FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Transition Period From To
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Commission File Number 1-3608
WARNER-LAMBERT COMPANY
(Exact name of registrant as specified in its charter)
Delaware 22-1598912
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
201 Tabor Road, Morris Plains, New Jersey
(Address of principal executive offices)
07950
(Zip Code)
Registrant's telephone number, including area code: (201) 540-2000
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, and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
--- ---
Indicate the number of shares outstanding of each of
the issuer's classes of Common Stock, as of the latest
practicable date.
CLASS Outstanding at July 31, 1996
----- ----------------------------
Common Stock, $1 par value 271,198,559*
*Reflects a two-for-one stock split of the Registrant's
Common Stock for stockholders of record as of May 3, 1996.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WARNER-LAMBERT COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, 1996 December 31, 1995
------------- -----------------
(Dollars in millions)
ASSETS:
Cash and cash equivalents $ 379.8 $ 295.8
Short-term investments 321.6 267.4
Receivables 1,277.4 1,239.5
Inventories 671.7 645.7
Prepaid expenses and other current assets 347.6 329.6
--------- --------
Total current assets 2,998.1 2,778.0
Investments and other assets 594.3 654.3
Equity investments in affiliated companies 271.8 257.5
Property, plant and equipment 2,001.0 2,006.3
Intangible assets 1,335.9 404.8
--------- --------
Total assets $ 7,201.1 $6,100.9
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Commercial paper $ 503.1 $ 473.0
Notes payable - banks and other 410.4 421.6
Accounts payable, trade 499.0 523.8
Accrued compensation 151.7 166.3
Other current liabilities 667.3 671.2
Federal, state and foreign income taxes 191.9 169.3
--------- --------
Total current liabilities 2,423.4 2,425.2
Long-term obligations 1,528.7 634.5
Other noncurrent liabilities 727.6 740.4
Minority interests 41.0 54.7
Shareholders' equity:
Preferred stock - none issued - -
Common stock issued - (1996 - 320,660,536
shares, 1995 - 160,330,268 shares) 320.7 160.3
Capital in excess of par value 122.3 217.5
Retained earnings 3,299.7 3,042.9
Cumulative translation adjustments (250.4) (216.3)
Treasury stock, at cost: (1996 - 49,460,669
shares; 1995 - 24,731,378 shares) (1,011.9) (958.3)
--------- --------
Total shareholders' equity 2,480.4 2,246.1
--------- --------
Total liabilities and shareholders'
equity $ 7,201.1 $6,100.9
========= ========
See accompanying notes to consolidated financial statements.
WARNER-LAMBERT COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
1996 1995 1996 1995
---- ---- ---- ----
(Dollars in millions, except per share amounts)
NET SALES $1,791.2 $1,799.6 $3,620.4 $3,404.2
COSTS AND EXPENSES:
Cost of goods sold 572.0 611.6 1,161.6 1,143.9
Marketing 659.5 644.5 1,303.8 1,183.6
Administrative and general 118.8 117.9 245.5 220.9
Research and development 130.7 119.5 260.4 233.8
Other(income)expense, net (21.8) (.5) (71.8) 6.5
-------- -------- -------- --------
Total costs and expenses 1,459.2 1,493.0 2,899.5 2,788.7
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES AND
MINORITY INTERESTS 332.0 306.6 720.9 615.5
Provision for income taxes 82.2 77.0 189.1 154.2
Minority interests 36.5 28.6 69.0 58.9
-------- -------- -------- --------
NET INCOME $ 213.3 $ 201.0 $ 462.8 $ 402.4
======== ======== ======== ========
PER COMMON SHARE:
Net income $ .79 $ .75* $ 1.71 $ 1.50*
======== ======== ======== ========
Cash dividends paid $ .345 $ .325* $ .69 $ .65*
======== ======== ======== ========
Average number of common shares
outstanding (thousands) 271,177 269,724* 271,193 269,501*
*Restated for two-for-one stock split as described in Note J.
See accompanying notes to consolidated financial statements.
