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 September 29, 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 October 31, 1996 there were 644,628,048 shares par value
$.05, of the issuer's common stock outstanding.
<PAGE>
PFIZER INC.
FORM 10-Q
For the Quarter Ended
September 29, 1996
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements: Page
Condensed Consolidated Statement of Income for
the three months and nine months ended
September 29, 1996 and October 1, 1995 3
Condensed Consolidated Balance Sheet at
September 29, 1996, December 31, 1995 and October 1, 1995 4
Condensed Consolidated Statement of Cash Flows for the
nine months ended September 29, 1996 and October 1, 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 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 Nine Months Ended
Sept. 29, Oct. 1, Sept. 29, Oct. 1,
1996 1995 1996 1995
(millions, except per share data)
Net sales . . . . . . . . . . . . . . . $2,803 $2,538 $8,146 $7,277
Costs and expenses
Cost of sales . . . . . . . . . . . . 522 536 1,556 1,597
Selling, informational and
administrative expenses. . . . . . . 1,040 960 3,117 2,776
Research and development expenses . . 406 351 1,194 1,018
Other deductions--net. . . . . . . . . 86 65 204 164
Income from continuing operations
before provision for taxes on
income and minority interests . . . . 749 626 2,075 1,722
Provision for taxes on income . . . . . 232 206 643 568
Minority interests. . . . . . . . . . . 3 1 7 5
Income from continuing operations . . . 514 419 1,425 1,149
Discontinued operations, net of
income taxes . . . . . . . . . . . . . -- 6 -- 13
Net income. . . . . . . . . . . . . . . $ 514 $ 425 $1,425 $1,162
Earnings per common share:*
Income from continuing
operations. . . . . . . . . . . . . . $ .80 $ .66 $ 2.22 $ 1.83
Discontinued operations, net of
income taxes . . . . . . . . . . . . . -- .01 -- .02
Net income. . . . . . . . . . . . . . . $ .80 $ .67 $ 2.22 $ 1.85
Cash dividends per common share . . . . $ .30 $ .26 $ .90 $ .78
*The weighted average number of common shares and common share equivalents
used to compute earnings per common share totaled 643 million and
627 million for the first nine months of 1996 and 1995, respectively.
See accompanying Notes to Condensed Consolidated Financial Statements.
<PAGE>
<TABLE>
PFIZER INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEET
<CAPTION>
(millions of dollars) Sept. 29, Dec. 31, Oct. 1,
1996* 1995** 1995*
ASSETS
<S> <C> <C> <C>
Current Assets
Cash and cash equivalents . . . . . . . . . .$ 1,046 $ 403 $ 734
Short-term investments. . . . . . . . . . . . 1,038 1,109 963
Accounts receivable, less allowances of
$62, $61 and $57. . . . . . . . . . . . . . 2,193 2,024 1,998
Short-term loans. . . . . . . . . . . . . . . 324 289 246
Inventories
Finished goods. . . . . . . . . . . . . . . 584 564 546
Work in process . . . . . . . . . . . . . . 731 579 568
Raw materials and supplies. . . . . . . . . 299 241 235
Total inventories . . . . . . . . . . . . 1,614 1,384 1,349
Prepaid expenses, taxes,
and other assets. . . . . . . . . . . . . . 591 943 847
Total current assets. . . . . . . . . . . 6,806 6,152 6,137
Long-term loans and investments . . . . . . . . 1,198 545 582
Property, plant and equipment, less
accumulated depreciation of
$2,086, $1,991 and $2,028 . . . . . . . . . 3,678 3,473 3,474
Goodwill, less accumulated amortization of
$106, $79 and $72 . . . . . . . . . . . . . . 1,478 1,243 1,174
Other assets, deferred taxes and
deferred charges. . . . . . . . . . . . . . . 1,456 1,316 1,454
Total assets. . . . . . . . . . . . . . .$14,616 $12,729 $12,821
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term borrowings, including current
portion of long-term debt of
$525, $277 and $254 . . . . . . . . . . .$ 3,157 $ 2,036 $ 3,046
Accounts payable. . . . . . . . . . . . . . . 750 715 636
Income taxes payable. . . . . . . . . . . . . 821 822 688
Accrued compensation and related items. . . . 437 421 409
Other current liabilities . . . . . . . . . . 1,034 1,193 1,020
Total current liabilities . . . . . . . . 6,199 5,187 5,799
Long-term debt. . . . . . . . . . . . . . . . . 553 833 358
Postretirement benefit obligation other
than pension plans. . . . . . . . . . . . . . 425 426 437
Deferred taxes on income. . . . . . . . . . . . 163 166 250
Other non-current liabilities . . . . . . . . . 658 564 650
Minority interests. . . . . . . . . . . . . . . 52 47 46
Total liabilities . . . . . . . . . . . . 8,050 7,223 7,540
Shareholders' Equity
Preferred stock . . . . . . . . . . . . . . . -- -- --
Common stock. . . . . . . . . . . . . . . . . 34 34 34
Additional paid-in capital. . . . . . . . . . 1,604 1,235 1,040
Retained earnings . . . . . . . . . . . . . . 7,707 6,858 6,614
Currency translation adjustment and other . . 143 163 245
Employee benefit trust. . . . . . . . . . . . (1,414) (1,169) (1,002)
Common stock in treasury, at cost . . . . . . (1,508) (1,615) (1,650)
