Sunday, May 26, 2019

Pifzer Inc.’s Cost of Capital and Capital Structure

Pfizer Inc. S toll of Capital and Capital structure Xiaoyue Shi The costs of capital and capital structures for Pfizer Inc. and its two competitors Merck & Co. Inc. and Johnson & Johnson in the pharmaceutical industry are analyzed in this memo. When calculating the cost of common stock for the terce companies, three different cash advancees including Capital Asset set Model (CAPM), Discounted Cash Flow (DCF) and the bond yield plus risk premium are applied ( vermiform appendix A). For CAPM approach ( body-build 1 & 3), the risk-free rate (rRF) use is the rate on the U. S. 10-year Treasury bonds, which is 1. 66.The market risk premium (RPM) is the required elapse on the stock market minus rRF. The required market return apply here is the average 20 years pass judgment of return on S&P 500. With highest beta (0. 71), Merck has the higher estimated cost of honor (6. 167). Pfizer has dismantle estimated cost of equity (5. 910) with lower beta (0. 67). Because of the lowest bet a (0. 48), Johnson & Johnson has the lowest estimated cost of equity (4. 697). For DCF approach ( routine 2 & 4), the stock price used is the new stock price. The expected proceeds rate (g) is the annualized crop rate based on the dividend growth over the past 10 years.Among the three companies, Johnson & Johnson has the highest estimated cost of equity due to its highest expected growth rate in dividends. Pfizers estimated cost of equity is much lower than Johnson & Johnson. Having the lowest expected growth rate in dividends, Merck has the lowest cost of equity. For bond yield plus risk premium approach ( go steady 5), the bond yield (Figure 7) for Pfizer, Merck and Johnson & Johnson are 2. 0724, 2. 5553, and 1. 9629 respectively. Since their betas are Pfizer 0. 67, Merck 0. 71 and Johnson & Johnson 0. 48, and completely under 1, the three companies judgmental risk premium estimated as 3. , 3. 4, and 3, respectively. According to the bond yield plus risk premium method, the e stimated costs of equity are Pfizer 5. 3724, Merck 5. 9553, Johnson & Johnson 4. 9629. The last estimated costs of equity for the three companies in this memo are the averages of the three approaches (Figure 6), and they are Pfizer 5. 83, Merck 4. 44, Johnson & Johnson 7. 36. The three companies do not offer preferred stocks in state-supported ( accessory B). Their costs of preferred stock would be zero. Although Pfizer offer Preferred stock for their employees, its costs of preferred stock still estimated as zero.According to the debt-rating organizations such as heavys, S&P, the three companies bond ratings are very high (Figure 7). The tax rates used for calculating the costs of debt are the average tax rates for the last four years (Appendix C, Figure 10). And their after-tax cost of debts are similarly low, for example, Pfizer 1. 657, Merck 1. 991, Johnson & Johnson 1. 528 (Figure 9). When calculating the percentage of debt and common equity (Appendix D, Figure 12), the comm on equity used is the market apprise of equity, and the book value of companys debt is used as a proxy of the market value of debt.According to the formula in Appendix D, the weighted average costs of capital (WACC) for the three companies are Pfizer 1. 86, Merck 2. 