WARNER-LAMBERT COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months
Ended June 30,
------------------
1996 1995
------------------
(Dollars in millions)
OPERATING ACTIVITIES:
Net income $ 462.8 $ 402.4
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 104.4 98.7
Minority interests 69.0 58.9
Gain on sale of business (75.2) -
Changes in assets and liabilities, net of
effects from acquisitions/dispositions
of businesses:
Receivables (162.5) (142.9)
Inventories (52.8) (99.7)
Accounts payable and accrued liabilities 86.5 (100.5)
Other, net (26.5) (57.0)
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Net cash provided by operating activities 405.7 159.9
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INVESTING ACTIVITIES:
Purchases of investments (211.5) (202.5)
Proceeds from sales of investments 221.0 229.1
Capital expenditures (128.1) (181.1)
Acquisitions of businesses - (34.3)
Proceeds from disposition of business, net 137.4 -
Other, net (34.5) 21.8
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Net cash used by investing activities (15.7) (167.0)
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FINANCING ACTIVITIES:
Proceeds from borrowings 777.5 804.6
Principal payments on borrowings (781.7) (542.0)
Purchases of treasury stock (70.8) (17.2)
Cash dividends paid (187.2) (175.2)
Distributions paid to minority interests (75.8) (35.1)
Proceeds from exercise of stock options 36.4 31.8
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Net cash (used) provided by financing activities (301.6) 66.9
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Effect of exchange rate changes on cash
and cash equivalents (4.4) (.6)
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Net increase in cash and cash equivalents 84.0 59.2
Cash and cash equivalents at beginning of year 295.8 217.9
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Cash and cash equivalents at end of period $ 379.8 $ 277.1
======= =======
See accompanying notes to consolidated financial statements.
WARNER-LAMBERT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A: The interim financial statements presented herein should be
read in conjunction with Warner-Lambert Company's 1995 Annual
Report.
NOTE B: The results of operations for the interim periods are not
necessarily indicative of the results for the full year.
NOTE C: In the opinion of management, all adjustments considered
necessary for a fair presentation of the results for the
interim periods have been included in the consolidated
financial statements.
NOTE D: On June 30, 1996 Warner-Lambert Company purchased Glaxo
Wellcome plc's U.S. and European interests in the Warner
Wellcome over-the-counter joint venture operations. Purchase
agreements for Glaxo Wellcome plc's interests in Canada,
Mexico, Australia and New Zealand are expected to be completed
in the third quarter of 1996. The purchase price for the
entire transaction is anticipated to be $1.05 billion.
As of June 30, 1996 the completed portion of the transaction,
approximately $925 million including estimated acquisition
costs, has been classified as an intangible asset pending
final allocation among the intangible asset categories and
determination of related lives. Estimates of proforma results
indicate that the acquisition did not have a material impact
on consolidated earnings. The transaction was financed with
commercial paper which has been classified as a long-term
obligation due to the company's intent and ability to
refinance on a long-term basis. The financing was consummated
on July 1, 1996 and has been treated as a non-cash transaction
in the accompanying consolidated statement of cash flows for
the six months ended June 30, 1996.
NOTE E: Effective January 1, 1996 the company's international
operations that previously reported financial results on a
fiscal-year basis ending November 30 changed to a calendar-
year basis ending December 31. The change was made primarily
to reflect the results of these operations on a more timely
basis. The results of operations for those subsidiaries for
the month of December 1995 are included as a charge of $18.8
million against retained earnings.
NOTE F: Major classes of inventories were as follows:
June 30, 1996 December 31, 1995
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(In millions)
Raw materials $106.6 $110.0
Finishing supplies 51.6 48.0
Work in process 102.5 89.1
Finished goods 411.0 398.6
------ ------
$671.7 $645.7
====== ======
NOTE G: Property, plant and equipment balances were as follows:
June 30, 1996 December 31, 1995
------------- -----------------
(In millions)
Property, plant and equipment $ 3,463.3 $ 3,416.6
Less accumulated depreciation (1,462.3) (1,410.3)
--------- ---------
Net $ 2,001.0 $ 2,006.3
========= =========
NOTE H: Intangible asset balances were as follows:
June 30, 1996 December 31, 1995
-------------- -----------------
(In millions)
Patents, trademarks,
goodwill and other
intangibles $1,422.8 $484.8
Less accumulated amortization (86.9) (80.0)
-------- ------
Net $1,335.9 $404.8
======== ======
The June 30 intangible asset balance includes $925 million
related to the purchase of Glaxo Wellcome plc's interests in
the Warner Wellcome joint venture operations discussed in Note D.
