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, 1997
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, 1997
----- -----------------------------
Common Stock, $1 par value 271,922,084
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WARNER-LAMBERT COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
1997 1996
--------- ------------
(Dollars in millions)
ASSETS:
Cash and cash equivalents $ 544.9 $ 390.8
Short-term investments 27.7 101.5
Receivables 1,442.8 1,303.9
Inventories 760.5 647.0
Prepaid expenses and other current assets 480.2 341.6
--------- ---------
Total current assets 3,256.1 2,784.8
Investments and other assets 488.7 496.6
Equity investments in affiliated companies 72.4 292.1
Property, plant and equipment 2,306.6 2,168.0
Intangible assets 1,705.4 1,455.8
--------- ---------
Total assets $ 7,829.2 $ 7,197.3
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Commercial paper $ 112.4 $ 172.8
Notes payable - banks and other 453.2 406.4
Accounts payable, trade 662.9 613.0
Accrued compensation 181.6 170.3
Other current liabilities 718.8 614.6
Federal, state and foreign income taxes 172.2 159.8
--------- ---------
Total current liabilities 2,301.1 2,136.9
Long-term debt 2,093.0 1,720.5
Other noncurrent liabilities 744.8 758.9
Shareholders' equity:
Preferred stock - none issued - -
Common stock - 320,660,536 shares issued 320.7 320.7
Capital in excess of par value 164.4 125.8
Retained earnings 3,665.4 3,436.2
Cumulative translation adjustments (330.6) (236.2)
Treasury stock, at cost: (1997 - 48,966,696
shares; 1996 - 49,456,251 shares) (1,129.6) (1,065.5)
--------- ---------
Total shareholders' equity 2,690.3 2,581.0
--------- ---------
Total liabilities and shareholders'
equity $ 7,829.2 $ 7,197.3
========= =========
See accompanying notes to consolidated financial statements.
WARNER-LAMBERT COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
--------------- ---------------
1997 1996 1997 1996
---- ---- ---- ----
(Dollars in millions, except per share amounts)
NET SALES $1,966.7 $1,791.2 $3,744.1 $3,620.4
COSTS AND EXPENSES:
Cost of goods sold 593.6 572.0 1,142.8 1,161.6
Selling, general and
administrative 857.6 763.2 1,619.8 1,519.1
Research and development 158.2 130.7 292.1 260.4
Other expense (income), net 26.8 (6.7) 67.3 (41.6)
-------- -------- -------- --------
Total costs and expenses 1,636.2 1,459.2 3,122.0 2,899.5
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES AND
MINORITY INTERESTS 330.5 332.0 622.1 720.9
Provision for income taxes 99.1 82.2 186.6 189.1
Minority interests - 36.5 - 69.0
-------- -------- -------- --------
NET INCOME $ 231.4 $ 213.3 $ 435.5 $ 462.8
======== ======== ======== ========
PER COMMON SHARE:
Net income $ .85 $ .79 $ 1.60 $ 1.71
======== ======== ======== ========
Cash dividends paid $ .38 $ .345 $ .76 $ .69
======== ======== ======== ========
Average number of common shares
outstanding (thousands) 271,459 271,177 271,401 271,193
See accompanying notes to consolidated financial statements.
WARNER-LAMBERT COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months
Ended June 30,
--------------------
1997 1996
-------- -------
(Dollars in millions)
OPERATING ACTIVITIES:
Net income $ 435.5 $ 462.8
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 125.2 104.4
Minority interests - 69.0
Gain on sale of business - (75.2)
Changes in assets and liabilities, net of
effects from acquisition/disposition
of businesses:
Receivables (134.5) (162.5)
Inventories (110.0) (52.8)
Accounts payable and accrued liabilities 141.8 86.5
Other, net (56.3) (26.5)
-------- -------
Net cash provided by operating activities 401.7 405.7
-------- -------
INVESTING ACTIVITIES:
Purchases of investments (11.4) (211.5)
Proceeds from maturities/sales of investments 83.5 221.0
Capital expenditures (144.2) (128.1)
Acquisitions of businesses (283.0) -
Proceeds from disposition of business - 137.4
Other, net (4.1) (34.5)
-------- -------
Net cash used by investing activities (359.2) (15.7)
-------- -------
FINANCING ACTIVITIES:
Proceeds from borrowings 1,225.8 777.5
Principal payments on borrowings (848.1) (781.7)
Purchases of treasury stock (86.2) (70.8)
Cash dividends paid (206.3) (187.2)
Distributions paid to minority interests - (75.8)
Proceeds from stock option exercises 44.0 36.4
-------- -------
Net cash provided (used) by financing
activities 129.2 (301.6)
-------- -------
Effect of exchange rate changes on cash
and cash equivalents (17.6) (4.4)
-------- -------
Net increase in cash and cash equivalents 154.1 84.0
Cash and cash equivalents at beginning of year 390.8 295.8
-------- -------
Cash and cash equivalents at end of period $ 544.9 $ 379.8
======== =======
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 1996 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: Certain reclassifications have been made to the June 30, 1996
financial statements to conform with current year presentation.
