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 June 30, 1996
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 July 31, 1996 there were 642,410,060 shares par value
$.05, of the issuer's common stock outstanding.
<PAGE>
PFIZER INC.
FORM 10-Q
For the Quarter Ended
June 30, 1996
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements: Page
Condensed Consolidated Statement of Income for
the three months and six months ended
June 30, 1996 and July 2, 1995 3
Condensed Consolidated Balance Sheet at
June 30, 1996, December 31, 1995 and July 2, 1995 4
Condensed Consolidated Statement of Cash Flows for the
six months ended June 30, 1996 and July 2, 1995 5
Notes to Condensed Consolidated Financial Statements 6
Independent Auditors' Report 9
Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II. OTHER INFORMATION
Item 1.
Legal Proceedings 19
Item 4.
Submission of Matters to a Vote of Security Holders 27
Item 6.
Exhibits and Reports on Form 8-K 27
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PFIZER INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, July 2, June 30, July 2,
1996 1995 1996 1995
(millions of dollars, except
per share data)
Net sales . . . . . . . . . . . . . . . $2,661 $2,401 $5,343 $4,739
Costs and expenses
Cost of sales . . . . . . . . . . . . 521 552 1,034 1,061
Selling, informational and
administrative expenses. . . . . . . 1,083 967 2,077 1,816
Research and development expenses . . 422 354 788 667
Other deductions--net. . . . . . . . . 61 60 118 99
Income from continuing operations
before provision for taxes on
income and minority interests . . . . 574 468 1,326 1,096
Provision for taxes on income . . . . . 178 155 411 362
Minority interests. . . . . . . . . . . 2 2 4 4
Income from continuing operations . . . 394 311 911 730
Discontinued operations, net of
income taxes . . . . . . . . . . . . . -- 6 -- 7
Net income. . . . . . . . . . . . . . . $ 394 $ 317 $ 911 $ 737
Earnings per common share
Income from continuing
operations. . . . . . . . . . . . . . $ .61 $ .49 $ 1.42 $ 1.17
Discontinued operations, net of
income taxes . . . . . . . . . . . . . -- .01 -- .01
Net income. . . . . . . . . . . . . . . $ .61 $ .50 $ 1.42 $ 1.18
Cash dividends per common share . . . . $ .30 $ .26 $ .60 $ .52
See accompanying Notes to Condensed Consolidated Financial Statements.
<PAGE>
<TABLE>
PFIZER INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEET
<CAPTION>
(millions of dollars) June 30, Dec. 31, July 2,
1996* 1995** 1995*
ASSETS
<S> <C> <C> <C>
Current Assets
Cash and cash equivalents . . . . . . . . . .$ 870 $ 403 $ 624
Short-term investments. . . . . . . . . . . . 1,106 1,109 1,018
Accounts receivable, less allowances
June 30, 1996 - $62; Dec. 31, 1995
$61; July 2, 1995 - $52 . . . . . . . . . . 2,133 2,024 2,021
Short-term loans. . . . . . . . . . . . . . . 334 289 269
Inventories
Finished goods. . . . . . . . . . . . . . . 538 564 585
Work in process . . . . . . . . . . . . . . 631 579 568
Raw materials and supplies. . . . . . . . . 272 241 234
Total inventories . . . . . . . . . . . . 1,441 1,384 1,387
Prepaid expenses, taxes,
and other assets. . . . . . . . . . . . . . 607 943 851
Total current assets. . . . . . . . . . . 6,491 6,152 6,170
Long-term loans and investments . . . . . . . . 606 545 673
Property, plant and equipment, less
accumulated depreciation
June 30, 1996 - $2,068;
Dec. 31, 1995 - $1,991;
July 2, 1995 - $2,020. . . . . . . . . . . 3,571 3,473 3,438
Goodwill, less accumulated amortization
June 30, 1996 - $95; Dec. 31, 1995 -
$79; July 2, 1995 - $64 . . . . . . . . . . . 1,476 1,243 1,189
Other assets, deferred taxes and
deferred charges. . . . . . . . . . . . . . . 1,475 1,316 1,458
Total assets. . . . . . . . . . . . . . .$13,619 $12,729 $12,928
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term borrowings, including current
portion of long-term debt
June 30, 1996 - $502; Dec. 31, 1995
$277; July 2, 1995 - $4 . . . . . . . . .$ 2,545 $ 2,036 $ 3,060
Accounts payable. . . . . . . . . . . . . . . 652 715 700
Income taxes payable. . . . . . . . . . . . . 726 822 722
Dividends payable . . . . . . . . . . . . . . 193 -- 164
Accrued compensation and related items. . . . 417 421 398
Other current liabilities . . . . . . . . . . 1,315 1,193 1,042
Total current liabilities . . . . . . . . 5,848 5,187 6,086
Long-term debt. . . . . . . . . . . . . . . . . 583 833 611
Postretirement benefit obligation other
than pension plans. . . . . . . . . . . . . . 428 426 431
Deferred taxes on income. . . . . . . . . . . . 157 166 254
Other non-current liabilities . . . . . . . . . 570 564 672
Minority interests. . . . . . . . . . . . . . . 49 47 45
Total liabilities . . . . . . . . . . . . 7,635 7,223 8,099
Shareholders' Equity
Preferred stock . . . . . . . . . . . . . . . -- -- --
Common stock. . . . . . . . . . . . . . . . . 34 34 34
Additional paid-in capital. . . . . . . . . . 1,480 1,235 840
Retained earnings . . . . . . . . . . . . . . 7,194 6,858 6,189
Currency translation adjustment and other . . 122 163 316
Employee benefit trust. . . . . . . . . . . . (1,308) (1,169) (874)
Common stock in treasury, at cost . . . . . . (1,538) (1,615) (1,676)
Total shareholders' equity. . . . . . . . 5,984 5,506 4,829
Total liabilities and
shareholders' equity . . . . . . . . .$13,619 $12,729 $12,928
<FN>
<F1>* Unaudited
** Condensed from audited financial statements.
See accompanying Notes to Condensed Consolidated Financial Statements.
</FN>
</TABLE>
PFIZER INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(millions of dollars)
Six Months Ended
June 30, July 2,
1996 1995
Operating Activities
Net income . . . . . . . . . . . . . . . . . . . . .$ 911 $ 737
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization of intangibles . . . 207 181
Changes in operating assets and liabilities,
net of effect of businesses acquired
and divested. . . . . . . . . . . . . . . . . . . (407) (155)
Other. . . . . . . . . . . . . . . . . . . . . . . 12 (14)
Net cash provided by operating activities. . . . . . . 723 749
Investing Activities
Acquisitions, net of cash acquired . . . . . . . . . (371) (1,462)
Proceeds from sale of business . . . . . . . . . . . 353 --
Purchases of property, plant and equipment . . . . . (313) (316)
Purchases of short-term investments. . . . . . . . . (1,716) (1,274)
Proceeds from redemptions of short-term
investments. . . . . . . . . . . . . . . . . . . . 1,719 928
Net change in loans and long-term investments
by financial subsidiaries. . . . . . . . . . . . . 26 206
Purchases and redemptions of short-term
investments by financial subsidiaries. . . . . . . -- (35)
Purchases of long-term investments . . . . . . . . . (65) (80)
Other investing activities . . . . . . . . . . . . . 50 76
Net cash used in investing activities. . . . . . . . . (317) (1,957)
Financing Activities
Increase in short-term debt. . . . . . . . . . . . . 314 729
Purchases of common stock. . . . . . . . . . . . . . -- (109)
Cash dividends paid. . . . . . . . . . . . . . . . . (384) (328)
Stock option transactions. . . . . . . . . . . . . . 151 60
Other financing activities . . . . . . . . . . . . . (10) 21
Net cash provided by financing activities. . . . . . . 71 373
Effect of exchange rate changes on cash and
cash equivalents . . . . . . . . . . . . . . . . . . (10) --
Net increase/(decrease) in cash and
cash equivalents . . . . . . . . . . . . . . . . . . 467 (835)
Cash and cash equivalents balance at beginning
of period. . . . . . . . . . . . . . . . . . . . . . 403 1,459
Cash and cash equivalents balance at end
of period. . . . . . . . . . . . . . . . . . . . . .$ 870 $ 624
See accompanying Notes to Condensed Consolidated Financial Statements.
