1.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 2, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from________to_______
COMMISSION FILE NUMBER 1-3619
--
PFIZER INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-5315170
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
235 East 42nd Street, New York, New York 10017
(Address of principal executive offices, including zip code)
(212) 573-2323
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that registrant was required to file
such reports) and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
At October 31, 1994, there were 314,778,431 shares, par value
$.10, of the issuer's common stock outstanding.
<PAGE>
2.
PFIZER INC.
FORM 10-Q
For the Quarter Ended
October 2, 1994
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements: Page
Condensed Consolidated Statement of Income for the three
months and nine months ended October 2, 1994 and
October 3, 1993. 3
Condensed Consolidated Balance Sheet at October 2, 1994,
December 31, 1993 and October 3, 1993. 4
Condensed Consolidated Statement of Cash Flows for the nine
months ended October 2, 1994 and October 3, 1993. 5
Notes to Condensed Consolidated Financial Statements 6
Independent Auditors' Report 10
Item 2.
Management's Discussion and Analysis 11
PART II. OTHER INFORMATION
Item 1.
Legal Proceedings 19
Item 6.
Exhibits and Reports on Form 8-K. 20
<PAGE>
3.
<TABLE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
PFIZER INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<CAPTION>
Three Months Ended Nine Months Ended
Oct. 2, Oct. 3, Oct. 2, Oct. 3,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
(millions of dollars,
except per share data)
Net sales $2,074.9 $1,872.5 $5,981.1 $5,488.5
Operating costs and
expenses
Cost of sales 476.0 436.4 1,372.3 1,296.9
Selling, 796.6 745.3 2,327.1 2,243.9
informational and
administrative
expenses
Research and 295.4 242.6 812.1 688.8
development
expenses
Divestitures, - 750.0 - 752.0
restructuring and
unusual items-net
Income/(loss) from 506.9 (301.8) 1,469.6 506.9
operations
Interest income 34.3 39.1 85.2 121.1
Interest expense (32.3) (29.6) (96.1) (81.3)
Other income 4.9 7.4 15.8 31.7
Other deductions (31.0) (43.4) (91.9) (118.5)
Non-operating (24.1) (26.5) (87.0) (47.0)
income/(deductions)
- - net
Income/(loss) 482.8 (328.3) 1,382.6 459.9
before provision
for/(benefit from)
taxes on income and
minority interests
Provision 144.9 (115.5) 414.8 89.6
for/(benefit from)
taxes on
income/(loss)
Minority interests 1.4 1.4 3.4 1.7
Net income/(loss) $336.5 $(214.2) $964.4 $368.6
Earnings/(loss) per $1.09 $(0.65) $3.11 $1.15
common share
Cash dividends per $0.47 $0.42 $1.41 $1.26
common share
<FN>
See accompanying Notes to Condensed Consolidated Financial
Statements.
</FN>
</TABLE>
<PAGE>
4.
<TABLE>
PFIZER INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEET
<CAPTION>
(millions of dollars) Oct. 2, Dec. 31, Oct. 3,
1994* 1993** 1993*
ASSETS
<S> <C> <C> <C>
Current Assets
Cash and cash $894.2 $729.4 $1,227.9
equivalents
Short-term 516.9 447.1 905.9
investments
Accounts receivable, 1,641.5 1,468.7 1,521.3
less allowances Oct.
2, 1994-$42.2; Dec.
31, 1993-$40.6; Oct.
3, 1993-$38.1
Short-term loans 574.0 456.9 413.6
Inventories
Finished goods 526.5 413.3 429.8
Work in process 536.3 502.1 512.1
Raw materials and 204.8 178.1 186.7
supplies
Total inventories 1,267.6 1,093.5 1,128.6
Prepaid expenses and 531.6 537.6 499.5
taxes
Total current assets 5,425.8 4,733.2 5,696.8
Long-term loans and 609.9 586.7 598.3
marketable
securities
Property, plant and 2,941.9 2,632.5 2,539.5
equipment, less
accumulated
depreciation Oct. 2,
1994-$1,899.4; Dec.
31, 1993-$1,668.2;
Oct. 3, 1993-
$1,646.1
Goodwill, less 291.9 231.1 234.2
accumulated
amortization
Other assets, 1,132.0 1,147.4 813.6
deferred taxes and
deferred charges
Total assets $10,401.5 $9,330.9 $9,882.4
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term $1,796.8 $1,178.8 $2,220.1
borrowings,
including current
portion of long-term
debt Oct.2, 1994-
$1.8; Dec. 31, 1993-
$3.6; Oct. 3, 1993-
$2.2
Accounts payable 432.9 479.1 394.6
Income taxes payable 645.3 606.2 336.0
Accrued compensation 364.9 408.6 431.8
and related items
Other current 899.1 770.9 763.6
liabilities
Total current 4,139.0 3,443.6 4,146.1
liabilities
Long-term debt 586.3 570.5 572.9
Postretirement 441.4 443.3 452.5
benefit obligation
other than pension
plans
Deferred taxes on 257.5 189.4 50.9
income
Other non-current 785.5 779.3 797.1
liabilities
Minority interests 37.9 39.3 40.6
Total liabilities 6,247.6 5,465.4 6,060.1
Shareholders' Equity
Preferred Stock - - -
Common Stock 34.0 33.9 33.8
Additional paid-in 546.9 491.7 385.0
capital
Retained earnings 5,758.5 5,240.7 5,087.1
Currency translation 178.2 31.7 62.2
adjustment and other
Employee benefit (683.7) (690.0) (592.5)
trust
Common stock in (1,680.0) (1,242.5) (1,153.3)
treasury, at cost
Total shareholders' 4,153.9 3,865.5 3,822.3
equity
Total liabilities $10,401.5 $9,330.9 $9,882.4
and shareholders'
equity
<FN>
* Unaudited
** Condensed from audited financial statements.
See accompanying Notes to Condensed Consolidated Financial
Statements.
