UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 3, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
COMMISSION FILE NUMBER 1-3619
--
PFIZER INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-5315170
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
235 East 42nd Street, New York, New York 10017
(Address of principal executive offices, including zip code)
(212) 573-2323
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
At July 29, 1994, there were 314,244,694 shares, par value $.10, of the
issuer's common stock outstanding.
PFIZER INC.
FORM 10-Q
For the Quarter Ended
July 3, 1994
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements: Page
Condensed Consolidated Statement of Income for the
three months and six months ended July 3, 1994 and
July 4, 1993 3
Condensed Consolidated Balance Sheet at July 3, 1994,
December 31, 1993 and July 4, 1993 4
Condensed Consolidated Statement of Cash Flows for the
six months ended July 3, 1994 and July 4, 1993 5
Notes to Condensed Consolidated Financial Statements 6
Independent Auditors' Report 8
Item 2.
Management's Discussion and Analysis 9
PART II. OTHER INFORMATION
Item 1.
Legal Proceedings 18
Item 4.
Submission of Matters to a Vote of Security Holders 19
Item 6.
Exhibits and Reports on Form 8-K. 20
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
PFIZER INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
Three Months Ended Six Months Ended
July 3, July 4, July 3, July 4,
1994 1993 1994 1993
(millions of dollars, except per share data)
Net sales....................................... $ 1,923.3 $ 1,748.7 $ 3,906.2 $ 3,616.0
Operating costs and expenses
Cost of sales................................. 464.1 437.1 896.3 860.5
Selling, informational and
administrative expenses..................... 800.0 757.9 1,530.5 1,498.6
Research and development expenses............. 262.0 230.8 516.7 446.2
Divestitures, restructuring and
unusual items - net......................... - (26.8) - 2.0
Income from operations.......................... 397.2 349.7 962.7 808.7
Interest income............................... 28.3 42.0 50.9 82.0
Interest expense.............................. (29.6) (26.8) (63.8) (51.7)
Other income.................................. 6.2 17.5 10.9 24.3
Other deductions.............................. (32.3) (38.5) (60.9) (75.1)
Non-operating income/
(deductions) - net....................... (27.4) (5.8) (62.9) (20.5)
Income before provision for taxes on
income and minority interests................. 369.8 343.9 899.8 788.2
Provision for taxes on income................... 110.9 89.6 269.9 205.1
Minority interests.............................. 1.7 .5 2.0 .3
Net income...................................... $ 257.2 $ 253.8 $ 627.9 $ 582.8
========== ========== ========== ==========
Earnings per common share....................... $ .84 $ .79 $ 2.02 $ 1.80
========== ========== ========== ==========
Cash dividends per common share................. $ .47 $ .42 $ .94 $ .84
========== ========== ========== ==========
<FN>
See accompanying Notes to Condensed Consolidated Financial Statements.
PFIZER INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEET
July 3, Dec. 31, July 4,
(millions of dollars) 1994* 1993** 1993*
ASSETS
Current Assets
Cash and cash equivalents........................ $ 804.1 $ 729.4 $ 1,159.9
Short-term investments........................... 614.4 447.1 833.7
Accounts receivable, less allowances
July 3, 1994 - $40.6; Dec. 31, 1993 -
$40.6; July 4, 1993 - $38.7.................... 1,548.6 1,468.7 1,513.1
Short-term loans................................. 405.7 456.9 587.4
Inventories
Finished goods................................. 500.9 413.3 462.7
Work in process................................ 540.2 502.1 531.6
Raw materials and supplies..................... 198.5 178.1 197.6
Total inventories............................. 1,239.6 1,093.5 1,191.9
Prepaid expenses and taxes....................... 559.3 537.6 461.2
Total current assets.......................... 5,171.7 4,733.2 5,747.2
Long-term loans and marketable securities.......... 723.3 586.7 598.4
Property, plant and equipment, less accumulated
depreciation July 3, 1994 - $1,829.0; Dec. 31,
1993 - $1,668.2; July 4, 1993 - $1,617.8......... 2,805.6 2,632.5 2,480.1
Goodwill, less accumulated amortization............ 288.7 231.1 362.8
Other assets, deferred taxes and deferred charges.. 1,110.6 1,147.4 830.3
Total assets.................................. $10,099.9 $9,330.9 $10,018.8
========= ======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term borrowings, including current portion
of long-term debt July 3, 1994 - $1.4;
Dec. 31, 1993 - $3.6; July 4, 1993 - $1.6..... $ 1,836.2 $1,178.8 $ 2,160.6
Accounts payable................................ 427.1 479.1 384.3
Income taxes payable............................ 617.6 606.2 346.5
Dividends payable............................... 149.0 - 133.6
Accrued compensation and related items.......... 346.1 408.6 378.3
Other current liabilities....................... 910.2 770.9 692.9
Total current liabilities.................... 4,286.2 3,443.6 4,096.2
Long-term debt.................................... 570.2 570.5 574.4
Postretirement benefit obligation other than
pension plans................................... 443.2 443.3 453.7
Deferred taxes on income.......................... 239.2 189.4 201.4
Other non-current liabilities..................... 776.3 779.3 450.6
Minority interests................................ 36.8 39.3 34.1
Total liabilities............................ 6,351.9 5,465.4 5,810.4
Shareholders' Equity
Preferred stock................................. - - -
Common stock.................................... 33.9 33.9 33.8
Additional paid-in capital...................... 462.8 491.7 405.7
Retained earnings............................... 5,420.7 5,240.7 5,299.1
Currency translation adjustment and other....... 129.4 31.7 107.0
Employee benefit trust.......................... (620.6) (690.0) -
Common stock in treasury, at cost............... (1,678.2) (1,242.5) (1,637.2)
