Pfizer 2005 Annual Report Download - page 12

Analysis of the Consolidated Statement
of Income
YEAR ENDED DEC. 31, % CHANGE
__________________________________________ _________________
(MILLIONS OF DOLLARS) 2005 2004 2003(a) 05/04 04/03
Revenues $51,298 $52,516 $44,736 (2) 17
Cost of sales 8,525 7,541 9,589 13 (21)
% of revenues 16.6% 14.4% 21.4%
SI&A expenses 16,997 16,903 15,108 112
% of revenues 33.1% 32.2% 33.8%
R&D expenses 7,442 7,684 7,487 (3) 3
% of revenues 14.5% 14.6% 16.7%
Amortization of
intangible assets 3,409 3,364 2,187 154
% of revenues 6.6% 6.4% 4.9%
Merger-related
IPR&D charges 1,652 1,071 5,052 54 (79)
% of revenues 3.2% 2.0% 11.3%
Restructuring charges
and merger-related
costs 1,392 1,193 1,058 17 13
% of revenues 2.7% 2.3% 2.4%
Other (income)/
deductions—net 347 753 1,009 (54) (25)
Income from
continuing
operations(b) 11,534 14,007 3,246 (18) 332
% of revenues 22.5% 26.7% 7.3%
Provision for taxes
on income 3,424 2,665 1,614 28 65
Effective tax rate 29.7% 19.0% 49.7%
Minority interest 16 10 3 59 222
Discontinued
operations—
net of tax 16 29 2,311 (45) (99)
Cumulative effect of
a change in
accounting
principles—net
of tax (25) —(30) **
Net income $8,085 $11,361 $3,910 (29) 191
% of revenues 15.8% 21.6% 8.7%
(a) The results of operations in 2003 include Pharmacia’s product
sales and expenses from the acquisition date (April 16, 2003).
(b) Represents income from continuing operations before provision
for taxes on income, minority interests, discontinued operations
and cumulative effect of a change in accounting principles.
*Calculation not meaningful.
Percentages in this table and throughout the Financial Review
may reflect rounding adjustments.
Revenues
Total revenues decreased 2% to $51.3 billion in 2005 primarily due
to the loss of U.S. exclusivity of certain key products, the suspension
of the sales of Bextra and the uncertainty related to Celebrex.
These decreases were partially offset by the solid aggregate
performance in the balance of our broad portfolio of patent-
protected medicines. In 2005, Lipitor, Norvasc, Zoloft and
Zithromax each delivered at least $2 billion in revenues, while
Celebrex, Viagra, Xalatan/Xalacom and Zyrtec each surpassed
$1 billion.
Total revenues increased 17% to $52.5 billion in 2004 primarily due
to the inclusion of Pharmacia results from the full year 2004
(2003 reflected only 81/2months of domestic and 71/2months of
international Pharmacia product sales), strong performances by
a number of our in-line products and newly launched products
across major businesses and regions and the weakening of the U.S.
dollar relative to many foreign currencies. In 2004, the Company’s
top five medicines—Lipitor, Norvasc, Zoloft, Celebrex and
Neurontin—each delivered at least $2 billion in revenues, while
Zithromax, Viagra, Zyrtec, Bextra and Xalatan/Xalacom each
surpassed $1 billion.
Changes in foreign exchange rates increased total revenues in 2005
by $945 million or 1.8% compared to 2004 and increased total
revenues in 2004 by $1.4 billion or 3.2% compared to 2003. The
foreign exchange impact on 2005 and 2004 revenue growth was
due to the weakening of the U.S. dollar relative to many foreign
currencies, especially the euro, which accounted for about 35%
of the impact in 2005 and about 50% in 2004. The revenues of
legacy Pharmacia products, recorded from the acquisition date of
April 16, 2003, until the anniversary date of the transaction in
2004, were treated as incremental volume and did not have a
foreign exchange impact.
Revenues exceeded $500 million in each of 12 countries outside
the U.S. in 2005 and in each of ten countries outside the U.S. in
2004. The U.S. was the only country to contribute more than
10% of total revenues in each year.
Pfizer’s policy relating to the supply of pharmaceutical inventory
at domestic wholesalers, and in major international markets, is to
maintain stocking levels under one month on average and to keep
monthly levels consistent from year to year based on patterns of
utilization. Pfizer has historically been able to closely monitor these
customer stocking levels by purchasing information from our
customers directly or by obtaining other third party information.
Pfizer believes its data sources to be directionally reliable, but
cannot verify its accuracy. Further, as Pfizer does not control this
third party data, we cannot be assured of continuing access.
Unusual buying patterns and utilization are promptly investigated.
We completed the harmonization of Pharmacia’s trade-inventory
practices in 2003. However, such harmonization of trade-inventory
practices with those of legacy Pfizer negatively impacted revenues
by approximately $500 million in 2003.
Rebates under Medicaid and related state programs reduced
revenues by $1.3 billion in 2005, $1.4 billion in 2004 and $800
million in 2003. Performance-based contract rebates reduced
revenues by $2.3 billion in 2005, $2.2 billion in 2004 and $1.9 billion
in 2003. These contracts are with managed care customers,
including health maintenance organizations and pharmacy benefit
managers, who receive rebates based on the achievement of
contracted performance terms for products. Rebates are product-
specific and, therefore, for any given year are impacted by the mix
of products sold. Chargebacks (primarily discounts to U.S. federal
government agencies) reduced revenues by $1.3 billion in both
2005 and 2004, and $874 million in 2003. Medicaid rebates,
contract rebates and chargebacks in 2003 only include Pharmacia
as of April 16, 2003. In addition, chargebacks were impacted by
the launch of certain generic products in 2005 and 2004 by our
Greenstone subsidiary.
2005 Financial Report 11
Financial Review
Pfizer Inc and Subsidiary Companies