17, Johnson & Johnson 2. 15. The WACCs are quit low for the three companies as pharmaceutical giants. The debt ratios for last four years for the three companies were exclusively around 50% (Appendix E, Figure 13). For example, in 2008, Pfizers debt ratio was 48. 1%, Merck was 55. 2%, Johnson & Johnson was 49. 9% in 2009, Pfizer was 57. 5%, Merck was 45. 5%, Johnson & Johnson was 46. 6% in 2010, Pfizer was 54. 7%, Merck was 46. 3%, Johnson & Johnson was 45% in 2011, Pfizer was 56. %, Merck was 45. 8%, Johnson & Johnson was 49. 8%. Pfizers debt ratios were a little higher than its two competitors. But they all nourish quite similar capital structures with similar borrowing capacities. The three companies assets are fin anced with around 50% equity, and their risks of bankruptcy are low. Because involved in the pharmaceutical industry, the three companies are focusing on R&D, innovation and raise productivity, which are very costly for them. The three companies all have a lot borrowings. medicate development needs a lot of resources and quite inefficient.High failure rates cause a lot pharmaceutical companies unable to make profit and went bankruptcy. base on the circumstances, the three companies all have very good capital structures in the pharmaceutical industry. They may have to figure out a sort to cut their costs, and have even better capital structures. Pfizer used accelerated depreciation methods for tax purpose. Its depreciation & amortization increased a lot since 2009 (Appendix F, Figure 14). For example, it was $5,090 million in 2008, and $4,757 million in 2009, but it was $8487 million in 2010, and $9026 million in 2011.The huge increase in depreciation was mainly because of the un ification with Wyeth in 2009. Merck mainly used accelerated depreciation methods for tax purpose except that its depreciation on intangibles was applied with primarily straight-line methods. Its depreciation & amortization in addition increased since 2009. For instance, it was $1,631. 2 million in 2008, and $2,576 million in 2009, but it was $7,381 million in 2010, and $7,427 million in 2011. The increase in depreciation was to a fault because of the merger. Merck was also involved in a merger with another pharmaceutical company Schering-Plough in 2009.Johnson & Johnson had quite stable depreciations. And the straight-line methods were applied in this company. The three companies all paid stable dividends in last four years (Appendix G). Pfizer paid lowest dividends among them. Johnson & Johnson paid highest dividends. Only Johnson & Johnson performed stock repurchases (Figure 15 & 16). They (in shares) were 100,970 thousands in 2008, 37,114 thousands in 2009, 45,090 thousands in 2 010, 39,741 thousands in 2011. And the money (in millions) used for stock repurchases was $6,651 in 2008, $2,130 in 2009, $2,797 in 2010, $2,525 in 2011.In my point of view, Pfizer and its two competitors Merck and Johnson & Johnson all have low cost of capital. Although they all involved in a lot borrowings , they all have very good capital structures as pharmaceutical companies. The reason is that the costs in R&D and innovation are extremely high in the pharmaceutical industry. Reference 1. Brigham, Eugene F. and Michael C. Ehrhardt. Financial Management Theory and Practice, 13th