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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 June 30, 2002

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
(State of Incorporation)

13-5315170
(I.R.S. Employer Identification No.)

235 East 42nd Street, New York, New York 10017
(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 August 12, 2002, 6,189,667,177 shares of the issuer's common stock were outstanding (voting).

FORM 10-Q

For the Quarter Ended
June 30, 2002

Table of Contents

PART I. FINANCIAL INFORMATION

 

Item 1.

Financial Statements:

 

Condensed Consolidated Statement of Income for the three months and six months ended June 30, 2002 and July 1, 2001

 

Condensed Consolidated Balance Sheet at June 30, 2002 and December 31, 2001

 

Condensed Consolidated Statement of Cash Flows for the six months ended June 30, 2002 and July 1, 2001

 

Notes to Condensed Consolidated Financial Statements

 

Independent Accountants' Review Report

 

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

 

PART II. OTHER INFORMATION

 

Item 1.

Legal Proceedings

 

Item 6.

Exhibits and Reports on Form 8-K

 

PART I. FINANCIAL INFORMATION

Item 1.  Financial Statements

PFIZER INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)

 

Three Months Ended

 

Six Months Ended

(millions of dollars, except per share data)

June 30,
   2002 

July 1,
   2001 

 

June 30,
   2002 

July 1,
   2001 

 

 

 

 

 

 

Revenues

$ 8,033 

$ 7,622 

 

$16,452 

$15,205 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 Cost of sales

1,197 

1,150 

 

2,403 

2,374 

 Selling, informational
  and administrative
  expenses

2,983 

2,746 

 

5,812 

5,264 

 Research and development
 expenses

1,257 

1,116 

 

2,458 

2,144 

 Merger-related costs

166 

206 

 

275 

476 

 Other (income)/deductions-
  net

    (46)

     13 

 

   (129)

    (44)

 

 

 

 

 

 

Income from continuing operations before provision for taxes on income, minority interests and cumulative effect of a change in accounting principle

2,476 

2,391 

 

5,633 

4,991 

 

 

 

 

 

 

Provision for taxes on income

519 

590 

 

1,302 

1,258 

 

 

 

 

 

 

Minority interests

     -- 

      9 

 

      1 

     11 

 

 

 

 

 

 

Income from continuing operations before cumulative effect of a change in accounting principle

1,957 

1,792 

 

4,330 

3,722 

 

 

 

 

 

 

Discontinued operations-net of tax

     -- 

     37 

 

     -- 

     37 

 

 

 

 

 

 

Income before cumulative effect of a change in accounting principle

1,957 

1,829 

 

4,330 

3,759 

 

 

 

 

 

 

Cumulative effect of a change in accounting principle-net of tax

     -- 

     -- 

 

   (410)

     -- 

 

 

 

 

 

 

Net income

$ 1,957 
======= 

$ 1,829 
======= 

 

$ 3,920 
======= 

$ 3,759 
======= 

Earnings per common share:

 

 

 

 

 

Basic:

 

 

 

 

 

Income from continuing operations before cumulative effect of a change in accounting principle

$   .32 

$   .29 

 

$   .70 

$   .60 

Discontinued operations-net of tax

     -- 

     -- 

 

     -- 

     -- 

Cumulative effect of a change in accounting principle-net of tax

     -- 

     -- 

 

   (.07)

     -- 

  Net income

$   .32 
======= 

$   .29 
======= 

 

$   .63 
======= 

$   .60 
======= 

 

 

 

 

 

 

Diluted:

 

 

 

 

 

Income from continuing operations before cumulative effect of a change in accounting principle

$   .32 

$   .29 

 

$   .69 

$   .59 

Discontinued operations-net of tax

     -- 

     -- 

 

     -- 

     -- 

Cumulative effect of a change in accounting principle-net of tax

     -- 

     -- 

 

   (.07)

     -- 

  Net income

$   .32 
======= 

$   .29 
======= 

 

$   .62 
======= 

$   .59 
======= 

Weighted average shares used to calculate earnings per common share amounts:

 

 

 

 

 

  Basic

6,185.1 
======= 

6,250.3 
======= 

 

6,195.3 
======= 

6,248.6 
======= 

  Diluted

6,271.3 
======= 

6,375.9 
======= 

 

6,291.2 
======= 

6,378.4 
======= 

 

 

 

 

 

 

Cash dividends paid per common share

$   .13 
======= 

$   .11 
======= 

 

$   .26 
======= 

$   .22 
======= 

See accompanying Notes to Condensed Consolidated Financial Statements.

PFIZER INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEET

(millions of dollars)

June 30,
  2002* 

Dec. 31,
 2001** 

ASSETS

Current Assets

 

 

 Cash and cash equivalents

$ 1,196 

$ 1,036 

 Short-term investments

10,140 

7,579 

 Accounts receivable, less allowance for doubtful
  accounts: $126 and $145

6,273 

5,337 

 Short-term loans

274 

269 

 Inventories

 

 

  Finished goods

1,216 

1,185 

  Work in process

1,086 

1,095 

  Raw materials and supplies

    503 

    461 

   Total inventories

2,805 

  2,741 

 Prepaid expenses and taxes

  1,698 

  1,488 

   Total current assets

22,386 

18,450 

Long-term loans and investments

5,118 

5,729 

Property, plant and equipment, less accumulated
 depreciation: $5,558 and $5,133

10,784 

10,415 

Goodwill

1,288 

1,824 

Other assets, deferred taxes and deferred charges

  2,992 

  2,735 

   Total assets

$42,568 
======= 

$39,153 
======= 

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities

 

 

 Short-term borrowings, including current portion
  of long-term debt: $618 and $368

$ 8,366 

$ 6,265 

 Accounts payable

1,524 

1,579 

 Dividends payable

813 

819 

 Income taxes payable

1,557 

806 

 Accrued compensation and related items

916 

1,083 

 Other current liabilities

  3,141 

  3,088 

   Total current liabilities

16,317 

13,640 

Long-term debt

3,072 

2,609 

Postretirement benefit obligation other than
 pension plans

610 

587 

Deferred taxes on income

355 

452 

Other noncurrent liabilities

  3,384 

  3,572 

   Total liabilities

23,738 

20,860 

Shareholders' Equity

 

 

 Preferred stock

-- 

-- 

 Common stock

340 

340 

 Additional paid-in capital

9,048 

9,300 

 Retained earnings

26,742 

24,430 

 Accumulated other comprehensive expense

(1,956)

(1,749)

 Employee benefit trusts

(2,029)

(2,650)

 Treasury stock, at cost

(13,315)

(11,378)

 

 

 

   Total shareholders' equity

 18,830 

 18,293 

   Total liabilities and shareholders' equity

$42,568 
======= 

$39,153 
======= 

*  Unaudited.

** Condensed from audited financial statements.

See accompanying Notes to Condensed Consolidated Financial Statements.

PFIZER INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

 

Six Months Ended

(millions of dollars)

June 30,
   2002 

July 1,
  2001 

Operating Activities

 

 

Net income

$3,920 

$3,759 

Adjustments to reconcile net income to net cash
 provided by operating activities:

 

 

  Cumulative effect of a change in accounting
   principle

410 

-- 

  Discontinued operations

-- 

(37)

  Depreciation and amortization

536 

522 

  Gain on the sale of a minor product line

(20)

-- 

  Gains on the sales of research-related equity
   investments

-- 

(17)

  Harmonization of accounting methodology

-- 

(175)

  Other

(6)

77 

  Changes in assets and liabilities

  (706)

   108 

 

 

 

Net cash provided by operating activities

 4,134 

 4,237 

 

 

 

Investing Activities

 

 

 Purchases of property, plant and equipment

(859)

(979)

 Purchases of short-term investments

(7,161)

(5,217)

 Proceeds from redemptions of
  short-term investments

4,688 

3,395 

 Purchases of long-term investments

(1,338)

(960)

 Proceeds from redemptions of long-term
  investments

1,800 

53 

 Purchases of other assets

(317)

(117)

 Proceeds from sales of other assets

128 

66 

 Proceeds from the sale of a minor product line-net

-- 

 Other investing activities

    93 

    13 

 

 

 

Net cash used in investing activities

(2,961)

(3,746)

 

 

 

Financing Activities

 

 

 Increase in short-term debt

2,090 

551 

 Principal payments on short-term debt

(441)

(242)

 Proceeds from issuances of long-term debt

599 

1,246 

 Principal payments on long-term debt

(6)

(3)

 Proceeds from common stock issuances

35 

30 

 Purchases of common stock

(1,996)

(868)

 Cash dividends paid

(1,594)

(1,359)

 Stock option transactions and other

   297 

   380 

 

 

 

Net cash used in financing activities

(1,016)

  (265)

Net cash used in discontinued operations

    -- 

   (27)

Effect of exchange-rate changes on cash and cash
 equivalents

     3 

    (3)

Net increase in cash and cash equivalents

160 

196 

Cash and cash equivalents at beginning of period

 1,036 

 1,099 

 

 

 

Cash and cash equivalents at end of period

$1,196 
====== 

$1,295 
====== 

Supplemental Cash Flow Information

 

 

 Cash paid during the period for:

 

 

  Income taxes

$  629 

$  447 

  Interest

120 

148 

See accompanying Notes to Condensed Consolidated Financial Statements.

PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 1:  Basis of Presentation

We prepared the condensed consolidated financial statements following the requirements of the Securities and Exchange Commission (SEC) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP (accounting principles generally accepted in the United States of America) can be condensed or omitted. Balance sheet amounts and operating results for subsidiaries operating outside the U.S. are as of and for the three-month and six-month periods ending May 26, 2002 and May 27, 2001. We made certain reclassifications to the 2001 condensed consolidated financial statements to conform to the 2002 presentation.

Note 2:  Responsibility for Interim Financial Statements

We are responsible for the unaudited financial statements included in this document. The financial statements include all normal and recurring adjustments that are considered necessary for the fair presentation of our financial position and operating results. As these are condensed financial statements, one should also read the financial statements and notes included in our 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:  Adoption of New Accounting Standards

Accounting for Business Combinations and Goodwill and Other Intangible Assets

On January 1, 2002, we adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 eliminates the pooling of interests method of accounting for business combinations initiated after June 30, 2001. The adoption of SFAS No. 141 does not impact our financial position or results of operations.