<PAGE>
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 May 26, 1996 and May 28, 1995.
Certain reclassifications have been made to the second quarter and first
six months of 1995 financial statements to conform to the 1996
presentation, including classification of the food science business as a
discontinued operation. For further details, see Note 7, "Discontinued
Operations," on page 8.
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 statement 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 June 30, 1996
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 642 million and 625 million for the
first six months of 1996 and 1995, respectively.
Note 4: Currency Impact
An analysis of the changes in the currency translation adjustment for
the six months ended June 30, 1996 is as follows:
(millions of dollars)
Currency translation adjustment December 31, 1995 $207
Translation adjustments and hedges (59)
Currency translation adjustment June 30, 1996 $148
<PAGE>
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
As of June 30, 1996, the balance sheet caption "Currency translation
adjustment and other" also includes a $42 million net unrealized gain on
investment securities available for sale and a $68 million net
unrealized charge for the minimum pension liability of partially funded
international plans.
Exchange (losses)/gains in "Other deductions--net" were as follows:
(millions of dollars) 1996 1995
Second Quarter $(4) $4
Six Months $(8) $6
Note 5: Interest and Income Tax Payments
The Company made interest payments of approximately $64 million and $96
million and income tax payments of approximately $429 million and $372
million during the first six months of 1996 and 1995, respectively.
Note 6: Acquisitions
In January 1996, the Company's hospital products business completed the
acquisition of the Leibinger Companies, a leader in the manufacture of
specialty instruments and implantable devices used in skull, jaw,
facial, hand and foot surgery.
In February 1996, the Company acquired Bioindustria Farmaceutici S.p.A.,
an Italian company engaged in the production and distribution of
prescription and over-the-counter pharmaceutical products.
In April 1996, the Company's Consumer Health Care segment completed the
acquisition of Cortizone, an anti-itching product, and Hemorid, a
hemorrhoid treatment, from Thompson Medical Co., Inc.
In June 1996, the Company acquired substantially all of Corvita
Corporation's outstanding shares of common stock. Corvita Corporation
is a Florida-based company which develops, manufactures and markets
synthetic vascular grafts used in the treatment of severely diseased
arteries.
In January 1995, the Company acquired the capital stock of certain
subsidiaries of SmithKline Beecham plc operating solely in the animal
health business and certain net assets used in the animal health
business from other SmithKline subsidiaries for approximately $1.5
billion, including direct costs of the acquisition.
In March 1995, the Company's hospital products business acquired NAMIC
U.S.A. Corporation, a cardiovascular products company, for approximately
4.4 million of the Company's common shares in a stock transaction valued
at approximately $170 million, including direct costs of the
acquisition.
These acquisitions were recorded under the purchase method of
accounting. The results of operations of these acquired businesses have
been included subsequent to the respective dates of acquisition. Pro
forma results of operations that reflect these acquisitions as if they
had occurred at the beginning of the periods presented would not be
materially different from the reported amounts.
<PAGE>
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Note 7: Discontinued Operations
In January 1996, the Company sold substantially all of the assets of its
food science business to Cultor Ltd., a publicly held international
nutrition company based in Finland, for approximately $353 million in
cash. The food science business has been reported as a discontinued
operation.
Note 8: Subsequent Events
In July 1996, the Company acquired Vesta Medical Inc., a development-
stage company, which has designed a proprietary system to treat abnormal
uterine bleeding. On completion of the acquisition, Vesta Medical's
products will be manufactured and marketed by the Company's hospital
products business.
In the third quarter of 1996, the Company purchased certain cosmetic,
dietetic and other over-the-counter products from the Formenti group
through the acquisition of three Italian companies: Ircafarm S.r.l.,
Farkemo S.r.l. and Blue Cross S.r.l.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of Pfizer Inc.:
We have reviewed the condensed consolidated balance sheet of Pfizer Inc.
and subsidiary companies as of June 30, 1996 and July 2, 1995, and the
related condensed consolidated statements of income for each of the
three month and six month periods then ended and cash flows for the six
month periods then ended. These condensed consolidated 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 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, 1995, 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 22, 1996, 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, 1995, is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been
derived.
KPMG Peat Marwick LLP
New York, New York
August 13, 1996
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
<TABLE>
PFIZER INC. AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE CONDENSED
CONSOLIDATED STATEMENT OF INCOME
FOR THE PERIODS ENDED JUNE 30, 1996 AND JULY 2, 1995
<CAPTION>
Percent Percent
(millions of dollars, Incr./(Dec.) Incr./(Dec.)
except per share data) Comparison* Comparison*
Second Quarter Six Months 2nd Quarter Six Months
1996 1995 1996 1995 1996/1995 1996/1995
<S> <C> <C> <C> <C> <C> <C>
Net sales $2,661 $2,401 $5,343 $4,739 11 13
Cost of sales $ 521 $ 552 $1,034 $1,061 (6) (3)
% of net sales 19.6% 23.0% 19.4% 22.4%
Selling,
informational
and administrative
expenses $1,083 $ 967 $2,077 $1,816 12 14
% of net sales 40.7% 40.3% 38.9% 38.3%
Research and
development
expenses $ 422 $ 354 $ 788 $ 667 19 18
% of net sales 15.8% 14.7% 14.7% 14.1%
Other deductions--net $ 61 $ 60 $ 118 $ 99 1 19
% of net sales 2.3% 2.5% 2.2% 2.1%
Income from con-
tinuing operations
before taxes and
minority interests $ 574 $ 468 $1,326 $1,096 23 21
% of net sales 21.6% 19.5% 24.8% 23.1%
Taxes on income $ 178 $ 155 $ 411 $ 362 15 14
Effective tax rate 31.0% 33.1% 31.0% 33.0%
Minority interests $ 2 $ 2 $ 4 $ 4 -- --
Income from con-
tinuing operations $ 394 $ 311 $ 911 $ 730 27 25
% of net sales 14.8% 13.0% 17.1% 15.4%
Discontinued
operations, net $ -- $ 6 $ -- $ 7 -- --
% of net sales -- .2% -- .2%
Net income $ 394 $ 317 $ 911 $ 737 25 24
% of net sales 14.8% 13.2% 17.1% 15.6%
Earnings per
common share:
Income from con-
tinuing operations $ .61 $ .49 $ 1.42 $ 1.17 24 21
Discontinued
operations, net -- $ .01 -- .01 -- --
Net income $ .61 $ .50 $ 1.42 $ 1.18 22 20
Cash dividends
per common share $ .30 $ .26 $ .60 $ .52 15 15
<FN>
<F1>*Percentages may not compute due to rounding.
For explanation of percent changes, see discussion beginning on page 13.
