FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended September 30, 1995
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 October 31, 1995
----- -------------------------------
Common Stock, $1 par value 135,385,836
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WARNER-LAMBERT COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
1995 1994
------------- ------------
(Millions of dollars)
ASSETS:
Cash and cash equivalents $ 255.1 $ 217.9
Short-term investments 251.4 247.2
Receivables 1,259.7 1,096.0
Inventories 715.7 636.2
Prepaid expenses and other current assets 342.7 318.0
-------- --------
Total current assets 2,824.6 2,515.3
Investments and other assets 619.3 557.6
Equity investments in affiliated companies 252.3 234.2
Property, plant and equipment 1,938.7 1,846.0
Intangible assets 400.6 379.7
-------- --------
Total assets $6,035.5 $5,532.8
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Commercial paper $ 606.3 $ 641.4
Notes payable - banks and other 616.8 283.7
Accounts payable, trade 437.9 517.7
Accrued compensation 163.7 150.6
Other current liabilities 596.8 601.8
Federal, state and foreign income taxes 187.7 158.2
-------- --------
Total current liabilities 2,609.2 2,353.4
Long-term debt 430.1 535.2
Other noncurrent liabilities 758.6 806.5
Minority interests 54.6 21.3
Shareholders' equity:
Preferred stock - none issued - -
Common stock - 160,330,268 shares issued 160.3 160.3
Capital in excess of par value 188.1 152.2
Retained earnings 3,007.9 2,654.5
Cumulative translation adjustments (208.8) (181.0)
Treasury stock, at cost: (1995 - 25,009,823
shares; 1994 - 25,734,568 shares) (964.5) (969.6)
-------- --------
Total shareholders' equity 2,183.0 1,816.4
-------- --------
Total liabilities and shareholders'
equity $6,035.5 $5,532.8
======== ========
See accompanying notes to consolidated financial statements.
<PAGE>
WARNER-LAMBERT COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1995 1994 1995 1994
---- ---- ---- ----
(Millions of dollars, except per share amounts)
NET SALES $1,775.7 $1,671.0 $5,179.9 $4,696.1
COSTS AND EXPENSES:
Cost of goods sold 622.1 569.4 1,766.0 1,557.7
Marketing 678.4 600.4 1,862.0 1,699.3
Administrative and general 118.2 115.5 339.1 315.6
Research and development 130.2 124.2 364.0 322.6
Other(income)expense, net (104.4) 4.1 (97.9) (4.2)
-------- -------- -------- --------
Total costs and expenses 1,444.5 1,413.6 4,233.2 3,891.0
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES AND
MINORITY INTERESTS 331.2 257.4 946.7 805.1
Provision for income taxes 82.0 53.5 236.2 175.7
Minority interests 35.2 34.7 94.1 73.1
-------- -------- -------- --------
NET INCOME $ 214.0 $ 169.2 $ 616.4 $ 556.3
======== ======== ======== ========
PER COMMON SHARE:
Net income $ 1.58 $ 1.26 $ 4.57 $ 4.15
======== ======== ======== ========
Cash dividends paid $ .65 $ .61 $ 1.95 $ 1.83
======== ======== ======== ========
Average number of common shares
outstanding (thousands) 135,160 134,199 134,885 133,979
See accompanying notes to consolidated financial statements.
