Pfizer 2005 Annual Report Download - page 28

2005 Financial Report 27
Financial Review
Pfizer Inc and Subsidiary Companies
Financial Condition, Liquidity and Capital
Resources
Net Financial Assets
Our net financial asset position as of December 31 follows:
(MILLIONS OF DOLLARS) 2005 2004
Financial assets:
Cash and cash equivalents $2,247 $1,808
Short-term investments 19,979 18,085
Short-term loans 510 653
Long-term investments and loans 2,497 3,873
Total financial assets 25,233 24,419
Debt:
Short-term borrowings 11,589 11,266
Long-term debt 6,347 7,279
Total debt 17,936 18,545
Net financial assets $7,297 $5,874
We rely largely on operating cash flow, short-term commercial
paper borrowings and long-term debt to provide for the working
capital needs of our operations, including our R&D activities. We
believe that we have the ability to obtain both short-term and long-
term debt to meet our financing needs for the foreseeable future.
Impact of Repatriation of Foreign Earnings
In 2005, under the Jobs Act, we repatriated to the U.S.
approximately $37 billion in cash from foreign earnings (see the
“Taxes on Income” section of this Financial Review). This cash is
being used for domestic expenditures relating to advertising and
marketing activities, research and development activities, capital
assets and other asset acquisitions and non-executive
compensation in accordance with the provisions of the Jobs Act
(as in effect on December 31, 2005). The repatriation resulted in
a decrease in short-term and long-term investments held overseas
as the cash was repatriated and an increase in short-term
borrowings overseas used to fund the repatriation.
Investments
Our short-term and long-term investments consist primarily of high
quality, liquid investment-grade available-for-sale debt securities.
Our long-term investments include debt securities that totaled
$906 million as of December 31, 2005, which have maturities
ranging substantially from 1 to 10 years. Wherever possible, cash
management is centralized and intercompany financing is used
to provide working capital to our operations. Where local
restrictions prevent intercompany financing, working capital
needs are met through operating cash flows and/or external
borrowings.
Long-Term Debt Issuance
In November 2005, Pfizer issued $1.0 billion of senior unsecured
floating-rate notes at LIBOR, less a nominal amount, with an
initial maturity of 13 months. The debt holders have the option
to extend the term of the notes by one month, each month,
during the five-year maximum term of the notes. In addition, the
adjustment to LIBOR increases each December by a nominal
amount. The notes are callable by us at par plus accrued interest
to date every six months, with a notice not less than thirty days,
but not more than sixty days. The LIBOR-based floating-rate
notes bear an interest rate of 4.33% as of December 31, 2005. The
floating-rate notes were issued through an international
subsidiary. They are guaranteed as to principal and interest by
Pfizer Inc through the maturity date of the notes. These notes
were issued to fund certain international subsidiaries’ dividends
paid in 2005 to Pfizer in connection with our repatriation strategy.
On February 22, 2006, we issued the following Japanese yen
fixed-rate bonds, which will be used for current general corporate
purposes:
•$508 million equivalent, senior unsecured notes, due February
2011, which pay interest semi-annually, beginning on August 22,
2006, at a rate of 1.2%; and
•$466 million equivalent, senior unsecured notes, due February
2016, which pay interest semi-annually, beginning on August 22,
2006, at a rate of 1.8%.
The notes were issued under a $5 billion debt shelf registration
filed with the SEC in November 2002. Such yen debt is designated
as a hedge of our yen net investments.
Long-Term Debt Redemption
In July 2005, we decided to exercise Pfizer’s option to call, at par-
value plus accrued interest, $1 billion of senior unsecured floating-
rate notes, which were included in Long-term debt at December
31, 2004. Notice to call was given to the Trustees and the notes
were redeemed in September 2005.
Credit Ratings
Two major corporate debt-rating organizations, Moody’s Investors
Services (Moody’s) and Standard & Poor’s (S&P), assign ratings to
our short-term and long-term debt. The following chart reflects
the current ratings assigned to the Company’s senior unsecured
non-credit enhanced long-term debt and commercial paper issued
directly by the Company or by affiliates with a guarantee from the
Company by each of these agencies:
LONG-TERM DEBT
NAME OF COMMERCIAL _________________________
RATING AGENCY PAPER RATING OUTLOOK
Moody’s P-1 Aaa Negative
S&P A1+ AAA Stable
In early April 2005, following the market withdrawal of Bextra and
the FDA’s decision requiring new labeling for Celebrex, Moody’s
placed our Aaa rating under review for possible downgrade.The
review was completed in June 2005 when Moody’s removed
Pfizer from review status and reaffirmed our Aaa rating. However,
Moody’s maintained our rating outlook as negative.This reflects
Moody’s overall negative rating outlook for the major
pharmaceutical sector and, specifically, their concern that lower
product sales, potentially unfavorable outcomes of patent
litigation, or a shift towards a more aggressive financial profile
could result in Pfizer’s financial metrics falling below those
appropriate for a Aaa-rated company.
Our superior credit ratings are primarily based on our diversified
product portfolio, our strong operating cash flow, our substantial
financial assets, our strong late-stage product pipeline and on our
desire to maintain a prudent financial profile. Our access to
financing at favorable rates would be affected by a substantial
downgrade in our credit ratings.