________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
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
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WARNER-LAMBERT COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 201 TABOR ROAD 22-1598912
(STATE OR OTHER JURISDICTION MORRIS PLAINS, NEW JERSEY 07950 (I.R.S. EMPLOYER
OF (ADDRESS OF PRINCIPAL IDENTIFICATION NO.)
INCORPORATION OR EXECUTIVE OFFICES, INCLUDING
ORGANIZATION) ZIP CODE)
973-385-2000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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Common Stock (Par Value $1 Per Share) The New York Stock Exchange, Inc.
The Chicago Stock Exchange, Inc.
The Pacific Stock Exchange, Inc.
Rights to Purchase Series A
Junior Participating Preferred Stock The New York Stock Exchange, Inc.
The Chicago Stock Exchange, Inc.
The Pacific Stock Exchange, Inc.
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None.
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 (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
Warner-Lambert Company as of February 29, 2000 was approximately $73.2 billion.
The number of shares outstanding of the registrant's Common Stock as of
February 29, 2000 was 867,281,738 shares, Common Stock, par value $1.00 per
share.
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PART I
ITEM 1. BUSINESS.
The term 'Warner-Lambert' or the 'Company' refers to Warner-Lambert Company,
a Delaware corporation organized in that state in 1920, and its consolidated
subsidiaries, unless otherwise indicated or unless the context otherwise
requires.
On November 3, 1999, Warner-Lambert, American Home Products Corporation
('AHP') and a wholly-owned subsidiary of AHP entered into a merger agreement
(the 'AHP Merger Agreement'). On February 6, 2000, the AHP Merger Agreement was
terminated, and the stock option agreements exchanged in connection with that
transaction were cancelled by Warner-Lambert and AHP without consideration. In
connection with the termination of the AHP Merger Agreement, and in accordance
with the terms thereof, Warner-Lambert paid AHP a termination fee of $1.8
billion.
Warner-Lambert, Pfizer Inc. ('Pfizer') and a wholly-owned subsidiary
of Pfizer entered into a merger agreement dated as of February 6, 2000 (the
'Pfizer Merger Agreement'). Under the terms of the proposed transaction,
which has been approved by the Board of Directors of both Warner-Lambert and
Pfizer, each share of Warner-Lambert common stock will be exchanged for 2.75
shares of Pfizer common stock. The transaction is contingent upon qualifying as
a tax-free reorganization and being accounted for under the pooling of interests
method of accounting. The transaction is scheduled to close in mid-2000, subject
to antitrust clearance, approval by both companies' shareholders and other
customary conditions.
Reportable Segment Data and Geographic Data. The summary of Warner-Lambert's
reportable segment data, geographic data and related financial information, is
set forth in Note 19 to the Consolidated Financial Statements contained in
'Item 8. Financial Statements and Supplementary Data' below.
Except as otherwise noted below, all product names appearing in capitalized
letters in this report on Form 10-K, femhrt'r' and e.p.t.'r' are trademarks of
Warner-Lambert, its affiliates, related companies or licensors. ZANTAC, ZANTAC
75, BECONASE and ZOVIRAX are registered trademarks of Glaxo Wellcome plc ('Glaxo
Wellcome'), its affiliates, related companies or licensors. CELESTIAL SEASONINGS
is a registered trademark of Celestial Seasonings Inc. CELEXA is a trademark of
Forest Laboratories, Inc. ('Forest Laboratories'), its affiliates, related
companies or licensors. OMNICEF is a registered trademark of Fujisawa
Pharmaceutical Co., Ltd., its affiliates or related companies. RESCRIPTOR is a
registered trademark of Pharmacia & Upjohn Inc., its affiliates or related
companies. RECALDENT is a trademark of Bonlac Foods Limited. SINUPRET is a
registered trademark of Apotheker Popp OHG.
BUSINESS SEGMENTS
A detailed description of Warner-Lambert's reportable segments follows:
Pharmaceutical Products
The principal products of Warner-Lambert in its Pharmaceutical Products
segment are ethical pharmaceuticals, biologicals and capsules.
Ethical Pharmaceuticals and Biologicals: Warner-Lambert manufactures,
markets and/or sells, in the United States and/or internationally, an extensive
line of ethical pharmaceuticals and biologicals under trademarks and trade names
such as PARKE-DAVIS and GOEDECKE. Among these products are analgesics (PONSTAN,
VALORON, VALORON-N, VEGANIN and VALTRAN), anthelmintics (VANQUIN),
anticonvulsants (CELONTIN, CEREBYX, DILANTIN, NEURONTIN and ZARONTIN),
antivaricosities (HEPATHROMBIN), cardiovascular products (NOVADRAL, DILZEM,
ACCUPRIL, ACCURETIC, ACCUZIDE, NITROSTAT and PIMENOL), cognition drugs for
treatment of mild-to-moderate Alzheimer's disease (COGNEX), dermatologics
(BEBEN), diabetes drugs for non-insulin dependent diabetes mellitus patients
(REZULIN), prescription hemorrhoidal preparations (ANUSOL HC), hemostatic agents
(THROMBOSTAT), hormonal agents (PITRESSIN),
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lipid regulators (LIPITOR and LOPID), oral contraceptives (ESTROSTEP and
LOESTRIN) and psychotherapeutic products (CETAL, DEMETRIN and NARDIL).
In December 1996, Warner-Lambert received U.S. Food and Drug Administration
('FDA') clearance to market the cholesterol-lowering agent LIPITOR
(Warner-Lambert's trademark for atorvastatin) and began marketing the product in
February 1997. The Company has also received marketing approval in over seventy
countries for the drug and has begun or will begin to market LIPITOR in those
countries. Atorvastatin is primarily marketed as LIPITOR, SORTIS, TAHOR and
ZARATOR in the various countries. Warner-Lambert Export Limited, the Company's
Irish subsidiary, is responsible for the worldwide manufacture and marketing of
LIPITOR. The Company co-promotes LIPITOR in certain countries through a ten-year
marketing agreement with Pfizer.
Warner-Lambert received FDA clearance in January 1997 to market REZULIN
(Warner-Lambert's trademark for troglitazone), a diabetes drug initially used
for non-insulin dependent diabetes mellitus patients who were inadequately
controlled by insulin. Subsequently the Company received FDA approval to market
REZULIN for additional indications. The Company licenses REZULIN from Sankyo
Company, Ltd. ('Sankyo') for North America and certain other areas, including
Central America, South America, Australia, New Zealand and the Philippines and
markets the product in the United States with Sankyo Parke Davis, a joint
venture between the Company and Sankyo.
REZULIN was first marketed in March 1997 in the United States and achieved
sales of $420 million during 1997, $748 million during 1998 and $625 million
during 1999. Since marketing began, the Company has changed the labeling for
REZULIN in response to rare reports during marketed use of hepatic injuries,
which were usually reversible, but which in very rare cases resulted in liver
transplants or death. The changes involved among other things a recommendation
to monitor liver enzymes. In June 1999, the Company withdrew the indication for
REZULIN as initial single agent therapy. On March 21, 2000, the Company
discontinued marketing all remaining indications for REZULIN. For further
discussion of REZULIN see 'Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Net Sales -- Pharmaceutical
Products'.
In December 1997, Warner-Lambert received clearance from the FDA to market
OMNICEF, a broad spectrum cephalosporin antibiotic for adult and pediatric use,
which is licensed from Fujisawa Pharmaceutical Co., Ltd. The Company launched
the product in the United States in 1998. Warner-Lambert received its first
marketing authorization in the world for OMNICEF in the Philippines in July 1994
and began marketing the product in that country in January 1995. The Company has
also received marketing approval and has launched the product in Indonesia and
Thailand. On January 18, 2000, Warner-Lambert sold the marketing rights for
OMNICEF in the United States and Canada to Abbott Laboratories.
In July 1998, the FDA approved the marketing of CELEXA (citalopram HBr), a
selective serotonin reuptake inhibitor, for treatment of depression. Forest
Laboratories has the U.S. marketing rights to CELEXA and co-promotes it with the
Parke-Davis division of Warner-Lambert. CELEXA was developed in the United
States by Forest Laboratories under license from H. Lundbeck A/S.
In April 1998, the Company entered into a marketing agreement with
Yamanouchi Pharmaceutical Co., Ltd. ('Yamanouchi') giving the Company the
marketing rights in Europe and the Americas to a compound called conivaptan.
Warner-Lambert and Yamanouchi are developing conivaptan for the treatment of
congestive heart failure and hyponatremia. Conivaptan is currently in Phase II
studies in the United States and Europe.
On December 26, 1997, the Company submitted a New Drug Application ('NDA')
to the FDA for marketing approval for suramin, a treatment for hormone
refractory prostate cancer. The NDA was reviewed and rejected by the FDA
Oncologic Drugs Advisory Committee on September 1, 1998. Additional data was
submitted to the FDA in November 1998. A non-approval letter was received by the
Company from the FDA on March 29, 1999. The Company intends to withdraw the NDA
for suramin in 2000.
In December 1998, the Company submitted an NDA to the FDA for marketing
approval for norethindrone acetate ('NA') and ethinyl estradiol ('EE')
(femhrt'r'), an oral single-pill combination
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estrogen-progestin hormone replacement therapy for osteoporosis and menopausal
symptoms. The FDA approved the femhrt'r' application on October 15, 1999 in 1 mg
NA/5 'u' g EE dose for the treatment of moderate to severe vasomotor symptoms
associated with menopause and for the prevention of osteoporosis in women with
an intact uterus. The Company launched femhrt'r' in February 2000 in the United
States.
In December 1998, the Company submitted an NDA to the FDA for marketing
approval for clinafloxacin, an injectable new generation fluoroquinolone
antibiotic for the treatment of serious, life-threatening infections. The NDA
for clinafloxacin was withdrawn by the Company on November 19, 1999, however,
the investigational new drug application for clinafloxacin will be maintained
to allow for use of the drug in situations where no alternative therapy is
possible.
On December 14, 1999, the Company submitted an application to the FDA for
pediatric usage of NEURONTIN. In January 2000, the FDA granted a six-month
extension of the NEURONTIN epilepsy use patent protection through mid-July 2000
pending its review of the application.
The FDA approved ACCURETIC, an ACE inhibitor/diuretic combination product,
on December 28, 1999.
The FDA approved the twice-daily dosing of VIRACEPT, which is an HIV
protease inhibitor, in October, 1999. The previously approved dosing regimen was
three times a day.
In May 1997, Warner-Lambert purchased the remaining 66% it did not already
own of Jouveinal S.A., a French pharmaceutical group. The Jouveinal group
specialized in ethical and over-the-counter ('OTC') pharmaceuticals, as well as
fine chemicals and food flavors. In order to focus on its core pharmaceutical,
consumer health care and confectionery businesses, Warner-Lambert sold the fine
chemical business and the food flavors business of the Jouveinal group in
December 1997.
Warner-Lambert's pharmaceutical products are promoted for the most part
directly to health care professionals through personal solicitation of doctors
and other professionals by sales representatives with scientific training,
direct mail contact and advertising in professional journals. Products are sold
either directly or through wholesalers to government agencies, chain and
independent retail pharmacies, hospitals, clinics, long-term care facilities,
mail order houses and health maintenance organizations. Sales to managed care
entities have become an increasingly large part of Warner-Lambert's domestic
pharmaceutical sales. The Company estimates that more than 78% of its
pharmaceutical sales in the United States during 1999 were made to managed care
entities (including government agencies and hospitals). For further discussion
of Warner-Lambert's ethical products, see 'Item 1. Business -- Regulation'
below.
Capsules: Warner-Lambert is the leading worldwide producer of empty
hard-gelatin capsules used by pharmaceutical companies for their production of
encapsulated products. These capsules are used by Warner-Lambert or manufactured
by Warner-Lambert according to the specifications of each of its customers and
are sold under such trademarks as CAPSUGEL, CONI-SNAP, SNAP-FIT, VCAPS and
PRESS-FIT. On January 31, 2000, the Capsugel division of Warner-Lambert acquired
Medicaps, S.A., a soft gelatin company in France.
Other: On February 27, 1998, the Company sold its facility in Rochester,
Michigan, as well as certain minor prescription products for $125 million to
Parkedale Pharmaceuticals, Inc., a wholly owned subsidiary of King
Pharmaceuticals, Inc. On May 4, 1998, the Company acquired gene/Networks, a
genomics company located in Alameda, California. On May 17, 1999, the Company
acquired Agouron Pharmaceuticals, Inc. ('Agouron'), a La Jolla, California
based, integrated pharmaceutical company engaged in the discovery, development
and commercialization of drugs for the treatment of cancer, viral diseases, and
diseases of the eye. Agouron currently has two commercial products, VIRACEPT,
which is an HIV protease inhibitor that has been sold since receiving marketing
approval from the FDA in 1997 and RESCRIPTOR, which is an anti-HIV drug that is
licensed from Pharmacia & Upjohn Inc. Warner-Lambert 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 common stock. The transaction was accounted for as a pooling of
interests and qualified as a tax-free exchange.
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Consumer Health Care Products
The principal products of Warner-Lambert in its Consumer Health Care
Products segment are OTC health care products, shaving products and pet care
products.
Over-the-Counter Products: Warner-Lambert manufactures, markets and/or
sells, in the United States and/or internationally, an extensive line of
over-the-counter pharmaceuticals and health care products under trade names such
as WARNER-LAMBERT CONSUMER HEALTHCARE. Among these products are oral care
mouthwash/dental rinses (LISTERINE, COOL MINT LISTERINE, LISTERINE Tartar
Control and FRESHBURST LISTERINE), toothpaste (COOL MINT LISTERINE and COOL MINT
LISTERINE Tartar Control), effervescent denture cleaning tablets and denture
cleanser pastes (EFFERDENT, EFFERDENT PLUS and FRESH 'N BRITE), denture
adhesives (EFFERGRIP), upper respiratory cold and sinus preparations (SUDAFED,
SINUTAB, SINUTAB Non-Drying, SUDAFED Non-Drying and ACTIFED), antihistamines and
allergy products (ACTIFED Allergy, SUDAFED Cold and Allergy, BENADRYL
Allergy/Cold, BENADRYL Chewables, BENADRYL Allergy/Sinus Headache and BENADRYL
Dye-Free), cough syrups/suppressants (BENYLIN Multi-Symptom, BENYLIN Adult,
BENYLIN Expectorant and BENYLIN Pediatric), digestive health (ZANTAC 75,
ROLAIDS, Extra Strength ROLAIDS and GELUSIL), dermatological skincare products
(LUBRIDERM, LUBRIDERM Body Bar, LUBRIDERM SERIOUSLY SENSITIVE, LUBRIDERM
Advanced Therapy, LUBRIDERM Daily UV and CORN HUSKERS), topical antibiotic
ointments and creams (NEOSPORIN and POLYSPORIN), hemorrhoidal preparations
(ANUSOL, ANUSOL HC-1 and TUCKS), vitamins (MYADEC), antipruritics (CALADRYL,
BENADRYL spray, cream, gel and stick and STINGOSE), rubbing alcohol (LAVACOL),
hydrogen peroxide (PROXACOL), self-diagnostic early pregnancy test kits
(e.p.t.'r'), complementary medicines (QUANTERRA), head lice treatment (NIX), and
diaper rash preparations (BOROFAX).
In September 1998, Warner-Lambert introduced the new QUANTERRA line of
standardized herbal supplements in the United States. The QUANTERRA line
includes: Mental Sharpness, with Ginkgo Biloba, Prostate, with Saw Palmetto,
Emotional Balance with St. John's Wort, Stomach Comfort with Ginger, Sleep with
Valerian and Sinus Defense with SINUPRET.
In January 1999, Warner-Lambert launched LISTERINE Tartar Control mouthwash
in the United States.
In 1993, Warner-Lambert and Glaxo Wellcome formed a joint venture in the
United States to develop, seek approval of and market OTC versions of Glaxo
Wellcome prescription drugs in the United States. On June 30, 1996
Warner-Lambert and Glaxo Wellcome formed additional joint ventures to develop
and market certain Glaxo Wellcome OTC switch products in other major markets,
including the United Kingdom (the 'Glaxo Wellcome Warner-Lambert joint
venture(s)'). On December 31, 1998, Warner-Lambert and certain of its affiliates
and Glaxo Wellcome and certain of its affiliates 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 and OTC BECONASE, and future
Glaxo Wellcome prescription to OTC switch products in all markets. These OTC
products had principally been marketed through the Glaxo Wellcome Warner-Lambert
joint ventures. These transactions ended the joint venture relationships between
Warner-Lambert and Glaxo Wellcome.
Over-the-counter products are promoted principally through consumer
advertising and promotional programs and some are promoted via the worldwide web
and directly to health care professionals. They are sold principally to drug
wholesalers, chain and retail pharmacies, chain and independent food stores,
mass merchandisers, physician supply houses and hospitals.
Shaving Products: Warner-Lambert manufactures and sells razors and blades,
both domestically and internationally. Shaving products are manufactured and
marketed under the SCHICK trademark and other trademarks worldwide and the
WILKINSON SWORD trademark in Europe, the United States and Canada. Permanent
(nondisposable) products are marketed under various trademarks including SCHICK
FX DIAMOND, PROTECTOR, PROTECTOR 3D, TRACER/FX, FX HYPER,
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FX PERFORMER, SILK EFFECTS, LADY PROTECTOR, PERSONAL TOUCH, SUPER II PLUS and
ULTREX PLUS. Disposable products are marketed under a variety of trademarks
including SLIM TWIN ST, EXTRA II, PERSONAL TOUCH and ULTREX Disposable. In some
countries, Warner-Lambert also sells a shaving-related line of toiletries.
In September 1999, the Company launched the new SCHICK FX DIAMOND in the
United States, Canada and Japan, and WILKINSON SWORD FX DIAMOND in Germany and
the United Kingdom.
Warner-Lambert's shaving products are promoted principally through consumer
advertising and promotional programs. They are distributed directly to
wholesalers for sale to smaller retailers, drugstores, pharmacies and to retail
outlets, including pharmacies, food stores, variety stores, mass merchandisers
and other miscellaneous outlets.
Pet Care Products: Warner-Lambert manufactures and/or sells various products
on a worldwide basis for ornamental fish, reptiles and other small pets, as well
as books relating to various pets, under various trademarks including TETRA,
TETRAPOND, SECOND NATURE, TERRAFAUNA and ZOOMEDICA. In addition, Warner-Lambert
manufactures and/or distributes aquarium products (including power filters and
replacement cartridges, air pumps, heaters, plastic plants and other
accessories) that are marketed largely under the SECOND NATURE, TETRAtec and
WHISPER trademarks. These pet care products are promoted to consumers through
advertising, direct marketing and sponsorship programs and to retailers through
direct promotion, advertising in trade publications and TETRA Club membership.
They are sold to wholesalers for sale to smaller retailers and directly to
larger chain stores and retailers, in each case for ultimate sale to consumers.
Confectionery Products
The principal products of Warner-Lambert in its Confectionery Products
segment are chewing gums, breath mints and cough/throat tablets.
Warner-Lambert manufactures, markets and/or sells, in the United States
and/or internationally, a broad line of chewing gums, bubble gums, breath mints
and cough/throat tablets. Among these products are chewing gums (CHICLETS,
CHICLETS TINY SIZE, CINN*A*BURST, MINT*A*BURST, CLORETS, DENTYNE, DENTYNE
Sugarfree, DENTYNE ICE, TRIDENT, TRIDENT ADVANTAGE and MAXAIR) and bubble gums
(BUBBLICIOUS, BUBBALOO and MOTITAS). The breath mint line includes CERTS,
Sugarfree CERTS, CERTS COOL MINT DROPS, CERTS Powerful Mints, CLORETS, CLORETS
Cool and CLORETS OPTIMINTS. The cough/throat tablet line consists of HALLS,
HALLS-PLUS and Sugar Free HALLS. The Company also sells throat drops (CELESTIAL
SEASONINGS SOOTHERS) and dietary supplements (HALLS DEFENSE and HALLS VITA-C).
In addition, the Company sells several specialty candies and mints, including a
line of hard candies and mints that are sold under the SAILA trademark.
