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 September 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
------- -------
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: (973) 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 October 31, 1997
----- -------------------------------
Common Stock, $1 par value 272,299,786
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WARNER-LAMBERT COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
1997 1996
------------- ------------
(Dollars in millions)
ASSETS:
Cash and cash equivalents $ 683.7 $ 390.8
Short-term investments 17.6 101.5
Receivables 1,473.4 1,303.9
Inventories 750.2 647.0
Prepaid expenses and other current assets 451.0 341.6
--------- ---------
Total current assets 3,375.9 2,784.8
Investments and other assets 502.4 496.6
Equity investments in affiliated companies 70.8 292.1
Property, plant and equipment 2,335.8 2,168.0
Intangible assets 1,680.6 1,455.8
--------- ---------
Total assets $ 7,965.5 $ 7,197.3
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Commercial paper $ 71.2 $ 172.8
Notes payable - banks and other 564.9 406.4
Accounts payable, trade 733.9 613.0
Accrued compensation 225.0 170.3
Other current liabilities 839.8 614.6
Federal, state and foreign income taxes 175.9 159.8
--------- ---------
Total current liabilities 2,610.7 2,136.9
Long-term debt 1,930.3 1,720.5
Other noncurrent liabilities 697.3 758.9
Shareholders' equity:
Preferred stock - none issued - -
Common stock - 320,660,536 shares issued 320.7 320.7
Capital in excess of par value 184.2 125.8
Retained earnings 3,760.4 3,436.2
Cumulative translation adjustments (395.0) (236.2)
Treasury stock, at cost: (1997 - 48,690,467
shares; 1996 - 49,456,251 shares) (1,143.1) (1,065.5)
--------- ---------
Total shareholders' equity 2,727.2 2,581.0
--------- ---------
Total liabilities and shareholders'
equity $ 7,965.5 $ 7,197.3
========= =========
See accompanying notes to consolidated financial statements.
WARNER-LAMBERT COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1997 1996 1997 1996
---- ---- ---- ----
(Dollars in millions, except per share amounts)
NET SALES $2,108.3 $1,768.0 $5,852.4 $5,388.4
COSTS AND EXPENSES:
Cost of goods sold 614.0 580.2 1,756.8 1,741.8
Selling, general and
administrative 968.5 778.6 2,588.3 2,297.8
Research and development 182.0 145.0 474.1 405.4
Other expense, net 60.5 49.2 127.8 7.5
-------- -------- -------- --------
Total costs and expenses 1,825.0 1,553.0 4,947.0 4,452.5
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES AND
MINORITY INTERESTS 283.3 215.0 905.4 935.9
Provision for income taxes 85.0 62.3 271.6 251.4
Minority interests - - - 69.0
-------- -------- -------- --------
NET INCOME $ 198.3 $ 152.7 $ 633.8 $ 615.5
======== ======== ======== ========
PER COMMON SHARE:
Net income $ .73 $ .56 $ 2.33 $ 2.27
======== ======== ======== ========
Cash dividends paid $ .38 $ .345 $ 1.14 $ 1.035
======== ======== ======== ========
Average number of common shares
outstanding (thousands) 271,863 271,248 271,556 271,214
See accompanying notes to consolidated financial statements.
WARNER-LAMBERT COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months
Ended September 30,
-------------------
1997 1996
---- ----
(Dollars in millions)
OPERATING ACTIVITIES:
Net income $ 633.8 $ 615.5
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 195.7 165.7
Minority interests - 69.0
Gain on sale of businesses - (75.2)
Changes in assets and liabilities, net of
effects from acquisitions/dispositions
of businesses:
Receivables (198.1) (248.1)
Inventories (116.4) (49.7)
Accounts payable and accrued liabilities 340.6 86.2
Other, net (26.7) 16.1
--------- ---------
Net cash provided by operating activities 828.9 579.5
--------- ---------
INVESTING ACTIVITIES:
Purchases of investments (12.6) (216.3)
Proceeds from maturities/sales of investments 107.0 372.1
Capital expenditures (242.6) (221.1)
Acquisitions of businesses (293.0) (1,058.9)
Proceeds from disposition of business - 137.4
Other, net (8.6) (53.5)
--------- ---------
Net cash used by investing activities (449.8) (1,040.3)
--------- ---------
FINANCING ACTIVITIES:
Proceeds from borrowings 1,369.8 2,159.5
Principal payments on borrowings (1,069.7) (1,115.9)
Purchases of treasury stock (106.3) (98.7)
Cash dividends paid (309.6) (280.7)
Distributions paid to minority interests - (103.2)
Proceeds from exercise of stock options 57.5 48.2
--------- ---------
Net cash (used) provided by financing activities (58.3) 609.2
--------- ---------
Effect of exchange rate changes on cash
and cash equivalents (27.9) (6.5)
--------- ---------
Net increase in cash and cash equivalents 292.9 141.9
Cash and cash equivalents at beginning of year 390.8 295.8
--------- ---------
Cash and cash equivalents at end of period $ 683.7 $ 437.7
========= =========
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: 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 E: 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 September 30, 1997 no pro forma diluted EPS disclosures are
provided as diluted EPS does not significantly vary from basic
EPS.
