FINANCIAL REVIEW
SIGNIFICANT EVENTS AFFECTING COMPARABILITY
The comparability of income statement data is affected by the following:
/ / In September 1993, the Company recorded a $750 million pre-tax charge ($525
million after-tax) for certain restructuring and unusual items. This charge
covered restructuring costs, including personnel reductions and the
writedown of certain tangible assets as well as intangible assets whose
carrying value would not have been recovered through future cash flows.
/ / In October 1992, the Company sold approximately 60% of its interest in
Minerals Technologies Inc. (MTI), a wholly owned company comprised of the
Company's specialty minerals businesses. The net proceeds ($226.6 million)
approximated the net book value of the interest sold. In April 1993, the
Company's remaining interest was sold, resulting in a pre-tax gain of
approximately $60 million.
/ / In 1992, the Company adopted new accounting standards for postretirement
health care and life insurance benefits and for income taxes. These
standards resulted in a one-time net after-tax charge ($282.6 million),
with no effect on cash flows. Postretirement benefit curtailment gains
($56.5 million) related to 1992 divestitures were included in divestitures,
restructuring and unusual items--net.
/ / In June 1992, the Company sold its Coty business, resulting in a pre-tax
gain of $258.6 million which was substantially offset by charges associated
with restructuring, consolidation and streamlining of certain of the
Company's businesses.
/ / In March 1992, the Company sold certain product lines and other assets of
Shiley Incorporated to Sorin Biomedica S.p.A. for approximately $230
million, resulting in a gain which was used to offset costs associated with
the Bowling Settlement Agreement. See the footnote "Litigation" beginning
on page 49 for additional information.
OVERVIEW OF CONSOLIDATED OPERATING RESULTS
Restructuring initiatives and various divestitures over the past several years
were taken in order to position the Company as a research-based, health care
company operating in global markets.
Net income in 1994 was $1,298.4 million, or $4.19 per share, compared with
$657.5 million, or $2.05 per share, in 1993. Excluding the net effects of
divestitures, restructuring and unusual items, net income and earnings per share
in 1993 would have been $1,183.9 million, or $3.70 per share. Operating results,
excluding the items noted above as well as certain phased-out product lines, are
referred to in this report as results of ongoing operations. On this ongoing
basis, net income and earnings per share for 1994 increased 10% and 13%,
respectively.
Net sales in 1994 ($8,281.3 million) increased 11% compared with 1993.
Aggregate worldwide sales of the pharmaceutical products launched during the
1990s--Norvasc, Diflucan, Zoloft, Cardura, Zithromax and Glucotrol XL--
represented 33% and 25% of net sales for the years 1994 and 1993, respectively.
The 44% increase in sales of these six products compared with 1993 was almost
exclusively related to volume. These results continued to reflect the Company's
successful innovative research and development (R&D) efforts, which have
produced a broad product pipeline. In 1994, R&D expenditures were in excess of
$1.1 billion, an increase of 17% over 1993.
NET SALES
Net sales in 1994 increased $803.6 million, or 11% over 1993. Net sales in 1993
increased $247.5 million, or 3% over 1992. Net sales from ongoing operations in
1993 increased 9% over 1992. Both the U.S. and international markets reflected
net sales increases in 1994 and 1993. In 1994, the Company registered net sales
of more than $10 million in each of 43 countries outside the U.S., with no
single country, other than the U.S. and Japan, contributing more than 10% to
total net sales.
The following tables detail net sales by segment on a reported and ongoing
basis for 1994 and 1993. For 1994, the reported and ongoing net sales amounts
were the same.
1994 NET SALES BY SEGMENT
% CHANGE COMPARED WITH
AS --------------------------
(MILLIONS OF DOLLARS) REPORTED AS REPORTED ONGOING
---------------------------------------------------------------------------
Health Care $6,963.0 12 12
Animal Health 605.3 5 5
Consumer Health Care 409.0 10 10
Food Science 304.0 (4) 0
---------------------------------------------------------------------------
Total $8,281.3 11 11
---------------------------------------------------------------------------
NET SALES
(The table below was represented by a graph in the printed Annual Report.)
Net Sales
(millions of dollars)
U.S. International Total
-----------------------------------------
1990 3,473 2,933 6,406
-----------------------------------------
1991 3,809 3,141 6,950
-----------------------------------------
1992 3,888 3,342 7,230
-----------------------------------------
1993 4,006 3,472 7,478
-----------------------------------------
1994 4,411 3,870 8,281
-----------------------------------------
The 1994 sales increase of 11% was spearheaded
by growth in pharmaceutical products.
26
1993 NET SALES BY SEGMENT
AS % %
(MILLIONS OF DOLLARS) REPORTED CHANGE ONGOING CHANGE
---------------------------------------------------------------------------
Health Care $6,210.3 11 $6,210.3 11
Animal Health 578.0 3 578.0 3
Consumer Health Care 373.5 (8) 373.5 0
Food Science* 315.9 (51) 303.8 (8)
---------------------------------------------------------------------------
Total $7,477.7 3 $7,465.6 9
---------------------------------------------------------------------------
PERCENTAGE CHANGE IN NET SALES--AS REPORTED
ANALYSIS OF CHANGE
TOTAL % --------------------------
CHANGE VOLUME PRICE CURRENCY
---------------------------------------------------------------------------
Health Care
1994 vs. 1993 12 12 0 0
1993 vs. 1992 11 11 2 (2)
Animal Health
1994 vs. 1993 5 3 1 1
1993 vs. 1992 3 0 6 (3)
Consumer Health Care
1994 vs. 1993 10 9 1 0
1993 vs. 1992 (8) (9) 2 (1)
Food Science
1994 vs. 1993 (4) (2) (2) 0
1993 vs. 1992* (51) (52) 1 0
Consolidated
1994 vs. 1993 11 11 0 0
1993 vs. 1992 3 3 2 (2)
---------------------------------------------------------------------------
<FN>
*REFLECTS THE SALE OF MTI IN 1992.
There was no price impact on 1994 net sales growth. In 1993, the Company's
average pharmaceutical price increases in the U.S. were below the increase in
the U.S. Consumer Price Index.
The increase in 1993 consolidated net sales included a 9% rise in unit
volume from ongoing operations, offset by a reduction of 6% applicable to net
sales of businesses divested in 1992.
Reported 1994 and 1993 net sales for the health care segment reflected a
13% increase in worldwide pharmaceutical sales in both years.
The following table shows percentage sales growth of the Company's major
pharmaceuticals:
PERCENTAGE CHANGE IN NET SALES--MAJOR PHARMACEUTICALS
% INCREASE/(DECREASE)
---------------------------------------------------------------------------
94/93 93/92
---------------------------------------------------------------------------
Cardiovasculars:
Procardia XL 0 11
Norvasc 85 119
Cardura 27 40
Anti-Infectives:
Diflucan 14 19
Zithromax 43 82
Unasyn (5) 7
Central Nervous System Agents:
Zoloft 55 138
Anti-Inflammatories:
Feldene (16) (41)
Antidiabetes Agents:
Glucotrol/Glucotrol XL (15) 13
---------------------------------------------------------------------------
Procardia XL sales totaled $1.2 billion in 1994, an amount comparable to
the 1993 sales level. The underlying demand for Procardia XL declined modestly
in 1994. Decreases in Feldene and Glucotrol sales were attributable to a
combination of generic competition and new competitive brand-name products.
The 1990 Omnibus Budget Reconciliation Act included a provision requiring
pharmaceutical companies to rebate a portion of revenues from pharmaceutical
products dispensed to state Medicaid recipients. Medicaid rebates and related
state programs reduced net sales by $74 million in 1994 and $70 million in 1993.
In addition, the Company provided approximately $56 million and $51 million in
discounts to the federal government in 1994 and 1993, respectively.
Performance-based contracts with several customers in the U.S. reduced the price
impact on net sales for 1994, but were offset by increases in volume.
Net sales of the Hospital Products Group increased 6% and 2% in 1994 and
1993, respectively. Hospital Products continues to benefit from new product
introductions and from the success of its coronary catheters and stents,
although sales trends in this group continue to be tempered by overall market
conditions. The Hospital Products business was adversely affected in 1993 by
events influencing the industry in general, principally the deferral of medical
procedures and changes in purchasing practices, including shifts to lower-cost
products and reduced hospital inventories. Foreign exchange reduced net sales
growth from 6% to 2% for 1993.
Net sales in the animal health segment increased 5% in 1994 and reflected
the strong performance of Dectomax, particularly in Latin America, where sales
increased 21%. Net sales increased 3% in 1993 owing to strong U.S. sales of
Terramycin/Liquamycin LA-200 and the growth of Dectomax and Advocin in
international markets.
(The table below was represented by a graph in the printed Annual Report.)
Composition of Net Sales Growth
(As Reported)
Price Volume Currency
----------------------------------------
1992 3% 0% 1%
----------------------------------------
1993 2% 3% -2%
----------------------------------------
1994 0% 11% 0%
----------------------------------------
1994 sales growth was driven entirely by volume.
Aggregate sales of the six pharmaceutical products
launched in the 1990s increased by 44%.
27
Net sales in the consumer health care segment increased 10% in 1994,
reflecting improved U.S. market share in Desitin, Unisom, BenGay and Rid, line
extensions of certain existing products and international expansion. Net sales
in 1993 decreased 8% from 1992, primarily as a result of the sale of the Coty
business, strong private-label competition and a weak economy.
Net sales in the food science segment declined 4% in 1994, reflecting the
continuing phase-out of commodity chemicals in favor of specialty food products,
sales of which increased 13%. Net sales in 1993 declined 51% primarily because
of the October 1992 divestment of MTI and the Company's de-emphasis and
phase-out of commodity chemicals.
An analysis of percentage changes in reported net sales in the U.S. and
international markets and the percentage of consolidated net sales by business
segment follows:
UNITED STATES OPERATIONS
% INCREASE/(DECREASE)
IN NET SALES
---------------------------------------------------------------------------
1994 1993 1992
---------------------------------------------------------------------------
Health Care 12 12 14
Animal Health (1) 7 0
Consumer Health Care 4 (13) (45)
Food Science (2) (56)* (10)*
Total U.S. Operations 10 3 2
---------------------------------------------------------------------------
INTERNATIONAL OPERATIONS
% INCREASE/(DECREASE)
IN NET SALES
---------------------------------------------------------------------------
1994 1993 1992
---------------------------------------------------------------------------
Health Care 13 9 10
Animal Health 7 1 10
Consumer Health Care 22 6 (30)
Food Science (6) (44)* (11)*
Total International Operations 11 4 6
---------------------------------------------------------------------------
<FN>
*REFLECTS THE SALE OF MTI IN 1992.
(The table below was represented by a graph in the printed Annual Report.)
Production Margin as Percentage of Net Sales
1990 65%
1991 68%
1992 72%
1993 76%
1994 77%
Improvement in production margin was essentially attributable
to the divestiture of low-margin businesses, cost reductions
and favorable product mix.
DIVERSIFICATION BY BUSINESS
% OF CONSOLIDATED NET SALES
---------------------------------------------------------------------------
1994 1993 1992
---------------------------------------------------------------------------
Health Care 84 83 78
Animal Health 7 8 8
Consumer Health Care 5 5 5
Food Science 4 4* 9*
---------------------------------------------------------------------------
Consolidated 100 100 100
---------------------------------------------------------------------------
<FN>
*REFLECTS THE SALE OF MTI IN 1992.
Geographically, the Company's business is diversified, as shown in the
following table:
DIVERSIFICATION BY GEOGRAPHIC AREA
% OF CONSOLIDATED NET SALES
---------------------------------------------------------------------------
1994 1993 1992
---------------------------------------------------------------------------
U.S. 53 54 54
---------------------------------------------------------------------------
Europe 22 22 24
Asia 15 15 14
Canada/Latin America 8 7 6
Africa/Middle East 2 2 2
---------------------------------------------------------------------------
International 47 46 46
---------------------------------------------------------------------------
Consolidated 100 100 100
---------------------------------------------------------------------------
PRODUCT DEVELOPMENTS
The table below lists the Company's pending New Drug Applications (NDAs) and the
related filing dates with the U.S. Food and Drug Administration (FDA):
PRODUCT INDICATIONS DATE FILED
---------------------------------------------------------------------------
Cetirizine Pediatric January 1993
Enable Osteo- and rheumatoid arthritis December 1993
Unasyn Injectable antibiotic--pediatric November 1993
Zithromax Sexually transmitted diseases December 1994
Zoloft Obsessive-compulsive disorder May 1992
---------------------------------------------------------------------------
In November 1994, the Company received approval from the FDA for the
marketing of Diflucan for pediatric use. In addition, Cardura gained marketing
clearance from the FDA for the treatment of benign prostatic hyperplasia in
February 1995.In 1995, the Company was advised by the FDA that the following
chemical entities were approvable: Zithromax, an oral antibiotic, for pediatric
indications and cetirizine, an oral antihistamine, for allergic rhinitis and
chronic urticaria.
The Company currently has 15 new chemical entities in advanced development.
28
INCOME BEFORE TAXES AND NET INCOME
The components of income before taxes and net income, expressed as a percentage
of net sales, for the years 1994, 1993 and 1992 are reflected in the following
table:
ANALYSIS OF INCOME BEFORE TAXES AND NET INCOME
% INCREASE/
(DECREASE)
-----------------------------------------------------------------------------------------------------------------------------
(MILLIONS OF DOLLARS) 1994 1993 1992 94/93 93/92
-----------------------------------------------------------------------------------------------------------------------------
Net sales $8,281.3 $7,477.7 $7,230.2 11 3
Cost of sales $1,918.6 $1,772.0 $2,024.3 8 (12)
% of net sales 23.2% 23.7% 28.0%
-----------------------------------------------------------------------------------------------------------------------------
Production margin $6,362.7 $5,705.7 $5,205.9 12 10
% of net sales 76.8% 76.3% 72.0%
Selling, informational and administrative expenses $3,250.8 $3,066.0 $2,899.3 6 6
% of net sales 39.3% 41.0% 40.1%
R&D expenses $1,139.4 $ 974.4 $ 863.2 17 13
% of net sales 13.7% 13.0% 11.9%
Divestitures, restructuring and unusual items--net -- $ 752.0 $ (110.5) * *
% of net sales -- 10.1% (1.5%)
Other deductions--net $ 111.0 $61.9 $ 19.1 79 224
% of net sales 1.3% .8% .3%
-----------------------------------------------------------------------------------------------------------------------------
Income before taxes $1,861.5 $ 851.4 $1,534.8 119 (45)
% of net sales 22.5% 11.4% 21.2%
Taxes on income $ 558.5 $ 191.3 $ 438.6 192 (56)
Effective tax rate 30.0% 22.5% 28.6%
Net income $1,298.4 $ 657.5 $ 810.9 97 (19)
% of net sales 15.7% 8.8% 11.2%
-----------------------------------------------------------------------------------------------------------------------------
<FN>
*CALCULATION NOT MEANINGFUL.
