FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended June 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Transition Period From To
------- -------
Commission File Number 1-3608
WARNER-LAMBERT COMPANY
(Exact name of registrant as specified in its charter)
Delaware 22-1598912
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
201 Tabor Road, Morris Plains, New Jersey
(Address of principal executive offices)
07950
(Zip Code)
Registrant's telephone number, including area code: (201) 540-2000
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
--- ---
Indicate the number of shares outstanding of each of
the issuer's classes of Common Stock, as of the latest
practicable date.
CLASS Outstanding at July 31, 1994
----- ---------------------------
Common Stock, $1 par value 133,965,940
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WARNER-LAMBERT COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, 1994 December 31, 1993
------------- -----------------
(Millions of dollars)
ASSETS:
Cash and cash equivalents $ 335.3 $ 440.5
Receivables 1,003.8 890.8
Inventories 590.3 476.5
Prepaid expenses and other current assets 509.4 410.9
-------- --------
Total current assets 2,438.8 2,218.7
Investments and other assets 545.7 487.4
Equity investments in affiliated companies 221.9 208.6
Property, plant and equipment 1,650.3 1,599.3
Intangible assets 380.3 314.1
-------- --------
Total assets $5,237.0 $4,828.1
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Commercial paper $ 704.4 $ 507.5
Notes payable - banks and other 213.4 145.3
Accounts payable, trade 396.1 427.1
Accrued compensation 121.0 116.9
Other current liabilities 621.3 638.8
Federal, state and foreign income taxes 180.0 180.3
-------- --------
Total current liabilities 2,236.2 2,015.9
Long-term debt 548.0 546.2
Other noncurrent liabilities 814.0 867.8
-------- --------
Total liabilities 3,598.2 3,429.9
-------- --------
Minority interests 26.8 8.6
Shareholders' equity:
Preferred stock - none issued - -
Common stock - 160,330,268 shares issued 160.3 160.3
Capital in excess of par value 131.4 120.1
Retained earnings 2,511.5 2,287.7
Cumulative translation adjustments (207.6) (224.8)
Treasury stock, at cost (1994 - 26,362,343
shares; 1993 - 26,190,513 shares) (983.6) (953.7)
-------- --------
Total shareholders' equity 1,612.0 1,389.6
-------- --------
Total liabilities and shareholders'
equity $5,237.0 $4,828.1
======== ========
See accompanying notes to consolidated financial statements.
<PAGE>
WARNER-LAMBERT COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1994 1993 1994 1993
---- ---- ---- ----
(Millions of dollars, except per share amounts)
NET SALES $1,552.2 $1,449.7 $3,025.1 $2,781.4
COSTS AND EXPENSES:
Cost of goods sold 509.3 471.9 988.3 882.8
Marketing 575.1 545.5 1,098.9 1,039.8
Administrative and general 96.7 84.8 200.1 178.2
Research and development 100.5 107.7 198.4 218.4
Other(income)expense, net (3.5) (10.3) (8.3) (32.8)
Restructuring - - - 70.0
-------- -------- -------- --------
Total costs and expenses 1,278.1 1,199.6 2,477.4 2,356.4
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES,
MINORITY INTERESTS AND
ACCOUNTING CHANGES 274.1 250.1 547.7 425.0
Provision for income taxes 58.8 60.2 122.2 98.9
Minority interests 18.6 - 38.4 .1
-------- -------- -------- --------
INCOME BEFORE ACCOUNTING CHANGES 196.7 189.9 387.1 326.0
Accounting changes (net of tax) - - - 46.0
-------- -------- -------- --------
NET INCOME $ 196.7 $ 189.9 $ 387.1 $ 372.0
======== ======== ======== ========
PER COMMON SHARE:
Income before accounting
changes $ 1.47 $ 1.40 $ 2.89 $ 2.41
Accounting changes - - - .34
-------- -------- -------- --------
Net income $ 1.47 $ 1.40 $ 2.89 $ 2.75
======== ======== ======== ========
Cash dividends paid $ .61 $ .57 $ 1.22 $ 1.14
======== ======== ======== ========
See accompanying notes to consolidated financial statements.
