FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Transition Period From To
------- -------
Commission File Number 1-3608
WARNER-LAMBERT COMPANY
(Exact name of registrant as specified in its charter)
Delaware 22-1598912
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
201 Tabor Road, Morris Plains, New Jersey
(Address of principal executive offices)
07950
(Zip Code)
Registrant's telephone number, including area code: (973) 540-2000
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
--- ---
Indicate the number of shares outstanding of each of
the issuer's classes of Common Stock, as of the latest
practicable date.
CLASS Outstanding at July 31, 1998
----- -----------------------------
Common Stock, $1 par value 820,899,011*
* Reflects a three-for-one stock split of the Registrant's
Common Stock for stockholders of record as of May 8, 1998.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WARNER-LAMBERT COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
1998 1997
--------- -----------
(Dollars in millions)
ASSETS:
Cash and cash equivalents $ 690.1 $ 756.5
Receivables 1,594.9 1,370.5
Inventories 830.4 742.9
Prepaid expenses and other current assets 484.5 427.1
--------- ---------
Total current assets 3,599.9 3,297.0
Investments and other assets 602.2 593.8
Property, plant and equipment 2,423.3 2,427.0
Intangible assets 1,666.5 1,712.7
--------- ---------
Total assets $ 8,291.9 $ 8,030.5
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Short-term debt $ 528.6 $ 372.1
Accounts payable, trade 929.6 890.6
Accrued compensation 212.2 186.6
Other current liabilities 972.8 894.0
Federal, state and foreign income taxes 307.1 245.6
--------- ---------
Total current liabilities 2,950.3 2,588.9
Long-term debt 1,357.2 1,831.2
Other noncurrent liabilities 807.1 774.9
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 46.3 225.4
Retained earnings 3,881.1 3,892.6
Treasury stock, at cost: (1998 - 142,705,816
shares; 1997 - 48,436,529 shares) (1,240.4) (1,164.5)
Accumulated other comprehensive income (471.7) (438.7)
--------- ---------
Total shareholders' equity 3,177.3 2,835.5
--------- ---------
Total liabilities and shareholders'
equity $ 8,291.9 $ 8,030.5
========= =========
See accompanying notes to consolidated financial statements.
WARNER-LAMBERT COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
--------------- ---------------
1998 1997 1998 1997
---- ---- ---- ----
(Dollars in millions, except per share amounts)
NET SALES $2,556.7 $1,966.7 $4,775.6 $3,744.1
COSTS AND EXPENSES:
Cost of goods sold 655.8 593.6 1,260.4 1,142.8
Selling, general and
administrative 1,169.9 857.6 2,181.3 1,619.8
Research and development 206.3 158.2 389.2 292.1
Other expense (income), net 48.5 26.8 75.1 67.3
-------- -------- -------- --------
Total costs and expenses 2,080.5 1,636.2 3,906.0 3,122.0
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 476.2 330.5 869.6 622.1
Provision for income taxes 138.1 99.1 252.2 186.6
-------- -------- -------- --------
NET INCOME $ 338.1 $ 231.4 $ 617.4 $ 435.5
======== ======== ======== ========
NET INCOME PER COMMON SHARE:
Basic* $ .41 $ .28 $ .75 $ .53
Diluted* $ .40 $ .28 $ .73 $ .52
DIVIDENDS PER COMMON SHARE* $ .16 $ .13 $ .32 $ .25
* Amounts reflect a three-for-one stock split as described in NOTE F.
See accompanying notes to consolidated financial statements.
