- Company Delivers Solid Third-Quarter 2006 Results, Led by Revenue Growth
of In-Line and New Products, Confirms Previous Full-Year 2006 Guidance for
Revenue and Adjusted Diluted EPS(1)
- Pfizer Announces Comprehensive Cost-Reduction Initiative to Create Leaner
and More Agile Organization
- Outlook Over 2007 and 2008: Average Annual Growth of Adjusted Diluted
EPS(1) in High Single Digits; Revenues Comparable to 2006 at Current
Exchange Rates
- Company Committed to Enhancing Shareholder Value Through Future Dividend
Growth and Up to $10 Billion in 2007 Share Purchases
($ billions, except per-share Third Quarter amounts) 2006 2005 Revenues
$12.280 $11.263 Reported Net Income $3.362 $1.589 Reported Diluted EPS $.46
$.22 Adjusted Income(1) $3.922 $3.678 Adjusted Diluted EPS(1) $.54 $.49
[see end of text prior to tables for footnotes]
NEW YORK, Oct. 19 /PRNewswire-FirstCall/ -- Pfizer Inc today reported
that revenue in the third quarter of 2006 increased 9 percent, reported
diluted EPS grew 109 percent, and adjusted diluted EPS(1) grew 10 percent
versus the comparable quarter in 2005.
Pfizer's Chief Executive Officer Jeffrey B. Kindler said, "We had a
solid quarter, with our in-line products performing well in a tough
operating environment and many of our new products making important
contributions as well. We will continue to be aggressive and focused in
maximizing the performance of these products. We remain on track to meet
our financial goals for the year.
"Looking ahead, we have great opportunities. There is enormous promise
in the science and technology of pharmaceutical research. With an aging
population expecting to live longer, healthier lives, there will be growing
demand for our products and services. And we are excited about the
prospects for our new products as well as those we intend to generate
internally or obtain externally.
"At the same time, we continue to face a number of near-term
challenges. We are navigating through the loss of exclusivity on several
major products. Many of our products continue to face strong competition,
including generics, in key markets. Our regulatory and pricing environments
have created added challenges.
"And very recently, we have seen a strengthening of the U.S. dollar, as
well as actions on access and pricing taken by influential decision makers
in several large European markets. As a result, at current exchange rates
we are now expecting revenues in 2007 and 2008 to be comparable to 2006, as
compared to our previous forecast of modest revenue growth over the period.
"We recognize that the world around us is changing dramatically and
that we need to accelerate the scope and speed of change to transform
Pfizer. Since August, we have listened to our key constituencies inside and
outside the company. The message we have received is quite clear: Pfizer
needs to be realistic about its operating environment, embrace necessary
changes and turn them to our advantage, for the benefit of our shareholders
and everyone with a stake in our future.
"As a critical step in our transformation, we are taking a
comprehensive look at our costs, and in 2007 we plan to implement a new
company-wide cost- reduction initiative that will lower our cost base in
2007 and 2008, as well as give us greater flexibility to modulate our
expenses in the face of changing market conditions. These savings will be
over and above the $4 billion projected annual cost savings by 2008 from
our Adapting to Scale (AtS) productivity initiative. These and other
actions mean we expect to deliver average annual growth in adjusted diluted
EPS(1) in high single digits over 2007-08. We will focus on enhancing total
return to shareholders, and we will leverage our unsurpassed financial
strength to enhance our dividend and buy back our stock. For 2009, we
expect a return to revenue growth, as the impact of our major patent
expirations recedes and the strong performance of a wide range of new
products becomes much more prominent in the marketplace.
"Pfizer is a strong company with a bright future. We will continue to
invest in a wide and promising range of opportunities for growth. Our
pipeline of new products and new approaches to discovery and development,
coupled with our strategy of acquiring attractive new products and
technologies externally, promise to deliver strong and renewed growth
opportunities over time. By moving quickly now to transform our company, we
will enhance our competitive strength and put ourselves in the best
possible position to capitalize on all the opportunities available to us."
David L. Shedlarz, Vice Chairman, said, "We are leaving no stone
unturned as we look hard at all aspects of our operations to become more
flexible and agile. Our experience to date with Adapting to Scale (AtS)
shows we are achieving our goals more quickly than anticipated. In fact, we
expect savings from AtS this year of about $2.5 billion, $500 million ahead
of guidance we provided earlier in the year. But given market conditions,
we will now undertake a comprehensive transformation of how we invest in
our business and manage our costs. It is important to note that, at current
exchange rates, our new cost-reduction initiative will reduce 2007
operating expenses to a level below that in 2006, and further reduce 2008
operating expenses. Our goal is to create a more flexible cost structure,
so that it will be easier and less disruptive to adjust expenditures in
light of our circumstances and expectations.
"We will bring our costs in line while we continue to invest in growth
opportunities. Advancing our promising new-product pipeline and
capitalizing on new growth opportunities through licensing and acquisitions
are critical to our future revenue growth."
Mr. Shedlarz cited Pfizer's recent transactions to illustrate the
company's growth strategy through external sourcing. "In the past five
weeks alone, Pfizer made three major new investments -- licensing
agreements with TransTech Pharma Inc. and Quark Biotech Inc. and an
agreement to acquire PowderMed Ltd.," Mr. Shedlarz said. "These are only
the most recent of 18 major transactions executed during the past 22
months. And they are only the beginning, as we leverage our unmatched
therapeutic breadth and seek out opportunities in new areas. However, as
aggressively as we are pursuing these opportunities, we are also exercising
financial discipline to ensure that every transaction offers a strong rate
of return.
"While our business-development efforts will be exhaustive, they will
take time to contribute to our top line. Meanwhile, we remain intensely
focused on using our financial flexibility to enhance shareholder value. We
expect to generate average annual growth in adjusted diluted EPS(1) in the
high single digits over 2007-08. We expect to continue to pay a growing
dividend, adding to our current record of 39 consecutive years of dividend
growth. And we will purchase up to $10 billion of stock in 2007.
"Pfizer continues to have very strong operating cash flow -- more than
$16 billion estimated in 2006 -- supplemented by expected cash proceeds,
net of taxes, of about $13.5 billion from the pending divestiture of our
Consumer Healthcare business," said Mr. Shedlarz. "Our focus is to use this
strong cash flow as efficiently and effectively as possible. Given our
scale and outstanding financial and human resources, Pfizer is uniquely
positioned to achieve several important goals: to pursue new opportunities
for revenue growth both internally and externally, to create a more
flexible and efficient organization and cost structure, and to continually
enhance shareholder value."
Worldwide Pharmaceutical Operations Sustaining Momentum
Worldwide pharmaceutical revenues for the third quarter of 2006 were
$11.5 billion, an increase of 9 percent compared to the third quarter of
2005. Foreign exchange had a 1-percent favorable impact on revenue growth
in the third quarter of 2006. Revenue also benefited from the one-time
reversal of a sales deduction accrual related to a favorable development in
a pricing dispute in the U.S. of about $170 million. Also in the U.S.,
wholesaler inventories increased by about two days compared to the level at
the end of the second quarter of 2006, resulting in higher revenues across
most product lines in the third quarter of 2006. Wholesaler inventory
levels in the U.S. ended the third quarter of 2006 at normal levels
comparable to those at the end of the third quarter of 2005. Collectively,
these two items account for four percentage points of the 9-percent
reported revenue growth, with the remaining 5-percent revenue growth driven
by our in-line products and new products. The loss of U.S. exclusivity on a
number of our major medicines since 2004 (Accupril/Accuretic, Diflucan,
Neurontin, Zithromax, and Zoloft), as well as the impact of Bextra, which
we voluntarily withdrew in 2005, continue to impact our reported revenue
growth. In the third quarter of 2006, excluding the revenues of the major
medicines that have lost U.S. exclusivity since 2004 and Bextra, our
9-percent reported revenue growth compared to prior year would be 17
percent.