Production margin, as a percentage of net sales, increased in 1994 compared
with 1993. The improvement was attributable to the Company's cost-containment
program and favorable product mix reflecting continued growth in the
pharmaceutical business.
The 1994 increase in selling, informational and administrative expenses
(SI&A) over 1993 was primarily due to the rollout of new products and support
for recently launched products, particularly in the international markets. As a
percentage of net sales, SI&A decreased in 1994 compared with 1993. This
decrease reflects restrained growth in marketing expenses relative to the prior
year, as well as the beneficial impact of the Company's continuous improvement
and restructuring programs. The 1993 increase in selling expenses reflects costs
associated with the launch of new products.
SI&A includes expenses incurred in communicating scientific, medical and
clinical information about the Company's various products to the medical
community and others. In response to the changes in the health care environment,
the Company adopted a strategy in 1994 which focuses on the diverse needs of
managed care customers and decision makers. Health care information is also
communicated by means of Company sponsorship of medical symposia and
conventions, as well as through distribution of informative literature
concerning the Company's products. Also included in this category are
advertising expenses associated with the production and purchase of print
space in magazines/journals and media time on radio and television comprising
approximately 8% of SI&A expenses. A significant portion of such expenditures
are for the Company's consumer health care business.
R&D expenses reflect a 15% compound growth rate from 1992 through 1994.
Health care R&D expenses, expressed as a percentage of health care net sales,
were 14.9%, 14.3% and 13.6% for 1994, 1993 and 1992, respectively. In 1995, the
Company plans to spend approximately $1.4 billion on R&D.
Other deductions--net are summarized in the following table:
(MILLIONS OF DOLLARS) 1994 1993 1992
---------------------------------------------------------------------------
Interest income $(123.0) $(163.5) $(184.6)
Interest expense 126.9 106.5 103.4
Other income (20.0) (34.6) (34.6)
Other deductions 127.1 153.5 134.9
---------------------------------------------------------------------------
Other deductions--net $ 111.0 $ 61.9 $ 19.1
---------------------------------------------------------------------------
Interest income decreased in 1994 from 1993 primarily because of changes in
the Company's capital structure. The decline in interest income in 1993 was
caused by lower interest rates.
Interest expense increased in 1994 from 1993 as a result of changes in the
scope and nature of the Company's foreign exchange hedging program and higher
interest rates. The increase in interest expense in 1993 was primarily due to
higher average borrowing levels, partially offset by lower interest rates.
Other deductions included net exchange losses of $1.5, $40.0 and $22.8
million in 1994, 1993 and 1992, respectively. In addition, amortization of
intangibles was approximately $13.8, $13.3 and $16.9 million in 1994, 1993 and
1992, respectively.
On an ongoing basis, income before taxes was $258.1 million higher in 1994
than in 1993, even though the Company increased the investment in its R&D
program. This increase was primarily attributable to the Company's aggressive
development of a large number of drug candidates. As a percentage of net sales,
the decrease in cost of sales and SI&A expenses more than offset the increase in
R&D expenses and Other deductions--net, so that income before taxes, as a
percentage of net sales, increased. This improved performance resulted from a
favorable business mix, moderation in expense growth and initial benefits of
restructuring. The increase in ongoing income before taxes in 1993 was primarily
attributable to improved production margins.
Excluding the impact of nonrecurring items from 1993 results, income before
taxes and net income would have been
29
$1,603.4 million and $1,183.9 million, respectively. The 1993 effective tax rate
of 22.5% would have been 26%.
The Company's effective tax rate increased from an ongoing rate of 26% in
1993 to 30% in 1994 as a result of various changes contained in the Omnibus
Budget Reconciliation Act of 1993 which, among other provisions, included the
imposition of a limitation on the tax credit allowed to the Company for tax
years beginning after December 31, 1993 for U.S. tax on income earned in Puerto
Rico, where the Company has a major manufacturing facility.
The Internal Revenue Service is currently auditing the years 1987 through
1989. For further details, see the footnote "Taxes on Income" beginning on page
44.
The following tables show profit/(loss) by business segment on a reported
and ongoing basis for 1994 and 1993:
1994 SEGMENT PROFIT
% CHANGE COMPARED WITH
AS --------------------------
(MILLIONS OF DOLLARS) REPORTED* AS REPORTED ONGOING
---------------------------------------------------------------------------
Health Care $1,976.6 75 22
Animal Health 47.4 ** 26
Consumer Health Care 34.1 ** 9
Food Science 31.0 93 12
---------------------------------------------------------------------------
Total $2,089.1 101 22
---------------------------------------------------------------------------
<FN>
*REPORTED AND ONGOING AMOUNTS ARE THE SAME.
1993 SEGMENT PROFIT/(LOSS)
AS % %
(MILLIONS OF DOLLARS) REPORTED CHANGE ONGOING CHANGE
---------------------------------------------------------------------------
Health Care $1,129.9 (9) $1,621.8 18
Animal Health (5.8) ** 37.5 (9)
Consumer Health Care (102.3) ** 31.3 (7)
Food Science 16.1 (23) 27.6 14
---------------------------------------------------------------------------
Total $1,037.9 (36) $1,718.2 17
---------------------------------------------------------------------------
<FN>
** CALCULATION NOT MEANINGFUL.
For further details, see the footnote "Segment Information and Geographic
Data" on page 52.
LIQUIDITY AND CAPITAL RESOURCES
Company operations in 1994 provided a positive cash flow which, supplemented by
the ability to issue commercial paper and maintenance of other worldwide credit
facilities, provided adequate liquidity to meet the Company's operational needs.
Cash and cash equivalents and short-term investments are principal measures of
liquidity. These items amounted to $2.0, $1.2 and $1.7 billion at December 31,
1994, 1993 and 1992, respectively.
1994 1993 1992
---------------------------------------------------------------------------
Working capital (millions of dollars) $962.5 $1,289.6 $2,167.4
Current ratio 1.20:1 1.37:1 1.67:1
Debt to total capitalization 40% 31% 28%
Shareholders' equity per common share* $14.20 $ 12.43 $ 14.51
Days of sales outstanding 60 63 57
Months of inventory on hand 8.6 8.5 8.1
---------------------------------------------------------------------------
<FN>
*REPRESENTS SHAREHOLDERS' EQUITY DIVIDED BY THE ACTUAL NUMBER OF COMMON SHARES
OUTSTANDING.
The increase in the percentage of debt to total capitalization in 1994
versus 1993 was primarily due to share purchases and an increase in short-term
borrowings. The increase in the percentage of debt to total capitalization in
1993 versus 1992 was due to a decrease in shareholders' equity arising from the
Company's program of purchasing its common stock.
The increase in shareholders' equity per common share to $14.20 in 1994
from $12.43 in the preceding year was due to the Company's enhanced
profitability resulting from growth in sales of its new pharmaceutical products,
partially offset by the stock purchase program. The decrease in shareholders'
equity per common share to $12.43 in 1993 from $14.51 in 1992 was due to the
Company's program of purchasing its common stock.
The table below summarizes the Company's cash flows from operating,
investing and financing activities:
(MILLIONS OF DOLLARS) 1994 1993 1992
--------------------------------------------------------------------------------------------------------------
Cash provided by/(used in):
Operating activities $1,488.5 $1,263.0 $ 807.0
Investing activities (840.3) (196.9) 389.9
Financing activities 61.9 (1,567.0) (1,228.0)
Effect of exchange rate changes on cash and cash equivalents 19.0 (26.8) (29.4)
--------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in cash and cash equivalents $ 729.1 $ (527.7) $ (60.5)
--------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Cash provided by operating activities amounted to $1,488.5 million in 1994 and
was primarily attributable to income generated by the introduction of new
pharmaceutical products and new indications for existing pharmaceutical
products. The $456.0 million increase in cash generated by operating activities
in 1993 was primarily a result of higher income before taxes, excluding
restructuring charges.
The environment in which the Company operates has undergone significant
change, as evidenced by the increase and change in competition, global health
care reform and the reduction of residual trade barriers in North America and
Europe. In 1993, the Company initiated a program which recognized the need to
restructure its global operations in response to such changes. The 1993
worldwide restructuring program encompasses more than 60 operations located in
over 25 countries. Restructuring actions include the consolidation of
manufacturing facilities with the planned elimination of 4 facilities in the
U.S. and 32 facilities internationally, 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 U.S.
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 approximately 3,000 employees. This program will require three
years to complete, given the global scope and nature of the programs involved
and the need to comply with various legal requirements.
30
Since the program's initiation, the workforce has been reduced by approximately
900 people and 9 facilities have been closed. The initiatives are projected to
lower annual operating costs by at least $130 million when the full benefits of
efficiencies are realized. The annualized benefit of completed restructuring
efforts through December 31, 1994 is approximately $48 million. Through December
31, 1994, there have been no significant changes in estimates of the cost of the
plan. For further information regarding the components of the charge, see the
"Divestitures, Restructuring and Unusual Items" footnote on page 44.
Cash outlays for 1994 and 1993 related to the restructuring totaled $91.7
and $41.4 million, respectively. Expected cash outlays, funded through
operations, for the next two years are approximately $130 and $150 million,
respectively.
INVESTING ACTIVITIES
Cash used in investing activities increased $643.4 million because of the
increase in short-term investments, the change in loans and long-term
investments by financial subsidiaries and the fact that there were no sales of
businesses in 1994. Investing activities in 1993 reflected proceeds from the
sale of the Company's remaining interest in MTI.
Capital expenditures are primarily funded through operating activities. The
current research expansion programs undertaken at Groton, Connecticut and
Sandwich, England are expected to be completed in 1996 at a total cost of
approximately $500 million. In addition, the Company is in the process of
completing a major pharmaceutical capacity replacement project at its Groton
facility. This is expected to be completed in 1995 at a projected capital
expenditure of approximately $190 million. The construction of the Company's
pharmaceutical plant in Dalian, China was completed in 1993 as part of a joint
venture.
FINANCING ACTIVITIES
Cash provided by financing activities in 1994 increased by $1,628.9 million from
1993. This increase related to higher levels of short-term borrowings used to
fund working capital needs as well as certain short-term investment
opportunities. In addition, cash used for the completion of stock purchase
programs decreased in 1994 as compared with 1993. Share purchases were funded
through cash generated by operating activities.
Cash dividends paid to shareholders in 1994 were $594.6 million compared
with $536.1 million in 1993 and reflected a 12% increase in the annual dividend
rate from $1.68 to $1.88 per common share. This increase was partially offset by
the Company's purchase of its common shares.
In December 1994, the Company announced that it planned to purchase up to
2.25 million shares of its common stock from time to time in the open market.
Under this plan, approximately 1.0 million shares were purchased in 1994 at a
cost of $74.8 million. The shares purchased under this plan are intended for use
in the acquisition of NAMIC U.S.A. Corporation (NAMIC) announced in October
1994.
In August 1993, the Company sold 10 million shares of treasury stock to the
Pfizer Inc. Grantor Trust (the Trust), an employee benefit trust which will
primarily fund future obligations for previously approved benefit plans. The
Trust acquired common stock from the Company in exchange for a promissory note
of approximately $600 million. The amount, representing unearned employee
benefits, has been recorded as a deduction from shareholders' equity and will be
reduced as employee benefits are satisfied.
In February 1993, the Company announced a program to purchase up to 20
million shares of its common stock in the open market or in privately negotiated
transactions. Under this program, 7.5 and 12.5 million shares were purchased in
the open market at a cost of approximately $436.4 and $804.0 million in 1994 and
1993, respectively, thereby completing the 20 million share purchase program.
These shares are available for use in the Company's employee benefit plans and
for general corporate purposes.
The August 1992 program to purchase 10 million shares of its common stock
was completed in 1993 at a total cost of $721.6 million.
The Company maintains lines of credit and revolving-credit agreements with
a select group of banks and other financial intermediaries. Its major unused
lines of credit totaled approximately $1.1 billion at December 31, 1994.
An indicator of the Company's financial strength is that its senior debt
has been rated Aaa by Moody's Investors Services (Moody's) and AAA by Standard
and Poor's (S&P)--their highest ratings--for the past nine years. Moody's and
S&P are the major corporate rating organizations.
BANKING OPERATION
The Company's international banking operation, Pfizer International Bank Europe
(PIBE), operates under a full banking license from the Central Bank of Ireland.
PIBE extends credit to financially strong borrowers largely through U.S. dollar
loans made primarily for the short and medium term, with floating interest
rates. Generally, loans are made on an unsecured basis. When deemed appropriate,
guarantees and certain covenants may be obtained as a condition to the extension
of credit. To reduce credit risk, all borrowers must satisfy credit approval
guidelines, which also establish borrowing limits and monitoring procedures.
Credit risk is further reduced through an active policy of diversification with
respect to borrower, industry and geographic location. The net income of PIBE is
affected by fluctuations in market interest rates because of repricing and
maturity mismatches between its interest-sensitive assets and liabilities. When
PIBE is asset sensitive (more assets repricing in a given period than
liabilities), net income would be benefited in a
31
period of increasing interest rates. PIBE's asset and liability management
reflects its liquidity, interest-rate outlook and general market conditions. The
interest-rate sensitivity of PIBE's largely U.S. dollar-denominated
floating-rate asset portfolio is largely offset by the corresponding
interest-rate sensitivity inherent in the Company's U.S. dollar-denominated
short-term debt. PIBE enters into interest-rate swaps, currency swaps and
forward-rate agreements as vehicles to manage the interest-rate sensitivity of
the portfolio.