WARNER-LAMBERT COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months
Ended June 30,
---------------
1998 1997
---- ----
(Dollars in millions)
OPERATING ACTIVITIES:
Net income $ 617.4 $ 435.5
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 140.7 125.2
Changes in assets and liabilities, net of
effects from disposition of business:
Receivables (262.5) (134.5)
Inventories (97.3) (110.0)
Accounts payable and accrued liabilities 258.7 141.8
Other, net (47.4) (56.3)
-------- --------
Net cash provided by operating activities 609.6 401.7
-------- --------
INVESTING ACTIVITIES:
Purchases of investments (27.7) (11.4)
Proceeds from maturities/sales of investments 40.9 83.5
Capital expenditures (240.1) (144.2)
Acquisitions of businesses - (283.0)
Proceeds from disposition of business 125.0 -
Other, net 35.7 (4.1)
-------- --------
Net cash used by investing activities (66.2) (359.2)
-------- --------
FINANCING ACTIVITIES:
Proceeds from borrowings 668.5 1,225.8
Principal payments on borrowings (961.4) (848.1)
Purchases of treasury stock (96.7) (86.2)
Cash dividends paid (262.0) (206.3)
Proceeds from stock option exercises 50.0 44.0
-------- --------
Net cash (used) provided by financing
activities (601.6) 129.2
-------- --------
Effect of exchange rate changes on cash
and cash equivalents (8.2) (17.6)
-------- --------
Net (decrease) increase in cash
and cash equivalents (66.4) 154.1
Cash and cash equivalents at beginning of year 756.5 390.8
-------- --------
Cash and cash equivalents at end of period $ 690.1 $ 544.9
======== ========
See accompanying notes to consolidated financial statements.
WARNER-LAMBERT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in millions, except per share amounts)
NOTE A: The interim financial statements presented herein should be read
in conjunction with Warner-Lambert Company's 1997 Annual Report.
NOTE B: The results of operations for the interim periods are not
necessarily indicative of the results for the full year.
NOTE C: In the opinion of management, all adjustments considered
necessary for a fair presentation of the results for the interim
periods have been included in the consolidated financial
statements.
NOTE D: Certain prior year amounts have been reclassified to conform
with the current year presentation.
NOTE E: On July 31, 1998, Warner-Lambert signed a letter of intent to
acquire Glaxo Wellcome's (Glaxo) rights to over-the-counter (OTC)
Zantac [R] products in the United States and Canada in exchange
principally for Warner-Lambert's rights to OTC Zantac [R]
products in all other markets, OTC Zovirax [R] and
Beconase [R], and future Glaxo prescription to OTC switch
products. These products are currently marketed through joint
ventures between Warner-Lambert and Glaxo, which were
formed to develop, seek approval of and market OTC versions of
Glaxo prescription drugs. This transaction, which will
effectively end these joint ventures, is subject to negotiation
and completion of final agreements and the receipt of required
corporate and regulatory approvals.
NOTE F: 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.
NOTE G: 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 six months ended June 30,
1998.
NOTE H: 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. The Statement, which is effective
for the first quarter 2000, requires all derivates to be measured
at fair value and recognized as either assets or liabilities.
Management is in the process of reviewing this new pronouncement
and currently does not expect adoption of this Statement to have
a material effect on the company's consolidated financial
position, liquidity, cash flows or results of operations.
In June 1997, the FASB issued SFAS No. 130, "Comprehensive
Income," which requires reporting the components of comprehensive
income in a financial statement, on an annual basis, as part of a
full set of general purpose financial statements. This Statement
became effective in the first quarter 1998. Total comprehensive
income includes net income and other comprehensive income which
consists primarily of foreign currency translation adjustments.
Total comprehensive income was $324.3 and $221.1 for the second
quarters of 1998 and 1997, respectively. Total comprehensive
income for the six-month periods ended June 30, 1998 and 1997 was
$584.4 and $333.3, respectively.
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 accompanying Condensed
Consolidated Balance Sheet. These reclassifications have also
been made to the 1997 Condensed Consolidated Balance Sheet.
NOTE I: The Net income per common share computations were as follows:
(Shares in thousands)
Three Months Ended Six Months Ended
June 30, June 30
---------------- ----------------
1998 1997 1998 1997
---- ---- ---- ----
Basic:
Net income $338.1 $231.4 $617.4 $435.5
Average common shares
outstanding 819,511 814,378 818,748 814,202
------- ------- ------- -------
$.41* $.28* $.75* $.53*
======= ======= ======= =======
Diluted:
Net income $338.1 $231.4 $617.4 $435.5
Average common shares
outstanding 819,511 814,378 818,748 814,202
Impact of potential future
stock option exercises,
net of shares repurchased 29,433 22,791 27,924 21,083
------- ------- ------- -------
Average common shares
outstanding - assuming
dilution 848,944 837,169 846,672 835,285
------- ------- ------- -------
$.40* $.28* $.73* $.52*
======= ======= ======= =======
* Amounts reflect a three-for-one stock split as described in
NOTE F.
