<PAGE>
<PAGE>
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K/A
<TABLE>
<S> <C>
(MARK ONE)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
</TABLE>
COMMISSION FILE NUMBER 1-3608
------------------------
WARNER-LAMBERT COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 201 TABOR ROAD 22-1598912
(STATE OR OTHER JURISDICTION OF MORRIS PLAINS, NEW JERSEY 07950 (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) (ADDRESS OF PRINCIPAL IDENTIFICATION NO.)
EXECUTIVE OFFICES, INCLUDING ZIP
CODE)
</TABLE>
973-540-2000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
- --------------------------------------------------------------- ------------------------------------------------
<S> <C>
Common Stock (Par Value $1 Per Share) The New York Stock Exchange, Inc.
The Chicago Stock Exchange, Inc.
The Pacific Stock Exchange, Inc.
Rights to Purchase Series A
Junior Participating Preferred Stock The New York Stock Exchange, Inc.
The Chicago Stock Exchange, Inc.
The Pacific Stock Exchange, Inc.
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x]
The aggregate market value of the voting stock held by non-affiliates of
Warner-Lambert Company as of March 31, 1999 was approximately $54.5 billion.
The number of shares outstanding of the registrant's Common Stock as of
March 31, 1999 was 822,805,305 shares, Common Stock, par value $1.00 per share.
This Amendment No. 1 to the Annual Report on Form 10-K for Warner-Lambert
Company for the fiscal year ended December 31, 1998 is being filed to amend Item
1 and Items 6, 7 and 8 (Exhibit 13).
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Warner-Lambert Company Annual Report to Shareholders for
1998 -- Part I, Part II and Part IV.
Portions of the Proxy Statement for Annual Meeting of Stockholders of
Warner-Lambert Company to be held April 27, 1999 -- Part III.
________________________________________________________________________________
<PAGE>
<PAGE>
PART I
ITEM 1. BUSINESS.
The term 'Warner-Lambert' or the 'Company' refers to Warner-Lambert
Company, a Delaware corporation organized in that state in 1920, and its
consolidated subsidiaries, unless otherwise indicated or unless the context
otherwise requires.
Reportable Segment Data and Geographic Data. Financial information by
reportable segment and geographic data for the years 1998, 1997 and 1996 is
presented in the Warner-Lambert 1998 Annual Report to Shareholders as set forth
below.
The summary of Warner-Lambert's reportable segment data, geographic data
and related financial information, set forth in Note 17 to the consolidated
financial statements on pages 44 through 45 of the Warner-Lambert 1998 Annual
Report, is incorporated herein by reference.
Except as otherwise noted below, all product names appearing in capitalized
letters in this report on Form 10-K/A are trademarks of Warner-Lambert, its
affiliates, related companies or licensors. ZANTAC, ZANTAC 75, BECONASE and
ZOVIRAX are registered trademarks of Glaxo Wellcome plc ('Glaxo Wellcome'), its
affiliates, related companies or licensors. CELESTIAL SEASONINGS and HERBAL
COMFORT are registered trademarks of Celestial Seasonings Inc. CELEXA is a
trademark of Forest Laboratories, Inc. ('Forest Laboratories'), its affiliates,
related companies or licensors. OMNICEF is a registered trademark of Fujisawa
Pharmaceutical Co., Ltd., its affiliates or related companies. VIRACEPT is a
registered trademark of Agouron Pharmaceuticals, Inc., its affiliates or related
companies.
BUSINESS SEGMENTS
A detailed description of Warner-Lambert's reportable segments is as
follows:
Pharmaceutical Products
The principal products of Warner-Lambert in its Pharmaceutical Products
segment are ethical pharmaceuticals, biologicals and capsules.
Ethical Pharmaceuticals and Biologicals: Warner-Lambert manufactures,
markets and/or sells, in the United States and/or internationally, an extensive
line of ethical pharmaceuticals and biologicals under trademarks and trade names
such as PARKE-DAVIS and GOEDECKE. Among these products are analgesics (PONSTAN,
PONSTEL, VALORON, VALORON-N, VEGANIN and VALTRAN), anthelmintics (VANQUIN),
anticonvulsants (CELONTIN, CEREBYX, DILANTIN, NEURONTIN and ZARONTIN),
anti-infectives (OMNICEF), antivaricosities (HEPATHROMBIN), cardiovascular
products (NOVADRAL, DILZEM, ACCUPRIL, ACCURETIC, ACCUZIDE, NITROSTAT and
PIRMENOL), cognition drugs for treatment of mild-to-moderate Alzheimer's disease
(COGNEX), dermatologics (BEBEN), diabetes drugs for non-insulin dependent
diabetes mellitus patients (REZULIN), prescription hemorrhoidal preparations
(ANUSOL HC), hemostatic agents (THROMBOSTAT), hormonal agents (PITRESSIN), lipid
regulators (LIPITOR and LOPID), oral contraceptives (ESTROSTEP and LOESTRIN),
oxytocics (PITOCIN), and psychotherapeutic products (CETAL RETARD, DEMETRIN and
NARDIL).
In December 1996, Warner-Lambert received U.S. Food and Drug Administration
('FDA') clearance to market the cholesterol-lowering agent LIPITOR
(Warner-Lambert's trademark for atorvastatin) and began marketing the product in
February 1997. The Company has also received marketing approval in over
fifty-five countries for the drug and has begun or will begin to market LIPITOR
in those countries. Atorvastatin is primarily marketed as LIPITOR, SORTIS and
ZARATOR in the various countries. The Company co-promotes LIPITOR in certain
countries through a ten-year marketing agreement with Pfizer Inc. ('Pfizer').
The agreement includes a provision giving Warner-Lambert the right to co-promote
one of Pfizer's products.
Warner-Lambert received FDA clearance in January 1997 to market REZULIN
(Warner-Lambert's trademark for troglitazone), a diabetes drug initially used
for non-insulin dependent
1
<PAGE>
<PAGE>
diabetes mellitus patients currently on insulin who are inadequately controlled
by insulin. The Company also received FDA clearance in 1997 to market REZULIN as
monotherapy and for use in combination with sulfonylureas for non-insulin
dependent diabetes mellitus patients. The Company markets REZULIN with Sankyo
Company, Ltd. ('Sankyo') from whom the Company licenses the product for North
America and certain other areas, including Central America, South America,
Australia, New Zealand and the Philippines.
REZULIN was first marketed in March 1997 in the United States and achieved
worldwide sales of $420 million during 1997 and $748 million during 1998. On
November 3, 1997, the Company initiated changes in the prescribing information
for REZULIN. These changes were made in response to rare reports during marketed
use of hepatic injuries, which are usually reversible, but which in extremely
rare cases resulted in liver transplants or death. The changes involved a
recommendation to monitor liver enzymes. The Company continued to review the
safety experience with REZULIN (including worldwide reports of adverse events)
following the November 3rd announcement. Based on this review, on December 1,
1997, the Company announced additional labeling changes for REZULIN which
prominently recommended that physicians monitor patients more frequently for
signs of liver dysfunction. In July 1998, the Company announced further labeling
changes for REZULIN which recommended additional liver enzyme monitoring and
limited the trial period for monotherapy. The labeling changes were made to
minimize the risk for these rare but potentially serious adverse liver events.
The Company does not believe that these labeling changes will appreciably
diminish the population of patients eligible for this important medication. The
FDA's Endocrinologic and Metabolic Drugs Advisory Committee conducted a review
of REZULIN's post-marketing safety and efficacy data and Warner-Lambert's
supplemental New Drug Application ('sNDA') for combination therapy with a
sulfonylurea and metformin at its regularly scheduled meeting on March 26,
1999. For further discussion of REZULIN and the possibility of further FDA
actions relating thereto, see 'Item 1. Business -- Regulation' below.
In December 1997, Warner-Lambert received clearance from the FDA to market
OMNICEF, a broad spectrum cephalosporin antibiotic for adult and pediatric use.
OMNICEF, which is licensed from Fujisawa Pharmaceutical Co., Ltd., is the
largest selling cephalosporin in Japan. The Company launched the product in the
United States in 1998. Warner-Lambert received its first marketing authorization
in the world for OMNICEF in the Philippines in July 1994 and began marketing the
product in that country in January 1995. The Company has also received marketing
approval and has launched the product in Indonesia and Thailand.
In July 1998, the FDA approved the marketing of CELEXA (citalopram HBr), a
selective serotonin reuptake inhibitor, for treatment of depression. Forest
Laboratories has the U.S. marketing rights to CELEXA and co-promotes it with the
Parke-Davis division of Warner-Lambert. CELEXA was developed in the United
States by Forest Laboratories under license from H. Lundbeck A/S.
In April 1998, the Company entered into a marketing agreement with
Yamanouchi Pharmaceutical Co., Ltd. ('Yamanouchi') giving the Company the
marketing rights in Europe and the Americas to a compound called YM087.
Warner-Lambert and Yamanouchi are developing YM087 for the treatment of
congestive heart failure and hyponatremia. YM087 is currently in Phase II
studies in the United States and Europe.
On December 26, 1997, the Company submitted a New Drug Application ('NDA')
to the FDA for marketing approval for suramin, a treatment for hormone
refractory prostate cancer. The NDA was reviewed and rejected by the FDA
Oncologic Drugs Advisory Committee on September 1, 1998. New information was
submitted to the FDA in November 1998 and, therefore, the NDA remains under
review. The FDA extended the review period to March 1999.
In December 1998, the Company submitted two NDAs to the FDA for marketing
approval for norethindrone acetate and ethinyl estradiol (FemHRT), an oral
single-pill combination estrogen-progestin hormone replacement therapy for
osteoporosis and perimenopausal symptoms, and clinafloxacin, an injectable new
generation fluoroquinolone antibiotic for the treatment of serious, life-
threatening infections. The Company plans to submit a total of six NDAs and
sNDAs to the FDA in 1999.
2
<PAGE>
<PAGE>
In May 1997, Warner-Lambert purchased the remaining 66% it did not already
own of Jouveinal S.A., a French pharmaceutical group. The Jouveinal group
specialized in ethical and over-the-counter ('OTC') pharmaceuticals, as well as
fine chemicals and food flavors. In order to focus on its core pharmaceutical,
consumer health care and confectionery businesses, Warner-Lambert sold the fine
chemical business and the food flavors business of the Jouveinal group in
December 1997.
