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 29, 1998
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 of incorporation) (I.R.S. Employer
Identification No.)
235 East 42nd Street, New York, New York 10017
(Address of principal executive offices)
(212) 573-2323
(Registrant's telephone number)
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 the registrant was
required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
At April 30, 1998, 1,305,630,767 shares of the issuer's
common stock were outstanding.
<PAGE>
PFIZER INC.
FORM 10-Q
For the Quarter Ended
March 29, 1998
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 29, 1998 and
March 30, 1997 3
Condensed Consolidated Balance Sheet at
March 29, 1998, December 31, 1997 and
March 30, 1997 4
Condensed Consolidated Statement of Cash Flows for
the three months ended March 29, 1998 and
March 30, 1997 5
Notes to Condensed Consolidated Financial Statements 6
Independent Auditors' Report 9
Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II. OTHER INFORMATION
Item 1.
Legal Proceedings 19
Item 4.
Submission of Matters to a Vote of Security Holders 25
Item 6.
Exhibits and Reports on Form 8-K 25<PAGE>
</TABLE>
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 29, March 30,
1998 1997
(millions, except per share data)
<S> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . . $3,189 $3,002
Alliance revenue. . . . . . . . . . . . . . . . . . 150 (1)
Total revenues. . . . . . . . . . . . . . . . . . . 3,339 3,001
Costs and expenses
Cost of sales . . . . . . . . . . . . . . . . . . 545 545
Selling, informational and
administrative expenses. . . . . . . . . . . . . 1,332 1,114
Research and development expenses . . . . . . . . 505 413
Other (income)/deductions--net . . . . . . . . . . (5) 67
Income before provision for taxes
on income and minority interests . . . . . . . . . 962 862
Provision for taxes on income . . . . . . . . . . . 269 259
Minority interests. . . . . . . . . . . . . . . . . 1 1
Net income. . . . . . . . . . . . . . . . . . . . . $ 692 $ 602
Earnings per common share
Basic. . . . . . . . . . . . . . . . . . . . . $ .55 $ .48
Diluted. . . . . . . . . . . . . . . . . . . . $ .53 $ .46
Weighted average shares used
to calculate earnings per common
share amounts
Basic. . . . . . . . . . . . . . . . . . . . . 1,262 1,257
Diluted. . . . . . . . . . . . . . . . . . . . 1,315 1,299
Cash dividends per common share . . . . . . . . . . $ .19 $ .17
<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 29, Dec. 31, March 30,
1998* 1997** 1997*
ASSETS
<S> <C> <C> <C>
Current Assets
Cash and cash equivalents . . . . . . . . . . . . . . . . $ 1,053 $ 877 $ 1,230
Short-term investments. . . . . . . . . . . . . . . . . . 795 712 643
Accounts receivable, less allowances of
$53, $51 and $60. . . . . . . . . . . . . . . . . . . . 2,913 2,527 2,528
Short-term loans. . . . . . . . . . . . . . . . . . . . . 99 115 269
Inventories
Finished goods. . . . . . . . . . . . . . . . . . . . . 712 677 604
Work in process . . . . . . . . . . . . . . . . . . . . 880 852 712
Raw materials and supplies. . . . . . . . . . . . . . . 245 244 278
Total inventories . . . . . . . . . . . . . . . . . . 1,837 1,773 1,594
Prepaid expenses, taxes
and other current assets. . . . . . . . . . . . . . . . 711 816 662
Total current assets. . . . . . . . . . . . . . . . . 7,408 6,820 6,926
Long-term loans and investments . . . . . . . . . . . . . . 1,360 1,340 1,195
Property, plant and equipment, less
accumulated depreciation of
$2,370, $2,321 and $2,175 . . . . . . . . . . . . . . . 4,139 4,137 3,848
Goodwill, less accumulated amortization of
$156, $152 and $121 . . . . . . . . . . . . . . . . . . . 1,270 1,294 1,375
Other assets, deferred taxes and
deferred charges. . . . . . . . . . . . . . . . . . . . . 1,778 1,745 1,709
Total assets. . . . . . . . . . . . . . . . . . . . . $15,955 $15,336 $15,053
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term borrowings, including current
portion of long-term debt of
$4, $6 and $2 . . . . . . . . . . . . . . . . . . . . $ 2,515 $ 2,255 $ 2,582
Accounts payable. . . . . . . . . . . . . . . . . . . . . 724 765 819
Income taxes payable. . . . . . . . . . . . . . . . . . . 717 785 868
Accrued compensation and related items. . . . . . . . . . 428 477 403
Other current liabilities . . . . . . . . . . . . . . . . 1,297 1,023 1,108
Total current liabilities . . . . . . . . . . . . . . 5,681 5,305 5,780
Long-term debt. . . . . . . . . . . . . . . . . . . . . . . 729 729 732
Postretirement benefit obligation other
than pension plans. . . . . . . . . . . . . . . . . . . . 392 394 410
Deferred taxes on income. . . . . . . . . . . . . . . . . . 153 156 294
Other noncurrent liabilities. . . . . . . . . . . . . . . . 811 819 685
Total liabilities . . . . . . . . . . . . . . . . . . 7,766 7,403 7,901
Shareholders' Equity
Preferred stock . . . . . . . . . . . . . . . . . . . . . -- -- --
Common stock. . . . . . . . . . . . . . . . . . . . . . . 70 69 69
Additional paid-in capital. . . . . . . . . . . . . . . . 4,126 3,239 1,809
Retained earnings . . . . . . . . . . . . . . . . . . . . 9,796 9,349 8,399
Accumulated other comprehensive
income/(expense) . . . . . . . . . . . . . . . . . . . . (172) (85) 14
Employee benefit trusts . . . . . . . . . . . . . . . . . (3,445) (2,646) (1,586)
Common stock in treasury, at cost . . . . . . . . . . . . (2,186) (1,993) (1,553)
