Pfizer 2005 Annual Report Download - page 31

30 2005 Financial Report
Financial Review
Pfizer Inc and Subsidiary Companies
In June 2005, we announced a new $5 billion share-purchase
program which is being funded by operating cash flows. During
2005, we purchased approximately 22 million shares under the
new program.
In October 2004, we announced a $5 billion share-purchase
program, which we completed in the second quarter of 2005 and
was funded from operating cash flows. In total, under the October
2004 program, we purchased approximately 185 million shares.
In December 2003, we announced a $5 billion share-purchase
program, which we completed in October 2004 and was funded
from operating cash flows. In total, under the December 2003
program, we purchased approximately 146 million shares.
A summary of common stock purchases follows:
SHARES OF TOTAL COST OF
COMMON AVERAGE COMMON
(MILLIONS OF SHARES AND DOLLARS, STOCK PER-SHARE STOCK
EXCEPT PER-SHARE DATA) PURCHASED PRICE PAID PURCHASED
2005:
June 2005 program 22 $22.38 $ 493
October 2004 program 122 27.20 3,304
Total 144 $3,797
2004:
October 2004 program 63 $26.79 $1,696
December 2003 program 145 34.14 4,963
Total 208 $6,659
Contractual Obligations
Payments due under contractual obligations at December 31,
2005 mature as follows:
YEARS
___________________________________________________________
OVER 1 OVER 3
(MILLIONS OF DOLLARS) TOTAL WITHIN 1 TO 3 TO 5 AFTER 5
Long-term
debt(a) $6,347 $ — $2,667 $958 $2,722
Other long-term
liabilities
reflected on
our balance
sheet under
GAAP(b) 3,054 268 561 552 1,673
Lease
commit-
ments(c) 1,285 240 409 247 389
Purchase
obligations(d) 1,474 892 379 149 54
(a) Long-term debt consists of senior unsecured notes, floating-rate
unsecured notes, foreign denominated notes and other
borrowings and mortgages.
(b) Includes expected payments relating to our unfunded U.S.
supplemental (non-qualified) pension plans, postretirement plans
and deferred compensation plans.
(c) Includes operating and capital lease obligations.
(d) Purchase obligations represent agreements to purchase goods and
services that are enforceable and legally binding and include
amounts relating to advertising, information technology services
and employee benefit administration services.
In 2006, we expect to spend approximately $2.2 billion on
property, plant and equipment.
Off-Balance Sheet Arrangements
In the ordinary course of business and in connection with the sale
of assets and businesses, we often indemnify our counterparties
against certain liabilities that may arise in connection with a
transaction or related to activities prior to a transaction. These
indemnifications typically pertain to environmental, tax, employee
and/or product-related matters, and patent infringement claims.
If the indemnified party were to make a successful claim pursuant
to the terms of the indemnification, we would be required to
reimburse the loss. These indemnifications are generally subject
to threshold amounts, specified claim periods and other
restrictions and limitations. Historically, we have not paid
significant amounts under these provisions and as of December
31, 2005, recorded amounts for the estimated fair value of these
indemnifications are not material.
Certain of our co-promotion or license agreements give our
licensors or partners the right to negotiate for, or in some cases
to obtain, under certain financial conditions, co-promotion or
other rights in specified countries with respect to certain of our
products.
Dividends on Common Stock
We declared dividends of $6.0 billion in 2005 and $5.2 billion in
2004 on our common stock. In 2005, we increased our annual
dividend to $0.76 per share from $0.68 per share in 2004. In
December 2005, our Board of Directors declared a first-quarter
2006 dividend of $0.24 per share. The 2006 cash dividend marks
the 39th consecutive year of dividend increases.
Our current dividend provides a return to shareholders while
maintaining sufficient capital to invest in growing our businesses.
Our dividends are funded from operating cash flows and short-
term commercial paper borrowings; are based on our profitability;
and are not restricted by debt covenants. To the extent we have
additional capital in excess of investment opportunities, we
typically offer a return to our shareholders through a stock
repurchase program. We believe the Company’s profitability and
access to financial markets provides sufficient capability for the
Company to pay current and future dividends.
Recently Issued Accounting Standards
In December 2004, Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 123R,
Share-Based Payment. SFAS 123R replaces SFAS 123, Stock-Based
Compensation issued in 1995. SFAS 123R requires that the fair
value of the grant of employee stock options be reported as an
expense. Historically, we have disclosed in our footnotes the pro
forma expense effect of the grants (see Notes to Consolidated
Financial Statements—Note 1P, Significant Accounting Policies:
Share-Based Payments). We adopted SFAS 123R as of January 1,
2006. The estimated impact of adopting SFAS 123R on operations
for 2006 is $330 million in expense, net of tax. The estimate was
determined in January 2006, and is based, in part, on a projection
of our common stock price and other option valuation
assumptions for the fourth week in February 2006, the expected
time of our largest annual grant of stock option awards.