Total shareholders' equity. . . . . . . . 6,566 5,506 5,281
Total liabilities and
shareholders' equity . . . . . . . . .$14,616 $12,729 $12,821
<FN>
<F1>* Unaudited
** Condensed from audited financial statements.
</FN>
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
<PAGE>
PFIZER INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(millions of dollars)
Nine Months Ended
Sept. 29, Oct. 1,
1996 1995
Operating Activities
Net income . . . . . . . . . . . . . . . . . . . . .$1,425 $ 1,162
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization of intangibles . . . 309 266
Changes in operating assets and liabilities,
net of effect of businesses acquired
and divested. . . . . . . . . . . . . . . . . . . (471) (299)
Other. . . . . . . . . . . . . . . . . . . . . . . 49 38
Net cash provided by operating activities. . . . . . . 1,312 1,167
Investing Activities
Acquisitions, net of cash acquired . . . . . . . . . (422) (1,519)
Proceeds from sale of business . . . . . . . . . . . 353 --
Purchases of property, plant and equipment . . . . . (510) (493)
Purchases of short-term investments. . . . . . . . .(2,477) (1,861)
Proceeds from redemptions of short-term
investments. . . . . . . . . . . . . . . . . . . . 2,564 1,540
Net change in loans and long-term investments
by financial subsidiaries. . . . . . . . . . . . . 37 342
Purchases and redemptions of short-term
investments by financial subsidiaries. . . . . . . (11) --
Purchases of long-term investments . . . . . . . . . (779) (99)
Other investing activities . . . . . . . . . . . . . 74 99
Net cash used in investing activities. . . . . . . . .(1,171) (1,991)
Financing Activities
Increase in short-term debt. . . . . . . . . . . . . 903 540
Purchases of common stock. . . . . . . . . . . . . . -- (109)
Cash dividends paid. . . . . . . . . . . . . . . . . (577) (493)
Stock option transactions. . . . . . . . . . . . . . 196 152
Other financing activities . . . . . . . . . . . . . (14) 25
Net cash provided by financing activities. . . . . . . 508 115
Effect of exchange rate changes on cash and
cash equivalents . . . . . . . . . . . . . . . . . . (6) (16)
Net increase/(decrease) in cash and
cash equivalents . . . . . . . . . . . . . . . . . . 643 (725)
Cash and cash equivalents balance at beginning
of period. . . . . . . . . . . . . . . . . . . . . . 403 1,459
Cash and cash equivalents balance at end
of period. . . . . . . . . . . . . . . . . . . . . .$1,046 $ 734
Supplemental Cash Flow Information
Cash paid during the period for:
Income taxes . . . . . . . . . . . . . . . . . . .$ 584 $ 555
Interest . . . . . . . . . . . . . . . . . . . . . 97 140
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 August 25, 1996 and August 27,
1995.
Certain reclassifications have been made to the 1995 financial
statements to conform to the 1996 presentation.
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 September 29,
1996 are not necessarily indicative of the results which ultimately
might be expected for the current year.
Note 3: Currency Impact
An analysis of the changes in the currency translation adjustment for
the nine months ended September 29, 1996 is as follows:
(millions of dollars)
Currency translation adjustment December 31, 1995 $207
Translation adjustments and hedges (35)
Currency translation adjustment September 29, 1996 $172
As of September 29, 1996, the balance sheet caption "Currency
translation adjustment and other" also includes a $39 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) in "Other deductions--net" were as follows:
(millions of dollars) 1996 1995
Third Quarter $ (5) $(9)
Nine Months $(13) $(3)
<PAGE>
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Note 4: Acquisitions
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.
In July 1996, the Company acquired Vesta Medical Inc. which has designed
a proprietary system to treat abnormal uterine bleeding.
In June 1996, the Company acquired substantially all of Corvita
Corporation's outstanding shares of common stock. Corvita develops,
manufactures and markets self-expanding endovascular stent grafts and
synthetic vascular grafts used in the treatment of severely diseased
arteries.
In April 1996, the Company completed the acquisition of Cortizone, an
anti-itching product, and Hemorid, a hemorrhoid treatment, from Thompson
Medical Co., Inc.
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 1996, the Company 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 August 1995, the Company acquired Bain de Soleil skin care products
from the Procter & Gamble Company.
In March 1995, the Company 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.
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.
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 5: 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. In October 1996, the Company completed the disposition of its
food science business with the sale of its Chy-Max product line to Chr.
Hansen A/S, a Danish company. The food science business has been
reported as a discontinued operation.
Note 6: Subsequent Event
On October 24, 1996, the Board of Directors of the Company declared a
30-cent fourth quarter dividend on its common stock, payable December
12, 1996, to shareholders of record on November 8, 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 September 29, 1996 and October 1, 1995,
and the related condensed consolidated statements of income for each of
the three month and nine month periods then ended and cash flows for the
nine month periods then ended. These 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
November 12, 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 SEPTEMBER 29, 1996 AND OCTOBER 1, 1995
<CAPTION>
Percent Percent
(millions of dollars, Incr./(Dec.) Incr./(Dec.)
except per share data) Comparison* Comparison*
Third Quarter Nine Months 3rd Quarter Nine Months
1996 1995 1996 1995 1996/1995 1996/1995
<S> <C> <C> <C> <C> <C> <C>
Net sales $2,803 $2,538 $8,146 $7,277 10 12
Cost of sales $ 522 $ 536 $1,556 $1,597 (3) (3)
% of net sales 18.6% 21.1% 19.1% 21.9%
Selling,
informational
and administrative
expenses $1,040 $ 960 $3,117 $2,776 8 12
% of net sales 37.1% 37.9% 38.3% 38.2%
Research and
development
expenses $ 406 $ 351 $1,194 $1,018 16 17
% of net sales 14.5% 13.8% 14.6% 14.0%
Other deductions--net $ 86 $ 65 $ 204 $ 164 34 25
% of net sales 3.1% 2.5% 2.5% 2.2%
Income from con-
tinuing operations
before taxes and
minority interests $ 749 $ 626 $2,075 $1,722 19 20
% of net sales 26.7% 24.7% 25.5% 23.7%
Taxes on income $ 232 $ 206 $ 643 $ 568 12 13
Effective tax rate 31.0% 33.0% 31.0% 33.0%
Minority interests $ 3 $ 1 $ 7 $ 5 224 21
Income from con-
tinuing operations $ 514 $ 419 $1,425 $1,149 23 24
% of net sales 18.3% 16.5% 17.5% 15.8%
Discontinued
operations, net $ -- $ 6 $ -- $ 13 ** **
% of net sales -- .3% -- .2%
Net income $ 514 $ 425 $1,425 $1,162 21 23
% of net sales 18.3% 16.8% 17.5% 16.0%
Earnings per
common share:
Income from con-
tinuing operations $ .80 $ .66 $ 2.22 $ 1.83 21 21
Discontinued
operations, net -- $ .01 -- .02 ** **
Net income $ .80 $ .67 $ 2.22 $ 1.85 19 20
Cash dividends
per common share $ .30 $ .26 $ .90 $ .78 15 15
<FN>
<F1>* Percentages may reflect rounding adjustments.
**Calculation not meaningful.
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 SEPTEMBER 29, 1996 AND OCTOBER 1, 1995
(millions of dollars)
Percent
Increase
Third Quarter Comparison*
% of % of 3rd Qtr. 1996
Net Net from
1996 Sales 1995 Sales 3rd Qtr. 1995
$2,384 85.0 $2,127 83.8 Health Care 12
302 10.8 303 11.9 Animal Health --
117 4.2 108 4.3 Consumer Health Care 8
$2,803 100.0 $2,538 100.0 Consolidated 10
Percent
Increase
Nine Months Comparison*
% of % of Nine Months 1996
Net Net from
1996 Sales 1995 Sales Nine Months 1995
$6,927 85.0 $6,110 84.0 Health Care 13
860 10.6 861 11.8 Animal Health --
359 4.4 306 4.2 Consumer Health Care 17
$8,146 100.0 $7,277 100.0 Consolidated 12
* Percentages may reflect rounding adjustments.