Warner-Lambert's pharmaceutical products are promoted for the most part
directly to health care professionals through personal solicitation of doctors
and other professionals by sales representatives with scientific training,
direct mail contact and advertising in professional journals. They are sold
either directly or through wholesalers to government agencies, chain and
independent retail pharmacies, hospitals, clinics, long-term care facilities,
mail order houses and health maintenance organizations. Sales to managed care
entities have become an increasingly large part of Warner-Lambert's domestic
pharmaceutical sales. The Company estimates that more than 73% of its
pharmaceutical sales in the United States during 1998 were made to managed care
entities (including government agencies and hospitals). For further discussion
of Warner-Lambert's ethical products, see 'Item 1. Business -- Regulation'
below.
Capsules: Warner-Lambert is the leading worldwide producer of empty
hard-gelatin capsules used by pharmaceutical companies for their production of
encapsulated products. These capsules are used by Warner-Lambert or manufactured
by Warner-Lambert according to the specifications of each of its customers and
are sold under such trademarks as CAPSUGEL, CONI-SNAP, SNAP-FIT, VCAPS and
PRESS-FIT gelcaps.
Other: On February 27, 1998, the Company sold its facility in Rochester,
Michigan as well as certain minor prescription products for $125 million to
Parkedale Pharmaceuticals, Inc., a wholly owned subsidiary of King
Pharmaceuticals, Inc. On May 4, 1998, the Company acquired gene/Networks, a
genomics company located in Alameda, California. On January 26, 1999, the
Company announced a definitive agreement to acquire Agouron Pharmaceuticals,
Inc. ('Agouron'), a La Jolla, California based, integrated pharmaceutical
company engaged in the discovery, development and commercialization of drugs for
the treatment of cancer, viral diseases, and diseases of the eye. Agouron
currently has one commercial product, VIRACEPT, which is an HIV protease
inhibitor that has been sold since receiving marketing clearance from the FDA in
1997. As a result of the transaction, each outstanding share of Agouron common
stock will be converted into shares of the Company's common stock at an exchange
rate equal to $60.00 divided by the average of the closing prices of the
Company's common stock on the New York Stock Exchange Composite Transactions
Tape on each of the 10 consecutive trading days up to and including the second
immediately preceding trading day prior to the date of Agouron's stockholders
meeting held to vote on the merger. In no event will the exchange rate be more
than 0.9300, or less than 0.8108, of a share of the Company's common stock for
each share of Agouron common stock. The transaction will be accounted for as a
pooling of interests and is intended to qualify as a tax-free exchange. The
closing of the transaction is subject to certain conditions, including the
approval of the common stockholders of Agouron and the receipt of customary
antitrust clearance. The merger will not require approval of the Company's
shareholders. Under certain circumstances, if the merger agreement is
terminated, the Company has the option to purchase up to 19.9% of Agouron's
common stock and has the right to a termination fee of $60 million.
Consumer Health Care Products
The principal products of Warner-Lambert in its Consumer Health Care
Products segment are OTC health care products, shaving products and pet care
products.
Over-the-Counter Products: Warner-Lambert manufactures, markets and/or
sells, in the United States and/or internationally, an extensive line of
over-the-counter pharmaceuticals and health care products under trade names such
as WARNER-LAMBERT CONSUMER HEALTHCARE. Among these products are antacids
(ROLAIDS, Extra Strength ROLAIDS and GELUSIL), dermatological products
(LUBRIDERM, LUBRIDERM Body Bar, LUBRIDERM Loofa Bar, LUBRIDERM Seriously
Sensitive, LUBRIDERM Advanced Therapy, LUBRIDERM Daily UV Lotion, ROSKEN SKIN
REPAIR and CORN HUSKERS), topical antibiotic ointments and creams (NEOSPORIN and
POLYSPORIN), cold and sinus preparations (SUDAFED, SINUTAB, SINUTAB Non-Drying,
3
<PAGE>
<PAGE>
SUDAFED Non-Drying and ACTIFED), antihistamines and allergy products (ACTIFED
Allergy, SUDAFED PLUS, BENADRYL, BENADRYL-D, BENADRYL Cold, BENADRYL Chewables,
BENADRYL Allergy/Sinus/Headache and BENADRYL Dye-Free), hemorrhoidal
preparations (ANUSOL, ANUSOL HC-1 and TUCKS), cough syrups/suppressants
(BENYLIN, BENYLIN-DM, BENYLIN Decongestant, BENYLIN Expectorant and BENYLIN
Pediatric), vitamins (MYADEC), antipruritics (CALADRYL, BENADRYL spray, cream,
gel and stick and STINGOSE), rubbing alcohol (LAVACOL), hydrogen peroxide
(PROXACOL), self-diagnostic early pregnancy test kits (e.p.t.'r'), oral
antiseptics (LISTERINE, COOLMINT LISTERINE and FRESHBURST LISTERINE),
mouthwash/dental rinses (LISTERMINT), toothpaste (COOLMINT LISTERINE and
COOLMINT LISTERINE Tartar Control), effervescent denture cleaning tablets and
denture cleanser pastes (EFFERDENT, EFFERDENT PLUS and FRESH 'N BRITE), denture
adhesives (EFFERGRIP), head lice treatments (NIX) and diaper rash preparations
(BOROFAX).
In September 1998, Warner-Lambert introduced the new QUANTERRA line of
standardized herbal supplements in the United States. QUANTERRA Mental
Sharpness, with Ginkgo Biloba, and QUANTERRA Prostate, with Saw Palmetto,
represent the first two products in a new line of clinically proven herbal
supplements introduced in 1998. In January 1999, the Company introduced
QUANTERRA Emotional Balance with St. John's Wort in the United States.
In January 1999, Warner-Lambert launched LISTERINE Tartar Control mouthwash
in the United States.
In 1993, Warner-Lambert and Glaxo Wellcome formed a joint venture in the
United States to develop, seek approval of and market OTC versions of Glaxo
Wellcome prescription drugs in the United States. On June 30, 1996
Warner-Lambert and Glaxo Wellcome formed additional joint ventures to develop
and market certain Glaxo Wellcome OTC switch products in other major markets,
including the United Kingdom (the 'Glaxo Wellcome Warner-Lambert joint
venture(s)').
On December 31, 1998, Warner-Lambert Company and certain of its affiliates
and Glaxo Wellcome and certain of its affiliates entered into transactions in
various countries whereby Glaxo Wellcome transferred to Warner-Lambert rights to
OTC ZANTAC products in the United States and Canada and Warner-Lambert
principally transferred to Glaxo Wellcome its rights to OTC ZANTAC products in
all other markets and its rights to OTC ZOVIRAX and OTC BECONASE, and future
Glaxo Wellcome prescription to OTC switch products in all markets. These OTC
products had principally been marketed through the Glaxo Wellcome Warner-Lambert
joint ventures. These transactions ended the joint venture relationships between
Warner-Lambert and Glaxo Wellcome.
Over-the-counter products are promoted principally through consumer
advertising and promotional programs and some are promoted via the worldwide web
and directly to health care professionals. They are sold principally to drug
wholesalers, chain and retail pharmacies, chain and independent food stores,
mass merchandisers, physician supply houses, hospitals and most recently,
directly to consumers.
Shaving Products: Warner-Lambert manufactures and sells razors and blades,
both domestically and internationally. Shaving products are manufactured and
marketed under the SCHICK trademark and other trademarks worldwide and the
WILKINSON SWORD trademark in Europe, the United States and Canada. Permanent
(nondisposable) products are marketed under various trademarks including
PROTECTOR, PROTECTOR 3D, TRACER/FX, FX HYPER, FX PERFORMER, SILK EFFECTS, LADY
PROTECTOR, PERSONAL TOUCH, SUPER II PLUS and ULTREX PLUS. Disposable products
are marketed under a variety of trademarks including SLIM TWIN ST, EXTRA II,
PERSONAL TOUCH and ULTREX Disposable. In some countries, Warner-Lambert also
sells a shaving-related line of toiletries.
Warner-Lambert's shaving products are promoted principally through consumer
advertising and promotional programs. They are distributed directly to
wholesalers for sale to smaller retailers, drugstores, pharmacies and to retail
outlets, including pharmacies, food stores, variety stores, mass merchandisers
and other miscellaneous outlets.
Pet Care Products: Warner-Lambert manufactures and/or sells various
products on a worldwide basis for ornamental fish, reptiles and other small
pets, as well as books relating to various pets, under various trademarks
including TETRA, TETRA POND, TETRA PRESS, TETRA SECONDNATURE,
4
<PAGE>
<PAGE>
TETRA TERRAFAUNA and ZOOMEDICA. In addition, Warner-Lambert manufactures and/or
distributes aquarium products (including power filters and replacement
cartridges, air pumps, heaters, plastic plants and other accessories) that are
marketed largely under the SECONDNATURE, TETRA tec and WHISPER trademarks. These
pet care products are promoted to consumers through advertising, direct
marketing and sponsorship programs and to retailers through direct promotion,
advertising in trade publications and TETRA Club membership. They are sold to
wholesalers for sale to smaller retailers and directly to larger chain stores
and retailers, in each case for ultimate sale to consumers.
Confectionery Products
The principal products of Warner-Lambert in its Confectionery Products
segment are chewing gums, breath mints and cough tablets.
Warner-Lambert manufactures, markets and/or sells, in the United States
and/or internationally, a broad line of chewing gums, bubble gums, breath mints
and cough tablets. Among these products are chewing gums (CHICLETS, CHICLETS
TINY SIZE, CINN*A*BURST, MINT*A*BURST, CLORETS, DENTYNE, DENTYNE Sugarfree,
DENTYNE Ice, TRIDENT, TRIDENT ADVANTAGE and MAX AIR) and bubble gums
(BUBBLICIOUS, BUBBALOO and MOTITAS). The breath mint line includes CERTS,
Sugarfree CERTS, CERTS COOL MINT DROPS, CERTS Powerful Mints, CLORETS, CLORETS
Cool and CLORETS OPTIMINTS. The cough tablet line consists of HALLS, HALLS
Juniors, HALLS-PLUS, Sugar Free HALLS and HALLS Vitamin C. The Company also
sells throat drops (CELESTIAL SEASONINGS SOOTHERS) and dietary supplements
(HALLS ZINC DEFENSE and CELESTIAL SEASONINGS HERBAL COMFORT). In addition, the
Company sells several specialty candies and mints, including a line of hard
candies and mints that are sold under the SAILA trademark.
In 1998, Warner-Lambert launched TRIDENT ADVANTAGE, a plaque reducing and
teeth whitening sugarless gum with baking soda, TRIDENT Cherry, BUBBLICIOUS
LIGHTNING LEMONADE and TWISTED TORNADO in the United States, TRIDENT for Kids in
selected European markets and MAX AIR in Canada.
