Pfizer Inc., is a global pharmaceutical company headquartered in New York City, New York, United States. It was founded by Charles Pfizer from Ludwigsburg. Pfizer is the second largest pharmaceutical company in the world after Roche, followed by Novartis.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 28, 1997 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from________to_______ COMMISSION FILE NUMBER 1-3619 -- PFIZER INC. (Exact name of registrant as specified in its charter) DELAWARE 13-5315170 (State of incorporation) (I.R.S. Employer Identification No.) 235 East 42nd Street, New York, New York 10017 (Address of principal executive offices) (212) 573-2323 (Registrant's telephone number) 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 At October 31, 1997, 1,293,254,610 shares of the issuer's common stock were outstanding.
PFIZER INC. FORM 10-Q For the Quarter Ended September 28, 1997 Table of Contents <TABLE> PART I. FINANCIAL INFORMATION Item 1. <CAPTION> Financial Statements: Page <S> <C> Condensed Consolidated Statement of Income for the three months and nine months ended September 28, 1997 and September 29, 1996 3 Condensed Consolidated Balance Sheet at September 28, 1997, December 31, 1996 and September 29, 1996 4 Condensed Consolidated Statement of Cash Flows for the nine months ended September 28, 1997 and September 29, 1996 5 Notes to Condensed Consolidated Financial Statements 6 Independent Auditors' Report 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 PART II. OTHER INFORMATION Item 1. Legal Proceedings 20 Item 6. Exhibits and Reports on Form 8-K 28 </TABLE>
PART I. FINANCIAL INFORMATION Item 1. Financial Statements <TABLE> PFIZER INC. AND SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) <CAPTION> Three Months Ended Nine Months Ended Sept. 28, Sept. 29, Sept. 28, Sept. 29, 1997 1996 1997 1996 (millions, except per share data) <S> <C> <C> <C> <C> Net sales . . . . . . . . . . . . . . . . . . . . . $2,999 $2,803 $8,855 $8,146 Alliance revenue. . . . . . . . . . . . . . . . . . 95 -- 153 -- Total revenues. . . . . . . . . . . . . . . . . . . 3,094 2,803 9,008 8,146 Costs and expenses Cost of sales . . . . . . . . . . . . . . . . . . 546 522 1,601 1,556 Selling, informational and administrative expenses. . . . . . . . . . . . . 1,186 1,040 3,545 3,117 Research and development expenses . . . . . . . . 477 406 1,351 1,194 Other deductions--net. . . . . . . . . . . . . . . 73 86 201 204 Income before provision for taxes on income and minority interests . . . . . . . . . 812 749 2,310 2,075 Provision for taxes on income . . . . . . . . . . . 213 232 647 643 Minority interests. . . . . . . . . . . . . . . . . 3 3 8 7 Net income. . . . . . . . . . . . . . . . . . . . . $ 596 $ 514 $1,655 $1,425 Earnings per common share . . . . . . . . . . . . . $ .46 $ .40 $ 1.27 $ 1.11 Weighted average shares used to calculate earnings per share amounts. . . . . . . . . . . . . . . . . . . 1,303 1,289 1,301 1,285 Cash dividends per common share . . . . . . . . . . $ .17 $ .15 $ .51 $ .45 <FN> <F1>See accompanying Notes to Condensed Consolidated Financial Statements. </FN> </TABLE>
<TABLE> PFIZER INC. AND SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED BALANCE SHEET <CAPTION> (millions of dollars) Sept.28, Dec. 31, Sept. 29, 1997* 1996** 1996* ASSETS <S> <C> <C> <C> Current Assets Cash and cash equivalents . . . . . . . . . . . . . . . . $ 1,190 $ 1,150 $ 1,046 Short-term investments. . . . . . . . . . . . . . . . . . 727 487 1,038 Accounts receivable, less allowances of $59, $58 and $62. . . . . . . . . . . . . . . . . . . . 2,636 2,252 2,193 Short-term loans. . . . . . . . . . . . . . . . . . . . . 269 354 324 Inventories Finished goods. . . . . . . . . . . . . . . . . . . . . 689 617 584 Work in process . . . . . . . . . . . . . . . . . . . . 873 695 731 Raw materials and supplies. . . . . . . . . . . . . . . 258 277 299 Total inventories . . . . . . . . . . . . . . . . . . 1,820 1,589 1,614 Prepaid expenses, taxes and other current assets. . . . . . . . . . . . . . . . 597 636 591 Total current assets. . . . . . . . . . . . . . . . . 7,239 6,468 6,806 Long-term loans and investments . . . . . . . . . . . . . . 1,179 1,163 1,198 Property, plant and equipment, less accumulated depreciation of $2,316, $2,155 and $2,086 . . . . . . . . . . . . . . . 3,998 3,850 3,678 Goodwill, less accumulated amortization of $139, $115 and $106 . . . . . . . . . . . . . . . . . . . 1,316 1,424 1,478 Other assets, deferred taxes and deferred charges. . . . . . . . . . . . . . . . . . . . . 1,615 1,762 1,456 Total assets. . . . . . . . . . . . . . . . . . . . . $15,347 $14,667 $14,616 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Short-term borrowings, including current portion of long-term debt of $4, $261 and $525 . . . . . . . . . . . . . . . . . . $ 2,851 $ 2,235 $ 3,157 Accounts payable. . . . . . . . . . . . . . . . . . . . . 702 913 750 Income taxes payable. . . . . . . . . . . . . . . . . . . 725 892 821 Accrued compensation and related items. . . . . . . . . . 420 436 437 Other current liabilities . . . . . . . . . . . . . . . . 1,082 1,164 1,034 Total current liabilities . . . . . . . . . . . . . . 5,780 5,640 6,199 Long-term debt. . . . . . . . . . . . . . . . . . . . . . . 729 687 553 Postretirement benefit obligation other than pension plans. . . . . . . . . . . . . . . . . . . . 406 412 425 Deferred taxes on income. . . . . . . . . . . . . . . . . . 278 253 163 Other noncurrent liabilities. . . . . . . . . . . . . . . . 707 671 658 Minority interests. . . . . . . . . . . . . . . . . . . . . 42 50 52 Total liabilities . . . . . . . . . . . . . . . . . . 7,942 7,713 8,050 Shareholders' Equity Preferred stock . . . . . . . . . . . . . . . . . . . . . -- -- -- Common stock. . . . . . . . . . . . . . . . . . . . . . . 69 34 34 Additional paid-in capital. . . . . . . . . . . . . . . . 2,570 1,728 1,604 Retained earnings . . . . . . . . . . . . . . . . . . . . 9,012 8,017 7,707 Currency translation adjustment and other . . . . . . . . (76) 145 143 Employee benefit trust. . . . . . . . . . . . . . . . . . (2,193) (1,488) (1,414) Common stock in treasury, at cost . . . . . . . . . . . . (1,977) (1,482) (1,508) Total shareholders' equity. . . . . . . . . . . . . . 7,405 6,954 6,566 Total liabilities and shareholders' equity . . . . . . . . . . . . . . . $15,347 $14,667 $14,616 <FN> <F1>* Unaudited ** Condensed from audited financial statements. </FN> </TABLE> See accompanying Notes to Condensed Consolidated Financial Statements.
<TABLE> PFIZER INC. AND SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) <CAPTION> (millions of dollars) Nine Months Ended Sept. 28, Sept. 29, 1997 1996 Operating Activities <S> <C> <C> Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,655 $1,425 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of intangibles. . . . . . . . . . . 372 309 Changes in operating assets and liabilities, net of effect of businesses acquired and divested . . . . . . . . . . . . . . . . . . . . . . . . . . (927) (471) Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 49 Net cash provided by operating activities . . . . . . . . . . . . . . 1,161 1,312 Investing Activities Purchases of property, plant and equipment. . . . . . . . . . . . . (646) (510) Purchases of short-term investments . . . . . . . . . . . . . . . . (1,418) (2,477) Proceeds from redemptions of short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,242 2,564 Purchases of long-term investments. . . . . . . . . . . . . . . . . (63) (779) Acquisitions, net of cash acquired. . . . . . . . . . . . . . . . . -- (422) Proceeds from sale of business. . . . . . . . . . . . . . . . . . . 21 353 Other investing activities. . . . . . . . . . . . . . . . . . . . . 78 100 Net cash used in investing activities . . . . . . . . . . . . . . . . (786) (1,171) Financing Activities Proceeds from issuance of long-term debt. . . . . . . . . . . . . . 54 -- Repayment of long-term debt . . . . . . . . . . . . . . . . . . . . (269) (40) Increase in short-term debt . . . . . . . . . . . . . . . . . . . . 896 903 Purchases of common stock . . . . . . . . . . . . . . . . . . . . . (571) -- Cash dividends paid . . . . . . . . . . . . . . . . . . . . . . . . (661) (577) Stock option transactions . . . . . . . . . . . . . . . . . . . . . 215 196 Other financing activities. . . . . . . . . . . . . . . . . . . . . 32 26 Net cash (used in)/provided by financing activities. . . . . . . . . . . . . . . . . . . . . . . . (304) 508 Effect of exchange rate changes on cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . (31) (6) Net increase in cash and cash equivalents . . . . . . . . . . . . . . 40 643 Cash and cash equivalents balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,150 403 Cash and cash equivalents balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,190 $1,046 Supplemental Cash Flow Information Cash paid during the period for: Income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 621 $ 584 Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115 97 <FN> <F1>See accompanying Notes to Condensed Consolidated Financial Statements. </FN> </TABLE>
PFIZER INC. AND SUBSIDIARY COMPANIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Note 1: Basis of Presentation The Company prepared the condensed financial statements following the requirements of the Securities and Exchange Commission (SEC) for interim reporting. As permitted under those rules, the Company condensed or omitted certain footnotes or other financial information that are normally required by GAAP (generally accepted accounting principles). The financial statements include the assets and liabilities and the operating results of subsidiaries operating outside the U.S. Balance sheet amounts for these subsidiaries are as of August 24, 1997 and August 25, 1996. The operating results for these subsidiaries are for the three and nine month periods ending on the same dates. Note 2: Responsibility for Interim Financial Statements The Company is responsible for the unaudited financial statements included in this document. The financial statements include all normal and recurring adjustments that the Company considers necessary for the fair presentation of its financial position and operating results. As these are condensed financial statements, one should also read the financial statements and notes in the Company's latest Form 10-K. Revenues, expenses, assets and liabilities can vary during each quarter of the year. Therefore, the results and trends in these interim financial statements may not be the same as those for the full year. Note 3: Earnings Per Share Earnings per share equals net income divided by the sum of weighted average shares outstanding plus common stock equivalents. Common stock equivalents are shares assumed to be issued if outstanding stock options were exercised. Fully diluted earnings per share amounts were the same as primary amounts for all periods presented. Exhibit 11 of this Form 10Q shows the calculation of earnings per share amounts. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings per Share." The new statement replaces the calculations currently used with: - -- "basic earnings per share" including only actual weighted shares outstanding; and - -- "diluted earnings per share" including the effect of any common stock equivalents or other items that are dilutive. The new rules are effective at the end of 1997.
PFIZER INC. AND SUBSIDIARY COMPANIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) If the new rules were in effect, the Company's earnings per share amounts would be: <TABLE> <CAPTION> Third Qtr. Nine Months 1997 1996* 1997 1996* <S> <C> <C> <C> <C> As reported: Primary and Fully Diluted $.46 $.40 $1.27 $1.11 Per SFAS No. 128: Basic $.48 $.41 $1.32 $1.14 Diluted $.46 $.40 $1.27 $1.11 <FN> <F1> *Restated for the June 1997 two-for-one stock split in the form of a 100% stock dividend. </FN> </TABLE> Note 4: Currency Translation and Other Equity Adjustments The following items are included in the balance sheet caption "Currency translation adjustment and other": <TABLE> <CAPTION> (millions of dollars) Sept. 28, Sept. 29, 1997 1996 <S> <C> <C> Currency translation adjustment $(80) $172 Net unrealized gain on investment securities 71 39 Minimum pension liability (67) (68) Total $(76) $143 </TABLE> Changes in the currency translation adjustment balance for the first nine months of 1997 and 1996 were: <TABLE> <CAPTION> (millions of dollars) 1997 1996 <S> <C> <C> Opening balance $ 174 $207 Translation adjustments and hedges (254) (35) Ending balance $ (80) $172 </TABLE> The strengthening of the U.S. dollar against various European currencies, especially in Italy, Ireland, Belgium, Germany and Switzerland, was the primary cause of the change in the currency translation adjustment for the first nine months of 1997. Note 5: Business Alliances The Company has entered into agreements related to two new pharmaceutical products developed by other companies: - -- Lipitor, a cholesterol-lowering medication, developed by the Parke-Davis division of Warner-Lambert; and - -- Aricept, a medication to treat symptoms of Alzheimer's disease, developed by the Eisai Co., Ltd. The Company provides funds, staff and other resources to sell, market, promote and further develop these medications.
