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, 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 July 31, 1995
----- ----------------------------
Common Stock, $1 par value 135,099,190
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WARNER-LAMBERT COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, 1995 December 31, 1994
------------- -----------------
(Millions of dollars)
ASSETS:
Cash and cash equivalents $ 277.1 $ 217.9
Short-term investments 136.3 247.2
Receivables 1,281.7 1,096.0
Inventories 749.0 636.2
Prepaid expenses and other current assets 377.3 318.0
-------- --------
Total current assets 2,821.4 2,515.3
Investments and other assets 643.1 557.6
Equity investments in affiliated companies 256.5 234.2
Property, plant and equipment 1,935.1 1,846.0
Intangible assets 412.5 379.7
-------- --------
Total assets $6,068.6 $5,532.8
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Commercial paper $ 731.8 $ 641.4
Notes payable - banks and other 585.6 283.7
Accounts payable, trade 454.3 517.7
Accrued compensation 156.7 150.6
Other current liabilities 575.8 601.8
Federal, state and foreign income taxes 217.3 158.2
-------- --------
Total current liabilities 2,721.5 2,353.4
Long-term debt 435.0 535.2
Other noncurrent liabilities 790.1 806.5
Minority interests 45.1 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 176.7 152.2
Retained earnings 2,881.7 2,654.5
Cumulative translation adjustments (170.8) (181.0)
Treasury stock, at cost: (1995 - 25,285,459
shares; 1994 - 25,734,568 shares) (971.0) (969.6)
-------- --------
Total shareholders' equity 2,076.9 1,816.4
-------- --------
Total liabilities and shareholders'
equity $6,068.6 $5,532.8
======== ========
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,
------------------ -----------------
1995 1994 1995 1994
---- ---- ---- ----
(Millions of dollars, except per share amounts)
NET SALES $1,799.6 $1,552.2 $3,404.2 $3,025.1
COSTS AND EXPENSES:
Cost of goods sold 611.6 509.3 1,143.9 988.3
Marketing 644.5 575.1 1,183.6 1,098.9
Administrative and general 117.9 96.7 220.9 200.1
Research and development 119.5 100.5 233.8 198.4
Other(income)expense, net (.5) (3.5) 6.5 (8.3)
-------- -------- -------- --------
Total costs and expenses 1,493.0 1,278.1 2,788.7 2,477.4
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES AND
MINORITY INTERESTS 306.6 274.1 615.5 547.7
Provision for income taxes 77.0 58.8 154.2 122.2
Minority interests 28.6 18.6 58.9 38.4
-------- -------- -------- --------
NET INCOME $ 201.0 $ 196.7 $ 402.4 $ 387.1
======== ======== ======== ========
PER COMMON SHARE:
Net income $ 1.49 $ 1.47 $ 2.99 $ 2.89
======== ======== ======== ========
Cash dividends paid $ .65 $ .61 $ 1.30 $ 1.22
======== ======== ======== ========
Average number of common shares
outstanding (thousands) 134,862 133,799 134,751 133,852
See accompanying notes to consolidated financial statements.