The following table summarizes the composition of the loan portfolios, the
most significant of the interest-earning assets held by the international
banking operations, at November 30, 1994, 1993 and 1992:
BORROWERS
(MILLIONS OF DOLLARS) 1994 1993 1992
---------------------------------------------------------------------------
Commercial and industrial $526.3 $569.1 $587.2
Government 139.7 91.9 210.0
Financial institutions 120.9 146.6 177.7
---------------------------------------------------------------------------
Total $786.9 $807.6 $974.9
---------------------------------------------------------------------------
MATURITIES
(MILLIONS OF DOLLARS) 1994 1993 1992
---------------------------------------------------------------------------
Within one year $361.3 $456.9 $628.3
One to five years 425.6 350.7 346.6
---------------------------------------------------------------------------
Total $786.9 $807.6 $974.9
---------------------------------------------------------------------------
The following table shows the percentage of interest-earning assets of the
international banking operations (including interest-bearing deposits, loans and
Eurosecurities) by country of the borrower, depository, issuer or guarantor,
where the total for such country is 3% or more of the total assets of the
international banking operations:
% OF BANKING OPERATIONS
TOTAL ASSETS
---------------------------------------------------------------------------
1994 1993 1992
---------------------------------------------------------------------------
U.K. 19 19 19
U.S. 17 8 8
Switzerland 12 7 5
Netherlands 11 9 6
Denmark 8 12 9
France 8 12 8
Italy 7 6 20
Sweden 6 4 7
Canada 5 13 15
Germany 4 5 --
Spain -- 5 --
---------------------------------------------------------------------------
PROSPECTIVE INFORMATION
SUBSEQUENT EVENTS
On January 19, 1995, the Company acquired SmithKline Beecham's animal health
business for approximately $1.45 billion substantially financed by the
issuance of commercial paper. The Company expects to acquire NAMIC in a
stock-for-stock transaction, valued at approximately $175 million, in the
first quarter of 1995.
On February 23, 1995, the Company announced that its Board of Directors
intends to vote on a two-for-one split of Pfizer common stock on April 27, 1995.
At the annual meeting to take place on the same date, shareholders will vote on
a proposal to increase the authorized shares and reduce the par value of the
Company's common stock.
HEALTH CARE REFORM PROPOSAL
The Company's primary markets are highly competitive and subject to substantial
governmental regulation. In the U.S., legislation proposing changes in the
health care system was not enacted in 1994. New legislation may be introduced in
1995 and may make changes in the availability, delivery and payment for health
care products and services. International operations are also subject to a
degree of government regulation.
While the Company cannot predict with certainty the nature of the potential
future U.S. reforms, whether or not they will be enacted and the impact they may
have on its U.S. business, pressures on pricing and operating results as a
result of market competition are expected to continue in 1995.
COMPETITION
Mature products of the Company's pharmaceutical business will face significant
exposure from competitive brand names and generic competition during the next
several years. Feldene and Glucotrol have been subject to generic competition
since 1992 and 1994, respectively. The majority of the unfavorable impact on
Feldene sales was felt in 1993 and 1994. The combined U.S. net sales of these
products were $203, $308 and $473 million in 1994, 1993 and 1992, respectively.
In mid-1993, the FDA approved an NDA for a competitor's sustained-release form
of nifedipine for the treatment of hypertension. This product uses a different
delivery system from the patented technology used in Procardia XL, the Company's
product, which has a delivery system that is patent-protected until 2003. Other
forms of sustained-release nifedipine have been reported to be in various stages
of development by other companies. It is not possible to predict the impact of
possible future competition on sales of Procardia XL.
GENERAL AGREEMENT ON TARIFFS AND TRADE (GATT)
In December 1994, the U.S. Congress ratified the GATT world trade agreement. A
key provision relates to intellectual property protection. The 10-year
transition period relating to the major pharmaceutical patent-infringing
countries such as Brazil, Turkey, Argentina and India will result, however, in
32
the continued discrimination against patents filed prior to the effective date
of the agreement. Necessary changes in the U.S. patent law have resulted in
limited extensions of the terms of patents for some of the Company's products.
FOREIGN EXCHANGE
Net sales outside the U.S. represented 47% and 46% of total sales in 1994 and
1993, respectively. Exchange-rate fluctuations had no impact on the Company's
net sales in 1994 and marginal impact in 1993. Sales and earnings growth in 1995
could be adversely affected if the U.S. dollar strengthens. The Company manages
its foreign exchange risk through a variety of techniques. For further details,
see the footnote "Financial Instruments and Concentrations of Credit Risk"
beginning on page 42.
LITIGATION AND ENVIRONMENTAL MATTERS
Claims have been brought against the Company and its subsidiaries for various
legal matters. In addition, the Company's operations are subject to federal,
state and local environmental laws and regulations. For further details, see the
footnote "Litigation" beginning on page 49.
DIVIDEND GROWTH
The dividend payout ratio amounted to 44.9%, 82.0% and 61.4% in 1994, 1993 and
1992, respectively. Excluding the effect of divestitures, restructuring and
unusual items--net, this ratio would have been 45.4% and 48.4% in 1993 and 1992,
respectively.
In January 1995, the Board of Directors declared a first-quarter 1995
dividend increase of 11% to $.52 from $.47 in each quarter of 1994. This marked
the 28th consecutive year of dividend increases.
INFLATION AND CHANGING PRICES
Inflation, although moderate in many parts of the world during 1994, continues
to affect worldwide economies. Inflation had no material impact on the Company's
operations throughout the period.
RESPONSIBILITY FOR FINANCIAL STATEMENTS AND SYSTEM OF INTERNAL CONTROL
The financial statements which appear on pages 35 through 53 were prepared by
and are the responsibility of the Company's management. These financial
statements are in conformity with generally accepted accounting principles and,
therefore, include amounts based upon informed judgments and estimates.
Management also accepts responsibility for the preparation of other financial
information included in this document.
The Company's management has designed a system of internal control to
safeguard its assets, ensure that transactions are properly authorized and
provide reasonable assurance, at reasonable cost, as to the integrity,
objectivity and reliability of financial information. Even an effective internal
control system, regardless of how well designed, has inherent limitations and,
therefore, can provide only reasonable assurance with respect to financial
statement preparation. The system is built on a business ethics policy that
requires all employees to maintain the highest ethical standards in conducting
Company affairs. The system of internal control includes careful selection,
training and development of financial managers, an organizational structure that
segregates responsibilities and a communications program which ensures that
Company policies and procedures are well understood throughout the organization.
The Company also has an extensive program of internal audits, with prompt
follow-up, including reviews of separate Company operations and functions around
the world.
The Company's independent certified public accountants, KPMG Peat Marwick
LLP, have audited the annual financial statements in accordance with generally
accepted auditing standards. The independent auditors' report expresses an
informed judgment as to the fair presentation of the Company's reported
operating results, financial position and cash flows. This judgment is based on
the results of auditing procedures performed and such other tests that they
deemed necessary, including consideration of the Company's internal control
structure.
Recommendations made by KPMG Peat Marwick LLP and the Company's internal
auditors are considered and appropriate action taken with respect to these
recommendations. The Company believes that its system of internal control is
effective and adequate to accomplish the objectives discussed above.
/s/ William C. Steere, Jr.
W. C. Steere, Jr.
PRINCIPAL EXECUTIVE OFFICER
/s/ H. McKinnell
H. McKinnell, Ph.D.
PRINCIPAL FINANCIAL OFFICER
/s/ H. V. Ryan
H. V. Ryan
PRINCIPAL ACCOUNTING OFFICER
February 23, 1995
33
AUDIT COMMITTEE'S REPORT
The Board of Directors reviews the audit function, internal controls and the
financial statements largely through its Audit Committee, which consists solely
of directors who are not Company employees. The Audit Committee meets at least
quarterly with management, the independent auditors and internal auditors
concerning their respective responsibilities. Among its various duties, the
Audit Committee recommends the appointment of the Company's independent
auditors. Both KPMG Peat Marwick LLP and the internal auditors have full access
to the Audit Committee and meet with it, without management present, to discuss
the scope and results of their examinations including internal control, audit
and financial reporting matters.
/s/ Stanley O. Ikenberry
S. O. Ikenberry, Ph.D.
CHAIR, AUDIT COMMITTEE
February 23, 1995
INDEPENDENT AUDITORS' REPORT
KPMG Peat Marwick LLP
CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of Pfizer Inc:
We have audited the accompanying consolidated balance sheet of Pfizer Inc and
subsidiary companies as of December 31, 1994, 1993 and 1992 and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Pfizer Inc
and subsidiary companies at December 31, 1994, 1993 and 1992, and the results of
their operations and their cash flows for each of the years then ended, in
conformity with generally accepted accounting principles.
As discussed in the notes to the consolidated financial statements, the
Company adopted the provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 106, EMPLOYERS' ACCOUNTING FOR
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS, and Statement of Financial
Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES, in 1992.
/S/ KPMG PEAT MARWICK LLP
345 Park Avenue
New York, NY 10154
February 23, 1995
34
SEGMENT INFORMATION
CONSUMER CORPORATE/
HEALTH ANIMAL HEALTH FOOD FINANCIAL
(MILLIONS OF DOLLARS) CARE HEALTH CARE SCIENCE (A) SUBSIDIARIES (D) CONSOLIDATED
----------------------------------------------------------------------------------------------------------------------------------
1994
Net sales $6,963.0 $605.3 $ 409.0 $304.0 $ -- $ 8,281.3
----------------------------------------------------------------------------------------------------------------------------------
Segment profit $1,976.6 $ 47.4 $ 34.1 $ 31.0 $ -- $ 2,089.1
----------------------------------------------------------------------------------------------------------------------------------
Interest income 123.0 123.0
Interest expense (126.9) (126.9)
Net corporate expenses (223.7) (223.7)
----------------------------------------------------------------------------------------------------------------------------------
Income before provision for taxes on income
and minority interests $1,861.5
----------------------------------------------------------------------------------------------------------------------------------
Identifiable assets $5,388.1 $501.8 $ 205.3 $447.6 $4,555.7 $11,098.5
----------------------------------------------------------------------------------------------------------------------------------
Capital additions $ 482.5 $ 45.9 $ 15.6 $ 58.3 $69.2 $ 671.5
----------------------------------------------------------------------------------------------------------------------------------
Depreciation $ 216.3 $ 16.9 $ 7.1 $ 19.3 $15.8 $ 275.4
----------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------
1993
Net sales $6,210.3 $578.0 $ 373.5 $315.9 $ -- $ 7,477.7
----------------------------------------------------------------------------------------------------------------------------------
Segment profit/(loss)(B) $1,129.9 $ (5.8) $(102.3) $ 16.1 $ -- $ 1,037.9
----------------------------------------------------------------------------------------------------------------------------------
Interest income 163.5 163.5
Interest expense (106.5) (106.5)
Net corporate expenses (243.5) (243.5)
----------------------------------------------------------------------------------------------------------------------------------
Income before provision for taxes on income
and minority interests $ 851.4
----------------------------------------------------------------------------------------------------------------------------------
Identifiable assets $4,650.3 $444.6 $ 152.4 $374.4 $3,709.2 $ 9,330.9
----------------------------------------------------------------------------------------------------------------------------------
Capital additions $ 480.9 $ 39.2 $ 15.4 $ 62.9 $35.8 $634.2
----------------------------------------------------------------------------------------------------------------------------------
Depreciation $ 182.6 $ 17.0 $ 6.5 $ 19.6 $15.4 $241.1
----------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------
1992
Net sales $5,613.9 $560.8 $ 404.6 $650.9 $ -- $ 7,230.2
----------------------------------------------------------------------------------------------------------------------------------
Segment profit(C) $1,241.8 $ 41.2 $ 329.7 $ 21.0 $ -- $ 1,633.7
----------------------------------------------------------------------------------------------------------------------------------
Interest income 184.6 184.6
Interest expense (103.4) (103.4)
Net corporate expenses (180.1) (180.1)
----------------------------------------------------------------------------------------------------------------------------------
Income before provision for taxes on income,
minority interests and cumulative effect
of accounting changes $ 1,534.8
----------------------------------------------------------------------------------------------------------------------------------
Identifiable assets $4,153.2 $478.6 $ 285.9 $368.9 $4,303.5 $ 9,590.1
----------------------------------------------------------------------------------------------------------------------------------
Capital additions $ 436.4 $ 41.3 $ 9.2 $126.3 $61.0 $ 674.2
----------------------------------------------------------------------------------------------------------------------------------
Depreciation $ 147.0 $ 13.7 $ 6.9 $ 51.8 $23.2 $ 242.6
----------------------------------------------------------------------------------------------------------------------------------
<FN>
(A) INCLUDES THE RESULTS OF THE DIVESTED MINERALS BUSINESSES THROUGH OCTOBER
30, 1992.
(B) INCLUDES PRE-TAX CHARGES OF $750 MILLION AND APPROXIMATELY $62 MILLION TO
COVER A WORLDWIDE RESTRUCTURING PROGRAM AS WELL AS UNUSUAL ITEMS. IT ALSO
INCLUDES A GAIN OF APPROXIMATELY $60 MILLION REALIZED ON THE SALE OF THE
COMPANY'S REMAINING INTEREST IN MTI. AMOUNTS DIRECTLY ATTRIBUTABLE TO
INDIVIDUAL SEGMENTS HAVE BEEN ALLOCATED TO THEM. AMOUNTS NOT DIRECTLY
TRACEABLE TO INDIVIDUAL SEGMENTS ARE INCLUDED IN NET CORPORATE EXPENSES.