NOTE F: 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 Nos. 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 G: Major classes of inventories were as follows:
September 30, 1997 December 31, 1996
------------------ -----------------
(In millions)
Raw materials $158.9 $130.9
Finishing supplies 55.8 52.0
Work in process 71.8 69.2
Finished goods 463.7 394.9
------ ------
$750.2 $647.0
====== ======
NOTE H: Property, plant and equipment balances were as follows:
September 30, 1997 December 31, 1996
------------------ -----------------
(In millions)
Property, plant and equipment $3,852.9 $ 3,657.6
Less accumulated depreciation (1,517.1) (1,489.6)
-------- ---------
Net $2,335.8 $ 2,168.0
======== =========
NOTE I: Intangible asset balances were as follows:
September 30, 1997 December 31, 1996
------------------ -----------------
(In millions)
Goodwill $ 979.9 $1,001.6
Trademarks and other
intangibles 837.6 564.1
Less accumulated amortization (136.9) (109.9)
-------- --------
Net $1,680.6 $1,455.8
======== ========
The increase in the intangible asset balance during 1997 is
primarily related to the acquisitions discussed in Note D.
NOTE J: Included in Other expense, net was interest expense of
$43.0 million and $44.6 million for the third quarters of 1997
and 1996, respectively. Interest expense for the first nine
months of 1997 and 1996 was $129.7 million and $105.0 million,
respectively.
NOTE K: 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 L: 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, net for the
nine months ended September 30, 1996. On an after tax basis, the
gain was $45.7 million or $.17 per share.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1997
- ------------------------------------------------------
COMPARED WITH CORRESPONDING PERIODS IN 1996
- -------------------------------------------
NET SALES
- ---------
Sales for the third quarter of 1997 of $2,108 million were 19
percent above 1996 third quarter sales. For the first nine months of
1997 sales rose 9 percent to $5,852 million compared to the first
nine months of 1996. Sales increased 24 percent for the quarter and
12 percent for the nine-month period, adjusting for the unfavorable
impact of foreign exchange rate changes of 5 percent and 3 percent,
respectively. The increases were attributable to unit volume
growth.
U.S. sales increased $321 million or 40 percent to $1,130 million
for the third quarter and $530 million or 22 percent to $2,896
million for nine months. International sales increased $19 million
or 2 percent to $978 million for the third quarter and fell $66
million or 2 percent to $2,957 million for nine months. At constant
exchange rates, international sales increased 11 percent and 4
percent for the third quarter and nine months, respectively.