Edition, Thompson South-Western, ISBN-13 978-14390-7809-9, ISBN-101-4390-7809-2 2. http//www. mergentonline. com/login. php 3. http//www. how. com/how_5833592_determine-target-debt-equity. html 4. http//cxa. gtm. idmanagedsolutions. com/finra/BondCenter/Watchlist. aspx 5. ww. finra. org 6. http//www3. valueline. com/vlquotes/quote. aspx Appendices Appendix A cost of common stock Appendix B salute of p referred stock Appendix C Cost of debt Appendix D Weighted reasonable Cost of Capital (WACC) Appendix E Capital Structure Appendix F Depreciation Appendix G Yearly dividend and share repurchase Appendix H Value Line reports Appendix A Cost of common stock Equations used for calculating cost of common stockCAPM approach rS=rRF+(RPM)bi DCF approach The bond yield plus risk premium approach rS=Companys own bond yield + Judgmental risk premium Figure 1 CAPM Equation Variables Pfizer Merck J&J put on the line Free Rate 1. 66 1. 66 1. 66 Required Rate of Return 8. 00 8. 00 8. 00 Beta 0. 67 0. 71 0. 48 Required Return on argumentation 5. 91 6. 17 4. 70 Required Return on rake Pfizer Merck J&J 5. 91 6. 17 4. 70 Figure 2 Annualized dividend growth rate (g) PfizerYear Sum dividend Total growth over 10 years Annualized growth rate (g) future(a) expected dividend 2011 0. 8 2010 0. 72 2009 0. 8 2008 1. 28 2007 1. 16 2006 0. 96 2005 0. 76 2004 0. 68 2 003 0. 6 2002 0. 52 2001 0. 44 0. 818181818 6. 16% $0. 85 Merck Year Sum dividend Total growth over 10 years Annualized growth rate (g) Next expected dividend 2011 1. 56 2010 1. 52 2009 1. 52 2008 1. 52 2007 1. 52 2006 1. 52 2005 1. 52 2004 1. 5 2003 3. 976 2002 1. 3 2001 1. 39 0. 122302158 1. 16% $1. 58 J&J Year Sum dividend Total growth over 10 years Annualized growth rate (g) Next expected dividend 2011 2. 25 2010 2. 11 2009 1. 93 2008 1. 795 2007 1. 62 2006 1. 455 2005 1. 275 2004 1. 095 2003 0. 925 2002 0. 795 2001 0. 7 2. 214285714 12. 39% $2. 53 Figure 3 CAPM CAPM Risk Free Rate (1) Required commercialize Return (2) Market Risk Premium (3)=(2)-(1) Beta (4) Estimated cost of rectitude (1)+(3)? (4) Pfizer 1. 66 8. 00 6. 34 0. 67 5. 10 Merck 1. 66 8. 00 6. 34 0. 71 6. 167 J&J 1. 66 8. 00 6. 34 0. 48 4. 697 Figure 4 DCF DCF Stock Price (1) Next Expected Dividend (2) Expected Growth Rate ( 3) Estimated cost of lawfulness (2)/(1)+(3) Pfizer 25. 12 $0. 85 6. 16 6. 194 Merck 45. 62 $1. 58 1. 16 1. 195 J&J 67. 97 $2. 53 12. 39 12. 427 Figure 5 Bond Yield plus Risk Premium Companys Bond Yield (1) Judgmental Risk Premium (2) Estimated cost of Equity (1)+(2) Pfizer 2. 0724 3. 3 5. 3724 Merck 2. 5553 3. 4 5. 9553 J&J 1. 629 3 4. 9629 Figure 6 Estimated Cost of Equity Estimated Cost of Equity Pfizer 5. 83 Merck 4. 44 J&J 7. 36 Figure 7 Bond Data Bond Data Bond Symbol Issuer Name Coupon due date Callable Moodys SP Fitch Price Yield PFE. GF PFIZER INC 4. 65 3/1/18 No A1 AA A+ 116. 189 1. 501 PFE. GI PFIZER INC 4. 5 2/15/14 No A1 AA A+ 105. 468 0. 367 PFE. GM PFIZER INC 7. 2 3/15/39 Yes A1 AA A+ 159. 019 3. 685 PFE. GO PFIZER INC 6. 2 3/15/19 Yes A1 AA A+ 127. 5 1. 66 PFE. GQ PFIZER INC 5. 5 3/15/15 Yes A1 AA A+ 111. 554 0. 521 PFE3666215 AMERICAN HOME PRODS CORP 7. 25 3/1/23 No A1 AA A+ 139. 65 2. 819 PFE36677 44 WYETH 5. 5 2/15/16 Yes A1 AA A+ 115. 705 0. 715 PFE3667745 WYETH 6 2/15/36 Yes A1 AA A+ 134 3. 791 PFE3667909 PHARMACIA CORP 6. 