</FN>
</TABLE>
PFIZER INC. AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE CONSOLIDATED
NET SALES BY BUSINESS SEGMENT
FOR THE PERIODS ENDED JUNE 30, 1996 AND JULY 2, 1995
(millions of dollars)
Percent
Increase
Second Quarter Comparison*
% of % of 2nd Qtr. 1996
Net Net from
1996 Sales 1995 Sales 2nd Qtr. 1995
$2,244 84.3 $2,016 84.0 Health Care 11
291 11.0 285 11.9 Animal Health 2
126 4.7 100 4.1 Consumer Health Care 25
$2,661 100.0 $2,401 100.0 Consolidated 11
Percent
Increase
Six Months Comparison*
% of % of Six Months 1996
Net Net from
1996 Sales 1995 Sales Six Months 1995
$4,543 85.0 $3,983 84.0 Health Care 14
558 10.5 558 11.8 Animal Health --
242 4.5 198 4.2 Consumer Health Care 22
$5,343 100.0 $4,739 100.0 Consolidated 13
* Percentages may not compute due to rounding.
For additional explanation of percent changes, see discussion beginning on
page 13.<PAGE>
PFIZER INC. AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE CONSOLIDATED
NET SALES BY GEOGRAPHIC AREA
FOR THE PERIODS ENDED JUNE 30, 1996 AND JULY 2, 1995
(millions of dollars)
Percent
Increase
Second Quarter Comparison
% of % of 2nd Qtr. 1996
Net Net from
1996 Sales 1995 Sales 2nd Qtr. 1995
$1,321 49.6 $1,158 48.2 United States 14
689 25.9 618 25.7 Europe 11
396 14.9 395 16.5 Asia --
192 7.2 172 7.2 Canada/Latin America 12
63 2.4 58 2.4 Africa/Middle East 9
$2,661 100.0 $2,401 100.0 Consolidated 11
Percent
Increase
Six Months Comparison
% of % of Six Months 1996
Net Net from
1996 Sales 1995 Sales Six Months 1995
$2,770 51.8 $2,421 51.1 United States 14
1,339 25.1 1,146 24.2 Europe 17
772 14.4 726 15.3 Asia 6
345 6.5 331 7.0 Canada/Latin America 4
117 2.2 115 2.4 Africa/Middle East 2
$5,343 100.0 $4,739 100.0 Consolidated 13
<PAGE>
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
2nd Qtr. 1996 Six Months 1996
from from
2nd Qtr. 1995 Six Months 1995
Volume 12.9 13.7
Price 0.5 0.6
Currency (2.5) (1.5)
Total net sales increase 10.9 12.8
Consolidated net sales increased 11% in the second quarter of 1996 to
$2,661 million and 13% in the first six months of 1996 to $5,343
million. Worldwide sales volume growth for the second quarter of 12.9%
was partially offset by a 2.5% reduction due to the strengthening of the
dollar versus foreign currencies, particularly the Japanese yen. Price
changes had a favorable impact on revenue growth of one-half of 1% in
the quarter. The Company's increased sales volume reflects the strength
of its new products and its commitment to a research based, product-
driven growth strategy.
The health care sales performance in the second quarter versus last year
reflects a 13% increase in worldwide sales of pharmaceuticals and a 6%
increase in hospital products, while for the first half, worldwide sales
of pharmaceuticals and hospital products were up 15% and 9%,
respectively. For the second quarter, U.S. pharmaceuticals increased
17% and International pharmaceutical sales increased 8%. International
pharmaceutical sales increased by 13% without the negative effect of
foreign exchange. In the second quarter, the combined worldwide sales of
the seven pharmaceuticals launched in the U.S. in the 1990's--Norvasc,
Zoloft, Zithromax, Cardura, Diflucan, Glucotrol XL and Zyrtec--increased
by 30% and made up 67% of total pharmaceutical sales for the quarter.
The following table shows the worldwide net sales and percentage sales
growths of the Company's major pharmaceuticals for the second quarter
and first six months of 1996:
(millions of dollars)
2nd Qtr. 1996 Six Months 1996
% Incr./ % Incr./
Amount (Dec.) Amount (Dec.)
Cardiovascular Diseases: $780 14 $1,632 16
Norvasc 420 40 808 43
Procardia XL 196 (19) 501 (12)
Cardura 126 24 248 31
Infectious Diseases: 555 5 1,129 8
Diflucan 224 4 439 6
Zithromax 137 43 296 48
Central Nervous System Disorders: 308 22 637 26
Zoloft 298 24 615 29
Second quarter sales of cardiovascular products increased by 14% to $780
million. Sales of Norvasc, the Company's intrinsically once-a-day
calcium channel blocker for the treatment of angina and hypertension,
increased by 40% to $420 million--the largest quarterly sales of any
product in the Company's history. It continues to grow rapidly in the
U.S., Japan and Germany. In June 1996, the U.S. Food and Drug
Administration (FDA) approved new drug labeling that permitted the use
of Norvasc in treating angina or hypertension in patients who also have
congestive heart failure. Worldwide sales of Cardura, a once-a-day
treatment for hypertension and more recently, benign prostatic
hyperplasia (enlarged prostate), increased by 24% to $126 million. This
sales growth was reduced by 7% due to currency fluctuations. The
quarterly sales of Procardia XL, the Company's sustained-release calcium
channel blocker for the treatment of angina and hypertension, declined
by 19% to $196 million due, in part, to year-to-year changes in
wholesaler stocking patterns and lower prescription levels.
Global sales of the anti-depressant Zoloft increased by 24% to $298
million in the second quarter, compared with the same period of 1995.
Zoloft has benefited from broad clinical acceptance and its continuing
international rollout. In August, the Company received a warning letter
from the FDA alleging that promotional material for Zoloft promotes
unapproved uses and contains statements, suggestions or implications
that are false, lacking in fair balance or otherwise misleading. The
letter requests the Company to propose an action plan to deal with these
allegations. The Company makes every effort to ensure that all its
communications are consistent with the labeling of its products and
believes its Zoloft communications conformed to this policy. The
Company will be interacting with the FDA and attempt to work out a
resolution to the issues raised by the Warning Letter.
Worldwide sales of Zithromax, a broad-spectrum antibiotic, increased by
43% to $137 million in the quarter due, in part, to the U.S. launch of a
pediatric dosage form in November 1995. Zithromax recently received FDA
approval for use in the prevention of disseminated Mycobacterium avium
complex, a disease often found in persons with advanced HIV infection.
Sales of Diflucan, the Company's prescription antifungal, increased by
4% to $224 million as the product continues to be the therapy of choice
for a wide range of fungal infections. Excluding adverse currency
fluctuations, Diflucan sales for the quarter increased 9%.
Zyrtec, a new medication for seasonal and perennial allergies and hives,
is achieving fast acceptance in the U.S. medical community five months
after its introduction with U.S. sales of $58 million during the first
six months of 1996.
Hospital Products worldwide sales grew 6% in the second quarter to $360
million and 9% to $676 million in the first half reflecting the strength
of new product rollouts and the Leibinger acquisition. In January 1996,
the Company completed the acquisition of the Leibinger Companies, a
leader in the manufacture of specialty surgical instruments and
implantable devices used in skull, jaw, facial, hand and foot surgery.
This acquisition contributed 3 percentage points to the Hospital
Products sales growth for the quarter. Sales increased 47% in the
second quarter for both peripheral and coronary stents, which are
devices used to maintain flow through obstructed vessels. In June 1996,
the FDA approved the Wallstent endoprosthesis, which offers a minimally
invasive procedure for patients whose iliac arteries are narrowed due to
atherosclerosis.
Animal health sales increased by 2% in the second quarter to $291
million. Adverse market conditions for food animals in both Europe and
the U.S. affected performance. Sales of Dectomax, the livestock
antiparasitic discovered and developed by the Company, increased 14% to
$23 million as new product launches continued around the world,
including Japan. In August 1996, the FDA approved Dectomax, the
Company's treatment for internal and external parasites in cattle.
