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 March 31, 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 March 31, 1996 there were 640,047,387 shares par value
$.05, of the issuer's common stock outstanding.
<PAGE>
PFIZER INC.
FORM 10-Q
For the Quarter Ended
March 31, 1996
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements: Page
Condensed Consolidated Statement of Income for
the three months ended March 31, 1996 and April 2, 1995 3
Condensed Consolidated Balance Sheet at
March 31, 1996, December 31, 1995 and April 2, 1995 4
Condensed Consolidated Statement of Cash Flows for the
three months ended March 31, 1996 and April 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 17
Item 6.
Exhibits and Reports on Form 8-K 23
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PFIZER INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
Three Months Ended
March 31, April 2,
1996 1995
(millions of dollars, except
per share data)
Net sales . . . . . . . . . . . . . . . . . $2,682 $2,338
Costs and expenses
Cost of sales . . . . . . . . . . . . . . 513 509
Selling, informational and
administrative expenses . . . . . . . . . 994 849
Research and development expenses . . . . 366 313
Other deductions--net. . . . . . . . . . . 57 39
Income from continuing operations
before provision for taxes on
income and minority interests . . . . . . 752 628
Provision for taxes on income . . . . . . . 233 207
Minority interests. . . . . . . . . . . . . 2 2
Income from continuing operations . . . . . 517 419
Discontinued operations, net of
income taxes . . . . . . . . . . . . . . . 0 1
Net income. . . . . . . . . . . . . . . . . $ 517 $ 420
Earnings per common share
Income from continuing
operations. . . . . . . . . . . . . . . . $ .81 $ .68
Discontinued operations, net of
income taxes. . . . . . . . . . . . . . . .00 .00
Net income . . . . . . . . . . . . . . . . $ .81 $ .68
Cash dividends per common share . . . . . . $ .30 $ .26
See accompanying Notes to Condensed Consolidated Financial Statements.
<PAGE>
<TABLE>
PFIZER INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEET
<CAPTION>
(millions of dollars) March 31, Dec. 31, April 2,
1996* 1995** 1995*
ASSETS
<S> <C> <C> <C>
Current Assets
Cash and cash equivalents . . . . . . . . . .$ 818 $ 403 $ 967
Short-term investments. . . . . . . . . . . . 875 1,109 554
Accounts receivable, less allowances
March 31, 1996 - $62; Dec. 31, 1995
$61; April 2, 1995 - $55. . . . . . . . . . 2,221 2,024 1,906
Short-term loans. . . . . . . . . . . . . . . 376 289 458
Inventories
Finished goods. . . . . . . . . . . . . . . 607 564 542
Work in process . . . . . . . . . . . . . . 639 579 555
Raw materials and supplies. . . . . . . . . 256 241 231
Total inventories . . . . . . . . . . . . 1,502 1,384 1,328
Prepaid expenses, taxes,
and other assets. . . . . . . . . . . . . . 614 943 800
Total current assets. . . . . . . . . . . 6,406 6,152 6,013
Long-term loans and investments . . . . . . . . 527 545 739
Property, plant and equipment, less
accumulated depreciation
March 31, 1996 - $2,022;
Dec. 31, 1995 - $1,991;
April 2, 1995 - $1,964. . . . . . . . . . . 3,521 3,473 3,279
Goodwill, less accumulated amortization
March 31, 1996 - $86; Dec. 31, 1995 -
$79; April 2, 1995 - $53. . . . . . . . . . . 1,327 1,243 1,183
Other assets, deferred taxes and
deferred charges. . . . . . . . . . . . . . . 1,393 1,316 1,284
Total assets. . . . . . . . . . . . . . .$13,174 $12,729 $12,498
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term borrowings, including current
portion of long-term debt
March 31, 1996 - $500; Dec. 31, 1995
$277; April 2, 1995 - $1. . . . . . . . .$ 2,339 $ 2,036 $ 3,115
Accounts payable. . . . . . . . . . . . . . . 602 715 558
Income taxes payable. . . . . . . . . . . . . 772 822 705
Accrued compensation and related items. . . . 389 421 349
Other current liabilities . . . . . . . . . . 1,380 1,193 1,033
Total current liabilities . . . . . . . . 5,482 5,187 5,760
Long-term debt. . . . . . . . . . . . . . . . . 584 833 610
Postretirement benefit obligation other
than pension plans. . . . . . . . . . . . . . 427 426 431
Deferred taxes on income. . . . . . . . . . . . 186 166 298
Other non-current liabilities . . . . . . . . . 559 564 661
Minority interests. . . . . . . . . . . . . . . 48 47 41
Total liabilities . . . . . . . . . . . . 7,286 7,223 7,801
Shareholders' Equity
Preferred stock . . . . . . . . . . . . . . . -- -- --
Common stock. . . . . . . . . . . . . . . . . 34 34 34
Additional paid-in capital. . . . . . . . . . 1,345 1,235 758
Retained earnings . . . . . . . . . . . . . . 7,184 6,858 6,201
Currency translation adjustment and other . . 143 163 209
Employee benefit trust. . . . . . . . . . . . (1,249) (1,169) (822)
Common stock in treasury, at cost . . . . . . (1,569) (1,615) (1,683)