<PAGE>
WARNER-LAMBERT COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months
Ended June 30,
------------------
1994 1993
------------------
(Millions of dollars)
OPERATING ACTIVITIES:
Net income $ 387.1 $ 372.0
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 88.6 81.7
Accounting changes (net of tax) - (46.0)
Restructuring - 70.0
Increase in receivables (125.4) (102.1)
Increase in inventories (107.7) (104.2)
Decrease in accounts payable,
trade and other current liabilities (118.8) (66.1)
Other 26.2 (67.4)
------- -------
Net cash provided by operating activities 150.0 137.9
------- -------
INVESTING ACTIVITIES:
Purchase of investments (284.8) (119.5)
Proceeds from sale of investments 134.9 41.9
Purchase of property, plant and equipment (126.5) (132.6)
Acquisitions of businesses (53.0) (340.9)
Other 8.1 4.2
------- -------
Net cash used by investing activities (321.3) (546.9)
------- -------
FINANCING ACTIVITIES:
Proceeds from borrowings 321.5 286.0
Principal payments on borrowings (62.6) (27.9)
Purchase of treasury stock (40.2) (20.7)
Cash dividends paid (163.3) (154.3)
Proceeds from exercise of stock options 14.4 7.4
------- -------
Net cash provided by financing activities 69.8 90.5
------- -------
Effect of exchange rate changes on cash
and cash equivalents (3.7) (3.9)
------- -------
Decrease in cash and cash equivalents (105.2) (322.4)
Cash and cash equivalents at beginning of year 440.5 718.4
------- -------
Cash and cash equivalents at end of period $ 335.3 $ 396.0
======= =======
See accompanying notes to consolidated financial statements.
<PAGE>
WARNER-LAMBERT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A: The interim financial statements presented herein should be
read in conjunction with Warner-Lambert Company's 1993 Annual
Report.
NOTE B: The results of operations for the interim periods are not
necessarily indicative of the results for the full year.
NOTE C: In the opinion of management, all adjustments considered
necessary for a fair presentation of the results for the
interim periods have been included in the consolidated
financial statements.
NOTE D: Net income per share for the three and six months ended June
30, 1994 and June 30, 1993 has been computed based on the
average number of shares of common stock outstanding during
each period. The effect on net income per share from the
assumed conversion of common stock equivalents was not
material. The average number of shares of common stock
outstanding during the three months ended June 30, 1994 and
June 30, 1993 was 133,799,000 and 135,322,000, respectively
and during the six months ended June 30, 1994 and June 30,
1993 was 133,852,000 and 135,337,000, respectively.
NOTE E: Interest payments for the six months ended June 30, 1994 and
June 30, 1993 were $34.5 million and $34.8 million,
respectively. Income tax payments for the same periods were
$89.8 million and $74.7 million, respectively.
NOTE F: Major classes of inventories were as follows:
June 30, 1994 December 31, 1993
------------- -----------------
(In millions)
Raw materials $ 95.5 $ 88.6
Finishing supplies 43.3 38.6
Goods in process 99.1 79.3
Finished goods 352.4 270.0
------ ------
$590.3 $476.5
====== ======
NOTE G: Property, plant and equipment balances were as follows:
June 30, 1994 December 31, 1993
------------- -----------------
(In millions)
Property, plant and equipment $ 2,934.6 $ 2,834.2
Less accumulated depreciation (1,284.3) (1,234.9)
--------- ---------
Net $ 1,650.3 $ 1,599.3
========= =========
<PAGE>
NOTE H: Intangible asset balances were as follows:
June 30, 1994 December 31, 1993
------------- -----------------
(In millions)
Patents, trademarks,
goodwill and other
intangibles $ 434.7 $ 361.4
Less accumulated amortization (54.4) (47.3)
------- -------
Net $ 380.3 $ 314.1
======= =======
NOTE I: Warner Wellcome Consumer Health Products:
Warner-Lambert and Wellcome plc formed an alliance to develop
and market non-prescription consumer health care products.
The U.S. and Canadian joint ventures became operational in the
first quarter of 1994. Joint ventures in Australia, New
Zealand and certain countries in Europe became operational in
June; their results will be reflected in the company's third
quarter 1994. Warner-Lambert has voting control of the joint
ventures and has consolidated the financial results.
