UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 30, 1997
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 April 30, 1997 there were 645,621,901 shares par value
$.05, of the issuer's common stock outstanding.
<PAGE>
PFIZER INC.
FORM 10-Q
For the Quarter Ended
March 30, 1997
Table of Contents
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1.
<CAPTION>
Financial Statements: Page
<S> <C>
Condensed Consolidated Statement of Income for
the three months ended March 30, 1997 and March 31, 1996 3
Condensed Consolidated Balance Sheet at
March 30, 1997, December 31, 1996 and March 31, 1996 4
Condensed Consolidated Statement of Cash Flows for the
three months ended March 30, 1997 and March 31, 1996 5
Notes to Condensed Consolidated Financial Statements 6
Independent Auditors' Report 9
Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II. OTHER INFORMATION
Item 1.
Legal Proceedings 17
Item 6.
Exhibits and Reports on Form 8-K 24
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
PFIZER INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<CAPTION>
Three Months Ended
March 30, March 31,
1997 1996
(millions, except per share data)
<S> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . . . . $3,002 $2,682
Alliance revenue. . . . . . . . . . . . . . . . . . . . (1) 0
Total revenues. . . . . . . . . . . . . . . . . . . . . 3,001 2,682
Costs and expenses
Cost of sales . . . . . . . . . . . . . . . . . . . . 545 513
Selling, informational and
administrative expenses . . . . . . . . . . . . . . . 1,114 994
Research and development expenses . . . . . . . . . . 413 366
Other deductions--net. . . . . . . . . . . . . . . . . 67 57
Income before provision for taxes
on income and minority interests . . . . . . . . . . . 862 752
Provision for taxes on income . . . . . . . . . . . . . 259 233
Minority interests. . . . . . . . . . . . . . . . . . . 1 2
Net income. . . . . . . . . . . . . . . . . . . . . . . $ 602 $ 517
Earnings per common share . . . . . . . . . . . . . . . $ .93 $ .81
Weighted average shares used to calculate
earnings per share amounts . . . . . . . . . . . . . . 650 641
Cash dividends per common share . . . . . . . . . . . . $ .34 $ .30
<FN>
<F1>See accompanying Notes to Condensed Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
PFIZER INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEET
<CAPTION>
(millions of dollars) March 30, Dec. 31, March 31,
1997* 1996** 1996*
ASSETS
<S> <C> <C> <C>
Current Assets
Cash and cash equivalents . . . . . . . . . . . . . . . . $ 1,230 $ 1,150 $ 818
Short-term investments. . . . . . . . . . . . . . . . . . 643 487 875
Accounts receivable, less allowances of
$60, $58 and $62. . . . . . . . . . . . . . . . . . . . 2,528 2,252 2,221
Short-term loans. . . . . . . . . . . . . . . . . . . . . 269 354 376
Inventories
Finished goods. . . . . . . . . . . . . . . . . . . . . 604 617 607
Work in process . . . . . . . . . . . . . . . . . . . . 712 695 639
Raw materials and supplies. . . . . . . . . . . . . . . 278 277 256
Total inventories . . . . . . . . . . . . . . . . . . 1,594 1,589 1,502
Prepaid expenses, taxes,
and other current assets. . . . . . . . . . . . . . . . 662 636 614
Total current assets. . . . . . . . . . . . . . . . . 6,926 6,468 6,406
Long-term loans and investments . . . . . . . . . . . . . . 1,195 1,163 527
Property, plant and equipment, less
accumulated depreciation of
$2,175, $2,155 and $2,022 . . . . . . . . . . . . . . . 3,848 3,850 3,521
Goodwill, less accumulated amortization of
$121, $115 and $86. . . . . . . . . . . . . . . . . . . . 1,375 1,424 1,327
Other assets, deferred taxes and
deferred charges. . . . . . . . . . . . . . . . . . . . . 1,709 1,762 1,393
Total assets. . . . . . . . . . . . . . . . . . . . . $15,053 $14,667 $13,174
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term borrowings, including current
portion of long-term debt of
$2, $261 and $500 . . . . . . . . . . . . . . . . . . $ 2,582 $ 2,235 $ 2,339
Accounts payable. . . . . . . . . . . . . . . . . . . . . 819 913 602
Income taxes payable. . . . . . . . . . . . . . . . . . . 868 892 772
Accrued compensation and related items. . . . . . . . . . 403 436 389
Other current liabilities . . . . . . . . . . . . . . . . 1,108 1,164 1,380
Total current liabilities . . . . . . . . . . . . . . 5,780 5,640 5,482
Long-term debt. . . . . . . . . . . . . . . . . . . . . . . 732 687 584
Postretirement benefit obligation other
than pension plans. . . . . . . . . . . . . . . . . . . . 410 412 427
Deferred taxes on income. . . . . . . . . . . . . . . . . . 294 253 186
Other noncurrent liabilities. . . . . . . . . . . . . . . . 645 671 559
Minority interests. . . . . . . . . . . . . . . . . . . . . 40 50 48
Total liabilities . . . . . . . . . . . . . . . . . . 7,901 7,713 7,286
Shareholders' Equity
Preferred stock . . . . . . . . . . . . . . . . . . . . . -- -- --
Common stock. . . . . . . . . . . . . . . . . . . . . . . 35 34 34
Additional paid-in capital. . . . . . . . . . . . . . . . 1,843 1,728 1,345
Retained earnings . . . . . . . . . . . . . . . . . . . . 8,399 8,017 7,184
Currency translation adjustment and other . . . . . . . . 14 145 143
Employee benefit trust. . . . . . . . . . . . . . . . . . (1,586) (1,488) (1,249)
Common stock in treasury, at cost . . . . . . . . . . . . (1,553) (1,482) (1,569)