PFIZER INC. AND SUBSIDIARY COMPANIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) In the Condensed Consolidated Statement of Income, "Alliance revenue" represents the Company's revenues earned under the copromotion agreements (largely as a percentage of net sales adjusted, in some cases, for certain specific costs). "Selling, informational and administrative expenses" include the Company's other expenses for selling, marketing and further development of these products. The Company is also licensed to sell Lipitor and Aricept in certain foreign countries. For those licensed sales, the Company will record "Net sales" instead of "Alliance revenue." Note 6: Stock Split In April 1997, the Company's shareholders voted to increase the number of authorized common shares from 1.5 billion to 3 billion. The Company distributed a two-for-one stock split in the form of a 100 percent stock dividend on June 30, 1997 to shareholders of record on June 2, 1997. The par value remained at $.05 per share. All common share and per share amounts in the financial statements have been restated to reflect the impact of the stock split. Note 7: Policies for Derivative Financial Instruments The Company uses various derivative financial instruments to reduce exposure to foreign exchange risks. These include "forward-exchange contracts", "purchased currency options" and "currency swaps". The Company also uses "interest rate swap" derivatives to adjust interest rate exposures. The Company considers its derivative financial instruments to be "hedges" (i.e., an offset of foreign exchange and interest rate risks) when certain criteria are met. Under hedge accounting for purchased currency options, the Company defers the instrument's impact on earnings until it recognizes the underlying hedged item in earnings. The other instruments do not involve deferral since the earnings impact they offset occurs during the terms of the contracts. Foreign Currency Derivative Instruments The Company's criteria to qualify for hedge accounting are: - -- The instrument must be related to a foreign currency asset, liability or anticipated transaction that is probable and whose characteristics and terms have been identified; - -- It must involve the same currency as the hedged item; and - -- It must reduce the risk of foreign currency exchange movements on the Company's operations. If an existing instrument becomes ineffective (i.e., it no longer meets the criteria described), it is reported at its fair value.
PFIZER INC. AND SUBSIDIARY COMPANIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) Interest Rate Derivative Instruments The Company's criteria to qualify for hedge accounting are: - -- The instrument must be related to an asset or a liability; and - -- It must change the character of the interest rate by converting a variable rate to a fixed rate or vice versa. Derivative Financial Instruments Reported in the Financial Statements "Other assets, deferred taxes and deferred charges" in the balance sheet include: - -- The unamortized premium paid on purchased currency options, and - -- The net amounts receivable related to currency swaps. "Other current liabilities" in the balance sheet include: - -- The net fair value of forward-exchange contracts, and - -- The net amounts payable related to currency swaps. Cash flows related to derivative transactions are reported along with the related transactions in "Net cash provided by operating activities" in the statement of cash flows. Note 8: Derivative Financial Instruments During the second quarter, the Company entered into forward-starting interest rate swap contracts. These contracts are effective in December 1997 and mature in December 1998. They will effectively convert short- term, floating interest into fixed interest rates on debt issuances and effectively extend the terms of current swap contracts. Aggregate notional principal amounts are: - -- the equivalent of $918 million related to Japanese yen debt with a floating rate to be fixed at 1.3%; and - -- the equivalent of $410 million related to Swiss franc debt with a floating rate to be fixed at 2.1%.
INDEPENDENT AUDITORS' REPORT To the Shareholders and Board of Directors of Pfizer Inc.: We have reviewed the condensed consolidated balance sheet of Pfizer Inc. and subsidiary companies as of September 28, 1997 and September 29, 1996, and the related condensed consolidated statements of income for each of the three month and nine month periods then ended and cash flows for the nine month periods then ended. These condensed consolidated financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of Pfizer Inc. and subsidiary companies as of December 31, 1996, and the related consolidated statements of income, shareholders' equity and cash flows for the year then ended (not presented herein); and in our report dated February 27, 1997, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 1996, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. KPMG Peat Marwick LLP New York, New York November 10, 1997
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS Net income for both the third quarter and first nine months increased 16% over the comparable periods of 1996. These increases were due to three main factors: a higher sales volume, a lower cost of sales--when compared to total revenue--and a lower effective tax rate. Components of the Statement of Income follow: <TABLE> <CAPTION> (millions of dollars, except per share data) Third Quarter Nine Months 1997 1996 % Change* 1997 1996 % Change* <S> <C> <C> <C> <C> <C> <C> Net sales $2,999 $2,803 7 $8,855 $8,146 9 Alliance revenue 95 -- ** 153 -- ** Total revenues 3,094 2,803 10 9,008 8,146 11 Cost of sales $ 546 $ 522 5 $1,601 $1,556 3 % of total revenues 17.7% 18.6% 17.8% 19.1% Selling, informational and administrative expenses $1,186 $1,040 14 $3,545 $3,117 14 % of total revenues 38.3% 37.1% 39.4% 38.3% Research and development expenses $ 477 $ 406 18 $1,351 $1,194 13 % of total revenues 15.4% 14.5% 15.0% 14.6% Other deductions--net $ 73 $ 86 (17) $ 201 $ 204 (2) % of total revenues 2.4% 3.1% 2.2% 2.5% Income before taxes and minority interests $ 812 $ 749 8 $2,310 $2,075 11 % of total revenues 26.2% 26.7% 25.6% 25.5% Taxes on income $ 213 $ 232 (8) $ 647 $ 643 1 Effective tax rate 26.2% 31.0% 28.0% 31.0% Minority interests $ 3 $ 3 (1) $ 8 $ 7 15 Net income $ 596 $ 514 16 $1,655 $1,425 16 % of total revenues 19.3% 18.3% 18.4% 17.5% Earnings per common share $ .46 $ .40 15 $ 1.27 $ 1.11 14 Cash dividends per common share $ .17 $ .15 13 $ .51 $ .45 13 <FN> <F1> *Percentages may reflect rounding adjustments. **Calculation not meaningful. </FN> </TABLE>
TOTAL REVENUES The components of the total revenue increase were as follows: <TABLE> <CAPTION> % Change from 1996 Third Quarter Nine Months <S> <C> <C> Volume 12.5% 12.5% Price 1.1 1.2 Currency (3.2) (3.1) Total revenue increase 10.4% 10.6% </TABLE> Wider acceptance of the Company's major products, particularly pharmaceuticals, contributed to the volume increases. Total revenues for the third quarter by segment and the increases over last year were as follows: <TABLE> <CAPTION> % of % of Total Total (millions of dollars) 1997 Revenues 1996 Revenues % Change <S> <C> <C> <C> <C> <C> Health Care: Pharmaceuticals U.S. $1,340 43.3 $1,127 40.2 19 International 960 31.0 912 32.5 5 Worldwide 2,300 74.3 2,039 72.7 13 Medical Technology 347 11.2 345 12.3 1 Total Health Care 2,647 85.5 2,384 85.0 11 Animal Health 324 10.5 302 10.8 7 Consumer Health Care 123 4.0 117 4.2 5 Total $3,094 100.0 $2,803 100.0 10 </TABLE> Total revenues for the first nine months of 1997 by segment and the increases over last year were as follows: <TABLE> <CAPTION> % of % of Total Total (millions of dollars) 1997 Revenues 1996 Revenues % Change <S> <C> <C> <C> <C> <C> Health Care: Pharmaceuticals U.S. $3,739 41.5 $3,200 39.3 17 International 2,921 32.4 2,706 33.2 8 Worldwide 6,660 73.9 5,906 72.5 13 Medical Technology 1,025 11.4 1,021 12.5 0 Total Health Care 7,685 85.3 6,927 85.0 11 Animal Health 933 10.4 860 10.6 8 Consumer Health Care 390 4.3 359 4.4 9 Total $9,008 100.0 $8,146 100.0 11 </TABLE>
The following is a discussion of total revenues by business segment: - -- Pharmaceuticals Worldwide pharmaceutical revenues by category were as follows: <TABLE> <CAPTION> Third Quarter % Nine Months % 1997 1996* Change 1997 1996* Change <S> <C> <C> <C> <C> <C> <C> Cardiovascular $ 992 $ 893 11 $2,787 $2,525 10 Infectious Diseases 538 548 (2) 1,787 1,673 7 Central Nervous System 405 362 12 1,142 999 14 Alliance revenue 95 0 -- 153 0 -- Other 270 236 14 791 709 12 Total $2,300 $2,039 13 $6,660 $5,906 13 <FN> <F1> *The Company has reclassified certain 1996 data to agree to the 1997 presentation. </FN> </TABLE> Sales of the Company's six major products accounted for 74% of pharmaceutical revenues and 55% of total revenues in the third quarter. Individual product sales and a brief discussion of each follow: <TABLE> <CAPTION> Third Qtr. 1997 Sales % Change Product Category (millions) from 1996 <S> <C> <C> <C> Norvasc Cardiovascular $574 22 Procardia XL Cardiovascular 223 (11) Cardura Cardiovascular 160 19 Zithromax Infectious Diseases 132 6 Diflucan Infectious Diseases 220 (5) Zoloft Central Nervous System 395 13 </TABLE> - -- Norvasc is now the largest-selling cardiovascular medication in the world. - -- Procardia XL is a more mature cardiovascular medication. Sales have declined recently as the Company focuses on Norvasc. Despite the decline, Procardia XL is the third-largest selling cardiovascular medication in the U.S. - -- Cardura's sales have increased as more physicians recognize the effectiveness of alpha blockers in the treatment of hypertension and enlarged prostate and due to international product launches. - -- Zithromax is the most widely prescribed and fastest growing brand-name oral antibiotic in the U.S. An intravenous form was approved in the first quarter for the treatment of pneumonia and pelvic inflammatory disease. The Company is conducting clinical programs to support its ability to seek new approvals for the use of Zithromax to treat infections in ulcer patients and in treating atherosclerosis.
- -- Diflucan is the world's best-selling prescription antifungal medicine. Excluding the impact of foreign exchange, sales decreased 1% in the third quarter. Slower sales in the quarter reflect the lower incidence of fungal infections in AIDS patients, as well as pricing pressures in the hospital market. - -- Zoloft is one of the leading medications for treatment of depression and is also prescribed to treat obsessive-compulsive disorders. The Company launched Zoloft for depression in France and Germany in the first quarter. In July, the FDA approved Zoloft's use for the treatment of panic disorder. In October, the FDA cleared Zoloft for the treatment of obsessive compulsive disorder in children age 6 to 17 years. In addition, Zyrtec, in its second year since its U.S. launch, posted a 107% sales growth in the third quarter to $73 million worldwide. It is now in the second position in the U.S. antihistamine category, ranked by new prescription volume. Alliance Revenue "Alliance revenue" reflects the results of business alliances for sales of two new pharmaceutical products. For additional discussion, see Note 5, "Business Alliances", on page 7. Product launches of Lipitor, the cholesterol-lowering medication, took place this year in ten countries, including the U.S., the United Kingdom, Germany, Italy and Canada and generated strong sales results in the second and third quarters. In the remainder of this year and next year, it is expected that it will be launched in several other countries. Product launches of Aricept took place in seven countries, including the U.S., the United Kingdom and Canada earlier this year. Worldwide sales of Aricept totaled $53 million in the third quarter and $128 million in the first nine months of 1997. These sales are primarily recorded by Eisai, the company that discovered and developed the compound. This product has been approved in 13 European Union countries, including Germany, France and Italy. Overall prescriptions for the treatment of Alzheimer's disease have increased in the U.S. since the introduction of Aricept. Aricept has become the leading U.S. medication to treat symptoms of this disease.
