01—Abstract
Summary
Summary of the 10-K filed February 28, 2012. Cited figures are marked; the original filing is the authoritative source.
Pfizer's 2011 10-K (filed February 28, 2012) reports revenues of $67.4 billiona, up 1% year over year, as favorable foreign exchange (about $1.9 billion) and the addition of King Pharmaceuticals (about $1.3 billion) offset a net operational decline of about $2.9 billion, driven mainly by loss of exclusivity on products such as Lipitor, Effexor and Protonix.
Reported net income attributable to Pfizer rose 21% to $10.0 billionb (diluted EPS $1.27), while Adjusted income, the non-GAAP measure management uses, was $18.2 billion (Adjusted diluted EPS $2.31). Reported results were boosted by the $1.3 billion gain on the Capsugel sale and were reduced by about $4.5 billion of restructuring, litigation and impairment-related charges, so investors should weigh the gap between GAAP and adjusted figures. The main forward-looking issue is the patent cliff.
Lipitor, the largest product at about $9.6 billionc (roughly 14% of revenue), lost U.S. exclusivity in November 2011, with multi-source generic competition expected from late May 2012 and substantial further losses in Europe. Management guides 2012 revenues of $60.5 to $62.5 billion, reported diluted EPS of $1.37 to $1.52, and Adjusted diluted EPS of $2.20 to $2.30. The company also plans to cut R&D spending, with adjusted R&D expected to fall to roughly $6.5 to $7.0 billion in 2012 from $8.4 billion in 2011, and it is exploring separation or sale of its Animal Health and Nutrition businesses, with decisions expected in 2012.
Capital returns remain a key part of the story. The dividend was raised to $0.22d per quarter from $0.20, and the board authorized a new $10 billion repurchase plan in December 2011, with about $5 billion of buybacks expected in 2012.
Pfizer ended 2011 with $3.5 billion in cash, $27.0 billion in short-term investments and loans, and $34.9 billion in long-term debt, with net financial liabilities of $2.7 billion and AA/A1 credit ratings. Key risks include U.S. healthcare reform (including the Supreme Court review of the individual mandate), pricing pressure in Europe and emerging markets, hormone-replacement therapy and Quigley asbestos litigation, and the Lipitor and Caduet generic entry.
02—Key points
Key Highlights
- Revenue rose 1% to $67.4 billion, but operational revenue fell about 4% as loss of exclusivity hit Lipitor, Effexor, Protonix and Xalatan.
- Reported net income attributable to Pfizer grew 21% to $10.0 billion (diluted EPS $1.27); Adjusted income was $18.2 billion (Adjusted diluted EPS $2.31), a non-GAAP measure.
- Lipitor lost U.S. exclusivity in November 2011 (2011 sales about $9.6 billion, ~14% of revenue) and faces multi-source generics from late May 2012; management expects substantially lower 2012 Lipitor revenue.
- 2012 guidance: revenues of $60.5–62.5 billion, reported diluted EPS of $1.37–1.52, and Adjusted diluted EPS of $2.20–2.30.
- Capital return: quarterly dividend raised to $0.22 (from $0.20); new $10 billion buyback authorized, with about $5 billion of repurchases planned for 2012.
- Strategic review of Animal Health and Nutrition, with a decision expected in 2012 and any separation completed between July 2012 and July 2013; the Capsugel sale closed in August 2011 for about $2.4 billion.
- R&D is being cut and refocused on five therapeutic areas, with adjusted R&D expected to fall from $8.4 billion in 2011 to $6.5–7.0 billion in 2012; cost-reduction goal of $4–5 billion was achieved a year early.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2011, Pfizer Inc kept $0.16.
- Revenue$61.03B100.0%
- Cost of revenue−$12.50B20.5%
- Gross profit$48.53B79.5%
- Operating costs−$40.72B66.7%
- Operating income$7.82B12.8%
- Interest, other & tax$2.19B3.6%
- Net income$10.01B16.4%
Where FY2011 revenue went
$61.03B- Other operating costs: $23.13B, 38% of revenue
- SG&A: $17.58B, 29% of revenue
- Cost of revenue: $12.50B, 20% of revenue
- Operating income: $7.82B, 13% of revenue
Kept 13% as operating income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2011filed February 28, 2012Financial Statements
FY2011 against FY2010
| Line item | FY2011FY2010 | Change |
|---|---|---|
| Revenue | $61.03B$65.17B | −6.3% |
| Cost of Revenue | $12.50B$14.79B | −15.5% |
| Gross Profit | $48.53B$50.38B | −3.7% |
| SG&A Expenses | $17.58B$18.97B | −7.3% |
| Operating Income | $7.82B$8.29B | −5.6% |
| Interest Expense | $1.68B$1.80B | −6.5% |
| Net Income | $10.01B$8.26B | +21.2% |
| EPS (Basic) | $1.28$1.03 | +24.3% |
| EPS (Diluted) | $1.27$1.02 | +24.5% |
| Shares Outstanding (Basic) | 7.82B8.04B | −2.7% |
| Shares Outstanding (Diluted) | 7.87B8.07B | −2.5% |
05—Questions
Frequently Asked Questions
How much revenue is at risk from the Lipitor patent expiration?
Lipitor generated about $9.6 billion in 2011 (roughly 14% of total revenue), with about $5.0 billion in the U.S. and $4.6 billion internationally. U.S. exclusivity ended November 30, 2011, with multi-source generic competition expected after Ranbaxy's 180-day exclusivity period ends in late May 2012. Management expects 2012 Lipitor revenue to be substantially below 2011, and the majority of European markets lose exclusivity by May 2012.
Why do reported and adjusted earnings differ so much?
Adjusted income excludes purchase accounting charges (about $6.8 billion pre-tax in 2011), acquisition-related costs (about $2.0 billion), discontinued operations, and certain significant items (about $4.4 billion pre-tax, including restructuring, legal matters such as hormone-replacement therapy litigation, and asset impairments). Reported diluted EPS was $1.27 versus Adjusted diluted EPS of $2.31. Management uses Adjusted income internally and for incentive compensation, and it is not a GAAP measure, so investors should reconcile the two.
What is management's capital allocation plan?
Pfizer raised its quarterly dividend to $0.22 per share from $0.20, paid $6.2 billion in dividends in 2011, and repurchased about $9.0 billion of stock in 2011. The board authorized a new $10 billion repurchase plan in December 2011, and the company expects to buy back about $5 billion in 2012 with the remainder available in 2013 and beyond. The company states its dividends are not restricted by debt covenants.
What happens to Animal Health and Nutrition?
In July 2011, Pfizer said it is exploring strategic alternatives for Animal Health (2011 revenue about $4.2 billion) and Nutrition (about $2.1 billion), which may include a spin-off, sale, or other transaction. It expects to announce a decision for each business in 2012 and complete any separation between July 2012 and July 2013. The two businesses may receive different treatment.
What regulatory and legal risks could affect Pfizer's outlook?
Key risks include the U.S. Supreme Court's 2012 review of the Affordable Care Act's individual mandate, the ACA's rebate increases (about $500 million expected revenue reduction in 2012) and the Independent Payment Advisory Board, continued government-mandated price cuts in Europe and emerging markets, and major litigation. This includes about 10,000 hormone-replacement therapy actions (with a $359 million charge in 2011), the Quigley asbestos bankruptcy settlement (over $550 million expected contribution), off-label promotion suits, and antitrust claims tied to Lipitor and Effexor XR. The company says it cannot reasonably estimate the range of loss in excess of accruals for the hormone-replacement litigation.
06—Continue