Total shareholders' equity. . . . . . . . . . . . . . 7,152 6,954 5,888
Total liabilities and
shareholders' equity . . . . . . . . . . . . . . . $15,053 $14,667 $13,174
<FN>
<F1>* Unaudited
** Condensed from audited financial statements.
See accompanying Notes to Condensed Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
PFIZER INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<CAPTION>
(millions of dollars)
Three Months Ended
March 30, March 31,
1997 1996
Operating Activities
<S> <C> <C>
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . .$ 602 $ 517
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization of intangibles. . . . . . . . . . . 114 101
Changes in operating assets and liabilities,
net of effect of businesses acquired
and divested . . . . . . . . . . . . . . . . . . . . . . . . . . (455) (404)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 7
Net cash provided by operating activities . . . . . . . . . . . . . . 267 221
Investing Activities
Purchases of property, plant and equipment. . . . . . . . . . . . . (211) (135)
Purchases of short-term investments . . . . . . . . . . . . . . . . (559) (715)
Proceeds from redemptions of short-term
investments . . . . . . . . . . . . . . . . . . . . . . . . . . . 400 920
Acquisitions, net of cash acquired. . . . . . . . . . . . . . . . . -- (166)
Proceeds from sale of business. . . . . . . . . . . . . . . . . . . -- 353
Net change in loans and long-term investments
by financial subsidiaries . . . . . . . . . . . . . . . . . . . . (4) (15)
Purchases and redemptions of short-term
investments by financial subsidiaries . . . . . . . . . . . . . . -- 30
Purchases of long-term investments. . . . . . . . . . . . . . . . . (37) (25)
Other investing activities. . . . . . . . . . . . . . . . . . . . . 80 18
Net cash (used in)/provided by investing
activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (331) 265
Financing Activities
Proceeds from issuance of long-term debt. . . . . . . . . . . . . . 54 --
Repayment of long-term debt . . . . . . . . . . . . . . . . . . . . (268) (33)
Increase in short-term debt . . . . . . . . . . . . . . . . . . . . 648 87
Purchases of common stock . . . . . . . . . . . . . . . . . . . . . (120) --
Cash dividends paid . . . . . . . . . . . . . . . . . . . . . . . . (220) (192)
Stock option transactions . . . . . . . . . . . . . . . . . . . . . 60 65
Other financing activities. . . . . . . . . . . . . . . . . . . . . 5 5
Net cash provided by/(used in) financing
activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159 (68)
Effect of exchange rate changes on cash and
cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . (15) (3)
Net increase in cash and cash equivalents . . . . . . . . . . . . . . 80 415
Cash and cash equivalents balance at beginning
of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,150 403
Cash and cash equivalents balance at end
of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$1,230 $ 818
Supplemental Cash Flow Information
Cash paid during the period for:
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . .$ 225 $ 248
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 31
<FN>
<F1>See accompanying Notes to Condensed Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1: Basis of Presentation
The Company prepared the condensed financial statements following the
requirements of the Securities and Exchange Commission for interim
reporting. As permitted under those rules, the Company condensed or
omitted certain footnotes or other financial information that are
normally required by GAAP (generally accepted accounting principles).
The financial statements include the assets and liabilities and the
operating results of subsidiaries operating outside the U.S. Balance
sheet amounts for these subsidiaries are as of February 23, 1997, and
February 25, 1996. The operating results for these subsidiaries are for
the three month periods ending on the same dates.
Note 2: Responsibility for Interim Financial Statements
The Company is responsible for the unaudited financial statements
included in this document. The financial statements include all normal
and recurring adjustments that the Company considers necessary for the
fair presentation of its financial position and operating results. As
these are condensed financial statements, one should also read the
financial statements and notes in the Company's latest Form 10-K.
Revenues, expenses, assets and liabilities can vary during each quarter
of the year. Therefore, the results and trends in these interim
financial statements may not be the same as those for the full year.
Note 3: Earnings Per Share
Earnings per share equals net income divided by the sum of weighted
average shares outstanding plus common stock equivalents. Common stock
equivalents are shares assumed to be issued if outstanding stock options
were exercised. Fully diluted earnings per share amounts were the same
as primary amounts for both periods presented. Exhibit 11 of this
filing illustrates the calculation of earnings per share amounts.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per
Share." The new statement replaces the calculations currently used with
"basic earnings per share" that includes only actual shares outstanding
and "diluted earnings per share" that includes the effect of any common
stock equivalents or other items that dilute earnings per share. The
new rules are effective at the end of 1997. If the new rules were in
effect now, the Company's earnings per share amounts would be as
follows:
First Qtr. First Qtr.