In 1999, Warner-Lambert launched an improved TRIDENT ADVANTAGE, a teeth
whitening and strengthening sugarless gum with baking soda and RECALDENT, in the
United States, and TRIDENT for Kids in the United States and selected European
markets.
Warner-Lambert's confectionery products are promoted directly to the
consumer primarily through consumer advertising and in-store promotion programs.
They are sold directly to chain and independent food stores, chain and
independent pharmacies and mass merchandisers or through candy and tobacco
wholesalers and to other miscellaneous outlets which in turn sell to consumers.
On November 30, 1999, the Company acquired the sugar, gum and wafer
confectionery business of Kraft Lacta Suchard Brasil S.A.
INTERNATIONAL OPERATIONS
Warner-Lambert's international businesses are carried on principally through
subsidiaries and branches, which are generally staffed and managed by citizens
of the countries in which they operate. Approximately 28,000 of Warner-Lambert's
employees are located outside the United States and Puerto Rico and only a small
number of such employees are United States citizens. Certain of the products
5
described above are manufactured and marketed solely in the United States and
certain other products are manufactured and marketed solely in one or more
foreign countries.
Information relating to geographic operating data is contained in Note 19 to
the Consolidated Financial Statements contained in 'Item 8. Financial Statements
and Supplementary Data'.
In March 1997, Warner-Lambert opened confectionery plants in Guangzhou,
China, and Bangalore, India. The plant in China is currently manufacturing and
selling HALLS cough tablets, CLORETS chewing gum and pressed mints and DENTYNE
ICE chewing gum. The plant in India is currently manufacturing and selling HALLS
cough/throat tablets and CLORETS and CHICLETS chewing gums.
In accordance with customary market conditions, sales made outside the
United States are generally made on longer terms of payment than would be
customary in the United States. In addition, international operations are
subject to certain risks inherent in carrying on business abroad, including
possible nationalization, expropriation, price and exchange controls and other
governmental action, as well as fluctuations in currency exchange rates. The
likelihood of such occurrences varies from country to country and is not
predictable. However, the Company believes that its geographic diversity
minimizes exposure to currency fluctuations resulting in one or more foreign
countries.
For a discussion of the impact of the introduction of the euro on the
Company, see 'Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Other Matters -- Euro' below.
COMPETITION
Most markets in which Warner-Lambert is engaged are highly competitive and
characterized by substantial expenditures in the advertising and promotion of
new and existing products. In addition, there is intense competition in research
and development in all of Warner-Lambert's reportable segments.
In 1998, no material part of the business of any of Warner-Lambert's
reportable segments is dependent upon one or a few customers. During 1999, total
sales to one pharmaceutical and health care products wholesaler accounted for
twelve percent of the Company's consolidated net sales. The majority of the
sales to this customer were in the Pharmaceutical Products segment.
YEAR 2000
For a discussion on how the Company is addressing the year 2000 compliance,
see 'Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Other Matters -- Year 2000' below.
MATERIALS AND SUPPLIES
Warner-Lambert's products, in general, are produced and packaged at its own
facilities. Other than certain pet products and certain other products,
relatively few items are manufactured in whole or in part by outside suppliers.
Raw materials and packaging supplies are purchased from a variety of outside
suppliers. Although the Company, in an effort to achieve cost savings, is
consolidating its sources of outside supply, the Company does not believe that
the loss of any one source of such materials and supplies would have a material
adverse effect on the business of any of Warner-Lambert's reportable segments.
Warner-Lambert seeks to protect against fluctuating costs and to assure
availability of raw materials and packaging supplies by, among other things,
locating alternative sources of supply and, in some instances, making selective
advance purchases.
TRADEMARKS AND PATENTS
Warner-Lambert's major trademarks are registered in the United States and
other countries where its products are marketed. Warner-Lambert believes these
trademarks are important to the marketing of the related products and acts to
protect them from infringement. Warner-Lambert owns and/or licenses many patents
and has many patent applications pending in the patent offices of the United
States and
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other countries. A number of products and product lines have patent protection
that is significant in the marketing of such products. Additionally, the
management of Warner-Lambert considers the patents on LIPITOR and NEURONTIN to
be material to Warner-Lambert's business as a whole.
RESEARCH AND DEVELOPMENT
Warner-Lambert employs over 4,293 scientific and technical personnel in
research and development activities at various research facilities located in
the United States, Ireland and in other foreign countries. Warner-Lambert
invested approximately $1,259 million in research and development in 1999,
compared with $1,026 million in 1998 and $731 million in 1997. Approximately 91%
of Warner-Lambert's 1999 research and development spending was related to
pharmaceutical products. Warner-Lambert believes research and development
activities are essential to its business and intends to continue such
activities.
EMPLOYEES
At December 31, 1999, approximately 44,000 people were employed by
Warner-Lambert throughout the world.
REGULATION
Warner-Lambert's business is subject to varying degrees of governmental
regulation in the countries in which it manufactures and distributes products.
In the United States, the food, drug and cosmetic industries are subject to
regulation by various federal, state and local agencies with respect to product
safety and effectiveness, manufacturing and advertising and labeling.
Accordingly, from time to time, with respect to particular products under
review, such agencies may require Warner-Lambert to address safety, efficacy,
manufacturing and/or regulatory issues. Addressing such issues with regulatory
agencies can result in requirements for additional testing of products, removal
of a product or products from the market, modification of labeling (which can
have little effect on the future sales of the product or a significant effect on
such sales), the shut down of plants and/or laboratories, the modification of
operation of plants and/or laboratories (which can entail minor changes from
existing operations or significant changes which can add significant cost to
manufacturing), the seizure of finished goods and/or work in process and/or raw
materials, and similar actions involving the discovery, development, approval,
manufacture, marketing and sale of regulated products.
In 1993, a consent decree with the FDA was entered into by Warner-Lambert
and two of its principal officers, covering issues related to manufacturing and
quality practices and procedures. The decree is a court-approved agreement that
primarily requires Warner-Lambert to certify that laboratory and/or
manufacturing facilities in the United States and Puerto Rico are in compliance
with current Good Manufacturing Practices established by the FDA. Relevant
facility and laboratory certifications have been obtained in all United States
and Puerto Rico plants.
In October 1996, the United States Congress enacted the Comprehensive
Methamphetamine Control Act of 1996 (the 'Methamphetamine Control Act') which
brought certain of the Company's OTC pharmaceutical products containing
pseudoephedrine hydrochloride under the chemical control provisions of the
Controlled Substances Act through the revocation of an exemption for listed
chemicals contained in drugs lawfully marketed under the Federal Food, Drug, and
Cosmetic Act. The Methamphetamine Control Act, among other things, imposes new
regulatory restrictions on persons handling such products including
recordkeeping and reporting of certain transactions to the Drug Enforcement
Administration. However, the Methamphetamine Control Act creates a 'safe harbor'
for traditional retail outlets which sell pharmaceutical products in designated
packaging containing limited amounts of pseudoephedrine almost exclusively for
personal use to walk-in customers or in face-to-face direct sales. These
retailers will not, in general, be subject to the recordkeeping and reporting
requirements of the Methamphetamine Control Act. Warner-Lambert believes that
the Methamphetamine Control Act will not have a material adverse effect on
Warner-Lambert's financial position, liquidity, cash flows or results of
operations for any year.
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On July 30, 1997, the European Community Decision 97/534 (the 'Decision')
was adopted prohibiting the use or importation in the European Union market of
any bovine, ovine or caprine products that potentially contain specified risk
materials (including the use of these materials in food, medicinal products and
cosmetics). The Decision was enacted to address the concern over the possible
spread of transmissible spongiform encephalopathy ('TSE') and could have the
effect of banning ruminant materials such as gelatin, glycerin, tallow and
tallow derivatives that are pervasive in the pharmaceutical, OTC drug, food and
other industries. The Decision initially was intended to become effective on
January 1, 1998, but given the potential impact the Decision may have on the
availability of necessary pharmaceutical, over-the-counter drug and food
products, its effective date has been postponed over the past two years and is
now scheduled to occur on July 1, 2000. In the interim, new legislation was
enacted in September 1999, in the form of Directive 1999/82/EC to permit the
continued supply of medicinal products derived from ruminant materials under
certain specified conditions. The Directive requires that holders of drug
marketing applications submit supportive scientific information to their
regulatory agencies by March 1, 2001 to demonstrate compliance with a CPMP
Guideline on Minimizing the Risk of TSEs. The Company will be working with its
suppliers to ensure that all necessary filings are made pursuant to this new
Directive. Warner-Lambert believes that this legislation will not have a
material adverse effect on Warner-Lambert's financial position, liquidity, cash
flows or results of operations for any year.
Regulatory requirements concerning the research and development of drug
products have increased in complexity and scope in recent years. This has
resulted in a substantial increase in the time and expense required to bring new
products to market. At the same time, the FDA requirements for approval of
generic drugs (drugs containing the same active chemical as an innovator's
product) have been reduced as a result of the adoption of abbreviated new drug
approval procedures for most generic drugs. Generic versions of many of
Warner-Lambert's products in the Pharmaceutical Products segment are being
marketed in the United States, and generic substitution legislation, which
permits a pharmacist to substitute a generic version of a drug for the one
prescribed, has been enacted in some form in all states. These factors have
resulted in increased competition from generic manufacturers in the market for
ethical products.
The regulatory agencies under whose purview Warner-Lambert operates have
administrative and legal powers that may subject Warner-Lambert and its products
to seizure actions, product recalls and other civil and criminal actions. They
may also subject the industry to emergency regulatory requirements.
Warner-Lambert's policy is to comply fully with all regulatory requirements. It
is impossible to predict, however, what effect, if any, these matters or any
pending or future legislation, regulations or governmental actions may have on
the conduct of Warner-Lambert's business in the future.
In most of the foreign countries where Warner-Lambert does business, it is
subject to a regulatory and legislative climate similar to or more restrictive
than that described above. The Company cannot predict whether or what type of
measures will be encountered in the future.
ENVIRONMENT
Warner-Lambert is responsible for compliance with a number of environmental
laws and regulations. Warner-Lambert maintains control systems designed to
assure compliance in all material respects with environmental laws and
regulations, including environmental policies and maintenance of a worldwide
audit program.
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 known as Superfund) or by state authorities under similar
state legislation, or by third parties. 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, 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 that takes into account many factors, including volume and the nature of
a company's waste. Once established,
8
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.
Also see 'Item 8. Financial Statements and Supplementary Data' below, for
additional information on environmental actions, which is set forth in Note 18
to the Consolidated Financial Statements.
ITEM 2. PROPERTIES.
The executive offices of Warner-Lambert are located in Morris Plains, New
Jersey. In the United States, including Puerto Rico, Warner-Lambert owns
facilities aggregating approximately 6,724,000 square feet and leases facilities
having an aggregate of approximately 900,000 square feet.
Warner-Lambert's United States manufacturing plants are located in Lititz,
Pennsylvania (pharmaceuticals and consumer health care products); Rockford,
Illinois (confectionery products); Holland, Michigan (pharmaceuticals);
Greenwood, South Carolina (capsules); Milford, Connecticut (razors and blades);
and Blacksburg, Virginia (pet care products). Warner-Lambert Inc., a
wholly-owned subsidiary of Warner-Lambert operating in Puerto Rico, has plants
located in Fajardo (pharmaceuticals) and Vega Baja (consumer health care and
confectionery products). Parke-Davis Pharmaceuticals Limited, a wholly owned
subsidiary of Warner-Lambert, operating in Puerto Rico, has a plant located in
Vega Baja (pharmaceuticals and consumer health care products). For a discussion
on the sale of the manufacturing facility located in Rochester, Michigan see
'Item 1. Business Segments -- Pharmaceutical Products' above.
In the United States, Warner-Lambert currently distributes its various
products through two distribution centers located in Lititz, Pennsylvania and
Elk Grove, Illinois. Principal United States research facilities are located in
Ann Arbor, Michigan (pharmaceuticals), La Jolla, California (pharmaceuticals)
and Morris Plains, New Jersey (pharmaceuticals, consumer health care and
confectionery products).
Internationally, Warner-Lambert owns, leases or operates, through its
subsidiaries or branches, 59 production facilities in 29 countries. Principal
international manufacturing plants are located in Ireland, Germany, Canada,
Mexico, Japan, France, Brazil, Colombia and Australia. Principal international
research facilities are located in Ireland, France, Germany, Japan, the United
Kingdom and Canada.
In order to achieve its objectives of increased efficiency and a lower cost
of goods sold, Warner-Lambert, over a number of years and at significant cost,
has consolidated many of its plants and facilities around the world. This has
often resulted in the production of pharmaceutical products, consumer health
care products and/or confectionery products at a single facility. The loss of
one or more of Warner-Lambert's own production and packaging facilities could
have a material adverse effect on certain of Warner-Lambert's reportable
segments.
Warner-Lambert's facilities are generally in good operating condition and
repair and at present are adequately utilized within reasonable limits. Leases
are not material to the business of Warner-Lambert taken as a whole.
ITEM 3. LEGAL PROCEEDINGS.
For information relating to environmental matters see 'Item 1.
Business -- Environment' above.
In November 1999, following the announcement by the Company of its execution
of the AHP Merger Agreement, Pfizer filed suit against the Company, its board of
directors and AHP, seeking to invalidate certain provisions in the AHP Merger
Agreement and enjoin their implementation. The lawsuit claimed, among other
things, that the termination fee, reciprocal stock option agreements and a
provision preventing Warner-Lambert's directors from amending its shareholder
rights plan were invalid, and that the members of the Company's board of
directors breached their fiduciary duties to the Company's shareholders by
entering into the AHP Merger Agreement. Pursuant to a settlement agreement
executed on February 6, 2000 in connection with the termination of the AHP
Merger Agreement and the execution of the Pfizer Merger Agreement, the Company,
AHP and Pfizer entered
9
into settlement agreements with respect to this litigation. Shortly thereafter
the litigation against AHP was dismissed with prejudice and the litigation
between Pfizer and the Company was dismissed without prejudice.
The Company, its Directors and AHP have been named in approximately 40
lawsuits in Delaware Chancery Court, one lawsuit in Morris County, New Jersey,
and two lawsuits in federal court in New Jersey brought on behalf of purported
classes of the Company's shareholders. These lawsuits involve allegations
similar to those contained in Pfizer's lawsuit, described above, and contain
additional allegations, including that the consideration that was to be paid to
the Company's shareholders in the proposed merger with AHP was inadequate. The
Company believes these lawsuits to be without merit and is defending them
vigorously. Following the termination of the AHP Merger Agreement, the Company
has begun to seek disposition of these claims.
On November 23, 1999, Pfizer filed suit against the Company in the Delaware
Court of Chancery relating to certain contracts between Pfizer and the Company
for the marketing and co-promotion of LIPITOR. Pfizer alleged that the execution
of the AHP Merger Agreement violated certain provision in those agreements. The
Company counterclaimed on November 29, 1999 and sought a declatory judgment that
the Company was entitled to terminate the LIPITOR agreements. Pursuant to a
settlement agreement executed on February 6, 2000 in connection with the
termination of the AHP Merger Agreement and the execution of the Pfizer Merger
Agreement, the Company and Pfizer entered into a settlement agreement with
respect to the LIPITOR litigation. The litigation was dismissed without
prejudice shortly thereafter.
Certain employees of Warner-Lambert were served with subpoenas in January,
2000, by the U.S. Attorney's office in Boston, Massachusetts, directing them to
provide testimony before a federal grand jury in Boston. The U.S. Attorney's
office is conducting an inquiry into Warner-Lambert's promotion of NEURONTIN.
Warner-Lambert is cooperating with the inquiry and cannot predict what the
outcome of the investigation will be.
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 retail pharmacies. The federal cases,
which were brought by retailers, were 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 was concluded in November, 1998 with a directed
verdict for the defendants and dismissal of the class plaintiffs' case. That
decision was affirmed in substantial part by the 7th Circuit Court of Appeals.
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.
In addition, the Company has settled the vast majority of the
Robinson-Patman Act lawsuits brought by those retail pharmacies which opted out
of the class action conspiracy lawsuit. The amount of these settlements is not
material.
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. The Company, with the majority of the other drug company
defendants, settled the California consumer class action and this
10
settlement received court approval. The amount of this settlement is not
material. 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 was 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 have
been approved by all of the above courts, is not material.
The Company has also been made a party to another class action in Tennessee,
purportedly on behalf of consumers in several states and to additional class
actions in New Mexico, North Dakota, South Dakota and West Virginia, who
purchased brand name prescription drugs from retail pharmacies. Although it is
not possible at this early stage to predict the outcome of these lawsuits, 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.
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 has
cooperated with this investigation. Warner-Lambert cannot at present predict the
outcome of this investigation.
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
11
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The principal market on which the Company's stock is traded is the New York
Stock Exchange, but the stock is also listed and traded on the following
domestic and international stock exchanges: Chicago, Pacific, London and Zurich.
Shareholders of record totaled approximately 48,000 as of December 31, 1999.
Cash dividends paid in 1999 totaled $672 million. A dividend of $.20 per share
was paid in each quarter of 1999 for an annual total of $.80 per share. This was
a 25.0% increase over the prior year total of $.64 per share, paid in four
quarterly dividends of $.16 per share during 1998.
Information regarding the Company's market prices of common stock and
dividends is set forth in 'Item 8. Financial Statements and Supplementary
Data -- Market Prices of Common Stock and Dividends' below.
12
ITEM 6. SELECTED FINANCIAL DATA.
The selected financial data of Warner-Lambert for the years ended 1999,
1998, 1997, 1996 and 1995 are set forth below:
WARNER-LAMBERT COMPANY AND SUBSIDIARIES
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Results for Year:
Net sales................................ $12,929 $10,744 $8,408 $7,231 $7,040
Cost of goods sold....................... 3,042 2,860 2,503 2,347 2,428
Research and development expense......... 1,259 1,026 731 599 514
Income before income taxes and minority
interests.............................. 2,441 1,791 1,189 1,138 1,134
Net income............................... 1,733 1,273 862 747 724
Net income per common share:
Basic................................ 2.03 1.50 1.03 .89 .88
Diluted.............................. 1.96 1.45 .99 .88 .87
Year-end Financial Position:
Current assets........................... $ 5,690 $ 4,249 $3,522 $2,910 $2,778
Current liabilities...................... 3,689 3,244 2,637 2,150 2,426
Working capital.......................... 2,001 1,005 885 760 352
Property, plant and equipment............ 3,342 2,822 2,455 2,177 2,006
Total assets............................. 11,442 9,520 8,352 7,339 6,216
Long-term debt........................... 1,250 1,267 1,836 1,721 635
Total debt............................... 1,547 1,531 2,211 2,300 1,530
Shareholders' equity..................... 5,098 3,880 3,051 2,709 2,332
Common Stock Information:
Average number of common shares
outstanding (in millions):
Basic................................ 854.9 847.7 841.1 834.8 824.8
Diluted.............................. 884.6 879.0 868.1 850.2 833.8
Common Stock Price Per Share:
High................................. $ 93 15/16 $ 85 15/16 $ 50 7/8 $ 26 43/64 $ 16 21/64
Low.................................. 60 13/16 39 3/8 23 11/64 14 7/8 12 15/64
Year-end............................. 81 15/16 75 3/16 41 25/64 25 16 3/16
Book value per common share.............. 5.91 4.57 3.61 3.23 2.80
Cash dividends per common share.......... .80 .64 .51 .46 .43
Other Data:
Number of employees (in thousands)....... 44 42 41 39 37
Capital expenditures..................... $ 932 $ 753 $ 513 $ 395 $ 389
Cash dividends paid...................... 672 525 413 374 351
Depreciation and amortization............ 363 308 282 234 204
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.
All restated amounts in 1995 and the 1996 balance sheet amounts have been
derived from unaudited financial statements.
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Management's Discussion and Analysis set forth below should be read in
conjunction with the Consolidated Financial Statements and the notes thereto
contained in 'Item 8. Financial Statements and Supplementary Data'.
NET SALES
Sales in 1999 of $12.9 billion were 20 percent higher than in 1998. Sales
increased 22 percent adjusting for the unfavorable impact of foreign exchange
rate changes. Unit volume grew by 20 percent with price increases adding 2
percent to sales growth.