Total shareholders' equity. . . . . . . . . . . . . . 8,189 7,933 7,152
Total liabilities and
shareholders' equity . . . . . . . . . . . . . . . $15,955 $15,336 $15,053
<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 29, March 30,
1998 1997
Operating Activities
<S> <C> <C>
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 692 $ 602
Adjustments to reconcile net income to
net cash provided by operating activities:
Gain on sale of business. . . . . . . . . . . . . . . . . . . . . (194) --
Depreciation and amortization of intangibles. . . . . . . . . . . 134 114
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 6
Changes in operating assets and liabilities,
net of effect of business divested . . . . . . . . . . . . . . . (531) (455)
Net cash provided by operating activities . . . . . . . . . . . . . . 108 267
Investing Activities
Purchases of property, plant and equipment. . . . . . . . . . . . . (204) (211)
Purchases of short-term investments . . . . . . . . . . . . . . . . (669) (559)
Proceeds from redemptions of short-term
investments . . . . . . . . . . . . . . . . . . . . . . . . . . . 586 400
Purchases of long-term investments. . . . . . . . . . . . . . . . . (17) (37)
Proceeds from sale of business. . . . . . . . . . . . . . . . . . . 425 --
Other investing activities. . . . . . . . . . . . . . . . . . . . . 40 76
Net cash provided by/(used in)
investing activities. . . . . . . . . . . . . . . . . . . . . . . . 161 (331)
Financing Activities
Repayment of long-term debt . . . . . . . . . . . . . . . . . . . . (4) (268)
Increase in short-term debt . . . . . . . . . . . . . . . . . . . . 266 648
Purchases of common stock . . . . . . . . . . . . . . . . . . . . . (201) (120)
Cash dividends paid . . . . . . . . . . . . . . . . . . . . . . . . (245) (220)
Stock option transactions . . . . . . . . . . . . . . . . . . . . . 83 60
Other financing activities. . . . . . . . . . . . . . . . . . . . . 15 59
Net cash (used in)/provided by
financing activities. . . . . . . . . . . . . . . . . . . . . . . . (86) 159
Effect of exchange rate changes on cash and
cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . (7) (15)
Net increase in cash and cash equivalents . . . . . . . . . . . . . . 176 80
Cash and cash equivalents balance at beginning
of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 877 1,150
Cash and cash equivalents balance at end
of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,053 $1,230
Supplemental Cash Flow Information
Cash paid during the period for:
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 360 $ 225
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 44
<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
We prepared the condensed financial statements following the
requirements of the Securities and Exchange Commission (SEC) for interim
reporting. As permitted under those rules, certain footnotes or other
financial information that are normally required by GAAP (generally
accepted accounting principles) can be condensed or omitted.
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 22, 1998 and
February 23, 1997. The operating results for these subsidiaries are for
the three month periods ending on the same dates.
Note 2: Responsibility for Interim Financial Statements
We are responsible for the unaudited financial statements included in
this document. The financial statements include all normal and
recurring adjustments that are considered necessary for the fair
presentation of our financial position and operating results. As these
are condensed financial statements, one should also read the financial
statements and notes in our 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: New Accounting Pronouncements
Effective January 1, 1998, we adopted Statement of Financial Accounting
Standards (SFAS) No. 130, "Reporting Comprehensive Income." This
Statement establishes standards for reporting and display of comprehen-
sive income, which consists of all changes in equity from nonshareholder
sources. Prior year financial statements conform to the requirements of
SFAS No. 130 (see Note 4).
Effective January 1, 1998, we adopted SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information." This Statement
requires us to report information about our operating segments on the
same basis as our internal management reporting. As a result of
adopting SFAS No. 131, we split the previously reported Health Care unit
into two segments, Pharmaceuticals and Medical Technology and combined
Consumer Health Care with Pharmaceuticals.
In February 1998, the Financial Accounting Standards Board issued SFAS
No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits" which becomes effective for our financial statements for the
year ended December 31, 1998. SFAS No. 132 requires revised disclosures
about pension and other postretirement benefit plans.
<PAGE>
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The American Institute of Certified Public Accountants (AICPA) issued
Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" and SOP 98-5,
"Reporting on the Costs of Start-up Activities" which are effective for
our 1999 financial statements. We do not expect the adoption of these
SOPs to have a material impact on our financial statements.
Note 4: Comprehensive Income
Comprehensive income includes net income and other comprehensive income.