Total shareholders' equity................... 3,748.0 3,865.5 4,208.4
Total liabilities and shareholders' equity... $10,099.9 $9,330.9 $10,018.8
========== ========= ==========
<FN>
* Unaudited
** Condensed from audited financial statements.
See accompanying Notes to Condensed Consolidated Financial Statements.
PFIZER INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Six Months Ended
July 3, July 4,
(millions of dollars) 1994 1993
Operating Activities
Net income......................................... $ 627.9 $ 582.8
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of intangibles....... 139.5 125.2
Divestitures, restructuring and unusual items...... - 2.0
Other.............................................. (2.0) (9.5)
Changes in operating assets and liabilities:
Accounts receivable.............................. (69.1) (101.6)
Inventories...................................... (117.5) (123.3)
Prepaid and other assets......................... (29.7) (14.9)
Accounts payable and accrued liabilities......... 8.8 (181.5)
Income taxes payable............................. 11.0 (40.1)
Other deferred items............................. 33.9 22.2
Net cash provided by operating activities............ 602.8 261.3
Investing Activities
Purchases of property, plant and equipment......... (289.1) (286.7)
Purchases of short-term investments................ (786.4) (557.8)
Proceeds from redemptions of short-term
investments..................................... 626.3 217.8
Proceeds from sale of business..................... - 241.2
Purchases of long-term investments................. (115.8) (97.0)
Purchases and redemptions of short-term
investments by financial subsidiaries........... 29.5 17.5
Net change in loans and long-term investments by
financial subsidiaries.......................... (4.8) 36.0
Other investing activities......................... 49.6 173.9
Net cash used in investing activities................ (490.7) (255.1)
Financing Activities
Increase in short-term debt........................ 657.7 905.3
Employee benefit transactions...................... 18.5 24.5
Purchases of common stock.......................... (434.9) (781.7)
Cash dividends paid................................ (298.9) (269.4)
Other financing activities......................... 12.7 6.0
Net cash used in financing activities................ (44.9) (115.3)
Effect of exchange rate changes on cash and cash
equivalents..................................... 7.5 11.9
Net increase/(decrease) in cash and cash equivalents. 74.7 (97.2)
Cash and cash equivalents balance at beginning of
period.......................................... 729.4 1,257.1
Cash and cash equivalents balance at end of period... $ 804.1 $1,159.9
========= =========
See accompanying Notes to Condensed Consolidated Financial Statements.
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1: Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with the rules and regulations of the United
States Securities and Exchange Commission. Accordingly, certain information
and footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been con-
densed or omitted.
Subsidiaries operating outside the United States generally are included on
the basis of interim periods ended May 29, 1994 and May 30, 1993.
Pfizer Inc. ("the Company") records insurance recoveries related to accruals
for contingent liabilities only when it is ascertained that such recoveries
are probable. At July 3, 1994, expected recoveries related to environmental
liabilities are included in the Balance Sheet caption "Other assets, deferred
taxes and deferred charges". This is a reclassification from the first
quarter of 1994 when such recoveries were included in "Prepaid expenses
and taxes".
Note 2: Responsibility for Interim Financial Statements
The Company is responsible for the accompanying unaudited interim financial
statements which reflect all normal and recurring adjustments considered
necessary for a fair presentation of the results for the periods presented.
The interim financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's latest
annual report on Form 10-K.
The results of operations for the interim periods ended July 3, 1994 are not
necessarily indicative of the results which ultimately might be expected for
the current year.
Note 3: Earnings Per Common Share
Earnings per common share are computed by dividing net income by the weighted
average number of common shares and common share equivalents outstanding.
Common share equivalents consist of shares issuable upon exercise of stock
options. The weighted average number of common shares and common share
equivalents totaled 310.9 million and 323.9 million for the first six months
of 1994 and 1993, respectively.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Note 4: Currency Impact
An analysis of the changes in the Currency translation adjustment for the
six months ended July 3, 1994 is as follows:
(millions of dollars) (Debit)/Credit
Currency translation adjustment December 31, 1993 $ 31.7
Translation adjustments and gains and losses from certain
hedges and intercompany balances 85.7
Currency translation adjustment July 3, 1994 $ 117.4
========
The balance sheet caption Currency Translation Adjustment and Other also in-
cludes an unrealized gain of $12.0 million on Investment Securities avail-
able for sale in accordance with Statement of Financial Accounting Standards
No. 115.
