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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10 - K
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(MARK ONE)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
| | 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 Number)
235 East 42nd Street
New York, New York 10017-5755
(Address of principal executive offices) (Zip Code)
(212) 573-2323
(REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE
ON WHICH REGISTERED
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Common Stock, $.05 par value New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
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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 | |
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in the definitive proxy or information
statement incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. | |
The aggregate market value of the voting stock held by non-affiliates
of the registrant computed by reference to the closing price at which the stock
was sold as of February 26, 1999 was approximately $165.8 billion.
The number of shares outstanding (voting) of each of the registrant's
classes of common stock as of February 26, 1999 was 1,293,175,162 shares of
common stock, all of one class.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1998 Annual Report to Shareholders Parts I, II and IV
Portions of the Proxy Statement for the 1999 Annual Meeting of Shareholders
Parts I, III, and IV
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TABLE OF CONTENTS
PAGE
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PART I............................................................................................................1
ITEM 1. BUSINESS.................................................................................................1
General........................................................................................................1
Recent Development.............................................................................................1
Business Segments..............................................................................................1
Pharmaceutical Segment......................................................................................1
Animal Health Segment.......................................................................................3
Research and Product Development...............................................................................4
International Operations.......................................................................................5
Marketing......................................................................................................5
Patents and Intellectual Property Rights.......................................................................6
Competition....................................................................................................7
Raw Materials.................................................................................................10
Government Regulation and Price Constraints...................................................................10
Environmental Law Compliance..................................................................................11
Year 2000 Computer Systems Compliance.........................................................................11
Corporate/Financial Subsidiaries..............................................................................13
Tax Matters...................................................................................................13
Employees.....................................................................................................13
Cautionary Factors That May Affect Future Results.............................................................13
ITEM 2. PROPERTIES..............................................................................................17
ITEM 3. LEGAL PROCEEDINGS.......................................................................................19
ITEM 4. SUBMISSION OF MATTERS TO A VOTE.........................................................................25
EXECUTIVE OFFICERS OF THE COMPANY.......................................................................26
PART II..........................................................................................................29
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS..................................29
ITEM 6. SELECTED FINANCIAL DATA.................................................................................29
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................30
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.............................................30
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.............................................................30
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE....................30
PART III.........................................................................................................30
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY........................................................30
ITEM 11. EXECUTIVE COMPENSATION.................................................................................30
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.........................................30
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.........................................................30
PART IV..........................................................................................................31
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.......................................31
14(a)(1) Financial Statements................................................................................31
14(a)(2) Financial Statement Schedules.......................................................................31
14(a)(3) Exhibits............................................................................................31
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PART I
ITEM 1. BUSINESS
GENERAL
Pfizer Inc. (the COMPANY, which may be referred to as WE, US, or OUR) is a
research-based, global pharmaceutical company. We discover, develop, manufacture
and market innovative medicines for humans and animals.
Our home page on the Internet is at www.pfizer.com. You can learn about us
by visiting that site.
RECENT DEVELOPMENT
In 1998, we exited the medical device business with the sale of our
remaining Medical Technology Group businesses:
o Valleylab to U.S. Surgical Corporation
o Schneider to Boston Scientific Corporation
o American Medical Systems to E.M. Warburg, Pincus & Co., LLC
o Howmedica to Stryker Corporation
Refer to Note 2 to our financial statements, DISCONTINUED OPERATIONS,
on page 45 in our 1998 Annual Report, which is incorporated by reference.
NOTE THAT THROUGHOUT THIS 10-K REPORT, WE "INCORPORATE BY REFERENCE"
CERTAIN INFORMATION IN PARTS OF OTHER DOCUMENTS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION (SEC). THE SEC ALLOWS US TO DISCLOSE IMPORTANT INFORMATION
BY REFERRING TO IT IN THAT MANNER. PLEASE REFER TO SUCH INFORMATION.
BUSINESS SEGMENTS
We operate in two business segments:
o PHARMACEUTICAL, which includes prescription pharmaceuticals for treating
cardiovascular diseases, infectious diseases, central nervous system
disorders, diabetes, erectile dysfunction, allergies, arthritis and other
disorders, as well as non-prescription self-medications, and;
o ANIMAL HEALTH, which includes antiparasitic, anti-infective and
anti-inflammatory medicines, and vaccines for livestock, poultry and
companion animals.
These businesses derive synergies in certain research and regulatory
matters, but each requires different marketing and distribution strategies.
Comparative segment revenues, profits and related financial information for
1998, 1997 and 1996 are given in the table entitled SEGMENT INFORMATION on page
60 of our 1998 Annual Report. A table captioned PERCENTAGE CHANGE IN TOTAL
REVENUES and a graph captioned TOTAL REVENUES BY BUSINESS SEGMENT on pages 28
and 29 of the Annual Report give segment information over the past three years.
The information from those sections of the Annual Report is considered to be
incorporated in this 1998 10-K report.
Our businesses are heavily regulated in most of the countries where we
operate. In the U.S., the main regulatory authority we deal with is the Food and
Drug Administration (FDA). The FDA regulates the safety and efficacy of the
products we offer, our research quality, our manufacturing processes and our
promotion and advertising. Similar government authorities act in most other
countries, and in many cases also regulate our prices. See GOVERNMENT REGULATION
AND PRICE CONSTRAINTS, below.
PHARMACEUTICAL SEGMENT
Our Pharmaceutical segment is comprised of the Pfizer Pharmaceuticals Group
and the Consumer Health Care Group.
PFIZER PHARMACEUTICALS GROUP
In 1997, we combined our U.S. and international pharmaceutical operations
into a consolidated Pfizer Pharmaceuticals Group.
Most of our pharmaceutical sales come from products in three major
therapeutic classes: cardiovascular diseases, infectious diseases and central
nervous system disorders. We also have products for treatment of diabetes,
erectile
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dysfunction, allergies and arthritis. In 1998, prescription pharmaceuticals
contributed 87% of our revenues, as compared to 84% in 1997 and 83% in 1996.
1998 sales of our major pharmaceutical products - NORVASC, PROCARDIA XL,
CARDURA, ZITHROMAX, DIFLUCAN, TROVAN, ZOLOFT, VIAGRA, GLUCOTROL XL and ZYRTEC -
comprised 69% of our revenues. A table captioned NET SALES - MAJOR
PHARMACEUTICAL PRODUCTS on page 29 of the Annual Report is incorporated by
reference.
Cardiovascular disease products that treat problems affecting the heart and
the blood circulatory system are our largest therapeutic product line,
accounting for roughly 31% of our revenues. NORVASC, our largest-selling
product, is a once-a-day medication for hypertension (high blood pressure) and
angina (heart pain). It belongs to the class of drugs known as CALCIUM CHANNEL
BLOCKERS. It is the largest-selling high blood pressure medicine in the world.
Our other cardiovascular products include PROCARDIA XL, also a once-a-day
calcium channel blocker for hypertension and angina, and CARDURA, which is in
the ALPHA BLOCKER class of medications, and is used to treat hypertension and
benign prostatic hyperplasia (enlarged prostate gland). Sales of PROCARDIA XL
continued to decrease during 1998, in part due to the medical community's
increased emphasis on NORVASC.
We participated in the 1997 launch of LIPITOR, for treatment of high lipids
(cholesterol and triglycerides) in the bloodstream, under copromotion and
license arrangements with the Parke-Davis Division of Warner-Lambert Company,
which discovered the drug. Following its introduction, LIPITOR surpassed several
established competitors and, at the end of 1998, is the most-prescribed medicine
in its category in the U.S. At the end of 1998, LIPITOR was being sold in most
major world markets.
In the infectious disease medicine category, our major products are
ZITHROMAX, DIFLUCAN and TROVAN. ZITHROMAX is an oral or injectable antibiotic in
the chemical class known as AZALIDES. In 1998, it was the most prescribed
brand-name oral antibiotic in the U.S in both the adult oral solid and the
pediatric liquid suspension categories. Sales of ZITHROMAX increased in 1998 in
part due to the increasing recognition by physicians of the product's
effectiveness in treating a broad array of infections. DIFLUCAN is used to treat
various fungal infections, including vaginal infections and certain infections
that afflict AIDS and cancer patients with weakened immune systems. In 1998 we
launched TROVAN, a once-daily oral dose antibiotic also available in intravenous
form. It belongs to the class of chemical compounds known as QUINOLONES, and
treats a broad range of infections. TROVAN's profile complements that of
ZITHROMAX.
For treatment of central nervous system disorders, we offer ZOLOFT and
participate in the promotion of ARICEPT. ZOLOFT is used for treatment of
depression, obsessive-compulsive disorder and panic disorder. It is our
second-largest selling product. Sales grew in 1998 in part from recent approvals
for its use to treat obsessive-compulsive disorder and panic disorder as well as
from increased field-force support. We participated in the 1997 launch of
ARICEPT for treatment of mild-to-moderate Alzheimer's disease. ARICEPT
substantially expanded the prior market for pharmaceutical treatment of that
disease. The drug was discovered and developed by Eisai Co., Ltd., a Japanese
company, which contracted with us to license and copromote the product. It is
now sold in the U.S., Canada, the U.K. and several other countries. ARICEPT
accounts for 97.1% of all Alzheimer's disease prescription drug sales in the
U.S. and has increased the number of new prescriptions in this category more
than fivefold.
In 1998, we introduced VIAGRA, our oral medication for the treatment of
erectile dysfunction. Since its introduction in the U.S. in April, more than
200,000 doctors have written over 7 million prescriptions for 50 million tablets
for more than 3 million patients. At the end of 1998, VIAGRA was being sold in
40 countries including the U.S. and the European Union.
Our other major pharmaceutical products include GLUCOTROL XL, for the
treatment of diabetes, and ZYRTEC, which is used for the
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treatment of allergies and related problems. ZYRTEC is licensed to us by the
Belgian company, UCB S.A., for sales in the U.S. and Canada. We copromote
ZYRTEC in the U.S. with a subsidiary of UCB S.A.
In December 1998, the FDA approved CELEBREX for the relief of symptoms of
adult rheumatoid arthritis and osteoarthritis. We will copromote CELEBREX with
G.D. Searle & Co. (Searle), a division of Monsanto Company, the discoverer and
developer of CELEBREX, in all world markets except Japan. In February 1999, we
launched CELEBREX with Searle in the U.S.
Prospective new products under development are discussed in the section
below entitled RESEARCH AND PRODUCT DEVELOPMENT.
CONSUMER HEALTH CARE GROUP
Our Consumer Health Care Group products include non-prescription
over-the-counter (OTC) medications, therapeutic skin care products and personal
care products. Among our better-known brands in the U.S. are:
o VISINE eyedrops
o BENGAY topical analgesics
o CORTIZONE hydrocortisone skin cream
o RID anti-lice products
o UNISOM sleep aids
o DESITIN ointments
o BAIN DE SOLEIL sun care products
o PLAX pre-brushing dental rinse
o BARBASOL shave creams and gels
Several product-line extensions building on these brands have been introduced in
recent years. Other products are sold only in selected international markets.
Sales of the Consumer Health Care Group accounted for 3%, 4% and 5% of our total
revenues in 1998, 1997 and 1996.
Our Consumer Health Care Group can expand sales of some of our prescription
medications by converting them to OTC medications. For example, an OTC
formulation of DIFLUCAN, known as DIFLUCAN ONE, is sold in the U.K. as a
treatment for vaginal candidiasis. Similarly, ZYRTEC is sold as an OTC product
in Canada under the brand name REACTINE. As market conditions permit, and when
we have necessary approval from drug regulatory authorities, we plan to pursue
similar launches for other products.
ANIMAL HEALTH SEGMENT
Our Animal Health Group discovers, develops, manufactures and sells
products for the prevention and treatment of diseases in livestock, poultry and
companion animals. We are a significant manufacturer of antibiotics,
antiparasitics, anti-inflammatories, vaccines and related products for livestock
and companion animals. Animal Health sales accounted for approximately 10% of
our total revenues in 1998 and 12% of our total revenues in both 1997 and 1996.
Our leading Animal Health product in 1998 was DECTOMAX, a treatment for
internal and external parasites, primarily in cattle. While there is substantial
generic competition, sales of DECTOMAX increased due to the growth of the
injectable formulation, and the introduction of the pour-on formulation in some
international markets. It provides longer protection against a broader spectrum
of parasites than many other products. RIMADYL, a non-steroidal
anti-inflammatory for treatment of osteoarthritis in dogs, is one of the
top-selling animal health care products in the U.S. In 1998, we launched ANIPRYL
in the U.S. as a treatment for dogs suffering from Cushing's disease, an
endocrine disorder. It has also recently been approved and launched in the U.S.
and Canada for treatment of canine cognitive dysfunction syndrome.
The other principal products of our Animal Health Group are TERRAMYCIN
LA-200, an injectable version of the Terramycin broad-spectrum antibiotic used
for various animal diseases; our BANMINTH, NEMEX, VALBAZEN and PARATECT products
to treat internal parasites; COXISTAC and AVIAX anticoccidials to treat
parasitic infection in poultry; and MECADOX, an antibacterial for pigs. We also
manufacture and sell an extensive line of cattle, swine and companion animal
vaccines including BOVISHIELD, RESPISURE, LEUKOCELL and VANGUARD.
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In December 1998, the Council of European Agricultural Ministers voted to
ban the use of our antibiotic feed additive, STAFAC (virginiamycin), throughout
the European Union. The ban becomes effective at the end of June, 1999. We are
seeking a reversal of this decision through legal action. We do not expect any
ban on sales of STAFAC to have a material effect on future results of the
Company's operations.
RESEARCH AND PRODUCT DEVELOPMENT
Innovation by our research and development operations is very important to
the success of our businesses. Our goal is to discover, develop and bring to
market innovative products that address major unmet medical needs. This goal has
been supported by our substantial research and development investments. We spent
approximately $2.3 billion in 1998, $1.8 billion in 1997 and $1.6 billion in
1996 on Company-sponsored research and development.
We are planning for future growth of our research operations. Current
construction at our three major research centers will add approximately one
million square feet of laboratory space. Other research facilities are also
being added or expanded.
We conduct research internally, and also through contracts with third
parties, through collaborations with universities and biotechnology companies,
and in cooperation with other pharmaceutical firms. We also seek out innovative
technologies developed by third parties to acquire or incorporate into our
product lines through licensing or other arrangements.
Drug development is time consuming, expensive and unpredictable. On
average, only one out of many thousands of chemical compounds discovered by
researchers proves to be both medically effective and safe enough to become an
approved medicine. The process from discovery to regulatory approval can take
more than ten years. Candidates can fail at any stage of the process, and even
late-stage product candidates could fail to receive regulatory approval.
In view of the limited period of patent protection, and to gain the
marketing advantage of being first to market in a particular therapeutic
category, we try to be efficient as well as careful in our new product
development. We strive to minimize delays in handling new product candidates and
look for opportunities, such as contracting studies to outside researchers, to
move development forward efficiently.
We feel that our investments in research have been rewarded by the number
of pharmaceutical compounds and new therapies we have in all stages of
development. In recent years, our discovery scientists have delivered dozens of
new chemical compounds to early evaluation drug development stages. While each
new candidate is far from regulatory approval, new drug candidates are the
foundation for future products. A table and discussion of supplemental filings
for existing products and drug candidates in development is set out under the
heading PRODUCT DEVELOPMENTS on page 30 of our 1998 Annual Report. That table
and discussion are incorporated by reference.
Our research operations add value to our existing products by improving
their effectiveness and by discovering new uses for them. In 1998, for example,
the FDA approved the additional use of ZYRTEC for the treatment of allergies in
children two to five years of age.
Our competitors also devote substantial sums and resources to research and
development. In addition, the consolidation that has occurred in our industry
has created additional companies with substantial research and development
resources. The competition fostered by the fruits of this research could result
in erosion of sales and unanticipated product obsolescence.
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INTERNATIONAL OPERATIONS
We have significant operations outside the United States. They are
conducted both through our subsidiaries and through distributors, and involve
the same business segments - pharmaceutical and animal health - as our U.S.
operations.
Japan is our second-largest single national market, with revenues of 7%. No
other single country outside the U.S. had revenues approaching 10% of our total
revenues.
For a breakdown of revenues by major country areas, see the table
GEOGRAPHIC DATA on page 60 of our 1998 Annual Report. That information is
incorporated by reference.
Our international businesses are subject, in varying degrees, to a number
of risks inherent in carrying on business in other countries. These include:
o currency fluctuations
o capital and exchange control regulations
o expropriation and nationalization
o other restrictive government actions
Our international businesses are also subject to government-imposed constraints,
including laws on pricing or reimbursement for use of products. See the section
below GOVERNMENT REGULATION AND PRICE CONSTRAINTS for discussion of those
matters.
In 1998, currency movements relative to the U.S. dollar reduced our
reported revenues in many countries. Depending on the direction of change
relative to the U.S. dollar, foreign currency values can either improve or
reduce the reported dollar value of our net assets and results of operations. We
cannot predict with certainty future changes in foreign exchange rates or the
effect they will have on us. We attempt to anticipate such changes, however, and
try to mitigate their effects. See Note 5-D to our financial statements,
DERIVATIVE FINANCIAL INSTRUMENTS, on pages 47 to 48 in our Annual Report. That
discussion is incorporated by reference. Related information about valuation and
risks associated with such financial instruments in parts E and F of that same
Note is also incorporated by reference.
MARKETING
In our global pharmaceuticals business, we promote our products to health
care providers such as doctors, nurse practitioners and hospitals, Pharmacy
Benefit Managers and Managed Care Organizations (MCOs). We also market directly
to consumers in the United States through direct-to-consumer print and
television advertising. In addition, we sponsor general advertising to educate
the public about our innovative medical research.
Our operations include several pharmaceutical sales organizations. Each
sales organization markets a distinct group of products. We increased our sales
force over the past several years so that our recently introduced products and
late-stage candidates will reach their full potential. Our U.S. pharmaceutical
sales representatives total approximately 5,400. This number reflects the
creation of a new primary-care sales force, and a specialty sales force
dedicated largely to rheumatology, as well as the expansion of other specialty
sales forces in the U.S. Overseas operations employ about 12,300 sales
representatives.
Our prescription pharmaceutical products are sold principally to
wholesalers, but we also sell directly to retailers, including hospitals,
clinics, government agencies and pharmacies.
Through our marketing organizations, we explain the approved uses and
advantages of our products to medical professionals. We work to gain access to
MCO formularies (lists of recommended or approved medicines and other products
compiled by pharmacists and physicians) by demonstrating the qualities and
treatment benefits of our products. We also work with MCOs to assist them with
disease management, patient education and other tools that help their medical
treatment routines.
Marketing of prescription pharmaceuticals depends to a degree on complex
decisions about the scope of clinical trials made years before product approval.
All drugs must complete
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clinical trials required by regulatory authorities to show they are safe and
effective for treating one or more particular medical problems. A manufacturer
may choose, however, to undertake additional studies to demonstrate additional
advantages of a compound, including comparative clinical trials with competitive
products.
Those studies can be costly, the results are uncertain, and they can take
years to complete. Balancing these considerations makes it difficult to decide
whether and when to undertake such additional studies. But, when they are
successful, such studies can have a major impact on approved claims and
marketing strategies.
Our Consumer Health Care Group uses its own representatives to promote its
products. We use substantial print and television consumer advertising for our
consumer health care products. Those products are sold through various
retailers.
Separate sales organizations also are used by our Animal Health business to
promote its products. Its advertising and promotion are generally targeted to
health professionals, directly and through medical journals. Animal health and
nutrition products are sold through veterinarians, drug wholesalers,
distributors, retail outlets and directly to users, including feed manufacturers
and animal producers. Where appropriate, these products are also marketed
through print and television advertising.
During 1998, pharmaceutical sales to our three largest pharmaceutical and
consumer health care products wholesalers were:
o McKesson Corporation - 14% of our total revenues;
o Cardinal Health, Inc. - 12% of our total revenues; and
o Bergen Brunswig Corporation - 10% of our total revenues.
Those sales were concentrated in the Pharmaceutical segment. Apart from
these instances, none of our business segments is dependent on any one or group
of related customers.
PATENTS AND INTELLECTUAL PROPERTY RIGHTS
Our products are sold around the world under brand-name trademarks we
consider in the aggregate to be of material importance. Trademark protection
continues in some countries as long as the mark is used; in other countries, as
long as it is registered. Registrations generally are for fixed, but renewable,
terms.
We own or license a number of U.S. and foreign patents. These patents cover:
o pharmaceutical products
o pharmaceutical formulations
o product manufacturing processes
o intermediate chemical compounds used in manufacturing
Patents for individual products extend for varying periods according to the
date of patent filing or grant and the legal term of patents in the various
countries where patent protection is obtained. The actual protection afforded by
a patent, which can vary from country to country, depends upon the type of
patent, the scope of its coverage, and the availability of legal remedies in the
country.
In the aggregate, our patent and related rights are of material importance
to our businesses in the United States and most other countries. Based on
current product sales, and considering the vigorous competition with products
sold by others, the patent rights we consider significant in relation to our
business as a whole are those for NORVASC, CARDURA, ZITHROMAX, ZOLOFT, DIFLUCAN,
GLUCOTROL XL, VIAGRA, and TROVAN. Our basic U.S. patents relating to NORVASC,
ZOLOFT, DIFLUCAN, GLUCOTROL XL, TROVAN and VIAGRA expire between 2004 and 2011.
The U.S. patent on CARDURA expires in 2000.
PROCARDIA XL employs a novel sustained-release drug-delivery system
developed and patented by Alza Corporation. We hold an exclusive license to use
this delivery system
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with the active ingredient in PROCARDIA XL. The patents on the system run until
2003. Other companies also offer sustained-release forms of that ingredient or
have filed applications with the FDA seeking approval of such products. One such
product that has been approved has not been rated by the FDA to be appropriate
for substitution in place of PROCARDIA XL. Another product filed with the FDA
for approval in 1997 uses a form of the active ingredient that we believe
infringes our patents, and we have sued to prevent that improper use. Additional
products were filed for FDA approval in 1998, and also appear to infringe our
patents. (See the discussion of these matters in Item 3 below. Also see the
discussion below about PROCARDIA XL sales in the section CAUTIONARY FACTORS
THAT MAY AFFECT FUTURE RESULTS.) It is not possible to predict the timing and
impact on sales of PROCARDIA XL of competition from other products.
ZITHROMAX is patented by Pliva, a Croatian pharmaceutical company. The drug
is licensed exclusively to us by Pliva for sales and marketing in major
countries, and we purchase the compound in bulk crude form from Pliva. Pliva's
U.S. patent on ZITHROMAX expires in 2005.
We have other patent rights covering additional products that have smaller
sales revenues. The U.S. patent for one such product, UNASYN, expires in 1999.
We expect that the patents on some of our newest products and late-stage
product candidates could become significant to our business as a whole in the
future.
The expiration of a product patent normally results in significant
competition from generic products against the covered product and, particularly
in the U.S., can result in a dramatic reduction in sales of the pioneering
product. In some cases, however, we can continue to obtain commercial benefits
from:
o product manufacturing trade secrets
o patents on processes and intermediates for the economical manufacture
of the active ingredients
o patents for special formulations of the product or delivery mechanisms
o conversion of the active ingredient to over-the-counter products
The effect of product patent expiration also depends upon:
o the nature of the market and the position of the product in it
o the growth of the market
o the complexities and economics of manufacture of the product
o the requirements of generic drug laws
One of the main limitations on our operations in some countries outside the
U.S. is the lack of effective intellectual property protection of our products.
Under international agreements in recent years, global protection of
intellectual property rights is improving. Under the North American Free Trade
Agreement, Mexico improved its patent law to provide patent protection to
pharmaceutical products. The General Agreement on Tariffs and Trade requires
participant countries to amend their intellectual property laws to provide
patent protection for pharmaceutical products by the end of a ten-year
transition period. A number of countries are doing this. We have experienced
significant growth in our businesses in some of those nations and our continued
business expansion in those countries depends to a large degree on further
patent protection improvement.
COMPETITION
Competition is intense in all of our businesses, and includes many large
and small competitors.
The principal means of competition varies among product categories and
business groups. Technological innovations affecting:
o efficacy
o safety
o patients' ease of use, and
o cost effectiveness
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are important to success in all of our businesses. Our businesses also focus on
unmet medical needs and therapeutic improvements. Our emphasis on innovation has
led to our multi-billion dollar research and development investments over the
past decade.
Our pharmaceutical business competes with worldwide research-based drug
companies, many smaller research companies with more limited therapeutic focus,
and generic drug manufacturers. Our pharmaceutical operations are among the
largest in the world.
In recent years, a comparison of the total cost of medical treatments using
pharmaceuticals versus alternative treatments for the same condition has become
an important basis of competition. Managed Care Organizations and Pharmacy
Benefit Managers look to cost advantages as well as medical benefits in making
their drug formulary decisions.
Our pharmaceutical sales and marketing organization is a valuable
competitive asset. Our salespeople's ability to reach medical professionals with
information about our products helps us respond to competitive efforts and
launch new products.
Many other companies, large and small, manufacture and sell one or more
products that are similar to our consumer health care products. Sources of
competitive advantage in the OTC market include:
o product quality and efficacy
o brand identity
o advertising and promotion
o product innovation
o broad distribution capabilities
o customer satisfaction
o price
Heavy expenditures for advertising, promotion and marketing are generally
required to achieve consumer acceptance of consumer health care products.
We have a significant presence in the animal health marketplace, but many
other companies offer competitive products. Altogether, there are hundreds of
producers of animal health products throughout the world. The principal methods
of competition vary somewhat depending on the particular product. They include:
o product innovation
o service
o price
o quality
o effective promotion to veterinary professionals and consumers
We promote our products directly through our sales representatives as well as
through advertising.
In the current environment of competitive pressures on profit margins, we
continue efforts to control the growth of our expenses. Although research and
development budgets have grown significantly, we have kept our costs down in
other areas such as manufacturing, distribution and sales administration by
restructuring and consolidating facilities. These measures have brought us new
efficiencies and reduced or contained our operating expenses.
MANAGED CARE ORGANIZATIONS
The growth of Managed Care Organizations (MCOs) in the U.S. has been a
major factor in the competitive make-up of the health care marketplace. Over
half the U.S. population now participates in some version of managed care.
Because of the size of the patient population covered by MCOs, marketing of
prescription drugs to them and the Pharmacy Benefit Managers (PBMs) that serve
many of those organizations has become important to our business.
MCOs can include medical insurance companies, medical plan administrators,
health-maintenance organizations, alliances of hospitals and physicians and
other physician organizations. The purchasing power of MCOs has been increasing
in recent years due to their growing numbers of enrolled patients. At the same
time, those organizations have been consolidating into fewer, even larger
entities.
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This enhances their purchasing strength and importance to us.
A major objective of MCOs is to contain and, where possible, reduce health
care expenditures. They typically use volume purchases and long-term contracts
to negotiate discounts from pharmaceutical providers. They use their purchasing
power to bargain for lower supplier prices. They also emphasize primary and
preventive care, out-patient treatment, and procedures performed at doctors'
offices and clinics. Hospitalization and surgery, typically the most expensive
forms of treatment, are carefully managed.
As discussed above in MARKETING, MCOs and PBMs typically develop
formularies to reduce their cost for medications. Formularies can be based on
the prices and therapeutic benefits of the available products. Due to their
lower cost, generic medicines are often favored. The breadth of the products
covered by formularies can vary considerably from one MCO to another, and many
formularies include alternative and competitive products for treatment of
particular medical problems. MCOs use a variety of means to encourage patients'
use of products listed on their formularies.
Exclusion of a product from a formulary can lead to its sharply reduced
usage in the MCO patient population. Consequently, pharmaceutical companies
compete aggressively to have their products included. Where possible, companies
compete for inclusion based upon unique features of their products, such as
greater efficacy, better patient ease of use or fewer side effects. A lower
overall cost of therapy is also an important factor. Products that demonstrate
fewer therapeutic advantages must compete for inclusion based primarily on
price.
The growth of MCOs also appears to have led to greater usage of some drugs.
The use of certain drugs can prevent the need for more costly treatments such as
hospitalization, professional therapy, or even surgery. Because of these
advantages, such drugs can become favored first-line treatments. In addition,
the current trend of some patients to opt for managed care alternatives to
Medicare may increase overall pharmaceutical usage among that elderly
population. Medicare generally does not pay for medicines, so the patients must
bear that cost. MCOs, however, often offer significant drug benefits for their
participants.
These developments have not only created pressure on prices, but also have
increased sales of products on formularies. We have been generally, although not
universally, successful in having our major products included on MCO
formularies.
Another way we address the interests of MCOs is by developing disease
management programs. These programs can be attractive to MCOs by improving
patient communications and compliance with dosage directions, which are
important for effective disease treatment. They can help MCOs address various
aspects of disease management, such as prevention, diagnosis and treatment of
certain diseases, including use of pharmaceutical products. This comprehensive
approach can improve the quality of care and lower costly complications of
chronic diseases.
GENERIC PRODUCTS
One of the biggest competitive challenges we face in the U.S. is from
generic pharmaceutical manufacturers. Upon the expiration of U.S. patent
protection on an important product, we can lose the major portion of U.S. sales
of the product within a year. Generic competitors operate without our large
research and development expenses and our costs of conveying medical information
about the product to the medical community. In addition, the FDA approval
process exempts generics from costly and time-consuming clinical trials to
demonstrate their safety and efficacy, and allows generic manufacturers to rely
on the safety and efficacy of the pioneer product. Generic products need only
demonstrate a level of availability in the blood stream equivalent to that of
the pioneer product. This means that after we have borne the
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expenses of discovering, developing and testing a medicine for safety and
efficacy, obtaining regulatory approval and informing the medical community
about its therapeutic benefits, generic competitors can charge much less for a
competing version of our product and still be profitable.
As noted above, MCOs that focus primarily on the immediate cost of drugs
may favor generics over brand-name drugs. Many governments also encourage the
use of generics as alternatives to brand-name drugs in their health care
programs, including Medicaid in the U.S. Laws in the U.S. generally allow, and
in some cases require, pharmacists to substitute generic drugs that have been
rated under government procedures to be therapeutically equivalent to a
brand-name drug. The substitution must be made unless the prescribing physician
expressly forbids it.
Some of our competitors who produce patented pharmaceuticals have entered
the generic market; in some cases offering generic versions of their own
brand-name products. We have not followed that strategy. Instead, we focus our
resources on developing and marketing innovative new products and treatments.
RAW MATERIALS
Raw materials essential to our businesses are purchased worldwide in the
ordinary course of business from numerous suppliers. In general, these materials
are widely available from multiple sources. No serious shortages or delays were
encountered in 1998, and none are expected in 1999.
GOVERNMENT REGULATION AND PRICE CONSTRAINTS
Pharmaceutical companies are subject to heavy regulation by a number of
national, state and local agencies. Of particular importance is the FDA in the
United States. It has jurisdiction over all our businesses and administers
requirements covering the testing, safety, effectiveness, approval,
manufacturing, labeling and marketing of our pharmaceutical products. In some
cases, FDA requirements and/or reviews have increased the amount of time and
money necessary to develop new products and bring them to market.
The FDA also regulates our consumer health care products and, along with
the U.S. Department of Agriculture and the Environmental Protection Agency, our
animal health products. Some regulatory actions pertaining to our products are
discussed in Item 3 of this report.
Since the beginning of 1998, the approval of new drugs across the European
Union (EU) is possible only using the European Medicines Evaluation Agency's
(EMEA) mutual recognition or central approval processes. The use of either of
these procedures should provide a more rapid and consistent approval across all
fifteen member states than was the case when the approval processes were
operating independently within each member state. In addition, the agreement
between the EU and ten Eastern European states to base their approvals on the
centralized EU approval will significantly speed the regulatory process in those
countries. The EMEA does not have jurisdiction over patient reimbursement or
pricing matters in EU member countries, however. We will continue to deal with
individual countries on such issues.
In recent years, various legislative proposals have been offered in
Congress and in some state legislatures that would bring about major changes in
the affected health care systems. Some states have passed such legislation, and
further federal and state proposals are possible. These could include price or
patient reimbursement constraints on medicines and restrictions on access to
certain products. Similar issues exist in many foreign countries where we do
business. We cannot predict the outcome of such initiatives, but we will work to
maintain patient access to our products and to oppose price constraints.
Also in the U.S., proposals have called for substantial changes in the
Medicare and Medicaid programs. If such changes are
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enacted, they may require significant reductions from currently projected
government expenditures for these programs. Driven by budget concerns, Medicaid
managed care systems have been under consideration in several states. If the
Medicare and Medicaid programs implement changes that restrict the access of a
significant population of patients to our innovative medicines, our business
could be materially affected. On the other hand, relatively little
pharmaceutical use is currently covered by Medicare. As noted above, if changes
to these programs shift patients to MCOs that cover pharmaceuticals, usage of
pharmaceuticals could increase.
Legislation in the U.S. requires us to give rebates to state Medicaid
agencies based on each state's reimbursement of pharmaceutical products under
the Medicaid program. We also must give discounts or rebates on purchases or
reimbursements of pharmaceutical products by certain other federal and state
agencies and programs. See the discussion regarding rebates on page 29 of our
1998 Annual Report for details on the cost to us of such discounts and rebates,
which is incorporated by reference.
We encounter similar regulatory and legislative issues in most other
countries. For example, in 1997, Japan announced a price reduction on drugs. In
Europe and some other international markets, the government provides health care
at low direct cost to consumers, and regulates pharmaceutical prices or patient
reimbursement levels to control costs for the government-sponsored health care
system.
This international patchwork of price regulation has led to inconsistent
prices and some third-party trade in our products from markets with low prices.
Such trade exploiting price differences between countries can undermine our
sales in markets with higher prices.
We are also subject to the jurisdiction of various other regulatory and
enforcement departments and agencies, such as the Federal Trade Commission and
the Department of Justice in the U.S., and are, therefore, subject to possible
administrative and legal proceedings and actions by those organizations. Such
actions may include product recalls, seizures and other civil and criminal
sanctions. In some cases, we have initiated product recalls voluntarily.
It is difficult to predict the future impact of the broad and expanding
legislative and regulatory requirements affecting us.
ENVIRONMENTAL LAW COMPLIANCE
Most of our manufacturing and certain research operations are affected by
federal, state and local environmental laws. We have made, and intend to
continue to make, necessary expenditures for compliance with applicable laws. We
are also cleaning up environmental contamination from past industrial activity
at certain sites (see Item 3, LEGAL PROCEEDINGS, below). As a result, we
incurred capital and operational expenditures in 1998 for environmental
protection and clean-up of certain past industrial activity as follows:
o environmental-related capital expenditures- $51 million
o other environmental-related expenses-$76 million
While we cannot predict with certainty the future costs of such clean up
activities, capital expenditures, or operating costs for environmental
compliance, we do not believe they will have a material effect on our capital
expenditures, earnings or competitive position.