Under the provisions of SFAS No. 142, intangible assets with indefinite lives and goodwill are no longer amortized but are subject to annual impairment tests. Separable intangible assets with definite lives continue to be amortized over their useful lives. Application of the non-amortization provisions of SFAS No. 142 does not have a material effect on our quarterly or annual financial condition or results of operations. As a result of adopting SFAS No. 142, we recorded the following non-cash pre-tax charges of $565 million ($410 million after-tax):

 

Gross Carrying Amount

 

Accumulated Amortization

(millions of dollars)

June 30,
   2002 

December 31,
       2001 

  

June 30,
   2002 

December 31,
       2001 

Amortized intangible
 assets:

 

 

 

 

 

  Trademarks

$  199 

$  193 

 

$ (42)

$ (29)

  License agreements

66 

62 

 

(27)

(24)

  Patents

45 

42 

 

(41)

(35)

  Product rights

261 

246 

 

(43)

(30)

  Non-compete
   agreements

53 

53 

 

(41)

(39)

  Other

   120 

   163 

 

  (42)

  (81)

   Total amortized
    intangible assets

$  744 

$  759 

 

$(236)

$(238)

Unamortized
 identifiable
 intangible assets:

 

 

 

 

 

  Trademarks

$  301 

$  330 

 

$ (91)

$ (91)

  Pension asset

    79 

    79 

 

   -- 

   -- 

Total unamortized
 intangible assets

   380 

   409 

 

  (91)

  (91)

Total identifiable
 intangible assets*


$1,124 
====== 

$1,168 
====== 

 

$(327)
===== 

$(329)
===== 


* Included in Other assets, deferred taxes and deferred charges.

Total amortization expense for intangible assets was $29 million for the six months ended June 30, 2002. Amortization expense for intangible assets is recorded in various expenses in the condensed consolidated statement of income, including Cost of sales, Research and development expenses and Other (income)/deductions-net. The annual amortization expense expected for the years 2002 through 2007 is as follows:

($ in millions)

2002

$58

2003

$52

2004

$50

2005

$46

2006

$43

2007

$40

The changes in the carrying amount of goodwill for the six months ended June 30, 2002 were as follows:

(millions of dollars)

 

 

 

Balance, December 31, 2001

$1,824 

Changes during the period*

  (536)

Balance, June 30, 2002

$1,288 
====== 

*

As a result of adopting SFAS No. 142, we recorded a writedown of $536 million for the impairment provisions related to goodwill in our Animal Health business. The fair value of the Animal Health business was determined using discounted cash flows.

 

Accounting for the Impairment or Disposal of Long-Lived Assets

On January 1, 2002, we adopted the provisions of SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 requires that long-lived assets to be disposed of by sale, including those of discontinued operations, be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations. Under these rules, discontinued operations will no longer be measured at net realizable value or include amounts for operating losses that have not yet been incurred. SFAS No. 144 also broadens the reporting of discontinued operations to include all components of an entity with operations that can be distinguished from the rest of the entity and that will be eliminated from the ongoing operations of the entity in a disposal transaction. The adoption of SFAS No. 144 has no impact on our current operations.

Accounting for Certain Vendor Consideration

The Emerging Issues Task Force (EITF) Issue No. 01-09, Accounting for Consideration Given by a Vendor to a Customer, codified and reconciled the following EITF Issues:

In 2001, we adopted the provisions of EITF Issues No. 00-14 and 00-22 and on January 1, 2002, we adopted the provisions of EITF Issue No. 00-25. EITF Issue No. 00-25 requires the cost of certain vendor consideration to be classified as a reduction of revenue rather than as a marketing expense. We restated our quarterly and full year 2001 statement of income to reflect the reclassification of the cost of certain vendor consideration from Selling, informational and administrative expenses to a reduction in Revenues. These reclassifications have no effect on net income.

The costs of certain marketing expenses reclassified from Selling, informational and administrative expenses to a reduction in Revenues in the quarterly and full year 2001 condensed consolidated statements of income follow:

(millions of dollars)

Q1 
  2001*

Q2 
  2001*

Q3 
  2001*

Q4 
  2001*

Year 
   2001*

Impact on revenues:

 

 

 

 

 

Human pharmaceutical

$   (4)

$   (2)

$   (3)

$   (4)

$   (13)

Animal Health

-- 

-- 

(1)

-- 

(1)

Capsugel

    -- 

    -- 

    -- 

    -- 

     -- 

 Total pharmaceuticals

    (4)

    (2)

    (4)

    (4)

    (14)

Consumer Healthcare

(22)

(22)

(25)

(24)

(94)

Confectionery

(15)

(19)

(23)

(26)

(83)

Shaving

(20)

(20)

(21)

(22)

(84)

Tetra

    -- 

    (1)

    (1)

    (1)

     (2)

 Total consumer products

   (57)

   (62)

   (70)

   (73)

   (263)

Total revenues (decreased)

$  (61)

$  (64)

$  (74)

$  (77)

$  (277)

 

 

 

 

 

 

Impact on selling,
 informational and
 administrative expenses
 (decreased)

$  (61)

$  (64)

$  (74)

$  (77)

$  (277)

Impact on net income

$   -- 
====== 

$   -- 
====== 

$   -- 
====== 

$   -- 
====== 

$    -- 
======= 

* Certain amounts may reflect rounding adjustments.

Quarterly and full year 2001 revenues by business restated for the adoption of EITF Issue No. 00-25 were as follows:

 

 

 

 

 

 

(millions of dollars)

Q1 
  2001*

Q2 
  2001*

Q3 
  2001*

Q4 
  2001*

Year 
   2001*

Revenues:

 

 

 

 

 

Human pharmaceutical

$6,048 

$5,994 

$6,232 

$7,232 

$25,505 

Animal Health

220 

247 

253 

301 

1,021 

Capsugel

   101 

   106 

    98 

   104 

    409 

 Total pharmaceuticals

 6,369 

 6,347 

 6,583 

 7,637 

 26,935 

Consumer Healthcare

569 

586 

577 

623 

2,354 

Confectionery

454 

481 

457 

489 

1,880 

Shaving

152 

159 

162 

159 

632 

Tetra

    40 

    49 

    45 

    45 

    181 

 Total consumer products

 1,215 

 1,275 

 1,241 

 1,316 

  5,047 

 

 

 

 

 

 

Total revenues

$7,584 
====== 

$7,622 
====== 

$7,824 
====== 

$8,953 
====== 

$31,982 
======= 

* Certain amounts may reflect rounding adjustments.

Note 4:  Financial Instruments

A.  Investments in Debt and Equity Securities

In the second quarter of 2002, we reclassified almost all of our held-to-maturity debt securities to available-for-sale debt securities. The amortized cost of the securities reclassified was $13,839 million and the unrealized gain on such securities was immaterial. We reclassified the securities because we no longer have the positive intent to hold such securities to maturity.

Information about our investments follow:

(millions of dollars)

June 30, 2002 

 

 

Amortized cost and fair value of available-for-sale
 debt securities*

 

  Corporate debt

$10,480 

  Foreign government and foreign government agency debt

3,838 

  Certificates of deposit

    350 

Total available-for-sale debt securities

 14,668 

Amortized cost and fair value of held-to-maturity
 debt securities*

 

  Certificates of deposit

577 

  Corporate debt

     74 

Total held-to-maturity debt securities

    651 

Cost of available-for-sale equity securities

150 

Gross unrealized gains

93 

Gross unrealized losses

    (43)

Fair value of available-for-sale equity securities

    200 

Total investments

$15,519 
======= 

*Gross unrealized gains and losses are not material.

These investments were in the following captions in the balance sheet:

(millions of dollars)

June 30, 2002

 

 

Cash and cash equivalents

$   515

Short-term investments

10,140

Long-term loans and investments

  4,864

Total investments

$15,519
=======

 

The contractual maturities of the held-to-maturity and available-for-sale debt securities as of June 30, 2002 were as follows:

 

Years

 

(millions of dollars)

Within
     1

Over 1
  to 5

Over 5
 to 10

Over
  10

Total

 

 

 

 

 

 

Available-for-sale debt
 securities:

 

 

 

 

 

  Corporate debt

$ 6,768

$3,098

$614

$--

$10,480

  Foreign government and
   foreign government agency
   debt

3,097

741

--

--

3,838

  Certificates of deposit

161

189

--

--

350

Held-to-maturity debt
 securities:

 

 

 

 

 

  Certificates of deposit

572

5

--

--

577

  Corporate debt

     57

     7

   1

  9

     74

Total debt securities

$10,655

$4,040

$615

$ 9

$15,319

Available-for-sale equity
 securities

 

 

 

 

    200

Total investments

 

 

 

 

$15,519
=======

B.  Derivative Financial Instruments and Hedging Activities

During the first half of 2002, we entered into the following new or incremental derivative and hedging activities:

Foreign Exchange Risk

These foreign exchange financial instruments serve to protect net income against the impact of the translation into U.S. dollars of certain foreign exchange denominated transactions.

Interest Rate Risk

There was no material ineffectiveness in any hedging relationship reported in earnings in the first half of 2002.

C.  Long-Term Debt

In April 2002, we issued $600 million of senior unsubordinated dollar-denominated debt. The notes mature on April 15, 2009 with interest payable annually, in arrears, beginning on April 15, 2003 at a rate of 5.625%.

Note 5:  Merger-Related Costs

We incurred the following merger-related costs in connection with our merger with Warner-Lambert which was completed on June 19, 2000:

 

Three Months Ended

 

Six Months Ended

(millions of dollars)

June 30,
   2002 

July 1,
  2001 

 

June 30,
   2002 

July 1,
  2001 

 

 

 

 

 

 

Integration costs

$109 

$137 

 

$181 

$264 

Restructuring charges

  57 

  69 

 

  94 

 212 

  Total merger-related costs

$166 
==== 

$206 
==== 

 

$275 
==== 

$476 
==== 

 

Provisions

 

 

(millions of dollars)

Year
2000

Year
   2001

Six
Months
Ended
June 30,
    2002

Total

Utilization
Through
June 30,
       2002

Reserve*
June 30,
    2002

 

 

 

 

 

 

 

Employee  termination  costs

$876

$258

$87

$1,221

$(1,132)

$89

Property,
 plant and  equipment

46

84

--

130

(130)

--

Other

  25

  30

  7

    62

    (58)

  4

 

$947
====

$372
====

$94
===

$1,413
======

$(1,320)
======= 

$93
===

 

 

 

 

 

 

 

*Included in Other current liabilities.