Total shareholders' equity. . . . . . . . 5,888 5,506 4,697
Total liabilities and
shareholders' equity . . . . . . . . .$13,174 $12,729 $12,498
<FN>
<F1>* Unaudited
** Condensed from audited financial statements.
See accompanying Notes to Condensed Consolidated Financial Statements.
</FN>
</TABLE>
PFIZER INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(millions of dollars)
Three Months Ended
March 31, April 2,
1996 1995
Operating Activities
Net income . . . . . . . . . . . . . . . . . . . . .$ 517 $ 420
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization of intangibles . . . 101 119
Changes in operating assets and liabilities,
net of effect of businesses acquired
and divested. . . . . . . . . . . . . . . . . . . (404) 3
Other. . . . . . . . . . . . . . . . . . . . . . . 7 16
Net cash provided by operating activities. . . . . . . 221 558
Investing Activities
Acquisitions, net of cash acquired . . . . . . . . . (166) (1,462)
Proceeds from sale of business . . . . . . . . . . . 353 --
Purchases of property, plant and equipment . . . . . (135) (196)
Purchases of short-term investments. . . . . . . . . (715) (448)
Proceeds from redemptions of short-term
investments. . . . . . . . . . . . . . . . . . . . 920 485
Net change in loans and long-term investments
by financial subsidiaries. . . . . . . . . . . . . (15) 38
Purchases and redemptions of short-term
investments by financial subsidiaries. . . . . . . 30 0
Purchases of long-term investments . . . . . . . . . (25) (63)
Other investing activities . . . . . . . . . . . . . 18 (18)
Net cash provided by/(used in) investing
activities . . . . . . . . . . . . . . . . . . . . . 265 (1,664)
Financing Activities
Increase in short-term debt. . . . . . . . . . . . . 87 857
Purchases of common stock. . . . . . . . . . . . . . -- (109)
Cash dividends paid. . . . . . . . . . . . . . . . . (192) (164)
Stock option transactions. . . . . . . . . . . . . . 65 36
Other financing activities . . . . . . . . . . . . . (28) 3
Net cash (used in)/provided by financing
activities . . . . . . . . . . . . . . . . . . . . . (68) 623
Effect of exchange rate changes on cash and
cash equivalents . . . . . . . . . . . . . . . . . . (3) (9)
Net increase/(decrease) in cash and
cash equivalents . . . . . . . . . . . . . . . . . . 415 (492)
Cash and cash equivalents balance at beginning
of period. . . . . . . . . . . . . . . . . . . . . . 403 1,459
Cash and cash equivalents balance at end
of period. . . . . . . . . . . . . . . . . . . . . .$ 818 $ 967
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 February 25, 1996 and February 26,
1995.
Certain reclassifications have been made to the first quarter 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 8, "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 period ended March 31, 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 641 million and 622 million for the
first three months of 1996 and 1995, respectively.
Earnings per common share for the first three months of 1995 have been
restated to reflect the two-for-one stock split in the form of a 100%
stock dividend effective June 30, 1995.
Note 4: Currency Impact
An analysis of the changes in the currency translation adjustment for
the three months ended March 31, 1996 is as follows:
(millions of dollars)
Currency translation adjustment December 31, 1995 $207
Translation adjustments and hedges (25)
Currency translation adjustment March 31, 1996 $182
<PAGE>
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The balance sheet caption "Currency translation adjustment and other"
also includes a $29 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
First Quarter $(4) $ 2
Note 5: Interest and Income Tax Payments
The Company made interest payments of approximately $31 million and $47
million and income tax payments of approximately $248 million and $220
million during the first quarters 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 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.