In the U.S., pharmaceutical revenues were $6.4 billion, an increase of
14 percent. The aforementioned accrual reversal and wholesaler inventory
factors represent eight percentage points of that growth. Excluding the
revenue of major medicines that have lost U.S. exclusivity since 2004 as
well as Bextra, U.S. pharmaceutical revenues grew 27 percent in the third
quarter of 2006 compared to prior year, with the accrual reversal and
wholesaler inventory items representing nine percentage points of that
growth. The favorable U.S. performance in the third quarter of 2006 was
driven in part by the continued success of Lyrica; the recent launches of
Sutent and Chantix; and the strong performance of core in-line products.
Increasing Contribution of New Products
"We have continued our impressive schedule of product launches in 2006
with two additional innovative new medicines launched in the U.S. this
quarter -- Chantix and Exubera," said Ian Read, President of Worldwide
Pharmaceutical Operations. "These products represent not only breakthrough
science, but also new approaches to product introductions, with
comprehensive physician- and patient-support programs ensuring that our
customers receive the assistance they need to use our medicines
effectively. New products(2) contributed approximately $450 million in
incremental worldwide pharmaceutical revenues in the third quarter of 2006
and demonstrate our success in creating the foundation for Pfizer's
next-generation portfolio."
Lyrica worldwide sales reached $340 million in the third quarter of
2006. Lyrica has achieved success in all markets where it has been
launched, with patients and healthcare providers recognizing its
outstanding benefits, including strong efficacy and a favorable safety
profile. Lyrica is now approved in more than 60 countries and available to
patients in more than 35 markets.
In September 2006, the European Commission approved Lyrica for use as a
treatment in central neuropathic pain. This new approval broadens the
current range of neuropathic-pain conditions that Lyrica is approved to
treat in Europe to include nerve pain associated with conditions such as
spinal-cord injury, stroke, and multiple sclerosis.
Exubera, one of the most significant innovations in insulin delivery,
represents a medical advance that offers patients a novel method of
introducing insulin into their systems through the lungs. Long-term
efficacy and safety data in both type 1 and type 2 diabetes support Exubera
as a valuable new option that delivers effective blood-glucose control and
potentially reduces the debilitating and costly complications associated
with the disease.
Since May 2006, Exubera has been launched in Germany, Ireland, the
U.K., and, most recently, the U.S., where the Joslin Diabetes Clinic in
Boston -- widely recognized as one of the pre-eminent diabetes and research
organizations in the world -- has recognized Exubera in their diabetes
treatment guidelines. Within the U.S., a comprehensive education and
training program for physicians and patients is underway. To further
support patients and healthcare professionals, Pfizer also provides a
24-hour-a-day, 7-day-a- week call center staffed by healthcare
professionals. Similar programs are also in place in European markets where
the product has been launched. An expanded roll-out of Exubera to
primary-care physicians in the U.S., previously targeted for November 2006,
will begin in January 2007.
Exubera's innovative and complex manufacturing process requires highly
automated, specially engineered Pfizer equipment. As in any large-scale
manufacturing process utilizing advanced new technology, we have
experienced typical scale-up issues that we have made significant progress
in addressing. Over the next few months, we will continue our ramp-up of
Exubera to provide sufficient supply for expanded demand based on the
January 2007 roll-out.
Early market acceptance of Chantix (which will be called Champix
outside the U.S.) has been very strong since its U.S. launch in August
2006, making it the leading product in the smoking-cessation prescription
market in share and volume only four weeks post-launch. Pfizer's growth
strategy for Chantix focuses on expanding the underdeveloped prescription
market for smoking- cessation products, while setting appropriate
expectations regarding what success looks like for this medicine. We are
educating physicians and positioning patients for success by addressing
this addiction through both a pharmacological and behavior-modification
approach.
In September 2006, the European Commission approved Champix. In Europe
alone, more than 1.2 million people die each year from smoking-related
diseases. As in the U.S., Champix will be offered in Europe with a
behavioral support program that can be individually tailored to patients.
Sutent, a new treatment for metastatic renal-cell carcinoma and gastro-
intestinal stromal tumors, has achieved strong early market acceptance in
the U.S., with more than 7,500 patients having been prescribed the product
since its approval earlier this year. Sutent was approved in the EU in July
2006 and has received earlier-than-anticipated approvals in several other
countries in Asia and Latin America.
Driving Performance of Key In-Line Products
"We continue to focus our efforts on addressing the challenges from
branded and generic agents in the statin market to maintain revenue growth
for Lipitor, our top-selling product," noted Mr. Read.
Worldwide sales of Lipitor in the third quarter of 2006 rose 15
percent, compared to the same quarter in 2005, to reach $3.3 billion,
reflecting double-digit increases in the U.S. and Asia as well as solid
growth in Europe and Canada. Sales in the U.S. reached $2.1 billion, an
increase of 19 percent compared to the third quarter of 2005. This
performance was driven by a combination of factors, including the impact of
the new Medicare Modernization Act; dosage-form escalation; pricing; as
well as other factors, including a favorable development in a pricing
dispute in the U.S. and a return to normal wholesaler inventory levels. We
continue to see aggressive competition from branded and generic agents,
which will further intensify in the fourth quarter of 2006, particularly
when additional generic agents become available in the U.S. near the end of
the year. For 2007, we expect Lipitor revenues to grow, but at a lower rate
than in 2006.
Pfizer is demonstrating the efficacy and safety value that Lipitor
provides, including through consumer-education campaigns in the U.S. to
promote awareness of its benefits. New branded and unbranded television
advertisements, launched in the U.S. over the summer of 2006, extend our
consumer-education efforts to promote awareness of the Lipitor value
proposition. Additional print and electronic materials are available to
educate consumers on the difference between Lipitor and generic
alternatives.
As a result of our focused contracting efforts, approximately 70
percent of U.S. commercial contracted and Medicare Part D lives currently
have unrestricted tier-two access to Lipitor. We are aggressively working
to ensure that our formulary position in 2007 is consistent with our
current position.
Worldwide sales of Celebrex reached $537 million in the third quarter
of 2006, representing growth of 20 percent compared to the same period last
year. Pfizer is continuing its efforts to address physicians' and patients'
questions by clearly communicating the risks and benefits of Celebrex. In
addition, the Prospective Randomized Evaluation of Celecoxib Integrated
Safety vs. Ibuprofen or Naproxen (PRECISION) study, which began enrolling
patients this month, will provide further understanding of the comparative
cardiovascular safety of Celebrex and some common non-steroidal anti-
inflammatory drugs in arthritis patients at risk for, or already suffering
from, heart disease. In August 2006, Celebrex was granted pediatric
exclusivity in the U.S., extending its patent protection until May 2014.
Mr. Read added, "Despite unprecedented market challenges for some of
our key in-line brands, Pfizer is committed to achieving its full-year 2006
product revenue targets: Lipitor sales of about $13 billion, Celebrex sales
of about $2 billion, Lyrica sales of more than $1 billion, and Geodon sales
of about $800 million.
Pfizer to Discuss New-Product Pipeline
in Detail at November 30 R&D Analyst Meeting
"In the third quarter of 2006, we achieved several significant
milestones in the advancement of Pfizer's new-product pipeline," commented
Dr. John LaMattina, president of Pfizer Global Research and Development.