Warner-Lambert's confectionery products are promoted directly to the
consumer primarily through consumer advertising and in-store promotion programs.
They are sold directly to chain and independent food stores, chain and
independent pharmacies and mass merchandisers or through candy and tobacco
wholesalers and to other miscellaneous outlets which in turn sell to consumers.
INTERNATIONAL OPERATIONS
Warner-Lambert's international businesses are carried on principally
through subsidiaries and branches, which are generally staffed and managed by
citizens of the countries in which they operate. Approximately 27,000 of
Warner-Lambert's employees are located outside the United States and Puerto Rico
and only a small number of such employees are United States citizens. Certain of
the products described above are manufactured and marketed solely in the United
States and certain other products are manufactured and marketed solely in one or
more foreign countries.
Information relating to geographic operating data is contained in Note 17
on page 45 of the Warner-Lambert 1998 Annual Report, incorporated herein by
reference.
On January 1, 1996 the Company's international businesses changed their
reporting period from a fiscal-year basis ending November 30 to a calendar-year
basis ending December 31. See Note 1 to the consolidated financial statements on
page 34 of the Warner-Lambert 1998 Annual Report, incorporated herein by
reference.
In March 1997, Warner-Lambert opened confectionery plants in Guangzhou,
China and Bangalore, India. The plant in China is currently manufacturing and
selling HALLS cough tablets and CLORETS chewing gum. The plant in India is
currently manufacturing and selling HALLS cough tablets and CLORETS and CHICLETS
chewing gums.
5
<PAGE>
<PAGE>
In accordance with customary market conditions, sales made outside the
United States are generally made on longer terms of payment than would be
customary in the United States. In addition, international operations are
subject to certain risks inherent in carrying on business abroad, including
possible nationalization, expropriation, price and exchange controls and other
governmental action, as well as fluctuations in currency exchange rates. The
likelihood of such occurrences varies from country to country and is not
predictable. However, the Company believes that its geographic diversity
minimizes exposure to currency fluctuations resulting in one or more foreign
countries.
Discussion of the impact of the introduction of the Euro on the Company,
set forth under the caption 'Management's Discussion and Analysis -- Other
Matters -- Euro' on page 53 of the Warner-Lambert 1998 Annual Report, is
incorporated herein by reference.
COMPETITION
Most markets in which Warner-Lambert is engaged are highly competitive and
characterized by substantial expenditures in the advertising and promotion of
new and existing products. In addition, there is intense competition in research
and development in all of Warner-Lambert's reportable segments. No material part
of the business of any of Warner-Lambert's reportable segments is dependent upon
one or a few customers.
YEAR 2000
Discussion on how the Company is addressing year 2000 compliance, set forth
under the caption 'Management's Discussion and Analysis -- Other Matters -- Year
2000' on pages 53 through 54 of the Warner-Lambert 1998 Annual Report, is
incorporated herein by reference.
MATERIALS AND SUPPLIES
Warner-Lambert's products, in general, are produced and packaged at its own
facilities. Other than certain products manufactured by Glaxo Wellcome or
through its subcontractors, certain pet products and certain other products
(including the active ingredient for REZULIN (troglitazone), which is supplied
by Sankyo), relatively few items are manufactured in whole or in part by outside
suppliers. Raw materials and packaging supplies are purchased from a variety of
outside suppliers. Although the Company, in an effort to achieve cost savings,
is consolidating its sources of outside supply, the Company does not believe
that the loss of any one source of such materials and supplies (other than the
supply of the active ingredient for REZULIN from Sankyo) would have a material
adverse effect on the business of any of Warner-Lambert's reportable segments.
Warner-Lambert seeks to protect against fluctuating costs and to assure
availability of raw materials and packaging supplies by, among other things,
locating alternative sources of supply and, in some instances, making selective
advance purchases.
TRADEMARKS AND PATENTS
Warner-Lambert's major trademarks are registered in the United States and
other countries where its products are marketed. Warner-Lambert believes these
trademarks are important to the marketing of the related products and acts to
protect them from infringement. Warner-Lambert owns and/or licenses many patents
and has many patent applications pending in the patent offices of the United
States and other countries. A number of products and product lines have patent
protection that is significant in the marketing of such products. Additionally,
the management of Warner-Lambert considers the patents on LIPITOR and REZULIN to
be material to Warner-Lambert's business as a whole.
RESEARCH AND DEVELOPMENT
Warner-Lambert employs over 2,600 scientific and technical personnel in
research and development activities at various research facilities located in
the United States and in foreign countries. Warner-Lambert invested
approximately $877 million in research and development in 1998, compared
6
<PAGE>
<PAGE>
with $672 million in 1997 and $555 million in 1996. Approximately 87% of
Warner-Lambert's 1998 research and development spending was related to
pharmaceutical products. Warner-Lambert believes research and development
activities are essential to its business and intends to continue such
activities.
EMPLOYEES
At December 31, 1998, approximately 41,000 people were employed by
Warner-Lambert throughout the world.
REGULATION
Warner-Lambert's business is subject to varying degrees of governmental
regulation in the countries in which it manufactures and distributes products.
In the United States, the food, drug and cosmetic industries are subject to
regulation by various federal, state and local agencies with respect to product
safety and effectiveness, manufacturing and advertising and labeling.
Accordingly, from time to time, with respect to particular products under
review, such agencies may require Warner-Lambert to address safety, efficacy,
manufacturing and/or regulatory issues. Addressing such issues with regulatory
agencies can result in requirements for additional testing of products, removal
of a product or products from the market, modification of labeling (which can
have little effect on the future sales of the product or a significant effect on
such sales), the shut down of plants and/or laboratories, the modification of
operation of plants and/or laboratories (which can entail minor changes from
existing operations or significant changes which can add significant cost to
manufacturing), the seizure of finished goods and/or work in process and/or raw
materials, and similar actions involving the discovery, development, approval,
manufacture, marketing and sale of regulated products.
In 1993, a consent decree with the FDA was entered into by Warner-Lambert
and two of its principal officers, covering issues related to manufacturing and
quality practices and procedures. The decree is a court-approved agreement that
primarily requires Warner-Lambert to certify that laboratory and/or
manufacturing facilities in the United States and Puerto Rico are in compliance
with current Good Manufacturing Practices established by the FDA. Relevant
facility and laboratory certifications have been obtained in all United States
and Puerto Rico plants.
Warner-Lambert and the FDA have been discussing reports of rare adverse
liver events (including liver-related deaths) associated with REZULIN. The
Company has modified the labeling of the product to provide for the monitoring
of liver enzymes in an effort to reduce the occurrence of these rare events. The
FDA held a public meeting of the Endocrinologic and Metabolic Drugs Advisory
Committee on March 26, 1999 to discuss the REZULIN post-marketing safety data
as well as the Company's sNDA for combination therapy with metformin and a
sulfonylurea. The Committee members voted 11-1 that the benefits of REZULIN
outweigh its risks when used in combination with insulin. The Committee members
also voted 12-0 that the benefits of REZULIN outweigh its risks when used in
combination with sulfonylureas. In addition, at least half of the members voted
that the benefits of REZULIN as monotherapy do not outweigh its risks with
current labeling. Warner-Lambert believes that sales of REZULIN for monotherapy
approximate 15% of total REZULIN sales. The Advisory Committee did not vote on
whether any restrictions or limitations should be imposed on future REZULIN
sales, but some members commented that changes to the current labeling could be
made that would serve to improve the benefit to risk ratio and some members
expressed the view that REZULIN sales should be limited to patients whose
diabetes can not be controlled by other drugs. The FDA is not bound by the
findings of the Advisory Committee. While the Company remains convinced of the
favorable risk/benefit profile of the drug, it cannot predict what action, if
any, the FDA may take with respect thereto. Such action can include further
labeling changes, additional monitoring, warnings to patients or limitations in
the patient population. The FDA also has the power to order the removal of
REZULIN from the market. Any such FDA action could adversely affect the sales of
REZULIN and the profits and stock price of the Company. In addition, competitive
drugs will be reviewed at upcoming FDA advisory committee meetings in April. If
approved, such drugs could have an adverse effect on the sales of REZULIN and
the profits and stock price of the Company.
In October 1996, the United States Congress enacted the Comprehensive
Methamphetamine Control Act of 1996 (the 'Methamphetamine Control Act') which
brought certain of the Company's OTC pharmaceutical products containing
pseudoephedrine hydrochloride under the chemical control provisions of the
Controlled Substances Act through the revocation of an exemption for listed
chemicals contained in drugs lawfully marketed under the Federal Food, Drug, and
Cosmetic Act. The Methamphetamine Control Act, among other things, imposes new
regulatory restrictions on persons handling such products including
recordkeeping and reporting of certain transactions to the Drug Enforcement
Administration. However, the Methamphetamine Control Act creates a 'safe harbor'
for traditional retail outlets which sell pharmaceutical products in designated
packaging containing limited amounts of pseudoephedrine almost exclusively for
personal use to walk-in customers or in face-to-face direct sales. These
retailers will not, in general, be subject to the recordkeeping and reporting
requirements of the Methamphetamine Control Act. Warner-Lambert believes that
the
7
<PAGE>
<PAGE>
Methamphetamine Control Act will not have a material adverse effect on
Warner-Lambert's financial position, liquidity, cash flows or results of
operations for any year.
On July 30, 1997, the European Community Decision 97/534 (the 'Decision')
was adopted prohibiting the use or importation in the European Union market of
any bovine, ovine or caprine products that potentially contain specified risk
materials (including the use of these materials in food, medicinal products and
cosmetics). The Decision was enacted to address the concern over the possible
spread of transmissible spongiform encephalopathy and could have the effect of
banning ruminant materials such as gelatin, glycerin, tallow and tallow
derivatives that are pervasive in the pharmaceutical, OTC drug, food and other
industries. The Decision initially was intended to become effective on January
1, 1998, but given the potential impact the Decision may have on the
availability of necessary pharmaceutical, over-the-counter drug and food
products, its effective date was first delayed until April 1, 1998, then to
January 1, 1999, and most recently until January 1, 2000. European Community
legislators are considering further amendments to the Decision that would allow
for the continued sale and import of a vast majority of the Company's affected
products in the European Union market. If such amendments are not enacted, the
Decision could have a material adverse impact on Warner-Lambert's business.