YEAR 2000 COMPUTER SYSTEMS COMPLIANCE
Many older computer software programs refer to years in terms of their
final two digits only. Such programs may interpret the year 2000 to mean the
year 1900, or another year instead. If not corrected, those programs could cause
date-related or operational transaction failures. We developed a Compliance
Assurance Process to address the Year 2000 issue in four phases: Inventory,
Assessment and Planning, Implementation and Certification. No significant
information technology projects
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have been deferred as a result of our efforts on Year 2000.
The Inventory phase included preliminary problem determination, an
inventory of information technology (IT) and non-IT hardware and software and an
inventory of our key business systems and material vendors and business
processes. Such systems relate to our research and development, production,
distribution, financial, administrative and communication operations. This phase
was substantially completed at the end of 1998. We have requested our critical
vendors, major customers, service suppliers, communication providers, product
alliance partners and banks to verify their Year 2000 readiness and are
currently evaluating their responses. This evaluation is complete for all of our
critical trading partners, but continues for non-critical partners.
During our Assessment and Planning phase each inventoried item is assessed
to evaluate its risk, to decide whether to remediate or replace, to identify its
priority and to develop a plan for the system. Systems are prioritized based on
their importance to the business, risk of failure, time horizon to failure and
dependency on other critical items. This phase was 90% complete at December 31,
1998, and will be finished by the first quarter of 1999.
The plans developed during the Assessment and Planning phase are being
executed in the Implementation phase. Remediation and replacement of non-Year
2000 compliant systems is in process and we expect our critical systems to be
substantially remediated or replaced by March 31, 1999. The remaining systems,
including embedded systems, will be modified by the end of the third quarter of
1999. While our Implementation efforts are approximately 65% complete, this
phase will overlap with the Certification phase.
During the Certification phase, we will be testing and certifying the
results of our remediation efforts. Testing begins as systems are remediated and
will continue throughout 1999. Testing attempts to verify that all of our
systems function correctly and extend to all interfaces with key business
partners. We expect to substantially complete testing of critical systems by
March 31, 1999, and the testing of the remaining systems and key third-party
systems by the end of the third quarter of 1999.
Because the Company's year 2000 compliance is dependent upon key third
parties also being Year 2000 compliant on a timely basis, there can be no
guarantee that the Company's efforts will prevent a material adverse impact on
its results of operations, financial condition or cash flows. If our systems or
those of key third parties are not fully Year 2000 functional, we estimate that
up to a two-week disruption in operations could occur. Such a disruption could
result in delays in the distribution of finished goods or receipt of raw
materials, errors in customer order taking, disruption of clinical activities or
delays in product development. These consequences could have a material adverse
impact on our results of operations, financial condition and cash flows if we
are unable to substantially conduct our business in the ordinary course. We
believe that our efforts, including the development of a contingency plan, will
significantly reduce the adverse impact that any disruption in business might
have.
As part of the contingency plan being developed, Business Continuity Plans
(the Plans) will address critical areas of our business. The Plans will be
designed to mitigate serious disruptions to our business flow beyond the end of
1999 and operate independent of our external providers' Year 2000 compliance.
The Plans will likely provide for maintaining increased inventory to meet
customer needs, protecting the integrity of ongoing activities, identifying and
securing alternate sources of critical services, materials and utilities when
possible and establishing crisis teams to address unexpected problems. We expect
to complete the preliminary Plans by the end of the first quarter of 1999 and
the final Plans by the end of the second quarter of 1999.
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We estimate that the total cost involved in our Year 2000 program is
approximately $127 million of which $36 million has been incurred as of the end
of 1998. Costs for 1999 are estimated to be approximately $91 million, which
reflect changes in estimates and the inclusion of accelerated replacement costs
as a result of a clarification in disclosure guidelines of the Securities and
Exchange Commission. These costs are expensed as incurred, except for
capitalizable hardware of $5 million in 1998 and $15 million estimated for 1999
and are being funded through operating cash flows. Such costs do not include
normal system upgrades and replacements.
Both our cost estimates and completion timeframes will be influenced by our
ability to successfully identify Year 2000 problems, the nature and amount of
programming required to fix the programs, the availability and cost of personnel
trained in this area and the Year 2000 compliance success that key third parties
attain. As the development of contingency plans continues, the costs to complete
our Year 2000 program may increase. While these and other unforeseen factors
could have a material adverse impact on our results of operations or financial
condition, we believe that our ongoing efforts to address the Year 2000 issue
will minimize the possible negative consequences to our Company.
CORPORATE/FINANCIAL SUBSIDIARIES
We conduct international banking operations through a subsidiary, Pfizer
International Bank Europe (PIBE), based in Dublin, Ireland. PIBE, incorporated
under the laws of Ireland, operates under a banking license from the Central
Bank of Ireland. It makes loans and accepts deposits in several currencies in
international markets. PIBE is an active Euromarket lender to high quality
corporations and governments through its portfolio of loans and money market
instruments. Loans are made primarily on a short and medium term basis,
typically with floating interest rates.
We also own an insurance operation, The Kodiak Company Limited, which
reinsures certain assets, inland transport and marine cargo of our international
operations. Financial data for these subsidiaries are set out in Note 3 to our
financial statements, FINANCIAL SUBSIDIARIES, on page 45 in our 1998 Annual
Report, which is incorporated by reference.
TAX MATTERS
The discussion of tax-related matters (including certain proceedings
involving proposed tax adjustments relating to prior years) in Note 8 to our
financial statements, TAXES ON INCOME, on pages 50 through 51 in the Annual
Report is incorporated by reference.
EMPLOYEES
In our innovation-intensive business, our employees are vital to our
success. We believe we have good relationships with our employees. As of
December 31, 1998, we employed approximately 46,400 people in our operations
throughout the world. Geographically, this total breaks down as follows:
o United States, 18,200
o Europe, 13,300
o Asia, 7,800
o Canada/Latin America, 5,600
o Africa/Middle East, 1,500
CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS
(CAUTIONARY STATEMENTS UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995)
OUR DISCLOSURE AND ANALYSIS IN THIS REPORT AND IN OUR 1998 ANNUAL REPORT TO
SHAREHOLDERS 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 HISTORICAL OR
CURRENT FACTS. THEY USE WORDS SUCH AS "ANTICIPATE," "ESTIMATE," "EXPECT,"
"PROJECT," "INTEND," "PLAN," "BELIEVE," AND OTHER WORDS AND TERMS
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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, IN THE 1998 ANNUAL
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. MANY FACTORS MENTIONED IN THE DISCUSSION ABOVE - FOR
EXAMPLE, GOVERNMENT REGULATIONS AROUND THE WORLD, YEAR 2000 SYSTEMS COMPLIANCE,
GENERIC PRODUCT COMPETITION AND THE COMPETITIVE ENVIRONMENT - WILL BE IMPORTANT
IN DETERMINING FUTURE RESULTS. CONSEQUENTLY, NO FORWARD-LOOKING STATEMENT CAN BE
GUARANTEED. ACTUAL FUTURE 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. ALSO NOTE THAT WE PROVIDE THE
FOLLOWING CAUTIONARY DISCUSSION OF RISKS, UNCERTAINTIES AND POSSIBLY INACCURATE
ASSUMPTIONS RELEVANT TO OUR BUSINESSES. THESE ARE FACTORS THAT WE THINK COULD
CAUSE OUR ACTUAL RESULTS TO DIFFER MATERIALLY FROM EXPECTED AND HISTORICAL
RESULTS. OTHER FACTORS BESIDES THOSE LISTED HERE COULD ALSO ADVERSELY AFFECT THE
COMPANY. THIS DISCUSSION IS PROVIDED AS PERMITTED BY THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995.
o Balancing current growth and investment for the future remains a major
challenge. Our ongoing investments in new product introductions and
research and development for future products could exceed corresponding
sales growth. This could produce higher costs without a proportional
increase in revenues.
o In the U.S., many of our pharmaceutical products are subject to increasing
price pressures as managed care groups, pharmacy benefit managers and
government agencies seek price discounts. Government efforts to reduce
Medicare and Medicaid expenses are expected to increase the use of managed
care. This may result in managed care influencing prescription decisions
for a larger segment of the population. International operations are also
subject to price and marketing regulations. As a result, it is expected
that pressures on pricing and operating results will continue and could
affect future results.
o Thirty-nine percent of our 1998 revenues arise from international
operations, and we expect revenue and net income growth in 1999 to be
impacted by changes in foreign exchange rates. Revenues from Asia comprised
approximately 12% of total revenues in 1998 (although revenues from the
Asian markets most impacted by recent economic events - Korea, Indonesia,
Thailand, Malaysia, the Philippines and Taiwan - comprised only 1% of 1998
total revenues). Revenues from Latin America comprised 5% of our total
revenues in 1998, including 2% from Brazil.
These foreign-based revenues as well as our substantial international
assets result in our exposure to currency exchange rate changes. In
addition, our interest-bearing investments, loans and borrowings are
subject to interest rate change risk. The risks of such changes and the
measures we have taken to help contain those risks are discussed in the
section entitled FINANCIAL RISK MANAGEMENT on pages 36 and 37 in our 1998
Annual Report. For additional details, see Note 5-D to our financial
statements, DERIVATIVE FINANCIAL INSTRUMENTS, on pages 47 and 48 in our
1998 Annual Report. Those sections of the Annual Report are incorporated by
reference.
Notwithstanding our efforts to foresee and mitigate the effects of changes
in fiscal
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circumstances such as these, we cannot predict with certainty all changes
in currency and interest rates, inflation or other related factors
affecting our businesses. These factors could affect future results.
o A new European currency (Euro) was introduced in January 1999 to eventually
replace the separate currencies of eleven individual countries. This
entails changes in our operations as we modify systems and commercial
arrangements to deal with the new currency. Modifications are necessary in
operations such as payroll, benefits and pension systems, contracts with
suppliers and customers and internal financial reporting systems. Although
there is a three-year transition period during which transactions may be
made in the old currencies, this may require dual currency processes for
our operations. We have identified issues involved and are developing and
implementing solutions. The cost of this effort is not expected to have a
material effect on our business or results of operations. There is no
guarantee, however, that all problems have been foreseen and corrected, or
that no material disruption will occur in our business. The conversion to
the Euro may have competitive implications on our pricing and marketing
strategies; however, the full impact is not known at this time.
o International operations could be affected by changes in intellectual
property legal protections and remedies, trade regulations, and procedures
and actions affecting approval, production, pricing, reimbursement and
marketing of products, as well as by unstable governments and legal
systems, intergovernmental disputes and possible nationalization.
o Cost-containment measures employed by governments that have the effect of
limiting patient access to medicines and related issues described above in
GOVERNMENT REGULATION AND PRICE CONSTRAINTS affect the growth and
profitability of our operations in some countries. Those factors could
affect future results.
o Business combinations among our competitors could affect our competitive
position in the pharmaceutical, consumer health care and animal health
businesses. Similarly, combinations among our major customers could
increase their purchasing power in dealing with us. And, of course, if we
ourselves should enter into one or more business combinations, our
business, finances and capital structure could be affected.
o Generic competition is a major challenge in the U.S. Loss of patent
protection typically leads to dramatic loss of sales in the U.S. market and
could affect future results.
o Risks and uncertainties particularly apply with respect to product-related
forward-looking statements. The outcome of the lengthy and complex process
of identifying new compounds and developing new products is inherently
uncertain. Prospective products can fail to receive regulatory approval.
There are also many considerations that can affect marketing of
pharmaceutical products around the world. Regulatory delays; the inability
to successfully complete clinical trials; claims and concerns about safety
and efficacy; new discoveries; patents and products by competitors and
related patent disputes; and claims about adverse side effects are a few of
the factors that could adversely affect the realization of research and
development and product-related forward-looking statements.
o As discussed above in MARKETING, decisions about research studies made
early in the development process of a drug candidate can have a substantial
impact on the marketing strategy once the drug receives approval. More
detailed studies may demonstrate additional benefits that can help in the
marketing, but they consume time and resources and can delay submitting the
drug candidate for initial approval. We try to plan clinical trials
prudently, but there is no guarantee that a proper balance of speed and
testing will be made in each case. The quality of our decisions in this
area can affect our future results.
o Difficulties or delays in product manufacturing or marketing, including,
but not limited to, the inability to build up production
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capacity commensurate with demand, or the failure to predict market demand
for or gain market acceptance of approved products could affect future
results.
o We currently have three products, NORVASC, ZITHROMAX and ZOLOFT, with
annual sales exceeding one billion dollars. Those products accounted for
approximately 40% of our 1998 revenues. If these or any of our other major
products were to become subject to a problem such as loss of patent
protection, unexpected side effects, regulatory proceedings, publicity
affecting doctor or patient confidence or pressure from competitive
products, or if a new, more effective treatment should be introduced, the
impact on our revenues could be significant.
o We cannot always predict with accuracy the timing or impact of possible
future competition on sales of our products. For example, PROCARDIA XL, our
patented form of sustained-release nifedipine, has been an important
product for us, but its sales have been declining, and we expect that to
continue. Sales of PROCARDIA XL were $1,005 million in 1996, $822 million
in 1997, and $714 million in 1998. This decline has been due, at least in
part, to the medical community's increased emphasis on our more advanced
product, NORVASC. It is also partly attributable to the fact that there has
been another form of sustained-release nifedipine available on the market
since 1993, although it is not approved for treatment of all the same
indications as PROCARDIA XL. Additional potentially competitive products
have been filed for FDA approval. This indicates that the number of
medicines that compete with PROCARDIA XL may increase, and the sales of
competing products may affect our expected results.
o During 1995, the authors of some non-clinical studies questioned the safety
of calcium channel blockers (CCBs). Although the clinical evidence
supported the safety of this class of medications, the FDA convened an
advisory panel to review their safety. In 1996, that advisory panel found
no data to support challenges to the safety of newer sustained-release and
intrinsically long-acting CCBs (such as NORVASC and PROCARDIA XL - products
for treatment of hypertension and angina).
Questions about this class of products continued throughout 1997, however,
and included scientific publications and presentations asserting that these
products were associated with various serious medical conditions.
During 1997, data from newly conducted studies and reviews and decisions by
two national regulatory authorities, plus newly published National
Institutes of Health (NIH) guidelines, were all supportive of the safety of
long-acting CCBs like NORVASC and PROCARDIA XL and of their appropriateness
as first-line medications in the treatment of hypertension.
We continue to believe that the safety and effectiveness of NORVASC and
PROCARDIA XL are supported by a large body of data from numerous studies
and the daily clinical experiences of physicians around the world. It is
not possible, however, to predict the impact on our future sales, if any,
of existing or future studies, regulatory agency actions or a continuing
debate regarding CCBs.
o Growth in costs and expenses, changes in product mix and the impact of
divestitures, restructuring and other unusual items that could result from
evolving business strategies, evaluation of asset realization, and
organizational restructuring could affect future results. For example, we
may be unable to maintain or further enhance those margin improvements
achieved in recent years, which would affect future results.
o In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES, which becomes effective for our
financial statements beginning January 1, 2000. SFAS No. 133 requires a
company to recognize all derivative instruments as assets or liabilities in
its balance sheet and measure them at fair value. We do not expect the
adoption of this Statement to have a material impact on our
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financial statements. The American Institute of Certified Public
Accountants 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.
Such new or revised accounting standards and rules are issued from time to
time. Although the standards mentioned above are not expected to have a
material impact on our reported financial results, future standards and
rules could have such an effect.
o As described above in the section YEAR 2000 COMPUTER SYSTEMS COMPLIANCE, we
are working to address "Year 2000" problems. If we should fail to identify
or fix all such problems in our own operations, or if we are affected by
the inability of a sole-source supplier or a major customer (such as a
large drug wholesaler or distributor) to continue operations due to such a
problem, our operations and/or cash flows could be affected.
o Changes in the U.S. Tax Code and the tax laws of other countries can affect
our net earnings. For example, pursuant to the Small Jobs Protection Act of
1996 (the ACT), Section 936 of the Internal Revenue Code was repealed for
tax years beginning after December 31, 1995. Section 936 had created the
U.S. possessions corporation income tax credit, which gave us tax benefits
for certain operations in Puerto Rico. The Act provided that as an existing
credit claimant, we are eligible to continue using the credit against the
tax arising from our manufacturing income earned in Puerto Rico for an
additional ten-year period. The amount of manufacturing income eligible for
the credit during this additional period is subject to a cap based on
income earned prior to 1996 in Puerto Rico. This ten-year extension does
not apply to investment income earned in Puerto Rico, the credit on which
expired as of July 1, 1996. The Act did not affect the amendments made to
Section 936 by the Omnibus Budget Reconciliation Act of 1993, which
provided for a five-year phase-down of the U.S. possession tax credit from
100% to 40%. In addition, the Act permitted the extension of the R&D tax
credit through June 30, 1998. In 1998, this credit was again extended to
June 30, 1999.
o Claims have been brought against us and our subsidiaries for various legal,
environmental and tax matters, and additional claims arise from time to
time. In addition, our operations are subject to international, federal,
state and local environmental laws and regulations. It is possible that our
cash flows and results of operations could be affected by the one-time
impact of the resolution of these contingencies. We believe that the
ultimate disposition of current matters to the extent not previously
provided for will not have a material impact on our financial condition or
cash flows and results of operations, except where specifically commented
upon in the discussion of such matters in LEGAL PROCEEDINGS in Item 3 in
this report, and in TAX MATTERS above.
ITEM 2. PROPERTIES
Our world headquarters is located in several buildings in New York City. We
own two of these buildings, including our main 33-story office tower, and rent
space in others nearby. The 33-story office tower is located on a site we have
leased under a long-term ground lease. Altogether, our headquarters operations
occupy over one million square feet of owned and leased office space in New York
City.
Our pharmaceutical business owns and leases space for sales and marketing,
administrative support, and customer service functions around the world.
Our major research and development facilities are located in
manufacturing/R&D complexes that we own containing multiple buildings in Groton,
Connecticut, and Sandwich, England. The buildings at our Groton facility
currently contain approximately three million
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square feet of floor space. Approximately 1.2 million square feet is used for
manufacturing, and the rest is used for research and development. An additional
550,000 square foot laboratory building, which is expected to house
approximately 700 new research employees, is currently under construction. The
Company also began construction in 1998 on an additional 400,000 square foot
facility on a 24-acre site in nearby New London, Connecticut, to house an
initial 1,300 employees from the Company's research operations.
Buildings on our 340 acre Sandwich, England campus house research, our U.K.
pharmaceutical sales office and a production plant. These facilities contain
almost two million square feet of floor space, approximately half of which is
used for research and development. An additional 540,000 square feet of new
research space is under construction.
We own other important research facilities in Nagoya, Japan; Amboise,
France; and Terre Haute, Indiana. A number of smaller research and development
operations around the world focus principally on their local markets. As
discussed above, we have been expanding our research and development facilities
in recent years to meet the challenges of handling growing research activities.
In 1998, over 1.4 million square feet of research facilities was under
construction at our sites in Amboise, Groton, Sandwich and Nagoya.
We have 35 production plants serving our pharmaceutical, consumer and
animal health operations around the world. Sixteen of these are major
facilities. These plants handle one or more of three basic types of production
processes:
o fermentation
o organic synthesis
o product production
We have four major fermentation plants:
o Rixensart, Belgium
o Sao Paulo, Brazil
o Nagoya, Japan
o Sandwich, England, U.K.
Our major organic synthesis facilities are in three locations:
o Groton, Connecticut
o Ringaskiddy, Ireland
o Barceloneta, Puerto Rico
We have major product production plants at thirteen sites in ten countries:
o Sao Paulo, Brazil
o Dalian, China
o Amboise, France
o Illertissen, Germany
o Latina, Italy
o Nagoya, Japan
o Toluca, Mexico
o Sandwich, England, U.K.
o Barceloneta, Puerto Rico, U.S.
o Brooklyn, New York, U.S.
o Parsippany, New Jersey, U.S.
o Terre Haute, Indiana, U.S.
o Valencia, Venezuela
Our Consumer Health Care Group has its principal executive offices in the
Company's world headquarters in New York. Its products are manufactured in a
450,000 square foot U.S. facility in Parsippany, New Jersey, which also houses
its principal research operations, and a plant in San Jose Iturbide, Mexico,
producing hair care products primarily for the Mexican market. Consumer Health
Care's sales and marketing offices are generally leased and shared with local
pharmaceutical sales offices, except in Mexico and the U.K., where Consumer
Health has separate offices.
Our Animal Health business has new world headquarters in leased offices one
block away from the Company's corporate headquarters in New York City. Animal
Health owns its North American headquarters in Exton, Pennsylvania, and leases
some additional space in a nearby office building. It also owns office space in
Zaventem, Belgium for support of its international operations.
Most of Animal Health's research and manufacturing facilities are shared
with our pharmaceutical business. We own major manufacturing facilities
producing animal health products in:
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o Lincoln, Nebraska
o Lee's Summit, Missouri
o Louvain la Neuve, Belgium
Our distribution operations are serviced by our large, state-of-the-art
distribution and order fulfillment operation in a 280,000 square foot building
on a 20 acre site in Memphis, Tennessee. This centrally located U.S. facility
services the Company's pharmaceutical and consumer health care operations and
also houses some customer service operations. Other U.S. distribution facilities
for those operations are located in Clifton and Parsippany, New Jersey, and
Irvine, California. The Animal Health Group operates its own distribution
facilities.
In general, our properties are well maintained, adequate and suitable to
their purposes. The growth of our businesses has created space pressures for
certain operations, however. We have responded to such challenges with plans to
provide appropriate facilities as needs are demonstrated. Note 6 to our
financial statements, PROPERTY, PLANT AND EQUIPMENT on page 49 in our 1998
Annual Report, which discloses amounts invested in land, buildings and
equipment, and the discussion of investing activities under the heading SUMMARY
OF CASH FLOWS on page 34 of the Annual Report, which describes our capital
expenditures, are incorporated by reference. See, also, the discussion under
Note 11 entitled LEASE COMMITMENTS on page 53 of the Annual Report, which is
also incorporated by reference.
ITEM 3. 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.
Final discovery has been extended to May 3, 1999, with dispositive motions to be
filed by May 21, 1999. On March 15, 1999, the FDA issued a tentative approval
for Mylan's 30 mg. extended release nifedipine tablet. The tentative approval
states that final approval cannot be granted until resolution of the instant
patent litigation, patent expiration or expiration of the statutory stay
provisions, and that the FDA is assured that there is no new information that
would affect final approval.
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 Laboratories of a 30 mg. dosage formulation of nifedipine
alleged to be bioequivalent to Procardia XL. 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 May 6, 1998, Bayer and Pfizer filed a second patent infringement
action in Puerto Rico against Biovail under the same patent with respect to
Biovail's 30 mg. nifedipine product. These actions have been consolidated for
discovery and trial. On April 24, 1998, Biovail Laboratories Inc. brought suit
in the United States District Court for the Western District of Pennsylvania
against the Company and Bayer
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<PAGE>
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. Biovail has also moved to transfer the patent infringement actions from
Puerto Rico to the Western District of Pennsylvania. Pfizer has opposed this
motion to transfer and on June 19, 1998, moved to dismiss Biovail's declaratory
judgment action and antitrust action in the Western District of Pennsylvania,
or in the alternative to stay the action pending the outcome of the infringement
actions in Puerto Rico. On January 4, 1999, the District Court in Pennsylvania
granted Pfizer's motion for a stay of the antitrust action pending the outcome
of the infringement actions in Puerto Rico. On January 29, 1999, the District
Court in Puerto Rico denied Biovail's motion to transfer the patent infringement
actions from Puerto Rico to the Western District of Pennsylvania.
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. On May 14, 1998, Bayer and Pfizer commenced suit
against Lek for infringement of Bayer's U.S. Patent No. 5,264,446, as well as
for infringement of a second Bayer patent, No. 4,412,986 relating to
combinations of nifedipine with certain polymeric materials. On September 14,
1998, Lek was served with the summons and complaint. Plaintiffs amended the
complaint on November 10, 1998, limiting the action to infringement of U.S.
Patent 4,412,986. On January 19, 1999, Lek filed a motion to dismiss the
complaint alleging infringement of U.S. Patent 4,412,986. Pfizer's response to
this motion was filed on February 25, 1999.
On November 9, 1998, Pfizer received an ANDA notice letter from Martec
Pharmaceutical, Inc. for generic versions (30 mg., 60 mg., 90 mg.) of Procardia
XL. On or about December 18, 1998, Pfizer received a new ANDA certification
letter stating that the ANDA had actually been filed in the name of Martec
Scientific, Inc. On December 23, 1998, Pfizer brought an action against Martec
Pharmaceutical, Inc. and Martec Scientific, Inc. in the Western District of
Missouri for infringement of Bayer's patent relating to nifedipine of a specific
particle size. On January 26, 1999, a second complaint was filed against Martec
Scientific in the Western District of Missouri based on Martec's new ANDA
certification letter.
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 and arguments in the
case were heard on February 1, 1999. We are awaiting the decision.
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-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 established a worldwide settlement class of people with C/C heart valves
and their spouses, except those who elected to
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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 received 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 Company has entered into a consent decree settling all matters with the
United States Environmental Protection Agency--Region I and the Department of
Justice arising primarily out of a December 1993 multimedia environmental
inspection, as well as certain state inspections, of the Company's Groton,
Connecticut facility. The consent decree provides for the payment of $625,000 in
fines, undertaking of an environmental project at a cost of $150,000 and certain
other operational provisions, the implementation of which will not have a
material adverse effect on the 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
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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, but most have been resolved.
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 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 December 28, 1998, there were 57,819 personal injury claims pending
against Quigley (excluding those which are inactive or have been settled in
principle), 33,185 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 was 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 were 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
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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. 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 were not increased. The Settlement Agreement, as amended,
received final approval on June 21, 1996. Appeals from this decision were
dismissed by the U.S. Court of Appeals for the Seventh Circuit in May 1997.
Trial began in September 1998 for the class case against the non-settlers, and
the District Court also permitted the opt-out plaintiffs to add the wholesalers
as named defendants in their cases. The District Court dismissed the case at the
close of the plaintiffs' evidence. The plaintiffs have appealed.
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.
In addition to its settlement of the retailer Federal Class Action (see
above), the Company has also settled several major opt-out retail cases, and
along with other manufacturers: (1) has entered into an agreement to settle all
outstanding consumer class actions (except Alabama and California), which
settlement is going through the approval process in the various courts in which
the actions are pending; and (2) has entered into an agreement to settle the
California consumer 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
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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. The Committee has issued a draft report
recommending that plaque removal claims should not be permitted in the absence
of data establishing efficacy against gingivitis. The process of incorporating
the Advisory Committee recommendations into a final monograph is expected to
take several years. If the draft recommendation is ultimately accepted in the
final monograph, although it would have a negative impact on sales of Plax, it
will not have a material adverse effect on the sales, financial position or
operations of the Company.
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 Plaintiffs' motion to certify the class was held on June 2, 1998. We
are awaiting the Court's decision. The Company believes the complaint is without
merit.
The Federal Trade Commission conducted an investigation of the advertising
of Rid, which was resolved by a Consent Decree made final in December, 1998. At
the same time, the New York State Attorney General's office is investigating the
same or similar matters.
Since December 1998, three actions have been filed in the state courts in
Houston, San Francisco, and Chicago, purportedly on behalf of statewide
(California) or nationwide (Houston and Chicago) classes of consumers who allege
that the Company's and other manufacturers' advertising and promotional claims
for RID and other pediculicides were untrue, entitling them to refunds, other
damages and/or injunctive relief. The Houston case has been removed to federal
court; no proceedings have yet occurred in the other cases. The Company believes
the complaints are 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. A full examination of
the progress made by the Company in this area will occur in 1999.
During 1998, the Company completed the sale of all of the businesses and
companies that were part of the Medical Technology Group ("MTG"). As part of the
sale provisions, the Company has retained responsibility for certain items
including matters related to the sale of MTG products sold by the Company before
the sale of the MTG businesses. A number of cases have been brought against
Howmedica Inc. (some of which also name the Company) alleging 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
24
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were filed and ultimately dismissed or discontinued. Thereafter, between late
1996 and early 1998, approximately 700 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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<TABLE>
<CAPTION>
EXECUTIVE OFFICERS OF THE COMPANY
As of March 10, 1999, the following executive officers of the Company
hold the offices indicated until their successors are chosen and qualified
after the next annual meeting of shareholders.
NAME AGE POSITION
<S> <C>
Brian W. Barrett........... 59 Vice President; President - Animal Health Group
M. Kenneth Bowler.......... 56 Vice President, Federal Government Relations
C. L. Clemente............. 61 Senior Vice President, Corporate Affairs; Secretary and Corporate
Counsel; Member of the Corporate Management Committee
P. Nigel Gray.............. 60 Vice President
Gary N. Jortner............ 53 Vice President; Senior Vice President, Product Development - Pfizer
Pharmaceuticals Group
Karen L. Katen............. 50 Vice President; Executive Vice President - Pfizer Pharmaceuticals
Group and President - U.S. Pharmaceuticals; Member of the Corporate
Management Committee
J. Patrick Kelly........... 41 Vice President; Senior Vice President - Worldwide Marketing -
Pfizer Pharmaceuticals Group
Alan G. Levin.............. 36 Vice President; Treasurer
Henry A. McKinnell......... 56 Executive Vice President; President - Pfizer Pharmaceuticals Group;
Member of the Corporate Management Committee
Victor P. Micati........... 59 Vice President; Executive Vice President - Pfizer Pharmaceuticals
Group
Paul S. Miller............. 59 Senior Vice President; General Counsel; Member of the Corporate
Management Committee
George M. Milne, Jr........ 55 Vice President; President, Central Research; Member of the
Corporate Management Committee
John F. Niblack............ 60 Executive Vice President; Member of the Corporate Management
Committee
William J. Robison......... 63 Senior Vice President - Corporate Employee Resources; Member of the
Corporate Management Committee
Herbert V. Ryan............ 61 Vice President; Controller
Craig Saxton............... 56 Vice President; Executive Vice President, Central Research
David L. Shedlarz.......... 50 Senior Vice President and Chief Financial Officer; Member of the
Corporate Management Committee
Mohand Sidi Said........... 60 Vice President; Senior Vice President - Pfizer Pharmaceuticals
Group and Area President, Asia/Africa/Middle East
William C. Steere, Jr...... 62 Chairman of the Board and Chief Executive Officer; Chair of the
Corporate Management Committee
Frederick W. Telling....... 47 Vice President, Corporate Strategic Planning and Policy
</TABLE>
26
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Information concerning Messrs. Steere, Clemente and Miller and Drs. McKinnell
and Niblack is incorporated by reference from the discussion under the captions
NOMINEES FOR DIRECTORS WHOSE TERMS EXPIRE IN 2001, DIRECTORS WHOSE TERMS EXPIRE
IN 2000 and NAMED EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS in our Proxy
Statement for the 1999 Annual Meeting of Shareholders.
BRIAN W. BARRETT
Mr. Barrett joined us in 1966 and has held various financial positions,
including Chief Financial Officer of Pfizer Canada. In 1971, he was appointed
Assistant Controller of Pfizer International in New York; in 1973, Director of
International Planning and in 1976, Director of Planning. In 1980, Mr. Barrett
was appointed Vice President - Corporate Strategic Planning; in 1983, he became
Vice President - Finance for Pfizer International; in 1985, President -
Africa/Middle East; and in 1991, President - Asia/Canada. In 1992, Mr. Barrett
was elected one of our Vice Presidents and in 1993, became President, Northern
Asia, Australasia and Canada International Pharmaceuticals Group. Mr. Barrett
was named Executive Vice President, International Pharmaceuticals Group, in 1995
and President - Animal Health Group in April 1996.
M. KENNETH BOWLER
Mr. Bowler joined us in 1989 and has been Vice President - Federal Government
Relations since 1990. He formerly served as Staff Director for the House Ways
and Means Committee.
P. NIGEL GRAY
Mr. Gray joined us in 1975 as Export Sales Manager for Howmedica U.K., Ltd., in
England, and progressed through a number of positions of increasing
responsibility before being named Vice President, Marketing for Howmedica Europe
in 1983. In 1987, Mr. Gray became Senior Vice President and General Manager of
Howmedica International in Staines, England, then President of Howmedica
International in 1992. In 1993, he was named Executive Vice President of our
Hospital Products Division and President of the Medical Devices Division, and in
1994, he was elected one of our Vice Presidents. In 1995, Mr. Gray became
President of our former Medical Technology Group.
GARY N. JORTNER
Mr. Jortner joined us in 1973 as a Systems Analyst for Pfizer Pharmaceuticals.
In 1974, he transferred to product management and progressed through a series of
promotions that resulted in his being named Group Product Manager for Pfizer
Labs in 1978. In 1981, he became Vice President of Marketing for Pfizer Labs. In
1986, he was promoted to Vice President of Operations for Pfizer Labs. In 1991,
he was named Vice President and General Manager, Pfizer Labs Division. In 1992,
Mr. Jortner was elected one of our Vice Presidents. In 1994, he was named Vice
President; Group Vice President, Disease Management - U.S. Pharmaceuticals
Group. In 1997, he became Vice President, Product Development - Pfizer
Pharmaceuticals Group, and in 1998, he was promoted to Senior Vice President,
Product Development - Pfizer Pharmaceuticals Group.
KAREN L. KATEN
Ms. Katen joined us in 1974 as a Marketing Associate for Pfizer Pharmaceuticals.
Beginning in 1975, she progressed through a number of positions of increasing
responsibility in the Roerig product management group which resulted in her
being named Group Product Manager in 1978. In 1980, she transferred to Pfizer
Labs as a Group Product Manager and later became Director, Product Management.
In 1983, she returned to Roerig as Vice President-Marketing. In 1986, she was
named Vice President and General Manager-Roerig Division. In 1992, she was
elected one of our Vice Presidents. In 1993, Ms. Katen became Executive Vice
President of the U.S. Pharmaceuticals Group and, in 1995, Ms. Katen was named
President of the U.S. Pharmaceuticals Group. In January 1997, she became
Executive Vice President - Pfizer Pharmaceuticals Group.
27
<PAGE>
Ms. Katen is a Director of General Motors Corporation and Harris Corporation,
and serves on the International Council of J.P. Morgan & Co.
J. PATRICK KELLY
Mr. Kelly joined us in 1981 as a Marketing Research Associate in the
Pharmaceuticals Division. He became Product Analyst in 1982 and, in 1983, was
made Marketing Associate in the Roerig Division. He progressed through a series
of positions of increasing responsibility and became Group Product Manager for
Roerig in 1989. In 1992, he was named Vice President-Marketing, Roerig in the
U.S. Pharmaceuticals Group and, in 1994, became its Group Vice President,
Disease Management. In 1996, he was elected one of our Vice Presidents and, in
1997, was named Senior Vice President, Disease Management - U.S.
Pharmaceuticals, and later that year became Vice President - Pfizer
Pharmaceuticals Group and Senior Vice President - U.S. Pharmaceuticals. In 1998,
Mr. Kelly was named Senior Vice President-Worldwide Marketing-Pfizer
Pharmaceuticals Group.