Exchange losses included in "Other deductions" were as follows:
1994 1993
(millions of dollars)
Second Quarter $(4.2) $ (6.7)
======= =======
Six Months $(6.3) $(11.0)
======= =======
Note 5: Interest and Income Tax Payments
The Company made interest payments of approximately $50 million and $54
million and income tax payments of approximately $232 million and $222 million
during the first six months of 1994 and 1993, respectively.
Note 6: Divestitures, Restructuring and Unusual Items
In the second quarter of 1993, the Company sold its remaining interest of
approximately 40% in Minerals Technologies Inc., a company comprised of the
Company's former specialty minerals businesses. The sale resulted in a
pre-tax gain of approximately $60 million that was partially offset by a $33
million charge for restructuring, consolidation and streamlining of certain
of the Company's businesses. These items are included in the second quarter
and six months 1993 results. Also included in the six months 1993 results
were- restructuring charges of $29 million recorded in the first quarter of
1993.
Note 7: Subsequent Event
The Company acquired Restiva Italiana S.p.A. on August 3, 1994. Restiva
produces and sells a wide range of innovative and dermatologically tested
products for skin and hair care. Restiva had 1993 sales of approximately
$15 million.
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of Pfizer Inc.:
We have reviewed the accompanying condensed consolidated balance sheet of
Pfizer Inc. and subsidiary companies as of July 3, 1994 and July 4, 1993 and
the related condensed consolidated statements of income for each of the three
month and six month periods then ended and cash flows for the six month
periods then ended. These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying condensed consolidated financial statements
referred to above for them to be in conformity with generally accepted
accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Pfizer Inc. and subsidiary com-
panies as of December 31, 1993, and the related consolidated statements of
income, shareholders' equity, and cash flows for the year then ended (not
presented herein); and in our report dated February 24, 1994, we expressed
an unqualified opinion on those consolidated financial statements. In our
opinion, the information set forth in the accompanying condensed consolidated
balance sheet as of December 31, 1993, is fairly presented, in all material
respects, in relation to the consolidated balance sheet from which it has
been derived.
In the first quarter of 1994, the Company adopted the provisions of the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities".
KPMG Peat Marwick LLP
New York, New York
August 15, 1994
Item 2. Management's Discussion and Analysis
PFIZER INC. AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE CONDENSED CONSOLIDATED
STATEMENT OF INCOME
FOR THE PERIODS ENDED JULY 3, 1994 AND JULY 4, 1993
Percent
Second Quarter Six Months Increase/(Decrease) Comparison
1994 1993 1994 1993 2nd Qtr. 1994 6 Months 1994
% of % of % of % of from from
Net Net Net Net 2nd Qtr. 1993 6 Months 1993
Sales Sales Sales Sales
100.0 100.0 100.0 100.0 Net sales 10 8
Operating costs and expenses
24.1 25.0 23.0 23.8 Cost of sales 6 4
Selling, informational and
41.6 43.3 39.2 41.5 administrative expenses 6 2
Research and development
13.6 13.2 13.2 12.3 expenses 14 16
Divestitures, restructuring
- (1.5) - - and unusual items - net * *
20.7 20.0 24.6 22.4 Income from operations 14 19
1.5 2.4 1.3 2.2 Interest income (33) (38)
(1.6) (1.5) (1.6) (1.4) Interest expense 10 23
.3 1.0 .3 .7 Other income (65) (55)
(1.7) (2.2) (1.6) (2.1) Other deductions (16) (19)
Non-operating income/
(1.5) (.3) (1.6) (.6) (deductions) - net 372 207
Income before provision for
taxes on income and minority
19.2 19.7 23.0 21.8 interests 8 14
5.8 5.2 6.9 5.7 Provision for taxes on income 24 32
- - - - Minority interests 240 567
13.4 14.5 16.1 16.1 Net income 1 8
======= ======= ======= =======
$ .84 $ .79 $ 2.02 $ 1.80 Earnings per common share 6 12
======= ======= ======= =======
Cash dividends per common
$ .47 $ .42 $ .94 $ .84 share 12 12
======= ======= ======= =======
30.0% 26.0% 30.0% 26.0% Effective tax rate
======= ======= ======= =======
* Calculation not meaningful.
Item 2.