- -- Medical Technology Third quarter sales increased 1% over last year's level. Excluding the impact of foreign exchange, sales increased 5%. Sales of "peripheral stents" (tubes to keep blocked arteries and other hollow passageways open) increased 17% in the quarter to $30 million and 29% in the nine months to $87 million. Sales of musculoskeletal products increased 5% in the third quarter to $194 million. Largely offsetting this growth were declines in sales of products for angioplasty principally due to heightened pricing pressure and urology mainly due to new-product competition. - -- Animal Health Animal Health sales for the third quarter increased 7% mainly because of the growth of Dectomax, sales of other livestock products and the introduction of Rimadyl earlier this year. The Company launched Dectomax last year in the U.S., Australia, Japan and other international markets as a treatment for parasites in livestock. Sales of Dectomax grew 8% over last year, reaching $29 million in the quarter. Sales of Stafac, a leading antibacterial for poultry and swine, grew 23% to $23 million in the quarter. Rimadyl, a new non-steroidal anti-inflammatory medicine for osteoarthritis in dogs launched in the first quarter reported nine-month sales of $33 million. - -- Consumer Health Care Consumer Health Care's sales for the third quarter increased 5%, mainly due to over-the-counter versions of previously prescription-only drugs (Reactine in Canada, Diflucan in the United Kingdom, OcuHist in the U.S.) and we sold more Cortizone, a brand we acquired in April 1996. Total revenues in the U.S. increased largely due to pharmaceutical sales growth, particularly Norvasc, Cardura, Zithromax and Zoloft, as described above, as well as alliance revenue. Although a majority of the Company's sales are in the U.S., a large portion are in foreign markets. Total revenues by geographic area were as follows: <TABLE> <CAPTION> (millions of dollars) Third Quarter % of % of Total Total 1997 Revenues 1996 Revenues % Change <C> <C> <C> <C> <S> <C> $1,755 56.7 $1,516 54.1 United States 16 645 20.9 642 22.9 Europe 0 419 13.5 396 14.1 Asia 6 211 6.8 188 6.7 Canada/Latin America 12 64 2.1 61 2.2 Africa/Middle East 5 $3,094 100.0 $2,803 100.0 Consolidated 10 </TABLE>
<TABLE> <CAPTION> (millions of dollars) Nine Months % of % of Total Total 1997 Revenues 1996 Revenues % Change <C> <C> <C> <C> <S> <C> $4,921 54.6 $4,286 52.6 United States 15 2,051 22.8 1,981 24.3 Europe 4 1,234 13.7 1,168 14.3 Asia 6 607 6.7 533 6.6 Canada/Latin America 14 195 2.2 178 2.2 Africa/Middle East 10 $9,008 100.0 $8,146 100.0 Consolidated 11 </TABLE> Foreign exchange rates affect our sales revenues recorded in other currencies. The U.S. dollar's strength against foreign currencies decreases total sales when sales in foreign markets are translated into their U.S. dollar equivalent. For example, international pharmaceutical sales increased 12% in the third quarter and 15% in the first nine months excluding the impact of foreign exchange as compared to 5% reported in the third quarter and 8% in the first nine months. Currency impact was most pronounced in Japan, Germany, France and Italy as the value of the U.S. dollar strengthened. At current exchange rates, foreign exchange would have approximately a three-percentage point adverse impact on total revenue growth for the year. COSTS AND EXPENSES Cost of Sales Cost of sales for the quarter increased only 5% versus last year compared with a 10% increase in total revenues. This increase reflected favorable business and product mix and benefits from more efficient manufacturing and foreign- exchange hedging programs. Selling, Informational and Administrative Expenses Selling, informational and administrative expenses in the third quarter increased 14% over the 1996 level. Support for previously introduced products and launches of new products led to the increase. This support includes substantial global investments in the Company's pharmaceutical sales infrastructure and personnel, such as the creation of a new U.S. primary-care sales force, an increase in the size of U.S. specialist sales forces and personnel increases in key international markets. Research and Development Expenses Research and development expenses increased 18% in the third quarter over the prior year period. In the first nine months, Health Care R&D expenses, expressed as a percentage of Health Care total revenues, were 17.1% in 1997 and 16.3% in 1996. The Company expects total spending to be more than $1.9 billion in 1997 to discover new chemical compounds and advance others in development which include: - -- Trovan, a multi-purpose antibiotic in both oral and intravenous forms (filed a New Drug Application (NDA) with the FDA in December 1996). Major international regulatory filings were completed in the first quarter of 1997. - -- Zeldox, for treatment of psychotic disorders (filed an NDA with the FDA in March 1997); - -- Viagra, for treatment of male impotence (filed an NDA with the FDA and certain European regulatory agencies in September 1997). In October, the FDA notified the Company that it will receive priority review from the agency when the application is officially accepted; - -- dofetilide, for treatment of a heart rhythm disorder. Regulatory filings for this product are planned in the first quarter of 1998; - -- eletriptan, for treatment of migraine headaches. Regulatory filings for this product are planned in the third quarter of 1998; - -- droloxifene, for breast cancer. Filing of an NDA for this product is planned in the fourth quarter of 1998; - -- Alond (zopolrestat), for nervous system, kidney and cardiovascular disorders related to diabetes; - -- voriconazole, for treatment of fungal infections; and - -- darifenacin, for irritable bowel syndrome and incontinence. The Company is also developing new uses or dosages for Norvasc, Zyrtec, Cardura and Zithromax. The FDA is currently reviewing a New Drug Application for the use of Diflucan to treat nail infections. Other Deductions--Net The following components were included in "Other deductions--net" in the third quarter and first nine months of 1997: <TABLE> <CAPTION> (millions of dollars) Third Quarter % Nine Months % 1997 1996* Change** 1997 1996* Change** <S> <C> <C> <C> <C> <C> <C> Interest income $(39) $(33) 18 $(111) $(93) 19 Interest expense 39 39 0 113 119 (5) Amortization of goodwill and other intangibles 18 16 13 52 44 18 Foreign exchange 12 5 140 21 13 62 Other, net 43 59 (27) 126 121 4 Other deductions--net $ 73 $ 86 (17) $ 201 $204 (2) <FN> <F1> *Certain prior year data have been reclassified to conform to the current year presentation. **Percentages may contain rounding adjustments. </FN> </TABLE> Net interest expense decreased primarily due to a higher average level of investments. TAXES ON INCOME The effective tax rate decreased from 31.0% in 1996 to 28.0%, the projected 1997 rate. The third quarter rate of 26.2% reflects an adjustment of the first half tax provision, which was recorded using a 29.0% rate. This adjustment favorably impacted third quarter earnings per share by about two cents. The major cause of the decline from 29.0% to 28.0% was the extension of the R&D tax credit in the U.S. The credit, which had expired on May 31, 1997, has now been extended to June 30, 1998 and made retroactive to the previous expiration date.
LIQUIDITY AND CAPITAL RESOURCES The positive performance in the third quarter of 1997 enhanced the Company's financial strength as indicated by the following measures: <TABLE> <CAPTION> Sept. 28, Dec. 31, Sept. 29, 1997 1996 1996 <S> <C> <C> <C> Working capital (millions of dollars) $ 1,459 $ 828 $ 607 Current ratio 1.25:1 1.15:1 1.10:1 Debt to total capitalization (percentage)* 33% 30% 36% Shareholders' equity per common share** $ 5.90 $ 5.54 $ 5.25 <FN> <F1> * Represents total short and long-term borrowings divided by the sum of total short and long-term borrowings and total shareholders' equity. ** Represents total shareholders' equity divided by the actual number of common shares outstanding. </FN> </TABLE> The increase in working capital from September 29, 1996 to September 28, 1997 and from December 31, 1996 to September 28, 1997 was primarily due to higher receivable and inventory levels needed to support the expansion of the business. Net Cash Provided by Operating Activities During the first nine months of 1997, the Company's operations provided positive cash flows of $1,161 million compared to $1,312 million in the first nine months of 1996. Although we earned more during the first nine months of 1997, the cash flow from operations was lower because of increased working capital needs. Net Cash Used in Investing Activities In the first nine months of 1997, the Company used $786 million in investing activities compared with $1,171 million in the 1996 period. Net Cash Used in/Provided by Financing Activities In the first nine months of 1997, the Company used $304 million in financing activities. In contrast, in the same period of 1996, the Company received $508 million from its financing activities. This is because in the 1997 period, the Company repurchased common stock, paid higher cash dividends and repaid higher amounts of long-term debt. The Company repurchased approximately 11 million shares of common stock on the open market at an average price of about $51 per share. Dividends paid increased due to the increase in the dividend rate earlier this year. Net Financial Asset (Debt) Position To fund its investing and financing activities, the Company uses commercial paper and short-term borrowings to complement its operating cash flows. In maintaining this financial flexibility, levels of debt and investments will vary depending on operating results.
As discussed above, the Company increased its short-term borrowings in the first nine months of 1997. The resulting financial debt position, compared to the beginning of the year and last year, was as follows: <TABLE> <CAPTION> (millions of dollars) Sept. 28, Dec. 31, Sept. 29, 1997 1996 1996 <S> <C> <C> <C> Financial assets* $3,365 $3,154 $3,606 Short-term borrowings and long-term debt 3,580 2,922 3,710 Net financial assets (debt) $ (215) $ 232 $ (104) <FN> <F1> * Consists of cash and cash equivalents, short-term loans and investments and long-term loans and investments. </FN> </TABLE> CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS This report and other written reports and oral statements by the Company contain what are called "forward-looking statements". All such statements are subject to risks and uncertainties. You can identify these statements by the fact that they do not relate strictly to historic or current facts. You can also identify them by their use of words such as "plans," "expects," "will" and other words of similar meaning. These statements are likely to address: -- results of the Company's operations, expenses or sales; -- product approvals or performance; -- clinical results or product development; -- sales efforts; and -- financial results. You must carefully consider any such statement and should understand that many factors could cause actual results to differ from the Company's forward- looking statements. These include inaccurate assumptions, many risks and many uncertainties, including some that are known and some that are not. Such differences can be material and no forward-looking statement can be guaranteed. The Company does not assume the obligation to update any forward-looking statement. You should carefully evaluate such statements in light of factors described in the Company's filings with the SEC, especially on Forms 10-K, 10-Q and 8-K (if any). In its Form 10-K filing for the 1996 fiscal year, the Company listed various important factors that could cause actual results to differ from expected or historic results. The Company notes these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. Readers can find them in Part I of that filing under the heading "Cautionary Factors That May Affect Future Results." The Company incorporates that section of that Form 10-K in this filing and investors should refer to it. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider any such list to be a complete statement of all potential risks or uncertainties.
