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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, 1999
[_] 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 29, 2000 was approximately $120.6 billion.
The number of shares outstanding (voting) of each of the registrant's
classes of common stock as of February 29, 2000 WAS 3,849,002,705 shares of
common stock, all of one class.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1999 Annual Report to Shareholders Parts I, II and IV
Portions of the joint proxy statement/prospectus for
the 2000 Annual Meeting of Shareholders Parts I and III
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TABLE OF CONTENTS
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PAGE
PART I ...................................................................... 1
ITEM 1. BUSINESS ........................................................... 1
General .................................................................. 1
Recent Development ....................................................... 1
Business Segments ........................................................ 1
Pharmaceutical Segment ................................................ 2
Animal Health Segment ................................................. 3
Research and Product Development ......................................... 4
International Operations ................................................. 5
Marketing ................................................................ 6
Patents and Intellectual Property Rights ................................. 7
Competition .............................................................. 8
Raw Materials ............................................................ 10
Government Regulation and Price Constraints .............................. 11
Environmental Law Compliance ............................................. 12
Year 2000 ................................................................ 12
Corporate/Financial Subsidiaries ......................................... 12
Tax Matters .............................................................. 13
Employees ................................................................ 13
Cautionary Factors That May Affect Future Results ........................ 13
ITEM 2. PROPERTIES ......................................................... 17
ITEM 3. LEGAL PROCEEDINGS .................................................. 18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE .................................... 27
EXECUTIVE OFFICERS OF THE COMPANY ........................................ 28
PART II ..................................................................... 31
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS ........................................ 31
ITEM 6. SELECTED FINANCIAL DATA ............................................ 31
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS ...................... 31
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK .................................................. 31
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ........................ 31
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE ............................. 32
PART III .................................................................... 32
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY .................... 32
ITEM 11. EXECUTIVE COMPENSATION ............................................. 32
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT ..................................................... 32
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ..................... 32
PART IV ..................................................................... 33
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K ............................................ 33
14(a)(1) Financial Statements .......................................... 33
14(a)(2) Financial Statement Schedules ................................. 33
14(a)(3) Exhibits ...................................................... 33
14(b) Reports on Form 8-K ........................................... 34
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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.
NOTE THAT THROUGHOUT THIS 1999 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.
RECENT DEVELOPMENT
On February 7, 2000, we announced an agreement to merge with Warner-Lambert
Company (Warner-Lambert). Under the terms of the merger agreement, which has
been approved by the Board of Directors of both Pfizer and Warner-Lambert, we
will exchange 2.75 shares of Pfizer voting common stock for each outstanding
share of Warner-Lambert voting common stock in a tax-free transaction valued at
$98.31 per Warner-Lambert share, or an equity value of $90 billion based on the
closing price of our stock on February 4, 2000 of $35.75 per share. Customary
and usual provisions will be made for outstanding options and warrants.
The combined company, which will be called Pfizer Inc., is expected to have
(excluding any impact of anticipated restructuring charges and transaction fees
of $1.7 billion to $2.2 billion):
o compounded annual revenue growth of 13% and earnings growth of 25% through
2002
o $4.7 billion in annual research and development expenses in 2000
o anticipated annual cost savings and efficiencies totaling $1.6 billion by
2002 ($200 million of these savings are expected to be achieved in 2000, $1
billion in 2001 and $1.6 billion in 2002)
o diluted earnings per share of $.98 on a pro forma basis in 2000, $1.27 for
2001 and $1.56 for 2002 (these numbers include the $1.6 billion of cost
savings phased in over this time period, but do not include any increased
sales from collaborative activities and the $1.8 billion termination fee
paid by Warner-Lambert to American Home Products Corporation).
This transaction is subject to customary conditions, including the use of
pooling-of-interests accounting, qualifying as a tax-free reorganization,
shareholder approval at both companies and usual regulatory approvals. The
transaction is expected to close in mid-2000.
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 and
sales organizations. Comparative segment revenues, profits and related financial
information for 1999, 1998 and 1997 are given in the table entitled SEGMENT
INFORMATION on page 60 of our 1999 Annual report. A table captioned PERCENTAGE
CHANGE IN TOTAL REVENUES
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and a graph captioned TOTAL REVENUES BY BUSINESS SEGMENT on page 29 of our 1999
Annual Report give segment information over the past three years. The
information from those sections of our Annual Report is considered to be
incorporated in this 1999 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
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 dysfunction and allergies, as well as a co-promoted product for
arthritis. In 1999, prescription pharmaceuticals contributed 88% of our
revenues, as compared to 86% in 1998 and 83% in 1997. In 1999, we had seven
products, including alliance products, with sales to third parties in excess of
$1 billion each. Sales of our major in-line pharmaceutical products - NORVASC,
CARDURA, ZITHROMAX, DIFLUCAN, ZOLOFT, VIAGRA AND ZYRTEC - comprised 60% of our
revenues. A table captioned NET SALES - MAJOR PHARMACEUTICAL PRODUCTS on page 29
of our 1999 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. NORVASC,
our largest-selling product, is a once-a-day medication for hypertension (high
blood pressure) and angina (heart pain). It is the largest-selling high blood
pressure medicine in the world. Our other cardiovascular products include
PROCARDIA XL, also a once-a-day product for hypertension and angina, and
CARDURA, which is used to treat hypertension and benign prostatic hyperplasia
(enlarged prostate gland). Sales of PROCARDIA XL continued to decrease during
1999, due, at least in part, to the medical community's increasing emphasis on
NORVASC.
Also included in our cardiovascular disease product line is our alliance
product, LIPITOR, for treatment of high LIPIDS (cholesterol and, triglycerides)
in the bloodstream. We participated in the 1997 launch of LIPITOR under
co-promotion and licensing arrangements with the Parke-Davis Division of
Warner-Lambert Company, which discovered and developed the drug. Pfizer and
Warner-Lambert are continuing a broad clinical program for LIPITOR, as well as
planning the development of a single product that contains the cholesterol and
high blood pressure lowering medications in LIPITOR and NORVASC, respectively.
We will add to our cardiovascular product line with the first-quarter 2000
launch of Tikosyn. This product is used for the treatment of atrial fibrillation
(rapid and irregular heartbeats in the atria or upper chambers of the heart).
In the infectious disease medicine category, our major products are
ZITHROMAX and DIFLUCAN. ZITHROMAX is an oral or injectable antibiotic. During
1999, ZITHROMAX continued to be the most prescribed brand-name oral antibiotic
in the U.S. sales of ZITHROMAX increased in 1999 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 June 1999, the European Union's Committee for Proprietary Medicinal
Products suspended the European Union ("EU") licenses of the oral and
intravenous formulations of our
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antibiotic TROVAN for 12 months. In the rest of the world, including the U.S.,
the use of TROVAN is limited to serious infections in institutionalized patients
(see Item 3, LEGAL PROCEEDINGS, below).
For treatment of central nervous system disorders, we offer ZOLOFT and
co-promote ARICEPT. ZOLOFT is used for treatment of depression,
obsessive-compulsive disorder, panic disorder and posttraumatic stress disorder.
In 1999, Zoloft became the second Pfizer-developed product to achieve $2 billion
in annual sales. 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. which contracted with us to license and co-promote
the product in the U.S. and several other countries.
In October 1999, we received an approvable letter from the FDA for RELPAX,
for the treatment of migraine. Regulatory review is continuing in Europe.
In 1998, we introduced VIAGRA, our oral medication for the treatment of
erectile dysfunction. Since launch, doctors have written over 17 million
prescriptions for Viagra tablets for more than 6 million patients in the U.S.
alone. More than 150 million tablets have been dispensed worldwide.
Our other major pharmaceutical products include GLUCOTROL XL, for the
treatment of diabetes, and ZYRTEC, which is used for the 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 co-promote ZYRTEC in the U.S. with a
subsidiary of UCB S.A.
In February 1999, we participated in the launch of CELEBREX with G.D.
Searle & Co. (Searle), a division of Monsanto Company, the discoverer and
developer of CELEBREX. CELEBREX is used for the relief of symptoms of adult
rheumatoid arthritis and osteoarthritis. We co-promote CELEBREX with Searle in
all world markets except Japan.
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 eye care
o BENGAY topical analgesics
o CORTIZONE hydrocortisone skin cream
o RID anti-lice products
o UNISOM sleep aids
o DESITIN ointments for treatment of diaper rash
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 about 4% of our total
revenues in 1999 and 1998 and 5% in 1997.
Our Consumer Health Care Group can extend the life 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
Pfizer's Animal Health Group discovers, develops, manufactures and sells
products for the prevention and treatment of diseases in livestock, poultry and
companion animals. Among the products we produce are antibiotics,
antiparasitics, anti-inflammatories, vaccines and related products for livestock
and companion animals. Our Animal Health Group
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revenues grew 2% to $1.3 billion in 1999, in part due to the successful launch
of the new antiparasitic for dogs and cats, REVOLUTION (marketed as STRONGHOLD
in Europe), and continued growth from the canine anti-arthritic Rimadyl. These
benefits were offset by continuing weakness in the livestock market in the U.S.
and Europe. Animal Health sales accounted for approximately 8% of our total
revenues in 1999, 10% of our total revenues in 1998 and 12% of our total
revenues in 1997.
The $1.3 billion worldwide pet antiparasitic market consists of medicines
for external parasites such as fleas and ticks, treatments for gastrointestinal
worms, and heartworm preventatives. Our product REVOLUTION is the first product
to treat all three problems. This once-a-month, simple-to-administer, topical
liquid protects against internal and external parasites, including heartworm,
fleas, and ear mites in both dogs and cats; American dog ticks and sarcoptic
mange in dogs; and hookworm and roundworm in cats. The U. S. launch of
REVOLUTION was one of the most successful in the history of animal health.
Since its introduction in 1997, nearly five million arthritic dogs
worldwide have been treated with RIMADYL to relieve acute and chronic pain
associated with osteoarthritis, a condition that afflicts about 15% of all dogs.
The new chewable form provides the pet owner with greater convenience of
administration.
Other important Pfizer companion animal products include VANGUARD vaccines
for canine enteric disease, LEUKOCELL vaccines for feline leukemia,
CLAVAMOX/SYNULOX anti-infectives, and ANIPRYL for Cushing's disease and
Cognitive Dysfunction Syndrome in dogs.
Our Animal Health Group produces leading antiparasitic products, vaccines
and anti-infectives for cattle, swine and poultry. Among these are DECTOMAX to
protect cattle, swine and sheep from internal and external parasites, and
RESPISURE/STELLAMUNE vaccines to prevent a type of pneumonia and the related
problems of slow weight gains, decreased feed efficiency, and lack of uniformity
in size in swine.
Other products for livestock include TERRAMYCIN LA-200, an injectable
version of the TERRAMYCIN broad-spectrum antibiotic used for various animal
diseases; VALBAZEN and PARATECT products to treat internal parasites and
BOVISHIELD vaccine for cattle respiratory disease.
The council of European Agricultural Ministers voted to ban the use of our
antibiotic feed additive STAFAC (virginiamycin) throughout the European Union
after June 1999. We do not expect the ban on sales of STAFAC to have a material
effect on the Company's future results of 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 $2.8 billion in 1999, $2.3 billion in 1998 and $1.8 billion in
1997 on research and development.
We are planning for future growth of our research operations. Current
construction at our three major research centers will add approximately two
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
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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 effectively and 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 development. 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 are set out under the heading PRODUCT
DEVELOPMENTS beginning on page 30 of our 1999 Annual Report. That discussion is
incorporated by reference.
Our research operations add value to our existing products by improving
their effectiveness and by discovering new uses for them. In 1999, for example,
the FDA approved the additional use of ZOLOFT for the treatment of posttraumatic
stress disorder.
Our competitors also devote substantial sums and resources to research and
development. In addition, the consolidation that has occurred in our industry
has created 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.
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 8% of our total
revenues in 1999, 7% in 1998 and 9% in 1997. No single country outside the U.S.
had revenues of 10% of our total revenues.
For a geographic breakdown of revenues, see the table GEOGRAPHIC DATA on
page 60 of our 1999 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
under the heading GOVERNMENT REGULATION AND PRICE CONSTRAINTS for discussion of
those matters.
Revenue growth in 1999 was not significantly impacted by foreign exchange.
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 4-D to our financial statements, DERIVATIVE FINANCIAL
INSTRUMENTS, on pages 46 and 47 in our 1999 Annual Report. That discussion is
incorporated
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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 11,300 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 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, can take years to complete and the results are
uncertain. 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 marketing claims and
strategies.
Our Consumer Health Care Group uses its own representatives to promote its
products. We use 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. Where appropriate, these
products are also marketed through print and television advertising.
During 1999, pharmaceutical sales to our three largest pharmaceutical and
consumer health care products wholesalers were:
o McKesson HBOC, Inc. - 14% of our total revenues;
o Cardinal Health, Inc. - 12% of our total revenues; and
o Bindley Western Industries, Inc. - 7% of our total revenues.
Those sales were concentrated in the Pharmaceutical segment. Apart from
these
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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 and their uses
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, ZYRTEC, ZITHROMAX, ZOLOFT,
DIFLUCAN, GLUCOTROL XL and VIAGRA. Our basic U.S. patents relating to NORVASC,
ZOLOFT, DIFLUCAN, GLUCOTROL XL 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 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 was
approved by the FDA in December, 1999, and rated therapeutically equivalent.
Additional products were filed for FDA approval in 1998 which appear to infringe
our patents (see the discussion of all of these matters in Item 3, LEGAL
PROCEEDINGS, 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.
ZYRTEC is patented by the Belgian company, UCB S.A. The drug is licensed
exclusively to us for sales in the U.S. and semi-exclusively with UCB S.A. For
sales in Canada. The U.S. patent on ZYRTEC held by UCB S.A. expires in 2007.
We have other patent rights covering additional products that have smaller
sales revenues.
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
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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 uses for products
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. 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
o cost effectiveness
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
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o brand identity
o advertising and promotion
o product innovation
o broad distribution capabilities
o customer satisfaction
o price
Significant 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 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. 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 formularies, 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,
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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 patients who do
not have another source of prescription drug coverage must bear that cost. MCOs,
however, often offer 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 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.
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 available from multiple sources. No serious shortages or delays were
encountered in 1999, and none are expected in 2000.
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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, LEGAL PROCEEDINGS, below.
Since the beginning of 1998, the approval of new drugs across the 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. Further, on January 1, 2000, Norway and
Iceland became full participants in the EU central approval processes. 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 enacted, they may require
significant reductions from currently projected government expenditures for
these programs. Driven by budget concerns, Medicaid managed care systems have
been implemented 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, or drug coverage for Medicare beneficiaries is
expanded, 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 30 of our
1999 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
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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 Department of Health and Human
Services, 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 (see Item 3, LEGAL PROCEEDINGS,
below). 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 1999 for environmental
protection and clean-up of certain past industrial activity as follows:
o environmental-related capital expenditures -- $66 million
o other environmental-related expenses -- $88 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
We have not experienced any operational problems as a result of Year 2000
issues, and Year 2000 had no material effect on our revenues. Although the
transition from 1999 to 2000 did not adversely impact our Company, there can be
no assurances that we will not experience any negative effects or disruptions in
our businesses in the future as a result of Year 2000 issues.
The total cost of our Year 2000 Program was $130 million, of which we
incurred $94 million in 1999, $31 million in 1998 and $5 million in 1997. These
costs were expensed as incurred, except for capitalizable hardware of
approximately $8 million in 1999, $4 million in 1998 and $1 million in 1997, and
were funded through operating cash flows. Such costs did not include normal
system upgrades and replacements.
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 pages 44 and 45 in our 1999
Annual Report, which is incorporated by reference.
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TAX MATTERS
The discussion of tax-related matters (including certain proceedings
involving proposed tax adjustments relating to prior years) in Note 9 to our
financial statements, TAXES ON INCOME, on pages 49 and 50 in our 1999 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, 1999, we employed approximately 50,900 people in our operations
throughout the world. Geographically, this total breaks down as follows:
o United States, 19,300
o Europe, 14,400
o Asia, 6,600
o Canada/Latin America, 5,900
o Africa/Middle East, 4,700
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 1999 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 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, ANTICIPATED EFFECTS OF THE MERGER WITH
WARNER-LAMBERT DISCUSSED UNDER THE HEADING RECENT DEVELOPMENTS 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 1999 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 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 AND 8-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.
^ 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.
^ In the U.S., many of our pharmaceutical products are subject to increasing
pricing pressures, which could be significantly impacted
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by the outcome of the current national debate over Medicare reform. If the
Medicare program provided outpatient pharmaceutical coverage for its
beneficiaries, the federal government, through its enormous purchasing power
under the program, could demand discounts from pharmaceutical companies that may
implicitly create price controls on prescription drugs. On the other hand, a
Medicare drug reimbursement provision may increase the volume of pharmaceutical
drug purchases, offsetting, at least in part, these potential price discounts.
In addition, managed care organizations, institutions and other government
agencies continue to 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.
^ Thirty-nine percent of our 1999 revenues arose from international operations,
and we expect revenue and net income growth in 2000 to be impacted by changes in
foreign exchange rates. Revenues from Asia comprised approximately 11% of total
revenues in 1999, including 8% from Japan.
These international-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 page 36 in our 1999 Annual Report. For additional details, see
Note 4-D to our financial statements, DERIVATIVE FINANCIAL INSTRUMENTS, on pages
46 and 47 in our 1999 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 circumstances, 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.
^ A new European currency (euro) was introduced in January 1999 to replace the
separate currencies of eleven individual countries. The major changes during its
first year of existence have occurred in the banking and financial sectors. The
impact at the commercial and retail level has been limited but is expected to
increase during the next two years through December 31, 2001, when the separate
currencies will cease to exist. We are modifying systems and commercial
arrangements to deal with the new currency, including the availability of dual
currency processes to permit transactions to be denominated in the separate
currencies, as well as the euro. The cost of this effort is not expected to have
a material effect on our businesses or results of operations. We continue to
evaluate the economic and operational impact of the euro, including its impact
on competition, pricing and foreign currency exchange risks. There is no
guarantee, however, that all problems have been foreseen and corrected, or that
no material disruption will occur in our businesses.
^ 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.
^ 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.
^ Business combinations among our competitors could affect our competitive
position in the pharmaceutical, consumer health care and animal health
businesses. Similarly,
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combinations among our major customers could increase their purchasing power in
dealing with us. In addition, our proposed merger with Warner-Lambert could
affect our business, finances and capital structure. While we anticipate
earnings and revenues growth, as well as substantial cost savings and operating
efficiencies to be achieved in connection with the merger with Warner-Lambert,
we cannot give any assurance that these results will be realized in the combined
company within the time periods contemplated or even if they will be realized at
all.
^ 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.
^ 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.
^ 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.
^ Difficulties or delays in product manufacturing or marketing, including, but
not limited to, the inability to build up production capacity commensurate with
demand, or the failure to predict market demand for or to gain market acceptance
of approved products could affect future results.
^ We currently have seven products with annual sales to third parties exceeding
one billion dollars. In this group are five medicines discovered by PFIZER -
NORVASC, ZITHROMAX, ZOLOFT, VIAGRA and DIFLUCAN - and our alliance products
LIPITOR and CELEBREX. Those products accounted for more than half of our 1999
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.
^ 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 $822 million in 1997, $714 million in 1998 and $521 million in
1999. 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, one of which was approved
by the FDA in December, 1999 (see the discussion in Item 3, LEGAL PROCEEDINGS,
below). This indicates that the number of medicines that compete with PROCARDIA
XL may increase, and
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the sales of competing products may affect our expected results.
^ 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 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.
^ 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.
^ In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 137, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES - DEFERRAL OF THE EFFECTIVE DATE OF FASB
STATEMENT NO. 133. This pronouncement requires us to adopt SFAS No. 133,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, on January 1,
2001. 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.
Such new or revised accounting standards and rules are issued from time to
time. Although the standard mentioned above is not expected to have a material
impact on our reported financial results, future standards and rules could have
such an effect.
^ As described above in the section YEAR 2000, we have not experienced any
operational problems as a result of Year 2000 issues, and Year 2000 had no
material effect on our revenues. Although the transition from 1999 to 2000 did
not adversely impact our Company, there can be no assurances that we will not
experience any negative effects or disruptions in our businesses in the future
as a result of Year 2000 issues.
^ 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
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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, and in 1999, it was
further extended to June 30, 2004.
^ 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, in TAX MATTERS above and in Note 9
to our financial statements, TAXES ON INCOME, on pages 49 and 50 in our 1999
Annual Report, which is incorporated by reference.
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 1.6 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; Sandwich, England and Nagoya, Japan. The buildings at our Groton
facility currently contain approximately 3.5 million square feet of floor space.
Approximately 1 million square feet is used for manufacturing, and the rest is
used for research and development. The Company also began construction in 1998
on an additional 750,000 square-foot facility on a 24-acre site in nearby New
London, Connecticut, to initially house 1,300 employees from the Company's
research operations.
