FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-3619
PFIZER INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-5315170
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
235 East 42nd Street 10017
New York, New York (Zip Code)
(Address of principal executive offices)
(212) 573-2323
|
(Registrant's telephone number including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
--------------------------------------------------------------
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
--------------------------------------------------------------
Common Stock, $.05 par value New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
--------------------------------------------------------------
--------------------------------------------------------------
|
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES [X] NO [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in the definitive proxy or information statement incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the registrant computed by reference to the closing price at which the stock was sold as of February 27, 1998 was approximately $114.7 billion.
The number of shares outstanding of each of the registrant's classes of common stock as of February 27, 1998 was 1,298,734,466 shares of common stock, all of one class.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1997 Annual Report to Shareholders Parts I, II and
IV
Portions of the Proxy Statement for the 1998 Annual
Meeting of Shareholders
Parts I, III, and
IV
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
|
TABLE OF CONTENTS
PAGE
----
PART I................................................................... 1
ITEM 1. BUSINESS......................................................... 1
General................................................................ 1
Business Segments...................................................... 1
Health Care Segment ................................................. 1
Animal Health Segment ............................................... 3
Consumer Health Care Segment ........................................ 3
Research and Product Development....................................... 4
International Operations............................................... 4
Marketing.............................................................. 5
Patents and Intellectual Property Rights............................... 6
Competition............................................................ 7
Raw Materials.......................................................... 10
Government Regulation and Price Constraints............................ 10
Environmental Law Compliance........................................... 11
Year 2000 Computer Systems Compliance.................................. 11
Corporate/Financial Subsidiaries....................................... 11
Tax Matters............................................................ 12
Employees.............................................................. 12
Cautionary Factors That May Affect Future Results...................... 12
ITEM 2. PROPERTIES....................................................... 15
ITEM 3. LEGAL PROCEEDINGS................................................ 17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE.................................. 22
Executive Officers of the Company........................................ 22
PART II.................................................................. 25
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.......................................................... 25
ITEM 6. SELECTED FINANCIAL DATA.......................................... 25
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS............................................ 25
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...... 25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...................... 25
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE............................................. 25
PART III................................................................. 25
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY................. 25
ITEM 11. EXECUTIVE COMPENSATION.......................................... 26
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.. 26
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................. 26
PART IV.................................................................. 26
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORMS 8-K....................................................... 26
14(a)(1) Financial Statements.......................................... 26
14(a)(2) Financial Statement Schedules................................. 26
14(a)(3) Exhibits...................................................... 26
14(b) Reports on Form 8-K.............................................. 27
|
PART I
ITEM 1. BUSINESS
GENERAL
Pfizer Inc. (the Company, which may be referred to as we, us, or our) is a research-based, global health care company. We discover, develop, manufacture and sell innovative products that improve the quality of life of people around the world and help them enjoy longer, healthier and more productive lives. Our products are available in more than 150 countries.
Our home page on the Internet is at www.pfizer.com. You can learn about the Company by visiting that site.
BUSINESS SEGMENTS
We operate in three business segments:
. HEALTH CARE, which includes prescription pharmaceuticals, bone and joint devices; specialty medical instruments and implants; and products for treating heart diseases and other disorders;
. ANIMAL HEALTH, which includes antiparasitics, anti-infectives, anti- inflammatory medicines and vaccines for livestock, poultry and pets; and
. CONSUMER HEALTH CARE, which includes a variety of over-the-counter medications and personal care products.
These businesses derive synergies in certain research and regulatory matters, but each requires different marketing and distribution strategies. Comparative segment revenues, profits and related financial information for 1997, 1996 and 1995 are given in the table entitled Segment Information on page 59 of our 1997 Annual Report. A graph captioned Total Revenues by Business Segment and tables captioned Percentage Change in Total Revenues and Segment Profit on pages 29, 30 and 33 respectively, of the Annual Report give segment information over the past three years. The information from those sections of the Annual Report is considered to be incorporated in this 1997 10-K report.
Note that throughout this 10-K report, we "incorporate by reference" certain information in parts of other documents filed with the Securities and Exchange Commission (SEC). The SEC allows us to disclose important information by referring to it in that manner. Please refer to such information.
Our businesses are heavily regulated in most of the markets where we operate around the world. In the U.S., the main regulatory authority we deal with is the Food and Drug Administration (FDA). The FDA regulates the safety and efficacy of the products we offer, our research quality, our manufacturing processes and our promotion and advertising. Similar government authorities act in most other countries, and in many cases also regulate our prices. See Government Regulation and Price Constraints, below.
HEALTH CARE SEGMENT
Our Health Care segment is comprised of two business groups: the Pfizer Pharmaceuticals Group and the Medical Technology Group. The Medical Technology Group used to be called the "Hospital Products Group."
Pfizer Pharmaceuticals Group
In 1997, we combined our U.S. and international pharmaceutical operations into a consolidated Pfizer Pharmaceuticals Group.
Most of our pharmaceutical sales come from products in three major therapeutic classes: cardiovascular diseases, infectious diseases and central nervous system disorders. We also have products for treatment of diabetes, allergies, urogenital disorders and arthritis. In 1997, pharmaceuticals contributed 74% of our revenues, as compared to 72% in 1996 and 71% in 1995. 1997 sales of our major pharmaceutical products--Norvasc, Zoloft, Diflucan, Procardia XL, Zithromax, Cardura and Zyrtec--comprised 57.1% of our revenues.
Cardiovascular disease products that treat problems affecting the heart and the blood circulatory system are our largest therapeutic product line, accounting for roughly 30% of our revenues. Norvasc, our largest-selling product, is a once-a-day medication for hypertension (high blood pressure) and angina (heart pain). It belongs to the class of drugs known as calcium channel blockers. It became the largest-selling high blood pressure medicine worldwide in 1997 based on sales
revenues. Our other cardiovascular products include Procardia XL, also a once- a-day calcium channel blocker for hypertension and angina, and Cardura, which is in the alpha blocker class of medications, and is used to treat hypertension and benign prostatic hyperplasia (enlarged prostate gland). Sales of Procardia XL continued to decrease during 1997, in part due to the product's maturity and the medical community's emphasis on the more advanced Norvasc. Procardia XL remains one of the largest-selling hypertension medicines in the U.S. nonetheless.
In 1997, we participated in the launch of Lipitor, for treatment of high lipids (cholesterol and triglycerides) in the bloodstream, under co-promotion and license arrangements with the Parke-Davis Research Division of Warner- Lambert Company, which discovered the drug. Following its introduction, Lipitor surpassed several established competitors and, by the end of the year, was the most-prescribed medicine in its category in the U.S. At the end of 1997, Lipitor was being sold in the U.S. and fourteen other countries, and launches are planned in more than a dozen additional countries in 1998.
In the infectious disease medicine category, our major products are Zithromax and Diflucan. Zithromax is an oral or injectable antibiotic in the chemical class known as macrolides. In 1997, it became the most widely-prescribed brand- name oral antibiotic in the U.S. It treats a broad range of infections. Its sales increased in 1997 in part due to the 1996 regulatory approval for its treatment of additional medical indications. Diflucan is used to treat various fungal infections, including vaginal infections and certain infections that afflict AIDS and cancer patients with weakened immune systems. Our new product Trovan is a once-daily oral dose antibiotic also available in intravenous form. It belongs to the class of chemical compounds known as quinolones, and treats a broad range of infections. It was approved for marketing by the FDA in late 1997, and European regulatory review is advancing. Shipments of the drug began in January 1998.
For treatment of central nervous system disorders, we offer Zoloft and participate in the promotion of Aricept. Zoloft is used for treatment of depression, obsessive-compulsive disorder and panic disorder. It is our second- largest selling product. Sales grew in 1997 in part from recent approvals for its use to treat obsessive-compulsive disorder and panic disorder. We participated in the 1997 launch of Aricept for treatment of mild-to-moderate Alzheimer's disease patients. The drug was discovered and developed by Eisai Co., Ltd., a Japanese company, which contracted with us to co-promote and license the product. It quickly became the largest-selling medicine for treatment of Alzheimer's in the U.S. Aricept substantially expanded the prior market for pharmaceutical treatment of that disease. It is now sold in the U.S., Canada, the U.K. and several other countries. Launches are planned in more than a dozen additional countries in 1998.
Our other major pharmaceutical products include Zyrtec, which is used for the treatment of allergies and related problems. Zyrtec is licensed to us by the Belgian company, UCB S.A., for sales in the U.S. and Canada. We co-promote Zyrtec in the U.S. with a subsidiary of UCB S.A.
Prospective new products under development are discussed in the section below entitled Research and Product Development.
Medical Technology Group
Medical Technology, formerly known as Hospital Products, consisted of the following businesses in 1997:
. Howmedica,
. Schneider/NAMIC,
. American Medical Systems, and
. Valleylab.
In 1997, the sales of our Medical Technology Group accounted for 12% of our revenues, compared with 13% in each of 1996 and 1995.
Howmedica manufactures and markets orthopedic implants for bones and joints in the body and related reconstructive products. Its products include hip and knee implants, bone cement, trauma products, internal and external devices to hold bones in position, implantable devices used in oral, facial and skull surgery, and specialty surgical instruments.
Schneider/NAMIC is a worldwide manufacturer and supplier of catheters (tubular devices inserted into body passageways to provide access for other devices or the injection or withdrawal of fluids),
stents (wire mesh-like tubes to keep open arteries and other hollow passageways in the body) for blood vessels and other applications and related single- patient-use medical products. Its products are used in the diagnosis and treatment of cardiovascular and other disorders of the body's ducts and hollow passageways, including clearing blockages of blood vessels caused by the buildup of plaque.
American Medical Systems manufactures and markets impotence and incontinence implants, as well as other products used in the treatment of urological disorders.
Valleylab, a surgical system and instrumentation business, was sold in January 1998. In February 1998, we announced that we are exploring strategic options for the remaining three businesses. These options include the possible divestiture of all or part of those businesses in a public or private transaction.
ANIMAL HEALTH SEGMENT
Our Animal Health Group discovers, develops, manufactures and sells animal health products for the prevention and treatment of diseases in livestock, poultry and pets. We are a significant manufacturer of antibiotics, antiparasitics, vaccines and related products for livestock and pets. In 1995, we acquired the SmithKline Beecham Animal Health business, a leading producer of animal vaccines and pet products. That acquisition essentially doubled the revenues of our Animal Health Group, and complemented the products, target animal species and geographic sales coverage of our previous business. In 1997 and 1996, Animal Health sales accounted for approximately 11% of our overall revenues, compared with 12% in 1995.
Our leading Animal Health product in 1997 was Dectomax, a treatment for internal and external parasites, primarily in cattle. Its sales increased in part due to the growth of the injectable formulation, and the introduction of a pour-on formulation in the U.S. and some international markets. It provides longer protection against a broader spectrum of parasites than many other products. During the year, we introduced Rimadyl, a non-steroidal anti- inflammatory for treatment of osteoarthritis in dogs. In its first year of sales, Rimadyl became a leading-selling animal health care product in the U.S. Also in 1997, we acquired worldwide rights to market Anipryl, a treatment for dogs suffering from Cushing's disease. It has also been approved in Canada for treatment of canine cognitive dysfunction, and U.S. approval is being sought.
The other principal products of our Animal Health Group are Stafac, a feed additive for poultry, cattle and swine; Terramycin LA-200, an injectable version of the Terramycin broad-spectrum antibiotic used for various animal diseases; our Banminth, Nemex, Valbazen and Paratect products to treat internal parasites; Coxistac and Aviax anticoccidials to treat parasitic infection in poultry; Mecadox, an antibacterial for pigs; and Advocin, for treating respiratory and digestive system diseases in livestock and poultry. We also manufacture and sell an extensive line of cattle, swine and pet vaccines including BoviShield, RespiSure, Leukocell and Vanguard.
CONSUMER HEALTH CARE SEGMENT
Our Consumer Health Care products include non-prescription over-the-counter (OTC) medications, therapeutic skin care products and personal care products. Among our better-known OTC brands in the U.S. are:
+ Visine eyedrops
+ Ben Gay topical analgesics
+ Cortizone hydrocortisone skin cream
+ Rid anti-lice products
+ Unisom sleep aids
+ Desitin ointments
+ Hemorid hemorrhoidal treatment
+ Bain de Soleil skin care products
+ Plax pre-brushing dental rinse
+ Barbasol shave creams and gels
Several product-line extensions building on these brands have been introduced in recent years. Other products are sold only in selected international markets. In each of the past three years, sales of the Consumer Health Group accounted for 4% of our overall revenues.
Our Consumer Health Care business offers an opportunity to expand sales of some of our prescription medications by evolving them to OTC
medications. For example, an OTC formulation of Diflucan known as Diflucan One is sold in the U.K. as a treatment for vaginal candidiasis. Similarly, Zyrtec is sold as an OTC product in Canada under the brand name Reactine. As market conditions permit, and when we have necessary approval from drug regulatory authorities, we plan to pursue similar launches for other products over time.
RESEARCH AND PRODUCT DEVELOPMENT
Innovation by our research and development operations is very important to the success of our businesses. Our goal is to discover, develop and bring to market innovative products that address major unmet health care needs. This goal has been supported by our substantial research and development investments. We spent approximately $1.4 billion in 1995, $1.7 billion in 1996, and $1.9 billion in 1997 on Company-sponsored research and development. In 1998, we anticipate investing more than $2 billion on research and development.
We are planning for future growth of our research operations. Current construction at our three major international research centers will add approximately one million square feet of laboratory space. Other research facilities are also being added or expanded.
We conduct research internally, and also through contracts with third parties, through collaborations with universities and biotechnology companies, and in cooperation with other pharmaceutical and medical products firms. We also seek out innovative technologies developed by third parties to acquire or incorporate into our product lines through licensing or other arrangements.
Drug and medical product development is time consuming, expensive and unpredictable. On average, only one out of many thousands of chemical compounds discovered by researchers proves to be both medically effective and safe enough to become an approved medicine. The process from discovery to regulatory approval can take more than ten years. Some candidates fail at each stage of the process, and even late-stage product candidates could fail to receive regulatory approval.
In view of the limited period of patent protection, and to gain the marketing advantage of being first to market in a particular therapeutic category, we try to be efficient as well as careful in our new product development. We strive to minimize delays in handling new product candidates and look for opportunities, such as contracting studies to outside researchers, to move development forward efficiently.
We feel that our investments in research have been rewarded by the number of pharmaceutical compounds and new therapies we have in all stages of development. In recent years, our discovery scientists have delivered dozens of new chemical compounds to early evaluation drug development stages. While each new candidate is far from regulatory approval, and many compounds fail at every step of the process, new drug candidates are a foundation for future products. A table and discussion of supplemental filings for existing products and drug candidates in development is set out under the heading Product Developments on page 32 of our 1997 Annual Report. That table and discussion are incorporated here by reference.
Our research operations also strive to add extra value to our existing products by improving their effectiveness and by discovering new uses for them. In 1997, the FDA approved the following additional uses for current products, which illustrate this strategy:
+ Zoloft for the treatment of:
+ panic disorder and
+ obsessive-compulsive disorder in children 6 to 17 years of age,
+ Zithromax for treatment of pneumonia and pelvic inflammatory disease, and
+ Unasyn for treatment of skin infections in children.
Our competitors also devote substantial sums and resources to research and development. In addition, the consolidation that has occurred in our industry has created additional companies with substantial research and development resources. The competition fostered by the fruits of this research could result in erosion of sales and unanticipated product obsolescence.
INTERNATIONAL OPERATIONS
We have significant operations outside the United States. They are conducted both through our subsidiaries and through distributors, and generally
involve the same three business segments as our U.S. operations.
Japan is our second-largest single national market, accounting for over a billion dollars in revenues, almost 9% of our total. No other single country outside the U.S. had revenues approaching 10% of our total. Our aggregate sales to European Community countries, however, were about 20% of our revenues.
Refer to the table Geographic Data on page 59 of our 1997 Annual Report for a breakdown of revenues by major geographic areas. That information is incorporated here by reference.
Our international businesses are subject, in varying degrees, to a number of risks inherent in carrying on business in other countries. These include:
. currency fluctuations,
. capital and exchange control regulations,
. expropriation and nationalization, and
. other restrictive government actions.
Many international markets are also subject to government-imposed constraints that affect our businesses, including laws on pricing or reimbursement for use of our products. See the section below Government Regulation and Price Constraints for discussion of those matters.
In 1997, currency devaluations relative to the U.S. dollar reduced our reported revenues in many countries. Depending on the nature of the change in value relative to the U.S. dollar, changes in foreign currency values can either improve or reduce the reported dollar value of our net assets and results of operations. We cannot predict with certainty future changes in foreign exchange rates or the effect they will have on us. We attempt to anticipate such changes, however, and we try to mitigate their effects. See Note 5-D to our financial statements, Derivative Financial Instruments, on pages 47 to 49 in our Annual Report. That discussion is incorporated here by reference. Related information about valuation and risks associated with such financial instruments in parts E and F of that same Note is also incorporated here by reference.
MARKETING
In our global pharmaceuticals and medical technology businesses, we promote our products to health care providers such as doctors, nurse practitioners and hospitals, Pharmacy Benefit Managers (PBMs) and Managed Care Organizations (MCOs). We also market directly to consumers in the United States through direct-to-consumer (DTC) print and television advertising. In addition, we sponsor general advertising to educate the public about our innovative medical research.
Our operations include several pharmaceutical sales organizations. Each sales organization markets a distinct group of products. Our U.S. pharmaceutical sales representatives total approximately 4,100, and we are adding several hundred additional representatives to complete a new sales force. Overseas operations employ about 10,000 sales representatives.
Our pharmaceutical products are sold principally to wholesalers, but we also sell directly to retailers, including hospitals, clinics, government agencies and pharmacies.
Through our marketing organizations, we explain the approved uses and advantages of our products to medical professionals. We work to gain access to MCO formularies (lists of recommended or approved medicines and other products compiled by pharmacists and physicians) by demonstrating the qualities and treatment benefits of our products. We also work with MCOs to assist them with disease management, patient education and other tools that help their medical treatment routines.
Marketing of prescription pharmaceuticals depends to a degree on complex decisions about the scope of clinical trials made years before product approval. All drugs must complete clinical trials required by regulatory authorities to show they are safe and effective for treating one or more particular medical problems. A manufacturer may choose, however, to undertake additional studies to demonstrate additional advantages of a compound, such as a better safety profile or greater cost effectiveness than existing therapies.
Those studies can be costly, the results are uncertain, and they can take years to complete. Balancing these considerations makes it difficult to decide whether and when to undertake such additional studies. But, when they are successful,
such studies can have a major impact on approved claims and marketing strategies.
Our medical technology businesses have their own respective sales forces. Medical technology products generally are sold directly to medical institutions, but distributors and dealers provide supplementary sales channels.
Separate sales organizations are used by our Animal Health business to promote its products. Its advertising and promotion are generally targeted to health professionals, directly and through medical journals. Animal health and nutrition products are sold through veterinarians, drug wholesalers, distributors, retail outlets and directly to users, including feed manufacturers and animal producers. Where appropriate, these products are also marketed through print and television advertising.
Our Consumer Health Care business around the world uses its own representatives to promote its products. This business uses substantial print and television consumer advertising for its brand-name products. Those products are sold through various retailers.
During 1997, health care sales to McKesson Corporation, a pharmaceutical and health care products wholesaler, accounted for approximately 10% of our total revenues and almost 12% of our Health Care segment revenues. Sales to McKesson and our three other largest wholesalers in 1997 accounted for 34% of our total revenues. Those sales were concentrated in the Health Care segment. Our Consumer Health Care segment's 1997 sales to WalMart represented approximately 16% of our U.S. Consumer Health sales. Apart from these instances, none of our business segments is dependent on any one or group of related customers.
PATENTS AND INTELLECTUAL PROPERTY RIGHTS
Our products are sold around the world under brand-name trademarks we consider in the aggregate to be of material importance. Trademark protection continues in some countries as long as the mark is used; in other countries, as long as it is registered. Registrations generally are for fixed, but renewable, terms.
We own or are licensed under a number of U.S. and foreign patents. These patents cover:
. pharmaceutical and medical technology products,
. pharmaceutical formulations,
. product manufacturing processes, and
. intermediate chemical compounds used in manufacturing.
In 1997, neither the amounts we paid for license rights, nor amounts we received in connection with licenses granted by us to third parties, were material to our operations as a whole.
Patents for individual products extend for varying periods according to the date of patent filing or grant and the legal term of patents in the various countries where patent protection is obtained. The actual protection afforded by a patent, which can vary from country to country, depends upon the type of patent, the scope of its coverage, and the availability of legal remedies in the country.
In the aggregate, our patent and related rights are of material importance to our businesses in the United States and most other countries. Based on current product sales, and considering the vigorous competition with products sold by others, the only patent rights we consider significant in relation to our business as a whole are those for Norvasc, Zoloft, Diflucan, Procardia XL and Zithromax. Our basic U.S. patents relating to Norvasc, Zoloft and Diflucan expire between 2004 and 2007.
Procardia XL employs a novel sustained release drug delivery system developed and patented by Alza Corporation. We hold an exclusive license to use this delivery system with the active ingredient in Procardia XL until 2003. Other companies also offer sustained-release forms of that ingredient or have filed applications with the FDA seeking approval of such products. One such product that has been approved has not been rated by the FDA to be appropriate for substitution in place of Procardia XL. Another product filed with the FDA for approval in 1997 uses a form of the active ingredient that we believe infringes our patented technology, and we have sued to prevent that improper use. Yet another product was filed for FDA approval in February 1998, and also appears to infringe our patented technology. (See the discussion of these matters in
Item 3 below. Also see the discussion below about Procardia XL sales in the
section Cautionary Factors That May Affect Future Results.) It is not possible
to predict the timing and impact on sales of Procardia XL of competition from
other products.
Zithromax is patented by Pliva, a Croatian pharmaceutical company. The drug is licensed exclusively to us by Pliva for sales and marketing in major countries, and we purchase the compound in crude bulk form from Pliva. Pliva's U.S. patent on Zithromax expires in 2005.
We have other patent rights covering additional products that have smaller sales revenues. The U.S. patent for one such pharmaceutical product expires in 1999. The U.S. patent on Cardura expires in 2000.
We expect that the patents on some of our newest products and late-stage product candidates could become significant to our business as a whole in the future.
The expiration of a product patent normally results in the loss of marketing exclusivity for the covered product and, particularly in the U.S., can result in a dramatic reduction in sales of the pioneering product. In some cases, however, we can continue to obtain commercial benefits from:
. product manufacturing trade secrets;
. patents on processes and intermediates for the economical manufacture of the active ingredients;
. patents for special formulations of the product or delivery mechanisms; and
. adaptation of the active ingredient to over-the-counter products.
The effect of product patent expiration also depends upon:
. the nature of the market and the position of the product in it,
. the growth of the market,
. the complexities and economics of manufacture of the product, and
. the requirements of generic drug laws.
One of the main limitations on our operations in some other countries is the lack of effective intellectual property protection of our products. Under international agreements in recent years, protection of intellectual property rights has been improving somewhat internationally. Pursuant to the North American Free Trade Agreement, Mexico improved its patent law to provide patent protection to pharmaceutical products. The General Agreement on Tariffs and Trade requires participant countries to amend their intellectual property laws to provide patent protection for pharmaceutical products by the end of a ten- year transition period. A number of countries are doing this. We have experienced significant growth in our businesses in some of those nations. Our continued and expanded business in those countries depends to a large degree on continuing that improvement.
COMPETITION
Competition is intense in all of our businesses, and includes many large and small competitors. No single company competes with us in all of our businesses, however.
The principal means of competition vary among product categories and business groups. Technological innovations affecting:
. efficacy,
. safety,
. patients' ease of use, and
. cost effectiveness
are important to success in all of our businesses. Our businesses also focus on unmet medical needs and improving therapies. Our emphasis on innovation has led to our multi-billion dollar research and development investments over the past decade.
Our pharmaceutical business competes with worldwide research-based drug companies, many smaller research companies with more limited therapeutic focus, and generic drug manufacturers. Our pharmaceutical operations are among the largest in the world, although there are other companies that have greater sales and more employees.
In recent years, a comparison of the total cost of medical treatments using pharmaceuticals versus alternative treatments for the same condition has become an important basis of competition. Managed
Care Organizations and Pharmacy Benefit Managers look to cost advantages as well as medical benefits in making their drug formulary decisions.
Our pharmaceutical sales and marketing organization has proven to be a valuable competitive asset. Our salespeople's ability to reach medical professionals with information about our products helps us respond to competitive efforts and launch new products.
Our Medical Technology Group's competitors include many companies of various sizes and resources. Consolidations of companies in this business have increased the combined firms' overall market positions. We have made strategic changes in response to those market conditions by expanding some of our product lines through acquisitions and by divestitures of businesses that no longer had a strategic fit.
We have a significant presence in the animal health marketplace, but many other companies offer competitive products. Altogether, there are hundreds of producers of animal health products throughout the world. The principal methods of competition vary somewhat depending on the particular product. They include:
. product innovation,
. service,
. price,
. quality, and
. effective promotion to veterinary professionals and consumers.
We promote our products directly through our sales representatives as well as through advertising.
Many other companies, large and small, manufacture and sell one or more products that are similar to our consumer health care products. The principal methods of competition in the OTC market include:
. product quality,
. advertising and promotion,
. product innovation,
. broad distribution capabilities,
. customer satisfaction, and
. price.
Heavy expenditures for advertising, promotion and marketing are generally required to achieve consumer acceptance of consumer health care products.
In the current environment of competitive pressures on profit margins, we continue efforts to control the growth of our expenses. Although research and development budgets have grown significantly, in other areas such as manufacturing, distribution and sales administration, we have kept our costs down by restructuring and consolidating facilities. These measures have brought us new efficiencies and reduced or contained our operating expenses.
Managed Care Organizations
The growth of Managed Care Organizations (MCOs) has been a major factor in the competitive make-up of the health care marketplace. Over half the U.S. population now participates in some version of managed care. Because of the size of the patient population covered by MCOs, marketing of prescription drugs to them and the Pharmacy Benefit Managers (PBMs) that serve many of those organizations has become important to our business.
MCOs can include medical insurance companies, medical plan administrators, health-maintenance organizations, alliances of hospitals and physicians and other physician organizations. The purchasing power of MCOs has been increasing in recent years due to their growing numbers of enrolled patients. At the same time, those organizations have been consolidating into fewer, even larger entities. This enhances their purchasing strength and importance to us.
A major objective of MCOs is to contain and, where possible, reduce health care expenditures. They typically use volume purchases and long-term contracts to negotiate discounts from pharmaceutical and medical device providers. They use their purchasing power to bargain for lower supplier prices. They also emphasize primary and preventive care, out-patient treatment, and procedures performed at doctors' offices and clinics. Hospitalization and surgery, typically the most expensive forms of treatment, are carefully managed.
As discussed above in Marketing, MCOs and PBMs typically develop formularies to reduce their
cost for medications and medical devices. Formularies can be based on the prices and therapeutic benefits of the available products. Due to their lower initial cost, generic medicines may be favored. The breadth of the products covered by formularies can vary considerably from one MCO to another, and many formularies include alternative and competitive products for treatment of particular medical problems. MCOs use a variety of means to encourage patients' use of products listed on their formularies.
Exclusion of a product from a formulary can lead to its sharply reduced usage in the MCO patient population. Consequently, pharmaceutical and medical device companies compete aggressively to have their products included. Where possible, companies compete for inclusion based upon unique features of their products, such as greater efficacy, better patient ease of use or fewer side effects. A lower overall cost of therapy is also an important factor. Products that demonstrate fewer therapeutic advantages must compete for inclusion based primarily on price.
The growth of MCOs also appears to have led to greater usage of some drugs. Certain drugs can avoid the need for more costly treatments such as hospitalization, professional therapy, or even surgery. Because of these advantages, such drugs can become favored first-line treatments. In addition, the current trend of some patients to opt for managed care alternatives to Medicare may increase overall pharmaceutical usage among that elderly population. Medicare generally does not pay for medicines, so the patients must bear that cost. MCOs, however, often offer significant drug benefits for their participants.
These developments have not only created pressure on prices, but also have increased sales of products on formularies. We have been generally, although not universally, successful in having our major products included on MCO formularies.
Another way we address the interests of MCOs is by developing disease management programs. These programs can be attractive to MCOs by improving patient communications and compliance with dosage directions, which are important for effective disease treatment. They can help MCOs address various aspects of disease management, such as prevention, diagnosis and treatment of certain diseases, including use of pharmaceutical products. This comprehensive approach can improve the quality of care and lower costly complications of chronic diseases.
Generic Products
One of the biggest competitive challenges we face in the U.S. is from generic pharmaceutical manufacturers. Upon the expiration of U.S. patent protection on an important product, we can lose the major portion of U.S. sales of the product within a year. Generic competitors operate without our large research and development expenses and our costs of conveying medical information about the product to the medical community. In addition, the FDA approval process exempts generics from costly and time-consuming clinical trials to demonstrate their safety and efficacy, and allows generic manufacturers to rely on the safety and efficacy of the pioneer product. Generic products need only demonstrate a level of availability in the blood stream equivalent to that of the pioneer product. This means that after we have borne the expenses of discovering, developing and testing a medicine for safety and efficacy, obtaining regulatory approval and informing the medical community about its therapeutic benefits, generic competitors can charge much less for a competing version of our product and still be profitable.
As noted above, MCOs that focus primarily on the immediate cost of drugs may favor generics over brand-name drugs. Many governments also encourage the use of generics as alternatives to brand-name drugs in their health care programs, including Medicaid in the U.S. Laws in the U.S. generally allow, and in some cases require, pharmacists to substitute generic drugs that have been rated under government procedures to be therapeutically equivalent to a brand-name drug. The substitution must be made unless the prescribing physician expressly forbids it in accordance with applicable procedures.
Some of our competitors who produce patented pharmaceuticals have entered the generic market; in some cases offering generic versions of their own brand-name products. We have not followed that strategy. Instead, we focus our resources on developing and marketing innovative new products and treatments.
RAW MATERIALS
Raw materials essential to our businesses are purchased worldwide in the ordinary course of business from numerous suppliers. In general, these materials are widely available from multiple sources. No serious shortages or delays were encountered in 1997, and none are expected in 1998.
GOVERNMENT REGULATION AND PRICE CONSTRAINTS
Pharmaceutical and medical device companies are subject to heavy regulation by a number of national, state and local agencies. Of particular importance is the FDA in the United States. It has jurisdiction over all our businesses and administers requirements covering the testing, safety, effectiveness, approval, manufacturing, labeling and marketing of our products. In some cases, FDA requirements and/or reviews have increased the amount of time and money necessary to develop new products and bring them to market.
The FDA also regulates our consumer health care business and, along with the U.S. Department of Agriculture and the Environmental Protection Agency, animal health products. Some regulatory actions pertaining to our products are discussed in Item 3 of this report.
In 1995, the European Medicines Evaluation Agency (EMEA) instituted a new "centralized" drug-approval process for the member states of the European Union (EU). This centralized procedure supplements the traditional decentralized approach and allows for a single central approval that is valid in all EU member countries. To the extent the EMEA establishes a harmonized, centralized regulatory authority for Europe, our businesses operating there should benefit. The EMEA does not have jurisdiction over patient reimbursement or pricing matters in EU member countries, however. We will continue to deal with individual countries on such issues.
In recent years, various legislative proposals have been offered in Congress and in some state legislatures that would effect major changes in the affected health care systems. Some states have passed such legislation, and further federal and state proposals are possible. These could include price or patient reimbursement constraints on medicines and restrictions on access to certain products. Similar issues have also arisen in many foreign countries where we do business. We cannot predict the outcome of such initiatives, but we will work to maintain patient access to our products and to oppose price constraints.
Also in the U.S., proposals have called for substantial changes in the Medicare and Medicaid programs. If such changes are enacted, they may require significant reductions from currently projected expenditures. Driven by budget concerns, Medicaid managed care systems have been under consideration in several states. If the Medicare and Medicaid programs implement changes that restrict the access of a significant population of patients to our innovative medicines, our business could be materially affected. On the other hand, relatively little pharmaceutical use is currently covered by Medicare. As noted above, if changes to these programs shift patients to MCOs that cover pharmaceuticals, usage of pharmaceuticals could increase.
Legislation in the U.S. requires us to give rebates to state Medicaid agencies based on each state's reimbursement of pharmaceutical products under the Medicaid program. We also must give discounts or rebates on purchases or reimbursements of pharmaceutical products by certain other federal and state agencies and programs. See the discussion regarding rebates on page 30 of our 1997 Annual Report for details on the cost to us of such discounts and rebates, which is incorporated here by reference.
We encounter similar regulatory and legislative issues in most other countries. For example, in 1997, Japan announced a price reduction on drugs. In Europe and some other international markets, the government provides health care at low direct cost to consumers, and regulates pharmaceutical prices or patient reimbursement levels to control costs for the government-sponsored health care system.
This international patchwork of price regulation has led to inconsistent prices and some third-party trade in our products from markets with low prices. Such "parallel trade" exploiting price differences between countries can undermine our sales in markets with higher prices.
We are also subject to the jurisdiction of various other regulatory and enforcement departments and agencies, such as the Federal Trade
Commission and the Department of Justice in the U.S., and are, therefore, subject to possible administrative and legal proceedings and actions by those organizations. Such actions may include product recalls, seizures and other civil and criminal sanctions. In some cases, we have initiated product recalls voluntarily.
It is difficult to predict the future impact of the broad and expanding legislative and regulatory requirements affecting us.
ENVIRONMENTAL LAW COMPLIANCE
Most of our manufacturing and certain research operations are affected by federal, state and local environmental laws. These laws relate to the discharge of materials or otherwise to the protection of the environment. We have made, and intend to continue to make, necessary expenditures for compliance with applicable laws. We are also cleaning up environmental contamination from past industrial activity at certain sites (see Item 3, Legal Proceedings, below). As a result, we incurred capital and operational expenditures in 1997 for environmental protection and clean-up of certain past industrial activity as follows:
. environmental-related capital expenditures, $55 million;
. other environmental-related expenses, $67 million.
While we cannot predict with certainty the future costs of such clean up activities, capital expenditures, or operating costs for environmental compliance, we do not believe they will have a material effect on our capital expenditures, earnings or competitive position.
YEAR 2000 COMPUTER SYSTEMS COMPLIANCE
Many older computer software programs refer to years in terms of their final two digits only. Such programs may interpret the year 2000 to mean the year 1900 instead. If not corrected, those programs could cause date-related transaction failures.
We developed a Compliance Assurance Process to address this problem. A project team has performed a detailed assessment of all internal computer systems and is developing and implementing plans to correct the problems. Year 2000 problems affect many of our research and development, production, distribution, financial, administrative and communication operations. Systems critical to our business which have been identified as non-Year 2000 compliant are either being replaced or corrected through programming modifications. In addition, a separate team is looking at Year 2000 readiness from other aspects of our business, including customer order-taking, manufacturing, raw materials supply and plant process equipment. Outside companies such as vendors, major customers, service suppliers, communications providers and banks are being asked to verify their Year 2000 readiness and we are testing such systems where appropriate. We expect these projects to be successfully completed during 1999.
External and internal costs specifically associated with modifying internal use software for Year 2000 compliance are expensed as incurred. To this point, those costs have not been material. Costs to be incurred over the next two years to fix Year 2000 problems are estimated at approximately $40 million. Such costs do not include normal system upgrades and replacements. Based on our current plans and efforts to date, we expect that there will be no material harm to our operations.
CORPORATE/FINANCIAL SUBSIDIARIES
We conduct international banking operations through a subsidiary, Pfizer International Bank Europe (PIBE), based in Dublin, Ireland. PIBE, incorporated under the laws of Ireland, operates under a banking license from the Central Bank of Ireland. It makes loans and accepts deposits in several currencies in international markets. PIBE is an active Euromarket lender to high quality corporations and governments through its portfolio of loans and money market instruments. Loans are made primarily on a short and medium term basis, typically with floating interest rates.
We also own an insurance operation, The Kodiak Company Limited, which reinsures certain assets, inland transport and marine cargo of our international operations. Financial data for these subsidiaries are set out in Note 3 to our financial statements, Financial Subsidiaries, on page 46 in our 1997 Annual Report, which is incorporated here by reference.
TAX MATTERS
The discussion of tax-related matters (including certain proceedings involving proposed tax adjustments relating to prior years) in Note 8 to our financial statements, Taxes on Income, on pages 49 through 51 in the Annual Report is incorporated here by reference.
EMPLOYEES
In our innovation-intensive business, our employees are vital to our success. We believe we have good relationships with our employees. As of December 31, 1997, we employed approximately 49,200 people in our operations throughout the world. Geographically, this total breaks down as follows:
. United States, 20,700;
. Europe, 14,400;
. Asia, 7,700;
. Canada/Latin America, 5,000; and
. Africa/Middle East, 1,400.
CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS
(Cautionary Statements Under the Private Securities Litigation Reform Act of 1995)
Our disclosure and analysis in this report and in our 1997 Annual Report to Shareholders contain some forward-looking statements. Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. They use words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," and other words and terms of similar meaning in connection with any discussion of future operating or financial performance. In particular, these include statements relating to future actions, prospective products or product approvals, future performance or results of current and anticipated products, sales efforts, expenses, the outcome of contingencies such as legal proceedings, and financial results. From time to time, we also may provide oral or written forward-looking statements in other materials we release to the public.
Any or all of our forward-looking statements in this report, in the 1997 Annual Report and in any other public statements we make may turn out to be wrong. They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. Many factors mentioned in the discussion above--for example, government regulations around the world, generic product competition and the competitive environment--will be important in determining future results. Consequently, no forward-looking statement can be guaranteed. Actual future results may vary materially.
We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in our 10-Q, 8-K and 10-K reports to the SEC. Also note that we provide the following cautionary discussion of risks, uncertainties and possibly inaccurate assumptions relevant to our businesses. These are factors that we think could cause our actual results to differ materially from expected and historical results. Other factors besides those listed here could also adversely affect the Company. This discussion is provided as permitted by the Private Securities Litigation Reform Act of 1995.
+ Balancing current growth and investment to fuel future growth remains a major challenge. Our ongoing investments in new product introductions and research and development for future products could exceed corresponding sales growth. This could produce higher costs without a proportional increase in revenues.
+ In the U.S., many of our pharmaceutical products are subject to increasing price pressures as managed care groups, pharmacy benefit managers and government agencies seek price discounts. Government efforts to reduce Medicare and Medicaid expenses are expected to increase the use of managed care. This may result in managed care influencing prescription decisions for a larger segment of the population. International operations are also subject to price and marketing regulations. As a result, it is expected that pressures on pricing and operating results will continue and could affect future results.
+ Almost half our revenues arise from international operations, and revenues and net income growth in 1998 are expected to be affected by changes in foreign exchange rates. Revenues from Asia comprised approximately 13% of total revenues in 1997 (although revenues from the Asian markets most impacted by 1997 currency devaluations--Korea, Indonesia, Thailand, Malaysia, Philippines and Taiwan--comprised only 2% of 1997 total revenues).
These foreign-based revenues as well as our substantial international assets result in our exposure to currency exchange rate changes. In addition, our interest-bearing investments, loans and borrowings are subject to interest rate change risk. The risks of such changes and the measures we have taken to help contain those risks are discussed in the section entitled Financial Risk Management on pages 37 and 38 in our 1997 Annual Report. For additional details, see Note 5-D to our financial statements, Derivative Financial Instruments, on pages 47 to 49 in our 1997 Annual Report. Those sections of the Annual Report are incorporated here by reference.
Notwithstanding our efforts to foresee and mitigate the effects of changes in fiscal circumstances such as these, we cannot predict with certainty all changes in currency and interest rates, inflation or other related factors affecting our businesses. These factors could affect future results.
+ A new European currency is planned for introduction in January 1999 to eventually replace the separate currencies of eleven western European countries. This will entail changes in our operations as we modify systems and commercial arrangements to deal with the new currency. Modifications will be necessary in operations such as payroll, benefits and pension systems, contracts with suppliers and customers and internal financial reporting systems. Although a three-year transition period is expected during which transactions may be made in the old currencies, this may require dual currency processes for our operations. We have identified issues involved and are developing and implementing solutions. The cost of this effort is not expected to have a material effect on our business or results of operations. There is no guarantee, however, that all problems will be foreseen and corrected, or that no material disruption of our business will occur.
+ International operations could be affected by changes in intellectual property legal protections and remedies, trade regulations, and procedures and actions affecting approval, production, pricing, reimbursement and marketing of products, as well as by unstable governments and legal systems, intergovernmental disputes and possible nationalization.
+ Cost-containment measures employed by governments that have the effect of limiting patient access to medicines and related issues described above in Government Regulation and Price Constraints affect the growth and profitability of our operations in some countries. Those factors could affect future results.
+ Business combinations among our competitors could affect our competitive position in the pharmaceutical, medical technology, animal health and consumer health care businesses. Similarly, combinations among our major customers could increase their purchasing power in dealing with us. And, of course, if we ourselves should enter into one or more business combinations, our business, finances and capital structure could be affected.
+ Generic competition is a major challenge in the U.S. Loss of patent protection typically leads to dramatic loss of sales in the U.S. market and could affect future results.
+ Risks and uncertainties particularly apply with respect to product-related forward-looking statements. The outcome of the lengthy and complex process of identifying new compounds and developing new products is inherently uncertain. Prospective products can fail to receive regulatory approval. There are also many considerations that can affect marketing of pharmaceutical and medical technology products around the world. Regulatory delays; the inability to successfully complete clinical trials; claims and concerns about safety and efficacy; new discoveries; patents and products by competitors and related patent disputes; and claims about adverse side effects are a few of the factors that could adversely affect the realization of research and development and product-related forward-looking statements.
+ As discussed above in Marketing, decisions about research studies made early in the development process of a drug candidate can have a substantial impact on the marketing strategy once the drug receives approval. More detailed studies may demonstrate additional benefits that can help in the marketing, but they consume time and resources and can delay submitting the drug candidate for initial approval. We try to plan clinical trials prudently, but there is no guarantee that a proper balance of speed and testing will be made in each case. The quality of our decisions in this area can affect our future results.
+ Difficulties or delays in product manufacturing or marketing including, but not limited to, the inability to build up production capacity commensurate with demand, or the failure to predict market demand for or gain market acceptance of approved products could affect future results.
+ We currently have two products, Norvasc and Zoloft, with annual sales exceeding one billion dollars. Those products accounted for approximately 30% of our 1997 revenues. If these or any of our other major products were to become subject to a problem such as loss of patent protection, unexpected side effects, regulatory proceedings, publicity affecting doctor or patient confidence or pressure from competitive products, or if a new, more effective treatment should be introduced, the impact on our revenues could be significant.
+ We cannot always predict with accuracy the timing or impact of possible future competition on sales of our products. For example, Procardia XL, our patented form of sustained-release nifedipine, has been an important product for us, but its sales have been declining, and we expect that to continue. Sales of Procardia XL were $1,133 million in 1995, $1,005 million in 1996, and $822 million in 1997. At least in part, this decline has been due to the medical community's increased emphasis on our more advanced product, Norvasc. It is also partly attributable to the fact that there has been another form of sustained-release nifedipine available on the market since 1993, although it is not approved for treatment of all the same indications as Procardia XL. Additional potentially competitive products have been filed for FDA approval. This indicates that the number of medicines that compete with Procardia XL may increase, and the sales of competing products may affect our expected results.
+ During 1995, the authors of some non-clinical studies questioned the safety of calcium channel blockers (CCBs). Although the clinical evidence supported the safety of this class of medications, the FDA convened an advisory panel to review their safety. In 1996, that advisory panel found no data to support challenges to the safety of newer sustained-release and intrinsically long- acting CCBs (such as our Norvasc and Procardia XL products for treatment of hypertension and angina).
Questions about this class of products have continued, however, and include scientific publications and presentations asserting that these products may be associated with various serious medical conditions.
However, during 1997, emerging data and reviews by two national regulatory authorities plus newly published National Institutes of Health (NIH) guidelines were supportive of the safety of CCBs. In March 1997, Swedish regulatory authorities concluded that the pertinent studies do not provide sufficient evidence of any general association between use of CCBs and an increase in the risk of cancer.
Additionally, in July, Canadian authorities concluded that these medications were safe and effective when used as indicated. Finally, in November, the NIH published guidelines reflecting clinical recommendations for the treatment of patients with hypertension which maintained that long-acting CCBs are useful and appropriate first-line medications.