Note 7: Stock Split
In June 1995, the Company effected a two-for-one stock split in the form
of a 100% stock dividend. The number of shares and the per share
amounts included in these consolidated financial statements for the
first quarter of 1995 have been restated to reflect the stock split.<PAGE>
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Note 8: 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 9: Subsequent Events
In April 1996:
The Company's Consumer Health Care segment completed the acquisition of
Cortizone, a skin-care product, and Hemorid, a hemorrhoid treatment,
from Thompson Medical Co., Inc.
The Company announced that it had signed a merger agreement with Corvita
Corporation, a Florida-based company which develops, manufactures and
markets synthetic vascular grafts used in the treatment of severely
diseased arteries. The Company commenced a cash tender offer to acquire
all of Corvita Corporation's outstanding shares of common stock at
$10.25 per share which would amount to an aggregate purchase price of
approximately $85 million. The completion of the tender offer is
subject to a number of customary conditions including, among other
things, the tender of at least a majority of the outstanding shares of
Corvita Corporation.
The Board of Directors of the Company declared a 30-cent second quarter
dividend on its common stock, payable June 13, 1996, to shareholders of
record on May 10, 1996.
<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 March 31, 1996 and April 2, 1995, and the
related condensed consolidated statements of income and cash flows for
the three month period 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
May 14, 1996
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PFIZER INC. AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE CONDENSED
CONSOLIDATED STATEMENT OF INCOME
FOR THE PERIODS ENDED MARCH 31, 1996 AND APRIL 2, 1995
Percent
(millions of dollars, Increase
except per share data) Comparison*
First Quarter 1st Quarter
1996 1995 1996/1995
Net sales $2,682 $2,338 15
Cost of sales $ 513 $ 509 1
% of net sales 19.1% 21.8%
Selling, informational
and administrative expenses $ 994 $ 849 17
% of net sales 37.1% 36.3%
Research and development expenses $ 366 $ 313 17
% of net sales 13.7% 13.4%
Other deductions--net $ 57 $ 39 46
% of net sales 2.1% 1.6%
Income from continuing operations
before taxes and minority
interests $ 752 $ 628 20
% of net sales 28.0% 26.9%
Taxes on income $ 233 $ 207 12
Effective tax rate 31.0% 33.0%
Minority interests $ 2 $ 2 --
Income from continuing operations $ 517 $ 419 24
% of net sales 19.3% 17.9%
Discontinued operations, net $ 0 $ 1 --
% of net sales -- .1%
Net income $ 517 $ 420 23
% of net sales 19.3% 18.0%
Earnings per common share:
Income from continuing operations $ .81 $ .68 19
Discontinued operations, net .00 $ .00 --
Net income $ .81 $ .68 19
Cash dividends per common share $ .30 $ .26 15
*Percentages may not compute due to rounding.
For explanation of percent changes, see discussion beginning on page 12.
<PAGE>
PFIZER INC. AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE CONSOLIDATED
NET SALES BY BUSINESS SEGMENT
FOR THE PERIODS ENDED MARCH 31, 1996 AND APRIL 2, 1995
(millions of dollars)
Percent
Increase/(Decrease)
First Quarter Comparison*
% of % of 1st Qtr. 1996
Net Net from
1996 Sales 1995 Sales 1st Qtr. 1995
$2,299 85.7 $1,967 84.1 Health Care 17
267 10.0 273 11.7 Animal Health (2)
116 4.3 98 4.2 Consumer Health Care 19
$2,682 100.0 $2,338 100.0 Consolidated 15
* Percentages may not compute due to rounding.
PFIZER INC. AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE CONSOLIDATED
NET SALES BY GEOGRAPHIC AREA
FOR THE PERIODS ENDED MARCH 31, 1996 AND APRIL 2, 1995
(millions of dollars)
Percent
Increase/(Decrease)
First Quarter Comparison
% of % of 1st Qtr. 1996
Net Net from
1996 Sales 1995 Sales 1st Qtr. 1995
$1,449 54.0 $1,263 54.0 United States 15
650 24.3 528 22.6 Europe 23
376 14.0 331 14.2 Asia 14
153 5.7 159 6.8 Canada/Latin America (4)**
54 2.0 57 2.4 Africa/Middle East (5)***
$2,682 100.0 $2,338 100.0 Consolidated 15
** Canada/Latin America sales declined in the first quarter primarily due to a
temporary reduction of pharmaceutical inventory levels by wholesalers in
Canada and the impact of the devaluation of the Mexican peso mainly affecting
the Consumer business.