Wellcome's share of the operating results of the joint
ventures has been reflected as minority interest. Warner-
Lambert's consolidated net sales included products contributed
by Wellcome of approximately $112 million for the six months
ended June 30, 1994. The alliance did not have a significant
impact on the results of operations.
NOTE J: The company adopted the provisions of SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity
Securities," effective January 1, 1994. The adoption of the
statement had no impact on the company's earnings. At January
1, 1994, the company's portfolio of Held-to-Maturity
securities had immaterial unrealized holding gains and no
unrealized holding losses. Securities categorized as
Available-For-Sale are immaterial.
NOTE K: In June 1994, Warner-Lambert acquired Saila S.p.A., a
privately held confectionery company based in Italy. The
total purchase price of approximately $66 million will be paid
in three installments.
Reported results of operations for 1994 and 1993 would not
have differed significantly had the above acquisition taken
place at the beginning of 1993. The above acquisition has
been accounted for by the purchase method of accounting. The
results of operations will be included in the third quarter
1994 consolidated financial statements. The excess of the
purchase price over the estimated fair value of the net assets
acquired has been treated as goodwill and will be amortized
over 40 years.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SECOND QUARTER AND SIX MONTHS ENDED JUNE 30, 1994
- - -------------------------------------------------
COMPARED WITH CORRESPONDING PERIOD IN 1993
- - ------------------------------------------
REVENUES
- - --------
Worldwide sales for the second quarter and six-month period rose 7
percent to $1,552 million and 9 percent to $3,025 million, respectively.
Sales growth of approximately 5 percent for the second quarter and 6
percent for the six-month period was from businesses that Warner-Lambert
acquired in 1993 and products contributed by Wellcome plc to the Warner
Wellcome joint ventures (discussed below), partly offset by the absence
of the chocolate/caramel business (which was sold in October 1993). Unit
volume gains were 9 percent for each period and price increases added 1
percent to the six-month period. Foreign exchange rate changes had an
unfavorable impact of 2 percent on the second quarter and 1 percent on
the six-month sales results. U.S. sales increased $55 million or 8
percent to $724 million for the second quarter and $63 million or 5
percent to $1,382 million for the six-month period. International sales
increased $48 million or 6 percent to $828 million for the second quarter
and $181 million or 12 percent to $1,643 million for the six-month
period. At constant exchange rates, international sales increased 9
percent for the second quarter and 15 percent for the six-month period.
SEGMENT SALES THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
(Dollars in --------------------------- --------------------------
Millions) Percent Percent
1994 1993 Increase/ 1994 1993 Increase/
(Decrease) (Decrease)
-------- -------- -------- -------- -------- --------
Pharmaceutical $ 513.9 $ 531.7 (3.3)% $1,020.8 $1,046.5 (2.5)%
Consumer
Health Care 679.4 565.8 20.1 1,333.2 1,094.2 21.8
Confectionery 358.9 352.2 1.9 671.1 640.7 4.7
-------- -------- -------- --------
Consolidated
Net Sales $1,552.2 $1,449.7 7.1 $3,025.1 $2,781.4 8.8
======== ======== ======== ========
Pharmaceutical sales in the U.S. fell 9 percent to $247 million for the
second quarter and 8 percent to $489 million for the six-month period
primarily due to sales erosion of the lipid-regulator Lopid as a result of
generic competition. The company was also hampered in part, by the
inability to ship certain pharmaceutical products undergoing certification
to comply with the terms of the consent decree the company entered into
with the U.S. Food and Drug Administration (FDA) in 1993.
<PAGE>
The consent decree with the FDA is a court-approved agreement that
primarily requires the company to certify that laboratory and/or
manufacturing procedures at its pharmaceutical manufacturing facilities in
the U.S. and Puerto Rico meet current Good Manufacturing Practices
established by the FDA. Warner-Lambert continues to make progress in
resolving many of the issues related to this matter. Most of the company's
pharmaceutical products have returned to full manufacture and distribution,
and laboratories in all U.S. pharmaceutical plants have received
certification. The company is working with the FDA to complete facility
certification for the Vega Baja and Fajardo plants in Puerto Rico.