<PAGE>
WARNER-LAMBERT COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months
Ended June 30,
------------------
1995 1994
------------------
(Millions of dollars)
OPERATING ACTIVITIES:
Net income $ 402.4 $ 387.1
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 98.7 88.6
Minority interests 58.9 38.4
Changes in assets and liabilities, net of
effects from acquisitions/dispositions
of businesses:
Receivables (142.9) (125.4)
Inventories (99.7) (107.7)
Accounts payable and
accrued liabilities (100.5) (118.8)
Other, net (57.0) 7.9
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Net cash provided by operating activities 159.9 170.1
------- -------
INVESTING ACTIVITIES:
Purchases of investments (202.5) (284.8)
Proceeds from sales of investments 229.1 134.9
Capital expenditures (181.1) (126.5)
Acquisitions of businesses (34.3) (53.0)
Other, net 21.8 8.1
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Net cash used by investing activities (167.0) (321.3)
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FINANCING ACTIVITIES:
Proceeds from borrowings 804.6 321.5
Principal payments on borrowings (542.0) (62.6)
Purchases of treasury stock (17.2) (40.2)
Cash dividends paid (175.2) (163.3)
Distributions paid to minority interests (35.1) (20.1)
Proceeds from exercise of stock options 31.8 14.4
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Net cash provided by financing activities 66.9 49.7
------- -------
Effect of exchange rate changes on cash
and cash equivalents (.6) (3.7)
------- -------
Increase (decrease) in cash and cash equivalents 59.2 (105.2)
Cash and cash equivalents at beginning of year 217.9 440.5
------- -------
Cash and cash equivalents at end of period $ 277.1 $ 335.3
======= =======
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:
June 30, 1995 December 31, 1994
------------- -----------------
(In millions)
Raw materials $119.9 $112.3
Finishing supplies 63.3 54.2
Goods in process 104.8 93.2
Finished goods 461.0 376.5
------ ------
$749.0 $636.2
====== ======
NOTE E: Property, plant and equipment balances were as follows:
June 30, 1995 December 31, 1994
------------- -----------------
(In millions)
Property, plant and equipment $ 3,331.2 $ 3,167.6
Less accumulated depreciation (1,396.1) (1,321.6)
---------- ---------
Net $ 1,935.1 $ 1,846.0
========== =========
<PAGE>
NOTE F: Intangible asset balances were as follows:
June 30, 1995 December 31, 1994
-------------- -----------------
(In millions)
Patents, trademarks,
goodwill and other
intangibles $ 486.1 $ 442.0
Less accumulated amortization (73.6) (62.3)
------- -------
Net $ 412.5 $ 379.7
======= =======
NOTE G: 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.
NOTE H: 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 pro forma effect of the
acquisition on consolidated earnings would not have been
material.<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SECOND QUARTER AND SIX MONTHS ENDED JUNE 30, 1995
- -------------------------------------------------
COMPARED WITH CORRESPONDING PERIODS IN 1994
- ------------------------------------------
REVENUES
- --------
Worldwide sales for the second quarter and first six months of 1995 rose
16 percent to $1,800 million and 13 percent to $3,404 million,
respectively. Sales growth of approximately 4 percent for each 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 (excluding the impact of
the international Warner Wellcome joint venture operations and the
acquired businesses) were 8 percent for the second quarter and 6 percent
for the first six months and price increases were less than 1 percent for
each period. Foreign exchange rate changes had a favorable impact of 3
percent on the second quarter and 2 percent on the six-month sales
results.
U.S. sales increased $43 million or 6 percent to $767 million for the
second quarter and $63 million or 5 percent to $1,445 million for the
first six months of 1995. International sales increased $205 million or
25 percent to $1,033 million for the second quarter and $316 million or
19 percent to $1,959 million for the first six months of 1995. At
constant exchange rates, international sales increased 18 percent and 15
percent, respectively. The devaluation of the Mexican peso in December
1994 resulted in a negative impact on the company's sales of $35 million
in the second quarter and $63 million in the first six months of 1995.
The inclusion of the Glaxo Wellcome products and the acquired businesses'
products increased international sales by approximately 7 percent for
both the second quarter and six-month period.
SEGMENT SALES THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
(Dollars in --------------------------- --------------------------
Millions) Percent Percent
1995 1994 Increase/ 1995 1994 Increase/
(Decrease) (Decrease)
------- ------ -------- -------- -------- --------
Consumer Health $ 801 $ 679 18% $1,517 $1,333 14%
Care
Confectionery 362 359 1 667 671 (1)
Pharmaceutical 637 514 24 1,220 1,021 19
------- ------ ------- -------
Consolidated
Net Sales $1,800 $1,552 16% $3,404 $3,025 13%
======= ======= ====== ======
Worldwide sales of consumer health care products of $801 million for the
second quarter and $1,517 million for the first six months of 1995 were 18
percent and 14 percent higher than the corresponding periods in 1994.