We believe that the safety and effectiveness of Norvasc and Procardia XL are supported by a large body of data from numerous studies and the daily clinical experiences of physicians around the world. It is not possible, however, to predict the impact, if any, of existing or future studies, regulatory agency actions or a continuing debate regarding CCBs on our future sales.
+ Growth in costs and expenses, changes in product mix and the impact of divestitures, restructuring and other unusual items that could result from evolving business strategies, evaluation of asset realization, and organizational restructuring could affect future results. For example, we may be unable to continue
or maintain margin improvements achieved in recent years, which would affect future results.
+ In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income and SFAS No. 131, Disclosures About Segments of an Enterprise and Related Information, which become effective for our 1998 financial statements. SFAS No. 130 requires disclosure of comprehensive income, which consists of all changes in equity from nonshareholder sources. SFAS No. 131 requires that a company report information about its operating segments.
The adoption of these statements will not impact our consolidated financial position, results of operations or cash flows. The effect of the adoption of these statements will be limited to the form and content of our disclosures. Since we currently disclose most of the information required under these statements, we do not expect their adoption to materially change our current disclosures.
Such new or revised accounting standards and rules are issued from time to time. Although the standards mentioned above are not expected to have a material impact on our reported financial results, future standards and rules could have such an effect.
+ As described above in the section Year 2000 Computer Systems Compliance, we are working to address "Year 2000" problems. If we should fail to identify or fix all such problems in our own operations, or if we are affected by the inability of a sole-source supplier or a major customer (such as a large drug wholesaler or distributor) to continue operations due to such a problem, our operations and/or cash flows could be affected.
+ Changes in the U.S. Tax Code and the tax laws of other countries can affect our net earnings. For example, pursuant to the Small Jobs Protection Act of 1996 (the Act), Section 936 of the Internal Revenue Code was repealed for tax years beginning after December 31, 1995. Section 936 had created the U.S. possessions corporation income tax credit, which gave us tax benefits for certain operations in Puerto Rico. The Act provided that as an existing credit claimant, we are eligible to continue using the credit against the tax arising from our manufacturing income earned in Puerto Rico for an additional ten-year period. The amount of manufacturing income eligible for the credit during this additional period is subject to a cap based on our prior years' income earned in Puerto Rico. This ten-year extension does not apply to investment income earned in Puerto Rico, the credit on which expired as of July 1, 1996. The Act did not affect the amendments made to Section 936 by the Omnibus Budget Reconciliation Act of 1993, which provided for a five-year phase-down of the U.S. possession tax credit from 100% to 40%. In addition, the Act extended the R&D tax credit for eleven months effective July 1, 1996. In 1997, this credit was extended to June 30, 1998.
+ Claims have been brought against us and our subsidiaries for various legal, environmental and tax matters, and additional claims arise from time to time. In addition, our operations are subject to international, federal, state and local environmental laws and regulations. It is possible that our cash flows and results of operations could be affected by the one-time impact of the resolution of these contingencies. We believe that the ultimate disposition of current matters to the extent not previously provided for will not have a material impact on our financial condition or cash flows and results of operations, except where specifically commented upon in the discussion of such matters in Legal Proceedings in Item 3 in this report, and in Tax Matters above.
ITEM 2. PROPERTIES
Our world headquarters are located in several buildings in New York City. We own two of these buildings, including our main 33-story office tower, and rent space in others nearby. The 33-story office tower is located on a site we have leased under a long-term ground lease. Altogether, our headquarters operations occupy over one million square feet of owned and leased office space in New York City.
Our pharmaceutical business owns and leases space for sales and marketing, administrative support, and customer service functions around the world.
Our major research and development facilities are located in manufacturing/R&D complexes that we own containing multiple buildings in Groton, Connecticut and Sandwich, England. The buildings at our Groton facility currently contain approximately three million square feet of floor space. Approximately 1.2 million square feet is used
for manufacturing, and the rest is used for research and development. An additional 550,000 square foot laboratory building, which is expected to house approximately 700 new research employees, is currently under construction. The Company also plans to begin construction in 1998 on an additional 400,000 square foot facility on a 24 acre site in nearby New London, Connecticut, to house an initial 1,300 employees from the Company's research operations.
Buildings on our 340 acre Sandwich, England campus house research, our U.K. pharmaceutical sales office and a production plant. These facilities contain almost two million square feet of floor space, approximately half of which is used for research and development. An additional 540,000 square feet of new research space is under construction.
We own other important research facilities in Nagoya, Japan; Amboise, France; and Terre Haute, Indiana. A number of smaller research and development operations around the world focus principally on their local markets. As discussed above, we have been expanding our research and development facilities in recent years to meet the challenges of handling growing research activities. Altogether in 1997, we commenced construction on over one million square feet of research facilities at our sites in Groton, Sandwich and Nagoya.
We have 28 production plants serving our pharmaceutical and animal health operations around the world. Fifteen of these are major facilities. These plants handle one or more of three basic types of production processes:
. fermentation,
. major synthesis, and
. drug product production.
We have five major fermentation plants:
. Rixensart, Belgium;
. Sao Paulo, Brazil;
. Terre Haute, Indiana;
. Nagoya, Japan; and
. Sandwich, England.
Our major drug synthesis facilities are in three locations:
. Groton, Connecticut;
. Ringaskiddy, Ireland; and
. Barceloneta, Puerto Rico.
We have major product production plants at thirteen sites in eleven countries:
1. Sao Paulo, Brazil
2. Dalian, China
3. Sandwich, England
4. Amboise, France
5. Illertissen, Germany
6. Chandigarh, India
7. Latina, Italy
8. Nagoya, Japan
9. Toluca, Mexico
10. Barceloneta, Puerto Rico, U.S.
11. Brooklyn, New York, U.S.
12. Terre Haute, Indiana, U.S., and
13. Valencia, Venezuela
Our Animal Health business has new world headquarters in leased offices one block away from the Company's corporate headquarters in New York City. Animal Health owns its North America headquarters in Exton, Pennsylvania, and leases some additional space in a nearby office building. It also owns office space in Zaventem, Belgium for support of its international operations.
Most of Animal Health's research and manufacturing facilities are shared with our pharmaceutical business. Its major manufacturing facilities are in:
. Lincoln, Nebraska;
. Lee's Summit, Missouri;
. London, Ontario, Canada; and
. Louvain la Neuve, Belgium
all of which are owned.
Medical Technology has its headquarters in our New York corporate offices, and sales offices around the world in mostly leased office facilities. Howmedica is headquartered in owned and leased facilities in Rutherford, New Jersey, where various production, research, and sales and marketing operations are housed. Its Leibinger oral, facial and skull surgery device operation is based in owned facilities in Freiburg, Germany. It also owns additional manufacturing, research and marketing facilities in other locations in Germany, France, Ireland and Switzerland. Schneider/NAMIC has
offices and major production facilities in Glens Falls, New York and Plymouth, Minnesota, and additional production in Puerto Rico, Florida, Ireland and Switzerland. The Glens Falls, Puerto Rico and Florida facilities are leased. American Medical Systems has its headquarters in an owned building in Minnetonka, Minnesota.
Medical Technology has a technical resources group at our Groton, Connecticut plant, but most of its businesses conduct their principal research at separate facilities. Medical Technology's businesses have local sales, service and distribution offices around the world, substantially all of which are leased.
Our Consumer Health Care business has its principal executive offices in the Company's world headquarters in New York. It owns its 450,000 square foot U.S. product production facilities in Parsippany, New Jersey, which also houses its principal research operations, and a plant in San Jose Iturbide, Mexico producing hair care products primarily for the Mexican market. Its other manufacturing facilities are owned, but are shared with and managed by our pharmaceutical business. Consumer Health's sales and marketing offices are generally leased and shared with local pharmaceutical sales offices, except in Mexico and the U.K., where Consumer Health has separate offices.
Our distribution operations are anchored by our large, state-of-the-art distribution and order fulfillment operation in a 280,000 square foot building on a 20 acre site in Memphis, Tennessee. This centrally-located U.S. facility opened in 1995 and services the Company's pharmaceutical, Howmedica and consumer health care business units and also houses some customer service operations. Other U.S. distribution facilities for those operations are located in Clifton and Parsippany, New Jersey and Irvine, California. The Animal Health Group operates its own distribution facilities.
In general, our properties are well maintained, adequate and suitable to their purposes. The growth of our businesses has created space pressures for certain operations, however. We have responded to such challenges with plans to provide appropriate facilities as needs are demonstrated. Note 6 to our financial statements, Property, Plant and Equipment on page 49 in our 1997 Annual Report, which discloses amounts invested in land, buildings and equipment, and the discussion of investing activities under the heading Summary of Cash Flows on page 35 of the Annual Report, which describes our capital expenditures, are incorporated here by reference. See, also, the discussion under Note 11 entitled Lease Commitments on page 52 of the Annual Report, which is also incorporated here by reference.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in a number of claims and litigations, including product liability claims and litigations considered normal in the nature of its businesses. These include suits involving various pharmaceutical and hospital products that allege either reaction to or injury from use of the product. In addition, from time to time the Company is involved in, or is the subject of, various governmental or agency inquiries or investigations relating to its businesses.
On June 9, 1997, the Company received notice of the filing of an Abbreviated New Drug Application (ANDA) by Mylan Pharmaceuticals for a sustained release nifedipine product asserted to be bioequivalent to Procardia XL. Mylan's notice asserted that the proposed formulation does not infringe relevant licensed Alza and Bayer patents and thus that approval of their ANDA should be granted before patent expiration. On July 18, 1997, the Company, together with Bayer AG and Bayer Corporation, filed a patent infringement suit against Mylan Pharmaceuticals Inc. and Mylan Laboratories Inc. in the United States District Court for the Western District of Pennsylvania with respect to Mylan's ANDA. Suit was filed under Bayer AG's U.S. Patent No. 5,264,446, licensed to the Company, relating to nifedipine of a specified particle size range. Mylan has filed its answer denying infringement and a scheduling order has been entered. Discovery is in progress. On or about February 23, 1998, Bayer AG received notice that Biovail Laboratories Incorporated had filed an ANDA for a sustained release nifedipine product asserted to be bioequivalent to Procardia XL. The notice indicated that it was being sent to the Company as well. The notice asserts that the Biovail product does not infringe Bayer's U.S. Patent No. 5,264,446. The notice is under review.
Pfizer filed suit on July 8, 1997, against the FDA in the United States District Court for the District of Columbia, seeking a declaratory judgment and injunctive relief enjoining the FDA from processing Mylan's ANDA or any other ANDA submission referencing Procardia XL that uses a different extended release mechanism. Pfizer's suit alleges that extended release mechanisms that are not identical to the osmotic pump mechanism of Procardia XL constitute different dosage forms requiring the filing and approval of suitability petitions under the Food Drug and Cosmetics Act before the FDA can accept an ANDA for filing. Mylan intervened in Pfizer's suit. Oral arguments were heard on August 29, 1997. No decision has yet been issued.
As previously disclosed, a number of lawsuits and claims have been brought against the Company and Shiley Incorporated, a wholly owned subsidiary, alleging either personal injury from fracture of 60(degrees) or 70(degrees) Shiley Convexo Concave ("C/C") heart valves, or anxiety that properly functioning implanted valves might fracture in the future, or personal injury from a prophylactic replacement of a functioning valve.
In an attempt to resolve all claims alleging anxiety that properly functioning valves might fracture in the future, the Company entered into a settlement agreement in January 1992 in Bowling v. Shiley, et al., a case brought in the United States District Court for the Southern District of Ohio, that established a worldwide settlement class of people with C/C heart valves and their spouses, except those who elect to exclude themselves. The settlement provided for a Consultation Fund of $90 million, which was fixed by the number of claims filed, from which valve recipients are receiving payments that are intended to cover their cost of consultation with cardiologists or other health care providers with respect to their valves. The settlement agreement established a second fund of at least $75 million to support C/C valve-related research, including the development of techniques to identify valve recipients who may have significant risk of fracture, and to cover the unreimbursed medical expenses that valve recipients may incur for certain procedures related to the valves. The Company's obligation as to coverage of these unreimbursed medical expenses is not subject to any dollar limitation. Following a hearing on the fairness of the settlement, it was approved by the court on August 19, 1992 and all appeals have been exhausted.
Generally, the plaintiffs in all of the pending heart valve litigations seek money damages. Based on the experience of the Company in defending these claims to date, including insurance proceeds and reserves, the Company is of the opinion that these actions should not have a material adverse effect on the financial position or the results of operations of the Company. Litigation involving insurance coverage for the Company's heart valve liabilities has been resolved.
The Company's operations are subject to federal, state, local and foreign environmental laws and regulations. Under the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended ("CERCLA" or "Superfund"), the Company has been designated as a potentially responsible party by the United States Environmental Protection Agency with respect to certain waste sites with which the Company may have had direct or indirect involvement. Similar designations have been made by some state environmental agencies under applicable state superfund laws. Such designations are made regardless of the extent of the Company's involvement. There are also claims that the Company may be a responsible party or participant with respect to several waste site matters in foreign jurisdictions. Such claims have been made by the filing of a complaint, the issuance of an administrative directive or order, or the issuance of a notice or demand letter. These claims are in various stages of administrative or judicial proceedings. They include demands for recovery of past governmental costs and for future investigative or remedial actions. In many cases, the dollar amount of the claim is not specified. In most cases, claims have been asserted against a number of other entities for the same recovery or other relief as was asserted against the Company. The Company is currently participating in remedial action at a number of sites under federal, state, local and foreign laws.
To the extent possible with the limited amount of information available at this time, the Company has evaluated its responsibility for costs and related liability with respect to the above sites and is of the opinion that the Company's liability with respect to these sites should not have a material adverse effect
on the financial position or the results of operations of the Company. In arriving at this conclusion, the Company has considered, among other things, the payments that have been made with respect to the sites in the past; the factors, such as volume and relative toxicity, ordinarily applied to allocate defense and remedial costs at such sites; the probable costs to be paid by the other potentially responsible parties; total projected remedial costs for a site, if known; existing technology; and the currently enacted laws and regulations. The Company anticipates that a portion of these costs and related liability will be covered by available insurance.
The United States Environmental Protection Agency--Region I and the Department of Justice have informed the Company that the federal government is contemplating an enforcement action arising primarily out of a December 1993 multimedia environmental inspection, as well as certain state inspections, of the Company's Groton, Connecticut facility. The Company is engaged in discussions with the governmental agencies and does not believe that an enforcement action, if brought, will have a material adverse effect on the financial position or the results of operations of the Company.
Through the early 1970s, Pfizer Inc. (Minerals Division) and Quigley Company, Inc. ("Quigley"), a wholly owned subsidiary, sold a minimal amount of one construction product and several refractory products containing some asbestos. These sales were discontinued thereafter. Although these sales represented a minor market share, the Company has been named as one of a number of defendants in numerous lawsuits. These actions, and actions related to the Company's sale of talc products in the past, claim personal injury resulting from exposure to asbestos-containing products, and nearly all seek general and punitive damages. In these actions, the Company or Quigley is typically one of a number of defendants, and both are members of the Center for Claims Resolution (the "CCR"), a joint defense organization of twenty defendants that is defending these claims. The Company and Quigley are responsible for varying percentages of defense and liability payments for all members of the CCR. A number of cases alleging property damage from asbestos-containing products installed in buildings have also been brought against the Company.
On January 15, 1993, a class action complaint and settlement agreement were filed in the United States District Court for the Eastern District of Pennsylvania involving all personal injury claims by persons who have been exposed to asbestos-containing products but who have not yet filed a personal injury action against the members of the CCR (Future Claims Settlement). The District Court determined that the Future Claims Settlement was fair and reasonable. Subsequently, the United States Court of Appeals for the Third Circuit reversed the order of the District Court and on June 27, 1997, the U. S. Supreme Court affirmed the Third Circuit's order and decertified the class. The overturning of the settlement is not expected to have a material impact on the Company's exposure or on the availability of insurance for the vast majority of such cases. It is expected, too, that the CCR will attempt to resolve such cases in the same manner as heretofore.
At approximately the time it filed the Future Claims Settlement class action, the CCR settled approximately 16,360 personal injury cases on behalf of its members, including the Company and Quigley. The CCR has continued to settle remaining and opt-out cases and claims on a similar basis to past settlements. As of January 31, 1998, there were 49,398 personal injury claims pending against Quigley (excluding those which are inactive or have been settled in principle), 18,695 such claims against the Company, and 68 talc cases against the Company.
The Company believes that its costs incurred in defending and ultimately disposing of the asbestos personal injury claims, as well as the property damage claims, will be largely covered by insurance policies issued by several primary insurance carriers and a number of excess carriers that have agreed to provide coverage, subject to deductibles, exclusions, retentions and policy limits. Litigation is pending against several excess insurance carriers seeking damages and/or declaratory relief to secure their coverage obligations. Based on the Company's experience in defending the claims to date and the amount of insurance coverage available, the Company is of the opinion that the actions should not ultimately have a material adverse effect on the financial position or the results of operations of the Company.
The Company has been named, together with numerous other manufacturers of
brand name prescription drugs and certain companies that distribute brand name
prescription drugs, in suits in federal and state courts brought by various
groups of retail pharmacy companies. The federal cases consist principally of a
class action by retail pharmacies (including approximately 30 named plaintiffs)
(the "Federal Class Action"), as well as additional actions by approximately
3,500 individual retail pharmacies and a group of chain and supermarket
pharmacies (the "individual actions"). These cases, which have been transferred
to the United States District Court for the Northern District of Illinois and
coordinated for pretrial purposes, allege that the defendant drug manufacturers
violated the Sherman Act by unlawfully agreeing with each other (and, as
alleged in some cases, with wholesalers) not to extend to retail pharmacy
companies the same discounts allegedly extended to mail order pharmacies,
managed care companies and certain other customers, and by unlawfully
discriminating against retail pharmacy companies by not extending them such
discounts. On November 15, 1994, the federal court certified a class (the
Federal Class Action) consisting of all persons or entities who, since October
15, 1989, bought brand name prescription drugs from any manufacturer or
wholesaler defendant, but specifically excluding government entities, mail
order pharmacies, HMOs, hospitals, clinics and nursing homes. Fifteen
manufacturer defendants, including the Company, agreed to settle the Federal
Class Action subject to court approval. The Company's share pursuant to an
Agreement as of January 31, 1996, was $31.25 million, payable in four annual
installments without interest. The Company continues to believe that there was
no conspiracy and specifically denied liability in the Settlement Agreement,
but had agreed to settle to avoid the monetary and other costs of litigation.
The settlement was filed with the Court on February 9, 1996 and went through
preliminary and final fairness hearings. By orders of April 4, 1996, the Court:
(1) rejected the settlement; (2) denied the motions of the manufacturers
(including the Company) for summary judgment; (3) granted the motions of the
wholesalers for summary judgment; and (4) denied the motion to exclude
purchases by other than direct purchasers. On August 15, 1997, the Court of
Appeals (1) reversed the denial of summary judgment for the manufacturers
excluding purchases by other than direct purchasers; (2) reversed the grant of
summary judgment dismissing the wholesalers; and (3) took action regarding
Alabama state cases, and DuPont Merck. The District Court has now set a trial
date of September 1998 for the trial of the class case against the non-
settlers, and has permitted the opt-out plaintiffs to add the wholesalers as
named defendants in their cases.
In May 1996, thirteen manufacturer defendants, including the Company, entered into an Amendment to the Settlement Agreement which was filed with the Court on May 6, 1996. The Company's financial obligations under the Settlement Agreement will not be increased. The Settlement Agreement, as amended, received final approval June 21, 1996. Appeals from this decision were dismissed by the U.S. Court of Appeals for the Seventh Circuit in May 1997.
Retail pharmacy cases have also been filed in state courts in Alabama, California, Minnesota, Mississippi and Wisconsin. Pharmacy classes have been certified in California. The Company's motion to dismiss was granted in the Wisconsin case, and that dismissal is under appeal.
Consumer class actions have been filed in Alabama, Arizona, California, the District of Columbia, Florida, Kansas, Maine, Michigan, Minnesota, New York, North Carolina, Tennessee, Washington and Wisconsin alleging injury to consumers from the failure to give discounts to retail pharmacy companies. The New York and Washington state cases were dismissed, and an appeal is pending in New York. A case filed in Colorado state court was dismissed without appeal. A consumer class has been certified in California, and a limited consumer class has been certified in the District of Columbia. Class certification was denied in the Michigan state case, and plaintiffs' subsequent petition for review was denied. Class certification also was denied in the Maine case.
The Company believes that these brand name prescription drug antitrust cases, which generally seek damages and certain injunctive relief, are without merit.
The Federal Trade Commission is conducting an investigation focusing on the pricing practices at issue in the above pharmacy antitrust litigation. In July 1996, the Commission issued a subpoena for
documents to the Company, among others, to which the Company has responded. A second subpoena was issued to the Company for documents in May 1997 and the Company has responded. This investigation continues.
FDA administrative proceedings relating to Plax are pending, principally an industry-wide call for data on all anti-plaque products by the FDA. The call for data notice specified that products that have been marketed for a material time and to a material extent may remain on the market pending FDA review of the data, provided the manufacturer has a good faith belief that the product is generally recognized as safe and effective and is not misbranded. The Company believes that Plax satisfied these requirements and prepared a response to the FDA's request, which was filed on June 17, 1991. This filing, as well as the filings of other manufacturers, is still under review and is currently being considered by an FDA Advisory Committee.
On January 15, 1997, an action was filed in Circuit Court, Chambers County, Alabama, and certified by an ex parte order as a class action, purportedly on behalf of a class of consumers, variously defined by the laws or types of laws governing their rights and encompassing residents of up to 47 states. The complaint alleges that the Company's claims for Plax were untrue, entitling them to a refund of their purchase price for purchases since 1988. The action was removed to the U.S. District Court for the Northern District of Alabama, which vacated the class certification order. A motion to remand to state court has been granted. The Company believes the complaint is without merit.
In April 1996, the Company received a Warning Letter from the FDA relating to the timeliness and completeness of required post marketing reports for pharmaceutical products. The letter did not raise any safety issue about Pfizer drugs. The Company has been implementing remedial actions designed to remedy the issues raised in the letter. During 1997, the Company met with the FDA to apprise them of the scope and status of these activities.
In July 1997, the Company resolved all issues with the FDA related to an August 1996 Warning Letter from the FDA relating to certain promotional materials used in the marketing of Zoloft. Two purported consumer class actions involving Zoloft are pending, one in Federal Court in Brownsville, Texas and the other in Superior Court, San Diego County, California. Each complaint alleges that Pfizer's promotional materials improperly implied that the FDA had approved Zoloft as safe and effective for certain indications, and that patients for whom Zoloft was prescribed as a result of the promotion were entitled to a refund of their purchase price. The Company believes the suits are without merit.
A number of cases against Howmedica Inc. (some of which also name the Company) allege that P.C.A. one-piece acetabular hip prostheses sold from 1983 through 1990 were defectively designed and manufactured and pose undisclosed risks to implantees. The Company believes that most if not all of these cases are without merit.
Between 1994 and 1996, seven class actions alleging various injuries arising from implantable penile prostheses manufactured by American Medical Systems were filed and ultimately dismissed or discontinued. Thereafter, in late 1996 and 1997, approximately 600 former members of one or more of the purported classes, represented by some of the same lawyers who filed the class actions, filed individual suits in Circuit Court in Minneapolis alleging damages from their use of implantable penile prostheses. The Company believes that most if not all of these cases are without merit.
In June 1993, the Ministry of Justice of the State of Sao Paulo, Brazil commenced a civil public action against the Company's Brazilian subsidiary, Laboratorios Pfizer Ltda. ("Pfizer Brazil") asserting that during a period in 1991, Pfizer Brazil withheld sale of the pharmaceutical product Diabinese in violation of antitrust and consumer protection laws. The action seeks the award of moral, economic and personal damages to individuals and the payment to a public reserve fund. On February 8, 1996, the trial court issued a decision holding Pfizer Brazil liable. The award of damages to individuals and the payment into the public reserve fund will be determined in a subsequent phase of the proceedings. The trial court's opinion sets out a formula for calculating the payment into the public reserve fund which could result in a sum of approximately $88 million. The total amount of damages payable to eligible individuals under the
decision would depend on the number of persons eventually making claims. Pfizer Brazil is appealing this decision. The Company believes that this action is without merit and should not have a material adverse effect on the financial position or the results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
EXECUTIVE OFFICERS OF THE COMPANY
As of March 10, 1998, the following executive officers of the Company hold the offices indicated until their successors are chosen and qualified after the next annual meeting of shareholders.
NAME AGE POSITION
---- --- --------
Brian W. Barrett............ 58 Vice President; President - Animal Health Group
M. Kenneth Bowler........... 55 Vice President, Federal Government Relations
C. L. Clemente.............. 60 Senior Vice President, Corporate Affairs; Secretary
and Corporate Counsel; Member of the Corporate
Management Committee
George A. Forcier........... 59 Vice President, Corporate Quality Assurance
P. Nigel Gray............... 59 Vice President; President - Pfizer Medical
Technology Group
Gary N. Jortner............. 52 Vice President; Senior Vice President, Product
Development - Pfizer Pharmaceuticals Group
Karen L. Katen.............. 49 Vice President; Executive Vice President - Pfizer
Pharmaceuticals Group and President - U.S.
Pharmaceuticals; Member of the Corporate Management
Committee
J. Patrick Kelly............ 40 Vice President; Vice President - Pfizer
Pharmaceuticals Group; Senior Vice President - U.S.
Pharmaceuticals
Alan G. Levin............... 35 Vice President; Treasurer
Henry A. McKinnell.......... 55 Executive Vice President; President - Pfizer
Pharmaceuticals Group; Member of the Corporate
Management Committee
Victor P. Micati............ 58 Vice President; Executive Vice President - Pfizer
Pharmaceuticals Group; Member of the Corporate
Management Committee
Paul S. Miller.............. 58 Senior Vice President; General Counsel; Member of
the Corporate Management Committee
George M. Milne, Jr......... 54 Vice President; President, Central Research; Member
of the Corporate Management Committee
John F. Niblack............. 59 Executive Vice President; Member of the Corporate
Management Committee
William J. Robison.......... 62 Senior Vice President - Employee Resources; Member
of the Corporate Management Committee
Herbert V. Ryan............. 60 Vice President; Controller
Craig Saxton................ 55 Vice President; Executive Vice President, Central
Research
David L. Shedlarz........... 49 Senior Vice President and Chief Financial Officer;
Member of the Corporate Management Committee
Mohand Sidi Said............ 59 Vice President; Senior Vice President - Pfizer
Pharmaceuticals Group and Area President,
Asia/Africa/Middle East
William C. Steere, Jr....... 61 Chairman of the Board and Chief Executive Officer;
Chair of the Corporate Management Committee
Frederick W. Telling........ 46 Vice President, Corporate Strategic Planning and
Policy
|
Information concerning Messrs. Steere, Clemente and Miller and Drs. McKinnell and Niblack is contained in, and incorporated here by reference from, the discussion under the captions Nominees for Directors Whose Terms Expire in 2001, Directors Whose Terms Expire in 2000 and Named Executive Officers Who Are Not Directors in our Proxy Statement for the 1998 Annual Meeting of Shareholders.
BRIAN W. BARRETT
Mr. Barrett joined us in 1966 and has held various financial positions, including Chief Financial Officer of Pfizer Canada. In 1971, he was appointed Assistant Controller of Pfizer International in New York; in 1973, Director of International Planning and in 1976, Director of Planning. In 1980, Mr. Barrett was appointed Vice President - Corporate Strategic Planning; in 1983, he became Vice President - Finance for Pfizer International; in 1985, President - Africa/Middle East; and in 1991, President - Asia/Canada. In 1992, Mr. Barrett was elected one of our Vice Presidents and in 1993, became President, Northern Asia, Australasia and Canada - International Pharmaceuticals Group. Mr. Barrett was named Executive Vice President, International Pharmaceuticals Group, in 1995 and President - Animal Health Group in April 1996.
M. KENNETH BOWLER
Mr. Bowler joined us in 1989 and has been Vice President - Federal Government Relations since 1990. He formerly served as Staff Director for the House Ways and Means Committee.
GEORGE A. FORCIER
Dr. Forcier joined us in 1966 as Analytical Research Chemist for our Medical Research Laboratories. In 1970, he was named Project Leader, in 1979, Manager, and in 1981, Assistant Director, of the Analytical Research Department. In 1986, he was named Director of the Analytical Research and Development Department, and, in 1991, he became Group Director. In 1994, Dr. Forcier became our Vice President - Quality Control and in 1998, Vice President, Corporate Quality Assurance.
P. NIGEL GRAY
Mr. Gray joined us in 1975 as Export Sales Manager for Howmedica U.K., Ltd. in England, and progressed through a number of positions of increasing responsibility before being named Vice President, Marketing for Howmedica Europe in 1983. In 1987, Mr. Gray became Senior Vice President and General Manager of Howmedica International in Staines, England, then President of Howmedica International in 1992. In 1993, he was named Executive Vice President of our Hospital Products Division and President of the Medical Devices Division, and in 1994, he was elected one of our Vice Presidents. In 1995, Mr. Gray assumed his current position as President of our Medical Technology Group.
GARY N. JORTNER
Mr. Jortner joined us in 1973 as a Systems Analyst for Pfizer Pharmaceuticals. In 1974, he transferred to product management and progressed through a series of promotions that resulted in his being named Group Product Manager for Pfizer Labs in 1978. In 1981, he became Vice President of Marketing for Pfizer Labs. In 1986, he was promoted to Vice President of Operations for Pfizer Labs. In 1991, he was named Vice President and General Manager, Pfizer Labs Division. In 1992, Mr. Jortner was elected one of our Vice Presidents. In 1994, he was named Vice President; Group Vice President, Disease Management - U.S. Pharmaceuticals Group. In 1997, he became Vice President, Product Development - Pfizer Pharmaceuticals Group, and in 1998, he was promoted to Senior Vice President, Product Development - Pfizer Pharmaceuticals Group.
KAREN L. KATEN
Ms. Katen joined us in 1974 as a Marketing Associate for Pfizer
Pharmaceuticals. Beginning in 1975, she progressed through a number of
positions of increasing responsibility in the Roerig product management group
which resulted in her being named Group Product Manager in 1978. In 1980, she
transferred to Pfizer Labs as a Group Product Manager and later became
Director, Product Management. In 1983, she returned to Roerig as Vice President
- Marketing. In 1986, she was named Vice President and General Manager - Roerig
Division. In 1992, she was elected one of our Vice Presidents. In 1993, Ms.
Katen became Executive Vice President of the U.S. Pharmaceuticals Group and, in
1995, Ms. Katen was named President of the U.S. Pharmaceuticals Group. In
January 1997, she became Executive Vice President - Pfizer Pharmaceuticals
Group.
J. PATRICK KELLY
Mr. Kelly joined us in 1981 as a Marketing Research Associate in the Pharmaceuticals Division. He became Product Analyst in 1982 and, in 1983, was made Marketing Associate in the Roerig Division. He progressed through a series of positions of increasing responsibility and became Group Product Manager for Roerig in 1989. In 1992, he was named Vice President - Marketing, Roerig in the U.S. Pharmaceuticals Group and, in 1994, became its Group Vice President, Disease Management. In 1996, he was elected one of our Vice Presidents and, in 1997, was named Senior Vice President, Disease Management - U.S. Pharmaceuticals. In 1997, Mr. Kelly became Vice President - Pfizer Pharmaceuticals Group and Senior Vice President - U.S. Pharmaceuticals.
ALAN G. LEVIN
Mr. Levin joined us in 1987 as Senior Operations Auditor for the Controller's Division. In 1988, he joined the Treasurer's Division as Controller of the Pfizer International Bank in San Juan, Puerto Rico. He returned to New York in 1991 as Director - Finance, Asia, and in 1993 was named Senior Director - Finance, Asia. In 1995, Mr. Levin was elected our Treasurer. In 1997, he was elected Vice President; Treasurer.
VICTOR P. MICATI
Mr. Micati joined us in 1965 as a Management Candidate for Pfizer Labs. Beginning in 1966, he progressed through a number of positions of increasing responsibility in the Pfizer Labs division, which resulted in his being named Vice President - Marketing in 1971. In 1972, he became Vice President of Pharmaceutical Development for International Pharmaceuticals. In 1980, he was named Executive Vice President of Pfizer Europe. Mr. Micati returned to the International Pharmaceutical Division in 1984 as Senior Vice President, and from 1990 to 1997 was Area President, Europe. In 1992, he was elected one of our Vice Presidents. Mr. Micati was named Executive Vice President, International Pharmaceuticals Group in 1996, and in 1997 was named Executive Vice President of the Pfizer Pharmaceuticals Group.
GEORGE M. MILNE, JR.
Dr. Milne joined us in 1970 as a Research Scientist. In 1973, he was named Senior Research Scientist and progressed through a number of positions of increasing responsibility which resulted in his being named Vice President, Research and Development Operations in 1985. In 1988, Dr. Milne became Senior Vice President, Research and Development, and, in 1993, he was elected one of our Vice Presidents and President, Central Research.
WILLIAM J. ROBISON
Mr. Robison joined us in 1961 as a Sales Representative for Pfizer Labs. After serving in a number of positions of increasing responsibility in the Labs division, he was appointed Vice President of Sales in 1980, and Senior Vice President Pfizer Labs in 1986. In 1990, he was appointed Vice President and General Manager of Pratt Pharmaceuticals. In 1992, he was named President of the Consumer Health Care Group, and was elected one of our Vice Presidents. In 1996, Mr. Robison was elected Senior Vice President - Employee Resources.
HERBERT V. RYAN
Mr. Ryan joined us in 1962 as Supervisor, Capital Assets. In 1964, he was named Supervisor, Corporate Ledger and, in 1966, became Director, Corporate Accounting. In 1981, he was appointed Assistant Controller, Corporate Accounting, and in 1993, Mr. Ryan was elected Corporate Controller. In 1997, Mr. Ryan was elected Vice President; Controller.
CRAIG SAXTON
Dr. Saxton joined us in 1976 as Clinical Projects Director for the Central Research Division of Pfizer Limited in Sandwich, England. In 1981, he was named Senior Associate Medical Director for the International Division of Pfizer Inc. and, in 1982, became the Division's Vice President, Medical Director. Dr. Saxton became Senior Vice President, Clinical Research and Development for the Central Research Division in 1988. In 1993, he was named Executive Vice President - Central Research and was elected one of our Vice Presidents.
DAVID L. SHEDLARZ
Mr. Shedlarz joined us in 1976 as Senior Financial Analyst in the Pharmaceuticals Division. Following a series of positions of increasing responsibility, including service as financial manager and controller of Marketing/Sales/Production, Diagnostics Division, he was promoted to Production Controller of the U.S. Pharmaceuticals Division in 1979. He was appointed Assistant Group Controller, U.S. Pharmaceuticals Division in 1981. In 1984, Mr. Shedlarz assumed responsibilities as Group Controller and was promoted to Vice President of Finance of the U.S. Pharmaceuticals Group in 1989. He was elected our Vice President - Finance in 1992, and he was named our Chief Financial Officer in 1995. Mr. Shedlarz assumed his responsibilities as our Senior Vice President in January 1997 with responsibility for the worldwide Medical Technology Group.
MOHAND SIDI SAID
Mr. Sidi Said joined us in 1965 as a professional sales representative. During his career, he has held a variety of management assignments in Algeria, Morocco, Kenya, Egypt, France, Belgium, and the United States. In 1996, he was elected one of our Vice Presidents and was also named Senior Vice President - Pfizer Pharmaceuticals Group and Area President - Asia/Africa/Middle East.
FREDERICK W. TELLING
Dr. Telling joined us in 1977 as Associate Personnel Manager for the Pharmaceuticals Division and progressed through a number of positions of increasing responsibility before being named Director of Planning for the Pharmaceuticals Division in 1981. In 1987, he was named Vice President of Planning and Policy and, in 1994, Senior Vice President of Planning and Policy for the U.S. Pharmaceuticals Group. In October 1994, Dr. Telling was elected our Vice President, Corporate Strategic Planning and Policy.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The principal market for our Common Stock is the New York Stock Exchange. It is also listed on the London, Paris, Brussels, and Swiss Stock Exchanges and is traded on various United States regional stock exchanges. Additional information required by this item is incorporated by reference from the table Quarterly Consolidated Financial Data on page 60 of the 1997 Annual Report to Shareholders.
ITEM 6. SELECTED FINANCIAL DATA
Historical financial information is incorporated by reference from the Financial Summary on page 61 of the 1997 Annual Report to Shareholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Information required by this item is incorporated by reference from the Financial Review on pages 29 through 39 of the 1997 Annual Report to Shareholders.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information required by this item is incorporated by reference from the discussion under the heading Financial Risk Management on pages 37 and 38 of the 1997 Annual Report to Shareholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required by this item is incorporated by reference from the Independent Auditors' Report found on page 40 and from the consolidated financial statements and supplementary data on pages 41 through 60 of the 1997 Annual Report to Shareholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Information about Directors of the Company is incorporated by reference from the discussion under Item 1 of our Proxy Statement for the 1998 Annual Meeting of Shareholders. The balance of the response to this item is contained in the discussion
entitled Executive Officers of the Company in Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION
Information about executive compensation is incorporated by reference from the discussion under the heading Executive Compensation in our Proxy Statement for the 1998 Annual Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information about security ownership of certain beneficial owners and management is incorporated by reference from the discussion under the heading Security Ownership of Directors and Officers in Item 1 of our Proxy Statement for the 1998 Annual Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information about certain relationships and transactions with related parties is incorporated herein by reference from the discussion under the heading Related Transactions in our Proxy Statement for the 1998 Annual Meeting of Shareholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
14 (A)(1) FINANCIAL STATEMENTS
The following consolidated financial statements, related notes and independent auditors' report, from the 1997 Annual Report to Shareholders, are incorporated by reference into Item 8 of Part II of this report:
PAGE(S) IN THE 1997 ANNUAL
REPORT TO SHAREHOLDERS
--------------------------
Independent Auditors' Report..................... 40
Segment Information.............................. 59
Geographic Data.................................. 59
Consolidated Statement of Income................. 41
Consolidated Balance Sheet....................... 42
Consolidated Statement of Shareholders' Equity... 43
Consolidated Statement of Cash Flows............. 44
Notes to Consolidated Financial Statements....... 45-58
Quarterly Consolidated Financial Data............ 60
|
14(A)(2) FINANCIAL STATEMENT SCHEDULES
Schedules are omitted because they are not required or the information is given elsewhere in the financial statements. The financial statements of unconsolidated subsidiaries are omitted because, considered in the aggregate, they would not constitute a significant subsidiary.
14(A)(3) EXHIBITS These exhibits are available upon request at a charge of ten cents per page. Requests should be directed to C.L. Clemente, Secretary, Pfizer Inc., 235 East 42nd Street, New York, NY 10017.
3(i)- Our Restated Certificate of Incorporation as of October 29, 1997 is incorporated by reference from our 10-Q report for the period ended September 28, 1997.
3(ii)- Our By-laws as amended June 23, 1994 are incorporated by reference from Exhibit 3(ii) of our report on Form 8-K dated June 23, 1994.
4(i)- Our Rights Agreement dated as of October 6, 1997 with ChaseMellon Shareholders Services, L.L.C. is incorporated by reference from our report on Form 8-K dated October 6, 1997.
10(i)- Stock and Incentive Plan as amended through December 15, 1997.
10(ii)- Pfizer Retirement Annuity Plan as amended through November 6, 1997.
10(iii)- The form of severance agreement with the Named Executive Officers identified in our Proxy Statement for the 1998 Annual Meeting of Shareholders is incorporated by reference from Exhibit 10.1 to our 1994 10-K report.
10(iv)- Nonfunded Deferred Compensation and Supplemental Savings Plan is incorporated by reference from our 1996 10-K report.
10(v)- Executive Annual Incentive Plan is incorporated by reference from the exhibit to our Proxy Statement for the 1997 Annual Meeting of Shareholders.
10(vi)- Performance-Contingent Share Award Program is incorporated by reference from Exhibit 10.3 to our 10-Q report for the period ended September 29, 1996.
10(vii)- Nonfunded Supplemental Retirement Plan is incorporated by reference from our 1996 10-K report.
10(viii)- The form of Indemnification Agreement with Directors is incorporated by reference from our 1996 10-K report.
10(ix)- The form of Indemnification Agreement with Named Executive Officers.
10(x)- Non-Employee Directors' Retirement Plan [frozen as of October 1996] is incorporated by reference from our 1996 10-K report.
10(xi)- Annual Retainer Unit Award Plan (for non-employee Directors) is incorporated by reference from Exhibit 10.1 to our 10-Q report for the period ended September 29, 1996.
10(xii)- Nonfunded Deferred Compensation and Unit Award Plan for Non-Employee Directors is incorporated by reference from Exhibit 10.2 to our 10-Q report for the period ended September 29, 1996.
10(xiii)- Restricted Stock Plan for Non-Employee Directors is incorporated by reference from our 1996 10-K report.
10(xiv)- Deferred Compensation Plan.
10(xv)- Summary of Annual Incentive Plan.
12 - Computation of Ratio of Earnings to Fixed Charges.
13(a)- The 1997 Annual Report to Shareholders, which, except for those portions expressly incorporated herein by reference, is furnished solely for the information of the Commission and is not to be deemed "filed".
21- Subsidiaries of the Company.
23- Consent of KPMG Peat Marwick LLP, independent certified public accountants.
27.1- Financial Data Schedule for the Period Ended December 31, 1997.
27.2- Financial Data Schedule Restated for the Period Ended December 31, 1996.
27.3- Financial Data Schedule Amended and Restated for the Period Ended December 31, 1995.
(B) REPORTS ON FORM 8-K
The Company filed reports on Form 8-K during the last quarter of 1997 dated October 6 and December 10, 1997.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Pfizer Inc.
/s/ C.L. Clemente
By: _________________________________
C.L. Clemente, Senior Vice
President, Secretary and Corporate
Counsel
Dated: March 26, 1998
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
---------- ----- ----
/s/ William C. Steere, Jr. Chairman of the March 26, 1998
------------------------------------- Board, Director
(William C. Steere, Jr.) (Principal
Executive Officer)
/s/ David L. Shedlarz Senior Vice March 26, 1998
------------------------------------- President and Chief
(David L. Shedlarz) Financial Officer
(Principal
Financial Officer)
/s/ Herbert V. Ryan Vice President-- March 26, 1998
------------------------------------- Controller
(Herbert V. Ryan) (Principal
Accounting Officer)
/s/ Michael S. Brown Director March 26, 1998
-------------------------------------
(Michael S. Brown)
/s/ M. Anthony Burns Director March 26, 1998
-------------------------------------
(M. Anthony Burns)
/s/ W. Don Cornwell Director March 26, 1998
-------------------------------------
(W. Don Cornwell)
/s/ George B. Harvey Director March 26, 1998
-------------------------------------
(George B. Harvey)
/s/ Constance J. Horner Director March 26, 1998
-------------------------------------
(Constance J. Horner)
/s/ Stanley O. Ikenberry Director March 26, 1998
-------------------------------------
(Stanley O. Ikenberry)
28
|
SIGNATURES TITLE DATE
---------- ----- ----
/s/ Harry P. Kamen Director March 26, 1998
-------------------------------------
(Harry P. Kamen)
Director
-------------------------------------
(Thomas G. Labrecque)
Director
-------------------------------------
(Dana G. Mead)
/s/ Henry A. McKinnell Executive Vice March 26, 1998
------------------------------------- President and
(Henry A. McKinnell) Director
/s/ John F. Niblack Executive Vice March 26, 1998
------------------------------------- President and
(John F. Niblack) Director
/s/ Ruth J. Simmons Director March 26, 1998
-------------------------------------
(Ruth J. Simmons)
/s/ Jean-Paul Valles Director March 26, 1998
-------------------------------------
(Jean-Paul Valles)
|
PFIZER INC.
STOCK AND INCENTIVE PLAN
(As amended through 12/15/97)
The purpose of the Stock and Incentive Plan (known as the "Stock Option and Incentive Plan of 1965 as amended" prior to the 1980 amendment thereof and hereinafter called the "Plan") is to furnish a material incentive to employees of the Company and its subsidiaries by making available to them the benefits of a larger Common Stock ownership in the Company through stock options and otherwise. It is believed that these increased incentives will not only induce the continued service of employees but will also stimulate their efforts towards the continued success of the Company and its subsidiaries, as well as assist in the recruitment of new employees.