NOTE I: Included in Other (income) expense, net was interest expense
of $31.2 and $33.0 for the second quarters of 1996 and 1995,
respectively. Interest expense for the first six months of
1996 and 1995 was $60.4 and $62.2, respectively.
NOTE J: On April 23, 1996 the stockholders approved an increase in the
number of authorized shares of common stock from 300 million
to 500 million in order to effectuate a two-for-one stock
split. The additional shares were distributed on May 17, 1996
to stockholders of record on May 3, 1996. Par value remained
at $1.00 per share. The stock split was recorded by
increasing Common stock issued and reducing Capital in excess
of par value by $160.3 million. The average number of common
shares outstanding and all per share information have been
restated to reflect the stock split.
NOTE K: In March 1996, Warner-Lambert sold Warner Chilcott
Laboratories, its generic pharmaceutical business. Net
proceeds were approximately $137.4 million. The sale resulted
in a pretax gain of $75.2 million, which is included in Other
(income) expense, net for the six months ended June 30, 1996.
On an after tax basis, the gain was $45.7 million or $.17 per
share.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
SECOND QUARTER AND SIX MONTHS ENDED JUNE 30, 1996
- -------------------------------------------------
COMPARED WITH CORRESPONDING PERIOD IN 1995
- ------------------------------------------
NET SALES
- ---------
Sales for the second quarter of 1996 of $1,791 million were virtually
equal to last year's sales. For the first six months of 1996 sales rose
6 percent to $3,620 million. Excluding the impact of the divestitures
of the company's PRO toothbrush and Warner Chilcott generic
pharmaceutical businesses, sales increased 2 percent and 8 percent for
the second quarter and six-month period, respectively. Unit volume
growth, excluding the divestitures, was 3 percent for the second quarter
and 8 percent for the six months and price increases were 3 percent for
each period. Foreign exchange rate changes had an unfavorable impact of
4 percent for the second quarter and 3 percent on the six-month sales
results. Sales of ZANTAC 75, an OTC version of Glaxo Wellcome's
prescription drug ZANTAC, are not reflected in the company's reported
sales since the company uses the equity method of accounting for the
joint venture that markets this product (see below). If these sales had
been consolidated, sales would have increased an additional 5 percent in
the second quarter and 3 percent in the six-month period.
U.S. sales increased $8 million or 1 percent to $775 million for the
second quarter and $113 million or 8 percent to $1,558 million for the
first six months of 1996. Adjusted for the Warner Chilcott divestiture,
U.S. sales increased 6 percent and 12 percent, respectively. If sales of
ZANTAC 75 were included, U.S. sales would have increased an additional
12 percent and 6 percent, respectively. International sales decreased
$17 million or 2 percent to $1,016 million for the second quarter and
increased $103 million or 5 percent to $2,062 million for the first six
months of 1996. At constant exchange rates, international sales
increased 6 percent and 10 percent, respectively.
Effective January 1, 1996 the company's international operations changed
their reporting period from a fiscal-year basis ending November 30 to a
calendar-year basis ending December 31. (See Note E.) All references to
the six-month period include the calendar six-month period ended June 30,
1996 and the fiscal six-month period ended May 31, 1995 for international
operations. Similarly, all references to the second quarter include the
calendar three-month period ended June 30, 1996 and the fiscal three-
month period ended May 31, 1995 for international operations
SEGMENT SALES Three Months Ended June 30, Six Months Ended June 30,
(Dollars in --------------------------- -------------------------
Millions) Percent
Increase/ Percent
1996 1995 (Decrease) 1996 1995 Increase
---- ---- --------- ---- ---- --------
Pharmaceutical $ 617 $ 637 (3)% $1,276 $1,220 5 %
Consumer Health
Care 708 703 1 1,409 1,318 7
Confectionery 466 460 1 935 866 8
---- ---- ---- ----
Consolidated
Net Sales $1,791 $1,800 0 % $3,620 $3,404 6 %
====== ====== ====== ======
Pharmaceutical sales in the U.S. decreased 9 percent to $279 million for
the second quarter and increased 3 percent to $602 million for the six-
month period. In March Warner-Lambert sold its Warner Chilcott generic
pharmaceutical business. (See Note K.) Sales of this business for the
twelve months of 1995 were approximately $125 million. Excluding the
impact of the Warner Chilcott divestiture, sales increased 2 percent and
13 percent for the second quarter and six-month period, respectively. In
the second quarter of 1995 sales benefited from inventory stocking by
customers in anticipation of a price increase, leading to a difficult
comparison in 1996. Products with significant sales growth in 1996
included the add-on epilepsy therapy NEURONTIN, the anticonvulsant
DILANTIN, the oral contraceptive LOESTRIN, the cardiovascular drug
ACCUPRIL and CAPSUGEL empty hard-gelatin capsules.