Sales growth of approximately $45 million or 7 percent in the second
quarter and $85 million or 6 percent in the six-month period resulted from
the inclusion of Glaxo Wellcome products, including Sudafed and Actifed
cold medications, 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 1 percent in both
reporting periods, to $345 million for the second quarter and $652 million
for six months. Products with sales growth included Benadryl antihistamine
(benefiting from the introduction in the third quarter of 1994 of Benadryl
Dye-Free antihistamine and in March 1995 of Benadryl Chewables) and
Neosporin. International sales advanced 35 percent to $456 million for the
second quarter and 26 percent to $865 million for the six-month period. At
constant exchange rates, international sales increased 28 percent and 21
percent, respectively. International sales growth of 13 percent for the
second quarter and 12 percent for the six-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 were Halls cough tablets, Tetra pet care
products, 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. 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. A New Drug Application ("NDA") for the
conversion to OTC use of Wellcome's antiviral drug Zovirax as a genital
herpes medication was filed with the U.S. Food and Drug Administration
("FDA") in August 1993. On January 12, 1995, the FDA's Antiviral Drugs and
Nonprescription Drugs Advisory Committees met and recommended not to
approve Zovirax as an OTC treatment. Approval in the near term for Zovirax
as an OTC treatment in the U.S. appears unlikely. Zovirax cold sore cream
has been approved for OTC use and is being sold by Warner Wellcome in
several countries outside the U.S.
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 NDA filing to the FDA for the sale
in the U.S. of Zantac as an OTC product for the treatment of episodic
heartburn. On July 13, 1995, the FDA's Gastrointestinal Drugs and
Nonprescription Drugs Advisory Committees recommended to approve Zantac as
an OTC treatment. This recommendation is one step toward possible full FDA
approval for marketing. Zantac is being marketed for OTC use in the U.K.
as a treatment for episodic heartburn. In addition to marketing OTC Zantac
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 16 percent to $114 million in the
second quarter and 15 percent to $208 million for the six-month period. The
company has increased its planned advertising and promotion spending levels
on its brands and expects that sales growth will improve in the second half
of 1995. International confectionery sales increased 11 percent to $248
million for the second quarter and 8 percent to $459 million for the six-
month period. At constant exchange rates, international sales increased 12
percent and 10 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 7
percent in the second quarter and 5 percent in the six-month period. In
addition, products with international sales growth were Trident sugarless
chewing gum and Bubbaloo bubble gum.
Pharmaceutical sales increased 25 percent in the U.S. to $308 million for
the second quarter and 20 percent to $585 million for the six-month period
primarily due to sales growth of the cardiovascular drug Accupril, the
anticonvulsant Dilantin, the add-on epilepsy therapy Neurontin (launched
during the first quarter of 1994) and Cognex, the first effective treatment
for Alzheimer's disease. The company believes that sales benefited from
inventory stocking in the second quarter in anticipation of a price
increase, which has historically occurred in the third quarter. The company
expects that pharmaceutical sales growth in the second half of 1995 will
not be as strong as the first half of the year. International
pharmaceutical sales increased 23 percent to $329 million for the second
quarter and 19 percent to $635 million for the six-month period. At
constant exchange rates, international sales increased 12 percent and 10
percent, respectively. Products with international sales growth were
Accupril, Capsugel empty hard gelatin capsules and the analgesic Ponstan.
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. Cefdinir is in advanced phase III trials
in the U.S.
On June 20, 1995, Warner-Lambert agreed to sublicense its rights to
manufacture and market fedotozine in the U.S. to Glaxo Wellcome.
Fedotozine is a chemical entity that is being developed for the treatment
of conditions involving hypersensitivity of the gastrointestinal tract.
Fedotozine was discovered and developed by Jouveinal S.A., a French
pharmaceutical company. In 1993 Warner-Lambert purchased a 34% equity
interest in Jouveinal and entered into a license option agreement, granting
Warner-Lambert the right of first refusal to license future Jouveinal
products outside of France, Canada and French-speaking Africa. Jouveinal
filed for regulatory approval for fedotozine in France and is currently
developing fedotozine for marketing in Canada. Filings in most other
European countries are expected to be made later this year. Warner-Lambert
will market fedotozine in European countries other than France, either
exclusively or with co-marketers, and in Southeast Asia exclusively.
Warner-Lambert continues to make progress in resolving the issues related
to the consent decree that the company entered into with the FDA in 1993.
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. Most of those pharmaceutical products which the
company intends to continue manufacturing and/or marketing have returned to
full manufacture and distribution, and laboratories in all U.S.
pharmaceutical plants have received certification. The company received FDA
certification in February 1995 for the pharmaceutical product manufacturing
facility in Vega Baja, Puerto Rico, in June 1995 for the pharmaceutical
product manufacturing facility in Fajardo, Puerto Rico, and in July 1995 for
the consumer product manufacturing facility in Vega Baja. No further facility
certifications are required by the consent decree.