1997 1996
As reported:
Primary and Fully Diluted $.93 $.81
Per SFAS No. 128:
Basic $.96 $.83
Diluted $.93 $.81
<PAGE>
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Note 4: Currency Translation and Other Equity Adjustments
The following items are included in the balance sheet caption "Currency
translation adjustment and other":
<TABLE>
<CAPTION>
(millions of dollars) 1997 1996
<S> <C> <C>
Currency translation adjustment $39 $182
Net unrealized gain on investment securities 42 29
Minimum pension liability (67) (68)
Total $14 $143
</TABLE>
Changes in the currency translation adjustment balance for the first
three months of 1997 and 1996 were:
<TABLE>
<CAPTION>
(millions of dollars) 1997 1996
<S> <C> <C>
Opening balance $174 $207
Translation adjustments and hedges (135) (25)
Ending balance $ 39 $182
</TABLE>
The strengthening of the dollar against various European currencies was
the primary cause of the change in the currency translation adjustment
for the first quarter of 1997.
Note 5: Business Alliances
The Company has entered into agreements related to two new medications
developed by other companies:
-- Lipitor, a cholesterol-lowering medication, developed by the
Parke-Davis division of Warner-Lambert; and
-- Aricept, a medication to treat symptoms of Alzheimer's
disease, developed by the Eisai Co., Ltd.
The Company provides funds, staff and other resources to sell, market,
promote and further develop these medications.
Lipitor was launched in the U.S., the United Kingdom, Germany and Canada
in the first calendar quarter of 1997. Aricept was launched in the U.S.
in the first quarter and in the United Kingdom in April. Both products
will also be sold in other major markets around the world when approved
by the governments in those countries.
In the Statement of Income, "Alliance revenue" reflects amounts earned
by the Company under the copromotion agreements. The Company earns a
portion of their profits based on specified calculations. The amounts
are calculated based on a net sales formula with the net sales, in some
cases, being adjusted for certain specific costs and expenses. Other
expenses associated with the selling, marketing and further development
of these products are reflected in "Selling, informational and
administrative expenses."
The Company is also licensed to sell Lipitor in certain foreign
countries and will record sales in those countries.
<PAGE>
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Note 6: Subsequent Events
On April 24, 1997, the Company's shareholders voted to increase the
number of authorized common shares from 1.5 billion to three billion.
The Board of Directors subsequently approved a two-for-one stock split
in the form of a 100% stock dividend to all shareholders who own shares
on June 2, 1997. The par value will remain at $.05 per share. The
Company will issue the additional shares on June 30.
Common share and per share amounts in the financial statements do not
reflect the impact of the stock split. If restated for the split,
figures in this filing would be as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Weighted average number of common shares
and common share equivalents
outstanding (millions):
As reported 650 641
Split basis 1,299 1,281
Earnings per common share:
As reported $.93 $.81
Split basis $.46 $.40
</TABLE>
Also on April 24, the Company's Board of Directors declared a $.34
dividend payable on June 12 to all shareholders who owned shares on
May 9.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of Pfizer Inc.:
We have reviewed the condensed consolidated balance sheet of Pfizer Inc.
and subsidiary companies as of March 30, 1997 and March 31, 1996, and
the related condensed consolidated statements of income and cash flows
for the three month period then ended. These condensed consolidated
financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical
procedures to financial data and making inquiries of persons responsible
for financial and accounting matters. It is substantially less in scope
than an audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly, we do
not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the condensed consolidated financial statements
referred to above for them to be in conformity with generally accepted
accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of Pfizer Inc. and
subsidiary companies as of December 31, 1996, 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 27, 1997, 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, 1996, is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been
derived.
KPMG Peat Marwick LLP
New York, New York
May 13, 1997
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
Net income for the first quarter of 1997 increased 16% over the first quarter
of 1996. This increase was due to three main factors: higher sales volume, a
proportionately lower cost of sales and a lower effective tax rate.
Components of the Statement of Income follow:
<TABLE>
<CAPTION>
(millions of dollars,
except per share data)
First Quarter
1997 1996 % Change
<S> <C> <C> <C>
Net sales $3,002 $2,682 12
Alliance revenue (1) 0 *
Total revenues 3,001 2,682 12
Cost of sales $ 545 $ 513 6
% of net sales 18.2% 19.1%
Selling, informational
and administrative expenses $1,114 $ 994 12
% of net sales 37.1% 37.1%
Research and development expenses $ 413 $ 366 13
% of net sales 13.8% 13.7%
Other deductions--net $ 67 $ 57 18
% of net sales 2.2% 2.1%
Income before taxes and
minority interests $ 862 $ 752 15
% of net sales 28.7% 28.0%
Taxes on income $ 259 $ 233 11
Effective tax rate 30.0% 31.0%
Minority interests $ 1 $ 2 (50)
Net income $ 602 $ 517 16
% of net sales 20.1% 19.3%
Earnings per common share $ .93 $ .81 15
Cash dividends per common share $ .34 $ .30 13
<FN>
<F1>*Calculation not meaningful.
</FN>
For explanation of percent changes, see discussion beginning on page 11.
</TABLE>
<PAGE>
TOTAL REVENUES
Total revenues include net sales and alliance revenue.