Warner-Lambert submitted a New Drug Application (NDA) in July 1996 to
the U.S. Food and Drug Administration (FDA) for troglitazone, its new
drug therapy for non-insulin dependent diabetes mellitus.
The company entered into a ten-year marketing agreement with Pfizer Inc.
to co-promote the cholesterol-lowering agent atorvastatin in the U.S.
and on a broad basis in the international marketplace. The terms of the
agreement call for milestone payments, some of which are being made this
year, as well as a sharing of promotional expenses and the cost of long-
term research and development studies. Pfizer will receive a portion of
the profits based on the drug achieving and then exceeding certain sales
targets. An NDA for atorvastatin was submitted to the FDA and a number
of international regulatory agencies in June 1996.
International pharmaceutical sales increased 3 percent to $338 million
for the second quarter and 6 percent to $674 million for the six-month
period. At constant exchange rates, international sales increased 10
percent and 9 percent, respectively. Major contributors to
international sales growth for both reporting periods were ACCUPRIL and
NEURONTIN
Consumer health care segment sales reflect the January 1996 reclassifi-
cation of HALLS cough tablets to the confectionery segment in both 1996
and 1995. Consumer health care product sales in the U.S. increased 9
percent to $358 million for the second quarter and 12 percent to $688
million for the six-month period. Sales growth of 3 percent and 4
percent, respectively are attributable to sales of COOL MINT LISTERINE
toothpaste, which was introduced in August 1995. Other products
contributing to U.S. sales growth in both the second quarter and the
first six months of 1996 included LISTERINE Antiseptic mouthwash,
SUDAFED cold medication and the company's wet-shaving products. In
addition, if sales of ZANTAC 75 were included, U.S. sales would have
increased an additional 27 percent and 15 percent, respectively.
International sales decreased 7 percent to $350 million for the second
quarter but increased 2 percent to $721 million for the six-month
period. At constant exchange rates, international sales were up slightly
for the second quarter and increased 6 percent for the six-month period.
In December 1993 Warner-Lambert signed separate agreements with both
Wellcome plc (Wellcome) and Glaxo plc (Glaxo) governing the
establishment of joint ventures in various countries to develop and
market a broad range of nonprescription consumer health care products.
Glaxo acquired Wellcome in 1995 and changed the name of the combined
company to Glaxo Wellcome plc.
Warner-Lambert's agreement with Wellcome called for both companies to
contribute to the Warner Wellcome joint venture operations current and
future over-the-counter (OTC) products. Joint venture operations formed
pursuant to a global principles agreement began in 1994 in the U.S.,
Canada, Australia, New Zealand and certain countries in Europe. Warner-
Lambert has consolidated the financial results of the Warner Wellcome
joint venture operations.
On June 30, 1996 the company purchased Glaxo Wellcome's U.S. and
European interests in the Warner Wellcome joint venture operations.
Purchase agreements for Glaxo Wellcome's interests in Canada, Mexico,
Australia and New Zealand are expected to be completed in the third
quarter of 1996. The purchase price for the entire transaction is
anticipated to be $1.05 billion.
In 1993 Warner-Lambert and Glaxo formed a joint venture in the U.S.