COSTS AND EXPENSES
- ------------------
Cost of goods sold in the second quarter of 1995 increased 20 percent to
$612 million compared with $509 million for the same period last year. For
the six-month period, cost of goods sold of $1,144 million was 16 percent
higher than $988 million in the first six months of 1994. Cost of goods
sold as a percentage of net sales increased to 34.0% in the second quarter
from 32.8% in the second quarter of 1994, and to 33.6% for the first six
months of 1995 from 32.7% for the first six months of 1994. The increases
in the company's ratios are attributable to higher cost of goods sold
percentages in the consumer health care segment, and to a lesser extent,
the confectionery segment. The increases in the consumer health care
segment's ratios are from a less favorable product mix and the inclusion of
those international Warner Wellcome joint venture operations that were not
in existence until mid-1994, (these operations have a higher cost of goods
sold ratio than the consumer health care segment). Higher cost of goods
sold percentages in the confectionery segment are primarily due to a
greater proportion of confectionery sales being generated in countries that
have a higher cost of goods sold ratio.
Marketing expense rose 12 percent to $644 million in the second quarter
compared with $575 million for the second quarter last year, and rose 8
percent to $1,184 million for the first six months versus $1,099 million
for the same period one year ago. The increases in marketing expense for
both periods 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 second quarter of 1995 was 35.8% compared with 37.0% for the
same quarter last year, and for the six-month period the ratio was 34.8%
versus 36.3% one year ago, reflecting the company's efforts to contain
expenses associated with marketing combined with the strong sales growth
during these periods.
Administrative and general expense was $118 million for the second quarter
and $221 million for the first six months of 1995, increasing 22 percent
and 10 percent, respectively, from year-ago levels. 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 second quarter of 1995 was 6.6%
compared with 6.2% for the same quarter last year, but the ratio at six
months of 6.5% was below the ratio of 6.6% one year ago.
Research and development expense rose 19 percent to $120 million for the
second quarter, compared with $101 million for the same period last year.
For the six-month period, research and development expense was $234
million, 18 percent higher than the $198 million that was spent in the same
period in 1994. 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 second quarter of 1995 was 6.6% of net sales
versus 6.5% for the same quarter last year, and for the six-month period
the ratio was 6.9% versus 6.6% one year ago. For 1995, the company plans
to invest approximately $500 million in research and development.
Other (income) expense, net was $(1) million in the second quarter of 1995,
$3 million lower than the second quarter of 1994. For the first six months
of 1995 other (income) expense, net was $7 million, increasing $15 million
from the first six months of 1994. The increases are primarily due to
higher interest expense (resulting from increased debt levels and an
increase in interest rates).
Minority interests increased $10 million in the second quarter and $21
million during the first six months of 1995 as a result of the
international Warner Wellcome joint venture operations (which became
operational in mid-1994).
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 reserve balances related to these programs
of $355 million and $403 million at June 30, 1995 and December 31, 1994,
respectively. 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 Six Months
Ended June 30, Ended June 30,
Effective Tax Rate 1995 1994 1995 1994
- ------------------ ----- ----- ----- -----
As Reported 25.1% 21.5% 25.1% 22.3%
After Minority Interests 27.7% 23.0% 27.7% 24.0%
The effective income tax rate of 25.1 percent for both the second quarter
and the first six months of 1995 compares with an effective tax rate of
21.5 percent for the second quarter of 1994 and 22.3 percent for the first
six months of 1994. These rates reflect the impact of reporting minority
interests (which reduced the effective tax rate by 2.6 percentage points in
the second quarter and first six months of 1995 and 1.5 percentage points
in the second quarter of 1994 and 1.7 percentage points for the first six
months of 1994). The 3.7 percentage point increase in the six-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 was $201 million or $1.49 per share in the second quarter and
$402 million or $2.99 per share for the first six months in 1995, compared
with $197 million or $1.47 per share and $387 million or $2.89 per share
for the second quarter and first six months in 1994, respectively. For the
second quarter, net income rose 2 percent and earnings per share rose 1
percent versus the same period one year ago. For the six-month period net
income increased 4 percent and earnings per share increased 3 percent from
the comparable prior-year period. The devaluation of the Mexican peso in
December 1994 lowered earnings per share by approximately 5 cents per share
in the second quarter and approximately 8 cents per share in the first six
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.
