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 October 1, 1995
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 October 31, 1995, there were 636,153,833 shares par value
$.05, of the issuer's common stock outstanding.
PFIZER INC.
FORM 10-Q
For the Quarter Ended
October 1, 1995
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements: Page
Condensed Consolidated Statement of Income for
the three months and nine months ended
October 1, 1995 and October 2, 1994 3
Condensed Consolidated Balance Sheet at
October 1, 1995, December 31, 1994 and October 2, 1994 4
Condensed Consolidated Statement of Cash Flows for the
nine months ended October 1, 1995 and October 2, 1994 5
Notes to Condensed Consolidated Financial Statements 6
Independent Auditors' Report 10
Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
PART II. OTHER INFORMATION
Item 1.
Legal Proceedings 19
Item 6.
Exhibits and Reports on Form 8-K 25
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PFIZER INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
Three Months Ended Nine Months Ended
Oct. 1, Oct. 2, Oct. 1, Oct. 2,
1995 1994 1995 1994
(millions of dollars, except
per share data)
Net sales . . . . . . . . . . . . . . . $2,538.5 $2,006.7 $7,277.1 $5,764.0
Costs and expenses
Cost of sales . . . . . . . . . . . . 535.7 430.5 1,596.7 1,229.0
Selling, informational and
administrative expenses. . . . . . . 960.8 780.2 2,776.1 2,279.4
Research and development expenses . . 350.6 292.7 1,017.9 803.0
Other deductions--net. . . . . . . . . 64.6 24.3 163.9 89.6
Income from continuing operations
before provision for taxes on
income and minority interests . . . . 626.8 479.0 1,722.5 1,363.0
Provision for taxes on income . . . . . 206.8 143.7 568.4 408.9
Minority interests. . . . . . . . . . . .9 1.4 5.5 3.4
Income from continuing operations . . . 419.1 333.9 1,148.6 950.7
Discontinued operations, net of
income taxes . . . . . . . . . . . . . 6.2 2.6 13.4 13.7
Net income. . . . . . . . . . . . . . . $ 425.3 $ 336.5 $1,162.0 $ 964.4
Earnings per common share
Income from continuing
operations. . . . . . . . . . . . . . $ .66 $ .54 $ 1.83 $ 1.53
Discontinued operations, net of
income taxes . . . . . . . . . . . . . .01 .00 .02 .02
Net income. . . . . . . . . . . . . . . $ .67 $ .54 $ 1.85 $ 1.55
Cash dividends per common share . . . . $ .26 $ .235 $ .78 $ .705
<FN>
<F1>See accompanying Notes to Condensed Consolidated Financial Statements.
</FN>
PFIZER INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEET
(millions of dollars) Oct. 1, Dec. 31, Oct. 2,
1995* 1994** 1994*
ASSETS
Current Assets
Cash and cash equivalents . . . . . . . . .$ 733.6 $ 1,458.5 $ 894.2
Short-term investments. . . . . . . . . . . 963.0 560.1 516.9
Accounts receivable, less allowances
Oct. 1, 1995 - $56.7; Dec. 31, 1994
$44.1; Oct. 2, 1994 - $42.2 . . . . . . . 1,998.3 1,665.0 1,641.5
Short-term loans. . . . . . . . . . . . . . 245.9 361.3 574.0
Inventories
Finished goods. . . . . . . . . . . . . . 481.8 528.0 526.5
Work in process . . . . . . . . . . . . . 637.1 534.9 536.3
Raw materials and supplies. . . . . . . . 230.0 202.0 204.8
Total inventories . . . . . . . . . . . 1,348.9 1,264.9 1,267.6
Prepaid expenses, taxes,
and other assets. . . . . . . . . . . . . 847.3 478.6 531.6
Total current assets. . . . . . . . . . 6,137.0 5,788.4 5,425.8
Long-term loans and marketable securities . . 581.9 724.3 609.9
Property, plant and equipment, less
accumulated depreciation
Oct. 1, 1995 - $2,028.1;
Dec. 31, 1994 - $1,919.7;
Oct. 2, 1994 - $1,899.4 . . . . . . . . . 3,473.6 3,073.2 2,941.9
Goodwill, less accumulated amortization
Oct. 1, 1995 - $72.2; Dec. 31, 1994 -
$48.2; Oct. 2, 1994 - $44.8 . . . . . . . . 1,174.3 325.7 291.9
Other assets, deferred taxes and
deferred charges. . . . . . . . . . . . . . 1,454.3 1,186.9 1,132.0
Total assets. . . . . . . . . . . . . .$12,821.1 $11,098.5 $10,401.5
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term borrowings, including current
portion of long-term debt
Oct. 1, 1995 - $254.1; Dec. 31, 1994
$6.5; Oct. 2, 1994 - $1.8 . . . . . . .$ 3,046.4 $ 2,220.0 $ 1,796.8
Accounts payable. . . . . . . . . . . . . . 636.0 524.9 432.9
Income taxes payable. . . . . . . . . . . . 687.8 731.1 645.3
Accrued compensation and related items. . . 409.5 419.0 364.9
Other current liabilities . . . . . . . . . 1,019.7 930.9 899.1
Total current liabilities . . . . . . . 5,799.4 4,825.9 4,139.0
Long-term debt. . . . . . . . . . . . . . . . 358.2 604.2 586.3
Postretirement benefit obligation other
than pension plans. . . . . . . . . . . . . 436.7 432.6 441.4
Deferred taxes on income. . . . . . . . . . . 249.7 211.7 257.5
Other non-current liabilities . . . . . . . . 649.8 661.4 785.5
Minority interests. . . . . . . . . . . . . . 46.1 38.8 37.9
Total liabilities . . . . . . . . . . . 7,539.9 6,774.6 6,247.6
Shareholders' Equity
Preferred stock . . . . . . . . . . . . . . -- -- --
Common stock. . . . . . . . . . . . . . . . 34.2 34.0 34.0
Additional paid-in capital. . . . . . . . . 1,040.2 651.4 546.9
Retained earnings . . . . . . . . . . . . . 6,613.6 5,944.5 5,758.5
Currency translation adjustment and other . 245.2 196.0 178.2
Employee benefit trust. . . . . . . . . . . (1,001.7) (749.3) (683.7)
Common stock in treasury, at cost . . . . . (1,650.3) (1,752.7) (1,680.0)
Total shareholders' equity. . . . . . . 5,281.2 4,323.9 4,153.9
Total liabilities and
shareholders' equity . . . . . . . .$12,821.1 $11,098.5 $10,401.5
* 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)
(millions of dollars)
Nine Months Ended
Oct. 1, Oct. 2,
1995 1994
Operating Activities
Net income. . . . . . . . . . . . . . . . . . . . . . $1,162.0 $ 964.4
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization of intangibles. . . . 266.2 213.6
Changes in operating assets and liabilities,
net of effect of businesses acquired . . . . . . . (299.8) (180.3)
Other . . . . . . . . . . . . . . . . . . . . . . . 38.2 9.6
Net cash provided by operating activities . . . . . . . 1,166.6 1,007.3
Investing Activities
Acquisitions, net of cash acquired. . . . . . . . . . (1,518.8) --
Purchases of property, plant and equipment. . . . . . (493.2) (477.8)
Purchases of short-term investments . . . . . . . . . (1,861.4) (1,045.1)
Proceeds from redemptions of short-term
investments . . . . . . . . . . . . . . . . . . . . 1,540.2 977.3
Net change in loans and long-term investments
by financial subsidiaries . . . . . . . . . . . . . 342.2 (66.4)
Purchases and redemptions of short-term
investments by financial subsidiaries . . . . . . . (.1) 36.5
Purchases of long-term investments. . . . . . . . . . (99.0) (165.9)