FORM 10-Q PART II - OTHER INFORMATION Item 1: Legal Proceedings The Company is involved in a number of claims and litigations, including product liability claims and litigations considered normal in the nature of its businesses. These include suits involving various pharmaceutical and hospital products that allege either reaction to or injury from use of the product. 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 conference with the judge is awaited. Pfizer filed suit on July 8, 1997, against FDA in the United States District Court for the District of Columbia, seeking a declaratory judgment and injunctive relief enjoining 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 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, numerous claims have been brought against the Company and Shiley Incorporated, a wholly owned subsidiary, alleging either personal injury from fracture of 60 degree or 70 degree Shiley Convexo Concave ("C/C") heart valves, or anxiety that properly functioning implanted valves might fracture in the future, or personal injury from a prophylactic replacement of a functioning valve. In an attempt to resolve all claims alleging anxiety that properly functioning valves might fracture in the future, the Company entered into a settlement agreement in January 1992 in Bowling v. Shiley, et al., a case brought in the United States District Court for the Southern District of Ohio, that establishes a worldwide settlement class of people with C/C heart valves and their spouses, except those who elect to exclude themselves. The settlement provides for a Consultation Fund of $90 to $140 million (depending on the number of claims filed) from which valve recipients who make claims will receive payments that are intended to cover their cost of consultation with cardiologists or other health care providers with respect to their valves. The number of claims filed fixes the fund amount at $90 million. The settlement agreement establishes a second fund of at least $75 million to support C/C valve-related research, including the development of techniques to identify valve recipients who may have significant risk of fracture, and to cover the unreimbursed medical expenses that valve recipients may incur for certain procedures related to the valves. The Company's obligation as to coverage of these unreimbursed medical expenses is not subject to any dollar limitation. Following a hearing on the fairness of the settlement, it was approved by the court on August 19, 1992. Three appeals from the judgment approving the settlement and from the trial court's denial of the objectors motion to intervene have been filed and dismissed by the U.S. Court of Appeals for the Sixth Circuit; petitions for certiorari have been filed in the U.S. Supreme Court from all three appeals; and all three have been denied. It is expected that most of the costs arising from the Bowling class settlement will be covered by insurance and the proceeds of the sale of certain product lines of the Shiley businesses in 1992. Of approximately 900 implantees (and spouses of some of them) who opted out of the Bowling settlement class, eight have cases pending; approximately 792 have been resolved; and approximately 100 have never filed a case or claim. Several claims relating to elective reoperations of valve recipients are currently pending. Some of these claims relate to elective reoperations covered by the Bowling class settlement described above, and, therefore, the claimants are entitled to certain benefits in accordance with the settlement. Such claimants, if they irrevocably waive all of the benefits of the settlement, may pursue separate litigation to recover damages in spite of the class settlement. The Company is defending these claims. Generally, the plaintiffs in all of the pending heart valve litigations discussed above seek money damages. Based on the experience of the Company in defending these claims to date, including available insurance and reserves, the Company is of the opinion that these actions should not have a material adverse effect on the financial position or the results of operations of the Company. On September 30, 1993, Dairyland Insurance Co., a carrier providing excess liability coverage ("excess carrier") in the early 1980s, commenced an action in the California Superior Court in Orange County, seeking a declaratory judgment that it was not obligated to provide insurance coverage for Shiley heart valve liability claims. On October 8, 1993, the Company filed cross-complaints against Dairyland and filed third-party complaints against 73 other excess carriers who sold excess liability policies covering periods from 1979 to 1985, seeking damages and declaratory judgments that they are obligated to pay for defense and indemnity to the extent not paid by other carriers. A significant portion of such claims has been resolved and the remainder is involved in pretrial discovery. On April 26, 1996, the trial court entered an order in at least one working valve lawsuit stating that implanting an allegedly defective heart valve was not an appropriate trigger of insurance coverage. A motion to dismiss the Company's coverage claims for other working valve claims is pending. Even if the Court's prior decision is applied to all claims alleging anxiety that properly functioning valves might fracture in the future, it does not deal with fracture claims, which are also part of the Company's claims, and as to which a further motion by the carriers is pending. On May 1, 1997, the Company filed a cross-motion concerning the appropriate trigger of insurance coverage for fracture claims. The Company filed an interlocutory appeal concerning an important discovery matter for which the Court of Appeal, Fourth Appellate District, has granted a hearing and has entered an order staying the pending motions and all other activities before the trial court, other than discovery. The Company's operations are subject to federal, state, local and foreign environmental laws and regulations. Under the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended ("CERCLA" or "Superfund"), the Company has been designated as a potentially responsible party by the United States Environmental Protection Agency with respect to certain waste sites with which the Company may have had direct or indirect involvement. Similar designations have been made by some state environmental agencies under applicable state superfund laws. Such designations are made regardless of the extent of the Company's involvement. There are also claims that the Company may be a responsible party or participant with respect to several waste site matters in foreign jurisdictions. Such claims have been made by the filing of a complaint, the issuance of an administrative directive or order, or the issuance of a notice or demand letter. These claims are in various stages of administrative or judicial proceedings. They include demands for recovery of past governmental costs and for future investigative or remedial actions. In many cases, the dollar amount of the claim is not specified. In most cases, claims have been asserted against a number of other entities for the same recovery or other relief as was asserted against the Company. The Company is currently participating in remedial action at a number of sites under federal, state, local and foreign laws. To the extent possible with the limited amount of information available at this time, the Company has evaluated its responsibility for costs and related liability with respect to the above sites and is of the opinion that the Company's liability with respect to these sites should not have a material adverse effect on the financial position or the results of operations of the Company. In arriving at this conclusion, the Company has considered, among other things, the payments that have been made with respect to the sites in the past; the factors, such as volume and relative toxicity, ordinarily applied to allocate defense and remedial costs at such sites; the probable costs to be paid by the other potentially responsible parties; total projected remedial costs for a site, if known; existing technology; and the currently enacted laws and regulations. The Company anticipates that a portion of these costs and related liability will be covered by available insurance. Through the early 1970s, Pfizer Inc. (Minerals Division) and Quigley Company, Inc. ("Quigley"), a wholly owned subsidiary, sold a minimal amount of one construction product and several refractory products containing some asbestos. These sales were discontinued thereafter. Although these sales represented a minor market share, the Company has been named as one of a number of defendants in numerous lawsuits. These actions, and actions related to the Company's sale of talc products in the past, claim personal injury resulting from exposure to asbestos-containing products, and nearly all seek general and punitive damages. In these actions, the Company or Quigley is typically one of a number of defendants, and both are members of the Center for Claims Resolution (the "CCR"), a joint defense organization of 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. Prior to September 1990, the cases involving talc products were defended by the CCR, but the Company is now overseeing its own defense of these actions. A number of cases alleging property damage from asbestos- containing products installed in buildings have also been brought against 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 Future Claims Settlement agreement establishes a claims-processing mechanism that will provide historic settlement values upon proof of impaired medical condition as well as claims-processing rates over ten years. In addition, the shares allocated to the CCR members eliminate joint and several liability. The court has determined that the Future Claims Settlement is fair and reasonable. Subsequently, the court entered an injunction enforcing its determination. Plaintiffs filed an appeal from that injunction in the United States Court of Appeals for the Third Circuit and on May 10, 1996, a panel of the Third Circuit reversed the order of the District Court and directed that the preliminary injunction be vacated. Although the Third Circuit subsequently denied the motion of the CCR members including the Company and Quigley, for rehearing of that determination, it agreed to stay its mandate while review is sought in the United States Supreme Court. On November 1, 1996, the United States Supreme Court granted a writ of certiorari to hear the appeal, which was argued February 18, 1997. On June 27, 1997, the U. S. Supreme Court affirmed the Third Circuit's order and decertified the class and dissolved the injunction. 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. The total pending number of active personal injury claims, but excluding those which are inactive or have been settled in principle as of September 26, 1997, is 37,005 (of which 23,627 had been covered by the Georgine injunction) asbestos cases against Quigley; 9,971 (of which 5,676 had been covered by the Georgine injunction) asbestos cases against the Company; and 68 talc cases against the Company. Costs incurred by the Company in defending the asbestos personal injury claims and the property damage claims, as well as settlements and damage awards in connection therewith, are largely insured against under policies issued by several primary insurance carriers and a number of excess carriers. The Company believes that its costs incurred in defending and ultimately disposing of the asbestos personal injury claims, as well as the property damage claims, will be largely covered by insurance policies issued by carriers that have agreed to provide coverage, subject to deductibles, exclusions, retentions and policy limits. In connection with the Future Claims Settlement, the defendants commenced a third-party action against their respective excess insurance carriers that have not agreed to provide coverage seeking a declaratory judgment that (a) the Future Claims Settlement is fair and reasonable as to the carriers; (b) the carriers had adequate notice of the Future Claims Settlement; and (c) the carriers are obligated to provide coverage for asbestos personal injury claims. It is expected that the insurance coverage action against the insurance carriers that have not agreed to provide coverage for asbestos personal injury claims will be pursued. 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 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. 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. 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 appeals are pending. 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. Schneider (USA) Inc. and Schneider (Europe) AG have been named, together with Advanced Cardiovascular Systems, Inc., in a federal antitrust action brought on January 2, 1996, by Boston Scientific Corporation and SciMed Life Systems, Inc. (a subsidiary of Boston Scientific) in the U.S. District Court, District of Massachusetts. The suit alleges that the defendants unlawfully obtained and enforced certain patents covering rapid exchange angioplasty catheters and conspired against the plaintiffs by, among other allegations, their settlement of patent infringement litigation in December of 1991. The suit seeks unspecified treble damages and injunctive relief. The Company believes that the case is without merit, and moved to have it dismissed. On October 23, 1997, the motion to dismiss was granted. 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. 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. Three purported consumer class actions involving Zoloft were filed, in Circuit Court, Dallas County, Texas, on December 3, and in Superior Court, San Diego County, California, on December 26, 1996, each seeking certification of a statewide class, and in Circuit Court, Cameron County, Texas, on August 15, 1997 seeking certification of a nationwide (except California) class. 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 first two suits were removed to federal court; but have since been remanded to state court. Class certification motions are pending in both of the statewide class cases. The third case has been removed to federal court. The Company believes the suits are without merit. The securities class action commenced July 13, 1990, arising out of allegations relating to Shiley heart valves, was settled and the settlement was approved December 13, 1996. No appeals were filed from the order approving the settlement and the time within which to appeal has expired. The settlement had no material impact on the Company's financial position or on the results of its operations. A derivative action commenced on April 2, 1990 against certain directors and officers and former directors and officers alleging breaches of fiduciary duty and other common law violations in connection with the manufacture and distribution of Shiley heart valves is pending in the Superior Court, Orange County, California. The complaint seeks, among other forms of relief, damages in an unspecified amount. Even though it is believed that the suit is without merit, in order to avoid the monetary and other costs of litigation, the Company has entered into an agreement to settle this action by way of a $15 million payment by the Company's insurance carrier to the Company with an attorneys' fee to be paid by the Company out of the proceeds of the settlement to the shareholders' attorneys who brought the case. A fairness hearing was held on April 11, 1997 and on May 5, 1997 the court entered an order affirming the settlement. No appeals were filed from the order approving the settlement and the time to appeal has expired. The settlement had no material impact on the Company's financial position or on the results of its operations. A purported class action entitled Bradshaw v. Pfizer Inc. and Howmedica Inc. is pending in the U.S. District Court, Northern District of Ohio. The action sought monetary and injunctive relief, including medical monitoring, on behalf of patients implanted with the Howmedica P.C.A. one-piece acetabular hip component, which was manufactured by Howmedica from 1983 to 1990. The complaint alleges that the prostheses were defectively designed and manufactured and posed undisclosed risks to implantees. The federal magistrate judge has recommended that the district court deny the plaintiffs' motion to certify the case as a class action. The Company believes that the suit is without merit. The Company has been served with 17 separate actions in the United States District Court for the District of New Jersey, brought by some of the same individuals previously identified as members of the purported class in the Bradshaw action, represented by the same lawyers, and making the same allegations. The Company believes that most if not all of these cases are without merit. The Company and/or Howmedica, along with other device manufacturers and numerous orthopedic surgeons, had been named as defendants in over 700 cases (among over 1,600 pending) in numerous state and federal courts seeking damages relating to alleged improper design, manufacture, and/or promotion of bone screws for unapproved use in spinal pedicles. Neither Howmedica nor the Company manufactured or sold pedicle screws in the U.S., but the claims allege a conspiracy among all of the defendants to over-promote the devices. The federal cases have been consolidated by the Multidistrict Panel in the U.S. District Court in Philadelphia, which ruled on April 8, 1996 that all claims against the manufacturers except express warranty and improper promotion are preempted. The recent decisions of the United States Supreme Court in Lohr v. Medtronic may impact the availability of the pre-emption defense in this case (and in other medical device cases). The Company believes the cases are without merit. The Company has been dismissed with prejudice from all but approximately 25 of these pedicle screw cases and has been dismissed without prejudice from all but two of the remainder. Between 1994 and 1996, seven class actions alleging various injuries arising from implantable penile prostheses manufactured by American Medical Systems (AMS) were filed and ultimately dismissed or discontinued. Thereafter, in late 1996 and 1997 over 700 former members of one or more of the purported classes, represented by some of the same lawyers who filed the class actions, filed individual suits in Circuit Court in Minneapolis alleging damages from their use of implantable penile prostheses. 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. Tax Matters The Internal Revenue Service (IRS) has completed its examination of the Company's federal income tax returns for the years 1987 through 1989. In November 1994, Belgian tax authorities notified Pfizer Research and Development Company N.V./S.A. ("PRDCO"), an indirect wholly-owned subsidiary of the Company, of a proposed adjustment to the taxable income of PRDCO for fiscal year 1992. The proposed adjustment arises from an assertion by the Belgian tax authorities of jurisdiction with respect to income resulting primarily from certain transfers of property by non-Belgian subsidiaries of the Company to the Irish branch of PRDCO. In January 1995, PRDCO received an assessment from the tax authorities for additional taxes and interest of approximately $432 million and $97 million, respectively, relating to these matters. In 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 new 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 Belgian tax laws and the written opinions of outside legal counsel, the Company believes that the assessments are wholly without merit. The Company believes that its accrued tax liabilities are adequate for all open years.
Item 6: Exhibits and Reports on Form 8-K (a) Exhibits 1) Exhibit 3 - Restated Certificate of Incorporation 2) Exhibit 11 - Computation of Earnings Per Common Share 3) Exhibit 15 - Accountants' Acknowledgment 4) Exhibit 27 - Financial Data Schedule (b) Reports on Form 8-K No reports on Form 8-K were filed during the third quarter ended September 28, 1997.