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 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 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 1995.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash and cash equivalents at June 30, 1995 amounted to $277 million, an
increase of $59 million since December 31, 1994, The company also held
$371 million in short-term investments and other nonequity securities
(included in investments and other assets) that do not qualify as cash
equivalents, representing a decrease of $30 million since December 31,
1994. Net debt (total debt less cash and cash equivalents, short-term
investments and other nonequity securities) of $1,104 million at June 30,
1995 increased $263 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.
ENVIRONMENT
- -----------
The company is 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. It is not possible to predict with certainty the outcome of
such matters or the total cost of remediation. In management's opinion,
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.
SHAREHOLDER INFORMATION
- -----------------------
In January 1995, the Board of Directors approved a 7 percent increase in
the quarterly dividend to $.65 cents per share, which was paid in the first
and second quarters of 1995.
<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, and additional information relating to
environmental matters, see Part I, Item 2, "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
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.
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. <PAGE>
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 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 bring the facility
into 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 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.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
--------
(10) Material contracts
(a) Warner-Lambert Company Directors'
Retirement Plan, as amended to June 1,
1995.
(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 June 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: August 11, 1995 By: Ernest J. Larini
----------------
Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: August 11, 1995 By: Joseph E. Lynch
---------------
Vice President and Controller
(Principal Accounting Officer)
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Exhibit Page No.
- ----------- ------- --------
(10) Material contracts
(a) Warner-Lambert Company
Directors' Retirement Plan,
as amended to June 1, 1995.
(12) Computation of Ratio of Earnings
to Fixed Charges.
(27) Financial Data Schedule (filed
electronically).
WARNER-LAMBERT COMPANY
DIRECTORS' RETIREMENT PLAN
As Amended To June 1, 1995
<PAGE>
WARNER-LAMBERT COMPANY
DIRECTORS' RETIREMENT PLAN
(Effective as of January 1, 1986)
ARTICLE I
Purpose of Plan
Section 1.1. This Plan is established to attract and
retain Directors on the Board of Directors of the Company by
providing such Directors with retirement income upon the terms
and conditions set forth in this Plan.
ARTICLE II
Definitions
Section 2.1. Whenever used herein, unless the context
otherwise indicates, the following terms shall have the
respective meaning set forth below:
Annual Retainer Fee: The annual fee paid to or accrued
by a Director for serving on the Board of Directors and
exclusive of any other payments made by the Company or any of
its subsidiaries or affiliates to the Director such as fees or
other compensation paid to or accrued by a Director for
attending meetings or serving on a committee of the Board of
Directors or for serving as a consultant to the Company.
Board Membership: The period of time during which the
Director serves on the Board of Directors, regardless of
whether occurring before or after January 1, 1986. Board
Membership shall be cumulative for periods of service on the
Board of Directors which are not consecutive.
Board of Directors: The Board of Directors of the
Company.
Company: Warner-Lambert Company or any successor to it
in ownership of substantially all of its assets, whether by
merger, consolidation or otherwise.
Company Pension: Any retirement or similar benefit
provided under a plan, program or arrangement to which the
Company or any of its subsidiaries or affiliates contributes
or has contributed, whether directly or indirectly, other than
the Plan or the Deferred Compensation Plan for Directors of
Warner-Lambert Company.
Director: Any member of the Board of Directors who is
not an officer or employee of the Company or any of its
subsidiaries or affiliates.
Participant: Any Director who meets the requirements for
participating in the Plan, as set forth in Article III hereof.
Plan: The Warner-Lambert Company Directors' Retirement
Plan, as set forth herein and as amended from time to time.
Year of Board Membership: 365 days of Board Membership;
provided, however, that in no event shall Board Membership
from the date of one annual meeting of stockholders of the
Company to the date of the next consecutive annual meeting of
such stockholders be treated as less than one Year of Board
Membership.
ARTICLE III
Participation
Section 3.1. Each Director who is serving on the Board
of Directors on January 1, 1986 shall become a Participant on
January 1, 1986.
Section 3.2. Each member of the Board of Directors who
does not become a Participant under Section 3.1 shall become a
Participant on the date he becomes a Director.
ARTICLE IV
Retirement Benefit
Section 4.1. Except as provided in Section 4.2, each
Participant who has completed five Years of Board Membership
and whose Board Membership terminates on or after attaining
age 70 shall receive an annual retirement benefit for his
lifetime, payable in accordance with Article V and equal to
his Annual Retainer Fee in effect immediately prior to his
termination of Board Membership.