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.
On a geographic basis, U.S. sales increased $1.6 billion, or 25 percent, to
$7.9 billion in 1999. International sales increased $627 million, or 14 percent,
to $5.0 billion. At constant exchange rates, international sales increased 18
percent. In 1998, U.S. sales increased $1.9 billion, or 43 percent, to $6.3
billion. International sales increased $448 million, or 11 percent, to $4.4
billion. At constant exchange rates, international sales increased 17 percent.
PHARMACEUTICAL PRODUCTS
1999 1998 1997
---- ---- ----
(DOLLARS IN MILLIONS)
Net Sales............................... $7,982 +30% $6,134 +59% $3,848
Worldwide pharmaceutical sales increased 30 percent to $8.0 billion in 1999
compared to 1998. With the significant growth of pharmaceutical product sales
since 1996, the pharmaceutical segment has become Warner-Lambert's largest
segment. In 1999, pharmaceutical sales represented 62 percent of total company
net sales. Pharmaceutical profits in 1999 represented 74 percent of total
company operating profits before corporate expenses.
During the second quarter of 1999, Warner-Lambert completed the acquisition
of Agouron. VIRACEPT (nelfinavir mesylate), Agouron's first commercial product
and the U.S.'s leading protease inhibitor for the treatment of HIV and AIDS, now
joins Warner-Lambert's major pharmaceutical products, which achieved worldwide
sales as follows:
1999 1998
---- ----
(DOLLARS IN
MILLIONS)
LIPITOR..................................................... $3,732 $2,185
NEURONTIN................................................... 913 514
REZULIN..................................................... 625 748
VIRACEPT.................................................... 530 530
ACCUPRIL.................................................... 514 454
Pharmaceutical sales in the U.S. increased 31 percent to $5.5 billion in
1999. International pharmaceutical sales increased 27 percent to $2.5 billion in
1999, or 30 percent at constant exchange rates.
Worldwide sales of LIPITOR increased 71 percent to $3.7 billion in 1999.
LIPITOR continues to be the most prescribed cholesterol-lowering agent in the
U.S., holding a 43 percent share of total prescriptions in the
cholesterol-lowering market. LIPITOR is now sold in all major world markets
except Japan. In January 2000, LIPITOR was recommended for approval by
regulatory authorities in Japan, the world's second-largest cholesterol-lowering
market. The Company looks forward to launching LIPITOR in Japan once all
necessary approvals have been received. LIPITOR will be co-promoted in Japan
with Yamanouchi, the third-largest pharmaceutical company in Japan. Warner-
Lambert has co-promoted LIPITOR in most other markets with Pfizer since its
launch in 1997. The agreements with Pfizer cover many countries and consist of
three broad categories: markets in which
14
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 10 years from the
date of product launch in each respective country. The agreements include a
provision giving Warner-Lambert the right to co-promote one of Pfizer's
products.
Based on current planning assumptions, worldwide sales of LIPITOR in 2000
are expected to reach $5.0 billion.
Worldwide sales of NEURONTIN grew 78 percent in 1999 to $913 million.
NEURONTIN now holds a market-leading 24 percent share of total prescriptions in
the U.S. antiepileptic market. At the request of the FDA, the Company has
recently conducted a clinical trial of NEURONTIN in pediatric patients. Based on
the results of that study, the FDA, in January 2000, granted a six-month
extension of the NEURONTIN epilepsy use patent protection through mid-July 2000.
The Company also has two other patents covering NEURONTIN with expiration dates
well after 2000 that are the subject of litigation with potential generic
competitors. Additionally, the Company is introducing new tablet formulations of
NEURONTIN to offer patients more convenient dosing. Based on the anticipated
success of these life-cycle extending initiatives, and allowing for the
possibility of generic competition some time in late 2000, the Company currently
estimates that worldwide NEURONTIN sales will grow approximately 10 percent in
2000.
REZULIN achieved worldwide sales of $625 million in 1999, a decrease of 16
percent from 1998 sales. Warner-Lambert marketed REZULIN in the U.S. with an
affiliate of Sankyo Company, Ltd. (Sankyo), from whom the Company licenses the
product for North America and other areas. REZULIN sales were adversely affected
by two competing drugs approved by the FDA during 1999. Additionally, in June
1999, the Company withdrew the indication for REZULIN as initial single agent
therapy, but continued to sell REZULIN for other indications.
On March 21, 2000, the Company announced that it was voluntarily
discontinuing the sale of REZULIN, although the Company continues to believe
that the benefits of the drug outweigh its associated risks. The Company
believed that repeated media reports sensationalizing the risks associated with
REZULIN therapy created an environment in which patients and physicians were
unable to make well-informed decisions regarding the safety and efficacy of
REZULIN. Under these circumstances, and after an unexpected request from the FDA
in the early evening of March 21 to consider removing the drug from the market,
the Company decided to discontinue marketing REZULIN. The one-time costs
associated with the withdrawal, consisting primarily of product returns and
inventory write-off, are expected to be approximately $100 million.
In a related matter, during 1999, Warner-Lambert and Sankyo announced their
intention to co-develop and market a second-generation glitazone for the
treatment of type 2 diabetes. Based on its preclinical profile, the new compound
has the potential to provide greater efficacy than other glitazones, including
effective treatment in advanced stages of the disease when other agents are
ineffective. The compound is currently in the clinical trial stage of
development.
Worldwide sales of VIRACEPT in 1999 were $530 million, consistent with 1998
sales. VIRACEPT is sold in collaboration with F. Hoffmann-La Roche Ltd.
('Roche'). Warner-Lambert sells the product in North America and Roche has the
licensing rights in all other markets. The reported 1999 sales figure reflects
the planned progression of our agreement with Roche, whereby Roche is now
manufacturing most of its product needs for sale in its licensed territory
instead of purchasing VIRACEPT from Warner-Lambert. The Company's royalty
revenue from Roche's subsequent commercial sales of VIRACEPT, recorded in other
income, increased by over 150 percent in 1999. Worldwide sales in 2000 are
expected to approximate the 1999 figures as increased sales in North America
should offset further reduced sales to Roche.
15
ACCUPRIL achieved worldwide sales of $514 million in 1999, an increase of 13
percent over 1998. Sales of ACCUPRIL are evenly divided between U.S. and
international markets. ACCUPRIL is an ACE inhibitor for the treatment of
hypertension and congestive heart failure. During 1999, total prescriptions for
ACCUPRIL in the U.S. surpassed 1 million, resulting in a 14 percent market
share. Latest estimates for worldwide ACCUPRIL sales in 2000 indicate a 15-20
percent growth rate.
In 1998, pharmaceutical segment sales in the U.S. increased 76 percent to
$4.2 billion. The sales increase was attributable to the continued success of
LIPITOR and REZULIN, which generated sales of $1.6 billion and $747 million,
respectively. Other pharmaceutical products contributing to the increase were
NEURONTIN, VIRACEPT and ACCUPRIL with sales of $442 million, $417 million and
$232 million, respectively.
In 1998, international pharmaceutical sales increased 32 percent to $2.0
billion, 39 percent at constant exchange rates. The increase was primarily
attributable to LIPITOR, which achieved international sales of $540 million, due
to several large market launches during 1998 as well as growth in existing
markets. Additionally, international sales of ACCUPRIL, VIRACEPT and NEURONTIN
grew to $222 million, $114 million and $72 million, respectively.
CONSUMER HEALTH CARE PRODUCTS
1999 1998 1997
---- ---- ----
(DOLLARS IN MILLIONS)
Net Sales................................ $2,996 +10% $2,722 +1% $2,691
Consumer health care segment sales in the U.S. increased $211 million, or 14
percent, to $1.7 billion in 1999. The principal driver of this increase was the
inclusion in 1999 of sales of ZANTAC 75 at $161 million. Prior to 1999, ZANTAC
75 was marketed by the Glaxo Wellcome Warner-Lambert joint venture and sales
were not reflected in Warner-Lambert's reported sales. At the end of 1998,
Warner-Lambert acquired exclusive rights to over-the-counter ZANTAC products in
the U.S. and Canada as part of the dissolution of its joint venture arrangements
with Glaxo Wellcome plc. Other products contributing to segment sales growth in
the U.S. include LISTERINE mouthwash, which increased 11 percent to $368 million
due to the new product launch of Tartar Control LISTERINE, and LUBRIDERM, which
increased 12 percent to $101 million due to the launch of LUBRIDERM Advanced
Therapy. U.S. sales of shaving products grew 6 percent to $239 million driven by
strong sales of the SILK EFFECTS razor. Sales of TETRA pet care products in the
U.S. grew 5 percent to $83 million.
International consumer health care sales increased 5 percent to $1.3 billion
in 1999. At constant exchange rates, international segment sales increased 6
percent. Improving economic conditions in Asia, and especially Japan, have
contributed to the segment's international sales growth. Japanese sales of
shaving products grew 22 percent to $154 million. Japanese sales of TETRA pet
care products grew 24 percent to $46 million.
In 1998, consumer health care segment sales in the U.S. increased 5 percent
to $1.5 billion. Within the segment, U.S. shaving products sales increased 14
percent to $226 million for the year. The increase was 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 reflected 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. 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 fell 5 percent to $114 million and 2 percent at constant exchange rates
for the year. Both the shaving products and TETRA pet care divisions were
significantly affected by the broad economic downturn in Southeast Asia and
Japan.
16
CONFECTIONERY PRODUCTS
1999 1998 1997
---- ---- ----
(DOLLARS IN MILLIONS)
Net Sales......................................... $1,951 +3% $1,888 +1% $1,869
Confectionery sales in the U.S. increased 5 percent to $693 million in 1999.
Sales growth in the U.S. is partially attributable to $21 million in sales of
TRIDENT ADVANTAGE, which was launched in the third quarter of 1998, and the
continued success of DENTYNE ICE, where sales increased 56 percent to $79
million. The third quarter 1999 launch of HALLS Defense Vitamin C supplement
drops also contributed $19 million of new sales.
International confectionery sales increased 2 percent to $1.3 billion in
1999. At constant exchange rates, international segment sales increased 10
percent. The negative impact of exchange is primarily due to the Brazilian
currency devaluation. Markets contributing to international confectionery sales
increases include Mexico, where sales increased 28 percent to $223 million on
continued growth across all gum brands, and Thailand, where sales increased 29
percent to $48 million.
In 1998, confectionery sales in the U.S. increased 3 percent to $659 million
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 was 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.
COSTS AND EXPENSES
Cost of goods sold increased 6 percent in 1999 and 14 percent in 1998. As a
percentage of net sales, cost of goods sold fell to 23.5% from 26.6% in 1998 and
29.8% in 1997. 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 and the consumer health care
segment. Based on current planning assumptions, the Company expects that the
cost of goods sold ratio will improve as much as 200 basis points in 2000.
Selling, general and administrative expense in 1999 and 1998 increased $1.1
billion each year, or 23 percent and 30 percent, respectively. Pharmaceutical
segment expenses significantly increased in 1999 and 1998. Quarterly settlements
of co-promotion agreements related to LIPITOR and REZULIN that are recorded in
selling, general and administrative expense increased $609 million and $505
million for the years ended December 31, 1999 and 1998, respectively, compared
to the prior year. As a percentage of net sales, selling, general and
administrative expense was 46.1% compared with 45.2% in 1998 and 44.3% in 1997.
Research and development expense increased 23 percent and 40 percent in 1999
and 1998, respectively. As a percentage of net sales, research and development
expense was 9.7% in 1999, 9.5% in 1998 and 8.7% in 1997. For 2000 the Company
plans to invest approximately $1.5 billion in research and development, a
projected increase of 19 percent compared with 1999.
In 1993 and 1991, the Company recorded, as a separate income statement
component, restructuring charges of $525 million and $544 million, respectively,
as described in Note 4 to the consolidated financial statements. These
restructuring charges included worldwide pharmaceutical manufacturing
rationalizations, which included extensive product relocations requiring
regulatory approvals. The time involved in completion of these activities
included strategic planning and systematic executions of the transfers of
manufacturing operations to other locations. The product relocations were phased
in, with the related approval processes taking approximately two years for each
relocation. Charges of $40 million, $38 million and $60 million were recorded
against the reserves during the years 1999, 1998 and 1997, respectively. The
charges during this period represented costs associated with manufacturing
relocations, the elimination of approximately 1,200 positions and the cost of
work-systems redesign. As
17
of December 31, 1999, all aspects of these rationalization programs were
complete and all reserves were utilized.
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 1999,
the Company realized actual annual pretax savings of $161 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 1999, the Company has realized actual annual pretax savings
in excess of $1 billion.
Other expense, net in 1999 of $228 million was essentially the same as in
1998. Other expense, net in 1998 compared favorably by $44 million to 1997. The
favorability is primarily attributable to income of $29 million realized from
the Glaxo Wellcome Warner-Lambert joint venture in 1998, as compared to a loss
in 1997 of $14 million. Other expense, net in 1998 also included a gain on the
sale of the Company's Rochester, Michigan, manufacturing plant and certain minor
prescription products of $67 million, as well as a gain on the sale of
investment securities of $24 million, which were offset by charges of $93
million related to the Company's plans to close three European manufacturing
facilities. As described in Note 4 to the consolidated financial statements, the
costs of these closings consisted primarily of $35 million for asset write-offs
and $47 million for severance and related expenses. The closures will result in
a workforce reduction of approximately 450 positions and generate approximately
$28 million in annual pretax savings. As of December 31, 1999, $77 million has
been expended and manufacturing operations at all three plants have ceased.
Management expects to sell the plants in 2000, and the proceeds are not expected
to be material.
INCOME TAXES
1999 1998 1997
---- ---- ----
Effective tax rate.................................. 29.0% 28.9% 27.5%
The Company's 1999 effective tax rate remained essentially consistent with
the prior year. The 1998 effective tax rate 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 were partly
offset by increased income generated in foreign jurisdictions with lower tax
rates.
For 2000, excluding the effect of Merger Events as discussed in Other
Matters, the Company anticipates a slight decrease in its effective tax rate.
The projected decrease is primarily due to increased income generated in foreign
jurisdictions with lower tax rates.
NET INCOME
In 1999, net income of $1.7 billion increased 36 percent and diluted
earnings per share of $1.96 increased 35 percent. In 1998, net income of $1.3
billion increased 48 percent and diluted earnings per share of $1.45 increased
46 percent. Based on current planning assumptions, excluding the effect of
Merger Events as discussed in Other Matters and the one-time costs associated
with the withdrawal of REZULIN, the Company expects to increase earnings per
share by approximately 25 percent in 2000.
LIQUIDITY AND FINANCIAL CONDITION
Selected data:
1999 1998 1997
---- ---- ----
(DOLLARS IN MILLIONS)
Cash and cash equivalents*.......................... $1,955 $1,057 $ 973
Less: Total debt.................................... 1,547 1,531 2,211
------ ------ -------
Net cash (debt)..................................... $ 408 $ (474) $(1,238)
Debt to total capital............................... 23% 28% 42%
Return on average shareholders' equity.............. 39% 37% 30%
Return on average total assets...................... 17% 14% 11%
- ---------
* Includes nonequity securities, which are recorded in other asset categories.
18
The net cash position of $408 million reflected an $882 million improvement
from the prior year's net debt position. This improvement reflected increased
cash provided by operating activities due to total company sales growth of 20
percent, coupled with a stable debt position. In 1998, net debt of $474 million
improved $764 million from December 31, 1997. This improvement was mainly due to
a reduction in total debt resulting from the cash generated by total company
sales growth of 28 percent.
In 1999, cash provided by operating activities of $2.4 billion was primarily
used to fund capital expenditures of $932 million and to pay dividends of $672
million. 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 $680 million and to pay dividends of $525 million.
In February 2000, as part of the termination of the Company's merger
agreement with AHP, Warner-Lambert made a $1.8 billion termination fee payment
to AHP. Warner-Lambert funded the payment out of its existing cash resources and
other credit arrangements including the issuance of commercial paper. Planned
capital expenditures for 2000 are estimated to be $1.2 billion in support of
additional manufacturing operations and expanded research facilities. 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 $830 million. The Company has the ability to
issue commercial paper at favorable rates. The lines of credit support
commercial paper and bank borrowing arrangements. At December 31, 1999, the
Company has $850 million of shelf registrations filed with the Securities and
Exchange Commission, whereby it could issue debt securities for general
corporate purposes, of which $350 million remains available.
In January 2000, the Board of Directors approved a 20 percent increase in
the quarterly dividend to $.24 per share payable in the first quarter of 2000.
The Company anticipates that the quarterly dividend rate will remain $.24 per
share during 2000 and that dividends will be paid with cash provided by
operations.
OTHER MATTERS
MERGER EVENTS
On November 3, 1999, Warner-Lambert, AHP and a wholly-owned subsidiary of
AHP entered into a definitive merger agreement. Subsequent to the announcement
of the agreement, Pfizer made an unsolicited, conditional all stock offer for
all of the outstanding common stock of Warner-Lambert.
On January 13, 2000, Warner-Lambert's Board of Directors authorized the
Company's management to enter into discussions with Pfizer to explore a possible
business combination.
On February 6, 2000, the merger agreement between Warner-Lambert and AHP was
terminated, and the stock option agreements issued in connection with that
transaction were rescinded by Warner-Lambert and AHP without consideration. In
connection with the termination of the AHP Merger Agreement, and in accordance
with the terms thereof, Warner-Lambert paid AHP a termination fee of $1.8
billion, which will be reflected in the Company's results in the first quarter
of 2000.
On February 6, 2000, Warner-Lambert, Pfizer and a wholly-owned subsidiary of
Pfizer entered into a definitive merger agreement. Under the terms of the
proposed transaction, which has been approved by the Board of Directors of both
Warner-Lambert and Pfizer, each share of Warner-Lambert common stock will be
exchanged for 2.75 shares of Pfizer common stock. The transaction is contingent
upon qualifying as a tax-free reorganization and being accounted for under the
pooling of interests method of accounting. The transaction is scheduled to close
in mid-2000, subject to antitrust clearance, approval by both companies'
shareholders and other customary conditions.
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
19
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
The Company completed its five-step approach for achieving Year 2000 ('Y2K')
compliance with its internal technology systems and mission-critical business
stakeholders. In addition, the Company continued to monitor its systems and
stakeholders through year-end, and put in place its company wide business
continuity and emergency response plans. During the year-end rollover period,
the Company activated its emergency response command centers and teams and those
groups monitored the Company's transition to the Year 2000.
The Company experienced a successful transition to the Year 2000. Worldwide
operations were resumed as scheduled after the millennial rollover.
The Company intends to continue monitoring its internal technology systems
and mission-critical business stakeholders, as necessary, for a reasonable time
period during the first quarter of 2000. The Company freeze on implementation of
new internal technology systems, originally imposed as of October 1, 1999, was
lifted ahead of schedule, on February 11, 2000.
Year 2000-related maintenance and modification costs have been expensed as
incurred, while the cost of new information technology has been capitalized and
amortized in accordance with company policy. Through December 31, 1999, $123
million has been incurred to address and remediate Y2K compliance issues. Of the
costs incurred, $104 million has been charged to expense and $19 million has
been capitalized.
Although the Company has experienced a successful transition to the Year
2000, there can be no assurance that the Company or its business stakeholders
will continue to experience Year 2000 compliance, or that any 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 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, 1999 and
1998, the accrual for environmental liabilities was $28 million and $34 million
covering 53 and 50 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, 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 that 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
20
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.
FORWARD-LOOKING STATEMENTS
Statements made in this discussion 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 differ materially from those in the forward-looking
statements is contained in Exhibit 99 of this Form 10-K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company's primary market risk exposures consist of interest rate risk
and foreign currency exchange risk. See Note 12 'Financial Instruments' to the
consolidated financial statements in 'Item 8. Financial Statements and
Supplementary Data' 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 percent 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, 1999.
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 12. 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, 1999, 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.
The Company holds certain instruments, primarily debt obligations, which are
sensitive to changes in market interest rates. At December 31, 1999, 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, 1999, 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.