Regulatory requirements concerning the research and development of drug
products have increased in complexity and scope in recent years. This has
resulted in a substantial increase in the time and expense required to bring new
products to market. At the same time, the FDA requirements for approval of
generic drugs (drugs containing the same active chemical as an innovator's
product) have been reduced as a result of the adoption of abbreviated new drug
approval procedures for most generic drugs. Generic versions of many of
Warner-Lambert's products in the Pharmaceutical Products segment are being
marketed in the United States, and generic substitution legislation, which
permits a pharmacist to substitute a generic version of a drug for the one
prescribed, has been enacted in some form in all states. These factors have
resulted in increased competition from generic manufacturers in the market for
ethical products.
The regulatory agencies under whose purview Warner-Lambert operates have
administrative and legal powers that may subject Warner-Lambert and its products
to seizure actions, product recalls and other civil and criminal actions. They
may also subject the industry to emergency regulatory requirements.
Warner-Lambert's policy is to comply fully with all regulatory requirements. It
is impossible to predict, however, what effect, if any, these matters or any
pending or future legislation, regulations or governmental actions may have on
the conduct of Warner-Lambert's business in the future.
In most of the foreign countries where Warner-Lambert does business, it is
subject to a regulatory and legislative climate similar to or more restrictive
than that described above. The Company cannot predict whether or what type of
measures will be encountered in the future.
ENVIRONMENT
Warner-Lambert is responsible for compliance with a number of environmental
laws and regulations. Warner-Lambert maintains control systems designed to
assure compliance in all material respects with environmental laws and
regulations, including environmental policies and maintenance of a worldwide
audit program.
Warner-Lambert is involved in various administrative or judicial
proceedings related to environmental actions initiated by the Environmental
Protection Agency (the 'EPA') under the Comprehensive Environmental Response,
Compensation and Liability Act (also known as Superfund) or by state authorities
under similar state legislation, or by third parties. For some of the sites,
other parties (defined as potentially responsible parties) may be jointly and
severally responsible, along with Warner-Lambert, to pay remediation and other
related expenses. For other sites, for example, those sites which Warner-Lambert
currently owns or previously owned, Warner-Lambert may be the sole party
responsible for clean-up costs. 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
8
<PAGE>
<PAGE>
flows or results of operations for any year. Actions with respect to
environmental programs and compliance result in operating expenses and capital
expenditures. Warner-Lambert's capital expenditures with respect to
environmental programs and compliance in 1998 were not, and in 1999 are not
expected to be, material to the business of Warner-Lambert.
For additional information relating to environmental matters, see Note 16
to the consolidated financial statements on page 44 of the Warner-Lambert 1998
Annual Report, incorporated herein by reference.
ITEM 2. PROPERTIES.
The executive offices of Warner-Lambert are located in Morris Plains, New
Jersey. In the United States, including Puerto Rico, Warner-Lambert owns
facilities aggregating approximately 6,684,000 square feet and leases facilities
having an aggregate of approximately 383,000 square feet.
Warner-Lambert's United States manufacturing plants are located in Lititz,
Pennsylvania (pharmaceuticals and consumer health care products); Rockford,
Illinois (confectionery products); Holland, Michigan (pharmaceuticals);
Greenwood, South Carolina (capsules); Milford, Connecticut (razors and blades);
and Blacksburg, Virginia (pet care products). Warner-Lambert Inc., a
wholly-owned subsidiary of Warner-Lambert operating in Puerto Rico, has plants
located in Fajardo (pharmaceuticals) and Vega Baja (consumer health care and
confectionery products). Parke-Davis Pharmaceuticals Limited, a wholly owned
subsidiary of Warner-Lambert, operating in Puerto Rico, has a plant located in
Vega Baja (pharmaceuticals and consumer health care products). For a discussion
on the sale of the manufacturing facility located in Rochester, Michigan see
'Item 1. Business Segments -- Pharmaceutical Products' above.
In the United States, Warner-Lambert currently distributes its various
products through two distribution centers located in Lititz, Pennsylvania and
Elk Grove, Illinois. Principal United States research facilities are located in
Ann Arbor, Michigan (pharmaceuticals) and Morris Plains, New Jersey
(pharmaceuticals, consumer health care and confectionery products).
Internationally, Warner-Lambert owns, leases or operates, through its
subsidiaries or branches, 62 production facilities in 30 countries. Principal
international manufacturing plants are located in Germany, Canada, Mexico,
Japan, Ireland, France, Brazil, Colombia and Australia. Principal international
research facilities are located in France, Germany, Japan, the United Kingdom
and Canada.
In order to achieve its objectives of increased efficiency and a lower cost
of goods sold, Warner-Lambert, over a number of years and at significant cost,
has consolidated many of its plants and facilities around the world. This has
often resulted in the production of pharmaceutical products, consumer health
care products and/or confectionery products at a single facility. The loss of
one or more of Warner-Lambert's own production and packaging facilities could
have a material adverse effect on certain of Warner-Lambert's reportable
segments.
Warner-Lambert's facilities are generally in good operating condition and
repair and at present are adequately utilized within reasonable limits. Leases
are not material to the business of Warner-Lambert taken as a whole.
ITEM 3. LEGAL PROCEEDINGS.
For information relating to environmental matters see 'Item 1.
Business -- Environment' above.
In late 1993, Warner-Lambert, along with numerous other pharmaceutical
manufacturers and wholesalers, was sued in a number of state and federal
antitrust lawsuits seeking damages (including trebled and statutory damages,
where applicable) and injunctive relief. These actions arose from allegations
that the defendant drug companies, acting alone or in concert, engaged in
differential pricing whereby they favored institutions, managed care entities,
mail order pharmacies and other buyers with lower prices for brand name
prescription drugs than those afforded to retail pharmacies. The federal cases,
which were brought by retailers, 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
9
<PAGE>
<PAGE>
proceedings. In June 1996, the Court approved Warner-Lambert's agreement to
settle part of the consolidated federal cases, specifically, the class action
conspiracy lawsuit, for a total of $15.1 million. This settlement also contains
certain commitments regarding Warner-Lambert's pricing of brand name
prescription drugs. Appeals of the District Court's approval of this settlement
were unsuccessful, and the commitments have become effective. Certain other
rulings of the judge presiding in this case were also appealed, and the judge
was reversed on all rulings. The cases have been remanded to the District Court,
and trial of the class action conspiracy action against the non-settling
defendant pharmaceutical manufacturers and wholesalers was concluded in
November, 1998 with a directed verdict for the defendants and dismissal of the
class plaintiffs' case. That decision has been appealed to the 7th Circuit Court
of Appeals. In April 1997, after execution of the federal class settlement
referred to above but prior to the formal effectiveness of its pricing
commitments, the same plaintiff-class members brought a new purported class
action relating to the time period subsequent to the execution of the
settlement. This new class suit sought only injunctive relief. At present,
Warner-Lambert cannot predict the outcome of this and the other remaining
federal lawsuits in which it is a defendant.
In addition, the Company has settled the vast majority of the
Robinson-Patman Act lawsuits brought by those retail pharmacies which opted out
of the class action conspiracy lawsuit. The amount of these settlements is not
material.
The state cases pending in California, brought by classes of pharmacies and
consumers, have been coordinated in the Superior Court of California, County of
San Francisco. The Company, with the majority of the other drug company
defendants, has agreed to settle the California consumer class action and this
settlement is pending court approval. The amount of this settlement is not
material. Warner-Lambert has also been named as a defendant in actions in state
courts filed in Alabama, Minnesota, Mississippi and Wisconsin brought by classes
of pharmacies, each arising from the same allegations of differential pricing.
With its co-defendants, the Company has settled the Minnesota and Wisconsin
actions. The Company's share of these settlements, which have been approved, are
not material. In addition, the Company was named in class action complaints
filed in Alabama, Arizona, Florida, Kansas, Maine, Michigan, Minnesota, New
York, North Carolina, Tennessee, Wisconsin and the District of Columbia, brought
by classes of consumers who purchased brand name prescription drugs at retail
pharmacies. With its co-defendants, the Company has agreed to settle these state
consumer class actions. The Company's share of these settlements, which have
been approved by all of the above courts except Tennessee, where approval is
pending, is not material.
The Company has also been made a party to another class action in
Tennessee, purportedly on behalf of consumers in Alabama, Arizona, Florida,
Kansas, Maine, Michigan, Minnesota, New Mexico, North Carolina, North Dakota,
South Dakota, Tennessee, West Virginia and Wisconsin, who purchased brand name
prescription drugs from retail pharmacies, and in a similar class action in
North Dakota on behalf of North Dakota consumers. Although it is not possible at
this early stage to predict the outcome of these lawsuits, it is unlikely that
their ultimate disposition will have a material adverse effect on
Warner-Lambert's financial position, liquidity, cash flows or results of
operations.
The Federal Trade Commission (the 'FTC') is conducting an investigation to
determine whether Warner-Lambert and twenty-one other pharmaceutical
manufacturers have engaged in concerted activities to raise the prices of
pharmaceutical products in the United States. Warner-Lambert was served with and
responded to two subpoenas from the FTC in 1996 and 1997, respectively, and has
cooperated with this investigation. Warner-Lambert cannot at present predict the
outcome of this investigation.
Warner-Lambert Inc., a wholly-owned subsidiary of Warner-Lambert, has been
named as a defendant in class actions filed in Puerto Rico Superior Court by
current and former employees from the Vega Baja, Carolina and Fajardo plants, as
well as Kelly Services temporary employees assigned to those plants. The
lawsuits seek monetary relief for alleged violations of local statutes and
decrees relating to meal period payments, minimum wage, overtime and vacation
pay. Warner-Lambert believes that these actions are without merit and will
defend these actions vigorously. Although it is too early to predict the outcome
of these actions, Warner-Lambert does not at present expect these lawsuits to
have a material adverse effect on the Company's financial position, liquidity,
cash flows or results of operations.
10
<PAGE>
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to the executive officers of Warner-Lambert as of
March 1, 1999 is set forth below:
<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
OFFICES HELD AND EMPLOYMENT
NAME AGE WITH REGISTRANT DURING PAST 5 YEARS
- --------------------------------- --- ---------------------- -------------------------------------------
<S> <C> <C> <C>
Melvin R. Goodes................. 63 Chairman of the Board Chairman of the Board and Chief Executive
and Chief Executive (since August 1991)
Officer; Director
Lodewijk J. R. de Vink........... 54 President and Chief President and Chief Operating Officer
Operating Officer; (since August 1991)
Director
John F. Walsh.................... 56 Executive Vice Executive Vice Executive (since January
President 1991); President, Shaving Products Group
(since August 1997); President, Consumer
Healthcare Sector (December 1994 - July
1997); President, Consumer Products
Sector (January 1992 - December 1994)
Ernest J. Larini................. 56 Vice President and Vice President and Chief Financial Officer
Chief Financial (since November 1992)
Officer
J. Frank Lazo.................... 51 Vice President Vice President (since April 1990);
President, Adams (since December 1994);
President, Latin America/
Asia/Australia/Middle East/Africa Group
(January 1992 - December 1994)
S. Morgan Morton................. 59 Vice President Vice President (since January 1994);
President, Consumer Healthcare Sector
(since August 1997); President,
Warner-Lambert Consumer Healthcare U.S.A.