"In addition to approvals for Sutent and Champix in Europe, we made new
regulatory filings there for Eraxis and for additional indications for
Sutent and Spiriva Respimat."
The American Heart Association has accepted for presentation at its
annual meeting in November 2006 the torcetrapib/atorvastatin program's
study results in patients with heterozygous familial hypercholesterolemia.
In this relatively uncommon condition, which is found in one of every 500
people in the general population and is characterized by high
LDL-cholesterol levels, the study primarily investigated the drug's lipid
efficacy and safety in comparison to matching doses of Lipitor in 437
patients who were treated for 24 weeks. The study met its primary efficacy
objectives (higher HDL cholesterol and lower LDL cholesterol) versus
Lipitor. We expect to present the results of the intravascular ultrasound
(IVUS) and carotid intima-media thickness (IMT) imaging studies at the
American College of Cardiology meeting in March 2007.
In August 2006, Pfizer submitted a European regulatory filing for use
of Sutent as first-line therapy in metastatic renal-cell carcinoma (mRCC).
Sutent has already been approved in the EU as second-line treatment, and in
the U.S. as both first-line and second-line treatment, of mRCC. More than
50 Phase 1, 2, and 3 clinical trials for Sutent are ongoing or completed in
a wide range of tumor types, reflecting the future potential for Sutent, as
well as Pfizer's commitment to expand its presence in oncology.
During the third quarter of 2006, a regulatory filing for Spiriva
Respimat in Europe was submitted by our co-promotion partner Boehringer
Ingelheim (BI). This new, second-generation inhaler, developed by BI and to
be co-promoted by Pfizer and BI, provides a new form of inhalation, known
as "soft mist," that permits multiple doses lasting around 30 days, rather
than a single dose administered by a powder capsule.
In September 2006, Pfizer submitted a regulatory filing for Eraxis in
Europe for the treatment of candidemia and candidiasis.
Maraviroc remains on track for an NDA submission in
treatment-experienced patients by year-end 2006. The compound blocks entry
of HIV virus into white blood cells by binding to the CCR5 co-receptor.
Maraviroc is currently in Phase 2b/3 trials in combination with standard
HIV/AIDS therapies for both treatment-experienced and treatment-naïve
individuals and has completed Phase 2 studies aimed at exploring its
efficacy and safety as monotherapy in HIV/AIDS patients.
The Phase 3 program for asenapine, a product candidate for
schizophrenia and bipolar disorder under co-development with Akzo Nobel's
Organon healthcare unit, is almost complete. Data from the final Phase 3
study for schizophrenia will be reported to Organon and Pfizer in the next
few weeks. Based on the mixed study results for schizophrenia to date,
Pfizer does not believe that an NDA filing with the FDA will be made in
2007. Following receipt of the final study results, we will discuss the
complete Phase 3 data set with Organon, and an announcement will be made
concerning the next steps for asenapine.
"We look forward to hosting the upcoming R&D analyst meeting on
November 30, 2006, in Groton, CT, where we will highlight the emerging
Pfizer new- product pipeline and licensing and business-development
strategy," Dr. LaMattina continued. "We believe we are on the verge of a
new age of drug discovery, one that promises to turncancer, diabetes, and
other debilitating illnesses into manageable conditions."
Pfizer on Target to Achieve Full-Year 2006 Financial Goals
In reviewing third-quarter 2006 results and the full-year 2006
forecast, Alan Levin, chief financial officer, said, "Pfizer's
third-quarter 2006 performance was characterized by solid product revenue
performance as well as the favorable impact of several factors. Our
previously projected full-year 2006 financial performance remains on target
and, at current exchange rates, we expect revenues this year to be
comparable to 2005.
"Partially offsetting our favorable revenue growth in the third quarter
of 2006, cost of sales grew 22 percent compared to the third quarter of
2005, primarily due to the unfavorable impact of foreign exchange on
expenses and a concerted focus on inventory-reduction initiatives and plant
rationalizations. We expect the cost of sales pre-tax component of adjusted
income(1) as a percentage of revenues to remain under pressure in the
fourth quarter of 2006, and we now expect the cost of sales pre-tax
component of adjusted income(1) as a percentage of revenues this year to be
comparable to 2005.
"Operating expenses in the third quarter of 2006 reflect higher
investments in R&D and promotional programs during the second half of this
year relative to the first half of 2006, as well as expenses related to
share- based payments, partially offset by continued, accelerated
achievement of savings from AtS, our broad-based productivity initiative.
These factors will continue to affect our results in the fourth quarter of
2006. AtS savings for the third quarter of 2006 were more than $600
million. As noted, we now expect full-year 2006 savings from the AtS
initiatives of about $2.5 billion, substantially ahead of our original
guidance of about $2 billion.
"We continue to expect the SI&A pre-tax component of adjusted income(1)
to be about $15.4 billion in 2006. We now expect the R&D pre-tax component
of adjusted income(1) to be about $7.4 billion. Pfizer remains on target to
achieve its goal of full-year 2006 adjusted diluted EPS(1) of about $2.00.
Reported diluted EPS is now forecast at about $1.63, reflecting the impact
of certain equity sales this quarter as well as a revision of the estimated
tax costs related to the repatriation of foreign earnings in 2005."
For additional details, please see the attached financial schedules,
product revenue tables, supplemental financial information, and Disclosure
Notice.
(1) "Adjusted income" and "adjusted diluted earnings per share (EPS)" are
defined as reported net income and reported diluted EPS excluding
purchase-accounting adjustments, merger-related costs, discontinued
operations, and certain significant items. As described under
Adjusted Income in the Management's Discussion and Analysis of
Financial Condition and Results of Operations section of Pfizer's Form
10-Q for the quarterly period ended July 2, 2006, management uses
adjusted income, among other factors, to set performance goals and to
measure the performance of the overall company. We believe that
investors' understanding of our performance is enhanced by disclosing
this measure. Reconciliations of third-quarter, nine-month, and
forecasted full-year adjusted income and adjusted diluted EPS to
reported net income and reported diluted EPS are provided in the
materials accompanying this report. The adjusted income and adjusted
diluted EPS measures are not, and should not be viewed as, substitutes
for U.S. GAAP net income and diluted EPS.
(2) New Products is defined as third-quarter 2006 worldwide pharmaceutical
revenues of products launched in 2004-06: Caduet, Chantix, Eraxis,
Exubera, Inspra, Lyrica, Macugen, Olmetec, Onsenal, Revatio, Sutent,
and Zmax.
PFIZER INC AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(millions of dollars, except per common share data)
Third Quarter % Incr./ Nine Months % Incr./
2006 2005 (Decr.) 2006 2005 (Decr.)