Buildings on our 334-acre Sandwich, England campus house research, our U.K.
pharmaceutical sales office and a production plant. These facilities contain
almost 2 million square feet of floor space, approximately half of which is used
for research and development. An additional 900,000 square feet of new research
space is under construction.
At our facility in Nagoya, Japan, the buildings contain 790,000 square feet
of floor space, of which 300,000 square feet is used for research.
We own other important research facilities in 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 1999, over 2.3
million square feet of research facilities was under construction at our sites
in Groton, Sandwich and Nagoya.
Our Global Manufacturing Division operates 32 plants that produce products
for our pharmaceutical, consumer and animal health businesses around the world.
Twenty 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
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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 four locations:
o Barceloneta, Puerto Rico, U.S.
o Groton, Connecticut, U.S.
o Ringaskiddy, Ireland
o Sandwich, England, U.K.
We have major product production plants at seventeen sites in eleven
countries:
o Amboise, France
o Barceloneta, Puerto Rico, U.S.
o Brooklyn, New York, U.S.
o Dalian, China
o Illertissen, Germany
o Latina, Italy
o Lee's Summit, Missouri, U.S.
o Lincoln, Nebraska, U.S.
o Louvain-la-Neuve, Belgium
o Nagoya, Japan
o Parsippany, New Jersey, U.S.
o Sandwich, England, U.K.
o San Jose Iturbide, Mexico
o Sao Paulo, Brazil
o Terre Haute, Indiana, U.S.
o Toluca, Mexico
o Valencia, Venezuela
Our Consumer Health Care and Animal Health Groups have their principal
executive offices in leased facilities one block away from the Company's world
headquarters.
Consumer Health Care has its principal research operations in Parsippany,
New Jersey. 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.
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 facilities are shared with our
pharmaceutical business.
Our distribution operations in the U.S. include our large, state-of-the-art
distribution and order fulfillment operation in a 450,000 square-foot building
on a 20-acre site in Memphis, Tennessee, a new 190,000 square-foot distribution
center at our plant site in Parsippany, New Jersey, and a facility in Irvine,
California. A new West Coast distribution facility is under construction in
Reno, Nevada. The Animal Health Group also operates its own distribution
facilities. We also operate distribution facilities in major markets around the
world.
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 7 to our
financial statements, PROPERTY, PLANT AND EQUIPMENT on page 48 in our 1999
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 our Annual Report, which describes our capital
expenditures, are incorporated by reference. See also the discussion under Note
11 entitled LEASE COMMITMENTS on page 52 of our 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
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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.
FORMER FOOD SCIENCE DIVISION
In 1999, the Company pleaded guilty to one count of price fixing of sodium
erythorbate from July 1992 until December 1994, and one count of market
allocation of maltols from December 1989 until December 1995, and paid a total
fine of $20 million. The activities at issue involved the Company's former Food
Science Group, a division that manufactured food additives and that the Company
divested in 1996. The Department of Justice has stated that no further antitrust
charges will be brought against the Company relating to the former Food Science
Group, that no antitrust charges will be brought against any current director,
officer or employee of the Company for conduct related to the products of the
former Food Science Group, and that none of the Company's current directors,
officers or employees was aware of any aspect of the activity that gave rise to
the violations. Five purported class action suits involving these products have
been filed against the Company; two in California State Court, and three in New
York Federal Court. The Company does not believe that this plea and settlement,
or civil litigation involving these products, will have a material effect on its
business or results of operations.
NIFEDIPINE PATENTS
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. On March 16, 1999, the United States District Court granted Mylan's
motion to file an amended answer and antitrust counterclaims. On December 17,
1999, Mylan received final approval from the FDA for its 30 mg. extended-release
nifedipine tablet. On February 28, 2000, a settlement agreement was entered into
between Mylan and the Company under which the litigation was terminated and
Mylan will market a generic sustained-release nifedipine product manufactured by
the Company under its own trademark.
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 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
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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 12, 1999, Biovail filed a motion
for summary judgment also based in part on the summary judgment motion granted
to Elan in the Bayer v. Elan litigation in the Northern District of Georgia.
Pfizer and Bayer's response was filed on April 26, 1999. On September 20, 1999,
the United States District Court in Puerto Rico denied Biovail's motion for
summary judgment without prejudice to their refiling after completion of
discovery in the PROCARDIA XL patent-infringement litigation. The court set an
expedited discovery schedule with a deadline of December 30, 1999, to complete
discovery of parties and fact witnesses and February 29, 2000, to complete
discovery of expert witnesses. On December 20, 1999, the court extended the date
to complete fact discovery to January 28, 2000, and that of expert discovery to
March 15, 2000. A status conference with the court scheduled for March 17, 2000,
has been postponed and a new date is awaited.
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 responded to
this motion and oral argument has been held in abeyance pending a settlement
conference. In September 1999, a settlement agreement was entered into among the
parties staying this litigation until the expiration of U.S. Patent No.
4,412,986 on November 2, 2000.
On February 10, 1999, the Company received a notice from Lek U.S.A. of its
filing of an ANDA for a 90 mg. formulation of nifedipine alleged to be
bioequivalent to PROCARDIA XL. On March 25, 1999, Bayer and Pfizer commenced
suit against Lek for infringement of the same two Bayer patents originally
asserted against Lek's 60 mg. formulation. This case was also the subject of a
settlement conference. In September, 1999, a settlement agreement was entered
into among the parties staying this litigation until the expiration of U.S.
Patent No. 4,412,986 on November 2, 2000.
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. Martec filed its response to this complaint on February
26, 1999. A hearing to determine claim scope is scheduled for June 1, 2000.
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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. On
July 16, 1999, the D.C. Court of Appeals dismissed the appeal on the ground that
since the FDA had not approved any ANDA referencing PROCARDIA XL that uses a
different extended-release mechanism than the osmotic pump mechanism of
PROCARDIA XL, it was premature to maintain this action, stating that Pfizer has
the right to bring such an action if, and when, the FDA approves such an ANDA.
Subsequent to FDA's final approval of Mylan's ANDA, on December 18, 1999 Pfizer
filed suit against FDA in the United States District Court for the District of
Delaware. The suit alleges that FDA unlawfully approved Mylan's 30 mg. extended
release product because FDA had not granted an ANDA suitability petition
reflecting a difference in dosage form from PROCARDIA XL. As a result of the
settlement agreement with Mylan, Pfizer and the FDA have agreed to dismiss this
suit without prejudice.
DOXAZOSIN PATENT
On March 31, 1999, the Company received notice from TorPharm of its filing,
through its U.S. agent Apotex Corp., of an ANDA for 1 mg., 2 mg., 4 mg. and 8
mg. tablets alleged to be bioequivalent to CARDURA (doxazosin mesylate). The
notice letter alleges that Pfizer's patent on doxazosin is invalid in view of
certain prior art references. Following a review of these allegations, suit was
filed in the United States District Court for the Northern District of Illinois
against TorPharm and Apotex Corp. on May 14, 1999. The defendants requested a
90-day period in which to file their answer. The request was granted and
TorPharm/Apotex's answer was filed by August 19, 1999. Discovery is in progress.
On June 2, 1999, FDA was notified that given the patent litigation and pursuant
to provisions of the Federal Food Drug and Cosmetic Act, the FDA may not approve
the TorPharm application for thirty months from filing or resolution of the
litigation.
DRUG SCREENING PATENTS
On May 5, 1999, the Company filed an action against Sibia Neurosciences,
Inc. in the United States District Court for the District of Delaware seeking a
declaratory judgment that two Sibia patents claiming reporter gene drug
screening assays are invalid, not infringed by the Company, and unenforceable
due to Sibia's misuse of its patent rights in seeking certain license terms. On
May 27, 1999, Sibia Neurosciences, Inc. filed an answer to the Company's
declaratory judgment action in which Sibia denies that a prior case or
controversy existed, but admits that a case or controversy does now exist
regarding at least one patent in suit, denies the invalidity, unenforceability
and non-infringement of the patents in suit, and asserts various jurisdictional
and equitable defenses, affirmative defenses, and lack of standing by the
Company to assert patent misuse. Sibia Neurosciences also filed a counterclaim
alleging willful infringement by the Company of one of the patents in suit. A
reply to that counterclaim denying Sibia's allegation has been filed. The
parties submitted a joint status report to the court on December 14, 1999, in
which the parties agreed to complete fact discovery by August 21, 2000, and
commence trial on January 8, 2001.
TROVAFLOXACIN PATENT
On May 19, 1999, Abbott Laboratories filed an action against the
Company in the United States District Court of the Northern District of Illinois
alleging that the Company's use, sale or manufacture of trovafloxacin infringes
Abbott's United States Patent No.
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4,616,019 claiming naphthyriding antibiotics and seeking a permanent injunction
and damages. An answer denying these allegations was filed on June 9, 1999.
Discovery is in progress.
ZOLOFT PATENTS
On December 17, 1999, the Company received notice of the filing of an ANDA
by Zenith Goldline Pharmaceuticals for 50 mg. and 100 mg. tablets of sertraline
hydrochloride alleged to be bioequivalent to ZOLOFT. Zenith has certified to the
FDA that it will not engage in the manufacture, use or sale of sertraline
hydrochloride until the expiration of Pfizer's U.S. Patent 4,536,518, which
covers sertraline per se and expires December 30, 2005. Zenith has also alleged
in its certification to the FDA that the manufacture, use and sale of Zenith's
product will not infringe Pfizer's U.S. Patent 4,962,128, which covers methods
of treating an anxiety-related disorder or Pfizer's U.S. Patent 5,248,699, which
covers a crystalline polymorph of sertraline hydrochloride. These patents expire
in November 2009 and August 2012, respectively. On January 28, 2000 the Company
filed a patent infringement action against Zenith Goldline and its parent Ivax
Corporation in the United States District Court for the District of New Jersey
for infringement of the `128 and `699 patents.
FLUCONAZOLE PATENT
On February 1, 2000 the Company received notice of the filing of an ANDA by
Novopharm Limited for 50 mg, 100 mg, 150 mg and 200 mg tablets of fluconazole
alleged to be bioequivalent to DIFLUCAN. Novopharm has certified to the FDA its
position that the Company's U.S. Patent 4,404,216, which covers fluconazole, is
invalid. This patent expires in January 2004. On March 10, 2000, the Company
filed a patent infringement action under the '216 patent against Novopharm in
the United States District Court for the Northern District of Illinois.
HYBRID CORN SEED LITIGATION
In pre-existing litigation between Pioneer Hi-Bred International, Inc. and
DeKalb Genetics Corporation in the United States District Court for the Southern
District of Iowa, the court granted on October 8, 1999 Pioneer's motion to add
additional parties, including Pfizer Inc. and Monsanto Co. (the present owner of
DeKalb Genetics Corporation), as codefendant parties. The amended complaint,
which claims violations of the federal Lanham Act and Iowa state law stemming
from the codefendants' alleged use of Pioneer's corn seed germplasm in the
development of competitive corn seed products, was served on the Company on
October 19. The Company filed its answer on December 15, 1999.
TROVAN TRADEMARK
On September 22, 1999, the jury in a trademark-infringement litigation
brought against the Company by Trovan Ltd. and Electronic Identification
Devices, Ltd. relating to use of the TROVAN mark for trovafloxacin issued a
verdict in favor of the plaintiffs with respect to liability, holding that the
Company had infringed Trovan Ltd.'s mark and had acted in bad faith. Following a
further damage trial, on October 12, 1999, the jury awarded Trovan Ltd. a total
of $143 million in damages, comprised of $5 million actual damages, $3 million
as a reasonable royalty and $135 million in punitive damages. The court held a
hearing on December 27, 1999, on whether to award the plaintiffs profits based
on the company's sales of TROVAN and, if so, the amount of same. On February 24,
2000, the court entered judgment on the jury verdict and enjoined the company's
use of the TROVAN mark effective October 16, 2000. The plaintiff's request to be
awarded the company's profits from TROVAN sales and for treble damages was
denied. The Company's motion for mistrial remains outstanding and will be
considered with additional post-trial motions to overturn the jury verdicts and
the damage award.
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SHILEY INCORPORATED
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.
ENVIRONMENTAL MATTERS
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
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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.
ASBESTOS MATTERS
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 sixteen 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.
As of January 29, 2000, there were 57,328 personal injury claims pending
against Quigley and 26,890 such claims against the Company (excluding those that
are inactive or have been settled in principle), 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 against excess insurance carriers seeking damages and/or
declaratory relief to secure their coverage obligations has now been largely
resolved, although claims against several of such insureds do remain pending.
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.
BRAND-NAME PRESCRIPTION DRUGS ANTITRUST LITIGATION
In 1993, 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, alleging that the manufacturers
violated the Sherman Act by agreeing not to give retailers certain discounts and
that the failure to give such discounts violated the Robinson Patman Act. A
class action was brought on the Sherman Act claim, as well as additional actions
by approximately 3,500 individual retail pharmacies and a group of chain and
supermarket pharmacies (the "individual actions") on both the Sherman Act and
Robinson Patman Act claims. A retailer class was certified in 1994 (the "Federal
Class Action"). In 1996, fifteen manufacturer defendants, including the Company,
settled the Federal Class Action. The Company's share was $31.25 million,
payable in four annual installments without interest. 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
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wholesalers as named defendants in their cases. The District Court dismissed the
case at the close of the plaintiffs' evidence. The plaintiffs appealed and, on
July 13, 1999, the Court of Appeals upheld most of the dismissal but remanded on
one issue, while expressing doubts that the plaintiffs could prove any damages.
The District Court has since opined that the plaintiffs cannot prove such
damages.
Retail pharmacy cases also have been filed in state courts in five states,
and consumer class actions were filed in state courts in fourteen states and the
District of Columbia alleging injury to consumers from the failure to give
discounts to retail pharmacy companies.
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, California, New Mexico,
North Dakota, South Dakota and West Virginia), 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, which
has been approved by the Court there.
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 opened 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 responded. A second subpoena was issued to the
Company for documents in May 1997 and the Company again responded. We are not
aware of any further activity.
PLAX
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.
RID
Since December 1998, four actions have been filed, in state courts in
Houston, San Francisco, Chicago and New Orleans, purportedly on behalf of
statewide (California) or nationwide (Houston, Chicago and New Orleans) classes
of consumers who allege that
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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 voluntarily
dismissed and proceedings in the San Francisco, Chicago and New Orleans cases
are still in early stages of the proceedings. The Company believes the
complaints are without merit.
DESITIN
In December, 1999 and January, 2000, two suits were filed in California
state courts against the Company and other manufacturers of zinc
oxide-containing powders. The first suit was filed by the Center for
Environmental Health and the second was filed by an individual plaintiff on
behalf of a purported class of purchasers of baby powder products. The suits
generally allege that the label of DESITIN powder violates California's
"Proposition 65" by failing to warn of the presence of lead, which is alleged to
be a carcinogen. In January, 2000, the Company received a notice from a
California environmental group alleging that the labeling of DESITIN ointment
and powder violates Proposition 65 by failing to warn of the presence of
cadmium, which is alleged to be a carcinogen. Several other manufacturers of
zinc oxide-containing topical baby products have received similar notices. The
Company believes that the labeling for DESITIN complies with applicable legal
requirements.
FDA REQUIRED POST-MARKETING REPORTS
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 review of the
Company's new procedures was undertaken by FDA in 1999. The Company and Agency
met to review the findings of this review and agreed that commitments and
remedial measures undertaken by the Company related to the Warning Letter have
been accomplished. The Company agreed to keep the Agency informed of its
activities as it continues to modify its processes and procedures.
TROVAN
During May and June, 1999, the FDA and the European Union's Committee for
Proprietary Medicinal Products (CPMP) reconsidered the approvals to market
Trovan, a broad-spectrum antibiotic, following post-market reports of severe
adverse liver reactions to the drug. On June 9, the company announced that,
regarding the marketing of TROVAN in the United States, it had agreed to
restrict the indications, limit product distribution, make certain other
labeling changes and to communicate revised warnings to health care
professionals in the United States. On July 1, Pfizer received the opinion of
the CPMP recommending a one-year suspension of the licenses to market TROVAN in
the European Union. The CPMP opinion has been finalized in a Final Decision by
the European Commission. Since June, 1999, three suits and several claims have
been received by the Company alleging liver injuries due to the ingestion of
TROVAN. The majority of these claims have been resolved without litigation. In
June and July, 1999, two of the lawsuits were filed in the Circuit Court,
Hampton County, South Carolina on behalf of a purported class of all persons who
received TROVAN, seeking compensatory and punitive damages and injunctive
relief. One of the suits, seeking injunctive relief, has been dismissed. No
substantive proceedings have yet occurred in the other suit and the Company
believes that it is not properly maintainable as a class action, and will defend
against it accordingly.
RIMADYL
In October 1999 the Company was sued in an action seeking unspecified
damages, costs and attorney's fees on behalf of a purported class of people
whose dogs had suffered injury or death after ingesting RIMADYL, an
antiarthritic medication for older dogs. The suit, which was filed in state
court in South Carolina, is in the
26
<PAGE>
early pretrial stages. The Company believes it is without merit.
MEDICAL TECHNOLOGY GROUP
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. These cases have now
been resolved. 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. Most of these
claims, along with a number of filed and unfiled claims from other
jurisdictions, have now been resolved. The Company believes that most if not all
of these cases are without merit.
DIABINESE (BRAZIL)
In June, 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 sought the award
of moral, economic and personal damages to individuals and the payment to a
public reserve fund. In February 1996, the trial court issued a decision holding
Pfizer Brazil liable. The trial court's opinion also established the amount of
moral damages for individuals who might make claims later in the proceeding and
set out a formula for calculating the payment into the public reserve fund which
could have resulted in a sum of approximately $88 million. Pfizer Brazil
appealed this decision. In September 1999, the appeals court issued a ruling
upholding the trial court's decision as to liability. However, the appeals court
decision overturned the trial court's decision concerning damages, ruling that
criteria to apply in the calculation of damages, both as to individuals and as
to payment of any amounts to the reserve fund, should be established only in a
later stage of the proceeding. The Company believes that this action 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.
27
<PAGE>
EXECUTIVE OFFICERS OF THE COMPANY
As of March 10, 2000, 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
Brian W. Barrett........ 60 Vice President; President - Animal Health Group
M. Kenneth Bowler....... 57 Vice President - Federal Government Relations
Loretta V. Cangialosi... 41 Vice President; Corporate Controller
C. L. Clemente.......... 62 Executive Vice President, Corporate Affairs;
Secretary and Corporate Counsel; Member of the
Corporate Management Committee
Gary N. Jortner......... 54 Vice President; Senior Vice President, Product
Development- Pfizer Pharmaceuticals Group
Karen L. Katen.......... 51 Senior Vice President; Executive Vice President
- Pfizer Pharmaceuticals Group and President -
U.S. Pharmaceuticals; Member of the Corporate
Management Committee
J. Patrick Kelly........ 42 Vice President; Senior Vice President -
Worldwide Marketing - Pfizer Pharmaceuticals
Group
Alan G. Levin........... 37 Vice President; Treasurer
Henry A. McKinnell...... 57 President and Chief Operating Officer;
President - Pfizer Pharmaceuticals Group;
Member of the Corporate Management Committee
Paul S. Miller.......... 60 Executive Vice President; General Counsel;
Member of the Corporate Management Committee
George M. Milne, Jr..... 56 Senior Vice President; President - Central
Research; Member of the Corporate Management
Committee
John F. Niblack......... 61 Vice Chairman; Member of the Corporate
Management Committee
William J. Robison...... 64 Executive Vice President - Corporate Employee
Resources; Member of the Corporate Management
Committee
Craig Saxton............ 57 Vice President; Executive Vice President -
Central Research
David L. Shedlarz....... 51 Executive Vice President and Chief Financial
Officer; Member of the Corporate Management
Committee
Mohand Sidi Said........ 61 Vice President; Senior Vice President - Pfizer
Pharmaceuticals Group and Area President -
Asia/Africa/Middle East
William C. Steere, Jr... 63 Chairman of the Board and Chief Executive
Officer; Chair of the Corporate Management
Committee
Frederick W. Telling.... 48 Vice President, Corporate Strategic Planning
and Policy
28
<PAGE>
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 2003, DIRECTORS WHOSE TERMS EXPIRE
IN 2001 AND NAMED EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS in Chapter Five of
our joint proxy statement/prospectus for the 2000 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
Dr. Bowler joined us in 1989 and was elected Vice President - Federal Government
Relations in 1990. He formerly served as Staff Director for the House Ways and
Means Committee. Dr. Bowler also was on the faculty of the University of
Maryland as an Assistant Professor in the Political Science Department.
LORETTA V. CANGIALOSI
Ms. Cangialosi joined us in 1993 as Assistant Manager, Corporate Ledger in the
Controllers Division. In 1995 she was named Manager, External Financial
Reporting and in 1997 became Director, Accounting Advisory Services. Ms.