NET SALES
Net sales for the first quarter of 1997 increased by 11.9% over the first
quarter of 1996. The components of the sales increase were as follows:
% Change
from 1996
Volume 12.3
Price 1.4
Currency (1.8)
Total net sales increase 11.9
Wider acceptance of the Company's major products, particularly
pharmaceuticals, caused the volume increase. Increases in net sales by
segment over last year were as follows:
<TABLE>
<CAPTION>
% of % of
Net Net
(millions of dollars) 1997 Sales 1996 Sales % Change
<S> <C> <C> <C> <C> <C>
Health Care:
Pharmaceuticals
U.S. $1,298 43.3 $1,114 41.5 17
International 961 32.0 869 32.4 11
Worldwide 2,259 75.3 1,983 73.9 14
Medical Technology 316 10.5 316 11.8 0
Total Health Care 2,575 85.8 2,299 85.7 12
Animal Health 295 9.8 267 10.0 10
Consumer Health Care 132 4.4 116 4.3 14
Total $3,002 100.0 $2,682 100.0 12
</TABLE>
The following is a discussion of net sales by business segment:
-- Pharmaceuticals
Worldwide pharmaceutical sales by category were as follows:
<TABLE>
<CAPTION>
1997 1996 % Change
<S> <C> <C> <C>
Cardiovascular $ 922 $ 852 8
Infectious Diseases 682 574 19
Central Nervous System 404 329 23
Other 251 228 10
Total $2,259 $1,983 14
</TABLE>
<PAGE>
Sales of the Company's six major products accounted for 78% of
pharmaceutical sales and 59% of total sales. Individual product
sales and a brief discussion of each follow:
<TABLE>
<CAPTION>
First Qtr.
1997 Sales % Change
Product Category (millions) from 1996
<S> <C> <C> <C>
Norvasc Cardiovascular $498 29
Procardia XL Cardiovascular 239 (22)
Cardura Cardiovascular 154 26
Zithromax Infectious Diseases 264 65
Diflucan Infectious Diseases 218 1
Zoloft Central Nervous System 394 24
</TABLE>
- -- Norvasc is a "calcium channel blocker" prescribed as a once-a-day
treatment for angina and hypertension. The product's qualities,
including its effectiveness in treating patients with a high risk of
hypertension and those with other ailments, helped its sales growth. It
is now the largest-selling cardiovascular medication of its type and the
second-largest-selling cardiovascular medication in the world.
- -- Procardia XL is a more mature "calcium channel blocker," also for the
treatment of angina and hypertension. Its sales have declined recently
as the Company focuses its marketing on Norvasc. Despite the decline,
Procardia XL remains the largest-selling cardiovascular medication in
the U.S.
- -- Cardura is an "alpha blocker" prescribed as a once-a-day treatment for
hypertension and for enlarged prostate. Sales have increased as more
physicians recognize the effectiveness of alpha blockers for those
ailments.
- -- Zithromax is a multi-purpose antibiotic whose sales improved greatly
over last year, making it the most-prescribed single-source antibiotic
in the U.S. in the first quarter. The medication is used for a wide
range of ailments for adults and children; it needs to be taken less
often than other antibiotics; and it has relatively few adverse side
effects. In addition to the advantages of the product itself, the heavy
flu season in the U.S. this winter increased demand for this
antibiotic.
Its sales remain strong in France and Germany and in Italy, where it is
the largest-selling oral antibiotic. Sales of the children's version
now rank second in new pediatric prescriptions of U.S. branded oral
antibiotics. Recently approved applications for Zithromax include
treatment of lower-respiratory infections in children; certain sexually
transmitted diseases; an intravenous form for pneumonia; pelvic
inflammations; and certain infections related to HIV. The Company is
also conducting trials for the use of Zithromax to treat infections in
ulcer patients.
- -- Diflucan is the world's best-selling prescription antifungal medicine.
It is prescribed for the treatment of many infections, particularly for
patients with weakened immune systems. The product is also prescribed
to treat yeast infections and the Company filed an application in the
U.S. to allow its use for nail infections as well. Although it is well
regarded and the preferred treatment for a wide range of infections, it
is a relatively mature product in its tenth year on the world market.
This has tempered its sales growth.
- -- Zoloft is one of the leading medications for treatment of depression and
is also prescribed to treat obsessive-compulsive disorders. The major
portion of Zoloft's sales occurred in the U.S. where sales benefited
from wholesaler stocking patterns. The Company also launched the
product in France and Germany in the first quarter, which contributed to
the sales increase over last year. The Company has filed an application
with the FDA to also allow its use for the treatment of panic disorder.
The Company's patent protection for these products extends into the next
century, ranging from 2000 for Cardura to 2007 for Norvasc.
- -- Medical Technology
Sales were even with last year's level despite strong sales of "stents"
(tubes to keep blocked arteries and other passages open), which
increased 32% over last year to $28 million. Several factors offset
this growth, including pricing pressures, competitive pressure on some
product lines and the impact of foreign currency fluctuations. Medical
Technology was formerly named Hospital Products and engages in the same
business as discussed in the Company's 1996 Annual Report.