Except to the extent otherwise provided in Section 4, the Plan shall be administered by the Employee Compensation and Management Development Committee, which shall make, in its sole discretion, all determinations arising in the administration, construction or interpretation of the Plan including the right to construe disputed or doubtful Plan terms and provisions, and any such determination shall be conclusive and binding on all persons, except as otherwise provided by law.
Subject to the provisions of Section 6(h), the maximum amount of stock which may be issued under the Plan is 338,000,000* shares of the Common Stock of
the Company (comprised of 24,000,000* shares authorized in 1965, 24,000,000* shares authorized in 1969, 24,000,000** shares authorized in 1972, 24,000,000** shares authorized in 1975, 24,000,000** shares authorized in 1980, 40,000,000*** shares authorized in 1983, 44,000,000*** shares authorized in 1986, |
44,000,000*** shares authorized in 1989, 44,000,000**** shares authorized in 1992, and 46,000,000***** shares authorized in 1996). No participant shall be granted (i) options which would result in such participant receiving
more than 480,000* shares of the total number of shares authorized in 1965, more
than 480,000* shares of the total number of shares authorized in 1969, or more
than 480,000** shares of the total number of shares authorized in 1972, or (ii)
options or awards which would result in such participant receiving more than
480,000** shares of the total number of shares authorized in 1975, more than
800,000** shares of the total number of shares authorized in 1980, more than
800,000*** shares of the total number of shares authorized in 1983, more than
1,200,000*** shares of the total number of shares authorized in 1986, more than
1,200,000*** shares of the total number of shares authorized in 1989, more than
1,200,000**** shares of the total number of shares authorized in 1992, more than
1,200,000***** shares of the total number of shares authorized in 1996, or (iii)
any option, stock award or performance unit award which would result in
ownership by such participant of more than five percent of the stock of the
Company within the meaning of Section 422(b)(7) of the Internal Revenue Code, or
(iv) [i] any incentive stock option, as defined in Section 422A(b) of the
Internal Revenue Code, granted on or before December 31, 1986, which would
result in such participant receiving a grant of incentive stock options in any
calendar year for stock exceeding $100,000, in aggregate fair market value,
determined as of the time the option is granted, plus any unused limit
carryover, as defined in Section 422A(c)(4) of the Internal Revenue Code, to the
year in which such option is granted or [ii] any incentive stock option granted
after December 31, 1986, which would result in such participant receiving a
grant of incentive stock options for stock that would have an aggregate fair
market value in excess of $100,000, determined as of the time that the option is
granted, that would be exercisable for the first time by such participant during
any calendar year. No option with respect to any shares authorized in 1975 shall
be granted to the extent that shares authorized in 1972 are available therefor,
or with respect to any shares authorized in 1980 to the extent that shares
authorized in 1972 or shares authorized in 1975 are available therefor, or with
respect to any shares authorized in 1983 to the extent that shares authorized in
1972, 1975 or 1980 are available therefor, or with respect to any shares
authorized in 1986 to the extent that shares authorized in 1972, 1975, 1980 or
1983 are available therefor, or with respect to any shares authorized in 1989 to
the extent that shares authorized in 1972, 1975, 1980, 1983, or 1986 are
available therefor, or with respect to any shares authorized in 1992 to the
extent that shares authorized in 1972, 1975, 1980, 1983, 1986 or 1989 are
available therefor or with respect to any shares authorized in 1996 to the
extent that shares authorized in 1972, 1975, 1980, 1983, 1986, 1989, or 1992 are
available therefor. With respect to all options and stock awards granted on or
after January 1, 1972, the records of the Company shall specify the number of
shares authorized in 1965, the number of shares authorized in 1969, the number
of shares authorized in 1972, the number of shares authorized in 1975, the
number of shares authorized in 1980, the number of shares authorized in 1983,
the number of shares authorized in 1986, the number of shares authorized in
1989, the number of shares authorized in 1992 and the number of shares
authorized in 1996 covered by such options or awards. None of the shares
authorized in 1965, 1969 or 1972 shall be available for stock awards.
All employees of the Company or its subsidiaries shall be eligible to participate in this Plan. From time to time, the Employee Compensation and Management Development Committee shall determine the employees who shall be granted options under the Plan, the number of shares of Common Stock to be optioned to each such employee, and whether such options shall be "Qualified Stock Options" as defined in Section 422 of the Internal Revenue Code, "incentive stock options" as defined in Section 422A of the Internal Revenue Code, or non-qualified stock options, or Tandem Options as defined herein; and shall determine the individual employees who shall be granted stock appreciation rights under the Plan pursuant to Section 7; and who shall be awarded shares under the Plan pursuant to Section 8, as well as the number of shares of Common Stock to be so awarded, and the restrictions, if any, to be placed thereon and who shall be granted performance unit awards under the Plan pursuant to Section 9 and tandem awards under the Plan pursuant to Section 10; provided, however, that in the case of employees who are also directors of the Company or officers of the Company in categories designated by the Executive Compensation Committee, the Executive Compensation Committee shall make these determinations; and provided further, that the Executive Compensation Committee, or such other Committee as the Board of Directors may appoint, shall make all determinations with respect to all stock appreciation rights that are exercisable in cash or partly in stock and partly in cash and with respect to all options related thereto.
No option with respect to shares authorized in or prior to 1969 under this Plan shall be granted pursuant to this Plan after December 31, 1978, no option with respect to shares authorized in 1972 shall be granted pursuant to this Plan after December 31, 1992, no option, stock appreciation right or stock award, with respect to shares authorized in 1975 shall be granted pursuant to this Plan after December 31, 1992, no option, stock appreciation right, stock award, performance unit award or tandem award with respect to shares authorized in 1980 shall be granted pursuant to this Plan after December 31, 1992, no option, stock appreciation right, stock award, performance unit award or tandem award with respect to shares authorized in 1983 shall be granted pursuant to this Plan after December 31, 1992, no option, stock appreciation right, stock award, performance unit award or tandem award with respect to shares authorized in 1986 shall be granted pursuant to this Plan after December 31, 1995, no option, stock appreciation right, stock award, performance unit award or tandem award with respect to shares authorized in 1989 shall be granted pursuant to this Plan after December 31, 1998, no option, stock appreciation right, stock award, performance unit award or tandem award with respect to shares authorized in 1992 shall be granted pursuant to this Plan after December 31, 2001, no option, stock appreciation right, stock award, performance unit award or tandem award with respect to shares authorized in 1996 shall be granted pursuant to this Plan after December 31, 2005, but options, stock appreciation rights, performance unit awards, tandem awards and restrictions on awards may extend beyond such dates.
All options under the Plan shall be subject to the following terms and conditions:
(a) OPTION PRICE. The option price per share shall be not less than the fair market value of the Common Stock on the date the option is granted, as determined by the Committee in accordance with applicable provisions of the Internal Revenue Code and Treasury Department rulings and regulations thereunder.
(b) NUMBER OF SHARES. The option shall state the number of shares of Common Stock covered thereby.
(c) PAYMENT. At the time of the exercise of the option the option price shall be payable in cash and/or, if the option so provides, in shares of Common Stock valued at the market price at the time the option is exercised. The Committee may in its discretion require or permit payroll deductions or other suitable means to enable optionees to accumulate sufficient funds to exercise their options and pay the option price.
(d) TERM OF OPTION. A qualified option shall provide that it shall not be exercisable after the expiration of five years from the date such option is granted. An incentive stock option shall provide that it shall not be exercisable after the expiration of ten years from the date such option is granted. A non-qualified option may be exercisable for a period greater than ten years if so provided in the terms of the option.
(e) EXERCISE OF OPTION. No option may be exercised during the first year of its term or such longer period as may be specified in the option; provided, however, in the event of a "Change of Control" of the Company, as that term is defined in Section 11(e), the Board may in its discretion make any options that are not yet exercisable immediately exercisable, and further provided the Committee may in its discretion make any options that are not yet exercisable immediately exercisable in cases where (i) an optionee's employment is to be terminated due to a divestiture or downsizing of a business, (ii) in the case of a retiring optionee who holds options with extended vesting provisions, or (iii) otherwise, where the Committee determines that such action is appropriate to prevent inequities with respect to an optionee. Thereafter, an optionee, subject to the terms of the option, may exercise the option in whole at any time or in part from time to time by giving written notice thereof addressed to the Treasurer of the Company, specifying the number of shares to be purchased and accompanied by payment of the option price therefor. In the event of death, the person designated in the optionee's Will, or in the absence of such designation, the legal representative of an optionee, or if a legal representative of the optionee has not been appointed, the optionee's surviving spouse, may in like manner exercise the option provided the same was exercisable by the optionee at the time of his death, but such privilege shall expire, subject to Section 6(d) and 6(g) (iii) hereof, (i) with respect to options granted on or before January 23, 1975, six months after the death of the optionee, unless the option shall be amended to substitute a one year period for such six month period or (ii) with respect to options granted after January 23, 1975, one year after the death of the optionee; provided, however, in any event that if the option is not exercised by the last day in which it is exercisable, the option shall be exercised and the proceeds paid to the deceased optionee's estate.
(f) OUTSTANDING OPTIONS. Any qualified option (referred to in this paragraph as "new Qualified Option") shall provide that it may not be exercised while there is outstanding any qualified stock option or restricted stock option which was granted to the optionee to purchase stock in the Company or a parent or subsidiary corporation of the Company (as defined, respectively, by Sections 425(e) and (f) of the Internal Revenue Code of 1954) or in a predecessor corporation of any of such corporations, before the granting of said new Qualified Option. This limitation on exercise shall not apply during such time as such outstanding qualified or restricted options are to purchase Common Stock and the option price thereunder (determined as of the date of grant of the new option) is not more than the option price of the new Qualified Option.
(g) TERMINATION OF OPTION. The option, to the extent not exercised, shall
terminate upon its expiration as set forth in Section 6(d) hereof, its surrender
as set forth in Section 11(c) hereof, or upon breach by the optionee of any
provision of the option, or when the optionee ceases to be an employee for any
reason including retirement, whichever event shall first occur; provided,
however, that with respect to options granted during and subsequent to August
1997 which are otherwise exercisable in accordance with Section 6(e) hereof on
the date of termination of employment, three months after the optionee ceases to
be an employee for any reason including retirement, however, if the option so
provides, the Committee in its discretion may permit the optionee to exercise
the option for reasons of hardship up to twelve months after termination,
assuming that the option was otherwise exercisable; further except that, subject
to Section 6(d) hereof (i) the optionee, if his employment is terminated as a
result of a disability, and provided the option was exercisable at the time of
termination of employment, may elect to exercise the option, subject to Section
6(e) hereof, within twelve months after the date of termination, (ii) in the
event of his death while an employee, the option shall terminate as provided in
Section 6(e) hereof, and (iii) notwithstanding subsections (i) and (ii) above,
if the option so provides, in the event that the optionee has retired or is
eligible for retirement under Sections 4a., b. or d. of the Company's Retirement
Annuity Plan, or as the same may be amended from time to time, or under any
pension or retirement plan maintained by the Company or any of its subsidiaries,
the optionee, or in the event of death, the person designated in the optionee's
Will, or in the absence of such designation, the legal representative of such
optionee, or if a legal representative of the optionee has not been appointed,
the optionee's surviving spouse, may elect to exercise the option at any time
until such option expires by its terms; provided, however, in any event that if
the option is not exercised by the last day in which it is exercisable, the
option shall be exercised and the proceeds paid to the deceased optionee's
estate; any subsequent reemployment of the optionee by the Company shall not
affect such optionee's right to exercise the option as provided in this
subsection (iii).
(h) RECAPITALIZATION. In the event of any change in the number or kind of outstanding shares of Common Stock of the Company by reason of a recapitalization, merger, consolidation, reorganization, separation, liquidation, stock split, stock dividend, combination of shares or any other change in the corporate structure or shares of stock of the Company, an appropriate adjustment will be made automatically, in accordance with
applicable provisions of the Internal Revenue Code and Treasury Department rulings and regulations thereunder, in the number and kind of shares for which options may thereafter be granted both in the aggregate and as to each optionee, as well as in the number and kind of shares subject to options theretofore granted and the option price payable upon exercise of such options.
(i) TRANSFERABILITY. The option shall provide that it will not be transferable by the optionee other than by Will or the laws of descent and distribution and shall be exercisable, during the optionee's lifetime, only by him; provided, however, that the Committee in its discretion may grant (or sanction by way of an amendment to an existing grant) non-qualified stock options which may be transferred by the optionee, solely as gifts during the optionee's lifetime, to any member of the optionee's immediate family or to a trust established for the exclusive benefit of one or more members of the optionee's immediate family, in which case the terms of such option shall so state. A transfer of an option pursuant to this subjection may be effected only by the Company at the written request of an optionee and shall become effective only when recorded in the Company's record of outstanding options. In the event an option is transferred as contemplated in this subsection, such option may not be subsequently transferred by the transferee other than by Will or the laws of descent and distribution, such option shall continue to be governed by and subject to the terms and conditions of this Plan and the relevant grant, and the transferee shall be entitled to the same rights as the optionee as if no transfer had taken place. As used in this subsection, "immediate family" shall mean any spouse, child, stepchild or grandchild, and shall include relationships arising from legal adoption.
(j) APPLICABLE LAW. The option shall contain a provision that it may not be exercised at a time when the exercise thereof or the issuance of shares thereunder would constitute a violation of any federal or state law or listing requirements of the New York Stock Exchange for such shares.
(k) INCORPORATION BY REFERENCE. The option shall contain a provision that all the applicable terms and conditions of this Plan are incorporated by reference therein.
(l) TANDEM AWARD. Any option constituting a part of a tandem award authorized by Section 10 hereof shall be subject to the terms and conditions of such award.
(m) OTHER PROVISIONS. The option shall contain such provisions as the Committee shall deem advisable consistent with the terms of the Plan as herein set forth. In addition, the qualified stock options and the incentive stock options shall contain such other provisions as may be necessary to meet the requirements of the Internal Revenue Code and the Treasury Department rulings and regulations issued thereunder with respect to qualified stock options and incentive stock options.
The Committee may, in its discretion, grant stock appreciation rights to the holder of any qualified or non-qualified stock option granted by the Company. Such appreciation
rights shall be subject to such terms and conditions consistent with the Plan as the Committee shall impose from time to time, including the following:
(a) An appreciation right may be made part of any such option at the time of its grant or at any time thereafter prior to its expiration;
(b) Upon exercise of an appreciation right the holder shall be entitled to receive:
(i) a number of shares of the Common Stock of the Company determined by dividing:
(1) the number of shares which the optionee selects, not to exceed the total number of shares that the optionee is eligible to purchase as of the exercise date under the related option, multiplied by the amount, if any, by which the fair market value of a share of the Common Stock of the Company on the exercise date exceeds the option price provided in the related option, by
(2) the fair market value of a share of the Common Stock of the Company on the exercise date; provided, however, that the total number of shares which may be received pursuant to the exercise of an appreciation right shall not exceed the total number of shares subject to the related option; or
(ii) if so provided in the award, (a) payment of cash equal to the aggregate fair market value on the date of such exercise of the number of shares of Common Stock determined under clause (i); or (b) in part cash and in part shares; all as determined by the Committee in its sole discretion;
(c) No fractional share or cash in lieu thereof will be issued upon the exercise of any such right; and
(d) Exercise of an appreciation right, in whole or in part, shall exhaust and terminate the related option with respect to the number of shares used in the calculation under subsection (b)(i)(1) of this Section 7 in determining the number of shares issued upon such exercise of the appreciation right (or which would have been issued but for any cash payment). Upon such exercise of an appreciation right, the number of shares subject to reallocation under Section 13 shall be equal to the difference between the number of shares used in the calculation under subsection (b)(i)(1) of this Section 7 and the number of shares issued to the optionee pursuant to such exercise (or which would have been issued but for any cash payment).
Stock awards will consist of shares of Common Stock of the Company issued
to participating employees as additional compensation for their services to the
Company. Stock awards shall be subject to the provisions of Section 3, this
Section 8, Section 11(a), (c) and (d) and, during the period in which the
restrictions or the Company's right of reacquisition hereinafter referred to are
in effect, Section 11(b). Other than for stock awards determined in accordance
with the Company's Performance-Contingent Share Award Program and paid out under
this Plan, as to which there shall be no waiting period, each stock award to a
participant shall provide that the shares subject to such award may not be
transferred or otherwise disposed of by the participant prior to the expiration
of a period or periods specified therein, which shall not occur earlier than one
year following the date of the award (except that the award may permit the
earlier lapse of such restriction in the event of the participant's death or
disability or retirement pursuant to any pension or retirement plan maintained
by the Company or any of its subsidiaries), and that the Company shall have the
right to reacquire such shares upon termination of the participant's employment
with the Company while such restriction is in effect, such reacquisition to be
upon the terms and conditions provided in the award. Stock awards shall also be
subject to such other terms and conditions, not inconsistent therewith, as the
Committee determines to be appropriate.
Performance unit awards will consist of performance units credited to participating employees. Each award shall specify the initial value of each performance unit, such value to be determined by reference to the book or market value of the Common Stock of the Company or to the Company's earnings or such other criteria related to the Company's performance as the Committee may deem appropriate. The award shall be payable in cash and/or Common Stock of the Company as the Committee shall determine in its sole discretion.
Subject to the provisions of this Section 9 and of Section 11, the Committee shall have exclusive authority to determine additional terms and conditions of each performance unit award. Such terms and conditions may include, without limitation, provisions under which:
(1) On the payment date prescribed in the award a participant shall become entitled to receive the full value of each such unit on such date, or such other amount as such award may specify;
(2) Each unit may accrue earnings determined by reference to earnings per share or dividends paid per share on the Common Stock of the Company, or to the prime or another specified lending rate, or to other criteria specified in the award and payable at such time or times as may be specified therein;
(3) The right of a participant to receive payments in respect of a performance unit may be made subject in whole or in part to the Company's attainment of earnings or other objectives specified in the award; and
(4) The determination of all relevant valuation and other data pertaining to the award shall be in the sole judgment of the Committee. Without limitation of the foregoing, in the event that an amount payable in respect of an award is based in whole or in part on the Company's earnings or the book value of its Common Stock, the Committee may make such adjustments to the publicly reported amounts of the Company's consolidated earnings or of such book value as it deems appropriate for changes in accounting practices or principles, for material acquisitions or dispositions of stock or property, for recapitalizations or reorganizations or for any other events with respect to which the Committee determines such an adjustment to be appropriate in order to avoid distortion in the operation of the Plan.
Each award shall be evidenced by a written instrument which shall set forth the number of performance units covered thereby, the initial dollar value of each such unit, the terms and conditions, if any, under which such value may change prior to the vesting of the unit, the terms and conditions under which each such unit will vest and such other matters as the Committee in its sole discretion may deem appropriate. The Committee may from time to time establish such rules as it deems appropriate regarding the manner and timing of payments of amounts due in respect of vested units.
No performance unit award shall provide for the vesting in a participating employee of any performance unit covered thereby prior to the expiration of a period of one year after the date of the award, except that the award may provide for such vesting in the event of death or disability or retirement of the employee pursuant to a pension or retirement plan maintained by the Company or one of its subsidiaries prior to the expiration of such period. Each award shall provide that prior to the vesting of the units covered thereby they shall be subject to forfeiture (A) upon the termination of the recipient's employment with the Company, (B) as contemplated by Section 10 hereof, if such award is part of a tandem award, and (C) as may otherwise be specified in the award.
No participant shall be entitled to receive in respect of a performance unit payments of amounts exceeding twice the original value established for such unit.
The maximum dollar value of performance units which may be initially awarded to participants may not exceed 1,500,000 "Reference Units" in the aggregate for all participants, and 50,000 Reference Units for any one participant. For purposes of this paragraph:
(1) A Reference Unit shall be the equivalent of the greater of (a) the fair market value of one share of the Common Stock of the Company on the date as of which a particular award of performance units is made, or (b) the book value of a share of such Common Stock as at the end of the last completed fiscal year of the Company prior to such award date plus the cash dividends paid per share on such stock during such fiscal year; and
(2) Crediting of an award of performance units shall exhaust and terminate a number of Reference Units equal to the number obtained by dividing the credited dollar value of such performance units by the greater of the amounts referred to in subclauses (a) and (b) of Clause 1 above, and except as provided in the following sentence, such terminated Reference Units shall not be utilized for subsequent awards.
In the event that an award of performance units is forfeited or for any other reason the cash amount or the value of the shares of the Common Stock of the Company (as determined by the Committee in its sole judgment) ultimately delivered to a participant in payment for an award of performance units (other than amounts paid to the participant as earnings on the performance units) is less than the Reference Units originally exhausted and terminated upon the crediting of such award, a number of Reference Units equal to the dollar amount of such shortfall divided by the value originally assigned to such Reference Units shall be restored and become available for subsequent awards under the Plan.
Nothing contained herein shall be deemed to limit the right of the Board of Directors or a duly appointed committee thereof to authorize the payment or award of compensation other than in stock to any employee otherwise than pursuant to the Plan, regardless of the fact that a particular form of compensation may be the same as or similar to that which the Committee may pay or award to participants under Section 9 of the Plan.
The Committee may, in its discretion, grant tandem awards to participating employees. A tandem award shall consist of a right of election by the employee among two or more of the following: (A) an option, which may include a stock appreciation right with respect thereto, (B) a performance unit award, and (C) a stock award. Subject to the provisions of Section 11, such right of election shall be upon such terms and conditions as the Committee may specify in the tandem award, which shall include the following:
(a) The number of shares of the Common Stock of the Company covered by the option, the number of shares covered by the stock award and the number of performance units covered by the performance unit award;
(b) Provisions establishing the number of shares and performance units which will remain subject to each portion of the tandem award upon the exercise of the right of election in whole or in part; and
(c) The date on which the right of election shall terminate unless earlier exercised or terminated pursuant to the terms of the tandem award.
(a) RECAPITALIZATION. In the event of any change in the number or kind of outstanding shares of Common Stock of the Company by reason of a recapitalization, merger, consolidation, reorganization, separation, liquidation, stock split, stock dividend, combination of shares or any other change in the corporate structure or shares of stock of the Company, an appropriate adjustment will be made automatically, in accordance with
applicable provisions of the Internal Revenue Code and Treasury Department rulings and regulations thereunder, in the number and kind of shares and performance units subject to Sections 8, 9 and 10 and the maximum dollar value of performance units subject to Sections 9 and 10.
(b) TRANSFERABILITY. Each award to a participant under Section 8, 9 or 10 shall provide that neither the award nor any right or interest of a participant therein shall be transferable by the participant other than by Will or the laws of descent and distribution, and that such award shall be exercisable, during the participant's lifetime, only by him.
(c) SURRENDER. The Committee may require the surrender of an option, stock appreciation right, stock award or performance unit award granted under this Plan as a condition precedent to a grant of a new option, stock appreciation right, stock award or performance unit award for the same or a different number of shares or having the same or a different initial value in Reference Units as the option, stock appreciation right, stock award or performance unit award surrendered; provided that a qualified option or incentive stock option which is so surrendered shall, solely for the provisions of Section 6(f) hereof, be deemed to be an outstanding qualified option or incentive stock option until such surrendered qualified option or incentive stock option would have expired by reason of the lapse of time, notwithstanding the fact that it had been surrendered and was no longer exercisable. Such new option, stock appreciation right, stock award or performance unit award shall be subject to the terms or conditions specified by the Committee at the time the new option, stock appreciation right, stock award or performance unit award is granted, all determined in accordance with the provisions of this Plan without regard to the price, period of exercise, or any other terms or conditions of the option, stock appreciation right, stock award or performance unit award surrendered.
(d) LEAVE OF ABSENCE. If approved by the Committee, an employee's absence or leave because of military or governmental service, disability or other reason shall not be considered an interruption of employment for any purpose of the Plan.
(e) CHANGE OF CONTROL shall mean the occurrence of any of the following events: (a) at any time during the two-year period following the Effective Date, or the beginning of a renewal term as the case may be, at least a majority of the Company's Board of Directors shall cease to consist of "Continuing Directors" (meaning directors of the Company who either were directors at the beginning of such two-year period or who subsequently became directors and whose election, or nomination for election by the Company's stockholders, was approved by a majority of the then Continuing Directors); or (b) any "person" or "group" (as determined for purposes of Section 13(d)(3) of the Securities Exchange Act of 1934), except any majority-owned subsidiary of the Company or any employee benefit plan of the Company or any trust or investment manager thereunder, shall have acquired "beneficial ownership" (as determined for purposes of Securities and Exchange Commission ("SEC") Regulation 13d-3) of shares of Common Stock of the Company having 20% or more of the voting power of all outstanding shares of capital stock of the Company, unless such acquisition is approved by a majority of the
directors of the Company in office immediately preceding such acquisition; or
(c) a merger or consolidation occurs to which the Company is a party, whether or
not the Company is the surviving corporation, in which outstanding shares of
Common Stock of the Company are converted into shares of another company (other
than a conversion into shares of voting common stock of the successor
corporation or a holding company thereof representing 80% of the voting power of
all capital stock thereof outstanding immediately after the merger or
consolidation) or other securities (of either the Company or another company) or
cash or other property; or (d) the sale of all, or substantially all, of the
Company's assets occurs; or (e) the stockholders of the Company approve a plan
of complete liquidation of the Company.
(a) COMPANY. The term "Company" shall mean Pfizer Inc, a Delaware corporation.
(b) BOARD OF DIRECTORS. The term "Board of Directors" shall mean the Board of Directors of Pfizer Inc.
(c) EMPLOYEE COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE. The term
"Employee Compensation and Management Development Committee" shall mean the
Employee Compensation and Management Development Committee of Pfizer Inc as
constituted by resolution of the Board of Directors.
(d) EXECUTIVE COMPENSATION COMMITTEE. The term "Executive Compensation Committee" shall mean the Executive Compensation Committee of Pfizer Inc as constituted by resolution of the Board of Directors.
(e) COMMITTEE. The term "Committee" shall mean the Employee Compensation and Management Development Committee or such other committee referred to in the second proviso of the last sentence of Section 4 hereof, as may be appropriate.
(f) SUBSIDIARY. The term "subsidiary" shall mean a subsidiary corporation of the Company as defined in Section 425(f) of the Internal Revenue Code of 1954.
(g) COMMON STOCK. The term "Common Stock" shall mean the $.10 par value Common Stock of the Company, authorized but unissued, or issued and reacquired by the Company and held as Treasury Stock, or held by any trust established by the Company for the purpose of satisfying the Company's obligations for the issuance of Common Stock under the Plan.
(h) TANDEM OPTIONS. A "Tandem Option" shall mean a qualified option or incentive stock option and a non-qualified option granted to an optionee, subject to the provision that the exercise of all or any part of either option will result in a reduction in the other option.
Any shares which are not purchased or awarded under an option, performance unit award or right of election which has terminated or lapsed, either by its terms or pursuant to the exercise, in whole or in part, of an award or right granted under the Plan, or shares which are reacquired by the Company pursuant to Section 8 hereof, may be used for the further grant of options or, if such shares were authorized in 1975, stock awards under the Plan, or if such shares were authorized in 1980 or after, stock awards, performance unit awards or tandem awards under the Plan. For purposes of this Section 13 the number of shares subject to a tandem award under Section 10 hereof which shall be deemed not to have been purchased or awarded as of the time such award terminated or lapsed shall equal the excess, if any, of (i) the maximum number of shares which the participant was entitled to receive under the tandem award over (ii) the number of shares which he in fact had received as of the time of such termination or lapse.
The proceeds received by the Company from the sale of stock under the Plan shall be added to the general funds of the Company and shall be used for such corporate purposes as the Board of Directors shall direct.
The Board of Directors shall have the right to alter, amend or revoke the Plan or any part thereof at any time and from time to time, provided, however, that without the consent of the participants affected no change may be made in any option or award theretofore granted, which will impair the rights of participants under outstanding options or awards; and provided further, that the Board of Directors may not, without the approval of the holders of a majority of the outstanding Common Stock, make any alteration or amendment to the Plan which increases the maximum number of shares of Common Stock which may be issued under the Plan or the number of shares of such stock which may be issued to any one participant, extends the term of the Plan or of options granted thereunder, reduces the option price below that now provided for in the Plan, or changes the conditions of exercise of options specified in Sections 6(e) and 6(f). The Committee may make non-substantive administrative changes to the Plan so as to conform with or take advantage of governmental requirements, statutes or regulations.
(a) they are contracted to work not less than 20 hours (or, in the case of directors, 25 hours) per week excluding meal breaks for the Company's UK subsidiaries; and
(b) at the date of the grant or exercise of the option, they are not ineligible to participate in the Scheme by virtue of paragraph 4(1)(b) of Schedule 10.
An option holder may hold more than one option.
(a) GRANTS OF OPTIONS. Offers of options may be sent as soon as practicable after approval of the Scheme by the UK Board of Inland Revenue, and thereafter at any time. All offers of options shall be made on the basis that participation in the Scheme will be deemed to constitute acceptance of the provisions set forth or incorporated by reference in this Amendment to the Plan. The sum of one pound sterling shall be payable by the option holder as consideration for the grant of the option to him.
(b) NUMBER OF SHARES. The number of Scheme Shares subject to each option shall be stated. Such number shall be determined by the Committee, but their aggregate Market Value, as that term is defined in Schedule 10, and number of Shares shall not at any time exceed either:
(i) the aggregate fair market value or the number of Shares as is
determined for such option holder by the Committee in accordance with
Section 3 of the Plan; or
(ii) in total with subsisting options over Scheme Shares granted under any scheme approved by the Board of Inland Revenue under Schedule 10 the greater of:
(a) (Pounds)100,000; and
(b) four times the amount of the eligible employee's Relevant
Emoluments (as defined in Schedule 10, paragraph 5, sub-paragraph
5), for the current or preceding Year of Assessment (defined as
commencing on April 6 and ending on the following April 5)
whichever of those years gives the greater amount or, if there
were no Relevant Emoluments for the preceding Year of Assessment,
four times the amount of the Relevant Emoluments for the period
of 12 months beginning with the first day during the current Year
of Assessment in respect of which there are Relevant Emoluments.
In calculating the limits stated above and the Market Value, sums denominated in US dollars shall be converted to sterling at the rate of exchange published by the Company's bankers (being a United Kingdom clearing bank) at 11 o'clock a.m. on the date of the grant of the relevant option.
(c) OPTION PRICE AND PAYMENT OF OPTION PRICE.
(i) The option price per share shall be no less than the mean between the high and the low selling prices on the composite tape of the New York Stock Exchange as reported by the New York Times for the date the option is granted.
(ii) Upon the exercise of an option, the option price shall be payable in lawful money of the United States and may be paid in cash or by certified check or by bank draft.
(d) TERMS AND EXERCISE OF OPTIONS. The times at which and the terms under which any option shall be exercisable shall (unless otherwise stated in accordance with the determination of the Committee and with prior approval of the Board of Inland Revenue) be as stated in Section 6(d), 6(e) and 6(g)++ of the Plan provided that the reference to Section 11(c) in Section 6 of the Plan shall be replaced by a reference to Clause 4(f) of the Scheme and in no event may an option be exercised more than 12 months after an option holder's death.+++
+++ Section 6(e) was further amended with the approval of the shareholders on April 22, 1993 by the insertion of the following words "and further provided the Committee may in its discretion make any options that are not yet exercisable immediately exercisable in cases where (i) an optionee's employment is to be terminated due to a divestiture or downsizing of
(e) RECAPITALIZATION. Section 6(h) of the Plan shall apply to the Scheme provided that any adjustments made pursuant to that Section shall be subject to the prior approval of the Board of Inland Revenue pursuant to Schedule 10 to the Finance Act 1984.
(f) SURRENDER. The Committee may require the surrender of an option granted under the Scheme as a condition precedent to a grant of a new option for the same or a different number of shares surrendered. Such new options shall be subject to the terms and conditions specified by the Committee at the time the new option is granted, determined in accordance with the provisions of the Plan and the Scheme without regard to the price, period of exercise or any other terms or conditions of the options surrendered.
(g) TRANSFERABILITY, APPLICABLE LAW AND LEAVE OF ABSENCE. Sections 6(i), 6(j) and, subject to Clause 3 hereof, 11(d) of the Plan shall apply to the Scheme.
(h) INCORPORATION BY REFERENCE. The option agreement shall contain a provision that all the terms and conditions of the Scheme are incorporated by reference therein.
(a) In the Scheme, the term the "Plan" shall mean the Company's Stock Option and Incentive Plan of 1965 as amended.
(b) Section 12 of the Plan other than sub-sections (d) and (h) shall apply to the Scheme.
a business, (ii) in the case of a retiring optionee who holds options with extended vesting provisions, or (iii) otherwise, where the Committee determines that such action is appropriate to prevent inequities with respect to an optionee" at the end of the second sentence. The amendment has effect in relation to the Scheme with the approval of the Board of Inland Revenue in the UK given on August 5, 1993 provided that the discretionary power conferred on the Committee "to make any options that are not yet exercisable immediately exercisable" shall not have effect with regard to subsisting options granted before August 5, 1993.
++++ Section 15 of the Plan was amended by resolution of the Board of Directors on December 18, 1989 and has effect in relation to the Scheme with the approval of the Board of Inland Revenue in the UK given June 14, 1990.
No amendment to the Plan shall have effect in relation to the Scheme, and no amendment to the Scheme shall have effect without the prior approval of the Revenue Commissioners.
The Committee shall be responsible for ensuring that all matters relating to the Scheme comply with Irish Tax law and practice.
The total number of such shares in respect of which options may be granted is subject to the limits set out in the Plan.
(a) the employee is contracted to work for not less than 20 hours per week for any of the Company's Irish branches or subsidiaries (as defined above) (or in the case of a director of an Irish subsidiary, is a full-time director of such subsidiary), and
(b) at the date of the grant or exercise of an option is not ineligible to participate in the Scheme by virtue of paragraph 5 (1) (b) of the Second Schedule to the Finance Act, 1986.
An option holder may hold more than one option.
(a) GRANT OF AN OPTION. An offer of an option may be issued at any time. All offers of options shall be made on the basis that participation in the Scheme will be deemed to constitute acceptance of the provisions set forth in, or incorporated by reference to this amendment to, the Plan.
The sum of one pound (IRL1) shall be payable by an option holder as consideration for the grant of an option to him.
(b) NUMBER OF SHARES. The number of Scheme Shares subject to each option shall be stated. Such number shall be determined by the Committee.
(c) OPTION PRICE AND PAYMENT OF OPTION PRICE.
(i) The option price per share shall be the mean between the high and the low selling prices on the composite tape of The New York Stock Exchange as reported by the New York Times for the day on which the option is granted.
(ii) Upon the exercise of an option, the option price shall be payable in lawful money of the United States of America and may be paid in cash or by certified check or by bank draft.
(d) TERMS AND EXERCISE OF OPTIONS. The times at which and the terms under which an option shall be exercisable shall (unless otherwise stated in accordance with a determination of the Committee and with the prior approval of the Revenue Commissioners) be as stated in Section 6(d), 6(e) and 6(g) of the Plan provided that the reference to Section 11(c) in Section 6 of the Plan shall be replaced by a reference to clause 4(f) of the Scheme and in no event may an option be exercised more than 12 months after an option holder's death.
(e) RECAPITALIZATION. Section 6(h) of the Plan shall apply to the Scheme provided that any adjustment made pursuant to that Section shall be subject to the prior approval of the Revenue Commissioners pursuant to the Second Schedule to the Finance Act, 1986.
(f) SURRENDER. The Committee may require the surrender of an option granted under the Scheme as a condition precedent to a grant of a new option for the same or a different number of shares surrendered. Such new options shall be subject to the terms and conditions specified by the Committee at the time the new option is granted, determined in accordance with the provisions of the Plan and the Scheme without regard to the price, period of exercise or any other terms or conditions of the options surrendered.
(g) TRANSFERABILITY, APPLICABLE LAW AND LEAVE OF ABSENCE. Sections 6(i), 6(j) and, subject to Clause 3 hereof, 11(d) of the Plan shall apply to the Scheme.
(h) INCORPORATION BY REFERENCE. The option agreement shall contain a provision that all the terms and conditions of the Scheme are incorporated by reference therein.
(a) In the Scheme, the term Plan shall mean the Company's Stock and Incentive Plan.
(b) Section 12 of the Plan other than sub-sections (d) and (h) shall apply to the Scheme.
With respect to Members subject to Section 16 of the Securities Exchange Act of 1934, transactions under the Plan are intended to comply with all applicable conditions of Rule 16b-3 or its successors under the 1934 Act. To the extent that compliance with any Plan provision applicable solely to such Members is not required in order to bring a transaction by such Member into compliance with Rule 16b-3, it shall be deemed null and void as to such transaction, to the extent permitted by law and deemed advisable by the Plan administrators. To the extent any provision of the Plan or action by the Plan administrators involving such Members is deemed not to comply with an applicable condition of Rule 16b-3, it shall be deemed null and void as to such Members, to the extent permitted by law and deemed advisable by the Plan administrators.
Wherever used in this Plan:
"Anniversary Year" means 1) the twelve-month period following the date on which an employee first begins his employment with an employer, as well as successive twelve-month periods thereafter, and 2) the twelve-month period following the date on which an employee returns to the employ of the Company or an Associate Company after incurring a one-year break in service, as well as successive twelve-month periods thereafter. No anniversary year shall be credited for purposes of vesting unless in such anniversary year the employee has completed 1,000 or more hours of service for an employer.
"Annuitant" means a person receiving annuity payments under this Plan.
"Annuity trust fund" means the trust fund created by the Company to finance annuities under this Plan.
"Associate Company" means any corporation which adopts this Plan and executes the Trust Agreement pursuant to the provisions of Section 11 hereof and when action is required to be taken hereunder by an Associate Company such action shall be authorized by its Executive Committee or its Board of Directors.
"Company" means Pfizer Inc, a Delaware corporation, and any predecessor or successor corporation and when action is required to be taken hereunder by the Company, such action shall be authorized by the Executive Committee or the Board of Directors of the Company.
"Earnings" means the actual salary, wages, bonus, or other remuneration earned by an employee from an employer for his service with the employer, as determined by such employer, provided that no part of the cost of any employee benefit, including without limitation stock options, perquisites and group insurance, shall constitute earnings hereunder; and further provided that any remuneration received in the form of salary continuation by an employee while no longer performing services for the Company as an employee shall not be credited hereunder. No part of any bonus or other remuneration forming part of the compensation of any employee shall be used as a basis for a retirement annuity under this Plan, if such bonus should cause such annuity to become discriminatory under the applicable provisions of the Internal Revenue Code.
"Employee" means a person who is employed by an employer.
"Employer" means the Company or any Associate Company. For purposes of Sections 410 and 411 of the Internal Revenue Code, "Employer" also shall mean any corporation or other trade or business that is treated under the first sentence of Section 414(b) or under Section 414(c), 414(m) or 414(o) of the Internal Revenue Code as constituting the same "employer" as the Company or an Associate Company, with respect to any period of such affiliated status.
"Disability Leave Status" means the status of a member who has been determined, pursuant to Section 4e. hereof, to be totally and permanently disabled and who has fully utilized his benefits under the employer's short-term disability program.
"Final Average Earnings" means the member's earnings, excluding any severance payments, which represent the highest average for a period of five consecutive calendar years prior to termination of service or
retirement, during which he rendered Creditable Service; provided that, for
purposes of this computation, in the case of a member who has fewer than five
full prior calendar years of service, but who otherwise has a vested interest
pursuant to Section 4c., such average shall be based upon his actual full
calendar years of earnings prior to termination of service or retirement. The
amount of earnings taken into account for any calendar year in determining an
employee's Final Average Earnings shall not exceed the dollar limitation under
Section 401(a)(17) of the Internal Revenue Code in effect for such year, as
adjusted for the cost of living in accordance with Section 401(a)(17)(B) of the
Internal Revenue Code and the regulations and other guidance issued thereunder.
"Hours of Service" means all hours for which an employee is directly or indirectly paid, or entitled to payment (including back pay for periods for which such awards pertain), by the employer, or any company which is a member of the same control group of corporations as the Company at the time of such service within the meaning of Section 1563(a) of the Internal Revenue Code for the performance of duties, or for reasons other than the performance of duties, such as vacation, accident, injury, sickness, short-term disability or authorized leave of absence. In the case of a payment which is made or due on account of a period during which an employee performs no duties, hours of service will be determined in accordance with Department of Labor regulations (S) 2530.200b-2(b) and (c).
"Leased Employee" means any person who is not an employee of the employer and who provides services to the employer if such services are provided pursuant to an agreement between the employer and another, such person has performed such services for the employer on a substantially full-time basis for a period of at least one year, and such services are of a type historically performed in the business field of the employer, by employees.
"Member" means an employee or former employee to whom an annuity is credited under the Plan.
"One-year break in service" shall be an anniversary year in which the member does not perform more than five hundred hours of service.
"Primary Social Security Benefit" means the annual amount available to the member at age 65 under the Old Age Insurance provisions of Title II of the Social Security Act in effect at the time of his termination of employment, without regard to any increases in the wage base or benefit levels that take effect after the date of termination of employment, subject to the following. If any employee terminates service prior to age 65, his Primary Social Security Benefit shall be estimated by assuming continuation of his earnings until age 65 at the same rate in effect at termination of employment; provided however, that, if the employee retires pursuant to Section 4d.(ii), his Primary Social Security Benefit shall be estimated by assuming that he will not receive any income after retirement which would be treated as wages for purposes of the Social Security Act. The Retirement Committee may adopt rules governing the computation of such amounts, and the fact that an employee does not actually receive such amount because of failure to apply or continuance of work, or for any other reason, shall be disregarded. Notwithstanding the foregoing, actual salary history will be used to calculate the Primary Social Security Benefit if this will result in a larger benefit under the Plan for the employee but only if documentation of such history is provided by the employee within two years after the later of his termination of employment or the date the employee receives notice of his benefits under the Plan.
"Retire" means to terminate service by a Member who is an Employee in the service of an Employer after meeting the requirements of Sections 4a., b. or d., respectively, for normal retirement, late retirement or early retirement hereunder.
"Retirement Annuity" means the payments made pursuant to Section 4a., b. or
d. of the Plan to retired members or their beneficiaries.
"Trustee" means the trustee appointed by the Company to hold and invest the annuity trust fund.
"Vest" means to acquire, in accordance with the express provisions of the Plan, an interest in an annuity under the Plan.
"Vested Annuity" means the payments made pursuant to Section 4c. of the Plan.
The masculine pronoun shall include the feminine pronoun and the feminine pronoun shall include the masculine.
a. Employees of the Company: All persons who were in the regular
service of the Company on January 1, 1943 shall be included in the membership of
the Plan as of January 1, 1943. All persons who entered the regular service of
the Company after January 1, 1943 and prior to September 1, 1961, became members
of the Plan as of the date of employment. All employees who enter the service
of the Company on or after September 1, 1961 become members of the Plan as of
the date of their employment provided they are: (1) included in a group or class
designated by the Company as eligible for membership in the Plan and (2) in the
service of an employer within the United States of America or United States
citizens in the service of an employer outside of the continental limits of the
United States of America. An employee who is a United States citizen and who is
employed outside the continental limits of the United States of America in the
service of a foreign subsidiary (including foreign subsidiaries of such foreign
subsidiary) of the Company shall be included in the membership of the Plan,
provided that the Company has entered into an agreement under Section 3121(1) of
the Internal Revenue Code which applies to the foreign subsidiary of which such
person is an employee and provided further, that contributions under a funded
plan of deferred compensation (whether or not a plan described in Section
401(a), 403(a), or 405(a), of said Code) are not provided by any other person
with respect to the remuneration paid to such individual by the foreign
subsidiary. The groups and classes designated by the Company are set forth in
Schedule A.
b. Employees of Associate Companies: Wherever a corporation became an Associate Company prior to September 1, 1961, all persons, who were in the regular service of such corporation on the date it became an Associate Company, became members of the Plan as of such date. Subject to Section 2a. hereof, wherever a corporation becomes an Associate Company after September 1, 1961, all employees who are in the service of such corporation on the date it becomes an Associate Company become members of the Plan as of such date and all employees who enter the service of a corporation after it has become an Associate Company become members of the Plan as of the date of employment.
c. Leased Employees: No leased employee shall be eligible to become a member of the Plan. However, if a leased employee becomes an employee of the Company, all years of service completed while a leased employee shall be credited solely for purposes of vesting pursuant to Section 4c. of the Plan.
a. Prior Service: Service rendered by a person who is in the service of an employer, before the date on which he becomes a member (in the case of an employee becoming a member after December 12, 1951), who continues in service on and after the date he becomes a member shall be known as "Prior Service" except as provided in Section 4a. and Section 11.
b. Membership Service: Service rendered by an employee for an employer after the date he becomes a member shall be known as "Membership Service."
c. Special Service: Service rendered outside the United States, by a person employed by a corporation which is a subsidiary or affiliate of the Company, but not an Associate Company, at the time of such service (1) before the date on which he becomes a member, who continues in service on and after the date he becomes a member, or (2) during a period of interrupted Membership Service followed by a return to such Service, shall be known as "Special Service."
d. Creditable Service: Membership Service plus Prior Service and
Special Service, if any, shall be known as "Creditable Service" under the Plan.
