10-QPeriod: Q2 FY2003

PFIZER INC Quarterly Report for Q2 Ended Jun 29, 2003

Filed August 13, 2003For Securities:PFE

Summary

Pfizer Inc. (PFE) reported its financial results for the second quarter and the first six months ended June 29, 2003. The company experienced a significant net loss in the quarter, largely driven by a substantial merger-related in-process research and development charge of $5.13 billion related to the acquisition of Pharmacia Corporation. This acquisition, completed on April 16, 2003, was a transformative event for Pfizer, significantly increasing its assets, liabilities, and goodwill. Despite the reported net loss, the company's revenues saw a substantial increase of 37% in the second quarter and 23% year-to-date, primarily due to the inclusion of Pharmacia's results and favorable foreign exchange rates. Several large divestitures of non-core businesses, including Adams confectionery and Schick-Wilkinson Sword, also contributed to the financial results and generated significant gains. The company's outlook for the full year 2003 anticipates total revenues of $45 billion and R&D expenditures of $7.1 billion, with adjusted diluted EPS projected at $1.73. While the integration of Pharmacia presents challenges, including significant merger-related costs and purchase accounting adjustments, Pfizer anticipates substantial cost synergies in the coming years, with cumulative savings expected to reach $1 billion in 2003 and significantly more in 2004 and 2005. Investors should monitor the integration progress and the realization of these synergies.

Key Highlights

  • 1Completed the acquisition of Pharmacia Corporation on April 16, 2003, for approximately $56 billion, significantly increasing total assets, goodwill, and intangible assets.
  • 2Reported a net loss of $3.59 billion for the second quarter ended June 29, 2003, primarily due to a $5.13 billion charge for in-process research and development related to the Pharmacia acquisition.
  • 3Total revenues increased by 37% in the second quarter and 23% for the first six months of 2003 compared to the prior year, largely driven by the inclusion of Pharmacia's operations and favorable foreign exchange rates.
  • 4Completed significant divestitures of non-core businesses including Adams confectionery products ($4.2 billion sale) and Schick-Wilkinson Sword ($930 million sale), generating substantial gains classified under discontinued operations.
  • 5Operating cash flow from continuing operations increased to $4.46 billion for the first six months of 2003 from $3.99 billion in the prior year period.
  • 6The company significantly increased its share repurchase program, spending $6.42 billion on stock purchases in the first six months of 2003, compared to $1.99 billion in the same period of 2002.
  • 7Projected full-year 2003 adjusted diluted EPS of $1.73, with significant cost synergies expected from the Pharmacia integration totaling $1 billion in 2003, $3 billion in 2004, and approaching $4 billion in 2005.

Frequently Asked Questions

The acquisition of Pharmacia, completed on April 16, 2003, significantly impacted Pfizer's financial statements. It led to a substantial increase in total assets, liabilities, and goodwill. The financial statements reflect Pharmacia's results from the acquisition date. A significant portion of the purchase price was allocated to in-process research and development ($5.13 billion charge) and other identifiable intangible assets.

Pfizer reported a net loss of $3.59 billion in the second quarter of 2003 primarily due to a $5.13 billion charge for in-process research and development related to the acquisition of Pharmacia. This charge, combined with other merger-related costs and purchase accounting adjustments, outweighed the revenue growth achieved during the period.

Pfizer divested several non-core businesses, including the Adams confectionery products business (sold for $4.2 billion) and the Schick-Wilkinson Sword shaving products business (sold for $930 million). These sales generated substantial gains which are reported under discontinued operations, contributing positively to the overall financial picture despite the net loss from continuing operations.

Pfizer anticipates full-year 2003 revenues of $45 billion and projects adjusted diluted EPS of $1.73. The company expects significant cost synergies from the integration of Pharmacia, projected to reach $1 billion in 2003, $3 billion in 2004, and nearly $4 billion in 2005. These synergies are expected to drive future profitability and growth.