(referred to as Glaxo Warner-Lambert) to develop, seek approval of and
market OTC versions of Glaxo prescription drugs in the U.S. On June 30,
1996 the Glaxo Warner-Lambert joint venture was restructured so that in
addition to developing and marketing OTC versions of Glaxo prescription
drugs, it will also develop and market Wellcome's OTC switch products,
including ZOVIRAX cold sore cream. Effectively, Warner-Lambert will no
longer record sales of ZOVIRAX in its consolidated sales since the
company uses the equity method of accounting for the Glaxo Warner-
Lambert joint venture. Warner-Lambert recorded sales of ZOVIRAX of
approximately $28 million during the last six months of 1995. Due to the
substantial marketing expenses that will be incurred with the U.S.
launch of ZANTAC 75 the company anticipates recording a loss from the
joint venture in 1996.
Confectionery sales in 1996 and 1995 reflect the reclassification of
HALLS from the consumer health care segment. Confectionery sales in the
U.S. increased 5 percent to $138 million in the second quarter and
increased 8 percent to $268 million for the six-month period. Products
with U.S. sales growth for both reporting periods included HALLS,
TRIDENT sugarless chewing gum, BUBBLICIOUS bubble gum and BURST gums
(benefiting from the introduction of FRUIT*A*BURST in August 1995).
International sales for the second quarter of $328 million remained
unchanged from the prior-year quarter, but increased 8 percent to $667
million for the six-month period. At constant exchange rates,
international sales increased 8 percent and 16 percent, respectively.
The decline in the value of foreign currencies, particularly the Mexican
peso and the Japanese yen, adversely impacted this segment's sales by
$51 million for the first six months of 1996. Products with strong
international sales growth for both reporting periods included HALLS,
CHICLETS candy-coated gum, DENTYNE chewing gum and CERTS breath mints.
COSTS AND EXPENSES
- ------------------
Cost of goods sold in the second quarter fell 6 percent compared with
the second quarter of 1995 and rose 2 percent in the first six months of
1996 compared with the first six months of 1995. As a percentage of net
sales, cost of goods sold fell to 31.9% in the second quarter from 34.0%
in the second quarter of 1995 and to 32.1% for the first six months of
1996 from 33.6% in the same period one year ago. The ratios improved in
each of the company's segments in both the second quarter and the six-
month period, with the most notable improvement in the pharmaceutical
segment. This segment's ratio significantly improved in the U.S. due to
the absence of the Warner Chilcott business and a favorable product mix.
Marketing expense in the second quarter of 1996 increased 2 percent with
increased spending in the pharmaceutical and confectionery segments
partially offset by lower spending in the U.S. consumer health care
business. As a percentage of net sales, marketing expense increased to
36.8% compared with 35.8% for the same quarter last year. Marketing
expense for the first six months of 1996 increased 10 percent, with
spending increases in each segment. Pharmaceutical segment spending
increased primarily in the U.S. due to higher sales incentives and
increased advertising and promotion to support NEURONTIN, ACCUPRIL and
LOESTRIN. In the confectionery segment spending increased throughout the
world. In the consumer health care segment spending increased worldwide
to support the company's wet-shaving products and in the U.S. primarily
to support COOLMINT LISTERINE toothpaste. As a percentage of net sales,
marketing expense for the first six months of 1996 increased to 36.0%
compared with 34.8% for the same time period last year.
Administrative and general expense in the second quarter and first six
months of 1996 increased 1 percent and 11 percent, respectively. A major
component of the increase for the six-month period was higher pension
expense, primarily resulting from a lower discount rate. As a percentage
of net sales, administrative and general expense in the second quarter
of both 1996 and 1995 was 6.6%, while for the six-month period the ratio
was 6.8% compared with 6.5% one year ago
Research and development expense in the second quarter and first six
months of 1996 increased 9 percent and 11 percent, respectively,
reflecting higher spending on Phase III clinical trials. As a
percentage of net sales, research and development expense in the second
quarter of 1996 was 7.3% compared with 6.6% in the prior-year quarter,
and for the six-month period the ratio was 7.2% versus 6.9% one year
ago.
Other(income) expense, net in the second quarter of 1996 included the
receipt of an initial milestone payment of $25 million related to the
co-promotion agreement with Pfizer. Other(income) expense, net for the
first six months of 1996 also included a gain of $75 million on the sale
of the Warner Chilcott business.