Through June 30, 2002, the charges for employee termination costs represent the approved reduction of our work force by 7,560 people, mainly comprising administrative functions for corporate, manufacturing, distribution, sales and research. We notified these people and as of June 30, 2002, 7,290 employees were terminated. We will complete terminations of the remaining personnel by June 30, 2003. Employee termination costs include accrued severance benefits and costs associated with change-in-control provisions of certain Warner-Lambert employment contracts. Under the terms of Warner-Lambert employment contracts, certain terminated employees may elect to defer receipt of severance benefits. Severance benefits deferred for future payments were $218 million at June 30, 2002 and $215 million at December 31, 2001. The deferred severance benefits are considered utilized charges and are included in Other noncurrent liabilities in the condensed balance shee t.

The impairment and disposal charges through June 30, 2002 for property, plant and equipment in the above table include the consolidation of facilities and related fixed assets, a contract termination payment and termination of certain software installation projects. Other restructuring charges in the six months ended June 30, 2002 consist of charges for contract termination payments-$4 million ($1 million in the second quarter ended June 30, 2002); facility closure costs-$2 million ($1 million in the second quarter ended June 30, 2002) and assets we wrote off, including inventory and intangible assets-$1 million (none in the second quarter ended June 30, 2002). Since inception of the merger, other restructuring charges consist of charges for contract termination payments-$47 million; facility closure costs-$8 million and assets we wrote off, including inventory and intangible assets-$7 million.

Note 6:  Certain Significant Items

We incurred certain significant items as follows:

 

Three Months Ended

 

Six Months Ended

(millions of dollars, pre-tax)

June 30,
    2002

July 1, 
   2001
 

 

June 30, 
    2002
 

July 1, 
   2001
 

 

 

 

 

 

 

Co-promotion charges*

$ 22

$ 100 

 

$  22 

$ 136 

Gain on the sale of a
 minor product line*

--

-- 

 

(20)

-- 

Gains on the sales of
 research-related
 equity investments*

--

-- 

 

-- 

(17)

Harmonization of
 accounting methodology**

  --

 (175)

 

   -- 

 (175)

 Total significant items

$ 22
====

$ (75)
===== 

 

$   2 
===== 

$ (56)
===== 

 

 

 

 

 

 

*  Included in Other (income)/deductions-net.
** Included as an increase in Revenues.

Note 7:  Comprehensive Income

 

Three Months Ended

 

Six Months Ended

(millions of dollars)

June 30,
   2002 

July 1,
  2001 

 

June 30,
   2002 

July 1,
  2001 

 

 

 

 

 

 

Net income

$1,957 

$1,829 

 

$3,920 

$3,759 

Other comprehensive expense:

 

 

 

 

 

 Currency translation
  adjustment and hedges

(8)

(275)

 

(136)

(140)

 Holding gain/(loss)on
  investment securities
  arising during
  period--net of tax

(37)

46

 

(71)

(55)

 Reclassification
  adjustment--net of tax

 --

--

 

 --

(10)

   Net gain/(loss) on
    investment securities

   (37)

    46 

 

   (71)

   (65)

Total other comprehensive
 expense

   (45)

  (229)

 

  (207)

  (205)

Total comprehensive income

$1,912 
====== 

$1,600 
====== 

 

$3,713 
====== 

$3,554 
====== 

The change in currency translation adjustment and hedges included in Accumulated other comprehensive expense for the first six months of 2002 was:

(millions of dollars)

2002 

 

 

Opening balance

$(1,523)

Translation adjustments and hedges

   (136)

Ending balance

$(1,659)
======= 

 

Note 8:   Earnings Per Share

Basic and diluted earnings per common share were computed as follows:

 

Three Months Ended

 

Six Months Ended

(millions of dollars, except per share data)

June 30,
   2002 

July 1,
   2001 

 

June 30,
   2002 

July 1,
   2001 

Earnings:

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations before cumulative effect of a change in accounting principle

$1,957 

$1,792 

 

$4,330 

$3,722 

Discontinued operations--net of tax

     -- 

     37 

 

     -- 

     37 

Income before cumulative effect of a change in accounting principle

1,957 

1,829 

 

4,330 

3,759 

Cumulative effect of a change in accounting principle--net of tax

     -- 

     -- 

 

   (410)

     -- 

 Net income

$1,957 
======= 

$1,829 
======= 

 

$3,920 
======= 

$3,759 
======= 

 

 

 

 

 

 

Basic:

 

 

 

 

 

Weighted average number of common shares outstanding


6,185.1 
======= 

6,250.3 
======= 

 

6,195.3 
======= 

6,248.6 
======= 

 

 

 

 

 

 

Basic earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations before cumulative effect of a change in accounting principle

$  .32 

$  .29 

 

$  .70 

$  .60 

Discontinued operations--net of tax

-- 

-- 

 

-- 

-- 

Cumulative effect of a change in accounting principle--net of tax

     -- 

     -- 

 

   (.07)

     -- 

 Net income

$  .32 
======= 

$  .29 
======= 

 

$  .63 
======= 

$  .60 
======= 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted:

 

 

 

 

 

Weighted average number of common shares outstanding

6,185.1 

6,250.3 

 

6,195.3 

6,248.6 

 

 

 

 

 

 

Common share equivalents--stock options and stock issuable under employee compensation plans

   86.2 

  125.6 

 

   95.9 

  129.8 

 

 

 

 

 

 

Weighted average number of common shares outstanding and common share equivalents



6,271.3 
======= 

6,375.9 
======= 

 


6,291.2 
======= 

6,378.4 
======= 

 

 

 

 

 

 

Diluted earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations before cumulative effect of a change in accounting principle

$  .32 

$  .29 

 

$  .69 

$  .59 

Discontinued operations--net of tax

-- 

-- 

 

-- 

-- 

Cumulative effect of a change in accounting principle--net of tax

     -- 

     -- 

 

   (.07)

     -- 

 Net income

$  .32 
======= 

$  .29 
======= 

 

$  .62 
======= 

$  .59 
======= 

Stock options and stock issuable under employee compensation plans representing equivalents of 202 million shares and 77 million shares of common stock during the three months and six months ended June 30, 2002 and July 1, 2001, respectively, had exercise prices greater than the average market price of our common stock. These common stock equivalents were outstanding during the three months and six months ended June 30, 2002 and July 1, 2001, but were excluded from the computation of diluted earnings per common share for those periods because their inclusion would have had an antidilutive effect.

Note 9:  Segment Information

Revenues and profits by segment for the three months ended June 30, 2002 and July 1, 2001 were as follows:

(millions of dollars)

 

Pharma-
ceuticals

Consumer
Products

Corporate/
    Other 

Consolidated

 

 

 

 

 

 

Revenues

2002

$ 6,700

$1,333

 $    -- 

    $8,033

 

2001

6,347

1,275

      -- 

     7,622

 

 

 

 

 

 

Segment
profit

2002

$ 2,628

$  230

 $  (382)(1)

    $2,476(2)

 

2001

2,491

234

    (334)(1)

     2,391(2)

Revenues and profits by segment for the six months ended June 30, 2002 and July 1, 2001 were as follows:

(millions of dollars)

 

Pharma-
ceuticals

Consumer
Products

Corporate/
    Other 

Consolidated

 

 

 

 

 

 

Revenues

2002

$13,852

$2,600

 $    -- 

   $16,452

 

2001

 12,715

2,490

      -- 

    15,205

 

 

 

 

 

 

Segment
profit

2002

$ 5,921

$  494

 $  (782)(1)

   $ 5,633(2)

 

2001

5,309

465

    (783)(1)

     4,991(2)

(1) Includes interest income/(expense) and corporate expenses. Corporate also includes other income/(expense) of our banking and insurance subsidiaries, certain performance-based compensation expenses not allocated to the operating segments and merger-related costs.

(2) Equals income from continuing operations before provision for taxes on income, minority interests and cumulative effect of a change in accounting principle.

Note 10:  Defined Contribution Plans

We have savings and investment plans in several countries including the U.S. and Puerto Rico. Employees may contribute a portion of their salaries to the plans and we match, in company stock, a portion of the employee contributions. The contribution and match for U.S. participants is held in an Employee Stock Ownership Plan that was adopted on February 1, 2002.

Note 11:  Subsequent Events and Other

On July 15, 2002, we announced that we signed a definitive agreement to merge with Pharmacia Corporation (Pharmacia) in a stock-for-stock transaction valued on that date at approximately $60 billion. Under terms of the merger agreement which has been approved by the board of directors of both Pfizer and Pharmacia, after the Monsanto spin-off by Pharmacia, we will exchange 1.4 shares of Pfizer common stock for each outstanding share of Pharmacia common stock in a tax-free transaction valued at $45.08 per Pharmacia share, based on the closing price of our stock on July 12, 2002 of $32.20 per share. We also will exchange 1.4 options on Pfizer common stock for each outstanding Pharmacia option at the merger date. In addition, each share of Pharmacia convertible perpetual preferred stock will be exchanged for a newly created class of Pfizer convertible perpetual preferred stock with rights substantially identical to the rights of the Pharmacia convertible perpetual preferred stock . We expect the transaction will close by year-end 2002, subject to shareholder approval at both companies, governmental and regulatory approvals and other usual and customary closing conditions.

Also on July 15, 2002, we announced an increase in the share-purchase program, authorized by our board of directors on June 27, 2002, from $10 billion to $16 billion. We will buy back our common stock via open market purchases, as circumstances and prices warrant, with the anticipation of completing the share-purchase program in 2003. In May 2002, we completed the share-purchase program authorized in June 2001. Under the program authorized in June 2001, we purchased approximately 25.8 million shares of common stock in the open market at an average price of $36.79 per share during the second quarter of 2002 and approximately 51.4 million shares of common stock in the open market at an average price of $38.87 per share during the first six months of 2002. In total, we purchased approximately 120 million shares at a total cost of $4.8 billion under the June 2001 program. Purchased shares are available for general corporate purposes.

On June 27, 2002, our board of directors declared a $.13 per share third-quarter 2002 cash dividend on our common stock, payable on September 5, 2002 to shareholders of record on August 16, 2002.