<PAGE>
WARNER-LAMBERT COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months
Ended September 30,
------------------
1995 1994
------------------
(Millions of dollars)
OPERATING ACTIVITIES:
Net income $ 616.4 $ 556.3
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 151.4 133.8
Minority interests 94.1 73.1
Gain on sale of business (117.0) -
Deferred income taxes 59.8 34.8
Changes in assets and liabilities, net of
effects from acquisitions/dispositions
of businesses:
Receivables (166.8) (231.4)
Inventories (86.9) (137.4)
Accounts payable and
accrued liabilities (117.1) (177.5)
Other, net (55.3) (30.5)
-------- -------
Net cash provided by operating activities 378.6 221.2
-------- -------
INVESTING ACTIVITIES:
Purchases of investments (364.8) (560.6)
Proceeds from sales of investments 278.6 281.1
Capital expenditures (263.2) (223.8)
Acquisitions of businesses (34.3) (59.7)
Proceeds from sale of business 136.1 -
Other, net 19.9 16.9
-------- -------
Net cash used by investing activities (227.7) (546.1)
-------- -------
FINANCING ACTIVITIES:
Proceeds from borrowings 1,073.1 345.1
Principal payments on borrowings (885.1) (94.1)
Purchases of treasury stock (17.3) (41.2)
Cash dividends paid (263.0) (245.1)
Distributions paid to minority interests (60.8) (38.1)
Proceeds from exercise of stock options 46.2 38.2
-------- -------
Net cash used by financing activities (106.9) (35.2)
-------- -------
Effect of exchange rate changes on cash
and cash equivalents (6.8) 1.9
-------- -------
Increase (decrease) in cash and cash equivalents 37.2 (358.2)
Cash and cash equivalents at beginning of year 217.9 440.5
-------- -------
Cash and cash equivalents at end of period $ 255.1 $ 82.3
======== =======
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 1994 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: Major classes of inventories were as follows:
September 30, 1995 December 31, 1994
------------------ -----------------
(In millions)
Raw materials $118.4 $112.3
Finishing supplies 65.2 54.2
Work in process 95.0 93.2
Finished goods 437.1 376.5
------ ------
$715.7 $636.2
====== ======
NOTE E: Property, plant and equipment balances were as follows:
September 30, 1995 December 31, 1994
------------------ -----------------
(In millions)
Property, plant and equipment $ 3,342.1 $ 3,167.6
Less accumulated depreciation (1,403.4) (1,321.6)
--------- ---------
Net $ 1,938.7 $ 1,846.0
========= =========
NOTE F: Intangible asset balances were as follows:
September 30, 1995 December 31, 1994
------------------ -----------------
(In millions)
Patents, trademarks,
goodwill and other
intangibles $ 475.3 $ 442.0
Less accumulated amortization (74.7) (62.3)
------- -------
Net $ 400.6 $ 379.7
======= =======
<PAGE>
NOTE G: Included in other (income)/expense, net was interest expense
of $31.3 million and $26.0 million for the third quarters of
1995 and 1994, respectively. Interest expense for the first
nine months of 1995 and 1994 was $93.5 million and $68.2
million, respectively.
NOTE H: In the third quarter of 1995, the company sold its Pro
toothbrush business, which manufactures and markets
toothbrushes primarily in Latin America. Net proceeds were
approximately $136 million resulting in a pre-tax gain of $117
million, which is included in other (income)/expense, net. On
an after tax basis, the gain was $82 million or $.61 per
share.
NOTE I: In April 1995, Warner-Lambert acquired Adams S.A. for
approximately $34 million. Adams S.A. manufactures
confectionery products in Argentina. The excess of purchase
price over the estimated fair value of the net assets acquired
has been treated as goodwill. The acquisition did not have a
material pro forma impact on consolidated earnings.
NOTE J: In the second quarter of 1995, the long-term interest rate
swap agreements maturing in 2002 were terminated at an
immaterial cost. Variable rates on the interest rate swap
agreements maturing in 1996 were fixed at a weighted average
interest rate of 8.7 percent.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1995
- -------------------------------------------------
COMPARED WITH CORRESPONDING PERIODS IN 1994
- ------------------------------------------
REVENUES
- --------
Worldwide sales for the third quarter and first nine months of 1995
rose 6 percent to $1,776 million and 10 percent to $5,180 million,
respectively. Sales growth of approximately 3 percent for the nine-
month period was from sales of products contributed by Wellcome plc
(acquired by Glaxo plc ("Glaxo") in March 1995 and referred to as
"Glaxo Wellcome") to the international Warner Wellcome joint venture
operations that were formed in mid-1994 (described below), and from
businesses that Warner-Lambert acquired in 1994 and 1995. Unit volume
gains were 3 percent for the third quarter and 4 percent (excluding the
impact of the international Warner Wellcome joint venture operations
and the acquired businesses) for the nine-month period. Price increases
added 2 percent and 1 percent, respectively. Foreign exchange rate
changes had a favorable impact of 1 percent on the third quarter and 2
percent on the nine-month sales results.