21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements of Warner-Lambert and its subsidiaries
and the notes thereto, together with the report thereon of
PricewaterhouseCoopers LLP dated January 24, 2000, except for Note 6, as to
which the date is February 7, 2000, the report by management and quarterly
financial information is set forth below:
WARNER-LAMBERT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
--------- --------- --------
(DOLLARS IN MILLIONS,
EXCEPT PER SHARE AMOUNTS)
NET INCOME
Net sales................................................... $12,928.9 $10,743.8 $8,408.1
Costs and expenses:
Cost of goods sold...................................... 3,041.9 2,860.2 2,502.9
Selling, general and administrative..................... 5,958.5 4,852.2 3,726.5
Research and development................................ 1,259.0 1,025.6 730.7
Other expense, net...................................... 228.3 214.8 259.2
--------- --------- --------
Total costs and expenses............................ 10,487.7 8,952.8 7,219.3
--------- --------- --------
Income before income taxes.................................. 2,441.2 1,791.0 1,188.8
Provision for income taxes.................................. 708.0 517.8 326.4
--------- --------- --------
Net income.................................................. $ 1,733.2 $ 1,273.2 $ 862.4
--------- --------- --------
--------- --------- --------
Net income per common share:
Basic................................................... $ 2.03 $ 1.50 $ 1.03
Diluted................................................. $ 1.96 $ 1.45 $ .99
Cash dividends per common share............................. $ .80 $ .64 $ .51
COMPREHENSIVE INCOME
Net income.................................................. $ 1,733.2 $ 1,273.2 $ 862.4
Other comprehensive income (net of tax):
Foreign currency translation............................ (280.9) 57.7 (193.8)
Other................................................... 34.8 (18.3) (14.6)
--------- --------- --------
Total other comprehensive income.................... (246.1) 39.4 (208.4)
--------- --------- --------
Comprehensive income........................................ $ 1,487.1 $ 1,312.6 $ 654.0
--------- --------- --------
--------- --------- --------
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.
22
WARNER-LAMBERT COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
---------------------
1999 1998
--------- ---------
(DOLLARS IN MILLIONS)
ASSETS:
Cash and cash equivalents............................... $ 1,633.6 $ 945.8
Short-term investments.................................. 309.6 42.2
Accounts receivable, less allowances of $39.4 in 1999
and $30.6 in 1998..................................... 1,722.5 1,475.9
Other receivables....................................... 258.7 205.6
Inventories............................................. 979.2 992.8
Prepaid expenses and other current assets............... 786.5 586.6
--------- ---------
Total current assets........................ 5,690.1 4,248.9
Investments and other assets............................ 793.4 718.9
Property, plant and equipment, net...................... 3,341.9 2,821.9
Intangible assets....................................... 1,616.1 1,730.4
--------- ---------
$11,441.5 $ 9,520.1
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Short-term debt......................................... $ 297.1 $ 264.2
Accounts payable, trade................................. 1,881.5 1,518.2
Accrued compensation.................................... 236.1 233.3
Other current liabilities............................... 990.1 980.1
Federal, state and foreign income taxes................. 283.7 248.2
--------- ---------
Total current liabilities................... 3,688.5 3,244.0
Long-term debt.......................................... 1,249.5 1,266.7
Deferred income taxes and other noncurrent
liabilities........................................... 1,405.2 1,129.1
Shareholders' equity:
Preferred stock -- none issued...................... -- --
Common stock issued:
1999 and 1998 -- 961,981,608 shares............. 962.0 962.0
Capital in excess of par value...................... 897.2 520.6
Retained earnings................................... 5,098.1 4,038.5
Accumulated other comprehensive income.............. (645.4) (399.3)
Treasury stock, at cost:
1999 -- 99,934,571 shares; 1998 -- 112,073,966
shares........................................ (1,213.6) (1,241.5)
--------- ---------
Total shareholders' equity.................. 5,098.3 3,880.3
--------- ---------
$11,441.5 $ 9,520.1
--------- ---------
--------- ---------
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.
23
WARNER-LAMBERT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
--------- --------- ---------
(DOLLARS IN MILLIONS)
Operating Activities:
Net income.............................................. $ 1,733.2 $ 1,273.2 $ 862.4
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization....................... 362.8 308.4 281.9
Deferred income taxes............................... (207.5) (164.5) (65.1)
Changes in assets and liabilities, net of effects
from acquisitions/dispositions of businesses:
Receivables..................................... (378.1) (331.4) (169.8)
Inventories..................................... (38.2) (158.6) (167.4)
Accounts payable and accrued liabilities........ 737.0 749.1 705.1
Other, net.......................................... 227.8 277.3 129.5
--------- --------- ---------
Net cash provided by operating activities... 2,437.0 1,953.5 1,576.6
--------- --------- ---------
Investing Activities:
Purchases of investments................................ (637.0) (105.6) (145.2)
Proceeds from maturities/sales of investments........... 421.7 218.1 245.6
Capital expenditures.................................... (931.9) (753.2) (512.5)
Acquisitions of businesses.............................. -- -- (228.4)
Proceeds from dispositions of businesses................ -- 125.0 --
Other, net.............................................. (87.1) 66.0 (16.8)
--------- --------- ---------
Net cash used by investing activities....... (1,234.3) (449.7) (657.3)
--------- --------- ---------
Financing Activities:
Proceeds from borrowings................................ 516.2 871.3 1,577.5
Principal payments on borrowings........................ (497.7) (1,562.3) (1,622.7)
Purchases of treasury stock............................. (42.1) (265.2) (135.2)
Cash dividends paid..................................... (671.8) (524.6) (413.1)
Proceeds from stock option exercises.................... 195.3 117.1 84.3
--------- --------- ---------
Net cash used by financing activities....... (500.1) (1,363.7) (509.2)
--------- --------- ---------
Effect of exchange rate changes on cash and cash
equivalents............................................... (14.8) 19.7 (31.7)
--------- --------- ---------
Net increase in cash and cash equivalents................... 687.8 159.8 378.4
Cash and cash equivalents at beginning of year.............. 945.8 786.0 407.6
--------- --------- ---------
Cash and cash equivalents at end of year.................... $ 1,633.6 $ 945.8 $ 786.0
--------- --------- ---------
--------- --------- ---------
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.
24
WARNER-LAMBERT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
NOTE 1 -- 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.
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 and title
passes 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 non-equity 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 that
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.
Advertising costs -- Advertising costs are expensed as incurred and amounted
to $1,056.1 in 1999, $927.5 in 1998, and $840.1 in 1997.
Newly issued accounting standards -- In June 1999, the Financial Accounting
Standards Board ('FASB') issued Statement of Financial Accounting Standards
('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. The adoption of SFAS No. 133 is not expected to have a material effect
on the Company's consolidated financial position, liquidity, cash flows or
results of operations.
25
WARNER-LAMBERT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
NOTE 2 -- NET INCOME PER COMMON SHARE:
The earnings per share (EPS) computations are as follows:
YEARS ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
(SHARES IN THOUSANDS)
Basic EPS computation:
Net income......................................... $1,733.2 $1,273.2 $ 862.4
Average common shares outstanding.................. 854,894 847,733 841,112
-------- -------- --------
$ 2.03 $ 1.50 $ 1.03
-------- -------- --------
-------- -------- --------
Diluted EPS computation:
Net income......................................... $1,733.2 $1,273.2 $ 862.4
Average common shares outstanding.................. 854,894 847,733 841,112
Impact of potential future stock option exercises,
net of shares repurchased........................ 29,749 31,226 26,974
-------- -------- --------
Average common shares outstanding -- assuming
dilution......................................... 884,643 878,959 868,086
-------- -------- --------
$ 1.96 $ 1.45 $ .99
-------- -------- --------
-------- -------- --------
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 3 -- INTEREST INCOME AND INTEREST EXPENSE:
Interest income and interest expense are included in Other expense, net.
Interest income totaled $126.5, $56.6 and $46.9 and interest expense totaled
$140.3, $114.3 and $167.5 in 1999, 1998 and 1997, respectively. Total interest
paid was $141.0, $103.9 and $152.3 and interest costs of $27.1, $19.2 and $8.3
have been capitalized and included in Property, plant and equipment for those
respective periods.
NOTE 4 -- RESTRUCTURING AND PLANT CLOSURES:
In 1993 and 1991, the Company recorded, as a separate income statement
component, restructuring charges of $525.2 and $544.0, 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. As of December 31, 1999, all
aspects of these rationalization programs were complete and all reserves were
fully utilized. In total, approximately 4,900 positions were eliminated and 26
plants were closed.
In 1998, the Company committed to a plan to close three foreign
manufacturing facilities. The planned closures are due to a consolidation of
certain product manufacturing resources in Europe. The costs of the three
closings consist 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, net for the year ended December 31, 1998. The
charges were funded by operations and do not have a material impact on
liquidity. As of December 31, 1999, the severance and other amounts that have
not been expended of $13.5 and $3.0 are reflected in Other current liabilities
and Deferred income taxes and other noncurrent liabilities, respectively. The
$35.0 in asset write-offs has been reflected as a reduction of Property, plant
and equipment. Cost savings associated with these closures, which is expected to
be realized in 2000, are estimated to be approximately $28.0 annually. As of
December 31, 1999, manufacturing operations at all
26
WARNER-LAMBERT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
three plants have ceased. Management plans to sell the plants in 2000. Proceeds
from the sales are not expected to be material.
NOTE 5 -- ACQUISITIONS AND DIVESTITURES:
In May 1999, Warner-Lambert 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 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 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 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. Dividends per
common share are equal to Warner-Lambert'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'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's presentation.
The results of operations for the separate companies and the combined
amounts for the most recent quarter prior to the merger and the prior years
presented in the consolidated financial statements are shown below:
THREE MONTHS
ENDED YEAR ENDED DECEMBER 31,
MARCH 31, --------------------------
1999 1998 1997
-------- --------- --------
Net Sales:
Warner-Lambert............................. $2,860.0 $10,213.7 $8,179.8
Agouron.................................... 146.0 530.1 228.3
-------- --------- --------
Combined....................................... $3,006.0 $10,743.8 $8,408.1
-------- --------- --------
-------- --------- --------
Net Income:
Warner-Lambert............................. $ 381.1 $ 1,254.0 $ 869.5
Agouron.................................... .9 19.2 (7.1)
-------- --------- --------
Combined....................................... $ 382.0 $ 1,273.2 $ 862.4
-------- --------- --------
-------- --------- --------
On December 31, 1998, Warner-Lambert 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 products in the U.S.
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 that 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
27
WARNER-LAMBERT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
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 five to 20 years for trademarks and
other intangibles. The transactions were financed with a long-term credit
facility.
All completed acquisitions, except the rights exchange with Glaxo Wellcome
and the merger with Agouron, 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 have been included in the
consolidated financial statements since the effective acquisition dates. 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 certain foreign manufacturing
facilities. The results of these transactions are recorded in Other expense, net
for the year ended December 31, 1998.
NOTE 6 -- MERGER EVENTS:
On November 3, 1999, Warner-Lambert, AHP and a wholly-owned subsidiary of
AHP entered into a definitive merger agreement. Subsequent to the announcement
of the agreement, Pfizer made an unsolicited, conditional all stock offer for
all of the outstanding common stock of Warner-Lambert.
On January 13, 2000, Warner-Lambert's Board of Directors authorized the
Company's management to enter into discussions with Pfizer to explore a possible
business combination.
On February 6, 2000, the merger agreement between Warner-Lambert and AHP was
terminated, and the stock option agreements issued in connection with that
transaction were rescinded by Warner-Lambert and AHP without consideration. In
connection with the termination of the AHP merger agreement, and in accordance
with the terms thereof, Warner-Lambert paid AHP a termination fee of $1.8
billion, which will be reflected in the Company's results in the first quarter
of 2000.
On February 6, 2000, Warner-Lambert, Pfizer and a wholly-owned subsidiary of
Pfizer entered into a definitive merger agreement. Under the terms of the
proposed transaction, which has been approved by the Board of Directors of both
Warner-Lambert and Pfizer, each share of Warner-Lambert common stock will be
exchanged for 2.75 shares of Pfizer common stock. The transaction is contingent
upon qualifying as a tax-free reorganization and being accounted for under the
pooling of interests method of accounting. The transaction is scheduled to close
during 2000, subject to antitrust clearance, approval by both companies'
shareholders and other customary conditions.
NOTE 7 -- 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
28
WARNER-LAMBERT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
hyperinflationary economies, principally in Latin America. Net aggregate
exchange losses (gains) resulting from foreign currency transactions and
translation adjustments related to subsidiaries operating in highly inflationary
countries amounted to $8.6, $13.6 and $(18.2) in 1999, 1998 and 1997,
respectively.
NOTE 8 -- INVENTORIES:
DECEMBER 31,
---------------
1999 1998
------ ------
Raw materials....................................... $128.9 $165.1
Finishing supplies.................................. 42.1 48.8
Work in process..................................... 266.8 308.4
Finished goods...................................... 541.4 470.5
------ ------
$979.2 $992.8
------ ------
------ ------
NOTE 9 -- PROPERTY, PLANT AND EQUIPMENT:
DECEMBER 31,
---------------------
1999 1998
--------- ---------
Land........................................... $ 49.7 $ 45.7
Buildings...................................... 1,561.6 1,387.0
Machinery, furniture and fixtures.............. 3,542.8 3,109.0
--------- ---------
5,154.1 4,541.7
Less accumulated depreciation.................. (1,812.2) (1,719.8)
--------- ---------
$ 3,341.9 $ 2,821.9
--------- ---------
--------- ---------
Depreciation expense totaled $299.5, $248.0 and $224.8 in 1999, 1998 and
1997, respectively. Depreciation expense is charged to various income statement
line items based upon the functions utilizing the assets.
NOTE 10 -- INTANGIBLE ASSETS:
DECEMBER 31,
-------------------
1999 1998
-------- --------
Goodwill......................................... $1,234.5 $1,299.0
Trademarks and other intangibles................. 655.7 666.4
-------- --------
1,890.2 1,965.4
Less accumulated amortization.................... (274.1) (235.0)
-------- --------
$1,616.1 $1,730.4
-------- --------
-------- --------
Amortization expense, which is reflected primarily in Other expense, net,
totaled $63.3, $60.4 and $57.1 in 1999, 1998 and 1997, respectively.
At December 31, 1999 and 1998, goodwill is being amortized primarily over 40
years and trademarks and other intangibles are being amortized over a weighted
average of approximately 33 years.
29
WARNER-LAMBERT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
NOTE 11 -- DEBT:
The components of Short-term debt were as follows:
DECEMBER 31,
---------------
1999 1998
------ ------
Notes payable....................................... $275.0 $245.9
Current portion of long-term debt................... 22.1 18.3
------ ------
$297.1 $264.2
------ ------
------ ------
The weighted-average interest rate for notes payable outstanding at
December 31, 1999 and 1998 was 5.7 percent and 6.9 percent, respectively. The
Company has lines-of-credit arrangements with numerous banks with interest rates
generally equal to the best prevailing rate. At December 31, 1999, worldwide
unused lines of credit amounted to $830.0.
The components of Long-term debt were as follows:
DECEMBER 31,
-------------------
1999 1998
-------- --------
Commercial paper................................. $ 408.1 $ 383.4
Variable-rate master note........................ 100.0 100.0
6 5/8% notes due 2002............................ 199.8 199.8
5 3/4% notes due 2003............................ 250.0 250.0
6% notes due 2008................................ 249.5 249.5
7.6% industrial revenue bonds due 2014........... -- 24.5
Other............................................ 42.1 59.5
-------- --------
$1,249.5 $1,266.7
-------- --------
-------- --------
At December 31, 1999, 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, 1999, the weighted-average interest rate was 5.8 percent
for commercial paper outstanding. The interest rate on the master note at
December 31, 1999 was 6.3 percent.
The aggregate annual maturities of long-term debt at December 31, 1999,
payable in each of the years 2000 through 2003, excluding short-term borrowings
reclassified to long-term, are $19.7, $208.3, $257.5 and $1.2, respectively.
NOTE 12 -- FINANCIAL INSTRUMENTS:
The estimated fair values of financial instruments were as follows:
DECEMBER 31,
---------------------------------------------
1999 1998
--------------------- ---------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------ ----- ------ -----
Investment securities...................... $ 149.3 $ 149.1 $ 165.6 $ 165.2
Long-term debt............................. (1,249.5) (1,222.1) (1,266.7) (1,294.7)
Foreign exchange contracts................. (.2) (16.3) .3 (8.5)
( ) = Liability
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
30
WARNER-LAMBERT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
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,
---------------
1999 1998
------ ------
Cash and cash equivalents........................... $ 48.2 $ 40.3
Short-term investments.............................. 35.5 32.3
Investments and other assets........................ 65.6 93.0
------ ------
$149.3 $165.6
------ ------
------ ------
The investment securities portfolio was primarily comprised of negotiable
certificates of deposit, U.S. and Puerto Rico government securities and
guaranteed collateralized mortgage obligations as of year-end 1999 and 1998.
These securities are classified as 'held-to-maturity.'
As of December 31, 1999 and 1998, the long-term investments of $65.6 and
$93.0 include a $4.1 interest-bearing, mortgage-backed security maturing beyond
10 years and 'available-for-sale' equity securities with a fair value of $54.1
and $24.3, respectively.
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. One customer balance accounted for
approximately 12% of total trade receivables at December 31, 1999. No customer
balances accounted for greater than 10% of total trade receivables at
December 31, 1998. 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 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, 1999 and 1998, the Company had forward or purchased option
foreign exchange contracts with contractual amounts of $595.2 and $552.0,
respectively. These contracts principally exchange Japanese yen, Canadian
dollars, South African rands, Thailand baht and Australian dollars for U.S.
dollars; U.S. dollars for euros and British pounds in 1999; 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.
31
WARNER-LAMBERT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
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 1999 or 1998.
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
primarily relate to hedging foreign currency denominated assets and liabilities
and anticipated net income of foreign subsidiaries. Hedges of anticipated net
income are marked to market on a current basis with gains and losses recognized
in Other expense, net. Cash flows associated with derivative financial
instruments are classified as operating in the Consolidated Statements of Cash
Flows.
NOTE 13 -- LEASES:
The Company rents various facilities and equipment. Rental expense amounted
to $137.5, $119.0 and $96.4 in 1999, 1998 and 1997, respectively.
The future minimum rental commitments under noncancelable capital and
operating leases at December 31, 1999 are summarized below:
CAPITAL OPERATING
------- ---------
2000....................................................... $ 2.1 $ 99.7
2001....................................................... 2.0 78.6
2002....................................................... 1.5 51.6
2003....................................................... 1.2 28.8
2004....................................................... 1.2 23.8
Remaining years............................................ 5.8 149.7
----- ------
Total minimum lease payments........................... 13.8 432.3
Less minimum sublease income........................... -- (28.7)
----- ------
Net minimum lease payments............................. 13.8 $403.6
----- ------
------
Less amount representing interest...................... (3.5)
-----
Present value of minimum lease payments................ $10.3
-----
-----
Property, plant and equipment included capitalized leases of $126.7, less
accumulated depreciation of $9.9, at December 31, 1999 and $71.8, less
accumulated depreciation of $7.8, at December 31, 1998. Long-term debt included
capitalized lease obligations of $12.8 and $8.9 at those respective dates.
NOTE 14 -- PENSIONS AND OTHER POSTRETIREMENT BENEFITS:
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 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
32
WARNER-LAMBERT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
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.
