<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
December 17, 1999
Date of Report (Date of earliest event reported)
WARNER-LAMBERT COMPANY
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
1-3608 22-1598912
(Commission File Number) (IRS Employer Identification No.)
201 Tabor Road, Morris Plains, New Jersey 07950-2693
(Address of principal executive offices) (Zip Code)
(973) 385-2000
(Registrant's telephone number, including area code)
<PAGE>
ITEM 5. OTHER EVENTS
Financial Statements Restated Following the Acquisition of Agouron
Pharmaceuticals Inc.
On May 17, 1999, Warner-Lambert Company ("Warner-Lambert") completed
the acquisition of Agouron Pharmaceuticals, Inc., a California corporation
("Agouron"), in a transaction accounted for as a pooling of interests.
Under the pooling of interests method of accounting, the financial
statements of both Warner-Lambert and Agouron are combined as if they were
always one company. Accordingly, Warner-Lambert restated its consolidated
balance sheets at December 31, 1998 and 1997, and the related consolidated
statements of income and of cash flows for each of the three years in the
period ended December 31, 1998. These restated consolidated financial
statements are attached hereto as Exhibit 99.1 and are incorporated herein
by reference. Management's discussion and analysis of the restated
consolidated financial statements is attached hereto as Exhibit 99.2 and is
incorporated herein by reference.
Item 7. Financial Statements and Exhibits.
(c) The following exhibits are filed with this report:
(23.1) Consent of PricewaterhouseCoopers LLP
(99.1) Warner-Lambert Company's restated Consolidated Balance Sheets
as of December 31, 1998 and 1997 and restated Consolidated
Statements of Income and Comprehensive Income and of Cash Flows
for the years ended December 31, 1998, 1997 and 1996, and
related notes thereto.
(99.2) Warner-Lambert Company's 1998 restated Management's
Discussion and Analysis.
<PAGE>
SIGNATURE
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 hereunto duly authorized.
WARNER-LAMBERT COMPANY
By: /s/ Rae G. Paltiel
--------------------------
Name: Rae G. Paltiel
Title: Secretary
Dated: December 17, 1999
<PAGE>
EXHIBIT INDEX
(23.1) Consent of PricewaterhouseCoopers LLP
(99.1) Warner-Lambert Company's restated Consolidated Balance Sheets
as of December 31, 1998 and 1997 and restated Consolidated
Statements of Income and Comprehensive Income and of Cash Flows
for the years ended December 31, 1998, 1997 and 1996, and
related notes thereto.
(99.2) Warner-Lambert Company's 1998 restated Management's
Discussion and Analysis.
<PAGE>
EXHIBIT 23.1
WARNER-LAMBERT COMPANY AND CONSOLIDATED SUBSIDIARIES
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Prospectuses constituting part of the Registration Statements on Form S-3
(Registration Nos. 33-4049, 33-38725, 33-55692, 333- 04353 and 333-51533)
and to the incorporation by reference in the Registration Statements on
Form S-8 (Registration Nos. 33-21123, 33-28375, 33-12209, 33-49244,
33-57918, 333-19311, 333-78645, 333-78643 and 333- 78647) of Warner-Lambert
Company of our report dated January 25, 1999, except for Note 1, as to
which the date is December 17, 1999, relating to the financial statements
of Warner-Lambert Company, which appears in the Current Report on Form 8-K
of Warner-Lambert Company dated December 17, 1999.
PricewaterhouseCoopers LLP
400 Campus Drive
Florham Park, New Jersey
December 17, 1999
<PAGE>
EXHIBIT 99.1
Warner-Lambert Company and Subsidiaries
Consolidated Statements of Income and Comprehensive Income
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1998 1997 1996
-------------- ---------- ------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
NET INCOME
Net sales........................................ $10,743.8 $ 8,408.1 $ 7,231.4
Costs and expenses:
Cost of goods sold............................ 2,860.2 2,502.9 2,346.9
Selling, general and administrative........... 4,852.2 3,726.5 3,131.3
Research and development...................... 1,025.6 730.7 599.0
Other expense (income), net................... 214.8 259.2 16.1
-------------- ---------- ------------
Total costs and expenses................... 8,952.8 7,219.3 6,093.3
============== ========== ============
Income before income taxes and minority interests 1,791.0 1,188.8 1,138.1
Provision for income taxes.................... 517.8 326.4 322.5
Minority interests............................ -- -- 69.0
-------------- ---------- -------------
Net income....................................... $ 1,273.2 $ 862.4 $ 746.6
============== ========== =============
Net income per common share*:
Basic......................................... $ 1.50 $ 1.03 $ 0.89
Diluted....................................... $ 1.45 $ 0.99 $ 0.88
-------------- ---------- --------------
Cash dividends per common share*................. $ 0.64 $ 0.51 $ 0.46
-------------- ---------- --------------
COMPREHENSIVE INCOME
Net income....................................... $ 1,273.2 $ 862.4 746.6
Other comprehensive income (net of tax):
Foreign currency translation.................. 57.7 (193.8) (19.9)
Other......................................... (18.3) (14.6) 6.4
------------- ---------- ---------------
Total other comprehensive income.............. 39.4 (208.4) (13.5)
Comprehensive income............................. $ 1,312.6 $ 654.0 $ 733.1
============= ========== ===============
</TABLE>
*Amounts reflect a three-for-one stock split effective May 1998.
All amounts have been restated under the pooling of interests method of
accounting to include the financial results of Agouron Pharmaceuticals,
Inc. acquired on May 17, 1999.
See notes to consolidated financial statements.
<PAGE>
Warner-Lambert Company and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
---------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Assets:
Cash and cash equivalents............................ $ 945.8 $ 786.0
Accounts receivable, less allowances of $30.6 in
1998 and $34.7 in 1997........................... 1,475.9 1,212.5
Other receivables.................................... 205.6 191.7
Inventories.......................................... 992.8 821.8
Prepaid expenses and other current assets............ 628.8 510.0
---------- ----------
Total current assets.............................. 4,248.9 3,522.0
Investments and other assets......................... 718.9 658.6
Property, plant and equipment........................ 2,821.9 2,455.3
Intangible assets.................................... 1,730.4 1,716.5
---------- ----------
$9,520.1 $ 8,352.4
========== ==========
Liabilities and shareholders' equity:
Short-term debt...................................... $ 264.2 $ 375.4
Accounts payable, trade.............................. 1,518.2 1,057.2
Accrued compensation................................. 233.3 191.4
Other current liabilities............................ 980.1 818.9
Federal, state and foreign income taxes.............. 248.2 194.4
---------- ----------
Total current liabilities......................... 3,244.0 2,637.3
Long-term debt....................................... 1,266.7 1,836.0
Deferred income taxes and other noncurrent
liabilities....................................... 1,129.1 828.0
Shareholders' equity:
Preferred stock - none issued........................ -- --
Common stock issued:
1998 - 961,981,608 shares;
1997 - 320,660,536 shares............................ 962.0 320.7
Capital in excess of par value.................... 520.6 530.9
Retained earnings................................. 4,038.5 3,661.3
Accumulated other comprehensive income............ (399.3) (438.7)
Treasury stock, at cost:
1998 - 112,073,966 shares;
1997 - 39,314,186 shares...................... (1,241.5) (1,023.1)
---------- ----------
Total shareholders' equity.................. 3,880.3 3,051.1
---------- ----------
$9,520.1 $ 8,352.4
========== ==========
</TABLE>
All amounts have been restated under the pooling of interests method of
accounting to include the financial results of Agouron Pharmaceuticals,
Inc. acquired on May 17, 1999.
See notes to consolidated financial statements.
<PAGE>
Warner-Lambert Company and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1998 1997 1996
--------- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Operating Activities:
Net income................................... $ 1,273.2 $ 862.4 $ 746.6
Adjustments to reconcile net income to net
cash provided by
operating activities:
Depreciation and amortization................ 308.4 281.9 233.6
Gains on sales of businesses................. -- -- (75.2)
Minority interests........................... -- -- 69.0
Deferred income taxes........................ (164.5) (65.1) 70.7
Changes in assets and liabilities, net of
effects from acquisitions/
dispositions of businesses:
Receivables............................... (331.4) (169.8) (215.3)
Inventories............................... (158.6) (167.4) (45.3)
Accounts payable and accrued liabilities.. 749.1 705.1 96.7
Other, net................................... 277.3 129.5 126.2
--------- --------- ---------
Net cash provided by operating activities.... 1,953.5 1,576.6 1,007.0
--------- --------- ---------
Investing Activities:
Purchases of investments..................... (105.6) (145.2) (239.7)
Proceeds from maturities/sales of investments 218.1 245.6 529.1
Capital expenditures......................... (753.2) (512.5) (395.3)
Acquisitions of businesses................... -- (228.4) (1,045.1)
Proceeds from dispositions of businesses..... 125.0 -- 137.4
Other, net................................... 66.0 (16.8) (80.4)
--------- --------- ---------
Net cash used by investing activities..... (449.7) (657.3) (1,094.0)
--------- --------- ---------
Financing Activities:
Proceeds from borrowings..................... 871.3 1,577.5 2,165.3
Principal payments on borrowings............. (1,562.3) (1,622.7) (1,423.4)
Purchases of treasury stock.................. (265.2) (135.2) (138.9)
Cash dividends paid.......................... (524.6) (413.1) (374.4)
Distributions paid to minority interests..... -- -- (102.4)
Proceeds from stock option exercises......... 117.1 84.3 66.7
--------- --------- ---------
Net cash (used) provided by financing
activities............................ (1,363.7) (509.2) 192.9
--------- --------- ---------
Effect of exchange rate changes on cash and
cash equivalents................................ 19.7 (31.7) (4.7)
--------- --------- ---------
Net increase in cash and cash equivalents....... 159.8 378.4 101.2
Cash and cash equivalents at beginning of year.. 786.0 407.6 306.4
--------- --------- ---------
Cash and cash equivalents at end of year........ $ 945.8 $ 786.0 $ 407.6
========= ========= =========
</TABLE>
All amounts have been restated under the pooling of interests method of
accounting to include the financial results of Agouron Pharmaceuticals,
Inc. acquired on May 17, 1999.
See notes to consolidated financial statements.
<PAGE>
Notes to Consolidated Financial Statements
Warner-Lambert Company and Subsidiaries
(Dollars in millions, except per share amounts)
Note 1 - Business Combination:
In May 1999, Warner-Lambert Company acquired Agouron Pharmaceuticals, Inc.
(Agouron), an integrated pharmaceutical company committed to the discovery
and development of innovative therapeutic products for treatment of cancer,
AIDS and other serious diseases. Warner-Lambert Company exchanged 28.8
million shares of its common stock for all of the common stock of Agouron.
Each outstanding share of Agouron common stock was exchanged for .8934
shares of Warner-Lambert Company common stock. In addition, Agouron's
employee stock options outstanding were converted at the same rate and
resulted in options to purchase 7.5 million shares of Warner-Lambert
Company common stock.
The transaction was accounted for as a pooling of interests under
Accounting Principles Board Opinion (APB) No. 16 and qualified as a
tax-free exchange. Accordingly, all consolidated financial statements
presented have been restated to include combined results of operations,
financial position and cash flows of Agouron as though it had always been a
part of Warner-Lambert Company. Dividends per common share are equal to
Warner-Lambert Company's historical dividends per common share since
Agouron has never declared or paid cash dividends on its common stock.
Prior to the merger, Agouron's fiscal year ended on June 30. As a result,
Agouron's financial statements have been restated to conform with
Warner-Lambert Company's December 31 year end. No adjustments were
necessary to conform Agouron's accounting policies, however, certain
reclassifications were made to the Agouron financial statements to conform
to Warner-Lambert Company's presentation.
