10-QPeriod: Q1 FY2004

PFIZER INC Quarterly Report for Q1 Ended Mar 28, 2004

Filed May 7, 2004For Securities:PFE

Summary

Pfizer Inc. reported strong revenue growth of 47% to $12.49 billion for the first quarter of 2004 compared to the same period in 2003, primarily driven by the acquisition of Pharmacia Corporation in April 2003. Despite the significant revenue increase, net income declined by 50% to $2.33 billion, or $0.30 per diluted share, from $4.67 billion, or $0.76 per diluted share, in the prior year. This decline is largely attributable to a substantial increase in merger-related expenses, including in-process R&D charges for the Esperion acquisition, and integration/restructuring costs associated with the Pharmacia integration. The company's financial position remains robust with total assets growing to $122.29 billion. However, the balance sheet reflects significant goodwill ($24.26 billion) and identifiable intangible assets ($35.19 billion) stemming from acquisitions. While cash flows from operations were down year-over-year, the company maintained significant liquidity and continued to return capital to shareholders through dividends and share repurchases. Investors should monitor the impact of ongoing restructuring efforts and the performance of recently acquired entities.

Key Highlights

  • 1Revenue surged 47% year-over-year to $12.49 billion, largely due to the inclusion of Pharmacia's results post-acquisition.
  • 2Net income decreased by 50% to $2.33 billion, impacted by significant merger-related expenses and acquisition charges.
  • 3Diluted Earnings Per Share (EPS) fell to $0.30 from $0.76 in the prior year's quarter.
  • 4The acquisition of Esperion Therapeutics for $1.3 billion was completed, contributing $920 million in in-process R&D charges.
  • 5Significant merger-related costs, including integration and restructuring, amounted to $247 million expensed and $1.1 billion capitalized in the quarter.
  • 6Goodwill increased to $24.26 billion, reflecting substantial acquisitions.
  • 7The company repurchased $912 million of its common stock in the quarter and declared a $.17 per share dividend.

Frequently Asked Questions

The primary driver for the 47% increase in revenue to $12.49 billion in the first quarter of 2004 is the acquisition of Pharmacia Corporation, which was completed in April 2003. The results of Pharmacia have been consolidated into Pfizer's financial statements since the acquisition date, contributing significantly to year-over-year revenue growth.

The significant decrease in net income by 50% to $2.33 billion was primarily due to substantial merger-related expenses. These include $955 million in in-process R&D charges related to the Esperion acquisition, $247 million in expensed merger-related integration and restructuring costs, and capitalized restructuring costs of $1.1 billion. These items, along with a lower effective tax rate in the prior year's comparable period, negatively impacted profitability.

The acquisition of Esperion Therapeutics for $1.3 billion, completed in February 2004, resulted in a significant charge of $920 million for in-process research and development (IPR&D), which was expensed in the quarter. This IPR&D charge is a major contributor to the increase in 'Merger-related in-process research and development charges' on the income statement and negatively impacted net income.

Pfizer is actively managing its portfolio, including divesting businesses and product lines that do not fit its strategic plans, many of which were acquired as part of the Pharmacia transaction. During the quarter, the company identified several businesses for sale, including its diagnostics testing business, certain consumer products in Europe, European generic pharmaceutical businesses, and its surgical ophthalmic business. These are being reported as discontinued operations.