PFIZER INC. AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE CONSOLIDATED
NET SALES BY BUSINESS SEGMENT
FOR THE PERIODS ENDED JULY 3, 1994 AND JULY 4, 1993
(MILLIONS OF DOLLARS)
Percent
Increase/(Decrease)
Second Quarter Comparison
% of % of 2nd Qtr. 1994
Net Net From
1994 Sales 1993 Sales 2nd Qtr. 1993
$1,598.1 83.1 $1,433.9 82.0 Health Care 11
106.7 5.5 94.2 5.4 Consumer Health Care 13
77.1 4.0 85.4 4.9 Food Science (10)
141.4 7.4 135.2 7.7 Animal Health 5
$1,923.3 100.0 $1,748.7 100.0 Consolidated 10
======== ===== ======== =====
Percent
Increase/(Decrease)
Six Months Comparison
% of % of Six Months 1994
Net Net From
1994 Sales 1993 Sales Six Months 1993
$3,257.4 83.4 $2,983.2 82.5 Health Care 9
213.2 5.5 192.4 5.3 Consumer Health Care 11
148.9 3.8 163.0 4.5 Food Science (9)
286.7 7.3 277.4 7.7 Animal Health 3
$3,906.2 100.0 $3,616.0 100.0 Consolidated 8
======== ===== ======== =====
PFIZER INC. AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE CONSOLIDATED
NET SALES BY GEOGRAPHIC AREA
FOR THE PERIODS ENDED JULY 3, 1994 AND JULY 4, 1993
(MILLIONS OF DOLLARS)
Percent
Increase/(Decrease)
Second Quarter Comparison
% of % of 2nd Qtr 1994
Net Net From
1994 Sales 1993 Sales 2nd Qtr 1993
$1,016.0 52.8 $ 896.3 51.3 United States 13
435.1 22.6 404.4 23.1 Europe 8
288.2 15.0 269.6 15.4 Asia 7
144.2 7.5 137.1 7.8 Canada/Latin America 5
39.8 2.1 41.3 2.4 Africa/Middle East (4)
$1,923.3 100.0 $1,748.7 100.0 Consolidated 10
======== ====== ======== ======
Percent Increase
Six Months Comparison
% of % of Six Months 1994
Net Net From
1994 Sales 1993 Sales Six Months 1993
$2,116.5 54.2 $1,955.6 54.1 United States 8
844.7 21.6 819.4 22.7 Europe 3
569.4 14.6 510.6 14.1 Asia 12
284.8 7.3 251.5 6.9 Canada/Latin America 13
90.8 2.3 78.9 2.2 Africa/Middle East 15
$3,906.2 100.0 $3,616.0 100.0 Consolidated 8
======== ====== ======== ======
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
NET SALES
The following statistical data are provided in order to assist the reader of
the Company's condensed consolidated financial statements in understanding the
composition of changes affecting the increase in net sales.
SALES GROWTH ANALYSIS
% INCREASE/(DECREASE) COMPARISON
SECOND QUARTER 1994 SIX MONTHS 1994
FROM FROM
SECOND QUARTER 1993 SIX MONTHS 1993
Volume increases 11 8
Price increases - 1
Currency fluctuations (1) (1)
Total net sales increase 10 8
==== ====
Consolidated net sales increased by 10% in the second quarter and 8% in the
first six months of 1994 to $1,923.3 and $3,906.2 million, respectively. The
health care sales performance in the second quarter versus last year reflects
a 13% increase in worldwide sales of pharmaceuticals and a 6% increase in
worldwide hospital products' sales. For the first six months of 1994, world-
wide pharmaceutical sales increased 10%, while worldwide hospital products'
sales increased 3%.
For the second quarter, U.S. pharmaceutical sales increased 16% and
International pharmaceutical sales increased 9%, while for the six months the
U.S. increase was 11% and the International increase was 10%. In the second
quarter, sales of the six products that contribute two-thirds of worldwide
pharmaceutical sales--Zoloft, Zithromax, Norvasc, Cardura, Diflucan and
Procardia XL--increased in aggregate by 23%. The first four of these account
for more than a third of worldwide pharmaceutical sales and show an aggregate
sales increase of 59% in the quarter. The following table shows the
percentage sales growth of the Company's major pharmaceuticals for the second
quarter and first six months of 1994.
Net Sales Growth of Major Pharmaceuticals 1994 vs. 1993
Percentage Increase/(Decrease)
Second Quarter Six Months
Zoloft 51 58
Zithromax 19 18
Norvasc 91 101
Cardura 44 33
Diflucan 14 12
Procardia XL (9) (4)
Feldene (*) (5) (25)
(*) This decline is largely a result of generic competition.
Sales of Procardia XL, the Company's largest-selling product, were down by 9%
in the second quarter largely due to normal fluctuations in U.S. wholesaler
stocking patterns. Underlying demand for Procardia XL is only slightly lower
than it was last year.
Hospital Products Group's sales grew 6% in the second quarter. Sales trends
in this business continue to be tempered by overall market conditions in the
medical device industry, including a preference for lower cost products,
inventory reductions and a deferral of capital purchases.
Consumer health care sales increased by 13% in the second quarter, largely due
to the success of recent line extensions in the Desitin and Unisom brands and
growth in Ben-Gay sales plus the acquisition of Charwell Pharmaceuticals
Limited in the United Kingdom.
Animal health sales increased by 5% in the quarter and reflects strong
performances by two new products, Dectomax, a broad-spectrum antiparasitic
agent, and Advocin, a fluoroquinolone antibacterial.
Food science sales declined by 10% in the second quarter, reflecting the
continuing phase-out of commodity chemicals in favor of proprietary food
products, sales of which increased by 6%.
OPERATING COSTS AND EXPENSES
Income from operations for the second quarter and first six months of 1993
includes a pre-tax gain of approximately $60 million on the sale of the
Company's remaining interest in Minerals Technologies Inc., partially offset
by a $33 million restructuring charge. Also included in the six months of
1993 results are restructuring charges of $29 million recorded in the first
quarter of 1993. On an ongoing basis, income from operations for the second
quarter increased by 23%.