The results of operations for the separate companies and the combined
amounts presented in the consolidated financial statements are shown below:
YEARS ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
---------- ---------- ----------
NET SALES:
Warner-Lambert Company.................$ 10,213.7 $ 8,179.8 $ 7,231.4
Agouron................................ 530.1 228.3 --
---------- ---------- ----------
Combined...............................$ 10,743.8 $ 8,408.1 $ 7,231.4
========== ========== ==========
NET INCOME:
Warner-Lambert Company.................$ 1,254.0 $ 869.5 $ 786.5
Agouron................................ 19.2 (7.1) (39.9)
---------- ---------- ----------
Combined...............................$ 1,273.2 $ 862.4 $ 746.6
========== ========== ==========
<PAGE>
Note 2 - Significant Accounting Policies:
Basis of consolidation - The consolidated financial statements include the
accounts of Warner-Lambert Company and all controlled, majority-owned
subsidiaries ("Warner-Lambert" or the "company"). Investments in companies
in which Warner-Lambert's interest is between 20 percent and 50 percent are
accounted for using the equity method.
The company has consistently reported using a December 31 consolidated
reporting year end. Through December 31, 1995 international affiliates
reported on a fiscal-year basis ending November 30. Effective January 1,
1996, the company's international operations 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 international subsidiaries for the month of December 1995
are included as a charge of $18.8 against retained earnings.
Reclassification - Certain prior year amounts have been reclassified to
conform with current year presentation.
Use of estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and use assumptions that affect certain reported amounts. Actual
amounts could differ from those estimates.
Revenue recognition - Sales are recorded as product is shipped to
customers. Provisions for discounts, returns and other allowances are
recorded in the same period the related sales are recognized.
Cash equivalents - Cash equivalents include nonequity short-term
investments with original maturity dates of 90 days or less.
Inventories - Inventories are valued at the lower of cost or market. Cost
is determined principally on the basis of first-in, first-out or standards
which approximate average cost.
Property, plant and equipment - Property, plant and equipment are recorded
at cost. The cost of maintenance, repairs, minor renewals and betterments
and minor equipment items is charged to income; the cost of major renewals
and betterments is capitalized. Depreciation is calculated generally on the
straight-line method over the estimated useful lives of the various classes
of assets.
Intangible assets - Intangible assets are recorded at cost and are
amortized on the straight-line method over appropriate periods not
exceeding 40 years. The company continually reviews goodwill and other
intangible assets to evaluate whether events or changes have occurred that
would suggest an impairment of carrying value. An impairment would be
recognized when expected future operating cash flows are lower than the
carrying value.
<PAGE>
Advertising costs - Advertising costs are expensed as incurred and amounted
to $927.5 in 1998, $840.1 in 1997, and $674.9 in 1996.
Newly issued accounting standards - In June 1998, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards
(SFAS) No. 133, "Accounting for Derivative Instruments and Hedging
Activities," which establishes accounting and reporting standards for
derivative instruments. SFAS No. 133 requires all derivatives to be
measured at fair value and recognized as either assets or liabilities. The
adoption of this Statement is not expected to have a material effect on the
company's consolidated financial position, liquidity, cash flows or results
of operations. In June 1999, the FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities -- Deferral of the Effective
Date of FASB Statement No. 133." This pronouncement deferred the effective
date of SFAS No. 133 to the first quarter of 2001.
Note 3 - Net Income Per Common Share:
The EPS computations were as follows:
(Shares in thousands)
YEARS ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
----------- ---------- ---------
BASIC EPS:
Net income...................................$ 1,273.2 $ 862.4 $ 746.6
Average common shares outstanding............ 847,733 841,112 834,801
--------- -------- --------
$ 1.50* $ 1.03* $ 0.89*
========= ======== ========
DILUTED EPS:
Net income................................... $1,273.2 $862.4 $746.6
Average common shares outstanding............ 847,733 841,112 834,801
Impact of potential future stock option
exercises, net of shares
repurchased............................... 31,226 26,974 15,442
--------- -------- --------
Average common shares outstanding-- assuming
dilution................................... 878,959 868,086 850,243
--------- -------- --------
$ 1.45* $ 0.99* $ 0.88*
========= ======== ========
*Amounts reflect a three-for-one stock split effective May 1998.
The diluted EPS computation includes the potential impact on the average
number of common shares outstanding if all common stock options issued are
exercised. The dilutive effect of stock options is computed using the
treasury stock method which assumes the repurchase of common shares by the
company at the average market price for the period.
Note 4 - Interest Income and Interest Expense:
<PAGE>
Interest income and interest expense are included in Other expense
(income), net. Interest income totaled $56.6, $46.9 and $61.0 and interest
expense totaled $114.3, $167.5 and $146.0 in 1998, 1997 and 1996,
respectively. Total interest paid was $103.9, $152.3 and $140.9 and
interest costs of $19.2, $8.3 and $9.6 have been capitalized and included
in Property, plant and equipment for those respective periods.
Note 5 - Acquisitions and Divestitures:
On December 31, 1998, Warner-Lambert Company and certain of its affiliates
and Glaxo Wellcome plc and certain of its affiliates (Glaxo Wellcome)
entered into transactions in various countries whereby Glaxo Wellcome
transferred to Warner-Lambert rights to over-the-counter (OTC) Zantac [R]
products in the United States and Canada, and Warner-Lambert principally
transferred to Glaxo Wellcome its rights to OTC Zantac [R] products in all
other markets and its rights to OTC Zovirax [R], OTC Beconase [R] and
future Glaxo Wellcome prescription to OTC switch products in all markets.
These OTC products had been marketed through joint ventures between
Warner-Lambert and Glaxo Wellcome which were formed to develop, seek
approval of and market OTC versions of Glaxo Wellcome prescription drugs.
These joint ventures were accounted for as equity method investments. For
financial reporting purposes, the December 31, 1998 transactions, which
ended the joint venture relationships between Warner-Lambert and Glaxo
Wellcome, were accounted for as a nonmonetary exchange of similar assets
with no gain or loss recognized.
On May 21, 1997, Warner-Lambert purchased the remaining 66 percent of the
Jouveinal group it did not already own. Consideration for this acquisition,
including estimated acquisition costs, net of cash acquired and proceeds
from the sale of certain acquired assets, was approximately $117.0. In
January 1993, Warner-Lambert initially acquired a 34 percent 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. In addition, the company acquired two Irish
manufacturing facilities from Hickson Pharmachem Limited and Plaistow
Limited, respectively, during the second quarter of 1997 for approximately
$118.0. The consideration for these three acquisitions was primarily
charged to intangible assets and is being amortized over periods of 40
years for goodwill and 5 to 20 years for trademarks and other intangibles.
The transactions were financed with a long-term credit facility.
In 1996, Warner-Lambert purchased Glaxo Wellcome'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,
which was charged primarily to goodwill and trademarks and is being
amortized primarily over 40 years. The transaction was financed with
commercial paper. Warner-Lambert entered into an agreement in December 1993
with Wellcome plc to establish this joint venture with operations in
various countries to develop and market a broad range of OTC products. The
joint venture commenced operations in 1994. Glaxo plc acquired Wellcome plc
in 1995 and changed the name of the combined company to Glaxo Wellcome plc.
All completed acquisitions, except the rights exchange with Glaxo Wellcome,
<PAGE>
have been accounted for under the purchase method. The excess of purchase
price over the estimated fair values of net tangible and identifiable
intangible assets acquired has been treated as goodwill. Net assets and
results of operations of all acquisitions, except Warner Wellcome, have
been included in the consolidated financial statements since the effective
acquisition dates. Financial results of Warner Wellcome were consolidated
prior to acquisition of the minority interest. The completed acquisitions
did not have a material pro forma impact on consolidated earnings.
In the first quarter of 1998, the company sold its Rochester, Michigan
pharmaceutical manufacturing plant as well as certain minor prescription
products for approximately $125.0. The resulting pretax gain of $66.6 was
offset by costs related to the company's plans to close two of its foreign
manufacturing facilities. The results of these transactions are recorded in
Other expense (income), net for the year ended December 31, 1998.
In the first quarter of 1996, Warner-Lambert sold Warner Chilcott
Laboratories, its generic pharmaceutical business. Net proceeds were
$137.4. The sale resulted in a pretax gain of $75.2, which is included in
Other expense (income), net for the year ended December 31, 1996. On an
after-tax basis, the gain was $45.7 or $.06 per share.
Note 6 - International Operations:
In translating foreign currency financial statements, local currencies of
foreign subsidiaries and branches have generally been determined to be the
functional currencies, except for those in hyperinflationary economies,
principally in Latin America. Net aggregate exchange (gains) losses
resulting from foreign currency transactions and translation adjustments
related to subsidiaries operating in highly inflationary countries amounted
to $13.6, $(18.2) and $7.6 in 1998, 1997 and 1996, respectively. The
cumulative translation adjustments component of shareholders' equity was
(credited) charged with $(57.7), $193.8 and $19.9 in 1998, 1997 and 1996,
respectively.
Note 7 - Inventories:
DECEMBER 31,
---------------------
1998 1997
---------- ---------
Raw materials.......................................$ 165.1 $ 167.7
Finishing supplies.................................. 48.8 53.1
Work in process..................................... 308.4 167.3
Finished goods...................................... 470.5 433.7
---------- ---------
$ 992.8 $ 821.8
========== =========
<PAGE>
Note 8 - Property, Plant and Equipment:
DECEMBER 31,
---------------------
1998 1997
---------- ---------
Land................................................$ 45.7 $ 38.6
Buildings........................................... 1,387.0 1,245.7
Machinery, furniture and fixtures................... 3,109.0 2,732.7
---------- ---------
4,541.7 4,017.0
Less accumulated depreciation....................... (1,719.8) (1,561.7)
---------- ---------
$ 2,821.9 $2,455.3
========== =========
Depreciation expense totaled $248.0, $224.8 and $201.9 in 1998, 1997 and
1996, respectively. Depreciation expense is charged to various income
statement line items based upon the functions utilizing subject assets.
Note 9 - Intangible Assets:
DECEMBER 31,
---------------------
1998 1997
---------- ---------
Goodwill.......................................$ 1,299.0 $ 1,267.5
Trademarks and other intangibles............... 666.4 606.5
---------- ---------
1,965.4 1,874.0
Less accumulated amortization.................. (235.0) (157.5)
---------- ---------
$ 1,730.4 $ 1,716.5
========== =========
Amortization expense, which is reflected in Other expense (income), net,
totaled $60.4, $57.1 and $31.7 in 1998, 1997 and 1996, respectively.
At December 31, 1998 and 1997, Goodwill is being amortized primarily over
40 years and Trademarks and other intangibles are being amortized over a
weighted average of approximately 33 years.
Note 10 - Debt:
The components of Short-term debt were as follows:
DECEMBER 31,
---------------------
1998 1997
---------- ---------
Notes payable....................................$ 245.9 $ 212.4
Current portion of long-term debt................ 18.3 163.0
---------- ---------
$ 264.2 $ 375.4
========== =========
The weighted-average interest rate for notes payable outstanding at
December 31, 1998 and 1997 was 6.9 percent and 6.2 percent, respectively.
The company has lines-of-credit arrangements with numerous banks with
<PAGE>
interest rates generally equal to the best prevailing rate. At December 31,
1998, worldwide unused lines of credit amounted to $1.4 billion. The 1997
current portion of long-term debt included $150.0 notes due 1998.
The components of Long-term debt were as follows:
DECEMBER 31,
---------------------
1998 1997
---------- ---------
Commercial paper.....................................$ 383.4 $ 990.0
Variable rate term loan.............................. -- 354.7
Variable rate master note............................ 100.0 200.0
6 5/8% notes due 2002................................ 199.8 199.7
5 3/4% notes due 2003................................ 250.0 --
6% notes due 2008.................................... 249.5 --
7.6% industrial revenue bonds due 2014............... 24.5 24.6
Other................................................ 59.5 67.0
---------- ---------
$ 1,266.7 $1,836.0
========== =========
At December 31, 1998, all commercial paper and the master note have been
classified as long-term debt due to the company's intent and ability to
refinance on a long-term basis. These instruments are supported by lines of
credit. At December 31, 1998, the weighted-average interest rate was 5.2
percent for commercial paper outstanding. The interest rate on the master
note at December 31, 1998 was 5.4 percent.