Section 4.2. The retirement benefit payable under this
Plan to any Director shall be reduced, but not below zero, by
the annual value of any Company Pension to which such Director
is entitled.
ARTICLE V
Manner of Payment
Section 5.1. A Participant who is entitled to receive an
annual retirement benefit under Article IV shall receive such
benefit in single annual payments in the calendar year in
which his Board Membership terminates and in each succeeding
calendar year in which he is living on the anniversary date of
such termination. The payment to be made in the calendar year
in which his Board Membership terminates shall be made within
sixty (60) days after such termination and any payment due
with respect to a succeeding calendar year shall be made
within sixty (60) days after the anniversary date of such
termination.
<PAGE>
ARTICLE VI
Absence of Funding
Section 6.1. The sole obligation of the Company to any
Director under this Plan is a contractual obligation to make
payments in accordance with the terms and conditions set forth
in this Plan. The Company shall not be obligated to maintain
any cash or other property as a separate trust for the payment
of any Plan benefits to a Director. Any such benefits payable
shall be paid by the Company directly out of its general
assets or from a trust, if any, established by the Company in
its sole discretion for the purpose of paying benefits under
the Plan, the assets of which shall remain subject to the
claims of the general creditors of the Company in the event of
the Company's bankruptcy or insolvency, in accordance with the
provisions of any such trust.
ARTICLE VII
Administration
Section 7.1. The Plan shall be administered by the Board
of Directors. Except as provided in Section 7.3, the presence
of a quorum shall be determined in accordance with, and the
transaction of any business hereunder shall be governed by,
the By-Laws of the Company as then in effect.
Section 7.2. The Board of Directors shall have full
power to construe and interpret the Plan, to determine any and
all questions arising under the Plan, including the right to
remedy possible ambiguities, inconsistencies and omissions,
and to establish and amend rules and regulations for its
administration. All such determinations, constructions,
interpretations, rules and regulations made pursuant to this
Section 7.2 shall be conclusive and binding upon the Company
and all Directors.
Section 7.3. No Director shall participate in, or be
counted for purposes of the Plan toward the establishment of a
quorum at a meeting involving, any decision or determination
of the Board of Directors with respect to the Plan if such
decision or determination will directly affect his entitlement
to benefits under the Plan as an individual. Nothing in this
Section 7.3 shall preclude any Director from participating in,
and being counted toward the establishment of a quorum at, any
meeting involving any decision or determination of the Board
of Directors with respect to the Plan that affects all
Directors generally or a readily identifiable class of
Directors of which he is or may be a member.
Section 7.4. The Board of Directors may delegate
administrative duties to such person or persons as it may
determine.
Section 7.5. No member of the Board of Directors nor any
person to whom the Board of Directors has delegated
responsibility pursuant to Section 7.4 shall be liable for any
act or action, whether of commission or omission, taken by any
member of the Board of Directors or any person having received
responsibility pursuant to Section 7.4, or by any officer,
agent or employee or by any investment advisor or financial
institution appointed by any such person; nor, except in
circumstances involving his bad faith, for anything done or
omitted to be done by himself.
ARTICLE VIII
Death Benefits
Section 8.1. Except as provided in Section 8.3, no death
benefits shall be payable under the Plan.
Section 8.2. No benefit shall be payable in respect of
any Director whose Board Membership terminates by reason of
death.
Section 8.3. In the event that a Director entitled to
receive a benefit payment with respect to a calendar year dies
before receiving such payment, the payment shall be made
within sixty (60) days after such death to the Director's
spouse or, if the Director does not have a spouse, to the
Director's estate.
ARTICLE IX
Miscellaneous
Section 9.1. Neither the establishment of this Plan, nor
any modification thereof, nor the payment of any benefits,
shall be construed as giving to any Director or other person
any legal or equitable right against the Company, or any
officer or employee thereof, except as herein provided. All
rights created under the Plan shall be unsecured contractual
rights of the Directors against the Company. Under no
circumstances shall participation in the Plan be construed to
confer upon any Director the right to remain a member of the
Board of Directors.