Dectomax, the Company's largest-selling animal health product in 1995,
will be available in the U.S. in September 1996.
Consumer health care sales increased 25% in the second quarter and 22%
in the first half of 1996 to $126 million and $242 million,
respectively, with growth driven by recently acquired brands such as the
Bain de Soleil line of sun care products, Cortizone, an anti-itching
product, and Hemorid, a hemorrhoid treatment.
COSTS AND EXPENSES
As a percentage of net sales, cost of sales decreased in the second
quarter and first half versus last year's comparable periods due to a
favorable product sales mix, the impact of purchase accounting relating
to SmithKline Beecham Animal Health (SBAH) inventories in 1995, the
favorable impact of the Company's foreign exchange hedging program,
improvements in manufacturing efficiencies and a reduction in the first
half royalty expenses accrual for Procardia XL.
Selling, informational and administrative expense increased 12% and 14%
in the second quarter and first six months of 1996, respectively,
compared with the same periods of 1995 as both previously introduced
products and new product launches, such as Zyrtec in the U.S., were well
supported.
Research and development expenditures were up 19% in the second quarter
and 18% in the first half relative to last year's comparable periods due
to the advancement of an unprecedented number of drug candidates in the
late stages of development. In 1996, the Company plans to spend
approximately $1.7 billion on R&D. Health care R&D expenses, expressed
as a percentage of health care net sales, were 16.4% and 15.1% in the
first six months of 1996 and 1995, respectively.
Income from continuing operations before taxes, minority interests and
other deductions--net, expressed as a percentage of net sales, was 1.9
percentage points higher in the second quarter and 1.8 percentage points
higher in the first half of 1996 versus the comparable 1995 periods.
<PAGE>
Other Deductions--net, for the second quarters and first six months of
1996 and 1995 are summarized in the following tables:
(millions of dollars) % Incr./
Second Quarter 1996 1995 (Dec.)*
Interest income $(31) $(38) (18)
Interest expense 42 56 (25)
Amortization of goodwill
and other intangibles 14 13 8
Foreign exchange losses/(gains) 4 (4) --
Other, net 32 33 (3)
Other deductions--net $ 61 $ 60 1
*Percentages may not compute due to rounding.
(millions of dollars) % Incr./
Six Months 1996 1995 (Dec.)
Interest income $(60) $(86) (30)
Interest expense 80 106 (25)
Amortization of goodwill
and other intangibles 28 22 27
Foreign exchange losses/(gains) 8 (6) --
Other, net 62 63 (2)
Other deductions--net $118 $ 99 19
The decrease in interest income in the second quarter and first six
months of 1996 versus last year's prior periods was largely due to lower
average levels of investments in interest earning assets. The decrease
in interest expense in the second quarter and first six months of 1996
was primarily due to lower average levels of borrowings. The increase
in amortization of goodwill and other intangibles in the first six
months of 1996 versus last year was primarily attributable to the
acquisition of the SmithKline Beecham animal health business in the
first quarter of 1995. Other, net for the second quarter and first six
months of 1996 included income of $48 million related to revised royalty
arrangements covering sales of Procardia XL, an $18 million write-off of
in-process R&D in connection with the Corvita acquisition and a $25
million payment relating to certain worldwide product licensing rights.
PRE-TAX AND NET INCOME
The decrease in the Company's effective tax rate from 32% for the full
year of 1995 (33% for the second quarter and first six months of 1995)
to 31% this year is mainly due to changes in the mix of income by
country, partially offset by the continuing reduction of the tax benefit
from the Company's operations in Puerto Rico as a result of the enact-
ment of the Omnibus Budget Reconciliation Act of 1993 and the expiration
of the R&D tax credit during 1995.
OTHER
Tenidap, the Company's cytokine and prostaglandin inhibitor for the
treatment of arthritis, has now received medical approval from
regulatory authorities in several countries for the treatment of
rheumatoid arthritis. Discussions are ongoing with government
authorities in these countries seeking appropriate reimbursement
classification. In the U.S., based on the advice of its Advisory
Committee, the FDA did not approve tenidap for either osteo-arthritis or
rheumatoid arthritis pending further evaluation of the drug's safety
profile. The Company will continue its interaction with the FDA.
<PAGE>
In March 1996, a New Drug Application was filed in the U.S. by The Eisai
Company, the company that discovered the compound, for Aricept
(donepezil, E2020). This drug candidate is a once-daily selective
acetylcholinesterase inhibitor for Alzheimer's disease that the Company
will co-promote with Eisai.
In the first six months of 1995, approximately 2.6 million shares were
purchased in the open market at an average cost of approximately $43 per
share.
On June 27, 1996, the Board of Directors of the Company declared a 30-
cent third quarter dividend on its common stock, payable September 12,
1996, to shareholders of record on August 2, 1996.
In 1993, the Company initiated a worldwide 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 distri-
bution and administrative organizations and infrastructures. It is
expected that the 1993 program will be substantially completed in 1996.
Through June 30, 1996, completed restructuring initiatives reduced the
workforce by approximately 1,750 people and resulted in the closing of
18 facilities. The annualized benefit of efficiencies resulting from
completed efforts was approximately $90 million. The full implementa-
tion of such plans is still anticipated to lower annual operating costs
by $130 million. To date, there have been no significant changes in
estimates of the cost of the plan.
The following table indicates the status of the restructuring charges by
component:
Utilization Reserves
(millions of dollars) 1993 Through Remaining
Restructuring Dec. 31, 1st Half at June 30,
Charges 1995 1996 1996
Employee severance
payments $220 $102 $36 $ 82
Operating assets to be
sold/disposed of 212 134 18 60
Other charges 247 216 31 --
$679 $452 $85 $142
There have been no reclassifications between the components of the
reserve presented in the preceding table. Other charges consist
primarily of provisions for closed facilities' costs, currency transla-
tion adjustments related to the liquidation or disposal of businesses,
administrative infrastructures and lease and third-party contract
termination costs which were previously presented as separate captions.
Write-downs of operating assets, which primarily involve manufacturing
rationalizations, are considered utilized and the reserve charged when
the asset is sold or otherwise disposed of by the Company.
ANALYSIS OF LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents and short-term investments totaled $1,976
million at June 30, 1996 as compared to $1,512 million at December 31,
1995. Total borrowings were $3,128 million at June 30, 1996 compared
with $2,869 million at December 31, 1995. Working capital at June 30,
1996 decreased versus December 31, 1995 and increased versus July 2,
1995. The decrease in working capital from December 31, 1995 was mainly
attributable to increased short-term borrowings primarily related to the
6 1/2% Notes due 1997 being reclassified from Long-term debt to Short-
term borrowings in the first half of 1996 and a reduction in Prepaid
expenses, taxes and other assets which included the assets held for sale
of the food science business at year end 1995 that was sold in January
1996. The increase in working capital from July 2, 1995 was primarily
attributable to a reduction in the short-term borrowings used to finance
the SBAH acquisition, partially offset by the reclassification in 1996
of the 6 1/2% Notes due 1997 and, in the third quarter of 1995, of the
7 1/8% Notes due October 1996 from Long-term debt to Short-term
borrowings.
June 30, Dec. 31, July 2,
1996 1995 1995
Working capital (millions of dollars) $ 643 $ 965 $ 84
Current ratio 1.11:1 1.19:1 1.01:1
Debt to total capitalization
(percentage)* 34% 34% 43%
Shareholders' equity per common share** $ 9.60 $ 8.90 $ 7.86
Days of sales outstanding - trade
accounts receivable 66 60 77
Months of inventory on hand 8.6 9.2 9.0
* Represents total short and long-term borrowings divided by the sum of
total short and long-term borrowings and total shareholders' equity.