INCOME TAXES
- ------------
Three Months Six Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
---- ---- ---- ----
Effective tax rate:
As reported 24.8% 25.1% 26.2% 25.1%
After minority interests 27.8% 27.7% 29.0% 27.7%
The increase in the company's effective tax rates on a reported basis
and after minority interests in the first six months of 1996 compared
with the same period in 1995 were due to the 39.4 percent effective tax
rate on the gain on the sale of Warner Chilcott and the expiration of
the research and development tax credit for the 1996 period.
NET INCOME
- ----------
Net income for the second quarter and first six months of 1996 increased
6 percent and 15 percent, respectively. Earnings per share for the
second quarter and first six months of 1996 increased 5 percent and 14
percent, respectively.
RESTRUCTURING
- -------------
In 1993 and 1991, the company recorded net restructuring charges of $525
million and $544 million. The company had reserve balances related to
these programs of $187 million at June 30, 1996. The company is unaware
of any event that would significantly change spending or anticipated
savings with respect to the 1993 and 1991 restructuring actions.
LIQUIDITY AND FINANCIAL CONDITION
- ---------------------------------
Cash and cash equivalents amounted to $380 million at June 30, 1996, an
increase of $84 million from December 31, 1995. The company also holds
$472 million in short-term investments and other nonequity securities
(included in investments and other assets) that do not qualify as cash
equivalents, representing a decrease of $21 million since December 31,
1995. Net debt (total debt less cash and cash equivalents, short-term
investments and other nonequity securities) of $1,591 million at June
30, 1996 increased by $850 million from December 31, 1995, reflecting
the amounts borrowed to complete the Glaxo Wellcome transaction. This
increase in leverage resulted in a ratings downgrade by both Standard
and Poor's Corporation (AA to AA-) and Moody's Investor Services (Aa3 to
A1). Management is confident that the company's cash flow will be
adequate to repay this financing without requiring the disposition of
any significant strategic core business or asset and still allow the
company to continue to pay dividends and maintain its ongoing commitment
to research and development, marketing and capital expenditures.
Capital expenditures for the first six months of 1996 fell $53 million
from the same period one year ago due to the timing of project
expenditures. Planned capital expenditures for 1996 are estimated to be
$450 million. These expenditures include the consolidation and upgrading
of manufacturing facilities in connection with the company's
restructuring plans announced in 1993 and 1991, plant expansions and
improvements.
All product names appearing in capital letters are registered trademarks
of Warner-Lambert Company, its affiliates, related companies or its
licensors. ZANTAC, ZANTAC 75 and ZOVIRAX are registered trademarks of
Glaxo Wellcome or its affiliates.
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
-----------------
In 1993, Warner-Lambert received a Complaint and
Compliance Order from the Environmental Protection Agency (the
"EPA") seeking penalties of $268,000 for alleged violations of the
Resource Conservation and Recovery Act, Boilers and Industrial
Furnace regulations. Warner-Lambert is contesting the allegations
contained within the Complaint and has entered into negotiations
with the EPA in an attempt to resolve these issues. Although it is
too early to predict the outcome of this action, Warner-Lambert does
not at present expect this litigation to have a material adverse
effect on its financial position, liquidity, cash flow or results of
operations.
Beginning in late 1993, Warner-Lambert, along with
numerous other pharmaceutical manufacturers and wholesalers, has
been sued in a number of state and federal antitrust lawsuits by
retail pharmacies seeking treble damages and injunctive relief.
These actions arise from alleged price discrimination by which the
defendant drug companies, acting alone or in concert, are alleged to
have favored institutions, managed care entities, mail order
pharmacies and other buyers with lower prices for brand name
prescription drugs than those afforded to plaintiff retailers. The
federal cases have been consolidated by the Judicial Panel on
Multidistrict Litigation and transferred to the U.S. District Court
for the Northern District of Illinois for pre-trial proceedings.
Warner-Lambert agreed to settle part of the consolidated federal
cases, specifically, the class action conspiracy lawsuit, for a
total of $15.1 million, to be paid in four equal installments of
$3.775 million in February of 1996, 1997, 1998 and 1999,
respectively. This settlement was denied approval by the U.S.