Revenues $12,280 $11,263 9 $35,768 $34,858 3
Costs and expenses:
Cost of sales 1,962 1,611 22 5,423 5,250 3
Selling,
informational and
administrative
expenses 3,751 3,526 6 11,027 10,958 -
Research and
development
expenses 1,902 1,739 9 5,187 5,287 (2)
Amortization of
intangible assets 798 833 (4) 2,446 2,569 (5)
Merger-related in-
process research
and development
charges - 1,390 (100) 513 1,652 (69)
Restructuring
charges and
merger-related
costs 249 303 (18) 816 782 4
Other
(income)/deductions
-- net (343) (151) 127 (958) 703 *
Income from
continuing
operations before
provision for
taxes on income and
minority interests 3,961 2,012 97 11,314 7,657 48
Provision for taxes
on income 717 530 35 1,769 2,642 (33)
Minority interests 5 3 69 10 6 68
Income from
continuing
operations 3,239 1,479 119 9,535 5,009 90
Discontinued
operations:
Income from
discontinued
operations -- net of
tax 120 107 12 330 299 10
Gains on sales of
discontinued
operations -- net of
tax 3 3 - 23 44 (48)
Discontinued
operations -- net of
tax 123 110 11 353 343 3
Net income $3,362 $1,589 112 $9,888 $5,352 85
Earnings per common
share - Basic:
Income from
continuing
operations $0.45 $0.20 125 $1.31 $0.68 93
Discontinued
operations -- net of
tax 0.02 0.02 - 0.05 0.05 -
Net income $0.47 $0.22 114 $1.36 $0.73 86
Earnings per common
share - Diluted:
Income from
continuing
operations $0.44 $0.20 120 $1.30 $0.67 94
Discontinued
operations -- net of
tax 0.02 0.02 - 0.05 0.05 -
Net income $0.46 $0.22 109 $1.35 $0.72 88
Weighted-average
shares used to
calculate earnings
per common share:
Basic 7,228 7,333 7,275 7,372
Diluted 7,251 7,382 7,306 7,424
* Calculation not meaningful.
Certain amounts and percentages may reflect rounding adjustments.
1. The above financial statement presents the three-month and nine-month
periods ended October 1, 2006 and October 2, 2005. Subsidiaries
operating outside the United States are included for the three-month
and nine-month periods ended August 27, 2006 and August 28, 2005.
2. In June 2006, we announced an agreement to sell our Consumer Healthcare
business for approximately $16.6 billion. The above financial
statement reflects this business as discontinued operations for all
periods presented.
3. The financial results for the three-month and nine-month periods ended
October 1, 2006 are not necessarily indicative of the results which
ultimately might be achieved for the current year.
4. As required, the estimated value of Merger-related in-process research
and development charges (IPR&D) is expensed at acquisition date. In
2006, we expensed $513 million of IPR&D, primarily related to our
acquisition of Rinat Neurosciences Corp. in May 2006. In 2005, we
expensed $1.7 billion of IPR&D, of which $1.4 billion related to our
acquisition of Vicuron Pharmaceuticals, Inc in the third quarter and
$262 million related primarily to our acquisition of Idun
Pharmaceuticals, Inc. in the second quarter.
5. Other (income)/deductions--net in the first nine months of 2005
includes an impairment charge of $1.2 billion related to the developed
technology rights and the write-off of machinery and equipment for
Bextra, a selective COX-2 inhibitor.
6. Discontinued operations--net of tax includes $124 million and $123
million related to the Consumer Healthcare business for the three
months ended October 1, 2006 and October 2, 2005 and $335 million and
$336 million for the nine months ended October 1, 2006 and October 2,
2005. These amounts do not include a prospective gain on the planned
divestiture.
7. Provision for taxes on income in the third quarter of 2006 includes a
downward revision ($124 million) of the estimated tax costs related to
repatriation of foreign earnings in 2005 and the first quarter of 2006
includes tax benefits associated with the resolution of certain tax
positions ($441 million). The first nine months of 2005 includes tax
benefits associated with the resolution of certain tax positions ($586
million) and a tax provision related to the repatriation of foreign
earnings of $1.7 billion.
PFIZER INC AND SUBSIDIARY COMPANIES
RECONCILIATION FROM REPORTED NET INCOME AND REPORTED DILUTED EARNINGS PER
SHARE
TO ADJUSTED INCOME AND ADJUSTED DILUTED EARNINGS PER SHARE
(UNAUDITED)
(millions of dollars, except per common share data)
Third Quarter % Incr./ Nine Months % Incr./
2006 2005 (Decr.) 2006 2005 (Decr.)
Reported net income $3,362 $1,589 112 $9,888 $5,352 85
Purchase accounting
adjustments -- net of
tax 566 1,962 (71) 2,232 3,398 (34)
Merger-related costs
-- net of tax 4 65 (95) 9 385 (98)
Discontinued operations
-- net of tax (123) (110) 11 (353) (343) 3
Certain significant
items -- net of tax 113 172 (35) 159 2,085 (92)
Adjusted income $3,922 $3,678 7 $11,935 $10,877 10
Reported diluted
earnings per common
share $0.46 $0.22 109 $1.35 $0.72 88
Purchase accounting
adjustments -- net of
tax 0.08 0.26 (69) 0.31 0.46 (33)
Merger-related costs --
net of tax - 0.01 (100) - 0.05 (100)
Discontinued operations
-- net of tax (0.02) (0.02) - (0.05) (0.05) -
Certain significant
items -- net of tax 0.02 0.02 - 0.02 0.28 (93)
Adjusted diluted
earnings per common
share $0.54 $0.49 10 $1.63 $1.46 12
* Calculation not meaningful.
Certain amounts and percentages may reflect rounding adjustments.
1. The above reconciliation presents the three-month and nine-month
periods ended October 1, 2006 and October 2, 2005. Subsidiaries
operating outside the United States are included for the three-month
and nine-month periods ended August 27, 2006 and August 28, 2005.
2. Adjusted income and Adjusted diluted earnings per common share as shown
above reflect the following items:
(millions of dollars) Third Quarter Nine Months
2006 2005 2006 2005
Purchase accounting adjustments,
pre-tax:
In-process research and
development charges (a) $- $1,390 $513 $1,652
Intangible amortization and
other (b) 803 808 2,414 2,483
Sale of acquired inventory
written up to fair value (c) - - - 4
Total purchase accounting
adjustments, pre-tax 803 2,198 2,927 4,139
Income taxes (237) (236) (695) (741)
Total purchase
accounting
adjustments -- net
of tax 566 1,962 2,232 3,398
Merger-related costs, pre-tax:
Integration costs (d) 3 91 8 384
Restructuring costs (d) 1 61 7 226
Total merger-related costs,
pre-tax 4 152 15 610
Income taxes - (87) (6) (225)
Total merger-related
costs -- net of tax 4 65 9 385
Discontinued operations, pre-tax:
Income from discontinued
operations (e) (178) (174) (493) (465)
Gains on sales of discontinued
businesses (e) (6) (7) (37) (72)
Total discontinued operations,
pre-tax (184) (181) (530) (537)
Income taxes 61 71 177 194
Total discontinued
operations -- net of
tax (123) (110) (353) (343)
Certain significant items, pre-tax
Asset impairment charges and
other costs associated with
the suspension of selling
Bextra (f) - 3 - 1,216
Sanofi-aventis research and
development milestone (g) - - (118) -
Restructuring charges - Adapting
to Scale (d) 245 151 801 172
Implementation costs - Adapting
to Scale (h) 182 100 547 133
Gain on disposals of investments
and other (i) (86) - (160) -
Total certain significant items,
pre-tax 341 254 1,070 1,521
Income taxes (104) (82) (346) (549)
Resolution of certain tax
positions (j) - - (441) (586)
Tax impact for the repatriation
of foreign earnings (j) (124) - (124) 1,699
Total certain
significant items
-- net of tax 113 172 159 2,085
Total purchase accounting
adjustments, merger-related
costs, discontinued operations,
and certain significant items
-- net of tax $560 $2,089 $2,047 $5,525
(a) Included in Merger-related in-process research and development
charges.
(b) Included primarily in Amortization of intangible assets.
(c) Included in Cost of Sales.
(d) Included in Restructuring charges and merger-related costs.