** Represents total shareholders' equity divided by the actual number of
common shares outstanding.
SUBSEQUENT EVENTS
For a description of the subsequent events, see Note 8, "Subsequent
Events," on page 8.
CAUTIONARY STATEMENTS FOR FORWARD LOOKING INFORMATION
Management's discussion and analysis set forth above contains certain
forward looking statements, including statements regarding its financial
position, results of operations and product development. These forward
looking statements are based on current expectations. Certain factors
have been identified by the Company in Exhibit 99 to the Company's 1995
Annual Report on Form 10-K which could cause the Company's actual
results to differ materially from expected and historical results.
Exhibit 99 is incorporated by reference herein and is filed as an
exhibit to the Form 10-Q.<PAGE>
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.
As previously disclosed, numerous claims have been brought against
the Company and Shiley Incorporated, a wholly owned subsidiary, alleging
either personal injury from fracture of 60 (degree) or 70 (degree)
Shiley Convexo-Concave (C/C) heart valves, or anxiety that properly
functioning implanted valves might fracture in the future or personal
injury from a prophylactic replacement of a functioning valve.
In an attempt to resolve all claims alleging anxiety that properly
functioning valves might fracture in the future, the Company entered
into a settlement agreement in January 1992 in Bowling v. Shiley, et
al., a case brought in the United States District Court for the Southern
District of Ohio, that establishes a worldwide settlement class of
people with C/C heart valves and their spouses, except those who elect
to exclude themselves. The settlement provides for a Consultation Fund
of $90 million to $140 million (depending on the number of claims filed)
from which valve recipients who make claims will receive payments that
are intended to cover their cost of consultation with cardiologists or
other health care providers with respect to their valves. The settlement
agreement establishes a second fund of at least $75 million to support
C/C valve-related research, including the development of techniques to
identify valve recipients who may have significant risk of fracture, and
to cover the unreimbursed medical expenses that valve recipients may
incur for certain procedures related to the valves. The Company's
obligation as to coverage of these unreimbursed medical expenses is not
subject to any dollar limitation. Following a hearing on the fairness of
the settlement, it was approved by the court on August 19, 1992. An
appeal of the court's approval of the settlement was dismissed on
December 21, 1993 by the United States Court of Appeals for the Sixth
Circuit. A motion for rehearing en banc was denied on March 4, 1994, and
the U.S. Supreme Court denied a writ of certiorari on October 3, 1994.
On August 8, 1994, the Sixth Circuit dismissed an appeal from the denial
of a motion by the same appellants to vacate the judgment approving the
settlement, and the U.S. Supreme Court denied a writ of certiorari on
January 9, 1995. Another appeal to the Sixth Circuit by the same
appellants regarding the denial of their earlier motion to intervene
will be argued August 13, 1996. It is expected that most of the costs
arising from the Bowling class settlement will be covered by insurance
and the proceeds of the sale of certain product lines of the Shiley
businesses in 1992. Of approximately 900 implantees (and spouses of some
of them) who opted out of the Bowling settlement class, nine have cases
pending; approximately 792 have been resolved; and approximately 100
have never filed a case or claim.
Several claims relating to elective reoperations of valve recipi-
ents are currently pending. Some of these claims relate to elective
reoperations covered by the Bowling class settlement described above,
and, therefore, the claimants are entitled to certain benefits in
accordance with the settlement. Such claimants, if they irrevocably
waive all of the benefits of the settlement, may pursue separate
litigation to recover damages in spite of the class settlement. The
Company is defending these claims.
Generally, the plaintiffs in all of the pending heart valve
litigations discussed above seek money damages. Based on the experience
of the Company in defending these claims to date, including available
insurance and reserves, the Company is of the opinion that these actions
should not have a material adverse effect on the financial position or
the results of operations of the Company.
On September 30, 1993, Dairyland Insurance Co., a carrier provid-
ing excess liability coverage ("excess carrier") in the early 1980s,
commenced an action in the California Superior Court in Orange County,
seeking a declaratory judgment that it was not obligated to provide
insurance coverage for Shiley heart valve liability claims. On
October 8, 1993, the Company filed cross-complaints against Dairyland
and filed third-party complaints against 73 other excess carriers who
sold excess liability policies covering periods from 1979 to 1985,
seeking damages and declaratory judgments that they are obligated to pay
for defense and indemnity to the extent not paid by other carriers.
Several such claims have been resolved and the remainder are involved in
pretrial discovery. On April 26, 1996, the trial court entered an
order stating that implanting an allegedly defective heart valve is not
an appropriate trigger of insurance coverage in at least one and perhaps
all working valve lawsuits. This decision, even if it is applied to all
claims alleging anxiety that properly functioning valves might fracture
in the future, does not deal with fracture claims, which are also part
of the Company's claims.
The Company's operations are subject to federal, state, local and
foreign environmental laws and regulations. Under the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as
amended ("CERCLA" or "Superfund"), the Company has been designated as a
potentially responsible party by the United States Environmental
Protection Agency with respect to certain waste sites with which the
Company may have had direct or indirect involvement. Similar designa-
tions have been made by some state environmental agencies under applica-
ble state superfund laws. Such designations are made regardless of the
extent of the Company's involvement. There are also claims that the
Company may be a responsible party or participant with respect to
several waste site matters in foreign jurisdictions. Such claims have
been made by the filing of a complaint, the issuance of an administra-
tive directive or order, or the issuance of a notice or demand letter.
These claims are in various stages of administrative or judicial
proceedings. They include demands for recovery of past governmental
costs and for future investigative or remedial actions. In many cases,
the dollar amount of the claim is not specified. In most cases, claims
have been asserted against a number of other entities for the same
recovery or other relief as was asserted against the Company. The
Company is currently participating in remedial action at a number of
sites under federal, state, local and foreign laws.
To the extent possible with the limited amount of information
available at this time, the Company has evaluated its responsibility for
costs and related liability with respect to the above sites and is of
the opinion that the Company's liability with respect to these sites
should not have a material adverse effect on the financial position or
the results of operations of the Company. In arriving at this conclu-
sion, the Company has considered, among other things, the payments that
have been made with respect to the sites in the past; the factors, such
as volume and relative toxicity, ordinarily applied to allocate defense
and remedial costs at such sites; the probable costs to be paid by the
other potentially responsible parties; total projected remedial costs
for a site, if known; existing technology; and the currently enacted
laws and regulations. The Company anticipates that a portion of these
costs and related liability will be covered by available insurance.
Through the early 1970s, Pfizer Inc. Minerals Division and Quigley
Company, Inc. (Quigley), a wholly owned subsidiary, sold a minimal
amount of one construction product and several refractory products
containing some asbestos. These sales were discontinued thereafter.
Although these sales represented a minor market share, the Company has
been named as one of a number of defendants in numerous lawsuits. These
actions, and actions related to the Company's sale of talc products in
the past, claim personal injury resulting from exposure to asbestos-
containing products, and nearly all seek general and punitive damages.
In these actions, the Company or Quigley is typically one of a number of
defendants, and both are members of the Center for Claims Resolution
(the "CCR"), a joint defense organization of twenty defendants that is
defending these claims. The Company and Quigley are responsible for
varying percentages of defense and liability payments for all members of
the CCR. Prior to September 1990, the cases involving talc products were
defended by the CCR, but the Company is now overseeing its own defense
of these actions. A number of cases alleging property damage from
asbestos-containing products installed in buildings have also been
brought against the Company.