</FN>
</TABLE>
<PAGE>
5.
<TABLE>
PFIZER INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<CAPTION>
(millions of dollars)
Nine Months Ended
Oct. 2, 1994 Oct. 3, 1993
<S> <C> <C>
Operating Activities
Net income $964.4 $368.6
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 213.6 191.2
of intangibles
Divestitures, restructuring - 752.0
and unusual items
Deferred income amortization (7.0) (26.0)
Other 16.6 17.7
Changes in operating assets
and liabilities:
Accounts receivable (142.3) (158.8)
Inventories (125.2) (154.4)
Prepaid and other assets (10.6) (71.9)
Accounts payable and accrued 12.0 (168.9)
liabilities
Income taxes payable 36.0 (48.2)
Other deferred items 49.8 (118.4)
Net cash provided by operating 1,007.3 582.9
activities
Investing Activities
Purchases of property, plant (477.8) (430.5)
and equipment
Purchases of short-term (1,045.1) (813.9)
investments
Proceeds from redemptions of 977.3 464.2
short-term investments
Proceeds from sale of - 241.2
business
Purchases of long-term (165.9) (104.4)
investments
Purchases and redemptions of 36.5 (31.4)
short-term investments by
financial subsidiaries
Net change in loans and long- (66.4) 194.8
term investments by financial
subsidiaries
Other investing activities 84.1 196.1
Net cash used in investing (657.3) (283.9)
activities
Financing Activities
Increase in short-term debt 616.3 968.6
Employee benefit transactions 31.6 38.9
Purchases of common stock (436.4) (928.7)
Cash dividends paid (446.6) (400.8)
Other financing activities 36.5 9.4
Net cash used in financing (198.6) (312.6)
activities
Effect of exchange rate 13.4 (15.6)
changes on cash and cash
equivalents
Net increase/(decrease) in 164.8 (29.2)
cash and cash equivalents
Cash and cash equivalents 729.4 1,257.1
balance at beginning of period
Cash and cash equivalents $894.2 $1,227.9
balance at end of period
<FN>
See accompanying Notes to Condensed Consolidated Financial
Statements.
</FN>
</TABLE>
<PAGE>
6.
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1: Basis of Presentation
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with the rules and
regulations of the United States Securities and Exchange
Commission. Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have
been condensed or omitted.
Subsidiaries operating outside the United States generally are
included on the basis of interim periods ended August 28, 1994
and August 29, 1993.
Note 2: Responsibility for Interim Financial Statements
Pfizer Inc. (the "Company") is responsible for the accompanying
unaudited interim financial statements which reflect all normal
and recurring adjustments considered necessary for a fair
presentation of the results for the periods presented.
The interim financial statements should be read in conjunction
with the financial statements and notes thereto included in the
Company's latest annual report on Form 10-K.
The results of operations for the interim periods ended October
2, 1994 are not necessarily indicative of the results which
ultimately might be expected for the current year.
Note 3: Earnings Per Common Share
Earnings per common share are computed by dividing net income by
the weighted average number of common shares and common share
equivalents outstanding. Common share equivalents consist of
shares issuable upon exercise of stock options. The weighted
average number of common shares and common share equivalents
totaled 310.2 million and 321.8 million for the first nine months
of 1994 and 1993, respectively.
Note 4: Currency Impact
An analysis of the changes in the currency translation adjustment
for the nine months ended October 2, 1994 is as follows:
(millions of dollars)
Currency translation adjustment December $31.7
31, 1993
Translation adjustments and gains and 143.2
losses from certain hedges and intercompany
balances
Currency translation adjustment October 2, $174.9
1994
The balance sheet caption Currency translation adjustment and
other also includes a net unrealized gain of $3.3 million on
investment securities available for sale in accordance with
Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities."
<PAGE>
7.
Exchange gains/(losses) included in "Other deductions" were as
follows:
1994 1993
(millions of dollars)
Third Quarter $0.7 $(14.5)
Nine Months $(5.6) $(25.5)
Note 5: Interest and Income Tax Payments
The Company made interest payments of approximately $79 million
and $89 million and income tax payments of approximately $334
million and $280 million during the first nine months of 1994 and
1993, respectively.
Note 6: Divestitures, Restructuring and Unusual Items
Income/(loss) from operations for the third quarter and first
nine months of 1993 included a charge of $750 million that
covered a worldwide restructuring program as well as unusual
items. Unusual items included the writedown of goodwill and
anticipated losses associated with certain tangible assets. The
writedown of goodwill related to a business evaluation where it
was determined that revenue and profitability levels were not
meeting previous estimates and unamortized goodwill would not be
recovered through future cash flows of the business.
In April 1993, the Company sold its remaining interest of
approximately 40% in Minerals Technologies Inc., a company
comprised of the Company's former specialty minerals businesses.
The sale resulted in a pre-tax gain of approximately $60 million
that was offset by charges of $62 million for restructuring,
consolidation and streamlining of certain of the Company's
businesses through the second quarter of 1993.
Note 7: Acquisition
In August 1994, the Company acquired Restiva Italiana S.p.A. for
approximately $25.8 million in a purchase transaction. Restiva
produces and sells a wide range of innovative and
dermatologically tested products for skin and hair care. Restiva
had 1993 sales of approximately $15 million.