A member shall be credited with a full year of Creditable Service under the Plan
only if he completes at least 1,000 hours of service within an Anniversary Year
and no fractional years will be credited under the Plan; provided, however, that
for purposes only of (1) determining the Social Security calculation used in
Section 4a.2 and (2) determining a member's annuity under Section 4, and his
eligibility for early retirement under clauses (i) and (ii) of Section 4d.
below, the member's Creditable Service shall be determined on the basis of his
number of months of Membership Service plus Prior Service and Special Service
without regard to whether he completes at least 1,000 hours of service within an
Anniversary Year.
e. Military Service: For the purpose of this Plan, those employees who were in the service of the Armed Forces of the United States, at the time they would have become eligible for membership under the Plan except for such service, or who subsequently enlisted in or were inducted into said Armed Forces, shall be credited with all the benefits under this Plan for service actually rendered to an employer prior to their entrance into said Armed Forces, and shall be credited with time spent on active duty in said Armed Forces for the purposes of computing length of service and benefits payable under the Plan; provided that such employees return to active service with an employer within the time limits provided by law after their separation or discharge from active duty from said Armed Forces, having satisfactorily completed their period of training and service.
f. Leave of Absence: Interruption of active service on account of
leave of absence authorized by the employer, leave of absence taken under the
Family and Medical Leave Act of 1993, as it may be amended from time to time,
and any regulations and other official guidance issued thereunder ("FMLA"), or
transfer on Special Service shall not be considered termination of service.
Time spent on authorized leave of absence shall be credited for the purpose of
computing length of service and benefits payable under the Plan on the following
basis: members shall receive credit for each full year spent on authorized
leave of absence for each full year of Creditable Service that they render to an
employer following return to active service, except that time spent on
authorized leave of absence for medical reasons or under the FMLA shall be
credited without requirement of subsequent Creditable Service and time spent on
Civic Leave shall be credited after the member has returned to active service
for three (3) months. Notwithstanding the foregoing, in the case of
Maternity/Paternity Leave, as defined below, up to 501 hours of service shall be
credited in the anniversary year in which the Maternity/Paternity Leave begins,
if the employee would otherwise have incurred a one-year break in service in
that anniversary year, otherwise up to 501 hours of service shall be credited in
the following anniversary year to prevent a one-year break in service.
Maternity/Paternity Leave means an absence from work (1) by reason of the
pregnancy of an employee, (2) by reason of the birth of a child of an employee,
(3) by reason of the placement of a child with the employee in connection with
the adoption of the
child, or (4) for the purposes of caring for the child during the period immediately following the birth or placement for adoption.
g. Termination of Service: On termination of service, and after he has subsequently incurred a one-year break in service, a person shall forfeit all credit for service previously credited under the Plan unless:
(1) He is reemployed before incurring five consecutive one-year breaks in service; or
(2) He is reemployed after his termination of service and thereafter completes at least 24 consecutive months of Creditable Service; or
(3) He is eligible to receive a retirement benefit or a vested annuity under Section 4c.
If a reemployed employee does not forfeit his service credit as provided above, for purposes only of determining his "Final Average Earnings," the last calendar year in which he rendered Creditable Service shall be treated as being consecutive with the first calendar year in which he renders Creditable Service after his reemployment.
h. General: For the purpose of this Plan, length of service shall be computed in accordance with the employment records of the employer, or of a subsidiary or affiliated corporation of the Company, as the case may be. No employee may voluntarily terminate his status as an active participant in the Plan during his period of employment. The period over which an employee receives remuneration in the form of salary continuation while no longer performing services for the Company as an employee shall not be credited hereunder.
a. Normal Retirement: Each member who attains his normal retirement date, i.e., age 65, shall be eligible for normal retirement as of the first day of the month following, and if permitted under the provisions of the Age Discrimination in Employment Act, as amended, and other applicable law, shall be retired as of the first day of the month following.
Upon normal retirement, a member shall receive a retirement annuity, subject to the provisions of and payable in the form described in Section 4f. hereof, which shall accrue and be equal to the greatest of:
1. 1.4 per cent of his Final Average Earnings multiplied by his years of Creditable Service, but in no event more than 35 years; or
2. 1.75 per cent of his Final Average Earnings multiplied by his years of Creditable Service, but in no event more than 35 years, less 1.50 per cent of his Primary Social Security Benefit multiplied by his years of Creditable Service, but in no event more than 35 years; or
3. The accrued benefit as of September 30, 1997 payable to him under the provisions of the Plan as of that date.
(1) In the case of any group or class which is designated as eligible for membership in the Plan commencing as of a date after September 1,1961, the employer may limit the Prior Service of persons included in such group or class to service rendered on and after a date to be determined by the employer.
(2) Except in the case of a person in the service of a corporation which becomes an Associate Company after September 1, 1961, the Prior Service benefits of any employee who is a member of the Plan, but who was absent from the employer during all or part of the calendar year next preceding the date he
becomes a member, because of sickness, disability, service in the Armed Forces of the United States, or like reasons beyond his control, and who entered the service of the employer prior to such calendar year, shall be computed by including such calendar year in Creditable Service.
The earnings he is deemed to have received in such calendar year during the period of absence shall be based on a forty-hour week at his straight-time rate of pay at the time of leaving the employer and any increased rate to which he would have been entitled as a result of automatic length-of-service increases or a general increase, and any bonuses or other payments made in such calendar year during such period of absence to which he would normally have been entitled.
b. Late Retirement: In the event that a member remains in service after attainment of his normal retirement date, he may retire on his own application setting forth a date for retirement which shall be the first of the month not less than 30 days following the filing of the application.
c. Vesting: Upon the completion of 5 Anniversary Years of Creditable Service, a member shall acquire a vested interest in an annuity under the Plan. Upon termination of service such a member shall be entitled to receive a vested annuity at age 65, equal to the amount which his Creditable Service up to the date of his termination would then provide; or, at any time prior to age 65, such a member may elect to receive such an annuity on the first day of any month following such election, which shall be computed by applying the percentages set forth in Schedule B hereof to the amount of the annuity computed in accordance with Section 4a., provided he is at least 55 years of age. Notwithstanding anything herein to the contrary, a member who is not otherwise vested, shall become vested upon attaining his normal retirement date, i.e., age 65.
d. Early Retirement: Any member may retire before the attainment of
age 65 provided: (i) he has reached age 55 and has 10 years or more of
Creditable Service; or (ii) his attained age when added to his years of
Creditable Service equals or exceeds 90. On early retirement, a member shall
receive a retirement annuity commencing at age 65, equal to the annuity to which
his Creditable Service up to the date of his retirement would then produce, or,
at his election made at any time prior to age 65, a retirement annuity
commencing on the first day of any month following his earlier retirement and
prior to age 65, which shall be computed by applying the percentages set forth
in Schedule C hereof to the amount of the annuity computed in accordance with
Section 4a.; provided that, if a member's attained age when added to his years
of Creditable Service equals or exceeds 90, his retirement annuity shall not be
so reduced regardless of age.
e. Disability Leave Status: Upon total and permanent disability as determined on or after January 1, 1974 by a physician appointed by the employer, a member who has completed at least 5 years of Creditable Service will be eligible for Disability Leave Status. Such status may be terminated or suspended by the Retirement Committee if at any time before age 65 the member again engages in regular full-time employment, fails or refuses to undergo any medical examination ordered by the Retirement Committee, or the Retirement Committee determines on the basis of medical examination that the member has sufficiently recovered to engage in regular full-time employment. While on Disability Leave Status, a member will be credited with Membership Service, and with earnings at the same rate as he had earned in the calendar year prior to the calendar year in which he became totally and permanently disabled, until the member retires, or his Disability Leave Status is sooner terminated or suspended.
f. Form of Benefit Payments:
(1) Normal Form: If a member is married on the date his benefits commence, such member shall receive a benefit payable in the form of a joint and survivor annuity which shall provide for an amount actuarially reduced from the amount computed under Section 4a. to be paid to the member for his lifetime; and for an annuity in an amount equal to one-half of such reduced amount to be paid to the member's spouse to whom he was married on the date his benefits commence, for her lifetime, if surviving at the time of the member's death. The form of benefit shall also provide that if the member dies after retirement but prior to the date on which his benefit becomes payable, his surviving spouse will nevertheless be entitled to receive the
lifetime annuity to which she would otherwise be entitled beginning at the date that the member's annuity would have become payable and under such circumstances, at her option, the surviving spouse may elect to have benefits commence prior to the date on which the member's annuity would have become payable on an appropriately reduced actuarial basis. The benefit payable to the member and his spouse shall have the equivalent actuarial value of the benefits determined under Section 4a. above. In lieu of such a joint and survivor annuity, such a member may, in accordance with Section 417 of the Internal Revenue Code, elect in writing, with the consent of his spouse, at any time prior to the commencement of his benefits, to receive his benefits in the form of a single annuity payable for his lifetime as computed under Section 4a. above, or may revoke any such election previously made by him. Notwithstanding the foregoing, if a member becomes divorced from his spouse after his benefits commence, such member may elect in writing to cancel such joint and survivor annuity and to receive his benefits thereafter in any form permitted under the Plan; provided that, (1) the member obtains a valid written release from his former spouse releasing the Plan from any claim the former spouse may have against the Plan and (2) the member's benefit is adjusted actuarially, including, but not limited to, adjustments for the value of benefits previously paid and for the value of the protection provided by the canceled joint and survivor annuity while in was in effect.
A member who is not married at the time that his benefits commence will receive his benefits in the form of a single annuity payable for his lifetime as computed under Section 4a. above.
(2) Optional Forms: At any time within 90 days prior to the commencement
of his retirement benefits, a member who is eligible for a retirement annuity
under Section 4a., b., or d. of the Plan may, in accordance with Section 417 of
the Internal Revenue Code, elect, with the written and witnessed consent of his
spouse in the case of a married member, to convert the benefits otherwise
payable after retirement into a retirement benefit of equivalent actuarial value
in accordance with one of the options named below, or may revoke any such
election previously made by him; provided, however, that if one of the options
named below shall be so elected and the other named person or persons shall die
before the payment of any part of such benefit, then and in that event the
benefit shall be restored to the amount of the retirement annuity as provided in
Section 4a., b., or d. hereof, as if no such election had been made; and
provided further, that if one of the options named below shall be so elected and
the member shall die before the date of his retirement then the election shall
be of no effect and no payments shall be due under the option.
Option 1: A reduced retirement annuity commencing at or after the member's retirement payable during his life, with the provision that after his death it shall continue during the life of and shall be paid to the person (including his spouse) nominated by him by written designation duly acknowledged and filed with the Retirement Committee at the time such election is made, provided that if the member dies after retirement but prior to the date on which his benefit becomes payable, his surviving beneficiary will nevertheless be entitled to receive such a lifetime annuity beginning at the date that the member's annuity would have become payable and also provided that under such circumstances, at his option, the surviving beneficiary may elect to have benefits commence prior to the date on which the member's annuity would have become payable on an appropriately reduced actuarial basis.
Option 2: A reduced retirement annuity commencing at or after the member's retirement payable during his life, with the provision that after his death an allowance of one-half the rate of his reduced allowance shall be continued during the life of, and it shall be paid to, the person [other than his spouse for whom this is the normal form of benefit provided in Section 4f., (1) above] nominated by him by written designation duly acknowledged and filed with the Retirement Committee at the time such election is made, provided that if the member dies after retirement but prior to the date his benefit becomes payable, his surviving beneficiary will nevertheless be entitled to receive such a lifetime annuity beginning at the date that the member's annuity would have become payable and also provided that under such circumstances, at his option, the surviving beneficiary may elect to have benefits commence prior to the date on which the member's annuity would have become payable on an appropriately reduced actuarial basis.
Option 3: A retirement benefit in a single lump sum that shall be the actuarial equivalent of the benefit which would otherwise be payable to him, provided that such benefit must be elected by the member prior to the date of receipt of his first benefit payment.
(3) A member may, at the time he elects one of the options described above, name a second person, who, in the event the first named person shall die before the commencement of the annuity to the member, shall acquire all the rights which the first named person would otherwise have had.
(4) Optional benefit payments shall commence at the end of the month following the month in which the last payment to the deceased annuitant was made.
(5) Notwithstanding any other provision of this Section 4f., an optional form of retirement benefit which provides for payments to any person other than the member may be elected by a member, and may be approved by the Retirement Committee, only if the payments to such other person will be merely incidental to the payment or payments made to the member.
(6) Where a member is entitled to or elects to receive a reduced retirement annuity commencing after the member's retirement under which an allowance would have been paid to such member's spouse or other beneficiary after the member's death, and, prior to the date his benefit becomes payable, the member elects any other form of benefit, then and in that event the benefit so payable on his account shall be reduced actuarially to reflect any cost attributable to the benefit earlier so provided to his spouse or other beneficiary as the case may be.
(7) Notwithstanding anything to the contrary in the Plan, effective January 1, 1989, in accordance with Section 401(a)(9) of the Internal Revenue Code and the regulations and other official guidance issued thereunder, the benefit of each member will be distributed or commence to be distributed to him not later than April 1 of the calendar year next following the calendar year in which he attains age 70 1/2; provided, however, that if a member is not a 5% owner and shall have attained age 70 1/2 before January 1, 1988, his benefit shall be distributed or commence to be distributed not later than the April 1 following the later of the calendar year in which he retires. Payment shall be made as follows: If a member is married on the date his benefits commence, such member shall receive a benefit payable in the form of a joint and survivor annuity which shall provide for an amount actuarially reduced from the amount computed under Section 4a. to be paid to the member for his lifetime; and for an annuity in an amount equal to one-half of such reduced amount to be paid to the member's spouse to whom he was married on the date his benefits commence, for her lifetime, if surviving at the time of the member's death. A member who is not married at the time that his benefits commence, will receive his benefits in the form of a single annuity payable for his lifetime as computed under Section 4a. above. The member's beneficiary shall receive benefits, if any, only to the extent provided under the applicable form of payment, and such beneficiary shall not be entitled to receive death benefits under Section 4h. As of each following January 1, the member's benefit shall be adjusted to reflect any additional benefits accrued as of the immediately preceding December 31; and further provided that any additional accruals for any twelve consecutive month period shall be offset (but not below zero) by the actuarial value (determined in accordance with applicable law) of benefits received by the member for such period. All distributions under this Plan shall comply with the incidental death benefit requirements of Section 401(a)(9)(G) of the Internal Revenue Code and the regulations (including Treas. Reg. (S)1.401(a)(9)-2) and other official guidance issued thereunder.
With respect to payments to a spouse of a member, the following distribution limitations shall apply:
(A) Where distribution has commenced to the member prior to his death, distribution to the surviving spouse shall be over a period that is no longer than the period under which the member was receiving benefits;
(B) Where distribution has not commenced to the member at the time of his death, distribution to the surviving spouse shall begin no later than the date upon which the member would have attained age 70 1/2,
and shall be payable over the life of the surviving spouse or over a period not extending beyond the life expectancy of the surviving spouse. (If the surviving spouse dies before distribution of her benefit commences, the limitations applicable to the distribution of any benefit remaining payable under the Plan shall be determined hereunder as if the surviving spouse were the member.)
With respect to payments to a designated beneficiary of a member (other than the spouse), the following distribution limitations shall apply:
(A) Where distribution has commenced to the member prior to his death, distribution to the designated beneficiary shall be over a period that is no longer than the period under which the member was receiving benefits;
(B) Where distribution has not commenced to the member at the time of his death, distribution to the designated beneficiary shall begin no later than one year after the date of the member's death, or such later date as may be permitted by Treasury Regulations, and shall be payable over the life of the designated beneficiary or over a period not extending beyond the life expectancy of the designated beneficiary.
In all other cases where distribution has not commenced to the member at the time of his death, no benefit remaining payable under the Plan shall be distributed over a period that exceeds five years after the member's death.
Nothing in this Section 4f.(7) shall affect the ability of a member, upon retirement, to select a form of benefit as provided otherwise by Section 4.
g. Adjustment For Federal Old Age Benefits: If a member who is eligible for a retirement annuity under Section 4a., b., or d. of the Plan retires before his Federal Old Age Benefit is payable, he may, at any time or from time to time, elect to have the retirement benefit otherwise payable after retirement to him for his lifetime under the normal form of benefit, or under an optional benefit payment, whichever is applicable, actuarially adjusted to provide, so far as practicable, a constant total retirement income inclusive of the estimated Federal Old Age Benefit, both before and after the Federal benefit is scheduled to begin.
h. Benefits To Surviving Spouse: In the event a member, who has performed at least one hour of service on or after January 1, 1976, dies on or after August 1, 1984, after having become vested under the Plan, leaving a surviving spouse to whom the member was legally married for one year or more prior to his death, an annuity at one-half the rate of the annuity which the member would have been entitled to receive under Section 4f.(1) had he retired and commenced receipt of benefits as of the first of the month following the date of his death, if the member was eligible for retirement at the time of his death, or an annuity at one-half the rate of the annuity which the member would have been entitled to receive under Section 4f.(1) had he retired and commenced receipt of benefits on the date he first would have been eligible to do so, if the member was not eligible for retirement at the time of his death, shall be paid to such spouse, commencing at the end of the month following the month in which the member would have attained his normal retirement date or earlier if the spouse so elects, but not earlier than the date the member first would have reached age 55, as the case may be, for the life of such spouse.
i. (1) All annuities shall be payable in monthly installments.
[Effective August 1, 1994, the previous sentence shall read as follows: All
annuities shall be payable in monthly installments provided that any annuity
which has an actuarially computed present value at the time of termination of
service which is less than $3,500 shall be paid in a lump sum of equivalent
actuarial value.] In determining the amount of a lump sum payment payable under
this paragraph, (i) equivalent actuarial value shall mean a benefit, in the case
of a lump sum benefit payable prior to a member's normal retirement date, of
equivalent value to the benefit which would otherwise have been provided
commencing at the member's normal retirement date, and (ii) the interest rate to
be used shall be an interest rate no greater than that which would be used by
the Pension Benefit Guaranty Corporation ("PBGC") for valuing lump sums for
single employer plans that terminate three months preceding the date of
termination. For this lump sum equivalent actuarial value, the PBGC mortality
table shall be used. Monthly installment payments shall commence at the end of the month in which retirement occurs and continue until death. Full payment will be made for the month in which death occurs. In the event a member terminates employment at a time when he is not entitled to any retirement benefit or vested annuity, such member shall be deemed to have received a single sum payment of a zero accrued benefit, and his entire accrued benefit shall immediately be forfeited. In the event such a member is restored to service as an employee, he shall be deemed to have immediately repaid to the Plan the amount which was deemed to have been distributed upon his prior termination.
(2) If any person to whom a retirement annuity, vested annuity or other benefit under this Plan is payable shall not have provided evidence satisfactory to the Retirement Committee of his continued life and address for a period of two years after or during which such annuity or other benefit is payable, the Retirement Committee shall send by registered mail a notice addressed to such person at his last address known to the Committee describing the annuity or other benefit payable to him and stating that unless he communicates with the Committee within 30 days from the date of such notice, the Retirement Committee may suspend payments of the annuity or other benefit to such person while it causes an investigation to be made as to the continued life and address of such person.
(3) If any person to whom a benefit is payable hereunder is an infant, or if the Retirement Committee determines that any person to whom a retirement annuity or other benefit is payable is incompetent by reason of physical or mental disability, the Committee shall have power to cause the payments becoming due to such person to be made to another for his benefit without responsibility of the Committee or the Trustee to see to the application of such payments. Payments made pursuant to such power shall operate as a complete discharge of the annuity trust fund, the Trustee and the Retirement Committee.
(4) Notwithstanding the other provisions of this Section, a member who retires or becomes entitled to a vested annuity shall receive an annuity computed as provided for under the provisions of the Plan in effect on the date of his termination of service or retirement.
(5) The annual benefit for a calendar year shall be defined and adjusted as provided in Section 415(b)(2) of the Internal Revenue Code and no annual annuity shall be payable in excess of the lesser of the maximum dollar amount permitted by Section 415(b)(1)(A) of the Internal Revenue Code, or 100% of the average compensation of the member for the three consecutive calendar years which yield the highest average during which the participant was an active participant in the Plan, subject to the following conditions:
(a) For purposes of determining the percentage limitations in Section
4i.(5), the term "compensation" shall mean compensation as defined under Section
415(c)(3) of the Internal Revenue Code and the Treasury Regulations issued
thereunder.
(b) If benefits begin prior to or following the social security retirement age (as defined in Section 415(b)(8) of the Internal Revenue Code), the maximum annual dollar amount will be adjusted in accordance with Regulations issued by the Secretary of the Treasury.
(c) If the member has fewer than ten years of Creditable Service at retirement, the maximum benefit payable as a result of the compensation limitation hereunder shall be multiplied by a fraction, of which the numerator is his Creditable Service and the denominator is 10. If the member has fewer than ten years of participation in the Plan, the maximum benefit payable as a result of the dollar limitation hereunder shall be multiplied by a fraction, of which the numerator is his years of participation and the denominator is 10.
(d) Effective as of January 1 of each calendar year, the maximum annual dollar amount referred to in Section 4i.(5) shall increase to the maximum annual dollar amount as determined by the Commissioner of the Internal Revenue Service for such calendar year pursuant to Section 415(d)(1)(A) of the Internal Revenue Code. Notwithstanding Section 4i.(4), such increased maximum dollar amount shall also be applicable to participants who have retired under Section 4a., b., or d. of the Plan regardless of whether they have actually begun to receive such benefits.
(e) With respect to a member who was a participant in the Plan before October 3, 1973, in lieu of the foregoing the maximum computed under this subsection shall be the annuity payable under the Plan provision in effect as of October 2, 1973 based upon (a) his aggregate creditable earnings on such date plus (b) his rate of earnings under the Plan in effect as of such date times his years of Creditable Service after such date.
(f) Notwithstanding the foregoing, in the case of an employee who participates in this Plan and in the Company's Savings and Investment Plan or any other defined contribution plan maintained by the employer, the sum of the defined benefit plan fraction and the defined contribution plan fraction for any year shall not exceed 1. In the event the sum of such fractions exceeds 1, the Retirement Committee shall reduce the pension provided under this Plan in order that none of the Plans shall be disqualified under the Internal Revenue Code. For purposes of applying the limitations of this Section, the following rules shall apply:
(II) The "defined contribution plan fraction" for any calendar year shall mean the actual aggregate annual additions, as hereinafter defined, to the defined contribution plan determined as of the close of the year, over the sum of the lesser of the following amounts determined for the calendar year under consideration and each prior year of service: (i) 1.25 multiplied by the maximum dollar limitation in effect under Section 415(c)(1)(A) of the Internal Revenue Code (without regard to Section 415(c)(6) of the Internal Revenue Code), or (ii) 1.4 multiplied by the maximum amount of annual additions which could have been credited to such member under Section 415(c)(1)(B) of the Internal Revenue Code for such year, taking into account the transition rules for years ending before January 1, 1983 prescribed thereunder and under the Employee Retirement Income Security Act of 1974 and the Tax Equity and Fiscal Responsibility Act of 1982, including the rules of Section 415(e)(3) of the Internal Revenue Code, as amended by the Tax Equity and Fiscal Responsibility Act of 1982, and as adjusted by Section 235(g)(3) of the Tax Equity and Fiscal Responsibility Act of 1982, unless the Committee elects to apply the rules of Section 415(e)(6) of the Internal Revenue Code, as added by the Tax Equity and Fiscal Responsibility Act of 1982; provided, however, that the defined contribution plan fraction shall never be deemed to exceed 1 with respect to years prior to January 1, 1976.
(III) The term "annual addition" shall mean for any calendar year the sum of the Company contributions, Qualified Deferred Earnings Contributions under the Company's Savings and Investment Plan, forfeitures, if any, and (a) for years prior to January 1, 1987, the lesser of employee contributions in excess of 6% of the member's compensation or one-half of the member's total contribution allocated to a member's account in the defined contributions plan, and (b) for years beginning after December 31, 1986, all employee contributions; provided, however, that in computing such annual addition for any year prior to January 1, 1976, the amount of a member's contributions taken into account for such year shall be deemed to be an amount equal to the excess of the aggregate of the member's contributions to the Plan prior to January 1, 1976 (without regard to contributions made on or after October 2, 1973, which exceed the rate of employee contributions prescribed under the terms of the Plan as of such date) over 10% of his aggregate compensation for each year of his participation in the defined contribution Plan prior to such date, multiplied by a fraction,
the numerator of which is 1 and the denominator of which is the number of the member's years of participation prior to January 1, 1976.
(IV) The dollar limitation prescribed under Section 4i.(5) hereof shall not apply [and shall not be used in computing the denominator of the defined benefit plan fraction under Section 4i.(5)(e)(I)] in the case of any member who was a member in the Plan on December 31, 1982 and whose annual benefit accrued under the Plan as of such date determined in accordance with Section 415(b)(2) of the Internal Revenue Code, exceeds such limitation. In lieu thereof, the member's annual accrued benefit as of December 31, 1982 shall be the applicable dollar limitation.
(g) The limitations of subsection (f) shall not apply with respect to any member who on September 2, 1974 participated in this Plan and a defined contribution plan maintained by an employer, if the following conditions are met:
(I) The defined benefit plan fraction with respect to the member is not increased, by amendment or otherwise, after September 2, 1974, and
(II) No contributions are made under the defined contribution plan after such date.
(h) The limitation of this Section with respect to any member who at any
time has participated in any other defined benefit plan, or in more than one
defined contribution plan, maintained by an employer or by a corporation which
is a member of a controlled group of corporations [within the meaning of Section
1563(a), determined without regard to Section 1563(a)(4) and (e)(3)(C), and
Section 415(h) of the Internal Revenue Code], of which the employer is a member,
shall apply as if the total benefits payable under all defined benefit plans in
which the member has been a participant were payable from one plan, and as if
the total annual additions made to all defined contribution plans in which the
member has been a participant were made to one plan.
(6) The benefits provided under this Plan shall be reduced in the case of any member or beneficiary under uniform rules adopted by the Committee, by the amount of any benefits payable to such member or beneficiary under any other qualified non-government pension plan or program or any retirement or pension benefits payable to him under the laws of any foreign government, to the extent that the benefits payable under such other plan or program are based on service which is included in Prior Service, Membership Service or Special Service, hereunder, and are not attributable to contributions made to such other plan or program by the member.
(7) The benefits provided under this Plan shall be reduced, under uniform rules adopted by the Retirement Committee, in the case of any member reemployed by an employer to avoid duplication of any benefits previously paid by this Plan to such member after a prior termination of service and with respect to annuity payments, only to the extent prior to the member's attainment of age 65. Such reduction shall not apply to the extent that the member shall, upon reemployment, repay to the Trustee any amount received from the Trust with interest thereon compounded annually, at the rate to be determined by the Retirement Committee from the date or dates of receipt of such benefits to the date of repayment to the Trust.
(8) Whenever the amount of a benefit under this Plan is to be determined by an actuarial procedure, effective January 1, 1984, the following actuarial assumptions will be used: The interest rate assumption for annuity forms of benefit payments shall be 7 1/2% per annum and for the lump sum form of payment shall be the applicable Pension Benefit Guaranty Corporation discount rate for the month three months preceding the date of retirement if the election is made before retirement, or for the month following an election for the lump sum form of payment made after retirement. The mortality assumption for all forms of benefit payments except for the lump sum form of payment shall be based upon the latest Unisex Mortality Table prepared by the Plan's actuary and adopted by the Committee. For lump sum payments, the Pension Benefit Guaranty Corporation Immediate Annuity Lump Sum Factor shall be used.
j. Qualified Domestic Relations Order: Notwithstanding anything in the Plan to the contrary, the payment of any benefit to which a member may be entitled under this Section 4 shall be subject to a qualified domestic relations order within the meaning of Section 414(p) of the Internal Revenue Code.
k. Special Rules For Certain Members Who Are Not Eligible To Retire Under
Sections 4.a. or 4.d.: Notwithstanding anything to the contrary in Sections
4.c., 4.d., 4.f. or 4.h., this Section 4.k. provides special rules for a member
who (i) terminates service or dies on or after January 1, 1994, (ii) has
completed at least 5 Anniversary Years of Creditable Service upon his
termination from service or death, and (iii) has accrued a portion of his Plan
benefit prior to January 1, 1994 (the "Pre-1994 benefit"). The otherwise
applicable provisions of the Plan shall apply to such member except to the
extent specifically modified herein.
(1) Except as provided below, a terminated member (other than a deceased member) described in this Section 4.k. may elect to receive his pre-1994 benefit at any time after his attainment of age 50 and on or before attainment of age 65, commencing on the first day of the month following such election. The member shall receive such benefit in the normal form provided under Section 4.f.(1). If the member elects commencement of his pre-1994 benefit before age 65, such benefit shall be reduced for early commencement by applying the percentages set forth in Schedule C.
(2) If a member (other than a deceased member) described in this Section 4.k. terminates service between the ages 50 and 55 with at least 10 years of Creditable Service, and his attained age when added to his years of Creditable Service equals or exceeds 65, he may elect to receive his pre- 1994 benefit before age 65, reduced for early commencement by applying the percentages set forth in Schedule C. Such a member shall receive his pre- 1994 benefit in the normal form provided under Section 4.f.(1); provided, however, he may elect an optional form of payment in accordance with the provisions of Section 4.f.(2) or 4.g.
(3) The surviving spouse of a deceased member described in this Section 4.k., who is entitled to benefits under Section 4.h., may elect to have the amount attributable to the member's pre-1994 benefit commence prior to the end of the month following the month in which the member would have attained his normal retirement date, but not earlier than the date the member first would have reached age 50.
(4) If a member's pre-1994 benefit is paid or commences to be paid pursuant to
(1), (2) or (3) above, the remaining portion of his benefit shall be equal
to his benefit, determined under the provisions of Section 4.a. (taking
into account all years of Creditable Service), and expressed in the form of
a single life annuity payable at normal retirement date reduced by his pre-
1994 benefit, expressed in the form of a single life annuity payable at
normal retirement date. Such remaining benefit shall be payable under the
otherwise applicable provisions of this Plan.
(5) If receipt of the pre-1994 benefit of a member described in this Section
4.k. commences after the member attains, or would have attained, age 55,
the remaining portion of his benefit shall commence at the same time.
l. Suspension of Benefit Rules: If a member terminates employment or retires and is reemployed by an employer before such member's normal retirement date, the payment of any benefits he is then receiving shall be suspended. If a member terminates employment or retires and is reemployed by an employer on or after such member's normal retirement date, or if a member continues in employment after the member's normal retirement date, payment of the member's pension shall be suspended in accordance with the following provisions:
(1) If the member is reemployed or continues in Suspendible Employment, the payment of any benefits he is then receiving or entitled to receive shall be suspended until his subsequent retirement. The Retirement Committee will notify the member of the suspension of benefits in the manner, form and at such time as is required by applicable law.
(2) If the member is reemployed, or continues in employment other than Suspendible Employment, the payment of any benefits he is then receiving shall be suspended, and the amount of his resumed benefit payments upon subsequent retirement shall be the amount in effect immediately before the suspension, increased actuarially to reflect the delayed commencement of payments, but only to the extent the value of such actuarial increase exceeds the value of any additional pension earned during the period employment after normal retirement date.
(3) For purposes of this Section 4.(l), "Suspendible Employment" means the completion of 40 or more hours of service with the employer during any calendar month (or four or five week payroll period).
m. Direct Rollover Rules: Effective for distributions under the Plan on or after January 1, 1993, at the written request of a distributee (which shall mean a member, a surviving spouse of a member, or a spouse or former spouse of a member that is an alternative payee under a Qualified Domestic Relations Order), and upon receipt of the written consent of the Retirement Committee, the Trustee shall effectuate a direct rollover distribution of the amount requested by the distributee in accordance with Section 401(a)(31) of the Internal Revenue Code, to an eligible retirement plan (as defined in Section 401(a)(31)(D) of the Internal Revenue Code). Such amount shall constitute all or part of any distribution otherwise to be made hereunder to the distributee, provided that such distribution constitutes an "eligible rollover distribution," as defined in Section 402(c) of the Internal Revenue Code and the regulations and other guidance issued thereunder. All direct rollover distributions shall be made in accordance with the following:
(1) The term "eligible rollover distribution" means any distribution of all or any portion of the balance to the credit of the distributee, except that an eligible rollover distribution does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the distributee or for a specified period of ten years or more; or any distribution to the extent such distribution is required under Section 401(a)(9) of the Internal Revenue Code; or any distribution to the extent such distribution is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities).
(2) The term "eligible retirement plan" means an individual retirement account described in Section 408(a) of the Internal Revenue Code, an individual retirement annuity described in Section 408(b) of the Internal Revenue Code, or (to the extent provided in Section 401(a)(31)(D) of the Internal Revenue Code) a qualified trust described in Section 401(a) of the Internal Revenue Code that accepts the distributee's eligible rollover distribution. However, in the case of an eligible rollover distribution to a surviving spouse, an eligible retirement plan is an individual retirement account or individual retirement annuity.
(3) A direct rollover distribution shall be made to only one eligible retirement plan; a distributee may not elect to have a direct rollover distribution apportioned between more than one eligible retirement plan.
(4) Direct rollover distributions shall be made in cash in the form of a check made payable to the trustee or custodian of the eligible retirement plan, in accordance with procedures established by the Retirement Committee.
(5) No direct rollover distribution shall be made unless the distributee furnishes the Retirement Committee with such information as the Committee shall require, including but not limited to: the name of the recipient eligible retirement plan, and any account number or other identifying information.
(6) A distributee may have a portion of an eligible rollover distribution distributed directly to him and a portion directly rolled over to an eligible retirement plan as such distributee may determine.
All of the retirement annuity payments provided under this Plan shall be financed entirely by means of contributions made by the Company and Associate Companies, subject to conditions set forth under Sections 9 and 12.
a. Service Contributions: Subject to the future financial needs and condition of the business as determined by its Board of Directors, it is the intention of the employer to continue the Plan and, within the time allowed by law for filing of its federal income tax return for each fiscal year, to make regular contributions each year in such amounts as are necessary to maintain the Plan on a sound actuarial basis, and to meet minimum funding standards prescribed by any applicable law. Upon transfer from Special Service to service with an employer, appropriate contributions shall be made with respect to each employee so transferred to provide the benefits for such Special Service.
b. Actuarial Calculations: The Company shall adopt from time to time, service and mortality tables and the rates of interest to be used in actuarial calculations required in connection with the Plan. As an aid to the Company in adopting such tables the actuary designated by the Company shall from time to time submit recommendations to the Company as to possible changes affecting such tables. The actuary shall, in addition, make annual valuations of the contingent assets and liabilities of the Plan and establish the rate of Company contributions payable to the Plan.
c. Continuation of Plan: The continuation of this Plan and the payment of contributions are not assumed as contractual obligations of the employer.
a. Trust Fund: All contributions made by the employer to provide the benefits under this Plan shall be paid into a trust fund. The trust fund will be held and invested as described in the trust agreement, a brief description of the provisions of which is given in Section 7 hereof. No part of the fund may be used for, or diverted to, purposes other than for the exclusive benefit of employees or their beneficiaries, nor may any part of the fund be remitted to the Company, except as otherwise permitted under ERISA, provided, however, that the reasonable expenses of the Trustee in the administration of this trust as well as fees and other charges incurred for investment counseling and for actuarial services and expenses of the Retirement Committee and the Plan Assets Committee will be paid out of the trust fund.
b. Annuities: Notwithstanding anything herein to the contrary, if the Retirement Committee shall find that any benefit prescribed in this Plan can be provided with equal security to the members at the same or less cost, or at an increased cost, provided the Company shall approve, through the purchase of immediate or deferred annuities from any governmental agency or insurance company or companies, approved by the Company, the Retirement Committee is authorized and empowered to provide for the payment of such benefits by purchase thereof from such agency or company or companies.
The Company has entered into a Trust Agreement with The Northern Trust Company, providing for the administration of the annuity trust fund by that bank as Trustee thereof, which includes provisions with respect to the powers and authority of the Trustee (in its discretion and/or as directed by an Investment Adviser appointed by the Plan Assets Committee) as to the investment and reinvestment of the trust fund and the income therefrom provided, however, the Company specifically reserves unto itself or its delegate the Plan Assets Committee, through the Proxy Voting Committee, the right to vote any shares of securities held in the Trust Fund or, alternatively, may permit the Investment Adviser to exercise such responsibility and provisions with respect to the administration of the trust fund, the limitations on the liability of the Trustee, authority of the Company to settle the accounts of the Trustee and of the Retirement Committee on behalf of all persons having any interest in the trust fund, and from time to time, to appoint a new Trustee in place of any then acting Trustee to the trust fund, and that, with respect to any payments to or for the benefit of any employee or beneficiary under this Plan, the Trustee shall follow the directions of the Retirement Committee. The Trust Agreement further provides that the Company shall have the right, from time to time, to modify or amend the Trust Agreement in whole or in part, provided that no such amendment shall divert any part of the annuity trust fund to purposes other than the exclusive benefit of employees or their beneficiaries; provided, however, that the reasonable expenses of the Trustee in the administration of this trust as well as fees and other charges incurred for investment counseling (including any Investment Adviser) and for actuarial services and expenses of the Retirement Committee and of the Plan Assets Committee will be paid out of the trust fund. The Trust Agreement shall be deemed to form a part of this Plan, and any and all rights or benefits which may accrue to any person under this Plan shall be subject to all the terms and provisions of said Trust Agreement.
a. (1) Retirement Committee: This Plan is administered by a Retirement Committee consisting of at least three persons appointed by the Board of Directors of the Company. Members of the Retirement Committee may resign at any time upon due notice in writing. The Board of Directors of the Company may remove any Retirement Committee members and appoint others in their places. The Retirement Committee may act by a majority of its members.
(2) The Retirement Committee shall be the Plan Administrator and shall have fiduciary responsibility under the Employee Retirement Income Security Act of 1974 for the general operation of the Plan, except that the Retirement Committee shall have no responsibility for or control over the investment of the Plan assets, other than the authority to provide for the purchase of annuities pursuant to Section 6b. of the Plan and to give written directions to the Trustee to retain cash as provided in Article II Section 2.1(a)i of the Trust Agreement to meet contemplated payments under the Plan. The Retirement Committee may appoint or employ such persons as it deems necessary to render advice with respect to any responsibility of the Retirement Committee under the Plan. The Retirement Committee may allocate to any one or more of its members any responsibility it may have under the Plan and may designate any other person or persons to carry out any responsibility of the Retirement Committee under the Plan, other than its authority described above with respect to the retention of cash and the purchase of annuities. Any person may serve in more than one fiduciary capacity with respect to the Plan.
(3) Duties:
(a) The Retirement Committee will determine the names of annuitants and joint annuitants and the amounts that are payable to them from the trust fund in accordance with the provisions of this Plan.
(b) The Retirement Committee shall keep in convenient form such data as shall be necessary for actuarial valuations of the contingent assets and liabilities of the Plan and for checking the experience thereof.
(c) The Retirement Committee shall determine the manner in which the funds of the Plan shall be dispensed including the form of voucher or waiver to be used in making disbursements and the due notification of persons authorized to approve and sign the same.
(d) The Retirement Committee shall determine whether a judgment, decree or order, including approval of a property settlement agreement, made pursuant to a state domestic relations law, including a community property law, that relates to the provision of child support, alimony payments, or marital property rights of a spouse, former spouse, child, or other dependent of the member is a qualified domestic relations order within the meaning of Section 414(p) of the Internal Revenue Code, and shall give the required notices and segregate any amounts that may be subject to such order if it is a qualified domestic relations order, and shall administer the distributions required by any such qualified domestic relations order.
(4) Administration of Plan: The Retirement Committee shall make, in its
sole discretion, all determinations arising in the administration, construction
or interpretation of the Plan including the right to construe disputed or
doubtful Plan terms and provisions, and any such determination shall be
conclusive and binding on all persons, except as otherwise provided by law. The
Retirement Committee is also authorized to adopt such rules and regulations as
in its opinion may be necessary to prevent inequities with respect to any
employees whose total annual compensation did not exceed $7,500 in any year
during which such inequity occurred and the determination of the Committee on
such inequity and the correction thereof shall be conclusive and binding on all
parties. The Retirement Committee is also authorized to provide for accelerated
vesting and to purchase or arrange for payment of an appropriate annuity or any
other form of payment or to permit the immediate distribution of Plan benefits
in those cases involving groups of employees involuntarily terminated,
including, but not limited to, cases involving groups of employees who
involuntarily cease to render Creditable Service due to a liquidation, sale, or
other means of terminating the parent-subsidiary or controlled group
relationship with the Employer or the sale or other transfer to a third party of
all or substantially all of the assets used by the Employer in a trade or
business conducted by the Employer, when the Retirement Committee determines
that such action is appropriate to prevent inequities with respect to such
employees, and the determination of the Committee in such matters shall be
conclusive and binding on all parties. For the purpose of the preceding
sentence, Employer includes the definition of controlled group contained in
Section 1. hereof. Further, the Retirement Committee, upon the written request
of the Company's Senior Vice President - Employee Resources, is authorized, with
respect to a member of the Plan who has five or more years of Creditable Service
and who is transferred to the purchaser of a portion of the Company's
operations, effective the day after the Closing Date of the Sale, to grant
additional Creditable Service and additional credit for age under the Plan, in
each case up to one percent for each year of Creditable Service, and to advance
the date through which Creditable Service is calculated pursuant to Section 3d.
hereof, so as to prevent hardship with respect to his participation in said
purchaser's pension plan. The Retirement Committee, upon written request of the
Company's Senior Vice President - Employee Resources, is also authorized to
waive, either in whole or in part, the percentage reductions for early
commencement of retirement benefits set forth in Section 4d. and/or to grant
additional years of Creditable Service and additional credit for age under the
Plan, or a combination thereof, up to a total of five (5), in those cases where
groups of employees have terminated employment either as a result of a reduction
in the work force or early retirement incentive programs or for similar economic
reasons, and the determination of the Retirement Committee shall be conclusive
and binding on all parties. The Retirement Committee is also authorized to
adopt such rules and regulations as it may consider necessary or desirable for
the conduct of its affairs and the transaction of its business, including, but
not limited to, the power on the part of the Retirement Committee to act without
formally convening and to provide that action of the Retirement Committee may be
expressed by written instrument signed by a majority of its members. It shall
elect a Secretary, who need not of necessity be a member of the Retirement
Committee, who shall record the Minutes of its proceedings and shall perform
such other duties as may from time to time be assigned to him. The Retirement
Committee may retain legal counsel (who may be counsel for the Company) when and
if it be found necessary to do so and may also
employ such other assistants, clerical or otherwise, as may be requisite, and expend such monies as may be requisite in their work. All of these expenses of the Retirement Committee and the reasonable expenses of the Trustee in the administration of this trust as well as for actuarial services will be paid out of the trust fund.
b. (1) Plan Assets Committee: A Plan Assets Committee consisting of at least three persons appointed by the Board of Directors of the Company shall have exclusive authority and fiduciary responsibility under the Employee Retirement Income Security Act of 1974 (i) to appoint and remove Investment Advisers, if any, under the Plan and the Trust Agreement, (ii) to direct the segregation of assets of the Retirement Annuity Trust Fund into an Investment Adviser account or accounts at any time, and from time to time to add to or withdraw assets from such Investment Adviser account or accounts as it deems desirable or appropriate and also to direct the Company's contribution or any portion thereof into any of the accounts maintained under the trust, (iii) to direct the Trustee to enter into an agreement or agreements with an insurance company or companies designated by the Plan Assets Committee as provided in Article II Section 2.6 of the Trust Agreement, (iv) to establish investment guidelines for areas other than those set forth above and, within such guidelines, to direct the Trustee to purchase and sell securities or to enter into one or more agreements with one or more companies, partnerships or joint ventures and to transfer assets of the Retirement Annuity Trust Fund to such entities for purposes of investment therein; provided however, that, except as expressly set forth herein, the Plan Assets Committee shall have no responsibility for or control over the investment of the Plan assets held in the fund established hereunder. Notwithstanding the foregoing, the Company specifically reserves unto itself or its delegate, the Plan Assets Committee, through the Proxy Voting Committee, the right to vote any shares of securities held in the Trust Fund or, alternatively, may permit the Investment Adviser to exercise such responsibility. In addition, the Plan Assets Committee shall receive the reports and recommendations of the actuary designated by the Company under Section 5b. hereof concerning actuarial assumptions to be adopted on subjects including, but not limited to, employee turnover, rate of mortality, disability rate, ages at actual retirement, rate of pay increases, investment income and size of participant group, and make such recommendations and determinations based upon such reports and recommendations as it may deem necessary or appropriate. The Plan Assets Committee may appoint or employ such persons as it deems necessary to render advice with respect to any responsibility of the Plan Assets Committee under the Plan. The Plan Assets Committee may allocate to any one or more of its members any responsibility that it may have under the Plan and may designate any other person or persons to carry out any responsibility of the Plan Assets Committee under the Plan. Any person may serve in more than one fiduciary capacity with respect to the Plan. Members of the Plan Assets Committee may resign at any time upon due notice in writing. The Board of Directors of the Company may remove any Plan Assets Committee members and appoint others in their places. The Plan Assets Committee may act by a majority of its members.