Cangialosi was named Senior Director, Corporate Accounting in January 1999, and
in September 1999 was elected our Vice President; Corporate Controller.
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, and in 1993, became Executive Vice President
of the U.S. Pharmaceuticals Group. In 1995 Ms. Katen was named President of the
U.S. Pharmaceuticals Group, and in 1997 became Executive Vice President - Pfizer
Pharmaceuticals Group. In May 1999 Ms. Katen was elected a Senior Vice President
of the Company.
Ms. Katen is a Director of General Motors Corporation and Harris Corporation and
serves
29
<PAGE>
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.
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. In May 1999 Dr. Milne was elected a Senior Vice President of the
Company. Dr. Milne is a Director of Mettler-Toledo Corporation, Inc.
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,
and in May 1999 was elected an Executive Vice President of the Company.
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 the
Marketing/Sales/Production, Diagnostics
30
<PAGE>
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 was named our Chief Financial Officer in 1995. Mr. Shedlarz became our
Senior Vice President in 1997, and in May 1999 was elected an Executive Vice
President of the Company.
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 our 1999 Annual Report.
ITEM 6. SELECTED FINANCIAL DATA
Historical financial information is incorporated by reference from the
FINANCIAL SUMMARY on page 62 of our 1999 Annual Report.
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 37 of our 1999 Annual Report.
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 page 36 of our 1999
Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required by this item is incorporated by reference from the
INDEPENDENT AUDITORS' REPORT found on page 38 and from the consolidated
financial statements, related notes and supplementary data on pages 39 through
61 of our 1999 Annual Report.
31
<PAGE>
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 3 in Chapter Five of our joint proxy statement/prospectus
for the 2000 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 OF PFIZER in Chapter
Five of our joint proxy statement/prospectus for the 2000 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 PFIZER'S OFFICERS AND DIRECTORS in Chapter Five of our
joint proxy statement/prospectus for the 2000 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 Chapter Five of our joint proxy statement/prospectus for
the 2000 Annual Meeting of Shareholders.
32
<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 1999 Annual
Report to Shareholders are incorporated by reference into Item 8 of Part II of
this report:
PAGE(S) IN OUR 1999
ANNUAL
REPORT
Independent Auditors' Report..................................... 38
Segment Information.............................................. 60
Geographic Data.................................................. 60
Consolidated Statement of Income................................. 39
Consolidated Balance Sheet....................................... 40
Consolidated Statement of Shareholders' Equity................... 41
Consolidated Statement of Cash Flows............................. 42
Notes to Consolidated Financial Statements....................... 43-60
Quarterly Consolidated Financial Data (unaudited)................ 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 10017-5755.
3(i) - Our Restated Certificate of Incorporation as of April 22, 1999,
is incorporated by reference from our 10-Q report for the
period ended April 4, 1999.
3(ii) - Our By-laws as amended June 24, 1999, are incorporated by
reference from Exhibit 3(ii) of our 10-Q report for the period
ended July 4, 1999.
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 July 1, 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 Statement for the 2000 Annual
Meeting of Shareholders is incorporated by reference from
33
<PAGE>
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.
12 - Computation of Ratio of Earnings to Fixed Charges.
13(a) - The 1999 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, 1999.
27.2 - Financial Data Schedule for Period Ended December 31, 1998.
27.3 - Financial Data Schedule for Period Ended December 31, 1997.
14(b) REPORTS ON FORM 8-K
The Company filed reports on Form 8-K during the last quarter of 1999 dated
November 8, 1999; November 12, 1999; November 16, 1999; December 1, 1999;
December 8, 1999; December 14, 1999 and December 15, 1999. All reports include
information reportable under Item 5 of Form 8-K that related to our proposed
merger with Warner-Lambert.
34
<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 ___, 2000 -------------------------------------
C.L. Clemente, Executive 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.
SIGNATURES TITLE DATE
---------- ----- ----
/S/ WILLIAM C. STEERE, JR. Chairman of the Board, Director March 24, 2000
- --------------------------
(William C. Steere, Jr.) (Principal Executive Officer)
/S/ DAVID L. SHEDLARZ Executive Vice President March 24, 2000
- -------------------------- and Chief Financial Officer
(David L. Shedlarz) (Principal Financial Officer)
/S/ LORETTA V. CANGIALOSI Vice President - Controller March 24, 2000
- -------------------------- (Principal Accounting Officer)
(Loretta V. Cangialosi)
/S/ MICHAEL S. BROWN Director March 24, 2000
- --------------------------
(Michael S. Brown)
Director March 24, 2000
- --------------------------
(M. Anthony Burns)
/S/ W. DON CORNWELL Director March 24, 2000
- --------------------------
(W. Don Cornwell)
<PAGE>
SIGNATURES TITLE DATE
---------- ----- ----
Director March 24, 2000
- --------------------------
(George B. Harvey)
/S/ CONSTANCE J. HORNER Director March 24, 2000
- --------------------------
(Constance J. Horner)
/S/ STANLEY O. IKENBERRY Director March 24, 2000
- --------------------------
(Stanley O. Ikenberry)
/S/ HARRY P. KAMEN Director March 24, 2000
- --------------------------
(Harry P. Kamen)
/S/ THOMAS G. LABRECQUE Director March 24, 2000
- --------------------------
(Thomas G. Labrecque)
/S/ DANA G. MEAD Director March 24, 2000
- --------------------------
(Dana G. Mead)
/S/ HENRY A. MCKINNELL President, Chief Operating March 24, 2000
- -------------------------- Officer and Director
(Henry A. McKinnell)
/S/ JOHN F. NIBLACK Vice Chairman and Director March 24, 2000
- --------------------------
(John F. Niblack)
/S/ FRANKLIN D. RAINES Director March 24, 2000
- --------------------------
(Franklin D. Raines)
36
<PAGE>
SIGNATURES TITLE DATE
---------- ----- ----
/S/ RUTH J. SIMMONS Director March 24, 2000
- --------------------------
(Ruth J. Simmons)
/S/ JEAN PAUL VALLES Director March 24, 2000
- --------------------------
(Jean-Paul Valles)
EXHIBIT 10(i)
PFIZER INC.
STOCK AND INCENTIVE PLAN
---------------------------------
(AS AMENDED THROUGH JULY 1, 1999)
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(g), the maximum amount of stock
which may be issued under the Plan is 1,179,000,000* shares of the Common Stock
of the Company (comprised of 72,000,000* shares authorized in 1965, 72,000,000*
shares authorized in 1969, 72,000,000** shares authorized in 1972, 72,000,000**
shares authorized in 1975, 72,000,000** shares authorized in 1980,
120,000,000*** shares authorized in 1983, 132,000,000*** shares authorized in
1986, 132,000,000*** shares authorized in 1989, 132,000,000**** shares
authorized in 1992, 138,000,000***** shares authorized in 1996 and
165,000,000****** shares authorized in 1999). No participant shall be granted
(i) options which would result in such participant receiving more than
1,440,000* shares of the total number of shares authorized in 1965, more than
1,440,000* shares of the total number of shares authorized in 1969, or more than
1,440,000** shares of the total number of
<PAGE>
shares authorized in 1972, or (ii) options or awards which would result in such
participant receiving more than 1,440,000** shares of the total number of shares
authorized in 1975, more than 2,400,000** shares of the total number of shares
authorized in 1980, more than 2,400,000*** shares of the total number of shares
authorized in 1983, more than 3,600,000*** shares of the total number of shares
authorized in 1986, more than 3,600,000*** shares of the total number of shares
authorized in 1989, more than 3,600,000**** shares of the total number of shares
authorized in 1992, more than 3,600,000***** shares of the total number of
shares authorized in 1996, or more than 4,500,000****** shares of the total
number of shares authorized in 1999, 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 available
therefor, or with respect to any shares authorized in 1999 to the extent that
shares authorized in 1972, 1975, 1980, 1983, 1986, 1989, 1992, or 1996 are
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, the number of shares authorized
in 1996 and the number of shares authorized in 1999 covered by such options or
awards. None of the shares authorized in 1965, 1969 or 1972 shall be available
for stock awards.
- ----------
* 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, the two-for-one stock split in 1997, and the three-for-one
stock split in 1999.
** 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, the two-for-one stock
split in 1997, and the three-for-one stock split in 1999.
*** Adjusted for the two-for-one stock split in 1991, the two-for-one stock
split in 1995, the two-for-one stock split in 1997, and the three-for-one
stock split in 1999.
**** Adjusted for the two-for-one stock split in 1995, the two-for-one stock
split in 1997, and the three-for-one stock split in 1999.
***** Adjusted for the two-for-one stock split in 1997 and the three-for-one
stock split in 1999.
****** Adjusted for the three-for-one stock split in 1999.
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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
"incentive stock options" as defined in Section 422 of the Internal Revenue
Code, 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 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, no option, stock appreciation right, stock award,
performance unit award or
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tandem award with respect to shares authorized in 1999 shall be granted pursuant
to this Plan after December 31, 2008, 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. 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 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(f) (iii) hereof, 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.
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(f) 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 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).
(g) 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.
(h) 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
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<PAGE>
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.
(i) 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.
(j) Incorporation by Reference. The option shall contain a provision that
all the applicable terms and conditions of this Plan are incorporated by
reference therein.
(k) 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.
(l) 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 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 incentive stock options.
7. STOCK APPRECIATION RIGHTS
The Committee may, in its discretion, grant stock appreciation rights to
the holder of any incentive stock option 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
(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
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<PAGE>
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.
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
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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 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.
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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 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;
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(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 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. 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
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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.
(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 424(f) of the Internal Revenue Code.
(g) Common Stock. The term "Common Stock" shall mean the $.05 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 an 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.
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(i) Internal Revenue Code. The term "Internal Revenue Code" shall mean the
Internal Revenue Code of 1986, as it may be amended from time to time.
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 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 Section 6(e). 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.
12
<PAGE>
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.
13
<PAGE>
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 n(0)
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.
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
1
<PAGE>
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.
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:
2
<PAGE>
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 n(0) 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.
10. ADOPTION
The French Plan was adopted by the Board of Directors of the Company at a
meeting held on August 27, 1998.
3
<PAGE>
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 employees or
full time directors 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 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.*****
4. TERMS AND CONDITIONS OF OPTIONS
(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 evidenced by an option certificate and 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.
<PAGE>
(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 shares granted under any
scheme established by the Company or any associated company of the
Company (not being a savings-related scheme) approved by the Board of
Inland Revenue under Schedule 10, (pound)30,000.******
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 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(f)**, ***** 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(g)***** of the Plan shall apply to the Scheme provided that any
adjustments made pursuant to that Section shall not be made automatically but
shall be subject to the prior approval of the Board of Inland Revenue pursuant
to Schedule 10 to the Finance Act and take effect only after such approval.
2
<PAGE>
(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(h)*****, except the proviso thereto, 6(i)***** 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.
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.*****
3
<PAGE>
(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(f) 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.
***** (i) Section 1 of the Plan was amended by resolution of the Board of
Directors on October 22, 1998.
(ii) Section 2 of the Plan was amended by resolution of the Employee
Compensation and Management Development Committee dated December 15, 1997
and further by resolution of the Board of Directors dated October 22,
1998.
(iii) Section 3 of the Plan was amended by resolutions of the Board of
Directors dated April 27, 1995 and April 24, 1997, in each case as a
result of a stock split to the Common Stock of the Company, and by
resolution of the Board of Directors effective January 25, 1996 by the
approval of the majority of the holders of the Common Stock of the
Company.
(iv) Section 4 of the Plan was amended by the Board of Directors on May
28, 1998.
(v) Section 6(e) of the Plan was amended by resolution of the Board of
Directors on October 22, 1998.
4
<PAGE>
(vi) Section 6(f) of the Plan was amended by resolution of the Board of
Directors on June 26, 1997.
(vii) Section 6(g) of the Plan was amended by resolution of the Board of
Directors on January 25, 1996.
(viii) Section 6(h) of the Plan was amended by resolution of the Board of
Directors on September 26, 1996.
(ix) Section 6(i) of the Plan was amended by resolution of the Board of
Directors on May 28, 1998.
(x) Section 12(g) of the Plan was amended by resolution of the Board of
Directors on June 23, 1994.
(xi) Section 15 of the Plan was amended by resolution of the Board of
Directors on October 22, 1998.
The amendments listed, with the exception of the amendments to Section
6(h) noted at (viii) above and to Section 6(g) noted at (vii) above, have
effect in relation to the Scheme with approval of the Board of Inland
Revenue in the UK given on March 25, 1999 provided that the following
amendments shall not have effect with regard to subsisting options granted
before March 25, 1999:
A the amendments to Section 2 mentioned at (ii) above
B the amendments to Section 6(f) mentioned at (vi) above
C the amendment to Section 6(i) mentioned at (ix) above
******Note Section 4 of the Scheme was amended on March 25, 1999 pursuant to
Finance Act 1996 and without prejudice to options outstanding which were
granted prior to July 17, 1995.
5
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 12
PFIZER INC. AND SUBSIDIARY COMPANIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Year Ended December 31,
------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
(millions of dollars, except ratios)
DETERMINATION OF EARNINGS:
Income from continuing operations
before provision for taxes on
income and minority interests $4,448 $2,594 $2,867 $2,528 $2,017
Less:
Minority interests 5 2 10 6 7
------ ------ ------ ------ ------
Adjusted income 4,443 2,592 2,857 2,522 2,010
Fixed charges 276 180 189 198 223
------ ------ ------ ------ ------
TOTAL EARNINGS AS DEFINED $4,719 $2,772 $3,046 $2,720 $2,233
====== ====== ====== ====== ======
FIXED CHARGES:
Interest expense (a) $ 223 $ 136 $ 147 $ 161 $ 188
Rents (b) 53 44 42 37 35
------ ------ ------ ------ ------
Fixed charges 276 180 189 198 223
Capitalized interest 13 7 2 5 13
------ ------ ------ ------ ------
TOTAL FIXED CHARGES $ 289 $ 187 $ 191 $ 203 $ 236
====== ====== ====== ====== ======
RATIO OF EARNINGS TO FIXED CHARGES 16.3 14.8 15.9 13.4 9.5
====== ====== ====== ====== ======
(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.
FINANCIAL REVIEW
Proposed Merger with Warner-Lambert Company
On February 7, 2000, we announced an agreement to merge with Warner-Lambert
Company (Warner-Lambert). Under terms of the merger agreement, which has been
approved by the Board of Directors of both Pfizer and Warner-Lambert, we will
exchange 2.75 shares of Pfizer voting common stock for each outstanding share of
Warner-Lambert voting common stock in a tax-free transaction valued at $98.31
per Warner-Lambert share, or an equity value of $90 billion based on the closing
price of our stock on February 4, 2000 of $35.75 per share. Customary and usual
provisions will be made for outstanding options and warrants.
The combined company, which will be called Pfizer Inc, is expected to have
(excluding any impact of anticipated restructuring charges and transaction fees
of $1.7 billion to $2.2 billion):
o compounded annual revenue growth of 13% and earnings growth of 25%
through 2002
o $4.7 billion in annual research and development expenses in 2000
o anticipated annual cost savings and efficiencies of $1.6 billion by 2002
($200 million of these savings are expected to be achieved in 2000,
$1 billion in 2001 and $1.6 billion in 2002)
o diluted earnings per share of $.98 on a pro forma basis in 2000, $1.27 for
2001 and $1.56 for 2002 (these numbers include the $1.6 billion of cost
savings phased in over this time period, but do not include any increased
sales from collaborative activities and the $1.8 billion termination fee
paid by Warner-Lambert to American Home Products Corporation)
This transaction is subject to customary conditions, including the use of
pooling-of-interests accounting, qualifying as a tax-free reorganization,
shareholder approval at both companies and usual regulatory approvals. The
transaction is expected to close in mid-2000.
The following financial review reflects the results of operations and
financial condition of Pfizer and does not consider the impact of the proposed
merger with Warner-Lambert.
Overview of Consolidated Operating Results
In 1999, total revenues grew 20% to $16,204 million, reflecting the strong
worldwide demand for our in-line products, as well as our alliance products. Our
operating results in 1999 were impacted by the recording of a charge to write
off certain Trovan inventories. Our 1998 operating results reflect:
o the sale of our Medical Technology Group (MTG)
o the recording of certain significant charges associated with adjustments to
asset values, the exiting of certain product lines, plant rationalizations,
severance payments, co-promotion payments to Searle, a contribution to The
Pfizer Foundation and other miscellaneous charges
Analysis of the Consolidated Statement of Income
================================================================================
% Change
--------------
(millions of dollars) 1999 1998 1997 99/98 98/97
- --------------------------------------------------------------------------------
Net sales $ 14,133 $12,677 $10,739 11 18
Alliance revenue 2,071 867 316 139 175
- ---------------------------------------------------------------
Total revenues 16,204 13,544 11,055 20 23
Cost of sales 2,528 2,094 1,776 21 18
Selling, informational and
administrative expenses 6,351 5,568 4,401 14 27
% of total revenues 39.2% 41.1% 39.8%
R&D expenses 2,776 2,279 1,805 22 26
% of total revenues 17.1% 16.8% 16.3%
Other deductions--net 101 1,009 206 (90) 391
- ---------------------------------------------------------------
Income from continuing
operations before taxes $ 4,448 $ 2,594 $ 2,867 71 (10)
% of total revenues 27.5% 19.2% 25.9%
Taxes on income $ 1,244 $ 642 $ 775 94 (17)
Effective tax rate 28.0% 24.8% 27.0%
Income from continuing
operations $ 3,199 $ 1,950 $ 2,082 64 (6)
% of total revenues 19.7% 14.4% 18.8%
Discontinued
operations--net of tax (20) 1,401 131 -- 972
- ---------------------------------------------------------------
Net income $ 3,179 $ 3,351 $ 2,213 (5) 51
% of total revenues 19.6% 24.7% 20.0%
================================================================================
PERCENTAGES MAY REFLECT ROUNDING ADJUSTMENTS.
Total Revenues
Total revenues increased 20% or $2,660 million in 1999 and 23% or $2,489 million
in 1998. Revenue increases in both years were primarily due to sales volume
growth of our in-line products and revenue generated from product alliances
(alliance revenue).
Revenue growth in 1999 was not significantly impacted by foreign exchange.
Total revenues grew by 26% in 1998 excluding the impact of foreign exchange.
28
<PAGE>
PFIZER INC AND SUBSIDIARY COMPANIES
Elements of Total Revenue Growth
Volume has been the major
contributor to total revenue
growth in each of the last
three years.
[BAR CHART OMITTED]
99 98 97
Volume 19.6% 24.8% 14.0%
Price 0.5% 1.2% 1.6%
Currency (0.5)% (3.5)% (3.5)%
Percentage Change in Total Revenues
================================================================================
Analysis of % Change
Total % -------------------------------
Change Volume Price Currency
- --------------------------------------------------------------------------------
Pharmaceutical
1999 VS. 1998 21.5 21.1 0.5 (0.1)
1998 vs. 1997 25.8 28.1 1.0 (3.3)
Animal Health
1999 VS. 1998 2.4 4.9 1.2 (3.7)
1998 vs. 1997 (1.1) 0.6 2.4 (4.1)
Total
1999 VS. 1998 19.6 19.6 0.5 (0.5)
1998 vs. 1997 22.5 24.8 1.2 (3.5)
================================================================================
================================================================================
Total Revenues by Business Segment
[PIE CHART OMITTED]
(% of total revenue) 1999 1998 1997
Animal Health 8% 10% 12%
Pharmaceutical 92% 90% 88%
1999 1998 1997
- ----------------------- --------------------- ------------------------
(millions of dollars)
% Change % Change % Change
99/98 98/97 97/96
$14,859 22 $12,230 26 $ 9,726 13
1,345 2 1,314 (1) 1,329 9
- -------------- ------------- -------------
Total $16,204 20 $13,544 23 $11,055 12
================================================================================
PHARMACEUTICAL revenues increased 22% to $14,859 million in 1999 and 26% to
$12,230 million in 1998. In the U.S. market, revenue growth was 21% in 1999 and
38% in 1998, while international growth was 22% in 1999 and 10% in 1998. The
introduction of Viagra accounts for 12 percentage points of the 1998 U.S.
growth. Pharmaceutical revenue growth in 1999 was not significantly impacted by
foreign exchange. In 1998, pharmaceutical revenue grew 29% excluding the impact
of foreign exchange. The currency impact on the 1998 revenue growth reflects the
strengthening of the dollar relative to the Japanese yen, as well as several
European and other Asian currencies.
In 1999, we had seven products, including alliance products, with sales to
third parties in excess of $1 billion each. The five Pfizer-discovered products
in this group--Norvasc, Zoloft, Zithromax, Viagra and Diflucan--grew at a
combined annual rate of 18% in 1999 and are patent-protected well into this
decade, or beyond.