For 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 SEPTEMBER 29, 1996 AND OCTOBER 1, 1995
(millions of dollars)
Percent
Increase/(Decrease)
Third Quarter Comparison*
% of % of 3rd Qtr. 1996
Net Net from
1996 Sales 1995 Sales 3rd Qtr. 1995
$1,516 54.1 $1,324 52.2 United States 14
642 22.9 584 22.9 Europe 10
396 14.1 414 16.3 Asia (4)**
188 6.7 164 6.5 Canada/Latin America 15
61 2.2 52 2.1 Africa/Middle East 17
$2,803 100.0 $2,538 100.0 Consolidated 10
Percent
Increase
Nine Months Comparison
% of % of Nine Months 1996
Net Net from
1996 Sales 1995 Sales Nine Months 1995
$4,286 52.6 $3,745 51.4 United States 14
1,981 24.3 1,730 23.8 Europe 15
1,168 14.3 1,140 15.7 Asia 2**
533 6.6 495 6.8 Canada/Latin America 8
178 2.2 167 2.3 Africa/Middle East 7
$8,146 100.0 $7,277 100.0 Consolidated 12
* Percentages may not reflect rounding adjustments.
** The decrease in sales in the third quarter and the modest sales
increase for the first nine months of 1996 in the Asian region were
primarily due to the adverse effects of foreign currency translation,
particularly the strengthening of the U.S. dollar as compared to the
Japanese yen.
<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
3rd Qtr. 1996 Nine Months 1996
from from
3rd Qtr. 1995 Nine Months 1995
Volume 14.5 14.0
Price 0.3 0.5
Currency (4.4) (2.6)
Total net sales increase 10.4 11.9
Worldwide sales volume growth for the third quarter of 14.5% was
partially offset by a 4.4% reduction due to the strengthening of the
dollar versus foreign currencies, particularly the Japanese yen. 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 worldwide health care sales performance in the third quarter versus
last year reflects a 13% increase in sales of pharmaceuticals and a 5%
increase in hospital products, while for the first nine months,
worldwide sales of pharmaceuticals and hospital products were up 14% and
8%, respectively. For the third quarter, U.S. pharmaceuticals increased
19% and International pharmaceutical sales increased 7%. International
pharmaceutical sales would have increased by 17% without the negative
effect of foreign exchange. In the third 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 32% and made up 68% of total pharmaceutical sales. Patent
protection for these products extends into the next century, ranging
from 2000 for Cardura to 2007 for Norvasc.
The following table shows the worldwide net sales and percentage sales
growths of the Company's major pharmaceuticals for the third quarter and
first nine months of 1996:
(millions of dollars)
3rd Qtr. 1996 Nine Months 1996
% Incr./ % Incr./
Amount (Dec.) Amount (Dec.)
Cardiovascular Diseases: 893 14 2,525 15
Norvasc 471 41 1,279 42
Procardia XL 249 (15) 750 (13)
Cardura 135 24 383 28
Infectious Diseases: 549 6 1,678 7
Diflucan 231 (1) 670 3
Zithromax 124 83 420 57
Central Nervous System Disorders: 362 24 999 26
Zoloft 350 27 965 28
Sales of Norvasc, the Company's intrinsically once-a-day calcium channel
blocker for the treatment of angina and hypertension, increased by 41%
to $471 million, the largest quarterly sales of any product in Pfizer's
history. Norvasc's sales continue to grow rapidly in the U.S., Japan
and Germany, reflecting increasing worldwide recognition of its efficacy
and safety profile. "The New England Journal of Medicine" recently
published the results of the PRAISE study, a 33-month, 1,153-patient
evaluation of Norvasc's use in treating angina and hypertension patients
who also have congestive heart failure (CHF). The PRAISE study found
that Norvasc, in contrast to all other drugs in its class, is safe for
use in the most severely ill patients, those with New York Heart
Association class III and class IV CHF. As a result of these findings,
in June 1996, the U.S. Food and Drug Administration (FDA) expanded the
approved use of Norvasc in treating angina or hypertension patients who
also have CHF. The PRAISE study also found that in a group of patients
with CHF of non-ischemic origin, the use of Norvasc significantly
reduced the rate of death and illness. Ischemia is impaired blood flow
to the heart. A new study involving non-ischemic CHF patients, PRAISE
II, has been undertaken to confirm these efficacy results.
For the quarter, worldwide sales of Cardura, a once-a-day treatment for
hypertension and more recently, benign prostatic hyperplasia (enlarged
prostate), increased by 24% to $135 million as alpha blockers have been
increasingly recognized as an effective first-line therapy for treatment
of these diseases. The quarterly sales of Procardia XL, the Company's
sustained-release calcium channel blocker for the treatment of angina
and hypertension, declined by 15% to $249 million due to lower
prescription levels.
Sales of Diflucan, the Company's prescription antifungal, decreased by
1% to $231 million, mainly due to adverse foreign currency exchange
effects which were particularly significant between the U.S. dollar and
the Japanese yen. Excluding adverse currency fluctuations, Diflucan
sales for the quarter would have increased 6%. The product continues to
be the therapy of choice for a wide range of fungal infections,
particularly in patients with compromised immune systems. Use of
Diflucan is increasing in both presumptive and documented cases of
systemic candidiasis. Worldwide sales of Zithromax, a broad-spectrum
antibiotic, increased by 83% to $124 million in the quarter as
recognition of its effectiveness as an innovative azalide antibiotic
continued to grow. Zithromax sales in the U.S. reflected the drug's
rapid acceptance for treating children's middle ear infections and strep
throat, and for preventing disseminated Mycobacterium avium complex, a
common disease in persons with advanced HIV infection.
Worldwide sales of the anti-depressant Zoloft increased by 27% to $350
million in the third quarter as a result of broad clinical acceptance
and its continuing international rollout. In August 1996, 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 requested 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 is interacting with the FDA and
attempting to work out a resolution to the issues raised by the warning
letter. In a separate development in October 1996, the FDA issued
regulatory approval for Zoloft for the treatment of obsessive compulsive
disorder.
Zyrtec, a new antihistamine for seasonal and perennial allergies and
hives, is achieving fast acceptance in the U.S. medical community eight
months after its introduction with U.S. sales of $91 million during this
time period. In late September, the FDA approved a syrup formulation of
Zyrtec for the treatment of children from six to 11 years of age.