- -- Animal Health
The growth of Dectomax, sales of other livestock products and the
introduction of Rimadyl caused most of the increase in Animal Health
sales this quarter. The Company launched Dectomax last year in the
U.S., Australia, Japan and other international markets as a treatment
for parasites in livestock. Sales grew 125% over last year, reaching
$27 million in the quarter. In recent years, low U.S. cattle prices and
high feed costs caused producers to reduce purchases of livestock
medicines. The U.S. livestock market is beginning to stabilize in 1997,
which also helped to increase domestic sales over 1996. Rimadyl is a
medication for dogs used in the treatment of arthritis pain and
inflammation. Sales of Rimadyl reached $14 million in the quarter after
its U.S. launch in January 1997.
- -- Consumer Health Care
Acquisitions in 1996 were the primary cause of the sales increase for
Consumer Health Care. In April 1996, the Company acquired Cortizone,
the leading over-the-counter itching treatment in the U.S., and Hemorid,
a hemorrhoid treatment specially designed for women.
Sales in the U.S. increased largely due to pharmaceutical sales growth,
particularly Norvasc, Zithromax and Zoloft, as described above. Although a
majority of the Company's sales are in the U.S., a large portion are in
foreign markets. Net sales by geographic area were as follows:
<PAGE>
<TABLE>
<CAPTION>
(millions of dollars)
First Quarter
% of % of
Net Net
1997 Sales 1996 Sales % Change
<C> <C> <C> <C> <C>
$1,667 55.5 $1,449 54.0 United States 15
699 23.3 650 24.3 Europe 8
390 13.0 376 14.0 Asia 4
179 6.0 153 5.7 Canada/Latin America 17
67 2.2 54 2.0 Africa/Middle East 24
$3,002 100.0 $2,682 100.0 Consolidated 12
</TABLE>
The dollar's strength against foreign currencies decreases total sales
when sales in foreign markets are translated into their dollar
equivalent. For example, international pharmaceutical sales increased
15% excluding the impact of foreign exchange as compared to the 11%
reported. Currency impact was most pronounced in Japan in the first
quarter of 1997 as the value of the dollar strengthened against the
yen. Given the strength of the dollar in the first quarter of 1997
relative to the prior year, foreign exchange, at current exchange
rates, would reduce sales and income growth for the full year by two to
three percentage points.
ALLIANCE REVENUE
"Alliance revenue" reflects the results of business alliances for sales of two
new pharmaceutical products. For further discussion, see Note 5, "Business
Alliances", on page 7.
COSTS AND EXPENSES
Cost of Sales
Cost of sales increased only 6% over last year despite the 12% increase in
sales and reflected increased sales of higher-margin products and more
efficient manufacturing.
Selling, Informational and Administrative Expenses
Selling, informational and administrative expenses increased 12% over the 1996
level, in line with the sales growth. Support of new products was the major
cause of this increase.
Research and Development Expenses
Research and development expenses increased 13% over the prior year period.
Health care R&D expenses, expressed as a percentage of health care net sales,
were 16.6% in 1997 and 15.7% in 1996. The Company plans to spend about $2
billion in 1997 to discover new chemical compounds and advance others in
development. These include the following:
- -- Trovan, a multi-purpose antibiotic in both oral and intravenous forms
(filed with the FDA in December 1996). The Company hopes to launch
this product for a large number of applications in late 1997 or early
1998;
- -- Zeldox, for treatment of psychotic disorders (filed with the FDA in
March 1997);
- -- Viagra, for treatment of impotence (clinical development has been
completed and regulatory filings are being prepared);
- -- dofetilide, for treatment of heart ailments;
- -- Eletriptan, for treatment of migraine headaches;
- -- Droloxifene and TLC-D99 for cancer;
- -- Zopolrestat for nervous system disorders related to diabetes; and
- -- Voriconazole, for treatment of fungal infections.
The Company is also developing new applications or dosage forms for Norvasc,
Zoloft, Cardura, Zithromax and Diflucan.
Other Deductions--Net
The following components were included in "Other deductions -- net" in the
first quarter:
<TABLE>
<CAPTION>
(millions of dollars)
First Quarter 1997 1996
<S> <C> <C>
Interest income $(34) $ (29)
Interest expense 37 38
Amortization of goodwill
and other intangibles 18 14
Foreign exchange losses 6 4
Other, net 40 30
Other deductions--net $ 67 $ 57
</TABLE>
Net interest expense decreased primarily due to a higher average level of
investments. Amortization increased due to 1996 acquisitions.
TAXES ON INCOME
The effective tax rate decreased from 31.0% in 1996 to 30.0%, as projected for
1997. The major cause of the decline was the changing mix of income by
country offset by lower tax benefits from the Company's operations in Puerto
Rico. Tax law changes in 1993 and 1996 are reducing these benefits.
LIQUIDITY AND CAPITAL RESOURCES
Operations in the first quarter of 1997 provided significant positive cash
flows. Operating cash flows, along with commercial paper and other worldwide
credit facilities, provide adequate funds to meet the Company's operating
needs.
During the first quarter of 1997, the Company used working capital provided by
operations and the proceeds from short-term borrowings for short-term
investments, payment of dividends and the investments in property, plant and
equipment. Also, in the first quarter of 1997, the Company repurchased
approximately 1.4 million shares of common stock in the open market at an
average cost of $88 per share.
