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The Pfizer Worksheet Analysis: Downloadable Tool 3.38
An enumeration of the nonrecurring items located in the Pfizer annual report is provided in the
completed sustainable earnings base (SEB) worksheet found in Exhibit 3.38. Each of the nonrecurring
items is recorded on the SEB worksheet. When an item is disclosed for the first, second, third, or
fourth time, it is designated by a corresponding superscript in a summary of the search process
provided in Exhibit 3.39. For purposes of illustration, all nonrecurring items have been recorded on
the SEB worksheet without regard to their materiality. A materiality threshold could exclude a series
of immaterial gains or losses that could, in combination, distort a firm‟s apparent profitability.
Without adjustment, Pfizer‟s income statement reports net income of $8,144 million, $19,337
million, and $8,085 million in 2007, 2006, and 2005, respectively, leaving the impression of a
company with volatile earnings. However, the complete adjustment for nonrecurring items conveys a
different message. After restatement, sustainable earnings amount to $13,627 million, $12,884
million, and $12,410 million in 2007, 2006, and 2005, respectively, indicating a stable sustainable
earnings base with moderate growth. Similarly, reported profit margins of 16.8%, 40.0%, and 17.1%
in 2007, 2006, and 2005, respectively, contrast with steadier adjusted profit margins of 28.1%, 26.6%,
and 26.2%, in 2007, 2006, and 2005, respectively.
Clearly the number and magnitude of nonrecurring items identified in the Pfizer annual report
caused its unanalyzed earnings data to be unreliable indicators of profit performance. Without the
comprehensive identification of nonrecurring items and the development of the SEB worksheet, the
company‟s three-year operating performance is virtually impossible to discern.
Exhibit 3.38 Adjustment worksheet for sustainable earnings base: Pfizer, Inc., years ending
December 31.