Other investing activities. . . . . . . . . . . . . . 99.5 84.1
Net cash used in investing activities . . . . . . . . . (1,990.6) (657.3)
Financing Activities
Increase in short-term debt . . . . . . . . . . . . . 539.6 616.3
Purchases of common stock . . . . . . . . . . . . . . (108.5) (436.4)
Cash dividends paid . . . . . . . . . . . . . . . . . (492.8) (446.6)
Stock option transactions . . . . . . . . . . . . . . 151.6 31.6
Other financing activities. . . . . . . . . . . . . . 24.6 36.5
Net cash provided by/(used in) financing
activities. . . . . . . . . . . . . . . . . . . . . . 114.5 (198.6)
Effect of exchange rate changes on cash and
cash equivalents. . . . . . . . . . . . . . . . . . . (15.4) 13.4
Net (decrease)/increase in cash and
cash equivalents . . . . . . . . . . . . . . . . . . (724.9) 164.8
Cash and cash equivalents balance at beginning
of period . . . . . . . . . . . . . . . . . . . . . . 1,458.5 729.4
Cash and cash equivalents balance at end
of period . . . . . . . . . . . . . . . . . . . . . . $ 733.6 $ 894.2
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 condensed or omitted.
Subsidiaries operating outside the United States generally are included
on the basis of interim periods ended August 27, 1995 and August 28,
1994.
Note 2: Responsibility for Interim Financial Statements
Pfizer Inc. (the "Company") is responsible for the accompanying
unaudited interim financial statements which reflect all normal and
recurring adjustments considered necessary for a fair statement 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 October 1, 1995
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 626.9 million and 620.4 million for
the first nine months of 1995 and 1994, respectively. These amounts
have been adjusted for the two-for-one stock split in the form of a 100
percent stock dividend effective June 30, 1995. For further details,
see Note 8, "Stock Split," on page 8.
Note 4: Currency Impact
An analysis of the changes in the currency translation adjustment for
the nine months ended October 1, 1995 is as follows:
(millions of dollars)
Currency translation adjustment December 31, 1994 $194.0
Translation adjustments and hedges 30.4
Currency translation adjustment October 1, 1995 $224.4
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The balance sheet caption "Currency translation adjustment and other"
also includes a $20.8 million net unrealized gain on investment
securities available for sale.
Exchange gains/(losses) included in "Other deductions--net" were as
follows:
(millions of dollars) 1995 1994
Third Quarter $(8.9) $ 0.7
Nine Months $(2.7) $(5.6)
Note 5: Interest Expense
Included in "Other deductions--net" was interest expense of $46.1
million and $32.3 million for the third quarters of 1995 and 1994,
respectively. Interest expense for the first nine months of 1995 and
1994 was $152.0 million and $96.1 million, respectively.
Note 6: Acquisitions
In January 1995, the Company acquired the capital stock of certain
subsidiaries of SmithKline Beecham plc operating solely in the animal
health business and certain net assets used in the animal health
business from other SmithKline Beecham plc subsidiaries for
approximately $1.5 billion including direct costs of the acquisition.
The acquisition was substantially financed at closing by the issuance of
commercial paper. The acquired SmithKline Beecham animal health (SBAH)
business is a global business which manufactures and sells products in
four principal categories: vaccines, anti-infectives, productivity
enhancers and parasiticides.
This acquisition has been recorded under the purchase method of
accounting. The Company's results of operations for the nine months
ended October 1, 1995 include nine months of SBAH's activity in the U.S.
and eight months in international markets. The excess of the purchase
price over the estimated fair value of the tangible net assets acquired
has been allocated to identifiable intangibles of approximately $280
million and goodwill of approximately $800 million. The goodwill and
identifiable intangibles are being amortized on a straight-line basis
over periods of 10 to 40 years.
Sales of the SBAH business were approximately $423 million for the first
nine months of 1994. Pro forma net income and earnings per share for
the first nine months of 1994 that reflect this acquisition as if it had
occurred as of the beginning of the period result in a negative impact
of approximately 3% on both reported amounts. Pro forma results include
a period comparable to the first nine months of 1995 as well as interest
expense and amortization of goodwill and other intangibles related to
the acquisition. The pro forma results of operations are not
necessarily indicative of the results of operations that would have
occurred had the acquisition actually occurred as of the beginning of
the period nor are these results intended to be a projection of future
consolidated results of operations.
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
In March 1995, the Company acquired NAMIC U.S.A. Corporation for
approximately 4.4 million of the Company's common shares in a stock for
stock transaction valued at approximately $170 million including direct
costs of the acquisition.
In August 1995, the Company acquired Bain de Soleil skin care products
from the Procter & Gamble Company.
The acquisitions of NAMIC U.S.A. Corporation and Bain de Soleil have
been accounted for under the purchase method of accounting. The results
of operations of these acquired businesses have been included subsequent
to the respective dates of acquisition. Pro forma results of operations
that reflect these acquisitions as if they had occurred at the beginning
of the periods presented would not be materially different from the
reported amounts.
Note 7: Financial Instruments
During the second quarter of 1995, the Company adjusted its existing
Japanese yen option hedging program in order to enhance the protection
provided by previously purchased yen put option hedges when the
prevailing yen spot rate was considerably higher than the option strike
rate during the quarter. The Company purchased additional yen put
options equal to $104 million with maturities through 1996. In order to
offset the original put options, the Company wrote yen call options
equal to $104 million with identical terms as the previously purchased
put options. Both options are reported at market value and any market
value changes are reported in "Other deductions--net". Due to the fact
that these positions effectively offset, there is no net impact on
earnings.