Also on June 27, 2002, we announced that we are exploring strategic options for the Adams confectionery business and the Schick-Wilkinson Sword shaving products business, including possible sale of the businesses. Earlier in the year, we announced that we were exploring strategic options for the Tetra aquarium and pond supplies business, including possible sale of the business.

INDEPENDENT ACCOUNTANTS' REVIEW 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 June 30, 2002 and the related condensed consolidated statements of income for the three-month and six-month periods ended June 30, 2002 and July 1, 2001 and cash flows for the six-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 auditing standards generally accepted in the United States of America, 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 accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet of Pfizer Inc. and Subsidiary Companies as of December 31, 2001, 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 28, 2002, 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, 2001, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

 

KPMG LLP

New York, New York
August 13, 2002

Item 2:

Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)

The components of the Statement of Income follow:

(millions of dollars, except per share data)

Second Quarter

 

First Six Months

 

  2002 

  2001 

%
Change

 

   2002 

   2001 

%
Change

 

 

 

 

 

 

 

 

Revenues

$8,033 

$7,622 

5

 

$16,452 

$15,205 

8

Cost of sales

1,197 

1,150 

4

 

2,403 

2,374 

1

  % of revenues

14.9%

15.1%

 

 

14.6%

15.6%

 

Selling, informational and administrative expenses

2,983 

2,746 

9

 

5,812 

5,264 

10

  % of revenues

37.1%

36.0%

 

 

35.3%

34.6%

 

R&D expenses

1,257 

1,116 

13

 

2,458 

2,144 

15

  % of revenues

15.6%

14.6%

 

 

14.9%

14.1%

 

Merger-related costs

166 

206 

(19)

 

275 

476 

(42)

  % of revenues

2.1%

2.7%

 

 

1.7%

3.1%

 

Other (income)/deductions-net

   (46)

    13 

*

 

   (129)

    (44)

193

Income from continuing operations before taxes and cumulative effect of a change in accounting principle

$2,476 

$2,391 

4

 

$ 5,633 

$ 4,991 

13

  % of revenues

30.8%

31.4%

 

 

34.2%

32.8%

 

Provision for taxes on income

$  519 

$  590 

(12)

 

$ 1,302 

$ 1,258 

3

Effective tax rate

21.0%

24.7%

 

 

23.1%

25.2%

 

Income from continuing operations before cumulative effect of a change in accounting principle

$1,957 

$1,792 

9

 

$ 4,330 

$ 3,722 

16

  % of revenues

24.4%

23.5%

 

 

26.3%

24.5%

 

Discontinued operations-net of tax

    -- 

    37 

*

 

     -- 

     37 

*

Income before cumulative effect of a change in accounting principle

1,957 

1,829 

7

 

4,330 

3,759 

15

  % of revenues

24.4%

24.0%

 

 

26.3%

24.7%

 

Cumulative effect of a change in accounting principle-net of tax

    -- 

    -- 

--

 

   (410)

     -- 

*

Net income

$1,957 
====== 

$1,829 
====== 

7

 

$ 3,920 
======= 

$ 3,759 
======= 

4

  % of revenues

24.4%

24.0%

 

 

23.8%

24.7%

 

Earnings per common share:

 

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

 

Income from continuing operations before cumulative effect of a change in accounting principle

$  .32 

$  .29 

10

 

$   .70 

$   .60 

17

Discontinued operations-net of tax

    -- 

    -- 

--

 

     -- 

     -- 

--

Cumulative effect of a change in accounting principle-net of tax

    -- 

    -- 

--

 

   (.07)

     -- 

*

  Net income

$  .32 
====== 

$  .29 
====== 

10

 

$   .63 
======= 

$   .60 
======= 

5

Diluted:

 

 

 

 

 

 

 

Income from continuing operations before cumulative effect of a change in accounting principle

$  .32 

$  .29 

10

 

$   .69 

$   .59 

17

Discontinued operations-net of tax

    -- 

    -- 

--

 

     -- 

     -- 

--

Cumulative effect of a change in accounting principle-net of tax

    -- 

    -- 

--

 

   (.07)

     -- 

*

  Net income

$  .32 
====== 

$  .29 
====== 

10

 

$   .62 
======= 

$   .59 
======= 

5

Cash dividends paid per common share

$  .13 
====== 

$  .11 
====== 

18

 

$   .26 
======= 

$   .22 
======= 

18


Percentages in this table and throughout the MD&A may reflect rounding adjustments.

* Calculation not meaningful.

REVENUES

The components of the revenue increase in the second quarter and first six months of 2002 were as follows:

 

% Change from 2001

 

Second Quarter

First Six Months

Volume

      8.7%

       10.4%

Price

      0.5

        0.8 

Revenue growth excluding
 accounting harmonization and
 foreign exchange

      9.2

       11.2

Foreign exchange

     (1.5)

       (1.8)

Revenue growth excluding
 accounting harmonization

      7.7

        9.4

Accounting harmonization

     (2.3)

       (1.2)

 

 

 

Total revenue increase

      5.4%
     ====

        8.2%
       ==== 

The revenue increase was primarily due to sales volume growth of our in-line products and revenue generated from product alliances. Effective July 1, 2002, we increased the published prices of certain of our human pharmaceutical products.

Changes in foreign exchange rates decreased revenues in the second quarter of 2002 by $115 million or 1.5% and decreased revenues in the first half of 2002 by $277 million or 1.8%. The foreign exchange impact on the second quarter and first half of 2002 revenue growth, relative to the same periods last year, primarily reflects the strengthening of the U.S. dollar relative to most foreign currencies including the Japanese yen and euro. However, due to the recent weakening of the U.S. dollar, we expect the impact of foreign exchange on revenues in the second half of 2002, at current exchange rates, to be favorable relative to the same period last year.

In the second quarter of 2001, we brought the accounting methodology pertaining to accruals for estimated liabilities related to Medicaid discounts and contract rebates of Warner-Lambert into conformity with our historical method. We determine the amount of Medicaid discounts and contract rebates based on an estimate of reimbursable prescriptions filled for individuals covered by Medicaid or a provider with whom we contract. At Warner-Lambert, the amount of the liability was determined based on a historical percentage of sales. The adjustment reverses the cumulative effect of several years of applying different methodologies. The adjustment increased revenues in the second quarter and first six months of 2001 by $175 million.

The components of the revenue increase in the four quarters and year ended 2001 were as follows:

 

% Change from 2000

 

Q1 
2001 

Q2 
2001 

Q3 
2001 

Q4 
2001 

Year 
2001 

 

 

 

 

 

 

Volume

9.3%

9.5%

12.3%

11.8%

10.8%

Price

0.7 

4.2 

1.4 

2.0 

2.0 

Foreign exchange

(3.2)

(3.7)

(3.4)

(1.6)

(2.9)

 

 

 

 

 

 

Total revenue increase

 6.8%
==== 

10.0%
==== 

10.3%
==== 

12.2%
==== 

9.9%
==== 

Revenues by Country

Revenues by country were as follows:

(millions of dollars)

Second Quarter


   2002

% of
Revenues

   2001

% of
Revenues

% Change

 

 

 

 

 

 

United States   

$ 4,752

59.2

$ 4,604

60.4

3

Japan   

553

6.9

515

6.8

7

All Other   

  2,728

 33.9

  2,503

 32.8

9

Consolidated   

$ 8,033
=======

100.0
=====

$ 7,622
=======

100.0
=====

5

 

 

 

 

 

 

 

First Six Months


   2002

% of
Revenues

   2001

% of
Revenues

% Change

 

 

 

 

 

 

 

 

 

 

 

 

United States   

$10,151

61.7

$ 9,332

61.4

9

Japan   

1,041

6.3

1,001

6.6

4

All Other   

  5,260

 32.0

  4,872

 32.0

8

Consolidated   

$16,452
=======

100.0
=====

$15,205
=======

100.0
=====

8

Revenues by Segment

Revenues by segment for the second quarter and the changes over the prior year were as follows:

(millions of dollars)

2002

% of
Revenues

2001

% of
Revenues

% Change

 

 

 

 

 

 

Pharmaceuticals

 

 

 

 

 

  U.S.

$4,053

50.5

$3,964

52.0

2

  International

 2,647

 32.9

 2,383

 31.3

11

    Worldwide

 6,700

 83.4

 6,347

 83.3

6

 

 

 

 

 

 

Consumer Products

 

 

 

 

 

  U.S.

699

8.7

640

8.4

9

  International

   634

  7.9

   635

  8.3

--

    Worldwide

 1,333

 16.6

 1,275

 16.7

5

 

 

 

 

 

 

Total

$8,033
======

100.0
=====

$7,622
======

100.0
=====

5

 

Revenues by segment for the first six months and the changes over the prior year were as follows:

(millions of dollars)

   2002

% of
Revenues

   2001

% of
Revenues

% Change

 

 

 

 

 

 

Pharmaceuticals

 

 

 

 

 

  U.S.

$ 8,766

53.3

$ 8,055

53.0

9

  International

  5,086

 30.9

  4,660

 30.6

9

    Worldwide

 13,852

 84.2

 12,715

 83.6

9

 

 

 

 

 

 

Consumer Products

 

 

 

 

 

  U.S.

1,385

8.4

1,277

8.4

8

  International

  1,215

  7.4

  1,213

  8.0

--

    Worldwide

  2,600

 15.8

  2,490

 16.4

4

 

 

 

 

 

 

Total

$16,452
=======

100.0
=====

$15,205
=======

100.0
=====

8

Pharmaceuticals

The pharmaceuticals segment includes our human pharmaceuticals and animal health businesses as well as Capsugel, a capsule manufacturing business.