District Court for the Northern District of Illinois because the
settlement did not include injunctive relief. Thereafter, Warner-
Lambert agreed to an amendment of the original settlement agreement,
which provides for the same payments, namely $15.1 million, and
obligates Warner-Lambert, among other things, not to refuse to
discount its drugs to retail pharmacies solely based on their status
as retailers and to provide retail pharmacies the opportunity to
negotiate and earn discounts comparable to those given to managed
care entities if they can demonstrate an ability to affect market
share in the same or similar manner that such managed care entities
can. This amended settlement was recently approved by the Court.
The amended settlement has been appealed by three groups of
plantiff-class members and such appeal is pending. At present,
Warner-Lambert cannot predict the outcome of the remaining federal
lawsuits.
The state cases pending in California have been
coordinated in the Superior Court of California, County of San
Francisco. Warner-Lambert has also been named as a defendant in
actions in state courts in Alabama, Minnesota and Wisconsin brought
by classes of pharmacies, each arising from the same allegations of
price discrimination. In addition, the Company is named in class
action complaints filed in the states of Alabama, Arizona, Colorado,
Maine, Michigan, Minnesota, New York, Washington and Wisconsin and
in the District of Columbia, brought by classes of consumers who
purchased brand name prescription drugs at retail pharmacies. These
cases also arise from the same allegations of price discrimination.
Warner-Lambert believes that these actions are without merit and
will defend itself vigorously. Although it is too early to predict
the outcome of the remaining actions, Warner-Lambert does not at
present expect this litigation to have a material adverse effect on
its financial position, liquidity, cash flow or results of
operations.
Warner-Lambert has been served with a subpoena by the
Federal Trade Commission which is conducting an investigation to
determine whether Warner-Lambert and twenty-one other pharmaceutical
manufacturers have engaged in concerted activities to raise the
prices of pharmaceutical products in the United States. Warner-
Lambert is cooperating with this investigation and cannot at present
predict its outcome.
In 1994, Warner-Lambert received a civil enforcement
action letter and draft complaint from the Department of Justice
(the "Department") alleging violation of the Clean Water Act with
regard to the operation of the wastewater treatment plant at its
Vega Baja, Puerto Rico facility. Warner-Lambert is negotiating a
resolution of this matter with the Department and is continuing to
work with the Environmental Protection Agency, Region II, to
maintain the facility's compliance with the Clean Water Act. The
Company cannot predict the outcome of this matter at this time.
In addition, the Environmental Crimes Section of the
Department is conducting an inquiry of Warner-Lambert and certain
present and former employees, relating to historical compliance of
the Vega Baja, Puerto Rico wastewater treatment facility with the
Clean Water Act and the discharge permit issued to the facility.
Warner-Lambert is cooperating fully with this inquiry and cannot
predict its outcome at this time.
Warner-Lambert is also involved in various administrative
or judicial proceedings related to environmental actions initiated
by the EPA under the Comprehensive Environmental Response,
Compensation and Liability Act (also known as Superfund) or by state
authorities under similar state legislation, or by third parties.
While it is not possible to predict with certainty the outcome of
such matters or the total cost of remediation, Warner-Lambert
believes it is unlikely that their ultimate disposition will have a
material adverse effect on Warner-Lambert's financial position,
liquidity, cash flow or results of operations for any year.
Warner-Lambert Inc., a wholly-owned subsidiary of
Warner-Lambert, has been named as a defendant in class actions filed
in Puerto Rico Superior Court by current and former employees from
the Vega Baja, Carolina and Fajardo plants, as well as Kelly
Services temporary employees assigned to those plants. The lawsuits
seek monetary relief for alleged violations of local statutes and
decrees relating to meal period payments, minimum wage, overtime and
vacation pay. Warner-Lambert believes that these actions are
without merit and will defend these actions vigorously. Although it
is too early to predict the outcome of these actions, Warner-Lambert
does not at present expect these lawsuits to have a material adverse
effect on the Company's financial position, liquidity, cash flow or
results of operations.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
--------
(12) Computation of Ratio of Earnings to Fixed
Charges.
(27) Financial Data Schedule (EDGAR filing only).