Net Sales--Major Pharmaceutical Products
================================================================================
% Increase
-------------
(millions of dollars) 1999 1998 1997 99/98 98/97
- --------------------------------------------------------------------------------
CARDIOVASCULAR DISEASES: $4,635 $4,186 $3,806 11 10
Norvasc 3,030 2,575 2,217 18 16
Cardura 794 688 626 15 10
INFECTIOUS DISEASES: 3,145 2,822 2,475 11 14
Zithromax 1,333 1,041 821 28 27
Diflucan 1,002 916 881 9 4
CENTRAL NERVOUS SYSTEM
DISORDERS: 2,156 1,924 1,553 12 24
Zoloft 2,034 1,836 1,507 11 22
VIAGRA 1,033 788 -- 31 --
ALLERGY: 557 422 273 32 55
Zyrtec/Reactine 552 416 265 33 57
================================================================================
CERTAIN PRIOR YEAR DATA HAVE BEEN RECLASSIFIED TO CONFORM TO THE CURRENT YEAR
PRESENTATION.
In June 1999, the European Union's Committee for Proprietary Medicinal
Products suspended the European Union (EU) licenses of the oral and intravenous
formulations of our antibiotic Trovan for 12 months. In the rest of the world,
including the U.S., the use of Trovan is limited to serious infections in
institutionalized patients. As a result of these limitations, Trovan net sales
declined to $86 million in 1999 from $160 million in 1998. See "Cost of sales"
for a discussion of a charge recorded in 1999 to write off certain Trovan
inventories.
Alliance revenue was $2,071 million in 1999, reflecting revenue associated
with the co-promotion of Lipitor, Aricept and our new alliance product,
Celebrex.
In February 1999, we launched Celebrex with G.D. Searle & Co. (Searle), the
pharmaceutical division of Monsanto Company, which discovered and developed the
drug. Celebrex is used for the relief of symptoms of adult rheumatoid arthritis
and osteoarthritis. During 1999, Celebrex achieved total global sales of
approximately $1.5 billion.
29
<PAGE>
PFIZER INC AND SUBSIDIARY COMPANIES
Together with our alliance partner, the Parke-Davis Division of
Warner-Lambert, the company that discovered and developed Lipitor, we co-promote
this product in most major world markets. During 1999, Lipitor achieved
third-party sales of approximately $3.7 billion.
These alliances allow us to co-promote or license these products for sale
in certain countries. Under the co-promotion 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 co-promotion agreements is reported in the Statement of Income as
ALLIANCE REVENUE.
Certain alliance agreements include additional provisions that enable our
product alliance partners the right to negotiate to co-promote certain specified
Pfizer-discovered products.
Rebates under Medicaid and related state programs reduced revenues by $146
million in 1999, $150 million in 1998 and $99 million in 1997. The 1998 increase
in rebates reflects growth of in-line products and the introduction in 1998 of
two products--Trovan and Viagra. We also provided to the federal government
legislatively mandated discounts of $95 million in 1999, $105 million in 1998
and $88 million in 1997. Performance-based contracts also provide rebates to
several customers as a result of the increasing influence of managed care groups
on the pricing of our products.
In the fourth quarter of 1999, we sold the Bain de Soleil sun care product
line for $26 million in cash to Schering-Plough HealthCare Products, Inc.
Proceeds from the sale approximated the total of the carrying value of net
assets associated with this product line and selling costs. The sale of Bain de
Soleil will not have a material impact on our future results of operations.
ANIMAL HEALTH net sales increased 2% to $1,345 million in 1999 and
decreased 1% to $1,314 million in 1998. Excluding the impact of foreign
exchange, net sales increased 6% in 1999 and 3% in 1998. The increase in net
sales in 1999 was due to:
o the performance of the companion animal business
partially offset by
o the continuing weakness in the livestock market in the U.S. and Europe
o the decision of the European Commission to ban certain antibiotic feed
additives, including Stafac (virginiamycin) in the EU after June 30, 1999
We do not expect the ban on sales of virginiamycin to have a material
effect on our future results of operations.
Sales of companion animal products increased by 30% in 1999 primarily due
to the launch of Revolution and the growth of Rimadyl. Revolution was approved
in the U.S. in July 1999 as the first and only topically applied medication for
dogs and cats that is effective against heartworm, fleas and many other
parasites. Rimadyl is a treatment for the relief of pain and inflammation
associated with osteoarthritis in dogs.
Net sales decreased 1% in 1998 due to a weak livestock market in the U.S.
and poor Asian economies.
================================================================================
Total Revenues by Country
[PIE CHART OMITTED]
(% of total revenue) 1999 1998 1997
United States 61% 61% 55%
Japan 8% 7% 9%
All Other Countries 31% 32% 36%
1999 1998 1997
--------------------- ----------------- -----------------
(millions of dollars)
% Change % Change % Change
99/98 98/97 97/96
United States $ 9,896 21 $ 8,205 35 $ 6,089 17
Japan 1,249 32 943 (1) 949 3
All Other Countries 5,059 15 4,396 9 4,017 7
------------- --------- ---------
Total $16,204 20 $13,544 23 $11,055 12
================================================================================
Revenues were in excess of $100 million in each of 12 countries outside the
U.S. in 1999. The U.S. was the only country to contribute more than 10% to total
revenues.
Percentage Change in Geographic Total Revenues
by Business Segment
================================================================================
% Change in Total Revenues
-----------------------------------------------------
U.S. International
-------------------------- -------------------------
99/98 98/97 99/98 98/97
- --------------------------------------------------------------------------------
Pharmaceutical 21 38 22 10
Animal Health 14 3 (7) (4)
Total 21 35 18 8
================================================================================
Product Developments
We continue to invest in R&D to provide future sources of revenue through the
development of new products, as well as through additional uses for existing
in-line and alliance products. Certain significant regulatory actions by, and
filings pending with, the U.S. Food and Drug Administration (FDA) follow:
U.S. FDA APPROVALS
================================================================================
Product Indication Date Approved
- --------------------------------------------------------------------------------
Zoloft Posttraumatic stress disorder (PTSD) December 1999
Zoloft Oral liquid dosage form December 1999
Celebrex Familial adenomatous polyposis December 1999
(a rare and devastating hereditary
disease that, left untreated, almost
always leads to colorectal cancer)
Tikosyn Atrial fibrillation October 1999
================================================================================
30
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PFIZER INC AND SUBSIDIARY COMPANIES
Zoloft is the first and only medicine to receive FDA approval for the
treatment of PTSD.
We have developed a comprehensive program to educate institutions and
health care professionals on the required in-hospital initiation and dosing
regimen for Tikosyn. We expect to launch Tikosyn in the U.S. in the first
quarter of 2000, and it will be available to those prescribers and hospitals
that have participated in this educational program.
PENDING U.S. NEW DRUG APPLICATIONS
================================================================================
Product Indication Date Filed
- --------------------------------------------------------------------------------
Relpax Migraine headaches October 1998
Zeldox Psychotic disorders-- December 1997
intramuscular dosage form
Zeldox Psychotic disorders-- March 1997
oral dosage form
================================================================================
In October 1999, we received an approvable letter from the FDA for Relpax
for the treatment of migraines. Regulatory review is continuing in Europe.
We received a non-approvable letter from the FDA for Zeldox in 1998.
Analysis and interpretation of the results of a recently completed study on the
effects of Zeldox will be included in an amended New Drug Application, which we
expect to file by midyear 2000.
Ongoing or planned clinical trials for additional uses and dosage forms for
our currently marketed products include:
================================================================================
Product Indication
- --------------------------------------------------------------------------------
Norvasc Pediatric hypertension
- --------------------------------------------------------------------------------
Zithromax Decrease cardiovascular risk in patients with atherosclerosis
(a process in which fatty substances are deposited within blood
vessels) caused by certain infections
Treatment of mycobacterium avium complex
Accelerated dosing regimen (three-day treatment)
- --------------------------------------------------------------------------------
Viagra Female sexual arousal disorder
- --------------------------------------------------------------------------------
Zoloft Pediatric depression
Social phobia
- --------------------------------------------------------------------------------
Zyrtec Decongestant formulation
Pediatric
- --------------------------------------------------------------------------------
Lipitor Broad cardiovascular-care clinical program
- --------------------------------------------------------------------------------
Aricept Oral liquid dosage form
- --------------------------------------------------------------------------------
Celebrex Sporadic adenomatous polyposis
Pain
================================================================================
Together with Warner-Lambert, we are jointly exploring potential Lipitor
line extensions and product combinations and other areas of mutual interest.
This includes a program to develop a combination product that contains the
cholesterol-lowering and antihypertensive medications in Lipitor and
Norvasc--two of the world's most widely prescribed medicines.
Ongoing or planned clinical trials for new product development programs
include:
================================================================================
Product Indication
- --------------------------------------------------------------------------------
lasofoxifene Prevention and treatment of osteoporosis
Prevention of breast cancer
Reduction of risk of coronary heart disease
- --------------------------------------------------------------------------------
Vfend (voriconazole) Serious systemic fungal infections
- --------------------------------------------------------------------------------
darifenacin Overactive bladder
- --------------------------------------------------------------------------------
inhaled insulin Diabetes
- --------------------------------------------------------------------------------
valdecoxib (under Osteoarthritis
co-development Rheumatoid arthritis
with Searle) Pain
================================================================================
Additional product development programs are in various stages of discovery.
In 1998, we entered into worldwide agreements with Aventis Pharma to
manufacture insulin and co-develop and co-promote inhaled insulin. Under the
agreements, Aventis Pharma 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. Together with Aventis Pharma
we are building a new insulin manufacturing plant in Frankfurt, Germany, to
support the product currently in development.
We have decided not to pursue further development of ezlopitant for the
treatment of chemotherapy-induced nausea and vomiting in cancer patients, as
well as Alond for the treatment of diabetic neuropathy.
Costs and Expenses
In 1999, we substantially completed the actions under the restructuring plans
announced in 1998.
In 1998, we recorded charges for the restructuring in addition to charges
for certain asset impairments. These pre-tax charges were recorded in the 1998
Statement of Income as follows:
================================================================================
(millions of dollars) Total COS* SI&A* R&D OD*
- --------------------------------------------------------------------------------
Restructuring charges $177 $68 $17 $1 $ 91
Asset impairments 213 18 -- -- 195
================================================================================
* COS--COST OF SALES; SI&A--SELLING, INFORMATIONAL AND ADMINISTRATIVE EXPENSES;
OD--OTHER DEDUCTIONS--NET.
31
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PFIZER INC AND SUBSIDIARY COMPANIES
The components of the 1998 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 17 16
- --------------------------------------------------------------------------------
Total $177 $116 $45 $16
================================================================================
As a result of the restructuring, our workforce was reduced by
approximately 500 manufacturing, sales and corporate personnel. In 1998,
restructuring charges of $90 million are reflected in the pharmaceutical segment
and $87 million are in the animal health segment.
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
resulted from significant changes in the marketplace and a revision of our
strategies.
As noted in our discussion of revenues, our animal health antibiotic feed
additive Stafac was banned throughout the EU, resulting in 1998 asset impairment
charges of $103 million ($85 million to adjust intangible asset values,
primarily goodwill and trademarks, and $18 million to adjust the carrying value
of machinery and equipment in the pharmaceutical segment).
In 1999, revenues declined approximately $41 million as a result of exiting
certain product lines. In 1999, as a result of the restructuring activities and
the asset impairments, we realized cost savings of approximately $39 million and
a reduction in amortization and depreciation expense of approximately $12
million.
Cost of sales increased 21% in 1999 and 18% in 1998. Based on our
evaluation of the actions noted in our discussion of revenues, we determined
that it was unlikely that certain Trovan inventories of finished goods, bulk,
work-in-process and raw materials will be used. Accordingly, in the third
quarter of 1999, we recorded a charge of $310 million in COST OF SALES to write
off Trovan inventories in excess of the amount required to support expected
sales. Also included in COST OF SALES for 1999 is a benefit of $6.6 million
related to the change in accounting for the cost of inventories from the
"Last-in, first-out" method to the "First-in, first-out" method. Excluding the
Trovan inventory charge and the benefit related to the accounting change for
inventories in 1999 and the asset impairments and restructuring charges in 1998,
cost of sales increased 11%, comparable to the increase in 1999 net sales.
Excluding the 1998 asset impairments and restructuring charges, cost of
sales increased 13% in 1998 as compared to an increase in net sales of 18%.
SI&A increased 14% in 1999 and 27% in 1998. These increases reflect support
for previously introduced products and new products. Such support included
substantial global investments, begun in 1998, in our pharmaceutical sales
force, including the creation of a new U.S. primary-care sales force and a new
U.S. specialty sales force dedicated to rheumatology. In addition, personnel
increases in other specialty sales forces in the U.S. and the expansion of
international sales forces contributed to the increase in SI&A. Our past
investments in SI&A are enabling us to maximize the financial return realized
from our products.
R&D increased 22% in 1999 and 26% in 1998. These expenditures were
necessary to support the advancement of potential drug candidates in all stages
of development (from initial discovery through final regulatory approval). In
2000, we expect total R&D spending to be about $3.2 billion. See "Proposed
Merger with Warner-Lambert Company" for the expected R&D spending in 2000 of a
combined Pfizer/Warner-Lambert entity.
Other deductions--net decreased 90% in 1999 due to the absence of certain
significant charges recorded in 1998 of $883 million.
Other deductions--net increased substantially in 1998 primarily due to:
o asset impairments--$195 million
o restructuring charges--$91 million
o co-promotion 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
Our overall effective tax rate was 28.1% in 1999 and 35.4% in 1998. This
decrease was due mainly to the 1998 gain on the disposal of MTG being recognized
in jurisdictions with higher tax rates.
The effective tax rate for continuing operations was 28.0% in 1999 and
24.8% in 1998. Significant charges in both 1999 and 1998 were recorded in
jurisdictions with higher tax rates. However, the level of these charges was
greater in 1998 than in 1999. Excluding these charges in 1999 and 1998, the
effective tax rate was 28.4% in 1999 and 28.0% in 1998. This increase in 1999
was primarily due to the mix of income by country.
We have received and are protesting assessments from the Belgian tax
authorities. For additional details, see note 9, "Taxes on Income," beginning on
page 49.
32
<PAGE>
PFIZER INC AND SUBSIDIARY COMPANIES
Discontinued Operations
In 1999, we agreed to pay a fine of $20 million to settle antitrust charges
involving our former Food Science Group. This charge is reflected in
DISCONTINUED OPERATIONS--NET OF TAX. For additional details, see note 18,
"Litigation," beginning on page 54.
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 were 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 1999 decreased 5% from 1998. Diluted earnings per share were $.82
and decreased by 4% from 1998. Excluding the impact of the 1999 Trovan inventory
charge and certain significant charges and discontinued operations in 1998, net
income increased by 29% in 1999 over 1998. On that same basis, diluted earnings
per share were $.87 in 1999 and increased by 30% over 1998. The 1998 pre-tax
significant charges related to:
o asset impairments--$213 million
o restructuring charges--$177 million
o co-promotion 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) 1999 1998 1997
- --------------------------------------------------------------------------------
Financial assets* $6,436 $5,835 $3,034
Short- and long-term debt 5,526 3,256 2,976
- --------------------------------------------------------------------------------
Net financial assets $ 910 $2,579 $ 58
- --------------------------------------------------------------------------------
*CONSISTS OF CASH AND CASH EQUIVALENTS, SHORT-TERM LOANS AND INVESTMENTS, AND
LONG-TERM LOANS AND INVESTMENTS.
Selected Measures of Liquidity and
Capital Resources
================================================================================
1999 1998 1997
- --------------------------------------------------------------------------------
Cash and cash equivalents and
short-term loans and
investments (millions of dollars)* $4,715 $4,079 $1,704
Working Capital (millions of dollars) 2,006 2,739 2,448
Current ratio 1.22:1 1.38:1 1.49:1
Shareholders' equity per
common share** $ 2.36 $ 2.33 $ 2.10
================================================================================
* CASH IS MANAGED JURISDICTIONALLY AND IS NOT ALWAYS AVAILABLE TO BE USED IN
EVERY LOCATION THROUGHOUT THE WORLD. WHEN NECESSARY, WE UTILIZE SHORT-TERM
BORROWINGS FOR VARIOUS CORPORATE PURPOSES.
** REPRESENTS SHAREHOLDERS' EQUITY DIVIDED BY THE ACTUAL NUMBER OF COMMON SHARES
OUTSTANDING (WHICH EXCLUDES TREASURY SHARES AND THOSE HELD BY THE EMPLOYEE
BENEFIT TRUSTS).
The decrease in working capital from 1998 to 1999 was primarily due to the
following:
o Decrease in INVENTORIES--due to the writeoff of Trovan inventory
o Increase in SHORT-TERM BORROWINGS--primarily to fund common stock purchases
of $2.5 billion
offset by
o Net increase in CASH AND CASH EQUIVALENTS and SHORT-TERM INVESTMENTS--
mainly from profits earned overseas
o Increase in ACCOUNTS RECEIVABLE--resulting from growth in sales volume and
higher alliance revenue receivables due to sales growth of alliance
products and the launch of Celebrex in February 1999
o Decrease in INCOME TAXES PAYABLE
33
<PAGE>
PFIZER INC AND SUBSIDIARY COMPANIES
The increase in working capital from 1997 to 1998 was primarily due to the
following:
o Increase in CASH AND CASH EQUIVALENTS and SHORT-TERM INVESTMENTS--due to
the receipt of cash from the MTG divestiture
o Increase in ACCOUNTS RECEIVABLE--due to the alliance revenue receivables
and growth in sales volume
o Increase in INVENTORIES--due to higher pharmaceutical inventory levels as a
result of new products
offset by
o Decrease in NET ASSETS OF DISCONTINUED OPERATIONS--due to the sale of the
MTG businesses
o Increase in 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 Increase in DIVIDENDS PAYABLE--related to the first-quarter 1999 dividend
declared in December 1998
o Increase in INCOME TAXES PAYABLE--primarily due to changes in operations
and the divestiture of the MTG businesses
o Increase in OTHER CURRENT LIABILITIES--primarily due to accrued charges
associated with the divestiture of the MTG businesses and our plan to exit
certain product lines
The decline in the current ratio from 1998 to 1999 was primarily due to
higher short-term borrowings due to an increase in funding for common stock
purchases. The increase in shareholders' equity per common share in 1998 was
primarily due to growth in net income.
Summary of Cash Flows
================================================================================
(millions of dollars) 1999 1998 1997
- --------------------------------------------------------------------------------
Cash provided by/(used in):
Operating activities $ 3,076 $ 3,282 $ 1,580
Investing activities (2,768) (335) (963)
Financing activities (1,127) (2,277) (981)
Discontinued operations (20) 4 118
Effect of exchange-rate changes on
cash and cash equivalents 26 1 (27)
- --------------------------------------------------------------------------------
Net (decrease)/increase in cash
and cash equivalents $ (813) $ 675 $ (273)
================================================================================
Net cash provided by operating activities decreased in 1999 primarily due
to:
o higher receivable levels related to increased sales and alliance revenue
o higher taxes paid
reduced by
o higher income from continuing operations
Net cash provided by operating activities increased in 1998 primarily due
to:
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, co-promotion
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
Net cash used in investing activities in 1999 changed primarily due to:
o the absence of proceeds from the sale of MTG which occurred in 1998
o increased purchases of property, plant and equipment in 1999
Net cash used in investing activities decreased 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
o increased purchases of property, plant and equipment
Net cash used in financing activities decreased in 1999 primarily due to:
o increased short-term borrowings for common stock purchases
reduced by
o higher dividend payments to our shareholders
Net cash used in financing activities increased in 1998 primarily due to:
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
Under the current share-purchase program begun in September 1998, we are
authorized to purchase up to $5 billion of our common stock. In 1999, we
purchased approximately 65.6 million shares of our common stock in the open
market for approximately $2.5 billion. Since the beginning of this program, we
have purchased 80.4 million shares of our common stock for approximately $3
billion. In September 1998, we completed a program under which we purchased 79.2
million shares of our common stock at a total cost of $2 billion. 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 $1.5 billion at December 31, 1999.
34
<PAGE>
PFIZER INC AND SUBSIDIARY COMPANIES
Our short-term debt has been rated P1 by Moody's Investors Services
(Moody's) and A-1+ 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 14 years. Moody's and S&P
are the major corporate debt-rating organizations and these are their highest
ratings.
================================================================================
Cash Dividends Paid Per Common Share
The 1999 cash dividends paid
represented the 32nd consecutive
year of dividend increases.
[BAR CHART OMITTED]
(dollars)
95 $.17 1/3
96 $.20
97 $.22 2/3
98 $.25 1/3
99 $.30 2/3
================================================================================
Dividends on Common Stock
Our dividend payout ratio, which represents cash dividends paid per common share
divided by diluted earnings per common share, was approximately 37% in 1999, 30%
in 1998 and 40% in 1997. In 1999, excluding the effect on net income of the
Trovan inventory charge, the dividend payout ratio was approximately 35%. In
1998, excluding the effects on net income of discontinued operations and charges
for asset impairment, restructuring, co-promotion payments to Searle and the
contribution to The Pfizer Foundation, the dividend payout ratio was 38%. In
December 1999, the Board of Directors declared a first-quarter 2000 dividend of
$.09. The first-quarter 2000 cash dividend will mark the 33rd 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 A-1+.