(2) The Plan Assets Committee is authorized to make such rules and regulations as may be necessary to carry out its duties under the Plan. The Plan Assets Committee is also authorized to adopt such rules and regulations as it may consider necessary or desirable for the conduct of its affairs and the transaction of its business, including, but not limited to, the power on the part of the Plan Assets Committee to act without formally convening and to provide that action of the Plan Assets Committee may be expressed by written instrument signed by a majority of its members. It shall elect a Secretary, who need not of necessity be a member of the Plan Assets Committee, who shall record the Minutes of its proceedings and shall perform such other duties as may from time to time be assigned to him. The Plan Assets Committee may retain legal counsel (who may be counsel for the Company) when and if it be found necessary to do so and may also employ such other assistants, clerical or otherwise, as may be requisite, and expend such monies as may be requisite in their work. All of these expenses of the Plan Assets Committee as well as expenses for investment counseling will be paid out of the trust fund.
c. To the extent permitted by law, the Retirement Committee, the Plan Assets Committee, the Trustee, the Boards of Directors of the employers, and the employers and their respective officers shall not be liable for the directions, actions or omissions of any agent, legal or other counsel, accountant or any other expert who has agreed to the performance of administrative duties in connection with the Plan or Trust. The Committees, the Trustee, the Boards of Directors of the employers, and the employers and their respective
officers shall be entitled to rely upon all certificates, reports, data, statistics, analyses and opinions which may be made by such experts and shall be fully protected in respect to any action taken or suffered by them in good faith reliance upon any such certificates, reports, data, statistics, analyses or opinions; all action so taken or suffered shall be conclusive upon each of them and upon all persons having or claiming to have any interest in or under the Plan.
d. Indemnification: Each member of the Retirement Committee and each member of the Plan Assets Committee shall be indemnified by the Company against all costs and expenses (including counsel fees but excluding any amount representing a settlement unless such settlement be approved by the Board of Directors of the Company) reasonably incurred by or imposed upon him, in connection with or resulting from any action, suit or proceeding, to which he may be made a party by reason of his being or having been a member of the Retirement Committee or the Plan Assets Committee, as applicable (whether or not he continues to be a member of such Committee at the time when such cost or expense is incurred or imposed), to the full extent permitted by law. The foregoing rights of indemnification shall not be exclusive of other rights to which any member of the Retirement Committee or the Plan Assets Committee may be entitled as a matter of law.
Because of the uncertainty as to future conditions, including the possibility that Federal Social Security Benefits may be extended and liberalized, the Company necessarily reserves the right, through its Board of Directors, at any time to modify, suspend or discontinue this Plan or the annuity trust fund and to change the Trustee. Any such amendment may effect a substantial change in the Plan, and may include (but shall not be limited to) provisions for disability pensions, provisions permitting or requiring employees to make contributions to the trust, provisions for the participation in the Plan of any corporation or any change deemed by the Company to be necessary or desirable to make the Plan conform to, or to obtain tax benefits under, any existing or future laws or rules or regulations thereunder, and a change in the class or classes of persons to whom any retirement annuity may be or become payable or in the amount of any such annuity. An employer may at any time, or from time to time, change the designation of a group or class of employees with respect to the eligibility or non-eligibility of such group or class for membership in the Plan, as well as change, modify, consolidate or redefine any and all groups or classes of employees for purposes of such designation. Any such amendment or change shall not reduce any retirement annuities which shall have already been granted and which are then in force and shall not so operate as to divert substantial amounts of trust funds from one group of employees to any other group of employees. No such amendment or change shall discriminate in favor of employees who are officers, stockholders, persons whose principal duties consist of supervising the work of other employees, or highly compensated employees or their beneficiaries, provided, however, that changes shall not be considered discriminatory, because of readjustment of the Plan to integrate benefits in accordance with present or future Social Security Laws of the United States or any State or States.
The Committee may make non-substantive administrative changes to the Plan so as to conform with or take advantage of governmental requirements, statutes or regulations.
No benefit payable under the provisions of the Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any attempt so to anticipate, alienate, sell, transfer, assign, pledge, encumber or charge the same shall be void; nor shall any such benefits be in any manner liable for or subject to the debts, contracts, liabilities, engagements or torts of any member or beneficiary except as specifically provided in the Plan, or by a qualified domestic relations order within the meaning of Section 414(p) of the Internal Revenue Code, or by any other applicable law.
a. Adoption of Plan: Any corporation, with the consent of the Company, by taking appropriate corporate action may become an Associate Company and secure the benefits of this Plan for its employees by adopting this Plan as its Retirement Annuity Plan and by executing the Trust Agreement. As a condition to such corporation becoming an Associate Company, the Company may require such corporation to modify or amend any pension plan which such corporation may then have so as to conform to the provisions of this Plan, or to limit Prior Service, as defined in Section 3, to service rendered for such corporation on and after a date to be determined by the Company. The Associate Company shall thereafter promptly deliver to the Trustee a certified copy of the resolutions or other documents evidencing its adoption of this Plan and also a written instrument showing the consent by the Company to such adoption.
b. Employee Transfers: Any employee who is transferred from one employer under this Plan to another employer under this Plan shall receive upon retirement a retirement annuity based on his Creditable Service with all such employers.
c. Withdrawal: The Company may upon thirty (30) days written notice
request an Associate Company to withdraw from the Plan and upon the expiration
of such thirty (30) day period, unless such Associate Company has taken the
appropriate corporate action to accomplish such withdrawal, such Associate
Company shall be deemed to have withdrawn from the Plan and the provisions of
Section 12 shall apply. The Retirement Committee shall give written notice to
the Trustee of any such withdrawal.
Any employer may withdraw from the Plan by giving the Retirement Committee thirty (30) days written notice of its intention to withdraw. In the event any employer withdraws from the Plan, the Retirement Committee shall thereupon determine, on the basis of actuarial valuation, that portion of the annuity trust fund held on account of the employees of such employer not yet retired. The Retirement Committee shall thereupon instruct the Trustee to set aside such assets in the annuity trust fund, as the Retirement Committee shall specify, which equal in value that portion of the annuity trust fund so determined by the Retirement Committee. The Retirement Committee in its discretion shall direct the Trustee either (1) to hold such assets so set aside for the exclusive benefit of the employees of such withdrawing employer, who were members under this Plan on the date of such withdrawals; or (2) to deliver such assets to such trustee or trustees as shall be selected by such withdrawing employer; or (3) to use such assets to purchase an appropriate retirement annuity for each employee of such withdrawing employer who was a member on the date of such withdrawal.
a. Application of Funds: Upon complete or partial termination of the Plan, the rights of all affected members to affected benefits accrued to the date of such termination, to the extent then funded, shall be non-forfeitable. If the Plan is terminated by an employer for any reason, the funds in the trust shall be used and applied by the Retirement Committee, after expenses, exclusively for the benefit of members and annuitants at the time of termination in accordance with the formula set forth below by either purchasing or arranging for payment of an appropriate annuity or any other form of payment approved by the Retirement Committee, and for no other purpose, and when so used and applied the trust shall finally cease and be at an end. The funds shall be allocated for distribution in the following order:
(1) In the case of a benefit, payable as an annuity to a member or beneficiary, which was in pay status as of the beginning of the three-year period ending on the termination date of the Plan, to each such benefit, based on the provisions of the Plan (as in effect under the five-year period ending on such date) under which such benefit would be the least.
(2) In the case of a benefit, payable as an annuity to a participant or beneficiary, which would have been in pay status as of the beginning of such three-year period if the participant had retired prior to the beginning of the three-year period and if his benefits had commenced (in the normal form of annuity under the Plan) as of the beginning of such period, to each such benefit based on the provisions of the Plan (as in effect during the five-year period ending on such date) under which such benefit would be the least.
(3) To all other benefits, if any, of individuals under the Plan subject to the Pension Benefit Guaranty Corporation insurance guarantee and to any additional benefits to a substantial owner, as that term is defined in Section 4022(b)(6)(A) of the Employee Retirement Income Security Act of 1974, which would be subject to the guarantee but for their "substantial owner" status.
(4) To all other non-forfeitable benefits under the Plan and, if the assets are not sufficient to cover all such remaining non-forfeitable benefits, then to the benefits resulting from the Plan as in effect five years prior to the date of termination, and if assets remain after satisfaction of such benefits, then to each increase in benefits resulting from amendments during the last five years in the order in which those amendments occurred.
(5) To all other benefits under the Plan.
(6) In the event that there remain additional funds available for
distribution after the funds have been distributed as provided in said
paragraphs (1), (2), (3), (4) and (5) above, any other provisions of this
Section 13 notwithstanding, any funds, remaining as a result of actuarial error
may be reclaimed by the employer. Any of such funds remaining, but not as a
result of actuarial error, and/or any of such funds remaining as a result of
actuarial error, but not reclaimed by the employer, shall be distributed in such
a manner that all the annuitants and members included in paragraphs (1), (2),
(3), (4) and (5) above shall receive an additional amount determined by
multiplying the total value of these remaining assets in the trust fund by a
percentage computed by dividing the value as of the date of termination of such
annuitant's remaining benefits or such member's benefits, as the case may be, by
the total value as of the date of termination of the remaining benefits, or the
benefits of all such annuitants or members under the Plan, as the case may be.
b. In the event of the termination of the Plan, the benefit of any one of the twenty-five (25) most highly compensated employees (whether a current or former employee) is limited to a benefit that is nondiscriminatory under Section 401(a)(4) of the Internal Revenue Code.
c. Unless an escrow or similar agreement is permitted and established
in accordance with IRS procedures, annual payments to any one of the twenty-five
(25) most highly compensated employees is restricted to the sum of:
(1) the amount that would be paid under a straight life annuity that is the actuarial equivalent of the employee's accrued benefit and other benefits to which the employee is entitled under the Plan; and
(2) the amount the employee is entitled to receive under a social security supplement.
However, none of the restrictions in this subsection (c) shall apply to any one of the twenty-five (25) most highly compensated employees if any of the conditions set forth in IRS Regulations Section 1.401(a)(4)-5(b)(3)(iv) are satisfied with respect to such employee.
d. Excess Reserves: Any excess reserves resulting from the application of the foregoing provisions of this Section shall be used and applied for the benefit of other members who are employees of such employer, in accordance with the provisions of the Plan.
e. Change in Law: In the event that it should subsequently be determined by statute, court decision administrative ruling, or otherwise, that the provisions of this Section applicable to the twenty-five (25) most highly compensated employees are no longer necessary to qualify the Plan under the Internal Revenue Code, such provisions shall be ineffective without the necessity of further amendment of the Plan.
In the event of any merger or consolidation of the Plan with, or transfer in whole or in part of the assets and liabilities of the trust fund to another trust fund held under, any other plan of deferred compensation maintained or to be established for the benefit of all or some of the members of this Plan, the assets of the trust fund applicable to such members shall be transferred to the other trust fund only if:
a. Each member would, if either this Plan or the other plan were to terminate at such time, receive a benefit immediately after the merger, consolidation or transfer which is equal to or greater than the benefit he would have been entitled to receive immediately before the merger, consolidation or transfer if this Plan had then terminated;
b. The employer and any new or successor employer of the affected members shall authorize such transfer of assets; and
c. Such new or successor employer shall assume all liabilities with respect to such members' inclusion in the new employer's plan.
Any request by a member or any other person for any benefit alleged to be due under the Plan shall be known as a "Claim" and the member or such other person making a Claim shall be known as a "Claimant."
A Claim shall be filed when a written statement has been made by the
Claimant or his authorized representative and delivered to the Senior Vice
President - Employee Resources, Pfizer Inc, 235 East 42nd Street, New York, New
York 10017. This statement shall include a general description of the benefit
which the Claimant believes is due and the reasons that the Claimant believes
such benefit to be due, to the extent this is within the knowledge of the
Claimant. It shall not be necessary for the Claimant to cite any particular
Section or Sections of the Plan, but only to set out the facts known to him
which he believes constitute a basis for a Claim.
Within 90 days of the receipt of the Claim by the Plan, the Senior Vice President - Employee Resources shall (i) notify the Claimant that the Claim has been approved, (ii) notify the Claimant that the Claim has been partially approved and partially denied, or (iii) notify the Claimant that the Claim has been denied. Notice of the decision shall be in writing and shall be delivered to the Claimant either personally or by first-class mail. Special circumstances may require an extension of time for processing the claim. In such event, written notice of the extension shall be furnished to the Claimant prior to the termination of the initial 90 day period but in no event shall the extension exceed a period of 90 days from the end of such initial period. The notice shall indicate the special circumstances requiring an extension of time and the date by which the Plan expects to render the final decision.
In the event a Claim is denied in whole or in part, the notice of denial shall set forth (i) the specific reason or reasons for the denial, (ii) specific reference to the pertinent Plan provisions on which the denial is based, (iii) a description of any additional material or information necessary for the Claimant to perfect the Claim and an explanation of why such material or information is necessary, and (iv) an explanation of the Plan's claims review procedure.
Within 60 days of the receipt of a notice of denial of a Claim in whole or in part, a Claimant or his duly authorized representative (i) may request a review upon written application to the Retirement Committee, (ii) may review documents pertinent to the Claim, and (iii) may submit issues and comments in writing to the Retirement Committee.
It shall be the duty of the Retirement Committee to review a Claim for which a request for review has been made and to render a decision not later than 60 days after receipt of a request for review; provided, however, that if special circumstances require an extension of time for processing, a decision shall be rendered no later than 120 days after receipt of a request for review. Written notice of any such extension shall be furnished to the Claimant within 60 days after receipt of request for review. The decision shall be in writing and shall include the specific reasons for the decision and specific references to the pertinent Plan provisions on which the decision is based. The decision shall be delivered to the Claimant either personally or by first-class mail. If the decision on review is not furnished within such time, the Claim shall be deemed denied on review.
a. Notwithstanding any provision in the Plan to the contrary, if the
Plan is determined by the Retirement Committee to be top-heavy, as that term is
defined in Section 416 of the Internal Revenue Code, in any calendar year,
commencing on or after January 1, 1984, then for that calendar year the vesting
schedule and minimum benefit rules, as set forth below, shall be applicable.
Determination of whether the Plan is top-heavy shall be made in accordance with
Section 416(g)(2)(B) of the Internal Revenue Code.
b. Definitions solely applicable to this Section 16.
(1) "Compensation" shall mean the amount reportable by the employer for federal income tax purposes as wages paid to the member for such period.
(2) "Determination Date," the date for determining whether the Plan is top-heavy, shall be the December 31 of the preceding year.
(3) "Key Employee" shall have the same meaning as in Section 416(i)(1) of the Internal Revenue Code.
(4) "Non-Key Employee" shall mean an employee other than a Key Employee as defined in subsection b.(3) above.
(5) "Testing Period" shall mean the period of consecutive years, not exceeding five (5), during which a member had the greatest aggregate compensation from the employer, but not including years beginning before January 1, 1984 or years in which this Plan was determined not to be top-heavy.
(6) "Valuation Date," for minimum funding purposes, shall be a date within the twelve-month period ending on the Determination Date, regardless of whether a valuation for minimum funding purposes is performed in that year.
c. For the purpose of determining whether this Plan is top-heavy, this Plan, the Company's Savings and Investment Plan, and the Company's Employee Stock Ownership Plan shall be aggregated, as provided in Section 416(g)(2)(A) of the Internal Revenue Code.
d. Vesting Schedule: Employees shall acquire a vested interest in an annuity under the Plan in accordance with the following schedule:
20% of the accrued benefit under Section 4a. after two (2) Anniversary Years of Creditable Service; 40% of the accrued benefit under Section 4a. after three (3) Anniversary Years of Creditable Service; 60% of the accrued benefit under Section 4a. after four (4) Anniversary Years of Creditable Service; 80% of the accrued benefit under Section 4a. after five (5) Anniversary Years of Creditable Service; and 100% of the accrued benefit under Section 4a. after six (6) Anniversary Years of Creditable Service.
e. Minimum Benefit Rule: A Non-Key Employee's benefit shall not be less than the lesser of: 2% of his average compensation during the testing period, not exceeding the compensation limitation under Section 416(d) of the Internal Revenue Code and applicable regulations, multiplied by those years of service with the employer on or after January 1, 1984 in which this Plan is determined to be top-heavy or 20% of his average compensation during the testing period; provided, however, that any minimum benefit provided under this Section 16 shall be offset by the actuarial equivalent of the value of the employer's contributions to the Company's Savings and Investment Plan and the Company's Employee Stock Ownership Plan on the Non-Key Employee's behalf. Such actuarial equivalent shall be calculated using the Pension Benefit Guaranty
Corporation immediate annuity lump sum factor, with male and female factors equally weighted, in effect three (3) months prior to termination of employment. All accruals derived from employer contributions, whether or not attributable to years in which the Plan is top-heavy, may be used in determining whether the minimum accrued benefit requirements for a Non-Key Employee has been satisfied.
f. If the Plan becomes subject to the adjustments pursuant to Section
416(h) of the Internal Revenue Code, the defined benefit plan fraction described
in Section 415(e)(2)(B) and the defined contribution fraction described in
Section 415(e)(3)(B) shall be applied by substituting 1.0 for 1.25 in the
denominator of each fraction.
g. If the Plan becomes top-heavy and in a subsequent year ceases to be
top-heavy, the vesting schedule under Section 16d. shall revert to the vesting
schedule under Section 4c. of the Plan provided, however, that any employee who
has completed at least five (5) or more years of Creditable Service at the time
the Plan ceases to be top-heavy and who had at least one (1) hour of service
while the Plan was a top-heavy plan, shall be entitled to elect, within a
reasonable period (such period to be determined by the Retirement Committee when
relevant but in no event no earlier than 60 days following the latest of (i) the
date upon which the reversion to the prior vesting schedule became effective, or
(ii) the day the employee is issued written notice by the Retirement Committee
that the prior schedule is applicable), whether the vesting schedule in Section
16d. or in Section 4c. is applicable to his benefit.
Groups or Classes eligible for participation in the Retirement Annuity Plan (except in each case employees covered by a collective bargaining agreement that does not provide for coverage of such employees under the Plan):
1. All employees in the service of Pfizer Inc at the following locations:
New York Headquarters, New York, New York
Brooklyn Plant, Brooklyn, New York
Groton Plant and Research Laboratories, Groton, Connecticut
Vigo Plant and Research Laboratories, Terre Haute, Indiana
Washington Office, Washington, D.C.
Atlanta Branch, Doraville, Georgia
Chicago Branch, Hoffman Estates, Illinois
Clifton Branch, Clifton, New Jersey
Dallas Branch, Dallas, Texas
Parsippany Plant, Parsippany, New Jersey
Irvine Branch, Irvine, California
Lee's Summit Plant, Lee's Summit, Missouri
Aviation Department, West Trenton, New Jersey
Lincoln, Nebraska
West Chester, Pennsylvania
Exton, Pennsylvania
Miami, Florida
Omaha, Nebraska
White Hall, Illinois
Albany, New York
Arlington, Texas
Ashland, Virginia
Englewood, Colorado
Marietta, Georgia
Olive Branch, Mississippi
Orlando, Florida
Sacramento, California
South Bend, Indiana
Memphis, Tennessee
2. Headquarters Foreign Residents in the service of a foreign subsidiary (as defined in Section 3121(1)(8) of the Internal Revenue Code) of Pfizer Inc who are United States citizens employed outside the continental limits of the United States.
3. All Field Sales Personnel in the service of the following groups or divisions of Pfizer Inc:
Pfizer Laboratories
Animal Health Group
Roerig
Consumer Health Care Group
Pratt
National Health Care Operations
Specialty
Powers Rx
Pfizer Corporation Carolina
4. All employees in the service of the following Associate Companies:
Pfizer International Inc.
Howmedica, Inc.
Howmedica Management and Technical Services, Ltd.
Pfizer Pharmaceuticals, Inc.
Shiley Heart Valve Research Center
Valleylab, Inc.
Strato/Infusaid, Inc.
Schneider (USA) Inc., a Pfizer Company
American Medical Systems, Inc.
NAMIC USA Corporation
Corvita Corporation
Howmedica Leibinger Inc.
5. All employees employed in Puerto Rico by Pfizer Corporation, an Associate Company.
The following table sets forth the percentages which will apply at the ages indicated in the computation of vested benefits:
Age Percentage ----------------------------- 65 100 64 94 63 88 62 82 61 76 60 70 59 64 58 58 57 52 56 46 55 40 |
The following table sets forth the percentages which will apply at the ages indicated in the computation of early retirement benefits:
Age Percentage ------------------------------ 65 100 64 96 63 92 62 88 61 84 60 80 59 76 58 72 57 68 56 64 55 60 |
This Agreement, made and entered into as of the ____ day of _______, 199_ ("Agreement"), by and between Pfizer Inc. a Delaware corporation ("Company"), and [INSERT NAME] ("Indemnitee"):
WHEREAS, highly competent persons are becoming more reluctant to serve publicly-held corporations as directors or in other capacities unless they are provided with adequate protection through insurance or adequate indemnification against inordinate risks of claims and actions against them arising out of their service to and activities on behalf of the corporation; and
WHEREAS, the current impracticability of obtaining adequate insurance and the uncertainties relating to indemnification have increased the difficulty of attracting and retaining such persons;
WHEREAS, the Board of Directors of the Company (the "Board") has determined that the inability to attract and retain such persons is detrimental to the best interests of the Company's stockholders and that the Company should act to assure such persons that there will be increased certainty of such protection in the future; and
WHEREAS, it is reasonable, prudent and necessary for the Company contractually to obligate itself to indemnify such persons to the fullest extent permitted by applicable law so that
they will serve or continue to serve the Company free from undue concern that they will not be so indemnified; and
WHEREAS, Indemnitee is willing to serve, continue to serve and to take on additional service for or on behalf of the Company on the condition that he be so indemnified;
NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows:
or is threatened to be made, a party to any threatened, pending, or completed Proceeding (as hereinafter defined), other than a Proceeding by or in the right of the Company. Pursuant to this Section 3, Indemnitee shall be indemnified against Expenses, judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by him or on his behalf in connection with such Proceeding or any claim, issue or matter therein, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal Proceeding, had no reasonable cause to believe his conduct was unlawful.
against Expenses shall nevertheless be made by the Company in such event if and only to the extent that the Court of Chancery of the State of Delaware, or the Court in which such Proceeding shall have been brought or is pending, shall determine.
(a) To obtain indemnification under this Agreement, Indemnitee shall submit to the Company a written request, including therein or therewith such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification. The Secretary of the Company shall, promptly upon receipt of such a request for indemnification, advise the Board of Directors in writing that Indemnitee has requested indemnification.
(b) Upon written request by Indemnitee for indemnification pursuant to the first sentence of Section 8(a) hereof, a determination, if required by applicable law, with respect to Indemnitee's entitlement thereto shall be made in the
specific case: (i) if a Change in Control (as hereinafter defined) shall have
occurred, by Independent Counsel (as hereinafter defined) (unless Indemnitee
shall request that such determination be made by the Board of Directors or the
stockholders, in which case by the person or persons or in the manner provided
for in clauses (ii) or (iii) of this Section 8(b)) in a written opinion to the
Board of Directors, a copy of which shall be delivered to Indemnitee; (ii) if a
Change of Control shall not have occurred, (A) by the Board of Directors by a
majority vote of a quorum consisting of Disinterested Directors (as hereinafter
defined), or (B) if a quorum of the Board of Directors consisting of
Disinterested Directors is not obtainable or, even if obtainable, such quorum of
Disinterested Directors so directs, by Independent Counsel in a written opinion
to the Board of Directors, a copy of which shall be delivered to Indemnitee or
(C) by the stockholders of the Company; or (iii) as provided in Section 9(b) of
this Agreement; and, if it is so determined that Indemnitee is entitled to
indemnification, payment to Indemnitee shall be made within ten (10) days after
such determination. Indemnitee shall cooperate with the person, persons or
entity making such determination with respect to Indemnitee's entitlement to
indemnification, including providing to such person, persons or entity upon
reasonable advance request any documentation or information which is not
privileged or otherwise protected from disclosure and which is reasonably
available to Indemnitee and reasonably necessary to such determination. Any
costs or expenses (including attorneys' fees and disbursements)
incurred by Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Company (irrespective of the determination as to Indemnitee's entitlement to indemnification) and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.
(c) In the event the determination of entitlement to indemnification
is to be made by Independent Counsel pursuant to Section 8(b) hereof, the
Independent Counsel shall be selected as provided in this Section 8(c). If a
Change of Control shall not have occurred, the Independent Counsel shall be
selected by the Board of Directors, and the Company shall give written notice to
Indemnitee advising him of the identity of the Independent Counsel so selected.
If a Change of Control shall have occurred, the Independent Counsel shall be
selected by Indemnitee (unless Indemnitee shall request that such selection be
made by the Board of Directors, in which event the preceding sentence shall
apply), and Indemnitee shall give written notice to the Company advising it of
the identity of the Independent Counsel so selected. In either event,
Indemnitee or the Company, as the case may be, may, within 7 days after such
written notice of selection shall have been given, deliver to the Company or to
Indemnitee, as the case may be, a written objection to such selection. Such
objection may be asserted only on the ground that the Independent Counsel so
selected does not meet the requirements of "Independent Counsel" as defined in
Section 17 of this Agreement, and the objection shall set forth with
particularity the factual basis of such assertion. If such
written objection is made, the Independent Counsel so selected may not serve as Independent Counsel unless and until a court has determined that such objection is without merit. If, within 20 days after submission by Indemnitee of a written request for indemnification pursuant to Section 8(a) hereof, no Independent Counsel shall have been selected and not objected to, either the Company or Indemnitee may petition the Court of Chancery of the State of Delaware or other court of competent jurisdiction for resolution of any objection which shall have been made by the Company or Indemnitee to the other's selection of Independent Counsel and/or for the appointment as Independent Counsel of a person selected by the Court or by such other person as the Court shall designate, and the person with respect to whom an objection is so resolved or the person so appointed shall act as Independent Counsel under Section 8(b) hereof. The Company shall pay any and all reasonable fees and expenses of Independent Counsel incurred by such Independent Counsel in connection with acting pursuant to Section 8(b) hereof, and the Company shall pay all reasonable fees and expenses incident to the procedures of this Section 8(c), regardless of the manner in which such Independent Counsel was selected or appointed. Upon the due commencement of any judicial proceeding or arbitration pursuant to Section 10(a)(iii) of this Agreement, Independent Counsel shall be discharged and relieved of any further responsibility in such capacity (subject to the applicable standards of professional conduct then prevailing).
(a) If a Change of Control shall have occurred, in making a determination with respect to entitlement to indemnification hereunder, the person or persons or entity making such determination shall presume that Indemnitee is entitled to indemnification under this Agreement if Indemnitee has submitted a request for indemnification in accordance with Section 8(a) of this Agreement, and the Company shall have the burden of proof to overcome that presumption in connection with the making by any person, persons or entity of any determination contrary to that presumption.
with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his conduct was unlawful.
(a) In the event that (i) a determination is made pursuant to Section
8 of this Agreement that Indemnitee is not entitled to indemnification under
this Agreement, (ii) advancement of Expenses is not timely made pursuant to
Section 7 of this Agreement, (iii) the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant to Section 8(b) of
this Agreement and such determination shall not have been made and delivered in
a written opinion within 90 days after receipt by the Company of the request for
indemnification, or (iv) payment of indemnification is not made pursuant to
Section 6 of this Agreement within ten (10) days after receipt by the Company of
a written request therefor, or (v) payment of indemnification is not made within
ten (10) days after a determination has been made that Indemnitee is entitled to
indemnification or such determination is deemed to have been made pursuant to
Section 8 or 9 of this Agreement, Indemnitee shall be entitled to an
adjudication in an appropriate court of the State of Delaware, or in any other
court of competent jurisdiction, of his entitlement to such indemnification or
advancement of Expenses. Alternatively, Indemnitee, at his option, may seek an
award in arbitration to be conducted by a single arbitrator pursuant to the
rules of the American Arbitration Association. Indemnitee shall commence such
proceeding seeking an adjudication or an award in arbitration within 180 days
following the date on
which Indemnitee first has the right to commence such proceeding pursuant to this Section 10(a). The Company shall not oppose Indemnitee's right to seek any such adjudication or award in arbitration.
(c) If a determination shall have been made or deemed to have been
made pursuant to Section 8 or 9 of this Agreement that Indemnitee is entitled to
indemnification, the Company shall be bound by such determination in any
judicial proceeding or arbitration commenced pursuant to this Section 10, absent
(i) a misstatement by Indemnitee of a material fact, or an omission of a
material fact necessary to make Indemnitee's statement not materially
misleading, in connection with the request for indemnification, or (ii) a
prohibition of such indemnification under applicable law.
(d) The Company shall be precluded from asserting in any judicial proceeding or arbitration commenced
pursuant to this Section 10 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound by all the provisions of this Agreement.
(e) In the event that Indemnitee, pursuant to this Section 10, seeks a judicial adjudication of or an award in arbitration to enforce his rights under, or to recover damages for breach of, this Agreement, Indemnitee shall be entitled to recover from the Company, and shall be indemnified by the Company against, any and all expenses (of the types described in the definition of Expenses in Section 17 of this Agreement) actually and reasonably incurred by him in such judicial adjudication or arbitration, but only if he prevails therein. If it shall be determined in said judicial adjudication or arbitration that Indemnitee is entitled to receive part but not all of the indemnification or advancement or expenses sought, the expenses incurred by Indemnitee in connection with such judicial adjudication or arbitration shall be appropriately prorated.
(a) The rights of indemnification and to receive advancement of Expenses as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Certificate of Incorporation, the By-Laws, any agreement, a vote of stockholders or a resolution of directors, or otherwise. No
amendment, alteration or termination of this Agreement or any provision hereof shall be effective as to any Indemnitee with respect to any action taken or omitted by such Indemnitee in his Corporate Status prior to such amendment, alteration or termination.
(b) To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, officers, employees, agents or fiduciaries of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which such person serves at the request of the Company, Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any such director, officer, employee or agent under such policy or policies.
(c) In the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.
(d) The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable hereunder if and to the extent that Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise.
Control shall be deemed to have occurred if after the Effective Date (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company's then outstanding securities without the prior approval of at least two-thirds of the members of the Board of Directors in office immediately prior to such person attaining such percentage interest; (ii) the Company is a party to a merger, consolidation, sale of assets or other reorganization, or a proxy contest, as a consequence of which members of the Board of Directors in office immediately prior to such transaction or event constitute less than a majority of the Board thereafter; or (iii) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors (including for this purpose any new director whose election or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period) cease for any reason to constitute at least a majority of the Board of Directors.
(b) "Corporate Status" describes the status of a person who is or was a director, officer, employee, agent or fiduciary of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise which such person is or was serving at the request of the Company.
(c) "Disinterested Director" means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee.
(d) "Effective Date" means May 23, 1996.
(e) "Expenses" shall include all reasonable attorneys' fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, or being or preparing to be a witness in a Proceeding.
(f) "Independent Counsel" means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past five years has been, retained to represent: (i) the Company or Indemnitee in any matter material to either such party, or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term "Independent Counsel" shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee's rights under this Agreement.
(g) "Proceeding" includes any action, suit, arbitration, alternate dispute resolution mechanism, investigation, administrative hearing or any other proceeding whether civil, criminal, administrative or investigative, except one initiated by an Indemnitee pursuant to Section 10 of this Agreement to enforce his rights under this Agreement.
(a) If to Indemnitee, to:
[INSERT NAME]
Pfizer Inc.
235 East 42nd Street
New York, NY 10017
(b) If to the Company to:
Pfizer Inc.
235 East 42nd Street
New York, New York 10017
Attn: Office of the Secretary
or such other address as may have been furnished to Indemnitee by the Company or to the Company by Indemnitee, as the case may be.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
ATTEST: PFIZER INC.
By____________________________ By___________________________
INDEMNITEE
Address: [INSERT NAME]
Pfizer Inc.
235 East 42nd Street
New York, NY 10017
|
ARTICLE 1. PURPOSE
1.1 Pfizer Inc., a Delaware corporation (the "Company"), hereby establishes, effective as of December 1, 1997, a deferred compensation plan for key employees as described herein, which shall be known as the "Pfizer Inc. Deferred Compensation Plan" ( the "Plan")
1.2 Purpose. The purpose of the Plan is to provide certain key employees of the Company with the opportunity to voluntarily defer a portion of their compensation, subject to the terms of the Plan. By adopting the Plan, the Company desires to enhance its ability to attract and retain key employees.
ARTICLE 2. DEFINITIONS
Whenever used herein, the following terms when capitalized shall have the meaning set forth below:
a "Award" means the Annual Incentive Award based on an assessment of performance, payable by the Company to a Participant for the Participant's services during a given calendar year of the Company. Awards shall be deemed earned only upon formal announcement thereof by the Company.
b "Board" or "Board of Directors" means the Board of Directors of the Company.
c "Change in Control" shall mean the occurrence of any of the following events:
(i) at any time during a two-year period, at least a majority of the Company's Board of Directors shall cease to consist of "Continuing Directors" (meaning directors of the Company who either were directors at the beginning of such two-year period or who subsequently became directors and whose election, or nomination for election by the Company's stockholders, was approved by a majority of the then Continuing Directors); or
(ii) any "person" or "group" (as determined for purposes of Section 13(d)(3) of the Securities Exchange Act of 1934), except any majority- owned subsidiary of the Company or any employee benefit plan of the Company or any trust or investment manager thereunder, shall have acquired "beneficial ownership" (as determined for purposes of Securities and Exchange Commission ("SEC") Regulation 13d-3) of shares of Common Stock of the Company having 15% or more of the voting power of all outstanding shares of capital stock of the Company, unless such acquisition is approved by a majority of the directors of the Company in office immediately preceding such acquisition; or
(iii) a merger or consolidation occurs to which the Company is a party, whether or not the Company is the surviving corporation, in which outstanding shares of Common Stock of the Company are converted into shares of another company (other than a conversion into shares of voting common stock of the successor corporation or a holding company thereof representing 80% of the voting power of all capital stock thereof outstanding immediately after the merger or consolidation) or
other
securities (of either the Company or another company) or cash or other property; or
(iv) the sale of all, or substantially all, of the Company's assets occurs; or
(v) the stockholders of the Company approve a plan of complete liquidation of the Company.
d "Code" means the Internal Revenue Code of 1986, as amended.
e "Committee" means the Executive Compensation Committee of the Board or the Employee Compensation and Management Development Committee, as appropriate, and any successor thereto.
f "Company" means Pfizer Inc., a Delaware corporation (including any and all subsidiaries), and any successor thereto.
g "Compensation" means the gross Salary, Award, Long-Term Incentive Awards, and other payments which may be eligible for deferral under the Plan, which are payable to a Participant with respect to services performed during a specified period.
h "Disability" means a disability which would qualify the Participant for Long- Term Disability benefits under the Pfizer Long Term Disability Plan and, as such plan may be amended from time to time.
i "Employee" means a salaried employee of the Company.
j "ERISA" means the Employee Retirement Income Security Act of 1974.
k "Federal Long-term Rate" means the 30-year constant maturity U.S. Treasury Rate from the Federal Reserve Bank for the previous month.
l "Long-Term Incentive Awards" means Performance-Contingent Share Awards or proceeds from a cashless exercise of stock options.
m "Participant" means an Employee who has elected to participate in the Plan.
n "Salary" means all regular wages, before reduction for amounts deferred pursuant to the Plan or any other plan of the Company, payable in cash to a Participant for services rendered during the calendar year, exclusive of any Award, Long-Term Incentive Awards, other special fees, allowance, or amounts designated by the Company as payment toward or reimbursement of expenses.
ARTICLE 3. ADMINISTRATION
3.1 Authority of the Committee. The Committee shall initially administer the Plan. Subject to the terms of this Plan, the Committee may appoint a successor committee to administer the Plan.
Subject to the provisions herein, the Committee shall have the exclusive discretion to select Employees for participation in the Plan; to determine the terms and conditions of each Employee's participation in the Plan; to make, in its sole discretion, all determinations arising in the administration, construction or interpretation of the Plan including the right to construe disputed or doubtful Plan terms and provisions, and any such determination shall be conclusive and binding on all persons, except as otherwise provided by law; to construe and interpret any
agreement or instrument entered into under the Plan; to establish, amend, or waive rules and regulations for the Plan's administration; to amend (subject to the provisions of Article 9 herein) the terms and conditions of the Plan and any agreement entered into under the Plan; and to make other determinations which may be necessary or advisable for the administration of the Plan. Subject to the terms of the Plan, the Committee may delegate any or all of its authority granted under the Plan to one or more executives of the Company.
3.2 Claims Procedure. If a request for benefits by a Participant or beneficiary is wholly or partially denied, the Committee will provide such claimant written notice setting forth the denial. A review procedure is available upon written notice of the denial of the claim, and includes the right to examine pertinent documents and submit issues and comments in writing to the Committee. The decision on review will be made within 90 days after receipt of the request for review, unless circumstances warrant an extension of time not to exceed an additional 90 days, and shall be in writing. If a decision on review is not made within such period, the Participant's claim shall be deemed denied.
3.3 Decisions Binding. All determinations and decisions of the Committee as to any disputed question arising under the Plan shall be final, conclusive and binding on all parties.
ARTICLE 4. ELIGIBILITY AND PARTICIPATION
4.1 Eligibility. Employees eligible to participate in the Plan include key employees of the Company, as selected by the Committee in its sole discretion. It is the intent of the Company to extend eligibility only to those executives who comprise a select group of "management or highly compensated employees," such that the Plan will qualify for treatment as a "Top hat" plan within the meaning of Sections 201, 301 and 401 of ERISA.
In the event a Participant no longer meets the requirements for participation in the Plan, such Participant shall become an inactive Participant, retaining all the rights described under the Plan, except the right to make any further deferrals, until such time as the Participant again becomes eligible for participation in the Plan, at which time the Participant shall become an active Participant.
4.2 Participation. Participation in the Plan shall be determined annually by the Committee based upon the criteria set forth in Section 4.1 herein. Employees who are chosen to participate in the Plan in any given year shall be so notified in writing.
4.3 Partial Year Eligibility. In the event than an Employee first becomes
eligible to participate in the Plan during any given year, such Employee shall
as soon as practicable be so notified in writing by the Company and provided
with an "Election Form," which must be completed by the Employee as set forth in
Section 5.2 herein; provided, however, that such Employee may make an election
to defer only with respect to that portion of his or her Compensation for such
year which is to be paid after the date of filing of the deferral election.
ARTICLE 5. DEFERRAL OPPORTUNITY
5.1 Amount Which May Be Deferred. A Participant may elect to defer up to one hundred percent (100%) of eligible components of Compensation, provided, that the Committee shall have sole discretion to designate which components of Compensation are eligible for deferral elections under the Plan in any such year. The minimum amount of any single eligible component of Compensation, which may be deferred in any given year, is ten percent (10%) of each such
component. In addition, an election to defer Compensation in any given year must be expressed by each Participant in increments of ten percent (10%) of the applicable component of Compensation.
5.2 Deferral Election. Participants shall make their elections to defer
Compensation under the Plan for a given calendar year not later than (a) thirty
(30) days prior to the beginning of such calendar year or (b) if Participants
are notified after the beginning of the calendar year of their selection to
participate in the plan for such calendar year or a partial calendar year,
within thirty (30) days of receipt of such notice. All deferral elections shall
be irrevocable; shall relate solely to amounts earned after the filing of a
deferral election with the Committee; and shall be made on an "Election Form,"
as described herein.
Participants shall make the following irrevocable elections on each "Election Form":
(a) The amount to be deferred with respect to each eligible component of Compensation for the specified year;
(b) The length of the deferral period with respect to each eligible component of Compensation, pursuant to the terms of Section 5.3 herein.
5.3 LENGTH OF DEFERRAL. The deferral periods elected by each Participant with respect to deferrals of Compensation for any given year shall be selected from among the choices specified by the Committee. The Committee shall specify one or more deferral periods which are at least three (3) years following the end of the calendar year in which the Compensation is earned, and no greater than five (5) years following retirement.
5.4 PAYMENT OF DEFERRED AMOUNTS. Subject to the provisions of Section 5.5 and Section 9 of the Plan, Participants shall receive payment of deferred amounts, together with interest earned thereon, at the end of the deferred period in a single lump-sum cash payment, unless otherwise elected. If alternative methods for receiving payments are approved by the Committee, the Participant shall make election of the method of payment within the same time periods as required in Section 5.2 of the Plan.
(a) Lump-Sum Payment. A lump sum payment shall be made in cash within sixty (60) days of the end of the deferral period by the Participant, as described in Sections 5.2 and 5.3 herein.
(b) Installment Payments. If approved by the Committee, Participants may elect payout in annual installments, with a minimum number of installments of two (2), and a maximum of fifteen (15). The initial payment shall be made in cash within sixty (60) days after the commencement date selected by the Participant pursuant to Sections 5.2 and 5.3 herein. The remaining installment payments shall be made in cash each year thereafter, until the Participant's entire deferred compensation account has been paid. Earnings shall accrue on the deferred amounts in the Participant's deferred compensation account immediately prior to each such payment, multiplied by a fraction, the numerator of which is one (1), and the denominator of which is the number of installment payments remaining.
(c) Alternative Payment Schedule. If approved by the Committee, a Participant may elect an alternate payment schedule.
5.5 CHANGE IN CONTROL. Notwithstanding any provision contained in the Plan, in the event of a Change in Control, all participants shall be entitled to an immediate lump sum payment of their deferred amounts, together with earnings thereon.
ARTICLE 6. DEFERRED COMPENSATION ACCOUNTS
6.1 PARTICIPANTS' ACCOUNTS. The Company shall establish and maintain an individual bookkeeping accounts for deferrals made by each Participant under Article 5 herein. Each account shall be credited as of the date the amount deferred otherwise would have become due and payable to the Participant.
6.2 Earnings on Deferred Amounts. Compensation deferred under Article 5 shall accrue earnings on bases selected by the Participant from among the alternatives specified by the Committee from time to time. Earnings on deferred amounts (less the amount of any debits for any losses) shall be paid out to Participants at the same time and in the same manner as the underlying deferred amounts.
6.3 Charges Against Accounts. Each Participant's deferred compensation account shall be debited for any payments made to the Participant or to his or her beneficiary.
6.4 Designation of Beneficiary. Each Participant may designate a beneficiary or beneficiaries (who may be named contingently or successively) who, upon the Participant's death, will receive the amounts that otherwise would have been paid to the Participant under the Plan. All designations shall be signed by the Participant, and shall be in such form as prescribed by the Committee. Each designation shall be effective as of the date received from the Participant by the appropriate representative of the Company.
Participants may change their beneficiary designations on a form prescribed by the Committee. The payment of amounts deferred under the Plan shall be in accordance with the last unrevoked written designation of beneficiary that has been signed by the Participant and properly delivered by the Participant prior to the Participant's death.
In the event that a Participant does not designate a beneficiary, or for any reason such designation is ineffective, in whole or in part, the amounts that otherwise would have been paid to the Participant or the Participant's beneficiaries under the Plan shall be paid to the Participant's estate.
ARTICLE 7. RIGHTS OF PARTICIPANTS
7.1 Contractual Obligation. The Plan shall create a contractual obligation on the part of the Company to make payments of amounts equal to the balances in a Participant's accounts when due. Payment of account balances shall be made out of the general funds of the Company.