NOTE J: Major classes of inventories were as follows:
June 30, 1998 December 31, 1997
-------------- -----------------
Raw materials $222.0 $167.7
Finishing supplies 46.5 53.1
Work in process 154.5 95.6
Finished goods 407.4 426.5
------ ------
$830.4 $742.9
====== ======
NOTE K: Property, plant and equipment balances were as follows:
June 30, 1998 December 31, 1997
-------------- -----------------
Property, plant and equipment $ 4,059.7 $ 3,968.9
Less accumulated depreciation (1,636.4) (1,541.9)
--------- ---------
Net $ 2,423.3 $ 2,427.0
========= =========
NOTE L: Intangible asset balances were as follows:
June 30, 1998 December 31, 1997
-------------- -----------------
Goodwill $1,258.8 $1,267.5
Trademarks and other
intangibles 590.3 602.3
Less accumulated amortization (182.6) (157.1)
-------- --------
Net $1,666.5 $1,712.7
======== ========
NOTE M: Included in Other expense (income), net was interest expense of
$26.2 and $47.5 for the second quarters of 1998 and 1997,
respectively. Interest expense for the first six months of 1998
and 1997 was $62.0 and $86.7, respectively.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
SECOND QUARTER AND SIX MONTHS ENDED JUNE 30, 1998
- -------------------------------------------------
COMPARED WITH CORRESPONDING PERIODS IN 1997
- -------------------------------------------
NET SALES
- ---------
Sales for the second quarter of 1998 of $2,557 million were 30
percent above 1997 second quarter sales. For the first six months
of 1998 sales rose 28 percent to $4,776 million compared to the same
period one year ago. Adjusting for the unfavorable impact of
foreign exchange rate changes sales increased 34 percent for the
quarter and 32 percent for the six-month period. Sales growth was
driven by unit volume growth of 38 percent for the second quarter
and 35 percent for the first six months of 1998.
U.S. sales increased $527 million or 55 percent to $1,486 million
for the quarter and $919 million or 51 percent to $2,706 million for
the first six months of 1998 compared to the same periods one year
ago. International sales increased $63 million or 6 percent to
$1,071 million for the second quarter and increased $113 million or
6 percent to $2,070 million for the first six months of 1998
compared to the same periods one year ago. At constant exchange
rates, international sales increased 15 percent and 14 percent for
the second quarter and first six months of 1998, respectively.
SEGMENT SALES Three Months Ended Six Months Ended
(Dollars in June 30, June 30,
Millions) ----------------------- -----------------------
Percent Percent
Increase/ Increase/
1998 1997 (Decrease) 1998 1997 (Decrease)
---- ---- -------- ---- ---- --------
Pharmaceutical $1,413 $ 825 71 % $2,538 $1,511 68 %
Consumer Health
Care 676 675 - 1,325 1,337 (1)
Confectionery 468 467 - 913 896 2
------ ------ ------ ------
Consolidated
Net Sales $2,557 $1,967 30 % $4,776 $3,744 28 %
====== ====== ====== ======
Worldwide pharmaceutical sales increased 71 percent to $1,413
million in the second quarter of 1998 and increased 68 percent to
$2,538 million for the first six months of 1998 compared to the same
periods one year ago. The sales increase was primarily attributable
to the continued growth of the cholesterol-lowering agent LIPITOR,
the type 2 diabetes drug REZULIN, the add-on epilepsy therapy
NEURONTIN and the cardiovascular drug ACCUPRIL which achieved
worldwide sales as follows:
Three months ended Six months ended
June 30, 1998 June 30, 1998
------------------ ----------------
(Dollars in Millions)
LIPITOR $533 $911
REZULIN 226 364
NEURONTIN 122 218
ACCUPRIL 119 218
Pharmaceutical sales in the U.S. increased 107 percent to $966
million in the second quarter of 1998 and 101 percent to $1,681
million for the first six months of 1998. International
pharmaceutical sales increased 25 percent to $447 million or 35
percent at constant exchange rates in the second quarter. For the
first six months of 1998 international pharmaceutical sales
increased 27 percent to $857 million or 37 percent at constant
exchange rates.