<PAGE>
The positive performance in the first quarter of 1997 enhanced the Company's
financial strength as indicated by the following measures:
- -- Selected Measures of Liquidity and Capital Resources
<TABLE>
<CAPTION>
March 30, Dec. 31, March 31,
1997 1996 1996
<S> <C> <C> <C>
Working capital (millions of dollars) $ 1,146 $ 828 $ 924
Current ratio 1.20:1 1.15:1 1.17:1
Debt to total capitalization
(percentage)* 32% 30% 33%
Shareholders' equity per
common share** $ 11.38 $ 11.08 $ 9.47
<FN>
<F1> * 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.
</FN>
</TABLE>
- -- Net Financial Asset (Debt) Position
<TABLE>
<CAPTION>
(millions of dollars) March 30, Dec. 31, March 31,
1997 1996 1996
<S> <C> <C> <C>
Financial assets* $3,337 $3,154 $2,596
Short-term borrowings and
long-term debt 3,314 2,922 2,923
Net financial assets (debt) $ 23 $ 232 $ (327)
<FN>
<F1> * Consists of cash and cash equivalents, short-term loans and
investments and long-term loans and investments.
</FN>
</TABLE>
The Company maintains financial flexibility through the use of credit
facilities to complement its operating cash flows to fund investing and
financing activities. The levels of debt and investments will therefore vary
depending on the Company's operating results.
CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS
This report, as with other written reports and oral statements by the Company,
may contain what are called "forward-looking statements". All such statements
are subject to risks and uncertainties. One can identify these statements by
the fact that they do not relate strictly to historic or current facts. The
reader can also identify them by their use of words such as "plans,"
"expects," "will" and other words of similar meaning. These statements are
likely to address:
-- results of the Company's operations, expenses or sales;
-- product approvals or performance;
-- clinical results or product development;
-- sales efforts; and
-- financial results.
Readers must carefully consider any such statement and should understand that
many factors could cause actual results to differ from the Company's forward-
looking statements. These include inaccurate assumptions, many risks and many
uncertainties, including some that are known and some that are not. Such
differences can be material and no forward-looking statement can be
guaranteed.
The Company does not assume the obligation to update any forward-looking
statement. One should carefully evaluate such statements in light of factors
described in the Company's filings with the SEC, especially on Forms 10-K,
10-Q and 8-K (if any). In its Form 10-K filing for the 1996 fiscal year, the
Company listed various important factors that could cause actual results to
differ from expected or historic results. The Company notes these factors for
investors as permitted by the Private Securities Litigation Reform Act of
1995. Readers can find them in Part I of that filing under the heading
"Cautionary Factors That May Affect Future Results." The Company incorporates
that section of that Form 10-K in this filing by reference and investors
should refer to it. One should understand that it is not possible to predict
or identify all such factors. Consequently, the reader should not consider
any such list to be a complete statement of all potential risks or
uncertainties.
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 number of claims filed fixes the fund amount at $90 million. 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 affirmed the denial
and all judgments entered by the District Court, and denied all pending
motions, on December 16, 1996. A motion for a rehearing en banc before the
Sixth Circuit filed by the same appellants was denied. 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, eight 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. A significant portion of such claims has been resolved and the
remainder is involved in pretrial discovery. On April 26, 1996, the trial
court entered an order in at least one working valve lawsuit stating that
implanting an allegedly defective heart valve was not an appropriate trigger
of insurance coverage. A motion to dismiss the Company's coverage claims for
other working valve claims is pending. Even if the Court's prior decision is
applied to all claims alleging anxiety that properly functioning valves might
fracture in the future, it does not deal with fracture claims, which are also
part of the Company's claims, and as to which a further motion by the carriers
is pending. On May 1, 1997, the Company filed a cross-motion concerning the
appropriate trigger of insurance coverage for fracture claims. The Company
filed an interlocutory appeal concerning an important discovery matter for
which the Court of Appeal, Fourth Appellate District, has granted a hearing
and has entered an order staying the pending motions and all other activities
before the trial court, other than discovery.
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, which
was argued February 18, 1997. 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 or have been settled in principle as
of April 26, 1997, is 9,771 asbestos cases against Quigley; 3,880 asbestos
cases against the Company; and 67 talc cases against the Company.
Costs incurred by the Company in defending the asbestos personal injury
claims and the property damage claims, as well as settlements and damage
awards in connection therewith, are largely insured against under policies
issued by several primary insurance carriers and a number of excess carriers.
The Company believes that its costs incurred in defending and ultimately
disposing of the asbestos personal injury claims, whether or not the Future
Claims Settlement is eventually upheld, as well as the property damage claims,
will be largely covered by insurance policies issued by carriers that have
agreed to provide coverage, subject to deductibles, exclusions, retentions and
policy limits. In connection with the Future Claims Settlement, the defendants
commenced a third-party action against their respective excess insurance
carriers that have not agreed to provide coverage seeking a declaratory
judgment that (a) the Future Claims Settlement is fair and reasonable as to
the carriers; (b) the carriers had adequate notice of the Future Claims
Settlement; and (c) the carriers are obligated to provide coverage for
asbestos personal injury claims. Even if the Future Claims Settlement is not
eventually upheld, it is expected that the insurance coverage action against
the insurance carriers that have not agreed to provide coverage for asbestos
personal injury claims will be pursued. Based on the Company's experience in
defending the claims to date and the amount of insurance coverage available,
the Company is of the opinion that the actions should not ultimately have a
material adverse effect on the financial position or the results of operations
of the Company.