PFIZER INC. AND SUBSIDIARY COMPANIES SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized. Pfizer Inc. (Registrant) Date: November 10, 1997 H. V. Ryan, Vice President; Controller (Principal Accounting Officer and Duly Authorized Officer)
Exhibit 3 October, 1997 RESTATED CERTIFICATE OF INCORPORATION OF PFIZER INC. Pfizer Inc., a corporation organized and existing under the laws of the State of Delaware, HEREBY CERTIFIES AS FOLLOWS: 1. The name of the corporation is Pfizer Inc. The name under which it was originally incorporated was Chas. Pfizer & Co., Inc. The date of filing its original Certificate of Incorporation with the Secretary of State was June 2, 1942. 2. This Restated Certificate of Incorporation was duly adopted in accordance with Section 245 of the General Corporation Law of Delaware. 3. This Restated Certificate of Incorporation only restates and integrates and does not further amend the provisions of the Certificate of Incorporation as amended or supplemented heretofore and there is no discrepancy between this Restated Certificate of Incorporation and the text of the Certificate of Incorporation as amended or supplemented heretofore. 4. The text of the Certificate of Incorporation as amended or supplemented heretofore is hereby restated without further amendments or changes to read as herein set forth in full: FIRST: The name of the Corporation is and shall be Pfizer Inc. (hereinafter in this Restated Certificate of Incorporation called the "Corporation"). SECOND: The principal office and place of business of the Corporation in the State of Delaware is located at 1209 Orange Street, in the City of Wilmington, County of New Castle; and the name and post office address of the registered agent of the Corporation in the State of Delaware is The Corporation Trust Company, 1209 Orange Street, in the City of Wilmington, County of New Castle, Delaware. THIRD: The nature of the business, or objects or purposes to be transacted, promoted or carried on are as follows: To carry on the business of chemists, druggists, chemical manufacturers, importers, exporters, manufacturers of and dealers in chemical, pharmaceutical, medicinal, and other preparations and chemicals. To engage in, conduct, perform or participate in every kind of commercial, agricultural, mercantile, manufacturing, mining, transportation, industrial or other enterprise, business, work, contract, undertaking, venture or operation. To buy, sell, manufacture, refine, import, export and deal in all products, goods, wares, merchandise, substances, apparatus, and property of every kind, nature and description, and to construct, maintain, and alter any buildings, works or mines. To enter into, make and perform contracts of every kind with any person, firm or corporation. To take out patents, trade-marks, trade names and copyrights, acquire those taken out by others, acquire or grant licenses in respect of any of the foregoing, or work, transfer, or do whatever else with them may be thought fit. To acquire the good-will, property, rights, franchises, contracts and assets of every kind and undertake the liabilities of any person, firm, association or corporation, either wholly or in part, and pay for the same in the stock, bonds or other obligations of the Corporation or otherwise. To purchase, hold, own, sell, assign, transfer, mortgage, pledge or otherwise dispose of shares of the capital stock of any other corporation or corporations, association or associations, of any state, territory or country, and while owner of such stock, to exercise all the rights, powers and privileges of ownership including the right to vote thereon. To issue bonds, debentures or obligations of the Corporation, at the options of the Corporation, secure the same by mortgage, pledge, deed of trust or otherwise, and dispose of and market the same. To purchase, hold and re-issue the shares of its capital stock and its bonds and other obligations. To do all and everything necessary, suitable, convenient or proper for the accomplishment of any of the purposes or the attainment of one or more of the objects herein enumerated, or of the powers herein named, or which shall at any time appear conducive to or expedient for the protection, or benefit of the Corporation, either as holder of, or interested in, any property or otherwise, to the same extent as natural persons might or could do, in any part of the world. To conduct any of its business in the State of Delaware and elsewhere, including in the term "elsewhere" any of the states, districts, territories, colonies or dependencies of the United States, and in any and all foreign countries and to have one or more offices, and to hold, purchase, mortgage and convey real and personal property, without limit as to amount, within or (except as and when forbidden by local laws) without the State of Delaware. To carry on any other business to any extent and in any manner not prohibited by the laws of Delaware or, where the Corporation may seek to do such business elsewhere, by local laws. The foregoing clauses shall be construed both as objects and powers, but no recitation or declaration of specific or special objects or powers herein enumerated shall be deemed to be exclusive; but in each and every instance it is hereby expressly declared that all other powers, not inconsistent therewith, now or hereafter permitted or granted under the laws of Delaware, or by the laws of any other state or country into which the Corporation may go or seek to do business, are hereby expressly included as if such other or general powers were herein set forth. FOURTH: A. Authorized Shares and Classes of Stock. The total number of shares and classes of stock that the Company shall have authority to issue is three billion twelve million (3,012,000,000) shares, which shall be divided into two classes, as follows: twelve million (12,000,000) shares of Preferred Stock, without par value, and three billion (3,000,000,000) shares of Common Stock of the par value of $.05 per share. B. Designations, Powers, Preferences and Rights, in Respect of the Shares of Preferred Stock. (1) Shares of the Preferred Stock may be issued in one or more series at such time or times and for such consideration or considerations as the Board of Directors may determine. All shares of any one series shall be of equal rank and identical in all respects. (2) Authority is hereby expressly granted to the Board of Directors to fix from time to time, by resolution or resolutions providing for the issue of any series of Preferred Stock, the designation of such series, and the powers, preferences and rights of the shares of such series, and the qualifications, limitations or restrictions thereof, including the following: (a) The distinctive designation and number of shares comprising such series, which number may (except where otherwise provided by the Board of Directors in creating such series) be increased or decreased (but not below the number of shares then outstanding) from time to time by like action of the Board of Directors; (b) The dividend rate or rates on the shares of such series and the preferences, if any, over any other series (or of any other series over such series) with respect to dividends, the terms and conditions upon which and the periods in respect of which dividends shall be payable, whether and upon what conditions such dividends shall be cumulative and, if cumulative, the date or dates from which dividends shall accumulate; (c) Whether or not the shares of such series shall be redeemable, the limitations and restrictions with respect to such redemptions, the time or times when, the price or prices at which and the manner in which such shares shall be redeemable, including the manner of selecting shares of such series for redemption if less than all shares are to be redeemed; (d) The rights to which the holders of shares and such series shall be entitled, and the preferences, if any, over any other series (or of any other series over such series), upon the voluntary or involuntary liquidation, dissolution, distribution of assets or winding-up of the Corporation, which rights may vary depending on whether such liquidation, dissolution, distribution or winding-up is voluntary or involuntary, and, if voluntary, may vary at different dates; (e) Whether or not the shares of such series shall be subject to the operation of a purchase, retirement or sinking fund, and, if so, whether and upon what conditions such purchase, retirement or sinking fund shall be cumulative or noncumulative, the extent to which and the manner in which such fund shall be applied to the purchase or redemption of the shares of such series for retirement or to other corporate purposes and the terms and provisions relative to the operation thereof; (f) Whether or not the shares of such series shall be convertible into or exchangeable for shares of stock of any other class or classes, or any other series of the same class and, if so convertible or exchangeable, the price or prices or the rate or rates of conversion or exchange and the method, if any, of adjusting the same, and any other terms and conditions of such conversion or exchange; (g) The voting powers, full and/or limited, if any, of the shares of such series; and whether or not and under what conditions the shares of such series (alone or together with the shares of one or more other series having similar provisions) shall be entitled to vote separately as a single class, for the election of one or more additional directors of the Corporation in case of dividend arrearages or other specified events, or upon other matters; (h) Whether or not the issuance of any additional shares of such series, or of any shares of any other series, shall be subject to restrictions as to issuance, or as to the powers, preferences or rights of any such other series; (i) Whether or not the holders of shares of such series shall be entitled, as a matter of right, to subscribe for or purchase any part of any new or additional issue of stock of any class or of securities convertible into stock of any class and, if so entitled, the qualifications, conditions, limitations and restrictions of such right; and (j) Any other preferences, privileges and powers, and relative, participating, optional or other special rights, and qualifications, limitations or restrictions of such series, as the Board of Directors may deem advisable and as shall not be inconsistent with the provisions of this Certificate of Incorporation. (3) The shares of each series of Preferred Stock shall entitle the holders thereof to receive, when, as and if declared by the Board of Directors out of funds legally available for dividends, cash dividends at the rate, under the conditions, for the periods and on the dates fixed by the resolution or resolutions of the Board of Directors pursuant to authority granted in this Section B, for each series, and no more, before any dividends on the Common Stock, other than dividends payable in Common Stock, shall be paid or set apart for payment. No dividends shall be paid or declared or set apart for payment on any particular series of Preferred Stock in respect of any period unless dividends shall be or have been paid, or declared and set apart for payment, pro rata on all shares of Preferred Stock at the time outstanding of each other series which ranks equally as to dividends with such particular series, so that the amount of dividends declared on such particular series shall bear the same ratio to the amount declared on each such other series as the dividend rate of such particular series shall bear to the dividend rate of such other series. No dividends shall be deemed to have accrued on any share of Preferred Stock of any series with respect to any period prior to the date of original issue of such share or the dividend payment date immediately preceding or following such date of original issue, as may be provided in the resolution or resolutions creating such series. The Preferred Stock shall not be entitled to participate in any dividends declared and paid on the Common Stock, whether payable in cash, stock or otherwise. Accruals of dividends shall not bear interest. (4) Any redemption of Preferred Stock shall be effected by notice duly given as hereinafter specified and by payment at the redemption price of the Preferred Stock to be redeemed. In case of redemption of a part only of a series of the Preferred Stock at the time outstanding, the selection of shares for redemption may be made either by lot or pro rata or in such other manner as shall be determined by the Board of Directors. Notice of every such redemption, stating the redemption date and price, the place of payment, and the expiration date of then existing rights, if any, of conversion or exchange, shall be given by publication, not less than 30 nor more than 60 days prior to the date fixed for redemption, at least twice in a newspaper customarily published at least once a day for at least five days in each calendar week and of general circulation in New York, New York, whether or not published on Saturdays, Sundays, or holidays. Notice of such redemption may also be mailed not less than 30 nor more than 60 days prior to the date fixed for redemption to the holders of record of the shares so to be redeemed at their respective addresses as the same shall appear on the books of the Corporation, but no failure to mail such notice or any defect therein or in the mailing thereof shall affect the validity of such redemption proceedings. If (a) such notice of redemption by publication shall have been duly given or the Corporation shall have given to a bank or trust company in New York, New York designated by the Board of Directors and having capital and surplus of at least Two Million Dollars ($2,000,000), irrevocable authorization promptly to give such notice; and (b) on or before the redemption date specified in such notice the funds or other property necessary for such redemption shall have been deposited by the Corporation with such bank or trust company, designated in such notice, in trust for the pro rata benefit of the holders of the shares so called for redemption, then, notwithstanding that any certificate for shares so called for redemption shall not have been surrendered for cancellation, from and after the time of such deposit all shares of the Preferred Stock so called for redemption shall no longer be deemed to be outstanding and all rights with respect to such shares shall forthwith cease and terminate, except only (i) the right of the holders thereof to receive from such bank or trust company the funds or other property so deposited, without interest, upon surrender (and endorsement, if required by the Board of Directors) of the certificates for such shares, and (ii) the rights of conversion or exchange, if any, not theretofore expired. Any funds or other property so deposited and unclaimed at the end of six years from such redemption date shall be released or repaid to the Corporation, after which the holders of the shares so called for redemption shall look only to the Corporation for payment thereof. (5) Shares of Preferred Stock which have been redeemed or converted, or which have been issued and reacquired in any manner and retired, shall have the status of authorized and unissued Preferred Stock and may be reissued by the Board of Directors as shares of the same or any other series. (6) In the event of any voluntary or involuntary liquidation, dissolution, distribution of assets or winding-up of the Corporation, the holders of the shares of each series of Preferred Stock then outstanding shall be entitled to receive out of the net assets of the Corporation, but only in accordance with the preference, if any, provided for such series, before any distribution or payment shall be made to the holders of the Common Stock, the amount per share fixed by the resolution or resolutions of the Board of Directors to be received by the holders of shares of each such series on such voluntary or involuntary liquidation, dissolution, distribution of assets or winding-up, as the case may be. If such payment shall have been made in full, to the holders of all outstanding Preferred Stock of all series, or duly provided for, the remaining assets of the Corporation shall be available for distribution among the holders of the Common Stock. If upon any such liquidation, dissolution, distribution, of assets or winding-up, the net assets of the Corporation available for distribution among the holders of any one or more series of the Preferred Stock which (a) are entitled to a preference over the holders of the Common Stock upon such liquidation, dissolution, distribution of assets or winding-up, and (b) rank equally in connection therewith, shall be insufficient to make payment in full of the preferential amount to which the holders of such shares shall be entitled, then such assets shall be distributed among the holders of each such series of the Preferred Stock ratably according to the respective amounts to which they would be entitled in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full. Neither the consolidation or merger of the Corporation, nor the sale, lease or conveyance of all or part of its assets, shall be deemed a liquidation, dissolution, distribution of assets or winding-up of the