(June 1996 - July 1997); President,
Warner Wellcome Consumer Healthcare
U.S.A. (December 1995 - June 1996);
President, Shaving Products Group
(September 1993 - December 1995)
Anthony H. Wild, Ph.D. .......... 50 Vice President Vice President (since September 1995);
President, Pharmaceutical Sector (since
May 1996); President, Parke-Davis, North
America (February 1995 - May 1996);
President, Schering-Plough-Japan,
Schering-Plough Corporation (August
1989 - February 1995)
John S. Craig.................... 47 Vice President Vice President (since January 1996);
President, Adams USA (since July 1995);
President and Chief Executive Officer,
Lender's Bagel Bakery division of Kraft
Foods, Inc. (September 1986 - February
1994)
</TABLE>
(table continued on next page)
11
<PAGE>
<PAGE>
(table continued from previous page)
<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
OFFICES HELD AND EMPLOYMENT
NAME AGE WITH REGISTRANT DURING PAST 5 YEARS
- --------------------------------- --- ---------------------- -------------------------------------------
<S> <C> <C> <C>
Ronald M. Cresswell, Ph.D. ...... 64 Senior Vice President Senior Vice President (since November
and Chief Scientific 1998); Chief Scientific Officer (since
Officer October 1998); Vice President (May
1988 - November 1998); Chairman,
Parke-Davis Research (November 1989 -
November 1998)
Raymond M. Fino.................. 56 Vice President Vice President, Human Resources (since
January 1985)
Philip M. Gross.................. 57 Vice President Vice President (since January 1990); Vice
President, Strategic Management Processes
(since January 1994); President, Novon
Products Group (January 1990 - January
1994)
Gregory L. Johnson............... 52 Vice President and Vice President and General Counsel (since
General Counsel October 1983)
Richard W. Keelty................ 57 Vice President Vice President (since January 1996); Vice
President, Public Affairs, (since
December 1995); Vice President, Public
Relations (November 1990 - November 1995)
Joseph E. Lynch.................. 47 Vice President and Vice President and Controller (since June
Controller 1995); Comptroller, American Home
Products Corporation (March 1995 - June
1995); Director, Corporate Accounting and
Budgets, American Cyanamid Company (April
1991 - March 1995)
F. Phillip Milhomme.............. 62 Vice President Vice President (since January 1992);
President, Adams, Europe/Middle
East/Africa (since December 1994);
President, Consumer Products, Europe
(January 1992 - December 1994)
Harold F. Oberkfell.............. 52 Vice President Vice President (since January 1992); Vice
President, Knowledge Management Officer
(since September 1998); President, Latin
America/Asia Sector (February
1995 - September 1998); President,
Parke-Davis, North America (January
1992 - February 1995)
Maurice A. Renshaw............... 52 Vice President Vice President (since January 1997);
President, Parke-Davis, U.S. (since April
1998); President, Parke-Davis, U.S. and
Mexico (August 1996 - December 1996);
President, Warner-Lambert KK, Japan
(December 1989 - August 1996)
</TABLE>
(table continued on next page)
12
<PAGE>
<PAGE>
(table continued from previous page)
<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
OFFICES HELD AND EMPLOYMENT
NAME AGE WITH REGISTRANT DURING PAST 5 YEARS
- --------------------------------- --- ---------------------- -------------------------------------------
<S> <C> <C> <C>
Barbara S. Thomas................ 49 Vice President Vice President (since April 1998);
President, Consumer Healthcare (since
December 1997); President and Chief
Executive Officer, Pillsbury Canada Ltd.
(March 1995 - November 1997); Vice
President/General Manager, Pizza/Snacks;
Breakfast and Dessert Mixes, Pillsbury
Canada Ltd. (October 1993 - March 1995)
William S. Woodson............... 64 Vice President and Vice President and Treasurer (since
Treasurer December 1991)
Rae G. Paltiel................... 52 Secretary Secretary (since February 1986)
</TABLE>
All of the above-mentioned officers, with the exception of Ms. Thomas, Mr.
Craig, Mr. Lynch and Dr. Wild, have been employed by Warner-Lambert for the past
five years.
Ms. Thomas has been employed by Warner-Lambert since December 1997. Prior
to that time, Ms. Thomas was employed by The Pillsbury Company serving as
President and Chief Executive Officer of Pillsbury Canada, Ltd., from March 1995
to November 1997. Ms. Thomas joined The Pillsbury Company in October 1993 as
Vice President, General Manager, for the pizza/snack division. The Pillsbury
Company is a multinational consumer company.
Mr. Craig has been employed by Warner-Lambert since July 1995. Prior to
that time, Mr. Craig had been employed by Kraft Foods, Inc., serving as
President and Chief Executive Officer of Kraft's Lender's Bagel Bakery division
from September 1986 to February 1994. Kraft Foods, Inc., a wholly-owned
subsidiary of Philip Morris Companies Inc., is a multinational producer of
packaged grocery products.
Mr. Lynch has been employed by Warner-Lambert since June 1995. Prior to
that time and during his last three months with American Cyanamid Company, which
was acquired by American Home Products Corporation in November 1994, Mr. Lynch
performed certain functions of Comptroller at American Home Products Corporation
from March 1995 to June 1995. American Home Products is a multinational health
care and food products company. From April 1991 to March 1995, Mr. Lynch held
the position of Director, Corporate Accounting and Budgets, American Cyanamid
Company. Prior to being acquired by American Home Products Corporation, American
Cyanamid Company was a multinational medical and agricultural products company.
Dr. Wild has been employed by Warner-Lambert since February 1995. Prior to
that time, Dr. Wild had been employed by Schering-Plough Corporation, a
multinational pharmaceutical company. From August 1989 to February 1995, Dr.
Wild held the position of President of Schering-Plough-Japan.
None of the above officers has any family relationship with any Director or
with any other officer. Officers are elected by the Board of Directors for a
term of office lasting until the next annual organizational meeting of the Board
of Directors or until their successors are elected and have qualified. No
officer listed above was appointed pursuant to any arrangement or understanding
between such officer and the Board of Directors or any member or members
thereof.
13
<PAGE>
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The principal market on which the Company's stock is traded is the New York
Stock Exchange, but the stock is also listed and traded on the following
domestic and international stock exchanges: Chicago, Pacific, London and Zurich.
Shareholders of record totaled approximately 48,000 as of December 31, 1998.
Cash dividends paid in 1998 totaled $525 million. A dividend of $.16 per share
was paid in each quarter of 1998 for an annual total of $.64 per share. This was
a 25.5% increase over the prior year total of $.51 per share, paid in four
quarterly dividends of $.13 per share during 1997. The information set forth
under the caption 'Market Prices of Common Stock and Dividends' on page 47 of
the Warner-Lambert 1998 Annual Report is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA.
The information set forth under the caption 'Five-Year Summary of Selected
Financial Data' on page 30 of the Warner-Lambert 1998 Annual Report is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The information set forth under the caption 'Management's Discussion and
Analysis' on pages 48 through 55 of the Warner-Lambert 1998 Annual Report is
incorporated herein by reference and should be read in conjunction with the
consolidated financial statements and the notes thereto contained on pages 31
through 46A of the Warner-Lambert 1998 Annual Report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The information set forth under the caption 'Management's Discussion and
Analysis -- Market Risk' on pages 52 through 53 of the Warner-Lambert 1998
Annual Report and in Note 10 to the consolidated financial statements on pages
37 through 38 of the Warner-Lambert 1998 Annual Report is incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements of Warner-Lambert and its
subsidiaries and the notes thereto, listed in Item 14(a)1 and included in the
Warner-Lambert 1998 Annual Report on pages 31 through 46A, together with the
report thereon of PricewaterhouseCoopers LLP dated January 25, 1999 on page 46
of the Warner-Lambert 1998 Annual Report, and quarterly financial information on
page 47 of the Warner-Lambert 1998 Annual Report, are incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable.
14
<PAGE>
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The required information relating to the Warner-Lambert Directors and
nominees is incorporated herein by reference from pages 2 through 7 of the
Warner-Lambert Proxy Statement for the Annual Meeting of Stockholders to be held
on April 27, 1999. Information relating to executive officers of Warner-Lambert
is set forth in Part I of this Form 10-K/A on pages 11 through 13. Information
relating to compliance with Section 16(a) of the Securities Exchange Act of 1934
is contained in the Proxy Statement, referred to above, at page 9 and such
information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
Information relating to executive compensation is contained in the Proxy
Statement, referred to above in Item 10, at pages 12 through 22 and such
information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
(a) Information relating to the beneficial ownership of more than five
percent of Warner-Lambert's Common Stock is contained in the Proxy Statement,
referred to above in Item 10, at page 9 and such information is incorporated
herein by reference.
(b) Information relating to security ownership of management is contained
in the Proxy Statement, referred to above in Item 10, at page 8 and such
information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Not Applicable.
15
<PAGE>
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. ALL FINANCIAL STATEMENTS
The following items are included in Part II of this report through
incorporation by reference to pages 31 through 46 of the Warner-Lambert
1998 Annual Report:
Consolidated Statements of Income and Comprehensive Income for
each of the three years in the period ended December 31, 1998.
Consolidated Balance Sheets at December 31, 1998 and 1997.
Consolidated Statements of Cash Flows for each of the three years
in the period ended December 31, 1998.
Notes to Consolidated Financial Statements.
Report by Management.
Report of Independent Accountants.
2. FINANCIAL STATEMENT SCHEDULE
Included in Part IV of this report:
Report of Independent Accountants on Financial Statement Schedule.
Schedule II -- Valuation and Qualifying Accounts.
Schedules other than those listed above are omitted because they are
either not applicable or the required information is included through
incorporation by reference to pages 31 through 46 of the Warner-Lambert
1998 Annual Report.
3. EXHIBITS
(3) Articles of Incorporation and By-Laws.
