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June 19, 2000 Pfizer (PFE) merged with Warner-Lambert (WLA), issuing approximately 2.440 million PFE shares in exchange for all of the equity of WLA The merger used a pooling of interests method.

Balance Sheets PFE Cash & cash equivalent Inventories Other current Assets Property (net) Invesment & other assets Intangible assets Totals Short term debt Other current Liabilities Long term debt Deffered Income Tax Other long term liabilities Stockholder Equity Totals Shares outstanding (millions)

Historical 739 1.654 8.798 5.343 3.277 763 20.574 5.001 4.184 525 301 1.676 8.887 20.574 4.260 WLA 1.943 979 2.768 3.342 793 1.616 11.441 297 3.391 1.250 463 942 5.098 11.441

Pooling Consolidated 2.682 2.633 11.566 8.685 4.070 2.379 32.015 5.298 7.575 1.775 764 2.618 13.985 32.015 6.700

Using the pooling method, WLs income statement will be added to Pfizers.
Income Statement Sales COGS SG & A R&D Other Expenses, net Pretax Income Income tax expense Other deduction,net Net Income Historical PFE 16.204 (2.528) (6.351) (2.776) (101) 4.448 (1.244) (25) 3.179 WLA 12.929 (3.042) (5.959) (1.259) (228) 2.441 (798) 1.643 Pooling Consolidated 29.133 (5.570) (12.310) (4.035) (329) 6.889 (2.042) (25) 4.822

Using the pooling method, Pfizers cash-flow statement will receive additional amount from WLs.

Cash Flow Statement Operating Activities Investing Activities Financing activities Other Exchange rate effects Increase /(decrease) in cash

Historical PFE 3.076 (2.768) (1.127) (20) 26 (813) WLA 2.437 (1.234) (500) (15) 688

Pooling Consolidated 5.513 (4.002) (1.627) (20) 11 (125)

Ratios PFE Current Ratio Total Debt to Equity Book value per share Gross Profit Margin Operating Profit Margin Return on Equity CFO to Debt

Historical 1,22 0,62 2,09 84,40% 27,45% 35,77% 0,56 WLA 1,54 0,30 N/A 76,47% 18,88% 32,23% 1,58

Pooling Consolidated 1,31 0,51 2,09 80,88% 23,65% 34,48% 0,78

 Cash PFE shares Price $ 32,44 at the date of merger Fair values of WLA assets (million $): Inventories 1.250 Fixed Assets 4.000 In process R&D 1.000 Thus, Total Cash equivalent for issuance of 2,440 million PFE shares is: ($32,44 x 2.440 million) = $ 79.154

WLA Book Value Fair Value Adjustment Cash & cash equivalent 1.943 1.943 Inventories 979 1.250 271 Other current Assets 2.768 2.768 Property (net) 3.342 4.000 658 Invesment & other assets 793 793 Intangible assets 1.616 1.616 In Process R&D 1.000 1.000 Goodwill 72.115 72.115 Totals 11.441 85.485 74.044 Short term debt Other current Liabilities Long term debt Deffered Income Tax Other long term liabilities Stockholder Equity Totals 297 3.391 1.250 463 942 5.098 11.441 297 3.391 1.222 463 958 79.154 85.485 (28) 16 74.056 74.044

Total Assets at FMV Total Liabilities at FMV Net Assets Purchase Price by PFE Goodwill

13.370 (6.331) 7.039 $ 79.154 $ 72.115

Comparing the WLs net assets at FMV and purchase price give us the Goodwill.

Historical PFE Cash & cash equivalent Inventories Other current Assets Property (net) Invesment & other assets Intangible assets In Process R&D R&D write-off Goodwill Totals Short term debt Other current Liabilities Long term debt Deffered Income Tax Other long term liabilities Stockholder Equity Totals 739 1.654 8.798 5.343 3.277 763 20.574 5.001 4.184 525 301 1.676 8.887 20.574 WLA 1.943 979 2.768 3.342 793 1.616 11.441 297 3.391 1.250 463 942 5.098 11.441

Purchase Method Adjustments Consolidated 2.682 271 2.904 11.566 658 9.343 4.070 2.379 1.000 1.000 (1.000) (1.000) 72.115 72.115 105.059 (28) 16 73.056 5.298 7.575 1.747 764 2.634 87.041 105.059

Other assumptions, if: Property useful life 10 years Long-term debt & liabilities period 5 years Tax rate 35%
Balance sheet adjustment Description Amount Inventories 271 Property (net) 658 In process R&D Goodwill 72.115 73.044 Long term debt (28) Other Long term liabilities 16 73.032 Tax deduction Income Statement Effect Description Amount Assumption COGS (271) Depreciation (66) 10 years R&D expense (1.000) (1.337) Amortization (6) 5 years Amortization 3 5 years (1.339) 469 35% (870)

Income Statement Sales COGS SG & A R&D In process R&D Depreciation expense Interest expense Other Expenses, net Pretax Income Income tax expense Other deduction,net Net Income

Historical PFE 16.204 (2.528) (6.351) (2.776) (101) 4.448 (1.244) (25) 3.179 WLA 12.929 (3.042) (5.959) (1.259) (228) 2.441 (798) 1.643

Purchase Method Adjustments Consolidated 29.133 (271) (5.841) (12.310) (4.035) (1.000) (1.000) (66) (66) (2) (2) (329) (1.339) 5.550 469 (1.573) (25) (870) 3.952

The only adjustment in cash flow statement under purchase method is the inclusion of Cash & equivalents from WLs balance sheet which is reported as an inflow in cash from investing activities.
Cash Flow Statement Operating Activities Investing Activities Financing activities Other Exchange rate effects Increase /(decrease) in cash Historical PFE 3.076 (2.768) (1.127) (20) 26 (813) Purchase Method WLA Adjustments Consolidated 2.437 5.513 (1.234) 1.943 (2.059) (500) (1.627) (20) (15) 11 688 1.943 1.818

Ratios PFE Current Ratio Total Debt to Equity Book value per share Gross Profit Margin Operating Profit Margin Return on Equity CFO to Debt

Historical 1,22 0,62 2,09 84,40% 27,45% 35,77% 0,56

Pooling Purchase WLA Consolidated Consolidated 1,54 1,31 1,33 0,30 0,51 0,08 N/A 2,09 12,99 76,47% 81% 79,95% 18,88% 24% 19,05% 32,23% 34% 4,54% 1,58 0,78 0,78

 Using purchase method increase Pfizers total assets substantially. In this case, the use of purchase method creates a huge amount of goodwill. Total asset is significantly higher compare to under pooling method. On the other hand, the use of purchase method results in lower Net income comparing to pooling method. The combination of huge total assets and lower net income under purchase method results in very low Return on assets compare to the one under pooling method.
Pooling Purchase

Net Income Total Assets Return on Assets

4,822 32,015 15.06%

3,952 105,059 3.76%

 Using purchase method will also increase Pfizers equity by significant amount. As Pfizer acquire WL by issuing new PFE shares, Pfizers equity will increase at the amount of cash equivalent of the new shares issued. Given the lower net income under purchase method, the jump on equity will significantly reduce Pfizers Return on Equity.
Pooling Net Income Total equity Return on Equity 4,822 13,985 Purchase 3,952 87,041 4.54%

34.48%

 From balance sheet point of view, the difference of IAS purchase method and US purchase method in only in In-process R&D. Under IAS purchase method In-process R&D is not written-off.