Hospital Products worldwide sales grew 5% in the third quarter to $345
million and 8% in the first nine months of 1996 to $1,021 million
reflecting the Leibinger acquisition and incremental sales growth for
stents. Excluding the effect of foreign exchange, Hospital Products
sales would have grown 9% in the third quarter and 10% for the first
nine months of 1996. 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. Sales increased 52% in the third
quarter for both peripheral and coronary stents, which are devices used
to maintain flow through obstructed vessels.
Animal health sales were $302 million for the third quarter, comparable
to last year. Sales growth was restrained mainly due to continuing weak
demand for livestock medicines in the U.S. In addition, European sales
of large animal products were impacted by the publicity surrounding
bovine spongiform encephalopathy ("Mad Cow Disease"). Companion animal
products experienced competition from new products. Despite the
challenging environment, sales of Dectomax, the Company's antiparasitic
for livestock, increased 121% worldwide to $27 million in the quarter.
Dectomax was launched in Australia in July and in the U.S. in August.
Sales of Stafac, a leading anti-infective for poultry and swine,
increased by 13% in the quarter to $19 million.
Consumer health care sales increased 8% in the third quarter and 17% in
the first nine months of 1996 to $117 million and $359 million,
respectively, mainly due to sales of the Bain de Soleil line of sun
related skin-care products, acquired from Procter & Gamble in August
1995, and of Cortizone, an anti-itching product, and Hemorid, a
hemorrhoid treatment, both acquired from Thompson Medical in April 1996.
Sales of over-the-counter products previously available only by
prescription, including Reactine, the anti-allergy medication, in
Canada; Diflucan One, for the treatment of vaginal candidiasis, in the
U.K.; and OcuHist, an antihistamine eye drop, in the U.S., also
contributed to growth.
COSTS AND EXPENSES
Cost of sales decreased 3% in both the third quarter and first nine
months versus last year's comparable periods due to improved business
and product sales mix, foreign exchange, the favorable impact of the
Company's foreign exchange hedging program and improvements in
manufacturing efficiencies. In addition, the absence of the impact of
purchase accounting relating to SmithKline Beecham Animal Health
inventories that took place in the first quarter of 1995 contributed to
the decrease in cost of sales for the first nine months of 1996.
Selling, informational and administrative expense (SI&A) increased 8%
and 12% in the third quarter and first nine months of 1996,
respectively, compared with the same periods of 1995. Excluding the
effects of foreign exchange and other one-time items, SI&A increased 14%
in the third quarter. This 14% growth was largely driven by new product
support.
Research and development expenditures were up 16% in the third quarter
and 17% in the first nine months relative to last year's comparable
periods due to the support of new health care products at all 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 16.3% and 14.9% in the first nine 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 2.6
percentage points higher in the third quarter and 2.1 percentage points
higher in the first nine of 1996 versus the comparable 1995 periods.
This improvement was attributable to the Company's focus on its core
health care businesses, strong acceptance of a broad array of new
products and productivity improvement initiatives.
Other deductions--net, for the third quarter and first nine months of
1996 and 1995 are summarized in the following tables:
(millions of dollars) % Incr./
Third Quarter 1996 1995 (Dec.)*
Interest income $(33) $ (36) (8)
Interest expense 39 46 (15)
Amortization of goodwill
and other intangibles 20 16 25
Foreign exchange losses 5 9 (44)
Other, net 55 30 83
Other deductions--net $ 86 $ 65 34
(millions of dollars) % Incr./
Nine Months 1996 1995 (Dec.)*
Interest income $(93) $(122) (24)
Interest expense 119 152 (22)
Amortization of goodwill
and other intangibles 48 38 26
Foreign exchange losses 13 3 333
Other, net 117 93 26
Other deductions--net $204 $ 164 25
*Percentages may reflect rounding adjustments.
The decrease in interest income in the first nine months of 1996 versus
last year's prior period was due to lower interest rates and lower
weighted average levels of investments in interest earning assets, while
the decrease in the third quarter was primarily due to lower interest
rates. The decrease in interest expense in the third quarter and first
nine months of 1996 was due to lower weighted average levels of
borrowings and lower interest rates. The increase in amortization of
goodwill and other intangibles in the first nine months of 1996 versus
last year was primarily attributable to the Company's acquisitions.
Foreign exchange losses include the impact of the hyperinflationary
environment in Turkey. Other, net for first nine 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 payments totaling $45
million ($20 million during the third quarter of 1996) relating to
certain worldwide product licensing rights.
<PAGE>
PRE-TAX AND NET INCOME
The decrease in the Company's effective tax rate from 32% for the full
year 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.
OTHER
In September 1996, based on the advice of its Advisory Committee, the
FDA did not approve tenidap in the U.S. for either osteoarthritis or
rheumatoid arthritis pending further evaluation of the drug's safety
profile. Also in September, the Company announced that in spite of
tenidap's potentially unique role in the treatment of rheumatoid
arthritis, the Company has decided not to pursue commercialization of
tenidap 120 mg. for rheumatoid arthritis. Tenidap has been shown to be
an effective agent against the symptoms of osteoarthritis at lower doses
in clinical trials. A decision to undertake the extensive clinical
development program needed to establish tenidap as a disease modifying
osteoarthritis agent will be made after the results of clinical studies
currently ongoing are completed and after discussions about such a
program are held with appropriate regulators.
In September 1996, Eisai, the company that discovered Aricept
(donepezil, E2020) and with whom Pfizer will be co-promoting the
product, received an approvable letter from the FDA for the drug.
Labeling discussions are in progress. Aricept is a once-daily selective
acetylcholinesterase inhibitor for the treatment of mild to moderate
Alzheimer's disease.
The Company made various acquisitions in 1996 and 1995. For a
discussion of these acquisitions, see Note 4, "Acquisitions," on page 7.
On September 26, 1996, the Board of Directors authorized the Company to
repurchase up to $2 billion worth of its currently issued common stock
over the next 18 to 24 months in open-market or private transactions.
Stock purchased under the program will be held in the Company treasury
and will be available for general corporate purposes. The number of
shares outstanding in the third quarter was not impacted by the program.
In the first nine months 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 September 29, 1996, completed restructuring initiatives reduced
the workforce by approximately 1,950 people and resulted in the closing
of 21 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 approximately $130 million. To date, there have been no significant
changes in estimates of the cost of the plan.