Partly offsetting the sales decline of Lopid in the U.S. was sales growth
from the cardiovascular drug Accupril (which benefited from expanded
labeling as a treatment for congestive heart failure), and sales from
Cognex for the treatment of mild-to-moderate Alzheimer's disease (which was
introduced in the third quarter of 1993) and the add-on epilepsy therapy
Neurontin (which was launched during the first quarter of 1994).
International pharmaceutical sales increased 2 percent to $267 million for
the second quarter and 4 percent to $531 million for the six-month period.
At constant exchange rates, international sales increased 6 percent for the
second quarter and 8 percent for the six-month period. Products with
international sales growth for both periods were Accupril and Capsugel
empty hard-gelatin capsules. In April 1994, the company obtained marketing
approval in France for dispensing Cognex in a hospital setting. Pending
the finalization of distribution arrangements with regulatory authorities,
shipments may begin in the fourth quarter.
Sales of the consumer health care products segment of $679 million for the
second quarter and $1,333 million for the six-month period were 20 percent
and 22 percent higher than the corresponding periods in 1993. Warner-
Lambert acquired several businesses in this reporting segment in 1993,
including the principal operations of the Wilkinson Sword wet shave
business and Willinger Bros., Inc. a privately owned manufacturer and
distributor of aquarium products. Sales from these businesses and sales of
approximately $53 million in the second quarter and $112 million in the
six-month period from products contributed by Wellcome plc to the Warner
Wellcome joint ventures increased this segment's sales by approximately 14
percent in the second quarter and 18 percent in the six-month period.
The Warner Wellcome alliance calls for both Warner-Lambert and Wellcome plc
to contribute to the joint ventures current and future over-the-counter
(OTC) products. Joint ventures became operational in the U.S. and Canada
in January 1994. In June 1994, joint ventures became operational in
Australia, New Zealand and certain countries in Europe; their results will
be reflected in the company's third quarter. After a two-year phase-in
period, Warner-Lambert will receive approximately 70 percent and Wellcome
will receive approximately 30 percent of the profits generated by Warner
Wellcome in the U.S. A New Drug Application (NDA) for the conversion to
OTC use of Wellcome's anti-viral drug Zovirax as a genital herpes
medication was filed with the FDA in August 1993. Subject to such
conversion, profits on OTC Zovirax sales in the U.S. will be shared in
favor of Wellcome. Profits on current OTC products will be shared equally
in Canada, Europe, Australia and New Zealand. Profits on certain
formulations of Zovirax Cold Sore Cream sold over-the-counter outside the
U.S. will be shared equally, subject to a royalty to Wellcome if sales
exceed a threshold amount. Other future OTC switch products will be
subject to a profit split in favor of the innovator.<PAGE>
Warner-Lambert and Glaxo Holdings plc formed a joint venture in the U.S.
that commenced operation in December 1993. The joint venture will develop,
seek approval of and market OTC versions of Glaxo prescription drugs in the
U.S., including Zantac, its pharmaceutical product for ulcer treatment.
Additional joint ventures are expected to be formed with Glaxo in other
major markets outside the U.S., excluding Japan. Warner-Lambert and Glaxo
will share development costs and profits equally, with Glaxo receiving a
royalty on OTC sales by the joint venture. In the first quarter of 1994,
Warner-Lambert began marketing Glaxo's nasal spray Beconase for OTC sale in
the U.K.
In the U.S. consumer health care sales grew 33 percent to $342 million for
the second quarter and 23 percent to $649 million for the six-month period.
Sales from businesses that Warner-Lambert acquired in 1993 and the
inclusion of Wellcome products increased sales by approximately 22 percent
and 24 percent, respectively. Major Wellcome products were Sudafed and
Actifed cold medications and Neosporin topical anti-infective. Sales
growth leaders in the U.S. for both periods were Cool Mint Listerine
antiseptic mouthwash and Benadryl antihistamine. International sales
advanced 9 percent to $337 million for the second quarter and 21 percent to
$684 million for the six-month period. At constant exchange rates,
international sales increased 12 percent and 23 percent, respectively. The
international growth reflected the inclusion of the Wilkinson products and
the Wellcome products in Canada, and the continued success of Halls cough
tablets, Tetra pet care products and Schick wet-shaving products. Sales
growth of approximately 7 percent for the second quarter and 12 percent for
the six-month period was from businesses that Warner-Lambert acquired in
1993 and the inclusion of Wellcome products.