Note 8: Employee Benefit Trust
In August 1993, the Company sold 10 million shares of treasury
stock to the Pfizer Inc. Grantor Trust (the Trust), an employee
benefit trust. The Trust will be used primarily to fund future
obligations for previously approved benefit plans over its 15-
year term. The common stock was acquired by the Trust from the
Company in exchange for a promissory note valued at approximately
$600 million at the date of sale. The amount representing
unearned employee benefits has been recorded as a deduction from
shareholders' equity and is reduced as employee benefits are
satisfied.
<PAGE>
8.
Note 9: Financial Instruments
The Company manages its transactional exposures to mitigate the
effect of unfavorable exchange rate movements. Changes in the
value of the U.S. dollar and other currencies affect the
Company's financial position and results of operations as the
Company has manufacturing operations in 31 countries and sells
its products on a worldwide basis. Short-term forward-exchange
contracts of six months or less are used to match the short-term
nature of the assets and liabilities, denominated in currencies
other than that of the local market, being hedged. Purchased
currency options are used to hedge certain product costs
associated with sales.
Forward-exchange contracts are agreements to purchase or sell
specified amounts of foreign currencies at specified rates on
specific future dates. At the end of the third quarter of 1994,
the Company had approximately $570 million of forward-exchange
contracts. The table below summarizes by currency the
contractual amounts of the Company's forward-exchange contracts:
(millions of dollars) EXCHANGED FOR
Currencies sold U.S. U.K. Irish German
forward Dollars Pounds Punts Marks
U.S. Dollars $64.4 $55.6 $0.7
U.K. Pounds $78.5 3.3 38.4
Japanese Yen 67.6
Irish Punts 43.0 4.7 2.0
German Marks 42.6
French Francs 32.7
Swedish Kroner 23.0 6.0
Spanish Pesatas 17.9 3.3
Norwegian 12.8
Kroner
Australian 9.7
Dollars
Dutch Guilders 8.9 1.1
Other 46.2 7.6
Total $382.9 $69.1 $76.9 $41.1
Purchased currency options of approximately $160 million,
denominated in yen, provide the Company with the right, but not
the obligation, to sell a specified amount of that currency at a
fixed price on a specific future date. Such currency options
have maturities through July 1996.
In 1985, in consideration of declining interest rates, the
Company entered into an interest-rate swap, which matures in
2001, to hedge approximately $25 million of long-term debt, due
2001, thereby effectively converting such debt from a 10 1/4% fixed
rate of interest to a floating rate based upon the Bankers Trust
Tax Exempt Note Rate.
<PAGE> 9.
The operating profit of Pfizer International Bank Europe (PIBE)
is affected by fluctuations in market interest rates as a result
of its holding interest-rate sensitive assets and liabilities.
Often, there are repricing and maturity mismatches between assets
and liabilities. The resulting interest-rate sensitivity gap is
the net effect of assets and liabilities maturing or repricing in
a given period. When more assets than liabilities reprice within
a given time period, there would be an increase in operating
profit in a period of increasing interest rates. PIBE adjusts its
asset and liability mix to reflect its liquidity preferences,
interest-rate outlook and general market conditions. PIBE maintains
a largely dollar-denominated floating rate asset portfolio. The
interest-rate sensitivity of this asset portfolio is largely offset
by the corresponding interest-rate sensitivity inherent in the
Company's U.S. dollar denominated short-term debt portfolio. PIBE
enters into conventional interest-rate swaps, currency swaps and
forward-rate agreements and other notional principal transactions
as vehicles to hedge the interest-rate sensitivity of its investment
portfolio.
At the end of the third quarter of 1994, currency swaps with a
notional amount of $88 million effectively convert foreign
currency denominated assets in PIBE's investment portfolio into
floating rate (based on LIBOR) dollar-denominated assets. An
interest-rate swap with a notional amount of $50 million as of
the end of the third quarter of 1994 effectively converts a fixed
rate to a floating rate based on LIBOR and is used to further
minimize any mismatch between rates received on assets and rates
paid on liabilities.
The other notional principal transactions, with a notional
principal of $200 million, resulted from decisions in 1987 and
1988 to reduce PIBE's exposure to declining interest rates with
respect to its floating rate asset portfolio by effectively
converting to fixed rates. This was done through interest-rate
swap agreements wherein the Company is obligated to pay floating
rates based on LIBOR and would have received fixed rates. As
rates rise or fall, PIBE's payments under the swaps would
increase or decrease, but, at the same time, PIBE will earn more
or less on its underlying floating rate assets. To reduce the
counterparty credit risk associated with the interest-rate swap
agreements, the Company sold its right to receive the fixed rate
payments on the swaps. The income on the transaction was
deferred and is being amortized over the life of the swaps, all
of which expire through November 1995.
Note 10: Subsequent Events
In October 1994, the Company acquired certain assets of Flavor
Technology Inc. (FTI), a privately held compound flavors business
with annual sales of over $10 million, for approximately $32
million in a purchase transaction. Most of FTI's products are
proprietary blends, emulsions and specially prepared flavor
ingredients that serve the beverage and food industries.