(e) Discontinued operations -- net of tax includes $124 million and $123
million related to the Consumer Healthcare business for the three
months ended October 1, 2006 and October 2, 2005 and $335 million and
$336 million for the nine months ended October 1, 2006 and October 2,
2005. These amounts do not include a prospective gain on the planned
divestiture.
(f) Included in Selling, informational and administrative expenses ($3
million) for the three months ended October 2, 2005 and included in
Cost of sales ($56 million), Selling, informational and administrative
expenses ($8 million) and Other (income)/deductions-net ($1.2 billion)
for the nine months ended October 2, 2005.
(g) Included in Research and development expenses.
(h) Included in Cost of sales ($50 million), Selling, informational and
administrative expenses ($63 million), Research and development
expenses ($70 million) and in Other (income)/deductions-net ($1
million income) for the three months ended October 1, 2006 and
included in Cost of sales ($278 million), Selling, informational and
administrative expenses ($160 million), Research and development
expenses ($132 million) and in Other (income)/deductions-net ($23
million income) for the nine months ended October 1, 2006. Included
in Cost of sales ($36 million), Selling, informational and
administrative expenses ($56 million) and Research and development
expenses ($8 million) for the three months ended October 2, 2005 and
included in Cost of sales ($37 million), Selling, informational and
administrative expenses ($76 million), Research and development
expenses ($20 million) for the nine months ended October 2, 2005.
(i) Included in Other (income)/deductions - net.
(j) Included in Provision for taxes on income.
PFIZER INC AND SUBSIDIARY COMPANIES
RECONCILIATION FROM PHARMACEUTICAL REPORTED REVENUES TO PHARMACEUTICAL
ADJUSTED REVENUES
(UNAUDITED)
(millions of dollars)
Worldwide
Third Quarter % Incr./ Nine Months % Incr. /
2006 2005 (Decr.) 2006 2005 (Decr.)
Total Pharmaceutical
revenues $11,485 $10,547 9 $33,417 $32,617 2
Zoloft 459 807 (43) 1,944 2,448 (21)
Zithromax 101 403 (75) 515 1,624 (68)
Neurontin 126 155 (18) 376 498 (24)
Diflucan 109 103 5 326 370 (12)
Accupril/Accuretic 61 77 (21) 198 250 (21)
Bextra - (73) * - (59) *
Pharmaceutical
adjusted revenues $10,629 $9,075 17 $30,058 $27,486 9
U.S.
Third Quarter % Incr./ Nine Months % Incr./
2006 2005 (Decr.) 2006 2005 (Decr.)
Total Pharmaceutical
revenues $6,380 $5,615 14 $18,448 $17,219 7
Zoloft 373 647 (42) 1,676 1,920 (13)
Zithromax 15 310 (95) 199 1,235 (84)
Neurontin 31 41 (26) 73 133 (45)
Diflucan (3) (20) (86) (4) (16) (78)
Accupril/Accuretic 6 15 (59) 24 47 (49)
Bextra - (64) * - (81) *
Pharmaceutical
adjusted revenues $5,958 $4,686 27 $16,480 $13,981 18
International
Third Quarter % Incr./ Nine Months % Incr. /
2006 2005 (Decr.) 2006 2005 (Decr.)
Total Pharmaceutical
revenues $5,105 $4,932 3 $14,969 $15,398 (3)
Zoloft 86 160 (46) 268 528 (49)
Zithromax 86 93 (8) 316 389 (19)
Neurontin 95 114 (16) 303 365 (17)
Diflucan 112 123 (10) 330 386 (15)
Accupril/Accuretic 55 62 (12) 174 203 (15)
Bextra - (9) * - 22 *
Pharmaceutical
adjusted revenues $4,671 $4,389 6 $13,578 $13,505 1
* Calculation not meaningful.
Certain amounts and percentages may reflect rounding adjustments.
(1) Pharmaceutical adjusted revenues, which excludes the revenues of
Bextra and major products which have lost exclusivity in the U.S.
since the beginning of 2004, is an alternative view of our
Pharmaceutical revenue performance and we believe that investors'
understanding of Pharmaceutical revenue growth is enhanced by
disclosing this performance measure. Zoloft lost its U.S. exclusivity
at the end of June 2006 and Zithromax lost its U.S. exclusivity in
November 2005, and as is typical in the pharmaceutical industry, this
has resulted in a dramatic decline in revenues due to generic
competition. Neurontin, Diflucan and Accupril/Accuretic lost their
U.S. exclusivity in 2004 and revenues continue to decline due to the
impact of generic competition. In accordance with requests from
applicable regulatory authorities, we suspended sales of Bextra in the
U.S., E.U., Canada and many other countries. We believe that excluding
the impact of these products assists the reader in understanding the
underlying strength of the balance of our diverse Pharmaceutical
product portfolio in 2006. Because of its non-standardized
definition, this adjusted Pharmaceutical revenues measure has
limitations as it may not be comparable with the calculation of
similar measures of other companies. This additional revenue measure
is not, and should not be viewed as, a substitute for the U.S. GAAP
comparison of Pharmaceutical revenue growth.
(2) Pharmaceutical International adjusted revenues are also impacted
negatively by the loss of exclusivity of certain additional
major products, including Norvasc, which have lost exclusivity in many
key international markets. In addition, International adjusted
revenues reflect an adverse impact in the first nine months of 2006
due to changes in foreign exchange rates. International adjusted
revenues reflect a favorable impact in the third quarter of 2006 due
to changes in foreign exchange rates.
PFIZER INC
SEGMENT/PRODUCT REVENUES
THIRD QUARTER 2006
(millions of dollars)
QUARTER-TO-DATE
WORLDWIDE U.S. INTERNATIONAL
% % %
2006 2005 Chg 2006 2005 Chg 2006 2005 Chg
TOTAL
REVENUES 12,280 11,263 9 6,708 5,907 14 5,572 5,356 4
PHARMA-
CEUTICAL 11,485 10,547 9 6,380 5,615 14 5,105 4,932 3
- CARDIOVASCULAR
AND
METABOLIC
DISEASES 5,111 4,467 14 2,951 2,394 23 2,160 2,073 4
LIPITOR 3,321 2,897 15 2,074 1,739 19 1,247 1,158 8
NORVASC 1,208 1,131 7 628 546 15 580 585 (1)
CARDURA 133 132 1 1 2 (8) 132 130 1
CADUET 98 48 104 94 47 103 4 1 137
ACCUPRIL/
ACCURETIC 61 77 (21) 6 15 (59) 55 62 (12)
CHANTIX/
CHAMPIX 33 - * 33 - * - - *
- CENTRAL
NERVOUS
SYSTEM
DISORDERS 1,500 1,590 (6) 900 966 (7) 600 624 (4)
ZOLOFT 459 807 (43) 373 647 (42) 86 160 (46)
LYRICA 340 80 324 217 29 654 123 51 140
GEODON/
ZELDOX 201 148 36 169 121 41 32 27 16
NEURONTIN 126 155 (18) 31 41 (26) 95 114 (16)
ARICEPT** 90 85 6 1 - * 89 85 6
XANAX/XR 74 101 (26) 16 36 (56) 58 65 (9)
RELPAX 72 67 8 47 44 5 25 23 14
- ARTHRITIS
AND PAIN 706 548 29 474 323 47 232 225 4
CELEBREX 537 446 20 419 339 24 118 107 11
- INFECTIOUS
AND
RESPIRATORY
DISEASES 836 1,074 (22) 285 533 (47) 551 541 2
ZYVOX 206 157 31 136 109 24 70 48 47
ZITHROMAX/
ZMAX 104 402 (74) 19 309 (94) 85 93 (9)
VFEND 132 106 25 46 35 32 86 71 21
DIFLUCAN 109 103 5 (3) (20) (86) 112 123 (10)
- UROLOGY 732 629 16 412 352 17 320 277 15
VIAGRA 423 386 10 199 186 7 224 200 12
DETROL/
DETROL LA 295 231 28 207 160 29 88 71 25
- ONCOLOGY 540 507 7 224 193 16 316 314 1
CAMPTOSAR 218 229 (5) 122 119 2 96 110 (12)
ELLENCE 77 86 (11) 15 18 (23) 62 68 (8)
AROMASIN 84 63 32 30 22 35 54 41 31
SUTENT 63 - * 49 - * 14 - *
- OPHTHALMOLOGY 376 338 11 128 110 17 248 228 9
XALATAN/
XALACOM 374 338 11 128 110 17 246 228 8
- ENDOCRINE
DISORDERS 246 262 (6) 61 85 (28) 185 177 5
GENOTROPIN 198 200 (1) 56 59 (6) 142 141 2
- ALL
OTHER 1,102 865 26 748 501 49 354 364 (3)
ZYRTEC/
ZYRTEC D 397 338 17 397 338 17 - - *
- ALLIANCE
REVENUE
(Aricept,
Macugen,
Mirapex,
Olmetec,
Rebif and
Spiriva) 336 267 26 197 158 25 139 109 28
ANIMAL
HEALTH 562 503 12 260 228 14 302 275 10
OTHER *** 233 213 9 68 64 6 165 149 11
* - Calculation not meaningful.