ALAN G. LEVIN
Mr. Levin joined us in 1987 as Senior Operations Auditor for the Controller's
Division. In 1988, he joined the Treasurer's Division as Controller of the
Pfizer International Bank in San Juan, Puerto Rico. He returned to New York in
1991 as Director-Finance, Asia, and in 1993 was named Senior Director-Finance,
Asia. In 1995, Mr. Levin was elected our Treasurer. In 1997, he was elected Vice
President; Treasurer.
VICTOR P. MICATI
Mr. Micati joined us in 1965 as a Management Candidate for Pfizer Labs.
Beginning in 1966, he progressed through a number of positions of increasing
responsibility in the Pfizer Labs division, which resulted in his being named
Vice President - Marketing in 1971. In 1972, he became Vice President of
Pharmaceutical Development for International Pharmaceuticals. In 1980, he was
named Executive Vice President of Pfizer Europe. Mr. Micati returned to the
International Pharmaceutical Division in 1984 as Senior Vice President, and from
1990 to 1997 was Area President, Europe. In 1992, he was elected one of our Vice
Presidents. Mr. Micati was named Executive Vice President, International
Pharmaceuticals Group in 1996, and in 1997 was named Executive Vice President of
the Pfizer Pharmaceuticals Group.
GEORGE M. MILNE, JR.
Dr. Milne joined us in 1970 as a Research Scientist and was promoted to Senior
Research Scientist and then Project Manager in 1973 and 1974, respectively. In
1978, Dr. Milne became a Discovery Manager with responsibility for research
programs targeting inflammation, pain and mental disease. Following additional
postdoctoral training and research in pharmacology, he was promoted to Director
and then Executive Director of the Department of Immunology and Infectious
Diseases. In 1985, Dr. Milne was appointed the Vice President of global Research
and Development Operations before becoming the Senior Vice President of Research
and Development in 1988. In 1993, Dr. Milne was elected one of our Vice
Presidents and, since that same year, has been President of our Central Research
Division.
WILLIAM J. ROBISON
Mr. Robison joined us in 1961 as a Sales Representative for Pfizer Labs. After
serving in a number of positions of increasing responsibility in the Labs
division, he was appointed Vice President of Sales in 1980, and Senior Vice
President Pfizer Labs in 1986. In 1990, he was appointed Vice President and
General Manager of Pratt Pharmaceuticals. In 1992, he was named President of the
Consumer Health Care Group, and was elected one of our Vice Presidents. In 1996,
Mr. Robison was elected Senior Vice President Corporate Employee Resources.
HERBERT V. RYAN
Mr. Ryan joined us in 1962 as Supervisor, Capital Assets. In 1964, he was named
Supervisor, Corporate Ledger and, in 1966,
28
<PAGE>
became Director, Corporate Accounting. In 1981, he was appointed Assistant
Controller, Corporate Accounting, and in 1993, Mr. Ryan was elected Corporate
Controller. In 1997, Mr. Ryan was elected Vice President; Controller.
CRAIG SAXTON
Dr. Saxton joined us in 1976 as Clinical Projects Director for the Central
Research Division of Pfizer Limited in Sandwich, England. In 1981, he was named
Senior Associate Medical Director for the International Division of Pfizer Inc.
and, in 1982, became the Division's Vice President, Medical Director. Dr. Saxton
became Senior Vice President, Clinical Research and Development for the Central
Research Division in 1988. In 1993, he was named Executive Vice President -
Central Research and was elected one of our Vice Presidents.
DAVID L. SHEDLARZ
Mr. Shedlarz joined us in 1976 as Senior Financial Analyst in the
Pharmaceuticals Division. Following a series of positions of increasing
responsibility, including service as financial manager and controller of
Marketing/Sales/Production, Diagnostics Division, he was promoted to Production
Controller of the U.S. Pharmaceuticals Division in 1979. He was appointed
Assistant Group Controller, U.S. Pharmaceuticals Division in 1981. In 1984, Mr.
Shedlarz assumed responsibilities as Group Controller and was promoted to Vice
President of Finance of the U.S. Pharmaceuticals Group in 1989. He was elected
our Vice President - Finance in 1992, and he was named our Chief Financial
Officer in 1995. Mr. Shedlarz assumed his responsibilities as our Senior Vice
President in January 1997.
MOHAND SIDI SAID
Mr. Sidi Said joined us in 1965 as a professional sales representative. During
his career, he has held a variety of management assignments in Algeria, Morocco,
Kenya, Egypt, France, Belgium, and the United States. In 1996, he was elected
one of our Vice Presidents and was also named Senior Vice President - Pfizer
Pharmaceuticals Group and Area President - Asia/Africa/Middle East.
FREDERICK W. TELLING
Dr. Telling joined Pfizer Pharmaceuticals and Diagnostic Products Group in 1977
and progressed through a number of positions of increasing responsibility before
being named Director of Planning for the Pharmaceuticals Division in 1981. In
1987, he was named Vice President of Planning and Policy and, in 1994, Senior
Vice President of Planning and Policy for the U.S. Pharmaceuticals Group. In
October 1994, Dr. Telling was elected our Vice President, Corporate Strategic
Planning and Policy.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The principal market for our Common Stock is the New York Stock Exchange.
It is also listed on the London, Paris, Brussels, and Swiss Stock Exchanges and
is traded on various United States regional stock exchanges. Additional
information required by this item is incorporated by reference from the table
QUARTERLY CONSOLIDATED FINANCIAL DATA on page 61 of the 1998 Annual Report to
Shareholders.
ITEM 6. SELECTED FINANCIAL DATA
Historical financial information is incorporated by reference from the
FINANCIAL SUMMARY on page 62 of the 1998 Annual Report to Shareholders.
29
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Information required by this item is incorporated by reference from the
FINANCIAL REVIEW on pages 28 through 38 of the 1998 Annual Report to
Shareholders.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information required by this item is incorporated by reference from the
discussion under the heading FINANCIAL RISK MANAGEMENT on pages 36 and 37 of the
1998 Annual Report to Shareholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required by this item is incorporated by reference from the
INDEPENDENT AUDITORS' REPORT found on page 39 and from the consolidated
financial statements and supplementary data on pages 40 through 61 of the 1998
Annual Report to Shareholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Information about our Directors is incorporated by reference from the
discussion under Item 1 of our Proxy Statement for the 1999 Annual Meeting of
Shareholders. The balance of the response to this item is contained in the
discussion entitled EXECUTIVE OFFICERS OF THE COMPANY in Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION
Information about executive compensation is incorporated by reference from
the discussion under the heading EXECUTIVE COMPENSATION in our Proxy Statement
for the 1999 Annual Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information about security ownership of certain beneficial owners and
management is incorporated by reference from the discussion under the heading
SECURITY OWNERSHIP OF DIRECTORS AND OFFICERS in Item 1 of our Proxy Statement
for the 1999 Annual Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information about certain relationships and transactions with related
parties is incorporated by reference from the discussion under the heading
RELATED TRANSACTIONS in our Proxy Statement for the 1999 Annual Meeting of
Shareholders.
30
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
14 (a)(1) FINANCIAL STATEMENTS The following consolidated financial
statements, related notes and independent auditors' report, from the 1998 Annual
Report to Shareholders, are incorporated by reference into Item 8 of Part II of
this report:
PAGE(S) IN THE 1998 ANNUAL
REPORT TO SHAREHOLDERS
Independent Auditors' Report....................... 39
Segment Information................................ 60
Geographic Data.................................... 60
Consolidated Statement of Income................... 40
Consolidated Balance Sheet......................... 41
Consolidated Statement of Shareholders' Equity..... 42
Consolidated Statement of Cash Flows............... 43
Notes to Consolidated Financial Statements......... 44 - 60
Quarterly Consolidated Financial Data.............. 61
14(a)(2) FINANCIAL STATEMENT SCHEDULES Schedules are omitted because they
are not required or the information is given elsewhere in the financial
statements. The financial statements of unconsolidated subsidiaries are omitted
because, considered in the aggregate, they would not constitute a significant
subsidiary.
14(a)(3) EXHIBITS THESE EXHIBITS ARE AVAILABLE UPON REQUEST. REQUESTS
SHOULD BE DIRECTED TO C.L. CLEMENTE, SECRETARY, PFIZER INC., 235 EAST 42ND
STREET, NEW YORK, NY 10017.
3(i) - Our Restated Certificate of Incorporation as of October 29,
1997, is incorporated by reference from our 10-Q report for
the period ended September 28, 1997.
3(ii) - Our By-laws as amended June 23, 1994, are incorporated by
reference from Exhibit 3(ii) of our report
on Form 8-K dated June 23, 1994.
4(i) - Our Rights Agreement dated as of October 6, 1997, with
ChaseMellon Shareholders Services, L.L.C. is incorporated by
reference from our report on Form 8-K dated October 6, 1997.
10(i) - Stock and Incentive Plan as amended through January 28, 1999.
10(ii) - Pfizer Retirement Annuity Plan as amended through November 6,
1997 is incorporated by reference from
our 1997 10-K report.
10(iii) - The form of severance agreement with the Named Executive
Officers identified in our Proxy
31
<PAGE>
Statement for the 1999 Annual Meeting of Shareholders is
incorporated by reference from our 1994 10-K report.
10(iv) - Nonfunded Deferred Compensation and Supplemental Savings Plan
is incorporated by reference from our 1996 10-K report.
10(v) - Executive Annual Incentive Plan is incorporated by reference
from the exhibit to our Proxy Statement
for the 1997 Annual Meeting of Shareholders.
10(vi) - Performance-Contingent Share Award Program is incorporated by
reference from Exhibit 10.3 to our
10-Q report for the period ended September 29, 1996.
10(vii) - Nonfunded Supplemental Retirement Plan is incorporated by
reference from our 1996 10-K report.
10(viii) - The form of Indemnification Agreement with Directors is
incorporated by reference from our 1996 10-K report.
10(ix) - The form of Indemnification Agreement with Named Executive
Officers is incorporated by reference from our 1997 10-K
report.
10(x) - Non-Employee Directors' Retirement Plan [frozen as of October
1996] is incorporated by reference from our 1996 10-K report.
10(xi) - Annual Retainer Unit Award Plan (for non-employee Directors)
is incorporated by reference from Exhibit 10.1 to our 10-Q
report for the period ended September 29, 1996.
10(xii) - Nonfunded Deferred Compensation and Unit Award Plan for
Non-Employee Directors is incorporated by reference from
Exhibit 10.2 to our 10-Q report for the period ended
September 29, 1996.
10(xiii) - Restricted Stock Plan for Non-Employee Directors is
incorporated by reference from our 1996 10-K report.
10(xiv) - Deferred Compensation Plan is incorporated by reference from
our 1997 10-K report.
10(xv) - Summary of Annual Incentive Plan.
10(xvi) Amendment to the August 13, 1998, Stock and Asset Purchase
Agreement between Pfizer Inc. and Stryker Corporation dated
as of October 22, 1998.
12 - Computation of Ratio of Earnings to Fixed Charges.
13(a) - The 1998 Annual Report to Shareholders, which, except for
those portions incorporated by reference, is furnished solely
for the information of the Commission and is not to be deemed
"filed".
21 - Subsidiaries of the Company.
23 - Consent of KPMG LLP, independent certified public accountants.
27.1 - Financial Data Schedule for Period Ended December 31, 1998.
27.2 - Financial Data Schedule for Period Ended December 31, 1997.
27.3 - Financial Data Schedule for Period Ended December 31, 1996.
(b) Reports on Form 8-K
The Company filed reports on Form 8-K during the last quarter of 1998 dated
October 2, and December 8, 1998.
32
<PAGE>
SIGNATURES
Under the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, this report was signed on behalf of the Registrant by the
authorized person named below.
Pfizer Inc.
By: /s/C.L. Clemente
Dated: March 25, 1999 C.L. Clemente, Senior Vice President,
Secretary and Corporate Counsel
Under the requirements of the Securities Exchange Act of 1934, this report
was signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/William C. Steere, Jr.
----------------------------------- Chairman of the Board, Director March 25, 1999
(William C. Steere, Jr.) (Principal Executive Officer)
/s/David L. Shedlarz
----------------------------------- Senior Vice President and Chief Financial
(David L. Shedlarz) Officer (Principal Financial Officer) March 25, 1999
/s/Herbert V. Ryan
----------------------------------- Vice President - Controller (Principal March 25, 1999
(Herbert V. Ryan) Accounting Officer)
/s/Michael S. Brown Director
-----------------------------------
(Michael S. Brown) March 25, 1999
/s/M. Anthony Burns Director March 25, 1999
-----------------------------------
(M. Anthony Burns)
/s/W. Don Cornwell Director March 25, 1999
-----------------------------------
(W. Don Cornwell)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/George B. Harvey Director March 25, 1999
-----------------------------------
(George B. Harvey)
/s/Constance J. Horner Director March 25, 1999
-----------------------------------
(Constance J. Horner)
/s/Stanley O. Ikenberry Director March 25, 1999
-----------------------------------
(Stanley O. Ikenberry)
/s/Harry P. Kamen Director March 25, 1999
-----------------------------------
(Harry P. Kamen)
/s/Thomas G. Labrecque Director March 25, 1999
-----------------------------------
(Thomas G. Labrecque)
/s/Dana G. Mead Director March 25, 1999
-----------------------------------
(Dana G. Mead)
/s/Henry A. McKinnell Executive Vice President and Director March 25, 1999
-----------------------------------
(Henry A. McKinnell)
/s/John F. Niblack Executive Vice President and Director March 25, 1999
-----------------------------------
(John F. Niblack)
/s/Franklin D. Raines Director March 25, 1999
-----------------------------------
(Franklin D. Raines)
/s/Ruth J. Simmons Director March 25, 1999
-----------------------------------
(Ruth J. Simmons)
/s/Jean-Paul Valles Director March 25, 1999
-----------------------------------
(Jean-Paul Valles)
</TABLE>
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Page Number in Sequential
No. Number System
- - ------ -------------------------
<S> <C> <C>
10(i) Stock and Incentive Plan as amended through January 28, 1999.
10(xv) Summary of Annual Incentive Plan.
10(xvi) Amendment to the August 13, 1998, Stock and Asset Purchase
Agreement between Pfizer Inc. and Stryker Corporation dated
as of October 22, 1998.
12 Computation of Ratio of Earnings to Fixed Charges.
13(a) The 1998 Annual Report to Shareholders, which, except for
those portions incorporated by reference, is furnished solely
for the information of the Commission and is not to be deemed
"filed".
21 Subsidiaries of the Company.
23 Consent of KPMG LLP, independent certified public accountants.
27.1 Financial Data Schedule for the Period Ended December 31, 1998.
27.2 Financial Data Schedule for the Period Ended December 31, 1997.
27.3 Financial Data Schedule for the Period Ended December 31, 1996.
</TABLE>
EXHIBIT 10(i)
PFIZER INC
STOCK AND INCENTIVE PLAN
(AS AMENDED THROUGH 1/28/99)
1. PURPOSE
The purpose of the Stock and Incentive Plan (known as the "Stock Option
and Incentive Plan of 1965 as amended" prior to the 1980 amendment thereof and
hereinafter called the "Plan") is to furnish a material incentive to employees
of the Company and its subsidiaries by making available to them the benefits of
a larger Common Stock ownership in the Company through stock options and
otherwise. It is believed that these increased incentives will not only induce
the continued service of employees but will also stimulate their efforts towards
the continued success of the Company and its subsidiaries, as well as assist in
the recruitment of new employees. Nothing in the Plan shall interfere with or
limit in any way the right of the Company or any subsidiary to terminate any
participant's employment at any time, nor confer upon any participant any right
to continue in the employ of the Company or any subsidiary. No employee shall
have the right to be selected to receive an option or other award under this
Plan or having been so selected, to be selected to receive a future award grant
or option. Neither the award nor any benefits arising out of this Plan shall
constitute part of a participant's employment contract with the Company or any
subsidiary and, accordingly, this Plan and the benefits hereunder may be
terminated at any time in the sole and exclusive discretion of the Company
without giving rise to liability on the part of the Company or any subsidiary
for severance payments.
2. ADMINISTRATION
Except to the extent otherwise provided in Section 4 and Section 15,
the Plan shall be administered by the Employee Compensation and Management
Development Committee, which shall make, in its sole discretion, all
determinations arising in the administration, construction or interpretation of
the Plan including the right to construe disputed or doubtful Plan terms and
provisions, and any such determination shall be conclusive and binding on all
persons, except as otherwise provided by law.
3. TOTAL NUMBER OF SHARES
Subject to the provisions of Section 6(h), the maximum amount of stock
which may be issued under the Plan is 338,000,000* shares of the Common Stock of
the Company (comprised of 24,000,000* shares authorized in 1965, 24,000,000*
shares authorized in 1969, 24,000,000** shares authorized in 1972, 24,000,000**
shares authorized in 1975, 24,000,000** shares authorized in 1980, 40,000,000***
shares authorized in 1983, 44,000,000*** shares authorized in 1986,
44,000,000*** shares authorized in 1989, 44,000,000**** shares authorized in
1992, and 46,000,000***** shares authorized in 1996).
<PAGE>
2
No participant shall be granted (i) options which would result in such
participant receiving more than 480,000* shares of the total number of shares
authorized in 1965, more than 480,000* shares of the total number of shares
authorized in 1969, or more than 480,000** shares of the total number of shares
authorized in 1972, or (ii) options or awards which would result in such
participant receiving more than 480,000** shares of the total number of shares
authorized in 1975, more than 800,000** shares of the total number of shares
authorized in 1980, more than 800,000*** shares of the total number of shares
authorized in 1983, more than 1,200,000*** shares of the total number of shares
authorized in 1986, more than 1,200,000*** shares of the total number of shares
authorized in 1989, more than 1,200,000**** shares of the total number of shares
authorized in 1992, more than 1,200,000***** shares of the total number of
shares authorized in 1996, or (iii) any option, stock award or performance unit
award which would result in ownership by such participant of more than ten
percent of the stock of the Company within the meaning of Section 422 of the
Internal Revenue Code, or (iv) any incentive stock option, as defined in Section
422 of the Internal Revenue Code granted after December 31, 1986, which would
result in such participant receiving a grant of incentive stock options for
stock that would have an aggregate fair market value in excess of $100,000,
determined as of the time that the option is granted, that would be exercisable
for the first time by such participant during any calendar year. No option with
respect to any shares authorized in 1975 shall be granted to the extent that
shares authorized in 1972 are available therefor, or with respect to any shares
authorized in 1980 to the extent that shares authorized in 1972 or shares
authorized in 1975 are available therefor, or with respect to any shares
authorized in 1983 to the extent that shares authorized in 1972, 1975 or 1980
are available therefor, or with respect to any shares authorized in 1986 to the
extent that shares authorized in 1972, 1975, 1980 or 1983 are available
therefor, or with respect to any shares authorized in 1989 to the extent that
shares authorized in 1972, 1975, 1980, 1983, or 1986 are available therefor, or
with respect to any shares authorized in 1992 to the extent that shares
authorized in 1972, 1975, 1980, 1983, 1986 or 1989 are available therefor or
with respect to any shares authorized in 1996 to the extent that shares
authorized in 1972, 1975, 1980, 1983, 1986, 1989, or 1992 are
- --------------------------
* Adjusted for the three-for-one stock split in 1970, the two-for-one
stock split in 1983, the two-for-one stock split in 1991, the
two-for-one stock split in 1995, and the two-for-one stock split in
1997.
** Adjusted for the two-for-one stock split in 1983, the two-for-one stock
split in 1991, the two-for-one stock split in 1995, and the two-for-one
stock split in 1997.
*** Adjusted for the two-for-one stock split in 1991, the two-for-one stock
split in 1995, and the two-for-one stock split in 1997.
**** Adjusted for the two-for-one stock split in 1995 and the two-for-one
stock split in 1997.
***** Adjusted for the two-for-one stock split in 1997.
<PAGE>
3
available therefor. With respect to all options and stock awards granted on or
after January 1, 1972, the records of the Company shall specify the number of
shares authorized in 1965, the number of shares authorized in 1969, the number
of shares authorized in 1972, the number of shares authorized in 1975, the
number of shares authorized in 1980, the number of shares authorized in 1983,
the number of shares authorized in 1986, the number of shares authorized in
1989, the number of shares authorized in 1992 and the number of shares
authorized in 1996 covered by such options or awards. None of the shares
authorized in 1965, 1969 or 1972 shall be available for stock awards.
4. PARTICIPATION IN PLAN
a. Employees: All employees of the Company or its subsidiaries shall be
eligible to participate in this Plan. From time to time, the Employee
Compensation and Management Development Committee shall determine the employees
who shall be granted options under the Plan, the number of shares of Common
Stock to be optioned to each such employee, and whether such options shall be
"Qualified Stock Options" as defined in Section 422 of the Internal Revenue
Code, "incentive stock options" as defined in Section 422A of the Internal
Revenue Code, or non-qualified stock options, or Tandem Options as defined
herein; and shall determine the individual employees who shall be granted stock
appreciation rights under the Plan pursuant to Section 7; and who shall be
awarded shares under the Plan pursuant to Section 8, as well as the number of
shares of Common Stock to be so awarded, and the restrictions, if any, to be
placed thereon and who shall be granted performance unit awards under the Plan
pursuant to Section 9 and tandem awards under the Plan pursuant to Section 10;
provided, however, that in the case of employees who are also directors of the
Company or officers of the Company in categories designated by the Executive
Compensation Committee, the Executive Compensation Committee shall make these
determinations; and provided further, that the Executive Compensation Committee,
or such other Committee as the Board of Directors may appoint, shall make all
determinations with respect to all stock appreciation rights that are
exercisable in cash or partly in stock and partly in cash and with respect to
all options related thereto.
b. Ineligible Persons: For any and all purposes under this Plan, the
term "employee" shall not include a person hired as an independent contractor,
leased employee, consultant or a person otherwise designated by the Company at
the time of hire as not eligible to participate in or receive benefits under the
Plan, even if such ineligible person is subsequently determined to be an
"employee" by any governmental or judicial authority.
5. TERM OF PLAN
No option with respect to shares authorized in or prior to 1969 under
this Plan shall be granted pursuant to this Plan after December 31, 1978, no
option with respect to shares authorized in 1972 shall be granted pursuant to
this Plan after December 31, 1992, no option, stock appreciation right or stock
award, with respect to shares authorized in 1975 shall be
<PAGE>
4
granted pursuant to this Plan after December 31, 1992, no option, stock
appreciation right, stock award, performance unit award or tandem award with
respect to shares authorized in 1980 shall be granted pursuant to this Plan
after December 31, 1992, no option, stock appreciation right, stock award,
performance unit award or tandem award with respect to shares authorized in 1983
shall be granted pursuant to this Plan after December 31, 1992, no option, stock
appreciation right, stock award, performance unit award or tandem award with
respect to shares authorized in 1986 shall be granted pursuant to this Plan
after December 31, 1995, no option, stock appreciation right, stock award,
performance unit award or tandem award with respect to shares authorized in 1989
shall be granted pursuant to this Plan after December 31, 1998, no option, stock
appreciation right, stock award, performance unit award or tandem award with
respect to shares authorized in 1992 shall be granted pursuant to this Plan
after December 31, 2001, no option, stock appreciation right, stock award,
performance unit award or tandem award with respect to shares authorized in 1996
shall be granted pursuant to this Plan after December 31, 2005, but options,
stock appreciation rights, performance unit awards, tandem awards and
restrictions on awards may extend beyond such dates.
6. TERMS AND CONDITIONS OF OPTIONS
All options under the Plan shall be subject to the following terms and
conditions:
(a) Option Price. The option price per share shall be not less than the
fair market value of the Common Stock on the date the option is granted, as
determined by the Committee in accordance with applicable provisions of the
Internal Revenue Code and Treasury Department rulings and regulations
thereunder.
(b) Number of Shares. The option shall state the number of shares of
Common Stock covered thereby.
(c) Payment. At the time of the exercise of the option the option price
shall be payable in cash and/or, if the option so provides, in shares of Common
Stock valued at the market price at the time the option is exercised. The
Committee may in its discretion require or permit payroll deductions or other
suitable means to enable optionees to accumulate sufficient funds to exercise
their options and pay the option price.
(d) Term of Option. A qualified option shall provide that it shall not
be exercisable after the expiration of five years from the date such option is
granted. An incentive stock option shall provide that it shall not be
exercisable after the expiration of ten years from the date such option is
granted. A non-qualified option may be exercisable for a period greater than ten
years if so provided in the terms of the option.
(e) Exercise of Option. No option may be exercised during the first
year of its term or such longer period as may be specified in the option;
provided, however, in the event of a "Change of Control" of the Company, as that
term is defined in Section 11(e), the Board
<PAGE>
5
may in its discretion make any options that are not yet exercisable immediately
exercisable, and further provided the Committee may in its discretion make any
options that are not yet exercisable immediately exercisable in cases where (i)
an optionee's employment is to be terminated due to a divestiture or downsizing
of a business, (ii) in the case of a retiring optionee who holds options with
extended vesting provisions, or (iii) otherwise, where the Committee determines
that such action is appropriate to prevent inequities with respect to an
optionee. Thereafter, an optionee, subject to the terms of the option, may
exercise the option in whole at any time or in part from time to time either by
giving written notice thereof addressed to the Treasurer of the Company, or by
using other methods of notice as the Committee shall adopt, specifying the
number of shares to be purchased and accompanied by payment of the option price
therefor. In the event of death, the person designated in the optionee's Will,
or in the absence of such designation, the legal representative of an optionee,
or if a legal representative of the optionee has not been appointed, the
optionee's surviving spouse, may in like manner exercise the option provided the
same was exercisable by the optionee at the time of his death, but such
privilege shall expire, subject to Section 6(d) and 6(g) (iii) hereof, (i) with
respect to options granted on or before January 23, 1975, six months after the
death of the optionee, unless the option shall be amended to substitute a one
year period for such six month period or (ii) with respect to options granted
after January 23, 1975, one year after the death of the optionee; provided,
however, in any event that if the option is not exercised by the last day in
which it is exercisable, the option shall be exercised and the proceeds paid to
the deceased optionee's estate.
(f) Outstanding Options. Any qualified option (referred to in this
paragraph as "new Qualified Option") shall provide that it may not be exercised
while there is outstanding any qualified stock option or restricted stock option
which was granted to the optionee to purchase stock in the Company or a parent
or subsidiary corporation of the Company (as defined, respectively, by sections
425(e) and (f) of the Internal Revenue Code of 1954) or in a predecessor
corporation of any of such corporations, before the granting of said new
Qualified Option. This limitation on exercise shall not apply during such time
as such outstanding qualified or restricted options are to purchase Common Stock
and the option price thereunder (determined as of the date of grant of the new
option) is not more than the option price of the new Qualified Option.
(g) Termination of Option. The option, to the extent not exercised,
shall terminate upon its expiration as set forth in Section 6(d) hereof, its
surrender as set forth in Section 11(c) hereof, or upon breach by the optionee
of any provision of the option, or when the optionee ceases to be an employee
for any reason including retirement, whichever event shall first occur;
provided, however, that with respect to options granted during and subsequent to
August 1997 which are otherwise exercisable in accordance with Section 6(e)
hereof on the date of termination of employment, three months after the optionee
ceases to be an employee for any reason including retirement, however, if the
option so provides, the Committee in its discretion may permit the optionee to
exercise the option for reasons of hardship up to twelve months after
termination, assuming that the option was otherwise exercisable; further except
that, subject to Section 6(d) hereof (i) the optionee, if his employment is
terminated as a result of a disability, and provided the option was exercisable
<PAGE>
6
at the time of termination of employment, may elect to exercise the option,
subject to Section 6(e) hereof, within twelve months after the date of
termination, (ii) in the event of his death while an employee, the option shall
terminate as provided in Section 6(e) hereof, and (iii) notwithstanding
subsections (i) and (ii) above, if the option so provides, in the event that the
optionee has retired or is eligible for retirement under Sections 4a., b. or d.
of the Company's Retirement Annuity Plan, or as the same may be amended from
time to time, or under any pension or retirement plan maintained by the Company
or any of its subsidiaries, the optionee, or in the event of death, the person
designated in the optionee's Will, or in the absence of such designation, the
legal representative of such optionee, or if a legal representative of the
optionee has not been appointed, the optionee's surviving spouse, may elect to
exercise the option at any time until such option expires by its terms;
provided, however, in any event that if the option is not exercised by the last
day in which it is exercisable, the option shall be exercised and the proceeds
paid to the deceased optionee's estate; any subsequent reemployment of the
optionee by the Company shall not affect such optionee's right to exercise the
option as provided in this subsection (iii).
(h) Recapitalization. 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 for which options may
thereafter be granted both in the aggregate and as to each optionee, as well as
in the number and kind of shares subject to options theretofore granted and the
option price payable upon exercise of such options.
(i) Transferability. The option shall provide that it will not be
transferable by the optionee other than by Will or the laws of descent and
distribution and shall be exercisable, during the optionee's lifetime, only by
him; provided, however, that the Committee in its discretion may grant (or
sanction by way of an amendment to an existing grant) non-qualified stock
options which may be transferred by the optionee, solely as gifts during the
optionee's lifetime, to any member of the optionee's immediate family or to a
trust established for the exclusive benefit of one or more members of the
optionee's immediate family, in which case the terms of such option shall so
state. A transfer of an option pursuant to this subjection may be effected only
by the Company at the written request of an optionee and shall become effective
only when recorded in the Company's record of outstanding options. In the event
an option is transferred as contemplated in this subsection, such option may not
be subsequently transferred by the transferee other than by Will or the laws of
descent and distribution, such option shall continue to be governed by and
subject to the terms and conditions of this Plan and the relevant grant, and the
transferee shall be entitled to the same rights as the optionee as if no
transfer had taken place. As used in this subsection, "immediate family" shall
mean any spouse, child, stepchild or grandchild, and shall include relationships
arising from legal adoption.
<PAGE>
7
(j) Applicable Law. The option shall contain a provision that it may
not be exercised at a time when the exercise thereof or the issuance of shares
thereunder would constitute a violation of any federal or state law or listing
requirements of the New York Stock Exchange for such shares. The provisions of
the Plan shall be construed, regulated and administered according to the laws of
the State of New York without giving effect to principles of conflicts of laws,
except to the extent superseded by any controlling Federal statute.
(k) Incorporation by Reference. The option shall contain a provision
that all the applicable terms and conditions of this Plan are incorporated by
reference therein.
(l) Tandem Award. Any option constituting a part of a tandem award
authorized by Section 10 hereof shall be subject to the terms and conditions of
such award.
(m) Other Provisions. The option shall contain such provisions as the
Committee shall deem advisable consistent with the terms of the Plan as herein
set forth. In addition, the qualified stock options and the incentive stock
options shall contain such other provisions as may be necessary to meet the
requirements of the Internal Revenue Code and the Treasury Department rulings
and regulations issued thereunder with respect to qualified stock options and
incentive stock options.
7. STOCK APPRECIATION RIGHTS
The Committee may, in its discretion, grant stock appreciation rights
to the holder of any qualified or non-qualified stock option granted by the
Company. Such appreciation rights shall be subject to such terms and conditions
consistent with the Plan as the Committee shall impose from time to time,
including the following:
(a) An appreciation right may be made part of any such option at the
time of its grant or at any time thereafter prior to its expiration;
(b) Upon exercise of an appreciation right the holder shall be entitled
to receive:
(i) a number of shares of the Common Stock of the Company
determined by dividing:
(1) the number of shares which the optionee selects,
not to exceed the total number of shares that the
optionee is eligible to purchase as of the exercise
date under the related option, multiplied by the
amount, if any, by which the fair market value of a
share of the Common Stock of the Company on the
exercise date exceeds the option price provided in
the related option, by
<PAGE>
8
(2) the fair market value of a share of the Common
Stock of the Company on the exercise date; provided,
however, that the total number of shares which may be
received pursuant to the exercise of an appreciation
right shall not exceed the total number of shares
subject to the related option; or
(ii) if so provided in the award, (a) payment of cash equal to
the aggregate fair market value on the date of such exercise
of the number of shares of Common Stock determined under
clause (i); or (b) in part cash and in part shares; all as
determined by the Committee in its sole discretion;
(c) No fractional share or cash in lieu thereof will be issued upon the
exercise of any such right; and
(d) Exercise of an appreciation right, in whole or in part, shall
exhaust and terminate the related option with respect to the number of shares
used in the calculation under subsection (b)(i)(1) of this Section 7 in
determining the number of shares issued upon such exercise of the appreciation
right (or which would have been issued but for any cash payment). Upon such
exercise of an appreciation right, the number of shares subject to reallocation
under Section 13 shall be equal to the difference between the number of shares
used in the calculation under subsection (b)(i)(1) of this Section 7 and the
number of shares issued to the optionee pursuant to such exercise (or which
would have been issued but for any cash payment).
8. STOCK AWARDS
Stock awards will consist of shares of Common Stock of the Company
issued to participating employees as additional compensation for their services
to the Company. Stock awards shall be subject to the provisions of Section 3,
this Section 8, Section 11(a), (c) and (d) and, during the period in which the
restrictions or the Company's right of reacquisition hereinafter referred to are
in effect, Section 11(b). Other than for stock awards determined in accordance
with the Company's Performance-Contingent Share Award Program and paid out under
this Plan, as to which there shall be no waiting period, each stock award to a
participant shall provide that the shares subject to such award may not be
transferred or otherwise disposed of by the participant prior to the expiration
of a period or periods specified therein, which shall not occur earlier than one
year following the date of the award (except that the award may permit the
earlier lapse of such restriction in the event of the participant's death or
disability or retirement pursuant to any pension or retirement plan maintained
by the Company or any of its subsidiaries), and that the Company shall have the
right to reacquire such shares upon termination of the participant's employment
with the Company while such restriction is in effect, such reacquisition to be
upon the terms and conditions provided in the award. Stock awards shall also be
subject to such other terms and conditions, not inconsistent therewith, as the
Committee determines to be appropriate.
<PAGE>
9
9. PERFORMANCE UNIT AWARDS
Performance unit awards will consist of performance units credited to
participating employees. Each award shall specify the initial value of each
performance unit, such value to be determined by reference to the book or market
value of the Common Stock of the Company or to the Company's earnings or such
other criteria related to the Company's performance as the Committee may deem
appropriate. The award shall be payable in cash and/or Common Stock of the
Company as the Committee shall determine in its sole discretion.
Subject to the provisions of this Section 9 and of Section 11, the
Committee shall have exclusive authority to determine additional terms and
conditions of each performance unit award. Such terms and conditions may
include, without limitation, provisions under which:
(1) On the payment date prescribed in the award a participant shall
become entitled to receive the full value of each such unit on such date, or
such other amount as such award may specify;
(2) Each unit may accrue earnings determined by reference to earnings
per share or dividends paid per share on the Common Stock of the Company, or to
the prime or another specified lending rate, or to other criteria specified in
the award and payable at such time or times as may be specified therein;
(3) The right of a participant to receive payments in respect of a
performance unit may be made subject in whole or in part to the Company's
attainment of earnings or other objectives specified in the award; and
(4) The determination of all relevant valuation and other data
pertaining to the award shall be in the sole judgment of the Committee. Without
limitation of the foregoing, in the event that an amount payable in respect of
an award is based in whole or in part on the Company's earnings or the book
value of its Common Stock, the Committee may make such adjustments to the
publicly reported amounts of the Company's consolidated earnings or of such book
value as it deems appropriate for changes in accounting practices or principles,
for material acquisitions or dispositions of stock or property, for
recapitalizations or reorganizations or for any other events with respect to
which the Committee determines such an adjustment to be appropriate in order to
avoid distortion in the operation of the Plan.