Also in October 1994, the Company and NAMIC U.S.A. Corporation
(NAMIC) announced that they have signed a definitive agreement in
which the Company will acquire NAMIC in a stock-for-stock
transaction. Under the terms of the agreement, unanimously
approved by the boards of directors of both companies, NAMIC
shareholders would receive 0.24599 of a share of Pfizer Inc.
common stock in exchange for each outstanding share of NAMIC
common stock. NAMIC currently has approximately 8.6 million
shares of common stock outstanding. The value of the transaction
will be approximately $155 million and will be accounted for as a
purchase transaction. NAMIC designs, manufactures and markets a
broad range of single-patient use medical products and customized
kits for use in the diagnosis and treatment of atherosclerotic
cardiovascular disease. Approval of the transaction by the
shareholders of NAMIC will be sought in the first quarter of 1995.
<PAGE>
10.
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of Pfizer Inc.:
We have reviewed the accompanying condensed consolidated balance
sheets of Pfizer Inc. and subsidiary companies as of October 2,
1994 and October 3, 1993 and the related condensed consolidated
statements of income for each of the three month and nine month
periods then ended and cash flows for the nine month periods then
ended. These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established
by the American Institute of Certified Public Accountants. A
review of interim financial information consists principally of
applying analytical procedures to financial data and making
inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the accompanying condensed
consolidated financial statements referred to above for them to
be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of Pfizer Inc.
and subsidiary companies as of December 31, 1993, and the related
consolidated statements of income, shareholders' equity and cash
flows for the year then ended (not presented herein); and in our
report dated February 24, 1994, we expressed an unqualified
opinion on those consolidated financial statements. In our
opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of December 31, 1993, is fairly
presented, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
In the first quarter of 1994, the Company adopted the provisions
of the Financial Accounting Standard Board's Statement of
Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities."
KPMG PEAT MARWICK LLP
New York, New York
November 14, 1994
<PAGE>
11.
<TABLE>
Item 2. Management's Discussion and Analysis
PFIZER INC. AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE CONDENSED
CONSOLIDATED STATEMENT OF INCOME
FOR THE PERIODS ENDED OCTOBER 2, 1994 AND OCTOBER 3, 1993
<CAPTION>
Percent
Increase/
(Decrease)
% of Net Sales Comparison
3rd Qtr. 1994 9 Mos. 1994
Third Quarter Nine Months from from
1994 1993 1994 1993 3rd Qtr. 1993 9 Mos. 1993
<C> <C> <C> <C> <C> <C> <C>
100.0 100.0 100.0 100.0 Net Sales 11 9
Operating costs and
expenses
22.9 23.3 22.9 23.6 Cost of sales 9 6
38.4 39.8 38.9 40.9 Selling, 7 4
informational and
administrative
expenses
14.3 13.0 13.6 12.6 Research and 22 18
development
expenses
- 40.0 - 13.7 Divestitures, * *
restructuring and
unusual items-net
24.4 (16.1) 24.6 9.2 Income/(loss) from * 190
operations
1.7 2.1 1.4 2.2 Interest income (12) (30)
(1.6) (1.6) (1.6) (1.5) Interest expense 9 18
0.3 0.4 0.2 0.6 Other income (34) (50)
(1.5) (2.3) (1.5) (2.1) Other deductions (29) (22)
(1.1) (1.4) (1.5) (0.8) Non-operating (9) 85
income/(deductions)-
net
23.3 (17.5) 23.1 8.4 Income/(loss) * 201
before provision
for/(benefit from)
taxes on income and
minority interests
7.0 (6.2) 6.9 1.7 Provision for/ * 363
(benefit from)
taxes on
income/(loss)
0.1 0.1 0.1 - Minority interests - 100
16.2 (11.4) 16.1 6.7 Net income/(loss) * 162
$1.09 $(0.65) $3.11 $1.15 Earnings/(loss) per * 170
common share
$0.47 $0.42 $1.41 $1.26 Cash dividends per 12 12
common share
30.0% (35.2%) 30.0% 19.5% Effective tax rate
<FN>
* Calculation not meaningful
</FN>
</TABLE>
<PAGE>
12.
Item 2.
PFIZER INC. AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE CONSOLIDATED
NET SALES BY BUSINESS SEGMENT
FOR THE PERIODS ENDED OCTOBER 2, 1994 AND OCTOBER 3, 1993
(Millions of Dollars)
Percent
Increase/
Third Quarter (Decrease)
Comparison
% of % of 3rd Qtr. 1994
Net Net From
1994 Sales 1993 Sales 3rd Qtr. 1993
$1,755.5 84.6 $1,555.0 83.0 Health Care 13
108.3 5.2 105.5 5.6 Consumer Health Care 3
68.2 3.3 72.7 3.9 Food Science (6)
142.9 6.9 139.3 7.5 Animal Health 3
$2,074.9 100.0 $1,872.5 100.0 Consolidated 11
Percent
Increase/
Nine Months (Decrease)
Comparison
% of % of Nine Months 1994
Net Net From
1994 Sales 1993 Sales Nine Months 1993
$5,012.9 83.8 $4,538.2 82.7 Health Care 10
321.5 5.4 297.9 5.4 Consumer Health Care 8
217.1 3.6 235.7 4.3 Food Science (8)
429.6 7.2 416.7 7.6 Animal Health 3
$5,981.1 100.0 $5,488.5 100.0 Consolidated 9
<PAGE>
13.
Item 2.