As a percentage of net sales, cost of sales and selling, informational and
administrative expenses decreased in the second quarter and first six months
of 1994 compared with the same periods of 1993. The improvement in cost of
sales reflects the favorable impact of business product mix, while the
improvement in selling, informational and administrative expenses continues to
reflect differences in the timing of marketing programs relative to the prior
year as well as the beneficial impact of continuous improvements. This was
partially offset by a $10.75 million Shiley Heart Valve settlement with the
U.S. Department of Justice as described in Part II Item 1: Legal Proceedings.
The decrease in cost of sales as well as selling, informational and admin-
istrative expenses, as a percentage of net sales, more than offset the in-
crease in research and development expenses as a percentage of net sales,
so that operating margins increased in the second quarter and first six
months of 1994 versus last year's comparable periods.
The Company is committed to an expanding research effort, particularly in the
health care segment. Health care research and development expenses, expressed
as a percentage of health care net sales, were 15.4% and 15.0% in the first
six months of 1994 and 1993, respectively. In 1994, the Company plans to
spend in excess of $1.1 billion on research and development expenses.
In July 1994, the Company received clearance by the U.S. Food and Drug
Administration to market Diflucan for vaginal candidiasis, a common
yeast infection due to Candida. Diflucan is the first single-dose oral
treatment for vaginal candidiasis. Diflucan was first introduced in the
United Kingdom in 1988 for vaginal candidiasis and has been available in
the U.S. since early 1990 for the treatment of various fungal infections.
Glucotrol XL, the extended-release version of Glucotrol, was introduced in the
U.S. during the second quarter. Glucotrol XL combines Pfizer's oral hypogly-
cemic agent glipizide for the treatment of non-insulin-dependent diabetes with
Alza Corporation's GITS technology, which is used with Procardia XL. A single
daily dose of Glucotrol XL provides effective glucose control over a 24-hour
period.
NON-OPERATING INCOME (DEDUCTIONS)
The decline in interest income versus the second quarter and first six months
of last year was primarily attributable to changes in the capital structure of
the Company.
The decline in other income versus the second quarter and first six months of
1993 was due to the settlement of a doxycycline patent infringement case in
France in the second quarter of 1993.
Given the introduction of new products in the Latin American market, the
Company changed the scope and nature of its foreign exchange hedging program
which served to increase interest expense but reduced the devaluation impact
in the Statement of Income. This accounted for the decrease in Other Deduc-
tions versus the second quarter and first half of 1993.
PRE-TAX AND NET INCOME
The Company's effective tax rate increased from 26 percent in 1993 to 30
percent this year, largely attributable to the reduction in the tax benefit
associated with manufacturing operations in Puerto Rico.
OTHER
In February 1993, the Company announced a program to purchase up to 20 million
shares of its currently issued common stock in the open market or in privately
negotiated transactions. Common stock purchased under the program will be
held in the Company treasury and will be available for use in the Company's
employee benefit plans and for general corporate purposes. Under this stock
repurchase program, in the first six months of 1994, approximately 7.5 million
shares were purchased in the open market at an average price of $58 per share.
This substantially completes the announced 20 million share repurchase.
In the first six months of 1993, total shares purchased on the open market
were 12.0 million at an average cost of approximately $65 a share.
The U.S. Patent Office has issued a "composition of matter" patent to Bayer
A.G. covering nifedipine crystals with surface areas of specified sizes,
including the size used for nifedipine in Procardia XL. Patent royalties
payable to Bayer on nifedipine sales will increase assuming this new patent
appropriately covers Procardia XL. As a result, an increased associated
royalty obligation of $18 million pre-tax was recorded in the second
quarter of 1994.
For the past several years, the environment in which the Company operates has
undergone significant change as evidenced by the changing nature of the busi-
ness and characteristics of the global marketplace, the increase and change in
competition, global health care reform and the reduction of residual trade
barriers in North America and Europe to create large single markets for
goods and services. In 1993, the Company initiated a program which recog-
nized the need to restructure the Company's global operations in response to
these environmental changes. The 1993 worldwide restructuring program en-
compasses over 60 of the Company's operations located in over 25 countries.
Restructuring actions include the consolidation of manufacturing facilities
resulting in the planned elimination of 4 facilities within the US and 32
facilities internationally, the demolition of buildings resulting from the
consolidation, reconfiguration and rehabilitation of remaining facilities,
the consolidation of distribution and administrative organizations and infra-
structures including the consolidation of US distribution facilities from 6
to 2 and the consolidation of finance organizations in Europe from 34 to 6.
Such actions are expected to result in a reduction of personnel by 3,000.
As a result of the global scope of the programs involved, the nature of the
industry and the need to comply with various legal requirements, it is ex-
pected that the program will require three years to complete.
To date, the Company's efforts have resulted in a workforce reduction of
approximately 540 people and the closure of 4 facilities. On a worldwide
basis, approximately 40% of the planned 3,000 employees included in the work-
force reduction are expected to have received notification of their termina-
tion by the end of 1994. The initiatives are projected to lower annual opera-
ting costs by at least $130 million when the full benefits of efficiencies
are realized. As a result of the restructuring efforts to date, the annual-
ized benefit of completed efforts is approximately $30 million. Through
July 3, 1994, there have been no reclassifications between the components
presented below, nor have there been changes in estimates of the cost of the
plan.