Each award shall be evidenced by a written instrument which shall set
forth the number of performance units covered thereby, the initial dollar value
of each such unit, the terms and conditions, if any, under which such value may
change prior to the vesting of the unit, the terms and conditions under which
each such unit will vest and such other matters as the Committee in its sole
discretion may deem appropriate. The Committee may from time to
<PAGE>
10
time establish such rules as it deems appropriate regarding the manner and
timing of payments of amounts due in respect of vested units.
No performance unit award shall provide for the vesting in a
participating employee of any performance unit covered thereby prior to the
expiration of a period of one year after the date of the award, except that the
award may provide for such vesting in the event of death or disability or
retirement of the employee pursuant to a pension or retirement plan maintained
by the Company or one of its subsidiaries prior to the expiration of such
period. Each award shall provide that prior to the vesting of the units covered
thereby they shall be subject to forfeiture (A) upon the termination of the
recipient's employment with the Company, (B) as contemplated by Section 10
hereof, if such award is part of a tandem award, and (C) as may otherwise be
specified in the award.
No participant shall be entitled to receive in respect of a performance
unit payments of amounts exceeding twice the original value established for such
unit.
The maximum dollar value of performance units which may be initially
awarded to participants may not exceed 1,500,000 "Reference Units" in the
aggregate for all participants, and 50,000 Reference Units for any one
participant. For purposes of this paragraph:
(1) A Reference Unit shall be the equivalent of the greater of (a) the
fair market value of one share of the Common Stock of the Company on the date as
of which a particular award of performance units is made, or (b) the book value
of a share of such Common Stock as at the end of the last completed fiscal year
of the Company prior to such award date plus the cash dividends paid per share
on such stock during such fiscal year; and
(2) Crediting of an award of performance units shall exhaust and
terminate a number of Reference Units equal to the number obtained by dividing
the credited dollar value of such performance units by the greater of the
amounts referred to in subclauses (a) and (b) of Clause 1 above, and except as
provided in the following sentence, such terminated Reference Units shall not be
utilized for subsequent awards.
In the event that an award of performance units is forfeited or for any
other reason the cash amount or the value of the shares of the Common Stock of
the Company (as determined by the Committee in its sole judgment) ultimately
delivered to a participant in payment for an award of performance units (other
than amounts paid to the participant as earnings on the performance units) is
less than the Reference Units originally exhausted and terminated upon the
crediting of such award, a number of Reference Units equal to the dollar amount
of such shortfall divided by the value originally assigned to such Reference
Units shall be restored and become available for subsequent awards under the
Plan.
Nothing contained herein shall be deemed to limit the right of the
Board of Directors or a duly appointed committee thereof to authorize the
payment or award of compensation other than in stock to any employee otherwise
than pursuant to the Plan, regardless of the fact
<PAGE>
11
that a particular form of compensation may be the same as or similar to that
which the Committee may pay or award to participants under Section 9 of the
Plan.
10. TANDEM AWARDS
The Committee may, in its discretion, grant tandem awards to
participating employees. A tandem award shall consist of a right of election by
the employee among two or more of the following: (A) an option, which may
include a stock appreciation right with respect thereto, (B) a performance unit
award, and (C) a stock award. Subject to the provisions of Section 11, such
right of election shall be upon such terms and conditions as the Committee may
specify in the tandem award, which shall include the following:
(a) The number of shares of the Common Stock of the Company covered by
the option, the number of shares covered by the stock award and the number of
performance units covered by the performance unit award;
(b) Provisions establishing the number of shares and performance units
which will remain subject to each portion of the tandem award upon the exercise
of the right of election in whole or in part; and
(c) The date on which the right of election shall terminate unless
earlier exercised or terminated pursuant to the terms of the tandem award.
11. CONDITIONS APPLICABLE TO ALL AWARDS
(a) Recapitalization. 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 and performance units
subject to Sections 8, 9 and 10 and the maximum dollar value of performance
units subject to Sections 9 and 10.
(b) Transferability. Each award to a participant under Section 8, 9 or
10 shall provide that neither the award nor any right or interest of a
participant therein shall be transferable by the participant other than by Will
or the laws of descent and distribution, and that such award shall be
exercisable, during the participant's lifetime, only by him.
(c) Surrender. The Committee may require the surrender of an option,
stock appreciation right, stock award or performance unit award granted under
this Plan as a condition precedent to a grant of a new option, stock
appreciation right, stock award
<PAGE>
12
or performance unit award for the same or a different number of shares or having
the same or a different initial value in Reference Units as the option, stock
appreciation right, stock award or performance unit award surrendered; provided
that a qualified option or incentive stock option which is so surrendered shall,
solely for the provisions of Section 6(f) hereof, be deemed to be an outstanding
qualified option or incentive stock option until such surrendered qualified
option or incentive stock option would have expired by reason of the lapse of
time, notwithstanding the fact that it had been surrendered and was no longer
exercisable. Such new option, stock appreciation right, stock award or
performance unit award shall be subject to the terms or conditions specified by
the Committee at the time the new option, stock appreciation right, stock award
or performance unit award is granted, all determined in accordance with the
provisions of this Plan without regard to the price, period of exercise, or any
other terms or conditions of the option, stock appreciation right, stock award
or performance unit award surrendered.
(d) Leave of Absence. If approved by the Committee, an employee's
absence or leave because of military or governmental service, disability or
other reason shall not be considered an interruption of employment for any
purpose of the Plan.
(e) Change of Control shall mean the occurrence of any of the following
events: (a) at any time during the two-year period following the Effective Date,
or the beginning of a renewal term as the case may be, at least a majority of
the Company's Board of Directors shall cease to consist of "Continuing
Directors" (meaning directors of the Company who either were directors at the
beginning of such two-year period or who subsequently became directors and whose
election, or nomination for election by the Company's stockholders, was approved
by a majority of the then Continuing Directors); or (b) any "person" or "group"
(as determined for purposes of Section 13(d)(3) of the Securities Exchange Act
of 1934), except any majority-owned subsidiary of the Company or any employee
benefit plan of the Company or any trust or investment manager thereunder, shall
have acquired "beneficial ownership" (as determined for purposes of Securities
and Exchange Commission ("SEC") Regulation 13d-3) of shares of Common Stock of
the Company having 20% or more of the voting power of all outstanding shares of
capital stock of the Company, unless such acquisition is approved by a majority
of the directors of the Company in office immediately preceding such
acquisition; or (c) a merger or consolidation occurs to which the Company is a
party, whether or not the Company is the surviving corporation, in which
outstanding shares of Common Stock of the Company are converted into shares of
another company (other than a conversion into shares of voting common stock of
the successor corporation or a holding company thereof representing 80% of the
voting power of all capital stock thereof outstanding immediately after the
merger or consolidation) or other securities (of either the Company or another
company) or cash or other property; or (d) the sale of all, or substantially
all, of the Company's assets occurs; or (e) the stockholders of the Company
approve a plan of complete liquidation of the Company.
12. DEFINITIONS
(a) Company. The term "Company" shall mean Pfizer Inc, a Delaware
corporation.
<PAGE>
13
(b) Board of Directors. The term "Board of Directors" shall mean the
Board of Directors of Pfizer Inc.
(c) Employee Compensation and Management Development Committee. The
term "Employee Compensation and Management Development Committee" shall mean the
Employee Compensation and Management Development Committee of Pfizer Inc as
constituted by resolution of the Board of Directors.
(d) Executive Compensation Committee. The term "Executive Compensation
Committee" shall mean the Executive Compensation Committee of Pfizer Inc as
constituted by resolution of the Board of Directors.
(e) Committee. The term "Committee" shall mean the Employee
Compensation and Management Development Committee or such other committee
referred to in the second proviso of the last sentence of Section 4 hereof, as
may be appropriate.
(f) Subsidiary. The term "subsidiary" shall mean a subsidiary
corporation of the Company as defined in Section 425(f) of the Internal Revenue
Code of 1954.
(g) Common Stock. The term "Common Stock" shall mean the $.10 par value
Common Stock of the Company, authorized but unissued, or issued and reacquired
by the Company and held as Treasury Stock, or held by any trust established by
the Company for the purpose of satisfying the Company's obligations for the
issuance of Common Stock under the Plan.
(h) Tandem Options. A "Tandem Option" shall mean a qualified option or
incentive stock option and a non-qualified option granted to an optionee,
subject to the provision that the exercise of all or any part of either option
will result in a reduction in the other option.
13. REALLOCATION OF UNUSED SHARES
Any shares which are not purchased or awarded under an option,
performance unit award or right of election which has terminated or lapsed,
either by its terms or pursuant to the exercise, in whole or in part, of an
award or right granted under the Plan, or shares which are reacquired by the
Company pursuant to Section 8 hereof, may be used for the further grant of
options or, if such shares were authorized in 1975, stock awards under the Plan,
or if such shares were authorized in 1980 or after, stock awards, performance
unit awards or tandem awards under the Plan. For purposes of this Section 13 the
number of shares subject to a tandem award under Section 10 hereof which shall
be deemed not to have been purchased or awarded as of the time such award
terminated or lapsed shall equal the excess, if any, of (i) the maximum number
of shares which the participant was entitled to receive under
<PAGE>
14
the tandem award over (ii) the number of shares which he in fact had received as
of the time of such termination or lapse.
14. USE OF PROCEEDS
The proceeds received by the Company from the sale of stock under the
Plan shall be added to the general funds of the Company and shall be used for
such corporate purposes as the Board of Directors shall direct.
15. AMENDMENT AND REVOCATION
The Board of Directors shall have the right to alter, amend or revoke
the Plan or any part thereof at any time and from time to time, provided,
however, that without the consent of the participants affected no change may be
made in any option or award theretofore granted, which will impair the rights of
participants under outstanding options or awards; and provided further, that the
Board of Directors may not, without the approval of the holders of a majority of
the outstanding Common Stock, make any alteration or amendment to the Plan which
increases the maximum number of shares of Common Stock which may be issued under
the Plan or the number of shares of such stock which may be issued to any one
participant, extends the term of the Plan or of options granted thereunder,
reduces the option price below that now provided for in the Plan, or changes the
conditions of exercise of options specified in Sections 6(e) and 6(f). The
Committee may make non-substantive administrative changes to the Plan so as to
conform with or take advantage of governmental requirements, statutes or
regulations. The Employee Compensation and Management Development Committee may
delegate to another committee, as it may appoint, the authority to take any
action consistent with the terms of the Plan, either before or after an option
or award has been granted, which such other committee deems necessary or
advisable to comply with any government laws or regulatory requirements of a
foreign country, including but not limited to, modifying or amending the terms
and conditions governing any options or awards, or establishing any local
country plans as sub-plans to this Plan, each of which may be attached as an
Appendix hereto.
16. COMPLIANCE WITH SECTION 16
With respect to Members subject to Section 16 of the Securities
Exchange Act of 1934, transactions under the Plan are intended to comply with
all applicable conditions of Rule 16b-3 or its successors under the 1934 Act. To
the extent that compliance with any Plan provision applicable solely to such
Members is not required in order to bring a transaction by such Member into
compliance with Rule 16b-3, it shall be deemed null and void as to such
transaction, to the extent permitted by law and deemed advisable by the Plan
administrators. To the extent any provision of the Plan or action by the Plan
administrators involving such Members is deemed not to comply with an applicable
condition of Rule 16b-3, it shall be deemed null and void as to such Members, to
the extent permitted by law and deemed advisable by the Plan administrators.
<PAGE>
15
APPENDIX A
RULES OF THE PFIZER INC STOCK AND INCENTIVE PLAN
FOR EMPLOYEES IN FRANCE
1. INTRODUCTION
The Pfizer Inc Stock and Incentive Plan (hereinafter the "Plan" or the
"U.S. Plan") specifically authorizes the Committee to establish rules applicable
to options granted under the U.S. Plan, including options granted to employees
in France, as the Committee deems advisable. The Committee has determined that
it is advisable to establish a sub-plan for the purposes of permitting such
options to qualify for favorable local tax and social security treatment in
France. Therefore, the Company now establishes a sub-plan of the U.S. Plan for
the purpose of granting options which qualify for the favorable tax and social
security treatment in France applicable to options granted under the Law no.
70-1322 of December 31, 1970, as subsequently amended, to qualifying employees
who are resident in France for French tax purposes. The terms of the U.S. Plan,
of which this sub-plan is a part, shall constitute the Company's stock option
plan for French Employees (the "French Plan"). Under the French Plan, the
qualifying employees will be granted only stock options. In no case will they be
granted substitute awards, e.g., stock bonuses, restricted stock, stock
appreciation rights or other similar awards.
2. DEFINITIONS
Terms used in the French Plan shall have the same meanings as set forth
in the U.S. Plan.
In addition, the term "Option" shall have the following meaning:
a. Purchase options, that are rights to acquire shares repurchased
by the Company prior to the grant of said options; or
b. Subscription options, that are rights to subscribe newly issued
shares.
The term "Grant Date" shall be the date on which the Committee both (a)
designates the optionee and (b) specifies the terms and conditions of the Option
including the number of shares and the Option price.
The term "Exercise Eligibility Date" shall mean the fifth anniversary
of the Grant Date.
<PAGE>
16
3. ENTITLEMENT TO PARTICIPATE
Any salaried employee or corporate executive in France shall be
eligible to receive options under the French Plan provided that he or she also
satisfies the eligibility conditions of the U.S. Plan. Options may not be issued
under the French Plan to employees or executives owning more than ten percent
(10%) of the Company's capital shares or to individuals other than employees and
corporate executives of a French subsidiary of the Company. Options may not be
issued to directors of a French subsidiary unless they are employed by such
subsidiary.
4. CONDITIONS OF THE OPTION/OPTION PRICE
Notwithstanding any provision in the U.S. Plan to the contrary, the
conditions of the Options (option price, number of underlying shares and vesting
period) will not be modified after the grant date, except as provided under
Section 6 of the French Plan. In this respect, Options will not be repriced,
re-granted, nor will the time at which Options may be exercised be accelerated.
The option price per share of common stock payable pursuant to options
issued hereunder shall be fixed by the Committee on the date the option is
granted, but in no event shall the option price per share be less than the
greater of:
a. with respect to purchase options over the common stock, the
higher of either 80% of the average quotation price of such
common stock during the 20 days of quotation immediately
preceding the grant date or 80% of the average purchase price
paid for such common stock by the Company;
b. with respect to subscription options over the common stock, 80%
of the average quotation price of such common stock during the 20
days of quotation immediately preceding the grant date; and
c. the minimum option exercise price permitted under the U.S. Plan.
5. EXERCISE OF AN OPTION
Upon exercise of an option, the full option price will have to be paid
either by check or credit transfer. The optionee may also give irrevocable
instructions to a stockbroker to properly deliver the option price to the
Company.
The shares acquired upon exercise of an option will be recorded in an
account in the name of the shareholder, or if the shares are held by a broker
after exercise, in an account in the name of the shareholder with the broker.
<PAGE>
17
No Option can be exercised before the Exercise Eligibility Date.
However, in the case of death of an optionee, outstanding options shall be
immediately vested and exercisable under the conditions set forth by Section 7
of the French Plan.
6. CHANGES IN CAPITALIZATION
In compliance with French law, the option price shall not be modified
during the option's duration. Adjustments to the option exercise price or number
of shares subject to an option issued hereunder shall be made to preclude the
dilution or enlargement of benefits under such option only in the case of one or
more of the following transactions by the Company:
a. an increase of corporate capital by cash contribution;
b. an issuance of convertible or exchangeable bonds;
c. a capitalization of retained earnings, profits, or issuance premiums;
d. a distribution of retained earnings by payment in cash or shares; and
e. a reduction of corporate capital by set off against losses.
7. DEATH
In the event of the death of a French optionee, said individual's heirs
may exercise the option within six months following the death, provided that any
option which remains unexercised shall expire six months following the date of
the optionee's death.
8. INTERPRETATION
It is intended that options granted under the French Plan shall qualify
for the favorable tax and social security treatment applicable to stock options
granted under the Law no. 70-1322 of December 31, 1970, as subsequently amended,
and in accordance with the relevant provisions set forth by French tax law and
the French tax administration. The terms of the French Plan shall be interpreted
accordingly and in accordance with the relevant provisions set forth by French
tax and social security laws, as well as the French tax and social security
administrations.
9. AMENDMENTS
Subject to the terms of the U.S. Plan, the Committee reserves the right
to amend or terminate the French Plan at any time.
<PAGE>
18
10. ADOPTION
The French Plan was adopted by the Board of Directors of the Company at
a meeting held on August 27, 1998.
<PAGE>
19
APPENDIX B
SPECIAL PROVISIONS APPLICABLE TO EMPLOYEES IN THE UNITED KINGDOM
1. ADMINISTRATION; OPERATION AND EFFECT
This Amendment to the Plan, which is effective as of June 26, 1986 sets
forth the Employee Share Option (UK) Scheme (hereinafter referred to as "the
Scheme"). In all respects, the Scheme will be administered by the Committee as
provided in Section 2 of the Plan. No amendment to the Plan shall have effect in
relation to the Scheme and no amendment to the Scheme shall have effect without
the prior approval of the Board of Inland Revenue in the UK. The Committee shall
be responsible for ensuring that all matters relating to the Scheme are in
compliance with UK tax laws and codes.
2. STOCK
Options granted under this Scheme shall be to purchase shares of the
Company's authorized, but unissued or reacquired Common Stock (hereinafter
referred to as "Scheme Shares") satisfying the requirements of paragraphs 7 to
11 of Schedule 10 to the Finance Act of 1984 (hereinafter referred to as
"Schedule 10"). The total number of such shares with respect to which options
may be granted under the Scheme is subject to the limits set out in the Plan*
and the limits set out below.
3. ELIGIBILITY
Persons eligible to receive options under the Scheme shall be salaried
employees of the Company's UK subsidiaries who are employed at the time of the
grant of the option and whom the Committee selects from time to time PROVIDED
ALWAYS that:
(a) they are contracted to work not less than 20 hours (or, in the
case of directors, 25 hours) per week excluding meal breaks
for the Company's UK subsidiaries; and
(b) at the date of the grant or exercise of the option, they are
not ineligible to participate in the Scheme by virtue of
paragraph 4(1)(b) of Schedule 10.
An option holder may hold more than one option.
4. TERMS AND CONDITIONS OF OPTIONS
Options granted under the Scheme shall be evidenced by agreements with
option holders in such form as the Committee may determine. Each such agreement
shall be subject to the following terms and conditions:
<PAGE>
20
(a) Grants of Options
Offers of options may be sent as soon as practicable after approval of
the Scheme by the UK Board of Inland Revenue, and thereafter at any time. All
offers of options shall be made on the basis that participation in the Scheme
will be deemed to constitute acceptance of the provisions set forth or
incorporated by reference in this Amendment to the Plan. The sum of one pound
sterling shall be payable by the option holder as consideration for the grant of
the option to him.
(b) Number of Shares
The number of Scheme Shares subject to each option shall be stated.
Such number shall be determined by the Committee, but their aggregate Market
Value, as that term is defined in Schedule 10, and number of Shares shall not at
any time exceed either:
(i) the aggregate fair market value or the number of Shares as
is determined for such option holder by the Committee in
accordance with Section 3 of the Plan; or
(ii) in total with subsisting options over Scheme Shares
granted under any scheme approved by the Board of Inland
Revenue under Schedule 10 the greater of:
(a) (pound)100,000; and
(b) four times the amount of the eligible employee's
Relevant Emoluments (as defined in Schedule 10,
paragraph 5, sub-paragraph 5), for the current or
preceding Year of Assessment (defined as commencing
on April 6 and ending on the following April 5)
whichever of those years gives the greater amount or,
if there were no Relevant Emoluments for the
preceding Year of Assessment, four times the amount
of the Relevant Emoluments for the period of 12
months beginning with the first day during the
current Year of Assessment in respect of which there
are Relevant Emoluments.
In calculating the limits stated above and the Market Value, sums
denominated in US dollars shall be converted to sterling at the rate of
exchange published by the Company's bankers (being a United Kingdom
clearing bank) at 11 o'clock a.m. on the date of the grant of the
relevant option.
(c) Option Price and Payment of Option Price
(i) The option price per share shall be no less than the mean
between the high and the low selling prices on the composite
tape of the New York Stock
<PAGE>
21
Exchange as reported by the New York Times for the date the
option is granted.
(ii) Upon the exercise of an option, the option price shall be
payable in lawful money of the United States and may be paid
in cash or by certified check or by bank draft.
(d) Terms and Exercise of Options
The times at which and the terms under which any option shall be
exercisable shall (unless otherwise stated in accordance with the determination
of the Committee and with prior approval of the Board of Inland Revenue) be as
stated in Section 6(d), 6(e) and 6(g)** of the Plan provided that the reference
to Section 11(c) in Section 6 of the Plan shall be replaced by a reference to
Clause 4(f) of the Scheme and in no event may an option be exercised more than
12 months after an option holder's death.***
(e) Recapitalization
Section 6(h) of the Plan shall apply to the Scheme provided that any
adjustments made pursuant to that Section shall be subject to the prior approval
of the Board of Inland Revenue pursuant to Schedule 10 to the Finance Act 1984.
(f) Surrender
The Committee may require the surrender of an option granted under the
Scheme as a condition precedent to a grant of a new option for the same or a
different number of shares surrendered. Such new options shall be subject to the
terms and conditions specified by the Committee at the time the new option is
granted, determined in accordance with the provisions of the Plan and the Scheme
without regard to the price, period of exercise or any other terms or conditions
of the options surrendered.
(g) Transferability, Applicable Law and Leave of Absence
Sections 6(i), 6(j) and, subject to Clause 3 hereof, 11(d) of the Plan
shall apply to the Scheme.
(h) Incorporation by Reference
The option agreement shall contain a provision that all the terms and
conditions of the Scheme are incorporated by reference therein.
<PAGE>
22
5. REALLOCATION OF UNUSED SHARES
Any shares which are not purchased under an option which has terminated
or lapsed, either by its terms or pursuant to the exercise in whole or in part,
may be used for the further grant of options, provided always that no options
shall be granted to an employee at a time when his employment is interrupted.
6. AMENDMENT AND REVOCATION
Section 15 of the Plan shall apply to the Scheme but no amendment may
be made so as to have effect with respect to the Scheme or the Scheme Shares
without the prior approval of the Board of Inland Revenue.****
7. DEFINITIONS
(a) In the Scheme, the term the "Plan" shall mean the Company's
Stock Option and Incentive Plan of 1965 as amended.
(b) Section 12 of the Plan other than sub-sections (d) and (h) shall
apply to the Scheme.
<PAGE>
23
(FOOTNOTES FOR UK PLAN)
- ---------------
* Section 3 of the Plan was amended by resolution of the shareholders on
April 26, 1990 and has effect in relation to the Scheme with the
approval of the Board of Inland Revenue in the UK given June 14, 1990.
** Section 6(e), 6(g) and 11 were amended with the approval of the
shareholders on April 26, 1990. These amendments have effect in
relation to the Scheme with the approval of the Board of Inland Revenue
in the UK given on June 14, 1990 provided that the amendment to Section
6(e) to give the Board power to "make any options that are not yet
exercisable immediately exercisable" shall not have effect with regard
to subsisting options granted before June 14, 1990.
*** Section 6(e) was further amended with the approval of the shareholders
on April 22, 1993 by the insertion of the following words "and further
provided the Committee may in its discretion make any options that are
not yet exercisable immediately exercisable in cases where (i) an
optionee's employment is to be terminated due to a divestiture or
downsizing of a business, (ii) in the case of a retiring optionee who
holds options with extended vesting provisions, or (iii) otherwise,
where the Committee determines that such action is appropriate to
prevent inequities with respect to an optionee" at the end of the
second sentence. The amendment has effect in relation to the Scheme
with the approval of the Board of Inland Revenue in the UK given on
August 5, 1993 provided that the discretionary power conferred on the
Committee "to make any options that are not yet exercisable
immediately exercisable" shall not have effect with regard to
subsisting options granted before August 5, 1993.
**** Section 15 of the Plan was amended by resolution of the Board of
Directors on December 18, 1989 and has effect in relation to the Scheme
with the approval of the Board of Inland Revenue in the UK given June
14, 1990.
EXHIBIT 10(xv)
SUMMARY OF PFIZER ANNUAL INCENTIVE PLAN
The Annual Incentive Plan ("AIP") was established to provide a direct link
between pay and performance, thereby supporting increased overall Company
performance through increased individual performance. The purposes of the AIP
are to help motivate employees and attract and retain the highest quality
workforce.
Management selects AIP participants, including executive officers who are not
members of the Corporate Management Committee, and, in its discretion, sets the
bonus potential for each participant based on level of responsibility within the
Company. Annual incentive awards are based on an evaluation of either or both
individual and Company performance against quantitative and qualitative measures
and are subject to approval by senior management and, if appropriate, the
Employee Compensation and Management Development Committee or the Executive
Compensation Committee.
Amounts paid to employees constitute part of the employee's annual cash
compensation.
6
EXHIBIT 10(xvi)
Amendment No. 1
to
Stock and Asset Purchase Agreement
----------------------------------
AMENDMENT No. 1, dated as of October 22, 1998 (this "Amendment"), to
the STOCK AND ASSET PURCHASE AGREEMENT, dated as of August 13, 1998 (the "Stock
and Asset Purchase Agreement"), between Pfizer Inc., a Delaware corporation
("Pfizer"), and Stryker Corporation, a Michigan corporation ("Stryker").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, Pfizer and Stryker desire to amend the Stock and Asset
Purchase Agreement in certain respects as more fully set forth below.
NOW, THEREFORE, in consideration of the mutual covenants and
undertakings contained herein, and subject to and on the terms and conditions
set forth, the parties hereto agree as follows:
Section 1. Capitalized terms used in this Amendment that are not
otherwise defined herein shall have the meanings ascribed to such terms in the
Stock and Asset Purchase Agreement.
Section 2. The Stock and Asset Purchase Agreement shall be amended as
follows:
2.1 Section 2.7 shall be amended to read in its entirety as follows:
"Section 2.7 PURCHASE PRICE. (a) In consideration of
the sale and transfer of the Shares and the sale and transfer
of the Conveyed Assets, Purchaser shall pay to Pfizer, as
agent for the Seller Corporations (or to Pfizer's Affiliates
as Pfizer may on behalf of the Seller Corporations direct in
the written transfer instructions hereinafter referred to),
an aggregate amount of One Billion Six Hundred Fifty Million
Dollars ($1,650,000,000.00) (the "Aggregate Payment"), in
immediately available funds, by wire transfer in accordance
with written instructions given by Pfizer to Purchaser not
less than two (2) Business Days prior to the Closing, which
consideration shall be subject to the purchase price
adjustment provided for in Section 2.8 and shall be allocated
as described below.
(b) In consideration of the sale and transfer of the
Shares, Purchaser agrees to purchase from the Stock Selling
Corporations the Shares for an aggregate purchase price of
Five Hundred Twenty-Four Million One Hundred Eighty Thousand
Dollars ($524,180,000.00), allocated among the Shares as
described in Schedule 2.9 (the "Share Purchase Price").
<PAGE>
2
(c) In consideration of the sale and transfer of the
Conveyed Assets, the Purchaser agrees to purchase from each
Asset Selling Corporation the Conveyed Assets owned by such
Asset Selling Corporation for an aggregate purchase price of
One Billion One Hundred Twenty-Five Million Eight Hundred
Twenty Thousand Dollars ($1,125,820,000.00), allocated among
the Asset Selling Corporations as described in Section 2.9
(the "Asset Purchase Price" and, together with the Share
Purchase Price, the "Aggregate Purchase Price")."
2.2 The last sentence of Section 2.9 shall be deleted and
replaced by the following:
"If after all other adjustments to the Allocation are
made, the Allocation with respect to any Asset Selling
Corporation or Conveyed Subsidiary (or Subsidiary), when
expressed in the relevant local currency at the rate of
exchange used to determine Final Working Capital, is less
than the local currency net book value, determined in
accordance with GAAP, of the Conveyed Assets of such Asset
Selling Corporation or the assets of such Conveyed Subsidiary
(or Subsidiary) as of the Closing Date, then the Allocation
with respect to such Asset Selling Corporation or Conveyed
Subsidiary (or Subsidiary) shall be adjusted so that it is
equal to such local currency net book value converted at the
rate of exchange used to determine Final Working Capital and
a corresponding adjustment will be made, as to the first
$3,000,000, to the Allocation with respect to Howmedica Inc.,
and as to any balance in excess of the first $3,000,000, to
the Allocation with respect to Howmedica GmbH."
2.3 Schedule 2.9 shall be amended and replaced in its entirety
by the Schedule 2.9 attached hereto as Annex A.
2.4 Section 4.2(c) shall be amended to read in its entirety as
follows:
"(c) Purchaser shall have received funds pursuant to
the credit facilities provided for in the commitment letter,
dated October 22, 1998, between Purchaser, on the one hand,
and Goldman Sachs Credit Partners L.P., Bank of America
National Trust and Savings Association and Nationsbanc
Montgomery Securities LLC (the "Arrangers") on the other
hand, a copy of which has been furnished to Pfizer (the
"Financing Commitment Letter"). The parties agree that
Purchaser's ability to rely on the condition set forth in
this Section 4.2(c) is subject to the provisions of Section
7.3(d) hereof."
2.5 Section 7.3(d) shall be amended to read in its entirety as
follows:
"(d) Purchaser shall use its best efforts to cause
the conditions to funding under the Financing Commitment
Letter to be satisfied and to borrow the funds provided
thereunder. Notwithstanding the foregoing, and subject to the
following provisions of this Section 7.3(d), Purchaser shall
not be required to borrow funds under the Financing
Commitment Letter if the Arrangers notify
<PAGE>
3
Purchaser in writing (the "Arrangers' Notice") that pursuant
to the Financing Commitment Letter, they have determined
that changes in the tranche amounts or interest rate margin
are necessary and such changes cause the weighted average
Applicable Eurodollar Rate Margin determined as set forth in
the Financing Commitment Letter on the credit facilities
(including the refinancing of the Japanese Yen denominated
indebtedness in the amount of approximately $75 million
provided for therein) to exceed 3.05 per cent per annum.
Purchaser will keep Pfizer informed of the status of
discussions regarding pricing of the loans from and after
the date hereof and will notify Pfizer of its receipt of any
Arrangers' Notice within 24 hours and will provide Pfizer
with a copy thereof and the calculation of the weighted
average Applicable Eurodollar Rate Margin and a
determination of the amount thereof that exceeds 3.05 per
cent per annum (such amount in excess of 3.05 per cent being
referred to as the "Maximum Excess Margin"). In such event,
Pfizer shall have the right (but not the obligation), by
notice to Purchaser within 2 Business Days of Pfizer's
receipt of any Arrangers' Notice, to elect to bear and
reimburse Purchaser on a quarterly basis an amount equal to
the portion of the weighted average Applicable Eurodollar
Rate Margin which accrued on the credit facilities during
that quarter that exceeds 3.05 per cent per annum, but in no
event shall Pfizer be responsible for more than the Maximum
Excess Margin. If Pfizer makes such election, Purchaser
shall be required to borrow the funds under the Financing
Commitment Letter unless the Maximum Excess Margin exceeds
.25 per cent, in which case Purchaser may elect not to
borrow the funds regardless of whether Pfizer has made the
election referred to above. Within 15 days of the end of
each quarter, Purchaser will provide Pfizer with a written
statement of the amounts outstanding under each tranche of
the credit facilities during the quarter and the Applicable
Eurodollar Rate Margins together with a calculation of the
weighted average Applicable Eurodollar Rate Margin accrued
during such quarter and the amount payable by Pfizer under
this Section 7.3(d). Pfizer shall pay such amount to
Purchaser within 5 Business Days of receipt of such
statement from the Purchaser. Pfizer shall have no liability
to reimburse Purchaser for any additional interest which may
result from any changes in or waivers of the terms of
payment under the credit facilities provided pursuant to the
Financing Commitment Letter after Pfizer's election under
this Section 7.3(d) has been made, whether such additional
interest results as a consequence of changes in interest
rates or spreads, refinancing, default, changes in the
amounts and timing of payments or otherwise (whether any
such change is permitted by the original terms of the credit
agreement or results from subsequent modifications agreed to
by the lenders and Purchaser)."
Section 3. REFERENCES. All references to "this Agreement"
in the Stock and Asset Purchase Agreement shall mean the Stock
and Asset Purchase Agreement as amended hereby.
Section 4. GOVERNING LAW. This Amendment shall be governed
by the laws of the State of New York, its rules of conflict
of laws notwithstanding.
<PAGE>
4
Section 5. COUNTERPARTS. This Amendment may be executed in one
or more counterparts, each of which shall be deemed an
original, and all of which shall constitute one and the same
agreement.
Section 6. NO OTHER AMENDMENTS. Except as expressly amended
hereby, the terms and conditions of the Stock and Asset
Purchase Agreement shall continue in full force and effect.
IN WITNESS WHEREOF, the parties have executed or caused this
Amendment to be executed as of the date first written above.
PFIZER INC.
