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| | Financial Highlights | Financial Review | | Management’s Report | Audit Committee’s Report | | Independent Auditors’ Report | Financial Statements | | Notes to Financial Statements | | Directors, Committees, and Officers | | Corporate and Shareholder Information | |
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| Notes to Consolidated Financial Statements (Section 5 of 7) |
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On This Page: | 12. Common Stock | 13. Preferred Stock Purchase Rights | 14. Employee Benefit Trusts | 15. Stock Option and Performance Awards | 16. Acquisitions | 17. Discontinued Operations | 18. Insurance | | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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12. Common Stock We effected a two-for-one split of our common stock in the form of a 100% stock dividend in both 1997 and 1995. Both splits followed votes by shareholders to increase the number of authorized common shares. All share and per share information in this report reflects both splits. The Board of Directors authorized us to repurchase up to $2 billion of our outstanding common stock through September 1998. In 1997, we repurchased approximately 11.4 million shares at an average price of $51 per share and approximately .6 million shares in 1996 at an average price of $44 per share.13. Preferred Stock Purchase Rights Preferred Stock Purchase Rights granted in 1987 expired in October 1997. Those rights were replaced by new Preferred Stock Purchase Rights that have a scheduled term through October 2007, although that may be extended or redeemed. One right was issued for each share of common stock issued by our company. These rights are not exercisable unless certain change-in-control events transpire, such as a person acquiring or obtaining the right to acquire beneficial ownership of 15% or more of our outstanding common stock or an announcement of a tender offer for at least 30% of that stock. The rights are evidenced by corresponding common stock certificates and automatically trade with the common stock unless an event transpires that makes them exercisable. If the rights become exercisable, separate certificates evidencing the rights will be distributed and each right will entitle the holder to purchase from our company a new series of preferred stock at a defined price. The preferred stock, in addition to preferred dividend and liquidation rights, will entitle the holder to vote with the company’s common stock. The rights are redeemable by us at a fixed price until 10 days, or longer as determined by the Board, after certain defined events, or at any time prior to the expiration of the rights.We have reserved 3.0 million preferred shares to be issued pursuant to these rights. No such shares have yet been issued. At the present time, the rights have no dilutive effect on the earnings per common share calculation.14. Employee Benefit Trusts In 1993, we sold 40 million shares of treasury stock to the Pfizer Inc. Grantor Trust in exchange for a $600 million note. The Trust is used primarily to fund our benefit plans including the stock option plan. The Balance Sheet reflects the fair value of shares owned by the Trust as a reduction of Shareholders’ Equity, representing unearned benefit costs. This amount is reduced as benefits are satisfied. The Trust released approximately 630,000 shares in 1997, 1,260,000 shares in 1996 and 1,660,000 shares in 1995. We record compensation expense for the benefit plans, other than stock options, based on the fair value of the shares when released.15. Stock Option and Performance Awards We may grant stock options to any employee, including officers, under our Stock and Incentive Plan. Options are exercisable after five years or less, subject to continuous employment and certain other conditions and expire 10 years after the grant date. Once exercisable, the employee can purchase shares of our common stock at the market price on the date we granted the option. The Plan also allows for stock appreciation rights, stock awards and performance awards. In 1996, shareholders approved amendments to increase the shares available in the Plan and to extend its term through 2005.The following table summarizes information concerning options outstanding under the Plan at December 31, 1997:
The following table summarizes the activity for the Plan:
The weighted-average fair value per stock option granted was $16.77 for the 1997 options, $10.90 for the 1996 options and $6.46 for those granted in 1995. We estimated the fair values using the Black-Scholes option pricing model, modified for dividends and using the following assumptions:
We do not record compensation expense for stock option grants. The following table summarizes results as if we had recorded compensation expense for the 1997, 1996 and 1995 option grants:
These figures reflect only the impact of grants since January 1, 1995 and reflect only part of the possible compensation expense that we amortize over the vesting period of the grants (up to five years). In future years, therefore, the effect on net income and earnings per common share may differ from those shown above.The Performance-Contingent Share Award Program was established effective in 1993 to provide executives and other key employees the right to earn common stock awards. We determine the award payouts after the performance period ends, based on specific performance criteria. Under the program, up to 40 million shares may be awarded. We awarded approximately 449,000 shares in 1997, approximately 320,000 shares in 1996 and approximately 92,000 shares in 1995. At December 31, 1997, program participants had the right to earn up to 5.2 million additional shares. Compensation expense related to the program was $74 million in 1997, $31 million in 1996 and $15 million in 1995.16. Acquisitions In 1996, we acquired, for cash:
We recorded all of these acquisitions under the purchase method of accounting and included their operating results in the Financial Statements from their respective acquisition dates. Results of operations, assuming the 1996 acquisitions had occurred on January 1, would not be materially different from those reported.17. Discontinued Operations In 1996, we sold our food science business and have reported its results as discontinued operations. Following is a summary of its results:
At December 31, 1995, “Prepaid expenses, taxes and other assets” in the Balance Sheet included the net assets of the food science business, which totaled $330 million.18. Insurance We maintain insurance coverage adequate for our needs. Under our insurance contracts, we usually accept self-insured retentions appropriate for our specific business risks. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Advisory Information for Investors | ||||
| Copyright © 1997, 1998 Pfizer Inc All rights reserved. | ||||
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