On January 15, 1993, a class action complaint and settlement
agreement were filed in the United States District Court for the Eastern
District of Pennsylvania involving all personal injury claims by persons
who have been exposed to asbestos-containing products but who have not
yet filed a personal injury action against the members of the CCR
("Future Claims Settlement"). The Future Claims Settlement agreement
establishes a claims-processing mechanism that will provide historic
settlement values upon proof of impaired medical condition as well as
claims-processing rates over ten years. In addition, the shares allocat-
ed to the CCR members eliminate joint and several liability. The court
has determined that the Future Claims Settlement is fair and reasonable.
Subsequently, the court entered an injunction enforcing its determina-
tion. Plaintiffs filed an appeal from that injunction in the United
States Court of Appeals for the Third Circuit and on May 10, 1996, a
panel of the Third Circuit reversed the order of the District Court and
directed that the preliminary injunction be vacated. Although the Third
Circuit subsequently denied the motion of the CCR members, including the
Company and Quigley, for rehearing of that determination, it agreed to
stay its mandate while review is sought in the United States Supreme
Court. In the event that the Future Claims Settlement is not upheld, it
is not expected to have a material impact on the Company's exposure or
on the availability of insurance for the vast majority of such cases.
It is expected, too, that the CCR will attempt to resolve such cases
outside of the Future Claims Settlement in the same manner as
heretofore.
At approximately the time it filed the Future Claims Settlement
class action, the CCR settled approximately 16,360 personal injury cases
on behalf of its members including the Company and Quigley. The CCR has
continued to settle remaining and opt-out cases and claims on a similar
basis to past settlements. The total pending number of personal injury
claims, exclusive of those covered by the Future Claims Settlement
preliminary injunction and those which are inactive as of July 2, 1996,
is 10,249 asbestos cases against Quigley; 3,825 asbestos cases against
the Company; and 68 talc cases against the Company.
Costs incurred by the Company in defending the asbestos personal
injury claims and the property damage claims, as well as settlements and
damage awards in connection therewith, are largely insured against under
policies issued by several primary insurance carriers and a number of
excess carriers.
The Company believes that its costs incurred in defending and
ultimately disposing of the asbestos personal injury claims, whether or
not the Future Claims Settlement is eventually upheld, as well as the
property damage claims, will be largely covered by insurance policies
issued by carriers that have agreed to provide coverage, subject to
deductibles, exclusions, retentions and policy limits. In connection
with the Future Claims Settlement, the defendants commenced a third-
party action against their respective excess insurance carriers that
have not agreed to provide coverage seeking a declaratory judgment that
(a) the Future Claims Settlement is fair and reasonable as to the
carriers; (b) the carriers had adequate notice of the Future Claims
Settlement; and (c) the carriers are obligated to provide coverage for
asbestos personal injury claims. Even if the Future Claims Settlement
is not eventually upheld, it is expected that the insurance coverage
action against the insurance carriers that have not agreed to provide
coverage for asbestos personal injury claims will be pursued. Based on
the Company's experience in defending the claims to date and the amount
of insurance coverage available, the Company is of the opinion that the
actions should not ultimately have a material adverse effect on the
financial position or the results of operations of the Company.
The United States Environmental Protection Agency - Region 1 and
the Department of Justice have informed the Company that the federal
government is contemplating an enforcement action arising primarily out
of a December 1993 multimedia environmental inspection, as well as
certain state inspections, of the Company's Groton, Connecticut facili-
ty. The Company is engaged in discussions with the governmental agencies
and does not believe that an enforcement action, if brought, will have a
material adverse effect on the financial position or the results of
operations of the Company.
The Company has been named, together with numerous other manufac-
turers of brand name prescription drugs and certain companies that
distribute brand name prescription drugs, in suits in federal and state
courts brought by various groups of retail pharmacy companies. The
federal cases consist principally of a class action by retail pharmacies
(including approximately 30 named plaintiffs)(the Federal Class Action),
as well as additional actions by approximately 3,500 individual retail
pharmacies and a group of chain and supermarket pharmacies (the "indi-
vidual actions"). These cases, which have been transferred to the United
States District Court for the Northern District of Illinois and coordi-
nated for pretrial purposes, allege that the defendant drug manufactur-
ers violated the Sherman Act by unlawfully agreeing with each other
(and, as alleged in some cases, with wholesalers) not to extend to
retail pharmacy companies the same discounts allegedly extended to mail
order pharmacies, managed care companies and certain other customers,
and by unlawfully discriminating against retail pharmacy companies by
not extending them such discounts. On November 15, 1994, the federal
court certified a class (the Federal Class Action) consisting of all
persons or entities who, since October 15, 1989, bought brand name
prescription drugs from any manufacturer or wholesaler defendant, but
specifically excluding government entities, mail order pharmacies, HMOs,
hospitals, clinics and nursing homes. Fifteen manufacturer defendants,
including the Company, agreed to settle the Federal Class Action subject
to court approval. The Company's share, pursuant to an Agreement as of
January 31, 1996, was $31.25 million, payable in four annual install-
ments without interest. The Company continues to believe that there was
no conspiracy, and specifically denied liability in the Settlement
Agreement, but had agreed to settle to avoid the monetary and other
costs of litigation. The settlement was filed with the Court on Febru-
ary 9, 1996 and went through preliminary and final fairness hearings.
By orders of April 4, 1996 the Court: (1) rejected the settlement; (2)
denied the motions of the manufacturers (including the Company) for
summary judgment; (3) granted the motions of the wholesalers for summary
judgment; and (4) denied the motion to exclude purchases by other than
direct purchasers. The decision on the wholesalers has been made final,
and been appealed. The decision on the indirect purchasers has been
certified, and accepted, for appeal. The Court has put off the trial
date while these matters are pending.
In May 1996, thirteen manufacturer defendants, including the
Company, entered into an Amendment to the Settlement Agreement which was
filed with the Court on May 6, 1996. The Company's financial
obligations under the Settlement Agreement will not be increased. The
Settlement Agreement, as amended, received final approval June 21, 1996.
In addition, consumer class actions have been filed in state
courts and the District of Columbia, alleging injury to consumers as
well as retail pharmacies from the failure to give discounts to retail
pharmacy companies. Both a consumer class and a retailer class have been
certified in separate California actions. Consumer class actions filed
in Colorado and Washington have been dismissed; Washington is now on
appeal. The Company was dismissed from a consumer class action in
Wisconsin. Consumer class actions are also pending in Alabama, Arizona,
Maine, Michigan, Minnesota and New York. Retailer class actions are
also pending in Alabama and Minnesota.
The Company believes that these brand name prescription drug
antitrust cases, which generally seek damages and certain injunctive
relief, are without merit, and has moved to have them dismissed.
Schneider (USA) Inc. and Schneider (Europe) AG have been named,
together with Advanced Cardiovascular Systems, Inc., in a federal
antitrust action brought on January 2, 1996, by Boston Scientific
Corporation and SciMed Life Systems, Inc. (a subsidiary of Boston
Scientific) in the U.S. District Court, District of Massachusetts. The
suit alleges that the defendants unlawfully obtained and enforced
certain patents covering rapid exchange angioplasty catheters, and
conspired against the plaintiffs by, among other allegations, their
settlement of patent infringement litigation in December of 1991. The
suit seeks unspecified treble damages and injunctive relief. The Company
believes that the case is without merit.
FDA administrative proceedings relating to Plax are pending,
principally an industry-wide call for data on all anti-plaque products
by the FDA. The call for data notice specified that products that have
been marketed for a material time and to a material extent may remain on
the market pending FDA review of the data, provided the manufacturer has
a good faith belief that the product is generally recognized as safe and
effective and is not misbranded. The Company believes that Plax satis-
fied these requirements and prepared a response to the FDA's request,
which was filed on June 17, 1991. This filing, as well as the filings of
other manufacturers, is still under review and is currently being
considered by an FDA Advisory Committee.