(C) INCLUDES A $110.5 MILLION NET CREDIT RELATING TO THE DIVESTITURE AND
RESTRUCTURING OF CERTAIN OF THE COMPANY'S BUSINESSES AND CURTAILMENT GAINS
ASSOCIATED WITH POSTRETIREMENT BENEFITS OTHER THAN PENSIONS OF DIVESTED
OPERATIONS. AMOUNTS DIRECTLY ATTRIBUTABLE TO INDIVIDUAL SEGMENTS HAVE BEEN
ALLOCATED TO THEM. AMOUNTS NOT DIRECTLY TRACEABLE TO INDIVIDUAL SEGMENTS
ARE INCLUDED IN NET CORPORATE EXPENSES.
(D) SEGMENT INFORMATION FOR THE FINANCIAL SUBSIDIARIES CAN BE FOUND IN THE
"FINANCIAL SUBSIDIARIES" FOOTNOTE ON PAGE 42.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS WHICH ARE AN INTEGRAL PART OF
THESE STATEMENTS.
35
GEOGRAPHIC DATA
CANADA/
UNITED LATIN
(MILLIONS OF DOLLARS) STATES (A) EUROPE ASIA AMERICA
-----------------------------------------------------------------------------------------------------------------------------
1994
Net sales $4,411.2 $1,816.4 $1,249.1 $619.4
Intercompany sales 140.3 459.8 57.2 21.3
-----------------------------------------------------------------------------------------------------------------------------
Total $4,551.5 $2,276.2 $1,306.3 $640.7
-----------------------------------------------------------------------------------------------------------------------------
Geographic profit $1,426.8 $ 534.6 $ 115.2 $ 45.6
-----------------------------------------------------------------------------------------------------------------------------
Interest income
Interest expense
Net corporate expenses
-----------------------------------------------------------------------------------------------------------------------------
Income before provision for taxes on
income and minority interests
-----------------------------------------------------------------------------------------------------------------------------
Identifiable assets $2,768.1 $2,429.0 $1,303.4 $479.9
-----------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
1993
Net sales $4,006.0 $1,632.0 $1,131.9 $528.3
Intercompany sales 134.5 489.6 23.1 20.4
-----------------------------------------------------------------------------------------------------------------------------
Total $4,140.5 $2,121.6 $1,155.0 $548.7
-----------------------------------------------------------------------------------------------------------------------------
Geographic profit/(loss)(B) $ 698.5 $ 381.8 $ 75.2 $ (.4)
-----------------------------------------------------------------------------------------------------------------------------
Interest income
Interest expense
Net corporate expenses
-----------------------------------------------------------------------------------------------------------------------------
Income before provision for taxes on
income and minority interests
-----------------------------------------------------------------------------------------------------------------------------
Identifiable assets $2,598.2 $2,034.6 $1,198.2 $393.7
-----------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
1992
Net sales $3,888.2 $1,709.1 $1,012.7 $470.4
Intercompany sales 92.6 409.7 23.8 16.0
-----------------------------------------------------------------------------------------------------------------------------
Total $3,980.8 $2,118.8 $1,036.5 $486.4
-----------------------------------------------------------------------------------------------------------------------------
Geographic profit(C) $1,172.4 $ 404.8 $26.0 $ 54.2
-----------------------------------------------------------------------------------------------------------------------------
Interest income
Interest expense
Net corporate expenses
-----------------------------------------------------------------------------------------------------------------------------
Income before provision
for taxes on income, minority interests and
cumulative effect of accounting changes
-----------------------------------------------------------------------------------------------------------------------------
Identifiable assets $2,280.5 $2,018.6 $1,008.3 $325.0
-----------------------------------------------------------------------------------------------------------------------------
AFRICA/ CORPORATE/
MIDDLE FINANCIAL ADJUSTMENTS/
(MILLIONS OF DOLLARS) EAST SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-----------------------------------------------------------------------------------------------------------------------------
1994
Net sales $185.2 $ -- $ -- $ 8,281.3
Intercompany sales 5.7 -- (684.3) --
-----------------------------------------------------------------------------------------------------------------------------
Total $190.9 $ -- $(684.3) $ 8,281.3
-----------------------------------------------------------------------------------------------------------------------------
Geographic profit $ 11.6 $ -- $ (44.7) $ 2,089.1
-----------------------------------------------------------------------------------------------------------------------------
Interest income 123.0 123.0
Interest expense (126.9) (126.9)
Net corporate expenses (223.7) (223.7)
-----------------------------------------------------------------------------------------------------------------------------
Income before provision for taxes on
income and minority interests $ 1,861.5
-----------------------------------------------------------------------------------------------------------------------------
Identifiable assets $140.6 $4,555.7 $(578.2) $11,098.5
-----------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
1993
Net sales $179.5 $ -- $ -- $ 7,477.7
Intercompany sales 3.8 -- (671.4) --
-----------------------------------------------------------------------------------------------------------------------------
Total $183.3 $ -- $(671.4) $ 7,477.7
-----------------------------------------------------------------------------------------------------------------------------
Geographic profit/(loss)(B) $(28.6) $ -- $ (88.6) $ 1,037.9
-----------------------------------------------------------------------------------------------------------------------------
Interest income 163.5 163.5
Interest expense (106.5) (106.5)
Net corporate expenses (243.5) (243.5)
-----------------------------------------------------------------------------------------------------------------------------
Income before provision for taxes on
income and minority interests $ 851.4
-----------------------------------------------------------------------------------------------------------------------------
Identifiable assets $128.9 $3,709.2 $(731.9) $ 9,330.9
-----------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
1992
Net sales $149.8 $ -- $ -- $ 7,230.2
Intercompany sales .7 -- (542.8) --
-----------------------------------------------------------------------------------------------------------------------------
Total $150.5 $ -- $(542.8) $ 7,230.2
-----------------------------------------------------------------------------------------------------------------------------
Geographic profit(C) $ 16.3 $ -- $ (40.0) $ 1,633.7
-----------------------------------------------------------------------------------------------------------------------------
Interest income 184.6 184.6
Interest expense (103.4) (103.4)
Net corporate expenses (180.1) (180.1)
-----------------------------------------------------------------------------------------------------------------------------
Income before provision
for taxes on income, minority interests and
cumulative effect of accounting changes $ 1,534.8
-----------------------------------------------------------------------------------------------------------------------------
Identifiable assets $108.9 $4,303.5 $(454.7) $ 9,590.1
-----------------------------------------------------------------------------------------------------------------------------
<FN>
(A) THE COMPANY'S MANUFACTURING OPERATIONS IN PUERTO RICO ARE INCLUDED IN THE
UNITED STATES FOR GEOGRAPHIC DATA PURPOSES.
(B) INCLUDES PRE-TAX CHARGES OF $750 MILLION AND APPROXIMATELY $62 MILLION TO
COVER A WORLDWIDE RESTRUCTURING PROGRAM AS WELL AS UNUSUAL ITEMS. IT ALSO
INCLUDES A GAIN OF APPROXIMATELY $60 MILLION REALIZED ON THE SALE OF THE
COMPANY'S REMAINING INTEREST IN MTI. AMOUNTS DIRECTLY ATTRIBUTABLE TO
INDIVIDUAL GEOGRAPHIC AREAS HAVE BEEN ALLOCATED TO THEM. AMOUNTS NOT
DIRECTLY TRACEABLE TO INDIVIDUAL GEOGRAPHIC AREAS ARE INCLUDED IN NET
CORPORATE EXPENSES.
(C) INCLUDES A $110.5 MILLION NET CREDIT RELATING TO THE DIVESTITURE AND
RESTRUCTURING OF CERTAIN OF THE COMPANY'S BUSINESSES AND CURTAILMENT GAINS
ASSOCIATED WITH POSTRETIREMENT BENEFITS OTHER THAN PENSIONS OF DIVESTED
OPERATIONS. AMOUNTS DIRECTLY ATTRIBUTABLE TO INDIVIDUAL GEOGRAPHIC AREAS
HAVE BEEN ALLOCATED TO THEM. AMOUNTS NOT DIRECTLY TRACEABLE TO INDIVIDUAL
GEOGRAPHIC AREAS ARE INCLUDED IN NET CORPORATE EXPENSES.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS WHICH ARE AN INTEGRAL PART OF
THESE STATEMENTS.
36
CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31
-----------------------------------------------------------------------------------------------------------------------------
(MILLIONS OF DOLLARS EXCEPT PER SHARE DATA) 1994 1993 1992
-----------------------------------------------------------------------------------------------------------------------------
Net sales $8,281.3 $7,477.7 $7,230.2
Costs and expenses
Cost of sales 1,918.6 1,772.0 2,024.3
Selling, informational and administrative expenses 3,250.8 3,066.0 2,899.3
Research and development expenses 1,139.4 974.4 863.2
Divestitures, restructuring and unusual items--net -- 752.0 (110.5)
Other deductions--net 111.0 61.9 19.1
-----------------------------------------------------------------------------------------------------------------------------
Income before provision for taxes on income, minority interests
and cumulative effect of accounting changes 1,861.5 851.4 1,534.8
Provision for taxes on income 558.5 191.3 438.6
Minority interests 4.6 2.6 2.7
-----------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of accounting changes 1,298.4 657.5 1,093.5
Cumulative effect of change in accounting for:
Postretirement benefits, net of income taxes -- -- (312.6)
Income taxes -- -- 30.0
-----------------------------------------------------------------------------------------------------------------------------
Net income $1,298.4 $657.5 $810.9
-----------------------------------------------------------------------------------------------------------------------------
Earnings per common share
Income before cumulative effect of accounting changes $4.19 $2.05 $3.25
Cumulative effect of change in accounting for:
Postretirement benefits, net of income taxes -- -- (.93)
Income taxes -- -- .09
-----------------------------------------------------------------------------------------------------------------------------
Net income $4.19 $2.05 $2.41
-----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS WHICH ARE AN INTEGRAL PART OF
THESE STATEMENTS.
37
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
COMMON STOCK ADDITIONAL
--------------------- PAID-IN RETAINED
(MILLIONS) SHARES PAR VALUE CAPITAL EARNINGS
-----------------------------------------------------------------------------------------------------------------------------
Balance January 1, 1992 332.4 $33.2 $212.5 $4,794.9
Net income 810.9
Cash dividends declared (486.5)
Debenture conversions .8 .1 10.9
Currency translation adjustment
Stock option transactions 3.7 .4 142.1
Purchase of common stock
Shares purchased from Retirement Annuity Plan
Shares purchased from Savings and Investment Plan
Dividend reinvestment plan .1 -- 9.4
-----------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1992 337.0 33.7 374.9 5,119.3
Net income 657.5
Cash dividends declared (536.1)
Currency translation adjustment
Stock option transactions 1.4 .2 41.9
Purchase of common stock
Employee benefit trust transactions--net 63.2
Dividend reinvestment plan .2 -- 11.7
-----------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1993 338.6 33.9 491.7 5,240.7
Net income 1,298.4
Cash dividends declared (594.6)
Currency translation adjustment
Stock option transactions 1.5 .1 63.1
Purchase of common stock
Employee benefit trust transactions--net 83.4
Dividend reinvestment plan .2 -- 11.8
Unrealized net gain on available-for-sale securities
Other 1.4
-----------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1994 340.3 $34.0 $651.4 $5,944.5
-----------------------------------------------------------------------------------------------------------------------------
CURRENCY
TRANSLATION EMPLOYEE TREASURY STOCK
ADJUSTMENT BENEFITS ---------------------
(MILLIONS) AND OTHER TRUST SHARES COST TOTAL
-----------------------------------------------------------------------------------------------------------------------------
Balance January 1, 1992 $157.8 $ -- (2.8) $(172.1) $5,026.3
Net income 810.9
Cash dividends declared (486.5)
Debenture conversions 11.0
Currency translation adjustment (112.5) (112.5)
Stock option transactions (.1) (17.4) 125.1
Purchase of common stock (8.5) (632.2) (632.2)
Shares purchased from Retirement Annuity Plan (.4) (30.0) (30.0)
Shares purchased from Savings and Investment Plan -- (2.9) (2.9)
Dividend reinvestment plan 9.4
-----------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1992 45.3 -- (11.8) (854.6) 4,718.6
Net income 657.5
Cash dividends declared (536.1)
Currency translation adjustment (13.6) (13.6)
Stock option transactions -- .6 42.7
Purchase of common stock (15.8) (1,019.6) (1,019.6)
Employee benefit trust transactions--net (690.0) 10.0 631.1 4.3
Dividend reinvestment plan 11.7
-----------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1993 31.7 (690.0) (17.6) (1,242.5) 3,865.5
Net income 1,298.4
Cash dividends declared (594.6)
Currency translation adjustment 162.3 162.3
Stock option transactions -- 1.0 64.2
Purchase of common stock (8.5) (511.2) (511.2)
Employee benefit trust transactions--net (59.3) 24.1
Dividend reinvestment plan 11.8
Unrealized net gain on available-for-sale securities 2.0 2.0
Other 1.4
-----------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1994 $196.0 $(749.3) (26.1) $(1,752.7) $4,323.9
-----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS WHICH ARE AN INTEGRAL PART OF
THESE STATEMENTS.