** - Represents direct sales under license agreement with Eisai Co., Ltd.
*** - Includes Capsugel and Pfizer CenterSource.
Certain amounts and percentages may reflect rounding adjustments.
Certain prior year data have been reclassified to conform to the current
year presentation.
PFIZER INC
SEGMENT/PRODUCT REVENUES
NINE MONTHS 2006
(millions of dollars)
YEAR-TO-DATE
WORLDWIDE U.S. INTERNATIONAL
% % %
2006 2005 Chg 2006 2005 Chg 2006 2005 Chg
TOTAL
REVENUES 35,768 34,858 3 19,418 18,135 7 16,350 16,723 (2)
PHARMA-
CEUTICAL 33,417 32,617 2 18,448 17,219 7 14,969 15,398 (3)
- CARDIOVASCULAR
AND
METABOLIC
DISEASES 14,628 13,664 7 8,259 7,249 14 6,369 6,415 (1)
LIPITOR 9,551 8,829 8 5,904 5,332 11 3,647 3,497 4
NORVASC 3,549 3,462 3 1,814 1,608 13 1,735 1,854 (6)
CARDURA 398 441 (10) 5 4 20 393 437 (10)
CADUET 255 121 111 240 116 107 15 5 211
ACCUPRIL/
ACCURETIC 198 250 (21) 24 47 (49) 174 203 (15)
CHANTIX/
CHAMPIX 33 - * 33 - * - - *
- CENTRAL
NERVOUS
SYSTEM
DISORDERS 4,787 4,718 1 3,038 2,792 9 1,749 1,926 (9)
ZOLOFT 1,944 2,448 (21) 1,676 1,920 (13) 268 528 (49)
LYRICA 803 139 480 503 29 M+ 300 110 173
GEODON/
ZELDOX 548 430 28 455 352 29 93 78 19
NEURONTIN 376 498 (24) 73 133 (45) 303 365 (17)
ARICEPT** 260 255 2 1 - 100 259 255 2
XANAX/
XR 235 306 (23) 55 105 (47) 180 201 (11)
RELPAX 205 170 21 133 104 27 72 66 11
- ARTHRITIS
AND
PAIN 1,974 1,736 14 1,304 975 34 670 761 (12)
CELEBREX 1,499 1,258 19 1,165 911 28 334 347 (4)
- INFECTIOUS
AND
RESPIRATORY
DISEASES 2,608 3,659 (29) 966 1,936 (50) 1,642 1,723 (5)
ZYVOX 559 453 23 383 320 20 176 133 32
ZITHROMAX/
ZMAX 529 1,623 (67) 213 1,235 (83) 316 388 (19)
VFEND 367 285 29 129 100 29 238 185 29
DIFLUCAN 326 370 (12) (4) (16) (78) 330 386 (15)
- UROLOGY 2,055 1,958 5 1,157 1,086 7 898 872 3
VIAGRA 1,207 1,215 (1) 574 590 (2) 633 625 1
DETROL/
DETROL LA 810 705 15 568 482 18 242 223 9
- ONCOLOGY 1,550 1,499 3 614 535 15 936 964 (3)
CAMPTOSAR 668 674 (1) 364 346 5 304 328 (7)
ELLENCE 236 273 (13) 43 56 (24) 193 217 (11)
AROMASIN 229 176 30 83 60 38 146 116 25
SUTENT 115 - * 98 - * 17 - *
- OPHTHAL-
MOLOGY 1,065 1,011 5 360 316 14 705 695 1
XALATAN/
XALACOM 1,062 1,011 5 360 316 14 702 695 1
- ENDOCRINE
DISORDERS 724 783 (7) 191 255 (25) 533 528 1
GENOTROPIN 586 604 (3) 169 178 (5) 417 426 (2)
- ALL
OTHER 3,042 2,832 7 1,965 1,641 20 1,077 1,191 (10)
ZYRTEC/
ZYRTEC D 1,195 1,035 15 1,195 1,035 15 - - *
- ALLIANCE
REVENUE
(Aricept,
Macugen,
Mirapex,
Olmetec,
Rebif and
Spiriva) 984 757 30 594 434 37 390 323 21
ANIMAL
HEALTH 1,656 1,576 5 751 710 6 905 866 5
OTHER *** 695 665 5 219 206 6 476 459 4
* - Calculation not meaningful.
** - Represents direct sales under license agreement with Eisai Co., Ltd.
*** - Include Capsugel and Pfizer Centersource.
M+ - Change greater than one thousand percent.
Certain amounts and percentages may reflect rounding adjustments.
Certain prior year data have been reclassified to conform to the current
year presentation.
PFIZER INC
SUPPLEMENTAL FINANCIAL INFORMATION
1) Revenue Growth
Third-quarter 2006 revenue growth benefited from strong growth from a
number of key in-line products and new product launches, as well as from
the reversal of a sales deduction accrual related to a favorable
development in a pricing dispute in the U.S. ($170 million, or 2%), a
favorable impact from foreign currency ($118 million, or 1%), and an
increase in U.S. wholesaler inventories of approximately two days compared
to the level at the end of the second quarter of 2006. Wholesaler inventory
levels in the U.S. ended the third quarter of 2006 at normal levels,
comparable to those at the end of the third quarter of 2005.
We are navigating through the loss of exclusivity on several major
products. Many of our products continue to face strong competition,
including generics, in key markets. Our regulatory and pricing environments
have created added challenges. Very recently, we have seen a strengthening
of the U.S. dollar, as well as actions on access and pricing taken by
influential decision makers in several large European markets. As a result,
at current exchange rates we are now expecting revenues in 2007 and 2008 to
be comparable to 2006, as compared to our previous forecast of modest
revenue growth over the period.