PFIZER INC. AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE CONSOLIDATED
NET SALES BY GEOGRAPHIC AREA
FOR THE PERIODS ENDED OCTOBER 2, 1994 AND OCTOBER 3, 1993
(Millions of Dollars)
Percent
Increase/
Third Quarter (Decrease)
Comparison
% of % of 3rd Qtr. 1994
Net Net From
1994 Sales 1993 Sales 3rd Qtr. 1993
$1,124.5 54.2 $1,020.3 54.5 United States 10
426.6 20.6 371.5 19.8 Europe 15
328.3 15.8 299.7 16.0 Asia 10
151.5 7.3 127.8 6.8 Canada/Latin America 19
44.0 2.1 53.2 2.9 Africa/Middle East (17)*
$2,074.9 100.0 $1,872.5 100.0 Consolidated 11
Percent
Increase/
Nine Months (Decrease)
Comparison
% of % of Nine Months 1994
Net Net From
1994 Sales 1993 Sales Nine Months 1993
$3,241.0 54.2 $2,975.9 54.2 United States 9
1,271.3 21.3 1,190.9 21.7 Europe 7
897.7 15.0 810.3 14.8 Asia 11
436.3 7.3 379.3 6.9 Canada/Latin America 15
134.8 2.2 132.1 2.4 Africa/Middle East 2
$5,981.1 100.0 $5,488.5 100.0 Consolidated 9
* Decline is principally attributable to the difficult economic
environment in Turkey.
<PAGE>
14.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
NET SALES
The following statistical data are provided to assist the reader
in understanding the composition of changes affecting the
increase in net sales.
SALES GROWTH ANALYSIS
% INCREASE/(DECREASE) COMPARISON
Third Quarter 1994 Nine Months 1994
From From
Third Quarter 1993 Nine Months 1993
Volume increases 11 9
Price increases - 1
Currency - (1)
fluctuations
Total net sales 11 9
increase
Consolidated net sales increased by 11% in the third quarter and
9% in the first nine months of 1994 versus the comparable periods
of last year to $2,074.9 and $5,981.1 million, respectively. The
third quarter sales growth was driven entirely by volume with no
contribution from price or currency fluctuations. The health
care sales performance in the third quarter versus last year
reflects a 14% increase in worldwide sales of pharmaceuticals and
a 6% increase in hospital products. For the first nine months of
1994, worldwide pharmaceutical sales increased 12%, while sales
of worldwide hospital products increased 4%.
For the third quarter, U.S. pharmaceutical sales increased 15%
and International pharmaceutical sales increased 14% while for
the nine months the U.S. increase was 12% and the International
increase was 11%. The Company's newest products continued to
perform well. In the third quarter, sales of the six
pharmaceutical products launched in the U.S. during the 1990s --
Zoloft, Zithromax, Norvasc, Cardura, Diflucan and Glucotrol XL --
increased by 45% and comprised 50% of the Company's third quarter
worldwide pharmaceutical sales. Sales in the third quarter of
calcium channel blockers as a group (Procardia, Procardia XL and
Norvasc) increased by 24%. The following table shows the
percentage sales growth of the Company's major pharmaceuticals
for the third quarter and first nine months of 1994:
Net Sales Growth of Major Pharmaceuticals 1994 vs. 1993
Percentage Increase/(Decrease)
Third Nine
Quarter Months
Procardia XL (1) (3)
Zithromax 28 21
Zoloft 58 58
Norvasc 94 98
Cardura 22 29
Diflucan 15 13
Feldene(*) (3) (19)
(*) Decline is largely a result of generic competition.
<PAGE>
15.
Hospital Products Group's sales grew 6% in the third quarter.
While sales trends in this business continue to be tempered by
overall market conditions, the Company continues to benefit from
new product introductions as well as the success of its coronary
catheters, used in angioplasty and stents, used to keep peripheral
blood vessels and bile ducts open after procedures to clear
blockages.
Consumer Health Care sales increased by 3% in the third quarter,
reflecting strong international sales largely attributable to a
number of small acquisitions.
Animal Health sales increased by 3% in the quarter. Latin
America sales increased in the quarter, where Dectomax, a broad-spectrum
antiparasitic agent, is now the Company's leading animal health product
in the region after only six months of sales in three countries and
one year of sales in three others.
Food Science sales declined by 6% in the third quarter,
reflecting the continuing phase-out of commodity chemicals in
favor of specialty food products, sales of which increased by 22%
in the quarter.
OPERATING COSTS AND EXPENSES
Income from operations for the third quarter and first nine
months of 1993 included a pre-tax charge of $750 million for
certain restructuring and unusual items including personnel
reductions and the writedown of certain tangible assets as well
as intangible assets whose carrying value will not be recovered
through future cash flows. Also included in the nine months of
1993 results was a pre-tax gain of approximately $60 million
resulting from the sale of the Company's interest in Minerals
Technologies Inc., offset by charges of $62 million for
restructuring, consolidation and streamlining of certain of the
Company's businesses.
As a percentage of net sales, cost of sales and selling,
informational and administrative expenses decreased in the third
quarter and first nine months of 1994 compared with the same
periods of 1993. The improvement in cost of sales reflects the
favorable impact of changes in business and product mix, while
the improvement in selling, informational and administrative
expenses continues to reflect restrained growth in marketing
expenses relative to the prior year as well as spending reductions
resulting from restructuring efforts. The decrease in cost of sales
as well as selling, informational and administrative expenses, as a
percentage of net sales, more than offset the increase in research
and development expenses as a percentage of net sales, so that
operating margins increased in the third quarter and first nine
months of 1994 versus last year's comparable periods excluding
restructuring and unusual items.
The Company is committed to an expanding research effort,
particularly in the health care segment. Health care research
and development expenses, expressed as a percentage of health
care net sales, were 15.3% and 14.9% in the first nine months of
1994 and 1993, respectively. In 1994, the Company plans to spend
in excess of $1.1 billion on research and development expenses.