Marketing expense and administrative and general expense
categories have been combined in one line item - Selling, general
and administrative in the Consolidated Statements of Income.
Also, intangible amortization and certain other expenses
have been reported in Other expense (income), net. Previously,
these items were reported in administrative and general expense.
NOTE E: On May 21, 1997, Warner-Lambert Company purchased the remaining
66% of the Jouveinal group it did not already own. In January
1993, Warner-Lambert initially acquired a 34% interest in
Jouveinal, a privately held French pharmaceutical group. Prior
to the acquisition of the remaining interest, Jouveinal was
accounted for as an equity method investment. Other smaller
acquisitions were also completed during the second quarter of
1997, the effects of which were not material. Total
consideration, net of cash acquired and including estimated
acquisition costs, was approximately $300 million for these
acquisitions. Transactions were financed with long-term notes
payable. The acquisitions have been accounted for under the
purchase method and accordingly the net assets and results of
operations have been included in the consolidated financial
statements since the effective acquisition dates. The excess
purchase price over the fair value of the net assets acquired for
each acquisition has been treated primarily as an intangible
asset pending final valuation of net tangible and intangible
assets acquired. The acquisitions did not have a material pro
forma impact on consolidated earnings.
NOTE F: In February 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No.
128, "Earnings per Share," (EPS) which requires dual presentation
of basic and diluted EPS. The company will adopt this Statement
effective December 31, 1997. Net income per share presented in
the Consolidated Statements of Income is equivalent to basic EPS.
At June 30, 1997 no pro forma diluted EPS disclosures are
provided as diluted EPS does not significantly vary from basic
EPS.
NOTE G: In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income," which establishes standards for reporting
the components of comprehensive income and SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related
Information," which replaces existing segment disclosure
requirements and requires reporting certain financial
information regarding operating segments on the basis used
internally by management to evaluate segment performance. The
company will adopt SFAS No.'s 130 and 131 in the first quarter of
1998 and year end 1998, respectively. These Statements will
affect disclosure and presentation in the financial statements
but will have no impact on the company's consolidated financial
position, liquidity, cash flow or results of operations.
NOTE H: Major classes of inventories were as follows:
June 30, 1997 December 31, 1996
------------- -----------------
(In millions)
Raw materials $145.0 $130.9
Finishing supplies 57.0 52.0
Work in process 77.4 69.2
Finished goods 481.1 394.9
------ ------
$760.5 $647.0
====== ======
NOTE I: Property, plant and equipment balances were as follows:
June 30, 1997 December 31, 1996
------------- -----------------
(In millions)
Property, plant and equipment $ 3,804.2 $ 3,657.6
Less accumulated depreciation (1,497.6) (1,489.6)
--------- ---------
Net $ 2,306.6 $ 2,168.0
========= =========
NOTE J: Intangible asset balances were as follows:
June 30, 1997 December 31, 1996
-------------- -----------------
(In millions)
Goodwill $ 982.5 $1,001.6
Trademarks and other
intangibles 849.6 564.1
Less accumulated amortization (126.7) (109.9)
-------- --------
Net $1,705.4 $1,455.8
======== ========
The increase in the intangible asset balance during 1997 is
primarily related to the acquisitions discussed in Note E.
NOTE K: Included in Other expense (income), net was interest expense of
$47.5 million and $31.2 million for the second quarters of 1997
and 1996, respectively. Interest expense for the first six
months of 1997 and 1996 was $86.7 million and $60.4 million,
respectively.