The following table indicates the status of the restructuring charges by
component:
Reserves
1993 4th Quarter 1st Quarter 2nd Quarter Remaining
Restructuring 1993 1994 1994 at July 3,
(in millions of dollars) Charges Utilization Utilization Utilization 1994
Employee severance
payments $230.7 $ 25.8 $ 3.3 $ 6.5 $195.1
Operating assets to
be sold/disposed 211.7 61.5 26.8 .1 123.3
Closed facilities'
costs 101.1 1.5 4.4 .9 94.3
Currency translation
adjustment related
to the liquidation/
disposal of busi-
nesses 57.8 57.8 - - -
Administrative infra-
structures 37.6 .7 .4 .7 35.8
Lease and third party
contract termination
payments 37.0 .8 9.8 - 26.4
Other 14.3 1.2 1.9 .5 10.7
$690.2 $149.3 $ 46.6 $ 8.7 $485.6
====== ====== ====== ====== ======
<FN>
Writedowns of operating assets, which primarily involve manufacturing ration-
alizations, are considered utilized when the asset is sold or otherwise
disposed of by the Company. Closed facilities' costs relate primarily to
the rationalization of fermentation capacity, as well as costs related to
the demolition of structures within certain manufacturing facilities, and
are considered utilized when third party payments are made. Charges for
currency translation adjustments relate to reversals of previously re-
corded currency translation adjustments associated with overseas businesses
to be divested or liquidated under the restructuring plan. Administra-
tive infrastructure costs relate primarily to consulting costs involved in
restructuring the administrative support organizations and the distribution
centers. The resulting revised administrative organizational structure with
common integrated systems and processes is integral to the realization of
the consolidation of operations implicit in the restructuring since each
operation consisted of specialized administrative staffs and processes to
support the former manufacturing and distribution centers. Lease and third
party contract termination payments consist of lease termination payments
and payments made to independent distributors to terminate existing relation-
ships. Other provisions principally consist of provisions for environmental
matters associated with restructured operations, the writedown of goodwill
and other intangibles, as well as other miscellaneous restructuring pro-
visions. No payments, other than employee severance payments, were made to
employees. All other payments which are incorporated in items included
above have been or will be made to consultants and other third parties.
ANALYSIS OF LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents and short-term investments, totaled $1,418.5 million
at July 3, 1994, as compared to $1,176.5 million at year-end 1993. Total
borrowings were $2,406.4 million at July 3, 1994 compared to $1,749.3 million
at year-end 1993. Working capital at July 3, 1994, decreased versus December
31, 1993 and July 4, 1993. The decrease from December 31, 1993 was primarily
attributable to higher short-term borrowings, partially offset by higher cash
and cash equivalents, short-term investments, accounts receivable and inven-
tories. The decrease from July 4, 1993 was primarily due to lower cash and
cash equivalents, short-term investments and short-term loans plus higher
income taxes payable and accruals, partially offset by lower short-term
borrowings.
ANALYSIS OF LIQUIDITY AND CAPITAL RESOURCES
JULY 3, DEC. 31, JULY 4,
1994 1993 1993
Working capital (millions of dollars) $ 885.5 $1,289.6 $1,651.0
Current ratio 1.21:1 1.37:1 1.40:1
Debt to total capitalization (percentage)* 39% 31% 39%
Shareholders' equity per common share** + $ 12.32 $ 12.43 $ 13.40
Days of sales outstanding - trade accounts
receivable 71 63 74
Months of inventory on hand 8.9 8.5 8.6
___________________________________________________________________________
* Represents total short and long-term borrowings divided by the sum of
total short and long-term borrowings and total shareholders' equity.
** Represents shareholders' equity divided by the actual number of common
shares outstanding.
+ The decrease in shareholders' equity per common share is due to the
Company's program of purchasing its common stock.
Form 10Q
Part II - Other Information
Item 1: Legal Proceedings
The Company is involved in a number of claims and litigations, including
product liability claims and litigations considered normal in the nature of
its businesses. These include suits involving various pharmaceutical and
hospital products that allege either reaction to or injury from use of the
product.
For a discussion of matters relating to claims and actions involving the
Shiley Convexo-Concave heart valves, see the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1993. Since the filing of the
Quarterly Report on Form 10-Q for the quarterly period ended April 3, 1994, a
petition for certiorari has been filed in the U.S. Supreme Court with respect
to the Bowling Class settlement. On June 30, 1994, the Company entered into
an agreement with the U.S. Department of Justice settling claims asserted
under the False Claims Act and the common law relating to valves paid for in
whole or in part by government agencies. The settlement includes a payment of
$10.75 million and an agreement to reimburse certain future medical costs
related to valve replacements of people with valves the implantation of which
was paid for in whole or in part by any government agencies.
For a discussion of environmental matters, see the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993.
As previously reported in greater detail in the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993, the Company and Quigley
Company, Inc., a wholly-owned subsidiary, have been named as one of a number of
defendants in numerous lawsuits claiming personal injury resulting from
exposure to asbestos-containing products. The total pending caseload as of
July 22, 1994 is 11,376 asbestos cases against Quigley, 5,013 asbestos cases
against Pfizer Inc., and 378 talc cases against Pfizer Inc. The hearing on
the fairness of the future claims asbestos class settlement has been concluded
but no decision has yet been entered. A motion is also pending to challenge
the appropriateness of the numerous opt-outs from the future claims class
settlement.