5 12/1/18 Yes A1 AA A+ 128. 14 1. 677 PFE3667915 PHARMACIA CORP 6. 75 12/15/27 No A1 AA A+ 137. 221 3. 552 PFE3667927 PHARMACIA CORP 6. 6 12/1/28 Yes A1 AA A+ 138. 179 3. 484 PFE3670301 WYETH 5. 45 4/1/17 Yes A1 AA A+ 119. 153 1. 044 PFE3670315 WYETH 5. 95 4/1/37 Yes A1 AA A+ 135 3. 5 PFE3702946 WYETH 5. 5 3/15/13 Yes A1 AA A+ 101. 977 0. 706 PFE3703979 PHARMACIA CORP 8. 7 10/15/21 No A1 AA A+ 142. 03 - PFE3704635 WYETH 5. 5 2/1/14 Yes A1 AA A+ 106. 52 0. 421 PFE3704636 WYETH 6. 45 2/1/24 Yes A1 AA A+ 138. 004 2. 553 PFE3704637 WYETH 6. 5 2/1/34 Yes A1 AA A+ 139. 025 3. 807 PFE3706578 PHARMACIA CORP 8. 2 4/15/25 Yes A1 AA A+ 101. 5 - PFE3739069 KING PHARMACEUTICALS INC 1. 25 4/1/26 Yes NR NR NR 99. 99 1. 25 honest 2. 072388889 MRK. GA MERCK CO INC 6. 3 1/1/26 No Aa3 AA A+ 138. 945 2. 76 MRK.GB MERCK CO INC 6. 4 3/1/28 Yes Aa3 AA A+ 137. 464 3. 278 MRK. GC MERCK CO INC 5. 95 12/1/28 Yes Aa3 AA A+ 133. 211 3. 28 MRK. GF MERCK CO INC MTN BE 5. 76 5/3/37 No Aa3 AA A+ 131 3. 808 MRK. GG MERCK CO INC MTN BE - 11/27/40 No Aa3 AA A+ 98. 25 - MRK. GH MERCK CO INC MTN BE - 12/21/40 Yes Aa3 AA A+ 98 - MRK. GI MERCK CO INC MTN BE - 12/27/40 No Aa3 AA A+ 98. 5 - MRK. GJ MERCK CO INC MTN BE - 2/6/41 No Aa3 AA A+ 98 - MRK. GK MERCK CO INC MTN BE - 6/21/41 Yes Aa3 AA A+ 100 - MRK. GL MERCK amp CO INC MTN BE - 7/18/41 No Aa3 AA A+ 97. 75 - MRK. GM MERCK CO INC MTN BE - 12/21/41 Yes Aa3 AA A+ 100 - MRK. GN MERCK CO INC MTN BE - 11/28/41 No Aa3 AA A+ 98. 25 - MRK. GQ MERCK CO INC MTN BE - 8/22/42 Yes Aa3 AA A+ 98. 275 - MRK. GR MERCK CO INC MTN BE - 2/18/43 Yes Aa3 AA A+ 99. 875 - MRK. GT MERCK CO INC MTN BE - 2/12/44 Yes Aa3 AA A+ 100 - MRK. GU MERCK CO INC 4. 75 3/1/15 Yes Aa3 AA A+ 109. 512 0. 699 MRK. GV MERCK CO INC 5. 75 11/15/36 Yes Aa3 AA A+ 135. 683 3. 536 MRK. GW MERCK CO INC 4. 8 2/15/13 No Aa3 AA A+ 101. 369 0. 1 94 MRK. GX MERCK CO INC NEW 3. 88 1/15/21 Yes A1 AA A+ 114. 717 1. 883 MRK3671638 SCHERING PLOUGH CORP 6. 55 9/15/37 Yes Aa3 AA A+ 149. 11 3. 56 Average 2. 555333333 JNJ. GA ALZA CORP DEL - 7/14/14 Yes Aa1 abdominal aortic aneurysm abdominal aortic aneurysm 152. 8 - JNJ. GC ALZA CORP - 7/28/20 Yes Aa1 abdominal aortic aneurysm AAA 98. 75 - JNJ. GH JOHNSON JOHNSON 6. 73 11/15/23 No abdominal aortic aneurysm AAA AAA 145. 758 2. 083 JNJ. GI - 11/1/24 No NR NR NR 104. 36 - JNJ. GJ JOHNSON JOHNSON 6. 95 9/1/29 No abdominal aortic aneurysm AAA AAA 144. 925 3. 422 JNJ. GL JOHNSON JOHNSON 3. 5/15/13 No abdominal aortic aneurysm AAA AAA 102. 04 0. 263 JNJ. GM JOHNSON JOHNSON 4. 95 5/15/33 No Aaa AAA AAA 121. 154 3. 499 JNJ. GO JOHNSON JOHNSON 5. 55 8/15/17 Yes Aaa AAA AAA 121. 81 0. 932 JNJ. GP JOHNSON JOHNSON 5. 95 8/15/37 Yes Aaa AAA AAA 143. 163 3. 369 JNJ. GQ JOHNSON JOHNSON 5. 15 7/15/18 Yes Aaa AAA AAA 123. 223 0. 982 JNJ. GR JOHNSON JOHNSON 5. 85 7/15/38 Yes Aaa AAA AAA 143. 093 3. 341 JNJ. GS JOHNSON JOHNSON 2. 95 9/1/20 Yes Aaa AAA AAA 107. 12 1. 969 JNJ. GT JOHNSON JOHNSON 4. 5 9/1/40 Yes Aaa AAA AAA 123. 32 3. 229 JNJ. GU JOHNSON JOHNSON - 5/15/13 No Aaa AAA AAA 100. 154 - JNJ. GV JOHNSON JOHNSON - 5/15/14 No Aaa AAA AAA 100. 322 - JNJ. GW JOHNSON JOHNSON 2. 15 5/15/16 Yes Aaa AAA AAA 105. 523 0. 588 JNJ. GX JOHNSON JOHNSON 4. 85 5/15/41 Yes Aaa AAA AAA 125. 764 3. 428 JNJ. GY JOHNSON JOHNSON 1. 2 5/15/14 Yes Aaa AAA AAA 101. 399 0. 311 JNJ. GZ JOHNSON JOHNSON 3. 