38
CONSOLIDATED BALANCE SHEET
DECEMBER 31
-----------------------------------------------------------------------------------------------------------------------------
(MILLIONS OF DOLLARS) 1994 1993 1992
-----------------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,458.5 $ 729.4 $1,257.1
Short-term investments 560.1 447.1 446.6
Accounts receivable, less allowance for doubtful accounts:
1994-$44.1; 1993-$40.6; 1992-$36.2 1,665.0 1,468.7 1,400.3
Short-term loans 361.3 456.9 620.3
Inventories
Finished goods 528.0 413.3 413.5
Work in process 534.9 502.1 465.8
Raw materials and supplies 202.0 178.1 188.5
-----------------------------------------------------------------------------------------------------------------------------
Total inventories 1,264.9 1,093.5 1,067.8
-----------------------------------------------------------------------------------------------------------------------------
Prepaid expenses, taxes and other current assets 478.6 537.6 592.7
-----------------------------------------------------------------------------------------------------------------------------
Total current assets 5,788.4 4,733.2 5,384.8
Long-term loans and marketable securities 724.3 586.7 601.4
Property, plant and equipment, less accumulated depreciation 3,073.2 2,632.5 2,305.1
Goodwill, less accumulated amortization 325.7 231.1 368.2
Other assets, deferred taxes and deferred charges 1,186.9 1,147.4 930.6
-----------------------------------------------------------------------------------------------------------------------------
Total assets $11,098.5 $9,330.9 $9,590.1
-----------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings, including current portion of long-term debt $ 2,220.0 $1,178.8 $1,252.3
Accounts payable 524.9 479.1 456.4
Income taxes payable 731.1 606.2 395.9
Accrued compensation and related items 419.0 408.6 332.9
Other current liabilities 930.9 770.9 779.9
-----------------------------------------------------------------------------------------------------------------------------
Total current liabilities 4,825.9 3,443.6 3,217.4
Long-term debt 604.2 570.5 571.3
Postretirement benefit obligation other than pension plans 432.6 443.3 459.1
Deferred taxes on income 211.7 189.4 146.9
Other non-current liabilities 661.4 779.3 441.9
Minority interests 38.8 39.3 34.9
-----------------------------------------------------------------------------------------------------------------------------
Total liabilities 6,774.6 5,465.4 4,871.5
-----------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Preferred stock, without par value; 12,000,000 shares authorized, none issued -- -- --
Common stock, $.10 par value; 750,000,000 shares authorized;
issued: 1994-340,330,816; 1993-338,564,752; 1992-336,972,295 34.0 33.9 33.7
Additional paid-in capital 651.4 491.7 374.9
Retained earnings 5,944.5 5,240.7 5,119.3
Currency translation adjustment and other 196.0 31.7 45.3
Employee benefit trust (749.3) (690.0) --
Common stock in treasury, at cost:
1994-26,104,841; 1993-17,642,269; 1992-11,831,522 (1,752.7) (1,242.5) (854.6)
-----------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 4,323.9 3,865.5 4,718.6
-----------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $11,098.5 $9,330.9 $9,590.1
-----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS WHICH ARE AN INTEGRAL PART OF
THESE STATEMENTS.
39
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31
-----------------------------------------------------------------------------------------------------------------------------
(MILLIONS OF DOLLARS) 1994 1993 1992
-----------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 1,298.4 $ 657.5 $ 810.9
Adjustments to reconcile net income to net cash provided by
operating activities:
Cumulative effect of accounting changes -- -- 282.6
Depreciation and amortization of intangibles 292.0 258.2 263.9
Divestitures, restructuring and unusual items -- 752.0 (110.5)
Deferred taxes 32.6 (336.1) (14.5)
Deferred income amortization (11.4) (28.3) (74.3)
Other 5.5 39.3 5.0
Changes in assets and liabilities, net of effect of businesses
acquired and divested:
Accounts receivable (160.7) (160.8) (193.8)
Inventories (110.8) (142.3) (116.1)
Prepaid and other assets (11.5) (44.8) (246.3)
Accounts payable and accrued liabilities 167.9 30.5 69.7
Income taxes payable 121.3 227.9 44.6
Other deferred items (134.8) 9.9 85.8
-----------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,488.5 1,263.0 807.0
-----------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchases of property, plant and equipment (671.5) (634.2) (674.2)
Purchases of short-term investments (1,355.9) (739.6) (535.7)
Proceeds from redemptions of short-term investments 1,244.8 846.8 459.8
Proceeds from sales of businesses -- 241.2 896.6
Purchases of long-term investments (162.1) (175.9) (154.6)
Purchases and redemptions of short-term investments by financial subsidiaries 43.4 (21.3) 51.0
Decrease in loans and long-term investments by financial subsidiaries 20.7 167.3 283.3
Other investing activities 40.3 118.8 63.7
-----------------------------------------------------------------------------------------------------------------------------
Net cash (used in)/provided by investing activities (840.3) (196.9) 389.9
-----------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 39.8 6.4 266.0
Increase/(decrease) in short-term debt 1,030.8 (70.1) (407.7)
Stock option transactions 64.2 42.7 125.1
Purchases of common stock (511.2) (1,019.6) (665.1)
Cash dividends paid (594.6) (536.1) (486.5)
Other financing activities 32.9 9.7 (59.8)
-----------------------------------------------------------------------------------------------------------------------------
Net cash provided by/(used in) financing activities 61.9 (1,567.0) (1,228.0)
-----------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents 19.0 (26.8) (29.4)
-----------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in cash and cash equivalents 729.1 (527.7) (60.5)
Cash and cash equivalents at beginning of year 729.4 1,257.1 1,317.6
-----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 1,458.5 $ 729.4 $ 1,257.1
-----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS WHICH ARE AN INTEGRAL PART OF
THESE STATEMENTS.
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of Pfizer Inc and all
significant subsidiaries. Material intercompany transactions are eliminated.
The Company considers demand deposits, certificates of deposit and certain
time deposits with maturities of three months or less at the date of purchase to
be cash equivalents. Certain items which meet the definition of cash equivalents
but are part of a larger pool of investments are included in Short-term
investments.
Inventories are valued at cost or market, whichever is lower. Except as
noted below, raw materials and supplies are valued at average or latest actual
costs and finished goods and work in process at average actual costs.
Substantially all of the Company's U.S. sourced pharmaceuticals, animal health
and food science inventories are valued utilizing the last-in, first-out (LIFO)
method.
Property, plant and equipment are recorded at cost. Significant
improvements are capitalized. In general, the straight-line method of
depreciation is used for financial reporting purposes and accelerated methods
are used for U.S. and certain foreign tax reporting purposes.
The assets and liabilities for most of the Company's international
subsidiaries are translated into U.S. dollars using current exchange rates with
resulting translation adjustments recorded in Shareholders' equity. Exchange
gains and losses on hedges of foreign net investments and on intercompany
balances of a long-term investment nature are also recorded in Shareholders'
equity. Income statement items are generally translated at average exchange
rates prevailing during the period. Other foreign currency transaction gains and
losses are included in net income. International subsidiaries and branches
operating in highly inflationary economies translate non-monetary assets at
historical rates, while net monetary assets are translated at current rates,
with the resulting translation adjustments included in net income.
The accompanying consolidated financial statements generally do not include
a provision for U.S. income taxes on international subsidiaries' unremitted
earnings which, for the most part, are expected to be reinvested overseas. The
Company intends to remit a portion of future earnings. To the extent that the
parent company receives such foreign earnings as dividends, foreign taxes paid
on those earnings will generate tax credits which substantially offset the
related U.S. income taxes. The Omnibus Budget Reconciliation Act of 1993 imposed
a limitation on the tax credit allowed to the Company for U.S. taxes on income
earned in Puerto Rico for tax years beginning after December 31, 1993. As a
result, taxes have been provided to the extent required by this change in law.
Goodwill and other intangibles are recorded at cost. Amounts arising from
acquisitions accounted for as purchases subsequent to 1970 are amortized over
various periods not exceeding 40 years. Amounts arising prior to that year are
not amortized unless there is a permanent diminution in value. Goodwill is shown
separately, while other intangibles are included in Other assets, deferred taxes
and deferred charges in the Consolidated Balance Sheet. When factors indicate
that goodwill and other intangibles be evaluated for possible impairment, the
Company assesses the recoverability from future operations using undiscounted
cash flows.
CONSOLIDATED INTERNATIONAL SUBSIDIARIES
Subsidiaries operating outside the U.S. generally are included in the
consolidated financial statements on a fiscal year basis ending November 30.
Substantially all the international subsidiaries' unremitted earnings are free
from legal or contractual restrictions. Additional information is shown on page
36.
Net exchange losses, included in Other deductions (which totaled $127.1,
$153.5 and $134.9 million in 1994, 1993 and 1992, respectively), were $1.5,
$40.0, and $22.8 million in 1994, 1993 and 1992, respectively.
Changes in the currency translation adjustment included in Shareholders'
equity are as follows:
(MILLIONS OF DOLLARS) 1994 1993 1992
-----------------------------------------------------------------------------------------------------------------------------
Currency translation adjustment January 1 $ 31.7 $45.3 $157.8
Translation adjustments and hedges 161.8 (92.6) (84.0)
Income taxes allocated to translation adjustments and hedges .5 .9 (13.1)
Transfer to income statement on sale or liquidation of businesses -- 78.1 (15.4)
-----------------------------------------------------------------------------------------------------------------------------
Currency translation adjustment December 31 $194.0 $31.7 $ 45.3
-----------------------------------------------------------------------------------------------------------------------------
INVESTMENTS IN DEBT AND EQUITY SECURITIES
In 1994, the Company adopted Statement of Financial Accounting Standards (SFAS)
No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES. The
statement requires that investments in such securities be designated as trading,
held-to-maturity or available-for-sale. Trading securities are reported at fair
value with unrealized gains and losses recognized in earnings.
Available-for-sale securities are reported at fair value with unrealized gains
and losses recognized in the caption "Currency translation adjustment and other"
included in Shareholders' equity. Securities classified as held-to-maturity are
reported at amortized cost.
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
As of December 31, 1994, the status of such securities is as follows:
DECEMBER 31, 1994
-------------------------------------------------------------------------------
GROSS UNREALIZED
AMORTIZED FAIR ---------------------
(MILLIONS OF DOLLARS) COST VALUE GAINS LOSSES
-------------------------------------------------------------------------------
Held-to-Maturity:
U.S. Government agencies $ 28.2 $ 28.2 $ -- $ --
Municipals 88.6 88.4 .1 (.3)
Foreign governments 51.8 51.2 .1 (.7)
Certificates of deposit 234.7 234.7 -- --
Mortgage-backed 33.4 31.8 -- (1.6)
Corporate debt 381.5 375.4 .3 (6.4)
Commercial paper 91.0 91.0 -- --
--------------------------------------------------------------------------------
909.2 900.7 .5 (9.0)
Available for Sale:
Equity securities 56.7 60.1 18.8 (15.4)
--------------------------------------------------------------------------------
$965.9 $960.8 $19.3 $(24.4)
--------------------------------------------------------------------------------
Of the above securities, amounts are included in the Consolidated Balance
Sheet as follows:
(MILLIONS OF DOLLARS) 1994
--------------------------------------------------------------------------------
Cash $90.0
Short-term investments 560.1
Long-term loans and marketable securities 319.2
--------------------------------------------------------------------------------
The contractual maturities of such securities as of December 31, 1994 are as
follows:
YEARS
-----------------------------------------
OVER 1 OVER 5
(MILLIONS OF DOLLARS) WITHIN 1 TO 5 TO 10 OVER 10 TOTAL
--------------------------------------------------------------------------------
Held-to-Maturity:
U.S. Government agencies $ 28.2 $ -- $ -- $ -- $ 28.2
Municipals 78.6 10.0 -- -- 88.6
Foreign governments .7 51.1 -- -- 51.8
Certificates of deposit 220.7 14.0 -- -- 234.7
Corporate debt 211.6 128.2 21.8 19.9 381.5
Commercial paper 91.0 -- -- -- 91.0
--------------------------------------------------------------------------------
Subtotal $630.8 $203.3 $21.8 $19.9 875.8
-----------------------------------------------------------------------
Mortgage-backed 33.4
--------
Total $909.2
--------------------------------------------------------------------------------
Interest income was $123.0, $163.5 and $184.6 million for 1994, 1993 and
1992, respectively.
FINANCIAL SUBSIDIARIES
Combined financial data/segment information as of November 30, 1994, 1993
and 1992 applicable to the Company's financial subsidiaries, which include
Pfizer International Bank Europe (PIBE) and a small captive insurance company,
are presented as follows:
CONDENSED BALANCE SHEET
(MILLIONS OF DOLLARS) 1994 1993 1992
-------------------------------------------------------------------------------
Cash and interest-bearing deposits $ 285.2 $ 222.2 $ 63.7
Eurosecurities 3.8 46.8 25.0
Loans, net 766.4 794.1 960.4
Other assets 13.2 10.3 15.3
-------------------------------------------------------------------------------
Total assets $1,068.6 $1,073.4 $ 1,064.4
-------------------------------------------------------------------------------
Certificates of deposit and
other liabilities $ 184.5 $ 166.5 $ 171.5
Deferred income 13.0 26.2 50.2
Shareholders' equity 871.1 880.7 842.7
-------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $1,068.6 $1,073.4 $1,064.4
-------------------------------------------------------------------------------
CONDENSED STATEMENT OF INCOME
(MILLIONS OF DOLLARS) 1994 1993 1992
-------------------------------------------------------------------------------
Interest income $ 49.2 $ 48.1 $ 91.3
Interest expense (4.6) (4.2) (5.5)
Other (expense)/income--net (12.0) 1.2 (4.2)
-------------------------------------------------------------------------------
Net income $ 32.6 $ 45.1 $ 81.6
-------------------------------------------------------------------------------
Investments of the banking subsidiary generally are recorded at amortized
cost and are held until maturity.
PROPERTY, PLANT AND EQUIPMENT
The major categories of property, plant and equipment and accumulated
depreciation follow:
(MILLIONS OF DOLLARS) 1994 1993 1992
-------------------------------------------------------------------------------
Land $ 85.2 $ 81.8 $ 71.7
Buildings 1,218.6 1,093.8 953.9
Machinery and equipment 2,108.4 1,897.8 1,706.9
Furniture, fixtures and other 940.2 812.8 698.3
Construction in progress 640.5 414.5 385.6
-------------------------------------------------------------------------------
4,992.9 4,300.7 3,816.4
Less: accumulated depreciation 1,919.7 1,668.2 1,511.3
-------------------------------------------------------------------------------
$ 3,073.2 $2,632.5 $2,305.1
-------------------------------------------------------------------------------
INVENTORIES
Inventories valued on a LIFO basis comprised approximately 15% of worldwide
inventories at December 31, 1994, 1993 and 1992. The estimated replacement
cost of these inventories at December 31, 1994, 1993 and 1992 was $220.3,
$204.7 and $199.0 million, respectively.
FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISK
Changes in the value of the U.S. dollar and other currencies affect the
Company's financial position and results of operations since the Company has
manufacturing operations in 31 countries and sells its products on a worldwide
basis. Changes in interest rates affect the Company's financial position and
results of operations as a result of its investments
42
and borrowings. The Company manages its foreign exchange and interest-rate risks
through a variety of techniques, including the use of derivative financial
instruments. The Company does not leverage or trade derivative financial
instruments.
Generally, gains and losses arising from financial instruments used for
foreign exchange and interest-rate risk management are recognized in income
simultaneously with the net income effect of the related transactions generating
such risks.
Forward-exchange contracts with maturities of six months or less are used
to match local market short-term assets and liabilities denominated in
currencies other than the local currency. Changes in the fair value of
forward-exchange contracts are included in Other deductions--net, together with
foreign exchange gains and losses. At December 31, 1994, 1993 and 1992, the
Company had approximately $750, $420 and $380 million, respectively, of
forward-exchange contracts. The December 31, 1994 contracts include $383 million
of currencies exchanged for U.S. dollars, $132 million exchanged for U.K.
pounds, $92 million exchanged for Irish punt, $55 million exchanged for German
marks and $88 million for other currencies. The principal currencies exchanged
for U.S. dollars are Japanese yen, U.K. pounds, Irish punt, French francs and
German marks of $107, $61, $49, $34 and $29 million, respectively. The principal
currency exchanged for U.K. pounds is U.S. dollars of $129 million, exchanged
for Irish punt is U.K. pounds of $72 million and exchanged for German marks is
U.S. dollars of $52 million.
Currency options purchased to hedge anticipated inventory purchases and
sales are reported at amortized cost. The cost is amortized to operations on a
straight-line basis through the inventory delivery date. Unrealized gains at
that date are deferred as a reduction of inventory cost and recognized in net
income as sales occur. At December 31, 1994 and 1993, $150 and $180 million of
yen-denominated currency options were purchased with maturities through 1996 and
1995, respectively, to hedge anticipated inventory purchases and sales.
Interest-rate swap agreements are used to manage interest-rate risk on
assets and liabilities with the differential to be paid or received under the
agreements accrued over the lives of the contracts as interest rates change.
Such amounts are included in Other deductions--net.
At December 31, 1994, the Company had interest-rate swap contracts
outstanding with notional amounts of approximately $275 million. Interest-rate
swap contracts of $25 million, maturing in 2001, have the effect of converting
fixed-rate long-term debt into a floating rate based on the Bankers Trust Tax
Exempt Note Rate. A contract of $50 million maturing shortly after year-end
converts certain fixed-rate assets of PIBE into floating rate based on the
London Interbank Offered Rate (LIBOR). Contracts of $200 million convert certain
floating-rate assets of PIBE to fixed-rate. The Company sold the right to
receive the fixed-rate payments under the swap contracts totaling $200 million
in order to reduce counterparty credit risk. Income on this transaction was
deferred and is being amortized over the life of the swap contracts, all of
which expire in 1995. Approximately $13, $13 and $24 million of this deferred
income is included in Other current liabilities in the Consolidated Balance
Sheet at December 31, 1994, 1993 and 1992, respectively.
At December 31, 1994, the Company had currency swap contracts with notional
amounts of approximately $90 million outstanding, maturing in 1995 through 1997.
Such contracts effectively convert certain PIBE foreign currency assets into
floating rate (based on LIBOR) U.S. dollar denominated assets.
The Company periodically reviews the credit quality of financial
institutions which are counterparties to derivative financial instruments and
does not expect any loss from the failure of such institutions to perform under
the contracts.
At December 31, 1994, the Company had no significant concentrations of
credit risk related to financial instruments.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair values of
financial instruments:
For cash, short-term interest-bearing deposits and investments, accounts
receivable and payable, accrued liabilities, commercial paper and certificates
of deposit, short-term debt and other liabilities, the carrying amount
approximates the fair value because of the short maturities of those
instruments. For loans, the carrying amount approximates the fair value because
of the short reset period.
Quoted market prices or dealer quotes for the same or similar instruments
were used for certain long-term interest-bearing deposits and investments,
long-term debt, forward-exchange contracts and currency options.
Interest-rate and currency swap agreements have been valued by using the
estimated amount that the Company would receive or pay to terminate the swap
agreements at the reporting date based on broker quotes, taking into account
current interest rates and the current creditworthiness of the swap
counterparties.
The difference between the fair values and the carrying values of the
Company's long-term interest-bearing deposits and investments and long-term
debt, as well as each class of derivative financial instrument, is not material
and, therefore, such amounts are not presented herein.
LONG-TERM DEBT
Long-term debt, exclusive of current maturities of $6.5, $3.6 and $4.6 million
in 1994, 1993 and 1992, respectively, is summarized as follows:
(MILLIONS OF DOLLARS) 1994 1993 1992
-------------------------------------------------------------------------------
7-1/8% Notes due 1996 $250.0 $250.0 $250.0
6-1/2% Notes due 1997 250.0 250.0 250.0
10-1/4% Industrial Development
Bonds Due 2001 22.0 22.0 22.0
7% Solid Waste Disposal Facilities
Revenue Bonds Due 2025 18.0 -- --
Other borrowings and mortgages 64.2 48.5 49.3
-------------------------------------------------------------------------------
$604.2 $570.5 $571.3
-------------------------------------------------------------------------------
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In 1991, the Company filed a shelf registration with the U.S. Securities
and Exchange Commission under which the Company could issue up to $750 million
of debt securities. Under this shelf registration, the Company issued an
aggregate of $500 million of notes, leaving $250 million available to be issued
as of December 31, 1994.
Long-term debt maturities for the years ending December 31, 1996 through
1999, are $276.3, $260.8, $2.4 and $2.0 million, respectively.
The weighted average interest rate on short-term and long-term debt
outstanding as of December 31, 1994 and 1993 was 6.0% and 5.1%, respectively.
At December 31, 1994, the Company had approximately $1.1 billion in major
unused lines of credit.
During 1994, 1993 and 1992, respectively, the Company incurred interest
costs of $141.6, $120.5 and $115.6 million, including $14.7, $14.0 and $12.2
million which was capitalized. Interest paid was approximately $106.9, $122.2
and $92.5 million in 1994, 1993 and 1992, respectively.
DIVESTITURES, RESTRUCTURING AND UNUSUAL ITEMS
Income before taxes for 1993 included a third-quarter charge of $750 million to
cover a worldwide restructuring program, as well as unusual items. Unusual items
included the write-down of goodwill of $121.7 million which related to a
business evaluation, where it was determined that revenue and profitability
levels were not meeting previously estimated levels and unamortized goodwill
would not be recovered through future cash flows of the business. An additional
1993 restructuring charge of $61.9 million was taken prior to the third quarter.
Restructuring actions for the program 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 infrastructures, including
the consolidation of finance organizations in Europe. It is expected that the
1993 program will be completed within three years.
The following table indicates the status of the 1993 restructuring charges
by component:
1993 Utilization Reserves at
Restructuring ------------- December 31,
charges 1993 1994 1994
-------------------------------------------------------------------------------
Employee severance
payments $230.7 $ 25.8 $ 26.5 $178.4
Operating assets to
be sold/disposed of 211.7 61.5 44.3 105.9
Closed facilities' costs 101.1 1.5 18.6 81.0
Currency translation adjustment
related to the liquidation/
disposal of businesses 57.8 57.8 -- --
Administrative infrastructures 37.6 .7 33.7 3.2
Lease and third-party contract
termination costs 37.0 .8 20.8 15.4
Other 14.3 1.2 9.0 4.1
-------------------------------------------------------------------------------
$690.2 $149.3 $152.9 $388.0
-------------------------------------------------------------------------------
Closed facilities' costs relate primarily to the rationalization of
manufacturing capacity, as well as costs related to the demolition of structures
within certain manufacturing facilities. Administrative infrastructure costs
relate primarily to consulting costs involved in restructuring the
administrative support organizations and the distribution centers. 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.
In 1993, the Company sold its remaining interest of approximately 40% in
Minerals Technologies Inc. (MTI), the Company's former specialty minerals
businesses. The sale resulted in a pre-tax gain of approximately $60 million.
Income before taxes for 1992 included a net credit of $110.5 million
consisting of a $258.6 million gain on the sale of a business, offset by $204.6
million for restructuring, consolidation and streamlining of certain businesses.
In addition, curtailment gains ($56.5 million) associated with postretirement
benefits other than pensions of divested operations were recognized.
TAXES ON INCOME
Income before taxes for U.S. and international operations consists of the
following:
(MILLIONS OF DOLLARS) 1994 1993 1992
-------------------------------------------------------------------------------
United States $1,074.0 $442.2 $856.4
International 787.5 409.2 678.4
-------------------------------------------------------------------------------
Total income before taxes $1,861.5 $851.4 $1,534.8
-------------------------------------------------------------------------------
The classification of items presented in the above table differs from that
in the geographic table on page 36. The geographic table displays information by
management organization, exclusive of certain corporate expenses. Income before
taxes in the above table is classified based on the location of the operations
of the Company.
The provision for taxes on income consists of the following:
(MILLIONS OF DOLLARS) 1994 1993 1992
-------------------------------------------------------------------------------
UNITED STATES
Taxes currently payable
U.S. $ 243.5 $ 264.7 $ 176.2
State and local 14.4 65.6 88.8
Deferred income taxes 35.2 (273.4) (16.8)
-------------------------------------------------------------------------------
Tax provision 293.1 56.9 248.2
-------------------------------------------------------------------------------
INTERNATIONAL
Taxes currently payable 268.0 197.1 188.1
Deferred income taxes (2.6) (62.7) 2.3
-------------------------------------------------------------------------------
Tax provision 265.4 134.4 190.4
-------------------------------------------------------------------------------
Total provision for taxes on income $ 558.5 $ 191.3 $ 438.6
-------------------------------------------------------------------------------
44
The provision for taxes on income shown in the previous table is classified
based on the location of the taxing authority, regardless of the location in
which the taxable income is generated. A provision for U.S. income taxes of
approximately $730 million has not been made on approximately $2.9 billion of
international subsidiaries' unremitted earnings as of December 31, 1994.
The earnings of the Company's pharmaceutical subsidiary operating in Puerto
Rico are subject to taxes pursuant to an incentive grant effective through
December 31, 2002. Under this grant, the Company is partially exempt from
income, property and municipal taxes. The Omnibus Budget Reconciliation Act of
1993 imposed a limitation on the tax credit allowed to the Company for U.S.
taxes on income earned in Puerto Rico for tax years beginning after December 31,
1993. As a result, taxes have been provided to the extent required by this
change in law. The major elements contributing to the difference between the
U.S. statutory tax rate and the consolidated effective tax rate are as follows:
(PERCENTAGES) 1994 1993 1992
-------------------------------------------------------------------------------
U.S. statutory tax rate 35.0 35.0 34.0
Effect of partially tax-exempt
operations in Puerto Rico (9.9) (19.4) (8.2)
Effect of reduced rates in Ireland (2.6) (4.0) (2.7)
Divestitures, restructuring
and unusual items--net -- 4.4 1.8
State and local taxes 1.2 4.3 2.8
R&D tax credit (1.1) (3.3) (.5)
All other--net 7.4 5.5 1.4
-------------------------------------------------------------------------------
Consolidated effective tax rate 30.0 22.5 28.6
-------------------------------------------------------------------------------
Excluding the effect of divestitures, restructuring and unusual items--net,
the effect of partially tax-exempt operations in Puerto Rico and the effect of
reduced rates in Ireland would have been approximately (10.0%) and (2.1%) in
1993, respectively.
Deferred tax assets and liabilities, netted by jurisdiction, as of December
31, 1994, 1993 and 1992 are included in the Consolidated Balance Sheet as
follows:
(MILLIONS OF DOLLARS) 1994 1993 1992
--------------------------------------------------------------------------------
Current--Prepaid expenses, taxes
and other current assets $ 373.8 $ 435.3 $ 347.3
Non-current--Other assets, deferred
taxes and deferred charges 336.2 305.1 --
Non-current--Deferred taxes
on income (211.7) (189.4) (146.9)
--------------------------------------------------------------------------------
Net deferred tax asset $ 498.3 $ 551.0 $ 200.4
--------------------------------------------------------------------------------
Temporary differences which give rise to a significant portion of deferred
tax assets and liabilities at December 31, 1994, 1993 and 1992 are as follows:
(MILLIONS
OF DOLLARS) 1994 1993 1992
-------------------------------------------------------------------------------
Deferred Tax Deferred Tax Deferred Tax
-----------------------------------------------------------
Assets Liabilities Assets Liabilities Assets Liabilities
Prepaid/
deferred items $ 157.8 $ 150.1 $ 149.4 $ 85.8 $ 115.8 $ 76.5
Inventories 185.5 67.3 143.1 31.9 121.6 36.2
Investments 5.7 -- 14.1 -- 30.0 --
Property, plant
and equipment 31.5 322.1 30.9 304.8 60.2 270.8
Employee benefits 207.4 127.7 206.8 129.1 208.8 132.8
Restructurings and
special charge 280.3 -- 377.9 -- 180.3 --
Foreign tax credit
carryforwards 165.1 -- 100.0 -- -- --
State and local
taxes 37.7 -- 34.3 -- 42.0 --
Other carry-
forwards 117.1 -- 59.0 -- 40.4 --
All other 32.6 27.4 33.9 23.1 44.4 51.4
-------------------------------------------------------------------------------
Subtotal 1,220.7 694.6 1,149.4 574.7 843.5 567.7
Valuation
allowance (27.8) -- (23.7) -- (75.4) --
-------------------------------------------------------------------------------
Total deferred
taxes $1,192.9 $694.6 $1,125.7 $ 574.7 $768.1 $567.7
--------------------------------------------------------------------------------
Net deferred
tax asset $ 498.3 $ 551.0 $200.4
--------------------------------------------------------------------------------
In 1994 and 1993, foreign tax credit carryforwards arose from dividends
received by the Company from foreign subsidiaries. These carryforwards expire
through 1999.