The United States Environmental Protection Agency - Region 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 a material adverse effect on the
financial position or the results of operations of the Company.
The Company has been named, together with numerous other 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. On February 3, 1997 a limited consumer class was certified
in the District of Columbia. Consumer class actions filed in Colorado, New
York and Washington have been dismissed; Washington and New York are now on
appeal. The Company was dismissed from a retailer class action in Wisconsin;
now on appeal. Consumer class actions are also pending in Alabama, Arizona,
Florida, Kansas, Maine, Michigan, Minnesota and Tennessee. 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.
On January 15, 1997, an action was filed in Circuit Court, Chambers
County, Alabama, and certified by an ex parte order as a class action,
purportedly on behalf of a class of consumers, variously defined by the laws
or types of laws governing their rights and encompassing residents of up to 47
states. The complaint alleges that the Company's claims for Plax were untrue,
entitling them to a refund of their purchase price for purchases since 1988.
The action was removed to the U.S. District Court for the Northern District of
Alabama, which vacated the class certification order. A motion to remand to
state court is pending. The Company believes the complaint is without merit.
In April 1996, the Company received a Warning Letter from the FDA
relating to the timeliness and completeness of required post marketing reports
for pharmaceutical products. The letter did not raise any safety issue about
Pfizer drugs. The Company has been implementing remedial actions designed to
remedy the issues raised in the letter.
In August 1996, the Company received a Warning Letter from the FDA
relating to certain promotional materials used in the marketing of Zoloft. The
Company has been in communication with the FDA on this matter and the
discussions are proceeding. Two purported consumer class actions involving
Zoloft were filed, in Circuit Court, Dallas County, Texas, on December 3, and
in Superior Court, San Diego County, California, on December 26, 1996. Each
complaint alleges that Pfizer's promotional materials improperly implied that
the FDA had approved Zoloft as safe and effective for certain indications, and
that patients for whom Zoloft was prescribed as a result of the promotion were
entitled to a refund of their purchase price. Both suits were removed to
federal court; but the Texas suit was remanded to state court. A similar
motion by the plaintiffs in the California case is pending. The Company
believes the suits are without merit.
The securities class action commenced July 13, 1990, arising out of
allegations relating to Shiley heart valves, was settled and the settlement
was approved December 13, 1996. No appeals were filed from the order
approving the settlement and the time within which to appeal has expired. The
settlement had no material impact on the Company's financial position or on
the results of its operations. 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, the Company has entered into an agreement 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. A fairness hearing was held on April 11, 1997 and on May 5, 1997 the
court entered an order affirming the settlement.
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. On February 4, 1997, the Company was served with 15 separate
actions in the United States District Court for the District of New Jersey,
brought by some of the same individuals previously identified as members of
the purported class in the Bradshaw action, represented by the same lawyers,
and making the same allegations. The Company believes that most if not all of
these cases are 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 1,600 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. As of the end of the first quarter, all but
approximately 50 of the cases have been voluntarily dismissed with prejudice.
Dismissals have been agreed to, subject to documentation, for all but one of
the remainder.
Between 1994 and 1996, seven class actions alleging various injuries
arising from implantable penile prostheses manufactured by American Medical
Systems (AMS) were filed and ultimately dismissed or discontinued.
Thereafter, in late 1996 and early 1997 over 300 former members of one or more
of the purported classes, represented by some of the same lawyers who filed
the class actions, filed individual suits in Circuit Court in Minneapolis
alleging damages from their use of implantable penile prostheses. The Company
believes that most if not all of these cases 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.
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 - 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
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the first quarter ended
March 30, 1997.
<PAGE>
PFIZER INC. AND SUBSIDIARY COMPANIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
Pfizer Inc.
(Registrant)
Date: May 13, 1997
H. V. Ryan, Vice President; Controller
(Principal Accounting Officer and
Duly Authorized Officer)
<PAGE>
Exhibit 11
<TABLE>
PFIZER INC. AND SUBSIDIARY COMPANIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(millions, except per share data)
(Unaudited)
<CAPTION>
Three Months Ended
March 30, March 31,
1997 1996
Primary:
<S> <C> <C>
Net income $602 $517
Weighted average number of common
shares outstanding 628 621
Common share equivalents (a) 22 20
Weighted average number of common
shares and common share equivalents 650 641
Net income per common share $.93 $.81
Fully Diluted:
Net income $602 $517
Weighted average number of common
shares outstanding 628 621
Common share equivalents and other
dilutive securities 22 20
Weighted average number of common
shares and common share equivalents 650 641
Net income per common share $.93 $.81
<FN>
</F1>(a) Applies to stock option plans.