Worldwide sales of LIPITOR more than tripled to $533 million for the
quarter compared to the same period one year ago. 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 35 percent share of new
prescriptions in the U.S. cholesterol lowering market. Nearly 4
million Americans have been treated with LIPITOR.
In the quarter, REZULIN sales almost tripled to $226 million
compared to the same period one year ago. REZULIN, the first in a
new class of drugs known as thiazolidinediones, targets insulin
resistance - an underlying cause of type 2 diabetes. Since its
launch in March 1997, more than 1 million Americans with type 2
diabetes have initiated treatment with REZULIN.
In the fourth quarter of 1997 the company initiated changes in the
prescribing information for REZULIN in response to reports of rare
cases of severe hepatic dysfunction during marketed use. The
changes included a recommendation that healthcare providers monitor
patients for signs of liver dysfunction. In July 1998 these
monitoring guidelines were modified to recommend additional liver
testing. The company has also sent letters to one half million
health-care professionals alerting them to the new labeling and
stressing the importance of vigilant monitoring for indications of
liver injury. The company continues to find that the benefits of
REZULIN outweigh the potential risks that may be associated with the
product.
To sustain growth in currently marketed drugs including LIPITOR,
REZULIN and NEURONTIN, the company has initiated aggressive life-
cycle management programs exploring new indications and patient
populations.
In July 1998 the FDA approved the marketing of Celexa [R]
(citalopram HBr) for treatment of depression. Forest Laboratories
Inc. has the U.S. marketing rights to Celexa [R] and will co-promote
it with the Parke-Davis division of Warner Lambert. Celexa [R] is
the best selling antidepressant in 13 countries, including 8 in
Europe. In, 1998 the U.S. market for antidepressants is expected to
reach $6 billion.
Consumer health care segment sales in the U.S. increased 6 percent
to $365 million in the second quarter of 1998 and 7 percent to $719
million for the first six months of 1998 compared to the same
periods one year ago. Within the segment, U.S. Shaving products
sales increased 25 percent to $63 million for the second quarter and
31 percent to $114 million for the first six months of 1998 compared
to the same periods one year ago. The increase is due to the launch
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, LISTERINE mouthwash and the launch of
LUBRIDERM UV moisturizing and sun protection lotion.
International consumer health care segment sales fell 6 percent to
$311 million for the second quarter and 9 percent to $606 million
for the first six months of 1998 compared to the same periods one
year ago. The decrease reflects the impact of the overall economic
weakness in Asian markets. At constant exchange rates,
international segment sales increased 2 percent for the second
quarter and decreased 1 percent for the six-month period.
Within the consumer health care segment, international sales of the
company's Shaving products fell 10 percent to $133 million or 4
percent at constant exchange rates for the second quarter of 1998.
For the first six months of 1998 international Shaving products
sales fell 11 percent to $249 million, or 4 percent at constant
exchange rates compared to the same period one year ago.
International sales of the company's TETRA pet care products
business also fell 7 percent to $29 million and were unchanged at
constant exchange rates for the second quarter of 1998 and fell 12
percent to $57 million, or 5 percent at constant exchange rates for
the first six months of 1998 compared to the same periods one year
ago. Both the Shaving products and TETRA pet care divisions were
significantly impacted by the broad economic downturn in Japan.
On July 31, 1998, Warner-Lambert signed a letter of intent to acquire
Glaxo Wellcome's (Glaxo) rights to over-the-counter (OTC) Zantac [R]
products in the United States and Canada in exchange principally for
Warner-Lambert's rights to OTC Zantac [R] products in all other
markets, OTC Zovirax [R] and Beconase [R], and future Glaxo
prescription to OTC switch products. These products are currently
marketed through joint ventures between Warner-Lambert and Glaxo,
which were formed to develop, seek approval of and market OTC
versions of Glaxo prescription drugs. This transaction, which will
effectively end these joint ventures, is subject to negotiation and
completion of final agreements and the receipt of required corporate
and regulatory approvals. Sales of the joint ventures are not
currently reflected in reported sales results since the joint
ventures are accounted for on an equity basis. Through six months in
1998 the joint ventures recorded Zantac 75 [R] sales of $84 million
in the United States and Canada.