A valuation allowance is provided when it is more likely that some portion
of the deferred tax assets will not be realized. The major component of the
valuation allowance relates to the uncertainty of realizing certain foreign
deferred tax assets. The net decrease in the total valuation allowance for 1993
of $51.7 million was primarily due to a change in U.K. tax legislation. The net
decrease in the total valuation allowance for 1992 of $5.8 million was primarily
related to changes in foreign currency translation rates. The valuation
allowance at January 1, 1992, was $81.2 million.
The Internal Revenue Service (IRS) is currently auditing the years 1987
through 1989. In October 1994, the Company received a Notice of Proposed
Adjustments from the IRS. 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
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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. 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.
The Company believes that its accrued tax liabilities are adequate for all
open years.
The Company made income tax payments of approximately $414.1, $323.6 and
$319.9 million during 1994, 1993 and 1992, respectively.
The Company adopted SFAS No. 109 effective January 1, 1992. The cumulative
effect of this change increased net income by $30.0 million ($.09 per share) and
is reported separately in the 1992 Consolidated Statement of Income.
PENSION PLANS
The Company and its subsidiaries have pension plans covering substantially all
eligible employees on a contributory or non-contributory basis. The components
of net periodic pension cost for 1994, 1993 and 1992 are as follows:
(MILLIONS OF DOLLARS) 1994 1993 1992
-------------------------------------------------------------------------------
Service cost-benefits earned
during the period $ 79.2 $ 60.2 $ 56.7
Interest cost on projected
benefit obligations 115.8 107.5 110.8
Actual return on
plan assets (32.8) (197.4) (97.7)
Net amortization and
deferral (88.4) 71.4 (43.8)
-------------------------------------------------------------------------------
Net periodic pension cost $ 73.8 $ 41.7 $ 26.0
-------------------------------------------------------------------------------
Assumptions used to measure the projected benefit obligations were:
1994 1993 1992
-------------------------------------------------------------------------------
U.S. PLANS
Discount rate 8.5% 7.5% 8.5%
Rate of increase in salary levels 5.5% 5.5% 6.0%
Expected long-term rate
of return on plan assets 9.0% 9.0% 9.0%
INTERNATIONAL PLANS (WEIGHTED AVERAGE)
Discount rate 7.1% 6.7% 7.7%
Rate of increase in salary levels 4.6% 4.4% 5.3%
Expected long-term rate of
return on plan assets 8.1% 8.5% 9.2%
As a result of changes in long-term interest rates, the Company modified
its assumed discount rate for U.S. plans to 8.5% and 7.5% in 1994 and 1993,
respectively. The Company also reduced its rate of increase in salary levels
from 6.0% to 5.5% in 1993 because of lower inflation. The effect of these
changes resulted in a net decrease in projected benefit obligations of $117.2
million for 1994 and a net increase of $98.2 million for 1993.
As of December 31, 1994, 1993 and 1992, the funded status of the Company's
pension plans are as follows:
(MILLIONS OF DOLLARS) 1994 1993 1992
-------------------------------------------------------------------------------
Actuarial present value of
accumulated benefit obligations:
Vested $(1,312.0) $(1,290.4) $(969.7)
Non-vested (133.3) (99.8) (156.3)
-------------------------------------------------------------------------------
Total (1,445.3) (1,390.2) (1,126.0)
Effect of future salary increases (258.9) (204.4) (224.5)
-------------------------------------------------------------------------------
Projected benefit obligations (1,704.2) (1,594.6) (1,350.5)
Plan assets at fair value 1,773.6 1,774.9 1,662.1
-------------------------------------------------------------------------------
Plan assets in excess of projected
benefit obligations 69.4 180.3 311.6
Unrecognized overfunding at date
of adoption (26.9) (29.6) (32.5)
Unrecognized net losses/(gains) 162.6 140.8 (20.5)
Unrecognized prior service costs 118.1 61.5 75.7
Minimum liability adjustment (36.3) (21.1) (5.0)
-------------------------------------------------------------------------------
Net pension asset included in
Consolidated Balance Sheet $ 286.9 $ 331.9 $ 329.3
-------------------------------------------------------------------------------
The preceding table includes 1994 accumulated benefit obligations of $172.6
million and assets at fair value of $5.5 million primarily related to partially
funded international plans. The funding policy for the international plans
conforms to local governmental and tax requirements.
Benefits under defined benefit plans generally are based on years of
service and employee career earnings. Participants become fully vested after as
few as five years of employment.
The Company's funding policy for U.S. plans generally is to contribute
annually into trust funds at a rate intended to remain at a level percentage of
compensation for covered employees.
The plans' assets are invested primarily in stocks, bonds and short-term
investments. At December 31, 1994, the major U.S. plan held approximately 2.0
million shares of the Company's common stock with a fair value of $152.6
million. Dividends of $3.7 million were paid on such shares in 1994.
46
SAVINGS AND INVESTMENT PLANS
The Company maintains voluntary Savings and Investment Plans for most employees
in the U.S. and Puerto Rico. Within prescribed limits, the Company bases its
contributions to the plans on employee contributions. For 1994, 1993 and 1992,
Company contributions amounted to $29.8, $28.8 and $29.1 million, respectively.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company has defined benefit postretirement plans that provide medical and
life insurance benefits for retirees and eligible dependents. Employees become
eligible for these benefits if they meet minimum age and service requirements
and are eligible for retirement benefits. The Company reserves the right to
modify or terminate these plans. The plans are not funded.
In 1992, the Company adopted SFAS No. 106, EMPLOYERS' ACCOUNTING FOR
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS. This statement requires the
accrual of the projected future cost of providing postretirement benefits during
the period that employees render the services necessary to be eligible for such
benefits. In prior years, the expense was recognized when claims were paid
(pay-as-you-go basis). Most retirees outside the United States are covered by
government-sponsored and -administered programs. The cost is not significant.
The Company elected to immediately recognize the accumulated benefit
obligation measured as of January 1, 1992 and reflected a pre-tax charge of
$520.5 million ($312.6 million after taxes) as the cumulative effect of this
accounting change.
The initial accumulated postretirement benefit obligation was subsequently
reduced as a result of curtailment gains of $56.5 million related to 1992
divestitures. Plan modifications adopted in 1992 further reduced the obligation,
with this reduction being amortized as a component of the net periodic
postretirement expense.
The components of the 1994, 1993 and 1992 expense were as follows:
(MILLIONS OF DOLLARS) 1994 1993 1992
---------------------------------------------------------------------------
Service cost--benefits earned
during the period $ 5.8 $ 5.0 $ 9.8
Interest cost on the accumulated
obligation 21.7 20.2 25.8
Net amortization and deferral (24.2) (24.4) (19.9)
---------------------------------------------------------------------------
Net periodic postretirement expense $ 3.3 $ .8 $ 15.7
---------------------------------------------------------------------------
The accumulated postretirement benefit obligation recognized in the
December 31, 1994, 1993 and 1992 Consolidated Balance Sheets, consist of:
(MILLIONS OF DOLLARS) 1994 1993 1992
---------------------------------------------------------------------------
Retirees $192.1 $178.7 $164.5
Fully eligible active plan participants 35.1 47.1 41.6
Other active plan participants 52.7 57.0 46.9
---------------------------------------------------------------------------
Accumulated postretirement benefit obligation 279.9 282.8 253.0
Unrecognized prior service cost 157.2 181.6 206.1
Unrecognized net loss (4.5) (21.1) --
---------------------------------------------------------------------------
Recorded obligation $432.6 $443.3 $459.1
---------------------------------------------------------------------------
An average increase of 12% in the cost of covered health care benefits was
assumed for 1995 and is projected to decrease to 6.2% after 16 years and to then
remain at that level. A 1% increase in the health care cost trend rate would
have increased the accumulated postretirement benefit obligation as of December
31, 1994 by $16.8 million and the total of service and interest cost by $1.5
million. The discount rates used to estimate the accumulated postretirement
benefit obligation were 8.5%, 7.5% and 8.5% at December 31, 1994, 1993 and 1992,
respectively.
POSTEMPLOYMENT BENEFITS
The Company adopted SFAS No. 112, EMPLOYERS' ACCOUNTING FOR POSTEMPLOYMENT
BENEFITS effective January 1, 1994. This statement pertains to benefits provided
to former or inactive employees after employment but before retirement. Because
the Company's past accounting practices were in compliance with this statement,
no cumulative effect adjustment was required.
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. The
latter consists of shares issuable upon exercise of stock options. The
information necessary for the calculation of earnings per common share for the
years ended December 31, 1994, 1993 and 1992, is as follows:
(MILLIONS OF DOLLARS AND SHARES,
EXCEPT PER SHARE AMOUNTS) 1994 1993 1992
---------------------------------------------------------------------------
Net income, adjusted $1,298.4 $657.5 $811.1
---------------------------------------------------------------------------
Weighted average number of
common shares outstanding 305.8 315.5 329.0
Common share equivalents 4.4 4.9 7.5
---------------------------------------------------------------------------
Total 310.2 320.4 336.5
---------------------------------------------------------------------------
Earnings per common share $4.19 $2.05 $2.41
---------------------------------------------------------------------------
COMMON STOCK
In December 1994, the Company announced that it plans to purchase up to 2.25
million shares of its common stock in the open market to be used for the
acquisition of NAMIC U.S.A. Corporation (NAMIC). Under this plan, approximately
1.0 million shares were purchased in 1994.
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. This program was completed during the
third quarter of 1994. These shares are available for use in the Company's
employee benefit plans and for general corporate purposes.
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PREFERRED STOCK PURCHASE RIGHTS
In 1987, the Board of Directors declared a dividend of one Preferred Stock
Purchase Right on each outstanding share of Pfizer Common Stock to holders of
record on October 5, 1987.
If the rights become exercisable, separate certificates evidencing the
rights will be distributed and each right will entitle the holder to purchase
from the Company a new series of preferred stock at a predefined price. The
rights also contain an option to purchase shares in a change-of-control
situation. The preferred stock, in addition to a preferred dividend and
liquidation right, will entitle the holder to vote, on a pro rata basis, with
the Company's common stock. The rights are not exercisable until either certain
changes in ownership of the Company occur or an announcement of a tender offer
for at least 30% of the Company's common stock is made.
The rights are redeemable by Pfizer at a fixed price until 10 days, or
longer as determined by the Board, after certain defined events, or at any time
prior to the expiration of the rights on October 5, 1997, if such events do not
occur.
Through December 31, 1994, the Company had reserved 1.9 million preferred
shares as issuable pursuant to these rights. At the present time, the rights
have no dilutive effect on the earnings per common share calculation.
EMPLOYEE BENEFIT TRUST
In 1993, the Company sold 10 million shares of treasury stock to the Pfizer Inc.
Grantor Trust (the Trust). The Trust will be used primarily to fund future
obligations for previously approved Company benefit plans over its 15-year term.
Common stock was acquired by the Trust from the Company in exchange for a
promissory note valued at approximately $600 million at the date of sale. The
amount, representing unearned employee benefits, is recorded as a deduction from
shareholders' equity and is reduced as employee benefits are satisfied.
In 1994, .3 million shares were released from the Trust to satisfy employee
stock options exercised and the Company's obligation under other employee
benefit plans. Compensation costs related to the other employee benefit plans
are recorded at fair market value at the date the shares are released.
STOCK OPTION PLANS AND PERFORMANCE AWARDS
Under the Stock and Incentive Plan, the Company may grant options to any
employee, including officers, to purchase common stock at the market price on
the date an option is granted. The options may be exercised subject to continued
employment and certain other conditions. At December 31, 1994, options for
15,046,075 shares were exercisable. The Plan also provides for stock
appreciation rights, stock awards or performance unit awards.
In 1994, under the terms of the Stock and Incentive Plan, restricted stock
awards were made to several key employees. Restrictions generally expire over a
three-year period from the date of grant. Under the award, 20,609 shares were
outstanding at December 31, 1994.
In 1993, the shareholders approved amendments to the Plan for an additional
11 million shares to be made available for future grants of options. The
following table summarizes information relative to the Plan:
(SHARES) 1994 1993 1992
---------------------------------------------------------------------------
Under option January 1 19,294,317 17,860,189 16,961,631
Granted (per share:
$56.25 to $69.75 in 1994;
$63.00 in 1993;
$69.50 to $81.00 in 1992) 4,959,018 3,214,059 5,064,322
Exercised (per share:
$18.25 to $65.25 in 1994;
$14.00 to $65.25 in 1993;
$14.00 to $65.25 in 1992) (1,781,025) (1,452,160) (3,750,610)
Cancelled--available for
future grants (348,776) (305,774) (415,154)
Cancelled--not available for
future grants (20,055) (21,997) --
---------------------------------------------------------------------------
Under option December 31
(per share:
$24.25 to $81.00 in 1994;
$18.25 to $81.00 in 1993;
$17.50 to $81.00 in 1992) 22,103,479 19,294,317 17,860,189
---------------------------------------------------------------------------
Available for grant
December 31 4,892,581 9,502,823 1,411,108
---------------------------------------------------------------------------
The Performance-Contingent Share Award Program (the Program), established
in 1993, provides executives and other key employees with the right to earn
awards payable in shares of the Company's common stock. The actual payout of
shares is determined using two performance criteria measuring the Company's
performance relative to a determined industry peer group. The Program provides
for up to 10 million shares to be awarded. At December 31, 1994, executives and
other key employees had the right to earn up to 563,670 shares, although no
shares have yet been issued. Actual issuances of shares can only occur when the
performance period is completed and the criteria measured. Compensation cost to
date related to the Program aggregated $7.5 million.
LEASE COMMITMENTS
Rent expense, net of sublease rentals, for the years ended December 31, 1994,
1993 and 1992 amounted to approximately $94.4, $87.2 and $80.1 million,
respectively. Total future minimum rental commitments under all non-cancellable
leases for the years 1995 through 1999 and thereafter are approximately $26.4,
$20.8, $17.0, $9.9, $12.1 and $188.2 million, respectively.
Under the more significant lease agreements, the Company must either pay
directly for taxes, insurance, maintenance and other operating expenses or pay
higher rentals when such expenses increase.