In January 1998, the company refinanced certain debt, primarily commercial
paper, by issuing $250.0 of 5 3/4 percent notes due 2003 and $249.5 of 6
percent notes due 2008. In addition, the variable rate term loan was paid
during 1998.
The aggregate annual maturities of long-term debt at December 31, 1998,
payable in each of the years 2000 through 2003, excluding short-term
borrowings reclassified to long-term are $14.2, $20.2, $207.5 and $256.5,
respectively.
Note 11 - Financial Instruments:
The estimated fair values of financial instruments were as follows:
DECEMBER 31,
----------------------------------------------
1998 1997
----------------------- ---------------------
CARRYING FAIR CARRYING FAIR
( ) = LIABILITY AMOUNT VALUE AMOUNT VALUE
--------- -------- --------- --------
Investment securities...........$ 165.6 $ 165.2 $ 272.5 $ 272.9
Long-term debt.................. (1,266.7) (1,294.7) (1,836.0) (1,841.7)
Foreign exchange contracts...... .3 (8.5) (.7) 13.3
----------------------------------------------
<PAGE>
Investment securities and Long-term debt were valued at quoted market
prices for similar instruments. The fair values of the remaining financial
instruments in the preceding table are based on dealer quotes and reflect
the estimated amounts that the company would pay or receive to terminate
the contracts. The carrying values of all other financial instruments in
the Consolidated Balance Sheets approximate fair values.
The investment securities were reported in the following balance sheet
categories:
DECEMBER 31,
---------------------
1998 1997
---------- ---------
Cash and cash equivalents........................ $ 40.3 $ 45.3
Prepaid expenses and other current assets........ 32.3 95.7
Investments and other assets..................... 93.0 131.5
--------- ---------
$ 165.6 $ 272.5
========= =========
The investment securities portfolio was primarily comprised of negotiable
certificates of deposit, U.S. and Puerto Rico government securities,
guaranteed collateralized mortgage obligations and Ginnie Mae certificates
as of year-end 1998 and 1997. These securities are classified as
"held-to-maturity." Equity securities, categorized as "available-for-sale,"
were immaterial.
As of December 31, 1998, the long-term investments of $93.0 included a $4.1
interest-bearing, mortgage-backed security maturing beyond 10 years.
Financial instruments that potentially subject the company to
concentrations of credit risk are trade receivables and interest-bearing
investments. The company sells a broad range of products in the
pharmaceutical, consumer health care and confectionery businesses
worldwide. The company's products are distributed to wholesalers and
directly or indirectly to pharmacies, chain food stores, mass
merchandisers, smaller independent retailers, hospitals, government
agencies, health maintenance organizations and other managed care entities.
Due to the large number and diversity of the company's customer base,
concentrations of credit risk with respect to trade receivables are
limited. The company does not normally require collateral. The company's
interest-bearing investments are high-quality liquid instruments, such as
certificates of deposit issued by major banks or securities issued or
guaranteed by the U.S. or other governments. The company limits the amount
of credit exposure to any one issuer.
The company does not hold or issue financial instruments for trading
purposes nor is it a party to leveraged derivatives. The company uses
derivatives, particularly interest rate swaps and forward or purchased
<PAGE>
option foreign exchange contracts, that are relatively straightforward and
involve little complexity as hedge instruments to manage interest rate and
foreign currency risks.
The company's foreign exchange risk management objectives are to stabilize
cash flows and reported income from the effect of foreign currency
fluctuations and reduce the overall foreign exchange exposure to
insignificant levels. Extensive international business activities result in
a variety of foreign currency exposures including foreign currency
denominated assets and liabilities, firm commitments, anticipated
intercompany sales and purchases of goods and services, intercompany
lending, net investments in foreign subsidiaries and anticipated net income
of foreign affiliates. The company continually monitors its exposures and
enters into foreign exchange contracts for periods of up to two years to
hedge such exposures.
At December 31, 1998 and 1997, the company had forward or purchased option
foreign exchange contracts with contractual amounts of $552.0 and $526.4,
respectively. These contracts principally exchange Japanese yen, Australian
dollars and Portuguese escudos for U.S. dollars; Canadian dollars for U.S.
dollars and Irish punts; Australian dollars for Irish punts; and U.S.
dollars for German marks in 1998; and Japanese yen, German marks, British
pounds and French francs for U.S. dollars; Canadian dollars for Italian
lira and British pounds; and U.S. dollars for Irish punts in 1997.
The company's interest rate risk management objectives are to manage the
interest cost of debt by using a mix of long-term fixed rate and short-term
variable rate instruments and entering into certain interest rate swap
agreements. Interest rate swap agreements were not material during 1998 or
1997.
The counterparties to the company's derivatives consist of major
international financial institutions. Because of the number of these
institutions and their high credit ratings, management believes derivatives
do not present significant credit risk to the company.
Gains and losses related to derivatives designated as effective hedges of
firm commitments are deferred and recognized in income as part of, and
concurrent with, the underlying hedged transaction. Other derivative
instruments, which are primarily related to hedging foreign currency
denominated assets and liabilities and anticipated net income of foreign
subsidiaries, are marked to market on a current basis with gains and losses
recognized in Other expense (income), net. Cash flows associated with
derivative financial instruments are classified as operating in the
Consolidated Statements of Cash Flows.
Note 12 - Leases:
The company rents various facilities and equipment. Rental expense amounted
to $119.0, $96.4 and $85.3 in 1998, 1997 and 1996, respectively.
The future minimum rental commitments under noncancellable capital and
operating leases at December 31, 1998 are summarized below:
<PAGE>
CAPITAL OPERATING
------------ -----------
1999........................................... $ 7.2 $ 76.1
2000........................................... 2.6 53.4
2001........................................... 4.0 32.2
2002........................................... 1.1 21.3
2003........................................... .8 17.4
Remaining years................................ 2.8 105.9
------------ -----------
Total minimum lease payments................... 18.5 306.3
Less minimum sublease income................... -- (29.9)
------------ -----------
Net minimum lease payments..................... 18.5 $ 276.4
============
Less amount representing interest.............. (3.4)
------------
Present value of minimum lease payments........ $15.1
============
Property, plant and equipment included capitalized leases of $71.8, less
accumulated depreciation of $7.8, at December 31, 1998 and $36.8, less
accumulated depreciation of $7.8, at December 31, 1997. Long-term debt
included capitalized lease obligations of $8.9 and $25.7 at those
respective dates.
Note 13 - Pensions and Other Postretirement Benefits:
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits," which standardizes and
combines the disclosures for pensions and other postretirement benefits.
The Statement was effective December 31, 1998.
The company has various pension plans covering substantially all of its
employees in the U.S. and certain foreign subsidiaries.
The company provides other postretirement benefits, primarily health
insurance, to qualifying domestic retirees and their dependents. These
plans are currently noncontributory for domestic employees who retired
prior to January 1, 1992. Effective January 1, 1998 the company expanded
the health insurance program by offering contributory benefits to all
domestic employees who have retired after December 31, 1991 and their
dependents, and future retirees meeting minimum age and service
requirements. This amendment increased the accumulated postretirement
benefit obligation by $88.8 million as of December 31, 1997. This amount is
being amortized to expense over the average remaining employee service
period of six years to reach eligibility at age 55. Postretirement benefits
for foreign subsidiary employees are not material.
The following tables present the benefit obligation and funded status of
the plans:
<PAGE>
<TABLE>
<CAPTION>
PENSION POSTRETIREMENT
---------------------- --------------------
1998 1997 1998 1997
-------- -------- --------- --------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year.. $ 2,276.6 $ 2,144.5 $ 273.1 $ 186.0
Service cost............................. 60.0 53.5 6.2 .4
Interest cost............................ 160.1 156.0 19.9 14.0
Plan participants' contributions......... 2.4 2.0 .2 --
Amendments............................... 11.6 1.7 (3.5) 88.8
Actuarial loss........................... 221.7 46.4 10.5 3.6
Benefits paid............................ (138.9) (127.5) (22.7) (19.7)
----------- ---------- --------- ----------
Benefit obligation at end of year........ $ 2,593.5 $ 2,276.6 $ 283.7 $ 273.1
=========== ========== ========= ==========
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning
of year.................................. $ 2,276.6 $ 2,052.3 $ -- $ --
Actual return on plan assets............. 230.1 287.6 -- --
Company contributions.................... 53.6 62.2 22.7 19.7
Plan participants' contributions ........ 2.4 2.0 -- --
Benefits paid............................ (138.9) (127.5) (22.7) (19.7)
------------ ---------- ----------- ----------
Fair value of plan assets at end of year. $ 2,423.8 $ 2,276.6 $ -- $ --
============ ========== =========== ==========
Funded status............................ $ (169.7) $ -- $ (283.7) $ (273.1)
Unrecognized actuarial loss.............. 197.3 32.6 59.8 51.6
Unrecognized prior service cost.......... 40.9 39.1 78.1 96.5
Unrecognized net transition obligation... (1.9) (.7) -- --
------------ ---------- ----------- -----------
Net amount recognized.................... $ 66.6 $ 71.0 $ (145.8) $ (125.0)
============ ========== =========== ===========
Amounts recognized in the Consolidated
Balance Sheets
consist of:
Prepaid benefit cost.................. $ 197.7 $ 184.0 $ -- $ --
Accrued benefit liability............. (154.7) (131.3) (145.8) (125.0)
Intangible asset...................... 1.8 3.3 -- --
Accumulated Other Comprehensive Income 21.8 15.0 -- --
----------- ----------- ---------- -----------
Net amount recognized.................... $ 66.6 $ 71.0 $ (145.8) $ (125.0)
=========== =========== ========== ===========
</TABLE>
Foreign pension plan assets at fair value included in the preceding table
were $757.5 in 1998 and $760.0 in 1997. The foreign pension plan projected
benefit obligation was $784.0 in 1998 and $710.6 in 1997.
The projected benefit obligation, accumulated benefit obligation and fair
<PAGE>
value of plan assets for the pension plans with accumulated benefit
obligations in excess of plan assets were $457.1, $392.6 and $270.6,
respectively as of December 31, 1998, and $163.2, $136.5 and $22.6,
respectively as of December 31, 1997.
The following table presents the annual cost related to the plans:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------
PENSION POSTRETIREMENT
------------------------ -----------------------
1998 1997 1996 1998 1997 1996
------- ------ ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
COMPONENTS OF NET PENSION
AND POSTRETIREMENT COSTS
Service cost...................................... $ 60.0 $ 53.5 $ 52.4 $ 6.2 $ 0.4 $ 0.5
Interest cost..................................... 160.1 156.0 153.3 19.9 14.0 13.7
Expected return on plan assets.................... (187.3) (175.5) (170.2) -- -- --
Amortization of prior service cost and
net transaction obligation.................... 7.5 7.2 7.7 14.7 .6 (.2)
Recognized actuarial loss......................... 3.6 4.0 8.7 2.6 2.5 3.0
Curtailment and special benefit charge............ 5.3 -- -- -- -- --
------- ------- ------- ------- ------- ------
Net pension and post-retirement costs............. $ 49.2 $ 45.2 $ 51.9 $43.4 $17.5 $17.0
======= ======= ======= ======= ======= ======
</TABLE>
The sale of the Rochester plant, as discussed in Note 5, resulted in a
curtailment and special benefit charge of $5.3 in 1998.
The assumptions for the U.S. pension and postretirement plans included an
expected increase in salary levels of 4.0 percent for each of the years
ended December 31, 1998, 1997 and 1996. The weighted-average discount rate
was 7.25 percent, 7.75 percent and 8.0 percent for 1998, 1997 and 1996,
respectively. The expected long-term rate of return on U.S. pension plan
assets was 10.5 percent for each of the years ended December 31, 1998, 1997
and 1996. Assumptions for foreign pension plans did not vary significantly
from the U.S. plans. Foreign postretirement plans for 1998, 1997 and 1996
were not material and are not included in the preceding table.
Net pension expense attributable to foreign plans included in the preceding
table was $15.0, $14.8 and $17.5 in 1998, 1997 and 1996, respectively.