</FN>
</TABLE>
<PAGE>
Exhibit 12
<TABLE>
PFIZER INC. AND SUBSIDIARY COMPANIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Unaudited)
<CAPTION>
Three
Months
Ended
(millions of dollars, March 30, Year Ended December 31,
except ratios) 1997 1996 1995 1994 1993 1992
<S>
Determination of earnings: <C> <C> <C> <C> <C> <C>
Income from continuing
operations before
provision for taxes on
income, minority
interests and cumulative
effect of accounting
changes $ 862 $2,804 $2,299 $1,830 $835 $1,541
Less:
Minority interests 1 6 7 5 2 3
Undistributed
earnings/(losses) of
unconsolidated
subsidiaries 0 0 0 (1) 1 8
Adjusted income 861 2,798 2,292 1,826 832 1,530
Fixed charges 48 206 232 158 136 130
Total earnings
as defined $ 909 $3,004 $2,524 $1,984 $968 $1,660
Fixed charges and other:
Interest expense (a) $ 37 $ 165 $ 192 $ 127 $107 $ 103
Rents (b) 11 41 40 31 29 27
Fixed charges 48 206 232 158 136 130
Capitalized interest 0 5 13 15 14 12
Total fixed charges $ 48 $ 211 $ 245 $ 173 $150 $ 142
Ratio of earnings to fixed
charges 18.9 14.2 10.3 11.5 6.5 11.7
<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
which the Company believes to be a conservative estimate of an interest
factor in its leases, which are not material.
</FN>
</TABLE>
<PAGE>
Exhibit 15
ACCOUNTANTS' ACKNOWLEDGMENT
Board of Directors
Pfizer Inc.:
We hereby acknowledge the incorporation by reference of our report dated
May 13, 1997, included within the Quarterly Report on Form 10-Q of Pfizer Inc.
for the quarter ended March 30, 1997, in the Prospectus dated December 27,
1972, as supplemented February 6, 1973, of Pfizer Inc., filed under the
Securities Act of 1933 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-8 dated November 18,
1991 (File No. 33-44053), in the Registration Statement on Form S-3 dated May
27, 1993 (File No. 33-49629), in the Registration Statement on Form S-8 dated
May 27, 1993 (File No. 33-49631), in the Registration Statement on Form S-8
dated May 19, 1994 (File No. 33-53713), in the Registration Statement on Form
S-8 dated October 5, 1994 (File No. 33-55771), in the Registration Statement
on Form S-3 dated November 14, 1994 (File No. 33-56435), in the Registration
Statement on Form S-8 dated December 20, 1994 (File No 33-56979), in the
Registration Statement on Form S-4 dated February 14, 1995 (File No. 33-57709)
and in the Registration Statement on Form S-8 dated March 29, 1996 (File No.
33-02061).
Pursuant to Rule 436(c) under the Securities Act of 1933, such report is
not considered a part of a registration statement prepared or certified by an
accountant or a report prepared or certified by an accountant within the
meaning of sections 7 and 11 of the Act.
KPMG Peat Marwick LLP
New York, New York
May 13, 1997
<PAGE>
Exhibit 10
PFIZER INC.
PERFORMANCE-CONTINGENT SHARE AWARD PROGRAM
(As amended January 1, 1997)
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.
DEFINITIONS:
Committee -- the Executive Compensation Committee of the Board of Directors of
the Company.
Company -- Pfizer Inc and its Subsidiary Companies.
Peer Group -- an industry peer index compiled by the Company that currently
consists of the following companies: Abbott Laboratories, 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., Pharmacia & 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.
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.
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, an award letter that
specifies the objective performance goal and the number of Performance-
Contingent Shares solely payable upon the attainment of such goal.
AWARD OF PERFORMANCE-CONTINGENT SHARES: The total number of shares to be
awarded under the Program is limited to 20 million shares. No eligible
employee will be granted Performance-Contingent Shares for more than 200,000
shares of the Company's common stock in any year. In the event of any change
in the number or kind of outstanding shares of Common Stock of the Company by
reason of a recapitalization, merger, consolidation, reorganization,
separation, liquidation, stock split, stock dividend, combination of shares or
any other change in the corporate structure or shares of stock of the Company,
an appropriate adjustment will be made automatically, in accordance with
applicable provisions of the Internal Revenue Code and Treasury Department
rulings and regulations thereunder, in the number and kind of shares available
for, and awarded from, this Program. 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 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.
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. 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, provided , however, in either case,
receipt of awards may be deferred by an employee pursuant to the election form
attached hereto.
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
disinterested directors within the meaning of Rule 16b-3(c)(2)(i) of 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.
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.
AMENDMENT OF PROGRAM: The material provisions of the Program may be amended
only 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.
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 INCOME FOR THE PERIOD ENDED MARCH 30, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-30-1997
<CASH> 1,230
<SECURITIES> 643
<RECEIVABLES> 2,588
<ALLOWANCES> (60)
<INVENTORY> 1,594
<CURRENT-ASSETS> 6,926
<PP&E> 6,023
<DEPRECIATION> (2,175)
<TOTAL-ASSETS> 15,053
<CURRENT-LIABILITIES> 5,780
<BONDS> 732
0
0
<COMMON> 35
<OTHER-SE> 10,242
<TOTAL-LIABILITY-AND-EQUITY> 15,053
<SALES> 3,002
<TOTAL-REVENUES> 3,001
<CGS> 545
<TOTAL-COSTS> 545
<OTHER-EXPENSES> 413
<LOSS-PROVISION> 5
<INTEREST-EXPENSE> 37
<INCOME-PRETAX> 862
<INCOME-TAX> 259
<INCOME-CONTINUING> 602
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 602
<EPS-PRIMARY> .93
<EPS-DILUTED> .93
</TABLE>