(a) Restated Certificate of Incorporation of Warner-Lambert Company
filed November 10, 1972, as amended to April 28, 1998
(Incorporated by reference to Warner-Lambert's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998 (File No. 1-3608)).
(b) By-Laws of Warner-Lambert Company, as amended to April 1, 1999.
(4) Instruments defining the rights of security holders, including
indentures.
(a) Amended and Restated Rights Agreement, dated as of March 25,
1997, between Warner-Lambert Company and First Chicago Trust
Company of New York, as Rights Agent (Incorporated by reference
to Warner-Lambert's Registration Statement on Form 8-A, dated
June 28, 1988, as amended by Form 8-A/A, dated July 5, 1989 and
by Form 8-A/A, dated March 27, 1997 (File No. 1-3608)).
(b) Warner-Lambert agrees to furnish to the Commission, upon request,
a copy of each instrument with respect to issues of long-term
debt of Warner-Lambert. The principal amount of debt issues
authorized under each such instrument does not exceed 10% of the
total assets of Warner-Lambert.
(10) Material contracts.
<TABLE>
<S> <C>
(a)* Warner-Lambert Company 1989 Stock Plan, as amended to January 27, 1998 (Incorporated by
reference to Warner-Lambert's Quarterly Report on Form 10-Q for the quarter ended June 30,
1998 (File No. 1-3608)).
(b)* Warner-Lambert Company 1992 Stock Plan, as amended to January 27, 1998 (Incorporated by
reference to Warner-Lambert's Quarterly Report on Form 10-Q for the quarter ended June 30,
1998 (File No. 1-3608)).
(c)* Warner-Lambert Company 1996 Stock Plan, as amended to January 27, 1998 (Incorporated by
reference to Warner-Lambert's Quarterly Report on Form 10-Q for the quarter ended June 30,
1998 (File No. 1-3608)).
</TABLE>
16
<PAGE>
<PAGE>
<TABLE>
<S> <C>
(d)* Warner-Lambert Company Incentive Compensation Plan, as amended to September 27, 1994
(Incorporated by reference to Warner-Lambert's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1994 (File No. 1-3608)).
(e)* Warner-Lambert Company Supplemental Pension Income Plan, as amended to November 28, 1995
(Incorporated by reference to Warner-Lambert's Form 10-K for the fiscal year ended December
31, 1995 (File No. 1-3608)).
(f)* Group Plan Participation by Non-employee Directors (Incorporated by reference to
Warner-Lambert's Form 10-K for the fiscal year ended December 31, 1991 (File No. 1-3608)).
(g)* Warner-Lambert Company Directors' Retirement Plan, as amended to June 1, 1995 (Incorporated by
reference to Warner-Lambert's Quarterly Report on Form 10-Q for the quarter ended June 30,
1995 (File No. 1-3608)).
(h)* Warner-Lambert Excess Savings Plan, formerly Warner-Lambert Supplemental Savings Plan, as
amended to October 1, 1997. (Incorporated by reference to Warner-Lambert's Form 10-K for the
fiscal year ended December 31, 1997 (File No. 1-3608)).
(i)* Warner-Lambert Company Executive Severance Plan, as amended to October 1, 1997.
(j)* Restricted Stock Plan for Directors of Warner-Lambert Company, as amended to January 28, 1992
(Incorporated by reference to Warner-Lambert's Form 10-K for the fiscal year ended December
31, 1991 (File No. 1-3608)).
(k)* Employment Agreement dated September 24, 1985 between Warner-Lambert Company and Melvin R.
Goodes, Chairman of the Board and Chief Executive Officer, as amended to August 1, 1991
(Incorporated by reference to Warner-Lambert's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1991 (File No. 1-3608)).
(l)* Employment Agreement effective as of August 1, 1991 between Warner-Lambert Company and
Lodewijk J. R. de Vink, President and Chief Operating Officer (Incorporated by reference to
Warner-Lambert's Quarterly Report on Form 10-Q for the quarter ended September 30, 1991 (File
No. 1-3608)).
</TABLE>
(12) Computation of Ratio of Earnings to Fixed Charges.
(13) Copy of the Warner-Lambert Company Annual Report for the year ended
December 31, 1998. Such report, except for those portions thereof
which are expressly incorporated by reference herein, is furnished
solely for the information of the Commission and is not to be deemed
'filed' as part of this filing.
(21) Subsidiaries of the registrant.
(23) Consent of Independent Accountants.
(27) Financial Data Schedule (EDGAR filing only).
(99) Cautionary Statements Relating to 'Safe Harbor' Provisions of the
Private Securities Litigation Reform Act of 1995.
- ------------
* Management contract or compensatory plan or arrangement required to be filed
as an exhibit to this Form 10-K/A pursuant to Item 14(c).
(b) REPORTS ON FORM 8-K
Warner-Lambert has not filed any reports on Form 8-K for the year ending
December 31, 1998.
Warner-Lambert will furnish to any holder of its securities, upon request
and at a reasonable cost, copies of the Exhibits listed in Item 14.
17
<PAGE>
<PAGE>
WARNER-LAMBERT COMPANY AND CONSOLIDATED SUBSIDIARIES
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of
WARNER-LAMBERT COMPANY
Our audits of the consolidated financial statements referred to in our
report dated January 25, 1999 appearing on page 46 of this 1998 Annual Report
on Form 10-K, as amended, also included an audit of the Financial Statement
Schedule listed in Item 14(a)2 of this Form 10-K, as amended. In our opinion,
this Financial Statement Schedule presents fairly, in all material respects,
the information set forth therein when read in conjunction with the related
consolidated financial statements.
PRICEWATERHOUSECOOPERS LLP
400 Campus Drive
Florham Park, New Jersey
January 25, 1999
18
<PAGE>
<PAGE>
SCHEDULE II
WARNER-LAMBERT COMPANY AND CONSOLIDATED SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
DESCRIPTION OF YEAR EXPENSES DEDUCTIONS OF YEAR
- ------------------------------------------------------------------ ---------- ---------- ---------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Year ended December 31, 1998:
Allowance for doubtful accounts.............................. $ 34.5 $ 11.4 $ 16.0 $ 29.9
Allowance for discounts and customer claims.................. 59.4 262.9 211.7 110.6
Allowance for deferred tax assets............................ 28.9 14.4 8.9 34.4
---------- ---------- ---------- -------
$122.8 $288.7 $236.6 $174.9
---------- ---------- ---------- -------
---------- ---------- ---------- -------
Year ended December 31, 1997:
Allowance for doubtful accounts.............................. $ 36.6 $ 3.9 $ 6.0 $ 34.5
Allowance for discounts and customer claims.................. 39.5 294.9 275.0 59.4
Allowance for deferred tax assets............................ 28.8 5.4 5.3 28.9
---------- ---------- ---------- -------
$104.9 $304.2 $286.3 $122.8
---------- ---------- ---------- -------
---------- ---------- ---------- -------
Year ended December 31, 1996:
Allowance for doubtful accounts.............................. $ 20.7 $ 22.3 $ 6.4 $ 36.6
Allowance for discounts and customer claims.................. 29.7 257.7 247.9 39.5
Allowance for deferred tax assets............................ 37.0 -- 8.2 28.8
---------- ---------- ---------- -------
$ 87.4 $280.0 $262.5 $104.9
---------- ---------- ---------- -------
---------- ---------- ---------- -------
</TABLE>
19
<PAGE>
<PAGE>
SIGNATURE
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
WARNER-LAMBERT COMPANY
Registrant
<TABLE>
<S> <C>
Dated as of April 19, 1999 By /s/ Rae G. Paltiel
.........................................................
Rae G. Paltiel
Secretary
</TABLE>
20
<PAGE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------
<C> <S> <C>
(3) Articles of Incorporation and By-Laws.
(a) Restated Certificate of Incorporation of Warner-Lambert Company filed November 10, 1972, as amended
to April 28, 1998 (Incorporated by reference to Warner-Lambert's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1998 (File No. 1-3608)).
(b) By-Laws of Warner-Lambert Company, as amended to April 1, 1999.
(4) Instruments defining the rights of security holders, including indentures.
(a) Amended and Restated Rights Agreement, dated as of March 25, 1997, between Warner-Lambert Company
and First Chicago Trust Company of New York, as Rights Agent (Incorporated by reference to
Warner-Lambert's Registration Statement on Form 8-A, dated June 28, 1988, as amended by Form 8-A/A,
dated July 5, 1989 and by Form 8-A/A, dated March 27, 1997 (File No. 1-3608)).
(b) Warner-Lambert agrees to furnish to the Commission, upon request, a copy of each instrument with
respect to issues of long-term debt of Warner-Lambert. The principal amount of debt issues
authorized under each such instrument does not exceed 10% of the total assets of Warner-Lambert.
(10) Material contracts.
(a) Warner-Lambert Company 1989 Stock Plan, as amended to January 27, 1998 (Incorporated by reference
to Warner-Lambert's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998 (File No.
1-3608)).
(b) Warner-Lambert Company 1992 Stock Plan, as amended to January 27, 1998 (Incorporated by reference
to Warner-Lambert's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998 (File No.
1-3608)).
(c) Warner-Lambert Company 1996 Stock Plan, as amended to January 27, 1998. (Incorporated by reference
to Warner-Lambert's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998 (File No.
1-3608)).
(d) Warner-Lambert Company Incentive Compensation Plan, as amended to September 27, 1994 (Incorporated
by reference to Warner-Lambert's Quarterly Report on Form 10-Q for the quarter ended September 30,
1994 (File No. 1-3608)).
(e) Warner-Lambert Company Supplemental Pension Income Plan, as amended to November 28, 1995
(Incorporated by reference to Warner-Lambert's Form 10-K for the fiscal year ended December 31,
1995 (File No. 1-3608)).
(f) Group Plan Participation by Non-employee Directors (Incorporated by reference to Warner-Lambert's
Form 10-K for the fiscal year ended December 31, 1991 (File No. 1-3608)).
(g) Warner-Lambert Company Directors' Retirement Plan, as amended to June 1, 1995 (Incorporated by
reference to Warner-Lambert's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995
(File No. 1-3608)).
(h) Warner-Lambert Excess Savings Plan, formerly Warner-Lambert Supplemental Savings Plan, as amended
to October 1, 1997 (Incorporated by reference to Warner-Lambert's Form 10-K for the fiscal year
ended December 31, 1997 (File No. 1-3608)).
(i) Warner-Lambert Company Executive Severance Plan, as amended to October 1, 1997.
(j) Restricted Stock Plan for Directors of Warner-Lambert Company, as amended to January 28, 1992
(Incorporated by reference to Warner-Lambert's Form 10-K for the fiscal year ended December 31,
1991 (File No. 1-3608)).