Other comprehensive income/(expense) includes foreign currency
translation adjustments, adjustments to our minimum pension liability
and unrealized gains and losses on marketable securities classified as
available-for-sale, which prior to adoption were reported separately in
shareholders' equity. Total comprehensive income was as follows:
<TABLE>
<CAPTION>
Three Months Ended
(millions of dollars) March 29, March 30,
1998 1997
<S> <C> <C>
Net income $ 692 $ 602
Other comprehensive (income)/expense:
Currency translation adjustment (92) (135)
Net unrealized gain on investment securities 5 2
Adjustments to minimum pension liability -- 2
(87) (131)
Total comprehensive income $605 $ 471
</TABLE>
Changes in the currency translation adjustment included in "Accumulated
other comprehensive income/(expense)" in the Condensed Consolidated
Balance Sheet for the first quarter of 1998 and 1997 were:
<TABLE>
<CAPTION>
(millions of dollars) 1998 1997
<S> <C> <C>
Opening balance $ (79) $ 174
Translation adjustments and hedges (92) (135)
Ending balance $(171) $ 39
</TABLE>
<PAGE>
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 5: Stock Split
All common share and per share data for the quarter ended March 30, 1997
have been restated to reflect the two-for-one stock split in the form of
a 100% stock dividend effective June 30, 1997.
Note 6: Business Alliance
We entered into a business alliance with G.D. Searle & Co., the
pharmaceutical division of Monsanto Company. Under the worldwide
agreements, which exclude only Japan, we are working with Searle to
codevelop and copromote Searle's Celebra (celecoxib) which is initially
being developed for the treatment of arthritis and pain. Initial
payments to Searle of $100 million were expensed in the first quarter of
1998 and are included in "Other (income)/deductions--net" in the
Condensed Consolidated Statement of Income.
Note 7: Divestiture and Other
In January 1998, we completed the sale of the Valleylab business--a part
of the Medical Technology Group. Total revenues included $20 million in
the first quarter of 1998 and $40 million in the first quarter of 1997
for the Valleylab business. In connection with this transaction, we
received $425 million and recorded a $194 million gain included in
"Other (income)/deductions--net" in the Condensed Consolidated Statement
of Income.
In February 1998, we announced that we are exploring strategic options
for the Medical Technology Group (MTG). These options include the
divestiture of all or part of the MTG businesses in a public or private
transaction.
<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 29, 1998 and March 30, 1997, and
the related condensed consolidated statements of income and cash flows
for the three 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, 1997, 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 26, 1998, 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, 1997, 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 12, 1998
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS
Net income for the first quarter increased 15% over the comparable 1997
period. This increase was due to a higher sales volume, alliance revenue, a
lower cost of sales--when compared to total revenue--and a lower effective tax
rate. Components of the Statement of Income follow:
<TABLE>
<CAPTION>
(millions of dollars,
except per share data)
First Quarter
1998 1997 % Change
<S> <C> <C> <C>
Net sales $3,189 $3,002 6
Alliance revenue 150 (1) --
Total revenues $3,339 $3,001 11
Cost of sales $ 545 $ 545 0
% of total revenues 16.3% 18.2%
Selling, informational
and administrative
expenses $1,332 $1,114 20
% of total revenues 39.9% 37.1%
R&D expenses $ 505 $ 413 22
% of total revenues 15.1% 13.8%
Other (income)/deductions--net $ (5) $ 67 --
% of total revenues (.1%) 2.2%
Income before taxes $ 962 $ 862 12
% of total revenues 28.8% 28.7%
Taxes on income $ 269 $ 259 4
Effective tax rate 28.0% 30.0%
Net income $ 692 $ 602 15
% of total revenues 20.7% 20.1%
Earnings per common share
Basic $ .55 $ .48 15
Diluted $ .53 $ .46 15
Cash dividends per common share $ .19 $ .17 12
</TABLE>
<PAGE>
TOTAL REVENUES
The components of the total revenue increase were as follows:
<TABLE>
<CAPTION>
% Change from 1997
First Quarter
<S> <C>
Volume 14.3%
Price 1.5
Currency (4.5)
Total revenue increase 11.3%
</TABLE>
Wider acceptance of our major pharmaceutical products contributed to the
volume increases. Total revenues for the first quarter by segment and the
increases over last year were as follows:
<TABLE>
<CAPTION>
% of % of
Total Total
(millions of dollars) 1998 Revenues 1997 Revenues % Change
<S> <C> <C> <C> <C> <C>
Pharmaceuticals
U.S. $1,731 51.8 $1,396 46.5 24
International 1,015 30.4 994 33.2 2
Worldwide 2,746 82.2 2,390 79.7 15
Medical Technology 303 9.1 316 10.5 (4)
Animal Health 290 8.7 295 9.8 (2)
Total $3,339 100.0 $3,001 100.0 11
</TABLE>
The following is a discussion of total revenues by business segment:
Pharmaceuticals
Worldwide pharmaceutical revenues by category were as follows:
<TABLE>
<CAPTION>
First Quarter %
1998 1997* Change**
<S> <C> <C> <C>
Cardiovascular $ 969 $ 922 5
Infectious diseases 757 682 11
Central nervous system 476 404 18
Alliance revenue 150 (1) --
Consumer health care 119 132 (9)
Other 275 251 10
Total $2,746 $2,390 15
<FN>
<F1>* Certain 1997 data have been reclassified to agree to the 1998 presentation.
**Percentages may reflect rounding adjustments.
</FN>
</TABLE>
<PAGE>
Sales of our seven major pharmaceutical products accounted for 73% of
pharmaceutical revenues and 60% of total revenues in the first quarter of
1998. Individual product sales and a brief discussion of each follow:
<TABLE>
<CAPTION>
First Qtr.