Worldwide revenues of the pharmaceuticals segment follow:

(millions of dollars)

Second Quarter

 

First Six Months

 

  2002

  2001

% Change

 

   2002

   2001

% Change

 

 

 

 

 

 

 

 

Cardiovascular diseases

$3,019

$2,692

12 

 

$ 6,185

$ 5,401

15 

Infectious diseases

712

788

(10)

 

1,643

1,737

(5)

Central nervous system
 disorders

1,188

1,073

11 

 

2,645

2,238

18 

Urogenital conditions

385

351

10 

 

807

728

11 

Diabetes

61

65

(6)

 

146

151

(3)

Allergy

302

253

19 

 

523

448

17 

Alliance revenue

388

306

27 

 

688

592

16 

Other

   262

   291

(10)

 

    494

    571

(13)

Total human  pharmaceuticals excluding
 harmonization of
 accounting methodology

6,317

5,819

 

13,131

11,866

11 

Harmonization of
 accounting methodology

    --

   175

-- 

 

     --

    175

-- 

Total human
 pharmaceuticals

6,317

5,994

 

13,131

12,041

Animal Health

274

247

11 

 

513

467

10 

Capsugel

   109

   106

 

    208

    207

-- 

Total pharmaceuticals

$6,700
======

$6,347
======

 

$13,852
=======

$12,715
=======

 

Worldwide human pharmaceutical revenues grew by 5% in the second quarter of 2002 and 9% in the first six months of 2002. Excluding the impact of foreign exchange and the harmonization of an accounting methodology, worldwide human pharmaceutical revenues grew by 10% in the second quarter of 2002 and 12% in the first six months of 2002. Worldwide human pharmaceutical revenues on a geographic basis follow:

(millions of dollars)

Second Quarter

 

         U.S.          

 

     International     

 

  2002

   2001

% Change

 

  2002

  2001

% Change

 

 

 

 

 

 

 

 

As reported

$3,886

$3,811

2

 

$2,431

$2,183

11

Excluding impact of
 foreign exchange
 and harmonization of
 accounting methodology

$3,886

$3,636

7

 

$2,509

$2,183

15

 

 

 

First Six Months

 

         U.S.          

 

     International     

 

  2002

   2001

% Change

 

  2002

  2001

% Change

 

 

 

 

 

 

 

 

As reported

$8,438

$7,757

9

 

$4,693

$4,284

10

Excluding impact of
 foreign exchange
 and harmonization of
 accounting methodology

$8,438

$7,582

11

 

$4,888

$4,284

14

 

Eight products-Lipitor, Norvasc, Celebrex, Zoloft, Neurontin, Viagra, Zithromax and Zyrtec-representing 79% of our human pharmaceutical revenues (63% of total company revenues) in the first half of 2002 grew an aggregate 12% in the second quarter of 2002 and 15% in the first half of 2002. Revenue information on these and several of our other major human pharmaceutical products follow:

 

 

Second Quarter

 

 

 

  % Change From 2001  

Product

Category

(millions)

As
Reported

Excluding
Foreign
Exchange

 

 

 

 

 

Lipitor

Cardiovascular diseases

$1,783

24 

25 

Norvasc

Cardiovascular diseases

886

Cardura

Cardiovascular diseases

132

-- 

Accupril/
Accuretic

Cardiovascular diseases

140

(1)

(1)

Zithromax

Infectious diseases

251

(4)

(3)

Diflucan

Infectious diseases

245

(1)

Viracept

Infectious diseases

69

(19)

(19)

Viagra

Urogenital conditions

385

10 

11 

Zoloft

Central nervous system disorders

574

12 

12 

Neurontin

Central nervous system disorders

458

Geodon

Central nervous system disorders

48

119 

120 

Zyrtec

Allergy

302

20 

20 

Aricept,
Celebrex
and Bextra

Alliance revenue

388

27 

28 

 

 

 

 

 

 

 

First Six Months

 

 

 

  % Change From 2001  

Product

Category

(millions)

As
Reported

Excluding
Foreign
Exchange

 

 

 

 

 

Lipitor

Cardiovascular diseases

$3,636

25 

27 

Norvasc

Cardiovascular diseases

1,817

Cardura

Cardiovascular diseases

263

(4)

-- 

Accupril/
Accuretic

Cardiovascular diseases

315

10 

11 

Zithromax

Infectious diseases

659

(3)

(2)

Diflucan

Infectious diseases

513

-- 

Viracept

Infectious diseases

165

(10)

(10)

Viagra

Urogenital conditions

807

11 

12 

Zoloft

Central nervous system disorders

1,314

17 

18 

Neurontin

Central nervous system disorders

1,025

26 

27 

Geodon

Central nervous system disorders

86

(2)

(2)

Zyrtec

Allergy

522

17 

17 

Aricept,
Celebrex
and Bextra

Alliance revenue

688

16 

17 

Aricept, discovered and developed by our alliance partner Eisai Co., Ltd., is the world's leading medicine for the treatment of symptoms of Alzheimer's disease.

Celebrex, discovered and developed by our alliance partner Pharmacia Corporation (Pharmacia), is used for relief of the pain and inflammation of osteoarthritis (OA), adult rheumatoid arthritis (RA), acute pain and primary dysmenorrhea (menstrual pain) in adults. In addition, Celebrex is approved to reduce the number of adenomatous colorectal polyps in familial adenomatous polyposis, a rare genetic disease that may result in colorectal cancer. With the approval for acute pain and primary dysmenorrhea in the U.S., Celebrex is the COX-2 specific inhibitor approved to treat the broadest range of conditions. In June 2002, the FDA approved revised labeling for Celebrex. The new prescribing information includes additional gastrointestinal safety data and data indicating that there was no increased risk for serious cardiovascular adverse events observed. These cardiovascular adverse events include heart attack, stroke and unstable angina.

Bextra (valdecoxib), discovered and developed by our alliance partner Pharmacia, is used for relief of the pain and inflammation of OA, RA, and primary dysmenorrhea. Bextra was approved by the FDA in November 2001 and launched in the U.S. in April 2002.

Pharmacia's worldwide sales were $807 million for Celebrex and $89 million for Bextra in the second quarter of 2002. Pharmacia's worldwide sales for Celebrex were $1,414 million in the first six months of 2002, $710 million in the second quarter of 2001 and $1,359 million in the first six months of 2001. Pharmacia's worldwide sales for Bextra were $147 million in the first six months of 2002.

On July 11, 2002, we announced an agreement with Serono, Inc. (Serono) to co-promote Serono's multiple sclerosis (MS) treatment, Rebif, in the United States. Rebif has been shown to decrease the frequency of severe symptoms and delay the accumulation of physical disability associated with relapsing forms of MS. In accordance with the terms of the agreement, on August 8, 2002, we paid Serono $200 million related to our co-promotion rights, which will be capitalized and amortized over the life of the agreement. We will share all commercialization and development costs in the U.S. and will receive a payment based on Rebif sales in the U.S. Serono will record all sales and continue to distribute the product in the U.S. The product will be sold under the Rebif brand name. Serono will be the sole marketer for Rebif in the rest of the world. Rebif was approved by the FDA in March 2002.

Animal Health sales for the second quarter of 2002 increased 11% (up 15% excluding the impact of foreign exchange) and increased 10% for the first half of 2002 (up 14% excluding the impact of foreign exchange) as compared with the prior year periods. This performance reflects revenue growth (excluding the impact of foreign exchange) in the companion animal product lines of 19% in the second quarter of 2002 and 18% in the first half of 2002, and livestock product lines of 12% in the second quarter and first half of 2002. Our companion animal products Revolution (for protection against fleas and heartworm) and Rimadyl (for relief of arthritis pain in dogs) grew 42% and 28% in the second quarter of 2002 and 52% and 16% in the first half of 2002, excluding the impact of foreign exchange. Our livestock medicines Dectomax (for protection against parasites) and RespiSure/Stellamune (a swine vaccine) grew 16% and 13% in the second quarter of 2002 and 19% and 11% in the first half of 2002, excluding the impact of foreign exchange.

Consumer Products

Sales of the Consumer Products segment for the second quarter of 2002 increased 5% (up 7% excluding the impact of foreign exchange) and increased 4% in the first half of 2002 (up 7% excluding the impact of foreign exchange) as compared with the prior year periods. Worldwide sales of the Consumer Products segment follow:

(millions of dollars)

Second Quarter

 

First Six Months

 

  2002

  2001

% Change

 

   2002

   2001

% Change

 

 

 

 

 

 

 

 

Consumer Healthcare
 products

$  646

$  586

10 

 

$1,284

$1,154

11 

Confectionery products

475

481

(1)

 

916

935

(2)

Shaving products

162

159

 

306

311

(2)

Tetra fish products

    50

    49

-- 

 

    94

    90

  Total consumer products

$1,333
======

$1,275
======

 

$2,600
======

$2,490
======

Consumer Healthcare product sales increased 10% in the second quarter of 2002 (up 11% excluding the impact of foreign exchange) and increased 11% in the first half of 2002 (up 12% excluding the impact of foreign exchange), as compared with the prior year periods. These changes were mainly due to the sales growth of Listerine mouthwash which increased 12% in the second quarter and first half of 2002, and the success of Listerine PocketPaks.

Sales of Confectionery products decreased 1% in the second quarter of 2002 (up 3% excluding the impact of foreign exchange) and decreased 2% in the first half of 2002 (up 1% excluding the impact of foreign exchange), as compared with the prior year periods. These changes were mainly due to sales declines of Halls, which decreased 14% in the second quarter of 2002 and decreased 16% in the first half of 2002 due to an unusually mild winter, partially offset by strong sales of Dentyne Ice, which increased 21% in the second quarter of 2002 and increased 11% in the first half of 2002, and Trident White gums.

Shaving product sales increased 2% in the second quarter of 2002 (up 4% excluding the impact of foreign exchange) and decreased 2% in the first half of 2002 (up 1% excluding the impact of foreign exchange), as compared with the prior year periods. These changes were mainly due to sales declines in older products, partially offset by strong sales of the triple-blade Xtreme III disposable razors which increased 97% in the second quarter of 2002 and 118% in the first half of 2002.

Sales of Tetra fish products remained approximately the same in the second quarter of 2002 (up 2% excluding the impact of foreign exchange) and increased 5% in the first half of 2002 (up 7% excluding the impact of foreign exchange), as compared with the prior year periods. These changes were mainly due to sales growth in pond fish foods which increased 23% in the second quarter of 2002 and 28% in the first half of 2002, and reptile foods which increased 14% in the second quarter of 2002 and 22% in the first half of 2002, partially offset by a decrease in aquarium fish foods of 8% in the second quarter of 2002 and 2% in the first half of 2002.

We announced that we are exploring strategic options for the Adams confectionery business, the Schick-Wilkinson Sword shaving products business and the Tetra aquarium and pond supplies business, including possible sale of the businesses.