Note 8: Stock Split
In April 1995, the Company announced a two-for-one stock split in the
form of a 100 percent stock dividend effective on June 30, 1995 to
shareholders of record on June 1, 1995. The split followed a vote by
Pfizer shareholders to increase the number of authorized common shares
from 750 million to 1.5 billion and to decrease the par value from $.10
to $.05 per share. The number of shares and the per share amounts
included in these consolidated financial statements have been restated
to reflect the stock split.
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Note 9: Subsequent Event - Discontinued Operations
On October 23, 1995, the Company signed a letter of intent and entered
into exclusive discussions to sell substantially all the assets of its
food science business to Cultor Ltd., a publicly held international
nutrition company based in Finland. As a result of the planned
disposal, the results of operations of the food science business are
reported as discontinued operations in the Company's statement of income
for all periods presented and the related net assets are included in
"Prepaid expenses, taxes and other assets" at October 1, 1995. Although
definitive terms of the sale are still being negotiated, the Company
does not expect the transaction to have a material effect on its
financial position or results of operations. Summary results of
operations of the business are as follows:
Three Months Ended Nine Months Ended
Oct. 1, Oct. 2, Oct. 1, Oct. 2,
1995 1994 1995 1994
(millions of dollars)
Net sales $85.8 $68.2 $232.1 $217.1
Income before provision
for taxes on income $ 9.3 $ 3.8 $ 20.0 $ 19.6
Provision for taxes on income 3.1 1.2 6.6 5.9
Net income $ 6.2 $ 2.6 $ 13.4 $ 13.7
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of Pfizer Inc.:
We have reviewed the condensed consolidated balance sheet of Pfizer Inc.
and subsidiary companies as of October 1, 1995 and October 2, 1994, and
the related condensed consolidated statements of income for each of the
three month and nine month periods then ended and cash flows for the
nine month periods then ended. These condensed consolidated financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical
procedures to financial data and making inquiries of persons responsible
for financial and accounting matters. It is substantially less in scope
than an audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly, we do
not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the condensed consolidated financial statements
referred to above for them to be in conformity with generally accepted
accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of Pfizer Inc. and
subsidiary companies as of December 31, 1994, 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 23, 1995, 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, 1994, is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been
derived.
KPMG Peat Marwick LLP
New York, New York
November 13, 1995
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PFIZER INC. AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE CONDENSED
CONSOLIDATED STATEMENT OF INCOME
FOR THE PERIODS ENDED OCTOBER 1, 1995 AND OCTOBER 2, 1994
(millions of dollars, except
per share data)
Percent
Increase/(Decrease)
Comparison
Third Quarter Nine Months 3rd Quarter Nine Months
1995 1994 1995 1994 1995/1994 1995/1994
Net sales $2,538.5 $2,006.7 $7,277.1 $5,764.0 26 26
Cost of sales $ 535.7 $ 430.5 $1,596.7 $1,229.0 24 30
% of net sales 21.1% 21.5% 21.9% 21.3%
Selling,
informational
and administrative
expenses $ 960.8 $ 780.2 $2,776.1 $2,279.4 23 22
% of net sales 37.9% 38.9% 38.2% 39.6%
Research and
development
expenses $ 350.6 $ 292.7 $1,017.9 $ 803.0 20 27
% of net sales 13.8% 14.5% 14.0% 13.9%
Other deductions--net $ 64.6 $ 24.3 $ 163.9 $ 89.6 166 83
% of net sales 2.5% 1.2% 2.2% 1.6%
Income from con-
tinuing operations
before taxes and
minority interests $ 626.8 $ 479.0 $1,722.5 $1,363.0 31 26
% of net sales 24.7% 23.9% 23.7% 23.6%
Taxes on income $ 206.8 $ 143.7 $ 568.4 $ 408.9 44 39
Effective tax rate 33.0% 30.0% 33.0% 30.0%
Minority interests $ .9 $ 1.4 $ 5.5 $ 3.4 (36) 62
Income from con-
tinuing operations $ 419.1 $ 333.9 $1,148.6 $ 950.7 26 21
% of net sales 16.5% 16.6% 15.8% 16.5%
Discontinued
operations $ 6.2 $ 2.6 $ 13.4 $ 13.7 138 (2)
% of net sales .3% .2% .2% .2%
Net income $ 425.3 $ 336.5 $1,162.0 $ 964.4 26 20
% of net sales 16.8% 16.8% 16.0% 16.7%
Earnings per
common share:
Income from con-
tinuing operations $ .66 $ .54 $ 1.83 $ 1.53 22 20
Discontinued
operations .01 .00 .02 .02 * 0
Net income $ .67 $ .54 $ 1.85 $ 1.55 24 19
Cash dividends
per common share $ .26 $ .235 $ .78 $ .705 11 11
<FN>
* Calculation not meaningful.
For explanation of percent changes, see discussion beginning on page 14.
</FN>
PFIZER INC. AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE CONSOLIDATED
NET SALES BY BUSINESS SEGMENT
FOR THE PERIODS ENDED OCTOBER 1, 1995 AND OCTOBER 2, 1994
(millions of dollars)
Percent
Increase
Third Quarter Comparison
% of % of 3rd Qtr. 1995
Net Net from
1995 Sales 1994 Sales 3rd Qtr. 1994
$2,126.6 83.8 $1,755.5 87.5 Health Care 21
303.2 11.9 142.9 7.1 Animal Health 112
108.7 4.3 108.3 5.4 Consumer Health Care 0
$2,538.5 100.0 $2,006.7 100.0 Consolidated 26
Percent
Increase/(Decrease)
Nine Months Comparison
% of % of Nine Months 1995
Net Net from
1995 Sales 1994 Sales Nine Months 1994
$6,109.7 84.0 $5,012.9 87.0 Health Care 22
860.6 11.8 429.6 7.4 Animal Health 100
306.8 4.2 321.5 5.6 Consumer Health Care (5)
$7,277.1 100.0 $5,764.0 100.0 Consolidated 26
For explanation of percent changes, see discussion beginning on page 14.