NOTE L: In 1996, Warner-Lambert purchased Glaxo Wellcome plc's minority
interest in the Warner Wellcome joint venture operations. The
transaction was completed in the second half of the year. Total
consideration for the acquisition including estimated acquisition
costs was approximately $1.1 billion.
NOTE M: 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 expense (income),
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, 1997
- -------------------------------------------------
COMPARED WITH CORRESPONDING PERIODS IN 1996
- -------------------------------------------
NET SALES
- ---------
Sales for the second quarter of 1997 of $1,967 million were 10
percent above 1996 second quarter sales. For the first six months of
1997 sales rose 3 percent to $3,744 million compared to the first
six months of 1996. Sales increased 13 percent for the quarter and
7 percent for the six-month period, adjusting for the unfavorable
impact of foreign exchange rate changes of 3 percent and 4 percent,
respectively. Unit volume growth was 12 percent for the second
quarter and 6 percent for the first six months of 1997 and price
increases added 1 percent for each reporting period.
U.S. sales increased $173 million or 22 percent to $948 million for
the quarter and $208 million or 13 percent to $1,766 million for the
first six months of 1997 compared to the same periods one year ago.
International sales were unchanged at $1,019 million for the second
quarter and fell $85 million or 4 percent to $1,978 million for the
first six months of 1997 compared to the same periods one year ago.
At constant exchange rates, international sales increased 6 percent
and 1 percent for the second quarter and first six months of 1997,
respectively, compared to the same periods one year ago.
SEGMENT SALES Three Months Ended Six Months Ended
(Dollars in June 30, June 30,
Millions) ----------------------- -----------------------
Percent Percent
Increase/ Increase/
1997 1996 (Decrease) 1997 1996 (Decrease)
---- ---- -------- ---- ---- --------
Pharmaceutical $ 825 $ 617 34 % $1,511 $1,276 18 %
Consumer Health
Care 675 708 (5) 1,337 1,409 (5)
Confectionery 467 466 - 896 935 (4)
------ ------ ------ ------
Consolidated
Net Sales $1,967 $1,791 10 % $3,744 $3,620 3 %
====== ======= ====== ======
Pharmaceutical sales in the U.S. increased 65 percent to $461
million in the second quarter of 1997 and increased 37 percent to
$828 million for the first six months of 1997 compared to the same
periods one year ago. The sales increase is primarily attributable
to the successful launches of the cholesterol-lowering agent LIPITOR
and the type 2 diabetes drug REZULIN. International pharmaceutical
sales increased 7 percent to $364 million for the second quarter of
1997 and 1 percent to $683 million for the first six months of 1997,
15 percent and 9 percent, respectively, at constant exchange rates,
compared to the same periods one year ago. The increase is
attributable to LIPITOR, which began selling in several countries
and the May 1997 acquisition of the remaining 66 percent of
Jouveinal group that the company did not already own. Jouveinal is
France's 15th largest pharmaceutical group with annual sales in 1996
over $200 million. Prior to April 30, 1997 Jouveinal sales were not
reflected in reported sales results since the company's 34% interest
in the Jouveinal group was accounted for under the equity method.
LIPITOR and REZULIN achieved worldwide sales of $151 million and $79
million, respectively, for the second quarter of 1997 and $200
million and $105 million, respectively, for the first six months of
1997. The company began selling LIPITOR during 1997 in the U.S.,
Canada, the United Kingdom, and in Germany, labeled as SORTIS. The
company began selling REZULIN during 1997 in the U.S. On August 4,
1997 the company announced that REZULIN received clearance by the
Food and Drug Administration for use as either monotherapy or
combination therapy with other commonly used agents. This marketing
clearance comes only six months after its initial approval for use
in type 2 patients poorly controlled on insulin and now makes
REZULIN available to a broad range of type 2 patients. The company
believes that each of these two products has the potential to reach
$1 billion in annual worldwide sales. With the success of these new
products, management anticipates that pharmaceutical segment sales
will represent a significantly greater percentage of the company's
total sales than in the past, particularly in the U.S. and to a
lesser degree in international markets.