(k) Employment Agreement dated September 24, 1985 between Warner-Lambert Company and Melvin R. Goodes,
Chairman of the Board and Chief Executive Officer, as amended to August 1, 1991 (Incorporated by
reference to Warner-Lambert's Quarterly Report on Form 10-Q for the quarter ended September 30,
1991 (File No. 1-3608)).
(l) Employment Agreement effective as of August 1, 1991 between Warner-Lambert Company and Lodewijk J.
R. de Vink, President and Chief Operating Officer (Incorporated by reference to Warner-Lambert's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1991 (File No. 1-3608)).
(12) Computation of Ratio of Earnings to Fixed Charges.
(13) Copy of the Warner-Lambert Company Annual Report for the year ended December 31, 1998. Such report,
except for those portions thereof which are expressly incorporated by reference herein, is furnished
solely for the information of the Commission and is not to be deemed 'filed' as part of this filing.
</TABLE>
<PAGE>
<PAGE>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------
(21) Subsidiaries of the registrant.
(23) Consent of Independent Accountants.
(27) Financial Data Schedule (EDGAR filing only).
(99) Cautionary Statements Relating to 'Safe Harbor'
Provisions of the Private Securities Litigation Reform
Act of 1995.
<PAGE>
<PAGE>
Exhibit 3(b)
WARNER-LAMBERT COMPANY
(a Delaware Corporation)
-------------------------
By-Laws
(As Amended to April 1, 1999)
<PAGE>
<PAGE>
ARTICLE I
OFFICES
The principal office of the Corporation in the State of Delaware shall be at
1209 Orange Street, Wilmington, Delaware 19801.
The Corporation may also have offices at such other places, both within and
without the State of Delaware, as the Board of Directors may from time to time
designate.
ARTICLE II
BOOKS
The Corporation may keep its books (except such books as are required by law to
be kept at the principal office of the Corporation in the State of Delaware)
outside of the State of Delaware and at such place or places as may from time to
time be designated by the Board of Directors.
ARTICLE III
STOCKHOLDERS
SECTION 1. Annual Meetings-The annual meeting of the Stockholders of the
Corporation for the election of Directors and the transaction of such other
business as may properly come before said meeting shall be held on such date and
at such place and time as shall be fixed by resolution of the Board of Directors
with respect to each such meeting.
Notice of the annual meeting of the Stockholders of the Corporation shall be
delivered personally or mailed to each Stockholder entitled to vote at said
meeting not less than 10 nor more than 60 days prior to said meeting. If mailed,
said notice shall be directed to each Stockholder at such Stockholder's address
as the same appears on the stock ledger of the Corporation unless such
Stockholder shall have filed with the Corporation a written request that notices
intended for such Stockholder be mailed to some other address, in which case it
shall be mailed to the address designated in said request.
SECTION 2. Business to be Brought Before an Annual Meeting of Stockholders -Any
business properly brought before an annual meeting of the Stockholders of the
Corporation may be transacted at such meeting. To be properly brought before an
annual meeting,
<PAGE>
<PAGE>
business must be (i) specified in the written notice of the meeting (or any
supplement thereto) given by or at the direction of the Board of Directors, (ii)
brought before the meeting by or at the direction of the Board of Directors
pursuant to a vote of not less than four-fifths of the entire Board of Directors
or (iii) otherwise properly brought before the meeting by a Stockholder. For
business to be properly brought before an annual meeting by a Stockholder, the
Stockholder must have given written notice of the proposed business, either by
personal delivery or by United States mail, postage prepaid, to the Secretary of
the Corporation, such that the Secretary shall receive such notice at least 120
days prior to the anniversary date of the immediately preceding annual meeting
or not later than 10 days after notice or public disclosure of the date of the
annual meeting shall be given or made to Stockholders, whichever date shall be
earlier. Subject to Section 8 of this Article III, any such notice shall set
forth as to each item of business the Stockholder shall propose to bring before
the annual meeting (i) a description of such item of business and the reasons
for conducting it at such meeting and, in the event that such item of business
shall include a proposal to amend either the Certificate of Incorporation or
these By-Laws, the text of the proposed amendment, (ii) the name and address of
the Stockholder proposing such item of business, (iii) the class and number of
shares held of record, held beneficially and represented by proxy by such
Stockholder as of the record date for the meeting (if such a date has been
established) and as of the date of such notice and a representation that the
Stockholder intends to appear in person or by proxy at the meeting to propose
such item of business and (iv) any material interest of the Stockholder in such
item of business. Only business which shall have been properly brought before an
annual meeting of Stockholders in accordance with these By-Laws shall be
conducted at such meeting, and the officer or other person presiding over the
meeting as provided in Section 6 of this Article III may refuse to permit any
business to be brought before such meeting which shall not have been properly
brought before it in accordance with these By-Laws.
SECTION 3. Special Meetings-Except as otherwise required by law, special
meetings of the Stockholders may be called for any purpose or purposes only by
(i) the Chairman of the Board, (ii) the President or (iii) a majority of the
whole Board of Directors. Any such special meeting may be held at the principal
office of the Corporation within the State of Delaware or at such
<PAGE>
<PAGE>
other place, either within or without the State of Delaware, as may be specified
in the notice thereof.
Notice of each special meeting, stating the day, hour and place, and in general
terms the business to be transacted thereat, shall be in writing and signed by
the Chairman of the Board, the President, a Vice President, the Secretary or an
Assistant Secretary. Such notice shall be delivered personally or mailed to each
Stockholder entitled to vote at said meeting, not less than 10 nor more than 60
days before the meeting. If mailed, said notice shall be directed to each
Stockholder at such Stockholder's address as the same appears on the stock
ledger of the Corporation unless such Stockholder shall have filed with the
Corporation a written request that notices intended for such Stockholder be
mailed to some other address, in which case it shall be mailed to the address
designated in said request. Only such business as shall be specified in the
notice of any special meeting of the Stockholders shall come before such
meeting.
SECTION 4. Stockholders' List-It shall be the duty of the officer of the
Corporation who shall have charge of the stock ledger of the Corporation to
prepare and make, at least 10 days before every annual or special meeting of
Stockholders, a complete list of the Stockholders entitled to vote at said
meeting, arranged in alphabetical order, and showing the address of each
Stockholder and the number of shares registered in such Stockholder's name. Such
list shall be open, for at least a period of 10 days during ordinary business
hours, either at the place where said meeting is to be held or at such other
place in the same city as shall be specified in the notice of the meeting, to
the examination of any Stockholder for any purpose germane to the meeting and
shall be produced and kept at the time and place of the meeting during the whole
time thereof and subject to the inspection of any Stockholder whose name appears
on the original or duplicate stock ledger who may be present.
SECTION 5. Quorum-At any meeting of the Stockholders of the Corporation, except
as otherwise provided by statute, the Certificate of Incorporation or these
By-Laws, there must be present, either in person or by proxy, in order to
constitute a quorum, Stockholders owning a majority of the issued and
outstanding shares of the stock of the Corporation entitled to vote at said
meeting. If at any such meeting a quorum shall fail to be present, the officer
or other person presiding over the meeting as provided in Section 6 of this
Article III may adjourn
<PAGE>
<PAGE>
the meeting from time to time without notice other than the announcement at the
meeting, until a quorum shall attend, and thereupon, any business may be
transacted at the adjourned meeting which might have been transacted at the
meeting as originally called; provided, however, that if the meeting is
adjourned for more than 30 days or if, after adjournment, a new record date is
fixed, notice of the adjourned meeting shall be given to each Stockholder
entitled to vote thereat.
SECTION 6. Organization-Each meeting of the Stockholders shall be presided over
by the Chairman of the Board, or in the absence of such officer, by the
President, or in the absence of both of such officers, by any other person
selected to preside by vote of the holders of a majority of the outstanding
stock present in person or by proxy and entitled to vote at the meeting.
SECTION 7. Voting-Each Stockholder of record of the Corporation shall, at every
meeting of the Stockholders of the Corporation, be entitled to one vote for each
share of stock standing in such Stockholder's name on the books of the
Corporation on any matter on which such Stockholder is entitled to vote, and
such votes may be cast either in person or by proxy, but no proxy shall be voted
on after three years from its date, unless said proxy provides for a longer
period.
Upon demand of any Stockholder, the vote on any question before the meeting
shall be by ballot.
Except as otherwise provided by statute, the Certificate of Incorporation or
these By-Laws, all elections shall be had and all questions decided by a
majority of the votes cast.
SECTION 8. Notification of Nominations-Subject to the rights of the holders of
any class or series of stock having a preference over the Common Stock as to
dividends or upon liquidation, nominations for the election of Directors may be
made by the Board of Directors or by any Stockholder entitled to vote for the
election of Directors. Any Stockholder entitled to vote for the election of
Directors at a meeting may nominate persons for election as Directors only if
written notice of the intent of such Stockholder to make such nomination shall
be given, either by personal delivery or by United States mail, postage prepaid,
to the Secretary of the Corporation not later than (i) with respect to an
election to be held at an annual meeting of Stockholders, 120 days prior to the
anniversary date of the
<PAGE>
<PAGE>
immediately preceding annual meeting and (ii) with respect to an election to be
held at a special meeting of Stockholders for the election of Directors, the
close of business on the seventh day following the date on which notice of such
meeting shall first be given to Stockholders. Each such notice shall set forth:
(a) the name and address of the Stockholder who shall intend to make the
nomination and of the person or persons to be nominated;
(b) the class and number of shares held of record, held beneficially and
represented by proxy by such Stockholder as of the record date of the meeting
(if such a date has been established) and as of the date of such notice and a
representation that the Stockholder intends to appear in person or by proxy at
the meeting to nominate the person or persons specified in the notice;
(c) a description of all arrangements or understandings between the Stockholder
and each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by the
Stockholder;
(d) such other information regarding each nominee proposed by such Stockholder
as would have been required to be included in a proxy statement filed pursuant
to the proxy rules of the Securities and Exchange Commission had each nominee
been nominated, or intended to be nominated, by the Board of Directors; and
(e) the consent in writing of each nominee to serve as a Director of the
Corporation if so elected.
The officer or other person presiding over the meeting as provided in Section 6
of this Article III may refuse to acknowledge the nomination of any person not
made in compliance with the foregoing procedure.