U.S. sales fell $22 million or 3 percent to $803 million for the third
quarter, but increased $41 million or 2 percent to $2,248 for the first
nine months of 1995. International sales increased $127 million or 15
percent to $973 million for the third quarter and $443 million or 18
percent to $2,932 million for the nine-month period. At constant
exchange rates, international sales increased 13 percent and 14
percent, respectively. The devaluation of the Mexican peso in December
1994 resulted in a negative impact on the company's sales of $33
million in the third quarter and $96 million in the first nine months
of 1995. The inclusion of the Glaxo Wellcome products and the acquired
businesses' products increased international sales by approximately 5
percent for the nine-month period.
SEGMENT SALES THREE MONTHS ENDED NINE MONTHS ENDED
(Dollars in SEPTEMBER 30, SEPTEMBER 30,
Millions) --------------------------- --------------------------
Percent Percent
1995 1994 Increase/ 1995 1994 Increase/
(Decrease) (Decrease)
------- ------ -------- -------- -------- --------
Consumer Health $ 870 $ 803 8% $2,387 $2,136 12%
Care
Confectionery 348 332 5 1,015 1,003 1
Pharmaceutical 558 536 4 1,778 1,557 14
------ ------ ------ ------
Consolidated
Net Sales $1,776 $1,671 6% $5,180 $4,696 10%
====== ====== ====== ======
<PAGE>
Worldwide sales of consumer health care products of $870 million for
the third quarter and $2,387 million for the nine months of 1995 were
8 percent and 12 percent higher than the corresponding periods in 1994
primarily due to international sales growth in shaving and non-
prescription products. For the nine-month period, sales growth of $85
million or 4 percent resulted from the inclusion of Glaxo Wellcome
products, including SUDAFED and ACTIFED cold medication, NEOSPORIN
topical anti-infective and ZOVIRAX cold sore cream, contributed by
Glaxo Wellcome to those international Warner Wellcome joint venture
operations that were not in existence until mid-1994.
In the U.S., consumer health care product sales increased 2 percent to
$443 million for the third quarter and 1 percent to $1,095 million for the
nine-month period. Products with sales growth in the U.S. for both
periods were TRACER wet-shaving products and SUDAFED. Sales for both
periods benefited from the introduction in the U.S. of COOL MINT
LISTERINE toothpaste in August 1995. International sales advanced 15
percent to $427 million for the third quarter and 22 percent to $1,292
million for the nine-month period. At constant exchange rates,
international sales increased 12 percent and 18 percent, respectively.
International sales growth of 8 percent for the nine-month period
resulted from the inclusion of Glaxo Wellcome products in those Warner
Wellcome joint venture operations that were not in existence until
mid-1994. In addition, products with international sales growth in
both reporting periods were HALLS cough tablets and PROTECTOR and
SCHICK wet-shave products.
In December 1993, Warner-Lambert signed separate agreements with both
Wellcome plc ("Wellcome") and Glaxo plc (which acquired Wellcome in
1995 and is referred to as "Glaxo Wellcome") governing the
establishment of joint ventures in various countries to develop and
market a broad range of nonprescription consumer health care products.
Warner-Lambert is currently in discussions with Glaxo Wellcome
regarding these agreements as a result of the acquisition of Wellcome
by Glaxo. Since the discussions are ongoing, the company is unable to
predict their outcome.
Warner-Lambert's agreement with Wellcome, prior to its acquisition by
Glaxo, calls for both companies to contribute to the joint venture
operations current and future over-the-counter ("OTC") products.
Joint venture operations formed pursuant to a global principles
agreement began in the U.S. and Canada in January 1994, in Australia,
New Zealand and certain countries in Europe in June 1994 and in
Germany in November 1994. Warner-Lambert consolidates the financial
results of the Warner Wellcome joint venture operations.
Warner-Lambert and Glaxo, prior to its acquisition of Wellcome, formed
a joint venture in the U.S. that commenced operations in December
1993. The Glaxo Warner 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.
On September 30, 1994, Glaxo submitted a New Drug Application ("NDA")
filing to the FDA for the sale in the U.S. of an OTC product for the
treatment of episodic heartburn, which, subject to FDA approval, will
be called ZANTAC 75. On July 13, 1995, the FDA's Gastrointestinal
Drugs and Nonprescription Drugs Advisory Committees recommended to
approve ZANTAC 75 as an OTC treatment. This recommendation is one
step toward possible full FDA approval for marketing. ZANTAC 75 is
being marketed for OTC use in the U.K. as a treatment for episodic
heartburn. In addition to marketing ZANTAC 75 in the U.K., Warner
Wellcome is marketing BECONASE, an OTC allergy nasal spray from Glaxo
Wellcome. Warner-Lambert shares in the profits generated by these
brands.
