Pfizer Finance Case Study

Pfizer is a publicly traded pharmaceutical corporation trading on the NYSE under symbol PFE. The following is Team Okra's accounting analysis of Pfizer's published "2010 Financial Report." The complete report was obtained from this website: http://www.pfizer.com/files/annualreport/2010/financial/financial2010.pdf

The accounting analysis covers the reported capital structure, cash flows, and assets for years 2010 and 2009. In some instances the 2008 values were provided.

Capital Structure

The preferred and common shares outstanding data is listed on page 54 of Pfizer's 2010 Annual Report. The report listed 1,511million shares of preferred stock in 2009. The redemption of 232 million preferred shares left the 2010 preferred share total at 1,279 million shares (p. 55). There were 8,876 million common shares of stock in 2010. This was an increase from 2009 of 7 million shares (2009 total was 8,869 million.) The common stock price had a market high of $20.36 in the first quarter of 2010 to a market low of $14.00 in the second quarter of 2010.

Quarterly Stock prices as listed on page 115 of the Annual Report:

First Second Third Fourth

High $ 20.36 $ 17.39 $ 17.50 $ 17.90

Low $ 16.80 $ 14.00 $ 14.14 $ 16.25

The consolidated Balance sheet list 2010 total liabilities as $106,749 million compared to $122,503 million in 2009. The 2010 total shareholders equity was $88,265 million, down from the 2009 total of S90,446 million. (p. 54)

Cash Flows

The Consolidated Cash Flow Statement lists the following net cash activities (p.56).

In Millions of Dollars

2010 2009 2008

Net Operating Activities. $11,454 $16,587 $18,238

Net Investing Activities (492) (31,272) (12,835)

Net Financing Activities (11,174) 14,481 (6,560)

Note: Pfizer uses the indirect method when preparing cash flow statements.

When comparing the 2010 versus the 2009 Operating Activities several things took place. First, operating activities decreased $16.6 to $11.5 billion. This decrease in $5.1 billion was primarily due to $11.8 billion in income tax payments in 2010 to help finance the Wyeth acquisition. This was partially offset by the inclusion of operating cash flows from legacy Wyeth operations for a full year in 2010. Also the non-recurrence of payments in 2009 in connection with the resolution of legal matters related to Bextra and other NSAID pain medications. (p. 43)

When comparing 2009 versus 2008 Operating Activities was primarily attributable to the $3.2 billion in payments for legal matters regarding Bextra. The 2008 statement reflects the accrued charges but they are unpaid for the Bextra lawsuit. Also 2009 statement reflects the acquisition of inventories purchased from Wyeth. (p. 43)

The reason for the huge discrepancy in investing activities between 2010 and 2009 was the $43.1 billion purchase of Wyeth. Pfizer's net cash used in financing activities was $11.2 billion in 2010 compared to $14.5 billion in 2009. The change in financing was primarily attributed to net repayments of $4.2 billion in 2010 compared to net proceeds from borrowing $20.1 billion in 2009, primarily reflecting the issuance of $13.5 billion of senior unsecured notes in the first quarter of 2009 and then the issuance of $10.5 billion of senior unsecured notes in the second quarter of 2009. In 2010, Pfizer purchased $1.0 billion of their own common stock compared to no purchases in 2009 and also had higher dividend payments in 2010 compared to 2009. (p. 43-44)

When comparing the financing activities in 2009 versus 2008 there are several things that attributed to the changes. First of all the financing of the purchase of Wyeth, lower dividend payments in 2009 compared to 2008, and finally no open market purchases of common stock in 2009 compared to $500 million of purchases in 2008. (p. 44)

Assets

The Consolidated Balance Sheet lists total property, plant and equipment, less accumulated depreciation at $19,123 million in 2010 versus $22,780 million in 2009 (p. 54). The total of accumulated depreciation of property, plant and equipment for 2010 was $13,175 million 2010 versus $11,144