7.2 Unsecured Interest. No Participant, or party claiming an interest in deferred amounts or earnings thereon through a Participant, shall have any interest whatsoever in any specific asset of the Company. To the extent that any party acquires a right to receive payments under the Plan, such right shall be equivalent to that of an unsecured general creditor of the Company.
7.3 Employment. Nothing in the Plan shall interfere with nor limit in any way the right of the Company to terminate any Participant's employment at any time, nor confer upon any Participant any right to continue in the employ of the Company.
ARTICLE 8. WITHHOLDING OF TAXES
The Company shall withhold from a Participant's regular compensation from the Company an amount sufficient to satisfy foreign, Federal, state, and local income or other withholding tax requirements with regard not only to amounts deferred under the Plan but also to payments of Participant's balances. However, the Company reserves the right to institute alternative methods for satisfying the applicable income and withholding tax requirements.
ARTICLE 9. AMENDMENT AND TERMINATION
The Company hereby reserves the right to amend, modify or terminate the Plan at any time by action of the Committee. Except as described below in this Article 9, no such amendment, modification or termination shall in any material manner adversely effect any Participant's rights to deferred amounts, contributions or earnings thereon, without the consent of the Participant.
The Plan is intended to be an unfunded plan maintained primarily to provide deferred compensation benefits for a select group of "management or highly compensated employees" within the meaning of Sections 201, 301 and 401 of ERISA, and therefore to be exempt from the provisions of Parts 2,3 and 4 of Title I of ERISA. Accordingly, the Committee may terminate the Plan and commence termination payout for all or certain Participants, or remove certain employees as Participants, if it is determined by the United States Department of Labor or a court of competent jurisdiction that the Plan constitutes an employee pension benefit plan within the meaning of Section 3(2) of ERISA which is not so exempt. If payout is commenced pursuant to the operation of this Article 9, the payment of such amounts shall be made in a lump sum regardless of the manner selected by each Participant under Section 5.4 herein as applicable.
ARTICLE 10. MISCELLANEOUS
10.1 NOTICE. Any notice or filing required or permitted to be given to the Company under the Plan shall be sufficient if in writing and hand delivered, or sent by registered or certified mail to the Senior Vice President - Employee Resources of the Company. Notices shall be deemed given as of the date of delivery, or if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification.
10.2 NONTRANSFERABILITY. Participants' rights to deferred amounts and earnings thereon under the Plan may not be sold, transferred, assigned, or otherwise alienated or hypothecated other than by will or by the laws of descent and distribution. In no event shall the Company make any payment under the Plan to any assignee or creditor of a Participant.
10.3 SEVERABILITY. In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included.
10.4 GENDER AND NUMBER. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine; the plural shall include the singular, and the singular shall include the plural.
10.5 COSTS OF THE PLAN. All costs of implementing and administering the Plan shall be borne by the Company.
10.6 APPLICABLE LAW. The plan shall be construed and enforced in accordance with the laws of the State of New York.
10.7 SUCCESSORS. All obligations of the Company under the Plan shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company.
SUMMARY OF PFIZER ANNUAL INCENTIVE PLAN
The Annual Incentive Plan ("AIP") was established to provide a direct link between pay and performance, thereby supporting increased overall Company performance through increased individual performance. The purposes of the AIP are to help motivate employees and attract and retain the highest quality workforce.
Management selects AIP participants, including executive officers who are not members of the Corporate Management Committee, and, in its discretion, sets the bonus potential for each participant based on level of responsibility within the Company. Annual incentive awards are based on an evaluation of either or both individual and Company performance against quantitative and qualitative measures and are subject to approval by senior management and, if appropriate, the Employee Compensation and Management Development Committee or the Executive Compensation Committee.
Amounts paid to employees constitute part of the employee's annual cash
compensation.
EXHIBIT 12
PFIZER INC. AND SUBSIDIARY COMPANIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Year Ended December 31,
-----------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(millions of dollars, except ratios)
----------------------------------
DETERMINATION OF EARNINGS:
Income from continuing operations
before provision for taxes on income,
minority interests, and cumulative
effect of accounting changes............ $3,088 $2,804 $2,299 $1,830 $835
Less:
Minority interests........................ 10 6 7 5 2
Undistributed earnings/(losses) of
unconsolidated subsidiaries............. 0 0 0 (1) 1
------ ------ ------ ------- ----
Adjusted income................................ 3,078 2,798 2,292 1,826 832
Fixed charges............................. 194 206 232 158 136
------ ------ ------ ------ ----
Total earnings as defined...................... $3,272 $3,004 $2,524 $1,984 $968
====== ====== ====== ====== ====
FIXED CHARGES:
Interest expense /a/....................... $ 147 $ 165 $ 192 $ 127 $107
Rents /b/.................................. 47 41 40 31 29
------ ------ ------ ------ ----
Fixed charges.......................... 194 206 232 158 136
Capitalized interest........................... 2 5 13 15 14
------ ------ ------ ------ ----
Total fixed charges........................ $ 196 $ 211 $ 245 $ 173 $150
====== ====== ====== ====== ====
RATIO OF EARNING TO FIXED CHARGES.............. 16.7 14.2 10.3 11.5 6.5
==== ==== ==== ==== ====
|
in our leases, which are not material.
EXHIBIT 13(a)
PFIZER INC AND SUBSIDIARY COMPANIES
FINANCIAL REVIEW
Overview of Consolidated Operating Results
In 1997, total revenue grew 11% to $12,504 million and net income exceeded $2 billion for the first time in our history. Diluted earnings per share increased 13% to $1.70.
As a percentage of total revenues, cost of sales continued to decline in 1997. We balanced revenue growth with substantial investments in product support and R&D. The effective tax rate decreased from 31.0% in 1996 to 28.0% in 1997. Net income has increased steadily as a percentage of total revenues from 1995 through 1997.
Analysis of the Consolidated Statement of Income
% Change*
-----------------
(millions of dollars) 1997 1996 1995 97/96 96/95
--------------------------------------------------------------------------------
Net sales $12,188 $11,306 $10,021 8 13
Alliance revenue $ 316 $ -- $ -- -- --
----------------------------------------------------------
Total revenues $12,504 $11,306 $10,021 11 13
Cost of sales $ 2,274 $ 2,176 $ 2,164 5 1
% of total revenues 18.2% 19.3% 21.6%
Selling, informational and
administrative expenses $ 4,956 $ 4,366 $ 3,855 13 13
% of total revenues 39.6% 38.6% 38.5%
R&D expenses $ 1,928 $ 1,684 $ 1,442 14 17
% of total revenues 15.4% 14.9% 14.4%
Other deductions--net $ 258 $ 276 $ 261 (6) 6
% of total revenues 2.1% 2.4% 2.6%
----------------------------------------------------------
Income before taxes $ 3,088 $ 2,804 $ 2,299 10 22
% of total revenues 24.7% 24.8% 22.9%
Taxes on income $ 865 $ 869 $ 738 (1) 18
Effective tax rate 28.0% 31.0% 32.1%
Income from continuing
operations $ 2,213 $ 1,929 $ 1,554 15 24
% of total revenues 17.7% 17.1% 15.5%
Net income $ 2,213 $ 1,929 $ 1,573 15 23
% of total revenues 17.7% 17.1% 15.7%
================================================================================
|
*Percentages may reflect rounding adjustments.
Total Revenues
Total revenues increased $1,198 million in 1997 and $1,285 million in 1996. Excluding the impact of foreign exchange, total revenues grew by 14% in 1997 and 15% in 1996. These increases were primarily due to higher sales volume of our products in both years and revenue generated from business alliances (alliance revenue) in 1997.
Total Revenues by Business Segment
(% of total revenue) (millions of dollars) % Change*
--------------------------------------------------------------------------------
1997 97/96
-----
[PIE CHART APPEARS HERE]
Health Care 86% $10,689 11
Animal Health 10% 1,329 9
Consumer Health Care 4% 486 7
---------------------------------------------------------------------
TOTAL $12,504 11
--------------------------------------------------------------------------------
1996
[PIE CHART APPEARS HERE]
96/95
-----
Health Care 85% $ 9,630 15
Animal Care 11% 1,222 -
Consumer Health Care 4% 454 15
---------------------------------------------------------------------
TOTAL $11,306 13
--------------------------------------------------------------------------------
1995
[PIE CHART APPEARS HERE]
95/94
-----
Health Care 84% $ 8,409 21
Animal Care 12% 1,219 101
Consumer Health Care 4% 393 (4)
---------------------------------------------------------------------
TOTAL $10,021 26
|
* Percentages may reflect rounding adjustments.
The health care segment consists of the Pharmaceutical and Medical Technology groups.
Pharmaceutical revenues increased 13% to $9,239 million in 1997 and 16% to $8,188 million in 1996. In the U.S. market, growth was 18% in 1997 and 21% in 1996, while overseas growth was 7% in 1997 and 11% in 1996. Foreign exchange rate changes decreased worldwide pharmaceutical revenues by approximately 4% in 1997 and approximately 3% in 1996. These changes reflect the strengthening of the dollar relative to the Japanese yen and several major European currencies.
The major pharmaceutical products grew about 13% in 1997. These products--Norvasc, Procardia XL, Cardura, Diflucan, Zithromax, Zoloft and Zyrtec--comprised 77% of worldwide pharmaceutical revenues. Patent protection extends into the next century on most of these products.
PFIZER INC AND SUBSIDIARY COMPANIES
In 1997, we were a partner in the launches of two new pharmaceuticals, Lipitor and Aricept, through business alliances. Lipitor is a cholesterol-lowering medication developed by the Parke-Davis Research Division of Warner-Lambert Company. Aricept is used to treat symptoms of Alzheimer's disease and was developed by Eisai Co., Ltd. These alliances include both copromotion and license agreements. Revenue from the copromotion agreements is reported in the Statement of Income as "Alliance revenue." This revenue is computed largely as a percentage of net sales adjusted, in some cases, for certain specific costs.
Elements of Total Revenue Growth
Volume has been the major contributor to total revenue growth in each of the last three years.
[BAR GRAPH APPEARS HERE]
95 96 97
Volume 23.8% 14.8% 13.0%
Price (0.7)% 0.4% 1.2%
Currency 2.5% (2.4)% (3.6)%
|
Medicaid rebates and related state programs reduced revenues by $99 million in 1997, $92 million in 1996 and $85 million in 1995. We also provided legislatively mandated discounts to the federal government of $88 million in 1997, $87 million in 1996 and $80 million in 1995. Performance-based contracts provide rebates to several customers based on purchases and have reduced total revenue growth in the U.S. Volume increases in all three years more than offset these revenue reductions.
Percentage Change in Total Revenues
Analysis of Change
Total % ------------------------------
Change Volume Price Currency
-------------------------------------------------------------------------
Health Care
1997 vs. 1996 11.0 13.5 1.1 (3.6)
1996 vs. 1995 14.5 16.6 0.3 (2.4)
Animal Health
1997 vs. 1996 8.8 11.5 1.3 (4.0)
1996 vs. 1995 0.2 2.5 (0.4) (1.9)
Consumer Health Care
1997 vs. 1996 7.0 6.0 2.0 (1.0)
1996 vs. 1995 15.4 14.8 5.3 (4.7)
Consolidated
1997 vs. 1996 10.6 13.0 1.2 (3.6)
1996 vs. 1995 12.8 14.8 0.4 (2.4)
=========================================================================
|
Total Revenues--Major Pharmaceutical Products
% Change*
---------------
(millions of dollars) 1997 1996 1995 97/96 96/95
--------------------------------------------------------------------------------
Cardiovascular Diseases: $3,806 $3,486 $2,981 9 17
Norvasc 2,217 1,795 1,265 23 42
Procardia XL 822 1,005 1,133 (18) (11)
Cardura 626 533 413 17 29
Infectious Diseases:** 2,483 2,325 2,153 7 8
Diflucan 881 910 878 (3) 4
Zithromax 821 619 406 33 53
Central Nervous System
Disorders: 1,553 1,382 1,092 12 27
Zoloft 1,507 1,337 1,037 13 29
Allergy: 273 156 21 74 --
Zyrtec/Reactine 265 146 10 81 --
Alliance Revenue 316 -- -- -- --
================================================================================
|
*Percentages may reflect rounding adjustments.
**Certain prior year data have been reclassified to conform to the current year
presentation.
PFIZER INC AND SUBSIDIARY COMPANIES
Medical Technology Group (MTG) is the new name of our business formerly known as Hospital Products. MTG net sales increased 1% (5% excluding the effects of foreign exchange) to $1,450 million in 1997 as compared to $1,442 million in 1996. Strong growth in the sales of stents (wire mesh-like tubes to keep blocked arteries and other hollow passageways open) and in orthopedic products was largely offset by declines in sales of angioplasty and urology products. These declines were principally due to heightened pricing pressures and new-product competition. The 1996 sales growth of 8% reflected incremental sales of stents and the acquisitions of the Leibinger Companies and Corvita Corporation. Unfavorable foreign exchange rate changes affected sales performance in 1997 and 1996.
In January 1998, we completed the sale of the Valleylab business--a part of MTG--to United States Surgical Corporation for $425 million. In connection with this transaction, a gain is expected to be recorded in the first quarter of 1998. Valleylab manufactures a line of electrosurgical and ultrasonic systems and disposables. The Valleylab business is not significant to our financial position or results of operations.
Animal health net sales grew 9% in 1997 led by several key products. Sales of companion animal products increased 14% and sales of products for food animals increased 7%. Sales of Dectomax, an antiparasitic medication for livestock, grew 58% to $150 million. Stafac, a leading antibacterial for poultry and swine, achieved 16% sales growth to $95 million. In the first quarter, Rimadyl, a nonsteroidal, anti-inflammatory medicine for treating osteoarthritis in dogs, was launched. Its 1997 sales reached $46 million. Animal health net sales were flat in 1996 due to adverse conditions in the U.S. and European livestock markets, heightened competition for companion animal products and the impact of unfavorable foreign exchange rate changes.
Consumer health care net sales increased 7% in 1997 and 15% in 1996. One factor contributing to these sales increases was the growth of the over-the-counter versions of previously prescription-only drugs (Reactine in Canada, Diflucan in the United Kingdom and OcuHist in the U.S.), which were launched in 1996 and 1995. This segment's sales also benefited from the 1996 acquisition of the Cortizone and Hemorid brands and the 1995 acquisition of Bain de Soleil.
Total Revenues by Geographic Area
(% of total revenues) (millions of dollars) % Change
--------------------------------------------------------------------------------
1997 97/96
-----
[PIE CHART APPEARS HERE]
United States 55% $ 6,867 16
Europe 23% 2,853 3
Asia 13% 1,675 5
Canada/Latin America 7% 849 13
Africa/Middle East 2% 260 7
-----------------------------------------------------------------------
TOTAL $12,504 11
--------------------------------------------------------------------------------
1996 96/95
-----
[PIE CHART APPEARS HERE]
United States 53% $ 5,941 16
Europe 24% 2,773 13
Asia 14% 1,598 4
Canada/Latin America 7% 750 8
Africa/Middle East 2% 244 6
-----------------------------------------------------------------------
TOTAL $11,306 13
--------------------------------------------------------------------------------
1995 95/94
-----
[PIE CHART APPEARS HERE]
United States 51% $ 5,113 21
Europe 25% 2,444 39
Asia 15% 1,538 28
Canada/Latin America 7% 696 16
Africa/Middle East 2% 230 26
-----------------------------------------------------------------------
TOTAL $10,021 26
|
Changes in Geographic Total Revenues
by Business Segment
% Change in Total Revenues
---------------------------------------
U.S. International
---------------- ----------------
97/96 96/95 97/96 96/95
--------------------------------------------------------------------------------
Health Care 15 18 6 10
Animal Health 26 (8) 0 5
Consumer Health Care 6 22 9 4
Consolidated 16 16 5 9
================================================================================
|
Revenues were in excess of $10 million in each of 44 countries outside the U.S. in 1997. The U.S. was the only country to contribute more than 10% to total revenues.
PFIZER INC AND SUBSIDIARY COMPANIES
Product Developments
We continue to invest in R&D to provide future sources of revenue through the development of new products as well as additional uses for existing products. Following are certain significant regulatory actions by and filings pending with the U.S. Food and Drug Administration (FDA):
1997 FDA Approvals
Product Indication(s) Date Approved
--------------------------------------------------------------------------------
Trovan Respiratory, surgical, urological, skin December 1997
and sexually transmitted infections
Zoloft Obsessive-compulsive disorder in October 1997
children 6 to 17 years of age
Zoloft Panic disorder July 1997
Unasyn Skin infections in children February 1997
1 year and older
|
Pending New Drug Applications (NDAs)
Product Indication(s) Date Filed
--------------------------------------------------------------------------------
Zeldox Psychotic disorders-- December 1997
intramuscular dosage form
Viagra Erectile dysfunction (impotence) September 1997
Zyrtec Allergies in children 2 to 5 May 1997
years of age
Zeldox Psychotic disorders-- March 1997
oral dosage form
================================================================================
|
The FDA notified us in October that Viagra is receiving priority review.
Anticipated developments of new products and additional uses for existing products include:
. Norvasc -- Studies are being conducted to confirm the effectiveness of using Norvasc in the treatment of patients with congestive heart failure attributable to causes other than impaired blood flow to the heart.
. Zithromax--We are conducting clinical programs to support a new use for Zithromax in decreasing cardiovascular risk in patients with atherosclerosis (a process in which fatty substances deposit within blood vessels) caused by a certain infection.
. Zoloft -- We are pursuing clinical programs to develop an oral liquid dosage form and to demonstrate Zoloft's effectiveness in treating post-traumatic stress disorder (PTSD) as well as other disorders. Filings with the FDA for Zoloft oral liquid and the PTSD indication are expected during 1998.
. Tikosyn (dofetilide)--for the treatment of a heart rhythm disorder -- Regulatory filings are planned for the first quarter of 1998.
. eletriptan--for the treatment of migraine headaches -- Regulatory filings are planned for the third quarter of 1998.
. droloxifene--for the prevention and treatment of osteoporosis, as well as for the prevention of breast cancer and the treatment of atherosclerosis
. Alond (zopolrestat)--for the treatment of nervous system, kidney and cardiovascular disorders related to diabetes
. voriconazole--for the treatment of fungal infections
. darifenacin--for the treatment of irritable bowel syndrome and urinary urge incontinence
Thirteen new chemical entities are in mid- or advanced-stage development or under regulatory review and 55 other compounds are in early-stage development.
PFIZER INC AND SUBSIDIARY COMPANIES
Costs and Expenses
Cost of sales increased 5% in 1997 as compared with 1% in 1996. As a percentage of total revenues, cost of sales declined in both 1997 and 1996 and largely reflects the following factors:
. a more favorable business and product mix
. productivity improvements
. effective foreign exchange hedging programs
Selling, informational and administrative expenses increased 13% in both 1997 and 1996. These increases reflect a substantial global investment in our pharmaceutical selling efforts. These efforts included the creation of a new U.S. primary-care sales force, as well as the expansion of the U.S. specialist sales forces and sales forces in key international markets.
These expenses reflect costs of communicating scientific, medical and clinical information about our various products to the medical community and others. Health care information is communicated by field representatives, by means of medical symposia and conventions, as well as through distribution of product literature.
R&D expenses increased 14% in 1997 and 17% in 1996. These expenditures were necessary to support the advancement of potential drug candidates in all stages of development (from initial discovery through final regulatory approval). Health care R&D expenses, as a percentage of health care revenues, averaged 16% over the last three years.
The effective tax rate decreased from 31.0% in 1996 to 28.0% in 1997. This decrease was due mainly to changes in the mix of income by country and the extension of the R&D tax credit in the U.S. The effective tax rate decreased from 32.1% in 1995 to 31.0% in 1996. This decrease was mainly due to the favorable changes in the mix of income by country, partially offset by the continuing reduction of tax benefits from our operations in Puerto Rico as a result of the enactment of the Omnibus Budget Reconciliation Act of 1993 and the elimination of the tax exemption on Puerto Rican investment income.
We have received and are protesting assessments from the Belgian tax authorities. For additional details, see note 8, "Taxes on Income."
Segment Profit
% Change
----------------
(millions of dollars) 1997 1996 1995 97/96 96/95
--------------------------------------------------------------------------------
Health Care $3,309 $3,090 $2,548 7 21
Animal Health 112 101 97 11 4
Consumer Health Care 39 36 36 8 --
------------------------------------------------------------
Total $3,460 $3,227 $2,681 7 20
================================================================================
|
For additional details, see note 21, "Segment Information and Geographic Data."
Research and development expenses have increased at a compound annual growth rate of more than 17% over the past 10 years. We now have 13 new chemical entities in mid- or advanced-stage development or under regulatory review.
[BAR GRAPH APPEARS HERE]
Research and Development Expenses
(millions of dollars)
PFIZER INC AND SUBSIDIARY COMPANIES
The strong growth in income from continuing operations of 15% in 1997 was achieved while continuing to invest aggressively in research and development and new product support.
Income from Continuing Operations
(millions of dollars)
[BAR GRAPH APPEARS HERE]
Income from continuing operations in 1993 would have been $1,163 million excluding after-tax net charges for divestitures, restructuring, and unusual items.
Financial Condition, Liquidity and
Capital Resources
The net financial assets/(debt) position as of December 31 is as follows:
(millions of dollars) 1997 1996 1995 -------------------------------------------------------------------------------- Financial assets* $ 3,044 $ 3,154 $ 2,346 Short- and long-term debt 2,984 2,922 2,869 -------------------------------------------------------------------------------- Net financial assets/(debt) $ 60 $ 232 $ (523) ================================================================================ |
*Consists of cash and cash equivalents, short-term investments and loans and long-term loans and investments.
The net financial debt position at December 31, 1995 resulted primarily from higher debt levels following the SmithKline Beecham animal health acquisition.
Selected Measures of Liquidity and
Capital Resources
1997 1996 1995
--------------------------------------------------------------------------------
Cash and cash equivalents and
short-term investments and
loans (millions of dollars) $1,704 $1,991 $1,801
Working capital (millions of dollars) 1,515 828 965
Current ratio 1.29:1 1.15:1 1.19:1
Shareholders' equity per
common share* $ 6.30 $ 5.54 $ 4.45
Debt to total capitalization** 27% 30% 34%
================================================================================
|
*Represents total shareholders' equity divided by the actual number of common
shares outstanding.
**Represents total short-term borrowings and long-term debt divided by the sum
of total short-term borrowings, long-term debt and total shareholders' equity.
PFIZER INC AND SUBSIDIARY COMPANIES
The increase in working capital from 1996 to 1997 was primarily due to the following:
Increases in:
. Accounts receivable--due in part to the alliance revenue receivables
. Inventory--due to higher pharmaceutical inventory levels for new products
. Prepaid expenses, taxes and other assets--due to the reclassification of Valleylab's net assets to other assets
Decreases in:
. Short-term loans--primarily due to the renewal of short-term loans to loans with maturities beyond one year
. Income taxes payable--primarily due to the settlements of tax-related contingencies
Working capital decreased in 1996. We utilized working capital provided by operations, as well as the proceeds from the sale of the food science business and stock option transactions primarily for additions to property, plant and equipment, business acquisitions, payments of dividends and the net repayment of long-term debt. Additionally, the 6 1/2% notes due in 1997 were reclassified from Long-term debt to Short-term borrowings in 1996.
The increase in shareholders' equity per common share in 1997 and 1996, as well as the decrease in the 1997 and 1996 percentage of debt to total capitalization was primarily due to growth in net income.
Summary of Cash Flows
Operations in 1997 provided significant cash inflows. Commercial paper and short-term borrowings supplement operating cash flows.
(millions of dollars) 1997 1996 1995 -------------------------------------------------------------------------------- Cash provided by/(used in): Operating activities $ 1,629 $ 2,067 $ 1,821 Investing activities (1,022) (937) (2,343) Financing activities (848) (382) (519) Effect of exchange rate changes on cash and cash equivalents (32) (1) (14) -------------------------------------------------------------------------------- Net increase/(decrease) in cash and cash equivalents $ (273) $ 747 $(1,055) ================================================================================ |
Cash flows from operating activities decreased in 1997 as the growth in net income was offset by an increase in accounts receivable and inventories.
Cash flows from operating activities increased in 1996 primarily due to growth in net income generated by the continued rollout of new pharmaceutical products and additional uses for existing products.
Net cash used in investing activities changed in 1997 largely due to the:
. increase in property, plant and equipment which, in part, reflects facility enhancements to our manufacturing locations
. decrease in proceeds from the sale of businesses
. absence of business acquisitions in 1997
In 1998, additions to property, plant and equipment are expected to be similar to 1997 additions.
Net cash used in investing activities decreased in 1996 as compared to 1995 primarily due to a decrease in business acquisitions and an increase in proceeds from the sale of a business.
Net cash used in financing activities changed in 1997 largely due to:
. the increase in common stock repurchases at a higher average price
. higher dividend payments to our shareholders
. higher cash received from employee stock option exercises
Net cash used in financing activities decreased in 1996 as compared to 1995 primarily due to higher levels of short-term borrowings to fund working capital needs, as well as certain investment opportunities, partially offset by net repayments of long-term debt.
In September 1996, we announced a program to purchase up to $2 billion of our common stock over the ensuing 18 to 24 months in the open market or in privately negotiated transactions. Under this program, approximately 11.4 million shares were repurchased in 1997 and .6 million shares in 1996. These shares were purchased in the open market at a cost of approximately $586 million in 1997 and $27 million in 1996. Purchased shares are available for general corporate purposes.
We have available lines of credit and revolving-credit agreements with a select group of banks and other financial intermediaries. Major unused lines of credit totaled approximately $1.3 billion at December 31, 1997.
Our short-term debt has been rated A1 by Moody's Investors Services (Moody's) and P1 by Standard and Poor's (S&P). Also, our long-term debt has been rated Aaa by Moody's and AAA by S&P for the past 12 years. Moody's and S&P are the major corporate debt-rating organizations and these are their highest ratings.
PFIZER INC AND SUBSIDIARY COMPANIES
Cash Dividends Paid Per Common Share (dollars)
[BAR GRAPH APPEARS HERE]
The 1997 cash dividends paid represented the 30th consecutive year of dividend increases.
Dividend Growth
Cash dividends paid per common share divided by diluted earnings per common share amounted to 40.0% in 1997, 40.0% in 1996 and 41.6% in 1995. In January 1998, the Board of Directors declared a first-quarter 1998 dividend of $.19, an increase of 12% over the $.17 per share dividend declared in each quarter of 1997. This marked the 31st consecutive year of quarterly dividend increases.
Banking Operation
Our international banking operation, Pfizer International Bank Europe (PIBE), operates under a full banking license from the Central Bank of Ireland. The results of its operation are included in "Other deductions--net" in the Statement of Income.
PIBE extends credit to financially strong borrowers, largely through U.S. dollar loans made primarily for short and medium terms, with floating interest rates. Generally, loans are made on an unsecured basis. When deemed appropriate, guarantees and certain covenants may be obtained as a condition to the extension of credit. To reduce credit risk, PIBE has established credit approval guidelines, borrowing limits and monitoring procedures. Credit risk is further reduced through an active policy of diversification with respect to borrower, industry and geographic location. PIBE continues to have S&P's highest short-term rating of A1+.
The net income of PIBE is affected by changes in market interest rates because of repricing and maturity mismatches between its interest-sensitive assets and liabilities. PIBE is currently asset sensitive (more assets than liabilities repricing in a given period) and therefore, we expect that net income would benefit in a period of increasing interest rates. PIBE's asset and liability management reflects its liquidity, interest-rate outlook and general market conditions.
For additional details regarding our banking operation, see note 3, "Financial Subsidiaries."
Forward-Looking Information and
Factors That May Affect Future Results
The Securities and Exchange Commission (SEC) encourages companies to disclose forward-looking information so that investors can better understand a company's future prospects and make informed investment decisions. This annual report contains such forward-looking statements that set out anticipated results based on management's plans and assumptions. Words such as "anticipate," "estimate," "expects," "projects," "intends," "plans," "believes" and words and terms of similar substance used in connection with any discussion of future operating or financial performance identify these forward-looking statements.
PFIZER INC AND SUBSIDIARY COMPANIES
We cannot guarantee that any forward-looking statement will be realized, although we believe we have been prudent in our plans and assumptions. Achievement of future results are subject to risks, uncertainties and inaccurate assumptions. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could vary materially from those anticipated, estimated or projected. Investors should bear this in mind as they consider forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.
Discussion of certain risks, uncertainties and assumptions follow and are discussed under the heading entitled "Cautionary Factors That May Affect Future Results" in Item 1 of our annual report on Form 10-K for the year ended December 31, 1997, which will be filed at the end of March 1998. Prior to the filing of the Form 10-K, reference should be made to the discussion under the same heading in our quarterly report on Form 10-Q for the quarter ended September 28, 1997 and to the extent incorporated by reference therein, in our 10-K filing for 1996.
Competition and the Health Care Environment In the U.S., many of our pharmaceutical products are subject to increasing price pressures as managed care groups, institutions and government agencies seek price discounts. Government efforts to reduce Medicare and Medicaid expenses are expected to increase the use of managed care. This may result in managed care influencing prescription decisions for a larger segment of the population. International operations are also subject to price and market regulations. As a result, it is expected that pressures on pricing and operating results will continue.
Calcium Channel Blockers
During 1995, the authors of some nonclinical studies questioned the safety of
calcium channel blockers (CCBs). Although the clinical evidence supported the
safety of this class of medications, the FDA convened an advisory panel to
review their safety. In 1996, that advisory panel found no data to support
challenges to the safety of newer sustained-release and intrinsically
long-acting CCBs (such as Norvasc and Procardia XL products for treatment of
hypertension and angina).
Questions about this class of products continued throughout 1997, however, and included scientific publications and presentations asserting that these products were associated with various serious medical conditions.
During 1997, emerging data and reviews by two national regulatory authorities plus newly published National Institutes of Health (NIH) guidelines were all supportive of the safety of CCBs. In March 1997, Swedish regulatory authorities concluded that the pertinent studies did not provide sufficient evidence of any general association between use of CCBs and an increase in the risk of cancer. Additionally, in July, Canadian authorities concluded that these medications were safe and effective when used as indicated. Finally, in November, the NIH published guidelines reflecting clinical recommendations for the treatment of patients with hypertension which maintained that long-acting CCBs are useful and appropriate first-line medications.
We believe that the safety and effectiveness of Norvasc and Procardia XL are supported by a large body of data from numerous studies and the daily clinical experiences of physicians around the world. It is not possible, however, to predict the impact, if any, of existing or future studies, regulatory agency actions or a continuing debate regarding CCBs on our future sales.
Financial Risk Management
The overall objective of our financial risk management program is to seek a
reduction in the potential negative earnings effects from changes in foreign
exchange and interest rates arising in our core business activities. We manage
these financial exposures through operational means and by using various
financial instruments. These practices may change in the future as economic
conditions change. We do not use financial instruments for trading purposes.
Foreign Exchange Risk
A significant portion of our revenues and earnings are exposed to changes in
foreign exchange rates. Where practical, we seek to relate expected local
currency revenues with local currency costs and local currency assets with local
currency liabilities.
Foreign exchange risk is also managed through the use of foreign currency forward contracts. These contracts are used to offset the potential negative earnings effects from short-term foreign currency assets and liabilities that arise during normal operations.
In addition, foreign currency put options are purchased to reduce a portion of the potential negative effects on earnings related to certain of our significant anticipated intercompany inventory purchases for periods up to two years. These purchased options hedge Japanese yen and continental European currencies versus the U.S. dollar.
Also, under certain market conditions, we protect against possible declines in the reported net assets of certain key international subsidiaries--namely, those in Japan and Switzerland. We do this through borrowing in foreign currencies.
PFIZER INC AND SUBSIDIARY COMPANIES
Our financial instrument holdings at year-end were analyzed to determine their sensitivity to foreign exchange rate changes. The fair value of these instruments was determined as follows:
. forward exchange contracts and currency swaps--net present values
. purchased foreign currency options--foreign exchange option pricing model
. foreign receivables, payables, debt and loans--changes in exchange rates
In our sensitivity analysis, we assumed that the change in one currency's rates relative to the U.S. dollar would not have an effect on other currencies' rates relative to the U.S. dollar. All other factors were held constant.
If there were an adverse change in foreign exchange rates of 10%, the expected effect on net income related to our financial instruments would be immaterial. For additional details, see note 5-D, "Derivative Financial Instruments--Accounting Policies."
Interest Rate Risk
Our U.S. dollar interest-bearing investments, loans and borrowings are subject
to interest rate risk. In addition, we are also subject to interest rate risk on
Japanese yen and Swiss franc short-term borrowings.
We invest and borrow primarily on a short-term or variable-rate basis. Under certain market conditions, interest rate swap contracts are used to adjust interest rate sensitive assets and liabilities.
Our financial instrument holdings at year-end were analyzed to determine their sensitivity to interest rate changes. The fair values of these instruments were determined by net present values.
In our sensitivity analysis, we used the same change in interest rate for all maturities. All other factors were held constant.
If interest rates increased by 10%, the expected effect on net income related to our financial instruments would be immaterial.
Foreign Markets
Almost half of our revenues arise from international operations and revenue and
net income growth in 1998 is expected to be impacted by changes in foreign
exchange rates.
Revenues from Asia comprised approximately 13% of total revenues in 1997, including 9% from Japan. Revenues from the Asian markets most impacted by recent economic events--Korea, Indonesia, Thailand, Malaysia, Philippines and Taiwan--comprised approximately 2% of 1997 total revenues.
A new European currency is planned for introduction in January 1999 to replace the separate currency of several individual countries. This will entail changes in our operations as we modify systems and commercial arrangements to deal with the new currency. Modifications will be necessary in operations such as payroll, benefits and pension systems, contracts with suppliers and customers and internal financial reporting systems. Although a three-year transition period is expected during which transactions can be made in the old currencies, this may require dual currency processes for our operations. We have identified issues involved and are developing and implementing solutions. The cost of this effort is not expected to have a material effect on our business or results of operations. There is no guarantee, however, that all problems will be foreseen and corrected, or that no material disruption of our business will occur.
Tax Legislation
Pursuant to the Small Jobs Protection Act of 1996 (the Act), Section 936 of the
Internal Revenue Code (the U.S. possessions corporation income tax credit) was
repealed for tax years beginning after December 31, 1995. The Act allows us to
continue using the credit against the tax arising from manufacturing income
earned in a U.S. possession for an additional ten-year period. The amount of
manufacturing income eligible for the credit during this additional period is
subject to a cap based on income earned prior to 1996 in the U.S. possession.
This ten-year extension period does not apply to investment income earned in a
U.S. possession, the credit on which expired as of July 1, 1996. The Act does
not affect the amendments made to Section 936 by the 1993 Omnibus Budget
Reconciliation Act, which provided for a five-year phase-down of the U.S.
possession tax credit from 100% to 40%. In addition, the 1996 Act extended the
R&D tax credit for 11 months effective July 1, 1996. In 1997, this credit was
extended to June 30, 1998.
Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income
and SFAS No. 131, Disclosures About Segments of an Enterprise and Related
Information, which become effective for our 1998 financial statements. SFAS No.
130 requires disclosure of comprehensive income, which consists of all changes
in equity from nonshareholder sources. SFAS No. 131 requires that a company
report information about its operating segments. The adoption of these
statements will not impact our consolidated financial position, results of
operations or cash flows, but will be limited to the form and content of our
disclosures. Since most of the information required under these statements is
currently disclosed, we do not expect their adoption to materially change our
current disclosures.
PFIZER INC AND SUBSIDIARY COMPANIES
Year 2000 Computer Systems Compliance
Many older computer software programs refer to years in terms of their final two
digits only. Such programs may interpret the year 2000 to mean the year 1900
instead. If not corrected, those programs could cause date-related transaction
failures.
A Compliance Assurance Process was developed to address this problem. A project team has performed a detailed assessment of all internal computer systems and is developing and implementing plans to correct the problems. Year 2000 problems affect many of our research and development, production, distribution, financial, administrative and communication operations. Systems critical to our business which have been identified as non-Year 2000 compliant are either being replaced or corrected through programming modifications. In addition, a separate team is looking at Year 2000 readiness from other aspects of our business, including customer order-taking, manufacturing, raw materials supply and plant process equipment. Outside companies such as vendors, major customers, service suppliers, communications providers and banks are being asked to verify their Year 2000 readiness and testing such systems where appropriate. We expect these projects to be successfully completed during 1999.
External and internal costs specifically associated with modifying internal use software for Year 2000 compliance are expensed as incurred. To this point, those costs have not been material. Costs to be incurred over the next two years to fix Year 2000 problems are estimated at approximately $40 million. Such costs do not include normal system upgrades and replacements. Based on our current plans and efforts to date, we expect that there will be no material adverse effect on our operations. There is no guarantee, however, that all problems will be foreseen and corrected, or that no material disruption of our business will occur.
Litigation, Tax and Environmental Matters Claims have been brought against us and our subsidiaries for various legal and tax matters. In addition, our operations are subject to international, federal, state and local environmental laws and regulations. It is possible that our cash flows and results of operations could be affected by the one-time impact of the resolution of these contingencies. We believe that the ultimate disposition of these matters to the extent not previously provided for will not have a material impact on our financial condition or cash flows and results of operations, except where specifically commented upon in note 19, "Litigation" and note 8, "Taxes on Income."
Recent Events
In February 1998, we entered into a U.S. business alliance with G.D. Searle & Co., the pharmaceutical division of Monsanto Company. Under this U.S. agreement, we will copromote and develop Searle's Celebra (celecoxib) and its second generation compound for the treatment of arthritis and pain. An initial payment to Searle of $85 million will be expensed in the first quarter of 1998.
Also in February 1998, we announced that we are exploring strategic options for the Medical Technology Group. These options include the divestiture of all or part of the MTG businesses in a public or private transaction. No decisions have been made in this review process.
PFIZER INC AND SUBSIDIARY COMPANIES
Management's Report
The financial statements that appear on pages 41 through 60 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 on 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/ David L. Shedlarz D. L. Shedlarz, Principal Financial Officer /s/ H. V. Ryan H. V. Ryan, Principal Accounting Officer February 26, 1998 |
Audit Committee's Report
The Board of Directors reviews the audit function, internal controls and financial statements largely through its Audit Committee, which consists solely of directors who are not Company employees. In 1997, the Audit Committee met six times 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 26, 1998 |
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, 1997, 1996 and 1995 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, 1997, 1996 and 1995, and the results of their operations and their cash flows for each of the years then ended, in conformity with generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP KPMG Peat Marwick LLP New York, NY February 26, 1998 |
PFIZER INC AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF INCOME
Year ended December 31
----------------------------
(millions, except per share data) 1997 1996 1995
-------------------------------------------------------------------------------------
Net sales $12,188 $11,306 $10,021
Alliance revenue 316 -- --
-------------------------------------------------------------------------------------
Total revenues 12,504 11,306 10,021
Costs and expenses
Cost of sales 2,274 2,176 2,164
Selling, informational and administrative expenses 4,956 4,366 3,855
Research and development expenses 1,928 1,684 1,442
Other deductions--net 258 276 261
-------------------------------------------------------------------------------------
Income from continuing operations before provision for
taxes on income and minority interests 3,088 2,804 2,299
Provision for taxes on income 865 869 738
Minority interests 10 6 7
-------------------------------------------------------------------------------------
Income from continuing operations 2,213 1,929 1,554
Discontinued operations--net of taxes on income -- -- 19
-------------------------------------------------------------------------------------
Net income $ 2,213 $ 1,929 $ 1,573
-------------------------------------------------------------------------------------
Earnings per common share--basic
Income from continuing operations $ 1.76 $ 1.55 $ 1.26
Discontinued operations--net of taxes on income -- -- .02
-------------------------------------------------------------------------------------
Net income $ 1.76 $ 1.55 $ 1.28
-------------------------------------------------------------------------------------
Earnings per common share--diluted
Income from continuing operations $ 1.70 $ 1.50 $ 1.23
Discontinued operations--net of taxes on income -- -- .02
-------------------------------------------------------------------------------------
Net income $ 1.70 $ 1.50 $ 1.25
-------------------------------------------------------------------------------------
Weighted average shares--basic 1,257 1,248 1,229
Weighted average shares--diluted 1,303 1,288 1,259
=====================================================================================
|
See Notes to Consolidated Financial Statements which are an integral part of these statements.
PFIZER INC AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
December 31
-----------------------------------
(millions, except per share data) 1997 1996 1995
-----------------------------------------------------------------------------------------------------------
Assets
Current Assets
Cash and cash equivalents $ 877 $ 1,150 $ 403
Short-term investments 712 487 1,109
Accounts receivable, less allowance for doubtful accounts:
1997--$51; 1996--$58; 1995--$61 2,527 2,252 2,024
Short-term loans 115 354 289
Inventories
Finished goods 677 617 564
Work in process 852 695 579
Raw materials and supplies 244 277 241
-----------------------------------------------------------------------------------------------------------
Total inventories 1,773 1,589 1,384
-----------------------------------------------------------------------------------------------------------
Prepaid expenses, taxes and other assets 816 636 943
-----------------------------------------------------------------------------------------------------------
Total current assets 6,820 6,468 6,152
Long-term loans and investments 1,340 1,163 545
Property, plant and equipment, less accumulated depreciation 4,137 3,850 3,473
Goodwill, less accumulated amortization:
1997--$152; 1996--$115; 1995--$79 1,294 1,424 1,243
Other assets, deferred taxes and deferred charges 1,745 1,762 1,316
-----------------------------------------------------------------------------------------------------------
Total assets $15,336 $14,667 $12,729
-----------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current Liabilities
Short-term borrowings, including current portion of long-term debt $ 2,255 $ 2,235 $ 2,036
Accounts payable 765 913 715
Income taxes payable 785 892 822
Accrued compensation and related items 477 436 421
Other current liabilities 1,023 1,164 1,193
-----------------------------------------------------------------------------------------------------------
Total current liabilities 5,305 5,640 5,187
Long-term debt 729 687 833
Postretirement benefit obligation other than pension plans 394 412 426
Deferred taxes on income 156 253 166
Other noncurrent liabilities 819 721 611
-----------------------------------------------------------------------------------------------------------
Total liabilities 7,403 7,713 7,223
-----------------------------------------------------------------------------------------------------------
Shareholders' Equity
Preferred stock, without par value; 12 shares authorized, none issued -- -- --
Common stock, $.05 par value; 3,000 shares authorized;
issued: 1997--1,388; 1996--1,378; 1995--1,371 69 69 69
Additional paid-in capital 3,239 1,693 1,200
Retained earnings 9,349 8,017 6,859
Currency translation adjustment and other (85) 145 163
Employee benefit trusts (2,646) (1,488) (1,170)
Treasury stock, at cost:
1997--94; 1996--87; 1995--96 (1,993) (1,482) (1,615)
-----------------------------------------------------------------------------------------------------------
Total shareholders' equity 7,933 6,954 5,506
-----------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $15,336 $14,667 $12,729
===========================================================================================================
|
See Notes to Consolidated Financial Statements which are an integral part of these statements.
PFIZER INC AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Currency
Common Stock Additional Translation Employee Treasury Stock
------------------- Paid-In Retained Adjustment Benefit --------------
(millions) Shares Par Value Capital Earnings and Other Trusts Shares Cost Total
------------------------------------------------------------------------------------------------------------------------------------
Balance January 1, 1995,
as reported 681 $34 $ 651 $5,945 $ 196 $ (749) (52) $(1,753) $4,324
Restatement for the 1997
stock split 680 35 (35) -- -- -- (52) -- --
------------------------------------------------------------------------------------------------------------------------------------
Balance January 1, 1995,
as restated 1,361 69 616 5,945 196 (749) (104) (1,753) 4,324
Net income 1,573 1,573
Cash dividends declared (659) (659)
Currency translation
adjustment 12 12
Stock option transactions 9 -- 126 4 79 205
Purchases of common stock (5) (108) (108)
Employee benefit trust
transactions--net 440 (421) 19
Unrealized net gain on available-
for-sale securities--net 23 23
Minimum pension liability--net (68) (68)
Treasury stock utilized for
acquisition 9 167 167
Other 1 -- 18 18
------------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1995 1,371 69 1,200 6,859 163 (1,170) (96) (1,615) 5,506
Net income 1,929 1,929
Cash dividends declared (771) (771)
Currency translation
adjustment (32) (32)
Stock option transactions 7 -- 124 10 156 280
Purchases of common stock (1) (27) (27)
Employee benefit trust
transactions--net 341 (318) 23
Unrealized net gain on available-
for-sale securities--net 15 15
Other -- -- 28 (1) -- 4 31
------------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1996 1,378 69 1,693 8,017 145 (1,488) (87) (1,482) 6,954
Net income 2,213 2,213
Cash dividends declared (881) (881)
Currency translation
adjustment (253) (253)
Stock option transactions 9 343 4 68 411
Purchases of common stock (11) (586) (586)
Employee benefit trusts
transactions--net 1,177 (1,158) -- 7 26
Unrealized net gain on available-
for-sale securities--net 20 20
Other 1 26 3 29
------------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1997 1,388 $69 $3,239 $9,349 $ (85) $(2,646) (94) $(1,993) $7,933
====================================================================================================================================
|
See Notes to Consolidated Financial Statements which are an integral part of these statements.