1998 Sales % Change
Product Category (millions) from 1997
<S> <C> <C>
Norvasc Cardiovascular $567 14
Procardia XL Cardiovascular 193 (19)
Cardura Cardiovascular 169 10
Zithromax Infectious Diseases 306 16
Diflucan Infectious Diseases 229 5
Zoloft Central Nervous System 460 17
Zyrtec Allergy 82 58
</TABLE>
- -- Norvasc continues to be the largest-selling anti-hypertensive medication
in the world.
- -- Sales of Procardia XL have declined recently primarily as a continued
effect of the increased emphasis on Norvasc.
- -- Cardura's sales have increased as more physicians recognize the
effectiveness of alpha blockers in the treatment of hypertension and
enlarged prostate and due to international product launches. Cardura XL,
a dosage form that uses the GITS delivery system, was launched for
hypertension in Germany in the quarter.
- -- Zithromax is the most prescribed brand-name oral antibiotic in the U.S.
and a leading brand in international markets. The product is primarily
used to treat respiratory-tract infections and is also used for skin
infections in adults, middle ear and strep throat in children and a
broad range of other uses. The Company is conducting clinical programs
to support its ability to seek new approvals for the use of Zithromax in
treating atherosclerosis related to Chlamydia infections.
- -- Diflucan is the world's best-selling prescription antifungal medicine.
Excluding the impact of foreign exchange, sales increased 11% in the
first quarter. Sales growth continues to be impacted by the lower
incidence of fungal infections in AIDS patients.
- -- Zoloft is one of the leading medications for treatment of depression and
is also prescribed to treat obsessive-compulsive disorder and panic
disorder.
- -- Zyrtec, an anti-allergy medication, is the second largest prescription
antihistamine in the U.S., two years after its launch.
In December 1997, we received approval from the FDA to market the new broad
spectrum quinolone antibiotic Trovan. The FDA approved Trovan for 14
indications, the largest number of indications ever included in an initial
drug approval in the U.S. Regulatory review in Europe is advancing. We
started shipping Trovan to customers in January with first quarter sales
reaching $41 million.
In March 1998, we announced that we had received FDA approval for Viagra, the
first effective oral treatment for erectile dysfunction, commonly known as
impotence. There were no Viagra sales in the first quarter. Shipments of the
product began in early April and it is now available in many U.S. pharmacies.
Viagra has been filed with regulatory authorities in Europe and other parts of
the world.
"Alliance revenue" reflects contractual revenues to Pfizer from sales of two
pharmaceutical products, Lipitor and Aricept. Alliance revenue declined in
the first quarter of 1998 versus the fourth quarter of 1997, primarily because
of changes in U.S. wholesaler stocking patterns for Lipitor.
Product launches of Lipitor, the cholesterol-lowering medication, have taken
place in 22 countries, including the U.S., the United Kingdom, Germany, Italy,
Canada, Spain, Australia and Brazil and generated strong sales results in the
first quarter.
Product launches of Aricept have taken place in 15 countries, including the
U.S., the United Kingdom, Canada, Germany, Italy, Spain and France. Worldwide
sales of Aricept totaled $78 million in the first quarter of 1998. These
sales are primarily recorded by Eisai Co., Ltd., the company that discovered
and developed the compound. Overall prescriptions for the treatment of
Alzheimer's disease have increased substantially in the U.S. since the
introduction of Aricept. Aricept has become the leading U.S. medication to
treat symptoms of this disease.
We entered into a business alliance with G.D. Searle Co., the pharmaceutical
division of Monsanto Company. Under the worldwide agreements, which exclude
only Japan, we are working with Searle to codevelop and copromote Searle's
Celebra (celecoxib) which is initially being developed for the treatment of
arthritis and pain. Searle has said it plans to file a New Drug Application
(NDA) for Celebra with the FDA and international regulatory officials during
the third quarter of this year. Initial payments to Searle of $100 million
were expensed in the first quarter of 1998 and are included in "Other
(income)/deductions--net" in the Condensed Consolidated Statement of Income.
Consumer health care's sales for the first quarter declined 9%, reflecting in
part reduced trade inventories in the U.S.
Medical Technology
First quarter sales decreased 4% from last year's level. Excluding sales of
the divested Valleylab and Strato/Infusaid businesses, sales increased by 4%
(9% excluding the impact of foreign exchange). Sales of "peripheral and
coronary stents" (tubes to keep blocked arteries and other hollow passageways
open) increased 10% in the quarter to $31 million. Sales of musculoskeletal
products increased 4% in the first quarter to $191 million. Angioplasty
product sales grew 8% to $27 million. Sales of urological products declined
6% to $18 million as a result of the impact of the competitive pressures from
less invasive therapies.
Animal Health
Animal Health sales for the first quarter decreased 2%. Excluding the impact
of foreign exchange, sales increased 4%. Sales of Dectomax grew 21% over last
year, reaching $32 million in the quarter. Rimadyl, a new non-steroidal anti-
inflammatory medicine for arthritis in dogs launched in the first quarter of
1997 reported first quarter sales of $16 million.