The following tables present the benefit obligation and funded status of the
plans:
PENSION POSTRETIREMENT
------------------- -----------------
1999 1998 1999 1998
---- ---- ---- ----
Change in Benefit Obligation:
Benefit obligation at beginning of year..... $2,593.5 $2,276.6 $ 283.7 $ 273.1
Service cost................................ 71.5 60.0 6.6 6.2
Interest cost............................... 167.9 160.1 19.6 19.9
Plan participants' contributions............ 3.0 2.4 .3 .2
Amendments.................................. 2.1 11.6 -- (3.5)
Actuarial (gain) loss....................... (48.4) 221.7 (6.2) 10.5
Benefits paid............................... (155.4) (138.9) (27.0) (22.7)
-------- -------- ------- -------
Benefit obligation at end of year....... $2,634.2 $2,593.5 $ 277.0 $ 283.7
-------- -------- ------- -------
-------- -------- ------- -------
Change in Plan Assets:
Fair value of plan assets at beginning of
year...................................... $2,423.8 $2,276.6 $ -- $ --
Actual return on plan assets................ 305.5 230.1 -- --
Company contributions....................... 67.3 53.6 26.7 22.5
Plan participants' contributions............ 3.0 2.4 .3 .2
Benefits paid............................... (155.4) (138.9) (27.0) (22.7)
-------- -------- ------- -------
Fair value of plan assets at end of
year.................................. $2,644.2 $2,423.8 $ -- $ --
-------- -------- ------- -------
-------- -------- ------- -------
Funded status................................... $ 10.0 $ (169.7) $(277.0) $(283.7)
Unrecognized actuarial loss..................... 32.8 197.3 45.0 59.8
Unrecognized prior service cost................. 34.7 40.9 63.2 78.1
Unrecognized net transition obligation.......... (1.5) (1.9) -- --
-------- -------- ------- -------
Net amount recognized....................... $ 76.0 $ 66.6 $(168.8) $(145.8)
-------- -------- ------- -------
-------- -------- ------- -------
Amounts recognized in the Consolidated
Balance Sheets consist of:
Prepaid benefit cost........................ $ 219.1 $ 197.7 $ -- $ --
Accrued benefit liability................... (161.1) (154.7) (168.8) (145.8)
Intangible asset............................ 3.5 1.8 -- --
Accumulated other comprehensive income...... 14.5 21.8 -- --
-------- -------- ------- -------
Net amount recognized....................... $ 76.0 $ 66.6 $(168.8) $(145.8)
-------- -------- ------- -------
-------- -------- ------- -------
Foreign pension plan assets at fair value included in the preceding table
were $779.1 in 1999 and $757.5 in 1998. The foreign pension plan projected
benefit obligation was $840.9 in 1999 and $784.0 in 1998.
The projected benefit obligation, accumulated benefit obligation and fair
value of plan assets for the pension plans with accumulated benefit obligations
in excess of plan assets were $218.9, $172.4 and $34.5, respectively as of
December 31, 1999, and $197.5, $161.1 and $26.1, respectively as of December 31,
1998.
33
WARNER-LAMBERT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
The following table presents the annual cost related to the plans:
PENSION POSTRETIREMENT
--------------------------- ---------------------
YEARS ENDED DECEMBER 31,
---------------------------------------------------
1999 1998 1997 1999 1998 1997
------- ------- ------- ----- ----- -----
Components of Net Pension and Postretirement
Costs:
Service cost............................. $ 71.5 $ 60.0 $ 53.5 $ 6.6 $ 6.2 $ .4
Interest cost............................ 167.9 160.1 156.0 19.6 19.9 14.0
Expected return on plan assets........... (200.6) (187.3) (175.5) -- -- --
Amortization of prior service cost and
net transition obligation.............. 8.0 7.5 7.2 20.7 14.7 .6
Recognized actuarial loss................ 13.7 3.6 4.0 2.8 2.6 2.5
Curtailment and special benefit charge... -- 5.3 -- -- -- --
------- ------- ------- ----- ----- -----
Net pension and post-retirement
costs.............................. $ 60.5 $ 49.2 $ 45.2 $49.7 $43.4 $17.5
------- ------- ------- ----- ----- -----
------- ------- ------- ----- ----- -----
The sale of the Rochester plant, as discussed in Note 5, resulted in a
curtailment and special benefit charge of $5.3 in 1998. Included in amortization
of prior service cost and net transition obligation for 1999 is $5.8
representing the transition charge for a Canadian postretirement plan.
The assumptions for the U.S. pension and postretirement plans included an
expected increase in salary levels of 4.25 percent for the year ended December
31, 1999 and 4.0 percent for each of the years ended December 31, 1998 and 1997.
The weighted-average discount rate was 8.0, 7.25 and 7.75 percent for 1999, 1998
and 1997, 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, 1999, 1998
and 1997. Assumptions for foreign pension plans did not vary significantly from
the U.S. plans.
Net pension expense attributable to foreign plans included in the preceding
table was $20.2, $15.0 and $14.8 in 1999, 1998 and 1997, respectively.
Separate assumed health care cost trend rates have been used in the
valuation of domestic postretirement health insurance benefits. The foreign
postretirement benefit obligation is not material. Accordingly, the following
disclosures consider domestic postretirement plans only.
HEALTH CARE TREND RATES:
---------------------------------------------
1999 1998 1997
------------- ------------- -------------
Employees retiring before January 1, 1992
Under age 65 (1).................................. 8.6% 9.2% 9.8%
Age 65 and over (2)............................... 5.5% 5.9% 6.3%
Employees retiring after December 31, 1991 (3)........ 6.3% - 8.0% 6.7% - 8.8% 7.0% - 9.5%
- ---------
(1) Rate declines to 5.5% in 2005
(2) Rate remains at 5.5% for all years after 1999
(3) Rate declines to 5.0% 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, 1999 by $14.4 and the net periodic postretirement benefit cost by $1.9. 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, 1999 by $14.3 and the net periodic postretirement benefit cost for 1999 by
$1.9.
34
WARNER-LAMBERT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Other postretirement benefits for foreign plans expensed under the cash
method in 1999, 1998 and 1997 were not material.
NOTE 15 -- INCOME TAXES:
The components of Income before income taxes were:
YEARS ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
U.S. and Puerto Rico................................... $1,011.5 $ 951.6 $ 515.9
Foreign................................................ 1,429.7 839.4 672.9
-------- -------- --------
$2,441.2 $1,791.0 $1,188.8
-------- -------- --------
-------- -------- --------
The Provision for income taxes consisted of:
YEARS ENDED DECEMBER 31,
--------------------------
1999 1998 1997
------- ------- ------
Current:
Federal............................................... $ 472.1 $ 342.4 $132.9
Foreign............................................... 409.2 290.6 219.5
State and Puerto Rico................................. 34.2 49.3 39.1
------- ------- ------
915.5 682.3 391.5
------- ------- ------
Deferred:
Federal............................................... $(134.5) $(100.5) $(58.5)
Foreign............................................... (37.0) (60.8) (1.9)
State and Puerto Rico................................. (36.0) (3.2) (4.7)
------- ------- ------
(207.5) (164.5) (65.1)
------- ------- ------
Provision for income taxes................................ $ 708.0 $ 517.8 $326.4
------- ------- ------
------- ------- ------
The tax effects of significant temporary differences, which comprise the
deferred tax assets and liabilities, were as follows:
DECEMBER 31,
----------------------------------------------
1999 1998
---------------------- ---------------------
ASSETS LIABILITIES ASSETS LIABILITIES
-------- ----------- ------- -----------
Restructuring reserves......................... $ -- $ -- $ 30.3 $ --
Compensation/benefits.......................... 137.6 -- 118.0 --
Postretirement/postemployment obligations...... 75.8 -- 69.6 --
Inventory...................................... 153.4 14.2 125.3 13.1
Tax loss and other carryforwards............... 162.4 -- 101.3 --
Research tax credit and other carryforwards.... 127.6 -- 57.9 --
Pensions....................................... 13.7 84.0 13.2 65.9
Property, plant and equipment.................. 25.4 179.4 33.9 211.4
Intangibles.................................... 48.5 90.5 52.4 93.3
Foreign tax credit carryforwards............... 89.1 -- -- --
Other.......................................... 231.4 95.0 249.6 84.9
-------- ------ ------- ------
1,064.9 463.1 851.5 468.6
Valuation allowance............................ (45.2) -- (34.4) --
-------- ------ ------- ------
$1,019.7 $463.1 $817.1 $468.6
-------- ------ ------- ------
-------- ------ ------- ------
35
WARNER-LAMBERT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
The Company has research tax credit carryforwards of $115.3 as of
December 31, 1999. The carryforwards expire in 2000 through 2019. The foreign
tax credit carryforwards of $89.1 expire in 2004.
A valuation allowance on deferred tax assets is provided if it is more
likely than not that some portion or all of the deferred asset will not be
realized. The 1999 increase in the valuation allowance was primarily due to the
increase in tax loss carryforwards of foreign affiliates in certain
jurisdictions that have limited carryforward periods.
At December 31, 1999, for income tax purposes, Agouron had approximately
$224.4 of net operating loss carryforwards. 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
carryforwards expire in 2000 through 2018. In addition, there are tax loss
carryforwards of $113.3 in foreign jurisdictions, which have various expiration
dates.
Income taxes of $279.2 and $288.1 were paid during 1999 and 1998,
respectively. Prepaid expenses and other current assets included deferred income
taxes of $462.1 and $337.1 at December 31, 1999 and 1998, respectively.
The earnings of Warner-Lambert's operations in Puerto Rico are subject to
tax pursuant to a grant, effective through December 31, 2012. 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, 1999.
Earnings of foreign subsidiaries considered to be reinvested for an
indefinite period at December 31, 1999 were approximately $2.5 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. Also,
in 1997 Agouron reduced its valuation allowance by $42.5, caused by
changes to future income projections and tax planning strategies.
As of December 31, 1999, 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 1986 to the present.
The Company's effective income tax rate differed from the U.S. statutory tax
rate as follows:
YEARS ENDED
DECEMBER 31,
------------------
1999 1998 1997
---- ---- ----
U.S. statutory tax rate..................................... 35.0% 35.0% 35.0%
Benefit from U.S. possession tax credit..................... (1.5) (1.8) (3.5)
Foreign income subject to increased (reduced) tax rates
including taxes on repatriation........................... (4.4) (3.7) 1.0
U.S. research tax credit, net............................... (1.1) (1.4) (1.3)
State and local taxes, net.................................. .2 1.1 .8
Valuation allowance......................................... .4 .3 (3.5)
Other items, net............................................ .4 (.6) (1.0)
---- ---- ----
Effective tax rate.......................................... 29.0% 28.9% 27.5%
---- ---- ----
---- ---- ----
NOTE 16 -- 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.
Par value of common stock issued was $962.0, $962.0 and $320.7 at
December 31, 1999, 1998 and 1997, respectively.
36
WARNER-LAMBERT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
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 to effectuate
a three-for-one stock split effective May 8, 1998. Par value remained at $1.00
per share.
Changes in certain components of shareholders' equity are summarized as
follows:
TREASURY STOCK
CAPITAL IN ------------------------
EXCESS OF SHARES (IN RETAINED
PAR VALUE THOUSANDS) COST EARNINGS
--------- --------- --------- ---------
Balance at December 31, 1996. $119.9 (49,456) $(1,065.5) $3,436.2
Adjustment for pooling of interests........ 213.2 8,076 125.2 (210.9)
------- -------- --------- --------
Adjusted 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, net of tax......... 159.9 3,072 45.7 (7.7)
Issuance of stock for acquisition of Alanex
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, net of tax......... 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
Shares repurchased, at cost................ -- (592) (42.1) --
Employee benefit plans, net of tax......... 376.6 12,731 70.0 (1.8)
Net income................................. -- -- -- 1,733.2
Cash dividends paid........................ -- -- -- (671.8)
------- -------- --------- --------
Balance at December 31, 1999............... $ 897.2 (99,935) $(1,213.6) $5,098.1
------- -------- --------- --------
------- -------- --------- --------
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 value for employee stock
options exercised were $242.1, $165.2 and $64.8 for the years ended
December 31, 1999, 1998 and 1997, respectively.
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:
37
WARNER-LAMBERT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
FOREIGN OTHER ACCUMULATED
CURRENCY ITEMS, OTHER
TRANSLATION NET OF COMPREHENSIVE
ADJUSTMENTS TAX INCOME
----------- ------------ -------------
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)
Current period change.......................... (280.9) 34.8 (246.1)
------- ------ -------
Balance at December 31, 1999................... $(653.2) $ 7.8 $(645.4)
------- ------ -------
------- ------ -------
NOTE 17 -- STOCK OPTIONS AND AWARDS:
Warner-Lambert has stock awards outstanding at December 31, 1999 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 1996 Stock Plan provides that in the event of a change in control
of Warner-Lambert, the ability to exercise stock options is accelerated.
The aggregate number of shares of common stock that may be awarded under the
1996 Stock Plan in any year is not more than 1.65 percent of the issued 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. Expenses of $5.7, $17.0 and $13.3 for restricted stock
and performance awards were charged to income in 1999, 1998 and 1997,
respectively. Had compensation cost been recorded as an alternative provided by
FASB Statement No. 123, 'Accounting for Stock-Based Compensation,' for options
granted in 1999, 1998 and 1997, the Company's net income and earnings per share
would have been reduced to the pro forma amounts below:
1999 1998 1997
-------- -------- ------
Net income:
As reported.......................................... $1,733.2 $1,273.2 $862.4
Pro forma............................................ 1,642.8 1,203.6 816.5
Basic earnings per share:
As reported.......................................... $ 2.03 $ 1.50 $ 1.03
Pro forma............................................ 1.92 1.42 .97
Diluted earnings per share:
As reported.......................................... $ 1.96 $ 1.45 $ .99
Pro forma............................................ 1.86 1.37 .94
38
WARNER-LAMBERT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
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 1999, 1998 and 1997:
1999 1998 1997
------ ------ ------
Dividend yield........................................... 1.90% 2.37% 2.81%
Expected volatility...................................... 26.85% 24.21% 20.59%
Risk-free interest rate.................................. 4.53% 5.55% 6.21%
Expected life (years).................................... 5.75 5.90 5.90
Transactions involving stock options are summarized as follows:
NUMBER WEIGHTED-
OF AVERAGE
SHARES EXERCISE
IN THOUSANDS PRICE
------------ --------
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
Granted................................................. 9,529 68.80
Exercised............................................... (12,490) 15.64
Forfeited............................................... (980) 41.07
------- ------
Stock options outstanding, December 31, 1999................ 70,500 28.84
------- ------
-------
Weighted-average fair value of stock options:
Granted during 1997..................................... 8.84
Granted during 1998..................................... 12.94
Granted during 1999..................................... 19.69
Shares available for annual stock award grants at:
December 31, 1997....................................... 17,212
December 31, 1998....................................... 25,366
December 31, 1999....................................... 32,345
The following table summarizes outstanding and exercisable stock options as
of December 31, 1999:
STOCK OPTIONS OUTSTANDING STOCK OPTIONS EXERCISABLE
- ------------------------------------------- --------------------------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
RANGE OF NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
PRICES IN THOUSANDS LIFE (YEARS) PRICE IN THOUSANDS PRICE
- ------------ ------------ ------------ --------- ------------ ---------
$ .33-22.00 35,261 4.4 $13.80 33,462 $13.50
23.00-45.00 18,086 7.2 29.30 10,309 28.80
46.00-68.00 16,395 8.6 58.80 3,027 52.00
69.00-93.00 758 9.4 71.10 14 75.20
- ------------ ------ --- ------ ------ ------
.33-93.00 70,500 6.2 28.84 46,812 19.40
------ ------
------ ------
39
WARNER-LAMBERT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
NOTE 18 -- 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.
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, 1999 and 1998, the accrual for environmental liabilities was
approximately $28 and $34 covering 53 and 50 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 that 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 19 -- SEGMENT INFORMATION:
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, 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.
With the significant growth of the cholesterol-lowering agent LIPITOR, the
pharmaceutical segment has become the Company's largest segment. Warner-Lambert
has co-promoted LIPITOR, which achieved worldwide sales of $3.7 billion, in most
markets with Pfizer since its launch in 1997. The agreements with Pfizer cover
many countries and 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
40
WARNER-LAMBERT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
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 10 years from the date of product launch
in each respective country.
During 1999, total sales to one pharmaceutical and health care products
wholesaler accounted for 12 percent of the Company's consolidated net sales. The
majority of sales to this customer were in the pharmaceutical segment. In 1998
and 1997, no individual customer accounted for more than 10 percent of
consolidated net sales.
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 SEGMENT DATA
NET SALES INCOME BEFORE TAXES
-------------------------- ------------------------
1999 1998 1997 1999 1998 1997
------- ------- ------ ------ ------ ------
Pharmaceutical............................ $ 7,982 $ 6,134 $3,848 $2,059 $1,495 $ 781
Consumer Health Care...................... 2,996 2,722 2,691 548 510 549
Confectionery............................. 1,951 1,888 1,869 182 159 185
------- ------- ------ ------ ------ ------
Total Segments........................ 12,929 10,744 8,408 2,789 2,164 1,515
Corporate (1)............................. -- -- -- (348) (373) (326)
------- ------- ------ ------ ------ ------
Consolidated Total........................ $12,929 $10,744 $8,408 $2,441 $1,791 $1,189
------- ------- ------ ------ ------ ------
------- ------- ------ ------ ------ ------
DEPRECIATION/
SEGMENT ASSETS (2) AMORTIZATION CAPITAL EXPENDITURES
------------------------- ------------------ ---------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
------- ------ ------ ---- ---- ---- ----- ----- -----
Pharmaceutical............... $ 4,009 $3,418 $2,788 $160 $139 $120 $651 $523 $269
Consumer Health Care......... 2,442 2,471 2,384 95 85 83 116 90 108
Confectionery................ 966 960 908 61 49 51 88 78 80
------- ------ ------ ---- ---- ---- ---- ---- ----
Total Segments............... 7,417 6,849 6,080 316 273 254 855 691 457
Corporate (3)................ 4,025 2,671 2,272 47 35 28 77 62 56
------- ------ ------ ---- ---- ---- ---- ---- ----
Consolidated Total........... $11,442 $9,520 $8,352 $363 $308 $282 $932 $753 $513
------- ------ ------ ---- ---- ---- ---- ---- ----
------- ------ ------ ---- ---- ---- ---- ---- ----
- ---------
(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 certain
foreign manufacturing facilities.
(2) Segment assets consist of Accounts receivable, Inventories, Property, plant
and equipment, Intangible assets and certain investments.
(3) Corporate assets include Cash and cash equivalents, investments and other
unallocated assets.
41
WARNER-LAMBERT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
GEOGRAPHIC DATA
1999 1998 1997
---- ---- ----
Net Sales: (a)
United States......................................... $ 7,862 $ 6,304 $4,416
Foreign............................................... 5,067 4,440 3,992
------- ------- ------
Total............................................. $12,929 $10,744 $8,408
------- ------- ------
------- ------- ------
Long-Lived Assets:
United States......................................... $ 1,794 $ 1,562 $1,433
Ireland............................................... 589 311 125
Germany............................................... 235 248 205
All other foreign..................................... 724 701 692
------- ------- ------
Total............................................. $ 3,342 $ 2,822 $2,455
------- ------- ------
------- ------- ------
- ---------
(a) Net sales are attributed to countries based on location of customer. No
single foreign country was material to consolidated Net sales.
42
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. de Vink Ernest J. Larini
Chairman, President and Chief Financial Officer and
Chief Executive Officer Executive Vice President, Administration
43
REPORT OF INDEPENDENT ACCOUNTANTS
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, 1999 and 1998, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States. 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 auditing standards generally
accepted in the United States, 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 24, 2000, except for Note 6,
as to which the date is February 7, 2000
44
QUARTERLY FINANCIAL INFORMATION:
1999 QUARTERS
-------------------------------------------------
FIRST SECOND THIRD FOURTH
---------- ---------- ---------- ----------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Net sales......................................... $3,006.0 $3,150.7 $3,237.6 $3,534.6
Gross profit...................................... 2,253.6 2,427.5 2,470.4 2,735.5
Net income........................................ 382.0 446.9 417.0 487.3
Net income per common share:
Basic......................................... .45 .52 .49 .57
Diluted....................................... .43 .51 .47 .55
1998 QUARTERS
-----------------------------------------
FIRST SECOND THIRD FOURTH
-------- -------- -------- --------
Net sales......................................... $2,330.9 $2,682.7 $2,694.1 $3,036.1
Gross profit...................................... 1,677.3 1,975.8 1,990.8 2,239.7
Net income........................................ 292.9 329.1 302.5 348.7
Net income per common share:
Basic......................................... .35 .39 .36 .41
Diluted....................................... .34 .37 .34 .40
MARKET PRICES OF COMMON STOCK AND DIVIDENDS:
1999 RANGE OF PRICES 1998 RANGE OF PRICES
-------------------------- --------------------------
DIVIDENDS DIVIDENDS
HIGH LOW PER SHARE HIGH LOW PER SHARE
---- --- --------- ---- --- ---------
First quarter............................ $77 $63 1/2 $.20 $56 7/8 $39 3/8 $.16
Second quarter........................... 72 5/8 61 .20 71 9/16 55 .16
Third quarter............................ 73 1/2 60 13/16 .20 85 15/16 64 3/4 .16
Fourth quarter........................... 93 15/16 66 1/2 .20 82 60 1/8 .16
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
Not Applicable.