PFIZER INC AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended December 31
------------------------------
(millions of dollars) 1997 1996 1995
--------------------------------------------------------------------------------------------------------------------
Operating Activities
Net income $ 2,213 $ 1,929 $ 1,573
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization of intangibles 502 430 374
Deferred taxes and other 24 89 64
Changes in assets and liabilities, net of effect of businesses acquired and
divested:
Accounts receivable (503) (255) (290)
Inventories (375) (149) (25)
Prepaid and other assets (138) (208) (171)
Accounts payable and accrued liabilities (26) 66 320
Income taxes payable (127) 23 88
Other deferred items 59 142 (112)
--------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,629 2,067 1,821
--------------------------------------------------------------------------------------------------------------------
Investing Activities
Purchases of property, plant and equipment (943) (774) (696)
Purchases of short-term investments (221) (2,851) (2,611)
Proceeds from redemptions of short-term investments 29 3,490 2,185
Purchases of long-term investments (76) (820) (151)
Purchases and redemptions of short-term investments by financial subsidiaries 45 (11) (30)
(Increase)/decrease in loans and long-term investments by financial subsidiaries (20) 52 330
Acquisitions, net of cash acquired -- (451) (1,521)
Proceeds from the sale of businesses 21 353 --
Other investing activities 143 75 151
--------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (1,022) (937) (2,343)
--------------------------------------------------------------------------------------------------------------------
Financing Activities
Proceeds from issuances of long-term debt 57 636 502
Repayments of long-term debt (269) (804) (52)
Increase/(decrease) in short-term debt 370 259 (444)
Purchases of common stock (586) (27) (108)
Cash dividends paid (881) (771) (659)
Stock option transactions 411 280 205
Other financing activities 50 45 37
--------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (848) (382) (519)
--------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents (32) (1) (14)
--------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in cash and cash equivalents (273) 747 (1,055)
Cash and cash equivalents at beginning of year 1,150 403 1,458
--------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 877 $ 1,150 $ 403
====================================================================================================================
Supplemental Cash Flow Information
Cash paid during the period for:
Income taxes $ 856 $ 709 $ 646
Interest 151 139 175
====================================================================================================================
|
See Notes to Consolidated Financial Statements which are an integral part of these statements.
PFIZER INC AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 Significant Accounting Policies
A -- Consolidation and Basis of Presentation
The consolidated financial statements include the parent company and all significant subsidiaries, including those operating outside the U.S. Balance sheet amounts for the foreign operations are as of November 30 of each year and income statement amounts are for the full year periods ending on the same date. All significant transactions among our businesses have been eliminated.
In preparing the financial statements, management must use some estimates and assumptions that may affect reported amounts and disclosures. Estimates are used when accounting for long-term contracts, depreciation, amortization, employee benefits and asset valuation allowances. We are also subject to risks and uncertainties that may cause actual results to differ from estimated results, such as changes in the health care environment, competition, foreign exchange and legislation. "Forward-Looking Information and Factors That May Affect Future Results," beginning on page 36, discusses these and other uncertainties.
B -- Cash Equivalents
Cash equivalents include items almost as liquid as cash, such as demand deposits, certificates of deposit and time deposits with maturity periods of three months or less when purchased. If items meeting this definition are part of a larger investment pool, we classify them as "Short-term investments."
C -- Inventories
We value inventories at cost or fair value, if lower. Cost is determined as follows:
. finished goods and work-in-process at average actual cost
. raw materials and supplies at average or latest actual cost
"Last-in, first-out" (LIFO) usage applies to U.S. sourced pharmaceuticals and part of Animal Health inventories (approximately 11% of total inventories) and "first-in, first-out" usage applies to the rest. The replacement cost of LIFO inventories is not materially different from the LIFO value reported.
D -- Long-Lived Assets
Long-lived assets include:
. property, plant and equipment--These assets are recorded at original cost
and the cost of any significant improvements after purchase is added. We
depreciate the cost evenly over the assets' useful lives. For tax purposes,
accelerated depreciation methods are used as allowed by tax laws.
. goodwill--Goodwill represents the difference between the purchase price of
acquired businesses and the fair value of their net assets when accounted
for by the purchase method of accounting. We amortize goodwill evenly over
periods not exceeding 40 years.
. other intangible assets--Other intangible assets are included in "Other
assets, deferred taxes and deferred charges" in the Balance Sheet. We
amortize these assets evenly over their estimated useful lives.
We review long-lived assets for impairment when events or changes in business conditions indicate that their full carrying value may not be recovered. We consider assets to be impaired and write them down to fair value if expected associated cash flows are less than the carrying amounts. Fair value is the present value of the expected associated cash flows.
E -- Foreign Currency Translation
For most foreign operations, local currencies are considered their functional currencies. We translate assets and liabilities to their U.S. dollar equivalents at rates in effect at the balance sheet date and record translation adjustments in Shareholders' Equity in the Balance Sheet. We translate Statement of Income accounts at average rates for the period. Transaction adjustments are recorded in "Other deductions--net" in the Statement of Income.
For operations in highly inflationary economies, we translate the balance sheet items as follows:
. monetary items (that is, assets and liabilities that will be settled for
cash) at rates in effect at the balance sheet date, with translation
adjustments recorded in "Other deductions--net" in the Statement of Income
. non-monetary items at historical rates (that is, those in effect when the
items were first recorded)
F -- Stock Options
The exercise price of stock options granted equals the market price on the grant date. In general, there is no expense related to stock options.
G -- Advertising Expense
We record advertising expense as follows:
. production costs as incurred
. costs of radio time, television time and space in publications deferred
until the advertising first occurs
Advertising expense totaled $948 million in 1997, $778 million in 1996 and $688 million in 1995.
H -- Earnings Per Common Share
Statement of Financial Accounting Standards No. 128, "Earnings per Share", which became effective in 1997, requires presentation of two calculations of earnings per common share. "Basic" earnings per common share equals net income divided by weighted average common shares outstanding during the period. "Diluted" earnings per common share equals net income divided by the sum of weighted average common shares outstanding during the period plus common stock equivalents. Common stock equivalents are shares assumed to be issued if outstanding stock options were exercised. We have restated all prior period amounts to reflect these calculations. All prior period amounts have also been restated for the 1997 stock split (see note 12, "Common Stock").
PFIZER INC AND SUBSIDIARY COMPANIES
2 International Operations
Substantially all unremitted earnings of international subsidiaries are free of legal and contractual restrictions.
The net currency translation adjustment included in "Currency translation adjustment and other" in the Balance Sheet was $(79) million in 1997, $174 million in 1996 and $206 million in 1995.
3 Financial Subsidiaries
Our financial subsidiaries include Pfizer International Bank Europe (PIBE) and a small captive insurance company. PIBE periodically adjusts its loan portfolio to meet its business needs. Information about these subsidiaries follows:
Condensed Balance Sheet (millions of dollars) 1997 1996 1995 -------------------------------------------------------------------------------- Cash and interest-bearing deposits $115 $ 78 $ 13 Eurosecurities and securities purchased under resale agreements -- 45 34 Loans--net 408 381 433 Other assets 8 8 8 -------------------------------------------------------------------------------- Total assets $531 $512 $488 -------------------------------------------------------------------------------- Certificates of deposit and other liabilities $ 73 $ 87 $ 85 Shareholders' equity 458 425 403 -------------------------------------------------------------------------------- Total liabilities and shareholders' equity $531 $512 $488 ================================================================================ Condensed Statement of Income (millions of dollars) 1997 1996 1995 -------------------------------------------------------------------------------- Interest income $ 29 $28 $44 Interest expense (2) (3) (3) Other income/(expense)--net 13 2 (6) -------------------------------------------------------------------------------- Net income $ 40 $27 $35 ================================================================================ |
4 Business Alliances
We have entered into agreements related to two new pharmaceutical products developed by other companies:
. Lipitor, a cholesterol-lowering medication, developed by the Parke-Davis
Research Division of Warner-Lambert Company
. Aricept, a medication to treat symptoms of Alzheimer's disease, developed by
Eisai Co., Ltd.
Under copromotion agreements, these products are marketed and copromoted with alliance partners. We provide funds, staff and other resources to sell, market, promote and further develop these medications. In the Statement of Income, "Alliance revenue" represents revenues earned under the copromotion agreements (a percentage of net sales adjusted, in some cases, for certain specific costs). "Selling, informational and administrative expenses" in the Statement of Income include other expenses for selling, marketing and further developing these products.
We also have licenses to sell Lipitor and Aricept in certain foreign countries. For those licensed sales, we record "Net sales" instead of "Alliance revenue" and record related costs and expenses in the appropriate caption in the Statement of Income.
5 Financial Instruments
Most of our financial instruments are recorded in the Balance Sheet. Several "derivative" financial instruments are "off-balance-sheet" items.
A -- Investments in Debt and Equity Securities Information about our investments follows:
(millions of dollars) 1997 1996 1995 -------------------------------------------------------------------------------- Amortized cost and fair value of held-to-maturity debt securities:* Corporate debt $ 626 $ 602 $ 682 Certificates of deposit 655 657 350 Municipals 56 29 222 Other 104 81 186 -------------------------------------------------------------------------------- Total held-to-maturity debt securities 1,441 1,369 1,440 -------------------------------------------------------------------------------- Cost and fair value of available-for-sale debt securities 686 636 -- -------------------------------------------------------------------------------- Cost of available-for-sale equity securities 81 81 68 Gross unrealized gains 106 73 50 Gross unrealized losses (4) (8) (8) -------------------------------------------------------------------------------- Fair value of available-for-sale equity securities 183 146 110 -------------------------------------------------------------------------------- Total investments $2,310 $2,151 $1,550 ================================================================================ |
*Gross unrealized gains and losses are immaterial.
These investments are in the following captions in the Balance Sheet:
(millions of dollars) 1997 1996 1995 -------------------------------------------------------------------------------- Cash and cash equivalents $ 636 $ 640 $ 153 Short-term investments 712 487 1,109 Long-term loans and investments 962 1,024 288 -------------------------------------------------------------------------------- Total investments $2,310 $2,151 $1,550 ================================================================================ |
PFIZER INC AND SUBSIDIARY COMPANIES
The contractual maturities of the held-to-maturity and available-for-sale debt securities as of December 31, 1997 were as follows:
Years
------------------------------
Over 1 Over 5
(millions of dollars) Within 1 to 5 to 10 Over 10 Total
--------------------------------------------------------------------------------
Held-to-maturity debt securities:
Corporate debt $ 567 $ 54 $ 4 $ 1 $ 626
Certificates of deposit 646 9 -- -- 655
Municipals 56 -- -- -- 56
Other 79 -- 15 10 104
Available-for-sale debt securities:
Certificates of deposit -- 256 189 -- 445
Corporate debt -- 91 150 -- 241
--------------------------------------------------------------------------------
Total debt securities $1,348 $410 $358 $11 2,127
Available-for-sale
equity securities 183
--------------------------------------------------------------------------------
Total investments $2,310
================================================================================
|
B -- Short-Term Borrowings
The weighted average effective interest rate on short-term borrowings outstanding at December 31 was 2.9% in 1997, 5.0% in 1996 and 5.2% in 1995. We had approximately $1.3 billion available to borrow under lines of credit at December 31, 1997.
C -- Long-Term Debt
Information on long-term debt outstanding follows:
(millions of dollars) 1997 1996 1995 -------------------------------------------------------------------------------- Floating-rate unsecured notes $686 $636 $ -- Repurchase agreement obligation -- -- 499 6 1/2% Notes due 1997 -- -- 250 Other borrowings and mortgages 43 51 84 -------------------------------------------------------------------------------- Total long-term debt $729 $687 $833 ================================================================================ Current portion not included above $ 6 $261 $277 ================================================================================ |
The floating-rate unsecured notes mature on various dates from 2001 to 2005 and they bear interest at a defined variable rate based on the commercial paper borrowing rate. The weighted average interest rate was 6.0% at December 31, 1997. These notes minimize credit risk on certain available-for-sale debt securities that may be used to satisfy the notes at maturity. The securities had a fair value equal to the amount of the notes at December 31, 1997.
The 1995 repurchase agreement related to a sale of securities that we were obligated to repurchase. The agreement was terminated in 1996 and the debt repaid.
Long-term debt outstanding at December 31, 1997 matures as follows:
After
(millions of dollars) 1999 2000 2001 2002 2002
--------------------------------------------------------------------------------
Maturities $4 $3 $187 $161 $374
================================================================================
D -- Derivative Financial Instruments
|
Purpose
"Forward-exchange contracts," "currency swaps" and "purchased currency options" are used to reduce exposure to foreign exchange risks. Also, "interest rate swap" contracts are used to adjust interest rate exposures.
Accounting Policies
We consider derivative financial instruments to be "hedges" (that is, an offset of foreign exchange and interest rate risks) when certain criteria are met. Under hedge accounting for a purchased currency option, its impact on earnings is deferred until the recognition of the underlying hedged item (inventory) in earnings. We recognize the earnings impact of the other instruments during the terms of the contracts, along with the earnings impact of the items they offset.
Purchased currency options are recorded at cost and amortized evenly to operations through the expected inventory delivery date. Unrealized gains at the transaction date are included in the cost of the related inventory purchased.
As interest rates change, we accrue the difference between the debt interest rates recognized in the Statement of Income and the amounts payable to or receivable from counterparties under swap contracts. Likewise, amounts arising from currency swap contracts are accrued as exchange rates change.
The financial statements include the following items related to derivative and other financial instruments serving as hedges or offsets:
"Other assets, deferred taxes and deferred charges" include:
. purchased currency options
. net amounts receivable related to swap contracts
"Other current liabilities" include:
. fair value of forward-exchange contracts
. net amounts payable related to swap contracts
"Currency translation adjustment and other" include changes in the:
. foreign exchange translation of foreign debt
. fair value of forward-exchange contracts for net investment hedges
PFIZER INC AND SUBSIDIARY COMPANIES
"Other deductions--net" include:
. changes in the fair value of foreign exchange instruments and changes in
foreign-denominated assets and liabilities
. payments under swap contracts to offset interest expense or foreign
exchange losses
. amortization of discounts or premiums on currencies sold under forward-
exchange contracts
Our criteria to qualify for hedge accounting are:
Foreign currency instruments
. The instrument must relate to a foreign currency asset, liability or an
anticipated transaction that is probable and whose characteristics and
terms have been identified.
. It must involve the same currency as the hedged item.
. It must reduce the risk of foreign currency exchange movements on our
operations.
Interest rate instruments
. The instrument must relate to an asset or a liability.
. It must change the character of the interest rate by converting a
variable rate to a fixed rate or vice versa.
If an existing instrument becomes ineffective (that is, it no longer meets the criteria described), it is reported at its fair value.
The following table summarizes the exposures hedged or offset by the various instruments we use:
Maximum Maturity in Years
------------------------------------
Instrument Exposure 1997 1996 1995
--------------------------------------------------------------------------------
Forward-exchange Foreign currency
contracts assets and liabilities .5 .5 .5
Net investments -- .25 --
--------------------------------------------------------------------------------
Purchased currency Inventory purchases
options and sales 1 1 2
--------------------------------------------------------------------------------
Currency swaps Debt principal -- -- 5
Loans 2 1 2
--------------------------------------------------------------------------------
|
Instruments Outstanding
The notional amounts of derivative financial instruments do not represent actual amounts exchanged by the parties, but instead represent the amount of the item on which the contracts are based.
The notional amounts of our foreign currency and interest rate contracts follow:
(millions of dollars) 1997 1996 1995
--------------------------------------------------------------------------------
Foreign currency contracts:
Commitments to sell foreign
currencies, primarily in exchange
for U.S. dollars:
U.K. pounds $ 548 $ 564 $ 645
Japanese yen 224 94 40
German marks 158 131 67
French francs 134 193 238
Irish punt 107 112 104
Italian lira 75 47 16
Belgian francs 62 67 114
Other currencies 168 168 73
Net investment hedges:
Japanese yen -- 615 --
Swiss francs -- 342 --
Commitments to purchase foreign
currencies, primarily in exchange
for U.S. dollars:
Swiss francs 187 154 1
Irish punt 92 21 35
German marks 73 54 79
U.K. pounds 60 128 283
Japanese yen 7 7 39
Other currencies 175 147 154
--------------------------------------------------------------------------------
Total forward-exchange contracts $2,070 $2,844 $1,888
================================================================================
Currency swaps:
U.K. pounds $ 40 $ -- $ 499
Other currencies -- 45 60
--------------------------------------------------------------------------------
Total currency swaps $ 40 $ 45 $ 559
================================================================================
Purchased options, primarily for
U.S. dollars:
Japanese yen $ 198 $ 221 $ 231
German marks 130 28 104
French francs 46 35 87
Belgian francs 29 25 56
Other currencies 61 58 19
--------------------------------------------------------------------------------
Total purchased options $ 464 $ 367 $ 497
================================================================================
Interest rate swap contracts:
Japanese yen $ 814 $ 932 $ 350
Swiss francs 405 428 --
U.K. pounds -- -- 499
Other -- -- 25
--------------------------------------------------------------------------------
Total interest rate swap contracts $1,219 $1,360 $ 874
================================================================================
|
PFIZER INC AND SUBSIDIARY COMPANIES
The 1995 U.K. pound currency and interest rate swaps related to a sale-and-repurchase financing agreement (see section C of this note) and effectively converted fixed rate U.K. pound debt to U.S. dollar variable rate debt. These contracts were terminated in December 1996 when the debt was repaid.
The Japanese yen and Swiss franc interest rate swaps effectively fixed the interest rate on floating rate debt as follows:
. the Japanese yen debt at 1.4% in 1997, 0.7% in 1996 and 1.3% in 1995
. the Swiss franc debt at 2.1% in 1997 and 1996
The floating interest rates were based on "LIBOR" rates related to the contract currencies. The contracts outstanding at December 31, 1996 matured in December 1997.
E -- Fair Value
The following methods and assumptions were used to estimate the fair value of derivative and other financial instruments at the balance sheet date:
. short-term financial instruments (cash equivalents, accounts receivable and
payable, forward-exchange contracts, short-term investments and
borrowings)--cost approximates fair value because of the short maturity
period
. loans--cost approximates fair value because of the short interest reset
period
. long-term investments, long-term debt, forward-exchange contracts
and purchased currency options--fair value is based on market or dealer
quotes
. interest rate and currency swap agreements--fair value is based on estimated
cost to terminate the agreements (taking into account broker quotes, current
interest rates and the counterparties' creditworthiness)
The differences between fair and carrying values were not material at December 31, 1997, 1996 or 1995.
F -- Credit Risk
We periodically review the creditworthiness of counterparties to foreign exchange and interest rate agreements and do not expect to incur a loss from failure of any counterparties to perform under the agreements. In general, there is no requirement for collateral from customers. There are no significant concentrations of credit risk related to our financial instruments.
6 Property, Plant and Equipment
The major categories of property, plant and equipment follow:
(millions of dollars) 1997 1996 1995
--------------------------------------------------------------------------------
Land $ 142 $ 119 $ 95
Buildings 1,682 1,597 1,406
Machinery and equipment 2,719 2,511 2,345
Furniture, fixtures and other 1,385 1,291 1,100
Construction in progress 530 487 517
--------------------------------------------------------------------------------
6,458 6,005 5,463
Less: accumulated depreciation 2,321 2,155 1,990
--------------------------------------------------------------------------------
Total property, plant and equipment $4,137 $3,850 $3,473
================================================================================
7 Other Deductions--Net
Other deductions--net are summarized below:
(millions of dollars) 1997 1996 1995
--------------------------------------------------------------------------------
Interest income $(156) $(135) $(158)
Interest expense 149 170 205
Interest expense capitalized (2) (5) (13)
--------------------------------------------------------------------------------
Net interest (income)/expense (9) 30 34
Amortization of goodwill and other
intangibles 68 66 46
Net exchange losses 28 3 14
Other, net 171 177 167
--------------------------------------------------------------------------------
Other deductions--net $ 258 $276 $261
================================================================================
|
8 Taxes on Income
Income from continuing operations before taxes consisted of the following:
(millions of dollars) 1997 1996 1995 -------------------------------------------------------------------------------- United States $1,329 $1,065 $1,041 International 1,759 1,739 1,258 -------------------------------------------------------------------------------- Total income from continuing operations before taxes $3,088 $2,804 $2,299 ================================================================================ |
PFIZER INC AND SUBSIDIARY COMPANIES
The provision for taxes on income consisted of the following:
(millions of dollars) 1997 1996 1995 -------------------------------------------------------------------------------- United States: Taxes currently payable: Federal $ 382 $ 332 $ 341 State and local 17 54 41 Deferred income taxes (24) 10 (22) -------------------------------------------------------------------------------- Total U.S. tax provision 375 396 360 -------------------------------------------------------------------------------- International: Taxes currently payable 501 408 368 Deferred income taxes (11) 65 10 -------------------------------------------------------------------------------- Total international tax provision 490 473 378 -------------------------------------------------------------------------------- Total provision for taxes on income $ 865 $ 869 $ 738 ================================================================================ |
Amounts are reflected in the above tables based on the location of the taxing authorities. As of December 31, 1997, we have not made a U.S. tax provision for approximately $939 million on approximately $4.5 billion of unremitted earnings of our international subsidiaries. These earnings are expected, for the most part, to be reinvested overseas.
We operate a manufacturing subsidiary in Puerto Rico that benefits from a Puerto Rican incentive grant in effect through 2002. Under this grant, we are partially exempt from income, property and municipal taxes. For further information on U.S. taxation of Puerto Rican operations, see "Tax Legislation" on page 38.
Reconciliations of the U.S. statutory income tax rate to our effective tax rate follow:
(percentages) 1997 1996 1995 -------------------------------------------------------------------------------- U.S. statutory income tax rate 35.0 35.0 35.0 Effect of partially tax-exempt operations in Puerto Rico (1.7) (3.5) (5.8) Effect of foreign operations (4.2) (2.9) 1.6 All other--net (1.1) 2.4 1.3 -------------------------------------------------------------------------------- Consolidated effective tax rate 28.0 31.0 32.1 ================================================================================ |
Deferred taxes arise because of different treatment between financial statement accounting and tax accounting, known as "temporary differences." We record the tax effect of these temporary differences as "deferred tax assets" (generally items that can be used as a tax deduction or credit in future periods) and "deferred tax liabilities" (generally items that we received a tax deduction for, but have not yet recorded in the Statement of Income). The tax effects of the major items recorded as deferred tax assets and liabilities are:
1997 1996 1995
Deferred Tax Deferred Tax Deferred Tax
------------ ------------ -------------
(millions of dollars) Assets Liabs. Assets Liabs. Assets Liabs.
--------------------------------------------------------------------------------
Prepaid/deferred items $ 259 $214 $ 242 $156 $ 236 $193
Inventories 260 65 263 98 245 71
Property, plant and
equipment 31 368 32 414 43 372
Employee benefits 298 113 241 105 277 100
Restructurings and
special charge 133 -- 157 -- 215 --
Foreign tax credit
carryforwards 159 -- 65 -- 110 --
Other carryforwards 135 -- 251 -- 153 --
All other 120 92 106 87 106 61
--------------------------------------------------------------------------------
Subtotal 1,395 852 1,357 860 1,385 797
Valuation allowance (27) -- (28) -- (30) --
--------------------------------------------------------------------------------
Total deferred taxes $1,368 $852 $1,329 $860 $1,355 $797
--------------------------------------------------------------------------------
Net deferred tax asset $ 516 $ 469 $ 558
--------------------------------------------------------------------------------
|
These amounts, netted by taxing location, are in the following captions in the Balance Sheet:
(millions of dollars) 1997 1996 1995 -------------------------------------------------------------------------------- Prepaid expenses, taxes and other assets $ 442 $ 425 $ 469 Other assets, deferred taxes and deferred charges 230 297 255 Deferred taxes on income (156) (253) (166) -------------------------------------------------------------------------------- Net deferred tax asset $ 516 $ 469 $ 558 ================================================================================ |
A valuation allowance is recorded because some items recorded as foreign deferred tax assets may not be deductible or creditable. The "foreign tax credit carryforwards" were generated from dividends paid by subsidiaries to the parent company between 1993 and 1997. We can carry these credits forward to various dates through 2002 and use them in payment of certain U.S. tax liabilities.
The Internal Revenue Service has completed its audits of our tax returns through 1992.
PFIZER INC AND SUBSIDIARY COMPANIES
In November 1994, Belgian tax authorities notified Pfizer Research and Development Company N.V./S.A. (PRDCO), an indirect, wholly owned subsidiary of our company, of a proposed adjustment to the taxable income of PRDCO for fiscal year 1992. The proposed adjustment arises from an assertion by the Belgian tax authorities of jurisdiction with respect to income resulting primarily from certain transfers of property by our non-Belgian subsidiaries to the Irish branch of PRDCO. In January 1995, PRDCO received an assessment from the tax authorities for additional taxes and interest of approximately $432 million and $97 million, respectively, relating to these matters. In January 1996, PRDCO received an assessment from the tax authorities, for fiscal year 1993, for additional taxes and interest of approximately $86 million and $18 million, respectively. The additional assessment arises from the same assertion by the Belgian tax authorities of jurisdiction with respect to all income of the Irish branch of PRDCO. Based upon the relevant facts regarding the Irish branch of PRDCO and the provisions of the Belgian tax laws and the written opinions of outside counsel, we believe that the assessments are without merit.
We believe that our accrued tax liabilities are adequate for all years after 1992.
9 Pension and Postretirement Benefits
Our pension plans cover most employees worldwide. Benefits depend on years of service and employee final average earnings. Participants vest in their benefits after as few as five years of service.
Our postretirement plans in the U.S. provide medical and life insurance benefits to retirees and their eligible dependents. Employees are eligible for benefits if they meet age and service requirements and qualify for retirement benefits.
We reserve the right to modify or terminate these plans.
Our funding policy is:
. to contribute annually to U.S. pension plans at a rate intended to remain at a level percentage of compensation. Since the major U.S. plan is overfunded, we have not made a contribution since 1992.
. to fund international pension plans as required by local government and tax requirements
We do not fund postretirement plans, but contribute to the plans as benefits are paid.
In 1997, the U.S. pension plan was amended to improve the benefit provisions. These changes contributed to most of the increases in the projected benefit obligation and the unrecognized prior service costs of the U.S. plan.
The following tables present the benefit obligations of the plans, the funded status of the pension plans and the assumptions used:
Pension Postretirement
----------------------------- ----------------------------
(percentages) 1997 1996 1995 1997 1996 1995
-------------------------------------------------------------------------------------------------------
Assumptions:
Discount rate:
U.S. plans 7.0 7.5 7.5 7.0 7.5 7.5
International plans 5.9 6.5 6.4
Rate of increase in salary levels:
U.S. plans 4.5 4.5 5.5
International plans 3.9 4.2 4.3
=======================================================================================================
(millions of dollars)
-------------------------------------------------------------------------------------------------------
Fair value of plan assets $ 2,793 $ 2,410 $ 2,168
-------------------------------------------------------------------------------------------------------
Actuarial present value of
accumulated benefit obligation:
Vested 1,821 1,606 1,558
Non-vested 270 242 216
-------------------------------------------------------------------------------------------------------
Total 2,091 1,848 1,774
Effect of future salary
increases 583 282 288
-------------------------------------------------------------------------------------------------------
Projected benefit
obligation 2,674 2,130 2,062
-------------------------------------------------------------------------------------------------------
Postretirement benefit obligation for:
Retirees $ 180 $ 188 $ 197
Fully eligible
active plan
participants 33 33 32
Other active plan
participants 74 64 61
-------------------------------------------------------------------------------------------------------
Accumulated postretirement
benefit obligation 287 285 290
-------------------------------------------------------------------------------------------------------
Plan assets in excess of/
(less than) benefit
obligation 119 280 106 (287) (285) (290)
Unrecognized overfunding
at date of adoption (10) (15) (18) -- -- --
Unrecognized net
(gains)/losses (86) (14) 129 (24) (19) (3)
Unrecognized prior service
costs/(gains) 310 70 95 (83) (108) (133)
Minimum liability
adjustment (196) (159) (180) -- -- --
-------------------------------------------------------------------------------------------------------
Prepaid/(accrued)
costs included in
the Balance Sheet $ 137 $ 162 $ 132 $(394) $(412) $(426)
=======================================================================================================
|
PFIZER INC AND SUBSIDIARY COMPANIES
The figures above include the following amounts for partially funded international pension plans:
(millions of dollars) 1997 1996 1995 -------------------------------------------------------------------------------- Fair value of plan assets $294 $319 $326 Accumulated benefit obligation $553 $615 $620 ================================================================================ |
The pension plan trustees invest plan assets primarily in stocks, bonds and short-term investments. At December 31, 1997, the major U.S. plan held approximately 3.5 million shares of our common stock with a fair value of approximately $261 million. The plan received approximately $3 million in dividends on these shares in 1997.
The annual cost related to these plans and the assumptions used consist of the following:
Pension Postretirement
-------------------------------- ------------------------
(percentages) 1997 1996 1995 1997 1996 1995
---------------------------------------------------------------------------------------------
Assumptions:
Expected long-term rate
of return on plan assets:
U.S. plans 10.0 10.0 10.0
International plans 7.5 7.8 8.1
=============================================================================================
(millions of dollars)
---------------------------------------------------------------------------------------------
Expected return on
plan assets:
Actual return $(491) $(325) $(415)
Deferred return 283 133 245
---------------------------------------------------------------------------------------------
Net expected return (208) (192) (170)
Service cost--benefits
earned during
the period 105 93 81 $ 7 $ 6 $ 5
Interest cost on benefit
obligation 145 139 131 19 20 22
Net amortization and
deferral 31 30 46 (25) (24) (24)
---------------------------------------------------------------------------------------------
Net periodic cost $ 73 $ 70 $ 88 $ 1 $ 2 $ 3
=============================================================================================
|
An average increase of 8.2% in the cost of covered health care benefits was assumed for 1998 and is projected to decrease to 5.2% after seven years and to then remain at that level.
A 1% increase in the medical trend rate assumed for postretirement benefits would cause an increase of $13.1 million in the accumulated benefit obligation at December 31, 1997 and an increase in the periodic cost of $.9 million.
10 Savings and Investment Plans
We have savings and investment plans for most employees in the U.S., Puerto Rico, the U.K. and Ireland. Employees may contribute a portion of their salaries to the plans and we match a portion of the employee contributions. Our contributions were $41 million in 1997, $36 million in 1996 and $33 million in 1995.
11 Lease Commitments
We lease properties for use in our operations. In addition to rent, the leases require us to pay directly for taxes, insurance, maintenance and other operating expenses, or to pay higher rent when operating expenses increase. Rental expense, net of sublease income, was $139 million in 1997, $122 million in 1996 and $118 million in 1995. This table shows future minimum rental commitments under noncancellable leases at December 31, 1997:
After
(millions of dollars) 1998 1999 2000 2001 2002 2002
--------------------------------------------------------------------------------
Lease commitments $45 $42 $33 $24 $23 $286
================================================================================
|
12 Common Stock
We effected a two-for-one split of our common stock in the form of a 100% stock dividend in both 1997 and 1995. Both splits followed votes by shareholders to increase the number of authorized common shares. All share and per share information in this report reflects both splits.
The Board of Directors authorized us to repurchase up to $2 billion of our outstanding common stock through September 1998. In 1997, we repurchased approximately 11.4 million shares at an average price of $51 per share and approximately .6 million shares in 1996 at an average price of $44 per share.
13 Preferred Stock Purchase Rights
Preferred Stock Purchase Rights granted in 1987 expired in October 1997. Those rights were replaced by new Preferred Stock Purchase Rights that have a scheduled term through October 2007, although that may be extended or redeemed. One right was issued for each share of common stock issued by our company. These rights are not exercisable unless certain change-in-control events transpire, such as a person acquiring or obtaining the right to acquire beneficial ownership of 15% or more of our outstanding common stock or an announcement of a tender offer for at least 30% of that stock. The rights are evidenced by corresponding common stock certificates and automatically trade with the common stock unless an event transpires that makes them exercisable. If the rights become exercisable, separate certificates evidencing the rights will be distributed and each right
PFIZER INC AND SUBSIDIARY COMPANIES
will entitle the holder to purchase from our company a new series of preferred stock at a defined price. The preferred stock, in addition to preferred dividend and liquidation rights, will entitle the holder to vote with the company's common stock.
The rights are redeemable by us at a fixed price until 10 days, or longer as determined by the Board, after certain defined events, or at any time prior to the expiration of the rights.
We have reserved 3.0 million preferred shares to be issued pursuant to these rights. No such shares have yet been issued. At the present time, the rights have no dilutive effect on the earnings per common share calculation.
14 Employee Benefit Trusts
In 1993, we sold 40 million shares of treasury stock to the Pfizer Inc. Grantor Trust in exchange for a $600 million note. The Trust is used primarily to fund our benefit plans including the stock option plan. The Balance Sheet reflects the fair value of shares owned by the Trust as a reduction of Shareholders' Equity, representing unearned benefit costs. This amount is reduced as benefits are satisfied.
The Trust released approximately 630,000 shares in 1997, 1,260,000 shares in 1996 and 1,660,000 shares in 1995. We record compensation expense for the benefit plans, other than stock options, based on the fair value of the shares when released.
15 Stock Option and Performance Awards
We may grant stock options to any employee, including officers, under our Stock and Incentive Plan. Options are exercisable after five years or less, subject to continuous employment and certain other conditions and expire 10 years after the grant date. Once exercisable, the employee can purchase shares of our common stock at the market price on the date we granted the option.
The Plan also allows for stock appreciation rights, stock awards and performance awards. In 1996, shareholders approved amendments to increase the shares available in the Plan and to extend its term through 2005.
The following table summarizes information concerning options outstanding under the Plan at December 31, 1997:
(thousands
of shares) Options Outstanding Options Exercisable
------------------------------------------------------ -------------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices at 12/31/97 Term (Years) Price at 12/31/97 Price
--------------------------------------------------------------------------------
$ 0--$10 6,071 1.6 $ 7.44 6,071 $ 7.44
10-- 20 24,583 5.7 16.58 24,249 16.57
20-- 30 22,249 6.1 22.45 17,756 21.94
30-- 40 17,192 8.6 37.25 7,714 37.25
50-- 60 14,204 9.6 55.04 -- --
================================================================================
|
The following table summarizes the activity for the Plan:
Under Option
-------------------------
Shares Weighted
Available for Average Exercise
(thousands of shares) Grant Shares Price Per Share
--------------------------------------------------------------------------------
Balance January 1, 1995 19,570 88,484 $ 16.13
Granted (14,104) 14,104 24.50
Exercised -- (15,096) 14.01
Cancelled 1,684 (1,684) 18.85
--------------------------------------------------------------------------------
Balance December 31, 1995 7,150 85,808 18.37
Authorized 46,000 -- --
Granted (18,820) 18,820 37.25
Exercised -- (17,466) 13.44
Cancelled 684 (734) 24.00
--------------------------------------------------------------------------------
Balance December 31, 1996 35,014 86,428 21.62
Granted (14,204) 14,204 55.04
Exercised -- (15,661) 16.15
Cancelled 653 (672) 38.68
--------------------------------------------------------------------------------
Balance December 31, 1997 21,463 84,299 28.17
================================================================================
|
The weighted-average fair value per stock option granted was $16.77 for the 1997 options, $10.90 for the 1996 options and $6.46 for those granted in 1995. We estimated the fair values using the Black-Scholes option pricing model, modified for dividends and using the following assumptions:
1997 1996 1995
--------------------------------------------------------------------------------
Expected dividend yield 1.76% 1.97% 2.85%
Risk-free interest rate 6.23% 6.38% 6.26%
Expected stock price volatility 25.56% 25.45% 26.00%
Expected term until exercise (years) 5.50 5.25 5.25
================================================================================
|
We do not record compensation expense for stock option grants. The following table summarizes results as if we had recorded compensation expense for the 1997, 1996 and 1995 option grants:
(millions of dollars, except per share data) 1997 1996 1995 -------------------------------------------------------------------------------- Net income: As reported $ 2,213 $ 1,929 $ 1,573 Pro forma 2,087 1,860 1,559 Basic earnings per share: As reported $ 1.76 $ 1.55 $ 1.28 Pro forma 1.66 1.49 1.27 Diluted earnings per share: As reported $ 1.70 $ 1.50 $ 1.25 Pro forma 1.60 1.44 1.24 ================================================================================ |
PFIZER INC AND SUBSIDIARY COMPANIES
These figures reflect only the impact of grants since January 1, 1995 and reflect only part of the possible compensation expense that we amortize over the vesting period of the grants (up to five years). In future years, therefore, the effect on net income and earnings per common share may differ from those shown above.
The Performance-Contingent Share Award Program was established effective in 1993 to provide executives and other key employees the right to earn common stock awards. We determine the award payouts after the performance period ends, based on specific performance criteria. Under the program, up to 40 million shares may be awarded. We awarded approximately 449,000 shares in 1997, approximately 320,000 shares in 1996 and approximately 92,000 shares in 1995. At December 31, 1997, program participants had the right to earn up to 5.2 million additional shares. Compensation expense related to the program was $74 million in 1997, $31 million in 1996 and $15 million in 1995.
16 Acquisitions
In 1996, we acquired, for cash:
. certain cosmetic, dietetic and other over-the-counter products businesses
in the U.S. and Italy
. three businesses operating within the Medical Technology industry
In 1995, we acquired:
. subsidiaries and net assets of the SmithKline Beecham plc animal health
business for cash
. NAMIC U.S.A. Corporation (in the Medical Technology business) for 8.8
million shares of common stock
. Bain de Soleil Consumer Health Care products for cash
We recorded all of these acquisitions under the purchase method of accounting and included their operating results in the financial statements from their respective acquisition dates. Results of operations, assuming the 1996 acquisitions had occurred on January 1, would not be materially different from those reported.
17 Discontinued Operations
In 1996, we sold our food science business and have reported its results as discontinued operations. Following is a summary of its results:
(millions of dollars) 1996 1995 -------------------------------------------------------------------------------- Net sales $47 $328 -------------------------------------------------------------------------------- Income before provision for taxes on income $-- $ 31 Provision for taxes on income -- 9 -------------------------------------------------------------------------------- Net income $-- $ 22 ================================================================================ |
At December 31, 1995, "Prepaid expenses, taxes and other assets" in the Balance Sheet included the net assets of the food science business, which totaled $330 million.
18 Insurance
We maintain insurance coverage adequate for our needs. Under our insurance contracts, we usually accept self-insured retentions appropriate for our specific business risks.
19 Litigation
The Company is involved in a number of claims and litigations, including product liability claims and litigations considered normal in the nature of its businesses. These include suits involving various pharmaceutical and hospital products that allege either reaction to or injury from use of the product. In addition, from time to time the Company is involved in, or is the subject of, various governmental or agency inquiries or investigations relating to its businesses.
On June 9, 1997, the Company received notice of the filing of an Abbreviated New Drug Application (ANDA) by Mylan Pharmaceuticals for a sustained release nifedipine product asserted to be bioequivalent to Procardia XL. Mylan's notice asserted that the proposed formulation does not infringe relevant licensed Alza and Bayer patents and thus that approval of their ANDA should be granted before patent expiration. On July 18, 1997, the Company, together with Bayer AG and Bayer Corporation, filed a patent infringement suit against Mylan Pharmaceuticals Inc. and Mylan Laboratories Inc. in the United States District Court for the Western District of Pennsylvania with respect to Mylan's ANDA. Suit was filed under Bayer AG's U.S. Patent No. 5,264,446, licensed to the Company, relating to nifedipine of a specified particle size range. Mylan has filed its answer denying infringement and a scheduling order has been entered. Discovery is in progress. On or about February 23, 1998, Bayer AG received notice that Biovail Laboratories Incorporated had filed an ANDA for a sustained release nifedipine product asserted to be bioequivalent to Procardia XL. The notice indicated that it was being sent to the Company as well. The notice asserts that the Biovail product does not infringe Bayer's U.S. Patent No. 5,264,446. The notice is under review.
PFIZER INC AND SUBSIDIARY COMPANIES
Pfizer filed suit on July 8, 1997, against the FDA in the United States District Court for the District of Columbia, seeking a declaratory judgment and injunctive relief enjoining the FDA from processing Mylan's ANDA or any other ANDA submission referencing Procardia XL that uses a different extended release mechanism. Pfizer's suit alleges that extended release mechanisms that are not identical to the osmotic pump mechanism of Procardia XL constitute different dosage forms requiring the filing and approval of suitability petitions under the Food Drug and Cosmetics Act before the FDA can accept an ANDA for filing. Mylan intervened in Pfizer's suit. Oral arguments were heard on August 29, 1997. No decision has yet been issued.
As previously disclosed, a number of lawsuits and claims have been brought against the Company and Shiley Incorporated, a wholly owned subsidiary, alleging either personal injury from fracture of 60(degree) or 70(degree) Shiley Convexo Concave ("C/C") heart valves, or anxiety that properly functioning implanted valves might fracture in the future, or personal injury from a prophylactic replacement of a functioning valve.
In an attempt to resolve all claims alleging anxiety that properly functioning valves might fracture in the future, the Company entered into a settlement agreement in January 1992 in Bowling v. Shiley, et al., a case brought in the United States District Court for the Southern District of Ohio, that established a worldwide settlement class of people with C/C heart valves and their spouses, except those who elect to exclude themselves. The settlement provided for a Consultation Fund of $90 million, which was fixed by the number of claims filed, from which valve recipients are receiving payments that are intended to cover their cost of consultation with cardiologists or other health care providers with respect to their valves. The settlement agreement established a second fund of at least $75 million to support C/C valve-related research, including the development of techniques to identify valve recipients who may have significant risk of fracture, and to cover the unreimbursed medical expenses that valve recipients may incur for certain procedures related to the valves. The Company's obligation as to coverage of these unreimbursed medical expenses is not subject to any dollar limitation. Following a hearing on the fairness of the settlement, it was approved by the court on August 19, 1992 and all appeals have been exhausted.
Generally, the plaintiffs in all of the pending heart valve litigations seek money damages. Based on the experience of the Company in defending these claims to date, including insurance proceeds and reserves, the Company is of the opinion that these actions should not have a material adverse effect on the financial position or the results of operations of the Company. Litigation involving insurance coverage for the Company's heart valve liabilities has been resolved.
The Company's operations are subject to federal, state, local and foreign environmental laws and regulations. Under the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended ("CERCLA" or "Superfund"), the Company has been designated as a potentially responsible party by the United States Environmental Protection Agency with respect to certain waste sites with which the Company may have had direct or indirect involvement. Similar designations have been made by some state environmental agencies under applicable state superfund laws. Such designations are made regardless of the extent of the Company's involvement. There are also claims that the Company may be a responsible party or participant with respect to several waste site matters in foreign jurisdictions. Such claims have been made by the filing of a complaint, the issuance of an administrative directive or order, or the issuance of a notice or demand letter. These claims are in various stages of administrative or judicial proceedings. They include demands for recovery of past governmental costs and for future investigative or remedial actions. In many cases, the dollar amount of the claim is not specified. In most cases, claims have been asserted against a number of other entities for the same recovery or other relief as was asserted against the Company. The Company is currently participating in remedial action at a number of sites under federal, state, local and foreign laws.
To the extent possible with the limited amount of information available at this time, the Company has evaluated its responsibility for costs and related liability with respect to the above sites and is of the opinion that the Company's liability with respect to these sites should not have a material adverse effect on the financial position or the results of operations of the Company. In arriving at this conclusion, the Company has considered, among other things, the payments that have been made with respect to the sites in the past; the factors, such as volume and relative toxicity, ordinarily applied to allocate defense and remedial costs at such sites; the probable costs to be paid by the other potentially responsible parties; total projected remedial costs for a site, if known; existing technology; and the currently enacted laws and regulations. The Company anticipates that a portion of these costs and related liability will be covered by available insurance.