NON-OPERATING INCOME (DEDUCTIONS)
The decline in Interest income for the third quarter and first
nine months of 1994 versus the comparable periods of 1993 was
primarily attributable to changes in the capital structure of the
Company. The decline in Other income in the third quarter of
1994 was mainly due to lower income from equity investments while
the decline for the nine months was primarily attributable to
income from the settlement of a doxycycline patent infringement
case in France in the second quarter of 1993.
<PAGE>
16.
The increase in Interest expense for the third quarter and first
nine months of 1994 was primarily attributable to certain changes in the
scope and nature of the Company's program to manage its transactional
foreign currency exposure in hyper-inflationary markets, principally
Brazil, coupled with higher interest rates, partially offset by decreased
borrowing levels. The decrease in Other deductions in the third
quarter and first nine months of 1994 versus the comparable
periods of 1993 was primarily attributable to foreign exchange
related items.
PRE-TAX AND NET INCOME
The Company's effective tax rate increased from 26 percent in
1993 to 30 percent this year as a result of various changes contained
in the Omnibus Budget Reconcilication Act of 1993 which, among other
provisions, included the imposition of a limitation on the tax
credit allowed to the Company for U.S. tax on income earned in
Puerto Rico, where the Company has a major manufacturing facility.
On an ongoing basis, pre-tax and net income increased 14% and 8%,
respectively, in both the third quarter and first nine months of 1994.
OTHER
In February 1993, the Company announced a program to purchase up
to 20 million shares of its currently issued common stock in the
open market or in privately negotiated transactions. Common
stock purchased under the program will be held in the Company
treasury and will be available for use in the Company's employee
benefit plans and for general corporate purposes. Under this
stock repurchase program, in the first nine months of 1994,
approximately 7.5 million shares were purchased in the open
market at an average price of $58 per share. This completes the
announced 20 million share repurchase. In the first nine months
of 1993, total shares purchased on the open market were 14.4
million at an average cost of approximately $64 a share.
In 1993, the Company initiated a restructuring program which
included the consolidation of manufacturing facilities, the
demolition of buildings resulting from the consolidation,
reconfiguration and rehabilitation of remaining facilities and
the consolidation of distribution and administrative
organizations and infrastructures.
Through October 2, 1994, restructuring initiatives implemented
had reduced the workforce by 630 people and closed 6
facilities. The annualized benefit of efficiencies resulting
from completed efforts were approximately $32 million. The
full implementation of such plans is still anticipated to lower
annual operating costs by $130 million. To date, there have been
no reclassifications between the components presented below, nor
have there been significant changes in estimates of the cost of
the plan.
<PAGE>
17.
The following table indicates the status of the restructuring
charges by component:
Utilization
Through Reserves
1993 2nd 3rd Remaining
Restructuring Quarter Quarter at
Charges 1994 1994 Oct. 2, 1994
(millions of dollars)
Employee $230.7 $35.6 $5.3 $189.8
severance
payments
Operating assets 211.7 88.4 4.2 119.1
to be
sold/disposed
Closed 101.1 6.8 2.0 92.3
facilities' costs
Currency 57.8 57.8 - -
translation
adjustment
related to the
liquidation/
disposal of
businesses
Administrative 37.6 1.8 8.2 27.6
infrastructures
Lease and third 37.0 10.6 9.3 17.1
party contract
termination
payments
Other 14.3 3.6 2.8 7.9
$690.2 $204.6 $31.8 $453.8
Writedowns of operating assets, which primarily involve
manufacturing rationalizations, are considered utilized when the
asset is sold or otherwise disposed of by the Company. Closed
facilities' costs relate primarily to the rationalization of
fermentation capacity, as well as costs related to the demolition
of structures within certain manufacturing facilities, and are
considered utilized when third party payments are made. Charges
for currency translation adjustments relate to reversals of
previously recorded currency translation adjustments associated
with overseas businesses to be divested or liquidated under the
restructuring plan. Administrative infrastructure costs relate
primarily to consulting costs involved in restructuring the
administrative support organizations and the distribution
centers. Lease and third party contract termination payments
consist of lease termination payments and payments made to
independent distributors to terminate existing relationships.
Other provisions principally consist of provisions for
environmental matters associated with restructured operations,
the writedown of goodwill and other intangibles, as well as other
miscellaneous restructuring provisions. No payments, other than
employee severance payments, were made to employees. All other
payments which are incorporated in the items included above have
been or will be made to consultants and other third parties.
In October 1994, the Company received a notice of proposed
adjustments from the Internal Revenue Service ("IRS"). The IRS
is auditing the years 1987 - 1989. The proposed adjustments relate
primarily to the tax accounting treatment of certain swaps and
related transactions undertaken by the Company in 1987 and 1988.
These transactions resulted in the receipt of cash in those years,
which the Company duly reported as income for tax purposes. In
1989 (in Notice 89-21), the IRS announced that it believed cash
received in certain swap transactions should be reported as income
for tax purposes over the life of the swaps, rather than when received.
In the case of the Company, this would cause some of the income to be
reported in years subject to the Tax Reform Act of 1986. The IRS
proposed adjustment involves approximately $72 million in federal
taxes for the years 1987 - 1989, plus interest. If the proposed
adjustment is carried through to the maturity of the transactions in
1992, an additional tax deficiency of approximately $86
<PAGE>
18.
million, plus interest, would result. The Company disagrees with the
proposed adjustment and continues to believe that its tax accounting
treatment for the transactions in question was proper. Discussions
with the IRS are continuing and no final report has been issued by
the IRS. While it is impossible to determine the final disposition,
the Company is of the opinion that the ultimate resolution of this
dispute should not have a material adverse effect on the financial
position or the results of operations of the Company.