Section 9.2. No benefit payable under the Plan shall,
except as otherwise specifically provided by law, be subject
in any manner to anticipation, alienation, attachment, sale,
transfer, assignment, pledge, encumbrance or charge, and any
attempt to anticipate, alienate, attach, sell, transfer,
assign, pledge, encumber or charge any such benefit shall be
void, and any such benefit shall not in any manner be liable
for or subject to the debts, contracts, liabilities,
engagements or torts of any person who shall be entitled to
such benefit, nor shall it be subject to attachment or legal
process for or against such person.
Section 9.3. If any person entitled to a benefit
hereunder shall be adjudicated a bankrupt or shall attempt to
anticipate, alienate, sell, transfer, assign, pledge, encumber
or charge such benefit, or if any attempt is made to subject
any such benefit to the debts, contracts, liabilities,
engagements or torts of any person entitled to such benefit,
then such benefit shall, in the discretion of the Board of
Directors, cease and terminate, and in that event the Board of
Directors may cause such benefit, or any part thereof, to be
held or applied for the benefit of such person, his spouse,
children or other dependents, or any of them, in such manner
and in such proportion as the Board of Directors shall
determine.
Section 9.4. If, for any reason, the Board of Directors
shall determine that it is not desirable because of the
incapacity of the person who shall be entitled to receive any
payments hereunder, to make such payments directly to such
person, the Board of Directors may apply such payment for the
benefit of such person in any way that the Board of Directors
shall deem advisable or may make any such payment to any third
person who, in the judgment of the Board of Directors, will
apply such payment for the benefit of the person entitled
thereto. In the event of such payment the Company and the
Board of Directors shall be discharged from all further
liability for such payment.
Section 9.5. This Plan shall be governed by the law of
the State of New Jersey (regardless of the law that might
otherwise govern under applicable New Jersey principles of
conflict of laws).
Section 9.6. Wherever any words are used herein in the
masculine gender they shall be construed as though they were
also used in the feminine gender in all cases where they would
so apply, and wherever any words are used herein in the
singular form they shall be construed as though they were also
used in the plural form in all cases where they would so
apply.
Section 9.7. No loan shall be made by the Company to any
person of any amount of his benefit hereunder or of any amount
the security for which is his benefit hereunder.
Section 9.8. Any benefit hereunder which is unclaimed,
including outstanding checks, may, as determined by the Board
of Directors, be forfeited.
ARTICLE X
Amendment and Termination
Section 10.1. The Board of Directors shall have the
right at any time or from time to time to modify, amend or
terminate the Plan in whole or in part; provided, however,
that no such modification, amendment or termination shall
reduce the amount of any benefits payable under the Plan on
the day thereof; and further provided, that following a Change
in Control of the Company (as defined in Section 11.2 hereof),
no modification or amendment shall be made without the consent
of 90% of the Participants in the Plan, determined as of the
date such Change in Control occurs. In no event, however,
shall the Plan be terminated solely for the purpose of
accelerating the payment of benefits hereunder.
ARTICLE XI
Effect of Certain Events
Section 11.1. Notwithstanding anything to the contrary
contained in this Plan, the provisions set forth in this
Section shall apply following a Change in Control of the
Company (as defined in Section 11.2 hereof):
(a) a Participant who completes or has completed five
Years of Board Membership shall be eligible to receive a
retirement benefit under the Plan, payable in accordance
with Article V, but commencing at the later to occur of
his termination of Board Membership or his attainment of
age 70, and
(b) as soon as practicable after a Participant has
satisfied the requirements set forth in (a) above
(whether or not such Participant has terminated his Board
Membership), or upon such Change in Control with respect
to a Participant who has completed five Years of Board
Membership at the time of such Change in Control, the
Company shall furnish to such Participant a letter which
acknowledges the right of such Participant to receive,
and the obligation of the Company to provide, benefits in
accordance with the provisions of this Plan. The Company
shall furnish a similar letter to each Participant who is
receiving a retirement benefit pursuant to Article IV
hereof. The aforementioned letters shall constitute
enforceable contracts with the Company.