Separate assumed health care cost trend rates have been used in the
valuation of postretirement health insurance benefits. For those employees
retiring before January 1, 1992, the assumed health care cost trend rate
was 9.2 percent in 1998 declining to 5.5 percent in 2005 for retirees under
age 65. For those 65 and over, a rate of 5.9 percent was used in 1998
declining to 5.5 percent in 2000. For those employees retiring after
December 31, 1991, rates of either 8.8 percent or 6.7 percent were used in
<PAGE>
1998 depending on coverage option, with both rates declining to 5.0 percent
in 2004. A one percentage point increase in health care cost trend rates in
each year would increase the accumulated postretirement benefit obligation
as of December 31, 1998 by $14.6 and the net periodic postretirement
benefit cost by $1.8. A one percentage point decrease in the health care
cost trend rates in each year would decrease the accumulated postretirement
benefit obligation as of December 31, 1998 by $14.5 and the net periodic
postretirement benefit cost for 1998 by $1.7.
Other postretirement benefits for foreign plans expensed under the cash
method in 1998, 1997 and 1996 were not material.
Note 14 - Income Taxes
The components of income before income taxes and minority interests were:
YEARS ENDED DECEMBER 31,
-----------------------------
1998 1997 1996
--------- --------- ---------
U.S. and Puerto Rico...........................$ 951.6 $ 515.9 $ 476.5
Foreign........................................ 839.4 672.9 661.6
--------- --------- ---------
$ 1,791.0 $ 1,188.8 $ 1,138.1
========= ========= =========
The Provision for income taxes consisted of:
YEARS ENDED DECEMBER 31,
1998 1997 1996
--------- ------- -------
Current:
Federal........................................$ 342.4 $ 132.9 $ 39.2
Foreign........................................ 290.6 219.5 197.2
State and Puerto Rico.......................... 49.3 39.1 15.4
--------- --------- -------
$ 682.3 $ 391.5 $ 251.8
========= ======= =======
Deferred:
Federal........................................$ (100.5) $ (58.5) $ 25.8
Foreign........................................ (60.8) (1.9) 39.5
State and Puerto Rico.......................... (3.2) (4.7) 5.4
--------- -------- --------
(164.5) (65.1) 70.7
--------- -------- --------
Provision for income taxes........................$ 517.8 $ 326.4 $ 322.5
========= ======= ========
The tax effects of significant temporary differences which comprise the
deferred tax assets and liabilities were as follows:
<PAGE>
DECEMBER 31,
-------------------------------------------
1998 1997
--------------------- ---------------------
ASSETS LIABILITIES ASSETS LIABILITIES
-------- ----------- --------- -----------
Restructuring reserves..............$ 30.3 $ -- $ 62.4 $ --
Compensation/benefits............... 118.0 -- 103.4 --
Postretirement/post employment
obligations......................... 69.6 -- 60.3 --
Inventory........................... 125.3 13.1 42.2 10.8
Tax loss and other carryforwards.... 113.6 -- 88.2 --
Research tax credit carryforwards... 45.6 -- 38.2 --
Pensions............................ 13.2 65.9 14.2 61.0
Property, plant and equipment....... 33.9 211.4 30.3 194.1
Intangibles......................... 52.4 93.3 27.6 80.0
Other............................... 249.6 84.9 127.5 60.4
-------- ---------- --------- ----------
851.5 468.6 594.3 406.3
Valuation allowances................ (34.4) -- (28.9) --
-------- ---------- --------- --------
$ 817.1 $ 468.6 $ 565.4 $406.3
======== ========== ========= ========
The research tax credit carryforwards of $45.6 expire in 2000 through 2018.
Valuation allowances on deferred tax assets are provided if it is more
likely than not that some portion or all of the deferred asset will not be
realized. In 1997 Agouron reduced its valuation allowances by $42.5 million
caused by changes to future income projections and tax planning strategies.
At December 31, 1998 for income tax purposes Agouron had approximately
$174.5 million of net operating loss carryovers. Due to the acquisition of
Agouron, there will be limitations on the amount of those net operating
losses that can be utilized in any given year against certain future
taxable income. The carryovers expire in 1999 through 2017.
Income taxes of $288.1, $246.6 and $205.1 were paid during 1998, 1997 and
1996, respectively. Prepaid expenses and other current assets included
deferred income taxes of $337.1 and $206.8 at December 31, 1998 and 1997,
respectively.
The earnings of Warner-Lambert's operations in Puerto Rico are subject to
tax pursuant to a grant, effective through September 2011. The grant
provides for certain tax relief if certain conditions are met. The company
continued to be in compliance with these conditions at December 31, 1998.
Earnings of foreign subsidiaries considered to be reinvested for an
indefinite period at December 31, 1998 were approximately $1.8 billion. No
additional U.S. income taxes or foreign withholding taxes have been
provided on these earnings. It would be impractical to compute the
estimated deferred tax liability on these earnings.
The Provision for income taxes in 1997 was reduced by 1.4 percentage points
due to the favorable tax impact of the liquidation of a foreign affiliate.
<PAGE>
As of December 31, 1998, Warner-Lambert's U.S. federal income tax returns
through 1992 have been examined and settled with the Internal Revenue
Service. Agouron's U.S. federal income tax returns are open from 1985 to
the present.
The company's effective income tax rate differed from the U.S. statutory tax
rate as follows:
YEARS ENDED DECEMBER 31,
---------------------------
1998 1997 1996
-------- --------- --------
U.S. statutory tax rate............................ 35.0% 35.0% 35.0%
Benefit from U.S. possession tax credit............ (1.8) (3.5) (6.5)
Foreign income subject to increased (reduced) tax
rates including
taxes on repatriation........................... (3.4) 1.0 .6
U.S. research tax credit, net...................... (1.4) (1.3) (.8)
State and local taxes, net......................... 1.1 .8 .9
Valuation Allowance - Agouron...................... -- (3.5) 1.4
Other items, net................................... (.6) (1.0) (.6)
Effect of minority interests....................... -- -- (1.7)
--------- ------- --------
Effective tax rate................................. 28.9% 27.5% 28.3%
========= ======= ========
Note 15 - Shareholders' Equity:
The authorized preferred stock of Warner-Lambert is 5 million shares with a
par value of $1.00 per share, of which there are no shares issued.
On April 28, 1998 the stockholders approved an increase in the number of
authorized shares of common stock from 500 million to 1.2 billion in order
to effectuate a three-for-one stock split effective May 8, 1998. Par value
remained at $1.00 per share. The stock split was recorded by increasing
common stock issued by $641.3 and reducing Capital in excess of par value
by $274.2 and Retained earnings by $367.1. In addition, the average number
of common shares outstanding and all per share information have been
restated to reflect the stock split.
Common stock issued was $962.0, $320.7 and $320.7 at December 31, 1998,
1997 and 1996, respectively.
Changes in certain components of shareholders' equity are summarized as
follows:
<PAGE>
<TABLE>
<CAPTION>
TREASURY STOCK
----------------------
CAPITAL IN EXCESS SHARES IN RETAINED
OF PAR VALUE THOUSANDS COST EARNINGS
---------- --------- --------- ----------
<S> <C> <C> <C> <C>
Balance at December 31, 1995.......$ 218.0 (24,731) $ (958.3) $ 3,042.9
Adjustment for pooling of
interests........................ 137.5 3,123 96.8 (148.2)
---------- ---------- ---------- ----------
Adjusted balance at December
31, 1995......................... 355.5 (21,608) (861.5) 2,894.7
Two-for-one stock split............ (160.3) (21,608) -- --
Shares repurchased, at cost........ -- (2,423) (138.9) --
Employee benefit plans............. 70.5 2,630 34.8 (2.5)
Public sale of stock by Agouron.... 67.4 1,629 25.3 (20.3)
Net income......................... -- -- -- 746.6
Cash dividends paid................ -- -- -- (374.4)
International operations
year-end change (Note 2)......... -- -- -- (18.8)
---------- ---------- ---------- -----------
Balance at December 31, 1996....... 333.1 (41,380) (940.3) 3,225.3
Shares repurchased, at cost ....... -- (1,436) (135.2) --
Employee benefit plans............. 159.9 3,072 45.7 (7.7)
Issuance of stock for
acquisition of
Alahex by Agouron............... 37.9 430 6.7 (5.6)
Net income......................... -- -- -- 862.4
Cash dividends paid................ -- -- -- (413.1)
---------- ---------- ---------- ------------
Balance at December 31, 1997....... 530.9 (39,314) (1,023.1) 3,661.3
Three-for-one stock split.......... (274.2) (78,629) -- (367.1)
Shares repurchased, at cost........ -- (4,050) (265.2) --
Employee benefit plans............. 263.9 9,919 46.8 (4.3)
Net income......................... -- -- -- 1,273.2
Cash dividends paid................ -- -- -- (524.6)
---------- ---------- ---------- -----------
Balance at December 31, 1998.......$ 520.6 (112,074) $(1,241.5) $ 4,038.5
========== ========== ========== ==========
</TABLE>
Pursuant to the company's Stockholder Rights Plan, as amended March 25,
1997, a right is attached to each outstanding share of common stock. In the
event that any person or group acquires 15 percent or more of the
outstanding common shares, or acquires the company in a merger or other
business combination, each right (other than those held by the "Acquiring
Person") will entitle its holder to purchase, for a specified purchase
price, stock of the company or the Acquiring Person having a market value
of twice such purchase price. The rights expire on March 25, 2007 and can
be redeemed for $.003 per right by the Board of Directors prior to the time
the rights become exercisable.
Tax benefits credited to Capital in excess of par for employee stock
options exercised were $165.2 and $64.8 for the years ended December 31,
1998 and 1997, respectively.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
<PAGE>
Income," which requires reporting the components of comprehensive income in
a financial statement as part of a full set of general purpose financial
statements. Total comprehensive income includes net income and other
comprehensive income, which consists of foreign currency translation
adjustments, unrealized net gains (losses) on investments and minimum
pension liability adjustments. The components of other comprehensive income
were as follows:
FOREIGN OTHER ACCUMULATED
CURRENCY ITEMS, OTHER
TRANSLATION NET OF COMPREHENSIVE
ADJUSTMENTS TAX INCOME
---------- ---------- -------------
Balance at December 31, 1995...........$ (216.3) $ (0.5) $ (216.8)
Currency period change................. (19.9) 6.4 (13.5)
---------- -------- ---------
Balance at December 31, 1996........... (236.2) 5.9 (230.3)
Current period change.................. (193.8) (14.6) (208.4)
---------- -------- ---------
Balance at December 31, 1997........... (430.0) (8.7) (438.7)
Current period change.................. 57.7 (18.3) 39.4
---------- -------- ---------
Balance at December 31, 1998...........$ (372.3) $ (27.0) (399.3)
========== ======== =========
In the above table, "Other Items" includes an adjustment for the
realization of an after-tax gain of approximately $23.0 on the sale of an
investment security in 1998.
In 1998, cumulative translation adjustments, and certain other equity
adjustments which were previously reported in Capital in excess of par,
have been combined in one line item, Accumulated other comprehensive
income, in the Consolidated Balance Sheets.
Note 16 - Stock Options and Awards:
Warner-Lambert has stock awards outstanding at December 31, 1998 granted
under various stock plans. Future grants may be issued under the 1996 Stock
Plan which became effective January 1, 1997. The 1996 Stock Plan provides
for the granting of stock awards to employees in the form of options to
purchase shares of common stock at a price equal to fair market value on
the date of the grant, restricted stock and performance awards. Options
generally become exercisable in installments of 25 percent per year on each
of the first through the fourth anniversaries of the grant date and have a
maximum term of 10 years. Restricted stock granted to employees is
delivered upon the expiration of restricted periods established at the time
of grant. Performance awards, which are also subject to restricted periods,
provide for the recipient to receive payment in shares, cash or any
combination thereof equivalent to the award being granted.