45
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to the directors and executive officers of
Warner-Lambert as of March 1, 2000 is set forth below:
POSITIONS AND PRINCIPAL OCCUPATIONS
OFFICES HELD AND EMPLOYMENT
NAME AGE WITH REGISTRANT DURING PAST 5 YEARS
---- ---- --------------- -------------------------
Robert N. Burt. 62 Director Director of the Company (since
1995); Chairman of the Board and
Chief Executive Officer of FMC
Corporation (chemical and
machinery manufacturing) (since
1991); Director of FMC
Corporation (since 1989); Director
of Phelps Dodge Corporation, the
Rehabilitation Institute of Chicago
and Evanston Hospital Corp.;
Director and member of the
Executive Committee of Chemical
Manufacturers Association;
Chairman of the Business
Roundtable and Vice Chairman of
the Illinois Business Roundtable;
Trustee and member of the
Executive Committee of the
Chicago Symphony Orchestra
Donald C. Clark................... 68 Director Director of the Company (since
1984); Retired Chairman of the
Board (1984 - 1996) and Chief
Executive Officer (1982 - 1994)
of Household International, Inc.
(financial services); Director of
Armstrong World Industries, Inc.
and PMI Group, Inc.; Life Trustee
of Northwestern University;
Chairman of the Board of Trustees
of Clarkson University
John A. Georges................... 69 Director Director of the Company (since
1983); Retired Chairman of the
Board and Chief Executive Officer
of International Paper Company
(packaging, paper and forest
products) (1985 - 1996); Director
of AK Steel Corporation and Ryder
System, Inc.; Trustee of the
Public Policy Institute of The
Business Council of New York
State; Graduate member of The
Business Council and a member of
the Trilateral Commission and the
Board of the University of
Illinois Foundation
(table continued on next page)
46
(table continued from previous page)
POSITIONS AND PRINCIPAL OCCUPATIONS
OFFICES HELD AND EMPLOYMENT
NAME AGE WITH REGISTRANT DURING PAST 5 YEARS
---- --- --------------- -------------------
William H. Gray III............... 58 Director Director of the Company (since
1991); President and Chief
Executive Officer of the United
Negro College Fund (since 1991);
Senior Minister of the Bright
Hope Baptist Church (since
1963); Director of CBS
Corporation, The Chase Manhattan
Corporation, Electronic Data
Systems Corporation, ezgov.com,
Municipal Bond Investors
Assurance Corporation, The
Prudential Insurance Company of
America, Rockwell International
Corp. and Union Pacific
Corporation
William R. Howell................. 64 Director Director of the Company (since
1983); Chairman Emeritus of J.C.
Penney Company, Inc. (retailing)
(since 1997); Chairman of the
Board and Chief Executive
Officer of J.C. Penney Company,
Inc. (1983 - 1997); Director of
Bankers Trust New York
Corporation and Bankers Trust
Company, Exxon Mobil
Corporation, Halliburton Company
and The Williams Companies, Inc.
and Central & South West
Corporation; Chairman of the
Southern Methodist University's
Board of Trustees; Member of The
Business Council
LaSalle D. Leffall, Jr. M.D....... 69 Director Director of the Company (since
1988); Charles R. Drew Professor
of Surgery, Howard University
College of Medicine (since
1992); Professorial Lecturer in
Surgery, Georgetown University;
Director of Celsion Corporation,
Mutual of America, Chevy Chase
Bank and the Charles A. Dana
Foundation; Member of the
National Urban League, the
National Association for
Advancement of Colored People,
The Young Men's Christian
Association, National Center on
Addiction and Substance Abuse at
Columbia University, the
Trustees Council of the National
Gallery of Art and the Cosmos
Club; Consultant for the
National Cancer Institute;
Diplomat for the American Board
of Surgery; Fellow for the
American College of Surgeons
(table continued on next page)
47
(table continued from previous page)
POSITIONS AND PRINCIPAL OCCUPATIONS
OFFICES HELD AND EMPLOYMENT
NAME AGE WITH REGISTRANT DURING PAST 5 YEARS
---- --- --------------- -------------------
George A. Lorch................... 58 Director Director of the Company (since
1997); Chairman of the Board
(since 1994) and Chief Executive
Officer (since 1993) of
Armstrong World Industries, Inc.
(flooring, building and other
specialty products); Director of
Armstrong World Industries,
Household International, Inc.
and RR Donnelley & Sons Company;
Member of the Pennsylvania
Business Roundtable and the
Policy Committee of The Business
Roundtable
Alex J. Mandl..................... 56 Director Director of the Company (since
1995); Chairman of the Board and
Chief Executive Officer of
Teligent, Inc.
(telecommunications) (since
1996); President and Chief
Operating Officer AT&T Corp.
(1993 - 1996); Director of
Teligent, Inc., Dell Computer
Corporation, Forstmann Little &
Co. and General Instrument
Corp., Walter A. Haas School of
Business at the University of
California at Berkeley,
Willamette University, Carnegie
Hall, the Museum of Television
and Radio and WETA Public
Television and Radio
Michael I. Sovern................. 68 Director Director of the Company (since
1993); Chairman of the Board,
Sotheby's Holdings Inc. (since
2000); President Emeritus and
Chancellor Kent Professor of
Law, Columbia University (since
1977); President, Shubert
Foundation (since 1996);
Director of AT&T Corp. and Sequa
Corporation; Chairman of the
Japan Society and the American
Academy in Rome; Member of the
board of the Shubert Foundation
and Organization, the Asian
Cultural Council, Channel
Thirteen and the Henry J. Kaiser
Family Foundation; Trustee of
Freedom Forum Newseum, Inc.;
Chairman of the Advisory
Committee of Freedom Forum Media
Studies Center
(table continued on next page)
48
(table continued from previous page)
POSITIONS AND PRINCIPAL OCCUPATIONS
OFFICES HELD AND EMPLOYMENT
NAME AGE WITH REGISTRANT DURING PAST 5 YEARS
---- --- --------------- -------------------
Lodewijk J. R. de Vink............ 55 Chairman of the Chairman of the Board and Chief
Board, President Executive Officer (since May
and Chief Executive 1999); President (since August
Officer; Director 1991); Chief Operating Officer
August 1991 - May 1999);
Director (since 1991); Director
of Bell Atlantic Corporation,
Pharmaceutical Research and
Manufacturers of America and the
United Negro College Fund;
Member of the Supervisory Board
of Royal Ahold N.V.; President
of the International Federation
of the Pharmaceutical
Manufacturers Association;
Director of the National Actors'
Theater; Trustee of the National
Foundation for Infectious
Diseases; Member of the
International Advisory Board of
Nijenrode University
Ernest J. Larini.................. 57 Chief Financial Executive Vice President (since
Officer and Executive May 1999); Chief Financial Officer
Vice President, (since November 1992); Vice
Administration President (November 1992 - May
1999)
Anthony H. Wild, Ph.D............. 51 Executive Vice Executive Vice President (since
President May 1999); President,
Pharmaceutical Sector (since May
1996); Vice President (September
1995 - May 1999); President,
Parke-Davis, North America
(February 1995 - May 1996)
Raymond M. Fino................... 57 Senior Vice Senior Vice President, Human
President, Human Resources (since May 1999); Vice
Resources President, Human Resources
(January 1985 - May 1999)
Philip M. Gross................... 58 Senior Vice Senior Vice President, Strategic
President, Strategic Management Processes (since May
Management 1999); Vice President, Strategic
Processes Management Processes (January
1994 - May 1999)
Gregory L. Johnson................ 53 Senior Vice President Senior Vice President and General
and General Counsel Counsel (since May 1999); Vice
President and General Counsel
(October 1983 - May 1999)
Richard W. Keelty................. 58 Senior Vice Senior Vice President, Public
President, Public Affairs (since May 1999); Vice
Affairs President, Public Affairs,
(December 1995 - May 1999); Vice
President, Public Relations
(November 1990 - November 1995)
(table continued on next page)
49
(table continued from previous page)
POSITIONS AND PRINCIPAL OCCUPATIONS
OFFICES HELD AND EMPLOYMENT
NAME AGE WITH REGISTRANT DURING PAST 5 YEARS
---- --- --------------- -------------------
J. Frank Lazo..................... 52 Senior Vice President Senior Vice President (since May
1999); Vice President (April
1990 - May 1999); President,
Adams Sector (since December
1994); President, Latin America,
Asia, Australia, Middle East
Africa Group (January
1992 - December 1994)
S. Morgan Morton.................. 60 Senior Vice President Senior Vice President (since May
1999); Vice President (January
1994 - May 1999); President,
Consumer Healthcare Sector
(since August 1997); President
Warner-Lambert Consumer
Healthcare U.S.A. (June
1996 - July 1997); President,
Shaving Products Group
(September 1993 - December 1995)
Peter B. Corr, Ph.D............... 51 Vice President Vice President (since April 1999);
President, Warner-Lambert/Parke-
Davis Pharmaceutical Research
and Development (since October
1998); Senior Vice President,
Discovery Research,
Monsanto/Searle (January 1996 -
September 1998); Vice President
Discovery Research,
Monsanto/Searle (January 1994 -
December 1996)
John S. Craig..................... 48 Vice President Vice President (since January
1996); President, Adams USA (since
July 1995)
Joseph E. Lynch................... 48 Vice President and Vice President and Controller
Controller (since June 1995); Comptroller,
American Home Products
Corporation (March 1995 - June
1995); Director, Corporate
Accounting and Budgets, American
Cyanamid Company (April
1992 - March 1995)
Harold F. Oberkfell............... 53 Vice President Vice President (since 1992); Vice
President, Knowledge Management
Officer (since September 1998);
President Latin America/Asia
Sector (February
1995 - September 1998)
Maurice A. Renshaw................ 53 Vice President Vice President (since January
1997); President Parke-Davis
U.S.A. (since April 1998);
President, Parke-Davis U.S. and
Mexico (August 1996 - March
1998) President, Warner-Lambert
K.K., Japan (December
1989 - August 1996)
(table continued on next page)
50
(table continued from previous page)
POSITIONS AND PRINCIPAL OCCUPATIONS
OFFICES HELD AND EMPLOYMENT
NAME AGE WITH REGISTRANT DURING PAST 5 YEARS
---- --- --------------- -------------------
Barbara S. Thomas................. 50 Vice President Vice President (since April 1998);
President Consumer Healthcare
USA and Canada (since January
2000); President Consumer
Healthcare USA (December 1997 -
December 1999); President and
Chief Executive Officer,
Pillsbury Canada Ltd. (March
1995 - November 1997)
John F. Walsh..................... 57 Vice President Vice President (since May 1999);
Executive Vice President
(January 1991 - May 1999);
President Shaving Products Group
(since August 1997); President
Consumer Healthcare Sector
(December 1994 - July 1997);
President, Consumer Products
Sector (January 1992 - December
1994)
Rae G. Paltiel.................... 53 Secretary Secretary (since February 1986)
All of the above-mentioned officers, with the exception of Ms. Thomas, Mr.
Craig, Mr. Lynch and Dr. Corr, have been employed by Warner-Lambert for the past
five years.
Ms. Thomas has been employed by Warner-Lambert since December 1997. Prior to
that time, Ms. Thomas was employed by The Pillsbury Company serving as President
and Chief Executive Officer of Pillsbury Canada, Ltd., from March 1995 to
November 1997. Ms. Thomas joined The Pillsbury Company in October 1993 as Vice
President, General Manager, for the pizza/snack division. The Pillsbury Company
is a multinational consumer company.
Mr. Craig has been employed by Warner-Lambert since July 1995. Prior to that
time, Mr. Craig had been employed by Kraft Foods, Inc., serving as President and
Chief Executive Officer of Kraft's Lender's Bagel Bakery division from September
1986 to February 1994. Kraft Foods, Inc., a wholly-owned subsidiary of Philip
Morris Companies Inc., is a multinational producer of packaged grocery products.
Mr. Lynch has been employed by Warner-Lambert since June 1995. Prior to that
time and during his last three months with American Cyanamid Company, which was
acquired by American Home Products Corporation in November 1994, Mr. Lynch
performed certain functions of Comptroller at American Home Products Corporation
from March 1995 to June 1995. American Home Products is a multinational health
care and food products company. From April 1991 to March 1995, Mr. Lynch held
the position of Director, Corporate Accounting and Budgets, American Cyanamid
Company. Prior to being acquired by American Home Products Corporation, American
Cyanamid Company was a multinational medical and agricultural products company.
Dr. Corr has been employed by Warner-Lambert since October 1998. Prior to
joining Warner-Lambert, Dr. Corr served as Senior Vice President, Discovery
Research at Monsanto/Searle and during the period from January 1994 through
December 1996 held the position of Vice President Discovery Research,
Monsanto/Searle.
None of the above officers has any family relationship with any Director or
with any other officer. Officers are elected by the Board of Directors for a
term of office lasting until the next annual organizational meeting of the Board
of Directors or until their successors are elected and have qualified. No
officer listed above was appointed pursuant to any arrangement or understanding
between such officer and the Board of Directors or any member or members
thereof.
51
ITEM 11. EXECUTIVE COMPENSATION.
All non-employee directors of Warner-Lambert receive an annual fee of
$45,000 and a fee of $1,000 for attendance at each meeting of the Board or
Committee of the Board of Directors, as well as for attendance at or
participation in special meetings and other Board-related activities.
Non-employee directors are also reimbursed for their expenses. In addition, each
director who chairs a Committee receives an annual fee of $3,000. Directors may
elect to defer receipt of their fees.
The provisions of the Company stock plans relating to deferred compensation
for directors permit non-employee directors to elect to defer their directors'
annual fees and meeting attendance fees. Deferred amounts are credited to an
account which accrues interest annually or to a Warner-Lambert Common Stock
equivalent account which is credited as of the day the deferred fees would have
been payable with stock credits equal to the number of shares of Common Stock
that could have been purchased with the amount of such deferred fees. Directors
may not make withdrawals from their deferred accounts until they are no longer
members of the Board. The provisions relating to directors' deferred
compensation provide that all amounts which participating directors had
previously elected to defer are payable following a change in control of
Warner-Lambert (as defined in the plan) in accordance with a distribution
schedule the director elects.
In order to further align the interests of the directors with the Company's
stockholders, an amount equal to one-half of the retainer in effect on January 1
of each year, for a maximum period of ten years, is made available to
non-employee directors for crediting to their Warner-Lambert Common Stock
equivalent accounts.
Pursuant to the Restricted Stock Plan for Directors of Warner-Lambert
Company, each non-employee director of Warner-Lambert receives a grant of 12,000
shares of Common Stock, subject to certain restrictions. The director is not
entitled to delivery of the share certificate, and the shares are subject to
transfer restrictions for a period from the date of grant until the earliest to
occur of certain specified events. If the director remains a member of the Board
for the entire period during which the restrictions apply, the restrictions will
lapse with respect to one-tenth of the shares for each full year of service as a
director. In the event of a change in control of Warner-Lambert (as defined in
the plan) the restrictions will lapse. Subject to the foregoing, the director
has the rights and privileges of a stockholder, including the right to receive
dividends and the right to vote the shares.
Non-employee directors are also eligible to participate in Warner-Lambert's
Group Life Insurance, Medical, Dental and Accidental Death and Dismemberment
Plans.
The following table provides a summary of cash and non-cash compensation for
each of the last three completed fiscal years ended December 31, 1999, 1998 and
1997 with respect to Warner-Lambert's current and former Chief Executive Officer
and the other four most highly compensated executive officers of the Company:
52
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
----------------------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------------- ----------------------- --------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
--- --- --- --- --- --- --- --- ---
OTHER SECURITIES
ANNUAL RESTRICTED UNDERLYING ALL OTHER
COMPENSA- STOCK OPTIONS/ LTIP COMPENSA-
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) TION (7)($) AWARDS ($) SARS (#) PAYOUTS ($) TION (9)($)
- --------------------------- ---- ---------- --------- ----------- ---------- -------- ----------- -----------
Lodewijk J.R. de Vink(1) ... 1999 $ 891,433 $1,558,500 $62,816 0 188,700 0 $ 256,691
Chairman of the Board, 1998 773,333 1,106,000 0 0 198,900 0 225,840
President and Chief 1997 714,000 926,300 0 0 370,500 0 111,362
Executive Officer
Melvin R. Goodes(2) ........ 1999 411,833 1,000,000 0 0 392,550 0 9,960,608
Retired Chairman of the 1998 1,173,333 2,028,800 67,988 0 440,700 0 13,215,698
Board and Chief Executive 1997 1,083,550 1,542,800 55,280 0 777,000 0 7,632,931
Officer
Ernest J. Larini(3) ........ 1999 500,633 549,800 0 0 77,000 0 135,363
Chief Financial Officer and 1998 419,650 488,000 0 0 81,000 0 120,179
Executive Vice President, 1997 386,400 413,700 0 0 175,500 0 61,623
Administration
Anthony H. Wild(4) ......... 1999 534,600 600,000 0 0 112,400 0 68,245
Executive Vice President; 1998 480,083 545,000 0 0 93,000 0 53,844
President, Pharmaceutical 1997 413,833 545,000 0 0 183,000 0 23,005
Sector
J. Frank Lazo(5) ........... 1999 477,817 452,300 0 0 44,000 0 139,034
Senior Vice President; 1998 453,967 374,000 0 0 67,800 0 140,407
President, Adams 1997 436,133 268,500 0 0 150,000 0 75,278
Peter B. Corr(6) ........... 1999 491,667 410,600 0 0 57,300 0 9,282
Vice President; President, 1998 98,958 350,000 0 $1,482,500(8) 75,000 0 0
Warner-Lambert/Parke-Davis 1997 0 0 0 0 0 0 0
Pharmaceutical Research and
Development
- ---------
(1) Mr. de Vink was appointed Chairman of the Board, President and Chief
Executive Officer, effective May 1, 1999, upon the retirement of Mr. Goodes.
Mr. de Vink served as President and Chief Operating Officer from 1991 until
May 1999.
(2) Mr. Goodes served as Chairman of the Board and Chief Executive Officer until
May 1, 1999, when he retired from the Company.
(3) Mr. Larini served as Vice President and Chief Financial Officer until May
1999, when he was promoted to the position Chief Financial Officer and
Executive Vice President, Administration.
(4) Dr. Wild was promoted to Executive Vice President, effective May 1, 1999.
(5) Mr. Lazo was promoted to Senior Vice President, effective May 1, 1999.
(6) Dr. Corr joined the Company in October 1998.
(7) Includes transportation services provided to Mr. de Vink in 1999 in the
amount of $41,353 and to Mr. Goodes in 1998 and 1997 in amounts of $50,246
and $40,955.
(8) Dr. Corr received a restricted stock award upon joining the Company in 1998.
His aggregate restricted stockholdings as of December 31, 1999, valued at
the market price at year-end, were 20,000 shares with a value of $1,638,750.
These shares will vest in equal installments in 2001, 2002 and 2003.
Dividends on restricted shares are paid quarterly in conjunction with, and
at the same rate as, dividends on the Company's Common Stock.