Confectionery sales in the U.S. fell 8 percent to $109 million in the
third quarter and 12 percent to $317 million for the nine-month
period. The company has brought in a new management team for its
confectionery business and has increased its planned advertising and
promotion spending levels on its brands, and expects that sales growth
will gradually improve. International confectionery sales increased 12
percent to $239 million for the third quarter and 9 percent to $698
million for the nine-month period. At constant exchange rates,
international sales increased 16 percent and 12 percent, respectively.
In June 1994, Warner-Lambert acquired Saila S.p.A. and in April 1995
Warner-Lambert acquired Adams S.A., a privately held confectionery
company based in Argentina. Sales from these businesses increased
this segment's international sales by approximately 6 percent in the
third quarter and 5 percent in the nine-month period. In addition,
products with international sales growth were BUBBALOO bubble gum,
TRIDENT sugarless chewing gum and BUBBLICIOUS bubble gum.
Pharmaceutical sales in the U.S. fell 9 percent to $251 million for
the third quarter. The company believes that second quarter sales
benefited from inventory stocking in anticipation of a price increase,
which historically occurred in the third quarter. The company
subsequently raised prices on July 1. This increased inventory
stocking in the second quarter resulted in lower sales in the third
quarter. For the nine-month period U.S. pharmaceutical sales increased
9 percent to $836 million primarily due to sales growth of the add-on
epilepsy therapy NEURONTIN, the anticonvulsant DILANTIN, the
cardiovascular drug ACCUPRIL and the oral contraceptive LOESTRIN.
International pharmaceutical sales increased 17 percent to $307
million for the third quarter and 19 percent to $942 million for the
nine-month period. At constant exchange rates, international sales
increased 11 percent and 10 percent, respectively. Products with
international sales growth were ACCUPRIL, CAPSUGEL empty hard gelatin
capsules and NEURONTIN. In the first quarter of 1995 the company
launched PIMENOL, an antiarrhythmic drug, in Japan and CEFDINIR, a new
oral cephalosporin antibiotic, in the Philippines.
The company plans to file 10 NDAs in 1996, 4 of which are applications
for new chemical entities. Some of the more commercially significant
products that are in late stage development are atorvastatin, a lipid
regulator (anticipated filing July 1996), troglitazone, an insulin
enhancing medication for Type II diabetes (filing July 1996), and
CEFDINIR (filing June 1996).
COSTS AND EXPENSES
- ------------------
Cost of goods sold in the third quarter and first nine months of 1995
increased 9 percent and 13 percent, respectively. Cost of goods sold
as a percentage of net sales increased to 35.0% in the third quarter
from 34.1% in the third quarter of 1994, and to 34.1% for the first
nine months of 1995 from 33.2% for the first nine months of 1994. The
increases in the company's ratios are primarily attributable to the
confectionery segment and are due to a greater proportion of higher-
cost confectionery sales in international markets and lower domestic
confectionery volume.
Marketing expense in the third quarter and first nine months of 1995
increased 13 percent and 10 percent, respectively. The increases are
primarily due to the Warner Wellcome joint venture operations outside
the U.S. (which became operational in mid-1994) and from the
introduction of new products. As a percentage of net sales, marketing
expense in the third quarter of 1995 was 38.2% compared with 35.9% for
the same quarter last year, while for the nine-month period the ratio
was 35.9% versus 36.2% one year ago, reflecting the company's efforts
to contain expenses associated with marketing combined with strong
sales growth during the period.
Administrative and general expense in the third quarter and first nine
months of 1995 increased 2 percent and 7 percent, respectively. Higher
expenses are primarily attributable to the inclusion of the
international Warner Wellcome joint venture operations. As a
percentage of net sales, administrative and general expense in the
third quarter of 1995 was 6.7% compared with 6.9% for the same quarter
last year and at nine months the ratio of 6.5% was below the 6.7%
figure one year ago.