The aggregate number of shares of common stock which may be awarded under
the 1996 Stock Plan in any year is not more than 1.65 percent of the issued
<PAGE>
shares on January 1 of the year of the grant. In any year in which stock
awards are granted for less than the maximum permissible number of shares,
the balance of unused shares will be added to the number of shares
permitted to be granted during the following year. No stock awards may be
made under the 1996 Stock Plan after April 23, 2007.
The company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and related Interpretations in accounting for its stock awards.
Accordingly, no compensation cost has been recognized for stock options.
Compensation expense is recorded over the vesting period for restricted
stock and performance awards. Expense of $17.0, $13.3 and $9.2 for
restricted stock and performance awards was charged to income in 1998, 1997
and 1996, respectively. Had compensation cost been recorded as an
alternative provided by FASB Statement No. 123, "Accounting for Stock-Based
Compensation," for options granted in 1998, 1997 and 1996, the company's
net income and basic earnings per share would have been reduced by $69.6 or
$.08 per share in 1998, by $45.9 or $.06 per share in 1997 and by $16.4 or
$.02 per share in 1996. These amounts are for disclosure purposes only and
may not be representative of future calculations since the estimated fair
value of stock options would be amortized to expense over the vesting
period, and additional options may be granted in future years. The fair
value for these options was estimated at the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions for 1998: dividend yield of 2.37 percent; expected volatility
of 24.21 percent; risk free interest rate of 5.55 percent; and expected
life of 5.9 years. Assumptions did not vary significantly for prior years.
Transactions involving stock options are summarized as follows:
NUMBER OF WEIGHTED-
SHARES AVERAGE
(IN EXERCISE
THOUSANDS) PRICE
------------- ----------
Stock options outstanding, December 31, 1995...... 63,493 $ 11.15
Granted........................................ 14,927 20.72
Exercised...................................... (7,472) 8.93
Forfeited...................................... (1,530) 15.37
--------- --------
Stock options outstanding, December 31, 1996...... 69,418 13.37
Granted........................................ 16,704 30.36
Exercised...................................... (8,787) 9.59
Forfeited...................................... (1,510) 20.72
--------- --------
Stock options outstanding, December 31, 1997...... 75,825 17.37
Granted........................................ 9,696 46.43
Exercised...................................... (9,716) 12.05
Forfeited...................................... (1,364) 27.31
---------- --------
Stock options outstanding, December 31, 1998...... 74,441 $ 21.67
========= ========
<PAGE>
Weighted-average fair value of stock options:.....
Granted during 1996............................ 5.83
Granted during 1997............................ 8.84
Granted during 1998............................ 12.94
Share available for annual stock award grants at:.
December 31, 1996.............................. 15,873
December 31, 1997.............................. 17,212
December 31, 1998.............................. 25,366
The following table summarizes outstanding and exercisable stock options as
of December 31, 1998:
<TABLE>
<CAPTION>
STOCK OPTIONS OUTSTANDING STOCK OPTIONS EXERCISABLE
- ---------------------------------------------------- -----------------------------
WEIGHTED-
AVERAGE
NUMBER REMAINING WEIGHTED NUMBER WEIGHTED-
OUTSTANDING CONTRACTUAL AVERAGE EXERCIS- AVERAGE
(IN LIFE EXERCISE ABLE (IN EXERCISE
RANGE OF EXERCISE PRICES THOUSANDS) (YEARS) PRICE THOUSANDS) PRICE
- ------------------------ ---------- ----------- --------- ---------- --------
<C> <C> <C> <C> <C> <C> <C>
$.30 - $24............ 49,374 5.5 $14.19 38,883 $13.20
25 - 44............ 15,755 8.3 29.64 3,445 30.79
45 - 62............ 9,182 9.0 47.55 398 47.17
63 - 80............ 130 9.7 72.70 -- --
--------- ------ ------- ------- ------
$.30 - 80............ 74,441 6.5 $21.67 42,726 $15.09
========= ------ ------- ======= ------
</TABLE>
Note 17 - Contingencies and Environmental Liabilities:
Various claims, suits and complaints, such as those involving government
regulations, patents and trademarks and product liability, arise in the
ordinary course of Warner-Lambert's business. In the opinion of management,
all such pending matters are without merit or are of such kind, or involve
such amounts, as would not have a material adverse effect on the company's
consolidated financial position, liquidity, cash flows or results of
operations for any year.
The company is involved in various environmental matters including actions
initiated by the Environmental Protection Agency under the Comprehensive
Environmental Response, Compensation and Liability Act (i.e., CERCLA or
Superfund and similar legislation), various state environmental
organizations and other parties. The company is presently engaged in
environmental remediation at certain sites, including sites previously
owned.
<PAGE>
The company accrues costs for an estimated environmental liability when
management becomes aware that a liability is probable and is able to
reasonably estimate the company's share. Generally, that occurs no later
than when feasibility studies and related cost assessments of remedial
techniques are completed, and the extent to which other potentially
responsible parties (PRPs) can be expected to contribute is determined. For
most sites, there are other PRPs that may be jointly and severally liable
to pay all cleanup costs. As of December 31, 1998 and 1997, the accrual for
environmental liabilities was approximately $34 covering 50 and 48 sites,
respectively. Outside consultants are generally used to assess the costs of
remediation. Accruals are established based on current technology and are
not discounted. While it is reasonably possible that additional costs may
be incurred beyond the amounts accrued as a result of new information,
those costs, if any, cannot be estimated currently.
Some portion of the liabilities associated with the company's environmental
actions may be covered by insurance. The company is currently in litigation
with respect to the scope and extent of liability coverage from certain
insurance companies; however, recoveries will not be recorded as income
until there is assurance that recoveries are forthcoming.
In management's opinion, the liabilities for all environmental matters
mentioned above which are probable and reasonably estimable are adequately
accrued. Although it is not possible to predict with certainty the outcome
of these matters or the ultimate costs of remediation, management believes
it is unlikely that their ultimate disposition will have a material adverse
effect on the company's consolidated financial position, liquidity, cash
flows or results of operations for any year.
Note 18 - Segment Information:
In 1998 the company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which requires reporting certain
financial information according to the "management approach." This approach
requires reporting information regarding operating segments on the basis
used internally by management to evaluate segment performance. SFAS 131
also requires disclosures about products and services, geographic areas and
major customers. The Statement was effective December 31, 1998 and has been
adopted for all periods presented.
The accounting policies of the segments are the same as those described in
the "Significant Accounting Policies." Segments are determined based on
product categories. The company evaluates performance based on profit or
loss before income taxes.
Reportable segments are comprised as follows: Pharmaceutical - consisting
of ethical pharmaceuticals, biologicals and empty hard-gelatin capsules;
Consumer Health Care - consisting of OTC, shaving and pet care products;
Confectionery - consisting of chewing gums, breath mints and cough tablets.
The company's pharmaceutical products are promoted primarily to health care
professionals and are sold either directly or through wholesalers. Consumer
Health Care products are promoted principally through consumer advertising
and promotional programs. They are sold principally to drug wholesalers,
<PAGE>
pharmacies, food stores, mass merchandisers, physician supply houses and
hospitals. Confectionery products are promoted primarily through consumer
advertising and in-store promotions and are sold directly to food stores,
pharmacies and mass merchandisers which in turn sell to consumers.
Reportable Segment Data
NET SALES INCOME BEFORE TAXES
------------------------- -------------------------
1998 1997 1996 1998 1997 1996
------- ------- ------- ------- ------- -------
Pharmaceutical............$ 6,134 $ 3,848 $ 2,505 $ 1,495 $ 781 $ 433
Consumer Health Care...... 2,722 2,691 2,797 510 549 527
Confectionery............. 1,888 1,869 1,929 159 185 260
------- ------- ------- ------- ------- -------
Total Segments............ 10,744 8,408 7,231 2,164 1,515 1,220
Corporate(1).............. -- -- -- (373) (326) (151)
------- ------- ------- ------- ------- -------
Consolidated Total........$10,744 $ 8,408 $ 7,231 $ 1,791 $ 1,189 $ 1,069
======= ======= ======= ======= ======= =======
SEGMENT DEPRECIATION/ CAPITAL
ASSETS(2) AMORTIZATION EXPENDITURES
------------------- ------------------- ------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
------ ------ ------ ----- ----- ----- ----- ------ -----
Pharmaceutical.....$3,418 $2,788 $1,910 $ 139 $ 120 $ 91 $ 523 $ 269 $ 183
Consumer Health
Care............ 2,471 2,384 2,433 85 83 67 90 108 82
Confectionery...... 960 908 1,070 49 51 48 78 80 102
------ ------ ------ ----- ----- ----- ----- ------ -----
Total Segments..... 6,849 6,080 5,413 273 254 206 691 457 367
Corporate(3)....... 2,671 2,272 1,926 35 28 28 62 56 28
------ ------ ------ ----- ----- ----- ----- ------ -----
Consolidated Total.$9,520 $8,352 $7,339 $ 308 $ 282 $ 234 $ 753 $ 513 $ 395
====== ====== ====== ===== ===== ===== ===== ====== =====
(1) Corporate expense includes general corporate income and expense,
corporate investment income and interest expense. Corporate expense in
1998 includes a pretax gain on the sale of the company's Rochester,
Michigan manufacturing plant and certain minor prescription products of
$67 which was offset by costs related to the company's plans to close
two foreign manufacturing facilities.
Corporate expense in 1996 includes a $75 pretax gain on the sale of
Warner Chilcott Laboratories.
(2) Segment assets consist of Accounts receivable, Inventories, Intangible
assets, Other investments and Property, plant and equipment.
<PAGE>
(3) Corporate assets include Cash and cash equivalents, and other
unallocated assets.
Geographic Data
<TABLE>
<CAPTION>
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
Net Sales: (a) Long-Lived Assets:
<S> <C> <C> <C> <C> <C> <C> <C>
United States $ 6,304 $ 4,416 $ 3,185 United States $ 1,562 $ 1,433 $ 1,258
Foreign 4,440 3,992 4,046 Ireland 311 125 38
------- ------- ------ Germany 248 205 144
Total $10,744 $ 8,408 $ 7,231 All other
======= ======= ====== foreign 701 692 737
------- ------- -------
Total $ 2,822 $ 2,455 $ 2,177
======= ======= =======
</TABLE>
(a) Net sales are attributed to countries based on location of customer. No
single foreign country was material to consolidated Net sales.
Note 19 - Restructuring and Plant Closures:
In 1993 and 1991, the company recorded, as a separate income statement
component, restructuring charges of $525.2 ($360.4 after tax or $.45 per
share) and $544.0 ($418.0 after tax or $.52 per share), respectively. The
total of $1,069.2 was recorded for worldwide rationalization of
manufacturing and distribution facilities and for organizational
restructuring and related workforce reductions of about 5,500 positions.
These rationalization programs were prompted by changes in the company's
competitive environment, including the growing impact of managed health
care, cost containment efforts in the U.S., cost regulations in Europe, the
elimination of trade barriers throughout the world and changes in U.S. tax
law. As of December 31, 1998, 24 manufacturing sites were closed and
workforce reductions of approximately 4,400 positions were made primarily
in the U.S. sales force, Puerto Rico manufacturing, worldwide
administrative operations and European research. Activities still to be
completed include closing 2 facilities, worldwide work-systems redesign and
severance associated with these projects.