Corporation within the meaning of the foregoing provisions. (7) Unless and except to the extent otherwise required by law or provided in the resolution or resolutions of the Board of Directors pursuant to this Section B, the shares of Preferred Stock shall have no voting power with respect to any matter whatsoever, including, but not limited to, any action to (a) increase the authorized number of shares of the Preferred Stock or of any series thereof, (b) create shares of stock of any class ranking prior to or on a parity with any series of the Preferred Stock with respect to any preferences or voting powers, and (c) authorize a new series of the Preferred Stock having preferences or voting powers ranking prior to or on a parity with any series of the Preferred Stock with respect to any preferences or voting powers. In no event shall the Preferred Stock be entitled to more than one vote in respect of each share of stock. C. Limitations, Relative Rights and Powers in Respect of Shares of Common Stock. (l) After the requirements with respect to preferential dividends, if any, on the Preferred Stock (fixed pursuant to Section B) shall have been met and after the Corporation shall have complied with all the requirements, if any, with respect to the setting aside of sums as purchase, retirement or sinking funds (fixed pursuant to Section B), then and not otherwise the holders of Common Stock shall be entitled to receive such dividends as may be declared from time to time by the Board of Directors. (2) After distribution in full of the preferential amount, if any, (fixed pursuant to Section B) to be distributed to the holders of Preferred Stock in the event of the voluntary or involuntary liquidation, dissolution, distribution of assets or winding-up of the Corporation, the holders of the Common Stock shall be entitled to receive all the remaining assets of the Corporation of whatever kind available for the distribution to stockholders ratably in proportion to the number of shares of Common Stock held by them respectively. (3) Except as may be otherwise required by law or by this Certificate of Incorporation, each holder of Common Stock shall have one vote in respect of each share of stock held by him on all matters voted upon by the stockholders. D. Other Provisions. (l) Except as may be provided in the resolution or resolutions of the Board of Directors pursuant to Section B with respect to any series of Preferred Stock, no holder of stock of any class of the Corporation shall be entitled as of right to purchase or subscribe for any part of any unissued stock of any class, or of any additional stock of any class of Capital Stock of the Corporation, or to any bonds, certificates of indebtedness, debentures, or other securities convertible into stock of the Corporation, now or hereafter authorized, but any such stock or other securities convertible into stock may be issued and disposed of pursuant to resolution by the Board of Directors to such persons, firms, corporations or associations and upon such terms and for such consideration as the Board of Directors in the exercise of its discretion may determine and as may be permitted by law. Any and all shares of stock so issued for which the consideration so fixed has been paid or delivered to the Corporation shall be fully paid and not liable to any further call. (2) In no case shall fractions of shares of any class of stock be issued by the Corporation, but in lieu thereof the Corporation shall, at its option, make a cash adjustment or issue fractional Scrip Certificates, in such form and in such denominations as shall from time to time be determined by the Board of Directors. Such Scrip Certificates shall be exchangeable on or before such date or dates as the Board of Directors may determine, when surrendered with other similar Scrip Certificates in sufficient aggregate amounts, for certificates for fully paid and non-assessable full shares of the respective stocks for which such Scrip Certificates are exchangeable, and new Scrip Certificates of a like tenor for the remaining fraction of a share, if any. Such Scrip Certificates shall not entitle any holder thereof to voting rights, dividend rights or any other rights of a stockholder or any rights other than the rights therein set forth, and no dividend or interest shall be payable or shall accrue with respect to Scrip Certificates or the interests represented thereby. All such Scrip Certificates which are not surrendered in exchange for shares of stock on or before their respective expiration dates shall thereafter be void and of no effect whatever. (3) The minimum amount of capital with which the Corporation will commence business is $1,000. SERIES A JUNIOR PREFERRED STOCK Pursuant to authority conferred by this Article FOURTH upon the Board of Directors of the Corporation, the Board of Directors, pursuant to the Amended and Restated Certificate of Designations filed in the Office of the Secretary of State of the State of Delaware on October 9, 1997, has provided for a series of Preferred Stock of the Corporation and has stated the designation and number of shares, and has fixed the relative rights, preferences, and limitations thereof as follows: Series A Junior Preferred Stock: Section 1. Designation and Amount. The shares of such series shall be designated as "Series A Junior Preferred Stock" (referred to herein as the "Series A Preferred Stock") and the number of shares constituting such series shall be 3,000,000. The Board of Directors of the Company may increase or decrease such number form time to time as they deem appropriate, subject to the then-current limitations of the Restated Certificate of Incorporation and applicable law. Section 2. Dividends and Distributions. (A) Subject to the provisions for adjustment hereinafter set forth, the holders of shares of Series A Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, (i) in the event the Board of Directors of the Company shall, at any time after the issuance of any share of Series A Preferred Stock, declare a cash dividend payable on any class or series of the Common Stock of the Company (the "Common Stock"), a preferential cash dividend in an amount per share (rounded to the nearest cent) equal to 1000 times the per share amount of such cash dividend declared on a share of the Common Stock and (ii) a preferential cash dividend (a "Preferential Dividend"), if any, on the first day of January, April, July and October of each year (each a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction or a share of Series A Preferred Stock, in an amount equal to $100 per share of Series A Preferred Stock less the per share amount of all cash dividends declared on the Series A Preferred Stock pursuant to clause (i) of this sentence since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share of Series A Preferred Stock. In the event the Board of Directors of the Company shall, at any time after the issuance of any share of Series A Preferred Stock, declare a distribution on the shares of Common Stock of the Company, whether by way of a dividend or a reclassification of stock, a recapitalization, reorganization or partial liquidation of the Company or otherwise, which is payable in cash or any debt security, debt instrument, real or personal property or any other property (other than cash dividends subject to the immediately preceding sentence), a distribution of shares of Common Stock or other capital stock of the Company or a distribution of rights or warrants to acquire any such share (including any debt security convertible into or exchangeable for any such share), at a price less than the Fair Market Value of such share, then and in each such event each holder of Series A Preferred Stock shall be entitled to receive when, as and if declared by the Board of Directors, out of funds and assets legally available for the purpose, a preferential distribution on each then outstanding share of Series A Preferred Stock of the Company, in like kind, in an amount equal to 1000 times the amount of such distribution paid on a share of Common Stock (subject to the provisions for adjustment hereinafter set forth). The dividends and distributions on the Series A Preferred Stock to which holders thereof are entitled pursuant to clause (i) of the first sentence of this paragraph and pursuant to the second sentence of this paragraph are hereinafter referred to as "Series A Dividends" and the multiple of such cash and non-cash dividends on the Common Stock applicable to the determination of the Series A Dividends, which shall be 1000 initially but shall be adjusted from time to time as hereinafter provided, is hereinafter referred to as the "Dividend Multiple". In the event the Company shall at any time after October 5, 1997 declare or pay any dividend or make any distribution on Common Stock payable in shares of Common Stock, or effect a subdivision or split or a combination, consolidation or reverse split of the outstanding shares of Common Stock into a greater or lesser number of shares of Common Stock, then in each such case the Dividend Multiple thereafter applicable to the determination of the amount of the Series A Dividends which holders of shares of Series A Preferred Stock shall be entitled to receive shall be the Dividend Multiple applicable immediately prior to such event multiplied by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) So long as any shares of Series A Preferred Stock are outstanding, no dividend or other distribution (other than a dividend or distribution paid in shares of Common Stock) shall be paid or set apart for payment by the Company on the Common Stock, unless, in each case, the full dividends on all outstanding shares of Series A Preferred Stock to which the holders thereof are entitled shall have been paid. No dividends shall be paid or declared or set apart for payment on the Series A Preferred Stock in respect of any period unless dividends shall be or have been paid, or declared and set apart for payment, pro rata on all shares of Preferred Stock at the time outstanding of each other series which ranks equally as to dividends with the Series A Preferred Stock so that the amount of dividends declared on the Series A Preferred Stock shall bear the same ratio to the amount declared on each such other series as the accrued dividends on the Series A Preferred Stock shall bear to the accrued dividends on each such other series. Holders of shares of Series A Preferred Stock shall not be entitled to any dividend, whether payable in cash, property or stock, in excess of full dividends, as herein provided, on shares of Series A Preferred Stock. Accruals of dividends shall not bear interest. (C) Preferential Dividends shall begin to accrue on outstanding shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issuance of any shares of Series A Preferred Stock. Accrued but unpaid Preferential Dividends shall cumulate but shall not bear interest. Preferential Dividends paid on the shares of Series A Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. Section 3. Voting Rights. The holders of shares of Series A Preferred Stock shall have the following voting rights: (A) Each share of Series A Preferred Stock shall entitle the holder thereof to 1 vote on all matters submitted to a vote of the stockholders of the Company. Except as otherwise provided herein, in the Restated Certificate of Incorporation or by law, the holders of shares of Series A Preferred Stock and the holders of shares of Common Stock shall vote together as one class on all matters submitted to a vote of stockholders of the Company. (B) In the event that the Preferential Dividends accrued on the Series A Preferred Stock for four or more quarterly dividend periods, whether consecutive or not, shall not have been declared and paid or set apart for payment, the holders of record of the Series A Preferred Stock, together with any other series of Preferred Stock in respect of which the following right is expressly granted by the authorizing resolutions included in the Certificate of Designations therefor, shall have the right, at the next meeting of stockholders called for the election of directors, to elect two members to the Board of Directors, which directors shall be in addition to the number required by the By-laws prior to such event, to serve until the next Annual Meeting and until their successors are elected and qualified or their earlier resignation, removal or incapacity or until such earlier time as all accrued and unpaid Preferential Dividends upon the outstanding shares of Series A Preferred Stock shall have been paid (or set aside for payment) in full. The holders of shares of Series A Preferred Stock shall continue to have the right to elect directors as provided by the immediately preceding sentence until all accrued and unpaid Preferential Dividends upon the outstanding shares of Series A Preferred Stock shall have been paid (or set aside for payment) in full. Such directors may be removed and replaced by such stockholders, and vacancies in such directorships may be filled only by such stockholders (or by the remaining director elected by such stockholders, if there be one) in the manner permitted by law; provided, however, that any such action by stockholders shall be taken at a meeting of stockholders and shall not be taken by written consent thereto. (C) Except as otherwise required by the Restated Certificate of Incorporation or by law or set forth herein, holders of Series A Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for the taking of any corporate action. Section 4. Certain Restrictions. (A) Whenever Preferential Dividends or the Series A Dividends are in arrears or the Company shall be in default of payment thereof, thereafter and until all accrued and unpaid Preferential Dividends and the Series A Dividends, whether or not declared, on shares of Series A Preferred Stock outstanding shall have been paid or set aside for payment in full, and in addition to any and all other rights which any holder of shares of Series A Preferred Stock may have in such circumstances, the Company shall not: (i) declare or pay dividends on, make any other distributions on (other than a dividend or distribution paid in shares of Common Stock), or redeem or purchase or otherwise acquire for consideration, any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock; (ii) declare or pay dividends on or make any other distributions on any shares of stock ranking on a parity as to dividends with the Series A Preferred Stock, unless dividends are paid ratably on the Series A Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled if the full dividends accrued thereon were to be paid; (iii) except as permitted by subparagraph (iv) of this paragraph 4(A), redeem or purchase or otherwise acquire for consideration shares of any stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, provided that the Company may at any time redeem, purchase or otherwise acquire shares of any such parity stock in exchange for shares of any stock of the Company ranking junior (both as to dividends and upon liquidation, dissolution or winding-up) to the Series A Preferred Stock; or (iv) purchase or otherwise acquire for consideration any shares of Series A Preferred Stock or any shares of stock ranking on a parity with the Series A Preferred Stock (either as to dividends or upon liquidation, dissolution or winding up), except in accordance with a purchase offer made to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine will result in fair and equitable treatment among the respective series or classes. (B) The Company shall not permit any subsidiary (as hereinafter defined) of the Company to purchase or otherwise acquire for consideration any shares of stock of the Company unless the Company could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. A "Subsidiary" of the Company shall mean any corporation or other entity of which securities or other ownership interests having ordinary voting power sufficient to elect a majority of the board of directors or other persons performing similar functions are beneficially owned, directly or indirectly, by the Company or by any corporation or other entity that that is otherwise controlled by the Company. (C) The Company shall not issue any shares of Series A Preferred Stock except upon exercise of Rights issued pursuant to the Company's Rights Agreement dated as of October 6, 1997, as it may be amended and restated from time to time, a copy of which as is then currently in effect shall kept on file with the Secretary of the Company at its principal executive office and shall be made available to stockholders of record without charge upon written request therefor addressed to said Secretary. Notwithstanding the foregoing sentence, nothing contained in the provisions hereof shall prohibit or restrict the Company from issuing for any purpose any series of Preferred Stock with rights and privileges similar to, different from, or greater than, those of the Series A Preferred Stock. Section 5. Reacquired Shares. Any shares of Series A Preferred Stock purchased or otherwise acquired by the Company in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. All such shares upon their retirement and cancellation shall become authorized but unissued shares of Preferred