<PAGE>
The following table indicates the status of the restructuring charges by
component:
Utilization Reserves
(millions of dollars) 1993 Through Nine Remaining
Restructuring Dec. 31, Months at Sept. 29,
Charges 1995 1996 1996
Employee severance
payments $220 $102 $ 64 $54
Operating assets to be
sold/disposed of 212 134 33 45
Other charges 247 216 31 --
$679 $452 $128 $99
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 $2,084
million at September 29, 1996 as compared to $1,512 million at December
31, 1995. Total borrowings were $3,710 million at September 29, 1996
compared with $2,869 million at December 31, 1995. At September 29,
1996, working capital had decreased by $358 million from December 31,
1995. Working capital provided by operations and the proceeds from
short-term borrowings and the sale of the food science business were
utilized for long-term investments; property, plant and equipment;
business acquisitions and payment of dividends during the nine-month
period. Additionally, the 6 1/2% Notes due in 1997 of $250 million were
reclassified from Long-term debt to Short-term borrowings during the
nine months ended September 29, 1996.
Sept. 29, Dec. 31, Oct. 1,
1996 1995 1995
Working capital (millions of dollars) $ 607 $ 965 $ 338
Current ratio 1.10:1 1.19:1 1.06:1
Debt to total capitalization
(percentage)* 36% 34% 39%
Shareholders' equity per common share** $ 10.50 $ 8.90 $ 8.57
Days of sales outstanding - trade
accounts receivable 66 60 66
Months of inventory on hand 9.2 9.2 9.4
* 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.
<PAGE>
SUBSEQUENT EVENT
For a description of the subsequent event, see Note 6, "Subsequent
Event," on page 8.
CAUTIONARY STATEMENTS FOR FORWARD LOOKING INFORMATION
Management's discussion and analysis set forth above contains certain
forward-looking statements, particularly statements relating to its
current and anticipated products. The Company has also provided other
forward-looking statements elsewhere in this document and in separate
publicly-released materials. In all cases, a variety of risks and other
factors, both known and unknown, can affect those matters.
Consequently, the realization of forward-looking statements cannot be
guaranteed, and all forward-looking statements must be evaluated in
light of applicable risks and uncertainties bearing on the business.
These cautionary considerations particularly apply with respect to the
product-related forward-looking statements herein. In view of the many
factors that bear upon regulatory approval and successful marketing of
pharmaceutical and hospital products around the world, it is always
possible that current expectations in these areas may not be realized.
Regulatory delays, claims and concerns about safety and efficacy, new
discoveries and products by competitors, and claims about adverse side
effects are a few of the types of issues that could adversely affect the
realization of current product expectations.
In addition, other factors have been identified in Exhibit 99 to this
Form 10-Q which could cause the Company's actual results to differ
materially from expected and historical results. While it is not
possible to foresee or identify all such factors, that Exhibit sets out
particular matters that investors should assess for themselves, and is
hereby incorporated by reference into this discussion and analysis.
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 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 was 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
recipients 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
providing 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
designations have been made by some state environmental agencies under
applicable 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
administrative 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
conclusion, 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
allocated 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
determination. 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. On November 1, 1996, the United States Supreme
Court granted a writ of certiorari to hear the appeal. 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 active
personal injury claims, exclusive of those covered by the Future Claims
Settlement preliminary injunction and those which are inactive as of
October 26, 1996 is 11,286 asbestos cases against Quigley; 3,901
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 I 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
facility. The Company is engaged in discussions with the governmental
agencies and does not believe that an enforcement action, if brought,
will have material adverse effect on the financial position or the
results of operations of the Company.
The Company has been named, together with numerous other
manufacturers 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 "individual actions"). These cases, which have been
transferred to the United States District Court for the Northern
District of Illinois and coordinated for pretrial purposes, allege that
the defendant drug manufacturers 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 installments 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 February 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 setting a 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.
An appeal of that approval is pending.
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 the District of Columbia. 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.
The Federal Trade Commission is conducting an investigation
focusing on the pricing practices at issue in the above pharmacy
antitrust litigation. In July 1996 the Commission issued a subpoena for
documents to the Company, among others, to which the Company has
responded.
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, and has moved to have
it dismissed.
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
satisfied 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 February
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. Even though it is believed that this suit is without merit, in
order to avoid the monetary and other costs of litigation, the Company
has entered into an agreement to settle this action for $9.75 million,
subject to a court determination of the fairness of the settlement. A
fairness hearing is scheduled for December 13, 1996. 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. Even though it is believed
that the suit is without merit, in order to avoid the monetary and other
costs of litigation, an agreement in principle has been reached to
settle this action by way of a $15 million payment by the Company's
insurance carrier to the Company with an attorneys' fee to be paid by
the Company out of the proceeds of the settlement to the shareholders'
attorneys who brought the case. The settlement will be subject to court
approval.
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 sought 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
manufacturers 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
conditionally 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 have filed several
actions in Minnesota State Court on behalf of over 200 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 Belgian 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.
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
1) Exhibit 10 - Compensation Plans and Arrangements for
Executive Officers and Non-Employee
Directors:
- 10.1 - Annual Retainer Unit Award Plan
- 10.2 - Pfizer Inc. Nonfunded Deferred
Compensation and Unit Award Plan for
Non-Employee Directors
- 10.3 - Performance-Contingent Share
Award Program
2) Exhibit 11 - Computation of Earnings Per Common
Share
3) Exhibit 12 - Computation of Ratio of Earnings to
Fixed Charges
4) Exhibit 15 - Accountants' Acknowledgment
5) Exhibit 27 - Financial Data Schedule
6) Exhibit 99 - Cautionary Statements Relating to the
"Safe Harbor" Provision of the Private
Securities Litigation Reform Act of
1995.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the third quarter
ended September 29, 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: November 12, 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 Nine Months Ended
Sept. 29, Oct. 1, Sept. 29, Oct. 1,
1996 1995 1996 1995
Primary:
Net income $514 $425 $1,425 $1,162
Weighted average number of
common shares outstanding 625 616 623 613
Common share equivalents (a) 20 15 20 14
Weighted average number of
common shares and common
share equivalents 645 631 643 627
Net income per common share $.80 $.67 $ 2.22 $ 1.85
Fully Diluted:(b)
Net income $514 $425 $1,425 $1,162
Weighted average number of
common shares outstanding 625 616 623 614
Common share equivalents and
other dilutive securities 21 17 20 15
Weighted average number of
common shares and common
share equivalents 646 633 643 629
Net income per common share $.80 $.67 $2.22 $ 1.85
(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>
Exhibit 12
<TABLE>
PFIZER INC. AND SUBSIDIARY COMPANIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(millions of dollars)
(Unaudited)
<CAPTION>
Nine
Months
Ended
Sept. 29, 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 $2,075 $2,299 $1,830 $835 $1,541 $ 913
Less:
Minority interests 7 7 4 2 3 3
Undistributed
earnings/(losses) of
unconsolidated
subsidiaries 1 0 (1) 1 8 1
Adjusted income 2,067 2,292 1,827 832 1,530 909
Fixed charges 149 232 158 136 130 155
Total earnings
as defined $2,216 $2,524 $1,985 $968 $1,660 $1,064
Fixed charges and other:
Interest expense (a) $ 119 $ 193 $ 127 $107 $ 103 $ 130
Rents (b) 30 39 31 29 27 25
Fixed charges 149 232 158 136 130 155
Capitalized interest 3 12 15 14 12 8
Total fixed charges $ 152 $ 244 $ 173 $150 $ 142 $ 163
Ratio of earnings to fixed
charges 14.6 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
November 12, 1996, included within the Quarterly Report on Form 10-Q of Pfizer
Inc. for the quarter ended September 29, 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
Registration Statement on Form S-8 dated October 27, 1983 (File No. 2-87473),
as amended, in the Registration Statement on Form S-8 dated March 22, 1990
(File No. 33-34139), in the Registration Statement on Form S-8 dated January
24, 1991 (File No. 33-38708), in the Registration Statement on Form S-3 dated
June 26, 1991 (File No. 33-41367), as amended, in the Registration Statement
on Form S-8 dated November 18, 1991 (File No. 33-44053), in the Registration
Statement on Form S-3 dated May 27, 1993 (File No. 33-49629), in the 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
November 12, 1996<PAGE>
Exhibit 10.1
PFIZER INC. ANNUAL RETAINER UNIT AWARD PLAN
(Effective April 1996)
1. Each year, effective as of the date of the annual meeting of
shareholders, each director who is not an employee of Pfizer Inc.