The United States Environmental Protection Agency--Region I and the Department of Justice have informed the Company that the federal government is contemplating an enforcement action arising primarily out of a December 1993 multimedia environmental inspection, as well as certain state inspections, of the Company's Groton, Connecticut facility. The Company is engaged in discussions with the governmental agencies and does not believe that an enforcement action, if brought, will have a material adverse effect on the financial position or the results of operations of the Company.
PFIZER INC AND SUBSIDIARY COMPANIES
Through the early 1970s, Pfizer Inc. (Minerals Division) and Quigley Company, Inc. ("Quigley"), a wholly owned subsidiary, sold a minimal amount of one construction product and several refractory products containing some asbestos. These sales were discontinued thereafter. Although these sales represented a minor market share, the Company has been named as one of a number of defendants in numerous lawsuits. These actions, and actions related to the Company's sale of talc products in the past, claim personal injury resulting from exposure to asbestos-containing products, and nearly all seek general and punitive damages. In these actions, the Company or Quigley is typically one of a number of defendants, and both are members of the Center for Claims Resolution (the "CCR"), a joint defense organization of twenty defendants that is defending these claims. The Company and Quigley are responsible for varying percentages of defense and liability payments for all members of the CCR. A number of cases alleging property damage from asbestos-containing products installed in buildings have also been brought against the Company.
On January 15, 1993, a class action complaint and settlement agreement were filed in the United States District Court for the Eastern District of Pennsylvania involving all personal injury claims by persons who have been exposed to asbestos-containing products but who have not yet filed a personal injury action against the members of the CCR (Future Claims Settlement). The District Court determined that the Future Claims Settlement was fair and reasonable. Subsequently, the United States Court of Appeals for the Third Circuit reversed the order of the District Court and on June 27, 1997, the U.S. Supreme Court affirmed the Third Circuit's order and decertified the class. The overturning of the settlement is not expected to have a material impact on the Company's exposure or on the availability of insurance for the vast majority of such cases. It is expected, too, that the CCR will attempt to resolve such cases in the same manner as heretofore.
At approximately the time it filed the Future Claims Settlement class action, the CCR settled approximately 16,360 personal injury cases on behalf of its members, including the Company and Quigley. The CCR has continued to settle remaining and opt-out cases and claims on a similar basis to past settlements. As of January 31, 1998, there were 49,398 personal injury claims pending against Quigley (excluding those which are inactive or have been settled in principle), 18,695 such claims against the Company, and 68 talc cases against the Company.
The Company believes that its costs incurred in defending and ultimately disposing of the asbestos personal injury claims, as well as the property damage claims, will be largely covered by insurance policies issued by several primary insurance carriers and a number of excess carriers that have agreed to provide coverage, subject to deductibles, exclusions, retentions and policy limits. Litigation is pending against several excess insurance carriers seeking damages and/or declaratory relief to secure their coverage obligations. Based on the Company's experience in defending the claims to date and the amount of insurance coverage available, the Company is of the opinion that the actions should not ultimately have a material adverse effect on the financial position or the results of operations of the Company.
The Company has been named, together with numerous other manufacturers of
brand name prescription drugs and certain companies that distribute brand name
prescription drugs, in suits in federal and state courts brought by various
groups of retail pharmacy companies. The federal cases consist principally of a
class action by retail pharmacies (including approximately 30 named plaintiffs)
(the "Federal Class Action"), as well as additional actions by approximately
3,500 individual retail pharmacies and a group of chain and supermarket
pharmacies (the "individual actions"). These cases, which have been transferred
to the United States District Court for the Northern District of Illinois and
coordinated for pretrial purposes, allege that the defendant drug manufacturers
violated the Sherman Act by unlawfully agreeing with each other (and, as alleged
in some cases, with wholesalers) not to extend to retail pharmacy companies the
same discounts allegedly extended to mail order pharmacies, managed care
companies and certain other customers, and by unlawfully discriminating against
retail pharmacy companies by not extending them such discounts. On November 15,
1994, the federal court certified a class (the Federal Class Action) consisting
of all persons or entities who, since October 15, 1989, bought brand name
prescription drugs from any manufacturer or wholesaler defendant, but
specifically excluding government entities, mail order pharmacies, HMOs,
hospitals, clinics and nursing homes. Fifteen manufacturer defendants, including
the Company, agreed to settle the Federal Class Action subject to court
approval. The Company's share pursuant to an Agreement as of January 31, 1996,
was $31.25 million, payable in four annual installments without interest. The
Company continues to believe that there was no conspiracy and specifically
denied liability in the Settlement Agreement, but had agreed to settle to avoid
the monetary and other costs of litigation. The settlement was filed with the
Court on February 9, 1996 and went through preliminary and final fairness
hearings. By orders of April 4, 1996, the Court: (1) rejected the settlement;
(2) denied the motions of the manufacturers (including the Company) for summary
judgment; (3) granted the motions of the wholesalers for summary judgment; and
(4) denied the motion to exclude purchases by other than direct purchasers. On
August 15, 1997, the Court of Appeals (1) reversed the denial of summary
judgment for
PFIZER INC AND SUBSIDIARY COMPANIES
the manufacturers excluding purchases by other than direct purchasers; (2) reversed the grant of summary judgment dismissing the wholesalers; and (3) took action regarding Alabama state cases, and DuPont Merck. The District Court has now set a trial date of September 1998 for the trial of the class case against the non-settlers, and has permitted the opt-out plaintiffs to add the wholesalers as named defendants in their cases.
In May 1996, thirteen manufacturer defendants, including the Company, entered into an Amendment to the Settlement Agreement which was filed with the Court on May 6, 1996. The Company's financial obligations under the Settlement Agreement will not be increased. The Settlement Agreement, as amended, received final approval June 21, 1996. Appeals from this decision were dismissed by the U.S. Court of Appeals for the Seventh Circuit in May 1997.
Retail pharmacy cases have also been filed in state courts in Alabama, California, Minnesota, Mississippi and Wisconsin. Pharmacy classes have been certified in California. The Company's motion to dismiss was granted in the Wisconsin case, and that dismissal is under appeal.
Consumer class actions have been filed in Alabama, Arizona, California, the District of Columbia, Florida, Kansas, Maine, Michigan, Minnesota, New York, North Carolina, Tennessee, Washington and Wisconsin alleging injury to consumers from the failure to give discounts to retail pharmacy companies. The New York and Washington state cases were dismissed, and an appeal is pending in New York. A case filed in Colorado state court was dismissed without appeal. A consumer class has been certified in California, and a limited consumer class has been certified in the District of Columbia. Class certification was denied in the Michigan state case, and plaintiffs' subsequent petition for review was denied. Class certification also was denied in the Maine case.
The Company believes that these brand name prescription drug antitrust cases, which generally seek damages and certain injunctive relief, are without merit.
The Federal Trade Commission is conducting an investigation focusing on the pricing practices at issue in the above pharmacy antitrust litigation. In July 1996, the Commission issued a subpoena for documents to the Company, among others, to which the Company has responded. A second subpoena was issued to the Company for documents in May 1997 and the Company has responded. This investigation continues.
FDA administrative proceedings relating to Plax are pending, principally an industry-wide call for data on all anti-plaque products by the FDA. The call for data notice specified that products that have been marketed for a material time and to a material extent may remain on the market pending FDA review of the data, provided the manufacturer has a good faith belief that the product is generally recognized as safe and effective and is not misbranded. The Company believes that Plax satisfied these requirements and prepared a response to the FDA's request, which was filed on June 17, 1991. This filing, as well as the filings of other manufacturers, is still under review and is currently being considered by an FDA Advisory Committee.
On January 15, 1997, an action was filed in Circuit Court, Chambers County, Alabama, and certified by an ex parte order as a class action, purportedly on behalf of a class of consumers, variously defined by the laws or types of laws governing their rights and encompassing residents of up to 47 states. The complaint alleges that the Company's claims for Plax were untrue, entitling them to a refund of their purchase price for purchases since 1988. The action was removed to the U.S. District Court for the Northern District of Alabama, which vacated the class certification order. A motion to remand to state court has been granted. The Company believes the complaint is without merit.
In April 1996, the Company received a Warning Letter from the FDA relating to the timeliness and completeness of required post marketing reports for pharmaceutical products. The letter did not raise any safety issue about Pfizer drugs. The Company has been implementing remedial actions designed to remedy the issues raised in the letter. During 1997, the Company met with the FDA to apprise them of the scope and status of these activities.
In July 1997, the Company resolved all issues with the FDA related to an August 1996 Warning Letter from the FDA relating to certain promotional materials used in the marketing of Zoloft. Two purported consumer class actions involving Zoloft are pending, one in Federal Court in Brownsville, Texas and the other in Superior Court, San Diego County, California. Each complaint alleges that Pfizer's promotional materials improperly implied that the FDA had approved Zoloft as safe and effective for certain indications, and that patients for whom Zoloft was prescribed as a result of the promotion were entitled to a refund of their purchase price. The Company believes the suits are without merit.
A number of cases against Howmedica Inc. (some of which also name the Company) allege that P.C.A. one-piece acetabular hip prostheses sold from 1983 through 1990 were defectively designed and manufactured and pose undisclosed risks to implantees. The Company believes that most if not all of these cases are without merit.
PFIZER INC AND SUBSIDIARY COMPANIES
Between 1994 and 1996, seven class actions alleging various injuries arising from implantable penile prostheses manufactured by American Medical Systems were filed and ultimately dismissed or discontinued. Thereafter, in late 1996 and 1997, approximately 600 former members of one or more of the purported classes, represented by some of the same lawyers who filed the class actions, filed individual suits in Circuit Court in Minneapolis alleging damages from their use of implantable penile prostheses. The Company believes that most if not all of these cases are without merit.
In June 1993, the Ministry of Justice of the State of Sao Paulo, Brazil commenced a civil public action against the Company's Brazilian subsidiary, Laboratorios Pfizer Ltda. ("Pfizer Brazil") asserting that during a period in 1991, Pfizer Brazil withheld sale of the pharmaceutical product Diabinese in violation of antitrust and consumer protection laws. The action seeks the award of moral, economic and personal damages to individuals and the payment to a public reserve fund. On February 8, 1996, the trial court issued a decision holding Pfizer Brazil liable. The award of damages to individuals and the payment into the public reserve fund will be determined in a subsequent phase of the proceedings. The trial court's opinion sets out a formula for calculating the payment into the public reserve fund which could result in a sum of approximately $88 million. The total amount of damages payable to eligible individuals under the decision would depend on the number of persons eventually making claims. Pfizer Brazil is appealing this decision. The Company believes that this action is without merit and should not have a material adverse effect on the financial position or the results of operations of the Company.
For information on income tax adjustments proposed by the Belgian tax authorities, see note 8, "Taxes on Income."
20 Subsequent Event
In January 1998, we completed the sale of the Valleylab business--a part of the Medical Technology Group--to United States Surgical Corporation for $425 million. In connection with this transaction, a gain is expected to be recorded in the first quarter of 1998. Valleylab manufactures a line of electrosurgical and ultrasonic systems and disposables. The Valleylab business is not significant to our financial position or results of operations.
21 Segment Information and Geographic Data
We operate in three business segments. Each separately managed segment offers different products requiring different R&D, production, marketing and distribution strategies. The three segments are:
. Health care--a broad line of:
(a) pharmaceutical products (including treatments for heart diseases,
infectious diseases, central nervous system disorders, diabetes,
arthritis/inflammation and allergies)
(b) medical technology products (prosthetic bone and joint devices,
specialty instruments and implantable devices, products for diagnosing
and treating heart diseases, surgical devices and urological implants)
. Animal health--products for livestock and pets including antibiotic and
feed supplements, vaccines and other veterinary items.
. Consumer health care--over-the-counter health care and personal care
products.
We sell our products primarily to customers in the wholesaler sector. In 1997, sales to one wholesaler accounted for 10% of total revenues. Sales to our four largest wholesalers in 1997 represented 34% of total revenues. These sales were concentrated in the health care segment.
Revenues were in excess of $10 million in each of 44 countries outside the U.S. in 1997. The U.S. was the only country to contribute more than 10% to total revenues. The following tables present segment and geographic information:
PFIZER INC AND SUBSIDIARY COMPANIES
SEGMENT INFORMATION
Consumer
Health Animal Health Corporate/
(millions of dollars) Care Health Care Other Consolidated
-------------------------------------------------------------------------------------------------------------------
Total revenues 1997 $10,689/(1)/ $1,329 $486 $ -- $12,504/(1)/
1996 9,630 1,222 454 -- 11,306
1995 8,409 1,219 393 -- 10,021
-------------------------------------------------------------------------------------------------------------------
Segment profit 1997 3,309 112 39 (372)/(2)/ 3,088/(3)/
1996 3,090 101 36 (423)/(2)/ 2,804/(3)/
1995 2,548 97 36 (382)/(2)/ 2,299/(3)/
-------------------------------------------------------------------------------------------------------------------
Identifiable assets/(4)/ 1997 7,058 2,196 483 5,599 15,336
1996 6,686 2,243 473 5,265 14,667
1995 5,557 2,069 307 4,796/(5)/ 12,729
-------------------------------------------------------------------------------------------------------------------
Property, plant and equipment 1997 734 69 18 122 943
additions/(4)/ 1996 594 87 22 71 774
1995 515 74 28 79/(5)/ 696
-------------------------------------------------------------------------------------------------------------------
Depreciation and amortization/(4)/ 1997 393 75 18 16 502
1996 319 82 15 14 430
1995 271 57 12 34/(5)/ 374
===================================================================================================================
|
GEOGRAPHIC DATA
Canada/ Africa/
United Latin Middle Corporate/ Adjustments/
(millions of dollars) States/(6)/ Europe Asia America East Other Eliminations Consolidated
------------------------------------------------------------------------------------------------------------------------------------
Total revenues 1997 $6,867 $2,853 $1,675 $849 $260 $ -- $ -- $12,504/(1)/
1996 5,941 2,773 1,598 750 244 -- -- 11,306
1995 5,113 2,444 1,538 696 230 -- -- 10,021
------------------------------------------------------------------------------------------------------------------------------------
Intercompany sales 1997 196 881 75 64 11 -- (1,227) --
1996 197 813 84 35 9 -- (1,138) --
1995 175 692 75 29 10 -- (981) --
------------------------------------------------------------------------------------------------------------------------------------
Total 1997 7,063 3,734 1,750 913 271 -- (1,227) 12,504/(1)/
1996 6,138 3,586 1,682 785 253 -- (1,138) 11,306
1995 5,288 3,136 1,613 725 240 -- (981) 10,021
------------------------------------------------------------------------------------------------------------------------------------
Geographic profit/(loss) 1997 2,251 1,012 233 42 7 (372)/(2)/ (85) 3,088/(3)/
1996 2,018 1,013 250 29 (5) (423)/(2)/ (78) 2,804/(3)/
1995 1,628 778 261 49 12 (382)/(2)/ (47) 2,299/(3)/
------------------------------------------------------------------------------------------------------------------------------------
Identifiable assets/(7)/ 1997 4,665 4,317 1,202 570 151 5,599 (1,168) 15,336
1996 4,424 4,072 1,278 606 174 5,265 (1,152) 14,667
1995 3,199 3,647 1,243 612 193 4,796/(5)/ (961) 12,729
====================================================================================================================================
|
/(1)/Includes alliance revenue of $316 million.
/(2)/Includes interest income/(expense) and corporate expenses. Also includes other income/(expense) of the financial subsidiaries (see note 3, "Financial Subsidiaries").
/(3)/Consolidated total equals income from continuing operations before provision for taxes on income and minority interests.
/(4)/Certain production facilities are shared by various segments. Property, plant and equipment, as well as capital additions and depreciation, are allocated based on physical production. Corporate assets are primarily cash, short-term investments and long-term marketable securities.
/(5)/Includes amounts for the food science business which was sold in 1996.
/(6)/Includes operations in Puerto Rico.
/(7)/Products are transferred between geographic areas for additional processing and ultimate sale, on a basis intended to recognize economic and competitive circumstances in the market of end use. These figures reflect the physical location of assets even though these assets provide goods and services to other areas.
PFIZER INC AND SUBSIDIARY COMPANIES
QUARTERLY CONSOLIDATED FINANCIAL DATA (UNAUDITED)
Quarter
------------------------------------------------
(millions of dollars, except per share data) First Second Third Fourth Year
---------------------------------------------------------------------------------------------------------------------
1997
Net sales $3,002 $2,854 $2,999 $3,333 $12,188
Alliance revenue (1) 59 95 163 316
---------------------------------------------------------------------------------------------------------------------
Total revenues 3,001 2,913 3,094 3,496 12,504
Costs and expenses
Cost of sales 545 510 546 673 2,274
Selling, informational and administrative expenses 1,114 1,245 1,186 1,411 4,956
Research and development expenses 413 461 477 577 1,928
Other deductions--net 67 61 73 57 258
---------------------------------------------------------------------------------------------------------------------
Income before provision for taxes on income
and minority interests 862 636 812 778 3,088
Provision for taxes on income 259 175 213 218 865
Minority interests 1 4 3 2 10
---------------------------------------------------------------------------------------------------------------------
Net income $ 602 $ 457 $ 596 $ 558 $ 2,213
---------------------------------------------------------------------------------------------------------------------
Earnings per common share--basic* $ .48 $ .36 $ .48 $ .44 $ 1.76
---------------------------------------------------------------------------------------------------------------------
Earnings per common share--diluted* $ .46 $ .35 $ .46 $ .43 $ 1.70
---------------------------------------------------------------------------------------------------------------------
Cash dividends paid per common share $ .17 $ .17 $ .17 $ .17 $ .68
---------------------------------------------------------------------------------------------------------------------
Stock prices**
High $49 1/2 $61 9/16 $64 3/4 $80 $80
Low $40 5/16 $41 1/2 $51 1/16 $59 7/16 $40 5/16
---------------------------------------------------------------------------------------------------------------------
1996
Net sales $2,682 $2,661 $2,803 $3,160 $11,306
Costs and expenses
Cost of sales 513 521 522 620 2,176
Selling, informational and administrative expenses 994 1,083 1,040 1,249 4,366
Research and development expenses 366 422 406 490 1,684
Other deductions--net 57 61 86 72 276
---------------------------------------------------------------------------------------------------------------------
Income before provision for taxes on income
and minority interests 752 574 749 729 2,804
Provision for taxes on income 233 178 232 226 869
Minority interests 2 2 3 (1) 6
---------------------------------------------------------------------------------------------------------------------
Net income $ 517 $ 394 $ 514 $ 504 $ 1,929
---------------------------------------------------------------------------------------------------------------------
Earnings per common share--basic* $ .42 $ .31 $ .41 $ .41 $ 1.55
---------------------------------------------------------------------------------------------------------------------
Earnings per common share--diluted* $ .40 $ .31 $ .40 $ .39 $ 1.50
---------------------------------------------------------------------------------------------------------------------
Cash dividends paid per common share $ .15 $ .15 $ .15 $ .15 $ .60
---------------------------------------------------------------------------------------------------------------------
Stock prices**
High $35 3/8 $38 11/16 $39 3/4 $45 5/8 $45 5/8
Low $30 1/16 $31 7/16 $32 13/16 $38 3/4 $30 1/16
=====================================================================================================================
|
* Earnings per common share have been recomputed for the adoption of SFAS No.
128. For additional details, see note 1-H, "Significant Accounting
Policies--Earnings Per Common Share."
** As reported in The Wall Street Journal. All figures have been adjusted for the 1997 two-for-one stock split.
As of January 31, 1998, there were 87,198 record holders of our common stock (symbol PFE).
PFIZER INC AND SUBSIDIARY COMPANIES
FINANCIAL SUMMARY
Year Ended December 31
--------------------------------------------------------------------
(millions, except per share data) 1997 1996 1995 1994 1993 1992
-----------------------------------------------------------------------------------------------------------------------
Net sales $12,188 11,306 10,021 7,977 7,162 6,871
Alliance revenue 316 -- -- -- -- --
-----------------------------------------------------------------------------------------------------------------------
Total revenues 12,504 11,306 10,021 7,977 7,162 6,871
Cost of sales 2,274 2,176 2,164 1,722 1,559 1,766
Selling, informational and administrative 4,956 4,366 3,855 3,184 3,006 2,838
Research and development 1,928 1,684 1,442 1,126 961 851
Divestitures, restructuring and unusual items/(1)/ -- -- -- -- 741 (141)
Other (income)/deductions--net 258 276 261 115 60 16
-----------------------------------------------------------------------------------------------------------------------
Income from continuing operations
before taxes and minority interests 3,088 2,804 2,299 1,830 835 1,541
Provision for taxes on income 865 869 738 549 188 440
Income from continuing operations before
cumulative effect of accounting changes $ 2,213 1,929 1,554 1,276 645 1,098
Discontinued operations--net -- -- 19 22 13 (4)
Cumulative effect of accounting changes -- -- -- -- -- (283)/(2)/
-----------------------------------------------------------------------------------------------------------------------
Net income $ 2,213 1,929 1,573 1,298 658 811
-----------------------------------------------------------------------------------------------------------------------
Effective tax rate 28.0% 31.0% 32.1% 30.0% 22.5% 28.6%
Depreciation $ 416 361 321 275 241 243
Property, plant and equipment additions 943 774 696 672 634 674
Cash dividends paid 881 771 659 594 536 487
-----------------------------------------------------------------------------------------------------------------------
As of December 31
-----------------------------------------------------------------------------------------------------------------------
Working capital $ 1,515 828 965 962 1,290 2,167
Property, plant and equipment--net 4,137 3,850 3,473 3,073 2,633 2,305
Total assets 15,336 14,667 12,729 11,099 9,331 9,590
Long-term debt 729 687 833 604 571 571
Long-term capital/(3)/ 8,852 7,944 6,552 5,179 4,665 5,472
Shareholders' equity 7,933 6,954 5,506 4,324 3,866 4,719
-----------------------------------------------------------------------------------------------------------------------
Per common share data:
Basic:
Income from continuing operations
before effect of accounting changes $ 1.76 1.55 1.26 1.04 .51 .83
Net income $ 1.76 1.55 1.28 1.06 .52 .62
-----------------------------------------------------------------------------------------------------------------------
Diluted:
Income from continuing operations
before effect of accounting changes $ 1.70 1.50 1.23 1.03 .50 .82
Net income $ 1.70 1.50 1.25 1.04 .51 .60
-----------------------------------------------------------------------------------------------------------------------
Market value (December 31) $ 74.56 41.50 31.50 19.31 17.25 18.13
Cash dividends paid .68 .60 .52 .47 .42 .37
Shareholders' equity 6.30 5.54 4.45 3.55 3.11 3.63
-----------------------------------------------------------------------------------------------------------------------
Weighted average shares used to calculate:
Basic earnings per share amounts 1,257 1,248 1,229 1,223 1,262 1,316
Diluted earnings per share amounts 1,303 1,288 1,259 1,243 1,282 1,346
Number of employees (thousands) 49 47 44 40 40 40
-----------------------------------------------------------------------------------------------------------------------
Total revenues per employee (thousands) $ 254 243 229 198 179 172
=======================================================================================================================
Year Ended December 31
-----------------------------------------------------
(millions, except per share data) 1991 1990 1989 1988 1987
--------------------------------------------------------------------------------------------------------
Net sales 6,580 5,859 5,162 4,873 4,406
Alliance revenue -- -- -- -- --
--------------------------------------------------------------------------------------------------------
Total revenues 6,580 5,859 5,162 4,873 4,406
Cost of sales 1,930 1,815 1,671 1,634 1,518
Selling, informational and administrative 2,680 2,384 2,043 1,818 1,627
Research and development 745 627 519 459 386
Divestitures, restructuring and unusual items/(1)/ 300 -- -- -- --
Other (income)/deductions--net 12 (42) 51 (93) (66)
--------------------------------------------------------------------------------------------------------
Income from continuing operations
before taxes and minority interests 913 1,075 878 1,055 941
Provision for taxes on income 211 290 222 296 295
Income from continuing operations before
cumulative effect of accounting changes 699 780 652 756 643
Discontinued operations--net 23 21 29 35 47
Cumulative effect of accounting changes -- -- -- -- --
--------------------------------------------------------------------------------------------------------
Net income 722 801 681 791 690
--------------------------------------------------------------------------------------------------------
Effective tax rate 23.1% 27.0% 25.2% 28.0% 31.4%
Depreciation 218 200 184 177 162
Property, plant and equipment additions 594 548 457 344 258
Cash dividends paid 437 397 364 330 297
--------------------------------------------------------------------------------------------------------
As of December 31
--------------------------------------------------------------------------------------------------------
Working capital 1,388 1,319 1,593 1,751 2,144
Property, plant and equipment--net 2,381 2,110 1,784 1,655 1,506
Total assets 9,635 9,052 8,325 7,593 6,872
Long-term debt 397 193 191 227 249
Long-term capital/(3)/ 5,742 5,666 5,062 4,866 4,471
Shareholders' equity 5,026 5,092 4,536 4,301 3,882
--------------------------------------------------------------------------------------------------------
Per common share data:
Basic:
Income from continuing operations
before effect of accounting changes .53 .59 .49 .57 .49
Net income .55 .61 .51 .60 .52
--------------------------------------------------------------------------------------------------------
Diluted:
Income from continuing operations
before effect of accounting changes .52 .58 .48 .56 .47
Net income .53 .60 .50 .59 .51
--------------------------------------------------------------------------------------------------------
Market value (December 31) 21.00 10.10 8.69 7.25 5.83
Cash dividends paid .33 .30 .28 .25 .23
Shareholders' equity 3.82 3.86 3.43 3.25 2.95
--------------------------------------------------------------------------------------------------------
Weighted average shares used to calculate:
Basic earnings per share amounts 1,321 1,322 1,324 1,321 1,320
Diluted earnings per share amounts 1,357 1,349 1,358 1,355 1,365
Number of employees (thousands) 43 42 41 40 39
--------------------------------------------------------------------------------------------------------
Total revenues per employee (thousands) 152 141 127 123 112
========================================================================================================
|
We sold our food science business in 1996 and have reported it as a discontinued operation.
We have restated all common share and per share data for the 1997, 1995 and 1991 stock splits.
/(1)/Divestitures, restructuring and unusual items--net include the following:
1993 -- Pre-tax charges of approximately $745 million and $56 million to cover worldwide restructuring programs, as well as unusual items and a gain of approximately $60 million realized on the sale of our remaining interest in Minerals Technologies Inc.
1992 -- Pre-tax gain of $259 million on the sale of a business, offset by pre-tax charges of $175 million for restructuring, consolidating and streamlining. In addition, it includes pre-tax curtailment gains of $57 million associated with postretirement benefits other than pensions of divested operations.
1991 -- A pre-tax charge of $300 million for potential future Shiley C/C heart valve fracture claims.
/(2)/Accounting changes adopted January 1, 1992: SFAS No. 106--$313 million or $.23 per share; SFAS No. 109--credit of $30 million or $.02 per share.
/(3)/Defined as long-term debt, deferred taxes on income, minority interests and shareholders' equity.
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
The following is a list of subsidiaries of the Company as of the date hereof, omitting some subsidiaries which, considered in the aggregate, would not constitute a significant subsidiary.
A S Ruffel (Mozambique) Limitada,,,,,,,,,,,,,,,,,,,,,,,.Mozambique A S Ruffel (Private) Ltd.,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,.Zimbabwe
A/O Pfizer..............................................Russia AMS Medinvent S.A.......................................Switzerland Adforce Inc.............................................New York American Medical Systems, Inc...........................Minnesota Anaderm Research Corp...................................Delaware Benoist Girard & Cie S.C.A..............................France Bioindustria Farmaceutici S.p.A.........................Italy Biomedical Sensors (Holdings) Limited...................United Kingdom Blue Cross S.r.l........................................Italy C.P. Pharmaceuticals International C.V..................Netherlands Cardiovascular Innovations Canada, Inc..................Canada Charwell Pharmaceuticals Limited........................United Kingdom Community Care Health Solutions Inc.....................Delaware Compania Distribuidora Del Centro, S.A. de C.V..........Mexico Corvita Canada, Inc.....................................Canada Corvita Corporation.....................................Florida Corvita Europe S.A......................................Belgium Duchem Laboratories Limited.............................India Farkemo S.r.l...........................................Italy Farminova, Produtos Farmaceuticos de Inovacao, Lda......Portugal Harmag, Inc.............................................Panama Health Care Ventures, Inc...............................Delaware Heinrich Mack Nachf.....................................Germany Howmedica Beteiligungs G.m.b.H..........................Germany Howmedica France S.C.A..................................France Howmedica G.m.b.H.......................................Germany Howmedica Handelsgesellschaft m.b.H.....................Austria Howmedica Iberica, S.A..................................Spain Howmedica Inc...........................................Delaware Howmedica International Limited.........................United Kingdom Howmedica International, Inc............................Panama Howmedica Investments Pty. Ltd..........................Australia Howmedica Leibinger GmbH & Co. KG.......................Germany Howmedica Leibinger Inc.................................Delaware Irkafarm S.r.l..........................................Italy Jaquet Orthopedie S.A...................................Switzerland Laboratoire Beral, S.A..................................France Laboratoires Corvita S.A.R.L............................France Laboratoires Pfizer S.A.................................Morocco |
Laboratorios Pfizer Lda.................................Portugal Laboratorios Pfizer Ltda................................Brazil Laboratorios Pfizer de Venezuela, S.A...................Venezuela Leema Chemicals & Cosmetics Pvt. Ltd....................India Measureaim..............................................United Kingdom NAMIC Eireann Limited...................................Ireland NAMIC International, Inc................................Virgin Islands Nilo Holding S.A........................................Switzerland Orburn Limited..........................................Ireland Orsim, S.A..............................................France PFIZER, S.A., S. en C...................................Spain PQI Inc.................................................Canada PT. Pfizer Indonesia....................................Indonesia Pficonprod Pty. Limited.................................Australia Pfizer (Ireland) Limited................................Ireland Pfizer (Malaysia) Sendirian Berhad......................Malaysia Pfizer (Namibia) (Proprietary) Limited..................Namibia Pfizer A.B..............................................Sweden Pfizer A.G..............................................Switzerland Pfizer A/S..............................................Denmark Pfizer A/S..............................................Norway Pfizer Agricare Pty. Ltd................................Australia Pfizer Animal Health B.V................................Netherlands Pfizer Animal Health S.A................................Belgium Pfizer Animal Health Korea Ltd..........................South Korea Pfizer B.V..............................................Netherlands Pfizer Bioquimicos S.A..................................Venezuela Pfizer C.A..............................................Ecuador Pfizer Canada Inc.......................................Canada Pfizer Chemical Corp. Ltd...............................Isle of Man Pfizer Commercial Holdings Limited......................Isle of Man Pfizer Corporation......................................Panama Pfizer Corporation Austria G.m.b.H......................Austria Pfizer Dental Products Corp.............................Delaware Pfizer Egypt S.A.E......................................Egypt Pfizer Enterprises Inc..................................Delaware Pfizer European Service Center N.V......................Belgium Pfizer G.m.b.H..........................................Germany Pfizer Group Limited....................................United Kingdom Pfizer H.C.P. Corporation...............................New York Pfizer Health Solutions Inc.............................Delaware Pfizer Hellas, A.E......................................Greece Pfizer Holding Mexico, S. de R.L. de C.V................Mexico Pfizer Holding und Verwaltungs G.m.b.H..................Germany Pfizer Holdings B.V.....................................Netherlands Pfizer Holdings Europe..................................Ireland Pfizer Holdings Ireland.................................Ireland Pfizer Hospital Products (Belgium) N.V..................Belgium Pfizer Ilaclari A.S.....................................Turkey |
Pfizer International Bank Europe........................Ireland
Pfizer International Corporation........................Panama
Pfizer International Holdings...........................Ireland
Pfizer International Inc................................New York
Pfizer International Properties, LLC....................Delaware
Pfizer Italiana S.p.A...................................Italy
Pfizer Laboratories (Proprietary) Limited...............South Africa
Pfizer Laboratories Limited.............................Kenya
Pfizer Laboratories Limited.............................New Zealand
Pfizer Laboratories Limited.............................Pakistan
Pfizer Limited..........................................Ghana
Pfizer Limited..........................................India
Pfizer Limited..........................................South Korea
Pfizer Limited..........................................Tanzania
Pfizer Limited..........................................Thailand
Pfizer Limited..........................................Uganda
Pfizer Limited..........................................United Kingdom
Pfizer Ltd..............................................Taiwan
Pfizer Manufacturing LLC................................Delaware
Pfizer Med-Inform Beratungs G.m.b.H.....................Austria
Pfizer Medical Systems, Inc.............................Delaware
Pfizer Medical Technology Group (Netherlands) BV........Netherlands
Pfizer Medical Technology Group Aktiebolag..............Sweden
Pfizer Medical Technology Group Limited.................United Kingdom
Pfizer Medical Technology Group Pension
Trustees Limited....................................United Kingdom
Pfizer Netherlands L.P..................................New York
Pfizer Overseas, Inc....................................Delaware
Pfizer Oy...............................................Finland
Pfizer Pension Trustees (Ireland) Limited...............Ireland
Pfizer Pension Trustees Ltd.............................United Kingdom
Pfizer Pharm Algerie SPA................................Algeria
Pfizer Pharmaceutical Trading Limited
Liability Company.....................................Hungary
Pfizer Pharmaceuticals B.V..............................Netherlands
Pfizer Pharmaceuticals Inc.
[a/k/a Pfizer Seiyaku Kabushiki Kaisha (PSK)].........Japan
Pfizer Pharmaceuticals Korea Ltd........................South Korea
Pfizer Pharmaceuticals Ltd..............................People's Republic of
China
Pfizer Pharmaceuticals Production Corporation...........Panama
Pfizer Pharmaceuticals Production Corporation
(Partnership).........................................Ireland
Pfizer Pharmaceuticals Production Corporation Limited...Isle of Man
Pfizer Pharmaceuticals, Inc.............................Delaware
Pfizer Pharmaceutics Israel Ltd.........................Israel
Pfizer Pigments Inc.....................................Delaware
Pfizer Polska Sp. z.o.o.................................Poland
Pfizer Private Limited..................................Singapore
Pfizer Production LLC...................................Delaware
Pfizer Products Inc.....................................Connecticut
Pfizer Pty. Ltd.........................................Australia
Pfizer Research and Development Company N.V./S.A........Belgium
|
Pfizer Ringaskiddy Production Company...................Isle of Man Pfizer S.A..............................................Peru Pfizer S.A..............................................Belgium Pfizer S.A..............................................Colombia Pfizer S.A..............................................Costa Rica Pfizer S.A..............................................France Pfizer S.A..............................................Venezuela Pfizer S.A.C.I..........................................Argentina Pfizer S.G.P.S. Lda.....................................Portugal Pfizer Service Company Ireland..........................Ireland Pfizer Servicios de Mexico, S.A. de C.V.................Mexico Pfizer Shoji Co., Ltd...................................Japan Pfizer Specialties Limited..............................Nigeria Pfizer Technologies Ltd.................................United Kingdom Pfizer Trading Corp.....................................Taiwan Pfizer Zona Franca S.A..................................Costa Rica Pfizer s.r.o............................................Czech Republic Pfizer, Inc.............................................Philippines Pfizer, S.A. [a/k/a Pfizer Pharmaceutical]..............Spain Pfizer, S.A. de C.V.....................................Mexico Programmable Pump Technologies, Inc.....................Delaware Quigley Company Inc.....................................New York ROVIFARMA, S.A..........................................Spain Radiologic Sciences, Inc................................California Restiva S.r.l...........................................Italy Roerig A.B..............................................Sweden Roerig B.V..............................................Netherlands Roerig Farmaceutici Italiana S.p.A......................Italy Roerig S.A..............................................Chile Roerig, Produtos Farmaceuticos, Lda.....................Portugal S.D. Investments Pty. Ltd...............................Australia SCHNEIDER PUERTO RICO...................................Delaware SCHNEIDER/NAMIC.........................................Delaware Schneider Belgium N.V...................................Belgium Schneider (Europe) GmbH.................................Switzerland Schneider Holland.......................................Netherlands Schneider (USA) Inc.....................................Minnesota Schneider Ireland B.V...................................Netherlands Shiley Incorporated.....................................California Shiley International....................................California Shiley Ltd..............................................United Kingdom Site Realty, Inc........................................Delaware SmithKline Animal Health (Proprietary) Limited..........South Africa SmithKline Animal Health (SWA) (Pty) Ltd................Namibia SmithKline Beecham Animal Health (Singapore) Private Limited.......................................Singapore SmithKline Beecham Animal Health (Taiwan) Limited.......Taiwan Taylor Kosmetik G.m.b.H.................................Germany The Kodiak Company Ltd..................................Bermuda Unicliffe Limited.......................................United Kingdom |
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of Pfizer Inc.:
We consent to incorporation herein by reference of our report dated February 26, 1998 on the consolidated balance sheet of Pfizer Inc. and subsidiary companies as of December 31, 1997, 1996 and 1995 and the related consolidated statements of income, shareholders' equity and cash flows for the years then ended, as contained in the Pfizer Inc. 1997 Annual Report to Shareholders. These consolidated financial statements and our report thereon are incorporated by reference in this Annual Report on Form 10-K for the year 1997.
We also consent to incorporation by reference of our report in the following Registration Statements:
. Form S-15 dated December 13, 1982 (File No. 2-80884),
. Form S-8 dated October 27, 1983 (File No. 2-87473),
. Form S-8 dated March 22, 1990 (File No. 33-34139),
. Form S-8 dated January 24, 1991 (File No. 33-38708),
. Form S-8 dated November 18, 1991 (File No. 33-44053),
. Form S-3 dated May 27, 1993 (File No. 33-49629),
. Form S-8 dated May 27, 1993 (File No. 33-49631),
. Form S-8 dated May 19, 1994, (File No. 33-53713),
. Form S-8 dated October 5, 1994 (File No. 33-55771),
. Form S-3 dated November 14, 1994 (File No. 33-56435),
. Form S-8 dated December 20, 1994 (File No. 33-56979),
. Form S-4 dated February 14, 1995 (File No. 33-57709),
. Form S-8 dated March 29, 1996 (File No. 33-02061), and
. Form S-8 dated September 25, 1997 (File No. 333-36371).
/s/ KPMG Peat Marwick LLP
New York, New York
March 26, 1998
|
| ARTICLE 5 |
| THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PFIZER INC. AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF INCOME FOR THE PERIOD ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
| MULTIPLIER: 1,000,000 |
| PERIOD TYPE | 12 MOS |
| FISCAL YEAR END | DEC 31 1997 |
| PERIOD END | DEC 31 1997 |
| CASH | 877 |
| SECURITIES | 712 |
| RECEIVABLES | 2,578 |
| ALLOWANCES | (51) |
| INVENTORY | 1,773 |
| CURRENT ASSETS | 6,820 |
| PP&E | 6,458 |
| DEPRECIATION | (2,321) |
| TOTAL ASSETS | 15,336 |
| CURRENT LIABILITIES | 5,305 |
| BONDS | 729 |
| PREFERRED MANDATORY | 0 |
| PREFERRED | 0 |
| COMMON | 69 |
| OTHER SE | 12,588 |
| TOTAL LIABILITY AND EQUITY | 15,336 |
| SALES | 12,188 |
| TOTAL REVENUES | 12,504 |
| CGS | 2,274 |
| TOTAL COSTS | 2,274 |
| OTHER EXPENSES | 1,928 |
| LOSS PROVISION | 0 |
| INTEREST EXPENSE | 147 |
| INCOME PRETAX | 3,088 |
| INCOME TAX | 865 |
| INCOME CONTINUING | 2,213 |
| DISCONTINUED | 0 |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | 2,213 |
| EPS PRIMARY | 1.76 2 |
| EPS DILUTED | 1.70 |
| 1 | Prior period financial data schedules for periods other than the years ended December 31, 1997, 1996 and 1995 have not been restated to reflect the two-for-one stock split distributed June 30, 1997. |
| 2 | The information reported above under "EPS PRIMARY" represents basic earnings per share for the year ended December 31, 1997. |
| ARTICLE 5 |
| THIS RESTATED SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PFIZER INC. AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF INCOME FOR THE PERIOD ENDED DECEMBER 31, 1996 RESTATED TO REFLECT THE JUNE 1997 TWO-FOR-ONE STOCK SPLIT IN THE FORM OF A 100 PERCENT STOCK DIVIDEND AND TO REFLECT THE ADOPTION IN 1997 OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS ("SFAS") NO. 128, "EARNINGS PER COMMON SHARE." THIS RESTATED SCHEDULE IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS RESTATED AS DESCRIBED ABOVE. |
| MULTIPLIER: 1,000,000 |
| PERIOD TYPE | 12 MOS |
| FISCAL YEAR END | DEC 31 1996 |
| PERIOD END | DEC 31 1996 |
| CASH | 1,150 |
| SECURITIES | 487 |
| RECEIVABLES | 2,310 |
| ALLOWANCES | (58) |
| INVENTORY | 1,589 |
| CURRENT ASSETS | 6,468 |
| PP&E | 6,005 |
| DEPRECIATION | (2,155) |
| TOTAL ASSETS | 14,667 |
| CURRENT LIABILITIES | 5,640 |
| BONDS | 687 |
| PREFERRED MANDATORY | 0 |
| PREFERRED | 0 |
| COMMON | 69 |
| OTHER SE | 9,710 |
| TOTAL LIABILITY AND EQUITY | 14,667 |
| SALES | 11,306 |
| TOTAL REVENUES | 11,306 |
| CGS | 2,176 |
| TOTAL COSTS | 2,176 |
| OTHER EXPENSES | 1,684 |
| LOSS PROVISION | 0 |
| INTEREST EXPENSE | 165 |
| INCOME PRETAX | 2,804 |
| INCOME TAX | 869 |
| INCOME CONTINUING | 1,929 |
| DISCONTINUED | 0 |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | 1,929 |
| EPS PRIMARY | 1.55 2 |
| EPS DILUTED | 1.50 |
| 1 | Prior period financial data schedules for periods other than the years ended December 31, 1997, 1996 and 1995 have not been restated to reflect the two-for-one stock split distributed June 30, 1997. |
| 2 | The information reported above under "EPS PRIMARY" represents basic earnings per share for the year ended December 31, 1996. |
| ARTICLE 5 |
| THIS AMENDED AND RESTATED SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PFIZER INC. AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF INCOME FOR THE PERIOD ENDED DECEMBER 31, 1995 RESTATED TO REFLECT THE JUNE 1997 TWO-FOR-ONE STOCK SPLIT IN THE FORM OF A 100 PERCENT STOCK DIVIDEND AND TO REFLECT THE ADOPTION IN 1997 OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS ("SFAS") NO. 128, "EARNINGS PER COMMON SHARE." THIS AMENDED AND RESTATED SCHEDULE IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS RESTATED AS DESCRIBED ABOVE. |
| MULTIPLIER: 1,000,000 |
| PERIOD TYPE | 12 MOS |
| FISCAL YEAR END | DEC 31 1995 |
| PERIOD END | DEC 31 1995 |
| CASH | 403 |
| SECURITIES | 1,109 |
| RECEIVABLES | 2,085 |
| ALLOWANCES | (61) |
| INVENTORY | 1,384 |
| CURRENT ASSETS | 6,152 |
| PP&E | 5,463 |
| DEPRECIATION | (1,990) |
| TOTAL ASSETS | 12,729 |
| CURRENT LIABILITIES | 5,187 |
| BONDS | 833 |
| PREFERRED MANDATORY | 0 |
| PREFERRED | 0 |
| COMMON | 69 |
| OTHER SE | 8,059 |
| TOTAL LIABILITY AND EQUITY | 12,729 |
| SALES | 10,021 |
| TOTAL REVENUES | 10,021 |
| CGS | 2,164 |
| TOTAL COSTS | 2,164 |
| OTHER EXPENSES | 1,442 |
| LOSS PROVISION | 27 |
| INTEREST EXPENSE | 192 |
| INCOME PRETAX | 2,299 |
| INCOME TAX | 738 |
| INCOME CONTINUING | 1,554 |
| DISCONTINUED | 19 |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | 1,573 |
| EPS PRIMARY | 1.28 2 |
| EPS DILUTED | 1.25 |
| 1 | Prior period financial data schedules for periods other than the years ended December 31, 1997, 1996 and 1995 have not been restated to reflect the two-for-one stock split distributed June 30, 1997. |
| 2 | The information reported above under "EPS PRIMARY" represents basic earnings per share for the year ended December 31, 1995. |