(9) All Other Compensation consists of the following: (i) annual Company
contributions to the Savings and Stock Plan and the Excess Savings Plan for
1999, 1998, and 1997 as follows: Mr. de Vink $71,570, $58,132 and $29,993;
Mr. Goodes $16,610, $337,584 and $173,679; Mr. Larini $38,169, $29,214 and
$15,640; Dr. Wild $14,649, $12,356 and $9,454; Mr. Lazo $44,736, $49,026 and
$25,753; and Dr. Corr $9,282; and (ii) the above-market interest on deferred
annual bonuses for 1999, 1998 and 1997 as follows: Mr. de Vink; $185,121,
$167,708 and $81,369; Mr. Goodes $420,998, $378,341 and $194,955; Mr. Larini
$97,194, $90,965 and $45,983; Dr. Wild $53,596, $41,488 and $13,551; Mr.
Lazo $94,298, $91,381 and $49,525; and Dr. Corr $0, $0 and $0. The annual
bonus was payable for such years, but deferred at the election of the named
executive officer. According to the terms of the Warner-Lambert Incentive
Compensation Plan, deferred bonuses accrue interest that is automatically
credited to the officer's account.
The amounts stated for Mr. Goodes for 1999, 1998 and 1997 include payments
of $9,523,000, $12,499,773 and $7,264,297 for cash awards that were based on
the Company's stock price performance and granted in 1989, 1988 and 1987
respectively.
-------------------
53
AGREEMENTS WITH THE FORMER AND CURRENT CHIEF EXECUTIVE OFFICER
In 1985, Warner-Lambert entered into an employment agreement with Mr.
Goodes. Effective May 1, 1999, pursuant to the terms of this agreement, Mr.
Goodes retired from the Company. In April 1999, Warner-Lambert entered into a
consulting agreement with Mr. Goodes. The consulting agreement provides for a
term commencing on May 1, 1999 and ending on April 30, 2004. The consulting
agreement provides for a minimum annual fee.
In May 1999, Warner-Lambert entered into an employment agreement with Mr. de
Vink, pursuant to which he serves as Chairman of the Board, President and Chief
Executive Officer of Warner-Lambert. This agreement provides for a term
commencing on May 1, 1999 and ends on the earlier of (1) March 1, 2010 or (2)
the occurrence of certain events described in the agreement. Mr. de Vink's
employment agreement provides for a minimum annual salary which may be increased
but not decreased. Pursuant to the terms of the agreement, Mr. de Vink is also
entitled to participate in Warner-Lambert's Incentive Compensation Plan as well
as other compensation and benefit programs available to officers of
Warner-Lambert at their respective levels.
OPTION/SAR GRANT TABLE
The following table sets forth information concerning grants of stock
options and stock appreciation rights ('SARs') during 1999 to the Company's
current and former Chief Executive Officer and the other four most highly
compensated executive officers.
OPTION/SAR GRANTS IN 1999
INDIVIDUAL GRANTS
------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f)
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR GRANT DATE
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION PRESENT VALUE
NAME GRANTED (#)(1) 1999 ($/SH) DATE ($)(2)
---- -------------- ---- ------ ---- ------
Lodewijk J.R. de Vink.............. 188,700 2.24% $68.8437 1/25/09 $3,673,989
Melvin R. Goodes................... 392,550 4.66% 68.8437 1/25/09 7,642,949
Ernest J. Larini................... 77,000 .91% 68.8437 1/25/09 1,499,190
Anthony H. Wild.................... 112,400 1.33% 68.8437 1/25/09 2,188,428
J. Frank Lazo...................... 44,000 .52% 68.8437 1/25/09 856,680
Peter B. Corr...................... 57,300 .68% 68.8437 1/25/09 1,115,631
- ---------
(1) Stock options entitle the holder to purchase shares of Common Stock at a
price which is equal to the fair market value per share for such stock on
the date the stock option was granted. Payment of this price is made in cash
or, with the consent of the Compensation Committee, in whole or in part, in
Common Stock or other consideration. Stock options generally become
exercisable over a four-year period (beginning one year after grant) in four
equal installments. No stock option may be exercised after the expiration of
ten years from the date of grant. In the event of a change in control of
Warner-Lambert (as defined in the stock option plans), (i) the ability to
exercise stock options is accelerated, (ii) amounts payable upon exercise of
stock appreciation rights will be determined by reference, among other
things to the price pursuant to which the change in control was effected,
(iii) amounts payable upon the exercise of stock appreciation rights will be
in the form of cash and (iv) limited stock appreciation and conversion
rights are provided to the grantees of stock options.
(2) Present value determinations were made using a Black-Scholes option pricing
model based on the following assumptions: the holding period is based on a
five-year average of all option holders' exercises; the risk-free rate of
return is the interest rate on a zero coupon bond with a maturity equivalent
to the holding period; the volatility is based on weekly stock prices for
the holding period; and the dividend yield is based on the dividends paid on
Warner-Lambert's Common Stock for the five-year period 1995-1999. The actual
value an executive officer receives is dependent on future stock market
conditions, and there can be no assurance that the amounts reflected in
column
(footnotes continued on next page)
54
(footnotes continued from previous page)
(f) of the Option/SAR Grants Table will actually be realized. No gain to the
executive officer is possible without an appreciation in the stock value
which will benefit all stockholders commensurately.
OPTION/SAR EXERCISES AND YEAR-END VALUE TABLE
The following table sets forth individual exercises of stock options and
SARs during 1999 by the Company's current and former Chief Executive Officer and
the other four most highly compensated executive officers and provides
information related to stock option and SAR values:
AGGREGATED OPTION/SAR EXERCISES IN 1999
AND YEAR-END OPTION/SAR VALUES
(a) (b) (c) (d) (e)
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS/SARS AT
OPTIONS/SAR'S AT YEAR-END ($)
SHARES ACQUIRED VALUE YEAR-END (#) ($81.9375 PER SHARE)
NAME ON EXERCISE (#) REALIZED($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- --------------- ----------- ------------------------- -------------------------
Lodewijk J.R. de 0 0 2,066,175/ $135,834,434/
Vink................. 611,625 22,981,118
Melvin R. Goodes*...... 679,000 $50,918,659 4,217,750/ $235,755,670/
0 0
Ernest J. Larini....... 0 0 845,548/ $ 54,930,270/
267,352 10,376,360
Anthony H. Wild........ 0 0 354,598/ $ 21,341,538/
309,202 10,959,938
J. Frank Lazo.......... 100,000 $ 6,132,300 1,121,550/ $ 76,450,126/
216,350 9,211,683
Peter B. Corr.......... 0 0 0/ $ 0/
132,300 1,336,212
- ---------
* Mr. Goodes' exercises occurred following his retirement from the Company.
RETIREMENT BENEFITS
The following table sets forth the estimated aggregate annual benefits
payable in the form of a straight life annuity by Warner-Lambert upon retirement
at age 65 (exclusive of retirement benefits from Social Security) after a
specified number of years of service, pursuant to the Warner-Lambert Company
Retirement Plan (the 'Retirement Plan') and Warner-Lambert Supplemental Pension
Income Plan (the 'Supplemental Plan'). In the event of early retirement, the
following amounts will be reduced by the annual retirement credits that would
otherwise have been earned to normal retirement and further reduced in
accordance with the early retirement reduction factors then in effect under the
Retirement Plan and, where applicable, the Supplemental Plan. The aggregate of
amounts shown in columns (c) and (d) of the Summary Compensation Table
approximate the amount of creditable earnings under the pension plans.
55
PENSION PLAN TABLE
YEARS OF SERVICE
---------------------------------------------------------------------------------
REMUNERATION 10 15 20 25 30 35 40
------------ -- -- -- -- -- -- --
$ 500,000............ $ 151,753 $ 208,233 $ 264,713 $ 265,193 $ 265,673 $ 270,587 $ 308,926
750,000............ 235,753 320,233 404,713 405,193 405,673 406,587 463,926
1,000,000............ 319,753 432,233 544,713 545,193 545,673 546,153 618,926
1,250,000............ 403,753 544,233 684,713 685,193 685,673 686,153 773,926
1,500,000............ 487,753 656,233 824,713 825,193 825,673 826,153 928,926
1,750,000............ 571,753 768,233 964,713 965,193 965,673 966,153 1,083,926
2,000,000............ 655,753 880,233 1,104,713 1,105,193 1,105,673 1,106,153 1,238,926
2,250,000............ 739,753 992,233 1,244,713 1,245,193 1,245,673 1,246,153 1,393,926
2,500,000............ 823,753 1,104,233 1,384,713 1,385,193 1,385,673 1,386,153 1,548,926
2,750,000............ 907,753 1,216,233 1,524,713 1,525,193 1,525,673 1,526,153 1,703,926
3,000,000............ 991,753 1,328,233 1,664,713 1,665,193 1,665,673 1,666,153 1,858,926
3,250,000............ 1,075,753 1,440,233 1,804,713 1,805,193 1,805,673 1,806,153 2,013,926
3,500,000............ 1,159,753 1,552,233 1,944,713 1,945,193 1,945,673 1,946,153 2,168,926
3,750,000............ 1,243,753 1,664,233 2,084,713 2,085,193 2,085,673 2,086,153 2,323,926
4,000,000............ 1,327,753 1,776,233 2,224,713 2,225,193 2,225,673 2,226,153 2,478,926
The Retirement Plan is a defined benefit, career average plan which is
periodically updated in order to provide pension benefits which are more
reflective of current creditable earnings. The most recent update was effective
January 1, 1998. The Retirement Plan provides that annual creditable earnings
are determined by an employee's January 1st base salary plus overtime and
Warner-Lambert Incentive Compensation Plan awards. The Retirement Plan provides
that, in the event of a change in control of Warner-Lambert (as defined in such
plan), (i) the benefits of participants will be afforded certain additional
protection for a limited period of time and (ii) if certain actions are taken
with respect to the Retirement Plan, any surplus assets then held in the trust
will inure to the benefit of participants and their beneficiaries. Credited
years of service under the Retirement Plan, as of December 31, 1999, for each of
the executive officers named in the Summary Compensation Table are: Lodewijk J.
R. de Vink -- 11.0 years; Melvin R. Goodes -- 32.8 years; Ernest J.
Larini -- 23.0 years; Anthony H. Wild -- 4.0 years; J. Frank Lazo 27.7 years;
and Peter B. Corr 1.0 year.
The Supplemental Plan was established to attract and retain employees in
senior managerial positions by providing supplemental pension income in amounts
reasonably related to their compensation and length of service with
Warner-Lambert. Benefits under the Supplemental Plan are based upon average
final compensation (the total amount of an employee's compensation for the three
calendar years during which such employee's compensation was the highest of the
five-year period of service ending with such employee's early or normal
retirement date, divided by three). Compensation for this purpose is the sum of
the employee's January 1st base salary plus compensation under the
Warner-Lambert Incentive Compensation Plan. The benefit under the Supplemental
Plan is reduced by the benefit payable under the Retirement Plan and certain
other retirement benefits including Social Security. The Supplemental Plan also
provides for payment to eligible employees of amounts they would have received
under the Retirement Plan in the absence of certain limitations imposed by the
Employee Retirement Income Security Act of 1974 and subsequent legislation, and
provides for payment to eligible employees of amounts they would have received
under the Retirement Plan if deferred incentive awards had been included in
creditable earnings under such plan. The Supplemental Plan provides that, in the
event of a change in control of Warner-Lambert (as defined in such plan),
(i) employees 55 years of age and older who meet certain salary level
requirements and who would have become eligible to receive Supplemental Plan
benefits upon retirement will receive such benefits upon retirement and
(ii) post-employment consulting requirements set forth in the Supplemental Plan
would no longer be applicable. Credited years of service under the Supplemental
Plan, as of December 31, 1999, for each of the executive officers named in the
Summary Compensation Table are: Lodewijk J. R. de Vink -- 9.8 years; Melvin R.
Goodes -- 19.0 years; Ernest J. Larini -- 11.8 years; Anthony H. Wild -- 4.8
years; J. Frank Lazo -- 7.7 years; and Peter B. Corr -- 1.2 years.
56
TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL ARRANGEMENTS AND OTHER MATTERS
Warner-Lambert has severance policies which provide for payments of up to
twenty-four months' salary depending upon several factors, including age and
length of service, subject to modifications made by the Warner-Lambert Executive
Severance Plan (the 'Executive Severance Plan').
The Executive Severance Plan provides benefits in the event of a change in
control of Warner-Lambert (as defined in such plan) to those employees,
essentially officers, who are subject to the reporting requirements of
Section 16(a) of the Securities Exchange Act of 1934, as amended. A change in
control is deemed to generally have occurred upon the acquisition of the voting
power of 20% or more of Warner-Lambert's outstanding securities, shareholder
approval of a merger, consolidation, sale or disposition of substantially all of
Warner-Lambert's assets or a change in more than half of Warner-Lambert's Board
of Directors. The Executive Severance Plan provides for severance benefits,
which are payable only if a participant leaves the employ of Warner-Lambert for
any reason other than termination for just cause (as defined in such plan)
within three years after a change in control, of thirty-six months' salary and
bonus and a pro-rata bonus for the year of termination, calculated through the
date of termination. The executive must be provided with six months notice of
such termination of employment. The executive will also be eligible to receive
36 months of welfare benefit continuation (including age credit), certain
outplacement services, and will receive credit for 36 additional months of
service under Warner-Lambert's pension plan and savings and stock plan. The
Executive Severance Plan also provides special payments to participants to
reimburse them for any federal excise tax or similar state or local tax that may
be imposed on payments received following a change in control. Warner-Lambert
has also established an Enhanced Severance Plan, which is similar to the
Executive Severance Plan, for all United States non-hourly employees who are not
eligible to participate in the Executive Severance Plan.
In addition, in the event of a change in control of Warner-Lambert (as
defined), the benefits in Warner-Lambert's Excess Savings Plan become fully
vested.
Pursuant to the terms of Warner-Lambert's equity compensation plans, upon a
change in control (as defined in such plans), all unvested options to purchase
Warner-Lambert stock become vested and exercisable and the restrictions with
respect to restricted stock lapse.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Warner-Lambert's executive compensation programs are designed to attract,
retain and motivate the broad based executive talent required to achieve its
business objectives and increase stockholder value. The Company's executive
compensation programs are administered by the Compensation Committee of the
Board of Directors (the 'Committee') which is comprised of the individuals
listed below. The Committee members are outside directors of the Company with
responsibility for all compensation matters for Warner-Lambert's executive
officers. The Committee selected the outside compensation consultants who advise
the Committee and Management on compensation matters.
GENERAL
Total compensation for Warner-Lambert's executive officers consists of a
base salary, annual cash bonus and long-term incentives, which include stock
options and restricted stock. The annual bonus and long-term incentives
introduce risk to the total executive compensation package. These compensation
components are variable, may fluctuate significantly from year to year and are
directly tied to Company and individual performance.
To ensure that Management's interest in the Company is aligned with those of
its stockholders, a significant portion of executive compensation is delivered
through the equity component. Stock options are tied to the long-term
performance of Warner-Lambert and are used to provide an incentive that focuses
attention on managing the Company from an owner's perspective. Restricted stock
grants are used selectively to build stock ownership and to promote a long-term
focus by restricting the holder's ability to sell, transfer or assign the shares
until the end of the specified vesting period when the restrictions lapse. The
combination of stock options and restricted stock grants provides a level of
risk and upside opportunity that encourages Management performance in the
achievement of the Company's long-term goals and objectives. To further align
Management's interests with Warner-
57
Lambert's stockholders, the Committee has established formal stock ownership
goals for key members of Management with the intent that each individual invest
a certain dollar amount in shares of Warner-Lambert Common Stock.
The Committee annually reviews the competitiveness of the Company's
executive compensation programs within the industries in which it
competes -- Pharmaceutical, Consumer Health Care and Confectionery. The
companies in this compensation peer group include the companies that are in the
industry peer group index in the Five-Year Cumulative Total Shareholder Return
graph. In addition, this compensation peer group also includes several leading
consumer products companies that, together with the industry peer group,
represent the broader marketplace for the Company's executive talent. The
Committee's outside compensation consultants agree that the companies in the
group are appropriate benchmarks for Warner-Lambert.
Warner-Lambert targets a level of total compensation (base salary, annual
bonus and stock awards) above the median total compensation of its comparator
group for like jobs, adjusted for company size. Since stock awards represent a
significant portion of the executives' total compensation, the overall
compensation package provides both downside risk and upside opportunity that
encourages the executives' performance in the achievement of the Company's
long-term goals and objectives.
The Committee continues to review executive compensation in light of Section
162(m) of the Internal Revenue Code ('Section 162(m)'), which establishes a
limit on the deductibility of annual compensation for certain executive officers
that exceeds $1,000,000. It is the general intention of the Committee to meet
the requirements for deductibility under Section 162(m); however, the Committee
reserves the right, where merited by changing business conditions or an
executive's individual performance, to authorize compensation payments which may
not be fully deductible by the Company. The Committee will re-examine this
policy on an on-going basis.
EXECUTIVE OFFICERS' COMPENSATION
In determining increases to executive officer compensation, the Committee
considered Company performance, including both financial and nonfinancial
indicators, individual performance, the business environment in which the
Company operated and competitive compensation trends.
Base salary increases were determined based upon individual performance,
competitive compensation trends and a review of salaries for like jobs at the
companies comprising Warner-Lambert's compensation peer group.
With respect to annual cash bonuses, the maximum annual amount which may be
set aside for payment is first derived from a formula approved by stockholders.
This formula takes into account the Company's net profit for the year and the
amount of capital employed by the Company. The annual cash bonus that is
actually paid to an individual executive officer is then determined by reviewing
the performance of the business unit which the executive officer manages,
including sales, profit and return on assets managed, and the officer's
performance and position level within the Company. As a result of such review of
business and individual performance for the year 1999, total annual bonus awards
to the Company's executive officers as a group increased over the prior year. A
majority of each individual award was based on Company and business unit
performance, with the remainder based on individual performance.
The Committee has established annual stock option award guidelines for each
position level within the Company. These guidelines provide for a range of
options to be granted from zero shares up to a maximum number of shares. The
Committee annually reviews competitive data from the compensation peer group and
the estimated value of the Company's stock options to develop these guidelines.
The actual stock option award granted to a Company executive is based upon the
individual's overall job performance and specific contributions to Company
performance for the prior year. While factors such as Company performance are
considered in determining the number of stock options to be granted, the
individual's current performance and contributions to Company performance are
the primary determinants in these deliberations. In January, 1999, the terms and
conditions of the Company's 1996 Stock Option Plan were amended to provide that
option holders who retire from the Company may exercise all outstanding options
the individual holds.
58
CEO COMPENSATION -- MR. MELVIN R. GOODES
The following is a description of the Committee's decisions with regard to
Mr. Goodes' 1999 compensation. Mr. Goodes retired from the Company on April 30,
1999. In 1999, while he was CEO, Mr. Goodes received a salary increase of
approximately 8%, an annual cash bonus of $2,028,800 and an annual stock option
grant of 392,550 shares, based on a review of his prior year job performance and
his compensation relative to his peers at companies comparable to
Warner-Lambert. The stock options have an exercise price equal to the fair
market value on the date of grant and are exercisable for a ten-year term.
Following his retirement, Mr. Goodes received a pro rata portion of his 1999
annual cash bonus equal to $1,000,000. In determining Mr. Goodes' bonus, the
Committee considered several Company financial performance measures, as well as
Mr. Goodes' individual performance during the period in 1999 while he served as
CEO. The Committee did not attach specific weights or values to the various
factors considered.
CEO COMPENSATION -- MR. LODEWIJK J.R. DE VINK
The following is a description of the Committee's decisions with regard to
Mr. de Vink's 1999 compensation as CEO.
Mr. de Vink was elected CEO on May 1, 1999. As a result of his election, the
Committee increased Mr. de Vink's salary by 10%, based on a review of his
compensation relative to CEOs at companies comparable to Warner-Lambert. Mr. de
Vink's employment agreement, provides for a minimum annual salary, which may be
increased but not decreased. Effective March, 2000, the Committee increased Mr.
de Vink's salary by 18%, thus establishing a new minimum annual salary under the
terms of his employment agreement. In addition, in 2000, Mr. de Vink received an
annual cash bonus of $1,558,500 and an annual stock option grant of 471,000
shares. The stock options have an exercise price equal to the fair market value
on the date of grant and are exercisable for a ten-year term.