<PAGE>
Revenues by Geographic Area
Total revenues in the U.S. increased largely due to pharmaceutical sales
growth, particularly Norvasc, Cardura, Zithromax and Zoloft, as described
above, as well as alliance revenue. Total revenues by geographic area were as
follows:
<TABLE>
<CAPTION>
(millions of dollars)
First Quarter
% of % of
Total Total
1998 Revenues 1997 Revenues % Change
<C> <C> <C> <C> <S> <C>
$2,005 60.0 $1,670 55.7 United States 20
259 7.8 254 8.4 Japan 2
1,075 32.2 1,077 35.9 All Other 0
$3,339 100.0 $3,001 100.0 Consolidated 11
</TABLE>
Exchange rates affect the revenues we record in foreign markets. The
U.S. dollar's strength against foreign currencies decreases total
revenues when they are translated into their U.S. dollar equivalent.
For example, international pharmaceutical revenues increased 13% in the
first quarter excluding the impact of foreign exchange as compared with
2% reported. Currency impact was most pronounced in Japan, Germany,
France and Italy as the value of the U.S. dollar strengthened relative
to the prior year.
The Japanese yen has weakened substantially year-over-year versus the
U.S. dollar, and declines in the values of various Southeast Asian
currencies relative to the dollar added to this adverse effect. At the
same time, unit volume growth in Japan has been strong, with both full-
year 1997 and first quarter 1998 volume revenue growth of greater than
10%, excluding foreign exchange. Revenues from the other Asian markets
impacted by declining currency values are a relatively small component
of total company revenues. The Asian countries most impacted by recent
economic events--Korea, Indonesia, Thailand, Malaysia, Philippines, and
Taiwan--combine to account for approximately 1% of total company
revenues.
COSTS AND EXPENSES
Cost of Sales
Cost of sales for the quarter declined as a percentage of net sales due to a
favorable product mix and benefits from more efficient manufacturing.
Selling, Informational and Administrative Expenses
Selling, informational and administrative expenses in the first quarter
increased 20% over the 1997 level. Support for previously introduced products
and launches of new products led to the increase. This support includes
substantial global investments in our pharmaceutical sales infrastructure and
personnel, such as the creation of a new U.S. primary-care sales force, an
increase in the size of U.S. specialist sales forces and personnel increases
in key international markets.
<PAGE>
Research and Development Expenses
Research and development expenses increased 22% in the first quarter over the
prior year period. In the first quarter, Pharmaceutical R&D expenses,
expressed as a percentage of Pharmaceutical net sales, were 17.2% in 1998 and
17.0% in 1997. We expect total spending to be more than $2 billion in 1998 to
discover new chemical compounds and advance others in development which
include:
- -- Zeldox (ziprasidone), for treatment of psychotic disorders (filed an NDA
with the FDA in March 1997). In January 1998, we made supplemental
submissions to the FDA resulting in a 90-day extension of the NDA review
period. We hope to launch Zeldox in the second half of 1998.
- -- Tikosyn (dofetilide), for treatment of a heart rhythm disorder. U.S.
and European regulatory filings for this product were submitted in the
first quarter of 1998;
- -- eletriptan, for treatment of migraine headaches. Regulatory filings for
this product are planned in September of 1998;
- -- Alond (zopolrestat), for treatment of nervous system, kidney and
cardiovascular disorders related to diabetes;
- -- voriconazole, for the treatment of fungal infections; and
- -- darifenacin, for the treatment of irritable bowel syndrome and urinary
urge incontinence.
We are also developing new uses or dosages for Norvasc, Zyrtec, Zoloft,
Cardura, Zithromax and Trovan.
Other (income)/deductions--net
The following components were included in "Other (income)/deductions--net" in
the first quarters of 1998 and 1997.
<TABLE>
<CAPTION>
(millions of dollars) First Quarter %
1998 1997 Change
<S> <C> <C> <C>
Interest income $(36) $(34) 6
Interest expense 27 37 (27)
Gain on sale of Valleylab (194) -- --
Copromotion payments to Searle 100 -- --
Amortization of goodwill
and other intangibles 16 18 (11)
Foreign exchange (5) 6 --
Other, net 87 40 118
Other (income)/deductions--net $ (5) $ 67 --
</TABLE>
TAXES ON INCOME
The first quarter 1998 effective tax rate of 28% is lower than that used in
the comparable quarter of 1997 (30%) because of rate reductions made later in
1997 largely due to changes in the mix of income by country.
<PAGE>
INCOME BEFORE TAXES
Income before taxes increased 12% in the first quarter of 1998. Excluding the
divested Medical Technology businesses of Valleylab and Strato/Infusaid, the
gain on the sale of Valleylab and the copromotion payments to Searle, income
before taxes would have increased 1%.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The net financial asset position was as follows:
<TABLE>
<CAPTION>
(millions of dollars) March 29, Dec. 31, March 30,
1998 1997 1997
<S> <C> <C> <C>
Financial assets* $3,307 $3,044 $3,337
Short-term borrowings and
long-term debt 3,244 2,984 3,314
Net financial assets $ 63 $ 60 $ 23
<FN>
<F1> * Consists of cash and cash equivalents, short-term investments and
loans and long-term loans and investments.
</FN>
</TABLE>
To fund investing and financing activities, commercial paper and short-term
borrowings are used to complement operating cash flows. In maintaining this
financial flexibility, levels of debt and investments will vary depending on
operating results.
Selected measures of our financial strength are as follows:
<TABLE>
<CAPTION>
March 29, Dec. 31, March 30,
1998 1997 1997
<S> <C> <C> <C>
Working capital (millions of dollars) $ 1,727 $ 1,515 $ 1,146
Current ratio 1.30:1 1.29:1 1.20:1
Debt to total capitalization
(percentage)* 28% 27% 32%
Shareholders' equity per
common share** $ 6.49 $ 6.30 $ 5.69
<FN>
<F1> * Represents total short-term borrowings and long-term debt divided by
the sum of total short-term borrowings, long-term debt and total
shareholders' equity.
