~Includes certain income/(expense) items that are excluded from~~Corporate/Other includes the ~~operating segment profit/(loss) that are considered corporate items and, therefore, are included in~~manufacturing of empty two-piece gelatin capsules. Corporate/Other~~. These items include~~ also includes interest income/(expense), corporate expenses (e.g., corporate administration costs), other income/(expense) ~~items,~~(e.g., realized gains and losses attributable to our investments in debt and equity securities), certain ~~equity-based~~performance-based compensation expenses not allocated to the business segments, share-based payments, significant impacts of purchase accounting for acquisitions, certain milestone payments, ~~Adapting to Scale restructuring charges and implementation costs,~~ merger-related costs, ~~and~~ intangible asset ~~impairments.~~impairments and costs related to our AtS productivity initiative.

^(b)	Segment profit/(loss) equals income from continuing operations before provision for taxes on income and minority interests. Certain costs, such as significant impacts of purchase accounting for acquisitions, merger-related costs and costs related to our AtS productivity initiative, are included in Corporate/Other only. This methodology is utilized by management to evaluate our businesses.

^(c)	For the three months and six months ended July 2, 2006, Corporate/Other includes (i) significant impacts of purchase accounting for acquisitions of $1.3 billion and $2.1 billion, including acquired in-process research and development charges and incremental intangible asset amortization and other charges, (ii) merger-related costs of $6 million and $11 million, (iii) restructuring charges and implementation costs associated with the AtS productivity initiative of $442 million and $921 million, (iv) gain on disposals of investments and other of $23 million and $74 million, and (v) a research and development milestone due to us from sanofi-aventis of approximately $118 million in the first quarter of 2006.

^(d)	For the three months and six months ended July 3, 2005, Corporate/Other includes (i) significant impacts of purchase accounting for acquisitions of $1.1 billion and $1.9 billion, including acquired in-process ~~research and development,~~R&D charges, incremental intangible asset amortization and other charges, (ii) merger-related costs of ~~$249~~$243 million and ~~$468~~$459 million, (iii) costs associated with the suspension of Bextra's sales ~~and marketing~~ in the first quarter of 2005 of $1.2 billion, and (iv) restructuring charges and implementation costs associated with the ~~Adapting to Scale~~AtS productivity initiative of $54 million in the second quarter of ~~2005 of $54 million.~~

^(c)	~~For the three months and six months ended June 27, 2004,~~ ~~Corporate/Other~~ includes (i) significant impacts of purchase accounting for acquisitions of $820 million and $2.6 billion, including acquired in-process research and development, incremental intangible asset amortization and other charges, (ii) merger-related costs of $289 million and $536 million and (iii) the operating results of a divested legacy Pharmacia research facility of $32 million and $64 million.2005.

•	Overview of Consolidated Operating Results. This section, beginning on page 26, provides a general description of Pfizer's business; discusses significant acquisitions made during the first six months of 2006, as well as the planned disposition of the Consumer Healthcare business; provides information about our operating environment; and summarizes our productivity initiative.

•	Revenues. This section, beginning on page 29, provides an analysis of our products and revenues for the three months and six months ended July 2, 2006 and July 3, 2005, as well as an overview of important product developments.

•	Costs and Expenses. This section, beginning on page 39, provides a discussion about our costs and expenses.

•	Provision/(Benefit) for Taxes on Income. This section, beginning on page 40, provides a discussion of items impacting our tax provision for the periods presented.

•	Adjusted Income. This section, beginning on page 41, provides a discussion of an alternative view of performance used by management.

•	Financial Condition, Liquidity and Capital Resources. This section, beginning on page 45, provides an analysis of our balance sheets as of July 2, 2006 and December 31, 2005, and cash flows for the six months ended July 2, 2006 and July 3, 2005, as well as a discussion of our outstanding debt and commitments that existed as of July 2, 2006 and December 31, 2005. Included in the discussion of outstanding debt is a discussion of the amount of financial capacity available to help fund Pfizer's future commitments.

•	Outlook. This section, beginning on page 49, provides a discussion of forecasted financial performance.

•	Forward-Looking Information and Factors That May Affect Future Results. This section, beginning on page 50, provides a description of the risks and uncertainties that could cause actual results to differ materially from those discussed in forward-looking statements set forth in this report relating to the financial results, operations and business prospects of the Company. Such forward-looking statements are based on management's current expectations about future events, which are inherently susceptible to uncertainty and changes in circumstances. Also included in this section is a discussion of Legal Proceedings and Contingencies.