(the "Company") or any of its subsidiaries shall receive the share
equivalent of his or her annual retainer in restricted units. The
appropriate number of units shall be based upon the five-day
average of the closing trading price of the Common Stock of the
Company on the New York Stock Exchange for the first five days of
trading after April 1 of each year. The number of units shall be
rounded up to the nearest unit. All such units shall be referred
to as the "Restricted Units." The Restricted Units may not be
terminated or modified by a director.
2. All Restricted Units shall be held in the general funds of the
Company and shall be credited to the director's account. The
director's account shall be credited with the number of Restricted
Units received on the date specified in paragraph 1. Whenever a
dividend is declared, the number of Restricted Units in the
director's account shall be increased by the result of the
following calculations: (1) the number of Restricted Units in the
director's account multiplied by any cash dividend declared by the
Company on a share of its Common Stock, divided by the closing
market price of such Common Stock on the related dividend record
date; and/or (2) the number of Restricted Units in the director's
account multiplied by any stock dividend declared by the Company on
a share of its Common Stock. A director may elect to receive in
cash the value of any cash dividend, declared by the Company on a
share of its Common Stock, in lieu of having his or her account
credited as specified above. Any such election shall be made, and
may also be terminated, by written notice directed to the Secretary
of the Company prior to the calendar quarter of the payment for the
dividend. In the event of any change in the number or kind of
outstanding shares of Common Stock of the Company including a stock
split or splits, other than a stock dividend as provided above, an
appropriate adjustment shall be made in the number of Restricted
Units credited to the director's account.
3. At least one year before he or she ceases to be a director of
the Company, a director may elect, or may modify an election that
he or she had previously made, to receive payment of his or her
Restricted Units account in a lump sum or in annual installments,
and he or she may elect to have such payment or payments made
either in (1) the year in which he or she ceases to be a director
of the Company, or (2) a year following his or her termination as
a director. In the absence of an election, such payments will begin
with the first month of the year following termination and will be
made in five annual installments. Should a director cease to be a
director of the Company less than one year from the time of
election to the time of termination, then any previous election
made by the director shall be deemed to govern.
With respect to all Restricted Units in the director's
account, the amount payable to the director in each instance shall
be determined by multiplying the number of Restricted Units by the
closing market price of the Company's Common Stock on the day prior
to the date for payment or the last business day prior to that
date, if the day prior to the date for payment is not a business
day.
Where the director receives the balance of his or her account
in annual installments, the first annual installment shall be a
fraction of the value of the balance of the Restricted Units
credited to the director's account on the date of such payment, the
numerator of which is one (1) and the denominator of which is the
total number of installments remaining to be paid at that time.
Each subsequent annual installment shall be calculated in the same
manner except that the denominator shall be reduced by the number
of annual installments which have been previously paid.
4. If a director should die before full payment of all Restricted
Units credited to his or her account, such Restricted Units shall
be paid to his or her designated beneficiary or beneficiaries or
to his or her estate in a single sum payment to be made as soon as
practicable after his or her death. A director may designate one
or more beneficiaries (which may be an entity other than a natural
person) to receive any payments to be made upon the director's
death. At any time, and from time to time, any such designation
may be changed or canceled by the director without the consent of
any beneficiary. Any such designation, change or cancellation must
be by written notice filed with the Secretary of the Company and
shall not be effective until received by the Secretary. If a
director designates more than one beneficiary, any payments to such
beneficiaries shall be made in equal shares unless the director has
designated otherwise. If no beneficiary has been named by the
director, or the designated beneficiaries have predeceased him or
her, the director's beneficiary shall be the executor or
administrator of the director's estate.
5. The right of a director to any Restricted Units credited to
his or her account shall not be subject to assignment by him or
her. If a director does assign his or her right to any Restricted
Units credited to his or her account, the Company may disregard
such assignment and discharge its obligation hereunder by making
payment as though no such assignment had been made.
Exhibit 10.2
PFIZER INC. NONFUNDED DEFERRED
COMPENSATION AND UNIT AWARD PLAN FOR
NON-EMPLOYEE DIRECTORS
1. Each director who is not an employee of Pfizer Inc. (the
"Company") or any of its subsidiaries may elect on or before
the last day of any calendar quarter to have payment of all or
a specified part of all fees payable to him or her for
services as a director during the following calendar quarter
and thereafter and/or all or a specified part of all dividends
and other distributions payable on stock held by him or her
under the Pfizer Inc. Restricted Stock Plan for Non-Employee
Directors (hereinafter collectively referred to as "fees")
thereafter deferred until he or she ceases to be a director of
the Company. Any such election shall be made by written
notice directed to the Secretary of the Company. Any such
election may be terminated, or may be modified as to amount of
deferral or form of deferral (whether interest or units), with
regard to fees to be paid during the following calendar
quarter and thereafter upon written notice directed to the
Secretary of the Company on or before the last day of the
calendar quarter preceding the calendar quarter in which such
fees would otherwise be payable. A director may elect to
switch the form of deferral of previously deferred fees
effective on the first day of any calendar quarter by giving
prior written notice directed to the Secretary of the Company;
provided, however, that a switch into, or out of, the unit
account shall be permitted only if the director has not
elected to switch out of, or into, the unit account within
this Plan, Fund C within the Pfizer Savings and Investment
Plan or the unit account within the Pfizer Inc. Nonfunded
Deferred Compensation and Supplemental Savings Plan during the
prior six months. The Awarded Units, as described in
paragraph 7, shall not be affected by any such election.