55 5/15/21 Yes Aaa AAA AAA 113. 786 1. 807 JNJ. HA JOHNSON JOHNSON 0. 7 5/15/13 No Aaa AAA AAA 100. 278 0. 22 Average 1. 62866667 Appendix B Cost of preferred stock Figure 8 Cost of Preferred Stock Cost of Preferred Stock Preferred Dividend (1) Preferred Stock Price (2) Floatation Cost (3) Component cost of Preferred Stock(1)/(2)*(1-(3)) Pfizer N/A N/A N/A VALUE Merk N/A N/A N/A VALUE JJ N/A N/A N/A VALUE Appendix C Cost of debt After-tax cost of debt=rd(1- T) Figure 9 After-tax cost of debt After Tax Component Cost of Debt Interest Rate Tax Rate Cost of Debt Pfizer 2. 072388889 0. 2003 1. 657289394 Merck 2. 555333333 0. 221 1. 990604667 JJ 1. 962866667 0. 2218 1. 2750284 Figure 10 Marginal tax rate Company Pfizer Merck JJ Year 2011 2010 2009 2008 2011 2010 2009 2008 2011 2010 2009 2008 Income before tax 12,764 9,282 10,674 9,694 7,334 1,653 15,290 9,931 12,361 16,947 15,755 16,929 Provision for tax 4,023 1,071 2,145 1,645 942 671 2,268 1,999 2,689 3,613 3,489 3,980 Tax rate 0. 3152 0. 1154 0. 2010 0. 1697 0. 1284 0. 4059 0. 1483 0. 2013 0. 2175 0. 2132 0. 2215 0. 2351 Average tax rate 0. 2003 0. 2210 0. 2218 Appendix D Weighted Average Cost of Capital (WACC) Figure 11 WACC WACC % of Debt Cost of Debt % of Preferred Stock Cost of Preferred Stock % of plebeian Equity Cost of commonplace Equity WACC Pfizer 95. 15% 1. 66 4. 85% 5. 83 1. 86 Merck 92. 50% 1. 99 7. 50% 4. 44 2. 17 JJ 89. 26% 1. 53 10. 74% 7. 36 2. 15 % of Debt, and % of ballpark Equity are the target proportions. Figure 12 Calculating the percentage of debt and common equity Pfizer Merck JJ Shares outstanding (million) 7,470 3,050 2,750 Market value per share 26. 03 47. 96 72. 52 Market value of equity ($ million), E 194,444. 146,278. 0 199,430. 0 Book value of equity per share 10. 64 18. 16 20. 95 Total book value of equity 79,480. 8 55,388. 0 57,612. 5 Debt/Equity ratio 48. 26 32. 91 29. 07 Book value of debt 3,835,743. 41 1,822,819. 08 1,674,795. 38 Cash on hand 24,340 17,450 16,920 Net debt ($ million), D 3,811,403 1,805,369 1,657,875 Percentage of debt, D/(E+D) 95. 15% 92. 50% 89. 26% Percentage of equity, E/(E+D) 4. 85% 7. 50% 10. 74% Appendix E Capital Structure Figure 13 Capital Structure Capital Structure Pfizer 2011 2010 2009 2008 large Term Debt* 34,931,000. 00 38,410,000 43,193,000 7,963,000 Common Stock* 445,000 444,000 443,000 443,000 Retained Earnings* 46 ,210,000 42,716,000 40,426,000 49,142,000 Redeemable Preferred Stock* 45,000 52,000 61,000 73,000 Total 81,631,000. 00 81,622,000. 00 84,123,000. 00 57,621,000. 00 % of Debt 42. 79% 47. 06% 51. 35% 13. 82% % of Preferred Stock 0. 06% 0. 06% 0. 07% 0. 13% % of Common Equity 57. 15% 52. 88% 48. 58% 86. 05% Total % 100. 00% 100. 00% 100. 00% 100. 00% Average/Target % of Debt 38. 75% 95. 15% Average/Target % of Preferred Stock 0. 08% 0. 00% Average/Target % of Common Equity 61. 17% 4. 85% Total Debt* 105,381,000 106,749,000 122,503,000 53,408,000 Total Assets* 188,002,000 195,014,000 212,949,000 111,148,000 Total Debt/Total Assets 56. 1% 54. 7% 57. 5% 48. 1% Merck 2011 2010 2009 2008 Long Term Debt* 15,525,000 15,482,000 16,074,900 3,943,300 Common Stock* 1,788,000 1,788,000 1,781,300 29,800 Retained Earnings* 38,990,000 37,536,000 41,404,900 43,698,800 Redeemable Preferred Stock* Total 56,303,000. 0 54,806,000. 00 59,261,100. 