PFIZER INC. AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE CONSOLIDATED
NET SALES BY GEOGRAPHIC AREA
FOR THE PERIODS ENDED OCTOBER 1, 1995 AND OCTOBER 2, 1994
(millions of dollars)
Percent
Increase
Third Quarter Comparison
% of % of 3rd Qtr. 1995
Net Net from
1995 Sales 1994 Sales 3rd Qtr. 1994
$1,324.2 52.2 $1,088.0 54.2 United States 22
582.5 22.9 413.1 20.6 Europe 41
414.4 16.3 315.3 15.7 Asia 31
164.9 6.5 146.8 7.3 Canada/Latin America 12
52.5 2.1 43.5 2.2 Africa/Middle East 21
$2,538.5 100.0 $2,006.7 100.0 Consolidated 26
Percent
Increase
Nine Months Comparison
% of % of Nine Months 1995
Net Net from
1995 Sales 1994 Sales Nine Months 1994
$3,744.6 51.4 $3,115.3 54.1 United States 20
1,729.8 23.8 1,232.6 21.4 Europe 40
1,140.1 15.7 861.5 14.9 Asia 32
495.5 6.8 421.7 7.3 Canada/Latin America 18
167.1 2.3 132.9 2.3 Africa/Middle East 26
$7,277.1 100.0 $5,764.0 100.0 Consolidated 26
For explanation of percent changes, see discussion beginning on page 14.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
DISCONTINUED OPERATIONS
On October 23, 1995, the Company signed a letter of intent and entered
into exclusive discussions to sell substantially all the assets of its
food science business to Cultor Ltd., a publicly held international
nutrition company based in Finland. As a result of the planned
disposal, the results of operations of the food science business are
reported as discontinued operations in the Company's statement of income
for all periods presented and the related net assets are included in
"Prepaid expenses, taxes and other assets" at October 1, 1995.
Accordingly, management's discussion and analysis of the results of
operations of the Company treat the food science business as a
discontinued operation for all periods presented. Although definitive
terms of the sale are still being negotiated, the Company does not
expect the transaction to have a material effect on its financial
position or results of operations. For summary results of operations of
the food science business, see Note 9, "Subsequent Event - Discontinued
Operations" on page 9.
NET SALES
The following statistical data are provided to assist the reader in
understanding the composition of changes affecting the increase in net
sales.
Sales Growth Analysis
% Increase/(Decrease)
Comparison
3rd Qtr. 1995 Nine Months 1995
from from
3rd Qtr. 1994 Nine Months 1994
Volume 23 23
Price 0 (1)
Currency 3 4
Total net sales increase 26 26
Consolidated net sales from continuing operations increased 26% in both
the third quarter and first nine months of 1995 to $2,538.5 million and
$7,277.1 million, respectively. Excluding the effect of the acquired
SmithKline Beecham animal health business (SBAH), worldwide sales
increased by 18% in both the third quarter and first nine months of 1995
versus last year's comparable periods. Sales growth for the third
quarter and the first nine months of 1995 was driven primarily by
increased sales volume and reflects the productivity of the Company's
commitment to research and development and product support. The
cardiovascular drug, Norvasc, reported $334.0 million in sales for the
quarter, while three other pharmaceuticals had sales over $200 million--
Procardia XL-$291.8 million, Zoloft-$276.8 million and Diflucan-$232.0
million. The health care sales performance in the third quarter versus
last year reflects a 21% increase in worldwide sales of pharmaceuticals
and a 19% increase in hospital products.
For the third quarter, U.S. pharmaceutical sales increased 16% and
International pharmaceutical sales increased 28%, ten percentage points
of which was the impact of foreign exchange. For the first nine months,
U.S. pharmaceutical sales increased 17% and International pharmaceutical
sales increased 30%, nine percentage points of which was the impact of
foreign exchange. In the third quarter, the combined worldwide sales of
the Company's six newest pharmaceuticals--Zoloft, Zithromax, Norvasc,
Cardura, Diflucan and Glucotrol XL--increased by 42% and made up 58% of
total pharmaceutical sales for the quarter. The percentage sales
growths of the Company's major pharmaceuticals are as follows:
Net Sales Growth of Major Pharmaceuticals 1995 vs. 1994
Percentage Increase/(Decrease)
3rd Qtr. Nine Months
Zithromax 52 108
Norvasc 59 67
Zoloft 40 47
Cardura 34 31
Diflucan 17 24
Procardia XL 0 (2)
In October 1995, the U.S. Food and Drug Administration approved a
pediatric version of Zithromax, the Company's broad-spectrum antibiotic.
Hospital Products Group's (HPG) worldwide sales grew 19% in the third
quarter driven by strong sales of catheters, used in angioplasty and of
stents, used to keep peripheral blood vessels and bile ducts open after
blockages are cleared. The acquisition in March 1995 of NAMIC U.S.A.
Corp., which manufactures ancillary equipment for fluid administration
and waste disposal in angioplasty and angiography procedures,
contributed sales of $16.5 million, or 6 percentage points of the 19%
HPG sales growth for the quarter. Exchange fluctuations increased third
quarter HPG sales by 5% in the quarter. For the first nine months of
1995, HPG's sales grew 17%.
Animal health sales increased by 112% in the third quarter and 100% in
the first nine months of 1995 due to the sales contribution of the
acquired SmithKline Beecham Animal Health business. In addition, sales
of Decotmax, the livestock antiparasitic developed by the Company,
increased 36 percent in the quarter due in part to recent launches in
major Western European countries. The Animal Health Group also recently
launched Aviax, a poultry antiparasitic developed by the Company, in
several Latin American countries and Japan. In the United States, the
Company introduced Vanguard puppy vaccines, a new line for canine viral
disease.
Consumer health care sales in the third quarter of 1995 were comparable
to the same period of last year, reflecting the 1995 launches of over-
the-counter products in a number of countries, offset by increased
competition for existing brands and the impact of the devaluation of the
Mexican peso. The antihistamine Reactine (cetirizine) has been
successfully introduced in Canada. Consumer health care sales showed a
5% decrease for the first nine months of 1995. In August 1995, the
Company acquired Bain de Soleil skin care products from the Procter &
Gamble Company.
COSTS AND EXPENSES
As a percentage of net sales, cost of sales decreased to 21.1% in the
third quarter versus last year's third quarter due to favorable product
and business sales mix and benefits from the reengineering of
manufacturing operations including the shutdown of a number of
pharmaceutical plants. For the first nine months of 1995, cost of sales
increased as a percentage of sales versus last year's comparable period.
This increase was primarily due to the impact of purchase accounting
relating to the acquired SBAH inventories and lower production margins
for SBAH relative to the Company overall. This was partially offset by
favorable product and sales mix and the benefit of reengineering of
manufacturing operations.