2. All deferred fees shall be held in the general funds of
the Company and shall be credited to the director's account,
and, at the director's election, the account shall be credited
either with a) interest at a rate equal to the rate of return
for Fund A in the Pfizer Savings and Investment Plan,
compounded monthly or, b) a number of units, calculated to the
nearest thousandth of a unit, produced by dividing the amount
of fees deferred on the date such fees would otherwise have
been paid, by the closing market price of the Company's Common
Stock as reported on the Consolidated Tape of the New York
Stock Exchange on the last business day prior to the date such
fees would otherwise have been paid. In the case of Awarded
Units, the director's account shall be credited with the
number of Units so awarded on the date specified in paragraph
7. Whenever a dividend is declared, the number of units in
the director's account shall be increased by the result of the
following calculations: 1) the number of units in the
director's account multiplied by any cash dividend declared by
the Company on a share of its Common Stock, divided by the
closing market price of such Common Stock on the related
dividend record date; and/or 2) the number of units in the
director's account multiplied by any stock dividend declared
by the Company on a share of its Common Stock. Solely as to
the Awarded Units, a director may elect to receive in cash the
value of any cash dividend, declared by the Company on a share
of its Common Stock, in lieu of having his or her account
credited as specified above. Any such election shall be made,
and may also be terminated, by written notice directed to the
Secretary of the Company prior to the calendar quarter of the
payment for the dividend. In the event of any change in the
number or kind of outstanding shares of Common Stock of the
Company including a stock split or splits, other than a stock
dividend as provided above, an appropriate adjustment shall be
made in the number of units credited to the director's
account.
3. At least one year before he or she ceases to be a
director of the Company, a director may elect, or may modify
an election that he or she had previously made, to receive
payment of his or her combined deferred compensation and
Awarded Units accounts in a lump sum or in annual
installments, and he or she may elect to have such payment or
payments made either in (1) the year in which he or she ceases
to be a director of the Company, or (2) a year following his
or her termination as a director. In the absence of an
election, such payments will begin with the first month of the
year following the director's termination and will be made in
five annual installments. Should a director cease to be a
director of the Company less than one year from the time of
election to the time of termination, then any previous
election made by the director shall be deemed to govern.
With respect to all units in the director's account,
whether they be Awarded Units or units representing fees and
calculated as provided in paragraph 2, the amount payable to
the director in each instance shall be determined by
multiplying the number of units by the closing market price of
the Company's Common Stock on the day prior to the date for
payment or the last business day prior to that date, if the
day prior to the date for payment is not a business day.
Where the director receives the balance of his or her
account in Annual Installments of Deferred Compensation, the
first Annual Installment of Deferred Compensation shall be a
fraction of the value of the balance of the deferred
compensation credited to the director's account either by way
of interest or units calculated under paragraph 2 hereof, as
the case may be, on the date of such payment, the numerator of
which is one (1) and the denominator of which is the total
number of installments remaining to be paid at that time.
Each subsequent Annual Installment shall be calculated in the
same manner except that the denominator shall be reduced by
the number of Annual Installments which have been previously
paid.
4. If a director should die before full payment of all
amounts credited to his or her account, such amounts shall be
paid to his or her designated beneficiary or beneficiaries or
to his or her estate in a single sum payment to be made as
soon as practicable after his or her death. A director may
designate one or more beneficiaries (which may be an entity
other than a natural person) to receive any payments to be
made upon the director's death. At any time, and from time to
time, any such designation may be changed or canceled by the
director without the consent of any beneficiary. Any such
designation, change or cancellation must be by written notice
filed with the Secretary of the Company and shall not be
effective until received by the Secretary. If a director
designates more than one beneficiary, any payments to such
beneficiaries shall be made in equal shares unless the
director has designated otherwise. If no beneficiary has been
named by the director, or the designated beneficiaries have
predeceased him or her, the director's beneficiary shall be
the executor or administrator of the director's estate.
5. A director's election to defer fees shall continue
until a director ceases to be a director unless he or she
earlier terminates such election with respect to future fees
by written notice delivered to the Secretary of the Company.
Any such notice shall become effective as of the end of the
calendar month in which such notice is received by the
Secretary. Amounts credited to the account of a director
prior to the effective date of such notice shall not be
affected thereby and shall be paid to him or her in accordance
with paragraph 3 (or paragraph 4 in the event of his or her
death) above. The Awarded Units shall not be affected by any
such election.
6. The right of a director to any fees or Awarded Units
credited to his or her account shall not be subject to
assignment by him or her. If a director does assign his or
her right to any fees or Awarded Units credited to his or her
account, the Company may disregard such assignment and
discharge its obligation hereunder by making payment as though
no such assignment had been made.
7. Awards of Units. An award consisting of 600 units
shall be made to each director who is elected or who continues
as a director, each year, effective as of the date of the
annual meeting of shareholders. Upon the election of a
director to fill a vacancy, the director so elected shall be
awarded 600 units. All such units shall be referred to as the
"Awarded Units." The Awarded Units may not be terminated or
modified by a director. In the event of any change in the
number or kind of outstanding shares of Common Stock of the
Company, including a stock split or splits, or a stock
dividend, an appropriate adjustment shall be made in the
number of Awarded Units.
Exhibit 10.3
PFIZER INC.
PERFORMANCE-CONTINGENT SHARE AWARD PROGRAM
(As amended September 26, 1996)
1. PURPOSE: The Performance-Contingent Share Award Program is
designed to promote the retention of key employees, to compensate
such employees based on the Company's achievement of corporate
performance goals and to optimize employee motivation. The
Program emphasizes long-term compensation values over short-term
pay opportunities and encourages stock retention by the Company's
key employees in the face of stock market fluctuations.
2. DEFINITIONS:
Committee -- the Executive Compensation Committee of the Board
of Directors of the Company.
Company -- Pfizer Inc.