00 47,671,900 . 00 % of Debt 27. 57% 28. 25% 27. 13% 8. 27% % of Preferred Stock 0. 00% 0. 00% 0. 00% 0. 00% % of Common Equity 72. 43% 71. 75% 72. 87% 91. 73% Total % 100. 00% 100. 00% 100. 00% 100. 00% Average/Target % of Debt 22. 81% 92. 50% Average/Target % of Preferred Stock 0. 00% 0% Average/Target % of Common Equity 77. 19% 7. 50% Total Debt* 48,185,000 48,976,000 50,597,100 26,028,600 Total Assets* 105,128,000 105,781,000 112,089,700 47,195,700 Total Debt/Total Assets 45. % 46. 3% 45. 1% 55. 2% JJ 2011 2010 2009 2008 Long Term Debt* 12,969,000 9,156,000 8,223,000 8,120,000 Common Stock* 3,120,000 3,120,000 3,120,000 3,120,000 Retained Earnings* 81,251,000 77,773,000 70,306,000 63,379,000 Redeemable Preferred Stock* Total 97,340,000. 00 90,049,000. 00 81,649,000. 00 74,619,000. 00 % of Debt 13. 32% 10. 17% 10. 07% 10. 88% % of Preferred Stock 0. 00% 0. 00% 0. 00% 0. 00% % of Common Equity 86. 68% 89. 83% 89. 93% 89. 12% Total % 100. 00% 10 0. 0% 100. 00% 100. 00% Average/Target % of Debt 11. 11% 89. 26% Average/Target % of Preferred Stock 0. 00% 0% Average/Target % of Common Equity 88. 89% 10. 74% Total Debt* 56,564,000 46,329,000 44,094,000 42,401,000 Total Assets* 113,644,000 102,908,000 94,682,000 84,912,000 Total Debt/Total Assets 49. 8% 45. 0% 46. 6% 49. 9% * $ in thousands Appendix F Depreciation Figure 14 Depreciation Depreciation USEFUL LIVES Pfizer (YEARS) 2011 2010 2009 2008 attribute Accelerated depreciation methodsClasses of Assets and Depreciation Ranges Land Buildings 33 1/3-50 Machinery and equipment 8-20 Furniture, fixtures and other 3-12 1/2 Construction in progress Depreciation Amortization** 9,026 8,487 4,757 5,090 Merck USEFUL LIVES (YEARS) 2011 2010 2009 2008 Type Accelerated depreciation methods Classes of Assets and Depreciation Ranges Buildings 10-50 Machinery Equipment 3-15 Capitalized parc el 3-5 Construction in progress Products and product rights, trade names and patents 3-40 Primarily straight- line methods Depreciation Amortization** 7,427 7,381 2,576 1,631. 2 JJ USEFUL LIVES (YEARS) 2011 2010 2009 2008 Type Straight- line methods Classes of Assets and Depreciation Ranges Building and building equipment 2040 Land and leasehold improvements 1020 Machinery and equipment 213 Capitalized software 3-8 Depreciation Amortization** 3,158 2,939 2,774 2,832 ** $ in millions Appendix G Yearly dividend and share repurchase Figure 15 Stock repurchase (in shares) and dividends Stock Repurchaces and Dividends Pfizer 2011 2010 2009 2008 Stock Repurchaces* N/A N/A N/A N/A Dividends ($) 0. 8 0. 72 0. 8 1. 28 Merck 2011 2010 2009 2008 Stock Repurchaces* N/A N/A N/A N/A Dividends ($) 1. 56 1. 52 1. 52 1. 52 JJ 2011 2010 2009 2008 Stock Repurchaces* 39,741 45,090 37,114 100,9 70 Dividends ($) 2. 25 2. 11 1. 93 1. 795 Number of Shares (Thousands) Figure 16 Stock repurchase (in U. S. dollars) and dividends Stock Repurchaces and Dividends Pfizer 2011 2010 2009 2008 Stock Repurchaces* N/A N/A N/A N/A Dividends ($) 0. 8 0. 72 0. 8 1. 28 Merck 2011 2010 2009 2008 Stock Repurchaces* N/A N/A N/A N/A Dividends ($) 1. 56 1. 52 1. 52 1. 52 JJ 2011 2010 2009 2008 Stock Repurchaces* (2,525) (2,797) (2,130) (6,651) Dividends ($) 2. 25 2. 11 1. 93 1. 795 * $ in millions Appendix H Value Line reports

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