10-QPeriod: Q3 FY2010

PFIZER INC Quarterly Report for Q3 Ended Jul 4, 2010

Filed August 12, 2010For Securities:PFE

Summary

Pfizer Inc. (PFE) reported its financial results for the fiscal quarter and six months ended July 4, 2010. The most significant event impacting these results was the acquisition of Wyeth on October 15, 2009. This acquisition significantly boosted revenues, showing an increase of 58% for the quarter and 56% for the six-month period compared to the prior year. This growth was driven by the inclusion of legacy Wyeth product revenues, alongside favorable foreign exchange rates and a modest increase from legacy Pfizer products. Despite the substantial revenue growth, net income for the six months decreased by 10% to $4.5 billion, largely due to increased expenses, including purchase accounting adjustments, restructuring and acquisition-related costs, and a higher effective tax rate. The company also highlighted the ongoing impact of the U.S. Healthcare Legislation enacted in March 2010, which is expected to continue to affect revenues and taxes. Pfizer is actively managing its costs and integrating the Wyeth acquisition, aiming for significant cost savings by 2012.

Financial Highlights

49 data points
Beta

Revenue

$17.13B

78.5% Gross Margin

Net Income

$2.48B

14.4% Net Margin

EPS (Diluted)

$0.31

Total Assets

$191.07B

Cash & Equivalents

$1.88B

Free Cash Flow

$4.50B

Financial Statements
Beta
Revenue$17.13B
Cost of Revenue$3.68B
Gross Profit$13.45B
SG&A Expenses$4.77B
Operating Income$4.45B
Interest Expense$389.00M
Net Income$2.48B
EPS (Basic)$0.31
EPS (Diluted)$0.31
Shares Outstanding (Basic)8.05B
Shares Outstanding (Diluted)8.07B

Key Highlights

  • 1Revenues surged by 58% to $17.3 billion for the quarter and 56% to $34.1 billion for the six months, primarily due to the inclusion of Wyeth's results following the October 2009 acquisition.
  • 2Net income attributable to Pfizer Inc. for the six months ended July 4, 2010, was $4.5 billion, a decrease of 10% compared to $5.0 billion in the prior year, reflecting increased expenses and higher taxes.
  • 3Restructuring charges and acquisition-related costs totaled $1.9 billion for the six-month period, reflecting ongoing integration efforts post-Wyeth acquisition.
  • 4The effective tax rate increased significantly to 37.4% for the quarter and 36.8% for the six months, up from 25.8% and 27.1% respectively, due to higher charges related to the Wyeth acquisition and the expiration of the U.S. R&D tax credit.
  • 5The company generated negative net cash from operating activities of $1.5 billion for the six months, primarily due to significant income tax payments totaling $11.3 billion related to financing decisions for the Wyeth acquisition.
  • 6Pfizer reaffirmed its full-year 2010 revenue guidance of $67.0 billion to $69.0 billion and Adjusted diluted EPS of $2.10 to $2.20.
  • 7Lipitor revenues showed a slight increase globally due to foreign exchange, but faced pricing and generic competition pressures, particularly in the U.S.

Frequently Asked Questions

The primary driver of the substantial revenue increase is the inclusion of results from the acquisition of Wyeth, which was completed in October 2009. This brought in the revenues from Wyeth's product portfolio and operations.

Net income decreased because of significantly higher costs and expenses. These include purchase accounting adjustments related to the Wyeth acquisition, higher restructuring and acquisition-related costs, increased research and development expenses, and a higher effective tax rate, partly due to the Wyeth acquisition and the expiration of the U.S. R&D tax credit.

The U.S. Healthcare Legislation, enacted in March 2010, has current and long-term impacts. It has led to increased rebates on branded drugs sold to Medicaid beneficiaries, affecting revenues negatively. The company also wrote off a deferred tax asset related to Medicare Part D subsidies. While the legislation has negative short-term revenue impacts, the company anticipates an increase in overall demand for pharmaceuticals due to expanded insurance coverage in the long term.

Pfizer relies on operating cash flows, investments, and debt to fund its operations. The company experienced negative cash flow from operations in the first six months of 2010 primarily due to large income tax payments related to the Wyeth acquisition financing. The company maintains significant financial assets and available lines of credit, indicating strong liquidity, and has flexibility to allocate capital through dividends, share repurchases, or debt reduction.