2) Change in Cost of Sales
Cost of sales as a percentage of revenues increased to 16.0% in the
third quarter of 2006 from 14.3% in the third quarter of 2005. The increase
in cost of sales as a percentage of revenues reflects the unfavorable
impact of foreign exchange on expenses and a concerted focus on
inventory-reduction initiatives and plant rationalizations. Cost of sales
as a percentage of revenues for the third quarter and first nine months of
2006 also benefited from the realization of savings associated with the
Adapting to Scale (AtS) productivity initiative. Cost of sales includes
charges of $50 million and $278 million related to AtS implementation costs
in the three months and nine months ended October 1, 2006. Cost of sales
included charges of $36 million and $37 million related to AtS
implementation costs in the three months and nine months ended October 2,
2005. Cost of sales as a percentage of revenues for the first nine months
of 2006 increased slightly to 15.2% from 15.1% in the first nine months of
2005.
3) Change in Selling, Informational & Administrative (SI&A) Expenses
and
Research & Development (R&D) Expenses
SI&A expenses increased 6%, and R&D expenses, inclusive of
Merger-related in-process research and development charges (IPR&D),
declined 39% in the third quarter of 2006 compared to the prior year. The
SI&A increase reflects, in part, higher promotional investments in
new-product launches and in-line product promotional programs during the
second half of 2006. The R&D decline reflects the impact of prior-year
IPR&D of $1.4 billion related to the acquisition of Vicuron
Pharmaceuticals, Inc. (Vicuron).
The level of growth of SI&A expenses and R&D expenses is also impacted
by expenses related to share-based payments this year and savings related
to our Adapting to Scale (AtS) productivity initiative. Given that savings
from our AtS productivity initiative were first realized as of the third
quarter of 2005, operating-expense growth comparisons during the first half
of 2006 were more favorable than in the third quarter of 2006 (exclusive of
IPR&D).
SI&A expenses were flat and R&D expenses, inclusive of IPR&D, declined
18% in the first nine months of 2006 versus the prior year. Reflected in
the R&D decline are the impacts of the prior-year IPR&D charges of $1.4
billion for the acquisition of Vicuron, as well as $262 million related
primarily to our acquisition of Idun Pharmaceuticals, Inc. R&D expenses,
inclusive of IPR&D, in 2006 reflect IPR&D of $513 million, primarily
related to the acquisition of Rinat Neuroscience Corp.
SI&A and R&D expenses include charges of $63 million and $70 million
related to AtS implementation costs in the three months ended October 1,
2006, and $160 million and $132 million in the nine months ended October 1,
2006. SI&A and R&D expenses included charges of $56 million and $8 million
related to AtS implementation costs in the three months ended October 2,
2005, and $76 million and $20 million in the nine months ended October 2,
2005.
4) Savings and Costs Relating to Productivity Initiatives
Our Adapting to Scale (AtS) productivity initiative, launched in the
first quarter of 2005, involves a comprehensive, multi-year review of our
processes, organizations, systems, and decision making to identify and
capitalize on opportunities to make the company more effective and
efficient. Savings realized during the third quarter exceeded $600 million.
We now expect annual savings of about $2.5 billion in 2006, increasing,
consistent with prior estimates, to about $4 billion in 2008.
Costs relating to the AtS productivity initiative were $427 million and
$1.3 billion for the third quarter and first nine months of 2006,
respectively. Full-year 2006 cost projections remain about $1.7 billion
($1.1 billion, after tax). We continue to expect the costs associated with
this multi-year effort to continue through 2008 and to total $4 billion to
$5 billion, pre-tax.
Both savings and cost projections are exclusive of any additional
initiatives that Pfizer may begin in light of the Company's commitment to
further reduce its operating expenses and adapt to the emerging
environment.
5) Fourth-Quarter 2006 Outlook
Fourth-quarter 2006 adjusted income(1) is expected to decline relative
to the prior year due to a number of factors affecting revenues, cost of
sales, and operating expenses.
Although currency impacts, at current rates, are expected to remain
favorable over the rest of the year, fourth-quarter 2006 revenues are
expected to decline, due to Zoloft's loss of exclusivity (LOE) in the U.S.
The fourth quarter will be the first full quarter in which the Zoloft LOE
effect is felt. At current exchange rates, we continue to expect 2006
consolidated revenues to be comparable to those in 2005.
The cost of sales pre-tax component of adjusted income(1) as a
percentage of revenues is expected to remain under pressure. We now expect
that the full-year 2006 cost of sales pre-tax component of adjusted
income(1) as a percentage of revenues will be comparable to 2005.
Higher investments are anticipated during the remainder of the year for
the SI&A and R&D pre-tax components of adjusted income(1), reflecting the
timing of promotional programs associated with new and key in-line
products, as well as the timing of licensing activities and research and
development programs. Operating-expense growth comparisons during the first
half of 2006 were more favorable than in the second half of the year, given
that savings from our AtS productivity initiative first began to be
realized in the third quarter of 2005. Full-year 2006 expenditures
representing the R&D and SI&A pre-tax components of adjusted income(1) are
expected to be about $7.4 billion and $15.4 billion, respectively.
6) Other Income and Other Deductions
($ millions) Third Quarter Nine Months
2006 2005* 2006 2005*
Net Interest (Income)/Expense $(119) $(89) $(277) $(159)
Impairment of Bextra-Related
Long-Lived Assets -- -- -- 1,152
Royalties (94) (90) (278) (233)
Gains on Disposals of
Investments/ Product Lines (87) (5) (201) (58)
Other, Net (43) 33 (202) 1
Other (Income)/Deductions-Net $(343) $(151) $(958) $703
*Certain 2005 amounts were reclassified to conform to the 2006
presentation.
In connection with the decision to suspend sales of Bextra in the first
quarter of 2005, we recorded a charge of $1.1 billion relating to the
impairment of Bextra's intangible assets for developed technology rights
and the write-off of machinery and equipment of $7 million.
7) Effective Tax Rate
The table below provides the effective tax rate used in calculating
reported income from continuing operations and adjusted income(1) for each
quarter of 2005, each of the first three quarters of 2006, and the 2005
full year, as well as projected effective tax rates for the 2006 fourth
quarter and full year. The effective tax rates used in calculating reported
income from continuing operations and adjusted income(1) for the first nine
months of 2006 are 15.6% and 22.1%, respectively. The effective tax rates
used in calculating both adjusted income(1) and reported income from
continuing operations for the first nine months of 2006 were impacted by a
favorable tax- law change that affects certain restructuring activity
undertaken in prior years. Under generally accepted accounting principles,
the full-year impact of this change in tax law has been recognized in the
first quarter of 2006.
In the third quarter of 2006, we recorded a downward revision of the
2005 tax provision related to the repatriation of foreign earnings and
recognized a tax benefit of $124 million in our reported net income. In the
first quarter of 2006, we reached a resolution of certain tax positions. As
a result, we recognized a tax benefit of $441 million in our reported net
income in the first quarter of 2006.
Pfizer Effective Tax Rate Excluding Consumer Healthcare
First Second Third Fourth Full
Quarter Quarter Quarter Quarter(g) Year(g)
2005
Reported(a) 94.2%(c) (15.9%)(c,d) 26.4%(f) 17.1% 29.4%
2005
Adjusted(b) 22.6% 22.7% 20.3% 21.8% 21.8%
2006
Reported(a) 6.1%(d,e) 25.6% 18.1%(c) 21.4%(g) 16.6%(g)
2006
Adjusted(b) 19.4%(e) 24.0% 23.2% 24.3%(g) 22.5%(g)
(a) 2005 and 2006 Reported are based on income from continuing operations.
(b) Used in the calculation of adjusted income(1).