For a discussion of matters relating to the Company's indemnification of
Minerals Technologies Inc. against liability with respect to certain products
manufactured and sold by the Company prior to October 30, 1992 and with
respect to certain environmental matters, see the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993.
As previously reported in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993, the Company has been named, together with
numerous other manufacturers of prescription drugs and certain companies which
distribute prescription pharmaceuticals, as a defendant in a series of related
actions alleging violations of federal or state antitrust laws, or both, and
common law. A majority of the federal actions have been coordinated and
consolidated for pretrial proceedings in the Northern District of Illinois.
The state actions currently consist of seven actions in California, three in
Alabama and one in Wisconsin. Two of the Alabama cases have been removed to
Federal Court and one of these has been transferred by the Multidistrict Panel
to Federal Court in Chicago. Defense motions to dismiss the Sherman and
Robinson-Patman Act claims were denied in the consolidated federal proceedings.
Summary judgment motions against certain of the federal claims are pending.
The Company believes these cases are without merit and is vigorously defending
them.
For a discussion of matters relating to Plax, the Company's pre-brushing
dental rinse product, see the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993.
For a discussion of matters relating to: a pending class action lawsuit
against the Company and certain officers and former directors and officers
alleging certain federal securities law violations by failing to disclose
potential liability arising out of personal injury suits involving Shiley
heart valves; and, a pending derivative action against certain directors and
officers and former directors and officers alleging breaches of fiduciary duty
and other common law violations in connection with the manufacture and
distribution of Shiley heart valves, see the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1993.
For a discussion of matters relating to a purported class action lawsuit on
behalf of patients implanted with the Howmedica PCA one-piece acetabular hip
component, see the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993.
Since the filing of the Quarterly Report on Form 10-Q for the quarterly period
ended April 3, 1994, four purported class actions have been filed in United
States District Courts against American Medical Systems, Inc., a wholly-owned
subsidiary of the Company, in respect of its penile implant products. Two of
the actions, in California and Minnesota, also name Pfizer Inc. as a defendant
and define a class of all implantees. The plaintiffs in these two actions seek
monetary and injunctive relief and the establishment of a medical monitoring
fund for the plaintiffs. The two other actions, in South Carolina and
Minnesota, define a class of implantees whose prostheses were removed. The
plaintiffs in these two actions seek money damages. The Company believes
these cases are without merit and is vigorously defending them.
Item 4: Submission of Matters to a Vote of Security Holders
The shareholders of the Company voted on three matters at the Company's Annual
Meeting of Shareholders held on April 28, 1994. Matter (1) related to the
election of three director nominees: Messrs. M. Anthony Burns and Franklin D.
Raines and Dr. Stanley O. Ikenberry, to three-year terms. 270,125,943 votes
were cast for Mr. Burns and 2,398,479 were withheld. 269,881,461 votes were
cast for Mr. Raines and 2,642,961 were withheld. 270,161,099 votes were cast
for Dr. Ikenberry and 2,363,323 were withheld. Matter (2) related to the
approval of the appointment of KPMG Peat Marwick as independent auditors of
the Company for the year 1994. 270,138,972 votes were cast for approval,
930,515 were cast against and there were 1,454,935 abstentions. Matter (3)
related to the approval of the Pfizer Inc. Performance-Contingent Share Award
Plan. 258,176,964 votes were cast for approval, 10,146,496 were cast against
and there were 4,200,962 abstentions.
Based on these voting results, each of the directors nominated was elected
and matters 2 and 3 were passed. As previously stated in the Company's proxy
statement, the election of a director required a plurality of the votes pre-
sent and entitled to vote at the meeting. Passage of matter 2 required a
majority of the votes cast, and passage of matter 3 required a majority of
the votes present or represented at the Meeting and entitled to vote.
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
1) Exhibit 11 - Computation of Earnings Per Common Share
2) Exhibit 12 - Computation of Ratio of Earnings to Fixed Charges
3) Exhibit 15 - Accountants' Acknowledgement
(b) A current report on Form 8-K dated June 23, 1994 has been filed by the
Company during the second quarter ended July 3, 1994.
PFIZER INC. AND SUBSIDIARY COMPANIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
Pfizer Inc.