(b) Reports on Form 8-K
-------------------
A Current Report on Form 8-K, dated April 23, 1996,
was filed with the Securities and Exchange
Commission during the quarter ended June 30, 1996,
in connection with a two-for-one stock split of
Warner-Lambert's Common Stock, following
stockholder approval of an amendment to Warner-
Lambert's Certificate of Incorporation to increase
the authorized shares of Common Stock.
S I G N A T U R E S
-------------------
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be
signed on its behalf by the undersigned thereunto duly
authorized.
WARNER-LAMBERT COMPANY
(Registrant)
Date: August 12, 1996 By: Ernest J. Larini
----------------
Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: August 12, 1996 By: Joseph E. Lynch
---------------
Vice President and Controller
(Principal Accounting Officer)
EXHIBIT INDEX
-------------
Exhibit No. Exhibit Page No.
- ----------- ------- --------
(12) Computation of Ratio of Earnings
to Fixed Charges.
(27) Financial Data Schedule (filed
electronically).
EXHIBIT 12
WARNER-LAMBERT COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in millions)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Years Ended December 31,
Six Months Ended --------------------------------------------
June 30, 1996 1995 1994 1993 1992 1991
-------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Earnings before income taxes and
accounting changes (less
minority interests) $ 651.9 $1,018.6 $ 913.1 $ 318.5 $ 858.2 $ 221.5
Add:
Interest on indebtedness-
excluding amount capitalized 60.4 122.7 93.7 64.2 80.8 58.2
Amortization of debt expense .2 .4 .4 .5 .6 .4
Interest factor in rent
expense (a) 13.5 26.9 26.2 25.4 23.4 22.3
------- -------- ------- ------- ------- -------
Adjusted earnings $ 726.0 $1,168.6 $1,033.4 $ 408.6 $ 963.0 $ 302.4
======= ======== ======== ======= ======= =======
<S> <C> <C> <C> <C> <C> <C>
Fixed Charges:
Interest on indebtedness $ 60.4 $ 122.7 $ 93.7 $ 64.2 $ 80.8 $ 58.2
Capitalized interest 4.6 10.1 9.4 8.6 8.1 9.4
Amortization of debt expense .2 .4 .4 .5 .6 .4
Interest factor in rent
expense (a) 13.5 26.9 26.2 25.4 23.4 22.3
------- -------- ------- ------- ------- -------
Total fixed charges $ 78.7 $ 160.1 $ 129.7 $ 98.7 $ 112.9 $ 90.3
======= ======== ======= ======= ======= =======
Ratio of earnings to fixed charges 9.2 7.3 8.0 4.1(b) 8.5 3.3(c)
======= ======== ======= ======= ======= =======
(a) Represents one third of rental expense, which the company believes is a reasonable
approximation.
(b) The company's ratio of earnings to fixed charges for 1993 would have been 9.5 excluding the
restructuring charge of $525.2 million.
(c) The company's ratio of earnings to fixed charges for 1991 would have been 9.4 excluding the
restructuring charge of $544.0 million.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contatins summary financial information extracted from the
consolidated balance sheet at June 30, 1996 and from the related consolidated
statement of income for the 6 month period ended June 30, 1996 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 380
<SECURITIES> 322
<RECEIVABLES> 1,277
<ALLOWANCES> 0
<INVENTORY> 672
<CURRENT-ASSETS> 2,998
<PP&E> 3,463
<DEPRECIATION> 1,462
<TOTAL-ASSETS> 7,201
<CURRENT-LIABILITIES> 2,423
<BONDS> 1,529
0
0
<COMMON> 321
<OTHER-SE> 2,159
<TOTAL-LIABILITY-AND-EQUITY> 7,201
<SALES> 3,620
<TOTAL-REVENUES> 3,620
<CGS> 1,162
<TOTAL-COSTS> 1,162
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 60
<INCOME-PRETAX> 721
<INCOME-TAX> 189
<INCOME-CONTINUING> 463
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 463
<EPS-PRIMARY> 1.71<F1>
<EPS-DILUTED> 0
<FN>
<F1>Reflects two-for-one stock split effective May 3,1996. Prior period financial
data schedules have not been restated for this recapitalization.
</FN>
</TABLE>