SEGMENT SALES Three Months Ended Nine Months Ended
(Dollars in September 30, September 30,
Millions) ----------------------- -----------------------
Percent Percent
Increase/ Increase/
1997 1996 (Decrease) 1997 1996 (Decrease)
---- ---- -------- ---- ---- --------
Pharmaceutical $ 948 $ 604 57 % $2,459 $1,880 31 %
Consumer Health
Care 671 691 (3) 2,008 2,101 (4)
Confectionery 489 473 3 1,385 1,407 (2)
------ ------ ------ ------
Consolidated
Net Sales $2,108 $1,768 19 % $5,852 $5,388 9 %
====== ======= ====== ======
Pharmaceutical sales in the U.S. increased 102 percent to $585
million in the third quarter and increased 58 percent to $1,413
million for nine months. The sales increase was attributable to the
successful 1997 launches of the cholesterol-lowering agent LIPITOR
and the type 2 diabetes drug REZULIN. International pharmaceutical
sales increased 16 percent to $363 million for the third quarter and
6 percent to $1,046 million for nine months, 28 percent and 15
percent, respectively, at constant exchange rates. The increase was
attributable to the 1997 launch of LIPITOR in several countries and
the May 1997 acquisition of the remaining 66 percent of the
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 Warner-Lambert 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 $257 million and
$137 million, respectively, for the third quarter and $457 million
and $242 million, respectively, for nine months. The company began
selling LIPITOR during 1997 in 16 countries including the U.S.,
Canada, the United Kingdom and Germany. The company expects LIPITOR
to be marketed in more than 20 countries by December 31, 1997. 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 ("FDA") for use as either monotherapy
or combination therapy with other commonly used agents. This
marketing clearance now makes REZULIN available to a broad range of
type 2 patients. On October 31, 1997 in response to rare post-
marketing reports of liver injury (35 out of 650,000 patients which
ranged from mild elevations of liver enzymes to one liver transplant
and one death), the company, with the concurrence of the FDA,
changed the prescribing information for Rezulin and added new
warning information to the labeling, which includes recommended
liver function testing. Liver injuries observed in clinical testing
were reversible with discontinuation of drug therapy. The company
believes that both LIPITOR and REZULIN have 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. of $363 million were
virtually unchanged for the third quarter and fell 2 percent to
$1,031 million for nine months. International sales fell 6 percent
to $308 million for the third quarter and 7 percent to $977 million
for nine months. At constant exchange rates, international sales
increased 2 percent for the third quarter and decreased 1 percent
for the nine-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 2 percentage points and 3
percentage points for the third quarter and the nine-month period,
respectively. International shaving products sales decreased 9
percent to $132 million and decreased 5 percent to $412 million for
the third quarter and nine months, respectively. However,
international shaving products sales increased 1 percent and 4
percent, respectively, at constant rates for the same reporting
periods. The negative currency impact related to shaving products
sales is due to weakness in the Japanese yen and the German mark.
International sales of the company's TETRA pet care products
business fell 14 percent to $28 million, or 3 percent at constant
exchange rates for the third quarter and 15 percent to $92 million,
or 6 percent at constant exchange rates for nine months. This
decline was 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 16 percent to $182 million
for the third quarter and 6 percent to $452 million for nine months
primarily due to the launches of DENTYNE ICE chewing gum and HALLS
ZINC DEFENSE cold season dietary supplement. International sales
were $307 million for the third quarter, a decrease of 3 percent,
and $933 million for nine months, a decrease of 5 percent.
International sales increased 3 percent and decreased 1 percent,
respectively, at constant exchange rates for the same reporting
periods. The international sales decline was primarily attributable
to Japan, where sales fell due to intense competition, market
weakness and the decrease in the value of the yen and was partly
attributable to the weakness in most European currencies.
COSTS AND EXPENSES
- ------------------
Cost of goods sold increased 6 percent in the third quarter and 1
percent for nine months. As a percentage of net sales, cost of
goods sold fell to 29.1% in the third quarter from 32.8% in the
third quarter of 1996 and to 30.0% for the nine months of 1997 from
32.3% in the same period one year ago. The improvement in the ratio
for both reporting periods was 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 was a favorable product mix within the pharmaceutical segment
and productivity improvements in the consumer health care segment.
Selling, general and administrative expense in the third quarter
increased 24 percent and 13 percent for nine months. Pharmaceutical
segment expenses significantly increased for the third quarter and
the nine-month period to support new products. Settlements of co-
promotion agreements related to LIPITOR and REZULIN are recorded in
selling expense. International pharmaceutical segment expenses also
increased partly due to the May 1997 Jouveinal acquisition. As a
percentage of net sales, selling, general and administrative expense
for the third quarter of 1997 increased to 45.9% compared with 44.0%
for the same quarter last year and for the nine months of 1997
increased to 44.2% compared with 42.6% for the prior year.
Research and development expense for the third quarter and nine
months increased 26 percent and 17 percent, respectively. As a
percentage of net sales, research and development expense in the
third quarter was 8.6% compared with 8.2% in the third quarter of
1996 and for the nine-month period of 1997 the ratio was 8.1% versus
7.5% one year ago. For 1997 the company plans to invest $660 million
in research and development, a projected increase of 19 percent
compared with 1996.
Other expense, net for nine months included increases in
intangible amortization of $18 million and net interest expense of
$40 million. 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
Jouveinal acquisition. Other expense, net in the first
nine months of 1996 included milestone payments from Pfizer Inc. of
$45 million related to the LIPITOR co-promotion agreement, a gain of
$75 million on the sale of the Warner Chilcott business and a
provision of $15 million for certain legal matters.
