Pfizer 2005 Annual Report Download - page 48

2005 Financial Report 47
Notes to Consolidated Financial Statements
Pfizer Inc and Subsidiary Companies
7. Taxes on Income
A. Taxes on Income
Income from continuing operations before provision for taxes on
income, minority interests and the cumulative effect of a change
in accounting principles consists of the following:
YEAR ENDED DEC. 31,
_____________________________________________________
(MILLIONS OF DOLLARS) 2005 2004 2003
United States $1,296 $4,361 $ (209)
International 10,238 9,646 3,455
Total income from
continuing operations
before provision for taxes
on income, minority
interests and cumulative
effect of a change in
accounting principles $11,534 $14,007 $3,246
The decrease in domestic income from continuing operations
before taxes in 2005 compared to 2004 is due primarily to non-
cash IPR&D charges in 2005 of $1.7 billion, primarily related to our
acquisition of Vicuron and Idun, the Bextra impairment, changes
in product mix and adverse changes in product volume, among
other factors, partially offset by IPR&D charges recorded in 2004
for the acquisition of Esperion ($920 million).
Domestic and international income from continuing operations
before taxes in 2003 includes several non-cash charges associated
with the Pharmacia acquisition (IPR&D and the charge for the fair-
value mark-up of acquired inventory sold); an increase in merger-
related costs incurred in connection with our acquisition of
Pharmacia; and the provision for two legacy Warner-Lambert
legal matters.
The provision for taxes on income from continuing operations
before minority interests and the cumulative effect of a change
in accounting principles consists of the following:
YEAR ENDED DEC. 31,
_____________________________________________________
(MILLIONS OF DOLLARS) 2005 2004 2003
United States:
Taxes currently payable:
Federal $1,369 $1,892 $ 29
State and local 122 352 115
Deferred income taxes 12 (1,042) 502
Total U.S. tax provision 1,503 1,202 646
International:
Taxes currently payable 3,317 2,000 1,574
Deferred income taxes (1,396) (537) (606)
Total international tax
provision 1,921 1,463 968
Total provision for taxes
on income $3,424(a) $2,665 $1,614
(a) Excludes federal, state and local, and international benefits of
$127 million primarily related to the resolution of certain tax
positions related to Pharmacia, which were credited to Goodwill.
In 2005, we recorded an income tax charge of $1.7 billion, included
in Provision for taxes on income, in connection with our decision
to repatriate approximately $37 billion of foreign earnings in
accordance with the American Jobs Creation Act of 2004 (the Jobs
Through December 31, 2005, Employee termination costs represent
the approved reduction of the legacy Pfizer and legacy Pharmacia
(from April 16, 2004) work force by 4,476 employees, mainly in
corporate, manufacturing, distribution, sales and research. We
notified affected individuals and 4,082 employees were terminated
as of December 31, 2005. Employee termination costs include
accrued severance benefits and costs associated with change-in-
control provisions of certain Pharmacia employment contracts.
Asset impairments primarily include charges to write down
property, plant and equipment. Other primarily includes costs to
exit certain activities of legacy Pfizer and legacy Pharmacia (from
April 16, 2004).
6. Other (Income)/Deductions — Net
The components of Other (income)/deductions—net follow:
YEAR ENDED DEC. 31,
__________________________________________________
(MILLIONS OF DOLLARS) 2005 2004 2003
Interest income $(740) $(346) $ (346)
Interest expense 488 359 290
Interest expense capitalized (17) (12) (20)
Net interest (income)/expense (269) 1(76)
Various litigation matters(a) 2369 1,435
Impairment of long-lived
assets(b) 1,158 702 —
Royalty income (369) (288) (255)
Contingent income earned
from the prior year sale of
a product-in-development —(100) —
Net gains on disposals of
investments, products and
product lines(c) (188) (16) (85)
Net exchange (gains)/losses (10) 81 1
Other, net 23 4(11)
Other (income)/
deductions—net $ 347 $753 $1,009
(a) In 2004, we recorded charges totaling $369 million related to the
resolution of claims against Quigley Company, Inc., a wholly-
owned subsidiary of Pfizer. See Note 18B, Legal Proceedings and
Contingencies: Product Liability Matters. In 2003, we recorded
charges totaling $1.4 billion for the resolution of two legacy
Warner-Lambert litigation matters relating to Rezulin personal
injury claims and a government investigation of marketing
practices relating to Neurontin.
(b) In 2005, we recorded charges totaling $1.2 billion in connection
with the decision to suspend sales and marketing of Bextra. In
2004, we recorded an impairment charge of $691 million related
to the Depo-Provera brand. See Note 12B, Goodwill and Other
Intangible Assets: Other Intangible Assets.
(c) In 2005, gross realized gains were $171 million and gross realized
losses were $14 million on sales of available-for-sale securities.
Gross realized gains and gross realized losses on sales of available-
for-sale securities were not significant for 2004 and 2003.