Confectionery sales in the U.S. fell 5 percent to $135 million in the
second quarter and 5 percent to $244 million for the six-month period due
to the sale of the chocolate/caramel business in the fourth quarter of
1993. Excluding chocolate/caramel sales, sales grew 4 percent for both the
second quarter and the six-month period. Confectionery products with U.S.
sales gains included Mint*A*Burst stick gum (introduced in December 1993)
and Bubblicious chewing gum. International confectionery sales increased 6
percent to $224 million for the second quarter and 11 percent to $427
million for the six-month period. At constant exchange rates,
international sales increased 9 percent and 13 percent, respectively.
Major contributors to international sales growth were Trident sugarless
gum, Chiclets candy-coated gum and Clorets gums and mints.
On June 15, 1994 the company acquired Saila S.p.A., a privately held
confectionery company based in Italy; its results will be reflected in the
company's third quarter. The acquisition solidifies Warner-Lambert's
position as the second largest non-chocolate confectionery company in
Italy.
<PAGE>
COSTS AND EXPENSES
- - ------------------
Cost of goods sold in the second quarter of 1994 increased 8 percent to
$509 million compared with $472 million for the same period last year. For
the six-month period, cost of goods sold of $988 million was 12 percent
higher than $883 million in the first six months of 1993. Cost of goods
sold as a percentage of sales increased to 32.8 percent in the second
quarter from 32.5 percent in the second quarter of 1993, and to 32.7
percent for the first six months of 1994 from 31.7 percent for the first
six months of 1993. The increase in the ratios are due to two factors: a
higher percentage of sales being generated by the consumer health care
segment (which has a lower gross profit margin than the pharmaceutical
segment), and higher pharmaceutical segment ratios, resulting from both an
unfavorable product mix and higher costs related to regulatory compliance
issues.
Marketing expense rose 5 percent to $575 million in the second quarter
compared with $545 million for the same period last year, and rose 6
percent to $1,099 million for the six-month period versus $1,040 million
for the same period a year ago. The increases in marketing expense for
both periods were due to the inclusion of the acquired companies and the
Wellcome alliance. As a percentage of sales, marketing expense in the
second quarter of 1994 was 37.0 percent compared with 37.6 percent for the
same quarter last year, and for the six-month period the ratio was 36.3
percent versus 37.4 percent a year ago, as sales growth outpaced the
company's investment in marketing expense.
Administrative and general expense was $97 million for the second quarter
and $200 million for the first six months of 1994, increasing 14 percent
and 12 percent respectively from year-ago levels. Higher expenses were
primarily due to the inclusion of the acquired companies' results and the
Wellcome alliance, coupled with greater administrative costs and quality
assurance expenses related to regulatory compliance issues.
Research and development expense was $101 million for the second quarter, 7
percent lower than 1993, representing 6.5 percent of sales versus 7.4
percent in the same period a year ago. For the six-month period, research
and development expense was $198 million, 9 percent lower than 1993,
representing 6.6 percent of sales versus 7.9 percent last year. The
decreases reflect reduced spending on selected pharmaceutical programs.
Other (income) expense, net was $(3) million in the second quarter and $(8)
million for the first six months of 1994, decreasing $7 million and $25
million respectively from year-ago levels, primarily due to higher interest
expense (resulting from increased debt levels from the company's 1993 and
1994 acquisitions) and higher currency exchange losses.
Minority interests increased $19 million in the second quarter and $38
million during the six-month period of 1994 as a result of the Warner
Wellcome joint ventures.
Six month 1993 results include a restructuring charge of $70 million pretax
($45 million after tax or $.33 per share) relating to the disposition of
the Novon specialty polymer business.
<PAGE>
ACCOUNTING CHANGES
- - ------------------
The company adopted, effective January 1, 1993, Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," which
increased net income in 1993 by $63 million or $.47 per share; and SFAS No.
112, "Employers' Accounting for Postemployment Benefits," which decreased
net income in 1993 by $17 million or $.13 per share.