By:
----------------------------------
Name:
Title:
STRYKER CORPORATION
By:
----------------------------------
Name:
Title:
<PAGE>
SCHEDULE 2.9
SECTION 2.9(i) Allocation of Purchase Price
Allocation Among Conveyed Subsidiaries and Asset Selling Corporations
<TABLE>
<CAPTION>
CONVEYED SUBSIDIARIES
<S> <C> <C>
Howmedica International Inc. (Panama) $160,571,000
Benoist Girard & Cie S.C.A (France) 95,776,000
Howmedica Leibinger Inc. (Delaware) 85,105,000
Howmedica GmbH (Germany) 59,391,000
Howmedica Leibinger GmbH & Co. KG (Germany)1 64,524,000
Jaquet Orthopedie S.A. (Switzerland) 21,100,000
Howmedica Iberica S.A. (Spain) 22,579,000
Pficonprod Pty Ltd. (Australia) 15,134,000
-----------
SUBTOTAL CONVEYED SUBSIDIARIES $ 524,180,000
ASSET SELLING CORPORATIONS
Howmedica Inc. (US) $736,697,000
Pfizer Seiyaku K.K. (Japan) 148,639,000
Pfizer Italiana S.p.A (Italy) 67,100,000
Howmedica France S.C.A. (France) 39,947,000
Howmedica International Limited (U.K.) 27,008,000
Pfizer Canada Inc. (Canada) 17,716,000
Pfizer Medical Technology Group A.B. (Sweden) 12,298,000
Pfizer Medical Technology Group (Netherlands) B.V. 11,061,000
Pfizer Medical Technology Group Ltd. (U.K.) 12,558,000
Pfizer Hellas A.E. (Greece) 12,116,000
Roerig Farmaceutici Italiana S.p.A. (Italy) 10,076,000
Pfizer Medical Technology Group (Belgium) N.V. 6,861,000
Pfizer Corporation (Panama) Puerto Rico Branch 6,253,000
Pfizer Laboratories Ltd. (New Zealand) 4,863,000
Pfizer Limited (Taiwan) 3,474,000
Laboratorios Pfizer Ltda. (Brazil) 1,824,000
Laboratorios Pfizer Ltda. (Portugal) 1,737,000
Howmedica Handelsgesellschaft m.b.H (Austria) 1,476,000
Duchem Laboratories Ltd. (India) 1,216,000
Pfizer Oy (Finland) 1,138,000
Pfizer A/S (Denmark) 894,000
Pfizer Medical Technology Group A.B. (Sweden) Norway Branch 521,000
Pfizer Laboratories (Proprietary) Ltd. (South Africa) 347,000
-----------
SUBTOTAL ASSET SELLING CORPORATIONS 1,125,820,000
--------------
TOTAL PURCHASE PRICE ALLOCATION $1,650,000,000
==============
</TABLE>
- --------
1 Subsidiary of Conveyed Subsidiary Howmedica GmbH (Germany)
EXHIBIT 12
PFIZER INC. AND SUBSIDIARY COMPANIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(millions of dollars, except ratios)
<S> <C> <C> <C> <C> <C>
Determination of Earnings:
Income from continuing operations
before provision for taxes on income,
minority interests, and cumulative
effect of accounting changes $2,594 $2,867 $2,528 $2,017 $1,577
Less:
Minority interests 2 10 6 7 5
Undistributed earnings/(losses) of
unconsolidated subsidiaries 0 0 0 0 (1)
-------------- ------------- -------------- --------------- ---------------
Adjusted income 2,592 2,857 2,522 2,010 1,573
Fixed charges 180 189 198 223 150
-------------- ------------- -------------- --------------- ---------------
Total earnings as defined $2,772 $3,046 $2,720 $2,233 $1,723
============== ============= ============== =============== ===============
Fixed charges
Interest expense (a) $136 $147 $161 $188 $122
Rents (b) 44 42 37 35 28
-------------- ------------- -------------- --------------- ---------------
Fixed charges 180 189 198 223 150
Capitalized interest 7 2 5 13 15
-------------- ------------- -------------- --------------- ---------------
Total fixed charges $187 $191 $203 $236 $165
============== ============= ============== =============== ===============
Ratio of earnings to fixed charges 14.8 15.9 13.4 9.5 10.4
==== ==== ==== ==== ====
</TABLE>
(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.
Exhibit 13a
FINANCIAL REVIEW
OVERVIEW OF CONSOLIDATED OPERATING RESULTS
In 1998, total revenues grew 23% to $13,544 million, reflecting the strong
worldwide demand for our in-line products as well as our copromoted products and
the introduction of two major products--Trovan and Viagra. We achieved net
income growth of 51% to $3,351 million for 1998. The following are reflected in
our 1998 results:
o the sale of our Medical Technology Group (MTG) businesses and the combining
of our pharmaceutical and consumer health care businesses
o substantial investments in product support and research and development
(R&D)
o the recording of charges associated with adjustments to asset values, the
exiting of certain product lines, plant rationalizations, severance
payments, copromotion payments to Searle and a contribution to The Pfizer
Foundation
Accompanying financial data for all periods present MTG as discontinued
operations.
ANALYSIS OF THE CONSOLIDATED STATEMENT OF INCOME
- --------------------------------------------------------------------------------
% Change
---------------
(millions of dollars) 1998 1997 1996 98/97 97/96
- --------------------------------------------------------------------------------
Net sales $12,677 $10,739 $9,864 18 9
Alliance revenue 867 316 -- 175 --
- --------------------------------------------------------
Total revenues $13,544 $11,055 $9,864 23 12
Cost of sales $ 2,094 $ 1,776 $1,695 18 5
Selling, informational and
administrative expenses $ 5,568 $ 4,401 $3,859 27 14
% of total revenues 41.1% 39.8% 39.1%
R&D expenses $ 2,279 $ 1,805 $1,567 26 15
% of total revenues 16.8% 16.3% 15.9%
Other deductions-- net $ 1,009 $ 206 $ 215 391 (5)
- --------------------------------------------------------
Income from continuing
operations before taxes $ 2,594 $ 2,867 $2,528 (10) 13
% of total revenues 19.2% 25.9% 25.6%
Taxes on income $ 642 $ 775 $ 758 (17) 2
Effective tax rate 24.8% 27.0% 30.0%
Income from continuing
operations $ 1,950 $ 2,082 $1,764 (6) 18
% of total revenues 14.4% 18.8% 17.9%
Discontinued
operations-- net of tax 1,401 131 165 972 (21)
Net income $ 3,351 $ 2,213 $1,929 51 15
% of total revenues 24.7% 20.0% 19.6%
- --------------------------------------------------------------------------------
PERCENTAGES MAY REFLECT ROUNDING ADJUSTMENTS.
TOTAL REVENUES
Total revenues increased $2,489 million in 1998 and $1,191 million in 1997.
Excluding the impact of foreign exchange, total revenues grew by 26% in 1998 and
16% in 1997. These increases were primarily due to higher sales volume of our
products and revenue generated from product alliances (alliance revenue).
ELEMENTS OF [X] Volume
TOTAL REVENUE GROWTH [X] Price
[X] Currency
- --------------------------------------------------------------------------------
The following represents a bar chart in the printed piece.
Year Volume Price Currency
- ---- ------ ----- --------
1998 24.8% 1.2% (3.5)%
1997 14.0% 1.6% (3.5)%
1996 15.5% 0.7% (2.6)%
Volume has been the
major contributor to
total revenue growth
in each of the last
three years.
- --------------------------------------------------------------------------------
PERCENTAGE CHANGE IN TOTAL REVENUES
Analysis of Change
--------------------------
Total %
Change Volume Price Currency
- ------------------------------------------------------------
Pharmaceutical
1998 vs. 1997 25.8 28.1 1.0 (3.3)
1997 vs. 1996 12.5 14.3 1.6 (3.4)
Animal Health
1998 vs. 1997 (1.1) .6 2.4 (4.1)
1997 vs. 1996 8.8 11.6 1.2 (4.0)
Consolidated
1998 vs. 1997 22.5 24.8 1.2 (3.5)
1997 vs. 1996 12.1 14.0 1.6 (3.5)
- --------------------------------------------------------------------------------
28
<PAGE>
Pfizer Inc and Subsidiary Companies
PHARMACEUTICAL revenues increased 26% to $12,230 million in 1998 and 13% to
$9,726 million in 1997. Excluding the effect of foreign exchange, pharmaceutical
revenues increased 29% in 1998 and 16% in 1997. These changes reflect the
strengthening of the dollar relative to the Japanese yen, as well as several
European and other Asian currencies. In the U.S. market, growth was 38% in 1998
and 17% in 1997, while international growth was 10% in 1998 and 8% in 1997. The
introduction of Viagra accounts for 12% of the 1998 U.S.
growth.
Our major pharmaceutical products grew 28% in 1998. These
products--Norvasc, Procardia XL, Cardura, Diflucan, Zithromax, Trovan, Zoloft,
Viagra, Glucotrol XL and Zyrtec--comprised 82% of worldwide pharmaceutical net
sales. These products have U.S. patent expirations ranging from 2000 to 2011.
Two new pharmaceuticals, Lipitor and Aricept, were launched in 1997 through
product alliances. Lipitor is a cholesterol-lowering medication developed by the
Parke-Davis Division of Warner-Lambert Company. Aricept is used to treat
symptoms of Alzheimer's disease and was developed by Eisai Co., Ltd. These
alliances allow us to copromote or license these products for sale in certain
countries. Under the copromotion agreements, these products are marketed and
promoted with our alliance partners. We provide cash, staff and other resources
to sell, market, promote and further develop these products. Revenue from
copromotion agreements is reported in the Statement of Income as Alliance
revenue. Certain alliance agreements include quid-pro-quo provisions which would
give our product alliance partners the right to copromote one of our products.
Rebates under Medicaid and related state programs reduced revenues by $150
million in 1998, $99 million in 1997 and $92 million in 1996. The 1998 increase
in rebates reflects growth of in-line products and the introduction of two
products--Trovan and Viagra. We also provided to the federal government
legislatively mandated discounts of $105 million in 1998, $88 million in 1997
and $87 million in 1996. Performance-based contracts also provide rebates to
several customers and have reduced total revenue in the U.S. Volume increases in
all three years more than offset these revenue reductions.
NET SALES -- MAJOR PHARMACEUTICAL PRODUCTS
- --------------------------------------------------------------------------------
% Change
(millions of dollars) 1998 1997 1996 98/97 97/96
- --------------------------------------------------------------------------------
CARDIOVASCULAR DISEASES: $4,186 $3,806 $3,486 10 9
Norvasc 2,575 2,217 1,795 16 23
Procardia XL 714 822 1,005 (13) (18)
Cardura 688 626 533 10 17
INFECTIOUS DISEASES: 2,823 2,483 2,325 14 7
Diflucan 916 881 910 4 (3)
Zithromax 1,041 821 619 27 33
Trovan 160 -- -- -- --
CENTRAL NERVOUS SYSTEM
DISORDERS: 1,924 1,553 1,382 24 12
Zoloft 1,836 1,507 1,337 22 13
VIAGRA 788 -- -- -- --
DIABETES: 273 234 213 17 9
Glucotrol XL 226 175 135 29 30
ALLERGY: 422 273 156 55 74
Zyrtec/Reactine 416 265 146 57 81
- --------------------------------------------------------------------------------
PERCENTAGES MAY REFLECT ROUNDING ADJUSTMENTS.
THE DECLINE IN PROCARDIA XL IS DUE IN PART TO THE INCREASED ACCEPTANCE
OF NORVASC WITHIN THE MEDICAL COMMUNITY.
TOTAL REVENUES BY BUSINESS SEGMENT
- --------------------------------------------------------------------------------
The following represents a graph
in the printed piece.
(% of total revenues)
(millions of dollars) % Change
1998 98/97
Pharmaceutical 90% PHARMACEUTICAL $12,230 26
Animal Health 10% ANIMAL HEALTH 1,314 (1)
----------------------------
TOTAL $13,544 23
- --------------------------------------------------------------------------------
1997 97/96
Pharmaceutical 88% Pharmaceutical $ 9,726 13
Animal Health 12% Animal Health 1,329 9
----------------------------
Total $11,055 12
- --------------------------------------------------------------------------------
1996 96/95
Pharmaceutical 88% Pharmaceutical $ 8,642 16
Animal Health 12% Animal Health 1,222 -
----------------------------
Total $ 9,864 14
- --------------------------------------------------------------------------------
ANIMAL HEALTH net sales decreased 1% in 1998 due to a weak livestock market
in the U.S. and poor Asian economies. Excluding the effect of foreign exchange,
net sales increased 3%. Animal health net sales increased 9% in 1997, reflecting
growth of several products. In 1997, sales of companion animal products
increased 14% and sales of products for food animals increased 7%. Sales of
Dectomax, an antiparasitic medication for livestock, grew 58% to $150 million in
1997.
29
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Pfizer Inc and Subsidiary Companies
In December 1998, the Council of European Agricultural Ministers voted to
ban Stafac (virginiamycin), an antibacterial for poultry and swine used in
animal feed, throughout the European Union after June 30, 1999. We have filed
suit against the European Union, seeking reversal of the agricultural ministers'
decision. We believe the decision to ban Stafac disregarded the view of the
European Community Commission's own Scientific Committee on Animal Nutrition
that the use of this product in animal feed posed no threat to human health.
Total 1998 sales of Stafac in Western Europe were $24 million. We do not expect
any ban on sales of virginiamycin to have a material effect on future results of
our operations.
TOTAL REVENUES BY COUNTRY
- --------------------------------------------------------------------------------
The following represents a graph
in the printed piece.
(%of total revenues) (millions of dollars) % Change
1998 98/97
United States 61% UNITED STATES $ 8,205 35
Japan 7% JAPAN 943 (1)
All Other Countries 32% ALL OTHER COUNTRIES 4,396 9
----------------------------
TOTAL $13,544 23
- --------------------------------------------------------------------------------
1997 97/96
United States 55% United States $ 6,089 17
Japan 9% Japan 949 3
All Other Countries 36% All Other Countries 4,017 7
----------------------------
Total $11,055 12
- --------------------------------------------------------------------------------
1996 96/95
United States 53% United States $ 5,193 18
Japan 9% Japan 922 (2)
All Other Countries 38% All Other Countries 3,749 13
----------------------------
Total $ 9,864 14
- --------------------------------------------------------------------------------
CHANGES IN GEOGRAPHIC TOTAL REVENUES BY BUSINESS SEGMENT
- --------------------------------------------------------------------------------
% Change in Total Revenues
-------------------------------
U.S. International
-------------- -------------
98/97 97/96 98/97 97/96
- --------------------------------------------------------------------------------
Pharmaceutical 38 17 10 8
Animal Health 3 25 (4) --
Consolidated 35 17 8 6
- --------------------------------------------------------------------------------
Revenues were in excess of $100 million in each of 12 countries outside the
U.S. in 1998. The U.S. was the only country to contribute more than 10% to total
revenues.
PRODUCT DEVELOPMENTS
We continue to invest in R&D to provide future sources of revenue through the
development of new products as well as additional uses for existing products.
Certain significant regulatory actions by, and filings pending with, the U.S.
Food and Drug Administration (FDA) follow:
1998 U.S. FDA APPROVALS
- --------------------------------------------------------------------------------
Product Indication Date Approved
- --------------------------------------------------------------------------------
Zyrtec Allergies in children 2 to 5 years of age May 1998
Viagra Erectile dysfunction (impotence) March 1998
- --------------------------------------------------------------------------------
PENDING U.S. NEW DRUG APPLICATIONS
- --------------------------------------------------------------------------------
Product Indication Date Filed
- --------------------------------------------------------------------------------
Relpax Migraine headaches October 1998
Zoloft Post-traumatic stress disorder October 1998
Zoloft Oral liquid dosage form April 1998
Tikosyn Heart rhythm disorders March 1998
Zeldox Psychotic disorders -- December 1997
intramuscular dosage form
Zeldox Psychotic disorders -- March 1997
oral dosage form
- --------------------------------------------------------------------------------
On January 28, 1999, the FDA's Cardiovascular and Renal Drugs Advisory
Committee recommended the approval of Tikosyn for use in the treatment of heart
rhythm disorders.
We received a non-approvable letter from the FDA for Zeldox in 1998. We are
undertaking additional clinical work on this product to answer questions from
the FDA.
In December 1998, G.D. Searle & Co. (Searle), the pharmaceutical division
of Monsanto Company, received approval from the FDA to market Celebrex for the
relief of symptoms of adult osteoarthritis and rheumatoid arthritis. We will
copromote Celebrex worldwide except in Japan. In February 1999, we launched
Celebrex with Searle. We are also participating with Searle in ongoing clinical
trials of Celebrex for additional indications, including Alzheimer's disease and
colon cancer and of a second-generation compound, valdecoxib.
Ongoing or planned clinical trials for additional uses for existing
products as well as new product development programs include:
o Norvasc--for the treatment of patients with congestive heart failure
attributable to causes other than impaired blood flow to the heart
o Zithromax--to decrease cardiovascular risk in patients with atherosclerosis
(a process in which fatty substances are deposited within blood vessels)
caused by a certain infection
30
<PAGE>
Pfizer Inc and Subsidiary Companies
o droloxifene and CP-336,156--for the prevention and treatment of
osteoporosis, the prevention of breast cancer and to reduce the risk of
coronary heart disease
o Alond--for the treatment of nervous system, kidney and cardiovascular
disorders related to diabetes
o voriconazole and UK-292,663--for the treatment of fungal infections
o darifenacin--for the treatment of urinary urge incontinence
o ezlopitant--for the treatment of chemotherapy-induced nausea and vomiting
in cancer patients
o an inhaled form of insulin for the treatment of diabetes
Sixty-five other compounds are in early-stage development.
We entered into worldwide agreements with Hoechst Marion Roussel AG
(Hoechst) to manufacture insulin and codevelop and copromote inhaled insulin.
Under the agreements, Hoechst and Pfizer will contribute expertise in the
development and production of insulin products as well as selling and marketing
resources. We bring to the alliance our development of inhaled insulin from our
collaboration with Inhale Therapeutic Systems, Inc. We plan to build a new
insulin manufacturing plant in Frankfurt, Germany, which will be jointly owned
with Hoechst, to support the product currently in development.
COSTS AND EXPENSES
In 1998, we recorded charges for asset impairment and restructuring. These
pre-tax charges were recorded in the Statement of Income as follows:
- --------------------------------------------------------------------------------
(millions of dollars) Total COS* SI&A* R&D OD*
- --------------------------------------------------------------------------------
Asset impairments $213 $18 $ -- $ -- $195
Restructuring charges 177 68 17 1 91
*COS -- COST OF SALES; SI&A -- SELLING, INFORMATIONAL AND ADMINISTRATIVE
EXPENSES; OD -- OTHER DEDUCTIONS-NET.
We recorded an impairment charge of $110 million in the pharmaceutical
segment to adjust intangible asset values, primarily goodwill and trademarks,
related to consumer health care product lines.
These charges are a result of significant changes in the marketplace and a
revision of our strategies, including:
o the decision to redeploy resources from personal care and minor brands to
over-the-counter switches of prescription products
o the withdrawal of one of our major over-the-counter products in Italy
o an acquired product line which experienced declines in market share
As noted in our discussion of revenues, our animal health antibiotic feed
additive, Stafac, was banned throughout the European Union, resulting in asset
impairment charges of $103 million ($85 million was to adjust intangible asset
values, primarily goodwill and trademarks, and $18 million was to adjust the
carrying value of machinery and equipment in the pharmaceutical segment).
These events have caused the projected undiscounted cash flows of a number
of our consumer health care product lines and Stafac to be less than their
carrying value. As a result, we lowered the carrying value of the
above-mentioned assets to their estimated fair value.
The components of the restructuring charges follow:
- --------------------------------------------------------------------------------
(millions of dollars)
- --------------------------------------------------------------------------------
Property, plant and equipment $ 49
Write-down of intangibles 44
Employee termination costs 40
Other 44
- --------------------------------------------------------------------------------
Total $177
- --------------------------------------------------------------------------------
These charges resulted from a current review of our global operations to
increase efficiencies and return on assets, thereby resulting in plant and
product line rationalizations. In addition to the disposition of our MTG
businesses, we have exited, or plan to exit by the end of 1999, certain product
lines including those associated with certain of our livestock external
parasiticides and feed businesses. Also, we have decided to exit certain of our
fermentation operations.
We have written off assets related to the product lines we are exiting,
including inventory, intangible assets--primarily goodwill--as well as certain
buildings, machinery and equipment for which we have no plans to use or sell. We
have begun to seek buyers for other properties which have been written down to
their estimated fair value. We will either dispose of or abandon these
properties by the end of 1999.
As a result of the restructuring, the work force will be reduced by 520
manufacturing, sales and corporate personnel. Notifications to personnel have
been made. At December 31, 1998, 134 employees had been terminated. We will
complete terminations of the remaining personnel by December 31, 1999. Employee
termination costs represent payments for severance, outplacement counseling
fees, medical and other benefits and a $5 million noncash charge for the
acceleration of nonvested employee stock options.
Other restructuring charges consist of charges for inventory for product
lines we have exited--$12 million, contract termination payments--$9 million,
facility closure costs--$7 million and environmental remediation costs
associated with the disposal of certain facilities--$16 million.
31
<PAGE>
Pfizer Inc and Subsidiary Companies
Restructuring charges of $90 million are reflected in the pharmaceutical
segment and $87 million are in the animal health segment.
As a result of the asset write-downs and the exiting of certain product
lines, we expect a reduction in annual revenues of $71 million and a realization
of annual cost savings of $67 million, of which $11 million represents a
reduction in amortization and depreciation expense.
COST OF SALES increased 18% in 1998 as compared with 5% in 1997. Excluding
the 1998 asset impairments and restructuring charges, cost of sales increased
13%. As a percentage of net sales, cost of sales, excluding the 1998 asset
impairments and restructuring charges, declined to 15.8% in 1998 and 16.5% in
1997 from 17.2% in 1996. These declines largely reflect:
o a more favorable business and product mix
o productivity improvements
SI&A increased 27% in 1998 as compared with 14% in 1997. This increase
reflects a substantial global investment in our pharmaceutical selling efforts.
These efforts included the expansion of our sales forces in the U.S. and key
international markets. Recent additions to our U.S. sales force include a new
primary-care sales force, a specialty sales force dedicated largely to
rheumatology and the expansion of other specialty sales forces in the U.S.
R&D expenses increased 26% in 1998 and 15% in 1997. These expenditures were
necessary to support the advancement of potential drug candidates in all stages
(from initial discovery through final regulatory approval). Pharmaceutical R&D
expenses, as a percentage of pharmaceutical revenues, averaged 17% over the last
three years.
OTHER DEDUCTIONS -- NET increased substantially in 1998 as compared to a
minor decrease in 1997. This increase was primarily due to:
o asset impairments -- $195 million
o restructuring charges -- $91 million
o copromotion payments to Searle for rights to Celebrex-- $240 million
o a contribution to The Pfizer Foundation -- $300 million
o legal settlements involving the brand-name prescription drug antitrust
litigation -- $57 million, partially offset by
o an increase in interest income on the investment of cash generated from
operations and the divestiture of MTG
o foreign exchange effects
RESEARCH AND
DEVELOPMENT EXPENSES
- --------------------------------------------------------------------------------
(millions of dollars)
The following represents a bar chart in the printed piece.
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
$1,036 $1,340 $1,567 $1,805 $2,279
Research and devel-
opment expenses
have increased at a
compound annual
growth rate of 21%
over the past 5 years.
Our overall EFFECTIVE TAX RATE increased from 28.0% in 1997 to 35.4% in
1998. This increase was due mainly to a higher tax rate on the gain on the
disposal of discontinued operations. The effective tax rate for continuing
operations decreased from 27.0% in 1997 to 24.8% in 1998. This decrease was
partially due to the extension to June 30, 1999 of the R&D tax credit in the
U.S. as well as to the tax benefit associated with the 1998 charges for asset
impairment, restructuring, copromotion payments to Searle and the contribution
to The Pfizer Foundation.
The effective tax rate for continuing operations decreased from 30.0% in
1996 to 27.0% in 1997. This decrease was mainly due to the favorable changes in
the mix of income by country, partially offset by the continuing reduction of
tax benefits from our operations in Puerto Rico as a result of the enactment of
the Omnibus Budget Reconciliation Act of 1993 and the elimination of the tax
exemption on Puerto Rican investment income.
We have received and are protesting assessments from the Belgian tax
authorities. For additional details, see note 8, "Taxes on Income," beginning on
page 50.
32
<PAGE>
Pfizer Inc and Subsidiary Companies
DISCONTINUED OPERATIONS
During 1998, we exited the medical devices business with the sale of our
remaining MTG businesses:
o Howmedica to Stryker Corporation in December for $1.65 billion in cash
o Schneider to Boston Scientific Corporation in September for $2.1 billion in
cash
o American Medical Systems to E.M. Warburg, Pincus & Co., LLC in September
for $130 million in cash
o Valleylab to U.S. Surgical Corporation in January for $425 million in cash
The net proceeds from these divestitures have been or will be used for
general corporate purposes including the repayment of commercial paper
borrowings. Net income of these businesses up to the date of their divestiture
and divestiture gains are included in DISCONTINUED OPERATIONS--NET OF TAX.
NET INCOME
Net income for 1998 increased 51% over 1997. Diluted earnings per share were
$2.55 and increased by 50% over 1997. Income from continuing operations (net
income after adjustment for discontinued operations) adjusted to add back
certain significant charges increased by 26.6% over net income in 1997. On the
same basis, diluted earnings per share were $2.00 and increased by 25.8% over
1997. The 1998 pre-tax significant charges related to:
o asset impairments -- $213 million
o restructuring charges -- $177 million
o copromotion payments to Searle -- $240 million
o contribution to The Pfizer Foundation -- $300 million
o other, which is primarily related to legal settlements-- $126 million
FINANCIAL CONDITION, LIQUIDITY AND
CAPITAL RESOURCES
Our net financial asset position as of December 31 was as follows:
- --------------------------------------------------------------------------------
(millions of dollars) 1998 1997 1996
- --------------------------------------------------------------------------------
Financial assets* $5,835 $3,034 $3,140
Short- and long-term debt 3,256 2,976 2,885
- --------------------------------------------------------------------------------
Net financial assets $2,579 $ 58 $ 255
- --------------------------------------------------------------------------------
* CONSISTS OF CASH AND CASH EQUIVALENTS, SHORT-TERM INVESTMENTS, SHORT-TERM
LOANS AND LONG-TERM LOANS AND INVESTMENTS.
Selected Measures of Liquidity and
Capital Resources
- --------------------------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------
Cash and cash equivalents and
short-term investments and
loans (millions of dollars) $4,079 $1,704 $1,991
Working capital (millions of dollars) 2,739 2,448 1,914
Current ratio 1.38:1 1.49:1 1.36:1
Shareholders' equity per
common share* $ 7.00 $ 6.30 $ 5.54
Debt to total capitalization** 27% 27% 29%
- --------------------------------------------------------------------------------
* REPRESENTS TOTAL SHAREHOLDERS' EQUITY DIVIDED BY THE ACTUAL NUMBER OF COMMON
SHARES OUTSTANDING (WHICH EXCLUDES TREASURY SHARES AND THOSE HELD BY THE
EMPLOYEE BENEFIT TRUSTS).
** 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.
The change in working capital from 1997 to 1998 was primarily due to the
following:
INCREASES IN:
O CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS--due to the receipt of
cash from the MTG divestiture
o ACCOUNTS RECEIVABLE--due to the alliance revenue receivables and growth in
sales volume
o INVENTORY--due to higher pharmaceutical inventory levels as a result of new
products
o SHORT-TERM BORROWINGS--due to an increase in funding for common stock
purchases at a higher average price net of repayments made with cash
received from the MTG divestiture
o DIVIDENDS PAYABLE--related to the first-quarter 1999 dividend declared in
December 1998
o INCOME TAXES PAYABLE--primarily due to changes in operations and the
divestiture of the MTG businesses
o OTHER CURRENT LIABILITIES--primarily due to accrued charges associated with
the divestiture of the MTG businesses and our plan to exit certain product
lines
DECREASE IN NET ASSETS OF DISCONTINUED OPERATIONS--due to the sale of the
MTG businesses
33
<PAGE>
Pfizer Inc and Subsidiary Companies
The increase in working capital from 1996 to 1997 was primarily due to the
following:
INCREASES IN:
O ACCOUNTS RECEIVABLE--due in part to the alliance revenue receivables as
well as higher sales volumes
o INVENTORY--due to higher pharmaceutical inventory levels for new products
DECREASES IN:
o Short-term loans--primarily due to the renewal of short-term loans as loans
with maturities beyond one year
o Income taxes payable--primarily due to the settlements of tax-related
contingencies
The increase in shareholders' equity per common share in 1998 and 1997, as
well as the decrease in the 1997 percentage of debt to total capitalization was
primarily due to growth in net income.
SUMMARY OF CASH FLOWS
Operations in 1998 provided significant cash inflows. Commercial paper and
short-term borrowings supplement operating cash flows.
- --------------------------------------------------------------------------------
(millions of dollars) 1998 1997 1996
- --------------------------------------------------------------------------------
Cash provided by/(used in):
Operating activities $ 2,925 $1,422 $1,828
Investing activities (335) (963) (850)
Financing activities (1,920) (823) (367)
Discontinued operations 4 118 134
Effect of exchange rate changes on
cash and cash equivalents 1 (27) 2
- --------------------------------------------------------------------------------
Net increase/(decrease) in cash
and cash equivalents $ 675 $ (273) $ 747
- --------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES increased in 1998 primarily due
to:
o the inclusion of charges associated with asset impairments and
restructuring in 1998 INCOME FROM CONTINUING OPERATIONS
o higher taxes payable associated with sales growth of existing and new
products as well as the MTG divestitures, partially offset by tax benefits
associated with charges for asset impairment, restructuring, copromotion
payments to Searle and the contribution to The Pfizer Foundation
o higher compensation related accruals, reduced by
o higher receivable and inventory levels related to new products
Cash flows from operating activities decreased in 1997 as the growth in
income from continuing operations was offset by an increase in accounts
receivable and inventories.
NET CASH USED IN INVESTING ACTIVITIES changed in 1998 primarily due to:
o proceeds from the sale of the MTG businesses, some of which accounts for
our increase in short-term investments, reduced by
o increased long-term investments and capital expenditures
Net cash used in investing activities changed in 1997 largely due to the:
o increase in capital expenditures
o decrease in proceeds from the sale of businesses
o absence of business acquisitions in 1997
In 1999, additions to property, plant and equipment are expected to be
approximately $1.5 billion.
NET CASH USED IN FINANCING ACTIVITIES increased in 1998 and 1997 largely
due to the effects of:
o the increase in common stock purchases at a higher average price
o higher dividend payments to our shareholders, reduced by
o more cash received from employee stock option exercises
In September 1998, we completed a program under which we purchased 26.4
million shares of our common stock at a total cost of $2 billion. In that same
month, the Board of Directors approved a new share-purchase program with
authorization to purchase up to $5 billion of our company's common stock. Under
the new program, we purchased approximately 4.9 million shares in the open
market for approximately $525 million in the fourth quarter of 1998. Purchased
shares are available for general corporate purposes.
We have available lines of credit and revolving-credit agreements with a
select group of banks and other financial intermediaries. Major unused lines of
credit totaled approximately $1.3 billion at December 31, 1998.
Our short-term debt has been rated P1 by Moody's Investors Services
(Moody's) and A1+ by Standard and Poor's (S&P). Also, our long-term debt has
been rated Aaa by Moody's and AAA by S&P for the past 13 years. Moody's and S&P
are the major corporate debt-rating organizations and these are their highest
ratings.
34
<PAGE>
Pfizer Inc and Subsidiary Companies
Cash Dividends Paid
Per Common Share
The following represents a bar chart in the printed piece.
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
(dollars)
$0.47 $0.52 $0.60 $0.68 $0.76
The 1998 cash
dividends paid
represented the 31st
consecutive year of
dividend increases.
- --------------------------------------------------------------------------------
DIVIDENDS ON COMMON STOCK
Our dividend payout ratio, which represents cash dividends paid per common share
divided by diluted earnings per common share amounted to 29.8% in 1998 and 40.0%
in both 1997 and 1996. Excluding the effects on net income of discontinued
operations and charges for asset impairment, restructuring, copromotion payments
to Searle and the contribution to The Pfizer Foundation, the dividend payout
ratio was 38.0% in 1998. In December 1998, the Board of Directors declared a
first-quarter 1999 dividend of $.22, an increase of 16% over the $.19 per share
dividend declared and paid in each quarter of 1998. This marked the 32nd
consecutive year of quarterly dividend increases.
BANKING OPERATION
Our international banking operation, Pfizer International Bank Europe (PIBE),
operates under a full banking license from the Central Bank of Ireland. The
results of its operations are included in OTHER DEDUCTIONS--NET.
PIBE extends credit to financially strong borrowers, largely through U.S.
dollar loans made primarily for short and medium terms, with floating interest
rates. Generally, loans are made on an unsecured basis. When deemed appropriate,
guarantees and certain covenants may be obtained as a condition to the extension
of credit.
To reduce credit risk, PIBE has established credit approval guidelines,
borrowing limits and monitoring procedures. Credit risk is further reduced
through an active policy of diversification with respect to borrower, industry
and geographic location. PIBE continues to have S&P's highest short-term rating
of A1+.
The net income of PIBE is affected by changes in market interest rates
because of repricing and maturity mismatches between its interest-sensitive
assets and liabilities. PIBE is currently asset sensitive (more assets than
liabilities repricing in a given period) and, therefore, we expect that in an
environment of decreasing interest rates, net income would decline. PIBE's asset
and liability management reflects its liquidity, interest-rate outlook and
general market conditions.
For additional details regarding our banking operation, see note 3,
"Financial Subsidiaries," on page 45.
FORWARD-LOOKING INFORMATION AND
FACTORS THAT MAY AFFECT FUTURE RESULTS
The Securities and Exchange Commission encourages companies to disclose
forward-looking information so that investors can better understand a company's
future prospects and make informed investment decisions. This annual report and
other written and oral statements that we make from time to time contain such
forward-looking statements that set out anticipated results based on
management's plans and assumptions. We have tried, wherever possible, to
identify such statements by using words such as "anticipate," "estimate,"
"expects," "projects," "intends," "plans," "believes" and words and terms of
similar substance in connection with any discussion of future operating or
financial performance.
We cannot guarantee that any forward-looking statement will be realized,
although we believe we have been prudent in our plans and assumptions.
Achievement of future results is subject to risks, uncertainties and inaccurate
assumptions. Should known or unknown risks or uncertainties materialize, or
should underlying assumptions prove inaccurate, actual results could vary
materially from those anticipated, estimated or projected. Investors should bear
this in mind as they consider forward-looking statements. We undertake no
obligation to publicly update any forward-looking statements, whether as a
result of new information, future events or otherwise.
Certain risks, uncertainties and assumptions are discussed here and under
the heading entitled "Cautionary Factors That May Affect Future Results" in Item
1 of our annual report on Form 10-K for the year ended December 31, 1998, which
will be filed at the end of March 1999.
35
<PAGE>
Pfizer Inc and Subsidiary Companies
Prior to the filing of Form 10-K, you should refer to the discussion under the
same heading in our quarterly report on Form 10-Q for the quarter ended
September 27, 1998, and to the extent incorporated by reference therein, in our
Form 10-K filing for 1997. This discussion of potential risks and uncertainties
is by no means complete but is designed to highlight important factors that may
impact our outlook.
COMPETITION AND THE HEALTH CARE ENVIRONMENT
In the U.S., many of our pharmaceutical products are subject to increasing price
pressures as managed care organizations, institutions and government agencies
seek price discounts. Government efforts to reduce Medicare and Medicaid
expenses are expected to increase the use of managed care organizations. This
may result in managed care influencing prescription decisions for a larger
segment of the population. International operations are also subject to price
and market regulations. As a result, it is expected that pressures on pricing
and operating results will continue.
CALCIUM CHANNEL BLOCKERS
During 1995, the authors of some nonclinical studies questioned the safety of
calcium channel blockers (CCBs). Although the clinical evidence supported the
safety of this class of medications, the FDA convened an advisory panel to
review their safety. In 1996, that advisory panel found no data to support
challenges to the safety of newer sustained-release and intrinsically
long-acting CCBs (such as Norvasc and Procardia XL--products for treatment of
hypertension and angina).