Peer Group -- an industry peer index compiled by the Company
that currently consists of the following companies: Abbott
Laboratories, American Cyanamid Co., American Home Products
Corp., Baxter International Inc., Bristol-Myers Squibb Company,
Colgate-Palmolive Co., Johnson & Johnson, Eli Lilly and Company,
Merck and Co., Inc., Schering Plough Corp., Upjohn Co. and
Warner-Lambert Company.
Performance-Contingent Shares -- shares of the Company's
common stock that may be awarded under this Program to eligible
employees of the Company. For shares to be issued to any such
employee, however, certain preestablished Company performance
criteria must be met.
Program -- the Performance-Contingent Share Award Program.
3. ELIGIBILITY: The 200 most highly compensated employees of
the Company are eligible to be granted the opportunity by the
Committee to earn Performance-Contingent Shares based upon the
Company's achievement of predetermined corporate performance
goals over a five-year period except for the 1993 awards which
provide for shorter performance periods.
4. PARTICIPATION: The Committee shall select an eligible
employee for participation under the Program by delivering to
such employee, prior to the start of the applicable five-year
performance period or within the period provided for under
Section 6 below, an award letter that specifies the objective
performance goal and the number of Performance-Contingent Shares
solely payable upon the attainment of such goal.
5. AWARD OF PERFORMANCE-CONTINGENT SHARES: The total number of
shares to be awarded under the Program is limited to 10 million
shares. No eligible employee will be granted Performance-
Contingent Shares for more than 100,000 shares of the Company's
common stock in any year. Actual awards will generally be a
fraction of the maximum and will be correlated with awards under
the Company's Stock and Incentive Plan. The maximum number of
Performance-Contingent Shares to be awarded will be determined by
the Committee each year prior to the start of the corporate
performance period or within the period provided for under
Section 6 below and shall be set forth in the award letter
provided to each eligible employee. Except for the 1993 awards,
the awards hereunder will be based upon a five-year performance
period.
6. DETERMINATION OF CORPORATE PERFORMANCE FORMULA: Awards of
Performance-Contingent Shares are determined by a preestablished,
non-discretionary formula comprised of two performance criteria -
- - total shareholder return (including reinvestment of dividends)
and earnings per share (as reported) -- measured point-to-point
over the applicable performance period relative to the Peer
Group. The targets under the performance formula shall be
established by the Committee before the start of the performance
period; provided, however, the Committee may establish targets
during the performance period for "Covered Employees," as defined
by, and in accordance with, IRS rules and regulations under
Section 162(m) of the Internal Revenue Code of 1986, as amended.
In addition, the Committee, in its discretion, may establish
targets for employees other than Covered Employees during the
performance period at a time when the outcome of such performance
is substantially uncertain. The performance formula weighs each
criterion equally. To the extent that the Company's performance
exceeds the low end of the range of performance of the Peer
Group in either or both of the performance criteria, a varying
amount of shares up to the maximum will be earned, all as set
forth in the award letter.
An interim phase-in period applies to the 1993 awards and is
designed to account for shorter performance periods within the
full five-year period. The 1993 awards will be pro-rated as
follows: 1993-94 -- 40% of awards; 1993-95 -- 60% of awards;
1993-96 -- 80% of awards; and 1993-97 -- 100% of awards. Awards
made in 1994 and thereafter will be paid in the year following
the final year of the five-year period.
7. ADMINISTRATION OF THE PROGRAM: The Program is administered
by the Committee (consisting solely of two or more outside
directors, within the meaning of Section 162(m) of the Internal
Revenue Code of 1986, as amended, and non-employee directors
within the meaning of Rule 16b-3(b)(3)(i) or its successors under
the Securities Exchange Act of 1934, as amended). In addition to
preestablishing the targets under the performance formula and the
number of shares awardable to each participant, the Committee
must certify in writing prior to payment of the shares that the
performance goals and other material terms of payment were, in
fact, satisfied.
8. TERMINATION OF EMPLOYMENT: If a Program participant is not
employed at the end of the performance period due to death,
disability or termination of employment following a Change in
Control, as defined under the Pfizer Stock and Incentive Plan, a
determination of shares payable, if any, to the Program
participant or his or her estate will be made on the basis of the
Company's performance during the full calendar years of the
performance period that elapse before the employee's termination
of employment. The number of Performance-Contingent Shares to be
awarded shall be determined by multiplying the Performance-
Contingent Shares otherwise awardable by a fraction, the
numerator of which is the number of years completed during the
performance period before termination of employment (whole or
partial), and the denominator of which is five.
9. AMENDMENT OF PROGRAM: The material provisions of the Program
may only be amended by the holders of a majority of the shares of
the Company present, or represented, and entitled to vote at a
meeting duly held in accordance with the laws of the State of
Delaware.
10. APPROVAL OF PROGRAM: The material terms of the Program are
subject to approval by the holders of a majority of the shares of
the Company present, or represented, and entitled to vote at a
meeting duly held in accordance with the laws of the State of
Delaware.
<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 INCO;ME FOR THE PERIOD ENDED SEPTEMBER 29, 1996 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERNECE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-29-1996
<CASH> 1,046
<SECURITIES> 1,038
<RECEIVABLES> 2,255
<ALLOWANCES> (62)
<INVENTORY> 1,614
<CURRENT-ASSETS> 6,806
<PP&E> 5,764
<DEPRECIATION> (2,086)
<TOTAL-ASSETS> 14,616
<CURRENT-LIABILITIES> 6,199
<BONDS> 553
0
0
<COMMON> 34
<OTHER-SE> 9,311
<TOTAL-LIABILITY-AND-EQUITY> 14,616
<SALES> 8,146
<TOTAL-REVENUES> 8,146
<CGS> 1,556
<TOTAL-COSTS> 1,556
<OTHER-EXPENSES> 1,194
<LOSS-PROVISION> 7
<INTEREST-EXPENSE> 119
<INCOME-PRETAX> 2,075
<INCOME-TAX> 643
<INCOME-CONTINUING> 1,425
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,425
<EPS-PRIMARY> 2.22
<EPS-DILUTED> 2.22
</TABLE>
Exhibit 99
CAUTIONARY STATEMENTS RELATING TO THE "SAFE HARBOR" PROVISION
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Certain Company communications 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 but are not guaranteed and must be evaluated in
light of applicable risks and uncertainties bearing upon such matters. 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 in the many countries
where the Company does business through pharmaceutical or other plants
or through sales subsidiaries.
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.
Difficulties or delays in pharmaceutical 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, namely hospital products, consumer
health care and animal health care.
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 affecting utilization of the Company's health
care products.
Significant litigation adverse to the Company.
Business combinations among the Company's competitors could affect the
Company's ranking in the pharmaceutical, hospital products, consumer
health care and animal health care businesses.