INCOME TAXES
- - ------------
The effective income tax rate was 21.5 percent for the second quarter and
22.3 percent for the first six months of 1994 compared with 24.1 percent
for the 1993 second quarter and 25.0 percent for the six-month period. The
1993 six-month rate excludes the impact of the accounting changes and the
restructuring charge. The lower rate for 1994 reflects the impact of
changes in valuation allowances, the reporting of minority interests, the
extension of the U.S. research tax credit (net of other U.S. tax law
changes) enacted as part of the Omnibus Budget Reconciliation Act of 1993
in August 1993, partly offset by reduced tax benefits from tax-advantaged
jurisdictions.
NET INCOME
- - ----------
Net income was $197 million or $1.47 per share in the second quarter and
$387 million or $2.89 per share for the six-month period in 1994, compared
with $190 million or $1.40 per share and $372 million or $2.75 per share
for the second quarter and six months in 1993, respectively. For the
second quarter, net income rose 4 percent and earnings per share rose 5
percent versus the same period a year ago. For the six-month period,
excluding the restructuring charge and accounting changes in 1993, net
income increased 4 percent and earnings per share increased 5 percent from
the comparable prior year period.
LIQUIDITY AND CAPITAL RESOURCES
- - -------------------------------
Total cash and cash equivalents amounted to $335 million, a decrease of
$105 million since December 31, 1993. The company also holds $312 million
in securities and time deposits that do not qualify as cash equivalents,
representing an additional investment of $151 million since December 31.
Cash provided by operating activities of $150 million and a net increase in
borrowings of $259 million was principally used for the payment of
dividends of $163 million, for the net investment in securities and time
deposits of $151 million, for the purchase of property, plant and equipment
of $126 million, for the acquisition of a business of $53 million and for
the repurchase of company stock of $40 million. Warner-Lambert's net debt
(total debt less total cash and cash equivalents and the securities and
time deposits) of $819 million at June 30, 1994 increased $221 million from
$598 million at December 31, 1993.
<PAGE>
Expenditures for property, plant and equipment for the year 1994 are
planned to be approximately $360 million. This includes approximately $95
million to be spent for the consolidation and upgrading of manufacturing,
distribution and research facilities, and for organizational restructuring
in connection with the company's restructuring plans announced in 1993 and
1991.
ENVIRONMENT
- - -----------
The company maintains control systems designed to assure compliance in all
material respects with applicable environmental laws and regulations.
Warner-Lambert is involved in various environmental matters, including
actions initiated by the Environmental Protection Agency or by state
authorities under similar state legislation or other parties. It is not
possible to predict with certainty the outcome of such matters or the total
cost of remediation. In the opinion of management, such proceedings will
not result in a material adverse effect on the company's financial
position, liquidity, cash flow or results of operations for any year.
OTHER
- - -----
The Clinton Administration has identified the containment of health care
costs as a major priority. The Administration's proposed health care plan,
along with a number of alternative proposals, if enacted, will likely have
an adverse impact on the pharmaceutical industry.
SHAREHOLDER INFORMATION
- - -----------------------
In January 1994, the Board of Directors approved a 7 percent increase in
the quarterly dividend to $.61 cents per share, which was paid in the first
and second quarters of 1994.
<PAGE>
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
-----------------
For a discussion of Warner-Lambert's consent decree with
the U.S. Food and Drug Administration ("FDA"), covering issues
related to compliance with current Good Manufacturing Practices
established by the FDA, see above under Part I, Item 2,
"Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Warner-Lambert and certain present and former employees
have been served with subpoenas by the U.S. Attorney's office in
Maryland, which is conducting an inquiry relating to compliance with
FDA regulations, to produce records and/or appear before a federal
grand jury in Baltimore. Warner-Lambert is cooperating with the
inquiry and cannot predict what the outcome of the investigation
will be.
In September 1993, Warner-Lambert received a Complaint
and Compliance Order from the Environmental Protection Agency
("EPA") seeking penalties of $268,000 for alleged violations of the
Resource Conservation and Recovery Act, Boilers and Industrial
Furnace regulations. Warner-Lambert is contesting the allegations
contained within the Complaint and has entered into negotiations
with the EPA in an attempt to resolve these issues. Warner-Lambert is
also currently engaged in discussions with the EPA, Region II, regarding
certain environmental issues relating to its waste water treatment
facility at its Vega Baja, Puerto Rico plant.
