Deciphering Financial Statements (Pfizer)
Pfizer is one of the largest pharmaceutical and consumer healthcare products companies in the world. Familiar products sold by Pfizer include Sudafed, Zantac, Bena Dr. yl, Listerine, and Viagra. The company’s highest selling product is Lipitor, which is designed to help reduce high cholesterol. Pfizer’s income statement for 2004 follows.
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Pfizer Inc. and Subsidiary Companies |
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CONSOLIDATED STATEMENT OF INCOME |
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Year Ended December 31 |
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(millions, except per share data) |
2004 |
2003 |
2002 |
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Revenues |
$52,516 |
$44,736 |
$32,294 |
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Costs and expenses: |
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Cost of sales |
7,541 |
9,589 |
4,014 |
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Selling, informational and administrative expenses |
16,903 |
15,108 |
10,829 |
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Research and development expenses |
7,684 |
7,487 |
5,208 |
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Amortization of intangible assets |
3,364 |
2,187 |
22 |
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Merger related in process research and development charges |
1,071 |
5,052 |
— |
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Merger related costs |
1,193 |
1,058 |
630 |
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Other income—net |
753 |
1,009 |
(175) |
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Income from continuing operations before provision for taxes |
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on income and minority interests |
14,007 |
3,246 |
11,766 |
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Provision for taxes on income |
2,665 |
1,614 |
2,599 |
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Minority interests |
10 |
3 |
6 |
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Income from continuing operations before cumulative effect |
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of change in accounting principles |
11,332 |
1,629 |
9,161 |
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Discontinued operations: |
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Income/(loss) from operations of discontinued business |
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and product lines—net of tax |
(22) |
26 |
298 |
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Gains on sales of discontinued businesses and product |
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lines—net of tax |
51 |
2,285 |
77 |
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Discontinued operations—net of tax |
29 |
2,311 |
375 |
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Income before cumulative effect of change in accounting |
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principles |
11,361 |
3,940 |
9,536 |
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Cumulative effect of change in accounting principles—net |
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of tax |
— |
(30) |
(410) |
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Net income |
$11,361 |
$ 3,910 |
$ 9,126 |
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EARNINGS PER COMMON SHARE—BASIC: |
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Income from continuing operations before cumulative effect |
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of change in accounting principles |
$ 151 |
$ 022 |
$ 149 |
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Discontinued operations |
— |
032 |
006 |
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Income before cumulative effect of change in accounting |
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principles |
151 |
054 |
155 |
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Cumulative effect of change in accounting principles |
— |
— |
(007) |
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Net income |
$ 151 |
$ 054 |
$ 148 |
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EARNINGS PER COMMON SHARE—DILUTED: |
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Income from continuing operations before cumulative effect |
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of change in accounting principles |
$ 149 |
$ 022 |
$ 147 |
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Discontinued operations |
— |
032 |
006 |
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Income before cumulative effect of change in accounting |
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principles |
149 |
054 |
153 |
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Cumulative effect of change in accounting principles |
— |
— |
(007) |
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Net income |
$ 149 |
$ 054 |
$ 146 |
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The following information came from Pfizer’s statement of stockholders’ equity:
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Dividends |
$5,251 |
$4,771 |
$3,313 |
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Currency translation adjustment |
1,961 |
2,070 |
85 |
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Net unrealized gain (loss) on available for sale securities |
128 |
68 |
(32) |
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Minimum pension liability |
(6) |
(68) |
(179) |
In addition, in the notes to its financial statements, Pfizer reports that advertising expenses in 2002, 2003, and 2004 were $2,298 million, $2,936 million, and $3,490 million, respectively. Advertising expense is reported as part of selling, informational, and administrative expenses.
1. Compute the following for each of the years 2002–2004:
(a) Net income/Revenues
(b) Cost of sales/Revenues
(c) Research and development expenses/Revenues
(d) Advertising expense/Revenues
2. Comment on the ratios you computed in part (1). Make particular mention of any trends.
3. Compute Pfizer’s effective tax rate (on continuing operations) for each year.
4. For 2004, estimate the average number of basic and diluted shares outstanding.
5. Compute comprehensive income for each of the years 2002–2004.