Initial 1993 and 1991 provisions and the subsequent utilization by major
components are summarized in the table below:
<PAGE>
<TABLE>
<CAPTION>
1993 & AMOUNTS
1991 AMOUNTS UTILIZED RESERVE
RESTRUCTU- UTILIZED IN 1996, BALANCE AT
RING THROUGH 1997 AND DECEMBER 31,
PROVISIONS 1995 1998 1998
---------- -------- -------- ------------
<S> <C> <C> <C> <C>
Severance and related costs...... $ 468.0 $ 315.5 $ 136.9 $ 15.6
Plant closures and related costs. 161.5 120.5 38.4 2.6
Work-systems redesign............ 71.5 9.9 40.9 20.7
Operating losses during
phase-out period................. 35.3 35.3 -- --
Other............................ 107.3 95.0 11.5 .8
Asset write-offs................. 225.6 225.6 -- --
--------- -------- -------- --------
Total...................... $ 1,069.2 $ 801.8 $ 227.7 $ 39.7
========= ======== ======== ========
</TABLE>
Amounts utilized include redistribution among categories based on actual
restructuring actions and project forecasts. The company reduced reserve
balances designated for severance and related costs by $110.0 and increased
balances for plant closures and related costs by $69.2, work-systems
redesign by $29.8 and other costs by $11.0. These redistributions were
necessary due to delays in completion, higher projected costs for plant
closures and the acceleration of the work-systems redesign projects
enabling some positions to be eliminated through attrition rather than
severance. The original scopes of the restructuring projects and the number
of positions to be eliminated remain substantially unchanged.
Reserves are considered utilized when specific restructuring criteria are
completed or benefits paid. As of December 31, 1998, Other current
liabilities included $31.5 and Other noncurrent liabilities included $8.2
of the remaining restructuring reserve balance to be utilized. The company
has determined that the 1991 and 1993 restructuring reserve balance is
adequate to cover the remaining restructuring actions and that these
restructuring programs are expected to be completed by the fourth quarter
of 1999, with spending occurring evenly throughout the year. The payment of
the remaining reserves will be funded from operations and will not have a
material impact on earnings.
In the first quarter of 1998, the company committed to a plan to close two
foreign manufacturing facilities and committed to closing a third foreign
manufacturing facility in the third quarter of 1998. The planned closures
are due to a consolidation of certain product manufacturing resources in
Europe. The costs of the three closings consist primarily of $47.0 for
severance and related expenses, $35.0 for asset write-offs and $11.0 for
other costs. The provisions for these costs are reflected in Other expense
(income), net for the year ended December 31, 1998. The charges will be
funded by operations and will not have a material impact on liquidity. The
three closures will result in a workforce reduction of approximately 450
positions. As of December 31, 1998 the severance and other amounts have not
been expended and $45.0 is reflected in other current liabilities and $13.0
is reflected in other long-term liabilities. The $35.0 in asset write-offs
has been reflected as a reduction of property, plant and equipment.
<PAGE>
Management expects expenditures to occur throughout 1999 with substantially
all amounts expended by the end of 1999. Completion of these closures is
expected in the first quarter 2000. Cost savings associated with these
closures which is expected to be partially realized in 1999 and fully
realized in 2000, is estimated to be approximately $28.0 annually.
Management plans to sell the plants following the closures. Proceeds from
the sales are not expected to be material.
Report by Management
Management of Warner-Lambert Company has prepared the accompanying
consolidated financial statements and related information in conformity
with generally accepted accounting principles and is responsible for the
information and representations in such financial statements, including
estimates and judgments required for their preparation. PricewaterhouseCoopers
LLP, independent accountants, has audited the consolidated financial statements
and their report appears herein.
In order to meet its responsibilities, management maintains a system of
internal controls designed to provide reasonable assurance that assets are
safeguarded and that financial records properly reflect all transactions.
The internal control system is augmented by an ongoing internal audit
program, an organizational structure that provides for appropriate division
of responsibility and communication programs that explain the company's
policies and standards.
The Audit Committee of the Board of Directors, composed entirely of
nonemployee directors, meets periodically with the independent accountants,
management and internal auditors to review auditing, internal accounting
controls and other financial reporting matters. Both the independent
accountants and internal auditors have full access to the Audit Committee.
Management also recognizes its responsibility for fostering a strong
ethical climate so that the company's affairs are conducted according to
the highest standards of personal and corporate conduct. This
responsibility is characterized and reflected in the company's Creed, which
summarizes Warner-Lambert's commitment to its customers, colleagues,
shareholders, suppliers and society, and the creation of a corporate
compliance program, which is a formal system designed to oversee compliance
with applicable laws, regulations, policies and procedures on a worldwide
basis.
Lodewijk J.R. deVink Ernest J. Larini
Chairman, President and Chief Financial Officer and
Chief Executive Officer Executive Vice President, Administration
<PAGE>
Report of Independent Accountants
PRICEWATERHOUSECOOPERS LLP
To the Board of Directors and Shareholders of Warner-Lambert Company
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income and comprehensive income and of
cash flows present fairly, in all material respects, the financial position
of Warner-Lambert Company and its subsidiaries at December 31, 1998 and
1997, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. These financial statements are
the responsibility of the company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally
accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
400 Campus Drive
Florham Park, New Jersey
January 25, 1999, except for Note 1, as to which the date is December 17,
1999.
<PAGE>
EXHIBIT 99.2
MANAGEMENT'S DISCUSSION AND ANALYSIS
This Management's Discussion and Analysis has been restated to reflect the
May 1999 acquisition of Agouron Pharmaceuticals, Inc. (Agouron), an
integrated pharmaceutical company committed to the discovery and
development of innovative therapeutic products for treatment of cancer,
AIDS and other serious diseases. See Note 1 "Business Combination" to the
consolidated financial statements for financial details of the merger
agreement. The transaction was accounted for as a pooling of interests
under Accounting Principles Board Opinion No. 16 and qualified as a
tax-free exchange. Accordingly, all consolidated financial statements and
this discussion have been restated to include combined results of
operations, financial position and cash flows of Agouron as though it had
always been a part of Warner-Lambert.
<PAGE>
NET SALES
Sales in 1998 of $10.7 billion were 28 percent higher than in 1997. Sales
increased 31 percent adjusting for the unfavorable impact of foreign
exchange rate changes. Unit volume grew by 32 percent offset by price
decreases of 1 percent.
Sales in 1997 of $8.4 billion were 16 percent higher than in 1996. Sales
increased 20 percent adjusting for the unfavorable impact of foreign
exchange rate changes. Unit volume grew by 19 percent with price increases
adding 1 percent to sales growth.
On a geographic basis, U.S. sales increased $1.9 billion or 43 percent to
$6.3 billion in 1998. International sales increased $448 million or 11
percent to $4.4 billion. At constant exchange rates, international sales
increased 17 percent. U.S. sales in 1997 increased $1.2 billion or 39
percent to $4.4 billion from 1996. International sales decreased $54
million or 1 percent to $4.0 billion in 1997. At constant exchange rates,
international sales increased 6 percent.
PHARMACEUTICAL PRODUCTS
(DOLLARS IN MILLIONS) 1998 1997 1996
------------- ------------ -----------
Net Sales $6,134 + 59% $3,848 + 54% $2,505
Worldwide pharmaceutical sales increased 59 percent to $6.1 billion in 1998
compared to 1997. The sales increase was primarily attributable to the
continued growth of the cholesterol-lowering agent LIPITOR, the oral agent
for the treatment of type 2 diabetes REZULIN, the HIV protease inhibitor
VIRACEPT, the anticonvulsant NEURONTIN and the antihypertensive ACCUPRIL
which achieved worldwide sales as follows:
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
(DOLLARS IN MILLIONS) 1998 1997
---------------- -------------
LIPITOR................................... $ 2,185 $ 865
REZULIN................................... 748 420
VIRACEPT.................................. 530 228
NEURONTIN................................. 514 292
ACCUPRIL.................................. 454 378
With the growth of these products, pharmaceutical segment sales now
represent a significantly greater percentage of the company's total sales
and profits, particularly in the U.S. and to a lesser degree in
international markets.
Pharmaceutical sales in the U.S. increased 76 percent to $4.2 billion in
<PAGE>
1998. International pharmaceutical sales increased 32 percent to $2.0
billion in 1998 or 39 percent at constant exchange rates.
Worldwide sales of LIPITOR more than doubled to $2.2 billion in 1998
compared to 1997. LIPITOR has recently received additional indications for
types III (dysbetalipoproteinemia) and IV (isolated hypertriglyceridemia)
lipid disorders. As a result, LIPITOR continues to be the
cholesterol-lowering medication indicated for the broadest range of lipid
abnormalities. LIPITOR now holds a 38 percent share of new prescriptions in
the U.S. cholesterol-lowering market. In most countries Warner-Lambert
promotes and markets LIPITOR with Pfizer Inc. The agreements with Pfizer
consist of three broad categories: markets in which Warner-Lambert and
Pfizer co-promote LIPITOR under a single brand name, markets in which the
two companies co-market the product under separate brand names in
competition with each other, and markets in which Pfizer has exclusive
rights. Pfizer does not have rights to the product in France and Japan. The
co-promotion agreement applies in most major markets, including the U.S.,
Canada, Germany and the U.K. Under the agreement, the parties generally
share certain product expenses and sales force efforts. Pfizer is
compensated on a sliding percentage of sales basis depending on achieving
certain sales objectives. The agreements generally run, on a country by
country basis, for ten years from the date of product launch in the
respective country. The agreement includes a provision giving
Warner-Lambert the right to co-promote one of Pfizer's products.
REZULIN achieved worldwide sales of $748 million during 1998.
Warner-Lambert markets REZULIN with Sankyo Company, Ltd., from whom the
company licenses the product for North America and other areas. Since its
launch in March 1997, more than 1.4 million Americans with type 2 diabetes
have initiated treatment with REZULIN.
Future sales of REZULIN are expected to be adversely impacted by the FDA
approval of two competing drugs during 1999. Additionally, in June 1999,
the company withdrew the indication for REZULIN as initial single agent
therapy. Warner-Lambert estimates that sales of REZULIN for this indication
may approximate 15% of total sales. With respect to other indications, an
FDA Advisory Committee recently determined that the benefits of REZULIN
outweigh associated risks for appropriate type 2 diabetes patients when
used in combination with certain other diabetes drugs. REZULIN continues to
be sold for these indications.
Worldwide sales of VIRACEPT more than doubled to $530 million in 1998
compared to 1997. VIRACEPT was first approved for marketing in the U.S. in
March 1997 and is now the market leading protease inhibitor for the
treatment of HIV in adults and children. In January 1998, March 1998 and
August 1998, VIRACEPT was approved for marketing in Europe, Japan and
Canada, respectively.
During the third quarter of 1998, the company introduced two new
pharmaceutical products, OMNICEF (cefdinir) and CELEXA (citalopram).
OMNICEF is a new, broad spectrum cephalosporin antibiotic for the treatment
of common respiratory tract infections in adults and adolescents and
uncomplicated skin and skin structure infections. CELEXA is a selective
serotonin reuptake inhibitor for the treatment of depression that
<PAGE>
participates in the $6 billion U.S. market for antidepressants.
Warner-Lambert co-promotes CELEXA in the United States with Forest
Laboratories, Inc. CELEXA was developed in the U.S. by Forest Laboratories,
Inc. who has the manufacturing and marketing rights under license from H.
Lundbeck A/S. The co-promotion agreement requires each company to provide
agreed upon sales force efforts. Warner-Lambert will receive a quarterly
settlement from Forest Laboratories, Inc. based on a percentage of the
profits from the sales of CELEXA.
Pharmaceutical segment sales in the U.S. more than doubled to $2.3 billion
in 1997. The sales increase was attributable to the successful 1997
launches of LIPITOR and REZULIN generating sales of $739 million and $416
million, respectively. Other pharmaceutical products in the U.S., including
the anticonvulsant DILANTIN, ACCUPRIL and the oral contraceptive LOESTRIN,
experienced sales declines of $55 million, $32 million and $31 million,
respectively due to an adjustment of wholesaler inventory levels during
1997.
International pharmaceutical sales increased 11 percent to $1.5 billion in
1997, 21 percent 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 sales of $105 million are included
in the company's 1997 sales. Prior to April 30, 1997, Jouveinal sales were
not reflected in reported Warner-Lambert sales results since the company's
34 percent interest in the Jouveinal group was accounted for using the
equity method.