Other expense, net in the third quarter of 1996 included
milestone payments from Pfizer Inc. of $20 million related to the
LIPITOR co-promotion agreement.
INCOME TAXES
- ------------
Three Months Nine Months
Ended September 30, Ended September 30,
1997 1996 1997 1996
---- ---- ---- ----
Effective tax rate:
As reported 30.0% 29.0% 30.0% 26.9%
After minority interests 30.0% 29.0% 30.0% 29.0%
The increase in the company's tax rate on a reported basis of 3.1
percentage points for the nine-month period reflects a 2.1
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.
In the third quarter the favorable impact of the extension of the
U.S. research tax credit enacted in August 1997 as part of the
Taxpayer Relief Act of 1997 was offset by increased taxes on income
generated in higher tax jurisdictions.
NET INCOME
- ----------
Net income and earnings per share for the third quarter increased
30 percent and for nine months increased 3 percent. Adjusting the
first nine months of 1996 for the gain on the sale of the Warner
Chilcott business and provisions for certain legal matters, earnings
per share increased 9 percent for nine months. Management
anticipates that pharmaceutical segment annual operating profits as
a percentage of total annual operating profits will significantly
increase compared to the prior year primarily as a result of the
success of LIPITOR and REZULIN. 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:
September 30, December 31,
1997 1996
------- ------------
Net debt (in millions) $1,778 $1,712
Net debt to net capital(equity
and net debt) 39% 40%
Cash and cash equivalents were $684 million at September 30, 1997,
an increase of $293 million from December 31, 1996. The company
also held $105 million in nonequity securities, included in short-
term investments and investments and other assets, that management
views as cash equivalents, representing a decrease of $92 million
from December 31, 1996. This net increase of $201 million is
primarily attributable to an increase in cash provided by operating
activities. The increase in cash provided by operating activities
was partly attributable to the timing of LIPITOR and REZULIN co-
promotion payments which are made subsequent to the end of each
quarter. Cash provided by operating activities for the first nine
months of 1997 of $829 million was more than sufficient to fund
capital expenditures of $243 million and pay dividends of $310
million.
Total debt of $2,566 million at September 30, 1997 increased $267
million from December 31, 1996 primarily due to the funds borrowed
to acquire Jouveinal.
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
(the "Complaint") 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. An
administrative hearing on all counts of the Complaint is scheduled
for December 1997. 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. Appeals of the District
Court's approval of this settlement were unsuccessful.
Certain other rulings of the judge presiding in this case were also
appealed, and the judge was reversed on all issues. The cases have
been remanded to the District Court, and the trial of the class
action conspiracy action against the non-settling pharmaceutical
manufacturers and wholesalers has been scheduled for 1998.
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 two
subpoenas from the FTC in 1996 and 1997, respectively, and is
continuing to cooperate with this investigation. Warner-Lambert
cannot at present predict the outcome of this investigation.
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. In addition, the Environmental Crimes Section
of the Department conducted a criminal 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. In September 1997, Warner-Lambert's Puerto Rico-based
subsidiary resolved these inquiries by (1) entering a civil
settlement with the Department and (2) pleading guilty to six counts
of misreporting wastewater discharge data. The subsidiary paid a
penalty of $670,000 as part of the civil settlement and a fine of $3
million pursuant to its guilty plea. At the court hearing approving
the settlement, the United States Government stated for the public
record that there is no evidence that the violations of Warner-
Lambert's subsidiary resulted in any environmental harm.
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).
(99) Additional Exhibits.
(a) Cautionary Statements Relating to "Safe
Harbor" Provisions of the Private
Securities Litigation Reform Act of
1995.
(b) Reports on Form 8-K
-------------------
Warner-Lambert has not filed any reports on
Form 8-K for the quarter ended September 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: November 11, 1997 By: Ernest J. Larini
----------------
Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: November 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).
(99) Additional Exhibits.
(a) Cautionary Statements Relating to "Safe
Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995.