A consolidated class action on behalf of persons who allegedly
purchased Pfizer common stock during the March 24, 1989 through Febru-
ary 26, 1990 period is pending in the United States District Court for
the Southern District of New York. This lawsuit, which commenced on
July 13, 1990, alleges that the Company and certain officers and former
directors and officers violated federal securities law by failing to
disclose potential liability arising out of personal injury suits
involving Shiley heart valves and seeks damages in an unspecified
amount. The defendants in this action believe that the suit is without
merit. A derivative action commenced on April 2, 1990, 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 is pending
in the Superior Court, Orange County, California. The complaint seeks,
among other forms of relief, damages in an unspecified amount. The
defendants in the action believe that the suit is without merit.
A purported class action entitled Bradshaw v. Pfizer Inc. and
Howmedica Inc. is pending in the U.S. District Court, Northern District
of Ohio. The action seeks monetary and injunctive relief, including
medical monitoring, on behalf of patients implanted with the Howmedica
P.C.A. one-piece acetabular hip component, which was manufactured by
Howmedica from 1983 to 1990. The complaint alleges that the prostheses
were defectively designed and manufactured and posed undisclosed risks
to implantees. The federal magistrate judge has recommended that the
district court deny the plaintiffs' motion to certify the case as a
class action. The Company believes that the suit is without merit.
The Company and/or Howmedica, along with other device manufactur-
ers and numerous orthopedic surgeons, have been named as defendants in
approximately 700 cases (among over 1600 pending) in numerous state and
federal courts seeking damages relating to alleged improper design,
manufacture, and/or promotion of bone screws for unapproved use in
spinal pedicles. Neither Howmedica nor the Company manufactured or sold
pedicle screws in the U.S., but the claims allege a conspiracy among all
of the defendants to over-promote the devices. The federal cases have
been consolidated by the Multidistrict Panel in the U.S. District Court
in Philadelphia, which ruled on April 8, 1996 that all claims against
the manufacturers except express warranty and improper promotion, are
preempted. The recent decisions of the United States Supreme Court in
Lohr v. Medtronic may impact the availability of the pre-emption defense
in this case (and in other medical device cases). The Company believes
the cases are without merit.
From 1994 to 1995, seven purported class actions were filed
against American Medical Systems ("AMS") in federal courts in South
Carolina (subsequently transferred to Minnesota), California, Minnesota
(2), Indiana, Ohio and Louisiana. The California, Ohio and Indiana suits
and one Minnesota suit also name Pfizer Inc. as a defendant, based on
its ownership of AMS. The suits seek monetary and injunctive relief on
the basis of allegations that implantable penile prostheses are prone to
unreasonably high rates of mechanical failure and/or various autoimmune
diseases as a result of silicone materials. On September 30, 1994, the
federal Judicial Panel on Multidistrict Litigation denied the various
plaintiffs' motions to consolidate or coordinate the cases for pretrial
proceedings. On February 28, 1995, the Court in the Ohio suit condition-
ally granted plaintiffs' motion for class certification; on March 3,
1995, the Court in the California suit denied plaintiffs' motion for
class certification; and on October 25, 1995, the Court in the Indiana
suit denied plaintiffs' motion for class certification; on February 15,
1996 the United States Court of Appeals for the Sixth Circuit reversed
the Ohio Court's conditional certification; on May 15, 1996, the
purported Minnesota class actions were dismissed without prejudice
(following which plaintiffs' counsel filed 6 actions in Minnesota State
Court on behalf of 192 individuals); and a motion to strike the class
allegations in the Louisiana case was granted by the Court on July 23,
1996. The Company believes the suits are without merit.
In June, 1993, the Ministry of Justice of the State of Sao Paulo,
Brazil commenced a civil public action against the Company's Brazilian
subsidiary, Laboratorios Pfizer Ltda. (Pfizer Brazil) asserting that
during a period in 1991, Pfizer Brazil withheld sale of the
pharmaceutical product Diabinese in violation of antitrust and consumer
protection laws. The action seeks the award of moral, economic and
personal damages to individuals and the payment to a public reserve
fund. On February 8, 1996, the trial court issued a decision holding
Pfizer Brazil liable. The award of damages to individuals and the
payment into the public reserve fund will be determined in a subsequent
phase of the proceedings. The trial court's opinion sets out a formula
for calculating the payment into the public reserve fund which could
result in a sum of approximately $88 million. The total amount of
damages payable to eligible individuals under the decision would depend
on the number of persons eventually making claims. Pfizer Brazil is
appealing this decision. The Company believes that this action is
without merit and should not have a material adverse effect on the
financial position or the results of operations of the Company.
Tax Matters
The Internal Revenue Service ("IRS") has completed its examination
of the Company's federal income tax returns for the years 1987 through
1989. As part of this process, the Company received an examination
report from the IRS in August 1995, requesting a response within 30
days, which sets forth the adjustments the IRS is proposing for those
years. The Company has filed a response protesting the proposed
adjustments and has begun interacting with the IRS Appeals office. 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 through 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 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. The Company is protesting and
appealing the proposed adjustments. While it is impossible to determine
the final disposition, the Company is of the opinion that the ultimate
resolution of this matter should not have a material adverse effect on
the financial position or the results of operations of the Company.
In November 1994, Belgian tax authorities notified Pfizer Research
and Development Company N.V./S.A. ("PRDCO"), an indirect wholly owned
subsidiary of the Company, of a proposed adjustment to the taxable
income of PRDCO for fiscal year 1992. The proposed adjustment arises
from an assertion by the Belgian tax authorities of jurisdiction with
respect to income resulting primarily from certain transfers of property
by non-Belgian subsidiaries of the Company to the Irish branch of PRDCO.
In January 1995, PRDCO received an assessment from the tax authorities
for additional taxes and interest of approximately $432 million and
$97 million, respectively, relating to these matters. In January 1996,
PRDCO received an assessment from the tax authorities, for fiscal year
1993, for additional taxes and interest of approximately $86 million and
$18 million, respectively. The new assessment arises from the same
assertion by the Belgian tax authorities of jurisdiction with respect to
all income of the Irish branch of PRDCO. Based upon the relevant facts
regarding the Irish branch of PRDCO and the provisions of Belgium tax
laws and the written opinions of outside legal counsel, the Company
believes that the assessments are wholly without merit.
The Company believes that its accrued tax liabilities are adequate
for all open years.
<PAGE>
Item 4: Submission of Matters to a Vote of Security Holders
The shareholders of the Company voted on three matters at the
Company's Annual Meeting of Shareholders held on April 25, 1996. Matter
(1) related to the election of three director nominees: Ms. Constance
J. Horner, Mr. Thomas G. Labrecque and Dr. Jean-Paul Valles to three-
year terms. 568,301,860 votes were cast for Ms. Horner and 5,332,394
were withheld. 563,795,146 votes were cast for Mr. Labrecque and
9,839,108 were withheld. 567,292,567 votes were cast for Dr. Valles and
6,341,687 were withheld. Matter (2) related to the approval of the
appointment of KPMG Peat Marwick LLP as independent auditors of the
Company for the year 1996. 570,076,764 votes were cast for approval,
1,474,578 were cast against and there were 2,082,912 abstentions.
Matter (3) related to the approval of an amendment to the Company's
Stock and Incentive Plan. 471,600,829 votes were cast for approval,
36,419,807 were cast against. There were 7,152,644 abstentions and
there were 58,460,974 shares for which brokers were precluded from
voting. These latter shares, along with abstentions, have the effect of
a vote against with respect to Matter (3).