** Represents total shareholders' equity divided by the actual number of
common shares outstanding.
</FN>
</TABLE>
The increase in working capital from March 30, 1997 to March 29, 1998 was
primarily due to alliance revenue receivables and higher receivable and
inventory levels related to new products. The increase from December 31, 1997
was due to higher receivables including those for new products.
<PAGE>
Net Cash Provided by Operating Activities
During the first quarter of 1998, operating activities provided net cash of
$108 million, a decrease of $159 million from the 1997 period. The change was
primarily due to $100 million in copromotion payments to Searle and increases
in accounts receivable and inventories.
Net Cash Provided By/Used in Investing Activities
In the first quarter of 1998, investing activities provided net cash of $161
million, an increase of $492 million over the 1997 period. This change was
primarily attributable to proceeds from the sale of the Valleylab business.
Net Cash Used in/Provided by Financing Activities
In the first quarter of 1998, net cash used in financing activities was $86
million, an increase of $245 million over the 1997 period. We received less
cash from net borrowings, repurchased more common stock and paid higher cash
dividends in the first quarter of 1998. We repurchased approximately 2.3
million shares of common stock on the open market at an average price of about
$87 per share. Dividends paid increased due to the increase in the dividend
rate approved earlier this year.
<PAGE>
CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS
Our disclosure and analysis in this report contain some "forward-looking
statements". Forward-looking statements give our current expectations or
forecasts of future events. You can identify these statements by the fact
that they do not relate strictly to historic or current facts. They use words
such as "anticipate," "estimate," "expect," "project," "intend," "plan,"
"believe," and other words and terms of similar meaning in connection with any
discussion of future operating or financial performance. In particular, these
include statements relating to future actions, prospective products or product
approvals, future performance or results of current and anticipated products,
sales efforts, expenses, the outcome of contingencies, such as legal
proceedings, and financial results. From time to time, we also may provide
oral or written forward-looking statements in other materials we release to
the public. Any or all of our forward-looking statements in this report and
in any other public statements we make may turn out to be wrong. They can be
affected by inaccurate assumptions we might make or by known or unknown risks
and uncertainties. Consequently, no forward-looking statement can be
guaranteed. Actual results may vary materially.
We undertake no obligation to publicly update any forward-looking statements,
whether as a result of new information, future events or otherwise. You are
advised, however, to consult any further disclosures we make on related
subjects in our 10-Q, 8-K and 10-K reports to the SEC. Our Form 10-K filing
for the 1997 fiscal year listed various important factors that could cause
actual results to differ materially from expected and historic results. We
note 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." We
incorporate that section of that Form 10-K in this filing and investors should
refer to it. You should understand that it is not possible to predict or
identify all such factors. Consequently, you should not consider any such
list to be a complete set of all potential risks or uncertainties. In
addition, note that our company announced in February 1998 that it is
exploring strategic options for its Medical Technology Group businesses,
including the possible divestiture of all or part of those businesses in a
public or private transaction. Depending on the strategic options chosen, the
revenues, assets and income of our company could be affected.
<PAGE>
FORM 10-Q
PART II - OTHER INFORMATION
Item 1: Legal Proceedings
The Company is involved in a number of claims and litigations, including
product liability claims and litigations considered normal in the nature of
its businesses. These include suits involving various pharmaceutical and
hospital products that allege either reaction to or injury from use of the
product. In addition, from time to time the Company is involved in, or is the
subject of, various governmental or agency inquiries or investigations
relating to its businesses.
On June 9, 1997, the Company received notice of the filing of an
Abbreviated New Drug Application (ANDA) by Mylan Pharmaceuticals for a
sustained release nifedipine product asserted to be bioequivalent to Procardia
XL. Mylan's notice asserted that the proposed formulation does not infringe
relevant licensed Alza and Bayer patents and thus that approval of their ANDA
should be granted before patent expiration. On July 18, 1997, the Company,
together with Bayer AG and Bayer Corporation, filed a patent infringement suit
against Mylan Pharmaceuticals Inc. and Mylan Laboratories Inc. in the United
States District Court for the Western District of Pennsylvania with respect to
Mylan's ANDA. Suit was filed under Bayer AG's U.S. Patent No. 5,264,446,
licensed to the Company, relating to nifedipine of a specified particle size
range. Mylan has filed its answer denying infringement and a scheduling order
has been entered. Discovery is in progress. On or about February 23, 1998,
Bayer AG received notice that Biovail Laboratories Incorporated had filed an
ANDA for a sustained release nifedipine product asserted to be bioequivalent
to one dosage strength (60 mg) of Procardia XL. The notice was subsequently
received by the Company as well. The notice asserts that the Biovail product
does not infringe Bayer's U.S. Patent No. 5,264,446. On March 26, 1998 the
Company received notice of the filing of an ANDA by Biovail Laboratory of a 30
mg dosage formulation of nifedipine alleged to be bioequivalent to Procardia
XL. That notice is under review. On April 2, 1998 Bayer and Pfizer filed a
patent infringement action against Biovail, relating to their 60 mg nifedipine
product, in the United States District Court for the District of Puerto Rico.