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 increasing interest rates, net income would increase. 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," beginning on page 44.
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 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, 1999, which
will be filed at the end of March 2000.
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
October 3, 1999, and to the extent incorporated by reference therein, in our
Form 10-K filing for 1998. 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 pharmaceutical products are subject to increasing pricing
pressures, which could be significantly impacted by the current national debate
over Medicare reform.
35
<PAGE>
PFIZER INC AND SUBSIDIARY COMPANIES
If the Medicare program provided outpatient pharmaceutical coverage for its
beneficiaries, the federal government, through its enormous purchasing power
under the program, could demand discounts from pharmaceutical companies that may
implicitly create price controls on prescription drugs. On the other hand, a
Medicare drug reimbursement provision may increase the volume of pharmaceutical
drug purchases, offsetting at least in part these potential price discounts. In
addition, managed care organizations, institutions and other government agencies
continue to 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.
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. Generally, we do not use financial instruments for trading
activities.
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 operations. For additional details on foreign exchange exposures,
see note 4-D, "Derivative Financial Instruments--Instruments Outstanding," on
page 47.
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 subsidiaries in Japan and in countries that
are a member of the European Monetary Union. We do this through currency swaps
and borrowing in Japanese yen and borrowing in euros.
Our financial instrument holdings at year-end were analyzed to determine
their sensitivity to foreign exchange rate changes. The fair values of these
instruments were 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
rate 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 4-D, "Derivative Financial
Instruments--Accounting Policies," on page 46.
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
and on euro 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.
International Markets
Thirty-nine percent of our 1999 revenues arise from international operations and
we expect revenue and net income growth in 2000 to be impacted by changes in
foreign exchange rates.
Revenues from Asia comprised approximately 11% of total revenues in 1999,
including 8% from Japan.
European Currency
A new European currency (euro) was introduced in January 1999 to replace the
separate currencies of 11 individual countries. The major changes during its
first year of existence have occurred in the banking and financial sectors. The
impact at the commercial and retail level has been limited but is expected to
increase during the next two years through December 31, 2001, when the separate
currencies will cease to exist. We are modifying systems and commercial
arrangements to deal with the new currency, including the availability of dual
currency processes to permit transactions to be denominated in the separate
currencies, as well as the euro. The cost of this effort is not expected to have
a material effect on our businesses or results of operations. We continue to
evaluate the economic and operational impact of the euro, including its impact
on competition, pricing and foreign currency exchange risks. There is no
guarantee, however, that all problems have been foreseen and corrected, or that
no material disruption will occur in our businesses.
36
<PAGE>
PFIZER INC AND SUBSIDIARY COMPANIES
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 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, and in 1999, it was further extended to June
30, 2004.
Recently Issued Accounting Standards
In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 137, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES--DEFERRAL OF THE EFFECTIVE DATE OF FASB
STATEMENT NO. 133. This pronouncement requires us to adopt SFAS No. 133,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, on January 1,
2001. 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 SFAS No. 133 to have a material impact on our
financial position, results of operations or cash flows.
Year 2000
We have not experienced any operational problems as a result of Year 2000
issues, and Year 2000 had no material effect on our revenues. Although the
transition from 1999 to 2000 did not adversely impact our company, there can be
no assurances that we will not experience any negative effects or disruptions in
our businesses in the future as a result of Year 2000 issues.
The total cost of our Year 2000 Program was $130 million, of which we
incurred $94 million in 1999, $31 million in 1998 and $5 million in 1997. These
costs were expensed as incurred, except for capitalizable hardware of
approximately $8 million in 1999, $4 million in 1998 and $1 million in 1997 and
were funded through operating cash flows. Such costs did not include normal
system upgrades and replacements. Immaterial costs may be incurred in 2000 to
address remaining non-critical Year 2000 issues.
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, results of operations or cash flows, except
where specifically commented on in note 18, "Litigation," beginning on page 54
and note 9, "Taxes on Income," beginning on page 49.
----------
Management's Report
We prepared and are responsible for the financial statements that appear on
pages 39 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.
37
<PAGE>
PFIZER INC AND SUBSIDIARY COMPANIES
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/ L. V. Cangialosi
- ---------------------------
L. V. Cangialosi,
PRINCIPAL ACCOUNTING OFFICER
FEBRUARY 14, 2000
Audit Committee's Report
The Audit Committee reviews the Company's financial reporting process on behalf
of the Board of Directors. Management has the primary responsibility for the
financial statements and the reporting process, including the system of internal
controls. In this context, the Committee has met and held discussions with
management and the independent auditors. Management represented to the Committee
that the Company's consolidated financial statements were prepared in accordance
with generally accepted accounting principles, and the Committee has reviewed
and discussed the consolidated financial statements with management and the
independent auditors. The Committee discussed with the independent auditors
matters required to be discussed by Statement of Auditing Standards No. 61
(Communication With Audit Committees). In addition, the Committee has discussed
with the independent auditors, the auditors' independence from the Company and
its management, including the matters in the written disclosures required by the
Independence Standards Board Standard No. 1 (Independence Discussions with Audit
Committees). The Committee discussed with the Company's internal and independent
auditors the overall scope and plans for their respective audits. The Committee
meets with the internal and independent auditors, with and without management
present, to discuss the results of their examinations, the evaluations of the
Company's internal controls, and the overall quality of the Company's financial
reporting. In reliance on the reviews and discussions referred to above, the
Committee recommended to the Board of Directors, and the Board has approved,
that the audited financial statements be included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1999, for filing with the
Securities and Exchange Commission. The Committee and the Board also have
recommended, subject to shareholder approval, the selection of the Company's
independent auditors.
/s/ G. B. Harvey
- ---------------------------
G. B. Harvey, CHAIR,
AUDIT COMMITTEE
FEBRUARY 14, 2000
INDEPENDENT AUDITORS' REPORT
[KPMG Logo]
To the Shareholders and Board of Directors of Pfizer Inc:
We have audited the accompanying consolidated balance sheets of Pfizer Inc and
subsidiary companies as of December 31, 1999, 1998 and 1997 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, 1999, 1998 and 1997, 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 14, 2000
38
<PAGE>
PFIZER INC AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF INCOME
================================================================================
Year ended December 31
-------------------------------
(millions, except per share data) 1999 1998 1997
- --------------------------------------------------------------------------------
Net sales $14,133 $12,677 $10,739
Alliance revenue 2,071 867 316
- --------------------------------------------------------------------------------
Total revenues 16,204 13,544 11,055
Costs and expenses:
Cost of sales 2,528 2,094 1,776
Selling, informational and
administrative expenses 6,351 5,568 4,401
Research and development expenses 2,776 2,279 1,805
Other deductions--net 101 1,009 206
- --------------------------------------------------------------------------------
Income from continuing operations before
provision for taxes on income
and minority interests 4,448 2,594 2,867
Provision for taxes on income 1,244 642 775
Minority interests 5 2 10
- --------------------------------------------------------------------------------
Income from continuing operations 3,199 1,950 2,082
Discontinued operations--net of tax (20) 1,401 131
- --------------------------------------------------------------------------------
Net income $ 3,179 $ 3,351 $ 2,213
- --------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE--BASIC
Income from continuing operations $ .85 $ .51 $ .55
Discontinued operations--net of tax (.01) .37 .04
- --------------------------------------------------------------------------------
Net income $ .84 $ .88 $ .59
- --------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE--DILUTED
Income from continuing operations $ .82 $ .49 $ .53
Discontinued operations--net of tax -- .36 .04
- --------------------------------------------------------------------------------
Net income $ .82 $ .85 $ .57
- --------------------------------------------------------------------------------
Weighted average shares-- basic 3,775 3,789 3,771
Weighted average shares-- diluted 3,884 3,945 3,909
================================================================================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS WHICH ARE AN INTEGRAL PART OF
THESE STATEMENTS.
39
<PAGE>
PFIZER INC AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
================================================================================
December 31
------------------------------
(millions, except per share data) 1999 1998 1997
- --------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 739 $ 1,552 $ 877
Short-term investments 3,703 2,377 712
Accounts receivable, less allowance for
doubtful accounts:
1999--$68; 1998--$67; 1997--$35 3,864 2,914 2,220
Short-term loans 273 150 115
Inventories
Finished goods 650 697 442
Work in process 711 890 808
Raw materials and supplies 293 241 211
- --------------------------------------------------------------------------------
Total inventories 1,654 1,828 1,461
- --------------------------------------------------------------------------------
Prepaid expenses and taxes 958 1,110 637
Net assets of discontinued operations -- -- 1,420
- --------------------------------------------------------------------------------
Total current assets 11,191 9,931 7,442
Long-term loans and investments 1,721 1,756 1,330
Property, plant and equipment, less
accumulated depreciation 5,343 4,415 3,793
Goodwill, less accumulated amortization:
1999--$129; 1998--$109; 1997--$90 763 813 989
Other assets, deferred taxes and deferred charges 1,556 1,387 1,437
- --------------------------------------------------------------------------------
Total assets $20,574 $18,302 $14,991
- --------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings, including current
portion of long-term debt $ 5,001 $ 2,729 $ 2,251
Accounts payable 951 971 660
Dividends payable 349 285 --
Income taxes payable 869 1,162 729
Accrued compensation and related items 669 614 456
Other current liabilities 1,346 1,431 898
- --------------------------------------------------------------------------------
Total current liabilities 9,185 7,192 4,994
Long-term debt 525 527 725
Postretirement benefit obligation other than
pension plans 346 359 394
Deferred taxes on income 301 197 127
Other noncurrent liabilities 1,330 1,217 818
- --------------------------------------------------------------------------------
Total liabilities 11,687 9,492 7,058
- --------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Preferred stock, without par value;
12 shares authorized, none issued -- -- --
Common stock, $.05 par value; 9,000 shares
authorized;
issued: 1999--4,260; 1998--4,222; 1997--4,165 213 210 207
Additional paid-in capital 5,416 5,506 3,101
Retained earnings 13,396 11,439 9,349
Accumulated other comprehensive expense (399) (234) (85)
Employee benefit trusts (2,888) (4,200) (2,646)
Treasury stock, at cost:
1999--413; 1998--339; 1997--283 (6,851) (3,911) (1,993)
- --------------------------------------------------------------------------------
Total shareholders' equity 8,887 8,810 7,933
- --------------------------------------------------------------------------------
Total liabilities and shareholders' equity $20,574 $18,302 $14,991
================================================================================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS WHICH ARE AN INTEGRAL PART
OF THESE STATEMENTS.
40
<PAGE>
PFIZER INC AND SUBSIDIARY COMPANIES
Consolidated Statement of Shareholders' Equity
<TABLE>
<CAPTION>
===================================================================================================================================
Addi- Employee Accum.
Common Stock tional Benefit Trusts Treasury Stock Other Com-
----------------- Paid-In ------------------ --------------- Retained prehensive
(millions) Shares Par Value Capital Shares Fair Value Shares Cost Earnings Inc./(Exp.) Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance January 1, 1997 1,378 $ 69 $1,693 (36) $(1,488) (87) $(1,482) $ 8,017 $ 145 $6,954
Restatement for the 1999 stock split 2,756 138 (138) (72) -- (175) -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Balance January 1, 1997, as restated 4,134 207 1,555 (108) (1,488) (262) (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 29 -- 343 13 68 411
Purchases of common stock (34) (586) (586)
Employee benefit trusts
transactions--net 1,177 1 (1,158) -- 7 26
Other 2 -- 26 26
- -----------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1997 4,165 207 3,101 (107) (2,646) (283) (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 55 3 745 -- (18) 730
Purchases of common stock (58) (1,912) (1,912)
Employee benefit trusts
transactions--net 1,633 5 (1,554) 2 12 91
Other 2 -- 27 27
- -----------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1998 4,222 210 5,506 (102) (4,200) (339) (3,911) 11,439 (234) 8,810
Comprehensive income:
Net income 3,179 3,179
Other comprehensive expense--
net of tax:
Currency translation adjustment (222) (222)
Net unrealized gain on available-
for-sale securities 81 81
Minimum pension liability (24) (24)
-------------
Total other comprehensive expense (165) (165)
-------------
Total comprehensive income 3,014
Cash dividends declared (1,222) (1,222)
Stock option transactions 35 3 526 -- (16) 513
Purchases of common stock (66) (2,500) (2,500)
Employee benefit trusts
transactions--net (735) 13 1,312 (8) (424) 153
Other 3 -- 119 119
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1999 4,260 $213 $5,416 (89) $(2,888) (413) $(6,851) $13,396 $(399) $8,887
===================================================================================================================================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS WHICH ARE AN INTEGRAL PART
OF THESE STATEMENTS.
41
<PAGE>
PFIZER INC AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS
================================================================================
Year ended December 31
- --------------------------------------------------------------------------------
(millions of dollars) 1999 1998 1997
- --------------------------------------------------------------------------------
OPERATING ACTIVITIES
Income from continuing operations $ 3,199 $ 1,950 $ 2,082
Adjustments to reconcile income from
continuing operations to net cash provided
by operating activities:
Depreciation and amortization 542 489 428
Trovan inventory write-off 310 -- --
Asset impairments and restructuring charges -- 323 --
Deferred taxes and other 286 22 83
Changes in assets and liabilities, net of
effect of businesses divested:
Accounts receivable (978) (765) (477)
Inventories (240) (439) (350)
Prepaid and other assets 68 (350) (128)
Accounts payable and accrued liabilities 61 628 (63)
Income taxes payable (179) 951 (54)
Other deferred items 7 473 59
- --------------------------------------------------------------------------------
Net cash provided by operating activities 3,076 3,282 1,580
- --------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchases of property, plant and equipment (1,561) (1,198) (878)
Proceeds from disposals of property, plant
and equipment 71 79 47
Purchases net of maturities of short-term
investments (8,633) (5,845) (221)
Proceeds from redemptions of short-term
investments 7,309 4,209 28
Proceeds from sales of businesses--net 26 3,059 21
Purchases of long-term investments (322) (752) (74)
Other investing activities 342 113 114
- --------------------------------------------------------------------------------
Net cash used in investing activities (2,768) (335) (963)
- --------------------------------------------------------------------------------
FINANCING ACTIVITIES
Repayments of long-term debt (4) (202) (269)
Increase in short-term debt--net 2,083 402 325
Proceeds from stock issuances 62 -- --
Purchases of common stock (2,500) (1,912) (586)
Cash dividends paid (1,148) (976) (881)
Stock option transactions and other 380 411 430
- --------------------------------------------------------------------------------
Net cash used in financing activities (1,127) (2,277) (981)
- --------------------------------------------------------------------------------
Net cash (used in)/provided by discontinued
operations (20) 4 118
- --------------------------------------------------------------------------------
Effect of exchange-rate changes on cash and
cash equivalents 26 1 (27)
- --------------------------------------------------------------------------------
Net (decrease)/increase in cash and
cash equivalents (813) 675 (273)
Cash and cash equivalents at beginning
of year 1,552 877 1,150
- --------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 739 $ 1,552 $ 877
================================================================================
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for:
Income taxes $ 1,293 $ 1,073 $ 809
Interest 238 155 149
================================================================================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS WHICH ARE AN INTEGRAL PART
OF THESE STATEMENTS.
42
<PAGE>
PFIZER INC AND SUBSIDIARY COMPANIES
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 international 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. We made certain reclassifications to
the 1998 and 1997 financial statements to conform to the 1999 presentation.
In preparing the financial statements, we 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 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
In 1999, we changed the method of determining the cost of all of our
remaining inventories previously on the "Last-in, first-out" (LIFO) method to
the "First-in, first-out" (FIFO) method. Those inventories consisted of U.S.
sourced pharmaceuticals and part of the animal health inventories. We believe
that the change in accounting for inventories from LIFO to FIFO is preferable
because inventory costs are stable and substantially unaffected by inflation.
The change in the method of inventory costing resulted in a pre-tax benefit of
$6.6 million included in COST OF SALES for 1999.
D--Long-Lived Assets
Long-lived assets include:
o property, plant and equipment--These assets are recorded at original cost
and increased by the cost of any significant improvements after purchase.
We depreciate the cost evenly over the assets' estimated 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. We amortize goodwill evenly over periods not
exceeding 40 years. The average amortization period is 37 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.
We review long-lived assets to assess recoverability from future operations
using undiscounted cash flows. When necessary, we record charges for impairments
of long-lived assets for the amount by which the present value of future cash
flows exceeds the carrying value of these assets.
E--Foreign Currency Translation
For most international 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 rates in effect when
the items were first recorded)
43
<PAGE>
PFIZER INC AND SUBSIDIARY COMPANIES
F--Product Alliances
We have agreements to promote pharmaceutical products developed by other
companies. ALLIANCE REVENUE represents revenue recorded under these co-promotion
agreements and is derived from the sale of products. The revenue is earned when
our co-promotion partners ship the related goods and the sale is consummated
with a third party. Such revenue is based in most cases upon a percentage of our
co-promotion partners' net sales. SELLING, INFORMATIONAL AND ADMINISTRATIVE
EXPENSES in most cases includes 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.
G--Stock-Based Compensation
In accordance with Statement of Financial Accounting Standards No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION, we elected to account for our
stock-based compensation under Accounting Principles Board Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES.
The exercise price of stock options granted equals the market price on the
date of grant. In general, there is no recorded expense related to stock
options.
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 are deferred
until the advertising first occurs
Advertising expense totaled $1,310 million in 1999, $1,139 million in 1998,
and $898 million in 1997.
2 Discontinued Operations
In 1999, we agreed to pay a fine of $20 million to settle antitrust charges
involving our former Food Science Group, divested in 1996. For additional
details, see note 18, "Litigation."
In 1998, we completed the sale of the Medical Technology Group (MTG)
segment. Accordingly, the consolidated financial statements and related notes
reflect the results of operations and net assets of the MTG
businesses--Valleylab, Schneider, American Medical Systems (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 and Howmedica are recorded as NET ASSETS OF
DISCONTINUED OPERATIONS at December 31, 1997. The net cash flows of our
discontinued operations are reported as NET CASH (USED IN)/PROVIDED BY
DISCONTINUED OPERATIONS.
Net assets of discontinued operations consisted of the following:
================================================================================
(millions of dollars) 1997
- --------------------------------------------------------------------------------
Net current assets $ 397
Property, plant and equipment--net 383
Other net noncurrent assets
and liabilities 640
- --------------------------------------------------------------------------------
Net assets of discontinued operations $1,420
================================================================================
Discontinued operations--net of tax were as follows:
================================================================================
(millions of dollars) 1999 1998 1997
- --------------------------------------------------------------------------------
Net sales $ -- $1,160 $1,449
- --------------------------------------------------------------------------------
Pre-tax income/(loss) $(20) $ 92 $ 232
Provision for taxes on income -- 57 93
- --------------------------------------------------------------------------------
Income/(loss) from operations of
discontinued businesses--net of tax (20) 35 139
- --------------------------------------------------------------------------------
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 $(20) $1,401 $ 131
================================================================================
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) 1999 1998 1997
- --------------------------------------------------------------------------------
Cash and interest-bearing deposits $114 $103 $115
Loans--net 380 433 408
Other assets 13 15 8
- --------------------------------------------------------------------------------
Total assets $507 $551 $531
- --------------------------------------------------------------------------------
Certificates of deposit and
other liabilities $ 24 $ 97 $ 73
Shareholders' equity 483 454 458
- --------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $507 $551 $531
- --------------------------------------------------------------------------------
44
<PAGE>
PFIZER INC AND SUBSIDIARY COMPANIES
Condensed Statement of Income
================================================================================
(millions of dollars) 1999 1998 1997
- --------------------------------------------------------------------------------
Interest income $ 27 $ 30 $ 29
Interest expense (2) (2) (2)
Other income--net 8 1 13
- --------------------------------------------------------------------------------
Net income $ 33 $ 29 $ 40
================================================================================
4 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) 1999 1998 1997
- --------------------------------------------------------------------------------
Trading securities $ 113 $ 99 $--
- --------------------------------------------------------------------------------
Amortized cost and fair value of
held-to-maturity debt securities:*
Corporate debt 3,624 2,306 626
Certificates of deposit 445 670 655
Municipals -- -- 56
Other 19 21 104
- --------------------------------------------------------------------------------
Total held-to-maturity debt securities 4,088 2,997 1,441
- --------------------------------------------------------------------------------
Cost and fair value of available-for-sale
debt securities* 686 686 686
- --------------------------------------------------------------------------------
Cost of available-for-sale equity
securities 60 54 81
Gross unrealized gains 230 106 106
Gross unrealized losses -- (8) (4)
- --------------------------------------------------------------------------------
Fair value of available-for-sale equity
securities 290 152 183
- --------------------------------------------------------------------------------
Total investments $5,177 $ 3,934 $ 2,310
================================================================================
*GROSS UNREALIZED GAINS AND LOSSES ARE NOT SIGNIFICANT.