ANALYSIS OF LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents and short-term investments totaled
$1,411.1 million at October 2, 1994, as compared to $1,176.5
million at year-end 1993. Total borrowings were $2,383.1 million
at October 2, 1994 compared to $1,749.3 million at year-end 1993.
Working capital was about the same as December 31, 1993 and
decreased versus October 3, 1993. The decrease from October 3,
1993 was primarily due to lower cash and cash equivalents and
short-term investments attributable to the net repayment of short-
term borrowings and to the Company's common share repurchase program.
Oct. 2, Dec. 31, Oct. 3,
1994 1993 1993
Working capital (millions of $1,286.8 $1,289.6 $1,550.7
dollars)
Current ratio 1.31:1 1.37:1 1.37:1
Debt to total capitalization 36% 31% 42%
(percentage)*
Shareholders' equity per $13.63 $12.43 $12.26
common share**
Days of sales outstanding- 69 63 71
trade accounts receivable
Months of inventory on hand 9.3 8.5 8.0
* Represents total short and long-term borrowings divided by
the sum of total short and long-term borrowings and total
shareholders' equity.
** Represents shareholders' equity divided by the actual number
of common shares outstanding.
<PAGE>
19.
FORM 10-Q
PART II - OTHER INFORMATION
Item 1: Legal Proceedings
The Company is involved in a number of claims and litigations,
including product liability claims and litigations considered
normal in the nature of its businesses. These include suits
involving various pharmaceutical and hospital products that
allege either reaction to or injury from use of the product.
For a discussion of matters relating to claims and actions
involving the Shiley Convexo-Concave heart valves, see the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993. Since the filing of the Quarterly Report on
Form 10-Q for the quarterly period ended July 3, 1994, the
petition for certiorari filed in the U.S. Supreme Court seeking
review of the lower courts' approvals of the Bowling Class
settlement was denied on October 4, 1994.
For a discussion of environmental matters, see the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1993.
As previously reported in greater detail in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993,
the Company and Quigley Company, Inc., a wholly-owned subsidiary,
have been named as one of a number of defendants in numerous
lawsuits claiming personal injury resulting from exposure to
asbestos-containing products. The total pending caseload as of
October 21, 1994 is 13,207 asbestos cases against Quigley, 5,388
asbestos cases against Pfizer Inc., and 148 talc cases against
Pfizer Inc. The hearing on the fairness of the future claims
asbestos class settlement has been concluded and in August, the
United States District Court for the Eastern District of
Pennsylvania ruled that the settlement was fair, adequate and
reasonable. A motion is pending challenging the appropriateness
of the numerous opt-outs from the future claims class settlement.
For a discussion of matters relating to the Company's
indemnification of Minerals Technologies Inc. against liability
with respect to certain products manufactured and sold by the
Company prior to October 30, 1992 and with respect to certain
environmental matters, see the Company's Annual Report on Form 10-
K for the fiscal year ended December 31, 1993.
As previously reported in the Company's Annual Report on Form 10-
K for the fiscal year ended December 31, 1993, the Company has
been named, together with a number of other manufacturers of
prescription drugs and certain companies which distribute
prescription pharmaceuticals, as a defendant in a series of
related actions alleging violations of federal or state antitrust
laws, or both, and common law. A majority of the federal actions
have been coordinated and consolidated for pretrial proceedings
in the Northern District of Illinois. The state actions
currently consist of seven actions in California, three in
Alabama and one in Wisconsin. Two of the Alabama cases have been
removed to Federal Court and one of these has been transferred by
the Multidistrict Panel to Federal Court in Chicago. Defense
motions to dismiss the Sherman and Robinson-Patman Act claims
were denied in the consolidated federal proceedings. Summary
judgment motions against certain of the federal claims were also
denied. The Company believes these cases are without merit and
is vigorously defending them.
For a discussion of matters relating to Plax, the Company's pre-
brushing dental rinse product, see the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993.
<PAGE>
20.
For a discussion of matters relating to: a pending class action
lawsuit against the Company and certain officers and former
directors and officers alleging certain federal securities law
violations by failing to disclose potential liability arising out
of personal injury suits involving Shiley heart valves; and, a
pending derivative action against certain directors and officers
and former directors and officers alleging breaches of fiduciary
duty and other common law violations in connection with the
manufacture and distribution of Shiley heart valves, see the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993.
For a discussion of matters relating to a purported class action
lawsuit on behalf of patients implanted with the Howmedica PCA
one-piece acetabular hip component, see the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993.
Since the filing of the Quarterly Report on Form 10-Q for the
quarterly period ended July 3, 1994, one additional purported
class action has been filed in the United States District Court
for the Eastern District of Louisiana against American Medical
Systems, Inc., a wholly-owned subsidiary of the Company, in
respect of its penile implant products. The Company believes this
case is without merit and is vigorously defending it.
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
1) Exhibit 11 - Computation of Earnings Per Common
Share
2) Exhibit 12 - Computation of Ratio of Earnings to
Fixed Charges
3) Exhibit 15 - Accountants' Acknowledgement
(b) No reports on Form 8-K have been filed by the Company
during the third quarter ended October 2, 1994.
<PAGE>
21.
PFIZER INC. AND SUBSIDIARY COMPANIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereto duly authorized.
Pfizer Inc.
(Registrant)
Date: November 14, 1994
H. V. Ryan; Controller
(Principal Accounting Officer and
Duly Authorized Officer)
<PAGE>
22.