Stock, without designation as to series, and such shares maybe reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors. Section 6. Liquidation, Dissolution or Winding Up. Upon any voluntary or involuntary liquidation, dissolution or winding up of the Company, no distribution shall be made (i) to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock unless the holders of shares of Series A Preferred Stock shall have received, subject to adjustment as hereinafter provided, (A) $275 per one thousandth share plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, or (B) if greater than the amount specified in clause (i)(A) of this sentence, an amount equal to 1000 times the aggregate amount to be distributed per share to holders of Common Stock, as the same may be adjusted as hereinafter provided, and (ii) to the holders of stock ranking on a parity upon liquidation, dissolution or winding up with the Series A Preferred Stock, unless simultaneously therewith distributions are made ratably on the Series A Preferred Stock and all other shares of such parity stock in proportion to the total amounts to which the holders of shares of Series A Preferred Stock are entitled under clause (1)(A) of this sentence and to which the holders of such parity shares are entitled, in each case upon such liquidation, dissolution or winding up. The amount to which holders of Series A Preferred Stock may be entitled upon liquidation, dissolution or winding up of the Company pursuant to clause (i)(B) of the foregoing sentence is hereinafter referred to as the "Participating Liquidation Amount" and the multiple of the amount to be distributed to holders of shares of Common Stock upon the liquidation, dissolution or winding up of the Company applicable pursuant to said clause to the determination of the Participating Liquidation Amount, as said multiple may be adjusted from time to time as hereinafter provided, is hereinafter referred to as the "Liquidation Multiple". In the event the Company shall at any time after October 5, 1997 declare or pay any dividend on Common Stock payable in shares of Common Stock, or effect a subdivision or split or a combination, consolidation or reverse split of the outstanding shares of Common Stock into a greater or lesser number of shares of Common Stock, then in each such case, the Liquidation Multiple thereafter applicable to the determination of the Participating Liquidation Amount to which holders of Series A Preferred Stock shall be entitled after such event shall be the Liquidation Multiple applicable immediately prior to such event multiplied by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 7. Certain Reclassifications and other Events. (A) In the event that holders of shares of Common Stock of the Company receive after October 5, 1997 in respect of their shares of Common Stock any share of capital stock of the Company (other than any share of Common Stock of the Company), whether by way of reclassification, recapitalization, reorganization, dividends or other distribution or otherwise (a "Transaction"), then and in each such event the dividend rights and rights upon the liquidation, dissolution or winding up of the Company of the shares of Series A Preferred Stock shall be adjusted so that after such event the holders of Series A Preferred Stock shall be entitled, in respect of each share of Series A Preferred Stock held, in addition to such rights in respect thereof to which such holder was entitled immediately prior to such adjustment, to (i) such additional dividends as equal the Dividend Multiple in effect immediately prior to such Transaction multiplied by the additional dividends which the holder of a share of Common Stock shall be entitled to receive by virtue of the receipt in the Transaction of such capital stock and (ii) such additional distributions upon liquidation, dissolution or winding up of the Company as equal the Liquidation Multiple in effect immediately prior to such Transaction multiplied by the additional amount which the holder of a share of Common Stock shall be entitled to receive upon liquidation, dissolution or winding up of the Company by virtue of the receipt in the Transaction of such capital stock, as the case may be, all as provided by the terms of such capital stock. (B) In the event that holders of shares or Common Stock of the Company receive after October 5, 1997 in respect of their shares of Common Stock any right or warrant to purchase Common Stock (including as such a right, for all purposes of this paragraph, any security convertible into or exchangeable for Common Stock) at a purchase price per share less than the Fair Market Value (as hereinafter defined) of a share of Common Stock on the date of issuance of such right or warrant, then and in each such event the dividend rights and rights upon the liquidation, dissolution or winding up of the Company of the shares of Series A Preferred Stock shall each be adjusted so that after such event the Dividend Multiple and the Liquidation Multiple shall each be the product of the Dividend Multiple and the Liquidation Multiple, as the case may be, in effect immediately prior to such event multiplied by a fraction the numerator of which shall be the number of shares of Common Stock outstanding immediately before such issuance of rights or warrants plus the maximum number of shares of Common Stock which could be acquired upon exercise in full of all such rights or warrants and the denominator of which shall be the number of shares of Common Stock outstanding immediately before such issuance of rights or warrants plus the number of shares of Common Stock which could be purchased, at the Fair Market Value of the Common Stock at the time of such issuance, by the maximum aggregate consideration payable upon exercise in full of all such rights or warrants. (C) In the event that holders of shares of Common Stock of the Company receive after October 5, 1997 in respect of their shares of Common Stock any right or warrant to purchase capital stock of the Company (other than shares of Common Stock), including as such a right, for all purposes of this paragraph, any security convertible into or exchangeable for capital stock of the Company (other than Common Stock), at a purchase price per share less than the Fair Market Value of such shares of capital stock on the date of issuance of such right or warrant, then and in each such event the dividend rights and rights upon liquidation, dissolution or winding up of the Company of the shares of Series A Preferred Stock shall each be adjusted so that after such event each holder of a share of Series A Preferred Stock shall be entitled, in respect of each share of Series A Preferred Stock held, in addition to such rights in respect thereof to which such holder was entitled immediately prior to such event, to receive (i) such additional dividends as equal the Dividend Multiple in effect immediately prior to such event multiplied, first, by the additional dividends to which the holder of a share of Common Stock shall be entitled upon exercise of such right or warrant by virtue of the capital stock which could be acquired upon such exercise and multiplied again by the Discount Fraction (as hereinafter defined) and (ii) such additional distributions upon liquidation, dissolution or winding up of the Company as equal the Liquidation Multiple in effect immediately prior to such event multiplied, first, by the additional amount which the holder of a share of Common Stock shall be entitled to receive upon liquidation, dissolution or winding up of the Company upon exercise of such right or warrant by virtue of the capital stock which could be acquired upon such exercise and multiplied again by the Discount Fraction. For purposes of this paragraph, the "Discount Fraction" shall be a fraction the numerator of which shall be the difference between the Fair Market Value of a share of the capital stock subject to a right or warrant distributed to holders of shares of Common Stock of the Company as contemplated by this paragraph immediately after the distribution thereof and the purchase price per share for such share of capital stock pursuant to such right or warrant and the denominator of which shall be the Fair Market Value of a share of such capital stock immediately after the distribution of such right or warrant. (D) For purposes of this Section 7, the "Fair Market Value" of a share of capital stock of the Company (including a share of Common Stock) on any date shall be deemed to be the average of the daily closing price per share thereof over the 30 consecutive Trading Days (as such term is hereinafter defined) immediately prior to such date; provided, however, that, in the event that such Fair Market Value or any such share or capital stock is determined during a period which includes any date that is within 30 Trading Days after (i) the ex-dividend date for a dividend or distribution on stock payable in shares of such stock or securities convertible into shares or such stock, or (ii) the effective date of any subdivision, split, combination, consolidation, reverse stock split or reclassification of such stock, then, and in each such case, the Fair Market Value shall be appropriately adjusted by the Board or Directors of the Company to take into account ex-dividend or post-effective date trading. The closing price for any day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average or the closing bid and asked prices, regular way (in either case, as reported in the applicable transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange), or, if the shares are not listed or admitted to trading on the New York Stock Exchange, as reported in the applicable transaction reporting system with respect to securities listed on the principal national securities exchange on which the shares are listed or admitted to trading or, if the shares are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ") or such other-system then in use, or if on any such date the shares are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the shares selected by the Board of Directors of the Company. The term "Trading Day" shall mean a day on which the principal national securities exchange on which the shares are listed or admitted to trading is open for the transaction of business or, if the shares are not listed or admitted to trading on any national securities exchange, on which the New York Stock Exchange or such other national securities exchange as may be selected by the Board of Directors of the Company is open. If the shares are not publicly held or not so listed or traded on any day within the period of 30 Trading Days applicable to the determination of Fair Market Value thereof as aforesaid, "Fair Market Value" shall mean the fair market value thereof per share as determined by the Board of Directors of the Company. In either case referred to in the foregoing sentence, the determination of Fair Market Value shall be described in a statement filed with the Secretary of the Company. Section 8. Consolidation, Merger, etc. In case the Company shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each outstanding share of Series A Preferred Stock shall at the same time be similarly exchanged for or changed into the aggregate amount of stock, securities, cash and/or other property (payable in like kind), as the case may be, for which or into which each share of Common Stock is changed or exchanged, multiplied by the higher of the Dividend Multiple or the Liquidation Multiple in effect immediately prior to such event. Section 9. Effective Time of Adjustments. (A) Adjustments to the Series A Preferred Stock required by the provisions hereof shall be effective as of the time at which the event requiring such adjustments occurs. (B) The Company shall give prompt written notice to each holder of a share of Series A Preferred Stock of the effect of any adjustment to the dividend rights or rights upon liquidation, dissolution or winding up of the Company of such shares required by the provisions hereof. Notwithstanding the foregoing sentence, the failure of the Company to give such notice shall not affect the validity of or the force or effect of or the requirement for such adjustment. Section 10. No Redemption. The shares of Series A Preferred Stock shall not be redeemable at the option of the Company or any holder thereof. Notwithstanding the foregoing sentence of this Section, the Company may acquire shares of Series A Preferred Stock in any other manner permitted by law, the provisions hereof and the Restated Certificate of Incorporation of the Company. Section 11. Ranking. Unless otherwise provided in the Restated Certificate of Incorporation of the Company or a Certificate of Designations relating to a subsequent series of preferred stock of the Company, the Series A Preferred Stock shall rank junior to all other series of the Company's Preferred Stock as to the payment or dividends and the distribution of assets on liquidation, dissolution or winding up, and senior to the Common Stock. Section 12. Amendment. The provisions hereof and the Restated Certificate of Incorporation of the Company shall not be amended in any manner which would adversely affect the rights, privileges or powers of the Series A Preferred Stock without, in addition to any other vote of stockholders required by law, the affirmative vote of the holders of two-thirds or more of the outstanding shares of Series A Preferred Stock, voting together as a single class. FIFTH: The private property of the stockholders shall not be subject to the payment of corporate debts to any extent whatever. SIXTH: The Corporation shall have perpetual existence. SEVENTH: The following provisions are inserted for the management of the business and for the conduct of the affairs of the Corporation, and it is expressly provided that the same are intended to be in furtherance and not in limitation or exclusion of the powers conferred by statute: (1) The number of directors of the Corporation (exclusive of directors (the "Preferred Stock Directors") who may be elected by the holders of any one or more series of Preferred Stock which may at any time be outstanding, voting separately as a class or classes) shall not be less than ten nor more than eighteen, the exact number within said limits to be fixed from time to time solely by resolution of the Board of Directors, acting by not less than a majority of the directors then in office. (2) The Board of Directors (exclusive of Preferred Stock Directors) shall be divided into three classes, with the term of office of one class expiring each year. At the annual meeting of shareholders in 1985, five directors of the first class shall be elected to hold office for a term expiring at the annual meeting of shareholders in 1986, six directors of the second class shall be elected to hold office for a term expiring at the annual meeting of shareholders in 1987 and six directors of the third class shall be elected to hold office for a term expiring at the annual meeting of shareholders in 1988. Commencing with the annual meeting of shareholders in 1986, directors of each class the term of which shall then expire shall be elected to hold office for a three-year term and until the election and qualification of their respective successors in office. In case of any increase in the number of directors (other than Preferred Stock Directors), the number of directors in each class shall be as nearly equal as possible. Election of directors need not be by ballot unless the By-laws so provide. (3) Subject to the rights of the holders of any one or more series of Preferred Stock then outstanding, newly created directorships resulting from any increase in the authorized number of directors or any vacancies in the Board of Directors resulting from death, resignation, retirement, disqualification, removal from office or other cause shall be filled solely by the Board of Directors, acting by not less than a majority of the Directors then in office. Any director so chosen shall hold office until the next election of the class for which such directors shall have been chosen and until his successor shall be elected and qualified. No decrease in the number of directors shall shorten the term of any incumbent director. (4) Subject to the rights of the holders of any one or more series of Preferred Stock then outstanding, any director, or the entire Board of Directors, may be removed from office at any time, but only for cause and only by the affirmative vote of at least 80% of all of the outstanding shares of capital stock of the Corporation as are entitled to vote generally in the election of directors ("Voting Stock"), voting together as a single class. (5) The By-laws may prescribe the number of directors necessary to constitute a quorum and such number may be less than a majority of the total number of directors, but shall not be less than one-third of the total number of directors. (6) Both shareholders and directors shall have power, if the By-laws of the Corporation so provide, to hold their meetings either within or without the State of Delaware, to have one or more offices in addition to the principal office in the State of Delaware, and to keep the books of the Corporation (subject to the provisions of the statutes) outside of the State of Delaware