The loss of patent protection with respect to any of our major products, including those described in the Legal Proceedings section, would have an effect on our projected revenues and net income.

COSTS AND EXPENSES

Cost of Sales

Cost of sales increased 4% in the second quarter of 2002 and 1% in the first half of 2002 as compared with the prior year periods, while revenues increased 5% in the second quarter of 2002 and 8% in the first half of 2002. The first half differential stems in part from favorable business and product mix. If business mix had remained constant in the first half relative to the prior year, cost of sales growth would only have been 2%. In both periods, the change in cost of sales benefited from integration synergies and improvements in manufacturing efficiency. Merger-related synergies of about $50 million were achieved in the second quarter of 2002 versus about $30 million in the prior year period. Merger-related synergies of about $95 million were achieved in the first half of 2002 versus $50 million in the prior year period. Manufacturing efficiencies stem from greater volume and cost reductions attributable to procurement initiatives and plant operating efficiencies.

Selling, Informational and Administrative Expenses

Selling, informational and administrative (SI&A) expenses increased 9% in the second quarter of 2002 and increased 10% in the first half of 2002 as compared with the prior year periods mainly due to strong marketing and sales support for our broad portfolio of human pharmaceutical products. Human pharmaceutical marketing expenses increased by 11% in the second quarter of 2002 and 13% in the first half of 2002 as compared with the prior year periods. During 2002, marketing expenses included costs incurred in connection with the second quarter 2002 U.S. launch of our new antiarthritic product, Bextra, co-promoted with Pharmacia.

Research and Development Expenses

Research and development (R&D) expenses increased 13% in the second quarter of 2002 and 15% in the first half of 2002 as compared with the prior year periods. Year over year growth for R&D spending for the second quarter and first half of 2002, as compared with the prior year periods, is attributable to increased support of the late-stage portfolio, higher costs as a result of the recent expansion of facilities and increased information technology costs due to the continued implementation of enterprise-wide resource management systems for the research division.

We continue to invest in R&D to provide future sources of revenue through the development of new products, as well as through additional uses for existing in-line and alliance products. Currently, we have five new products that were recently approved or are undergoing regulatory review in the U.S. and/or European Union (E.U.):

We expect to launch all five products in new markets during 2002, once regulatory approval is received. However, there are no assurances as to when, or if, we will receive regulatory approval for these or any of our new products.

In the first half of 2002, we filed the following indications with the FDA:

Product

Indication

Date Filed

Viracept

HIV -- new dosage form

June 2002

 

 

 

Accupril

Pediatric

March 2002

 

 

 

Zoloft

Social phobia

January 2002

Ongoing or planned clinical trials for additional uses and dosage forms for our products include:

 

 

Product

Indication

Viagra

Female sexual arousal disorder

 

 

Lipitor/Norvasc

Single product that combines cholesterol-lowering and antihypertensive medications in Lipitor and Norvasc

 

 

Aricept

Vascular dementia

 

 

Celebrex

Sporadic adenomatous polyposis

 

Bladder cancer

 

Barrett's esophagus-a precancerous condition caused by repeated damage from stomach acid regurgitation

 

Actinic keratosis-a precancerous skin growth caused by overexposure to sunlight

 

 

Geodon

Mania

 

Oral suspension dosage form

 

 

It is our current intention to file applications for the following new chemical compounds in 2002 subject to ongoing negotiations and discussions with various regulatory agencies:

Compound

Indication

pregabalin

Neuropathic pain

 

Adjunctive therapy for Epilepsy

 

Generalized anxiety disorders

 

 

darifenacin

Overactive bladder

In 2002, we also expect to complete several clinical trials for Lipitor/Norvasc dual therapy in patients with both high cholesterol and high blood pressure. We expect Lipitor/Norvasc dual therapy to be available to patients by 2004.

Together with co-developer Aventis Pharma (Aventis), we have completed the Phase III development program of Exubera, our inhaled diabetes therapy to be administered through a device developed by Inhale Therapeutic Systems. We are currently assessing our regulatory filing strategy for Exubera with our partner Aventis. Recognizing that Exubera is a first-in-class product with novel attributes and expected rapid, extensive usage, we have decided to include in the New Drug Application (NDA) filing an increased level of controlled, long-term pulmonary safety data in diabetic patients, an area where little data currently exists. We believe that inclusion of such chronic inhalation data in the initial NDA filing will enhance the likelihood of Exubera receiving a positive review by the FDA. We will review the progress of our controlled, long-term safety database during 2002, at which time we will determine whether we have demonstrated, to our satisfaction, the safety and efficacy of Exubera and have, in our opini on, a fileable and approvable NDA.

Additional product-related programs are in various stages of discovery and development.

MERGER-RELATED COSTS

We incurred the following merger-related costs in connection with our merger with Warner-Lambert which was completed on June 19, 2000:

 

Three Months Ended

 

Six Months Ended

(millions of dollars)

June 30,
   2002 

July 1,
  2001 

 

June 30,
   2002 

July 1,
  2001 

 

 

 

 

 

 

Integration costs

$109 

$137 

 

$181 

$264 

Restructuring charges

  57 

  69 

 

  94 

 212 

  Total merger-related costs

$166 
==== 

$206 
==== 

 

$275 
==== 

$476 
==== 

 

Provisions

 

 

(millions of dollars)

Year
2000

Year
   2001

Six
Months
Ended
June 30,
    2002

Total

Utilization
Through
June 30,
       2002

Reserve*
June 30,
    2002

 

 

 

 

 

 

 

Employee  termination  costs

$876

$258

$87

$1,221

$(1,132)

$89

Property,
 plant and  equipment

46

84

--

130

(130)

--

Other

  25

  30

  7

    62

    (58)

  4

 

$947
====

$372
====

$94
===

$1,413
======

$(1,320)
======= 

$93
===

 

 

 

 

 

 

 

*Included in Other current liabilities.

Through June 30, 2002, the charges for employee termination costs represent the approved reduction of our work force by 7,560 people, mainly comprising administrative functions for corporate, manufacturing, distribution, sales and research. We notified these people and as of June 30, 2002, 7,290 employees were terminated. We will complete terminations of the remaining personnel by June 30, 2003. Employee termination costs include accrued severance benefits and costs associated with change-in-control provisions of certain Warner-Lambert employment contracts. Under the terms of Warner-Lambert employment contracts, certain terminated employees may elect to defer receipt of severance benefits. Severance benefits deferred for future payments were $218 million at June 30, 2002 and $215 million at December 31, 2001. The deferred severance benefits are considered utilized charges and are included in Other noncurrent liabilities in the condensed balance sheet.

The impairment and disposal charges through June 30, 2002 for property, plant and equipment in the above table include the consolidation of facilities and related fixed assets, a contract termination payment and termination of certain software installation projects. Other restructuring charges in the six months ended June 30, 2002 consist of charges for contract termination payments-$4 million ($1 million in the second quarter ended June 30, 2002); facility closure costs-$2 million ($1 million in the second quarter ended June 30, 2002) and assets we wrote off, including inventory and intangible assets-$1 million (none in the second quarter ended June 30, 2002). Since inception of the merger, other restructuring charges consist of charges for contract termination payments-$47 million; facility closure costs-$8 million and assets we wrote off, including inventory and intangible assets-$7 million.

We expect to incur additional restructuring and integration charges in future periods as the integration of Pfizer and Warner-Lambert continues.

We now anticipate total merger-related costs through 2002, excluding the transaction costs of approximately $1.8 billion related to Warner-Lambert's termination of the Warner-Lambert/American Home Products merger agreement, of about $2.8 billion.

Other (income)/deductions-net

The following components were included in Other (income)/deductions-net for the second quarter and first six months of 2002 and 2001:

(millions of dollars)

Second Quarter

 

First Six Months

 

 2002 

 2001 

% Change

 

 2002 

 2001 

% Change

 

 

 

 

 

 

 

 

Interest income

$(93)

$(143)

(35)

 

$(184)

$(295)

(38)

Interest expense

55 

72 

(23)

 

113 

143 

(21)

Gains on the sales of
 research-related
 equity investments

-- 

-- 

--

 

-- 

(17)

--

Co-promotion charges

22 

100 

(78)

 

22 

136 

(84)

Amortization of
 goodwill and other
 intangibles

17 

24 

(30)

 

22 

49 

(56)

Gain on the sale of a
 minor product line

-- 

-- 

-- 

 

(20)

-- 

--

Foreign exchange

(51)

 

11 

(61)

Other, net

 (49)

  (45)

9

 

  (86)

 (71)

21

Other (income)/
 deductions-net


$(46)
==== 

$  13 
===== 

*

 

$(129)
===== 

$ (44)
===== 

193

* Calculation not meaningful.

Interest income in the second quarter and first half of 2002 decreased over the prior year periods as a result of significantly lower short-term interest rates, partially offset by increased levels of investments. Interest expense in the second quarter and first half of 2002 decreased over the prior year periods as a result of lower average interest rates, partially offset by higher average levels of borrowings. Amortization of goodwill and other intangibles decreased in the second quarter and first half of 2002 over the prior year periods largely as a result of the adoption of SFAS No. 142, Goodwill and Other Intangible Assets. Amortization of other intangibles is also recorded in Cost of sales and Research and development expenses in the condensed consolidated statement of income.

TAXES ON INCOME

Our projected tax rate of 23.5% for continuing operations in 2002, excluding the cumulative effect of a change in accounting principle, certain significant items and merger-related costs has been reduced from the first quarter 2002 estimate of 25.0%. This rate reduction is due primarily to changes in product mix and tax-planning initiatives.