Selling, informational and administrative expense as a percentage of
sales decreased in the third quarter and first nine months of 1995
compared with the same periods of 1994. This decrease reflects, in
part, the beneficial impact of the Company's continuous improvement and
restructuring programs.
Research and development (R&D) expenditures were up 20% and 27% in the
third quarter and first nine months of 1995, respectively, relative to
last year's comparable periods due to the rapid advancement of a number
of drug candidates in the late stages of development. In 1995, the
Company plans to spend up to $1.5 billion on R&D. Health care R&D
expenses, expressed as a percentage of health care net sales, were 14.9%
and 15.3% in the first nine months of 1995 and 1994, respectively.
Income from continuing operations before taxes and other deductions-net,
expressed as a percentage of net sales was .7 of a percentage point
higher in the first nine months of 1995 versus 1994. This percentage is
targeted to improve by about one percentage point for the full year 1995
versus 1994.
Other deductions-net for the third quarter and first nine months of 1995
and 1994 are summarized in the following table:
(millions of dollars) % Incr./
Third Quarter 1995 1994 (dec.)
Interest income $ (35.8) $ (34.3) 4
Interest expense 46.1 32.3 43
Other income (3.3) (4.8) (31)
Other deductions 57.6 31.1 85
Other deductions--net $ 64.6 $ 24.3 166
Nine Months
Interest income $(121.7) $ (85.2) 43
Interest expense 152.0 96.1 58
Other income (8.2) (13.9) (41)
Other deductions 141.8 92.6 53
Other deductions--net $ 163.9 $ 89.6 83
The increase in interest income in the third quarter and first nine
months of 1995 was primarily due to higher interest rates. The increase
in interest expense was primarily due to higher levels of borrowings
which were mainly used to finance the acquisition of SBAH. The increase
in Other deductions in the third quarter and first nine months of 1995
versus last year was primarily attributable to the amortization of
goodwill and other intangibles as a result of acquiring SBAH. In
addition, adding to the increase in Other Deductions in the third
quarter were exchange losses in 1995 versus exchange gains in the 1994
third quarter. For the first nine months of 1995, exchange losses were
slightly lower than in 1994, partially offsetting the increase in Other
deductions.
INCOME TAXES
The Company's effective tax rate increased from 30% in 1994 to 33% this
year due to the continuing reduction of the tax benefit from the
Company's Puerto Rican operations as a result of the Omnibus Budget
Reconciliation Act of 1993, the expiration of the R&D tax credit and of
the Section 861 R&D allocation rules during 1995 and changes in the mix
of income by country. The effective tax rate of 33% could decline to as
low as 31.5% depending on the future of the R&D tax credit and tax
allocation rules currently being considered in Washington.
OTHER
In the first nine months of 1995, approximately 2.6 million shares were
purchased in the open market at an average cost of approximately $42 per
share and a portion of these shares were utilized in the acquisition of
NAMIC U.S.A. Corporation. In the first nine months of 1994, approximate-
ly 15.0 million shares were purchased at an average cost of $29 per
share.
In 1993, the Company initiated a worldwide restructuring program which
included the consolidation of manufacturing facilities, the demolition
of buildings resulting from the consolidation, reconfiguration and
rehabilitation of remaining facilities and the consolidation of
distribution and administrative organizations and infrastructures,
including the consolidation of finance organizations in Europe.
Through October 1, 1995, completed restructuring initiatives reduced the
workforce by approximately 1,100 people and resulted in the closing of
15 facilities. The annualized benefit of efficiencies resulting from
completed efforts was approximately $67 million. The full
implementation of such plans is still anticipated to lower annual
operating costs by $130 million. To date, there have been no
significant changes in estimates of the cost of the plan.
The following table indicates the status of the restructuring charges by
component:
Utilization Reserves
(millions of dollars) 1993 Through Remaining
Restructuring 2nd Qtr. 3rd Qtr. at Oct. 1,
Charges 1995 1995 1995
Employee severance
payments $230.7 $ 80.9 $10.2 $139.6
Operating assets to be
sold/disposed of 211.7 108.3 3.2 100.2
Closed facilities'
costs 101.1 29.7 14.0 57.4
Other charges 146.7 129.2 12.2 5.3
$690.2 $348.1 $39.6 $302.5
Closed facilities' costs relate primarily to the rationalization of
manufacturing capacity and the demolition of structures within certain
manufacturing facilities. Writedowns of operating assets, which
primarily involve manufacturing rationalizations, are considered
utilized and the reserve charged when the asset is sold or otherwise
disposed of by the Company. There have been no reclassifications
between the components of the reserve presented above. Other charges
consists primarily of charges for currency translation adjustment
related to the liquidation or disposal of businesses, administrative
infrastructures and lease and third-party contract termination costs
which were previously presented as separate captions.
In April 1995, the Company announced a two-for-one stock split in the
form of a 100 percent stock dividend which was effective on June 30,
1995 to shareholders of record on June 1, 1995. The split followed a
vote in April 1995 by Pfizer shareholders to increase the number of
authorized common shares from 750 million to 1.5 billion and to decrease
the par value from $.10 to $.05 per share. The number of shares and the
per share amounts included in the consolidated financial statements and
herein are presented after giving effect to the stock split.
PROSPECTIVE FINANCIAL STANDARD
In March 1995, the Financial Accounting Standards Board issued Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets To Be Disposed Of," (SFAS No. 121), which will become
effective on January 1, 1996. SFAS No. 121 establishes accounting
standards for the impairment of long-lived assets, certain identifiable
intangibles and goodwill related to those assets to be held and used and
for long-lived assets and certain identifiable intangibles to be
disposed. Adoption of SFAS No. 121 is not expected to have a material
impact on the Company's consolidated financial position and operating
results, nor will it affect the Company's cash flows.
ANALYSIS OF LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents and short-term investments totaled $1,696.6
million at October 1, 1995 as compared to $2,018.6 million at December
31, 1994. Total borrowings were $3,404.6 million at October 1, 1995 as
compared with $2,824.2 million at December 31, 1994. Working capital at
October 1, 1995 decreased versus December 31, 1994 and October 2, 1994.
The decrease in both periods was primarily attributable to increased
short-term borrowings used to finance the SBAH acquisition plus the
reclassification of the $250 million 7 1/8% Notes due 10/1/96 from Long-
term debt to Short-term borrowings in the third quarter of 1995.
Oct. 1, Dec. 31, Oct. 2,
1995 1994 1994
Working capital (millions of dollars) $337.6 $962.5 $1,286.8
Current ratio 1.06:1 1.20:1 1.31:1
Debt to total capitalization (percentage)* 39% 40% 36%
Shareholders' equity per common share** $8.57 $ 7.10 $ 6.82
Days of sales outstanding - trade
accounts receivable 66 60 69
Months of inventory on hand 9.4 8.6 9.3
* Represents total short and long-term borrowings divided by the sum of
total short and long-term borrowings and total shareholders' equity.