Based on these voting results, each of the directors nominated was
elected and matters (2) and (3) were passed. As previously stated in
the Company's proxy statement, the election of a director required a
plurality of the votes present and entitled to vote at the meeting.
Passage of matter (2) required a majority of the votes cast, and passage
of matter (3) required the approval of a majority of the outstanding
Common Stock.
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' Acknowledgment
4) Exhibit 27 - Financial Data Schedule
5) Exhibit 99 - Exhibit 99 to the Annual Report
Form 10-K for the fiscal year ended
December 31, 1995
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the second quarter
ended June 30, 1996.
<PAGE>
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: August 13, 1996
H. V. Ryan, Controller
(Principal Accounting Officer and
Duly Authorized Officer)
<PAGE>
Exhibit 11
PFIZER INC. AND SUBSIDIARY COMPANIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(millions, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
June 30, July 2, June 30, July 2,
1996 1995 1996 1995
Primary:
Net income $394 $317 $ 911 $ 737
Weighted average number of
common shares outstanding 623 614 622 612
Common share equivalents (a) 20 13 20 13
Weighted average number of
common shares and common
share equivalents 643 627 642 625
Net income per common share $.61 $.50 $1.42 $1.18
Fully Diluted:(b)
Net income $394 $317 $ 911 $ 737
Weighted average number of
common shares outstanding 623 614 622 612
Common share equivalents and
other dilutive securities 20 15 20 14
Weighted average number of
common shares and common
share equivalents 643 629 642 626
Net income per common share $.61 $.50 $1.42 $1.18
(a) Includes common share equivalents applicable to stock option plans.
(b) This calculation is submitted in accordance with Regulation S-K item
601(b) (11) although the fully diluted earnings per share amount is not
required to be disclosed in the financial statements because it results in
dilution of less than 3% (footnote 2 to paragraph 14 of APB Opinion No. 15).
<PAGE>
<TABLE>
Exhibit 12
PFIZER INC. AND SUBSIDIARY COMPANIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(millions of dollars)
(Unaudited)
<CAPTION>
Six
Months
Ended
June 30, Year Ended December 31,
1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Determination of earnings:
Income from continuing
operations before
provision for taxes on
income, minority
interests, and cumulative
effect of accounting
changes $1,326 $2,299 $1,830 $835 $1,541 $ 913
Less:
Minority interests 4 7 4 2 3 3
Undistributed
earnings/(losses) of
unconsolidated
subsidiaries 0 0 (1) 1 8 1
Adjusted income 1,322 2,292 1,827 832 1,530 909
Fixed charges 100 232 158 136 130 155
Total earnings
as defined $1,422 $2,524 $1,985 $968 $1,660 $1,064
Fixed charges and other:
Interest expense (a) $ 80 $ 193 $ 127 $107 $ 103 $ 130
Rents (b) 20 39 31 29 27 25
Fixed charges 100 232 158 136 130 155
Capitalized interest 2 12 15 14 12 8
Total fixed charges $ 102 $ 244 $ 173 $150 $ 142 $ 163
Ratio of earnings to fixed
charges 13.9 10.3 11.5 6.5 11.7 6.5
<FN>
<F1>(a) Interest expense includes amortization of debt discount and
expenses.
(b) Rents included in the computation consist of one-third of rental
expense.
Note: In January 1996, the Company sold substantially all the net assets of
the food science business. As a result, the food science business has
been reported as a discontinued operation.
</FN>
</TABLE>
<PAGE>
Exhibit 15
ACCOUNTANTS' ACKNOWLEDGMENT
Board of Directors
Pfizer Inc.:
We hereby acknowledge the incorporation by reference of our report dated
August 13, 1996, included within the Quarterly Report on Form 10-Q of Pfizer
Inc. for the quarter ended June 30, 1996, 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 Registra-
tion 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 Registra-
tion Statement on Form S-8 dated May 27, 1993 (File No. 33-49631), in the
Registration Statement on Form S-8 dated May 19, 1994 (File No. 33-53713), in
the Registration Statement on Form S-8 dated October 5, 1994 (File No. 33-
55771), in the Registration Statement on Form S-3 dated November 14, 1994
(File No. 33-56435), in the Registration Statement on Form S-8 dated December
20, 1994 (File No 33-56979), in the Registration Statement on Form S-4 dated
February 14, 1995 (File No. 33-57709) and in the Registration Statement on
Form S-8 dated March 29, 1996 (File No. 33-02061).
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
August 13, 1996<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PFIZER INC.
AND SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED BALANCE SHEET AND CONDENSED
STATEMENT OF INCOME FOR THE PERIOD ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 870
<SECURITIES> 1,106
<RECEIVABLES> 2,195
<ALLOWANCES> (62)
<INVENTORY> 1,441
<CURRENT-ASSETS> 6,491
<PP&E> 5,639
<DEPRECIATION> (2,068)
<TOTAL-ASSETS> 13,619
<CURRENT-LIABILITIES> 5,848
<BONDS> 583
0
0
<COMMON> 34
<OTHER-SE> 8,674
<TOTAL-LIABILITY-AND-EQUITY> 13,619
<SALES> 5,343
<TOTAL-REVENUES> 5,343
<CGS> 1,034
<TOTAL-COSTS> 1,034
<OTHER-EXPENSES> 788
<LOSS-PROVISION> 3
<INTEREST-EXPENSE> 80
<INCOME-PRETAX> 1,326
<INCOME-TAX> 411
<INCOME-CONTINUING> 911
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 911
<EPS-PRIMARY> 1.42
<EPS-DILUTED> 1.42
</TABLE>
Exhibit 99
EXHIBIT 99 TO THE ANNUAL REPORT FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
CAUTIONARY STATEMENTS REGARDING "SAFE HARBOR" PROVISIONS
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Company's 1995 Annual Report to Shareholders and Form 10-K are among
certain communications by the Company which contain forward looking statements
including statements regarding its financial position, results of operations,
market position and product development. These forward looking statements are
based on current expectations. As permitted by the Private Securities
Litigation Reform Act of 1995, the Company is hereby filing the following
cautionary statements identifying important factors which, among others, could
cause the Company's actual results to differ materially from expected and
historical results.
Changing business conditions including inflation and fluctuations in
interest rates and foreign currency exchange rates.
Competitive factors including managed care groups, institutions and
government agencies seeking price discounts; technological advances
attained by competitors; patents granted to competitors; and generic
competition as the Company's products mature.
Government laws and regulations affecting domestic and international
operations, including trade, monetary and fiscal policies, taxes, price
controls, unstable governments and legal systems and intergovernmental
disputes, possible nationalization, as well as actions affecting
approvals of products and licensing.
Adverse publicity and developments resulting from questions raised from
the use of calcium channel blockers.
Changes in the current tax law such as those currently being considered
by the U.S. Congress and the Clinton Administration which would amend
the Section 936 income tax credit so as to completely phase out the
income-based tax credit for those companies with operations in Puerto
Rico, where the Company has a major manufacturing facility. Both
proposals provide for the phase down of the Section 936 credit over a
period of five to ten years.
Difficulties or delays in product development including, but not limited
to, the inability to identify viable new chemical compounds,
successfully complete clinical trials, obtain regulatory approval for
the compounds or gain market acceptance of approved products. Similar
difficulties or delays can also affect the development of the Company's
other businesses.
Growth in costs and expenses including changes in product mix and the
impact of divestitures, restructuring and other unusual items that could
result from evolving business strategies, evaluation of asset
realization, and organizational structures.
Issuance of unfavorable accounting standards and rules.
Changing social conditions.
Significant litigation adverse to the Company.
Business combinations among the Company's competitors could affect the
Company's ranking in the pharmaceutical industry.