***Africa/Middle East sales decreased in the first quarter principally due to
the difficult economic environment in Turkey.
For additional explanation of percent changes, see discussion beginning on
page 12.
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
1st Qtr. 1996
from
1st Qtr. 1995
Volume 15
Price 1
Currency (1)
Total net sales increase 15
Consolidated net sales increased 15% in the first quarter of 1996 to
$2,682 million. Sales growth for the first quarter of 1996 reflected
increased sales volume and the productivity of the Company's commitment
to a research based, product-driven growth strategy. Three
pharmaceuticals had sales of over $300 million in the quarter--Norvasc,
Zoloft and Procardia XL. In addition, Diflucan had sales of over $200
million for the quarter.
The health care segment's performance for the first quarter reflects a
17% increase in worldwide sales of pharmaceuticals and a 14% increase in
hospital products.
For the first quarter, pharmaceutical sales increased 17% in the U.S.
and 18% internationally. In the first 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 38% and made up 63% of total pharmaceutical sales. The
following table shows the worldwide net sales and percentage sales
growths of the Company's major therapeutic lines and pharmaceutical
products for the first quarter of 1996:
(millions of dollars)
First Quarter 1996 Amount % Incr./(Dec.)
Cardiovascular Diseases: $852 18
Norvasc 388 46
Procardia XL 305 (7)
Cardura 122 39
Infectious Diseases: 574 11
Diflucan 215 8
Zithromax 159 53
Central Nervous System Disorders: 329 30
Zoloft 317 34
Despite a 7% decline in first quarter sales versus the comparable
quarter in 1995, demand for Procardia XL remains strong.
<PAGE>
The Company successfully launched the new antihistamine Zyrtec in the
U.S. in February 1996, with U.S. sales in the first quarter reaching $24
million.
Tenidap, the Company's cytokine and prostaglandin inhibitor for the
treatment of arthritis, has now received medical approval from
regulatory authorities in the Netherlands, Spain, Italy, Colombia, and
Belgium for the treatment of rheumatoid arthritis. Discussions are
ongoing with government authorities in these countries seeking
appropriate reimbursement classification. In the U.S., an Advisory
Committee has recommended that the FDA 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.
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), the once-daily selective acetylcholinesterase
inhibitor for Alzheimer's disease that the Company will co-promote with
Eisai.
Hospital Products' worldwide sales grew 14% in the first quarter
reflecting the strength of new product rollouts and acquisitions. Eight
percentage points of this sales growth was attributable to acquisitions:
3 percentage points for the Leibinger Companies, specialty surgical-
products companies, and 5 percentage points for the NAMIC U.S.A.
Corporation, a cardiovascular medical device company. For further
details, see Note 6, "Acquisitions," on page 7. Given the launch of
numerous new products (including peripheral stents in Japan and coronary
stents in Europe), growth in Schneider, a subsidiary that markets
products for angioplasty and angiography was strong.
Animal health sales decreased by 2% in the first quarter of 1996 as
compared to the first quarter of 1995. Worldwide sales of food animal
products decreased by 6% for the first quarter largely reflecting weak
demand for livestock medicines in the U.S. In addition, sales of
Dectomax, the livestock antiparasitic developed by the Company faced
increased competition in Brazil, where a generic version of a competing
product was introduced. Partially offsetting these factors was the
successful launch of Dectomax in Japan and other international markets
during the quarter and an increase of 11% in sales of companion animal
products.
Consumer health care sales increased 19% in the first quarter of 1996
due to sales of the Bain de Soleil line of sun care products acquired
from the Procter & Gamble Company in August 1995. Partially offsetting
this benefit were increased competition for some existing brands and the
impact of the devaluation of the Mexican peso. In April 1996, the
Company completed the acquisition of the Cortizone and Hemorid product
lines from Thompson Medical Co., Inc. For further details, see Note 9,
"Subsequent Events," on page 8.