Consumer health care product sales in the U.S. fell 4 percent to
$342 million in the second quarter of 1997 and 3 percent to $668
million for the first six months of 1997 compared to the same
periods one year ago. International sales fell 5 percent to $333
million for the second quarter and 7 percent to $669 million for the
first six months of 1997 compared to the same periods one year ago.
At constant exchange rates, international sales were unchanged for
the second quarter and decreased 2 percent for the six-month period.
With the mid-1996 revision of the Glaxo Wellcome Warner-Lambert
joint venture agreement, sales of ZOVIRAX cold sore cream are no
longer recorded in the company's consolidated sales. If
international sales of the Glaxo Wellcome Warner-Lambert joint
venture were consolidated, the decline in international sales would
have been positively impacted by 4 percent for both the quarter and
the six-month period. International sales of the company's TETRA pet
care products business fell 11 percent to $31 million, or 3 percent
at constant exchange rates for the second quarter of 1997 and 16
percent to $64 million, or 7 percent at constant exchange rates for
the first six months of 1997 compared to the same periods one year
ago. This decline is primarily attributable to Japan, where sales
fell due to market weakness and the decrease in the value of the
yen.
Confectionery sales in the U.S. increased 5 percent to $145 million
for the second quarter of 1997 and 1 percent to $270 million for the
first six months of 1997 compared to the same periods one year ago.
International sales were $322 million, for the second quarter of
1997, a decrease of 2 percent, but an increase of 2 percent at
constant exchange rates, and sales were $626 million for the first
six months of 1997, a decrease of 6 percent, or 3 percent at
constant exchange rates compared to the same periods one year ago.
The international sales decline is primarily attributable to Japan,
where sales fell due to intense competition, market weakness and the
decrease in the value of the yen.
COSTS AND EXPENSES
- ------------------
Cost of goods sold increased 4 percent in the second quarter of 1997
compared with the second quarter of 1996 and decreased 2 percent in
the first six months of 1997 compared with the first six months of
1996. As a percentage of net sales, cost of goods sold fell to 30.2%
in the second quarter from 31.9% in the second quarter of 1996 and
to 30.5% for the first six months of 1997 from 32.1% in the same
period one year ago. The improvement in the ratio for both reporting
periods is partly attributable to an increase in pharmaceutical
segment product sales, with generally higher margins than consumer
health care or confectionery products, as a percentage of total
company sales. Also contributing to the improvement in the ratio is
a favorable product mix within the pharmaceutical segment and
productivity improvements in the consumer health care segment.
Selling, general and administrative expense in the second quarter of
1997 increased 12 percent compared with the second quarter of 1996
and 7 percent for the first six months of 1997 compared with the
six-month period one year ago. Pharmaceutical segment expenses
significantly increased for the second quarter and the six-month
period to support the new product introductions. Expenses increased
in the consumer health care and confectionery segments for the
second quarter and decreased for the first six months of 1997
compared to the same periods in the prior year. As a percentage of
net sales, selling, general and administrative expense for the
quarter increased to 43.6% compared with 42.6% for the same quarter
last year and for the first six months of 1997 increased to 43.3%
compared with 42.0% for the same time period last year.
Research and development expense in the second quarter and first six
months of 1997 increased 21 percent and 12 percent, respectively,
over the same prior year periods. As a percentage of net sales,
research and development expense in the second quarter of 1997 was
8.0% compared with 7.3% in the second quarter of 1996 and for the
six-month period the ratio was 7.8% versus 7.2% one year ago. For
1997 the company plans to invest $640 million in research and
development, a projected increase of 15 percent compared with 1996.
Other expense (income), net in the second quarter and first six
months of 1997 included increases over the same prior year periods
in intangible amortization of $9 million and $18 million,
respectively, and net interest expense of $24 million and $37
million, respectively. These increases resulted primarily from the
company's purchase of Glaxo Wellcome's interest in the Warner
Wellcome joint venture operations in mid-1996 and to a lesser
degree, the May 1997 acquisition of the remaining 66 percent of
Jouveinal that the company did not already own. Other expense
(income), net in the second quarter of 1996 included milestone
payments from Pfizer Inc. of $25 million related to the LIPITOR co-
promotion agreement and in the first quarter of 1996 included a gain
of $75 million on the sale of the Warner Chilcott business and a
provision of $15 million for certain legal matters.