<TABLE>
EXHIBIT 12
WARNER-LAMBERT COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in millions)
Years Ended December 31,
Nine Months Ended ---------------------------------------------
September 30, 1997 1996 1995 1994 1993 1992
------------------ ---- ---- ---- ---- ----
Earnings before income taxes and
accounting changes (less
<S> <C> <C> <C> <C> <C> <C>
minority interests) $ 905.4 $1,107.7 $1,018.6 $ 913.1 $318.5 $858.2
Add:
Interest on indebtedness-
excluding amount capitalized 129.7 145.9 122.7 93.7 64.2 80.8
Amortization of debt expense .4 .5 .4 .4 .5 .6
Interest factor in rent
expense (a) 20.6 27.5 26.9 26.2 25.4 23.4
-------- -------- -------- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Adjusted earnings $1,056.1 $1,281.6 $1,168.6 $1,033.4 $408.6 $963.0
======== ======== ======== ======== ====== ======
Fixed Charges:
Interest on indebtedness $ 129.7 $ 145.9 $ 122.7 $ 93.7 $ 64.2 $ 80.8
Capitalized interest 6.1 9.6 10.1 9.4 8.6 8.1
Amortization of debt expense .4 .5 .4 .4 .5 .6
Interest factor in rent
expense (a) 20.6 27.5 26.9 26.2 25.4 23.4
-------- -------- -------- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Total fixed charges $ 156.8 $ 183.5 $ 160.1 $ 129.7 $ 98.7 $112.9
======== ======== ======== ======== ====== ======
Ratio of earnings to fixed charges 6.7 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 SEPTEMBER 30,1997 AND
FROM THE RELATED CONSOLIDATED STATEMENT OF INCOME FOR THE 9 MONTH
PERIOD ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 684
<SECURITIES> 18
<RECEIVABLES> 1,473
<ALLOWANCES> 0
<INVENTORY> 750
<CURRENT-ASSETS> 3,376
<PP&E> 3,853
<DEPRECIATION> 1,517
<TOTAL-ASSETS> 7,966
<CURRENT-LIABILITIES> 2,611
<BONDS> 1,930
0
0
<COMMON> 321
<OTHER-SE> 2,406
<TOTAL-LIABILITY-AND-EQUITY> 7,966
<SALES> 5,852
<TOTAL-REVENUES> 5,852
<CGS> 1,757
<TOTAL-COSTS> 1,757
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 130
<INCOME-PRETAX> 905
<INCOME-TAX> 272
<INCOME-CONTINUING> 634
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 634
<EPS-PRIMARY> 2.33
<EPS-DILUTED> 0
</TABLE>
Exhibit 99(a)
Cautionary Statements Relating to "Safe Harbor" Provisions of
the Private Securities Litigation Reform Act of 1995
Certain Company communications contain forward-looking
statements. These statements may be identified by the use of
forward-looking words or phrases such as "believe," "expect,"
"anticipate," "should," "planned," "may," "estimated" and
"potential." These forward-looking statements are based on the
Company's current expectations. The Private Securities
Litigation Reform Act of 1995 provides a "safe harbor" for such
forward-looking statements. In order to comply with the terms
of the safe harbor, the Company notes that a variety of factors
could cause actual results and experience to differ materially
from the anticipated results or other expectations expressed in
such forward-looking statements. The risks and uncertainties
that may affect the operations, performance, development and
results of the Company's business include:
Changes in the favorable market reaction to the Company's
significant new pharmaceutical products, the cholesterol-
lowering agent LIPITOR and the type 2 diabetes drug REZULIN.
Competitive factors, including managed care and other groups or
institutions seeking price discounts; technological advances
attained by competitors; and patents granted to or contested by
competitors, which would result in their ability to compete
against the Company more effectively.
Difficulties or delays in pharmaceutical product development,
including, but not limited to, the inability to identify viable
new chemical compounds, to successfully complete toxicology
testing and/or clinical trials, to obtain regulatory approval
for the compounds or to gain market acceptance of approved
products.
Unexpected safety or efficacy concerns arising with respect to
marketed products, whether or not scientifically justified,
leading to product recalls, withdrawals or other actions which
could result in declining sales.
The expiration of patents or governmental grants of exclusivity
with respect to the Company's products.
Government laws and regulations affecting domestic and
international operations, which could include matters affecting
drug approval and pricing; or actions of regulatory agencies
with respect to products and/or manufacturing facilities which
could result in fines, products interruption or withdrawal,
plant closures or consent decrees.
Changes in economic conditions (including inflation, interest
rates and foreign currency exchange rates) in the global
marketplace, including Canada, Japan, Mexico and Western
Europe, where the Company has significant businesses.
Significant litigation adverse to the Company, including,
particularly, product liability litigation, antitrust
litigation and patent and trademark litigation.