Questions about this class of products continued throughout 1997, however,
and included scientific publications and presentations asserting that these
products were associated with various serious medical conditions.
During 1997, data from newly conducted studies and reviews, etc. and
decisions by two national regulatory authorities plus newly published National
Institutes of Health (NIH) guidelines were all supportive of the safety of
long-acting CCBs like Norvasc and Procardia XL and that they were appropriate
first-line medications in the treatment of hypertension.
We continue to believe that the safety and effectiveness of Norvasc and
Procardia XL are supported by a large body of data from numerous studies and the
daily clinical experiences of physicians around the world. It is not possible,
however, to predict the impact on our future sales, if any, of existing or
future studies, regulatory agency actions or a continuing debate regarding CCBs.
FINANCIAL RISK MANAGEMENT
The overall objective of our financial risk management program is to seek a
reduction in the potential negative earnings effects from changes in foreign
exchange and interest rates arising in our business activities. We manage these
financial exposures through operational means and by using various financial
instruments. These practices may change as economic conditions change.
FOREIGN EXCHANGE RISK
A significant portion of our revenues and earnings are exposed to changes in
foreign exchange rates. Where practical, we seek to relate expected local
currency revenues with local currency costs and local currency assets with local
currency liabilities.
Foreign exchange risk is also managed through the use of foreign currency
forward-exchange contracts. These contracts are used to offset the potential
earnings effects from short-term foreign currency assets and liabilities that
arise during normal operations.
In addition, foreign currency put options are purchased to reduce a portion
of the potential negative effects on earnings related to certain of our
significant anticipated intercompany inventory purchases for up to one year.
These purchased options hedge Japanese yen versus the U.S. dollar.
Also, under certain market conditions, we protect against possible declines
in the reported net assets of our international subsidiaries in Japan. We do
this through currency swaps and borrowing in Japanese yen.
Our financial instrument holdings at year-end were analyzed to determine
their sensitivity to foreign exchange rate changes. The fair value of these
instruments was determined as follows:
o forward-exchange contracts and currency swaps--net present values
o purchased foreign currency options--foreign exchange option pricing model
o foreign receivables, payables, debt and loans--changes in exchange rates
In our sensitivity analysis, we assumed that the change in one currency's
rates relative to the U.S. dollar would not have an effect on other currencies'
rates relative to the U.S. dollar. All other factors were held constant.
If there were an adverse change in foreign exchange rates of 10%, the
expected effect on net income related to our financial instruments would be
immaterial. For additional details, see note 5-D, "Derivative Financial
Instruments--Accounting Policies," on page 47.
36
<PAGE>
Pfizer Inc and Subsidiary Companies
INTEREST RATE RISK
Our U.S. dollar interest-bearing investments, loans and borrowings are subject
to interest rate risk. We invest and borrow primarily on a short-term or
variable-rate basis. We are also subject to interest rate risk on Japanese yen
short-term borrowings. Under certain market conditions, interest rate swap
contracts are used to adjust interest sensitive assets and liabilities.
Our financial instrument holdings at year-end were analyzed to determine
their sensitivity to interest rate changes. The fair values of these instruments
were determined by net present values.
In our sensitivity analysis, we used the same change in interest rate for
all maturities. All other factors were held constant. If interest rates
increased by 10%, the expected effect on net income related to our financial
instruments would be immaterial.
FOREIGN MARKETS
Thirty-nine percent of our 1998 revenues arise from international operations and
we expect revenue and net income growth in 1999 to be impacted by changes in
foreign exchange rates.
Revenues from Asia comprised approximately 12% of total revenues in 1998,
including 7% from Japan. Revenues from the Asian markets most impacted by recent
economic events--Korea, Indonesia, Thailand, Malaysia, the Philippines and
Taiwan--comprised approximately 1% of 1998 total revenues. Revenues from Latin
America comprised approximately 5% of total revenues in 1998, including 2% from
Brazil.
EUROPEAN CURRENCY
A new European currency (Euro) was introduced in January 1999 to replace the
separate currencies of 11 individual countries. This entails changes in our
operations as we modify systems and commercial arrangements to deal with the new
currency. Modifications are necessary in operations such as payroll, benefits
and pension systems, contracts with suppliers and customers and internal
financial reporting systems. Although there is a three-year transition period
during which transactions can be made in the old currencies, this may require
dual currency processes for our operations. We have identified issues involved
and are developing and implementing solutions. The cost of this effort is not
expected to have a material effect on our business or results of operations.
There is no guarantee, however, that all problems have been foreseen and
corrected, or that no material disruption will occur in our business. The
conversion to the Euro may have competitive implications on our pricing and
marketing strategies; however, the full impact is not known at this time.
TAX LEGISLATION
Pursuant to the Small Jobs Protection Act of 1996 (the Act), Section 936 of the
Internal Revenue Code (the U.S. possessions corporation income tax credit) was
repealed for tax years beginning after December 31, 1995. The Act allows us to
continue using the credit against the tax arising from manufacturing income
earned in a U.S. possession for an additional 10-year period. The amount of
manufacturing income eligible for the credit during this additional period is
subject to a cap based on income earned prior to 1996 in the U.S. possession.
This 10-year extension period does not apply to investment income earned in a
U.S. possession, the credit on which expired as of July 1, 1996. The Act does
not affect the amendments made to Section 936 by the 1993 Omnibus Budget
Reconciliation Act, which provided for a five-year phase-down of the U.S.
possession tax credit from 100% to 40%. In addition, the 1996 Act permitted the
extension of the R&D tax credit through June 30, 1998. In 1998, this credit was
again extended to June 30, 1999.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities, which becomes effective for our financial
statements beginning January 1, 2000. SFAS No. 133 requires a company to
recognize all derivative instruments as assets or liabilities in its balance
sheet and measure them at fair value. We do not expect the adoption of this
Statement to have a material impact on our financial statements.
The American Institute of Certified Public Accountants 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 adoption of these SOPs to have a material impact on our financial
statements.
YEAR 2000 COMPUTER SYSTEMS COMPLIANCE
Many older computer software programs refer to years in terms of their final two
digits only. Such programs may interpret the year 2000 to mean the year 1900, or
another year instead. If not corrected, those programs could cause date-related
or operational transaction failures. We developed a Compliance Assurance Process
to address the Year 2000 issue in four phases: Inventory, Assessment and
Planning, Implementation and Certification. No significant information
technology projects have been deferred as a result of our efforts on Year 2000.
The Inventory phase included preliminary problem determination, an
inventory of information technology (IT) and non-IT hardware and software and an
inventory of our key business systems and material vendors and business
processes. Such systems relate to our research and development, production,
distribution, financial, administrative and communication operations. This phase
was substantially completed at the end of 1998.
37
<PAGE>
We have requested our critical vendors, major customers, service suppliers,
communication providers, product alliance partners and banks to verify their
Year 2000 readiness and are currently evaluating their responses. This
evaluation is complete for all of our critical trading partners, but continues
for non-critical partners.
During our Assessment and Planning phase each inventoried item is assessed
to evaluate its risk, to decide whether to remediate or replace, to identify its
priority and to develop a plan for the system. Systems are prioritized based on
their importance to the business, risk of failure, time horizon to failure and
dependency on other critical items. This phase was 90% complete at December 31,
1998, and will be finished by the end of the first quarter of 1999.
The plans developed during the Assessment and Planning phase are being
executed in the Implementation phase. Remediation and replacement of non-Year
2000 compliant systems is in process and we expect our critical systems to be
substantially remediated or replaced by March 31, 1999. The remaining systems,
including embedded systems, will be modified by the end of the third quarter of
1999. While our Implementation efforts are approximately 65% complete, this
phase will overlap with the Certification phase.
During the Certification phase, we will be testing and certifying the
results of our remediation efforts. Testing begins as systems are remediated and
will continue throughout 1999. Testing attempts are to verify that all of our
systems function correctly and extend to all interfaces with key business
partners. We expect to substantially complete testing of critical systems by
March 31, 1999, and the testing of remaining systems and key third-party systems
by the end of the third quarter of 1999.
Because the company's Year 2000 compliance is dependent upon key third
parties also being Year 2000 compliant on a timely basis, there can be no
guarantee that the company's efforts will prevent a material adverse impact on
its results of operations, financial condition or cash flows. If our systems or
those of key third parties are not fully Year 2000 functional, we estimate that
up to a two-week disruption in operations could occur. Such a disruption could
result in delays in the distribution of finished goods or receipt of raw
materials, errors in customer order taking, disruption of clinical activities or
delays in product development. These consequences could have a material adverse
impact on our results of operations, financial condition and cash flows if we
are unable to substantially conduct our business in the ordinary course. We
believe that our efforts, including the development of a contingency plan, will
significantly reduce the adverse impact that any disruption in business might
have.
As part of the contingency plan being developed, Business Continuity Plans
(the Plans) will address critical areas of our business. The Plans will be
designed to mitigate serious disruptions to our business flow beyond the end of
1999 and operate independent of our external providers' Year 2000 compliance.
The Plans will likely provide for maintaining increased inventory to meet
customer needs, protecting the integrity of ongoing activities, identifying and
securing alternate sources of critical services, materials and utilities when
possible and establishing crisis teams to address unexpected problems. We expect
to complete the preliminary Plans by the end of the first quarter 1999 and the
final Plans by the end of the second quarter 1999.
We estimate that the total cost involved in our Year 2000 program is
approximately $127 million of which $36 million has been incurred to date. Costs
for 1999 are estimated to be approximately $91 million, which reflect changes in
estimates and the inclusion of accelerated replacement costs as a result of a
clarification in disclosure guidelines of the Securities and Exchange
Commission. These costs are expensed as incurred, except for capitalizable
hardware of $5 million in 1998 and $15 million estimated for 1999 and are being
funded through operating cash flows. Such costs do not include normal system
upgrades and replacements.
Both our cost estimates and completion timeframes will be influenced by our
ability to successfully identify Year 2000 problems, the nature and amount of
programming required to fix the programs, the availability and cost of personnel
trained in this area and the Year 2000 compliance success that key third parties
attain. As the development of contingency plans continues, the costs to complete
our Year 2000 program may increase. While these and other unforeseen factors
could have a material adverse impact on our results of operations or financial
condition, we believe that our ongoing efforts to address the Year 2000 issue
will minimize possible negative consequences to our company.
LITIGATION, TAX AND ENVIRONMENTAL MATTERS
Claims have been brought against us and our subsidiaries for various legal and
tax matters. In addition, our operations are subject to international, federal,
state and local environmental laws and regulations. It is possible that our cash
flows and results of operations could be affected by the one-time impact of the
resolution of these contingencies. We believe that the ultimate disposition of
these matters to the extent not previously provided for will not have a material
impact on our financial condition or cash flows and results of operations,
except where specifically commented on in note 17, "Litigation," beginning on
page 55 and note 8, "Taxes on Income," beginning on page 50.
RECENT EVENTS
On January 28, 1999, we announced that, barring unusual circumstances, our Board
of Directors intends to vote on a three-for-one split of our common stock on
April 22, 1999. At the annual meeting to take place on the same date,
shareholders will vote on a proposal to increase the authorized shares of our
common stock.
38
<PAGE>
MANAGEMENT'S REPORT
We prepared and are responsible for the financial statements that appear on
pages 40 to 61. These financial statements are in conformity with generally
accepted accounting principles and, therefore, include amounts based on informed
judgments and estimates. We also accept responsibility for the preparation of
other financial information that is included in this document.
We have designed a system of internal control to:
o safeguard the Company's assets,
o ensure that transactions are properly authorized, and
o provide reasonable assurance, at reasonable cost, of the integrity,
objectivity and reliability of the financial information.
An effective internal control system has inherent limitations, no matter
how well designed and, therefore, can provide only reasonable assurance with
respect to financial statement preparation. The system is built on a business
ethics policy that requires all employees to maintain the highest ethical
standards in conducting Company affairs. Our system of internal control
includes:
o careful selection, training and development of financial managers,
o an organizational structure that segregates responsibilities,
o a communications program which ensures that the Company's policies and
procedures are well understood throughout the organization and
o an extensive program of internal audits, with prompt follow-up, including
reviews of separate operations and functions around the world.
Our independent certified public accountants, KPMG LLP, have audited the
annual financial statements in accordance with generally accepted auditing
standards. The independent auditors' report expresses an informed judgment as to
the fair presentation of the Company's reported operating results, financial
position and cash flows. Their judgment is based on the results of auditing
procedures performed and such other tests that they deemed necessary, including
their consideration of our internal control structure.
We consider and take appropriate action on recommendations made by KPMG LLP
and our internal auditors. We believe that our system of internal control is
effective and adequate to accomplish the objectives discussed above.
/s/W. C. STEERE, JR.
- --------------------
W. C. Steere, Jr., PRINCIPAL EXECUTIVE OFFICER
/s/D. L. SHEDLARZ
- -----------------
D. L. Shedlarz, PRINCIPAL FINANCIAL OFFICER
/s/H. V. RYAN
- -------------
H. V. Ryan, PRINCIPAL ACCOUNTING OFFICER
FEBRUARY 25, 1999
AUDIT COMMITTEE'S REPORT
The Board of Directors reviews the audit function, the system of internal
control and financial statements largely through its Audit Committee, which
consists solely of directors who are not Company employees. The requirements of
the Audit Committee's charter have been complied with during 1998. The Audit
Committee met six times in 1998 with management, the independent auditors and
internal auditors concerning their respective responsibilities. Among its
various duties, the Audit Committee recommends the appointment of the Company's
independent auditors. Both KPMG LLP and the internal auditors have full access
to the Audit Committee and meet with it, without management present, to discuss
the scope and results of their examinations including internal control, audit
and financial reporting matters.
/s/G. B. HARVEY
- ---------------
G. B. Harvey, Chair, AUDIT COMMITTEE
FEBRUARY 25, 1999
INDEPENDENT AUDITORS' REPORT
(LOGO)
To the Shareholders and Board of Directors of Pfizer Inc:
We have audited the accompanying consolidated balance sheet of Pfizer Inc and
subsidiary companies as of December 31, 1998, 1997 and 1996 and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Pfizer Inc
and subsidiary companies at December 31, 1998, 1997 and 1996, and the results of
their operations and their cash flows for each of the years then ended, in
conformity with generally accepted accounting principles.
/s/KPMG LLP
- -----------
New York, NY
FEBRUARY 25, 1999
39
<PAGE>
Pfizer Inc and Subsidiary Companies
CONSOLIDATED STATEMENT OF INCOME
- --------------------------------------------------------------------------------
Year ended December 31
(millions, except per share data) 1998 1997 1996
Net sales $12,677 $10,739 $9,864
Alliance revenue 867 316 --
- --------------------------------------------------------------------------------
Total revenues 13,544 11,055 9,864
Costs and expenses:
Cost of sales 2,094 1,776 1,695
Selling, informational and administrative
expenses 5,568 4,401 3,859
Research and development expenses 2,279 1,805 1,567
Other deductions -- net 1,009 206 215
- --------------------------------------------------------------------------------
Income from continuing operations before
provision for taxes on income and minority
interests 2,594 2,867 2,528
Provision for taxes on income 642 775 758
Minority interests 2 10 6
- --------------------------------------------------------------------------------
Income from continuing operations 1,950 2,082 1,764
Discontinued operations-- net of tax 1,401 131 165
- --------------------------------------------------------------------------------
Net income $ 3,351 $ 2,213 $1,929
- --------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE-- BASIC
Income from continuing operations $ 1.54 $ 1.66 $ 1.41
Discontinued operations-- net of tax 1.11 .10 .14
- --------------------------------------------------------------------------------
Net income $ 2.65 $ 1.76 $ 1.55
- --------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE-- DILUTED
Income from continuing operations $ 1.48 $ 1.60 $ 1.37
Discontinued operations-- net of tax 1.07 .10 .13
- --------------------------------------------------------------------------------
Net income $ 2.55 $ 1.70 $ 1.50
- --------------------------------------------------------------------------------
Weighted average shares-- basic 1,263 1,257 1,248
Weighted average shares-- diluted 1,315 1,303 1,288
- --------------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS WHICH ARE AN INTEGRAL PART OF
THESE STATEMENTS.
40
<PAGE>
Pfizer Inc and Subsidiary Companies
CONSOLIDATED BALANCE SHEET
- --------------------------------------------------------------------------------
December 31
-------------------------------
(millions, except per share data) 1998 1997 1996
- --------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,552 $ 877 $ 1,150
Short-term investments 2,377 712 486
Accounts receivable, less allowance for doubtful
accounts: 1998-- $67; 1997-- $35; 1996-- $41 2,914 2,220 1,914
Short-term loans 150 115 355
Inventories
Finished goods 697 442 371
Work in process 890 808 636
Raw materials and supplies 241 211 224
- --------------------------------------------------------------------------------
Total inventories 1,828 1,461 1,231
- --------------------------------------------------------------------------------
Prepaid expenses, taxes and other assets 1,110 637 608
Net assets of discontinued operations -- 1,420 1,432
- --------------------------------------------------------------------------------
Total current assets 9,931 7,442 7,176
Long-term loans and investments 1,756 1,330 1,149
Property, plant and equipment, less accumulated
depreciation 4,415 3,793 3,456
Goodwill, less accumulated amortization:
1998-- $109; 1997-- $90; 1996-- $59 813 989 1,047
Other assets, deferred taxes and deferred charges 1,387 1,437 1,423
- --------------------------------------------------------------------------------
Total assets $18,302 $14,991 $14,251
- --------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings, including current portion
of long-term debt $ 2,729 $ 2,251 $ 2,204
Accounts payable 971 660 787
Dividends payable 285 -- --
Income taxes payable 1,162 729 848
Accrued compensation and related items 614 456 385
Other current liabilities 1,431 898 1,038
- --------------------------------------------------------------------------------
Total current liabilities 7,192 4,994 5,262
Long-term debt 527 725 681
Postretirement benefit obligation other than
pension plans 359 394 412
Deferred taxes on income 197 127 223
Other noncurrent liabilities 1,217 818 719
- --------------------------------------------------------------------------------
Total liabilities 9,492 7,058 7,297
- --------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Preferred stock, without par value; 12 shares
authorized, none issued -- -- --
Common stock, $.05 par value; 3,000 shares
authorized; issued: 1998-- 1,407; 1997-- 1,388;
1996-- 1,378 70 69 69
Additional paid-in capital 5,646 3,239 1,693
Retained earnings 11,439 9,349 8,017
Accumulated other comprehensive income/(expense) (234) (85) 145
Employee benefit trusts (4,200) (2,646) (1,488)
Treasury stock, at cost:
1998-- 113; 1997-- 94; 1996-- 87 (3,911) (1,993) (1,482)
- --------------------------------------------------------------------------------
Total shareholders' equity 8,810 7,933 6,954
- --------------------------------------------------------------------------------
Total liabilities and shareholders' equity $18,302 $14,991 $14,251
- --------------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS WHICH ARE AN INTEGRAL PART OF
THESE STATEMENTS.
41
<PAGE>
Pfizer Inc and Subsidiary Companies
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Employee Accum.
Common Stock Additional Benefit Trusts Treasury Stock Other Com-
---------------- Paid-In --------------- -------------- Retained prehensive
(millions) Shares Par Value Capital Shares Cost Shares Cost Earnings Inc./(Exp.) Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance January 1, 1996 1,371 $69 $1,200 (37) $(1,170) (96) $(1,615) $6,859 $163 $5,506
Comprehensive income:
Net income 1,929 1,929
Other comprehensive expense--
net of tax:
Currency translation adjustment (32) (32)
Net unrealized gain on available-
for-sale securities 15 15
Minimum pension liability (1) (1)
--------------
Total other comprehensive expense (18) (18)
--------------
Total comprehensive income 1,911
Cash dividends declared (771) (771)
Stock option transactions 7 -- 124 10 156 280
Purchases of common stock (1) (27) (27)
Employee benefit trust
transactions--net 341 1 (318) 23
Other 28 -- 4 32
- ------------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1996 1,378 69 1,693 (36) (1,488) (87) (1,482) 8,017 145 6,954
Comprehensive income:
Net income 2,213 2,213
Other comprehensive expense--
net of tax:
Currency translation adjustment (253) (253)
Net unrealized gain on available-
for-sale securities 20 20
Minimum pension liability 3 3
--------------
Total other comprehensive expense (230) (230)
--------------
Total comprehensive income 1,983
Cash dividends declared (881) (881)
Stock option transactions 9 -- 343 4 68 411
Purchases of common stock (11) (586) (586)
Employee benefit trusts
transactions--net 1,177 -- (1,158) -- 7 26
Other 1 -- 26 26
- ------------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1997 1,388 69 3,239 (36) (2,646) (94) (1,993) 9,349 (85) 7,933
Comprehensive income:
Net income 3,351 3,351
Other comprehensive expense--
net of tax:
Currency translation adjustment (74) (74)
Net unrealized loss on available-
for-sale securities (2) (2)
Minimum pension liability (73) (73)
--------------
Total other comprehensive expense (149) (149)
--------------
Total comprehensive income 3,202
Cash dividends declared (1,261) (1,261)
Stock option transactions 18 1 747 -- (18) 730
Purchases of common stock (19) (1,912) (1,912)
Employee benefit trusts
transactions--net 1,633 2 (1,554) -- 12 91
Other 1 -- 27 27
- ------------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1998 1,407 $70 $5,646 (34) $(4,200) (113) $(3,911) $11,439 $(234) $8,810
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS WHICH ARE AN INTEGRAL PART OF
THESE STATEMENTS.
42
<PAGE>
Pfizer Inc and Subsidiary Companies
CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
Year ended December 31
(millions of dollars) 1998 1997 1996
- --------------------------------------------------------------------------------
OPERATING ACTIVITIES
Income from continuing operations $1,950 $2,082 $1,764
Adjustments to reconcile income from continuing
operations to net cash provided by operating
activities:
Depreciation and amortization 489 428 359
Asset impairments and restructuring charges 323 -- --
Deferred taxes and other (61) 13 80
Changes in assets and liabilities, net of effect
of businesses acquired and divested:
Accounts receivable (765) (477) (259)
Inventories (439) (350) (140)
Prepaid and other assets (350) (128) (174)
Accounts payable and accrued liabilities 628 (63) 25
Income taxes payable 677 (142) 35
Other deferred items 473 59 138
- --------------------------------------------------------------------------------
Net cash provided by operating activities 2,925 1,422 1,828
- --------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchases of property, plant and equipment (1,198) (878) (690)
Proceeds from disposal of property, plant and
equipment 79 47 98
Purchases of short-term investments (5,845) (221) (2,850)
Proceeds from redemptions of short-term
investments 4,209 28 3,490
Proceeds from sales of businesses-- net 3,059 21 353
Purchases of long-term investments (752) (74) (810)
Acquisitions, net of cash acquired -- -- (451)
Other investing activities 113 114 10
- --------------------------------------------------------------------------------
Net cash used in investing activities (335) (963) (850)
- --------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from issuances of long-term debt -- 57 636
Repayments of long-term debt (202) (269) (798)
Increase in short-term debt-- net 485 395 269
Purchases of common stock (1,912) (586) (27)
Cash dividends paid (976) (881) (771)
Stock option transactions 643 411 280
Other financing activities 42 50 44
- --------------------------------------------------------------------------------
Net cash used in financing activities (1,920) (823) (367)
- --------------------------------------------------------------------------------
Net cash provided by discontinued operations 4 118 134
- --------------------------------------------------------------------------------
Effect of exchange-rate changes on cash and cash
equivalents 1 (27) 2
- --------------------------------------------------------------------------------
Net increase/(decrease) in cash and cash equivalents 675 (273) 747
Cash and cash equivalents at beginning of year 877 1,150 403
- --------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $1,552 $ 877 $1,150
- --------------------------------------------------------------------------------
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for:
Income taxes $1,073 $ 809 $ 657
Interest 155 149 135
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS WHICH ARE AN INTEGRAL PART OF
THESE STATEMENTS.
43
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 SIGNIFICANT ACCOUNTING POLICIES
A--CONSOLIDATION AND BASIS OF PRESENTATION
The consolidated financial statements include the parent company and all
significant subsidiaries, including those operating outside the U.S. Balance
sheet amounts for the foreign operations are as of November 30 of each year and
income statement amounts are for the full-year periods ending on the same date.
Substantially all unremitted earnings of international subsidiaries are free of
legal and contractual restrictions. All significant transactions among our
businesses have been eliminated. As discussed in note 2, "Discontinued
Operations," the Valleylab, Schneider, American Medical Systems (AMS), Howmedica
and Strato/Infusaid businesses, which comprised the Medical Technology Group
(MTG), are presented as discontinued operations. We made certain
reclassifications to the 1997 and 1996 financial statements to conform to the
1998 presentation.
In preparing the financial statements, management must use some estimates
and assumptions that may affect reported amounts and disclosures. Estimates are
used when accounting for depreciation, amortization, employee benefits and asset
valuation allowances. We are also subject to risks and uncertainties that may
cause actual results to differ from estimated results, such as changes in the
health care environment, competition, foreign exchange and legislation.
"Forward-Looking Information and Factors That May Affect Future Results,"
beginning on page 35, discusses these and other uncertainties.
B--CASH EQUIVALENTS
Cash equivalents include items almost as liquid as cash, such as demand
deposits, certificates of deposit and time deposits with maturity periods of
three months or less when purchased. If items meeting this definition are part
of a larger investment pool, we classify them as SHORT-TERM INVESTMENTS.
C--INVENTORIES
We value inventories at cost or fair value, if lower. Cost is determined as
follows:
o finished goods and work-in-process at average actual cost
o raw materials and supplies at average or latest actual cost
"Last-in, first-out" (LIFO) usage applies to U.S.-sourced pharmaceuticals
and part of animal health inventories (approximately 8% of total inventories)
and "first-in, first-out" usage applies to the rest. The replacement cost of
LIFO inventories is not materially different from the LIFO value reported.
D--LONG-LIVED ASSETS
Long-lived assets include:
o property, plant and equipment--These assets are recorded at original cost
increased by the cost of any significant improvements after purchase. We
depreciate the cost evenly over the assets' useful lives. For tax purposes,
accelerated depreciation methods are used as allowed by tax laws.
o goodwill--Goodwill represents the difference between the purchase price of
acquired businesses and the fair value of their net assets when accounted
for by the purchase method of accounting. We amortize goodwill evenly over
periods not exceeding 40 years.
o other intangible assets--Other intangible assets are included in OTHER
ASSETS, DEFERRED TAXES AND DEFERRED CHARGES. We amortize these assets
evenly over their estimated useful lives.
E--FOREIGN CURRENCY TRANSLATION
For most foreign operations, local currencies are considered their functional
currencies. We translate assets and liabilities to their U.S. dollar equivalents
at rates in effect at the balance sheet date and record translation adjustments
in SHAREHOLDERS' EQUITY. We translate Statement of Income accounts at average
rates for the period. Transaction adjustments are recorded in OTHER
DEDUCTIONS--NET.
For operations in highly inflationary economies, we translate the balance
sheet items as follows:
o monetary items (that is, assets and liabilities that will be settled for
cash) at rates in effect at the balance sheet date, with translation
adjustments recorded in OTHER DEDUCTIONS--NET
o non-monetary items at historical rates (that is, those in effect when the
items were first recorded)
F--PRODUCT ALLIANCES
We have agreements to promote pharmaceutical products developed by other
companies. ALLIANCE REVENUE represents revenues earned under copromotion
agreements (a percentage of net sales adjusted, in some cases, for certain
specific costs). SELLING, INFORMATIONAL AND ADMINISTRATIVE EXPENSES include
other expenses for selling and marketing these products.
We have license agreements in certain foreign countries for these products.
When products are sold under license agreements, we record NET SALES instead of
ALLIANCE REVENUE and record related costs and expenses in the appropriate
caption in the Statement of Income.
44
<PAGE>
G--STOCK OPTIONS
The exercise price of stock options granted equals the market price on the grant
date. In general, there is no recorded expense related to stock options. Stock
options outstanding are presumed to be exercised for the purposes of computing
diluted weighted average shares outstanding.
H--ADVERTISING EXPENSE
We record advertising expense as follows:
o production costs as incurred
o costs of radio time, television time and space in publications deferred
until the advertising first occurs
Advertising expense totaled $1,139 million in 1998, $898 million in 1997
and $738 million in 1996.
2 DISCONTINUED OPERATIONS
In 1998, we completed the disposal of the MTG segment. Accordingly, the
consolidated financial statements and related notes reflect the results of
operations and net assets of the MTG businesses--Valleylab, Schneider, AMS,
Howmedica and Strato/Infusaid--as discontinued operations. We completed the
sales of:
o Howmedica to Stryker Corporation in December for $1.65 billion in cash
o Schneider to Boston Scientific Corporation in September for $2.1 billion in
cash
o AMS to E.M. Warburg, Pincus & Co., LLC in September for $130 million
in cash
o Valleylab to U.S. Surgical Corporation in January for $425 million
in cash
In 1997, we sold Strato/Infusaid to Horizon Medical Products and Arrow
International for $21 million in cash.
The contractual net assets identified as part of the disposition of
Valleylab, Schneider, AMS, Howmedica and Strato/Infusaid are recorded as NET
ASSETS OF DISCONTINUED OPERATIONS and the net cash flows of these businesses are
reported as NET CASH PROVIDED BY DISCONTINUED OPERATIONS. NET ASSETS OF
DISCONTINUED OPERATIONS consisted of the following:
- --------------------------------------------------------------------------------
(millions of dollars) 1997 1996
- --------------------------------------------------------------------------------
Net current assets $ 397 $ 347
Property, plant and equipment--net 383 394
Other net noncurrent assets
and liabilities 640 691
- --------------------------------------------------------------------------------
Net assets of discontinued operations $1,420 $1,432
================================================================================
DISCONTINUED OPERATIONS--NET OF TAX were as follows:
- --------------------------------------------------------------------------------
(millions of dollars) 1998 1997 1996
- --------------------------------------------------------------------------------
Net sales $1,160 $1,449 $1,489*
- --------------------------------------------------------------------------------
Pre-tax income $ 92 $ 232 $ 276
Provision for taxes on income 57 93 111
- --------------------------------------------------------------------------------
Income from operations of
discontinued businesses--net of tax 35 139 165
- --------------------------------------------------------------------------------
Pre-tax gain/(loss) on disposal of
discontinued businesses 2,504 (11) --
Provision/(benefit) for taxes on
gain/(loss) 1,138 (3) --
- --------------------------------------------------------------------------------
Gain/(loss) on disposal of discontinued
businesses--net of tax 1,366 (8) --
- --------------------------------------------------------------------------------
Discontinued operations--net of tax $1,401 $ 131 $ 165
================================================================================
* Includes $47 million of net sales related to our food science business
divested in 1996.
3 FINANCIAL SUBSIDIARIES
Our financial subsidiaries include Pfizer International Bank Europe (PIBE) and a
small captive insurance company. PIBE periodically adjusts its loan portfolio to
meet its business needs. Information about these subsidiaries follows:
CONDENSED BALANCE SHEET
- --------------------------------------------------------------------------------
(millions of dollars) 1998 1997 1996
- --------------------------------------------------------------------------------
Cash and interest-bearing deposits $103 $115 $ 78
Loans--net 433 408 381
Other assets 15 8 53
- --------------------------------------------------------------------------------
Total assets $551 $531 $512
- --------------------------------------------------------------------------------
Certificates of deposit and
other liabilities $ 97 $ 73 $ 87
Shareholders' equity 454 458 425
- --------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $551 $531 $512
================================================================================
CONDENSED STATEMENT OF INCOME
- --------------------------------------------------------------------------------
(millions of dollars) 1998 1997 1996
- --------------------------------------------------------------------------------
Interest income $ 30 $ 29 $28
Interest expense (2) (2) (3)
Other income--net 1 13 2
Net income $ 29 $ 40 $27
================================================================================
4 COMPREHENSIVE INCOME
Effective January 1, 1998, we adopted Statement of Financial Accounting
Standards (SFAS) No. 130, REPORTING COMPREHENSIVE INCOME. This Statement
establishes standards for the reporting of all changes in equity from
nonshareholder sources. Prior year financial statements have been conformed to
the requirements of SFAS No. 130.
45
<PAGE>
Changes in ACCUMULATED OTHER COMPREHENSIVE INCOME/(EXPENSE) for the years
ended December 31, 1996, 1997 and 1998 follow:
- --------------------------------------------------------------------------------
Net Accumulated
Unrealized other com-
Currency gain/(loss) on Minimum prehensive
translation available-for- pension income/
(millions of dollars) adjustment sale securities liability (expense)*
- --------------------------------------------------------------------------------
Balance
January 1, 1996 $ 206 $25 $ (68) $ 163
Period change (32) 15 (1) (18)
- --------------------------------------------------------------------------------
Balance
December 31,
1996 174 40 (69) 145
Period change (253) 20 3 (230)
- --------------------------------------------------------------------------------
Balance
December 31,
1997 (79) 60 (66) (85)
Period change (74) (2) (73) (149)
- --------------------------------------------------------------------------------
Balance
December 31,
1998 $(153) $58 $(139) $(234)
- --------------------------------------------------------------------------------
* Income tax benefit for other comprehensive expense was $4 million in 1996,
$76 million in 1997 and $116 million in 1998.
5 FINANCIAL INSTRUMENTS
Most of our financial instruments are recorded in the Balance Sheet. Several
"derivative" financial instruments are "off-balance-sheet" items.
A--INVESTMENTS IN DEBT AND EQUITY SECURITIES
Information about our investments follows:
- --------------------------------------------------------------------------------
(millions of dollars) 1998 1997 1996
- --------------------------------------------------------------------------------
Trading securities $ 99 $ -- $ --
- --------------------------------------------------------------------------------
Amortized cost and fair value of
held-to-maturity debt securities:*
Corporate debt 2,306 626 602
Certificates of deposit 670 655 657
Municipals -- 56 29
Other 21 104 81
- --------------------------------------------------------------------------------
Total held-to-maturity debt securities 2,997 1,441 1,369
- --------------------------------------------------------------------------------
Cost and fair value of available-for-sale
debt securities* 686 686 636
- --------------------------------------------------------------------------------
Cost of available-for-sale equity
securities 54 81 78
Gross unrealized gains 106 106 73
Gross unrealized losses (8) (4) (8)
- --------------------------------------------------------------------------------
Fair value of available-for-sale equity
securities 152 183 143
- --------------------------------------------------------------------------------
Total investments $3,934 $2,310 $2,148
================================================================================
* Gross unrealized gains and losses are immaterial.