** Represents total shareholders' equity divided by the actual number of
common shares outstanding adjusted for the 1995 two-for-one stock split
in the form of a 100% stock dividend.
FORM 10-Q
PART II - OTHER INFORMATION
Item 1: Legal Proceedings
The Company is involved in a number of claims and litigations,
including product liability claims and litigations considered normal in
the nature of its businesses. These include suits involving various
pharmaceutical and hospital products that allege either reaction to or
injury from use of the product.
As previously disclosed, numerous claims have been brought against
the Company and Shiley Incorporated, a wholly owned subsidiary, alleging
either personal injury from fracture of 60(degree) or 70(degree) Shiley
Convexo-Concave (C/C) heart valves, or anxiety that properly functioning
implanted valves might fracture in the future or personal injury from a
prophylactic replacement of a functioning valve.
In an attempt to resolve all claims alleging anxiety that properly
functioning valves might fracture in the future, the Company entered
into a settlement agreement in January 1992 in Bowling v. Shiley, et
al., a case brought in the United States District Court for the Southern
District of Ohio, that establishes a worldwide settlement class of
people with C/C heart valves and their spouses, except those who elect
to exclude themselves. The settlement provides for a Consultation Fund
of $90 to $140 million (depending on the number of claims filed) from
which valve recipients who make claims will receive payments that are
intended to cover their cost of consultation with cardiologists or other
health care providers with respect to their valves. The settlement
agreement establishes a second fund of at least $75 million to support
C/C valve-related research, including the development of techniques to
identify valve recipients who may have significant risk of fracture, and
to cover the unreimbursed medical expenses that valve recipients may
incur for certain procedures related to the valves. The Company's
obligation as to coverage of these unreimbursed medical expenses is not
subject to any dollar limitation. Following a hearing on the fairness
of the settlement, it was approved by the court on August 19, 1992. An
appeal of the court's approval of the settlement was dismissed on
December 21, 1993 by the United States Court of Appeals for the Sixth
Circuit. A motion for rehearing en banc was denied on March 4, 1994,
and the U.S. Supreme Court denied a writ of certiorari on October 3,
1994. On August 8, 1994, the Sixth Circuit dismissed an appeal from the
denial of a motion by the same appellants to vacate the judgment
approving the settlement, and the U.S. Supreme Court denied a writ of
certiorari on January 9, 1995. Another appeal to the Sixth Circuit by
the same appellants regarding the denial of their earlier motion to
intervene is pending. It is expected that most of the costs arising
from the Bowling class settlement will be covered by insurance and the
proceeds of the sale of certain product lines of the Shiley businesses
in 1992. Of approximately 900 implantees (and spouses of some of them)
who opted out of the Bowling settlement class, nine have cases pending;
approximately 792 have been resolved; and approximately 100 have never
filed a case or claim.
Several claims relating to elective reoperations of valve
recipients are currently pending. Some of these claims relate to
elective reoperations covered by the Bowling class settlement described
above, and, therefore, the claimants are entitled to certain benefits in
accordance with the settlement. Such claimants, if they irrevocably
waive all of the benefits of the settlement, may pursue separate
litigation to recover damages in spite of the class settlement. The
Company is defending these claims.
Generally, the plaintiffs in all of the pending heart valve
litigations discussed above seek money damages. Based on the experience
of the Company in defending these claims to date, including available
insurance and reserves, the Company is of the opinion that these actions
should not have a material adverse effect on the financial position or
the results of operations of the Company.
On September 30, 1993, Dairyland Insurance Co., a carrier
providing excess liability coverage ("excess carrier") in the early
1980s, commenced an action in the California Superior Court in Orange
County, seeking a declaratory judgment that it was not obligated to
provide insurance coverage for Shiley heart valve liability claims. On
October 8, 1993, Pfizer filed cross-complaints against Dairyland and
filed third-party complaints against 73 other excess carriers who sold
excess liability policies covering periods from 1978 to 1985, seeking
damages and declaratory judgments that they are obligated to pay for
defense and indemnity to the extent not paid by other carriers. Several
such claims have been resolved and the remainder are involved in
pretrial discovery.
The Company's operations are subject to federal, state, and local
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 and local 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 (Minerals Division) and Quigley
Company, Inc., 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 that is defending these
claims. The Company and Quigley are responsible for varying percentages
of defense and liability payments for all members of the CCR. Prior to
September 1990, the cases involving talc products were defended by the
CCR, but the Company is now overseeing its own defense of these actions.
A number of cases alleging property damage from asbestos-containing
products installed in buildings have also been brought against Pfizer.
On January 15, 1993, a class action complaint and settlement
agreement were filed in the United States District Court for the Eastern
District of Pennsylvania involving all personal injury claims by persons
who have been exposed to asbestos-containing products but who have not
yet filed a personal injury action against the twenty members of the
CCR. The settlement agreement establishes a claims-processing mechanism
that will provide historic settlement values upon proof of impaired
medical condition as well as claims-processing rates over ten years. In
addition, the shares allocated to the CCR members eliminate joint and
several liability. The court has determined that the settlement is fair
and reasonable. Subsequently, the court entered an injunction enforcing
its determination. An appeal from that injunction is pending in the
United States Court of Appeals for the Third Circuit.
At approximately the time it filed the future claims class action,
the CCR settled approximately 16,360 personal injury cases on behalf of
Pfizer and Quigley. The CCR has continued to settle remaining and
opt-out cases and claims on a similar basis to past settlements. The
total pending number of cases as of October 1, 1995 is 18,761 asbestos
cases against Quigley; as of October 20, 1995, 5,780 asbestos cases
against Pfizer Inc.; and 71 talc cases against Pfizer Inc.
Costs incurred by the Company in defending the asbestos personal
injury claims and the property damage claims, as well as settlements and
damage awards in connection therewith, are largely insured against under
policies issued by several primary insurance carriers and a number of
excess carriers. The Company believes that its costs incurred in
defending and ultimately disposing of the asbestos personal injury
claims, as well as the property damage claims, will be largely covered
by insurance policies issued by carriers that have agreed to provide
coverage, subject to deductibles, exclusions, retentions and policy
limits. In connection with the future claims settlement, the defendants
have commenced a third-party action against their respective excess
insurance carriers that have not agreed to provide coverage seeking a
declaratory judgment that (a) the future claims settlement is fair and
reasonable as to the carriers; (b) the carriers had adequate notice of
the future claims class settlement; and (c) the carriers are obligated
to provide coverage for asbestos personal injury claims. 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 connection with the divestiture of Minerals Technologies Inc.