Warner-Lambert, along with numerous other pharmaceutical
manufacturers and wholesalers, has been sued in a number of state
and federal antitrust lawsuits by retail pharmacies seeking treble
damages and injunctive relief. These actions arise from alleged
price discrimination by which the defendant drug companies, acting
alone or in concert, are alleged to have favored institutions,
managed care entities, mail order pharmacies and other buyers with
lower prices for brand name prescription drugs than those afforded
to plaintiff retailers. The federal cases have been consolidated by
the Judicial Panel on Multidistrict Litigation and transferred to
the U.S. District Court for the Northern District of Illinois for
pre-trial proceedings. The state cases pending in California have
been coordinated in the Superior Court of California, County of San
Francisco. Warner-Lambert has also been named as a defendant in two
actions in Alabama state court, brought by a class of consumers
and a class of pharmacies, arising from the same allegations of
price discrimination. Warner-Lambert believes that these actions
are without merit and will defend itself vigorously. Although
it is too early to predict the outcome of these actions,
Warner-Lambert does not at present expect this litigation to have a
material adverse effect on its financial position, liquidity, cash
flow or results of operations.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
--------
(12) Computation of Ratio of Earnings to Fixed
Charges.
(b) Warner-Lambert has not filed any reports on Form
8-K for the quarter ended June 30, 1994. <PAGE>
S I G N A T U R E S
-------------------
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be
signed on its behalf by the undersigned thereunto duly
authorized.
WARNER-LAMBERT COMPANY
(Registrant)
Date: August 11, 1994 By: Ernest J. Larini
----------------
Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: August 11, 1994 By: William F. Gilroy
-----------------
Vice President and Controller
(Principal Accounting Officer)
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Exhibit Page No.
- - ----------- ------- --------
(12) Computation of Ratio of Earnings
to Fixed Charges.
<TABLE>
EXHIBIT 12
WARNER-LAMBERT COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in millions)
Years Ended December 31,
Six Months Ended --------------------------------------------
June 30, 1994 1993 1992 1991 1990 1989
---------------- ---- ---- ---- ---- ----
Earnings before income taxes and
<S> <C> <C> <C> <C> <C> <C>
accounting changes $ 509.3 $ 318.5 $ 858.2 $ 221.5 $ 680.7 $ 591.6
Add:
Interest on indebtedness-
<S> <C> <C> <C> <C> <C> <C>
excluding amount capitalized 42.2 64.2 80.8 58.2 68.7 55.6
Amortization of debt expense .2 .5 .6 .4 .3 1.0
Interest factor in rent
expense (a) 12.7 25.4 23.4 22.3 20.6 17.9
------- ------- ------- ------- ------- -------
Adjusted Earnings $ 564.4 $ 408.6 $ 963.0 $ 302.4 $ 770.3 $ 666.1
======= ======= ======= ======= ======= =======
Fixed Charges:
Interest on indebtedness $ 42.2 $ 64.2 $ 80.8 $ 58.2 $ 68.7 $ 55.6
Capitalized interest 4.3 8.6 8.1 9.4 5.2 6.3
Amortization of debt expense .2 .5 .6 .4 .3 1.0
Interest factor in rent
expense (a) 12.7 25.4 23.4 22.3 20.6 17.9
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Total Fixed Charges $ 59.4 $ 98.7 $ 112.9 $ 90.3 $ 94.8 $ 80.8
======= ======= ======= ======= ======= =======
Ratio of earnings to fixed charges 9.5 4.1(b) 8.5 3.3(c) 8.1 8.2
======= ======= ======= ======= ======= =======
(a) One third of rental expense (which the company believes to be a reasonable approximation of the
interest factor of such rental expense).
(b) The company's ratio of earnings to fixed charges for 1993 would have been 9.5 excluding the
restructuring charge of $525.2 million.
(c) The company's ratio of earnings to fixed charges for 1991 would have been 9.4 excluding the
restructuring charge of $544.0 million.
</TABLE>