On April 24 Biovail Laboratories Inc. brought suit in the United States
District Court for the Western District of Pennsylvania against the Company
and Bayer seeking a declaratory judgment of invalidity of and/or non-
infringement of the 5,264,446 nifedipine patent as well as a finding of
violation of the antitrust laws. The complaint is under review. On April 2,
1998 the Company received notice from Lek U.S.A Inc. of its filing of an ANDA
for a 60 mg formulation of nifedipine alleged to be bioequivalent to Procardia
XL. That notice is under review.
Pfizer filed suit on July 8, 1997, against the FDA in the United States
District Court for the District of Columbia, seeking a declaratory judgment
and injunctive relief enjoining the FDA from processing Mylan's ANDA or any
other ANDA submission referencing Procardia XL that uses a different extended
release mechanism. Pfizer's suit alleges that extended release mechanisms that
are not identical to the osmotic pump mechanism of Procardia XL constitute
different dosage forms requiring the filing and approval of suitability
petitions under the Food Drug and Cosmetics Act before the FDA can accept an
ANDA for filing. Mylan intervened in Pfizer's suit. On March 31, 1998 the
U.S. District Judge granted the government's motion for summary judgment
against the Company. Pfizer has appealed that decision to the D.C. Court of
Appeals.
<PAGE>
As previously disclosed, a number of lawsuits and claims have been
brought against the Company and Shiley Incorporated, a wholly owned
subsidiary, alleging either personal injury from fracture of 60 degrees or 70
degrees 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 established a worldwide settlement class of people with C/C heart valves
and their spouses, except those who elect to exclude themselves. The
settlement provided for a Consultation Fund of $90 million, which was fixed by
the number of claims filed, from which valve recipients are receiving 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 established 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 and all appeals have been exhausted.
Generally, the plaintiffs in all of the pending heart valve litigations
seek money damages. Based on the experience of the Company in defending these
claims to date, including insurance proceeds 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. Litigation
involving insurance coverage for the Company's heart valve liabilities has
been resolved.
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.
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.
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. 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
District Court determined that the Future Claims Settlement was fair and
reasonable. Subsequently, the United States Court of Appeals for the Third
Circuit reversed the order of the District Court and on June 27, 1997, the
U.S. Supreme Court affirmed the Third Circuit's order and decertified the
class. The overturning of the settlement 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 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. As of April 26, 1998, there were 60,757 personal injury claims
pending against Quigley (excluding those which are inactive or have been
settled in principle), 26,583 such claims against the Company, and 68 talc
cases against the Company.
The Company believes that its costs incurred in defending and ultimately
disposing of the asbestos personal injury claims, as well as the property
damage and talc claims, will be largely covered by insurance policies issued
by several primary insurance carriers and a number of excess carriers that
have agreed to provide coverage, subject to deductibles, exclusions,
retentions and policy limits. Litigation is pending against several excess
insurance carriers seeking damages and/or declaratory relief to secure their
coverage obligations. 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 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. On August 15, 1997, the
Court of Appeals (1) reversed the denial of summary judgment for the
manufacturers excluding purchases by other than direct purchasers; (2)
reversed the grant of summary judgment dismissing the wholesalers; and (3)
took action regarding Alabama state cases, and DuPont Merck. The District
Court has now set a trial date of September 1998 for the trial of the class
case against the non-settlers, and has permitted the opt-out plaintiffs to add
the wholesalers as named defendants in their cases.
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. Appeals from this decision were
dismissed by the U.S. Court of Appeals for the Seventh Circuit in May 1997.
Retail pharmacy cases have also been filed in state courts in Alabama,
California, Minnesota, Mississippi and Wisconsin. Pharmacy classes have been
certified in California. The Company's motion to dismiss was granted in the
Wisconsin case, and that dismissal is under appeal.
Consumer class actions have been filed in Alabama, Arizona, California,
the District of Columbia, Florida, Kansas, Maine, Michigan, Minnesota, New
York, North Carolina, Tennessee, Washington and Wisconsin alleging injury to
consumers from the failure to give discounts to retail pharmacy companies. The
New York and Washington state cases were dismissed, and an appeal is pending
in New York. A case filed in Colorado state court was dismissed without
appeal. A consumer class has been certified in California, and a limited
consumer class has been certified in the District of Columbia. Class
certification was denied in the Michigan state case, and plaintiffs'
subsequent petition for review was denied. Class certification also was denied
in the Maine case.
The Company believes that these brand name prescription drug antitrust
cases, which generally seek damages and certain injunctive relief, are without
merit.
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. A second subpoena was issued
to the Company for documents in May 1997 and the Company has responded. This
investigation continues.
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, 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. A hearing on Plaintiff's motion to certify the class is
currently scheduled for June 2, 1998. 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. During 1997, the Company met with the
FDA to apprise them of the scope and status of these activities.
In July 1997, the Company resolved all issues with the FDA related to an
August 1996 Warning Letter from the FDA relating to certain promotional
materials used in the marketing of Zoloft. Of these consumer class actions
originally filed in 1996 and 1997 (in San Diego and in Dallas and Brownsville,
Texas), only the Brownsville case in Federal Court is being pursued. The
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. The Company believes the suit is
without merit.
A number of cases against Howmedica Inc. (some of which also name the
Company) allege that P.C.A. one-piece acetabular hip prostheses sold from 1983
through 1990 were defectively designed and manufactured and pose undisclosed
risks to implantees. The Company believes that most if not all of these cases
are without merit.