(MTI), to which the net assets of the Pfizer Minerals and the Quigley
businesses were transferred, Pfizer and Quigley agreed to indemnify MTI
against any liability with respect to products manufactured and sold
prior to October 30, 1992, as well as against liability for certain
environmental matters. MTI has submitted a claim in connection with
this indemnification. While negotiations are continuing, the Company
does not anticipate that it will result in a material payment.
EPA Region I and the Department of Justice are believed to be
contemplating an enforcement action arising out of a December 1993
multimedia environmental inspection of Pfizer's facilities in Groton,
Connecticut. No enforcement proceedings have been initiated as of
November 1, 1995, nor has there been a demand for any penalties as of
November 1, 1995.
The Company has been named, together with numerous other
manufacturers of brand name prescription drugs and certain companies
that distribute brand name prescription drugs, in suits brought by
retail pharmacy companies in federal and state courts. The federal
cases consist principally of a class action by retail pharmacies
(including approximately 30 named plaintiffs), as well as additional
actions by approximately 3,000 individual retail pharmacies (the
"individual actions"). These cases, which have been transferred to the
United States District Court for the Northern District of Illinois and
coordinated for pretrial purposes, allege that the defendant drug
manufacturers violated the Sherman Act by unlawfully agreeing with each
other (and, as alleged in some cases, with wholesalers) not to extend to
retail pharmacy companies the same discounts allegedly extended to mail
order pharmacies, managed care companies and certain other customers,
and by unlawfully discriminating against retail pharmacy companies by
not extending them such discounts. State court actions are pending in
Arizona, California, Colorado, Minnesota, Washington and Wisconsin; a
further Alabama state court action has now been removed to federal
court.
In addition, consumer class actions have been filed in state
courts, alleging injury to consumers from the failure to give discounts
to retail pharmacy companies. Both a consumer class and a retailer
class have been certified in separate California actions. On November
15, 1994, the federal court certified a class consisting of all persons
or entities who, since October 15, 1989, bought prescription brand name
drugs from any manufacturer or wholesaler defendant, but specifically
excluding government entities, mail order pharmacies, HMOs, hospitals,
clinics and nursing homes.
The federal court has scheduled the lead case (likely to be the
class action) for trial beginning on April 1, 1996, depending on the
outcome of anticipated pre-trial motions.
The Company believes that these cases are without merit and is
vigorously defending them.
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 Internal Revenue Service (IRS) has completed its examination
of the Company's federal income tax returns for the years 1987 through
1989. As part of this process, the Company received an examination
report from the IRS in August 1995, requesting a response within 30
days, which sets forth the adjustments the IRS is proposing for those
years. The Company has filed a response protesting the proposed
adjustments and is awaiting communication from the IRS Appeals office.
The proposed adjustments relate primarily to the tax accounting
treatment of certain swaps and related transactions undertaken by the
Company in 1987 and 1988. These transactions resulted in the receipt of
cash in those years, which the Company duly reported as income for tax
purposes. In 1989 (in Notice 89-21), the IRS announced that it believed
cash received in certain swap transactions should be reported as income
for tax purposes over the life of the swaps, rather than when received.
In the case of the Company, this would cause some of the income to be
reported in years subject to the Tax Reform Act of 1986. The IRS
proposed adjustment involves approximately $72 million in federal taxes
for the years 1987 through 1989, plus interest. If the proposed
adjustment is carried through to the maturity of the transactions in
1992, an additional tax deficiency of approximately $86 million, plus
interest, would result. The Company disagrees with the proposed
adjustment and continues to believe that its tax accounting treatment
for the transactions in question was proper. The Company intends to
protest and appeal the proposed adjustments with which it disagrees.
While it is impossible to determine the final disposition, the Company
is of the opinion that the ultimate resolution of this matter should not
have a material adverse effect on the financial position or the results
of operations of the Company.
In November 1994, Belgium tax authorities notified Pfizer Research
and Development Company N.V./S.A. ("PRDCO"), an indirect wholly-owned
subsidiary of the Company, of a proposed adjustment to the taxable
income of PRDCO for fiscal year 1992. The proposed adjustment arises
from an assertion by the Belgium tax authorities of jurisdiction with
respect to income resulting from certain transfers of property by non-
Belgium subsidiaries of the Company to the Irish branch of PRDCO. In
January 1995, PRDCO received an assessment from the tax authorities for
additional taxes and interest of approximately $432 million and $97
million, respectively, relating to these matters. In November 1995,
Belgium tax authorities notified PRDCO of a new proposed adjustment to
the taxable income of PRDCO for fiscal year 1993. The proposed
adjustment arises from the same assertion as made in the prior notice
for fiscal year 1992. To date, no assessment of additional tax has been
received for this year. If and when received, it is anticipated that
the amount of the assessment will be approximately $86 million and $18
million of additional taxes and interest, respectively. Based upon the
relevant facts regarding the property transfers to the Irish branch of
PRDCO and the provisions of Belgium tax laws and the written opinions of
outside legal counsel, the Company believes that the assessment and
notice of proposed adjustment are wholly without merit and intends to
contest them vigorously.
The Company believes that its accrued tax liabilities are adequate
for all open years.
A consolidated class action on behalf of persons who allegedly
purchased Pfizer common stock during the March 24, 1989 through February
26, 1990 period is pending in the United States District Court for the
Southern District of New York. This lawsuit, which commenced on July
13, 1990, alleges that the Company and certain officers and former
directors and officers violated federal securities law by failing to
disclose potential liability arising out of personal injury suits
involving Shiley heart valves and seeks damages in an unspecified
amount. The defendants in this action believe that the suit is without
merit and are vigorously defending it. A derivative action commenced on
April 2, 1990 against certain directors and officers and former
directors and officers alleging breaches of fiduciary duty and other
common law violations in connection with the manufacture and
distribution of Shiley heart valves is pending in the Superior Court,
Orange County, California. The complaint seeks, among other forms of
relief, damages in an unspecified amount. The defendants in the action
believe that the suit is without merit and are vigorously defending it.
On January 28, 1993, a purported class action entitled Kearse v.
Pfizer Inc. and Howmedica Inc. was commenced in the United States
District Court for the Northern District of Ohio. Howmedica Inc.