Confectionery sales in the U.S. increased 5 percent to $155 million
for the second quarter of 1998 and 11 percent to $306 million for
the first six months of 1998 compared to the same periods one year
ago. These increases are primarily due to the strong sales of
recently launched DENTYNE Ice chewing gum, CERTS COOL MINT DROPS and
CERTS Powerful Mints breath fresheners and continued strong sales of
TRIDENT sugarless gum.
International confectionery sales were $313 million, for the second
quarter of 1998, a decrease of 2 percent, or an increase of 6
percent at constant exchange rates. Sales were $607 million for the
first six months of 1998, a decrease of 2 percent, or an increase of
6 percent at constant exchange rates compared to the same periods
one year ago. The international sales increase at constant exchange
rates is primarily due to strong sales in Mexico, where sales
increased across all gum brands.
COSTS AND EXPENSES
- ------------------
As a percentage of net sales, cost of goods sold fell to 25.6% in
the second quarter of 1998 from 30.2% in the second quarter of 1997
and to 26.4% for the first six months of 1998 from 30.5% in the same
period one year ago. The improvement in the ratio for both
reporting periods is partly attributable to an increase in
pharmaceutical segment product sales, with generally higher margins
than consumer health care or confectionery products, as a percentage
of total company sales. Also contributing to the improvement in the
ratio is a favorable product mix within the pharmaceutical segment.
Selling, general and administrative expense in the second quarter of
1998 increased 36 percent compared with the second quarter of 1997
and 35 percent for the first six months of 1998 compared with the
six-month period one year ago. As a percentage of net sales,
selling, general and administrative expense for the quarter
increased to 45.8% compared with 43.6% for the same quarter last
year and for the first six months of 1998 increased to 45.7%
compared with 43.3% for the same time period last year.
Pharmaceutical segment expenses significantly increased for the
second quarter and the six-month period to support the new products.
Quarterly settlements of co-promotion agreements related to LIPITOR
and REZULIN are recorded in selling expense. Expenses increased in
the consumer health care and confectionery segments for the second
quarter and for the first six months of 1998 compared to the same
periods in the prior year. Management expects that selling, general
and administrative expenses will remain at or slightly above this
level as a percent of sales for the full year.
Research and development expense in the second quarter and first six
months of 1998 increased 30 percent and 33 percent, respectively,
over the same periods one year ago. However, as a percentage of net
sales, research and development expense has remained constant at
approximately 8%. For 1998 the company plans to invest
approximately $850 million in research and development, a projected
increase of 26 percent compared with 1997.
Other expense (income), net in the second quarter and first six
months of 1998 compared unfavorably by $22 million and $8 million
from the same periods in 1997. The unfavorability is partly
attributable to foreign currency transaction losses realized for the
second quarter and six months of 1998 as compared to foreign
currency transaction gains realized in the same periods in 1997.
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 costs
related to the company's plans to close two of its foreign
manufacturing facilities.
INCOME TAXES
- ------------
The effective tax rate for the second quarter and first six months
of 1998 decreased to 29.0% from 30.0% in the same periods in 1997.
The decrease of 1.0 percentage point is primarily due to increased
income generated in foreign jurisdictions with lower tax rates.
NET INCOME
- ----------
Net income increased 46 percent and 42 percent for the second
quarter and the first six months of 1998, respectively compared to
the same periods one year ago.
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 for all
shares of record held on May 8, 1998. The additional shares were
registered on May 26, 1998.
Diluted earnings per share for the second quarter of 1998 increased
from $0.28 to $0.40 on a post-split basis. Diluted earnings per
share for the first six months of 1998 increased from $0.52 to
$0.73. Based on current planning assumptions, the company expects
to increase earnings per share by 40 percent this year.