These investments are in the following captions in the Balance Sheet:
================================================================================
(millions of dollars) 1999 1998 1997
- --------------------------------------------------------------------------------
Cash and cash equivalents $ 443 $ 660 $ 636
Short-term investments 3,703 2,377 712
Long-term loans and investments 1,031 897 962
- --------------------------------------------------------------------------------
Total investments $5,177 $3,934 $2,310
- --------------------------------------------------------------------------------
The contractual maturities of the held-to-maturity and available-for-sale
debt securities as of December 31, 1999, 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 $3,590 $ 34 $ -- $-- $3,624
Certificates of deposit 443 2 -- -- 445
Other -- 2 8 9 19
Available-for-sale
debt securities:
Certificates of deposit -- 370 75 -- 445
Corporate debt -- 91 150 -- 241
- --------------------------------------------------------------------------------
Total debt securities $4,033 $499 $233 $ 9 $4,774
Available-for-sale
equity securities 290
Trading securities 113
- --------------------------------------------------------------------------------
Total investments $5,177
================================================================================
B--Short-Term Borrowings
The weighted average effective interest rate on short-term borrowings
outstanding at December 31 was 4.3% in 1999, 3.7% in 1998 and 2.9% in 1997. We
had approximately $1.5 billion available to borrow under lines of credit at
December 31, 1999.
C--Long-Term Debt
================================================================================
(millions of dollars) 1999 1998 1997
- --------------------------------------------------------------------------------
Floating-rate unsecured notes $491 $491 $686
Other borrowings and mortgages 34 36 39
- --------------------------------------------------------------------------------
Total long-term debt $525 $527 $725
- --------------------------------------------------------------------------------
Current portion not included above $ 2 $ 4 $ 4
================================================================================
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 6.1% at December 31,
1999. 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.
Long-term debt outstanding at December 31, 1999, matures as follows:
================================================================================
After
(millions of dollars) 2001 2002 2003 2004 2004
- --------------------------------------------------------------------------------
Maturities $ 131 $ 161 $ -- $ -- $ 233
================================================================================
45
<PAGE>
PFIZER INC AND SUBSIDIARY COMPANIES
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 AND TAXES includes:
o purchased currency options
OTHER CURRENT LIABILITIES includes:
o fair value of forward-exchange contracts
o net amounts payable related to interest rate swap contracts
OTHER NONCURRENT LIABILITIES includes:
o net amounts payable related to currency swap contracts
ACCUMULATED OTHER COMPREHENSIVE EXPENSE includes 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 includes:
o changes in the fair value of foreign exchange contracts and changes in
foreign currency 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 must:
o relate to a foreign currency asset, liability or an anticipated
transaction that is probable and whose characteristics and terms have
been identified
o involve the same currency as the hedged item
o reduce the risk of foreign currency exchange movements on our
operations
Interest rate instruments must:
o relate to an asset or a liability
o 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 1999 1998 1997
- --------------------------------------------------------------------------------
Forward-exchange Foreign currency
contracts assets and liabilities .5 .5 .5
- --------------------------------------------------------------------------------
Currency swaps Net investments 4 5 --
Loans .3 1 2
- --------------------------------------------------------------------------------
Purchased Inventory purchases
currency options and sales .9 1 1
- --------------------------------------------------------------------------------
Interest rate swaps Debt interest 4 5 1
================================================================================
46
<PAGE>
PFIZER INC AND SUBSIDIARY COMPANIES
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) 1999 1998 1997
- --------------------------------------------------------------------------------
Foreign currency contracts:
Commitments to sell foreign
currencies, primarily in exchange
for U.S. dollars:
Euro* $1,050 $ -- $ --
U.K. pounds 781 482 548
Japanese yen 412 298 224
Irish punt* 91 61 107
Australian dollars 76 98 59
German marks* 39 50 158
Netherlands guilders* -- 316 4
French francs* -- 216 134
Other currencies 192 201 240
Commitments to purchase foreign
currencies, primarily in exchange
for U.S. dollars:
Euro* 339 -- --
U.K. pounds 101 53 60
Irish punt* 50 532 92
German marks* 47 67 73
Netherlands guilders* -- 156 4
Swiss francs -- 8 187
Other currencies 196 144 136
- --------------------------------------------------------------------------------
Total forward-exchange contracts $3,374 $2,682 $2,026
================================================================================
Currency swaps:
Japanese yen $ 829 $ 754 $ --
U.K. pounds 40 40 40
- --------------------------------------------------------------------------------
Total currency swaps $ 869 $ 794 $ 40
- --------------------------------------------------------------------------------
Purchased currency options,
primarily for U.S. dollars:
Japanese yen $ 393 $ 364 $ 198
German marks -- -- 130
French francs -- -- 46
Belgian francs -- -- 29
Other currencies 30 25 61
- --------------------------------------------------------------------------------
Total purchased currency options $ 423 $ 389 $ 464
================================================================================
Interest Rate Swap Contracts:
Japanese yen $ 353 $ 321 $ 814
Swiss francs -- -- 405
- --------------------------------------------------------------------------------
Total interest rate swaps $ 353 $ 321 $1,219
================================================================================
* ON JANUARY 1, 1999, MEMBERS OF THE EUROPEAN MONETARY UNION WERE PERMITTED TO
USE THE NEW CURRENCY, THE EURO, OR THEIR OLD CURRENCY.
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 1999, 1998 and 1997
o the Swiss franc debt at 2.1% in 1997
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.
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 of our derivative and
other financial instruments were not material at December 31, 1999, 1998 and
1997, except for a difference of $230 million at December 31, 1999 for
available-for-sale equity securities.
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, 1999.
47
<PAGE>
PFIZER INC AND SUBSIDIARY COMPANIES
5 Comprehensive Income
Changes in accumulated other comprehensive income/ (expense) 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,
1997 $ 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)
Period change (222) 81 (24) (165)
- --------------------------------------------------------------------------------
BALANCE
DECEMBER 31,
1999 $(375) $ 139 $(163) $(399)
================================================================================
* INCOME TAX BENEFIT FOR OTHER COMPREHENSIVE EXPENSE WAS $76 MILLION IN 1997,
$116 MILLION IN 1998 AND $33 MILLION IN 1999.
6 Inventories
In June 1999, the European Union's Committee for Proprietary Medicinal Products
suspended the European Union licenses of the oral and intravenous formulations
of Trovan for 12 months. Based on our evaluation of these events and related
matters, we determined that it was unlikely that certain Trovan inventories of
finished goods, bulk, work-in-process, and raw materials will be used.
Accordingly, in the third quarter of 1999, we recorded a charge of $310 million
($205 million after-tax, or $.05 after-tax per diluted share) in COST OF SALES
to write off Trovan inventories in excess of the amount required to support
expected sales.
7 Property, Plant and Equipment
The major categories of property, plant and equipment follow:
================================================================================
Useful
Lives
(millions of dollars) (years) 1999 1998 1997
- --------------------------------------------------------------------------------
Land -- $ 174 $ 151 $ 126
Buildings 33 1/3 2,008 1,669 1,534
Machinery and
equipment 8-20 3,040 2,685 2,459
Furniture, fixtures
and other 3-12 1/2 1,618 1,383 1,232
Construction in
progress -- 1,197 956 516
- --------------------------------------------------------------------------------
8,037 6,844 5,867
Less: accumulated
depreciation 2,694 2,429 2,074
- --------------------------------------------------------------------------------
Total property, plant
and equipment $5,343 $4,415 $3,793
================================================================================
8 Other Deductions--Net
The components of other deductions--net follow:
================================================================================
(millions of dollars) 1999 1998 1997
- --------------------------------------------------------------------------------
Interest income $(301) $ (185) $(156)
Interest expense 236 143 149
Interest expense capitalized (13) (7) (2)
- --------------------------------------------------------------------------------
Net interest income (78) (49) (9)
Co-promotion payments to Searle -- 240 --
Contribution to The
Pfizer Foundation -- 300 --
Legal settlements involving the
brand-name prescription drug
antitrust litigation 2 57 --
Amortization of goodwill and other
intangibles 43 45 48
Net exchange (gains)/losses (20) (16) 26
Other, net 154 432 141
- --------------------------------------------------------------------------------
Other deductions--net $ 101 $ 1,009 $ 206
================================================================================
In 1999, we substantially completed the actions under the restructuring
plans announced in 1998.
In 1998, we recorded charges for the restructuring in addition to charges
for certain asset impairments. The components of these pre-tax charges follow:
================================================================================
(millions of dollars) Total COS* SI&A* R&D OD*
- --------------------------------------------------------------------------------
Restructuring charges $177 $68 $17 $1 $ 91
Asset impairments 213 18 -- -- 195
================================================================================
* COS--COST OF SALES; SI&A--SELLING, INFORMATIONAL AND ADMINISTRATIVE EXPENSES;
OD--OTHER DEDUCTIONS-NET.
48
<PAGE>
PFIZER INC AND SUBSIDIARY COMPANIES
The components of the 1998 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 17 16
- --------------------------------------------------------------------------------
Total $177 $116 $45 $16
================================================================================
These charges resulted from a 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
exited certain product lines including certain lines associated with our animal
health business and certain of our fermentation operations.
We wrote off assets related to the product lines we exited, including
inventory, intangible assets--primarily goodwill--as well as certain buildings,
machinery and equipment which we do not plan to use or sell.
As a result of the restructuring, our work force was reduced by
approximately 500 manufacturing, sales and corporate personnel. 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.
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
resulted from 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
In 1998, 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).
9 Taxes on Income
Income from continuing operations before taxes consisted of the following:
================================================================================
(millions of dollars) 1999 1998 1997
- --------------------------------------------------------------------------------
United States $2,557 $1,184 $1,215
International 1,891 1,410 1,652
- --------------------------------------------------------------------------------
Total income from continuing
operations before taxes $4,448 $2,594 $2,867
================================================================================
The provision for taxes on income from continuing operations consisted of
the following:
================================================================================
(millions of dollars) 1999 1998 1997
- --------------------------------------------------------------------------------
United States:
Taxes currently payable:
Federal $ 621 $ 344 $ 344
State and local 38 24 9
Deferred income taxes (72) (162) (23)
- --------------------------------------------------------------------------------
Total U.S. tax provision 587 206 330
- --------------------------------------------------------------------------------
International:
Taxes currently payable 606 550 462
Deferred income taxes 51 (114) (17)
- --------------------------------------------------------------------------------
Total international tax provision 657 436 445
- --------------------------------------------------------------------------------
Total provision for taxes on income $ 1,244 $ 642 $ 775
================================================================================
Amounts are reflected in the preceding tables based on the location of the
taxing authorities. As of December 31, 1999, we have not made a U.S. tax
provision of approximately $1.9 billion for approximately $8.2 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.
49
<PAGE>
PFIZER INC AND SUBSIDIARY COMPANIES
Reconciliation of the U.S. statutory income tax rate to our effective tax
rate for continuing operations follows:
================================================================================
(percentages) 1999 1998 1997
- --------------------------------------------------------------------------------
U.S. statutory income tax rate 35.0 35.0 35.0
Effect of partially tax-exempt
operations in Puerto Rico (1.5) (2.2) (1.8)
Effect of international operations (4.8) (5.5) (5.0)
All other--net (0.7) (2.5) (1.2)
- --------------------------------------------------------------------------------
Effective tax rate for continuing
operations 28.0 24.8 27.0
================================================================================
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).
The tax effects of the major items recorded as deferred tax assets and
liabilities are:
================================================================================
1999 1998 1997
Deferred Tax Deferred Tax Deferred Tax
---------------- ---------------- --------------
(millions of dollars) Assets Liabs. Assets Liabs. Assets Liabs.
- --------------------------------------------------------------------------------
Prepaid/deferred items $ 361 $ 197 $ 411 $ 169 $ 252 $189
Inventories 471 109 322 72 218 60
Property, plant and
equipment 22 514 39 433 30 350
Employee benefits 544 131 391 97 297 113
Restructurings and
special charge* 244 -- 301 -- 133 --
Foreign tax credit
carryforwards 181 -- 117 -- 159 --
Other carryforwards 165 -- 97 -- 135 --
Unremitted earnings -- 335 -- 335 -- --
All other 121 170 169 73 119 76
- --------------------------------------------------------------------------------
Subtotal 2,109 1,456 1,847 1,179 1,343 788
Valuation allowance (27) -- (30) -- (27) --
- --------------------------------------------------------------------------------
Total deferred taxes $ 2,082 $1,456 $ 1,817 $1,179 $ 1,316 $788
- --------------------------------------------------------------------------------
Net deferred tax asset $ 626 $ 638 $ 528
================================================================================
*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) 1999 1998 1997
- --------------------------------------------------------------------------------
Prepaid expenses and taxes $ 744 $ 809 $ 425
Other assets, deferred taxes and
deferred charges 183 26 230
Deferred taxes on income (301) (197) (127)
- --------------------------------------------------------------------------------
Net deferred tax asset $ 626 $ 638 $ 528
================================================================================
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 or deemed to be paid by
subsidiaries to the parent company between 1997 and 1999. We can carry these
credits forward for five years from the year of actual payment and apply them to
certain U.S. tax liabilities.
The Internal Revenue Service (IRS) has completed and closed its audits of
our tax returns through 1992. The IRS completed its audits in January 2000 of
our tax returns for 1993 through 1995. We are awaiting the agent's final report
for those years. We do not expect any material adjustments to be proposed.
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.
10 Benefit Plans
Our pension plans cover most employees worldwide. Our postretirement plans
provide medical and life insurance benefits to retirees and their eligible
dependents.
Information regarding our pension and postretirement benefit obligation
follows:
================================================================================
Pension Postretirement
---------------------- ------------------
(percentages) 1999 1998 1997 1999 1998 1997
- --------------------------------------------------------------------------------
Weighted-average
assumptions:
Discount rate:
U.S. plans 7.5 6.8 7.0 7.5 6.8 7.0
International plans 5.1 5.3 5.9
Rate of compensation
increase:
U.S. plans 4.5 4.5 4.5
International plans 3.7 3.4 3.9
================================================================================
50
<PAGE>
PFIZER INC AND SUBSIDIARY COMPANIES
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) 1999 1998 1997 1999 1998 1997
- --------------------------------------------------------------------------------
Change in Benefit
Obligation
Benefit obligation at
beginning of year $3,177 $2,674 $2,130 $ 286 $ 287 $ 285
Service cost 169 151 105 7 10 7
Interest cost 192 181 145 18 20 19
Employee
contributions 9 6 6
Plan amendments 13 15 274 2 -- --
Plan net (gains)/losses 87 354 240 (30) (3) (7)
Foreign exchange
impact 28 36 (103)
Acquisitions -- -- 3 -- -- --
Divestitures (42) (26) -- -- -- --
Curtailments -- (26) (1) -- (10) --
Settlements (1) (10) (1) -- -- --
Benefits paid (221) (178) (124) (20) (18) (17)
- --------------------------------------------------------------------------------
Benefit obligation at
end of year $3,411 $3,177 $2,674 $ 263 $ 286 $ 287
- --------------------------------------------------------------------------------
Change in
Plan Assets
Fair value of plan
assets at beginning
of year $3,194 $2,793 $2,410
Actual return on plan
assets 464 530 491
Company
contributions 76 63 50
Employee
contributions 9 6 6
Foreign exchange
impact 26 3 (57)
Acquisitions -- -- 1
Divestitures (34) (23) --
Settlements (1) (13) (1)
Benefits paid (206) (165) (107)
- --------------------------------------------------------------------------------
Fair value of plan
assets at end of year $3,528 $3,194 $2,793
- --------------------------------------------------------------------------------
Funded status:
Plan assets in excess
of/(less than)
benefit
obligation $ 117 $ 17 $ 119 $(263) $(286) $(287)
Unrecognized:
Net transition asset (4) (4) (10) -- -- --
Net (gains)/
losses (75) 1 (86) (56) (26) (24)
Prior service
costs/(gains) 240 248 310 (27) (47) (83)
- --------------------------------------------------------------------------------
Net amount
recognized $ 278 $ 262 $ 333 $(346) $(359) $(394)
================================================================================
The components in the balance sheet consist of:
- -------------------------------------------------------------------------------
Pension Postretirement
---------------------- ----------------------
(millions of dollars) 1999 1998 1997 1999 1998 1997
- --------------------------------------------------------------------------------
Prepaid benefit cost $ 537 $ 504 $ 499 $ -- $ -- $ --
Accrued benefit
liability (655) (562) (362) (346) (359) (394)
Intangible asset 79 71 53 -- -- --
Accumulated other
comprehensive
income 317 249 143 -- -- --
- --------------------------------------------------------------------------------
Net amount
recognized $ 278 $ 262 $ 333 $(346) $(359) $(394)
================================================================================
Information related primarily to International plans:
================================================================================
Pension
------------------------
(millions of dollars) 1999 1998 1997
- --------------------------------------------------------------------------------
Pension plans with an accumulated benefit
obligation in excess of plan assets:
Fair value of plan assets $400 $323 $294
Accumulated benefit obligation 752 693 553
Pension plans with a benefit obligation
in excess of plan assets:
Fair value of plan assets $496 $435 $422
Benefit obligation 949 901 774
================================================================================
At December 31, 1999, the major U.S. pension plan held approximately 6.8
million shares of our common stock with a fair value of approximately $220
million. The Plan received approximately $2 million in dividends on these shares
in 1999.
The assumptions used and the annual cost related to these plans follow:
================================================================================
Pension Postretirement
---------------------- ---------------------
(percentages) 1999 1998 1997 1999 1998 1997
- --------------------------------------------------------------------------------
Weighted average
assumptions:
Expected return
on plan assets:
U.S. plans 10.0 10.0 10.0
International plans 7.3 8.1 7.5
================================================================================
(millions of dollars)
- --------------------------------------------------------------------------------
Service cost $ 169 $ 151 $ 105 $ 7 $ 10 $ 7
Interest cost 192 181 145 18 20 19
Expected return on
plan assets (275) (249) (208)
Amortization of:
Prior service costs/
(gains) 19 24 34 (18) (24) (24)
Net transition asset (5) (6) (5) -- -- --
Net losses/(gains) 12 10 2 -- (1) (1)
Curtailments and
settlements--net* -- 28 -- -- (22) --
- --------------------------------------------------------------------------------
Net periodic benefit
cost/(gain) $ 112 $ 139 $ 73 $ 7 $(17) $ 1
================================================================================
* INCLUDES APPROXIMATELY $12 MILLION OF SPECIAL TERMINATION PENSION BENEFITS FOR
CERTAIN MTG EMPLOYEES IN 1998.
51
<PAGE>
PFIZER INC AND SUBSIDIARY COMPANIES
An average increase of 6.9% in the cost of health care benefits was assumed
for 2000 and is projected to decrease over the next five years to 5.2% 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, 1999:
================================================================================
(millions of dollars) 1% Increase 1% Decrease
- --------------------------------------------------------------------------------
Total of service and interest
cost components $ 1 $ (1)
Postretirement benefit obligation 13 (12)
================================================================================
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 $50 million in 1999, $48 million in 1998 and $43 million in
1997.
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 $158 million in 1999, $131 million in 1998
and $127 million in 1997. This table shows future minimum rental commitments
under noncancellable leases at December 31, 1999:
================================================================================
After
(millions of dollars) 2000 2001 2002 2003 2004 2004
- --------------------------------------------------------------------------------
Lease commitments $54 $45 $40 $29 $27 $286
================================================================================
12 Common Stock
We effected a three-for-one stock split of our common stock in the form of a
200% stock dividend in 1999 and a two-for-one split of our common stock in the
form of a 100% stock dividend in 1997. All share and per share information in
this report reflects both splits. Per share data may reflect rounding
adjustments as a result of the three-for-one split.
Under the current share-purchase program begun in September 1998, we are
authorized to purchase up to $5 billion of our common stock. In 1999, we
purchased approximately 65.6 million shares of our common stock in the open
market at an average price of $38 per share. Since the beginning of this
program, we have purchased 80.4 million shares of our common stock for
approximately $3 billion. In September 1998, we completed a program under which
we purchased 79.2 million shares of our common stock at a total cost of $2
billion. In 1998, we purchased approximately 57.8 million shares of our common
stock at an average price of $33 per share under these share-purchase programs.
Of the 57.8 million shares repurchased in 1998, 14.8 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 120 million shares of treasury stock to the Pfizer Inc. Grantor
Trust in exchange for a $600 million note. The Trust was established primarily
to fund our employee benefit plans. In February 1999, the Trust transferred 10
million shares to us to satisfy the balance due on its note and contributed its
remaining 90 million shares to the newly established Pfizer Inc. Employee
Benefit Trust (EBT). The Grantor Trust was then dissolved and the shares of the
EBT will now be used to fund employee benefit plans. The Balance Sheet reflects
the fair value of the shares owned by the EBT as a reduction of SHAREHOLDERS'
EQUITY.