48
ACQUISITIONS AND DIVESTITURES
ACQUISITIONS
In 1994, the Company acquired:
- Certain assets of Flavor Technology Inc., a specialty flavors business, for
approximately $32 million.
- Restiva Italiana S.p.A. for approximately $26 million. Restiva produces and
sells a wide range of innovative products for health and skin care.
- Rovi Farma, S.A., in Spain, for approximately $24 million. Rovi is a
distributor and producer of a variety of over-the-counter products.
In 1993, the Company purchased Charwell Pharmaceuticals Limited, a
distributor of over-the-counter consumer health care products located in the
United Kingdom, for approximately $41.5 million.
In 1992, the Company acquired certain assets and liabilities of Koshin
Medical Corp., a Japanese distributor of hospital products, for approximately
$16.4 million.
The above acquisitions were recorded under the purchase method of
accounting.
DIVESTITURES
In 1993, the Company sold its remaining interest of approximately 40% in MTI,
through a public offering and a sale of stock to MTI for gross proceeds of
approximately $241.2 million. The sale resulted in a pre-tax gain of
approximately $60 million.
In 1992, the Company:
- Sold the Coty business, a part of the Company's consumer health care
segment, for gross proceeds of approximately $440 million, resulting in a
pre-tax gain of $258.6 million.
- Closed the transaction to sell certain product lines of Shiley Incorporated
and other assets to Sorin Biomedica S.p.A. for approximately $230 million in
cash. The gain on this transaction was used to partly offset costs associated
with the Bowling Settlement Agreement. See the "Litigation" footnote beginning
on this page.
- Sold a majority interest of approximately 60% in MTI. The net proceeds of
$226.6 million approximated the net book value of the interest sold.
INSURANCE
The Company maintains insurance coverage it believes to be adequate for its
needs. Under its insurance contracts, the Company usually accepts self-insured
retentions appropriate for the specific risks of its business.
LITIGATION
The Company is involved in a number of claims and litigations, including product
liability claims and litigations considered normal in the nature of its
businesses. These include suits involving various pharmaceutical and hospital
products that allege either reaction to or injury from use of the product.
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 DEG. or 70 DEG. Shiley Convexo-Concave (C/C)
heart valves, or anxiety that properly functioning implanted valves might
fracture in the future or, in a few cases, 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 20, 1993 by the United States Court of
Appeals for the Sixth Circuit. A motion for rehearing EN BANC was denied on
March 8, 1994, and the U.S. Supreme Court denied a writ of certiorari on October
4, 1994. 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,
eight 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.
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
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 is a
potentially responsible party or participant with respect to several waste sites
in Canada. 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 20 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 10 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.
Concurrently with the filing of the future claims class action, the CCR
settled approximately 16,360 personal injury cases on behalf of Pfizer and
Quigley. It is the CCR's intention to settle remaining and opt-out cases and
claims on a similar basis to past settlements. The total pending number of cases
as of December 31, 1994 is 14,543 asbestos cases against Quigley, 5,643 asbestos
cases against Pfizer Inc. and 147 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
50
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.
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 1,900 individual retail pharmacies (the "individual
actions"). These cases, all of which have been or are in the process of being
transferred to the United States District Court for the Northern District of
Illinois and coordinated for pretrial purposes, allege that the defendant drug
manufacturers have violated the Sherman Act in that they have unlawfully agreed
with each other (and, as alleged in some cases, with wholesalers) not to extend
to retail pharmacy companies the same discounts allegedly extended to managed
care companies, mail order pharmacies and certain other institutional
purchasers. In addition, the individual actions also allege violations of the
Robinson-Patman Act in that the manufacturers allegedly have unlawfully
discriminated against retail pharmacy companies by not extending them such
discounts.
The federal court has 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 had denied a motion for certification made by a purported class of
Alabama consumers (in a case that was originally filed in state court, then
removed to federal court). In the state cases, motions for class certification
are anticipated, except in one Alabama action still in state court, where
plaintiffs have stated that they intend to amend their complaint to withdraw
their class allegations.
The Company believes that these cases are without merit and is vigorously
defending them.
Food and Drug Administration (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.
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.
51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 district court has denied 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, seven purported class actions were filed against American
Medical Systems ("AMS") in federal courts in South Carolina (later transferred
to Minnesota), California, Minnesota (2), Indiana, Ohio and Louisiana. In
January 1995, an additional purported class action was filed in state court in
Louisiana, replicating the federal suit. The California 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, and on March 3, 1995, the Court in the California suit denied
plaintiffs' motion for class certification. The Company believes the suits are
without merit and is vigorously defending them.
SUBSEQUENT EVENTS
On January 19, 1995, the Company acquired SmithKline Beecham's animal health
business for approximately $1.45 billion substantially financed by the issuance
of commercial paper. The Company expects to acquire NAMIC in a stock-for-stock
transaction valued at approximately $175 million, in the first quarter of 1995.
Both of these acquisitions will be accounted for as purchase transactions,
with goodwill generated to be amortized on a straight-line basis over a period
not exceeding 40 years.
SEGMENT INFORMATION AND GEOGRAPHIC DATA
Segment information (including major product groups) and geographic data for the
years ended December 31, 1994, 1993 and 1992 are shown on pages 35 and 36 and in
the footnote "Financial Subsidiaries" on page 42 and are incorporated in this
footnote.
Net sales represent merchandise shipments to third parties. Expenses were
deducted from net sales to arrive at segment profit. Those expenses directly
traceable to individual segments were charged to them. Other expenses were
allocated to the segments on a reasonable basis. Interest income, interest
expense and net corporate expenses were not allocated to individual segments and
include those amounts that relate to the operations of the financial
subsidiaries.
In many instances, various segments use common production facilities which
require allocation among segments of property, plant and equipment, as well as
capital additions and depreciation. Physical production is the principal method
used for the allocation. Each segment is then considered the owner of its own
assets as well as its allocated facilities. Corporate assets consist principally
of cash, short-term investments and long-term marketable securities.
Products are transferred between geographic areas for additional
processing, as well as for ultimate sale, on a basis intended to
recognize economic and competitive circumstances in the market of end
use. The assets physically located in one area are considered assets of
that area even though they provide goods and/or services to other areas.
The Company's segments consist of four product lines and a financial
subsidiaries group:
Health care: a broad line of pharmaceutical products (including
cardiovascular agents, anti-infectives, central nervous system agents,
anti-inflammatories and antidiabetes agents) as well as hospital products
(including bone and joint prostheses, diagnostic and therapeutic products used
in the treatment of cardiovascular disease, electrosurgical and ultrasonic
surgical devices and implantable urological devices).
Animal health: animal health products, antibiotic and vitamin feed
supplements and veterinary items.
Consumer health care: over-the-counter health care items and oral care
products.
Food science: specialty food ingredients and innovative technology for the
global food processing industry.
Financial subsidiaries: a banking operation that makes loans and accepts
deposits in international markets and an insurance operation that reinsures
certain assets, inland transport and marine cargo of the Company's subsidiaries.
52
QUARTERLY CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
QUARTERS
--------------------------------------
(MILLIONS OF DOLLARS EXCEPT PER SHARE DATA) FIRST SECOND THIRD FOURTH YEAR
------------------------------------------------------------------------------------------------------------------------
1994
Net sales $1,982.9 $1,923.3 $2,074.9 $2,300.2 $8,281.3
Costs and expenses
Cost of sales 432.2 464.1 476.0 546.3 1,918.6
Selling, informational and administrative expenses 730.5 800.0 796.6 923.7 3,250.8
Research and development expenses 254.7 262.0 295.4 327.3 1,139.4
Other deductions--net 35.5 27.4 24.1 24.0 111.0
------------------------------------------------------------------------------------------------------------------------
Income before provision for taxes on income and minority interests 530.0 369.8 482.8 478.9 1,861.5
Provision for taxes on income 159.0 110.9 144.9 143.7 558.5
Minority interests .3 1.7 1.4 1.2 4.6
------------------------------------------------------------------------------------------------------------------------
Net income $370.7 $257.2 $336.5 $334.0 $1,298.4
------------------------------------------------------------------------------------------------------------------------
Earnings per common share $1.18 $.84 $1.09 $1.08 $4.19
------------------------------------------------------------------------------------------------------------------------
Cash dividends paid per common share $.47 $.47 $.47 $.47 $1.88
------------------------------------------------------------------------------------------------------------------------
Stock prices*
High $69-7/8 $64-3/4 $70-1/2 $79-3/8
Low $53-1/8 $53-1/4 $59-1/8 $68
------------------------------------------------------------------------------------------------------------------------
1993
Net sales $1,867.3 $1,748.7 $1,872.5 $1,989.2 $7,477.7
Costs and expenses
Cost of sales 423.4 437.1 436.4 475.1 1,772.0
Selling, informational and administrative expenses 740.7 757.9 745.3 822.1 3,066.0
Research and development expenses 215.4 230.8 242.6 285.6 974.4
Divestitures, restructuring and unusual items--net 28.8 (26.8) 750.0 -- 752.0
Other deductions--net 14.7 5.8 26.5 14.9 61.9
------------------------------------------------------------------------------------------------------------------------
Income/(loss) before provision for taxes on income
and minority interests 444.3 343.9 (328.3) 391.5 851.4
Provision for/(benefit from) taxes on income 115.5 89.6 (115.5) 101.7 191.3
Minority interests (.2) .5 1.4 .9 2.6
------------------------------------------------------------------------------------------------------------------------
Net income/(loss) $329.0 $253.8 $(214.2) $288.9 $657.5
------------------------------------------------------------------------------------------------------------------------
Earnings/(loss) per common share $1.01 $.79 $(.65) $.90 $2.05
------------------------------------------------------------------------------------------------------------------------
Cash dividends paid per common share $.42 $.42 $.42 $.42 $1.68
------------------------------------------------------------------------------------------------------------------------
Stock prices*
High $72-3/4 $75-5/8 $66-1/4 $70-3/8
Low $52-1/2 $57-1/2 $55-5/8 $57-3/4
------------------------------------------------------------------------------------------------------------------------
<FN>
*AS REPORTED IN The Wall Street Journal.
As of January 31, 1995, there were approximately 59,749 holders of the
Company's common stock (symbol PFE).
53
CORPORATE SHAREHOLDER
INFORMATION INFORMATION
BUSINESS SEGMENTS STOCK LISTINGS ANNUAL MEETING
Pfizer Common Stock is listed on the New The Pfizer Annual Meeting will be held
HEALTH CARE York Stock Exchange. It is also listed on Thursday, April 27, 1995, at 10:00
ANIMAL HEALTH on the London, Paris, and Brussels A.M. at The Empire State Ballroom, The
CONSUMER HEALTH CARE exchanges and Swiss exchanges in Basel, Grand Hyatt, 42nd Street at Lexington
FOOD SCIENCE Zurich, and Geneva. Pfizer Common Stock Avenue, New York City. Detailed
is also traded on various United States information about the meeting is
MAJOR BUSINESS GROUPS, regional stock exchanges. contained in the Notice of Annual
THEIR PRINCIPAL DIVISIONS, AND Meeting and Proxy Statement sent with a
SUBSIDIARIES REGISTRAR copy of the Annual Report to each
Mellon Securities Trust Company shareholder of record as of February 21,
U.S. PHARMACEUTICALS GROUP 120 Broadway 1995.
New York, NY 10271
Customer Advocacy FORM 10-K
Disease Management TRANSFER AGENT The Company, upon written request, will
National Accounts Pfizer Inc provide without charge to each
Sales Management Inquiries concerning transfer shareholder a copy of the Company's
National Healthcare Operations requirements, stock holdings, dividend annual report on Securities and Exchange
Pfizer Labs checks, and change of address should be Commission Form 10-K for the fiscal year
Pratt Pharmaceuticals directed to: ended December 31, 1994, including the
Roerig financial schedules thereto. The report
Shareholder Services will be available on or about March 31,
INTERNATIONAL PHARMACEUTICALS GROUP Pfizer Inc 1995. Requests should be directed to:
Pfizer International subsidiaries 235 East 42nd Street
New York, NY 10017-5755 Secretary
HOSPITAL PRODUCTS GROUP Tel: (800) PFE 9393 Pfizer Inc
Howmedica 235 East 42nd Street
Medical Devices DUPLICATE MAILINGS New York, NY 10017-5755
American Medical Systems When several shareholders live at the
Biomedical Sensors same address, they may receive more POLITICAL ACTION COMMITTEE
Schneider copies of quarterly reports than they A report of campaign contributions made
Strato/Infusaid need. The excess can be eliminated by by the Company's Political Action
Valleylab writing to: Committee in 1994 is available to
shareholders upon written request to:
ANIMAL HEALTH GROUP Shareholder Services
Pfizer Inc Secretary
CONSUMER HEALTH CARE GROUP 235 East 42nd Street Pfizer Inc
New York, NY 10017-5755 235 East 42nd Street
FOOD SCIENCE GROUP New York, NY 10017-5755
Please be sure to include the numbers of
PFIZER INTERNATIONAL BANK EUROPE those accounts whose duplicate mailing INVESTOR RELATIONS
should be eliminated. This will not Security analysts and investment
affect dividend or proxy mailings. professionals should direct their
business-related inquiries to:
SHAREHOLDER PROGRAMS
A shareholder of record interested in James Gardner, Ph.D.
the Shareholder Investment Program, the Vice President--Investor Relations
Direct Deposit of Dividends Service, or Pfizer Inc
inquiring about an established program 235 East 42nd Street
account should direct inquiry to: New York, NY 10017-5755
Tel: (212) 573 3267
Shareholder Services
Pfizer Inc CUSTOMER HELP LINE
235 East 42nd Street Consumers or health care professionals
New York, NY 10017-5755 who have questions about any Pfizer
Tel: (800) PFE 9393 medication should call: (800) 438 1985
SHAREHOLDER HELP LINE
Shareholders with questions about their
account should call: (800) PFE 9393
CORPORATE AFFAIRS HELP LINE
People interested in receiving
literature about Pfizer should call:
(800) PFE 4717
58