<PAGE>
COSTS AND EXPENSES
As a percentage of net sales, cost of sales decreased 2.7 percentage
points in the first quarter versus last year's first quarter due to the
absence this year of the impact of purchase accounting relating to
SmithKline Beecham Animal Health inventories that took place in the
first quarter of 1995, a favorable product sales mix and benefits from
the reengineering of manufacturing operations including the shutdown of
a number of overseas plants.
Selling, informational and administrative expense increased 17% in the
first quarter of 1996 compared with the same period of 1995, as both
previously introduced products and new product launches, including
Zyrtec in the U.S., were well supported.
Research and development expenditures were up 17% in the quarter
relative to last year's first quarter 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 15.7% and 14.8% in the first quarters of
1996 and 1995, respectively.
Income from continuing operations before taxes and other deductions--
net, expressed as a percentage of net sales, was 1.6 percentage points
higher in the first quarter of 1996 versus 1995.
Other Deductions--net for the first quarter of 1996 and 1995 are
summarized in the following table:
(millions of dollars) % Incr./
First Quarter 1996 1995 (Dec.)
Interest income $ (29) $ (48) (40)
Interest expense 38 50 (24)
Amortization of goodwill
and other intangibles 14 9 56
Other--net 34 28 21
Other deductions--net $ 57 $ 39 46
The decrease in interest income in the first quarter of 1996 versus last
year's first quarter was largely due to lower levels of interest earning
assets. The decrease in interest expense was primarily due to lower
levels of borrowings. The increase in amortization of goodwill and
other intangibles in the first quarter of 1996 versus last year was
primarily attributable to acquisitions. The increase in Other--net in
the first quarter was primarily due to exchange losses of $4 million in
1996 as opposed to exchange gains of $2 million in the 1995 first
quarter, mainly related to hyperinflationary markets.
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 first quarter 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 enactment of the Omnibus
Budget Reconciliation Act of 1993 and the expiration of the R&D tax
credit during 1995.
<PAGE>
OTHER
In June 1995, the Company effected a two-for-one stock split in the form
of a 100% stock dividend.
In the first quarter of 1995, approximately 2.6 million shares were
purchased in the open market at an average cost of approximately $43 per
share.
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 March 31, 1996, completed restructuring initiatives reduced the
workforce by approximately 1,700 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 Qtr. at March 31,
Charges 1995 1996 1996
Employee severance
payments $220 $102 $20 $ 98
Operating assets to be
sold/disposed of 212 134 2 76
Other charges 247 216 3 28
$679 $452 $25 $202
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.
<PAGE>
ANALYSIS OF LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents and short-term investments totaled $1,693
million at March 31, 1996 as compared to $1,512 million at December 31,
1995. Total borrowings were $2,923 million at March 31, 1996 compared
with $2,869 million at December 31, 1995. The increase in working
capital from April 2, 1995 was primarily attributable to a reduction in
the short-term borrowings used to finance the SBAH acquisition, partial-
ly offset by the reclassifications of the 7 1/8% Notes due 1996 and the
6 1/2% Notes due 1997 from Long-term debt to Short-term borrowings.
March 31, Dec. 31, April 2,
1996 1995 1995
Working capital (millions of dollars) $ 924 $ 965 $ 253
Current ratio 1.17:1 1.19:1 1.04:1
Debt to total capitalization
(percentage)* 33% 34% 44%
Shareholders' equity per common share** $ 9.47 $ 8.90 $ 7.66
Days of sales outstanding - trade
accounts receivable 71 60 71
Months of inventory on hand 9.0 9.2 8.6
* 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. (The common shares outstanding as of April
2, 1995 have been restated for the 1995 two-for-one stock split in the
form of a 100% stock dividend.)
SUBSEQUENT EVENTS
For a description of the subsequent events, see Note 9, "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 is
pending. 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 experi-
ence 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 Octo-
ber 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 1978 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 March 29, 1996, the trial court ruled 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. It is expected
that CCR members, including the Company and Quigley, will seek a
rehearing of that determination and, failing that, will request a review
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 cases as of April
30, 1996 is 22,669 asbestos cases against Quigley; 5,392 asbestos cases
against the Company; and 67 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. Motions have been made to have the Court certify its
opinions on the settlement and the indirect purchaser issues for
immediate appeal. The decision on the wholesalers will also likely be
made final and appealable. The court has put off the trial date while
these matters are pending and, if granted, while they are on appeal.