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15 Earnings Per Share
The weighted average common shares used in the computations of basic earnings
per common share and earnings per common share assuming dilution were as
follows:
================================================================================
(millions, except per share data) 1999 1998 1997
- --------------------------------------------------------------------------------
Earnings:
Income from continuing operations $3,199 $1,950 $2,082
Discontinued operations--net of tax (20) 1,401 131
- --------------------------------------------------------------------------------
Net income $3,179 $3,351 $2,213
- --------------------------------------------------------------------------------
Basic:
Weighted average number of
common shares outstanding 3,775 3,789 3,771
- --------------------------------------------------------------------------------
Earnings per common share
Income from continuing operations $.85 $.51 $.55
Discontinued operations--net of tax (.01) .37 .04
- --------------------------------------------------------------------------------
Net income $.84 $.88 $.59
- --------------------------------------------------------------------------------
Diluted:
Weighted average number of
common shares outstanding 3,775 3,789 3,771
Common share equivalents--
stock options and stock issuable
under employee compensation plans 109 156 138
- --------------------------------------------------------------------------------
Weighted average number of
common shares and common
share equivalents 3,884 3,945 3,909
- --------------------------------------------------------------------------------
Earnings per common share
Income from continuing operations $.82 $.49 $.53
Discontinued operations--net of tax -- .36 .04
- --------------------------------------------------------------------------------
Net income $.82 $.85 $.57
================================================================================
Options to purchase 115 million shares were outstanding during 1999 but
were not included in the computation of diluted earnings per share because the
options' exercise prices were greater than the average market price of the
common shares.
16 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 1999, shareholders approved amendments to increase the
shares available in the Plan and to extend its term through 2008.
The following table summarizes information concerning options outstanding
under the Plan at December 31, 1999:
================================================================================
(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 12/31/99 Term (years) Price at 12/31/99 Price
- --------------------------------------------------------------------------------
$ 0 - $10 85,308 4.0 $ 6.40 84,401 $ 6.38
10 - 15 36,677 6.6 12.42 34,439 12.42
15 - 20 35,486 7.7 18.34 21,145 18.35
20 - 40 48,730 8.7 35.18 14,114 35.18
over 40 66,904 9.2 42.07 -- --
================================================================================
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, 1997 105,042 259,284 $ 7.21
Granted (42,612) 42,612 18.35
Exercised -- (46,983) 5.38
Cancelled 1,959 (2,016) 12.89
- --------------------------------------------------------------------------------
Balance December 31, 1997 64,389 252,897 9.39
Granted (52,860) 52,860 35.21
Exercised -- (54,888) 7.04
Cancelled 1,212 (1,257) 19.91
- --------------------------------------------------------------------------------
Balance December 31, 1998 12,741 249,612 15.32
Authorized 165,000 -- --
Granted (67,963) 67,963 42.07
Exercised -- (41,524) 9.57
Cancelled 2,928 (2,946) 35.41
- --------------------------------------------------------------------------------
Balance December 31, 1999 112,706 273,105 22.63
================================================================================
OPTIONS GRANTED IN 1999 INCLUDE OPTIONS FOR 450 SHARES GRANTED TO EVERY ELIGIBLE
EMPLOYEE WORLDWIDE IN CELEBRATION OF OUR 150TH ANNIVERSARY.
THE TAX BENEFITS RELATED TO CERTAIN STOCK OPTION TRANSACTIONS WERE $228 MILLION
IN 1999, $274 MILLION IN 1998 AND $88 MILLION IN 1997.
The weighted-average fair value per stock option granted was $13.57 for
1999 options, $11.31 for 1998 options and $5.59 for the 1997 options. We
estimated the fair values using the Black-Scholes option pricing model, modified
for dividends and using the following assumptions:
================================================================================
1999 1998 1997
- --------------------------------------------------------------------------------
Expected dividend yield 1.02% 1.02% 1.76%
Risk-free interest rate 5.26% 5.23% 6.23%
Expected stock price volatility 25.98% 26.29% 25.56%
Expected term until exercise (years) 5.75 5.75 5.50
================================================================================
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PFIZER INC AND SUBSIDIARY COMPANIES
The following table summarizes results as if we had recorded compensation
expense for the 1999, 1998 and 1997 option grants:
================================================================================
(millions of dollars, except per share data) 1999 1998 1997
- --------------------------------------------------------------------------------
Net income:
As reported $ 3,179 $ 3,351 $ 2,213
Pro forma 2,750 3,149 2,087
Basic earnings per share:
As reported $ .84 $ .88 $ .59
Pro forma .73 .83 .55
Diluted earnings per share:
As reported $ .82 $ .85 $ .57
Pro forma .71 .80 .53
================================================================================
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 120 million
shares may be awarded. We awarded approximately 2,276,000 shares in 1999,
approximately 1,959,000 shares in 1998 and approximately 1,347,000 shares in
1997. At December 31, 1999, program participants had the right to earn up to
12.3 million additional shares. Compensation expense related to the Program was
$64 million in 1999, $202 million in 1998 and $74 million in 1997.
We entered into two forward-purchase contracts in 1998 and on maturity they
were extended. These contracts offset the potential impact on net income of our
liability under the Program. 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. Other contract terms are as follows:
================================================================================
Maximum Maturity
in Years
-----------------------
Number of Shares (thousands) Per Share 1999 1998
- --------------------------------------------------------------------------------
3,000 $33.73 -- .9
3,017 33.75 .9 --
================================================================================
The financial statements include the following items related to these
contracts:
PREPAID EXPENSES AND TAXES includes:
o fair value of these contracts
OTHER DEDUCTIONS--NET includes:
o changes in the fair value of these contracts
17 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.
18 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.
In 1999, the Company pleaded guilty to one count of price fixing of sodium
erythorbate from July 1992 until December 1994, and one count of market
allocation of maltol from December 1989 until December 1995, and paid a total
fine of $20 million. The activities at issue involved the Company's former Food
Science Group, a division that manufactured food additives and that the Company
divested in 1996. The Department of Justice has stated that no further antitrust
charges will be brought against the Company relating to the former Food Science
Group, that no antitrust charges will be brought against any current director,
officer or employee of the Company for conduct related to the products of the
former Food Science Group, and that none of the Company's current directors,
officers or employees was aware of any aspect of the activity that gave rise to
the violations. Five purported class action suits involving these products have
been filed against the Company; two in California State Court, and three in New
York Federal Court. The Company does not believe that this plea and settlement,
or civil litigation involving these products, will have a material effect on its
business or results of operations.
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. On December 17, 1999, Mylan received final approval from the
FDA for its 30 mg. extended-release nifedipine tablet. On March 16, 1999, the
United States District Court granted Mylan's motion to file an amended answer
and antitrust counterclaims. All discovery on the antitrust counterclaims is
stayed pending resolution of the patent misuse claims. On March 29, 1999, Mylan
filed a motion for summary judgment based on an adverse decision against Bayer
in Bayer's litigation against Elan Pharmaceutical Research Corp. which involved
the same nifedipine particle size
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PFIZER INC AND SUBSIDIARY COMPANIES
patent. Discovery has been essentially completed and the parties dispositive
motions were filed by an extended deadline of July 19, 1999, including Pfizer
and Bayer's summary judgment motion seeking to dismiss Mylan's patent misuse
defenses and counterclaims. On December 13, 1999, Mylan filed its opposition to
plaintiffs' motion for summary judgment dismissing Mylan's patent misuse defense
and counterclaim, and Bayer and the Company filed their opposition to Mylan's
motion for summary judgment of non-infringement. The parties reply memoranda in
support of their motions were filed on December 28, 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 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 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 12, 1999, Biovail filed a motion for
summary judgment also based in part on the summary judgment motion granted to
Elan in the Bayer v. Elan litigation in the Northern District of Georgia. Pfizer
and Bayer's response was filed on April 26, 1999. On September 20, 1999, the
United States District Court in Puerto Rico denied Biovail's motion for summary
judgment without prejudice to their refiling after completion of discovery in
the Procardia XL patent-infringement litigation. The court set an expedited
discovery schedule with a deadline of December 30, 1999, to complete discovery
of parties and fact witnesses and February 29, 2000, to complete discovery of
expert witnesses. On December 20, 1999, the court extended the date to complete
fact discovery to January 28, 2000, and that of expert discovery to March 15,
2000. A status conference with the court is scheduled for March 17, 2000.
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 responded to
this motion and oral argument has been held in abeyance pending a settlement
conference. In September 1999, a settlement agreement was entered into among the
parties staying this litigation until the expiration of U.S. Patent No.
4,412,986 on November 2, 2000.
On February 10, 1999, the Company received a notice from Lek U.S.A. of its
filing of an ANDA for a 90 mg. formulation of nifedipine alleged to be
bioequivalent to Procardia XL. On March 25, 1999, Bayer and Pfizer commenced
suit against Lek for infringement of the same two Bayer patents originally
asserted against Lek's 60 mg. formulation. This case was also the subject of a
settlement conference. In September, 1999, a settlement agreement was entered
into among the parties staying this litigation until the expiration of U.S.
patent No. 4,412,986 on November 2, 2000.
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. Martec filed its response to this complaint on February
26, 1999. A hearing to determine claim scope is scheduled for June 1, 2000.
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
55
<PAGE>
PFIZER INC AND SUBSIDIARY COMPANIES
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. On July 16, 1999,
the D.C. Court of Appeals dismissed the appeal on the ground that since the FDA
had not approved any ANDA referencing Procardia XL that uses a different
extended-release mechanism than the osmotic pump mechanism of Procardia XL, it
was premature to maintain this action, stating that Pfizer has the right to
bring such an action if, and when, the FDA approves such an ANDA. Subsequent to
FDA's final approval of Mylan's ANDA, on December 18, 1999 Pfizer filed suit
against FDA in the United States District Court for the District of Delaware.
The suit alleges that FDA unlawfully approved Mylan's 30 mg. extended release
product because FDA had not granted an ANDA suitability petition reflecting a
difference in dosage form from Procardia XL.
On March 31, 1999, the Company received notice from TorPharm of its filing,
through its U.S. agent Apotex Corp., of an ANDA for 1 mg., 2 mg., 4 mg. and 8
mg. tablets alleged to be bioequivalent to Cardura (doxazosin mesylate). The
notice letter alleges that Pfizer's patent on doxazosin is invalid in view of
certain prior art references. Following a review of these allegations, suit was
filed in the United States District Court for the Northern District of Illinois
against TorPharm and Apotex Corp. on May 14, 1999. The defendants requested a
90-day period in which to file their answer. The request was granted and
TorPharm/Apotex's answer was filed by August 19, 1999. Discovery is in progress.
On June 2, 1999, FDA was notified that given the patent litigation and pursuant
to provisions of the Federal Food Drug and Cosmetic Act, the FDA may not approve
the TorPharm application for thirty months from filing or resolution of the
litigation.
On May 5, 1999, the Company filed an action against Sibia Neurosciences,
Inc. in the United States District Court for the District of Delaware seeking a
declaratory judgment that two Sibia patents claiming reporter gene drug
screening assays are invalid, not infringed by the Company, and unenforceable
due to Sibia's misuse of its patent rights in seeking certain license terms. On
May 27, 1999, Sibia Neurosciences, Inc. filed an answer to the Company's
declaratory judgment action in which Sibia denies that a prior case or
controversy existed, but admits that a case or controversy does now exist
regarding at least one patent in suit, denies the invalidity, unenforceability
and non-infringement of the patents in suit, and asserts various jurisdictional
and equitable defenses, affirmative defenses, and lack of standing by the
Company to assert patent misuse. Sibia Neurosciences also filed a counterclaim
alleging willful infringement by the Company of one of the patents in suit. A
reply to that counterclaim denying Sibia's allegation has been filed. The
parties submitted a joint status report to the court on December 14, 1999, in
which the parties agreed to complete fact discovery by August 21, 2000, and
commence trial on January 8, 2001.
On May 19, 1999, Abbott Laboratories filed an action against the Company in
the United States District Court of the Northern District of Illinois alleging
that the Company's use, sale or manufacture of trovafloxacin infringes Abbott's
United States Patent No. 4,616,019 claiming naphthyriding antibiotics and
seeking a permanent injunction and damages. An answer denying these allegations
was filed on June 9, 1999. Discovery is in progress.
On December 17, 1999, the Company received notice of the filing of an ANDA
by Zenith Goldline Pharmaceuticals for 50 mg. and 100 mg. tablets of sertraline
hydrochloride alleged to be bioequivalent to Zoloft. Zenith has certified to the
FDA that it will not engage in the manufacture, use or sale of sertraline
hydrochloride until the expiration of Pfizer's U.S. Patent 4,536,518, which
covers sertraline per se and expires December 30, 2005. Zenith has also alleged
in its certification to the FDA that the manufacture, use and sale of Zenith's
product will not infringe Pfizer's U.S. Patent 4,962,128, which covers methods
of treating an anxiety-related disorder or Pfizer's U.S. Patent 5,248,699, which
covers a crystalline polymorph of sertraline hydrochloride. These patents expire
in November 2009 and August 2012, respectively. On January 28, 2000, the Company
filed a patent infringement action against Zenith Goldline and its parent Ivax
Corporation in the United States District Court for the District of New Jersey
for infringement of the '128 and '699 patents.
On February 1, 2000, the Company received notice of the filing of an ANDA
by Novopharm Limited for 50 mg, 100 mg, 150 mg and 200 mg tablets of fluconazole
alleged to be bioequivalent to DIFLUCAN. Novopharm has certified to the FDA its
position that the Company's U.S. Patent 4,404,216, which covers fluconazole, is
invalid. This patent expires in January 2004. The Company is evaluating
Novopharm's notice.
In pre-existing litigation between Pioneer Hi-Bred International, Inc. and
DeKalb Genetics Corporation in the United States District Court for the Southern
District of Iowa, the court granted on October 8, 1999 Pioneer's motion to add
additional parties, including Pfizer Inc. and Monsanto Co. (the present owner of
DeKalb Genetics Corporation), as codefendant parties. The amended complaint,
which claims violations of the federal Lanham Act and Iowa state law stemming
from the codefendants' alleged use of Pioneer's corn seed germplasm in the
development of competitive corn seed products, was served on the Company on
October 19. The Company filed its answer on December 15, 1999.
On September 22, 1999, the jury in a trademark-infringement litigation
brought against the Company by Trovan Ltd. and Electronic Identification
Devices, Ltd. relating to use of the TROVAN mark for trovafloxacin issued a
verdict in favor of the plaintiffs with respect to liability, holding that the
Company had infringed Trovan Ltd.'s mark and had acted in bad faith. Following a
further damage trial, on October 12, 1999, the jury awarded Trovan Ltd. a total
of $143 million in
56
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PFIZER INC AND SUBSIDIARY COMPANIES
damages, comprised of $5 million actual damages, $3 million as a reasonable
royalty and $135 million in punitive damages. The court held a hearing on
December 27, 1999, on whether to award the plaintiffs profits based on the
Company's sales of Trovan and, if so, the amount of same. The Company's motion
for mistrial remains outstanding.
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.
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 sixteen 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.
As of January 29, 2000, there were 57,328 personal injury claims pending
against Quigley and 26,890 such claims against the Company (excluding those that
are inactive or have been settled in principle), 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,
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PFIZER INC AND SUBSIDIARY COMPANIES
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 against excess insurance
carriers seeking damages and/or declaratory relief to secure their coverage
obligations has now been largely resolved, although claims against several of
such insureds do remain pending. 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.
In 1993, 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, alleging that the manufacturers
violated the Sherman Act by agreeing not to give retailers certain discounts and
that the failure to give such discounts violated the Robinson Patman Act. A
class action was brought on the Sherman Act claim, as well as additional actions
by approximately 3,500 individual retail pharmacies and a group of chain and
supermarket pharmacies (the "individual actions") on both the Sherman Act and
Robinson Patman Act claims. A retailer class was certified in 1994 (the "Federal
Class Action"). In 1996, fifteen manufacturer defendants, including the Company,
settled the Federal Class Action. The Company's share was $31.25 million,
payable in four annual installments without interest. 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 appealed and, on July 13, 1999, the Court
of Appeals upheld most of the dismissal but remanded on one issue, while
expressing doubts that the plaintiffs could prove any damages.
Retail pharmacy cases also have been filed in state courts in five states,
and consumer class actions were filed in state courts in fourteen states and the
District of Columbia alleging injury to consumers from the failure to give
discounts to retail pharmacy companies.
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, California and North
Dakota), 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, which has been approved by the Court
there.
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 opened 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 responded. A second subpoena was issued to the
Company for documents in May 1997 and the Company again responded. We are not
aware of any further activity.
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.
Since December 1998, four actions have been filed, in state courts in
Houston, San Francisco, Chicago and New Orleans, purportedly on behalf of
statewide (California) or nationwide (Houston, Chicago and New Orleans) 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 voluntarily dismissed and proceedings in the San Francisco, Chicago and New
Orleans cases are still in early stages of the proceedings. The Company believes
the complaints are without merit.
In December, 1999 and January, 2000, two suits were filed in California
state courts against the Company and other manufacturers of zinc
oxide-containing powders. The first suit was filed by the Center for
Environmental Health and the second was filed by an individual plaintiff on
behalf of a
58
<PAGE>
PFIZER INC AND SUBSIDIARY COMPANIES
purported class of purchasers of baby powder products. The suits generally
allege that the label of Desitin powder violates California's "Proposition 65"
by failing to warn of the presence of lead, which is alleged to be a carcinogen.
In January, 2000, the Company received a notice from a California environmental
group alleging that the labeling of Desitin ointment and powder violates
Proposition 65 by failing to warn of the presence of cadmium, which is alleged
to be a carcinogen. Several other manufacturers of zinc oxide-containing topical
baby products have received similar notices. The Company believes that the
labeling for Desitin complies with applicable legal requirements.
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 review of the
Company's new procedures was undertaken by FDA in 1999. The Company and Agency
met to review the findings of this review and agreed that commitments and
remedial measures undertaken by the Company related to the Warning Letter have
been accomplished. The Company agreed to keep the Agency informed of its
activities as it continues to modify its processes and procedures.
During May and June, 1999, the FDA and the European Union's Committee for
Proprietary Medicinal Products (CPMP) reconsidered the approvals to market
Trovan, a broad-spectrum antibiotic, following post-market reports of severe
adverse liver reactions to the drug. On June 9, the Company announced that,
regarding the marketing of Trovan in the United States, it had agreed to
restrict the indications, limit product distribution, make certain other
labeling changes and to communicate revised warnings to health care
professionals in the United States. On July 1, Pfizer received the opinion of
the CPMP recommending a one-year suspension of the licenses to market Trovan in
the European Union. The CPMP opinion has been finalized in a Final Decision by
the European Commission. Since June, 1999, three suits and several claims have
been received by the Company alleging liver injuries due to the ingestion of
Trovan. The majority of these claims have been resolved without litigation. In
June and July, 1999, two of the lawsuits were filed in the Circuit Court,
Hampton County, South Carolina on behalf of a purported class of all persons who
received Trovan, seeking compensatory and punitive damages and injunctive
relief. One of the suits, seeking injunctive relief, has been dismissed. No
substantive proceedings have yet occurred in the other suit and the Company
believes that it is not properly maintainable as a class action, and will defend
against it accordingly.
In October 1999 the Company was sued in an action seeking unspecified
damages, costs and attorney's fees on behalf of a purported class of people
whose dogs had suffered injury or death after ingesting Rimadyl, an
antiarthritic medication for older dogs. The suit, which was filed in state
court in South Carolina, is in the early pretrial stages. The Company believes
it is without merit.