(c) The increased tax rate in the first quarter of 2005 was due to tax
costs associated with our program in 2005 to repatriate foreign
earnings under the American Jobs Creation Act (AJCA). The reduced tax
rate in the second quarter of 2005 was due in part to a revision in
the tax cost of repatriation of foreign earnings under the AJCA,
reflecting revised U.S. Treasury guidance. The reduced tax rate in
the third quarter of 2006 reflects a downward revision of the
estimated tax costs related to the repatriation of foreign earnings in
2005.
(d) The reduced tax rate in these respective quarters reflects the
resolution of certain tax positions.
(e) The reduced tax rate reflects a favorable tax-law change.
(f) The increased tax rate is primarily due to a $1.4 billion charge for
acquired IPR&D, which is not deductible for tax purposes.
(g) The rates for fourth-quarter and full-year 2006 are forecasted,
subject to the cautionary factors cited in our accompanying Disclosure
Notice, as well as those listed in our Form 10-K, and therefore are
subject to change.
8) Reconciliation of Forecasted 2006 Adjusted Income(1) and Adjusted
Diluted EPS(1) to Forecasted 2006 Reported Net Income and Reported
Diluted EPS
Full-Year 2006 Forecast
($ billions, except per-share amounts) Net Diluted
Income(a) EPS(a)
Income/(Expense)
Forecasted Adjusted Income/Diluted EPS(1) ~$14.7 ~$2.00
Purchase Accounting Impacts, Net of Tax (b) (2.9) (0.39)
Adapting to Scale Costs, Net of Tax (1.1) (0.15)
Income From Discontinued Operations, Net of
Tax (c) 0.5 0.07
Equity Sales / Other 0.2 0.02
Tax Impact for the Repatriation of Foreign
Earnings 0.2 0.02
Resolution of Certain Tax Positions 0.4 0.06
Forecasted Reported Net Income/Diluted EPS ~$12.0 ~$1.63
(a) Forecasts in the table include our Consumer Healthcare business as
discontinued operations and exclude the effects of business-
development transactions not completed as of the end of the third
quarter of 2006 as well as the potential impact from a substantial
prospective gain on the divestiture of our Consumer Healthcare
business.
(b) Increase in purchase accounting impacts versus the prior estimate
reflects Merger-related in-process research & development charges
associated primarily with the Rinat acquisition.
(c) Primarily reflects the reclassification of our Consumer Healthcare
business to discontinued operations.
9) Consumer Healthcare
Revenues and net income of our Consumer Healthcare business were $977
million and $124 million, respectively, for the quarter ended October 1,
2006. Revenues and net income of our Consumer Healthcare business were $2.9
billion and $335 million, respectively, for the nine months ended October
1, 2006.
10) Share-Purchase Program
In total, the Company purchased approximately 172 million shares at a
total cost of about $4.5 billion during the first nine months of 2006.
Given the expected after-tax proceeds from the sale of our Consumer
Healthcare business and projected cash flows from operations, we expect to
purchase up to $7 billion of the Company's stock in 2006 and up to $10
billion in 2007. In June 2006, the Board of Directors increased our
share-purchase authorization from $5 billion to $18 billion.
(1) "Adjusted income" and "adjusted diluted earnings per share (EPS)" are
defined as reported net income and reported diluted EPS excluding
purchase-accounting adjustments, merger-related costs, discontinued
operations, and certain significant items. As described under
Adjusted Income in the Management's Discussion and Analysis of
Financial Condition and Results of Operations section of Pfizer's Form
10-Q for the quarterly period ended July 2, 2006, management uses
adjusted income, among other factors, to set performance goals and to
measure the performance of the overall company. We believe that
investors' understanding of our performance is enhanced by disclosing
this measure. Reconciliations of third-quarter, nine-months, and
forecasted full-year adjusted income and adjusted diluted EPS to
reported net income and reported diluted EPS are provided in the
materials accompanying this report. The adjusted income and adjusted
diluted EPS measures are not, and should not be viewed as, substitutes
for U.S. GAAP net income and diluted EPS.
DISCLOSURE NOTICE: The information contained in this document and the
attachments is as of October 19, 2006. The Company assumes no obligation to
update any forward-looking statements contained in this document or the
attachments as a result of new information or future events or
developments.
This document and the attachments contain forward-looking information
about the Company's financial results and estimates, business prospects,
in- line products, and product candidates that involve substantial risks
and uncertainties, including, without limitation, information about the
Company's agreement to sell its Consumer Healthcare business to Johnson &
Johnson and the use of the sale proceeds as well as about the Company's
stock-purchase plans. You can identify these statements by the fact that
they use words such as "will," "anticipate," "estimate," "expect,"
"project," "intend," "plan," "believe," "target," "forecast", and other
words and terms of similar meaning in connection with any discussion of
future operating or financial performance or business prospects. Among the
factors that could cause actual results to differ materially are the
following: the success of research and development activities; decisions by
regulatory authorities regarding whether and when to approve our drug
applications as well as their decisions regarding labeling and other
matters that could affect the availability or commercial potential of our
products; the speed with which regulatory authorizations, pricing
approvals, and product launches may be achieved; competitive developments
affecting our current growth products; the ability to successfully market
both new and existing products domestically and internationally;
difficulties or delays in manufacturing; trade buying patterns; the ability
to meet generic and branded competition after the loss of patent protection
for our products and competitor products; the impact of existing and future
regulatory provisions on product exclusivity; trends toward managed care
and health care cost containment; possible U.S. legislation or regulatory
action affecting, among other things, pharmaceutical pricing and
reimbursement, including under Medicaid and Medicare, the importation of
prescription drugs that are marketed outside the U.S. and sold at prices
that are regulated by governments of various foreign countries, and the
involuntary approval of prescription medicines for over-the-counter use;
the potential impact of the Medicare Prescription Drug, Improvement and
Modernization Act of 2003; legislation or regulations in markets outside
the U.S. affecting product pricing, reimbursement, or access; contingencies
related to actual or alleged environmental contamination; claims and
concerns that may arise regarding the safety or efficacy of in-line
products and product candidates; legal defense costs, insurance expenses,
settlement costs, and the risk of an adverse decision or settlement related
to product liability, patent protection, governmental investigations,
ongoing efforts to explore various means for resolving asbestos litigation,
and other legal proceedings; the Company's ability to protect its patents
and other intellectual property both domestically and internationally;
interest rate and foreign currency exchange rate fluctuations; governmental
laws and regulations affecting domestic and foreign operations, including
tax obligations; changes in generally accepted accounting principles; any
changes in business, political, and economic conditions due to the threat
of future terrorist activity in the U.S. and other parts of the world, and
related U.S. military action overseas; growth in costs and expenses;
changes in our product, segment, and geographic mix; and the impact of
acquisitions, divestitures, restructurings, product withdrawals, and other
unusual items, including our ability to realize the projected benefits of
our Adapting to Scale multi-year productivity initiative, our ability to
realize the benefits of the Company-wide cost-reduction initiative planned
for 2007 and the ability of the Company and Johnson & Johnson to satisfy
the conditions to closing the sale of the Company's Consumer Healthcare
business, including receiving the required regulatory approvals. A further
list and description of these risks, uncertainties, and other matters can
be found in the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 2005, and in its reports on Forms 10-Q and 8-K.
This document includes discussion of certain clinical studies relating
to various in-line products and/or product candidates. These studies
typically are part of a larger body of clinical data relating to such
products or product candidates, and the discussion herein should be
considered in the context of the larger body of data.
SOURCE Pfizer Inc
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