Research and development expense in the third quarter and first nine
months of 1995 increased 5 percent and 13 percent, respectively. The
increases are primarily due to higher spending on Phase III clinical
trials. As a percentage of net sales, research and development expense
in the third quarter of 1995 was 7.3% of net sales versus 7.4% for the
same quarter last year, and for the nine-month period the ratio was
7.0% versus 6.9% one year ago. For 1995, the company plans to invest
approximately $500 million in research and development.
Other (income) expense, net in the third quarter and first nine months
of 1995 includes a gain of $117 million from the sale of the
company's PRO toothbrush business, which is primarily in Latin
America, to The Gillette Company.
<PAGE>
RESTRUCTURING
- -------------
In 1993 and 1991, the company recorded pretax restructuring charges of
$525 million and $544 million, respectively, for the worldwide
rationalization of manufacturing and distribution facilities and for
organizational restructuring. The company had a reserve balance
related to these programs of $305 million at September 30, 1995. At
present, the company is unaware of any event that would significantly
change the plans, spending or savings relating to the restructuring
programs.
INCOME TAXES
- ------------
Three Months Nine Months
Ended Sept. 30, Ended Sept. 30,
Effective Tax Rate 1995 1994 1995 1994
- ------------------ ----- ----- ----- -----
As Reported 24.7% 20.8% 24.9% 21.8%
After Minority Interests 27.7% 24.0% 27.7% 24.0%
The effective income tax rate of 24.7 percent for the third quarter
and 24.9 percent for the first nine months of 1995 compares with an
effective tax rate of 20.8 percent for the third quarter of 1994 and
21.8 percent for the first nine months of 1994. These rates reflect
the impact of reporting minority interests (which reduced the
effective tax rate by 3.0 percentage points in the third quarter and
2.8 percentage points in the first nine months of 1995 compared with
3.2 percentage points in the third quarter of 1994 and 2.2 percentage
points for the first nine months of 1994). The 3.7 percentage point
increase in the nine-month rate after minority interests reflects the
impact of the 1995 phase-in of the U.S. tax law changes enacted in
1993. These changes resulted in the reduction of research and
development tax credits and changes in the way research and
development expenses are charged to foreign source income. In
addition, part of the rate increase is due to an expected greater
proportion of the company's taxable earnings being derived from
international businesses located in higher tax jurisdictions.
NET INCOME
- ----------
Net income in the third quarter and first nine months of 1995
increased 26 percent and 11 percent, respectively. Earnings per share
increased 25 percent and 10 percent, respectively. In the third
quarter net income included a gain of $82 million or 61 cents per
share on the sale of the PRO toothbrush business. The devaluation of
the Mexican peso in December 1994 lowered earnings per share by
approximately 2 cents per share in the third quarter and approximately
11 cents per share in the first nine months of 1995. The company
estimates that the devaluation of the Mexican peso will lower planned
earnings per share in 1995 by approximately 15 cents.
<PAGE>
OTHER
- -----
During 1995 and 1996 Warner-Lambert expects to revitalize its core
businesses through the sale of selected products, non-strategic
businesses and undervalued and nonproductive assets. The sale of the
PRO toothbrush business resulted in a higher premium than originally
expected. The company has revised its projection on total asset sales
from $200 million to $250-$300 million over 1995 and 1996. The asset
sales will allow the company to invest more heavily in its core
businesses and to spend more on its pharmaceutical Phase III
compounds, strategic market development, new product launches and
development and marketing of ZANTAC 75 for OTC use, and will have a
positive impact on the company's reported earnings per share. In
addition the company does not expect that its quarterly growth in
earnings per share will be symmetrical during either 1995 or 1996.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash and cash equivalents at September 30, 1995 amounted to $255
million, an increase of $37 million since December 31, 1994, The
company also held $484 million in short-term investments and other
nonequity securities (included in investments and other assets) that
do not qualify as cash equivalents, representing an increase of $82
million since December 31, 1994. Net debt (total debt less cash and
cash equivalents, short-term investments and other nonequity
securities) of $914 million at September 30, 1995 increased $73
million from $841 million at December 31, 1994.
Capital expenditures for 1995 are planned to be approximately $410
million. This includes approximately $80 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.