Section 11.2. For purposes hereof, a "Change in Control
of the Company" shall be deemed to have occurred (i) if any
person (as such term is used in Sections 13(d) and 14(d)(2) of
the Securities Exchange Act of 1934, as amended (the "Act"))
is or becomes the beneficial owner (as defined in Rule 13d-3
under the Act), directly or indirectly, of securities of the
Company representing 20% or more of the combined voting power
of the Company's then outstanding securities, (ii) the
stockholders of the Company approve a merger, consolidation,
sale or disposition of all or substantially all of the
Company's assets or plan of liquidation, or (iii) the
composition of the Board at any time during any consecutive
twenty-four (24) month period changes such that the Continuity
Directors (as hereinafter defined) cease for any reason to
constitute at least fifty-one percent (51%) of the Board. For
purposes of the foregoing clause (iii), "Continuity Directors"
means those members of the Board who either (a) were directors
at the beginning of such consecutive twenty-four (24) month
period, or (b)(1) filled a vacancy during such twenty-four
(24) month period created by reason of (x) death, (y) a
medically determinable physical or mental impairment which
renders the director substantially unable to function as a
director or (z) retirement at the last mandatory retirement
age in effect for at least two (2) years, and (2) were
elected, nominated or voted for by at least fifty-one percent
(51%) of the current directors who were also directors at the
commencement of such twenty-four (24) month period.
ARTICLE XII
Cessation of Pension Accruals
Section 12.1. No Director who joins the Board after May
31, 1995, shall become a Participant in the Plan.
Section 12.2. Effective January 1, 1996, with respect to
Directors who have at least five years of Board membership:
(a) the present value of each Director's earned pension
benefit shall be transferred to the Director's account in the
deferred fee program under the 1992 Stock Plan, in accordance
with the election of the Director; and
(b) participation in this Plan shall cease.
Section 12.3. Effective upon the completion of five
years of Board membership with respect to Directors who are
not described in Section 12.2:
(a) the present value of each Director's earned pension
benefit (as of January 1, 1996) shall be transferred to the
Director's account in the deferred fee program under the 1992
Stock Plan, in accordance with the election of the Director;
and
(b) participation in this Plan shall cease.
WARNER-LAMBERT COMPANY
<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, 1995 1994 1993 1992 1991 1990
---------------- ---- ---- ---- ---- ----
Earnings before income taxes and
accounting changes (less
<S> <C> <C> <C> <C> <C> <C>
minority interests) $ 556.6 $ 913.1 $ 318.5 $ 858.2 $ 221.5 $ 680.7
Add:
Interest on indebtedness-
excluding amount capitalized 62.2 93.7 64.2 80.8 58.2 68.7
Amortization of debt expense .2 .4 .5 .6 .4 .3
Interest factor in rent
expense (a) 13.1 26.2 25.4 23.4 22.3 20.6
------- -------- ------- ------- ------- -------
Adjusted earnings $ 632.1 $1,033.4 $ 408.6 $ 963.0 $ 302.4 $ 770.3
======= ======== ======= ======= ======= =======
Fixed charges:
<S> <C> <C> <C> <C> <C> <C>
Interest on indebtedness $ 62.2 $ 93.7 $ 64.2 $ 80.8 $ 58.2 $ 68.7
Capitalized interest 5.1 9.4 8.6 8.1 9.4 5.2
Amortization of debt expense .2 .4 .5 .6 .4 .3
Interest factor in rent
expense (a) 13.1 26.2 25.4 23.4 22.3 20.6
------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Total fixed charges $ 80.6 $ 129.7 $ 98.7 $ 112.9 $ 90.3 $ 94.8
======= ======== ======= ======= ======= =======
Ratio of earnings to fixed charges 7.8 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 JUNE 30, 1995 AND FROM THE RELATED CONSOLIDATED
STATEMENT OF INCOME FOR THE 6 MONTH PERIOD ENDED JUNE 30, 1995 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 277
<SECURITIES> 136
<RECEIVABLES> 1302
<ALLOWANCES> (20)
<INVENTORY> 749
<CURRENT-ASSETS> 2821
<PP&E> 3331
<DEPRECIATION> 1396
<TOTAL-ASSETS> 6069
<CURRENT-LIABILITIES> 2722
<BONDS> 435
<COMMON> 160
0
0
<OTHER-SE> 1917
<TOTAL-LIABILITY-AND-EQUITY> 6069
<SALES> 3404
<TOTAL-REVENUES> 3404
<CGS> 1144
<TOTAL-COSTS> 1144
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 62
<INCOME-PRETAX> 615
<INCOME-TAX> 154
<INCOME-CONTINUING> 402
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 402
<EPS-PRIMARY> 2.99
<EPS-DILUTED> 0
</TABLE>