Between 1994 and 1996, seven class actions alleging various injuries
arising from implantable penile prostheses manufactured by American Medical
Systems were filed and ultimately dismissed or discontinued. Thereafter, in
late 1996 and 1997, approximately 600 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 through 1992.
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 our non-Belgian subsidiaries
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 without merit.
<PAGE>
The Company believes that its accrued tax liabilities are adequate for
all years after 1992.
Item 4: Submission of Matters to a Vote of Security Holders
The shareholders of the Company voted on two items at the Annual Meeting
of Shareholders held on April 23, 1998:
1. the election of five directors, to terms ending in 2001; and
2. a proposal to approve the appointment of KPMG Peat Marwick LLP a
independent auditors for 1998.
Votes were cast for election of directors as follows:
<TABLE>
<CAPTION>
Nominee Votes For Votes Withheld
<S> <C> <C>
W. Don Cornwell 1,098,238,894 14,448,393
Henry A. McKinnell 1,098,942,665 13,744,622
Dana G. Mead 1,098,483,897 14,203,390
Ruth J. Simmons 1,098,014,337 14,672,950
William C. Steere, Jr. 1,099,040,067 13,647,220
</TABLE>
The appointment of KPMG Peat Marwick LLP as auditors for 1998 was
approved as follows:
--- 1,106,787,935 votes for approval
--- 2,165,821 votes against; and
--- 3,733,531 abstentions
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
1) Exhibit 15 - Accountants' Acknowledgment
2) Exhibit 27 - Financial Data Schedule
3) Exhibit 27.1 - Financial Data Schedule restated for
period ended March 30, 1997
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the first quarter ended
March 29, 1998.
<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 12, 1998
H. V. Ryan, Vice President; Controller
(Principal Accounting Officer and
Duly Authorized Officer)
<PAGE>
Exhibit 15
ACCOUNTANTS' ACKNOWLEDGMENT
To the Shareholders and Board of Directors of Pfizer Inc.:
We hereby acknowledge the incorporation by reference of our report dated
May 12, 1998, included within the Quarterly Report on Form 10Q of Pfizer Inc.
for the quarter ended March 29, 1998, in the following Registration
Statements:
- - Form S-15 dated December 13, 1982 (File No. 2-80884),
- - Form S-8 dated October 27, 1983 (File No. 2-87473),
- - Form S-8 dated March 22, 1990 (File No. 33-34139),
- - Form S-8 dated January 24, 1991 (File No. 33-38708),
- - Form S-8 dated November 18, 1991 (File No. 33-44053),
- - Form S-3 dated May 27, 1993 (File No. 33-49629),
- - Form S-8 dated May 27, 1993 (File No. 33-49631),
- - Form S-8 dated May 19, 1994 (File No. 33-53713),
- - Form S-8 dated October 5, 1994 (File No. 33-55771),
- - Form S-3 dated November 14, 1994 (File No. 33-56435),
- - Form S-8 dated December 20, 1994 (File No. 33-56979),
- - Form S-4 dated February 14, 1995 (File No. 33-57709),
- - Form S-8 dated March 29, 1996 (File No. 33-02061),
- - Form S-8 dated September 25, 1997 (File No. 333-36371), and
- - Form S-8 dated April 23, 1998 (File No. 333-50899).
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 12, 1998
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PFIZER INC.
AND SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED BALANCE SHEET AND CONDENSED
STATEMENT OF INCOME FOR THE PERIOD ENDED MARCH 29, 1998 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-31-1998
<PERIOD-END> MAR-29-1998
<CASH> 1,053
<SECURITIES> 795
<RECEIVABLES> 2,966
<ALLOWANCES> (53)
<INVENTORY> 1,837
<CURRENT-ASSETS> 7,408
<PP&E> 6,509
<DEPRECIATION> (2,370)
<TOTAL-ASSETS> 15,955
<CURRENT-LIABILITIES> 5,681
<BONDS> 729
0
0
<COMMON> 70
<OTHER-SE> 13,922
<TOTAL-LIABILITY-AND-EQUITY> 15,955
<SALES> 3,189
<TOTAL-REVENUES> 3,339
<CGS> 545
<TOTAL-COSTS> 545
<OTHER-EXPENSES> 505
<LOSS-PROVISION> 6
<INTEREST-EXPENSE> 27
<INCOME-PRETAX> 962
<INCOME-TAX> 269
<INCOME-CONTINUING> 692
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 692
<EPS-PRIMARY> .55
<EPS-DILUTED> .53
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS RESTATED 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 RESTATED AS
DESCRIBED IN FOOTNOTE 1 BELOW.
</LEGEND>
<RESTATED>
<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> 69<F1>
<OTHER-SE> 10,208<F1>
<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> .48<F1>
<EPS-DILUTED> .46<F1>
<FN>
<F1>Restated to reflect the June 1997 two-for-one stock split in the form of
a 100 percent stock dividend and to reflect in the per share data the
adoption in 1997 of Statement of Financial Accounting Standards ("SFAS")
No. 128 "Earnings per common share." Prior period interim financial data
schedules for periods other than the 3 month period ended March 30, 1997
have not been restated to reflect the two-for-one stock split and the adoption
of SFAS No. 128.
</FN>
</TABLE>