INCOME FROM CONTINUING OPERATIONS

Income and diluted earnings per common share from continuing operations, excluding certain significant items and merger-related costs, both increased by 10% in the second quarter of 2002. Income and diluted earnings per common share from continuing operations, excluding the cumulative effect of a change in accounting principle, certain significant items and merger-related costs, increased by 12% and 14% in the first half of 2002. A reconciliation between reported income from continuing operations before cumulative effect of a change in accounting principle and income from continuing operations excluding the cumulative effect of a change in accounting principle, certain significant items and merger-related costs follows:

 

Second Quarter

 

First Six Months

(millions of dollars, except per share data)

  2002

  2001

% Change

 

  2002

  2001

% Change

 

 

 

 

 

 

 

 

Earnings:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations before cumulative effect of a change in accounting principle, as reported

$1,957

$1,792

9

 

$4,330

$3,722

16

Certain significant items and merger-related costs (see below)

   129

    98

32

 

  189

   297

(36)

Income from continuing operations excluding the cumulative effect of a change in accounting principle, certain significant items and merger-related costs

$2,086

$1,890

10

 

$4,519

$4,019

12

 

======

======

 

 

======

======

 

 

 

 

 

 

 

 

 

Per Share Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per common share from continuing operations before cumulative effect of a change in accounting principle, as reported

$  .32

$  .29

10

 

$  .69

$  .59

17

 

 

 

 

 

 

 

 

Certain significant items and merger-related costs

   .01

   .01

--

 

   .03

   .04

(25)

 

 

 

 

 

 

 

 

Diluted earnings per common share from continuing operations excluding the cumulative effect of a change in accounting principle, certain significant items and merger-related costs

$  .33

$  .30

10

 

$  .72

$  .63

14

 

======

======

 

 

======

======

 

 

Certain significant items and merger-related costs follow:

 

Second Quarter

 

First Six Months

 

 2002 

 2001 

 

 2002 

  2001 

Significant items, pre-tax:

 

 

 

 

 

 Co-promotion charges*

$ 22 

$ 100 

 

$ 22 

$ 136 

 Gain on the sale of a minor
  product line*

-- 

-- 

 

(20)

-- 

 Gains on the sales of research-
  related equity investments*

-- 

-- 

 

-- 

(17)

 Harmonization of accounting
  methodology**

  -- 

 (175)

 

  -- 

 (175)

Total significant items, pre-tax

22 

(75)

 

(56)

Total merger-related costs

 166 

  206 

 

 275 

  476 

Total significant items and merger-
 related costs, pre-tax

188 

131 

 

277 

420 

Income taxes

  59 

   33 

 

  88 

  123 

Total significant items and merger-
 related costs, after-tax


$129 
==== 

$  98 
===== 

 

$189 
==== 

$ 297 
===== 

*

Included in Other (income)/deductions-net.

**

Represents the harmonization of Pfizer/Warner-Lambert accounting methodology for Medicaid and contract rebate accruals and is included as an increase in Revenues.

DISCONTINUED OPERATIONS

Income from discontinued operations, net of tax, of $37 million in the second quarter and first half of 2001 reflects the resolution of several post-closing matters associated with the divestiture of the Medical Technology Group and the Food Science Group.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Our net financial asset position was as follows:

(millions of dollars)

June 30,
    2002

Dec. 31,
    2001

 

 

 

Financial assets*

$16,728

$14,613

Short and long-term debt

  11,438

   8,874

 

 

 

Net financial assets

$ 5,290
========

 $ 5,739
========

* Consists of cash and cash equivalents, short-term loans and investments and long-term loans and investments.

Selected measures of liquidity and capital resources:

 

June 30,
    2002

Dec. 31,
    2001

Cash and cash equivalents and short-term loans and investments (millions of dollars)*


$11,610
========

  $8,884
========

 

 

 

Working capital (millions of dollars)**

$ 6,069
========

  $4,810
========

 

 

 

Shareholders' equity per common share***

$ 3.05
========

  $ 2.95
========

* Wherever possible, cash management is centralized and intercompany financing is used to provide working capital to countries as needed. Where local restrictions prevent intercompany financing, then cash balances would remain in the country and local needs would be met through ongoing cash flows and/or external borrowings.

** We rely on operating cash flow, short-term commercial paper borrowings and long-term debt to provide for working capital needs.

*** Represents total shareholders' equity divided by the actual number of common shares outstanding (which excludes treasury shares and those held by our employee benefit trusts).

The increase in working capital from December 31, 2001 to June 30, 2002 primarily reflects:

partially offset by:

The increase in shareholders' equity per common share is primarily due to growth in net income.

Net Cash Provided by Operating Activities

During the first six months of 2002, net cash provided by operating activities was $4,134 million, as compared to $4,237 million in the 2001 period. The change in net cash provided by operating activities in 2002 was primarily due to:

partially offset by:

Net Cash Used in Investing Activities

During the first six months of 2002, investing activities used net cash of $2,961 million, as compared to $3,746 million in the 2001 period. The change in net cash used in investing activities in 2002 was primarily attributable to:

partially offset by:

Net Cash Used in Financing Activities

During the first six months of 2002, net cash used in financing activities was $1,016 million, as compared to $265 million in the 2001 period. The change in net cash used in financing activities in 2002 was primarily attributable to:

partially offset by:

We have available lines of credit and revolving-credit agreements with a group of banks and other financial intermediaries. We maintain cash balances in excess of our commercial paper borrowings and have access to $2.7 billion of lines of credit which expire within one year. Of these lines of credit, $2.5 billion are unused of which our lenders have committed to lend us $614 million at our request.

In April 2002, we issued $600 million of senior unsubordinated dollar-denominated debt. The notes mature on April 15, 2009 with interest payable annually, in arrears, beginning on April 15, 2003 at a rate of 5.625%.

In July 2002, we announced an increase in the share-purchase program, authorized by our board of directors on June 27, 2002, from $10 billion to $16 billion. We will buy back our common stock via open market purchases, as circumstances and prices warrant, with the anticipation of completing the share-purchase program in 2003. In May 2002, we completed the share-purchase program authorized in June 2001. Under the program authorized in June 2001, we purchased approximately 25.8 million shares of common stock in the open market at an average price of $36.79 per share during the second quarter of 2002 and approximately 51.4 million shares of common stock in the open market at an average price of $38.87 per share during the six months of 2002. In total, we purchased approximately 120 million shares at a total cost of $4.8 billion under the June 2001 program. Purchased shares are available for general corporate purposes.

Merger Agreement

On July 15, 2002, we announced that we signed a definitive agreement to merge with Pharmacia Corporation (Pharmacia) in a stock-for-stock transaction valued on that date at approximately $60 billion. Under terms of the merger agreement which has been approved by the board of directors of both Pfizer and Pharmacia, after the Monsanto spin-off by Pharmacia, we will exchange 1.4 shares of Pfizer common stock for each outstanding share of Pharmacia common stock in a tax-free transaction valued at $45.08 per Pharmacia share, based on the closing price of our stock on July 12, 2002 of $32.20 per share. We also will exchange 1.4 options on Pfizer common stock for each outstanding Pharmacia option at the merger date. In addition, each share of Pharmacia convertible perpetual preferred stock will be exchanged for a newly created class of Pfizer convertible perpetual preferred stock with rights substantially identical to the rights of the Pharmacia convertible perpetual prefer red stock. We expect the transaction will close by year-end 2002, subject to shareholder approval at both companies, governmental and regulatory approvals and other usual and customary closing conditions.

Financial Risk Management - Interest Rate Risk

We entered into forward-starting interest rate swaps in the first quarter of 2002 to adjust interest-sensitive forecasted short-term debt from 2003 through late 2006.

OUTLOOK

Earnings growth in the second quarter, and in each quarter of 2002, is affected by the changing impact of foreign exchange and the unusual pattern of operating expenses in 2001. As illustrated in the following table, the concentration of operating expenses in the fourth quarter of 2001 ($800 million to $1.2 billion higher than any other quarter of 2001) is significantly impacting the quarterly pattern of 2002 diluted earnings per common share growth.

Operating Expenses (SI&A and R&D) / Diluted Earnings per Common Share:

(billions of dollars)

  Q1

  Q2  

  Q3 

  Q4 

 

 

 

 

 

2001

$3.5

$3.9  

$3.8 

$4.7 

2002

$4.0

$4.2  

$4.4*

$4.6*

Expense Growth (%)

+14%

+10%  

+15%*

-2%*

Diluted earnings
 per common share
 growth**(%)

+18%

+10%  

Low
Double
Digits*

About
40%*

 

 

 

 

 

*

Estimated.

**

From continuing operations excluding the cumulative effect of a change in accounting principle, certain significant items and merger-related costs.

Year over year, operating expense comparisons will remain a challenge in the third quarter, resulting in anticipated third quarter 2002 diluted earnings per common share growth, excluding certain significant items and merger-related costs, in the low double digits. Fourth quarter diluted earnings per common share growth is expected to be exceptionally strong, reflecting both a favorable foreign exchange impact, at current exchange rates, and favorable comparisons with the high expense levels during the fourth quarter of 2001.

For full year 2002, we anticipate double-digit revenue growth at current exchange rates, margin improvements and continuing investments in product support and in R&D (now forecasted to be about $5.2 billion for the year). We now expect merger-related cost savings from our merger with Warner-Lambert to be $1.8 billion for 2002. We expect a 23.5% effective tax rate for 2002 for continuing operations excluding the cumulative effect of a change in accounting principle, certain significant items and merger-related costs. We refined our full-year 2002 earnings per common share target and now expect diluted earnings per common share of $1.58 (21% growth), on the same basis. The foreign exchange impact in the second half of 2002, at current exchange rates, is expected to be favorable.

From 2002 to 2004, excluding the effect of the proposed Pharmacia merger, we expect compounded annual growth rates (CAGR) as follows:

(billions of dollars)

 2002

 2003

 2004

2002-2004
     CAGR

 

 

 

 

 

Total Revenues

$35.1

$39.0

$42.9

11%

Net Income (1)

$ 9.8

$11.3

$12.7

14%

Diluted earnings per
 common share
(1)

$1.58

$1.84

$2.12

16%

 

 

 

 

 

(1) Excludes the cumulative effect of a change in accounting principle, certain significant items and merger-related costs.

CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS

Our disclosure and analysis in this report contain forward-looking information about our company's financial results and estimates, business prospects and products in research that involve substantial risks and uncertainties. From time to time, we also may provide oral or written forward-looking statements in other materials we release to the public. Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historic or current facts. They use words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," and other words and terms of similar meaning in connection with any discussion of future operating or financial performance. In particular, these include statements relating to future actions, prospective products or product approvals, future performance or results of current and anticipated products, sales efforts, expenses, the outcome of contingencies, such as l egal proceedings, and financial results. Among the factors that could cause actual results to differ materially are the following:

We cannot guarantee that any forward-looking statement will be realized, although we believe we have been prudent in our plans and assumptions. Achievement of future results is subject to risks, uncertainties and inaccurate assumptions. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could vary materially from those anticipated, estimated or projected. Investors should bear this in mind as they consider forward-looking statements.