Exhibit 11
PFIZER INC. AND SUBSIDIARY COMPANIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(in millions, except per share data)
(unaudited)
Three Months Ended Nine Months Ended
Oct. 2, Oct. 3, Oct. 2, Oct. 3,
1994 1993 1994 1993
Net income/(loss) $336.5 $(214.2) $964.4 $368.6
Weighted average 304.5 312.9 306.1 316.8
number of common
shares outstanding
Common share 4.2 4.6 4.1 5.0
equivalents (a)
Weighted average 308.7 317.5 310.2 321.8
number of common
shares and common
share equivalents
used to compute
earnings per common
share
Earnings/(loss) per $1.09 $(0.65) $3.11 $1.15
common share
Net income/(loss) $336.5 $(214.2) $964.4 $368.6
for fully diluted
earnings per common
share computation
Weighted average 304.5 312.9 306.1 316.8
number of common
shares outstanding
Common share 4.8 4.7 4.4 5.0
equivalents and
other dilutive
securities(a)
Weighted average 309.3 317.6 310.5 321.8
number of common
shares and common
share equivalents
used to compute
fully diluted
earnings per common
share
Fully diluted $1.09 $(0.65) $3.11 $1.15
earnings/(loss) per
common share(b)
(a) Includes common shares equivalents applicable to stock
option plans.
(b) This calculation is submitted in accordance with Regulation
S-K item 601(b) (11) although not required by footnote 2 to
paragraph 14 of APB Opinion No. 15 because it results in
dilution of less than 3%.
<PAGE>
23.
Exhibit 12
PFIZER INC. AND SUBSIDIARY COMPANIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(millions of dollars)
(Unaudited)
Nine
Months
Ended
Oct. 2, Year Ended December 31,
1994 1993 1992 1991 1990 1989
Earnings
Income $1,382.6 $851.4 $1,534.8 $943.7 $1,103.3 $916.5
before
provision
for taxes on
income,
minority
interests,
and
cumulative
effect of
accounting
changes
Less: 3.4 2.6 2.7 3.2 4.2 4.1
Minority
interests
Undistributed (1.7) 0.7 8.5 0.8 (0.3) 6.9
earnings/
(losses) of
unconsolidated
persons
Subtotal 1,380.9 848.1 1,523.6 939.7 1,099.4 905.5
Fixed 119.3 135.6 130.1 155.2 153.8 144.2
charges,
excluding
capitalized
interest
Total $1,500.2 $983.7 $1,653.7 $1,094.9 $1,253.2 $1,049.7
earnings
Fixed
Charges
Interest $106.2 $120.5 $115.6 $138.1 $142.4 $131.2
expense
(including
interest
expense,
amortization
of debt
discount and
expenses and
capitalized
interest)
One-third of 23.2 29.1 26.7 25.1 21.3 18.2
rental
expense
Total fixed $129.4 $149.6 $142.3 $163.2 $163.7 $149.4
charges
Ratio of 11.6 6.6 11.6 6.7 7.7 7.0
earnings to
fixed
charges(a)
(a) "Earnings" consist of income before provision for taxes on
income, minority interests and cumulative effect of
accounting changes less minority interests and less
undistributed earnings (losses) of unconsolidated
subsidiaries adjusted for fixed charges, excluding
capitalized interest. "Fixed charges" consist of interest
expense, amortization of debt discount and expenses,
capitalized interest and one-third of rental expense which
the Company believes to be a conservative estimate of an
interest factor in its leases. It is not practicable to
calculate the interest factor in a material portion of the
Company's leases.
<PAGE>
24.
Exhibit 15
ACCOUNTANTS' ACKNOWLEDGEMENT
Board of Directors
Pfizer Inc.:
We hereby acknowledge the incorporation by reference of our
report dated November 14, 1994, included within the Quarterly
Report on Form 10-Q of Pfizer Inc. for the quarter ended October
2, 1994 in the Prospectus dated December 27, 1972, as
supplemented February 6, 1973, of Pfizer Inc. filed under the
Securities Act of 1933 in Registration Statement on Form S-16
dated October 27, 1972 (File No. 2-46157), as amended, in the
Prospectus dated June 14, 1979, of Pfizer Inc., in the
Registration Statement on Form S-16 dated April 26, 1979 (File
No. 2-64610), as amended, in the Registration Statement on Form S-
15 dated December 13, 1982 (File No. 2-80884), as amended, in the
Registration Statement on Form S-8 dated October 27, 1983 (File
No. 2-87473), as amended, in the Registration Statement on Form S-
8 dated March 22, 1990 (File No. 33-34139), in the Registration
Statement on Form S-8 dated January 24, 1991 (File No. 33-38708),
in the Registration Statement on Form S-3 dated June 26, 1991
(File No. 33-41367), as amended, in the Registration Statement on
Form S-8 dated November 18, 1991 (File No. 33-44053), in the
Registration Statement on Form S-3 dated May 27, 1993 (File No.
33-49629), in the Registration Statement on Form S-8 dated May
27, 1993 (File No. 33-49631), in the Registration Statement on
Form S-8 dated May 18, 1994 (File No. 33-53713), in the
Registration Statement on Form S-8 dated October 5, 1994 (File
No. 33-55771) and in the Registration Statement on Form S-3 dated
November 14, 1994 (File No. 33-56435).
Pursuant to Rule 436(c) under the Securities Act of 1933,
such report is not considered a part of a registration statement
prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of sections 7 and
11 of the Act.
KPMG Peat Marwick LLP
New York, New York
November 14, 1994