INCOME TAXES
- ------------
Three Months Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
---- ---- ---- ----
Effective tax rate:
As reported 30.0% 24.8% 30.0% 26.2%
After minority interests 30.0% 27.8% 30.0% 29.0%
The increase in the company's tax rate on a reported basis of 3.8
percentage points for the six-month period reflects a 2.8 percentage
points increase resulting from the absence of minority interests in
1997. In addition, a net increase of 1.0 percentage point is related
to a change in the U.S. tax law enacted in 1996 that subjects a
greater amount of income in Puerto Rico to taxation, partially
offset by the absence of the higher tax rate associated with the
1996 sale of the Warner Chilcott business.
On August 5, 1997 President Clinton signed the Taxpayer Relief Act
of 1997. The impact this new tax law may have on the company's
effective tax rate is currently being examined.
NET INCOME
- ----------
Net income and earnings per share for the second quarter increased
8 percent and for the first six months of 1997 decreased 6 percent
compared to the same periods one year ago. Adjusting the first six
months of 1996 for the gain on the sale of the Warner Chilcott
business and provisions for certain legal matters, earnings per
share increased 1 percent for the first six months of 1997. Based
on current planning assumptions, the company believes annual
earnings per share of $3.20 in 1997, a 10 percent increase above the
reported 1996 figure, is achievable.
LIQUIDITY AND FINANCIAL CONDITION
- ---------------------------------
Selected data:
June 30, December 31,
1997 1996
------- ------------
Net debt (in millions) $1,988 $1,712
Net debt to net capital(equity
and net debt) 42% 40%
Cash and cash equivalents were $545 million at June 30, 1997, an
increase of $154 million from December 31, 1996. The company also
held $126 million in nonequity securities, included in short-term
investments and investments and other assets, that management views
as cash equivalents, representing a decrease of $71 million from
December 31, 1996.
Net debt (total debt less cash and cash equivalents and other
nonequity securities) increased $276 million from December 31, 1996.
The increase in net debt and the ratio of net debt to net capital is
primarily attributable to the borrowings related to the May 1997
purchase of the remaining 66% of the Jouveinal group that the
company did not already own.
Cash provided by operating activities for the first six months of
1997 of $402 million was more than sufficient to fund capital
expenditures of $144 million and pay dividends of $206 million.
All product names appearing in capital letters are registered
trademarks of Warner-Lambert Company, its affiliates, related
companies or its licensors. ZOVIRAX is a registered trademark of
Glaxo Wellcome, its affiliates, related companies or licensors.
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. In June 1996, the Court
approved Warner-Lambert's agreement to settle part of the
consolidated federal cases, specifically, the class action
conspiracy lawsuit, for a total of $15.1 million. This settlement
also provides injunctive relief which 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. The settlement has been
appealed by three groups of plaintiff-class members. These appeals
were dismissed by the Seventh Circuit but these plaintiff-class
members have sought reconsideration of that dismissal. Certain
other rulings of the judge presiding in this case have also been
appealed. These appeals have been argued before the U.S. Court of
Appeals for the Seventh Circuit and a decision will be forthcoming.
In April, 1997, a new purported class action relating to the time
period subsequent to the settlement of the class action conspiracy
lawsuit was brought by the plaintiff-class members who had
previously settled their class action conspiracy lawsuit. These
plaintiffs are seeking injunctive relief which would require Warner-
Lambert to grant discounts to retail pharmacies. At present,
Warner-Lambert cannot predict the outcome of the remaining federal
lawsuits.
The state cases pending in California, brought by classes of
pharmacies and consumers, 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, Florida, Kansas, Maine,
Michigan, Minnesota, Mississippi, New York, North Carolina,
Tennessee, 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.
The Federal Trade Commission (the "FTC") 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 was served with and responded to one
subpoena from the FTC in 1996 and was recently served with a second
subpoena by the FTC and is in the process of responding to it.
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 while Warner-Lambert cannot
predict its outcome, it does not at present expect this matter to
have a material adverse effect on the Company's financial position,
liquidity, cash flow or results of operations.
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 while Warner-Lambert
cannot predict its outcome, it does not at present expect this
matter to have a material adverse effect on the Company's financial
position, liquidity, cash flow or results of operations.