In considering Mr. de Vink's base salary increase, annual bonus and stock
option grant, each effective in 2000, the Committee considered several Company
financial performance measures for 1999, as well as Mr. de Vink's individual
performance during the year. In determining Mr. de Vink's compensation, the
Committee did not attach specific weights or values to the various factors
considered.
The Committee considered the Company's sales, profits and earnings per share
for 1999, which measures exceeded expectations. During 1999, the Company
recorded four consecutive quarters of earnings growth in excess of 25% over
prior year results. In addition, Warner-Lambert's share price rose 9% as of
year-end 1999, resulting in a market capitalization of $70.6 billion. For 1999,
the Company achieved a number 2 ranking in stock price appreciation, compared to
that of its industry peer group; and for the five-year period ending 1999, the
Company achieved a number 1 ranking, compared to that of its compensation peer
group.
The Committee also reviewed Mr. de Vink's key accomplishments in 1999, as
follows:
Acquired Agouron Pharmaceuticals, an integrated pharmaceutical company
engaged in the discovery and development of innovative therapeutic products
for the treatment of cancer, AIDS and other serious diseases
Announced an agreement with Sankyo Co., Ltd. to co-develop and market a
second-generation compound from the glitazone class to treat type 2
diabetes
Received approval from the U.S. Food and Drug Administration to market
femhrt'r', a continuous combined estrogen replacement product
Made available the Company's QUANTERRA herbal remedies through
Healthshop.com, a natural health e-commerce company/a natural health
e-commerce site on the Internet
Acquired the gum, sugar and wafer confectionery business of Kraft Lacta
Suchard Brasil S.A.
Joined with PlanetRx.com, a leading Internet healthcare destination for
commerce, content and community, for a first-of-its kind marketing and
e-commerce alliance to bring the Company's disease state management
programs directly to consumers
Continued to focus on worldwide productivity and cost-effectiveness
Successfully completed all material projects relating to Y2K compliance
59
Received numerous awards during 1999, including Platinum List (Forbes),
Number 42 (Financial Times Global 500), Number 157, up from 192 in 1998
(Fortune 500 Companies), 100 Best Companies for Working Mothers (Working
Mother), LIPITOR 'Brand of the Year' (Med Ad News), 100 Best Managed
Companies (Industry Week), Warner-Lambert Board one of five 'Best' in 1999
(Chief Executive Magazine)
The Committee noted Mr. de Vink's leadership role in the Company's
quantitative and qualitative achievements.
COMPENSATION COMMITTEE MEMBERS
Alex J. Mandl, Chairman
Donald C. Clark
John A. Georges
William R. Howell
George A. Lorch
60
PERFORMANCE GRAPH
The graph set forth below compares the yearly percentage change in
Warner-Lambert's cumulative total shareholder return on its Common Stock to the
cumulative total return of the Standard & Poor's 500 Stock Index (the 'S&P 500')
and a peer group index comprised of Abbott Laboratories, American Home Products
Corporation, Bristol-Myers Squibb Company, Eli Lilly and Company, Johnson &
Johnson, Merck & Co., Inc., Pfizer Inc. and Schering-Plough Corporation.
WARNER-LAMBERT COMPANY
Cumulative Total Shareholder Return for
Five-Year Period Ending December 31, 1999*
[PERFORMANCE GRAPH]
December 31... 1994 1995 1996 1997 1998 1999
- -------------------------------------------------------------------------------------
Warner-Lambert 100.0 130.06 205.57 345.23 633.35 698.14
S&P 500 100.0 137.45 168.92 225.20 289.43 350.26
Peer Group 100.0 161.07 202.64 315.15 463.90 402.18
- -------------------------------------------------------------------------------------
*Assumes that the value of the investment in Warner-Lambert Common Stock and
each index was $100 on December 31, 1994 and that all dividends were reinvested.
61
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
SECURITY OWNERSHIP OF OFFICERS AND DIRECTORS
The following table sets forth information, as of February 29, 2000,
regarding beneficial ownership of Warner-Lambert Common Stock by each director,
each of the executive officers named in the Summary Compensation Table and all
directors and executive officers as a group:
NUMBER OF COMMON
SHARES AND
SHARE
NAME EQUIVALENTS(1)(2)
- ---- -----------------
Robert N. Burt.................................... 24,643
Donald C. Clark................................... 135,323
Peter B. Corr..................................... 34,370(3)
Lodewijk J.R. de Vink............................. 2,280,404(3)
John A. Georges................................... 84,750
Melvin R. Goodes.................................. 3,750,230(3)
William H. Gray III............................... 26,516
William R. Howell................................. 23,280
Ernest J. Larini.................................. 961,964(3)
J. Frank Lazo..................................... 1,201,960(3)
LaSalle D. Leffall, Jr............................ 51,715
George A. Lorch................................... 16,217
Alex J. Mandl..................................... 23,568
Michael I. Sovern................................. 19,196
Anthony H. Wild................................... 470,127(3)
All executive officers and directors as a group
(27)............................................ 14,671,767
- ---------
(1) As of February 29, 2000, no individual named in the Table owned more than
1%, and all executive officers and directors as a group owned approximately
1.7% of the outstanding shares of Common Stock.
(2) Each of the above persons has (or will have upon the exercise of options
exercisable within sixty days) sole voting and investment power with respect
to all shares shown as beneficially owned by such person, except for an
aggregate of 108,000 shares granted to the non-employee directors named
above, pursuant to the Restricted Stock Plan for Directors of Warner-Lambert
Company. Each director has the power to direct the vote of such shares. The
shareholdings listed above also include shares of Common Stock equivalents
held pursuant to Warner-Lambert's deferred compensation arrangements for
non-employee directors, as follows: Mr. Burt 5,682, Mr. Clark 107,494, Mr.
Georges 56,030, Mr. Gray 14,311, Mr. Howell 10,080, Dr. Leffall 36,510, Mr.
Lorch 3,617, Mr. Mandl 11,568 and Mr. Sovern 7,196. The shareholdings listed
above also include shares of Common Stock and Common Stock equivalents held
pursuant to Warner-Lambert's benefit plans as follows: Mr. de Vink 2,579,
Mr. Goodes 5,480, Mr. Larini 17,187, Dr. Wild 247, Mr. Lazo 3,335 and Dr.
Corr 45.
(3) Includes shares subject to options or rights granted pursuant to the
Company's stock plans exercisable within sixty days of February 29, 2000, as
follows: by Mr. de Vink 2,277,825, Mr. Goodes 3,744,750, Mr. Larini 939,386,
Dr. Wild 460,586, Mr. Lazo 1,198,625, Dr. Corr 14,325 and all executive
officers and directors as a group 13,967,913.
Warner-Lambert believes that stock ownership by its executive officers is
important to promote an identification of the interests of Management with
Warner-Lambert's stockholders. Accordingly, the Compensation Committee has
established stock ownership goals for its key members of Management with the
intent that each individual invest a certain dollar amount in shares of
Warner-Lambert Common Stock equal to a multiple ranging from six to ten times
the salary for such individual, depending on such individual's position level.
For purposes of this program, the amount of shares of Common Stock held by the
officer includes shares held directly and indirectly, shares and share
62
equivalents held under Warner-Lambert's benefit plans, 50% of vested,
unexercised stock options and 50% of restricted stock.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires
Warner-Lambert's officers and directors to file reports of ownership and changes
in ownership with the Securities and Exchange Commission and the New York Stock
Exchange. Warner-Lambert believes that during 1998 its officers and directors
complied with all applicable Section 16(a) filing requirements, except that Mr.
John Georges, a director, filed one late Form 4 report, covering one
transaction; Mr. Philip Gross, an officer, filed six late Form 4 reports,
covering eight transactions; and Mr. Harold Oberkfell filed one amended Form 5
report, covering one transaction.
SECURITY OWNERSHIP OF WARNER-LAMBERT
The following table sets forth information with respect to the persons known
to Warner-Lambert to own beneficially more than 5% of Warner-Lambert's Common
Stock, as of December 31, 1999:
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
- ---------------- -------------------- -----
FMR Corp.
82 Devonshire Street
Boston, Massachusetts 02109........................... 56,591,474(1) 6.590%
- ---------
(1) As reported on Amendment No. 1 to Schedule 13G filed with the Securities and
Exchange Commission, as of December 31, 1999, FMR beneficially owned and had
sole power to dispose of 56,591,474 shares. FMR's direct and indirect
subsidiaries reported holding the following amount of shares in Warner
Lambert Company: Fidelity Management & Research Company was the beneficial
owner of 51,904,741 shares, Fidelity Management Trust Company was the
beneficial owner of 3,891,381 shares and Fidelity International LTD was the
beneficial owner of 723,152 shares.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Not Applicable.
63
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(A) 1. ALL FINANCIAL STATEMENTS
The following items are included in 'Item 8. -- Financial Statements and
Supplementary Data' Part II of this report:
Consolidated Statements of Income and Comprehensive Income for
each of the three years in the period ended December 31, 1999.
Consolidated Balance Sheets at December 31, 1999 and 1998.
Consolidated Statements of Cash Flows for each of the three years
in the period ended December 31, 1999.
Notes to Consolidated Financial Statements.
Report by Management.
Report of Independent Accountants.
2. FINANCIAL STATEMENT SCHEDULE
Included in Part IV of this report:
Report of Independent Accountants on Financial Statement Schedule.
Schedule II -- Valuation and Qualifying Accounts.
Schedules other than those listed above are omitted because they are not
applicable.
3. EXHIBITS
(2) Plan of Acquisition, Reorganization, Arrangement, Liquidation of
Succession.
(a) Agreement and Plan of Merger dated as of November 3, 1999 among
Warner-Lambert Company, American Home Products Corporation and
Wolverine Sub Corp. (Incorporated by reference to Warner-Lambert's
Current Report on Form 8-K filed on November 8, 1999 (File No.
1-3608)).
(b) Agreement and Plan of Merger dated as of February 6, 2000 among
Pfizer Inc., Seminole Acquisition Sub Corp. and Warner-Lambert
Company (Incorporated by reference to Warner-Lambert's Current
Report on Form 8-K filed on February 18, 2000 (File No. 1-3608)).
(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 (Incorporated
by reference to Warner-Lambert's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1998 (File No. 1-3608)).
(b) By-Laws of Warner-Lambert Company, as amended to April 1, 1999
(Incorporated by reference to Warner-Lambert's Form 10-K/A for
the fiscal year ended December 31, 1998 (File No. 1-3608)).
(4) Instruments defining the rights of security holders, including
indentures.
(a) Amended and Restated Rights Agreement, dated as of March 25, 1997,
between Warner-Lambert Company and First Chicago Trust Company of
New York, as Rights Agent (Incorporated by reference to
Warner-Lambert's Registration Statement on Form 8-A, dated
June 28, 1988, as amended by Form 8-A/A, dated July 5, 1989, by
Form 8-A/A, dated March 27, 1997, by Form 8-A12B/A, dated
November 12, 1999 and by Form 8-A12B/A, dated February 18, 2000
(File No. 1-3608)).
(b) Warner-Lambert agrees to furnish to the Commission, upon request, a
copy of each instrument with respect to issues of long-term debt of
Warner-Lambert. The principal amount of debt issues authorized
under each such instrument does not exceed 10% of the total assets
of Warner-Lambert.
64
(10) Material contracts.
(a)* Warner-Lambert Company 1989 Stock Plan, as amended to
February 6, 2000.
(b)* Warner-Lambert Company 1992 Stock Plan, as amended to
February 6, 2000.
(c)* Warner-Lambert Company 1996 Stock Plan, as amended to
February 6, 2000.
(d)* Warner-Lambert Company Incentive Compensation Plan, as
amended to February 6, 2000.
(e)* Warner-Lambert Company Supplemental Pension Income Plan, as
amended to February 6, 2000.
(f)* Group Plan Participation by Non-employee Directors
(Incorporated by reference to Warner-Lambert's Form 10-K for
the fiscal year ended December 31, 1991 (File No. 1-3608)).
(g)* Warner-Lambert Company Directors' Retirement Plan, as
amended to June 1, 1995 (Incorporated by reference to
Warner-Lambert's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995 (File No. 1-3608)).
(h)* Warner-Lambert Excess Savings Plan, formerly Warner-Lambert
Supplemental Savings Plan, as amended to February 6, 2000.
(i)* Warner-Lambert Company Executive Severance Plan, as amended
to October 1, 1997 (Incorporated by reference to
Warner-Lambert's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999 (File No. 1-3608)).
(j)* Restricted Stock Plan for Directors of Warner-Lambert
Company, as amended to February 6, 2000.
(k)* Employment Agreement dated September 24, 1985 between
Warner-Lambert Company and Melvin R. Goodes, Chairman of the
Board and Chief Executive Officer, as amended to August 1,
1991 (Incorporated by reference to Warner-Lambert's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1991 (File No. 1-3608)).
(l)* Employment Agreement effective as of August 1, 1991 between
Warner-Lambert Company and Lodewijk J. R. de Vink, Chairman
of the Board, President and Chief Executive Officer, as
amended to May 1, 1999 (Incorporated by reference to
Warner-Lambert's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999 (File No. 1-3608)).
(m)* Consulting Agreement effective May 1, 1999 between
Warner-Lambert Company and Melvin R. Goodes (Incorporated by
reference to Warner-Lambert's Quarterly Report on Form 10-Q
for the Quarter ended March 31, 1999 (File No. 1-3608)).
(12) Computation of Ratio of Earnings to Fixed Charges.
(21) Subsidiaries of the registrant.
(23) Consent of Independent Accountants.
(27) Financial Data Schedule (EDGAR filing only).
(99) Cautionary Statements Relating to 'Safe Harbor' Provisions of the
Private Securities Litigation Reform Act of 1995.
- ---------
* Management contract or compensatory plan or arrangement required to be filed
as an exhibit to this Form 10-K pursuant to Item 14(c).
(b) REPORTS ON FORM 8-K
(1) A Current Report on Form 8-K was filed with the Securities and Exchange
Commission on November 8, 1999 in connection with the Company entering into
an Agreement and Plan of Merger (the 'Merger Agreement') with American Home
Products Corporation, a Delaware corporation ('AHP') and Wolverine Sub Corp.
65
(2) A Current Report on Form 8-K was filed with the Securities and Exchange
Commission on November 9, 1999 in connection with the joint Warner-Lambert
and AHP press release and the Joint Analyst Presentation by AHP
and Warner-Lambert.
(3) A Current Report on Form 8-K was filed with the Securities and Exchange
Commission on November 12, 1999 in connection with the Amendment to the
Rights Agreement dated as of November 3, 1999 entered into between
Warner-Lambert and First Chicago Trust Company (the 'Rights Agent') amending
the Amended and Restated Rights Agreement, dated as of March 25, 1997,
between Warner-Lambert and the Rights Agent.
(4) A Current Report on Form 8-K was filed with the Securities and Exchange
Commission on November 16, 1999 in connection with the release of the terms
of the agreements related to the LIPITOR arrangement between the Company and
Pfizer pursuant to an understanding between Warner-Lambert and Pfizer
reached on November 15, 1999.
(5) A Current Report on Form 8-K was filed with the Securities and Exchange
Commission on November 22, 1999 in connection with the visual portion of
the Joint Analyst Presentation of the Company and AHP.
(6) A Current Report on Form 8-K was filed with the Securities and Exchange
Commission on November 30, 1999 in connection with an answer and
counterclaim filed by the Company in the Delaware Court of Chancery in
response to a complaint filed by Pfizer on November 23, 1999.
(7) A Current Report on Form 8-K was filed with the Securities and Exchange
Commission on December 2, 1999 in connection with a letter the board of
directors of Warner-Lambert sent to the shareholders of Warner-Lambert on
December 2, 1999 relating to the proposed merger of the Company and AHP.
(8) A Current Report on Form 8-K was filed with the Securities and Exchange
Commission on December 20, 1999 in connection with the filing of Restated
Financial Statements including the financial results of Agouron
Pharmaceuticals Inc.
Warner-Lambert will furnish to any holder of its securities, upon request
and at a reasonable cost, copies of the Exhibits listed in Item 14.
TRANSFER AGENT, REGISTRAR AND DIVIDEND PURCHASING AGENT
First Chicago Trust Company, a division of EquiServe, P.O. Box 2500, Jersey
City, NJ 07303-2500; 1-800-446-2617; E-mail: equiserve@equiserve.com; TDD:
201-222-4955.
66
WARNER-LAMBERT COMPANY AND CONSOLIDATED SUBSIDIARIES
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of
WARNER-LAMBERT COMPANY
Our audits of the consolidated financial statements referred to in our
report dated January 24, 2000, except for Note 6, as to which the date is
February 7, 2000, appearing on page 28 of this Form 10-K, also included an audit
of the Financial Statement Schedule listed in Item 14(a)2 of this Form 10-K. In
our opinion, this Financial Statement Schedule presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements.
PRICEWATERHOUSECOOPERS LLP
400 Campus Drive
Florham Park, New Jersey
January 24, 2000
67
SCHEDULE II
WARNER-LAMBERT COMPANY AND CONSOLIDATED SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
DESCRIPTION OF YEAR EXPENSES DEDUCTIONS OF YEAR
----------- ------- -------- ---------- -------
(DOLLARS IN MILLIONS)
Year ended December 31, 1999:
Allowance for doubtful accounts.................. $ 30.6 $ 15.3 $ 6.5 $ 39.4
Allowance for discounts and customer claims...... 112.1 380.9 347.8 145.2
Allowance for deferred tax assets................ 34.4 24.4 13.7 45.1
------ ------ ------ ------
$177.1 $420.6 $368.0 $229.7
------ ------ ------ ------
------ ------ ------ ------
Year ended December 31, 1998:
Allowance for doubtful accounts.................. $ 34.8 $ 11.8 $ 16.0 $ 30.6
Allowance for discounts and customer claims...... 60.7 273.4 222.0 112.1
Allowance for deferred tax assets................ 28.9 14.4 8.9 34.4
------ ------ ------ ------
$124.4 $299.6 $246.9 $177.1
------ ------ ------ ------
------ ------ ------ ------
Year ended December 31, 1997:
Allowance for doubtful accounts.................. $ 36.6 $ 4.2 $ 6.0 $ 34.8
Allowance for discounts and customer claims...... 39.5 299.3 278.1 60.7
Allowance for deferred tax assets................ 50.2 5.4 26.7 28.9
------ ------ ------ ------
$126.3 $308.9 $310.8 $124.4
------ ------ ------ ------
------ ------ ------ ------
68
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) 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
Dated as of March 28, 2000 By /S/ LODEWIJK J. R. DE VINK
..............................................
Lodewijk J. R. de Vink
Chairman of the Board,
President and Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
/S/ LODEWIJK J. R. DE VINK
By ................................................
Lodewijk J. R. de Vink
Chairman of the Board, President
and Chief Executive Officer
(Principal Executive Officer)
and Director
/S/ ERNEST J. LARINI
By ................................................
Ernest J. Larini
Chief Financial Officer and
Executive Vice President Administration
(Principal Financial Officer)
March 28, 2000
/S/ JOSEPH E. LYNCH
By ................................................
Joseph E. Lynch
Vice President and Controller
(Principal Accounting Officer)
/S/ ROBERT N. BURT
By ................................................
Robert N. Burt, Director
/S/ DONALD C. CLARK
By ................................................
Donald C. Clark, Director
69
/S/ JOHN A. GEORGES
By ................................................
John A. Georges, Director
/S/ WILLIAM H. GRAY III
By ................................................
William H. Gray III, Director
/S/ WILLIAM R. HOWELL
By ................................................
William R. Howell, Director
/S/ LASALLE D. LEFFALL, JR.
By ................................................
LaSalle D. Leffall, Jr., M.D., Director March 28, 2000
/S/ GEORGE A. LORCH
By ................................................
George A. Lorch, Director
/S/ ALEX J. MANDL
By ................................................
Alex J. Mandl, Director
/S/ MICHAEL I. SOVERN
By ................................................
Michael I. Sovern, Director
70
STATEMENT OF DIFFERENCES
The registered trademark symbol shall be expressed as............... 'r'
The Greek letter Mu shall be expressed as........................... 'u'