at such places as may from time to time be designated by them. (7) The Board of Directors shall have power to determine from time to time whether and if allowed under what conditions and regulations the accounts, and except as otherwise provided by statute or by this Certificate of Incorporation, the books of the Corporation shall be open to the inspection of the shareholders, and the shareholders' rights in this respect are and shall be restricted or limited accordingly, and no shareholder shall have any right to inspect any account or book or document of the Corporation except as conferred by statute or by this Certificate of Incorporation, or authorized by the Board of Directors or by a resolution of the shareholders. (8) The Board of Directors shall have the power to adopt, amend or repeal the By-laws of the Corporation. (9) The Board of Directors acting by a majority of the whole board shall have power to appoint three or more of their number to constitute an Executive Committee, which Committee shall, when the Board of Directors is not in session and subject to the By-laws, have and exercise any or all of the powers of the Board of Directors in the management of the business and affairs of the Corporation and shall have power to authorize the seal of the Corporation to be affixed to all papers which may require it. The Board of Directors acting by a majority of the whole board shall also have power to appoint any other committee or committees, such committees to have and exercise such powers as shall be conferred by the Board of Directors or be authorized by the By-laws. (10) Except as may be otherwise provided by statute or in this Certificate of Incorporation, the business and affairs of this Corporation shall be managed under the direction of the Board of Directors. (11) Directors, for their services as such, may be paid such compensation as may be fixed from time to time by the Board of Directors. (12) The Board of Directors shall have power from time to time to fix and determine and vary the amount of the working capital of the Corporation and, subject to any restrictions contained in the Certificate of Incorporation, to direct and determine the use and disposition of any surplus over and above the capital stock paid in, and in its discretion to use and apply any such surplus in purchasing or acquiring property, bonds or other obligations of the Corporation or shares of its own capital stock, to such extent and in such manner and upon such terms as the Board of Directors shall deem expedient, but any shares of such capital stock so purchased or acquired may be resold unless such shares shall have been retired in the manner provided by law for the purpose of decreasing the Corporation's capital stock. (13) Notwithstanding any other provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class of Voting Stock required by law or this Certificate of Incorporation, the affirmative vote of the holders of at least 80% of all of the then outstanding shares of Voting Stock, voting together as a single class, shall be required to alter, amend or repeal paragraphs (1), (2), (3), (4), (5), (8), (10) or this paragraph (13) of this Article SEVENTH. (14) The liability of the Corporation's Directors to the Corporation or its shareholders shall be eliminated to the fullest extent permitted by the Delaware General Corporation Law as amended from time to time. No amendment to or repeal of this paragraph (14) of Article SEVENTH shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal. Notwithstanding any other provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class of Voting Stock required by law or this Certificate of Incorporation, the affirmative vote of the holders of at least 80% of all of the then outstanding shares of Voting Stock, voting together as a single class, shall be required to alter, amend or repeal this paragraph (14) of this Article SEVENTH. (15) Any action required or permitted to be taken by the shareholders of the Corporation must be effected solely at a duly called annual or special meeting of such holders and may not be effected by any consent in writing by such holders. EIGHTH: A. Applicability of Article. Except as otherwise expressly provided in Section C of this Article EIGHTH, none of the actions or transactions listed below shall be effected by the Corporation, or approved by the Corporation as a shareholder of any majority-owned subsidiary of the Corporation if, as of the record date for the determination of the shareholders entitled to vote thereon, any Related Person (as hereinafter defined) exists, unless the applicable requirements of Sections B, C, D, E and F of this Article EIGHTH are fully complied with: (1) any merger or consolidation of the Corporation or any of its subsidiaries into or with such Related Person; (2) any sale, lease, exchange or other disposition of all or any substantial part of the assets of the Corporation or any of its majority-owned subsidiaries to or with such Related Person; (3) the issuance or delivery of any Voting Stock, or securities convertible into or exchangeable or exercisable for any Voting Stock, or of voting securities of any of the Corporation's majority-owned subsidiaries to such Related Person in exchange for cash, other assets or securities, or a combination thereof; or (4) any voluntary dissolution or liquidation of the Corporation. B. Stockholder Vote Required. The actions and transactions described in Section A of this Article EIGHTH shall have been authorized by the affirmative vote of at least 80% of all of the outstanding shares of Voting Stock, voting together as a single class. C. Minimum Price Required. Notwithstanding Section B hereof, the 80% voting requirement shall not be applicable if (1) any action or transaction specified in Section A hereof is approved by the Corporation's Board of Directors and by a majority of the Continuing Directors (as hereinafter defined); provided, however, that if there are not at least five Continuing Directors this exception for approval by the Board of Directors shall not be applicable or (2) in the case of any action or transaction pursuant to which the holders of the capital stock of the Corporation are entitled to receive cash, property, securities or other consideration, the cash or fair market value of the property, securities or other consideration to be received per share by holders of the capital stock of the Corporation in such action or transaction is not less than the higher of (a) the highest price per share paid by the Related Person in acquiring any of its holdings of capital stock of the Corporation, or (b) the highest closing sale price on any day either since the Related Person acquired its first share of capital stock of the Corporation which it continues to own or control or during the five years preceding the date of consideration of the action or transaction by the Corporation's Board of Directors, whichever period is shorter; such highest closing sale price shall be determined by the reports of closing sale prices on the Composite Tape for New York Exchange Listed Stocks or, if such stock is not quoted on the Composite Tape on the New York Stock Exchange or other principal United States securities exchange on which such stock is listed or, for any period when such stock is not listed on any such exchange, the highest closing bid quotation with respect to a share of such stock on the National Association of Securities Dealers, Inc. Automated Quotation System; such price, in either case (a) or (b), to be proportionately adjusted for any subsequent increase or decrease in the number of issued shares of the Corporation's capital stock resulting from a subdivision or consolidation of shares or any other capital adjustments, the payment of a stock dividend, or other increase or decrease in such shares of capital stock effected without receipt of consideration by the Corporation. D. Restrictions on Certain Actions. After becoming a Related Person and prior to consummation of such action or transaction (1) such Related Person shall not have acquired from the Corporation or any of its majority-owned subsidiaries any newly issued or treasury shares of capital stock or any newly issued securities convertible into or exchangeable for capital stock of the Corporation or any of its majority-owned subsidiaries, directly or indirectly (except upon conversion or exchange of convertible or exchangeable securities acquired by it prior to becoming a Related Person or as a result of a pro rata stock dividend or stock split or other distribution of stock to all shareholders pro rata); (2) such Related Person shall not have received the benefit directly or indirectly (except proportionately as a shareholder) of any loans, advances, guarantees, pledges or other financial assistance or tax credits provided by the Corporation or any of its majority-owned subsidiaries, or made any major changes in the Corporation's or any of its majority-owned subsidiaries' businesses or capital structures or reduced the current rate of dividends payable on the Corporation's capital stock below the rate in effect immediately prior to the time such Related Person became a Related Person (the current rate of dividends being the ratio of the current dividend to the net income of the Corporation for the full fiscal quarter immediately preceding the quarter in which such dividend is paid; and the rate of dividends in effect immediately prior to the time such Related Person became a Related Person being the ratio of (a) the aggregate dividends paid during the four full fiscal quarters immediately preceding the time such Related Person became a Related Person to (b) the aggregate net income of the Corporation for the four successive full fiscal quarters immediately preceding the last quarter in which such dividends were paid); and (3) such Related Person shall have taken all required actions to ensure that the Corporation's Board of Directors includes representation by Continuing Directors (as hereinafter defined) at least proportionate to the stockholdings of the Corporation's remaining public shareholders (as hereinafter defined), with a Continuing Director to occupy any Board position resulting from a fraction and, in any event, with at least one Continuing Director to serve on the Board so long as there are any remaining public shareholders. E. Proxy Statement Required. A proxy statement responsive to the requirements of the Securities Exchange Act of 1934, as amended, whether or not the Corporation is then subject to such requirements, shall be mailed to the shareholders of the Corporation for the purpose of soliciting shareholder approval of such action or transaction and shall contain at the front thereof, in a prominent place, any recommendations as to the advisability or inadvisability of the action or transaction which the Continuing Directors may choose to state. F. Certain Definitions. For the purpose of this Article EIGHTH, (1) the term "Related Person" shall mean any other corporation, person or entity (including any Affiliate thereof), other than this Corporation, any of its subsidiaries or any officer or employee thereof who holds only voting power pursuant to proxies which beneficially owns or controls, directly or indirectly, 10% or more of the outstanding shares of Voting Stock, (2) a Related Person shall be deemed to own or control, directly or indirectly, any outstanding shares of Voting Stock owned by it of record or beneficially, including without limitation shares (a) which it has the right to acquire pursuant to any agreement, or upon exercise of conversion rights, warrants or options, or otherwise or (b) which are beneficially owned, directly or indirectly (including shares deemed owned through application of clause (a) above), by any other corporation, person or other entity (x) with which it or its Affiliate or Associate (as hereinafter defined) has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of Voting Stock or (y) which is its "Affiliate" (other than the Corporation) or "Associate" (other than the Corporation) as those terms are defined in the General Rules and Regulations under the Securities Exchange Act of 1934, as amended; (3) the term "Voting Stock" shall mean such shares of capital stock of the Corporation as are entitled to vote generally in the election of directors; (4) the term "Continuing Director" shall mean a director who was a member of the Board of Directors of the Corporation immediately prior to the time that any Related Person involved in the proposed action or transaction became a Related Person or a director nominated by a majority of the remaining Continuing Directors; and (5) the term "remaining public shareholders" shall mean the holders of the Corporation's capital stock other than the Related Person. G. Determinations by the Board of Directors. The Board of Directors of the Corporation shall have the power and duty to determine for the purposes of this Article EIGHTH, on the basis of information then known to the Board of Directors, whether (1) any Related Person exists or is an Affiliate or an Associate of another and (2) any proposed sale, lease, exchange, or other disposition of part of the assets of the Corporation or any majority-owned subsidiary involves a substantial part of the assets of the Corporation or any of its subsidiaries. Any such determination by the Board of Directors shall be conclusive and binding for all purposes. H. Alteration, Amendment or Repeal. Notwithstanding any other provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class of Voting Stock required by law or this Certificate of Incorporation, the affirmative vote of the holders of at least 80% of all of the then outstanding shares of Voting Stock, voting together as a single class, shall be required to alter, amend or repeal this Article EIGHTH. NINTH: The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation in the manner now or hereafter prescribed by statute and all rights conferred upon the stockholders herein are granted subject to this reservation. IN WITNESS WHEREOF, said PFIZER INC. has caused its corporate seal to be hereunto affixed and this certificate to be signed by C. L. Clemente its Senior Vice President and attested by Terence J. Gallagher, its Assistant Secretary, this 29th day of October, 1997. PFIZER INC. PFIZER INC. Corporate Seal 1942 Delaware By /s/ C. L. Clemente_____ Senior Vice President ATTEST: By /s/ Terence J. Gallagher___ Assistant Secretary
Exhibit 11 PFIZER INC. AND SUBSIDIARY COMPANIES COMPUTATION OF EARNINGS PER COMMON SHARE (millions, except per share data) (Unaudited) <TABLE> <CAPTION> Three Months Ended Nine Months Ended Sept. 28, Sept. 29, Sept. 28, Sept. 29, 1997 1996 1997 1996 Primary: <S> <C> <C> <C> <C> Net income $ 596 $ 514 $1,655 $1,425 Weighted average number of common shares outstanding 1,256 1,249 1,257 1,245 Common share equivalents (a) 47 40 44 40 Weighted average number of common shares and common share equivalents 1,303 1,289 1,301 1,285 Net income per common share $ .46 $ .40 $ 1.27 $ 1.11 Fully Diluted: Net income $ 596 $ 514 $1,655 $1,425 Weighted average number of common shares outstanding 1,256 1,249 1,257 1,245 Common share equivalents and other dilutive securities 48 43 47 42 Weighted average number of common shares and common share equivalents 1,304 1,292 1,304 1,287 Net income per common share $ .46 $ .40 $ 1.27 $ 1.11 <FN> <F1>(a) Applies to stock option plans. Note: The Company distributed a two-for-one stock split in the form of a 100 percent stock dividend on June 30, 1997 to shareholders of record on June 2, 1997. The par value remained at $.05 per share. </FN> </TABLE>
Exhibit 15 ACCOUNTANTS' ACKNOWLEDGMENT Board of Directors Pfizer Inc.: We hereby acknowledge the incorporation by reference of our report dated November 10, 1997, included within the Quarterly Report on Form 10-Q of Pfizer Inc. for the quarter ended September 28, 1997, in the Registration Statement on Form S-15 dated December 13, 1982 (File No. 2-80884), as amended, in the Registration Statement on Form S-8 dated October 27, 1983 (File No. 2-87473), as amended, in the Registration Statement on Form S-8 dated March 22, 1990 (File No. 33-34139), in the Registration Statement on Form S-8 dated January 24, 1991 (File No. 33-38708), in the Registration Statement on Form S-8 dated November 18, 1991 (File No. 33-44053), in the Registration Statement on Form S-3 dated May 27, 1993 (File No. 33-49629), in the Registration Statement on Form S-8 dated May 27, 1993 (File No. 33-49631), in the Registration Statement on Form S-8 dated May 19, 1994 (File No. 33-53713), in the Registration Statement on Form S-8 dated October 5, 1994 (File No. 33-55771), in the Registration Statement on Form S-3 dated November 14, 1994 (File No. 33- 56435), in the Registration Statement on Form S-8 dated December 20, 1994 (File No 33-56979), in the Registration Statement on Form S-8 dated March 29, 1996 (File No. 33-02061) and in the Registration Statement on Form S-8 dated September 25, 1997 (File No. 333-36371). Pursuant to Rule 436(c) under the Securities Act of 1933, such report is not considered a part of a registration statement prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of sections 7 and 11 of the Act. KPMG Peat Marwick LLP New York, New York November 10, 1997