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.
In June and July 1997, respectively, Warner-Lambert, along with
certain other manufacturers of calcium supplements and antacids
containing calcium (including ROLAIDS), settled lawsuits filed by
the California Attorney General and the Natural Resources Defense
Council (the "NRDC"), alleging that the defendants violated
California law by failing to include on their calcium supplement and
antacid products the consumer warnings required by the California
Safe Drinking Water and Toxic Enforcement Act (commonly referred to
as Proposition 65). The settlement agreements, which do not include
an admission by Warner-Lambert of a violation of Proposition 65 or
any other law, require Warner-Lambert and the other defendants to
maintain the level of naturally occurring lead in their calcium
supplement and antacid products at the lowest level currently
feasible. In addition, Warner-Lambert was required to pay its share
of settlement payments (including the NRDC's and the California
Attorney General's costs of investigating and prosecuting) totaling
$110,000.
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
-------------------
Warner-Lambert has not filed any reports on
Form 8-K for the quarter ended June 30,
1997.
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 11, 1997 By: Ernest J. Larini
----------------
Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: August 11, 1997 By: Joseph E. Lynch
---------------
Vice President and Controller
(Principal Accounting Officer)
EXHIBIT INDEX
-------------
Exhibit No. Exhibit
- ----------- -------
(12) Computation of Ratio of Earnings to Fixed
Charges.
(27) Financial Data Schedule (filed electronically).
<TABLE>
EXHIBIT 12
WARNER-LAMBERT COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in millions)
Years Ended December 31,
Six Months Ended ---------------------------------------------
June 30, 1997 1996 1995 1994 1993 1992
------------------ ---- ---- ---- ---- ----
Earnings before income taxes and
accounting changes (less
<S> <C> <C> <C> <C> <C> <C>
minority interests) $622.1 $1,107.7 $1,018.6 $ 913.1 $318.5 $858.2
Add:
Interest on indebtedness-
excluding amount capitalized 86.7 145.9 122.7 93.7 64.2 80.8
Amortization of debt expense .2 .5 .4 .4 .5 .6
Interest factor in rent
expense (a) 13.8 27.5 26.9 26.2 25.4 23.4
------ -------- -------- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Adjusted earnings $722.8 $1,281.6 $1,168.6 $1,033.4 $408.6 $963.0
====== ======== ======== ======== ====== ======
Fixed Charges:
Interest on indebtedness $ 86.7 $ 145.9 $ 122.7 $ 93.7 $ 64.2 $ 80.8
Capitalized interest 4.1 9.6 10.1 9.4 8.6 8.1
Amortization of debt expense .2 .5 .4 .4 .5 .6
Interest factor in rent
expense (a) 13.8 27.5 26.9 26.2 25.4 23.4
------ -------- -------- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Total fixed charges $104.8 $ 183.5 $ 160.1 $ 129.7 $ 98.7 $112.9
====== ======== ======== ======== ====== ======
Ratio of earnings to fixed charges 6.9 7.0 7.3 8.0 4.1(b) 8.5
====== ======== ======== ======== ====== ======
(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 charges of $525.2 million.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED BALANCE SHEET AT JUNE 30, 1997 AND FROM THE
RELATED CONSOLIDATED STATEMENT OF INCOME FOR THE 6 MONTH PERIOD
ENDED JUNE 30, 1997 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-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 545
<SECURITIES> 28
<RECEIVABLES> 1,443
<ALLOWANCES> 0
<INVENTORY> 760
<CURRENT-ASSETS> 3,256
<PP&E> 3804
<DEPRECIATION> 1,498
<TOTAL-ASSETS> 7,829
<CURRENT-LIABILITIES> 2,301
<BONDS> 2,093
0
0
<COMMON> 321
<OTHER-SE> 2,369
<TOTAL-LIABILITY-AND-EQUITY> 7,829
<SALES> 3,744
<TOTAL-REVENUES> 3,744
<CGS> 1,143
<TOTAL-COSTS> 1,143
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 87
<INCOME-PRETAX> 622
<INCOME-TAX> 187
<INCOME-CONTINUING> 435
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 435
<EPS-PRIMARY> 1.60
<EPS-DILUTED> 0
</TABLE>