LIQUIDITY AND FINANCIAL CONDITION
- ---------------------------------
Selected data:
June 30, December 31,
1998 1997
------- ------------
Net debt (in millions) $1,104 $1,347
Net debt to net capital(equity
and net debt) 26% 32%
Net debt (total debt less cash and cash equivalents and other
nonequity securities) decreased $243 million from December 31, 1997.
Cash and cash equivalents were $690 million at June 30, 1998, a
decrease of $66 million from December 31, 1997. The company also
held $92 million in nonequity securities, included in other current
assets and investments and other assets, that management views as
cash equivalents, representing a decrease of $9 million from
December 31, 1997. The total decrease in cash and cash equivalents
of $75 million is offset by a decrease in total debt of $318
million.
Cash provided by operating activities for the first six months of
1998 of $610 million was more than sufficient to fund capital
expenditures of $240 million and pay dividends of $262 million.
Cash flow in the first six months of 1998 also includes proceeds of
$125 million from the sale of the Rochester, Michigan pharmaceutical
manufacturing plant.
Planned capital expenditures for 1998 are estimated to be $800
million 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 intends to fund
capital expenditures with cash provided by operations.
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, 1997 Form 10-K
filed with the Securities and Exchange Commission. Exhibit 99 to
the Form 10-K is incorporated by reference herein.
All product names appearing in capital letters are registered
trademarks of Warner-Lambert Company, its affiliates, related
companies or its licensors. Zantac [R], Zantac 75 [R], Zovirax [R],
and Beconase [R] are registered trademarks of Glaxo Wellcome, its
affiliates, related companies or licensors. Celexa [R] is a
registered trademark of Forest Laboratories Inc., its affiliates,
related companies or its licensors.
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
-----------------
In late 1993, Warner-Lambert, along with numerous other
pharmaceutical manufacturers and wholesalers, was sued in a number
of state and federal antitrust lawsuits seeking damages (including
trebled and statutory damages, where applicable) and injunctive
relief. These actions arose from allegations that the defendant
drug companies, acting alone or in concert, engaged in differential
pricing whereby they favored institutions, managed care entities,
mail order pharmacies and other buyers with lower prices for brand
name prescription drugs than those afforded to retailer pharmacies.
The federal cases, which were brought by retailers, have been
consolidated by the Judicial Panel on Multidistrict Litigation and
transferred to the U.S. District Court for the Northern District of
Illinois for pre-trial proceedings. In June 1996, the Court
approved Warner-Lambert's agreement to settle part of the
consolidated federal cases, specifically, the class action
conspiracy lawsuit, for a total of $15.1 million. This settlement
also contains certain commitments regarding Warner-Lambert's pricing
of brand name prescription drugs. Appeals of the District Court's
approval of this settlement were unsuccessful, and the commitments
have become effective. Certain other rulings of the judge presiding
in this case were also appealed, and the judge was reversed on all
rulings. The cases have been remanded to the District Court, and
trial of the class action conspiracy action against the non-settling
defendant pharmaceutical manufacturers and wholesalers has been
scheduled for September 1998.
In April 1997, after execution of the federal class settlement
referred to above but prior to the formal effectiveness of its
pricing commitments, the same plaintiff-class members brought a new
purported class action relating to the time period subsequent to the
execution of the settlement. This new class suit sought only
injunctive relief. At present, Warner-Lambert cannot predict the
outcome of this and the other remaining federal lawsuits in which it
is a defendant.
The state cases pending in California, brought by classes of
pharmacies and consumers, have been coordinated in the Superior
Court of California, County of San Francisco. Warner-Lambert has
also been named as a defendant in actions in state courts filed in
Alabama, Minnesota, Mississippi and Wisconsin brought by classes of
pharmacies, each arising from the same allegations of differential
pricing. With its co-defendants, the Company has settled the
Minnesota and Wisconsin actions. The Company's share of these
settlements, which have been approved, are not material. In
addition, the Company is named in class action complaints filed in
Alabama, Arizona, Florida, Kansas, Maine, Michigan, Minnesota, New
York, North Carolina, Tennessee, Wisconsin and the District of
Columbia, brought by classes of consumers who purchased brand name
prescription drugs at retail pharmacies. With its co-defendants,
the Company has agreed to settle these state consumer class actions.