All product names appearing in capital letters are registered
trademarks of Warner-Lambert Company, its affiliates, related
companies or its licensors. ZOVIRAX, SUDAFED, ACTIFED, NEOSPORIN,
ZANTAC, ZANTAC 75 and BECONASE are registered trademarks of Glaxo
Wellcome or its affiliates.
<PAGE>
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
-----------------
During the third quarter of 1993, Warner-Lambert entered
into a consent decree with the U.S. Food and Drug Administration
(the "FDA"), covering issues related to compliance with
manufacturing and quality procedures. The consent decree is a
court-approved agreement that primarily requires Warner-Lambert 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 has returned to market most products that were
affected by the consent decree. Relevant laboratories in all U.S.
plants have been certified and all required facility certifications
have been completed. The terms of the consent decree are applicable
until at least August 1998.
Warner-Lambert and certain present and former employees
were served with subpoenas in 1993 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. A representative of the U.S. Attorney has
advised Warner-Lambert that the investigation arising out of the
subpoenas is expected to be completed in the near future. Upon
completion of the investigation, the U.S. Attorney will determine
whether to charge Warner-Lambert and/or the present and former
employees served with subpoenas in 1993 with violations of FDA laws
relating to certain reporting requirements and related issues.
Management believes criminal charges are not justified.
Nevertheless, Warner-Lambert continues to cooperate with the inquiry
and is engaged in discussions with the U.S. Attorney's office over a
possible resolution of the matter. The Company cannot predict what
the outcome will be.
In September 1993, Warner-Lambert received a Complaint
and Compliance Order from the U.S. Environmental Protection Agency
(the "EPA") seeking penalties of $268,000 for alleged violations of
the Resource Conservation and Recovery Act, Boilers and Industrial
Furnace regulations. Warner-Lambert is contesting the allegations
contained within the Complaint and has entered into negotiations
with the EPA in an attempt to resolve these issues. Although it is
too early to predict the outcome of this action, Warner-Lambert does
not at present expect this litigation to have a material adverse
effect on its financial position, liquidity, cash flow or results of
operations.
<PAGE>
Beginning in late 1993, Warner-Lambert, along with
numerous other pharmaceutical manufacturers and wholesalers, has
been sued in a number of state and federal antitrust lawsuits by
retail pharmacies seeking treble damages and injunctive relief.
These actions arise from alleged price discrimination by which the
defendant drug companies, acting alone or in concert, are alleged to
have favored institutions, managed care entities, mail order
pharmacies and other buyers with lower prices for brand name
prescription drugs than those afforded to plaintiff retailers. The
federal cases have been consolidated by the Judicial Panel on
Multidistrict Litigation and transferred to the U.S. District Court
for the Northern District of Illinois for pre-trial proceedings.
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 actions in state
courts in Alabama, Minnesota and Wisconsin brought by classes of
pharmacies, each arising from the same allegations of price
discrimination. In addition, the Company is named in class action
complaints filed in the states of Arizona, Colorado, New York and
Washington, brought by classes of consumers who purchased brand
name prescription drugs at retail pharmacies. These cases also
arise from the same allegations of price discrimination. Warner-
Lambert believes that these actions are without merit and will
defend itself vigorously. Although it is too early to predict the
outcome of 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.
In 1994, Warner-Lambert received an enforcement action
letter and draft complaint from the Department of Justice (the
"Department") alleging violation of the Clean Water Act with regard
to the operation of the wastewater treatment plant at its Vega
Baja, Puerto Rico facility. Warner-Lambert is engaged in settlement
negotiations with the Department with respect to this matter and is
continuing to work with the EPA, Region II, to maintain the
facility's compliance with limits established in a discharge permit.
In addition, Warner-Lambert voluntarily disclosed to the
Department that the Company had become aware of improprieties in the
operation of the Vega Baja wastewater treatment facility and in the
reporting of wastewater test results to the EPA. The Company
recently received an inquiry from the Environmental Crimes Section
of the Department concerning these improprieties. The Company is
cooperating fully with this inquiry and cannot predict the outcome
of this action at this time.
Warner-Lambert is also involved in various administrative
or judicial proceedings initiated by the Environmental Protection
Agency under the Comprehensive Environmental Response, Compensation
and Liability Act (also known as Superfund) or by state authorities
under similar state legislation, or by third parties. While it is
not possible to predict with certainty the outcome of such matters
or the total cost of remediation, Warner-Lambert believes it is
unlikely that their ultimate disposition will have a material
adverse effect on Warner-Lambert's financial position, liquidity,
cash flow or results of operations for any year.