We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in our Forms 10-Q, 8-K and 10-K reports to the Securities and Exchange Commission. Our Form 10-K filing for the 2001 fiscal year listed various important factors that could cause actual results to differ materially from expected and historic results. We note these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. Readers can find them in Item 1 of that filing under the heading "Cautionary Factors That May Affect Future Results." We incorporate 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 set of all potential risks or uncertainties.

FORM 10-Q

PART II - OTHER INFORMATION

Item 1:  Legal Proceedings

A description of the legal proceedings in which we are involved, both in general and with respect to certain specific matters and types of matters, is contained in our Reports on Form 10-K for 2001 and on Form 10-Q for the first quarter of 2002, as amended. The following is limited to an update on significant developments in previously reported matters as well as descriptions of certain new matters and should be read with reference to those earlier Reports. Unless specifically indicated, all previously reported matters remain pending.

Patent Litigation

Generic Drug Manufacturers

We are involved in a number of patent suits, the majority of which involve claims by generic drug manufacturers that patents covering our products, processes or dosage forms are invalid and/or do not cover the product of the generic manufacturer. Pending suits include challenges to patents covering, among other products, gabapentin (Neurontin), fluconazole (Diflucan), amlodipine (Norvasc), quinapril (Accupril), glipizide (Glucotrol XL), nifedipine (Procardia XL), Estrostep Fe (oral contraceptive) and Femhrt 1/5 (hormone replacement therapy). There can be no assurances as to the outcome of any of these matters and a loss in any of these cases could result in a loss of patent protection for the drug at issue, which could lead to significant loss of sales of that drug in the U.S. market and could materially affect future results.

Norvasc.  A generic manufacturer has filed an application with the FDA seeking approval to market amlodipine maleate, a different salt form from amlodipine besylate, which is employed in our approved product, Norvasc. The basic patent for Norvasc received an extension of term under the Hatch-Waxman Act to compensate for regulatory delays in approving the product. The generic manufacturer asserts that during the period of extension the exclusionary rights of the patent are restricted to amlodipine besylate and that after the original expiration date, February 2003, sales of amlodipine maleate would not infringe. We filed an infringement suit in the U. S. District Court for the District of New Jersey. The defendant has moved to dismiss the complaint and a decision is expected later this year.

Diflucan.  As previously reported, a generic manufacturer filed an abbreviated new drug application asserting the invalidity of our fluconazole (Diflucan) patent on the same basis as to which judgment was entered against a different generic manufacturer and in our favor in the U.S. District Court for the Northern District of Illinois in February 2002. In May 2002, we filed suit for patent infringement against the second generic manufacturer in the U.S. District Court for the District of New Jersey.

Neurontin.  The court has ordered that all dispositive motions must be filed by September 17, 2002.

Zoloft.  The previously reported litigation, in which the basic sertraline (Zoloft) compound patent was not at issue, has been settled and is now terminated.

Celebrex

In the previously reported action by the University of Rochester against multiple defendants, including Pfizer, the defendants moved in May 2002 for summary judgment that the University's patent is invalid. In June 2002 the University moved for summary judgment that sales of Celebrex as well as Bextra infringe the broad method of use claims of the University's patent. The defendants' motion was heard on July 25, 2002, and awaits decision; the University's motion has not yet been heard.

Products Liability Litigation

Rezulin

As of July 31, 2002, suits filed in state and federal courts involved approximately 7,725 Rezulin users and approximately 526 users had asserted unfiled claims. In addition, we have agreed with certain plaintiffs' lawyers to extend the statute of limitations for approximately 28,224 people who do not have lawsuits on file and who may or may not eventually pursue claims.

Asbestos

As of July 31, 2002, approximately 120,442 claims naming Pfizer and/or Quigley, as well as numerous other defendants, were pending in state and federal courts seeking damages for alleged asbestos exposures. In addition, approximately 75,033 multi-defendant claims named American Optical, a former subsidiary of Warner-Lambert, alleging asbestos and other exposures.

Environmental Matters

The previously disclosed matter involving wastewater sampling at the Parsippany, N.J., plant has been resolved with the New Jersey Department of Environmental Protection.

Merger Litigation

Warner-Lambert Acquisition

The parties to the derivative and class actions in the Delaware Chancery Court have reached an agreement in principle regarding their dismissal. On July 9, 2002, the U. S. District Court for the District of New Jersey entered a stipulation and order dismissing all remaining actions in that court.

Pharmacia Acquisition

Following the announcement on July 15, 2002, of our proposed acquisition of Pharmacia Corporation, a suit was filed in the Delaware Chancery Court on behalf of a purported class of Pharmacia's shareholders against Pharmacia, its directors, and Pfizer, alleging that the price to be paid for Pharmacia's shares was inadequate as a result of Pharmacia's directors' breaches of their fiduciary duties to the shareholders and that we aided and abetted the alleged breaches. The complaint, which we believe to be without merit, seeks damages and injunctive relief.

Tax Matters

The Internal Revenue Service (IRS) has completed and closed its audits of our tax returns through 1995. The IRS is currently conducting audits of our tax returns for the years 1996 through 1998.

In November 1994, Belgian tax authorities notified Pfizer Research and Development Company N.V./S.A. ("PRDCO"), an indirect, wholly owned subsidiary of our company, of a proposed adjustment to the taxable income of PRDCO for fiscal year 1992. In January 1996, PRDCO received an assessment from the tax authorities for fiscal year 1993. On May 14, 2002, PRDCO reached an agreement with the Belgian authorities to settle this matter for an immaterial amount.

We believe that our accrued tax liabilities are adequate for all years.

Item 6:

Exhibits and Reports on Form 8-K

(a)

Exhibits

 

 

 

 

 

 

 

1)  Exhibit 12

-

Ratio of Earnings to Fixed Charges

 

2)  Exhibit 15

-

Accountants' Acknowledgment

 

 

 

 

(b)

Reports on Form 8-K

 

 

 

 

 

We did not file any report on Form 8-K during the second quarter ended June 30, 2002.

 

PFIZER INC. AND SUBSIDIARY COMPANIES

SIGNATURE

Under the requirements of the Securities Exchange Act of 1934, this report was signed on behalf of the Registrant by the authorized person named below.

 

                         Pfizer Inc.                      

(Registrant)

 

 

Dated: August 13, 2002

                /s/ L. V. Cangialosi                    

L. V. Cangialosi, Vice President; Controller
(Principal Accounting Officer and
Duly Authorized Officer)

 

Exhibit 12

PFIZER INC. AND SUBSIDIARY COMPANIES
RATIO OF EARNINGS TO FIXED CHARGES

Six
Months
Ended
June 30,
    2002

Year Ended December 31,

(millions of dollars, except ratios)

  2001

  2000

  1999

  1998

  1997

 

 

 

 

 

 

 

Determination of earnings:

 

 

 

 

 

 

Income from continuing operations before provision for taxes on income, minority interests and cumulative effect of a change in accounting principle

$5,633

$10,329

$5,781

$6,945

$4,397

$3,979

Less:

 

 

 

 

 

 

 Minority interests

     1

     16

    14

     5

     2

    10

  Adjusted income

5,632

10,313

5,767

6,940

4,395

3,969

  Fixed charges

   163

    366

   496

   463

   334

   389

  Total earnings as
   defined


$5,795
======

$10,679
=======

$6,263
======

$7,403
======

$4,729
======

$4,358
======

Fixed charges:

 

 

 

 

 

 

 Interest expense (a)

$  113

$   266

$  390

$  364

$  251

$  315

 Rents (b)

    50

    100

   106

    99

    83

    74

 

 

 

 

 

 

 

  Fixed charges

163

366

496

463

334

389

 

 

 

 

 

 

 

 Capitalized interest

    17

     56

    46

    40

    26

    10

 

 

 

 

 

 

 

  Total fixed charges

$  180
======

$   422
=======

$  542
======

$  503
======

$  360
======

$  399
======

 

 

 

 

 

 

 

Ratio of earnings to fixed charges


32.1
======

25.3
=======

11.6
======

14.7
======

13.1
======

10.9
======

 

 

(a)

Interest expense includes amortization of debt discount and expenses.

(b)

Rents included in the computation consist of one-third of rental expense which the Company believes to be a conservative estimate of an interest factor in its leases, which are not material.

 

Exhibit 15

ACCOUNTANTS' ACKNOWLEDGMENT

 

To the Shareholders and Board of Directors of Pfizer Inc.:

We hereby acknowledge our awareness of the incorporation by reference of our report dated August 13, 2002, included within the Quarterly Report on Form 10-Q of Pfizer Inc. for the quarter ended June 30, 2002, in the following Registration Statements:

- Form S-8 dated October 27, 1983 (File No. 2-87473),

- Form S-8 dated March 22, 1990 (File No. 33-34139),

- Form S-8 dated January 24, 1991 (File No. 33-38708),

- Form S-8 dated November 18, 1991 (File No. 33-44053),

- Form S-3 dated May 27, 1993 (File No. 33-49629),

- Form S-8 dated May 27, 1993 (File No. 33-49631),

- Form S-8 dated May 19, 1994 (File No. 33-53713),

- Form S-8 dated October 5, 1994 (File No. 33-55771),

- Form S-3 dated November 14, 1994 (File No. 33-56435),

- Form S-8 dated December 20, 1994 (File No. 33-56979),

- Form S-4 dated February 14, 1995 (File No. 33-57709),

- Form S-8 dated March 29, 1996 (File No. 33-02061),

- Form S-8 dated September 25, 1997 (File No. 333-36371),

- Form S-8 dated April 24, 1998 (File No. 333-50899),

- Form S-8 dated April 22, 1999 (File No. 333-76839),

- Form S-4 dated March 9, 2000 (File No. 333-90975),

- Form S-8 dated June 19, 2000 (File No. 333-90975),

- Form S-8 dated June 19, 2000 (File No. 333-39606),

- Form S-8 dated June 19, 2000 (File No. 333-39610),

- Form S-3 dated October 20, 2000 (File No. 333-48382),

- Form S-8 dated April 27, 2001 (File No. 333-59660), and

- Form S-8 dated April 27, 2001 (File No. 333-59654).

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 that Act.

 

KPMG LLP

New York, New York
August 13, 2002