(Registrant)
Date: August 15, 1994 _____________________________________________
H. V. Ryan; Controller
(Principal Accounting Officer and
Duly Authorized Officer)
Exhibit 11
PFIZER INC. AND SUBSIDIARY COMPANIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(in millions, except per share data)
(unaudited)
Three Months Ended Six Months Ended
July 3, July 4, July 3, July 4,
1994 1993 1994 1993
Net income.................................. $ 257.2 $ 253.8 $ 627.9 $ 582.8
======== ======== ======== ========
Weighted average number of common shares
outstanding............................... 304.6 316.1 306.8 318.7
Common share equivalents (a)................ 4.0 5.3 4.1 5.2
Weighted average number of common shares
and common share equivalents used to
compute earnings per common share......... 308.6 321.4 310.9 323.9
======== ======== ======== ========
Earnings per common share................... $ .84 $ .79 $ 2.02 $ 1.80
======== ======== ======== ========
Net income for fully diluted
earnings per common share computation..... $ 257.2 $ 253.8 $ 627.9 $ 582.8
======== ======== ======== ========
Weighted average number of common shares
outstanding............................... 304.6 316.1 306.8 318.7
Common share equivalents and other
dilutive securities (a)................... 4.2 5.3 4.2 5.2
Weighted average number of common shares
and common share equivalents used to
compute fully diluted earnings per
common share.............................. 308.8 321.4 311.0 323.9
======== ======== ======== ========
Fully diluted earnings per common share(b).. $ .84 $ .79 $ 2.02 $ 1.80
======== ======== ======== ========
<FN>
(a) Includes common share equivalents applicable to stock option plans.
(b) This calculation is submitted in accordance with Regulation S-K item
601(b) (11) although not required by footnote 2 to paragraph 14 of APB
Opinion No. 15 because it results in dilution of less than 3%.
EXHIBIT 12
PFIZER INC. AND SUBSIDIARY COMPANIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(millions of dollars except ratios)
(Unaudited)
Six
Months
Ended
July 3, Year Ended December 31,
1994 1993 1992 1991 1990 1989
Earnings
Income before provision
for taxes on income,
minority interests, and
cumulative effect of
accounting changes...... $ 899.8 $ 851.4 $1,534.8 $ 943.7 $1,103.3 $ 916.5
Less: Minority interests.. 2.0 2.6 2.7 3.2 4.2 4.1
Undistributed earn-
ings (losses) of
unconsolidated
persons............ 2.3 .7 8.5 .8 (.3) 6.9
Adjusted income........ 895.5 848.1 1,523.6 939.7 1,099.4 905.5
Fixed charges, excluding
capitalized interest.... 78.9 135.6 130.1 155.2 153.8 144.2
Total earnings......... $ 974.4 $ 983.7 $1,653.7 $1,094.9 $1,253.2 $1,049.7
======== ======== ======== ========= ======== ========
Fixed Charges
Interest expense (includ-
ing interest expense,
amortization of debt
discount and expenses
and capitalized inter-
est).................... $ 70.2 $ 120.5 $ 115.6 $ 138.1 $ 142.4 $ 131.2
One-third of rental ex-
pense................... 15.1 29.1 26.7 25.1 21.3 18.2
Total fixed charges.... $ 85.3 $ 149.6 $ 142.3 $ 163.2 $ 163.7 $ 149.4
======== ======== ======== ======== ======== ========
Ratio of earnings to fixed
charges (a)............... 11.4 6.6 11.6 6.7 7.7 7.0
======== ======== ======== ======== ======== ========
<FN>
(a) "Earnings" consist of income before provision for taxes on income, minority
interests and cumulative effect of accounting changes less minority inter-
ests and less undistributed earnings (losses) of unconsolidated subsidiar-
ies adjusted for fixed charges, excluding capitalized interest. "Fixed
charges" consist of interest expense, amortization of debt discount and
expenses, capitalized interest and one-third of rental expense which the
Company believes to be a conservative estimate of an interest factor in its
leases. It is not practicable to calculate the interest factor in a
material portion of the Company's leases.
Exhibit 15
ACCOUNTANTS' ACKNOWLEDGEMENT
Board of Directors
Pfizer Inc.:
We hereby acknowledge the incorporation by reference by our report
dated August 15, 1994 included within the Quarterly Report on Form 10-Q of
Pfizer Inc. for the quarter ended July 3, 1994 in the Prospectus dated
December 27, 1972, as supplemented February 6, 1973, of Pfizer Inc. filed
under the Securities Act of 1933 on Registration Statement Form S-16 dated
October 27, 1972 (File No. 2-46157), as amended, in the Prospectus dated
June 14, 1979, of Pfizer Inc., in the Registration Statement on Form S-16
dated April 26, 1979 (File No. 2-64610), as amended, in the Registration
Statement on Form S-15 dated December 13, 1982 (File No. 2-80884), as amended,
on the Registration Statement on Form S-8 dated October 27, 1983 (File
No. 2-87473), as amended, in the Registration Statement on Form S-8 dated
March 22, 1990 (File No. 33-34139), in the Registration Statement on Form S-8
dated January 24, 1991 (File No. 33-38708), in the Registration Statement on
Form S-3 dated June 26, 1991 (File No. 33-41367), as amended, in the Registra-
tion Statement on Form S-8 dated November 18, 1991 (File No. 33-44053) in the
Registration Statement on Form S-3 dated May 27, 1993 (File No. 33-49629), in
the Registration Statement on Form S-8 dated May 27, 1993 (File No. 33-49631)
and in the Registration Statement on Form S-8 dated May 18, 1994 (File
No. 33-53713).
Pursuant to Rule 436(c) under the Securities Act of 1933, such report is
not considered a part of a registration statement prepared or certified by an
accountant or a report prepared or certified by an accountant within the
meaning of sections 7 and 11 of the Act.
KPMG Peat Marwick LLP
New York, New York
August 15, 1994