These investments are in the following captions in the Balance Sheet:
- --------------------------------------------------------------------------------
(millions of dollars) 1998 1997 1996
- --------------------------------------------------------------------------------
Cash and cash equivalents $ 660 $ 636 $ 640
Short-term investments 2,377 712 486
Long-term loans and investments 897 962 1,022
- --------------------------------------------------------------------------------
Total investments $3,934 $2,310 $2,148
================================================================================
The contractual maturities of the held-to-maturity and available-for-sale
debt securities as of December 31, 1998, were as follows:
- --------------------------------------------------------------------------------
Years
--------------------------------------------------
Over 1 Over 5
(millions of dollars) Within 1 to 5 to 10 Over 10 Total
- --------------------------------------------------------------------------------
Held-to-maturity
debt securities:
Corporate debt $2,271 $ 35 $ -- $-- $2,306
Certificates of deposit 667 3 -- -- 670
Other -- 2 10 9 21
Available-for-sale
debt securities:
Certificates of deposit -- 370 75 -- 445
Corporate debt -- 91 150 -- 241
- --------------------------------------------------------------------------------
Total debt securities $2,938 $501 $235 $ 9 $3,683
Available-for-sale
equity securities 152
Trading securities 99
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS $3,934
================================================================================
B--SHORT-TERM BORROWINGS
The weighted average effective interest rate on short-term borrowings
outstanding at December 31 was 3.7% in 1998, 2.9% in 1997 and 4.9% in 1996. We
had approximately $1.3 billion available to borrow under lines of credit at
December 31, 1998.
C--LONG-TERM DEBT
- --------------------------------------------------------------------------------
(millions of dollars) 1998 1997 1996
- --------------------------------------------------------------------------------
Floating-rate unsecured notes $491 $686 $636
Other borrowings and mortgages 36 39 45
- --------------------------------------------------------------------------------
Total long-term debt $527 $725 $681
- --------------------------------------------------------------------------------
Current portion not included above $ 4 $ 4 $261
================================================================================
The floating-rate unsecured notes mature on various dates from 2001 to 2005
and bear interest at a defined variable rate based on the commercial paper
borrowing rate. The weighted average interest rate was 5.3% at December 31,
1998. These notes minimize credit risk on certain available-for-sale debt
securities that may be used to satisfy the notes at maturity. In September 1998,
we repaid $195 million of the outstanding floating-rate unsecured notes prior to
their scheduled maturity by using the proceeds from the issuance of short-term
commercial paper.
46
<PAGE>
Long-term debt outstanding at December 31, 1998, matures as follows:
- --------------------------------------------------------------------------------
After
(millions of dollars) 2000 2001 2002 2003 2003
- --------------------------------------------------------------------------------
Maturities $2 $131 $161 $-- $233
================================================================================
D--DERIVATIVE FINANCIAL INSTRUMENTS
PURPOSE
"Forward-exchange contracts," "currency swaps" and "purchased currency options"
are used to reduce exposure to foreign exchange risks. Also, "interest rate
swap" contracts are used to adjust interest rate exposures.
ACCOUNTING POLICIES
We consider derivative financial instruments to be "hedges" (that is, an offset
of foreign exchange and interest rate risks) when certain criteria are met.
Under hedge accounting for a purchased currency option, its impact on earnings
is deferred until the recognition of the underlying hedged item (inventory) in
earnings. We recognize the earnings impact of the other instruments during the
terms of the contracts, along with the earnings impact of the items they offset.
Purchased currency options are recorded at cost and amortized evenly to
operations through the expected inventory delivery date. Gains at the
transaction date are included in the cost of the related inventory purchased.
As interest rates change, we accrue the difference between the debt
interest rates recognized in the Statement of Income and the amounts payable to
or receivable from counterparties under interest rate swap contracts. Likewise,
amounts arising from currency swap contracts are accrued as exchange rates
change.
The financial statements include the following items related to derivative
and other financial instruments serving as hedges or offsets:
PREPAID EXPENSES, TAXES AND OTHER ASSETS include:
o purchased currency options
OTHER CURRENT LIABILITIES include:
o fair value of forward-exchange contracts
o net amounts payable related to interest rate swap contracts
OTHER NONCURRENT LIABILITIES include:
o net amounts payable related to currency swap contracts
ACCUMULATED OTHER COMPREHENSIVE INCOME/(EXPENSE) include changes in the:
o foreign exchange translation of currency swaps and foreign debt
o fair value of forward-exchange contracts for net investment hedges
OTHER DEDUCTIONS--NET include:
o changes in the fair value of foreign exchange instruments and changes
in foreign-denominated assets and liabilities
o payments under swap contracts to offset, primarily, interest expense
or, to a lesser extent, net foreign exchange losses
o amortization of discounts or premiums on currencies sold under forward-
exchange contracts
Our criteria to qualify for hedge accounting are:
FOREIGN CURRENCY INSTRUMENTS
o The instrument must relate to a foreign currency asset, liability or an
anticipated transaction that is probable and whose characteristics and
terms have been identified.
o It must involve the same currency as the hedged item.
o It must reduce the risk of foreign currency exchange movements on our
operations.
INTEREST RATE INSTRUMENTS
o The instrument must relate to an asset or a liability.
o It must change the character of the interest rate by converting a
variable rate to a fixed rate or vice versa.
The following table summarizes the exposures hedged or offset by the
various instruments we use:
- --------------------------------------------------------------------------------
Maximum Maturity in Years
-----------------------------------------
Instrument Exposure 1998 1997 1996
- --------------------------------------------------------------------------------
Forward-exchange Foreign currency
contracts assets and liabilities .5 .5 .5
Net investments -- -- .25
- --------------------------------------------------------------------------------
Currency swaps Net investments 5 -- --
Loans 1 2 1
- --------------------------------------------------------------------------------
Purchased currency Inventory purchases
options and sales 1 1 1
- --------------------------------------------------------------------------------
Interest rate swaps Debt interest 5 1 1
================================================================================
47
<PAGE>
INSTRUMENTS OUTSTANDING
The notional amounts of derivative financial instruments, except for currency
swaps, do not represent actual amounts exchanged by the parties, but instead
represent the amount of the item on which the contracts are based.
The notional amounts of our foreign currency and interest rate contracts
follow:
- --------------------------------------------------------------------------------
(millions of dollars) 1998 1997 1996
- --------------------------------------------------------------------------------
FOREIGN CURRENCY CONTRACTS:
Commitments to sell foreign
currencies, primarily in exchange
for U.S. dollars:
U.K. pounds $ 482 $ 548 $ 564
Netherlands guilders 316 4 14
Japanese yen 298 224 94
French francs 216 134 193
Australian dollars 98 59 34
Irish punt 61 107 112
German marks 50 158 131
Other currencies 201 240 234
Net investment hedges:
Japanese yen -- -- 615
Swiss francs -- -- 342
Commitments to purchase foreign
currencies, primarily in exchange
for U.S. dollars:
Irish punt 532 92 21
Netherlands guilders 156 4 --
German marks 67 73 54
U.K. pounds 53 60 128
Swiss francs 8 187 154
Other currencies 144 136 114
- --------------------------------------------------------------------------------
Total forward-exchange contracts $2,682 $2,026 $2,804
- --------------------------------------------------------------------------------
Currency swaps:
Japanese yen $ 754 $ -- $ --
U.K. pounds 40 40 --
Other currencies -- -- 45
- --------------------------------------------------------------------------------
Total currency swaps $ 794 $ 40 $ 45
- --------------------------------------------------------------------------------
Purchased currency options,
primarily for U.S. dollars:
Japanese yen $ 364 $ 198 $ 221
German marks -- 130 28
French francs -- 46 35
Belgian francs -- 29 25
Other currencies 25 61 58
- --------------------------------------------------------------------------------
Total purchased options $ 389 $ 464 $ 367
- --------------------------------------------------------------------------------
INTEREST RATE SWAP CONTRACTS:
Japanese yen $ 321 $ 814 $ 932
Swiss francs -- 405 428
- --------------------------------------------------------------------------------
Total interest rate swap contracts $ 321 $1,219 $1,360
================================================================================
The Japanese yen for U.S. dollar currency swaps require that we make
interim payments of a fixed rate of 1.1% on the Japanese yen payable and have
interim receipts of a variable rate based on a commercial paper rate on the U.S.
dollar receivable. These currency swaps replaced $625 million of Japanese yen
debt, which previously served as a hedge of our net investments in Japan, as
well as related interest rate swaps.
The Japanese yen and Swiss franc interest rate swaps effectively fixed the
interest rate on floating rate debt as follows:
o the Japanese yen debt at 1.4% in 1998 and 1997 and 0.7% in 1996
o the Swiss franc debt at 2.1% in 1997 and 1996
The floating interest rates were based on "LIBOR" rates related to the
contract currencies. In connection with the sale of the Schneider Swiss
subsidiary in 1998, we terminated the Swiss franc interest rate swap contracts
and ceased borrowing Swiss francs. The contracts outstanding at December 31,
1996, matured in December 1997.
E--FAIR VALUE
The following methods and assumptions were used to estimate the fair value of
derivative and other financial instruments at the balance sheet date:
o short-term financial instruments (cash equivalents, accounts receivable and
payable, forward-exchange contracts, short-term investments and
borrowings)--cost approximates fair value because of the short maturity
period
o loans--cost approximates fair value because of the short interest reset
period
o long-term investments, long-term debt, forward-exchange contracts and
purchased currency options--fair value is based on market or dealer quotes
o interest rate and currency swap agreements--fair value is based on
estimated cost to terminate the agreements (taking into account broker
quotes, current interest rates and the counterparties' creditworthiness)
The differences between fair and carrying values were not material at
December 31, 1998, 1997 or 1996.
F--CREDIT RISK
We periodically review the creditworthiness of counterparties to foreign
exchange and interest rate agreements and do not expect to incur a loss from
failure of any counterparties to perform under the agreements. In general, there
is no requirement for collateral from customers. There are no significant
concentrations of credit risk related to our financial instruments. No
individual counterparty credit exposure exceeded 10% of our consolidated
SHAREHOLDERS' EQUITY at December 31, 1998.
48
<PAGE>
6 PROPERTY, PLANT AND EQUIPMENT
The major categories of property, plant and equipment follow:
- --------------------------------------------------------------------------------
(millions of dollars) 1998 1997 1996
- --------------------------------------------------------------------------------
Land $ 151 $ 126 $ 99
Buildings 1,669 1,534 1,422
Machinery and equipment 2,685 2,459 2,252
Furniture, fixtures and other 1,383 1,232 1,118
Construction in progress 956 516 476
- --------------------------------------------------------------------------------
6,844 5,867 5,367
Less: accumulated depreciation 2,429 2,074 1,911
- --------------------------------------------------------------------------------
Total property, plant and equipment $4,415 $3,793 $3,456
================================================================================
7 OTHER DEDUCTIONS--NET
Other deductions--net are summarized below:
- --------------------------------------------------------------------------------
(millions of dollars) 1998 1997 1996
- --------------------------------------------------------------------------------
Interest income $ (185) $(156) $(133)
Interest expense 143 149 166
Interest expense capitalized (7) (2) (5)
- --------------------------------------------------------------------------------
Net interest (income)/expense (49) (9) 28
Copromotion payments to Searle 240 -- --
Contribution to The
Pfizer Foundation 300 -- --
Legal settlements involving the
brand-name prescription drug
antitrust litigation 57 -- --
Amortization of goodwill and other
intangibles 45 48 48
Net exchange (gains)/losses (16) 26 (2)
Other, net 432 141 141
- --------------------------------------------------------------------------------
Other deductions--net $1,009 $ 206 $215
================================================================================
In 1998, we recorded charges for asset impairment and restructuring. The
components of these pre-tax charges follow:
- --------------------------------------------------------------------------------
(millions of dollars) Total COS* SI&A* R&D OD*
- --------------------------------------------------------------------------------
Asset impairments $213 $18 $ -- $ -- $195
Restructuring charges 177 68 17 1 91
================================================================================
*COS--COST OF SALES; SI&A--SELLING, INFORMATIONAL AND ADMINISTRATIVE EXPENSES;
OD--OTHER DEDUCTIONS-NET.
In 1998, we recorded an impairment charge of $110 million in the
pharmaceutical segment to adjust intangible asset values, primarily goodwill and
trademarks, related to consumer health care product lines.
These charges are a result of significant changes in the marketplace and a
revision of our strategies, including:
o the decision to redeploy resources from personal care and minor brands to
over-the-counter switches of prescription products
o the withdrawal of one of our major over-the-counter products in Italy
o an acquired product line which experienced declines in market share
Our animal health antibiotic feed additive, Stafac, was banned, effective
in mid 1999, throughout the European Union, resulting in asset impairment
charges of $103 million ($85 million was to adjust intangible asset values,
primarily goodwill and trademarks, and $18 million was to adjust the carrying
value of machinery and equipment in the pharmaceutical segment).
These events have caused the projected undiscounted cash flows of a number
of our consumer health care product lines and Stafac to be less than their
carrying value. As a result, we lowered the carrying value of the
above-mentioned assets to their estimated fair value. The estimated fair value
is the present value of the expected associated cash flows.
The components of the restructuring charges follow:
- --------------------------------------------------------------------------------
Utilization
----------------------------
(millions of dollars) Charges in 1998 1998 1999 Beyond
- --------------------------------------------------------------------------------
Property, plant
and equipment $ 49 $ 49 $-- $--
Write-down of intangibles 44 44 -- --
Employee termination costs 40 12 28 --
Other 44 11 11 22
- --------------------------------------------------------------------------------
Total $177 $116 $39 $22
- --------------------------------------------------------------------------------
These charges resulted from a current review of our global operations to
increase efficiencies and return on assets, thereby resulting in plant and
product line rationalizations. In addition to the disposition of our MTG
businesses, we have exited, or plan to exit by the end of 1999, certain product
lines including those associated with certain of our livestock external
parasiticides and feed businesses. Also, we have decided to exit certain of our
fermentation operations.
We have written off assets related to the product lines we are exiting,
including inventory, intangible assets--primarily goodwill--as well as certain
buildings, machinery and equipment for which we have no plans to use or sell. We
have begun to seek buyers for other properties which have been written down to
their estimated fair value. We will either dispose of or abandon these
properties by the end of 1999.
49
<PAGE>
As a result of the restructuring, the work force will be reduced by 520
manufacturing, sales and corporate personnel. Notifications to personnel have
been made. At December 31, 1998, 134 employees had been terminated. We will
complete terminations of the remaining personnel by December 31, 1999. Employee
termination costs represent payments for severance, outplacement counseling
fees, medical and other benefits and a $5 million noncash charge for the
acceleration of nonvested employee stock options.
Other restructuring charges consist of charges for inventory for product
lines we have exited--$12 million, contract termination payments--$9 million,
facility closure costs--$7 million and environmental remediation costs
associated with the disposal of certain facilities--$16 million.
8 TAXES ON INCOME
Income from continuing operations before taxes consisted of the following:
- --------------------------------------------------------------------------------
(millions of dollars) 1998 1997 1996
- --------------------------------------------------------------------------------
United States $1,184 $1,215 $1,012
International 1,410 1,652 1,516
- --------------------------------------------------------------------------------
Total income from continuing
operations before taxes $2,594 $2,867 $2,528
================================================================================
The provision for taxes on income from continuing operations consisted of
the following:
- --------------------------------------------------------------------------------
(millions of dollars) 1998 1997 1996
- --------------------------------------------------------------------------------
United States:
Taxes currently payable:
Federal $344 $344 $316
State and local 24 9 49
Deferred income taxes (162) (23) 5
- --------------------------------------------------------------------------------
Total U.S. tax provision 206 330 370
- --------------------------------------------------------------------------------
International:
Taxes currently payable 550 462 332
Deferred income taxes (114) (17) 56
- --------------------------------------------------------------------------------
Total international tax provision 436 445 388
- --------------------------------------------------------------------------------
Total provision for taxes on income $642 $775 $758
================================================================================
Amounts are reflected in the preceding tables based on the location of the
taxing authorities. As of December 31, 1998, we have not made a U.S. tax
provision for approximately $1.5 billion on approximately $6.5 billion of
unremitted earnings of our international subsidiaries. These earnings are
expected, for the most part, to be reinvested overseas.
We operate a manufacturing subsidiary in Puerto Rico that benefits from a
Puerto Rican incentive grant in effect through the end of 2002. Under this
grant, we are partially exempt from income, property and municipal taxes. For
further information on U.S.taxation of Puerto Rican operations, see "Tax
Legislation" on page 37.
Reconciliations of the U.S. statutory income tax rate to our effective tax
rate on continuing operations follow:
- --------------------------------------------------------------------------------
(percentages) 1998 1997 1996
- --------------------------------------------------------------------------------
U.S. statutory income tax rate 35.0 35.0 35.0
Effect of partially tax-exempt
operations in Puerto Rico (2.2) (1.8) (3.9)
Effect of foreign operations (5.5) (5.0) (3.5)
All other--net (2.5) (1.2) 2.4
- --------------------------------------------------------------------------------
Effective tax rate on continuing
operations 24.8 27.0 30.0
================================================================================
Deferred taxes arise because of different treatment between financial
statement accounting and tax accounting, known as "temporary differences." We
record the tax effect of these temporary differences as "deferred tax assets"
(generally items that can be used as a tax deduction or credit in future
periods) and "deferred tax liabilities" (generally items that we received a tax
deduction for, but have not yet been recorded in the Statement of Income).
50
<PAGE>
The tax effects of the major items recorded as deferred tax assets and
liabilities are:
- --------------------------------------------------------------------------------
1998 1997 1996
---------------------------------------------------
Deferred Tax Deferred Tax Deferred Tax
--------------- -------------- ------------------
(millions of dollars) Assets Liabs. Assets Liabs. Assets Liabs.
- --------------------------------------------------------------------------------
Prepaid/deferred items $ 411 $ 169 $ 252 $189 $ 241 $140
Inventories 322 72 218 60 225 95
Property, plant and
equipment 39 433 30 350 32 394
Employee benefits 391 97 297 113 241 104
Restructurings and
special charge* 301 -- 133 -- 157 --
Foreign tax credit
carryforwards 117 -- 159 -- 65 --
Other carryforwards 97 -- 135 -- 250 --
Unremitted earnings -- 335 -- -- -- --
All other 169 73 119 76 106 71
- --------------------------------------------------------------------------------
Subtotal 1,847 1,179 1,343 788 1,317 804
Valuation allowance (30) -- (27) -- (28) --
- --------------------------------------------------------------------------------
Total deferred taxes $1,817 $1,179 $1,316 $788 $1,289 $804
- --------------------------------------------------------------------------------
Net deferred tax asset $ 638 $ 528 $ 485
================================================================================
* Includes tax effect of the 1991 charge for potential future Shiley c/c heart
valve fracture claims.
These amounts, netted by taxing location, are in the following captions in
the Balance Sheet:
- --------------------------------------------------------------------------------
(millions of dollars) 1998 1997 1996
- --------------------------------------------------------------------------------
Prepaid expenses, taxes and other assets $ 809 $ 425 $ 410
Other assets, deferred taxes and
deferred charges 26 230 298
Deferred taxes on income (197) (127) (223)
- --------------------------------------------------------------------------------
Net deferred tax asset $ 638 $ 528 $ 485
================================================================================
A valuation allowance is recorded because some items recorded as foreign
deferred tax assets may not be deductible or creditable. The "foreign tax credit
carryforwards" were generated from dividends paid by subsidiaries to the parent
company between 1993 and 1998. We can carry these credits forward to various
dates through 2003 and use them in payment of certain U.S. tax liabilities.
The Internal Revenue Service has completed its audits of our 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
our 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 additional 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 the Belgian tax laws and the written opinions of
outside counsel, we believe that the assessments are without merit.
We believe that our accrued tax liabilities are adequate for all years.
9 PENSION AND POSTRETIREMENT BENEFITS
Effective January 1, 1998, we adopted SFAS No. 132, EMPLOYERS' DISCLOSURES ABOUT
PENSIONS AND OTHER POSTRETIREMENT BENEFITS. SFAS No. 132 requires revised
disclosures about pension and other postretirement benefit plans.
Our pension plans cover most employees worldwide. Our postretirement plans
in the U.S. provide medical and life insurance benefits to retirees and their
eligible dependents.
The net pension assets belonging to AMS and certain Howmedica employees
were transferred to the buyers at the date of sale. We retained the accumulated
benefit obligation related to Valleylab, Schneider and certain Howmedica
employees.
Information regarding our pension and postretirement benefit obligation
follows:
- --------------------------------------------------------------------------------
Pension Postretirement
------------------ -------------------------------
(percentages) 1998 1997 1996 1998 1997 1996
- --------------------------------------------------------------------------------
Weighted-average
assumptions:
Discount rate:
U.S. plans 6.8 7.0 7.5 6.8 7.0 7.5
International plans 5.3 5.9 6.5
Rate of compensation
increase:
U.S. plans 4.5 4.5 4.5
International plans 3.4 3.9 4.2
================================================================================
51
<PAGE>
The following tables present reconciliations of the benefit obligation of
the plans; the plan assets of the pension plans and the funded status of the
plans:
- --------------------------------------------------------------------------------
Pension Postretirement
------------------ ------------------------------
(millions of dollars) 1998 1997 1996 1998 1997 1996
- --------------------------------------------------------------------------------
CHANGE IN BENEFIT
OBLIGATION
Benefit obligation at
beginning of year $2,674 $2,130 $2,062 $ 287 $ 285 $ 290
Service cost 151 105 93 10 7 6
Interest cost 181 145 139 20 19 20
Employee
contributions 6 6 7
Plan amendments 15 274 2 -- -- --
Plan net (gains)/losses 354 240 13 (3) (7) (14)
Foreign exchange
impact 36 (103) (30)
Acquisitions -- 3 7 -- -- --
Divestitures (26) -- (4) -- -- --
Curtailments (26) (1) 4 (10) -- --
Settlements (10) (1) (1) -- -- --
Benefits paid (178) (124) (162) (18) (17) (17)
- --------------------------------------------------------------------------------
Benefit obligation at
end of year $3,177 $2,674 $2,130 $ 286 $ 287 $ 285
- --------------------------------------------------------------------------------
CHANGE IN
PLAN ASSETS
Fair value of plan
assets at beginning
of year $2,793 $2,410 $2,168
Actual return on plan
assets 530 491 325
Company
contributions 63 50 54
Employee
contributions 6 6 7
Foreign exchange
impact 3 (57) (9)
Acquisitions -- 1 7
Divestitures (23) -- --
Settlements (13) (1) (1)
Benefits paid (165) (107) (141)
- --------------------------------------------------------------------------------
Fair value of plan
assets at end of year $3,194 $2,793 $2,410
- --------------------------------------------------------------------------------
Funded status:
Plan assets in excess
of/(less than)
benefit obligation $ 17 $ 119 $ 280 $(286) $(287) $(285)
Unrecognized:
Net transition asset (4) (10) (15) -- -- --
Net (gains)/
losses 1 (86) (14) (26) (24) (19)
Prior service
costs/(gains) 248 310 70 (47) (83) (108)
- --------------------------------------------------------------------------------
Net amount
recognized $ 262 $ 333 $ 321 $(359) $(394) $(412)
================================================================================
The components in the balance sheet consist of:
- --------------------------------------------------------------------------------
Pension Postretirement
------------------ -------------------------------
(millions of dollars) 1998 1997 1996 1998 1997 1996
- --------------------------------------------------------------------------------
Prepaid benefit cost $ 504 $ 499 $ 474 $ -- $ -- $ --
Accrued benefit
liability (562) (362) (312) (359) (394) (412)
Intangible asset 71 53 13 -- -- --
Accumulated other
comprehensive
income 249 143 146 -- -- --
- --------------------------------------------------------------------------------
Net amount
recognized $ 262 $ 333 $ 321 $(359) $(394) $(412)
================================================================================
Information related primarily to International plans:
- --------------------------------------------------------------------------------
Pension
---------------------------------
(millions of dollars) 1998 1997 1996
- --------------------------------------------------------------------------------
Pension plans with an accumulated benefit
obligation in excess of plan assets:
Fair value of plan assets $323 $294 $319
Accumulated benefit obligation 693 553 615
Pension plans with a benefit obligation
in excess of plan assets:
Fair value of plan assets $435 $422 $438
Benefit obligation 901 774 847
================================================================================
At December 31, 1998, the major U.S. pension plan held approximately 2.7
million shares of our common stock with a fair value of approximately $339
million. The Plan received approximately $2 million in dividends on these shares
in 1998.
The assumptions used and the annual cost related to these plans consist of
the following:
- --------------------------------------------------------------------------------
Pension Postretirement
------------------- -----------------------------
(percentages) 1998 1997 1996 1998 1997 1996
- --------------------------------------------------------------------------------
Weighted average
assumptions:
Expected return on plan
assets:
U.S. plans 10.0 10.0 10.0
International plans 8.1 7.5 7.8
- --------------------------------------------------------------------------------
(millions of dollars)
- --------------------------------------------------------------------------------
Service cost $ 151 $ 105 $ 93 $ 10 $ 7 $ 6
Interest cost 181 145 139 20 19 20
Expected return on
plan assets (249) (208) (192)
Amortization of:
Prior service costs/
(gains) 24 34 21 (24) (24) (24)
Net transition asset (6) (5) (3) -- -- --
Net (gains)/losses 10 2 12 (1) (1) --
Curtailments and
settlements--net* 28 -- -- (22) -- --
- --------------------------------------------------------------------------------
Net periodic benefit
cost/(gain) $ 139 $ 73 $ 70 $(17) $ 1 $ 2
================================================================================
* Includes approximately $12 million of special termination pension benefits
for certain MTG employees.
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An average increase of 7.5% in the cost of health care benefits was assumed
for 1999 and is projected to decrease to 5.2% after six years and to then remain
at that level.
A 1% change in the medical trend rate assumed for postretirement benefits
would have the following effects at December 31, 1998:
- --------------------------------------------------------------------------------
(millions of dollars) 1% Increase 1% Decrease
- --------------------------------------------------------------------------------
Total of service and interest
cost components $ 1 $ (1)
Postretirement benefit obligation 13 (12)
================================================================================
10 SAVINGS AND INVESTMENT PLANS
We have savings and investment plans for most employees in the U.S., Puerto
Rico, the U.K. and Ireland. Employees may contribute a portion of their salaries
to the plans and we match a portion of the employee contributions. Our
contributions were $48 million in 1998, $43 million in 1997 and $36 million in
1996.
11 LEASE COMMITMENTS
We lease properties for use in our operations. In addition to rent, the leases
require us to pay directly for taxes, insurance, maintenance and other operating
expenses, or to pay higher rent when operating expenses increase. Rental
expense, net of sublease income, was $131 million in 1998, $127 million in 1997
and $110 million in 1996. This table shows future minimum rental commitments
under noncancellable leases at December 31, 1998:
- --------------------------------------------------------------------------------
After
(millions of dollars) 1999 2000 2001 2002 2003 2003
- --------------------------------------------------------------------------------
Lease commitments $47 $46 $36 $25 $25 $290
================================================================================
12 COMMON STOCK
We effected a two-for-one split of our common stock in the form of a 100% stock
dividend in 1997. The split followed a vote by shareholders to increase the
number of authorized common shares. All share and per share information in this
report reflects the split.
In September 1998, we completed a program under which we purchased 26.4
million shares of our common stock at a total cost of $2 billion. In that same
month, the Board of Directors approved a new share-purchase program with
authorization to purchase up to $5 billion of our company's common stock. In
1998, we purchased approximately 19.3 million shares of our common stock at an
average price of $99 per share under these share-purchase programs. Of the 19.3
million shares repurchased in 1998, 4.9 million shares were repurchased under
the share-purchase program which started in September 1998, for a total cost of
$525 million.
13 PREFERRED STOCK PURCHASE RIGHTS
Preferred Stock Purchase Rights have a scheduled term through October 2007,
although the term may be extended or the Rights may be redeemed prior to
expiration. One right was issued for each share of common stock issued by our
company. These rights are not exercisable unless certain change-in-control
events transpire, such as a person acquiring or obtaining the right to acquire
beneficial ownership of 15% or more of our outstanding common stock or an
announcement of a tender offer for at least 30% of our stock. The rights are
evidenced by corresponding common stock certificates and automatically trade
with the common stock unless an event transpires that makes them exercisable. If
the rights become exercisable, separate certificates evidencing the rights will
be distributed and each right will entitle the holder to purchase a new series
of preferred stock at a defined price from our company. The preferred stock, in
addition to preferred dividend and liquidation rights, will entitle the holder
to vote with the company's common stock.
The rights are redeemable by us at a fixed price until 10 days, or longer
as determined by the Board, after certain defined events, or at any time prior
to the expiration of the rights.
We have reserved 3.0 million preferred shares to be issued pursuant to
these rights. No such shares have yet been issued. At the present time, the
rights have no dilutive effect on the earnings per common share calculation.
14 EMPLOYEE BENEFIT TRUSTS
In 1993, we sold 40 million shares of treasury stock to the Pfizer Inc. Grantor
Trust in exchange for a $600 million note. The Trust is used primarily to fund
our benefit plans including the stock option plan. The Balance Sheet reflects
the fair value of shares owned by the Trust as a reduction of SHAREHOLDERS'
EQUITY, representing unearned benefit costs. This amount is reduced as benefits
are satisfied.
We record compensation expense for the benefit plans, other than stock
options, based on the fair value of the shares when released.
15 STOCK OPTION AND PERFORMANCE AWARDS
We may grant stock options to any employee, including officers, under our Stock
and Incentive Plan. Options are exercisable after five years or less, subject to
continuous employment and certain other conditions and expire 10 years after the
grant date. Once exercisable, the employee can purchase shares of our common
stock at the market price on the date we granted the option.
The Plan also allows for stock appreciation rights, stock awards and
performance awards. In 1996, shareholders approved amendments to increase the
shares available in the Plan and to extend its term through 2005.
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<PAGE>
The following table summarizes information concerning options outstanding
under the Plan at December 31, 1998:
- --------------------------------------------------------------------------------
(thousands
of shares) Options Outstanding Options Exercisable
- --------------------------------------------------------------------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices at 12/31/98 Term (Years) Price at 12/31/98 Price
- --------------------------------------------------------------------------------
$ 0-$20 20,842 4.3 $ 15.46 20,727 $ 15.46
20- 30 17,328 5.3 22.54 15,790 22.35
30- 50 14,254 7.6 37.27 8,498 37.26
50- 80 13,278 8.7 55.08 3,031 55.08
80-120 17,502 9.7 105.63 565 105.63
================================================================================
The following table summarizes the activity for the Plan:
- --------------------------------------------------------------------------------
Under Option
----------------------------------------
Shares Weighted
Available for Average Exercise
(thousands of shares) Grant Shares Price Per Share
- --------------------------------------------------------------------------------
Balance January 1, 1996 7,150 85,808 $ 18.37
Authorized 46,000 -- --
Granted (18,820) 18,820 37.25
Exercised -- (17,466) 13.44
Cancelled 684 (734) 24.00
- --------------------------------------------------------------------------------
Balance December 31, 1996 35,014 86,428 21.62
Granted (14,204) 14,204 55.04
Exercised -- (15,661) 16.15
Cancelled 653 (672) 38.68
- --------------------------------------------------------------------------------
Balance December 31, 1997 21,463 84,299 28.17
Granted (17,620) 17,620 105.63
Exercised -- (18,296) 21.11
Cancelled 404 (419) 59.73
- --------------------------------------------------------------------------------
Balance December 31, 1998 4,247 83,204 45.96
================================================================================
The weighted-average fair value per stock option granted was $33.92 for
1998 options, $16.77 for the 1997 options and $10.90 for the 1996 options. We
estimated the fair values using the Black-Scholes option pricing model, modified
for dividends and using the following assumptions:
- --------------------------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------
Expected dividend yield 1.02% 1.76% 1.97%
Risk-free interest rate 5.23% 6.23% 6.38%
Expected stock price volatility 26.29% 25.56% 25.45%
Expected term until exercise (years) 5.75 5.50 5.25
================================================================================
The following table summarizes results as if we had recorded compensation
expense for the 1998, 1997 and 1996 option grants:
- --------------------------------------------------------------------------------
(millions of dollars, except per share data) 1998 1997 1996
- --------------------------------------------------------------------------------
Net income:
As reported $3,351 $2,213 $1,929
Pro forma 3,149 2,087 1,860
Basic earnings per share:
As reported $ 2.65 $ 1.76 $ 1.55
Pro forma 2.49 1.66 1.49
Diluted earnings per share:
As reported $ 2.55 $ 1.70 $ 1.50
Pro forma 2.39 1.60 1.44
================================================================================
These figures reflect only the impact of grants since January 1, 1995, and
reflect only part of the possible compensation expense that we would amortize
over the vesting period of the grants (up to five years). In future years,
therefore, the effect on net income and earnings per common share may differ
from those shown above.
The Performance-Contingent Share Award Program was established effective in
1993 to provide executives and other key employees the right to earn common
stock awards. We determine the award payouts after the performance period ends,
based on specific performance criteria. Under the Program, up to 40 million
shares may be awarded. We awarded approximately 653,000 shares in 1998,
approximately 449,000 shares in 1997 and approximately 320,000 shares in 1996.
At December 31, 1998, program participants had the right to earn up to 5.1
million additional shares. Compensation expense related to the Program was $202
million in 1998, $74 million in 1997 and $31 million in 1996.
In 1998, we entered into two forward-purchase contracts for 1 million
shares of our common stock for $101 million to offset the potential impact on
income of our liability under the Program. These contracts mature within one
year. At settlement date we will, at the option of the counterparty to the
contract, either receive our own stock or settle the contracts for cash.
The financial statements include the following items related to these
contracts:
PREPAID EXPENSES, TAXES AND OTHER ASSETS include:
o fair value of these contracts
OTHER DEDUCTIONS--NET include:
o changes in the fair value of these contracts
16 INSURANCE
We maintain insurance coverage adequate for our needs. Under our insurance
contracts, we usually accept self-insured retentions appropriate for our
specific business risks.
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<PAGE>
17 LITIGATION
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. Final discovery has been extended to May 3, 1999, with
disposition motions to be filed by May 21, 1999. 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. 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 May 6, 1998, Bayer and
Pfizer filed a second patent infringement action in Puerto Rico against Biovail
under the same patent with respect to Biovail's 30 mg. nifedipine product. These
actions have been consolidated for discovery and trial. On April 24, 1998,
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.
Biovail has also moved to transfer the patent infringement actions from Puerto
Rico to the Western District of Pennsylvania. Pfizer has opposed this motion to
transfer and on June 19, 1998, moved to dismiss Biovail's declaratory judgment
action and antitrust action in the Western District of Pennsylvania, or in the
alternative to stay the action pending the outcome of the infringement actions
in Puerto Rico. On January 4, 1999, the District Court in Pennsylvania granted
Pfizer's motion for a stay of the antitrust action pending the outcome of the
infringement actions in Puerto Rico. On January 29, 1999, the District Court in
Puerto Rico denied Biovail's motion to transfer the patent infringement actions
from Puerto Rico to the Western District of Pennsylvania.
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. On May 14, 1998, Bayer and Pfizer commenced suit
against Lek for infringement of Bayer's U.S. Patent No. 5,264,446, as well as
for infringement of a second Bayer patent, No. 4,412,986 relating to
combinations of nifedipine with certain polymeric materials. On September 14,
1998, Lek was served with the summons and complaint. Plaintiffs amended the
complaint on November 10, 1998, limiting the action to infringement of U.S.