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. It is intended to address the
concerns raised by the Court in its April 4, 1996 opinion. If the
Settlement Agreement, as amended, is approved, the Company's financial
obligations under the Settlement Agreement will not be increased. The
Settlement Agreement, as amended, was preliminarily approved by the
Court on May 8, 1996 and a final fairness hearing has been set for June
11, 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, and are now on appeal.
The Company was dismissed from a consumer class action in Wisconsin, but
a determination of the finality of that dismissal is pending. Consumer
class actions are also pending in Alabama, Arizona, Maine, Michigan, 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.
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 600 cases (among over 300 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 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. 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 pharmaceuti-
cal 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 proceed-
ings. 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.
Information on income tax adjustments proposed by the U.S. and
Belgian tax authorities is incorporated by reference to the Tax Matters
section in Item 1 on page 7 of the Form 10-K for the fiscal year ended
December 31, 1995. Such portion of the Form 10-K is filed as an exhibit
to this Form 10-Q.
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 99.1 - Exhibit 99 to the Annual Report
Form 10-K for the fiscal year ended
December 31, 1995
6) Exhibit 99.2 - Certain information incorporated by
reference from the 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 first quarter
ended March 31, 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: May 14, 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
March 31, April 2,
1996 1995
Primary:
Net income $517 $420
Weighted average number of common shares
outstanding 621 610
Common share equivalents (a) 20 12
Weighted average number of common shares
and common share equivalents 641 622
Net income per common share $.81 $.68
Fully Diluted:(b)
Net income $517 $420
Weighted average number of common shares
outstanding 621 610
Common share equivalents and other
dilutive securities 20 14
Weighted average number of common shares
and common share equivalents 641 624
Net income per common share $.81 $.67
(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).
Note: In June 1995, the Company effected a two-for-one stock split in the
form of a 100 percent stock dividend. The above common share data for the
three months ended April 2, 1995 have been restated to reflect the stock
split.
<PAGE>
Exhibit 12
<TABLE>
PFIZER INC. AND SUBSIDIARY COMPANIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(millions of dollars)
(Unaudited)
<CAPTION>
Three
Months
Ended
March 31, 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 $752 $2,299 $1,830 $835 $1,541 $ 913
Less:
Minority interests 2 7 4 2 3 3
Undistributed
earnings/(losses) of
unconsolidated
subsidiaries 0 0 (1) 1 8 1
Adjusted income 750 2,292 1,827 832 1,530 909
Fixed charges 48 232 158 136 130 155
Total earnings
as defined $798 $2,524 $1,985 $968 $1,660 $1,064
Fixed charges and other:
Interest expense (a) $ 38 $ 193 $ 127 $107 $ 103 $ 130
Rents (b) 10 39 31 29 27 25
Fixed charges 48 232 158 136 130 155
Capitalized interest 1 12 15 14 12 8
Total fixed charges $ 49 $ 244 $ 173 $150 $ 142 $ 163
Ratio of earnings to fixed
charges 16.3 10.3 11.5 6.5 11.7 6.5
<FN>
<F2>
(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
May 14, 1996, included within the Quarterly Report on Form 10-Q of Pfizer Inc.
for the quarter ended March 31, 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
May 14, 1996<PAGE>
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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 MARCH 31, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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Exhibit 99.1
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.
Exhibit 99.2
CERTAIN INFORMATION INCORPORATED BY REFERENCE FROM THE FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
TAX MATTERS
The earnings of the Company's pharmaceutical subsidiary operating in
Puerto Rico are subject to taxes pursuant to an incentive grant effective
through December 31, 2002. Under this grant, the Company is partially exempt
from income, property and municipal taxes. For tax years beginning after
December 31, 1993, the Omnibus Budget Reconciliation Act of 1993 ("OBRA")
reduced by 40% the benefits accruing to the Company under Section 936 of the
Internal Revenue Code (the "Puerto Rico tax credit"). Such tax benefits will
decline an additional five percentage points per year through 1998. For tax
years beginning after December 31, 1997, the Puerto Rico tax credit will be
fixed at 40% of the level allowed prior to the enactment of OBRA.
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 is awaiting communication
from 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.