("Howmedica") is a wholly owned subsidiary of the Company. The action
sought monetary and injunctive relief, including medical monitoring, on
behalf of patients implanted with the Howmedica P.C.A. one-piece
acetabular hip component, which was manufactured by Howmedica from 1983
to 1990. The complaint alleged that the prostheses were defectively
designed and manufactured and posed undisclosed risks to implantees. On
August 3, 1993, a virtually identical purported class action,
Bradshaw/Davids v. Pfizer Inc. and Howmedica Inc., was brought and the
Kearse case was subsequently voluntarily dismissed. The federal
magistrate judge has recommended that the district court deny the
plaintiffs' motion to certify the case as a class action. The Company
believes that the suit is without merit and is vigorously defending it.
During 1994 to 1995, seven purported class actions were filed
against American Medical Systems ("AMS") in federal courts in South
Carolina, California, Minnesota (2), Indiana, Ohio and Louisiana. The
California, Ohio and Indiana suits and one Minnesota suit also name
Pfizer Inc. as a defendant, based on its ownership of AMS. The suits
seek monetary and injunctive relief on the basis of allegations that
implantable penile prostheses are prone to unreasonably high rates of
mechanical failure and/or various autoimmune diseases as a result of
silicone materials. On September 30, 1994 the federal Judicial Panel on
Multidistrict Litigation denied the various plaintiffs' motions to
consolidate or coordinate the cases for pretrial proceedings. On
February 28, 1995, the Court in the Ohio suit conditionally granted
plaintiffs' motion for class certification; on March 3, 1995, the court
in the California suit denied plaintiffs' motion for class
certification; and on October 25, 1995, the court in the Indiana suit
denied plaintiffs' motion for class certification. A petition for
mandamus to review the certification order in the Ohio suit is pending
in the United States Court of Appeals for the Sixth Circuit. The
Company believes the suits are without merit and is vigorously defending
them.
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' Acknowledgment
4) Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the third quarter
ended October 1, 1995.
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: November 13, 1995
H. V. Ryan, Controller
(Principal Accounting Officer and
Duly Authorized Officer)
Exhibit 11
PFIZER INC. AND SUBSIDIARY COMPANIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(millions, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
Oct. 1, Oct. 2, Oct. 1, Oct. 2,
1995 1994 1995 1994
Primary:
Net income $425.3 $336.5 $1,162.0 $964.4
Weighted average number of
common shares outstanding 615.9 609.1 613.4 612.1
Common share equivalents (a) 15.1 8.3 13.5 8.3
Weighted average number of
common shares and common
share equivalents 631.0 617.4 626.9 620.4
Net income per common share $ .67 $ .54 $ 1.85 $ 1.55
Fully Diluted:(b)
Net income $425.3 $336.5 $1,162.0 $964.4
Weighted average number of
common shares outstanding 615.9 609.1 613.4 612.1
Common share equivalents and
other dilutive securities 17.1 9.6 15.1 8.8
Weighted average number of
common shares and common
share equivalents 633.0 618.7 628.5 620.9
Net income per common share $ .67 $ .54 $ 1.85 $ 1.55
(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%.
Note: In April 1995, the Company announced a two-for-one stock split in the
form of a 100 percent stock dividend effective on June 30, 1995 to
shareholders of record on June 1, 1995. The above common share data reflect
information that has been adjusted for this two-for-one split.
Exhibit 12
PFIZER INC. AND SUBSIDIARY COMPANIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (a)
(millions of dollars)
(Unaudited)
Nine
Months
Ended
Oct. 1, Year Ended December 31,
1995 1994 1993 1992 1991 1990
Determination of earnings:
Income from continuing
operations before
provision for taxes on
income, minority
interests, and cumulative
effect of accounting
changes $1,722.5 $1,830.5 $835.3 $1,541.0 $ 913.2 $1,074.5
Less:
Minority interests 5.5 4.6 2.6 2.7 3.2 4.2
Undistributed
earnings/(losses) of
unconsolidated
subsidiaries (3.0) (.7) .7 8.5 .8 (.3)
Adjusted income $1,720.0 1,826.6 832.0 1,529.8 909.2 1,070.6
Fixed charges 179.7 158.4 135.6 130.1 155.2 153.8
Total earnings
as defined $1,899.7 $1,985.0 $967.6 $1,659.9 $1,064.4 $1,224.4
Fixed charges and other:
Rents (a) $ 27.7 $ 31.5 $ 29.1 $ 26.7 $ 25.1 $ 21.3
Interest expense 152.0 126.9 106.5 103.4 130.1 132.5
Fixed charges $ 179.7 158.4 135.6 130.1 155.2 153.8
Capitalized interest 7.4 14.7 14.0 12.2 8.0 9.9
Total fixed charges $ 187.1 $ 173.1 $149.6 $ 142.3 $ 163.2 $ 163.7
Ratio of earnings to fixed
charges 10.2 11.5 6.5 11.7 6.5 7.5
<FN>
(a) Rents included in the computation consist of one-third of rental expense
which the Company believes to be a conservative estimate of an interest
factor in its leases, which are not material.
</FN>
Exhibit 15
ACCOUNTANTS' ACKNOWLEDGMENT
Board of Directors
Pfizer Inc.:
We hereby acknowledge the incorporation by reference of our report dated
November 13, 1995, included within the Quarterly Report on Form 10-Q of Pfizer
Inc. for the quarter ended October 1, 1995 in the Prospectus dated December
27, 1972, as supplemented February 6, 1973, of Pfizer Inc., filed under the
Securities Act of 1933 in Registration Statement on 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, in the
Registration Statement on Form S-8 dated October 27, 1983 (File No. 2-87473),
as amended, in the Registration Statement on Form S-8 dated March 22, 1990
(File No. 33-34139), in the Registration Statement on Form S-8 dated January
24, 1991 (File No. 33-38708), in the Registration Statement on Form S-3 dated
June 26, 1991 (File No. 33-41367), as amended, in the Registration Statement
on Form S-8 dated November 18, 1991 (File No. 33-44053), in the Registration
Statement on Form S-3 dated May 27, 1993 (File No. 33-49629), in the
Registration Statement on Form S-8 dated May 27, 1993 (File No. 33-49631), in
the Registration Statement on Form S-8 dated May 19, 1994 (File No. 33-53713),
in the Registration Statement on Form S-8 dated October 5, 1994 (File No. 33-
55771), in the Registration Statement on Form S-3 dated November 14, 1994
(File No. 33-56435), in the Registration Statement on Form S-8 dated December
20, 1994 (File No 33-56979) and in the Registration Statement on Form S-4
dated February 14, 1995 (File No. 33-57709).
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
November 13, 1995