The Company's share of these settlements, which are subject to court
approval in their respective jurisdictions, is not material.
The Federal Trade Commission (the "FTC") is conducting an
investigation to determine whether Warner-Lambert and twenty-one
other pharmaceutical manufacturers have engaged in concerted
activities to raise the prices of pharmaceutical products in the
United States. Warner-Lambert was served with and responded to two
subpoenas from the FTC in 1996 and 1997, respectively, and is
continuing to cooperate with this investigation. Warner-Lambert
cannot at present predict the outcome of this investigation.
Warner-Lambert is also involved in various administrative or
judicial proceedings related to environmental actions initiated by
the Environmental Protection Agency under the Comprehensive
Environmental Response, Compensation and Liability Act (also known
as Superfund) or by state authorities under similar state
legislation, or by third parties. While it is not possible to
predict with certainty the outcome of such matters or the total cost
of remediation, Warner-Lambert believes it is unlikely that their
ultimate disposition will have a material adverse effect on Warner-
Lambert's financial position, liquidity, cash flows or results of
operations for any year.
Warner-Lambert Inc., a wholly-owned subsidiary of Warner-Lambert,
has been named as a defendant in class actions filed in Puerto Rico
Superior Court by current and former employees from the Vega Baja,
Carolina and Fajardo plants, as well as Kelly Services temporary
employees assigned to those plants. The lawsuits seek monetary
relief for alleged violations of local statutes and decrees relating
to meal period payments, minimum wage, overtime and vacation pay.
Warner-Lambert believes that these actions are without merit and
will defend these actions vigorously. Although it is too early to
predict the outcome of these actions, Warner-Lambert does not at
present expect these lawsuits to have a material adverse effect on
the Company's financial position, liquidity, cash flows or results
of operations.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
--------
(3) Articles of Incorporation and By-Laws.
(a) Restated Certificate of Incorporation of
Warner-Lambert Company filed November 10,
1972, as amended to April 28, 1998.
(10) Material contracts.
(a) Warner-Lambert Company 1987 Stock Option
Plan, as amended to January 27, 1998.
(b) Warner-Lambert Company 1989 Stock Plan,
as amended to January 27, 1998.
(c) Warner-Lambert Company 1992 Stock Plan,
as amended to January 27, 1998.
(d) Warner-Lambert Company 1996 Stock Plan,
as amended to January 27, 1998.
(12) Computation of Ratio of Earnings to Fixed
Charges.
(27) Financial Data Schedules (EDGAR filing only).
(a) Financial Data Schedule - June 30, 1998.
(b) Restated Financial Data Schedules - 1995
and 1996.
(c) Restated Financial Data Schedules - 1997.
(b) Reports on Form 8-K
-------------------
Warner-Lambert has not filed any reports on
Form 8-K for the quarter ended June 30,
1998.
S I G N A T U R E S
-------------------
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be
signed on its behalf by the undersigned thereunto duly
authorized.
WARNER-LAMBERT COMPANY
(Registrant)
Date: August 11, 1998 By: Ernest J. Larini
----------------
Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: August 11, 1998 By: Joseph E. Lynch
---------------
Vice President and Controller
(Principal Accounting Officer)
EXHIBIT INDEX
-------------
Exhibit No. Exhibit
- ----------- -------
(3) Articles of Incorporation and By-Laws.
(a) Restated Certificate of Incorporation of
Warner-Lambert Company filed November 10,
1972, as amended to April 28, 1998.
(10) Material contracts.
(a) Warner-Lambert Company 1987 Stock Option
Plan, as amended to January 27, 1998.
(b) Warner-Lambert Company 1989 Stock Plan, as
amended to January 27, 1998.
(c) Warner-Lambert Company 1992 Stock Plan, as
amended to January 27, 1998.
(d) Warner-Lambert Company 1996 Stock Plan, as
amended to January 27, 1998.
(12) Computation of Ratio of Earnings to Fixed
Charges.
(27) Financial Data Schedules (filed electronically).
(a) Financial Data Schedule - June 30, 1998.
(b) Restated Financial Data Schedules - 1995
and 1996.
(c) Restated Financial Data Schedules - 1997.