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. These cases have now
been resolved. 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. Most of these
claims, along with a number of filed and unfiled claims from other
jurisdictions, have now been resolved. 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 sought the award
of moral, economic and personal damages to individuals and the payment to a
public reserve fund. In February 1996, the trial court issued a decision holding
Pfizer Brazil liable. The trial court's opinion also established the amount of
moral damages for individuals who might make claims later in the proceeding and
set out a formula for calculating the payment into the public reserve fund which
could have resulted in a sum of approximately $88 million. Pfizer Brazil
appealed this decision. In September 1999, the appeals court issued a ruling
upholding the trial court's decision as to liability. However, the appeals court
decision overturned the trial court's decision concerning damages, ruling that
criteria to apply in the calculation of damages, both as to individuals and as
to payment of any amounts to the reserve fund, should be established only in a
later stage of the proceeding. The Company believes that this action 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
19 Segment Information and Geographic Data
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, 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
1999, sales to our two largest wholesalers accounted for 14% and 12% 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 1999. 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
================================================================================
Pharma- Animal Corporate/
(millions of dollars) ceutical Health Other Consolidated
- --------------------------------------------------------------------------------
Total revenues 1999 $14,859 $1,345 $ -- $16,204
1998 12,230 1,314 -- 13,544
1997 9,726 1,329 -- 11,055
- --------------------------------------------------------------------------------
Segment profit 1999 4,898(1) 67 (517)(2) 4,448(3)
1998 3,574 (77) (903)(2) 2,594(3)
1997 3,129 112 (374)(2) 2,867(3)
- --------------------------------------------------------------------------------
Identifiable assets(4) 1999 9,723 2,144 8,707 20,574
1998 7,987 2,109 8,206 18,302
1997 6,464 2,197 6,330(5) 14,991
- --------------------------------------------------------------------------------
Property, plant and
equipment additions(4) 1999 1,387 90 84 1,561
1998 991 97 110 1,198
1997 687 69 122 878
- --------------------------------------------------------------------------------
Depreciation and
amortization(4) 1999 438 74 30 542
1998 386 82 21 489
1997 337 75 16 428
================================================================================
Geographic Data
================================================================================
All
United Other
(millions of dollars) States(6) Japan Countries Consolidated
- --------------------------------------------------------------------------------
Total revenues 1999 $9,896 $1,249 $5,059 $16,204
1998 8,205 943 4,396 13,544
1997 6,089 949 4,017 11,055
- --------------------------------------------------------------------------------
Long-lived assets 1999 3,430 487 2,750 6,667
1998 2,905 369 2,499 5,773
1997 2,910 283 2,155 5,348
================================================================================
(1) INCLUDES $310 MILLION CHARGE TO WRITE OFF TROVAN INVENTORIES.
(2) INCLUDES INTEREST INCOME/(EXPENSE) AND CORPORATE EXPENSES. CORPORATE ALSO
INCLUDES OTHER INCOME/(EXPENSE) OF THE FINANCIAL SUBSIDIARIES (SEE NOTE 3,
"FINANCIAL SUBSIDIARIES") AND CERTAIN PERFORMANCE-BASED COMPENSATION
EXPENSES NOT ALLOCATED TO THE OPERATING SEGMENTS.
(3) CONSOLIDATED TOTAL EQUALS INCOME FROM CONTINUING OPERATIONS BEFORE
PROVISION FOR TAXES ON INCOME AND MINORITY INTERESTS.
(4) 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.
(5) INCLUDES NET ASSETS OF DISCONTINUED OPERATIONS.
(6) INCLUDES OPERATIONS IN PUERTO RICO.
20 Subsequent Event
On February 7, 2000, we announced an agreement to merge with Warner-Lambert
Company (Warner-Lambert). Under terms of the merger agreement, which has been
approved by the Board of Directors of both Pfizer and Warner-Lambert, we will
exchange 2.75 shares of Pfizer voting common stock for each outstanding share of
Warner-Lambert voting common stock in a tax-free transaction valued at $98.31
per Warner- Lambert share, or an equity value of $90 billion based on the
closing price of our stock on February 4, 2000 of $35.75 per share. Customary
and usual provisions will be made for outstanding options and warrants.
This transaction is subject to customary conditions, including the use of
pooling-of-interests accounting, qualifying as a tax-free reorganization,
shareholder approval at both companies and usual regulatory approvals. The
transaction is expected to close in mid-2000.
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
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999
Net sales $3,524 $3,298 $3,423 $3,887
Alliance revenue 403 481 569 619
- ----------------------------------------------------------------------------------------
Total revenues 3,927 3,779 3,992 4,506
Costs and expenses 2,778 2,751 3,025 3,202
- ----------------------------------------------------------------------------------------
Income from continuing operations
before provision for taxes on income
and minority interests 1,149 1,028 967 1,304
Provision for taxes on income 333 298 265 348
Minority interests 1 1 1 2
- ----------------------------------------------------------------------------------------
Income from continuing operations 815 729 701 954
Discontinued operations--net of tax -- (20) -- --
- ----------------------------------------------------------------------------------------
Net income $ 815 $ 709 $ 701 $ 954
- ----------------------------------------------------------------------------------------
Earnings per common share--basic
Income from continuing operations $ .22 $ .19 $ .19 $ .25
Discontinued operations--net of tax -- (.01) -- --
- ----------------------------------------------------------------------------------------
Net income $ .22 $ .18 $ .19 $ .25
- ----------------------------------------------------------------------------------------
Earnings per common share--diluted
Income from continuing operations $ .21 $ .18 $ .18 $ .25
Discontinued operations--net of tax -- -- -- --
- ----------------------------------------------------------------------------------------
Net income $ .21 $ .18 $ .18 $ .25
- ----------------------------------------------------------------------------------------
Cash dividends paid per common share $ .07 1/3 $ .07 1/3 $ .08 $ .08
- ----------------------------------------------------------------------------------------
Stock prices
High $ 48 11/64 $ 50 3/64 $ 40 11/16 $ 42 1/4
Low $ 36 33/64 $ 31 35/64 $ 32 $ 32 3/16
========================================================================================
1998
Net sales $2,886 $3,114 $3,110 $3,567
Alliance revenue 150 198 220 299
- ----------------------------------------------------------------------------------------
Total revenues 3,036 3,312 3,330 3,866
Costs and expenses 2,294 2,468 2,628 3,560
- ----------------------------------------------------------------------------------------
Income from continuing operations
before provision for taxes on income
and minority interests 742 844 702 306
Provision for taxes on income 206 249 186 1
Minority interests 1 1 1 (1)
- ----------------------------------------------------------------------------------------
Income from continuing operations 535 594 515 306
Discontinued operations--net of tax 157 34 882 328
- ----------------------------------------------------------------------------------------
Net income $ 692 $ 628 $1,397 $ 634
- ----------------------------------------------------------------------------------------
Earnings per common share--basic
Income from continuing operations $ .14 $ .16 $ .13 $ .08
Discontinued operations--net of tax .04 .01 .24 .08
- ----------------------------------------------------------------------------------------
Net income $ .18 $ .17 $ .37 $ .16
- ----------------------------------------------------------------------------------------
Earnings per common share--diluted
Income from continuing operations $ .14 $ .15 $ .13 $ .07
Discontinued operations--net of tax .04 -- .23 .09
- ----------------------------------------------------------------------------------------
Net income $ .18 $ .15 $ .36 $ .16
- ----------------------------------------------------------------------------------------
Cash dividends paid per common share $ .06 1/3 $ .06 1/3 $ .06 1/3 $ .06 1/3
- ----------------------------------------------------------------------------------------
Stock prices
High $ 32 1/2 $ 40 37/64 $ 40 13/64 $ 42 63/64
Low $ 23 11/16 $ 32 1/8 $ 30 43/64 $ 28 43/64
- ----------------------------------------------------------------------------------------
</TABLE>
ALL DATA REFLECTS THE 1999 THREE-FOR-ONE STOCK SPLIT.
AS OF JANUARY 31, 2000, THERE WERE 149,747 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) 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 14,133 12,677 10,739 9,864 8,684 6,825 6,080 5,816 5,352 4,757 4,220
Alliance revenue 2,071 867 316 -- -- -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total revenues 16,204 13,544 11,055 9,864 8,684 6,825 6,080 5,816 5,352 4,757 4,220
Research and development 2,776 2,279 1,805 1,567 1,340 1,036 880 776 654 545 449
Other costs and expenses 8,980 8,671 6,383 5,769 5,327 4,212 3,822 3,829 3,675 3,288 3,045
Divestitures, restructuring and
unusual items-- net(1) -- -- -- -- -- -- 741 (141) 300 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations
before taxes and minority interests $ 4,448 2,594 2,867 2,528 2,017 1,577 637 1,352 723 924 726
Provision for taxes on income $ 1,244 642 775 758 609 445 106 368 141 235 171
Income from continuing operations
before cumulative effect of
accounting changes $ 3,199 1,950 2,082 1,764 1,401 1,127 529 981 579 684 551
Discontinued operations--net of tax (20) 1,401 131 165 172 171 129 113 143 117 130
Cumulative effect of accounting changes -- -- -- -- -- -- -- (283)(2) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 3,179 3,351 2,213 1,929 1,573 1,298 658 811 722 801 681
- ------------------------------------------------------------------------------------------------------------------------------------
Effective tax rate--continuing
operations 28.0% 24.8% 27.0% 30.0% 30.2% 28.2% 16.6% 27.2% 19.5% 25.4% 23.6%
Depreciation $ 473 420 363 309 277 236 206 209 183 167 160
Property, plant and equipment additions 1,561 1,198 878 690 635 620 575 592 505 466 388
Cash dividends paid 1,148 976 881 771 659 594 536 487 437 397 364
- ------------------------------------------------------------------------------------------------------------------------------------
As of December 31
- ------------------------------------------------------------------------------------------------------------------------------------
Working capital(3) $ 2,006 2,739 2,448 1,914 1,787 1,582 1,875 2,749 1,978 1,920 2,026
Property, plant and equipment--net 5,343 4,415 3,793 3,456 3,113 2,747 2,320 1,994 2,061 1,808 1,565
Total assets(3) 20,574 18,302 14,991 14,251 12,339 10,797 8,986 9,346 9,387 8,782 8,099
Long-term debt 525 527 725 681 828 604 571 571 393 189 181
Long-term capital(4) 9,738 9,551 8,819 7,907 6,518 5,150 4,643 5,453 5,725 5,643 5,034
Shareholders' equity 8,887 8,810 7,933 6,954 5,506 4,324 3,866 4,719 5,026 5,092 4,536
- ------------------------------------------------------------------------------------------------------------------------------------
Per common share data:
Basic:
Income from continuing operations
before effect of accounting changes $ .85 .51 .55 .47 .38 .31 .14 .25 .15 .17 .14
Discontinued operations--net of tax (.01) .37 .04 .05 .05 .04 .03 (.04)(2) .03 .03 .03
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ .84 .88 .59 .52 .43 .35 .17 .21 .18 .20 .17
- ------------------------------------------------------------------------------------------------------------------------------------
Diluted:
Income from continuing operations
before effect of accounting changes $ .82 .49 .53 .46 .37 .30 .14 .24 .14 .17 .14
Discontinued operations--net of tax -- .36 .04 .04 .05 .05 .03 (.04)(2) .04 .03 .03
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ .82 .85 .57 .50 .42 .35 .17 .20 .18 .20 .17
- ------------------------------------------------------------------------------------------------------------------------------------
Market value per share (December 31) $ 32.44 41.67 24.85 13.83 10.50 6.44 5.75 6.04 7.00 3.37 2.90
Return on shareholders' equity 35.9% 40.0% 29.7% 31.0% 32.0% 31.7% 15.3% 16.6% 14.3% 16.6% 15.4%
Cash dividends paid per share $.30 2/3 .25 1/3 .22 2/3 .20 .17 1/3 .15 2/3 .14 .12 1/3 .11 .10 .09 1/3
Shareholders' equity per share $ 2.36 2.33 2.10 1.85 1.48 1.18 1.04 1.21 1.27 1.29 1.14
Current ratio 1.22:1 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
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted average shares used
to calculate:
Basic earnings per share amounts 3,775 3,789 3,771 3,743 3,687 3,670 3,785 3,948 3,963 3,966 3,972
Diluted earnings per share amounts 3,884 3,945 3,909 3,864 3,777 3,729 3,845 4,038 4,072 4,046 4,073
Employees of continuing operations
(thousands) 51 46 41 39 37 34 33 33 35 33 33
- ------------------------------------------------------------------------------------------------------------------------------------
Total revenues per employee (thousands) $ 318 292 269 256 238 202 184 177 154 145 129
====================================================================================================================================
</TABLE>
All financial information reflects the divestitures of our MTG and food
science businesses as discontinued operations.
We have restated all common share and per share data for the 1999, 1997,
1995 and 1991 stock splits.
(1) Divestitures, restructuring and unusual items--net includes 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--charge of $313
million or $.08 per share; SFAS No. 109--credit of $30 million or $.01 per
share. Per share amounts of accounting changes are included in per share
amounts presented for discontinued operations.
(3) Includes net assets of discontinued operations of our MTG businesses
through 1997.
(4) Defined as long-term debt, deferred taxes on income, minority interests and
shareholders' equity.
62
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
The following is a list of subsidiaries of the Company as of December 31, 1999,
omitting some subsidiaries which, considered in THE AGGREGATE, WOULD NOT
CONSTITUTE A SIGNIFICANT SUBSIDIARY.
NAME WHERE INCORPORATED
A S Ruffel (Mozambique) Limitada.......................... Mozambique
A S Ruffel (Private) Ltd.................................. Zimbabwe
A.S. Ruffel (Proprietary) Limited......................... South Africa
A/O Pfizer................................................ Russia
AMS Medical Systems AG.................................... Switzerland
Adforce Inc............................................... United States
Anaderm Research Corp..................................... United States
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....................... United States
Community Health Care Solutions LLC ...................... United States
Compania Distribuidora Del Centro, S.A. de C.V............ Mexico
Dental Zement G.m.b.H..................................... Germany
Disease Management Sciences Inc........................... United States
Duchem Laboratories Limited............................... India
Farkemo S.r.l............................................. Italy
Farminova, Produtos Farmaceuticos de Inovacao, Lda........ Portugal
HII Holding, LLC.......................................... United States
Harmag, Inc............................................... Panama
Health Care Ventures, Inc................................. United States
Heinrich Mack Nachf. G.m.b.H. & Co. KG.................... Germany
Howmedica France S.C.A.................................... France
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....................................... United States
MTG Divestitures Handels GmbH............................. Austria
MTG Divestitures Inc...................................... United States
MTG Divestitures Limited.................................. United Kingdom
MTG Divestitures Pty Ltd.................................. Australia
Measureaim................................................ United Kingdom
<PAGE>
Nefox Farma, S.A.......................................... Spain
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 Africa & Middle East Company for
Pharmaceuticals, Animal Health & Chemicals S.A.E.......... Egypt
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 Antilles Holdings N.V.............................. Netherlands Antilles
Pfizer B.V................................................ Netherlands
Pfizer Beteiligungs G.m.b.H............................... Germany
Pfizer Bioquimicos S.A.................................... Venezuela
Pfizer Canada Inc......................................... Canada
Pfizer Chemical Corp. Ltd................................. Isle of Man
Pfizer Cia Ltda........................................... Ecuador
Pfizer Commercial Holdings Limited........................ Isle of Man
Pfizer Consumer Healthcare S.r.l.......................... Italy
Pfizer Coordination Center................................ Morocco
Pfizer Corporation........................................ Panama
Pfizer Corporation Austria G.m.b.H........................ Austria
Pfizer Dental Products Corp............................... United States
Pfizer Distribution Company............................... Ireland
Pfizer Egypt S.A.E........................................ Egypt
Pfizer Enterprises Inc.................................... United States
Pfizer European Service Center N.V........................ Belgium
Pfizer Export Company..................................... Ireland
Pfizer G.m.b.H............................................ Germany
Pfizer Global Holdings B.V................................ Netherlands
Pfizer Group Limited...................................... United Kingdom
Pfizer H.C.P. Corporation................................. United States
Pfizer Health Solutions Inc............................... United States
Pfizer Hellas, A.E........................................ Greece
Pfizer Holding 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
2
<PAGE>
Pfizer International Holdings Limited..................... Ireland
Pfizer International Inc.................................. United States
Pfizer Italiana S.p.A..................................... Italy
Pfizer Laboratories (Proprietary) Limited................. South Africa
Pfizer Laboratories Korea Limited......................... South Korea
Pfizer Laboratories Limited............................... Kenya
Pfizer Laboratories Limited............................... New Zealand
Pfizer Laboratories Limited............................... Pakistan
Pfizer Limitada........................................... Angola
Pfizer Limited............................................ Ghana
Pfizer Limited............................................ India
Pfizer Limited............................................ Tanzania
Pfizer Limited............................................ Thailand
Pfizer Limited............................................ Uganda
Pfizer Limited............................................ United Kingdom
Pfizer Ltd................................................ Taiwan
Pfizer Manufacturing Ireland.............................. Ireland
Pfizer Manufacturing LLC.................................. United States
Pfizer Med-Inform Beratungs G.m.b.H....................... Austria
Pfizer Medical Systems, Inc............................... United States
Pfizer Medical Technology Group (Belgium) N.V............. Belgium
Pfizer Medical Technology Group (Netherlands) B.V. ....... 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.................................... United States
Pfizer Overseas, Inc...................................... United States
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
(a/k/a Pfizer Kft. or Pfizer LLC) ................... Hungary
Pfizer Pharmaceuticals B.V................................ Netherlands
Pfizer Pharmaceuticals Inc.
[a/k/a Pfizer Seiyaku Kabushiki Kaisha (PSK)] ....... Japan
Pfizer Pharmaceuticals Jersey Limited..................... Isle of Jersey
Pfizer Pharmaceuticals Korea Limited...................... South Korea
Pfizer Pharmaceuticals LLC................................ United States
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............................... United States
Pfizer Pharmaceutics Israel Ltd........................... Israel
Pfizer Pigments Inc....................................... United States
Pfizer Polska Sp. z.o.o................................... Poland
Pfizer Private Limited.................................... Singapore
Pfizer Production LLC..................................... United States
Pfizer Products Inc....................................... United States
Pfizer Pty. Ltd........................................... Australia
Pfizer Research and Development Company N.V. / S.A........ Belgium / Ireland
Pfizer Ringaskiddy Production Company..................... Isle of Man
Pfizer S.A................................................ Peru
3
<PAGE>
Pfizer S.A................................................ Belgium
Pfizer S.A................................................ Colombia
Pfizer S.A................................................ Costa Rica
Pfizer S.A................................................ France
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 Ventures Limited................................... Isle of Jersey
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....................... United States
Quigley Company Inc....................................... United States
Radiologic Sciences, Inc.................................. United States
Roerig A.B................................................ Sweden
Roerig B.V................................................ Netherlands
Roerig Farmaceutici Italiana S.p.A........................ Italy
Roerig S.A................................................ Chile
Roerig, Produtos Farmaceuticos, Lda....................... Portugal
Roerig, S.A............................................... Venezuela
S.D. Investments Pty. Ltd................................. Australia
Shiley Incorporated....................................... United States
Shiley International...................................... United States
Shiley Ltd................................................ United Kingdom
Site Realty, Inc.......................................... United States
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...................................... United States
Vinci Farma, S.A. ........................................ Spain
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 14, 2000 on the consolidated balance sheets of Pfizer Inc. and
Subsidiary Companies as of December 31, 1999, 1998 and 1997 and the related
consolidated statements of income, shareholders' equity and cash flows for the
years then ended, as contained in the Pfizer Inc. 1999 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 ended
December 31,1999.
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),
o Form S-8 dated April 22, 1999 (File No. 333-76839), and
o Form S-4 dated March 9, 2000 (File No. 333-90975).
s/KPMG LLP
New York, New York
March 24, 2000
<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, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 739
<SECURITIES> 3,703
<RECEIVABLES> 3,932
<ALLOWANCES> (68)
<INVENTORY> 1,654
<CURRENT-ASSETS> 11,191
<PP&E> 8,037
<DEPRECIATION> (2,694)
<TOTAL-ASSETS> 20,574
<CURRENT-LIABILITIES> 9,185
<BONDS> 525
0
0
<COMMON> 213
<OTHER-SE> 18,812
<TOTAL-LIABILITY-AND-EQUITY> 20,574
<SALES> 14,133
<TOTAL-REVENUES> 16,204
<CGS> 2,528
<TOTAL-COSTS> 2,528
<OTHER-EXPENSES> 2,776
<LOSS-PROVISION> 32
<INTEREST-EXPENSE> 223
<INCOME-PRETAX> 4,448
<INCOME-TAX> 1,244
<INCOME-CONTINUING> 3,199
<DISCONTINUED> (20)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,179
<EPS-BASIC> .84
<EPS-DILUTED> .82
<FN>
<F1> Financial data schedules for periods other than the years ended December
31, 1998 and 1997 and the six-month period ended June 28, 1998 have not been
restated to reflect the three-for-one stock split distributed June 30, 1999.
</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, 1998 RESTATED TO REFLECT
THE JUNE 1999 THREE-FOR-ONE STOCK SPLIT IN THE FORM OF A 200 PERCENT STOCK
DIVIDEND. 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-31-1998
<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> 210
<OTHER-SE> 16,945
<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-BASIC> .88
<EPS-DILUTED> .85
<FN>
<F1> Financial data schedules for periods other than the years ended December
31, 1998 and 1997 and the six-month period ended June 28, 1998 have not been
restated to reflect the three-for-one stock split distributed June 30, 1999.
</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 JUNE 1999 THREE-FOR-ONE STOCK SPLIT IN THE FORM OF A 200 PERCENT STOCK
DIVIDEND. 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> 207
<OTHER-SE> 12,450
<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-BASIC> .59
<EPS-DILUTED> .57
<FN>
<F1> Financial data schedules for periods other than the years ended December
31, 1998 and 1997 and the six-month period ended June 28, 1998 have not been
restated to reflect the three-for-one stock split distributed June 30, 1999.
</FN>
</TABLE>
