Pfizer 2005 Annual Report Download - page 63

62 2005 Financial Report
Notes to Consolidated Financial Statements
Pfizer Inc and Subsidiary Companies
15. Earnings Per Common Share
Basic and diluted earnings per common share were computed
using the following common share data:
YEAR ENDED DEC. 31,
(MILLIONS) 2005 2004 2003
EPS Numerator—Basic:
Income from continuing operations
before cumulative effect of a change
in accounting principles $8,094 $11,332 $1,629
Less: Preferred stock dividends—net of tax 644
Income available to common share-
holders from continuing operations
before cumulative effect of a change
in accounting principles 8,088 11,328 1,625
Discontinued operations:
(Loss)/income from discontinued
operations—net of tax (31) (22) 26
Gains on sales of discontinued
operations—net of tax 47 51 2,285
Discontinued operations—net of tax 16 29 2,311
Income available to common share-
holders before cumulative effect of
a change in accounting principles 8,104 11,357 3,936
Cumulative effect of a change in
accounting principles—net of tax (25) —(30)
Net income available to common
shareholders $8,079 $11,357 $3,906
EPS Denominator—Basic:
Weighted average number of
common shares outstanding 7,361 7,531 7,213
EPS Numerator—Diluted:
Income from continuing operations
before cumulative effect of a change
in accounting principles $8,094 $11,332 $1,629
Less: ESOP contribution—net of tax 553
Income available to common share-
holders from continuing operations
before cumulative effect of a change
in accounting principles 8,089 11,327 1,626
Discontinued operations:
Income/(loss) from discontinued
operations—net of tax (31) (22) 26
Gains on sales of discontinued
operations—net of tax 47 51 2,285
Discontinued operations—net of tax 16 29 2,311
Income available to common share-
holders before cumulative effect of
a change in accounting principles 8,105 11,356 3,937
Cumulative effect of a change in
accounting principles—net of tax (25) —(30)
Net income available to common
shareholders $8,080 $11,356 $3,907
EPS Denominator—Diluted:
Weighted-average number of
common shares outstanding 7,361 7,531 7,213
Common share equivalents—stock
options, stock issuable under
employee compensation plans and
convertible preferred stock 50 83 73
Weighted-average number of
common shares outstanding
and common share equivalents 7,411 7,614 7,286
Stock options and stock issuable under employee compensation
plans representing equivalents of 557 million shares of common
stock during 2005, 359 million shares of common stock during 2004
and 331 million shares of common stock during 2003 had exercise
prices greater than the annual average market price of Pfizer
common stock. These common stock equivalents were outstanding
during 2005, 2004 and 2003, but were not included in the
computation of diluted earnings per common share for those years
because their inclusion would have had an anti-dilutive effect.
16. Lease Commitments
We lease properties and equipment for use in our operations. In
addition to rent, the leases may require us to pay directly for taxes,
insurance, maintenance and other operating expenses, or to pay
higher rent when operating expenses increase. Rental expense,
net of sublease income, was $449 million in 2005, $452 million in
2004 and $487 million in 2003. This table shows future minimum
rental commitments under noncancellable operating leases at
December 31 for the following years:
AFTER
(MILLIONS OF DOLLARS) 2006 2007 2008 2009 2010 2010
Lease commitments $231 $217 $181 $141 $103 $376
17. Insurance
Our insurance coverage reflects market conditions (including cost
and availability) existing at the time it is written, and our decision
to obtain insurance coverage or to self-insure varies accordingly.
The cost of insurance has risen substantially and the availability of
insurance has become more restrictive. Thus, depending upon
the cost of insurance and the nature of the risk involved, the
amount of self-insurance may be significant. We consider the
impact of these changes as we assess our future insurance needs.
If we incur substantial liabilities that are not covered by insurance
or substantially exceed insurance coverage and that are in excess
of existing accruals, there could be a material adverse effect on our
results of operations in any particular period (see Note 18, Legal
Proceedings and Contingencies).
18. Legal Proceedings and Contingencies
We and certain of our subsidiaries are involved in various patent,
product liability, consumer, commercial, securities, environmental
and tax litigations and claims; government investigations; and
other legal proceedings that arise from time to time in the
ordinary course of our business. We do not believe any of them
will have a material adverse effect on our financial position.
We record accruals for such contingencies to the extent that we
conclude their occurrence is probable and the related damages are
estimable. If a range of liability is probable and estimable and some
amount within the range appears to be a better estimate than any
other amount within the range, we accrue that amount. If a
range of liability is probable and estimable and no amount within
the range appears to be a better estimate than any other amount
within the range, we accrue the minimum of such probable range.
Many claims involve highly complex issues relating to causation,
label warnings, scientific evidence, actual damages and other
matters. Often these issues are subject to substantial uncertainties
and, therefore, the probability of loss and an estimation of
damages are difficult to ascertain. Consequently, we cannot
reasonably estimate the maximum potential exposure or the
range of possible loss in excess of amounts accrued for these
contingencies. These assessments can involve a series of complex
judgments about future events and can rely heavily on estimates