Patent 4,412,986. On January 19, 1999, Lek filed a motion to dismiss the
complaint alleging infringement of U.S. Patent 4,412,986. Pfizer's response to
this motion is due on February 25, 1999.
On November 9, 1998, Pfizer received an ANDA notice letter from Martec
Pharmaceutical, Inc. for generic versions (30 mg., 60 mg., 90 mg.) of Procardia
XL. On or about December 18, 1998, Pfizer received a new ANDA certification
letter stating that the ANDA had actually been filed in the name of Martec
Scientific, Inc. On December 23, 1998, Pfizer brought an action against Martec
Pharmaceutical, Inc. and Martec Scientific, Inc. in the Western District of
Missouri for infringement of Bayer's patent relating to nifedipine of a specific
particle size. On January 26, 1999, a second complaint was filed against Martec
Scientific in the Western District of Missouri based on Martec's new ANDA
certification letter.
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
55
<PAGE>
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 and arguments in the case
were heard on February 1, 1999. We are awaiting the decision.
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(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 established a worldwide settlement class of people with C/C heart valves
and their spouses, except those who elected 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 received 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 Company has entered into a consent decree, subject to court approval,
settling all matters with the United States Environmental Protection
Agency--Region I and the Department of Justice arising primarily out of a
December 1993 multimedia environmental inspection, as well as certain state
inspections, of the Company's Groton, Connecticut facility. The settlement
provides for the payment of $625,000 in fines, undertaking of an environmental
project at a cost of $150,000 and certain other operational provisions, the
implementation of which will not have a material adverse effect on the
operations of the Company.
56
<PAGE>
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, but most have been
resolved.
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 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 December 28, 1998, there were 57,819 personal injury claims pending
against Quigley (excluding those which are inactive or have been settled in
principle), 33,185 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 was 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 were 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
57
<PAGE>
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. 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 were not
increased. The Settlement Agreement, as amended, received final approval on June
21, 1996. Appeals from this decision were dismissed by the U.S. Court of Appeals
for the Seventh Circuit in May 1997. Trial began in September 1998 for the class
case against the non-settlers, and the District Court also permitted the opt-out
plaintiffs to add the wholesalers as named defendants in their cases. The
District Court dismissed the case at the close of the plaintiffs' evidence. The
plaintiffs have appealed.
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.
In addition to its settlement of the retailer Federal Class Action (see
above), the Company has also settled several major opt-out retail cases, and
along with other manufacturers: (1) has entered into an agreement to settle all
outstanding consumer class actions (except Alabama and California), which
settlement is going through the approval process in the various courts in which
the actions are pending; and (2) has entered into an agreement to settle the
California consumer 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. The Committee has issued a draft report
recommending that plaque removal claims should not be permitted in the absence
of data establishing efficacy against gingivitis. The process of incorporating
the Advisory Committee recommendations into a final monograph is expected to
take several years. If the draft recommendation is ultimately accepted in the
final monograph, although it would have a negative impact on sales of Plax, it
will not have a material adverse effect on the sales, financial position or
operations of the Company.
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 Plaintiffs' motion to certify the class was held on June 2, 1998. We
are awaiting the Court's decision. The Company believes the complaint is without
merit.
58
<PAGE>
The Federal Trade Commission conducted an investigation of the advertising
of Rid, which was resolved by a Consent Decree made final in December, 1998. At
the same time, the New York State Attorney General's office is investigating the
same or similar matters.
Since December 1998, three actions have been filed, in state courts in
Houston, San Francisco, and Chicago, purportedly on behalf of statewide
(California) or nationwide (Houston) classes of consumers who allege that the
Company's and other manufacturers' advertising and promotional claims for Rid
and other pediculicides were untrue, entitling them to refunds, other damages
and/or injunctive relief. The Houston case has been removed to federal court; no
proceedings have yet occurred in the other cases. The Company believes the
complaints are 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. A full examination of
the progress made by the Company in this area will occur in 1999.
During 1998, the Company completed the sale of all of the businesses and
companies that were part of the Medical Technology Group. As part of the sale
provisions, the Company has retained responsibility for certain items, including
matters related to the sale of MTG products sold by the Company before the sale
of the MTG businesses. A number of cases have been brought against Howmedica
Inc. (some of which also name the Company) alleging 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, between late 1996 and early 1998,
approximately 700 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.
59
<PAGE>
Pfizer Inc and Subsidiary Companies
18 SEGMENT INFORMATION AND GEOGRAPHIC DATA
As a result of adopting SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION, we split the previously reported Health Care
unit into two segments, pharmaceutical and MTG and combined consumer health care
with pharmaceutical. We operate in the following two business segments:
o pharmaceutical--including treatments for heart diseases, infectious
diseases, central nervous system disorders, diabetes, arthritis, erectile
dysfunction and allergies, as well as self-medications
o animal health--products for food animals and companion animals, including
antibiotics and feed supplements, vaccines and other veterinary items
Each separately managed segment offers different products requiring
different marketing and distribution strategies.
We sell our products primarily to customers in the wholesale sector. In
1998, sales to our three largest wholesalers accounted for 14%, 12% and 10% of
total revenues. These sales were concentrated in the pharmaceutical segment.
Revenues were in excess of $100 million in each of 12 countries outside the
U.S. in 1998. The U.S. was the only country to contribute more than 10% to total
revenues. The following tables present segment and geographic information:
SEGMENT INFORMATION
- --------------------------------------------------------------------------------
Animal Corporate/
(millions of dollars) Pharmaceutical Health Other Consolidated
- --------------------------------------------------------------------------------
Total revenues 1998 $12,230 $1,314 $ -- $13,544
1997 9,726 1,329 -- 11,055
1996 8,642 1,222 -- 9,864
- --------------------------------------------------------------------------------
Segment profit 1998 3,575 (77) (904)(1) 2,594(2)
1997 3,129 112 (374)(1) 2,867(2)
1996 2,833 101 (406)(1) 2,528(2)
- --------------------------------------------------------------------------------
Identifiable assets(3) 1998 7,556 2,108 8,638 18,302
1997 6,182 2,196 6,613(4) 14,991
1996 5,552 2,243 6,456(4) 14,251
- --------------------------------------------------------------------------------
Property, plant and
equipment additions(3) 1998 991 97 110 1,198
1997 687 69 122 878
1996 532 87 71 690
- --------------------------------------------------------------------------------
Depreciation and
amortization(3) 1998 386 82 21 489
1997 337 75 16 428
1996 263 82 14 359
- --------------------------------------------------------------------------------
GEOGRAPHIC DATA
- --------------------------------------------------------------------------------
All
United Other
(millions of dollars) States(5) Japan Countries Consolidated
- --------------------------------------------------------------------------------
Total revenues 1998 $8,205 $943 $4,396 $13,544
1997 6,089 949 4,017 11,055
1996 5,193 922 3,749 9,864
- --------------------------------------------------------------------------------
Long-lived assets 1998 2,905 369 2,499 5,773
1997 2,910 283 2,155 5,348
1996 2,500 247 2,292 5,039
(1) Includes interest income/(expense) and corporate expenses. Also
includes other income/(expense) of the financial subsidiaries (see note 3,
"financial subsidiaries").
(2) Consolidated total equals income from continuing operations before
provision for taxes on income and minority interests.
(3) Certain production facilities are shared by various segments.
Property, plant and equipment, as well as capital additions and
depreciation, are allocated based on physical production. Corporate assets
are primarily cash, short-term investments and long-term loans and
investments.
(4) Includes net assets of discontinued operations.
(5) Includes operations in Puerto Rico.
60
<PAGE>
Pfizer Inc and Subsidiary Companies
QUARTERLY CONSOLIDATED FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
Quarter
(millions of dollars, except per share data) First Second Third Fourth Year
---------------------------------------
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
1998
Net sales $ 2,886 $ 3,114 $ 3,110 $ 3,567 $ 12,677
Alliance revenue 150 198 220 299 867
- -----------------------------------------------------------------------------------------------------------------------
Total revenues 3,036 3,312 3,330 3,866 13,544
Costs and expenses 2,294 2,468 2,628 3,560 10,950
- -----------------------------------------------------------------------------------------------------------------------
Income from continuing operations before provision
for taxes on income and minority interests 742 844 702 306 2,594
Provision for taxes on income 206 249 186 1 642
Minority interests 1 1 1 (1) 2
- -----------------------------------------------------------------------------------------------------------------------
Income from continuing operations 535 594 515 306 1,950
Discontinued operations-- net of tax 157 34 882 328 1,401
- -----------------------------------------------------------------------------------------------------------------------
Net income $ 692 $ 628 $ 1,397 $ 634 $ 3,351
- -----------------------------------------------------------------------------------------------------------------------
Earnings per common share-- basic
Income from continuing operations $ .42 $ .48 $ .40 $ .24 $ 1.54
Discontinued operations-- net of tax .13 .02 .70 .26 1.11
- -----------------------------------------------------------------------------------------------------------------------
Net income $ .55 $ .50 $ 1.10 $ .50 $ 2.65
- -----------------------------------------------------------------------------------------------------------------------
Earnings per common share -- diluted
Income from continuing operations $ .41 $ .45 $ .39 $ .23 $ 1.48
Discontinued operations-- net of tax .12 .02 .67 .26 1.07
- -----------------------------------------------------------------------------------------------------------------------
Net income $ .53 $ .47 $ 1.06 $ .49 $ 2.55
- -----------------------------------------------------------------------------------------------------------------------
Cash dividends paid per common share $ .19 $ .19 $ .19 $ .19 $ .76
- -----------------------------------------------------------------------------------------------------------------------
Stock prices*
High $ 97-1/2 $121-3/4 $120-5/8 $128-15/16 $128-15/16
Low $ 71-1/16 $ 96-3/8 $ 92 $ 86 $ 71-1/16
- -----------------------------------------------------------------------------------------------------------------------
1997
Net sales $ 2,686 $ 2,492 $ 2,652 $ 2,909 $ 10,739
Alliance revenue (1) 59 95 163 316
- -----------------------------------------------------------------------------------------------------------------------
Total revenues 2,685 2,551 2,747 3,072 11,055
Costs and expenses 1,868 1,973 1,968 2,379 8,188
- -----------------------------------------------------------------------------------------------------------------------
Income from continuing operations before provision
for taxes on income and minority interests 817 578 779 693 2,867
Provision for taxes on income 241 152 194 188 775
Minority interests 1 4 3 2 10
- -----------------------------------------------------------------------------------------------------------------------
Income from continuing operations 575 422 582 503 2,082
Discontinued operations-- net of tax 27 35 14 55 131
- -----------------------------------------------------------------------------------------------------------------------
Net income $ 602 $ 457 $ 596 $ 558 $ 2,213
- -----------------------------------------------------------------------------------------------------------------------
Earnings per common share-- basic
Income from continuing operations $ .46 $ .33 $ .47 $ .40 $ 1.66
Discontinued operations-- net of tax .02 .03 .01 .04 .10
- -----------------------------------------------------------------------------------------------------------------------
Net income $ .48 $ .36 $ .48 $ .44 $ 1.76
- -----------------------------------------------------------------------------------------------------------------------
Earnings per common share -- diluted
Income from continuing operations $ .44 $ .32 $ .45 $ .39 $ 1.60
Discontinued operations-- net of tax .02 .03 .01 .04 .10
- -----------------------------------------------------------------------------------------------------------------------
Net income $ .46 $ .35 $ .46 $ .43 $ 1.70
- -----------------------------------------------------------------------------------------------------------------------
Cash dividends paid per common share $ .17 $ .17 $ .17 $ .17 $ .68
- -----------------------------------------------------------------------------------------------------------------------
Stock prices*
High $ 49-1/2 $61-9/16 $ 64-3/4 $ 80 $ 80
Low $ 40-5/16 $41-1/2 $ 51-1/16 $ 59-7/16 $ 40-5/16
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
* As reported in the Wall Street Journal. As of January 29, 1999, there were
105,760 record holders of our common stock (SYMBOL PFE).
61
<PAGE>
Pfizer Inc and Subsidiary Companies
FINANCIAL SUMMARY
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------------------------------------------------------------------
(millions, except per share data) 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $12,677 10,739 9,864 8,684 6,825 6,080 5,816 5,352 4,757 4,220 3,960
Alliance revenue 867 316 -- -- -- -- -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Total revenues 13,544 11,055 9,864 8,684 6,825 6,080 5,816 5,352 4,757 4,220 3,960
Research and development 2,279 1,805 1,567 1,340 1,036 880 776 654 545 449 401
Other costs and expenses 8,671 6,383 5,769 5,327 4,212 3,822 3,829 3,675 3,288 3,045 2,692
Divestitures, restructuring and
unusual items-- net(1) -- -- -- -- -- 741 (141) 300 -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations
before taxes and minority
interests 2,594 2,867 2,528 2,017 1,577 637 1,352 723 924 726 867
Provision for taxes on income 642 775 758 609 445 106 368 141 235 171 228
Income from continuing operations
before cumulative effect
of accounting changes $ 1,950 2,082 1,764 1,401 1,127 529 981 579 684 551 636
Discontinued operations-- net
of tax 1,401 131 165 172 171 129 113 143 117 130 155
Cumulative effect of accounting
changes -- -- -- -- -- -- (283)(2) -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Net income $ 3,351 2,213 1,929 1,573 1,298 658 811 722 801 681 791
- --------------------------------------------------------------------------------------------------------------------------------
Effective tax rate-- continuing
operations 24.8% 27.0% 30.0% 30.2% 28.2% 16.6% 27.2% 19.5% 25.4% 23.6% 26.3%
Depreciation $ 420 363 309 277 236 206 209 183 167 160 158
Property, plant and equipment
additions 1,198 878 690 635 620 575 592 505 466 388 292
Cash dividends paid 976 881 771 659 594 536 487 437 397 364 330
- --------------------------------------------------------------------------------------------------------------------------------
As of December 31
- --------------------------------------------------------------------------------------------------------------------------------
Working capital(3) $ 2,739 2,448 1,914 1,787 1,582 1,875 2,749 1,978 1,920 2,026 2,111
Property, plant and equipment--
net 4,415 3,793 3,456 3,113 2,747 2,320 1,994 2,061 1,808 1,565 1,482
Total assets(3) 18,302 14,991 14,251 12,339 10,797 8,986 9,346 9,387 8,782 8,099 7,347
Long-term debt 527 725 681 828 604 571 571 393 189 181 213
Long-term capital(4) 9,551 8,819 7,907 6,518 5,150 4,643 5,453 5,725 5,643 5,034 4,834
Shareholders' equity 8,810 7,933 6,954 5,506 4,324 3,866 4,719 5,026 5,092 4,536 4,301
- --------------------------------------------------------------------------------------------------------------------------------
Per common share data:
Basic:
Income from continuing
operation before effect
of accounting changes $ 1.54 1.66 1.41 1.14 .92 .42 .75 .44 .52 .42 .48
Discontinued operations--
net of tax 1.11 .10 .14 .14 .14 .10 (.13) .11 .09 .09 .12
- --------------------------------------------------------------------------------------------------------------------------------
Net income $ 2.65 1.76 1.55 1.28 1.06 .52 .62 .55 .61 .51 .60
- --------------------------------------------------------------------------------------------------------------------------------
Diluted:
Income from continuing
operations before effect
of accounting changes $ 1.48 1.60 1.37 1.11 .91 .41 .73 .43 .51 .41 .47
Discontinued operations--
net of tax 1.07 .10 .13 .14 .13 .10 (.13) .10 .09 .09 .12
- --------------------------------------------------------------------------------------------------------------------------------
Net income $ 2.55 1.70 1.50 1.25 1.04 .51 .60 .53 .60 .50 .59
- --------------------------------------------------------------------------------------------------------------------------------
Market value
(December 31) $125.00 74.56 41.50 31.50 19.31 17.25 18.13 21.00 10.10 8.69 7.25
Return on shareholders'
equity 40.0% 29.7% 31.0% 32.0% 31.7% 15.3% 16.6% 14.3% 16.6% 15.4% 19.3%
Cash dividends paid per
share $ .76 .68 .60 .52 .47 .42 .37 .33 .30 .28 .25
Shareholders' equity
per share $ 7.00 6.30 5.54 4.45 3.55 3.11 3.63 3.82 3.86 3.43 3.25
Current ratio 1.38:1 1.49:1 1.36:1 1.37:1 1.35:1 1.60:1 1.92:1 1.62:1 1.67:1 1.75:1 2.01:1
- --------------------------------------------------------------------------------------------------------------------------------
Weighted average shares used to
calculate:
Basic earnings per share
amounts 1,263 1,257 1,248 1,229 1,223 1,262 1,316 1,321 1,322 1,324 1,321
Diluted earnings per
share amounts 1,315 1,303 1,288 1,259 1,243 1,282 1,346 1,357 1,349 1,358 1,355
Employees of continuing operations
(thousands) 46 41 39 37 34 33 33 35 33 33 32
- --------------------------------------------------------------------------------------------------------------------------------
Total revenues per employee
(thousands) $ 292 269 256 238 202 184 177 154 145 129 124
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
All financial information reflects the divestiture of our MTG businesses
completed in 1998 and the 1996 divestiture of our food science business as
discontinued operations.
We have restated all common share and per share data for the 1997, 1995 and 1991
stock splits.
(1) Divestitures, restructuring and unusual items -- net include the following:
1993 -- Pre-tax charges of approximately $745 million and $56 million to cover
worldwide restructuring programs, as well as unusual items and a gain of
approximately $60 million realized on the sale of our remaining interest in
Minerals Technologies Inc.
1992-- Pre-tax gain of $259 million on the sale of a business, offset by pre-tax
charges of $175 million for restructuring, consolidating and streamlining. In
addition, it includes pre-tax curtailment gains of $57 million associated with
postretirement benefits other than pensions of divested operations.
1991-- A pre-tax charge of $300 million for potential future Shiley C/C heart
valve fracture claims.
(2) Accounting changes adopted January 1, 1992: SFAS No. 106 -- $313 million or
$.23 per share; SFAS No. 109 -- credit of $30 million or $.02 per share.
(3) Includes net assets of discontinued operations of our MTG businesses.
(4) Defined as long-term debt, deferred taxes on income, minority interests and
shareholders' equity.
4
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
The following is a list of subsidiaries of the Company as of December 31, 1998,
omitting some subsidiaries which, considered in the aggregate, would not
constitute a significant subsidiary.
<TABLE>
<CAPTION>
NAME WHERE INCORPORATED
- ---- ------------------
<S> <C>
A S Ruffel (Mozambique) Limitada................................................Mozambique
A S Ruffel (Private) Ltd........................................................Zimbabwe
A/O Pfizer......................................................................Russia
AMS Medical Systems AG..........................................................Switzerland
Adforce Inc.....................................................................New York
Anaderm Research Corp...........................................................Delaware
Bioindustria Farmaceutici S.p.A.................................................Italy
Biomedical Sensors (Holdings) Limited...........................................United Kingdom
Blue Cross S.r.l................................................................Italy
C.P. Pharmaceuticals International C.V..........................................Netherlands
Charwell Pharmaceuticals Limited................................................United Kingdom
Community Care Health Solutions Inc.............................................Delaware
Compania Distribuidora Del Centro, S.A. de C.V..................................Mexico
Duchem Laboratories Limited.....................................................India
Farkemo S.r.l...................................................................Italy
Farminova, Produtos Farmaceuticos de Inovacao, Lda..............................Portugal
HII Holding, LLC................................................................Delaware
Harmag, Inc.....................................................................Panama
Health Care Ventures, Inc.......................................................Delaware
Healthcare Market Research......................................................New York
Heinrich Mack Nachf G.m.b.H. & Co...............................................Germany
Howmedica France S.C.A..........................................................France
Howmedica Handelsgesellschaft G.m.b.H...........................................Austria
Invicta Farma, S.A..............................................................Spain
Irkafarm S.r.l..................................................................Italy
Laboratoire Beral, S.A..........................................................France
Laboratoires Pfizer S.A.........................................................Morocco
Laboratorios Pfizer Lda.........................................................Portugal
Laboratorios Pfizer Ltda........................................................Brazil
Laboratorios Pfizer de Venezuela, S.A...........................................Venezuela
Leema Chemicals & Cosmetics Pvt. Ltd............................................India
MED Urological, Inc.............................................................Minnesota
MTG Divestitures Limited........................................................United Kingdom
MTG Divestitures Inc............................................................Delaware
MTG Divestitures Pty. Ltd.......................................................Australia
Measureaim......................................................................United Kingdom
Nefox Farma, S.A................................................................Spain
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NAME WHERE INCORPORATED
- ---- ------------------
<S> <C>
Nostrum Farma, S.A..............................................................Spain
Orsim, S.A......................................................................France
PFIZER, S.A., S. en C...........................................................Spain
PQI Inc.........................................................................Canada
PT. Pfizer Indonesia............................................................Indonesia
Pfizer (Ireland) Limited........................................................Ireland
Pfizer (Malaysia) Sendirian Berhad..............................................Malaysia
Pfizer (Namibia) (Proprietary) Limited..........................................Namibia
Pfizer A.B......................................................................Sweden
Pfizer A.G......................................................................Switzerland
Pfizer A/S......................................................................Denmark
Pfizer A/S......................................................................Norway
Pfizer Agricare Pty. Ltd........................................................Australia
Pfizer Algerie Sante et Nutrition Animale s.p.a.................................Algeria
Pfizer Animal Health B.V........................................................Netherlands
Pfizer Animal Health Korea Ltd..................................................South Korea
Pfizer Animal Health S.A........................................................Belgium
Pfizer B.V......................................................................Netherlands
Pfizer Beteiligungs G.m.b.H.....................................................Germany
Pfizer Bioquimicos S.A..........................................................Venezuela
Pfizer C.A......................................................................Ecuador
Pfizer Canada Inc...............................................................Canada
Pfizer Chemical Corp. Ltd.......................................................Isle of Man
Pfizer Commercial Holdings Limited..............................................Isle of Man
Pfizer Continental Holdings.....................................................Ireland
Pfizer Corporation..............................................................Panama
Pfizer Corporation Austria G.m.b.H..............................................Austria
Pfizer Egypt S.A.E..............................................................Egypt
Pfizer Enterprises Inc..........................................................Delaware
Pfizer European Service Center N.V..............................................Belgium
Pfizer G.m.b.H..................................................................Germany
Pfizer Global Holdings B.V......................................................Netherlands
Pfizer Group Limited............................................................United Kingdom
Pfizer H.C.P. Corporation.......................................................New York
Pfizer Health Solutions Inc.....................................................Delaware
Pfizer Hellas, A.E..............................................................Greece
Pfizer Holdings France..........................................................France
Pfizer Holding Mexico, S. de R.L. de C.V........................................Mexico
Pfizer Holding und Verwaltungs G.m.b.H..........................................Germany
Pfizer Holdings B.V.............................................................Netherlands
Pfizer Holdings Europe..........................................................Ireland
Pfizer Holdings Ireland.........................................................Ireland
Pfizer Ilaclari A.S.............................................................Turkey
Pfizer International Bank Europe................................................Ireland
Pfizer International Corporation................................................Panama
Pfizer International Holdings Limited...........................................Ireland
Pfizer International Inc........................................................New York
Pfizer Italiana S.p.A...........................................................Italy
Pfizer Laboratories (Proprietary) Limited.......................................South Africa
Pfizer Laboratories Korea Limited...............................................South Korea
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
NAME WHERE INCORPORATED
- ---- ------------------
<S> <C>
Pfizer Laboratories Limited.....................................................Kenya
Pfizer Laboratories Limited.....................................................New Zealand
Pfizer Laboratories Limited.....................................................Pakistan
Pfizer Limitada.................................................................Angola
Pfizer Limited..................................................................Ghana
Pfizer Limited..................................................................India
Pfizer Limited Korea............................................................South Korea
Pfizer Limited..................................................................Tanzania
Pfizer Limited..................................................................Thailand
Pfizer Limited..................................................................Uganda
Pfizer Limited..................................................................United Kingdom
Pfizer Ltd......................................................................Taiwan
Pfizer Manufacturing Ireland....................................................Ireland
Pfizer Manufacturing LLC........................................................Delaware
Pfizer Med-Inform Beratungs G.m.b.H.............................................Austria
Pfizer Medical Systems, Inc.....................................................Delaware
Pfizer Medical Technology Group (Belgium) N.V...................................Belgium
Pfizer Medical Technology Group (Netherlands) BV................................Netherlands
Pfizer Medical Technology Group Aktiebolag......................................Sweden
Pfizer Medical Technology Group Limited.........................................United Kingdom
Pfizer Medical Technology Group Pension Trustees Limited........................United Kingdom
Pfizer Netherlands L.P..........................................................New York
Pfizer Overseas, Inc............................................................Delaware
Pfizer Oy.......................................................................Finland
Pfizer Pension Trustees (Ireland) Limited.......................................Ireland
Pfizer Pension Trustees Ltd.....................................................United Kingdom
Pfizer Pharm Algerie SPA........................................................Algeria
Pfizer Pharmaceutical Trading Limited Liability Company.........................Hungary
Pfizer Pharmaceuticals B.V......................................................Netherlands
Pfizer Pharmaceuticals Inc.
[a/k/a Pfizer Seiyaku Kabushiki Kaisha (PSK)]..............................Japan
Pfizer Pharmaceuticals Korea Limited............................................South Korea
Pfizer Pharmaceuticals Ltd......................................................People's Republic of China
Pfizer Pharmaceuticals Production Corporation...................................Panama
Pfizer Pharmaceuticals Production Corporation (Partnership).....................Ireland
Pfizer Pharmaceuticals Production Corporation Limited...........................Isle of Man
Pfizer Pharmaceuticals, Inc.....................................................Delaware
Pfizer Pharmaceutics Israel Ltd.................................................Israel
Pfizer Pigments Inc.............................................................Delaware
Pfizer Polska Sp. z.o.o.........................................................Poland
Pfizer Private Limited..........................................................Singapore
Pfizer Production LLC...........................................................Delaware
Pfizer Products Inc.............................................................Connecticut
Pfizer Pty. Ltd.................................................................Australia
Pfizer Research and Development Company N.V./S.A................................Belgium
Pfizer Ringaskiddy Production Company...........................................Isle of Man
Pfizer S.A......................................................................Peru
Pfizer S.A......................................................................Belgium
Pfizer S.A......................................................................Colombia
Pfizer S.A......................................................................Costa Rica
Pfizer S.A......................................................................France
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
NAME WHERE INCORPORATED
- ---- ------------------
<S> <C>
Pfizer S.A......................................................................Venezuela
Pfizer S.G.P.S. Lda.............................................................Portugal
Pfizer S.R.L....................................................................Argentina
Pfizer Saidal Manufacturing.....................................................Algeria
Pfizer Service Company Ireland..................................................Ireland
Pfizer Servicios de Mexico, S.A. de C.V.........................................Mexico
Pfizer Shoji Co., Ltd...........................................................Japan
Pfizer Specialties Limited......................................................Nigeria
Pfizer Technologies Ltd.........................................................United Kingdom
Pfizer Trading Corp.............................................................Taiwan
Pfizer Tunisie..................................................................Tunisia
Pfizer Zona Franca S.A..........................................................Costa Rica
Pfizer s.r.o....................................................................Czech Republic
Pfizer, Inc.....................................................................Philippines
Pfizer, S.A. [a/k/a Pfizer Pharmaceutical]......................................Spain
Pfizer, S.A. de C.V.............................................................Mexico
Programmable Pump Technologies, Inc.............................................Delaware
Quigley Company Inc.............................................................New York
Radiologic Sciences, Inc........................................................California
Restiva S.r.l...................................................................Italy
Roerig A.B......................................................................Sweden
Roerig B.V......................................................................Netherlands
Roerig Farmaceutici Italiana S.p.A..............................................Italy
Roerig S.A......................................................................Chile
Roerig, Produtos Farmaceuticos, Lda.............................................Portugal
S.D. Investments Pty. Ltd.......................................................Australia
Shiley Incorporated.............................................................California
Shiley International............................................................California
Shiley Ltd......................................................................United Kingdom
Site Realty, Inc................................................................Delaware
SmithKline Animal Health (Proprietary) Limited..................................South Africa
SmithKline Animal Health (SWA) (Pty) Ltd........................................Namibia
SmithKline Beecham Animal Health (Singapore) Private Limited....................Singapore
SmithKline Beecham Animal Health (Taiwan) Limited...............................Taiwan
Taylor Kosmetik G.m.b.H.........................................................Germany
The Kodiak Company Ltd..........................................................Bermuda
Unicliffe Limited...............................................................United Kingdom
VMI Acquisition Corp............................................................California
Vinci Farma, S.A................................................................Spain
</TABLE>
4
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of Pfizer Inc.:
We consent to incorporation herein by reference of our report
dated February 25, 1999 on the consolidated balance sheet of Pfizer
Inc. and subsidiary companies as of December 31, 1998, 1997 and 1996
and the related consolidated statements of income, shareholders' equity
and cash flows for the years then ended, as contained in the Pfizer
Inc. 1998 Annual Report to Shareholders. These consolidated financial
statements and our report thereon are incorporated by reference in this
Annual Report on Form 10-K for the year 1998.
We also consent to incorporation by reference of our report in the
following Registration Statements:
o Form S-15 dated December 13, 1982 (File No. 2-80884),
o Form S-8 dated October 27, 1983 (File No. 2-87473),
o Form S-8 dated March 22, 1990 (File No. 33-34139),
o Form S-8 dated January 24, 1991 (File No. 33-38708),
o Form S-8 dated November 18, 1991 (File No. 33-44053),
o Form S-3 dated May 27, 1993 (File No. 33-49629),
o Form S-8 dated May 27, 1993 (File No. 33-49631),
o Form S-8 dated May 19, 1994, (File No. 33-53713),
o Form S-8 dated October 5, 1994 (File No. 33-55771),
o Form S-3 dated November 14, 1994 (File No. 33-56435),
o Form S-8 dated December 20, 1994 (File No. 33-56979),
o Form S-4 dated February 14, 1995 (File No. 33-57709),
o Form S-8 dated March 29, 1996 (File No. 33-02061),
o Form S-8 dated September 25, 1997 (File No. 333-36371), and
o Form S-8 dated April 23, 1998 (File No. 333-50899).
s/ KPMG L.L.P.
New York, New York
March 25, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PFIZER INC.
AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT
OF INCOME FOR THE PERIOD ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000078003
<NAME> Pfizer
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,552
<SECURITIES> 2,377
<RECEIVABLES> 2,981
<ALLOWANCES> (67)
<INVENTORY> 1,828
<CURRENT-ASSETS> 9,931
<PP&E> 6,844
<DEPRECIATION> (2,429)
<TOTAL-ASSETS> 18,302
<CURRENT-LIABILITIES> 7,192
<BONDS> 527
0
0
<COMMON> 70
<OTHER-SE> 17,085
<TOTAL-LIABILITY-AND-EQUITY> 18,302
<SALES> 12,677
<TOTAL-REVENUES> 13,544
<CGS> 2,094
<TOTAL-COSTS> 2,094
<OTHER-EXPENSES> 2,279
<LOSS-PROVISION> 40
<INTEREST-EXPENSE> 136
<INCOME-PRETAX> 2,594
<INCOME-TAX> 642
<INCOME-CONTINUING> 1,950
<DISCONTINUED> 1,401
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,351
<EPS-PRIMARY> 2.65<F1>
<EPS-DILUTED> 2.55
<FN>
<F1> The information reported above under "EPS-PRIMARY" represents basic
earnings per share for the year ended December 31, 1998.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS RESTATED SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
PFIZER INC. AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEET AND CONSOLIDATED
STATEMENT OF INCOME FOR THE PERIOD ENDED DECEMBER 31, 1997 RESTATED TO REFLECT
THE RESULTS OF OPERATIONS AND NET ASSETS OF THE MTG BUSINESSES - VALLEYLAB,
SCHNEIDER, AMERICAN MEDICAL SYSTEMS, HOWMEDICA AND STRATO/INFUSAID - AS
DISCONTINUED OPERATIONS. THIS RESTATED SCHEDULE IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS RESTATED AS DESCRIBED ABOVE.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 877
<SECURITIES> 712
<RECEIVABLES> 2,255
<ALLOWANCES> (35)
<INVENTORY> 1,461
<CURRENT-ASSETS> 7,442
<PP&E> 5,867
<DEPRECIATION> (2,074)
<TOTAL-ASSETS> 14,991
<CURRENT-LIABILITIES> 4,994
<BONDS> 725
0
0
<COMMON> 69
<OTHER-SE> 12,588
<TOTAL-LIABILITY-AND-EQUITY> 14,991
<SALES> 10,739
<TOTAL-REVENUES> 11,055
<CGS> 1,776
<TOTAL-COSTS> 1,776
<OTHER-EXPENSES> 1,805
<LOSS-PROVISION> 5
<INTEREST-EXPENSE> 147
<INCOME-PRETAX> 2,867
<INCOME-TAX> 775
<INCOME-CONTINUING> 2,082
<DISCONTINUED> 131
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,213
<EPS-PRIMARY> 1.76 <F1>
<EPS-DILUTED> 1.70
<FN>
<F1>
The information reported above under "EPS-PRIMARY" represents basic earnings per
share for the year ended December 31, 1997.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS RESTATED SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
PFIZER INC. AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEET AND CONSOLIDATED
STATEMENT OF INCOME FOR THE PERIOD ENDED DECEMBER 31, 1996 RESTATED TO REFLECT
THE RESULTS OF OPERATIONS AND NET ASSETS OF THE MTG BUSINESSES - VALLEYLAB,
SCHNEIDER, AMERICAN MEDICAL SYSTEMS, HOWMEDICA AND STRATO/INFUSAID - AS
DISCONTINUED OPERATIONS. THIS RESTATED SCHEDULE IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS RESTATED AS DESCRIBED ABOVE.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,150
<SECURITIES> 486
<RECEIVABLES> 1,955
<ALLOWANCES> (41)
<INVENTORY> 1,231
<CURRENT-ASSETS> 7,176
<PP&E> 5,367
<DEPRECIATION> (1,911)
<TOTAL-ASSETS> 14,251
<CURRENT-LIABILITIES> 5,262
<BONDS> 681
0
0
<COMMON> 69
<OTHER-SE> 9,710
<TOTAL-LIABILITY-AND-EQUITY> 14,251
<SALES> 9,864
<TOTAL-REVENUES> 9,864
<CGS> 1,695
<TOTAL-COSTS> 1,695
<OTHER-EXPENSES> 1,567
<LOSS-PROVISION> 11
<INTEREST-EXPENSE> 161
<INCOME-PRETAX> 2,528
<INCOME-TAX> 758
<INCOME-CONTINUING> 1,764
<DISCONTINUED> 165
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,929
<EPS-PRIMARY> 1.55<F1>
<EPS-DILUTED> 1.50
<FN>
<F1>
The information reported above under "EPS-PRIMARY" represents basic earnings per
share for the year ended December 31, 1996.
</FN>
</TABLE>