CONSUMER HEALTH CARE PRODUCTS
(DOLLARS IN MILLIONS) 1998 1997 1996
---------- ------------ ----------
Net Sales $2,722 + 1% $2,691 - 4% $2,797
Consumer health care segment sales in the U.S. increased 5 percent to $1.5
billion in 1998. Within the segment, U.S. shaving products sales increased
14 percent to $226 million for the year. The increase is due to strong
sales of the PROTECTOR shaving system and the newly designed SLIM TWIN
disposable razor. Also contributing to the sales growth within the segment
were increased U.S. sales of SUDAFED cold/sinus medication, BENADRYL
allergy medication and LISTERINE mouthwash and the launch of LUBRIDERM UV
moisturizing and sun protection lotion.
International consumer health care segment sales decreased 3 percent to
$1.2 billion in 1998. The decrease reflects the impact of the overall
economic weakness in Asian markets coupled with the unfavorable impact of
exchange in Canada and Australia. At constant exchange rates, international
segment sales increased 3 percent for the year.
Within the consumer health care segment, international sales of the
company's shaving products decreased 4 percent to $518 million and was
unchanged at constant exchange rates in 1998. International sales of the
company's TETRA pet care products business also fell 5 percent to $114
<PAGE>
million and 2 percent at constant exchange rates for the year. Both the
shaving products and TETRA pet care divisions were significantly impacted
by the broad economic downturn in Southeast Asia and Japan.
During the third quarter of 1998 the company introduced the new QUANTERRA
line of standardized herbal supplements in the U.S. QUANTERRA Mental
Sharpness, with Ginkgo Biloba, and QUANTERRA Prostate, with Saw Palmetto,
represent the first two products in a new line of clinically proven herbal
supplements. In January 1999 the company introduced QUANTERRA Emotional
Balance with St. John's Wort. "Clinically proven" reflects the fact that
the extracts contained in the products have been the subject of numerous
clinical studies. These products are regulated as dietary supplements
according to the Dietary Supplement and Health Education Act of 1994. Under
the Act there is no pre-approval required for dietary supplements. The
products' labels are required to carry a disclaimer stating "These
statements have not been evaluated by the Food and Drug Administration.
This product is not intended to diagnose, treat, cure, or prevent any
disease." These products address the rapidly growing demand for
complementary medicines - a market driven by strong consumer interest and
the increasing integration of complementary medicines into clinical
practice by health care professionals.
On December 31, 1998, Warner-Lambert Company and certain of its affiliates
and Glaxo Wellcome plc and certain of its affiliates (Glaxo Wellcome)
entered into transactions in various countries whereby Glaxo Wellcome
transferred to Warner-Lambert rights to OTC ZANTAC products in the United
States and Canada, and Warner-Lambert principally transferred to Glaxo
Wellcome its rights to OTC ZANTAC products in all other markets and its
rights to OTC ZOVIRAX, OTC BECONASE and future Glaxo Wellcome prescription
to OTC switch products in all markets. These OTC products had been marketed
through joint ventures between Warner-Lambert and Glaxo Wellcome which were
formed to develop, seek approval of and market OTC versions of Glaxo
Wellcome prescription drugs. These joint ventures were accounted for as
equity method investments and therefore none of the sales are currently
reflected in reported sales. For financial reporting purposes, the December
31, 1998 transactions, which ended the joint venture relationships between
Warner-Lambert and Glaxo Wellcome, were accounted for as a nonmonetary
exchange of similar assets with no gain or loss recognized. In 1998 the
joint ventures recorded ZANTAC 75 sales of $170 million in the United
States and Canada.
Consumer health care sales in the U.S. of $1.4 billion were essentially
unchanged for 1997. U.S. shaving products sales increased 22 percent to
$199 million in 1997 due to the launch of the PROTECTOR shaving system and
the newly designed SLIM TWIN disposable razor.
International consumer health care sales fell 8 percent to $1.3 billion for
1997, or 1 percent at constant exchange rates. In mid-1996 the Glaxo
Wellcome Warner-Lambert joint venture agreement was revised to include
ZOVIRAX cold sore cream. Therefore, ZOVIRAX sales are no longer recorded in
the company's consolidated sales since the company uses the equity method
of accounting for this joint venture. 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.
<PAGE>
International shaving products sales decreased 6 percent to $540 million in
1997 but increased 3 percent at constant rates. 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 16 percent to $121 million, or 7 percent at
constant exchange rates. This decline was primarily attributable to Japan,
where sales fell due to market weakness and the decrease in the value of
the yen.
CONFECTIONERY PRODUCTS
(DOLLARS IN MILLIONS) 1998 1997 1996
------------ ----------- ----------
Net Sales $1,888 + 1% $1,869 - 3% $1,929
Confectionery sales in the U.S. increased 3 percent to $659 million in 1998
due to strong sales of DENTYNE ICE and TRIDENT chewing gum and CERTS COOL
MINT DROPS and CERTS Powerful Mints breath fresheners.
International confectionery sales of $1.2 billion in 1998 were virtually
unchanged compared to 1997 but increased 7 percent at constant exchange
rates. The increase at constant exchange rates is primarily due to strong
sales in Mexico, where sales increased across all gum brands, and
successful product launches in Japan. The negative impact of exchange for
the year was most significant in Brazil, Japan, Colombia and Canada.
Confectionery sales in the U.S. increased 7 percent to $641 million in 1997
primarily due to the launches of DENTYNE ICE chewing gum, HALLS Zinc
Defense cold season dietary supplement and CERTS Powerful Mints breath
freshener.
International confectionery sales were $1.2 billion in 1997, a decrease of
7 percent or 2 percent at constant exchange rates. 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 14 percent in 1998 and 7 percent in 1997. As a
percentage of net sales, cost of goods sold fell to 26.6% from 29.8% in
1997 and 32.5% in 1996. The improvement in the ratio 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.
Selling, general and administrative expense in 1998 and 1997 increased $1.1
billion and $595 million or 30 percent and 19 percent, respectively.
<PAGE>
Pharmaceutical segment expenses significantly increased in 1998 and 1997 to
support new products. Quarterly settlements of co-promotion agreements
related to LIPITOR and REZULIN that are recorded in selling, general and
administrative expense increased $505 million and $198 million for the year
ended December 31, 1998 and 1997, respectively, compared to the same
periods a year ago. In 1997, 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 was
45.2% compared with 44.3% in 1997 and 43.3% in 1996.
Research and development expense increased 40 percent and 22 percent in
1998 and 1997, respectively. As a percentage of net sales, research and
development expense was 9.5% in 1998, 8.7% in 1997 and 8.3% in 1996. For
1999 the company plans to invest over $1.2 billion in research and
development, a projected increase of over 15 percent compared with 1998.
In 1993 and 1991, the company recorded as a separate income statement
component, restructuring charges of $525 million ($360 million after tax or
$.45 per share) and $544 million ($418 million after tax or $.52 per
share), respectively, as described in Note 19 to the consolidated financial
statements. These restructuring charges include worldwide pharmaceutical
manufacturing rationalizations, which include extensive product relocations
requiring regulatory approvals. The time involved in completion of these
activities requires strategic planning and systematic executions of the
transfers of manufacturing operations to other locations. The product
relocations have been phased in with the related approval processes taking
approximately two years for each relocation. Charges of $38 million, $60
million and $129 million were recorded against the reserves during the
years 1998, 1997 and 1996, respectively. The charges during this period
represent costs associated with the closing of nine manufacturing sites,
the elimination of approximately 1,000 positions and the cost of
work-systems redesign. Work-systems redesign costs primarily relate to
reengineering efforts surrounding the replacement of systems and
simplification of work processes which will enable the company to conduct
its businesses, as restructured, with fewer employees. The reserve balance
at December 31, 1998 is $40 million. All remaining activities will be
completed by the fourth quarter of 1999. The remaining costs include the
cost of closing two facilities with the elimination of approximately 575
positions and the completion of work-systems redesigns activities including
the elimination of an additional 525 positions.
In 1993 the company estimated that the 1993 restructuring actions would
generate average annual pretax savings compared with pre-restructuring
spending levels of approximately $150 million upon completion of the
project. In 1998, the company has realized actual annual pretax savings of
$135 million. Similarly, in 1991 the company estimated that the 1991
restructuring actions would generate approximately $1 billion in cumulative
pretax savings upon completion of the activities. Through 1998, the company
has realized actual annual pretax savings of approximately $900 million.
The company expects the original estimated savings levels for both projects
to be attained by the end of 1999.
Other expense (income), net in 1998 compared favorably by $44 million to
1997. The favorability is primarily attributable to income of $29 million
<PAGE>
realized from the Glaxo Wellcome Warner-Lambert joint venture in 1998 as
compared to a loss in 1997 of $14 million. Other expense (income), net in
1998 includes a gain on the sale of the company's Rochester, Michigan
manufacturing plant and certain minor prescription products of $67 million
which was offset by charges of $52 million and $20 million related to the
company's plans to close two of its European manufacturing facilities. The
costs of the two closings consist primarily of $30 million for asset
write-offs and $33 million for severance and related expenses. The two
closures will result in a workforce reduction of approximately 320
positions. Due to the time required for regulatory approval and
implementation planning, as of December 31, 1998 none of the amounts have
been expended. The plant closings are expected to be substantially
completed during 1999 and all amounts expended by that time. Also included
in other expense (income) is a gain on the sale of certain investment
securities of $24 million which is principally offset by a $21 million
provision for the closing of another European manufacturing facility. The
costs consist primarily of $5 million for asset write-offs and $14 million
for severance and related expenses. The closure will result in a workforce
reduction of approximately 130 positions. Due to the time required for
regulatory approval and implementation planning, as of December 31, 1998
none of the amounts have been expended. The plant closing is expected to be
substantially completed during 1999 and all amounts expended by that time.
Other expense (income), net in 1997 included increases in intangible
amortization of $25 million and net interest expense of $34 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.
Additionally, 1997 includes $29 million of royalty expense related to
VIRACEPT, which was first launched in March 1997, and a $58 million charge
for the write-off of purchased in-process technology.
INCOME TAXES
1998 1997 1996
---------- ---------- ---------
Effective tax rate:
As reported...................... 28.9% 27.5% 28.3%
After minority interests......... 28.9% 27.5% 30.3%
The company's 1998 tax rate on a reported basis increased by 1.4 percentage
points primarily due to the absence of the 1997 reduction to Agouron's
valuation allowances and reduced U.S. possession tax credits. These
increases are partly offset by increased income generated in foreign
jurisdictions with lower tax rates.
The company's 1997 tax rate on a reported basis decreased .8 percentage
points. The decrease is due primarily to the absence of higher taxes on the
1996 gain from the sale of the Warner Chilcott business, the favorable
impact of the extension of the U.S. research tax credit enacted in August
of 1997, the favorable impact of the liquidation of a foreign affiliate,
and the reduction of Agouron valuation allowances caused by changes to
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future income projections and tax planning strategies. These decreases are
partly offset by an increase of 1.7 percentage points resulting from the
absence of minority interests in 1997 and an increase of .5 percentage
points related to a 1996 tax law change that subjects a greater amount of
income in Puerto Rico to taxation as well as increased taxes on income
generated in high tax jurisdictions.
NET INCOME
In 1998 net income of $1.3 billion increased 48 percent and diluted
earnings per share of $1.45 increased 46 percent. In 1997 net income of
$862 million increased 16 percent and diluted earnings per share of $.99
increased 13 percent. Based on current planning assumptions, the company
expects to increase earnings per share by approximately 30 percent in 1999.
LIQUIDITY AND FINANCIAL CONDITION
SELECTED DATA:
(DOLLARS IN MILLIONS)
1998 1997 1996
---------- ---------- ---------
Net debt $474 $1,238 $1,604
Net debt to net capital (equity
and net debt) 11% 29% 37%
Return on average shareholders' equity 37% 30% 30%
Return on average total assets 14% 11% 11%
Net debt (total debt less cash and cash equivalents and other nonequity
securities) decreased $764 million from December 31, 1997. Cash and cash
equivalents were $946 million at December 31, 1998, an increase of $160
million from December 31, 1997. The company also held $111 million in
nonequity securities, included in other asset categories, that management
views as cash equivalents for purposes of calculating net debt,
representing a decrease of $77 million from December 31, 1997. The total
increase in cash and cash equivalents of $83 million combined with a
decrease in total debt of $681 million accounts for the total decrease in
net debt.