Warner-Lambert Inc., a wholly-owned subsidiary of Warner-
Lambert, has been named as a defendant in class actions filed in
Puerto Rico Superior Court by current and former employees from the
Vega Baja, Carolina and Fajardo plants, as well as Kelly Services
temporary employees assigned to those plants. The lawsuits seek
monetary relief for alleged violations of local statutes and decrees
relating to meal period payments, minimum wage, overtime and
vacation pay. Warner-Lambert believes that these actions are
without merit and will defend these actions vigorously. Although it
is too early to predict the outcome of these actions, Warner-Lambert
does not at present expect these lawsuits to have a material adverse
effect on 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.
(27) Financial Data Schedule (filed
electronically).
(b) Warner-Lambert has not filed any reports on Form
8-K for the quarter ended September 30, 1995.
<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: November 10, 1995 By: Ernest J. Larini
---------------------
Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: November 10, 1995 By: Joseph E. Lynch
--------------------
Vice President and Controller
(Principal Accounting Officer)
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Exhibit Page No.
- ----------- ------- --------
(12) Computation of Ratio of Earnings
to Fixed Charges.
(27) Financial Data Schedule (filed
electronically).
<TABLE>
EXHIBIT 12
WARNER-LAMBERT COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in millions)
Years Ended December 31,
Nine Months Ended --------------------------------------------
September 30, 1995 1994 1993 1992 1991 1990
-------------------- ---- ---- ---- ---- ----
Earnings before income taxes and
accounting changes (less
<S> <C> <C> <C> <C> <C> <C>
minority interests) $ 852.6 $ 913.1 $ 318.5 $ 858.2 $ 221.5 $ 680.7
Add:
Interest on indebtedness-
excluding amount capitalized 93.5 93.7 64.2 80.8 58.2 68.7
Amortization of debt expense .3 .4 .5 .6 .4 .3
Interest factor in rent
expense (a) 19.7 26.2 25.4 23.4 22.3 20.6
------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Adjusted earnings $ 966.1 $1,033.4 $ 408.6 $ 963.0 $ 302.4 $ 770.3
======= ======== ======= ======= ======= =======
Fixed charges:
Interest on indebtedness $ 93.5 $ 93.7 $ 64.2 $ 80.8 $ 58.2 $ 68.7
Capitalized interest 8.2 9.4 8.6 8.1 9.4 5.2
Amortization of debt expense .3 .4 .5 .6 .4 .3
Interest factor in rent
expense (a) 19.7 26.2 25.4 23.4 22.3 20.6
------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Total fixed charges $ 121.7 $ 129.7 $ 98.7 $ 112.9 $ 90.3 $ 94.8
======= ======== ======= ======= ======= =======
Ratio of earnings to fixed charges 7.9 8.0 4.1(b) 8.5 3.3(c) 8.1
======= ======== ======= ======= ======= =======
(a) Represents one third of rental expense, which the company believes is a reasonable
approximation.
(b) The company's ratio of earnings to fixed charges for 1993 would have been 9.5 excluding the
restructuring 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>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1995 AND FROM THE RELATED
CONSOLIDATED STATEMENT OF INCOME FOR THE 9 MONTH PERIOD ENDED SEPTEMBER 30, 1995
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 255
<SECURITIES> 251
<RECEIVABLES> 1,279
<ALLOWANCES> (19)
<INVENTORY> 716
<CURRENT-ASSETS> 2,825
<PP&E> 3,342
<DEPRECIATION> 1,403
<TOTAL-ASSETS> 6,036
<CURRENT-LIABILITIES> 2,609
<BONDS> 430
<COMMON> 160
0
0
<OTHER-SE> 2,023
<TOTAL-LIABILITY-AND-EQUITY> 6,036
<SALES> 5,180
<TOTAL-REVENUES> 5,180
<CGS> 1,766
<TOTAL-COSTS> 1,766
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 94
<INCOME-PRETAX> 947
<INCOME-TAX> 236
<INCOME-CONTINUING> 616
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 616
<EPS-PRIMARY> 4.57
<EPS-DILUTED> 0
</TABLE>