Net debt decreased $366 million in 1997 from December 31, 1996. Cash and
cash equivalents were $786 million at December 31, 1997, an increase of
$378 million from December 31, 1996. The company also held $188 million in
nonequity securities, included in short-term investments and investments
and other assets, that management views as cash equivalents, representing a
decrease of $101 million from 1996. This net increase of $277 million is
primarily attributable to an increase in cash provided by operating
activities which was partly attributable to the timing of new product
co-promotion payments which are made subsequent to the end of each quarter.
Total debt of $2.2 billion at December 31, 1997, decreased $89 million from
December 31, 1996.
In 1998 cash provided by operating activities of $2.0 billion was primarily
used to fund capital expenditures of $753 million, to reduce total debt by
$681 million and to pay dividends of $525 million. In 1997 cash provided by
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operating activities of $1.6 billion was primarily used to fund capital
expenditures of $513 million, to pay dividends of $413 million and for
business acquisitions of $229 million.
Planned capital expenditures for 1999 are estimated to be $1.0 billion in
support of additional manufacturing operations and expanded research
facilities. Over the next four years the company plans to invest nearly $1
billion in pharmaceutical research and manufacturing infrastructure alone.
The company believes that the amounts available from operating cash flow
and future borrowings will be sufficient to meet expected operating needs
and planned capital expenditures for the foreseeable future.
The company has readily available financial resources, including unused
worldwide lines of credit totaling $1.4 billion. The company has the
ability to issue commercial paper at favorable rates. The lines of credit
support commercial paper and bank borrowing arrangements. As of December
31, 1997, the company had shelf registrations filed with the Securities and
Exchange Commission under which it could issue up to $850 million of debt
securities for general corporate purposes. In January 1998, the company
refinanced certain other debt by issuing $250 million of 5 3/4% notes due
2003 and $250 million of 6% notes due 2008 leaving $350 million of debt
registered under the shelf registration.
In January 1999, the Board of Directors approved a 25 percent increase in
the quarterly dividend to $.20 per share payable in the first quarter of
1999. The company anticipates that the quarterly dividend rate will remain
$.20 per share during 1999 and that dividends will be paid with cash
provided by operations.
MARKET RISK
The company's primary market risk exposures consist of interest rate risk
and foreign currency exchange risk. See Note 11 "Financial Instruments" to
the consolidated financial statements for the company's objectives and
strategies for managing potential exposures related to these risks. The
company's financial instrument holdings were analyzed to determine their
sensitivity to changes in market rates. The model used to assess
sensitivity assumed a 10% hypothetical rate change on all instruments. All
other factors were held constant in the analysis. The parameters of the
analysis included all instruments subject to changes in market rates
including foreign denominated assets and liabilities hedged by foreign
exchange contracts. Unhedged foreign currency denominated assets and
liabilities were not significant at December 31, 1998.
Management primarily uses derivative instruments, the majority of which are
forward exchange contracts involving multiple currencies, to hedge
exposures to certain foreign currency fluctuations as described in Note 11.
As hedges, gains and losses on forward contracts are offset by the effects
of currency movements on respective underlying hedged transactions.
Therefore, with respect to derivative instruments outstanding at December
31, 1998, using a sensitivity analysis, a change of 10 percent in currency
rates would not have a material effect on the company's consolidated
financial position, liquidity, cash flows or results of operations.
<PAGE>
The company holds certain instruments, primarily debt obligations, which
are sensitive to changes in market interest rates. At December 31, 1998,
the majority of the company's variable rate debt consisted of short-term
commercial paper which is subject to changes in market interest rates.
However, at December 31, 1998, using a sensitivity analysis, a change of 10
percent in interest rates would not have a material effect on the company's
consolidated financial position, liquidity, cash flows or results of
operations.
OTHER MATTERS
EURO
On January 1, 1999, the euro was introduced as the common currency in the
11 European Union member states participating in the Economic and Monetary
Union. The conversion to the euro provides for a three-year transition
period during which transactions may be conducted using either the euro or
the legacy currency of the participating country. Effective January 1,
2002, only the euro will be legal tender in these countries. The company
has proactively prepared for the advent of the single European currency.
Modifications to information systems have proven to be effective in
processing business transactions. Further steps toward the adoption of the
euro as the sole currency in these countries will be taken during the
transition period to meet the January 2002 deadline. The company has
invested and continues to invest in a training and communication program to
enable its colleagues to understand, address and communicate the
implications of the single currency.
Increased price transparency resulting from conversion to a single currency
is not expected to have a material impact on the pharmaceutical business
because individual European countries closely regulate pricing of
pharmaceutical products. Pricing issues in the consumer health care and
confectionery businesses have been identified and incorporated into our
normal business planning process. On a total company basis pricing issues
are expected to have a neutral impact on our business.
YEAR 2000
In early 1995 the company embarked on a reengineering initiative to replace
certain of its information systems and related technology infrastructure
which also addressed Year 2000 issues. The company began specifically
addressing its Year 2000 issues in 1996 and expanded its efforts in 1997 by
creating a multi-disciplinary Year 2000 Task Force to coordinate the
company's Year 2000 compliance activities. The Year 2000 Task Force is
chaired by the company's Vice President and Associate General Counsel,
Worldwide Corporate Compliance, who reports on all Year 2000 and Task Force
issues to the company's Office of the Chairman. The Task Force makes
regular reports on the status and progress of the company's Year 2000
compliance program to the Office of the Chairman and the Audit Committee of
the company's Board of Directors.
Within the business units of the company, senior managers have been
assigned responsibility for directing the Year 2000 compliance efforts of
each business and these managers have formed teams to assist them in doing
<PAGE>
so. In addition, the company has retained external consultants for critical
and specialized aspects of its compliance strategy. The company's Year 2000
compliance efforts are directed toward all aspects of its worldwide
operations, including office systems, manufacturing and processing, quality
control and assurance, distribution, sales and marketing, finance and
administration, research and development, and facilities. These efforts
apply to both information and embedded technology systems.
The company has made considerable progress towards achieving Year 2000
compliance. It is pursuing compliance by addressing both its internal
technology systems and its business stakeholders, whose own technology
systems must also be compliant.
The company continues to follow its 5-step approach for resolving Year 2000
issues regarding its internal technology systems. The five steps are: (1)
inventory of all date-dependent systems; (2) assessment of inventoried
systems to identify the systems that are non-Year 2000 compliant; (3)
remediation of noncompliant systems; (4) testing of remediated and
compliant systems to verify Year 2000 compliance; and (5) implementation
and monitoring of remediated systems for ongoing compliance. The company
has been assisted by its external consultants in performing its inventory
and assessment, in developing and implementing remediation strategies and
in developing test protocols and strategies.
In pursuing this strategy, the company has identified its "mission
critical" information and embedded technology systems, and is giving its
primary attention to those systems. A mission critical system is a high
priority system whose failure would adversely impact other systems or cause
material loss or disruption of business for the company or third parties. A
majority of the company's mission critical projects have been completed and
are being monitored on an ongoing basis. The company plans to complete its
mission critical projects and non-mission critical projects by the third
quarter of 1999. To verify its progress, the company has an active internal
audit program in place, utilizing internal resources and external
consultants.
The company also continues to follow its 5-step approach for addressing the
Year 2000 compliance of its business stakeholders (the suppliers, vendors,
customers, distributors, business partners, government agencies, public
utilities, etc. on which the company relies in doing business). The five
steps are: (1) inventory, or identification, and prioritization of all
business stakeholders; (2) assessment of Year 2000 readiness of the
business stakeholders; (3) monitoring of the ongoing Year 2000 efforts of
the business stakeholders; (4) verification of business stakeholder
assurances of Year 2000 compliance; and (5) auditing of business
stakeholders, if possible and as necessary.
In addition to prioritizing business stakeholders, the company has
identified those business stakeholders it considers mission critical and is
giving its primary attention to them. The company has substantially
completed its inventory of its mission critical business stakeholders (Step
1) and has assessed the majority of them (Step 2) and is monitoring their
Year 2000 compliance progress through the use of written questionnaires,
oral inquiries, on-site visits and other means (Step 3). In some cases, the
<PAGE>
company has completed the verification and auditing steps (4 and 5). With
respect to business stakeholders, the company currently anticipates
completing its inventory and assessment, and substantially completing
verification, to the extent possible or permitted, of its business
stakeholders by mid-1999. Ongoing monitoring, verification and any
necessary audits will continue throughout 1999.
Management continues to assess the business risks associated with Year 2000
compliance issues and is developing contingency plans, as needed, to
address the potential Year 2000 failure of mission critical internal
information and embedded technology systems and business stakeholders. If
such failures should occur, they could potentially cause the company to
experience delays in receipt of raw materials for manufacturing,
interruptions in manufacturing resulting from possible third party or
internal systems compliance issues, delayed shipments of finished product
and non-provision of critical services, such as utility services, among
other issues. Contingency plans being developed include increases in
certain inventory levels, use of alternate suppliers, and other backup
procedures. Management expects to implement specific contingency plans
which it determines to be both prudent and cost effective.
Year 2000-related maintenance and modification costs will be expensed as
incurred, while the costs of new information technology will be capitalized
and amortized in accordance with company policy. Management currently
estimates incremental expenditures of approximately $120 million will be
necessary to address and remediate Year 2000 compliance issues, of which
approximately $50 million has been incurred as of December 31, 1998.
Currently unforeseen developments or delays could cause this cost estimate
to change.
Although management believes that its Year 2000 compliance program reduces
the risk of an internal compliance failure and is taking a proactive
approach with business stakeholders, there can be no assurances that the
company or its business stakeholders will achieve timely Year 2000
compliance or that such noncompliance will not have a material adverse
impact on the company.
ENVIRONMENTAL
The company is involved in various administrative or judicial proceedings
related to environmental actions initiated by the Environmental Protection
Agency (EPA) under the Comprehensive Environmental Response, Compensation
and Liability Act (also know as Superfund) or by state authorities under
similar state legislation, or by third parties. The company accrues costs
for an estimated environmental liability when management becomes aware that
a liability is probable and is able to reasonably estimate the company's
share. While it is reasonably possible that additional costs may be
incurred beyond the amounts accrued as a result of new information, those
costs, if any, cannot be estimated currently. As of December 31, 1998 and
1997 the accrual for environmental liabilities was $34 million covering 50
and 48 sites, respectively. For 11 sites, generally those which the company
currently owns or previously owned, the company may be the sole party
responsible for clean-up costs. For other sites, other parties (defined as
potentially responsible parties) may be jointly and severally responsible,
<PAGE>
along with Warner-Lambert, to pay remediation and other related expenses.
Warner Lambert's share of costs at a given site is determined through an
allocation process which takes into account many factors including volume
and the nature of a company's waste. Once established, remediation costs
for a given site may be paid out over several years. While it is not
possible to predict with certainty the outcome of such matters or the total
cost of remediation, management believes it is unlikely that their ultimate
disposition will have a material adverse effect on the company's financial
position, liquidity, cash flows or results of operations for any year.
Statements made in this report that state "we believe," "we expect" or
otherwise state the company's predictions for the future are
forward-looking statements. Actual results might differ materially from
those projected in the forward-looking statements. Additional information
concerning factors that could cause actual results to materially differ
from those in the forward-looking statements is contained in Exhibit 99 of
the company's December 31, 1998 Form 10-K/A filed with the Securities and
Exchange Commission. Exhibit 99 to the Form 10-K/A is incorporated by
reference herein.
Product names appearing in capital letters are trademarks of Warner-Lambert
Company, its affiliates, related companies or its licensors. ZANTAC, ZANTAC
75, ZOVIRAX and BECONASE are registered trademarks of Glaxo Wellcome, its
affiliates, related companies or licensors. CELEXA is a registered
trademark of Forest Laboratories Inc., its affiliates, related companies or
its licensors. OMNICEF is a registered trademark of Fujisawa Pharmaceutical
Co., Ltd.