SECTION 9. Inspectors of Election-It shall not be necessary to appoint
Inspectors of Election at any Stockholders' meeting. Two Inspectors of Election
to serve at any Stockholders' meeting may be appointed by the Board of Directors
before such meeting, or, if no such appointment shall have been made, by a
majority of the Stockholders present in person or by proxy and entitled to vote
at the meeting. If no such appointment shall have been made and any Stockholder
present in person or by proxy and entitled to
<PAGE>
<PAGE>
vote at such meeting shall so request, two such Inspectors of Election shall be
appointed by a majority of the Stockholders present in person or by proxy and
entitled to vote at the meeting.
SECTION 10. Special Meetings of Holders of a Class of Stock-At any time when it
is necessary or desirable to obtain the vote of the holders of shares of any
class, at a meeting of such holders, the following shall apply:
(a) Any special meeting may be called as provided in Section 3 above and shall
be held at the time and place and for the purposes designated in the notice of
such meeting. Such notice shall be given as provided in Section 3 above.
(b) If the required percentage of shares is not present or represented at such
meeting, the same may be adjourned from time to time by the officer or other
person presiding over the meeting as provided in Section 6 of this Article III,
without notice other than the announcement at the meeting, until the required
percentage of shares is present or represented, and thereupon, any business may
be transacted at the adjourned meeting which might have been transacted at the
meeting as originally called; provided, however, that if the meeting is
adjourned for more than 30 days or if, after adjournment, a new record date is
fixed, notice of the adjourned meeting shall be given to each holder entitled to
vote thereat.
(c) The holders entitled to receive notice of any such meeting or to vote
thereat, in person or by proxy, shall be those who are holders of shares of said
class on the date fixed for the purpose by the Board of Directors or otherwise
determined as provided under Delaware law.
(d) Each such meeting shall be organized, presided over, conducted, and the
minutes thereof kept as provided for or contemplated in these By-Laws for annual
or special meetings of Stockholders of the Corporation.
SECTION 11. Action by Written Consent of Stockholders
(a) Anything in these By-Laws to the contrary notwithstanding, any action
required by the General Corporation Law of the State of Delaware to be, or which
may be, taken at any annual or special meeting of the Stockholders may be taken
without a
<PAGE>
<PAGE>
meeting, without prior notice and without a vote, if a consent or consents in
writing, setting forth the action so taken, shall be signed in person or by
proxy by the holder of outstanding stock having not less than the minimum number
of votes that would be necessary to authorize or take such action at a meeting
at which all shares entitled to vote thereon were present and voted and if the
procedures in this Section 11 shall be complied with.
(b) A record date for determining Stockholders entitled to express consent to
Stockholder action in writing without a meeting shall be fixed by the Board of
Directors of the Corporation (a "Consent Record Date"). Any Stockholder seeking
to have the Stockholders authorize or take action by written consent without a
meeting shall give written notice either by personal delivery or by United
States mail, postage prepaid, to the Secretary, of the intent of such
Stockholder to take action by written consent, which notice shall request the
Board of Directors to fix a Consent Record Date. The Board of Directors shall,
within 10 days of the receipt of such notice, fix as the Consent Record Date a
date which shall not precede the date upon which the resolution fixing the
Consent Record Date shall be adopted by the Board and which shall not be more
than 10 days after the date upon which such resolution shall have been adopted.
If the Board of Directors fails to fix a record date as provided in this Section
11, then the record date shall be the day on which the first written consent is
duly delivered pursuant to Section 213(b) (or its successor provision) of the
General Corporation Law of the State of Delaware, or, if prior action is
required by the Board of Directors with respect to the matter to be acted upon
by written consent without a meeting, the record date shall be the close of
business on the day on which the Board of Directors adopts the resolution taking
such prior action.
(c) Every written consent pursuant to this Section 11 shall bear the date of
signature of each Stockholder who shall sign such consent and no written consent
shall be effective to take the corporate action referred to therein unless,
within 60 days of the date of the earliest dated consent delivered to the
Corporation in the manner required by this Section 11, written consents signed
by a sufficient number of Stockholders to take action shall be delivered to the
Corporation by delivery to its registered office in the State of Delaware, to
its principal place of business or to an officer or agent of the Corporation
having custody of the books in which meetings and proceedings of the
Stockholders shall be recorded. Delivery made to said
<PAGE>
<PAGE>
registered office of the Corporation shall be by hand or by certified or
registered mail, return receipt requested.
(d) In the event of the Delivery to the Corporation of a written consent or
consents purporting to represent the requisite voting power to authorize or take
corporate action and/or related revocations, the Secretary of the Corporation
shall provide for the safekeeping of such consents and revocations and shall
promptly engage nationally recognized independent Inspectors of Election for the
purpose of promptly performing a ministerial review of the validity of the
consents and revocations. No action by written consent without a meeting shall
be effective until such Inspectors of Election have completed their review,
determined that the requisite number of valid and unrevoked consents has been
obtained to authorize or take the action specified in the consents and certified
such determination for entry in the records of the Corporation kept for the
purpose of recording the proceedings of meetings of Stockholders.
(e) Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those Stockholders who
shall not have consented in writing.
ARTICLE IV
DIRECTORS
SECTION 1. Number, Election and Term of Office-The business of the Corporation
shall be managed by and under the direction of the Board of Directors of the
Corporation. The number of Directors constituting the whole Board shall be 15,
but the Board of Directors may, by a resolution adopted by the affirmative vote
of a majority of the whole Board as then constituted given at any regular or
special meeting of the Board of Directors, increase or decrease such number
(subject to the condition that in no case shall such number be more than 15 nor
less than 10), provided notice of the proposed increase or decrease shall be
included in the notice of such meeting or all of the Directors at the time in
office shall be present at such meeting or those not present shall at any time
waive or have waived notice thereof in writing. Directors need not be
Stockholders of the Corporation. Except as otherwise provided by law, the
Certificate of Incorporation or by these By-Laws, the Directors shall be elected
by ballot at the annual meeting of the Stockholders of the Corporation to serve
until the next annual meeting of Stockholders and until their successors are
respectively elected and have qualified.
<PAGE>
<PAGE>
SECTION 2. Vacancies-Any vacancy or vacancies which may occur among the
Directors through death, resignation, or disqualification or for any other
cause, shall be filled by a majority of the remaining Directors, though less
than a quorum, or by the remaining Director, and the Directors so chosen shall
hold office until the next annual election and until their respective successors
shall be duly elected and shall have qualified, unless sooner displaced as
provided by the laws of the State of Delaware.
Vacancies resulting from an increase in the number of Directors shall be filled
in the same manner.
SECTION 3. Regular Meetings-Regular meetings of the Board of Directors may be
held without notice at such time and place as shall from time to time be
determined by resolution of the Board.
SECTION 4. Special Meetings-Special meetings of the Board of Directors may be
called by the Chairman of the Board, the President, if a Director, or any four
Directors, and such meetings shall be held at the principal office of the
Corporation in the State of Delaware or at such other place or places either
within or without the State of Delaware as shall be specified in the notice
thereof.
Unless otherwise specified in the notice thereof, any and all business may be
transacted at any special meeting.
SECTION 5. Notice-Notice of any meeting of the Board of Directors requiring
notice shall be given to each Director by mailing the same at least forty-eight
(48) hours, or by telegraphing, telexing, telecopying or similarly
electronically communicating the same at least twelve (12) hours before the time
fixed for the meeting. Said notice may be waived by any Director. At any meeting
at which every Director shall be present any and all business may be transacted
even though no notice shall have been given.
SECTION 6. Quorum-At all meetings of the Board of Directors the presence of
one-third of the Directors, and in no event less than two (2) Directors, shall
be necessary to constitute a quorum and be sufficient for the transaction of
business and any act of a majority present at a meeting, at which there is a
quorum, shall be the act of the Board of Directors, except as may be otherwise
<PAGE>
<PAGE>
specifically provided by statute, the Certificate of Incorporation or these
By-Laws.
SECTION 7. Adjournment-Any regular or special meeting of the Board of Directors
may be adjourned from time to time by the members present whether or not a
quorum shall be present, and no notice shall be required of any adjourned
meeting beyond the announcement of such adjournment at the meeting.
SECTION 8. Committees-The Board of Directors may, by resolution or resolutions
adopted by a majority of the whole Board, designate an Executive Committee which
shall include the Chairman of the Board, and the President, if a Director, and
which, except as set forth in the resolution or resolutions designating such
Executive Committee, shall have and may exercise the powers of the Board in the
management of the business and affairs of the Corporation and may authorize the
seal of the Corporation to be affixed to all papers which may require it. The
Board of Directors may, by like action, designate one or more other committees,
each of which shall have and may exercise such powers as shall be set forth in
the resolution or resolutions designating it.
Each committee shall consist of two or more Directors of the Corporation. The
Board of Directors shall designate for each such committee a chairman, and if
desired a vice chairman, who shall continue as such during the pleasure of the
Board of Directors. The Board of Directors may also designate one or more
Directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. In the event of the death,
incapacity or inability to act of the chairman, a successor shall be selected by
the Board of Directors and the vice chairman shall not succeed the chairman
unless selected by the Board. The committees shall each fix their own rules of
procedure and shall meet where and as provided by such rules, or by resolution
of the Board of Directors. Each such committee shall keep accurate records of
its proceedings and report the same to the Board when required.
In the absence or disqualification of any member of any committee designated as
above provided, the member or members present at any meeting and not
disqualified from voting (whether or not constituting a quorum) may unanimously
appoint another member of the Board of Directors to act at the meeting in the
place of such absent or disqualified member.
<PAGE>
<PAGE>
SECTION 9. Written Consents-Any action required or permitted to be taken at any
meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if all members of the Board or of such committee, as the case
may be, consent thereto in writing, and the writing or writings are filed with
the minutes of proceedings of the Board or committee.
SECTION 10. Advisory Directors-The Board of Directors may from time to time
create one or more positions of Advisory Directors, and may fill such position
or positions for such term as the Board deems proper. Each Advisory Director
shall have the privilege of attending meetings of the Board, but notice to an
Advisory Director shall not be considered required under law, the Certificate of
Incorporation or these By-Laws. Each Advisory Director shall be entitled to
receive such amounts as may be fixed from time to time by the Board of
Directors, in the form either of fees for attendance at meetings of the Board or
of payment at the rate of a fixed sum per year or per month, or both. No
Advisory Director shall be entitled to vote on any business coming before the
Board, nor shall any Advisory Director be counted as a member of the Board for
the purpose of determining the number necessary to constitute a quorum, or for
the purpose of determining whether a quorum is present, or for any other purpose
whatsoever, nor shall any Advisory Director be eligible to serve on any
committee of the Board either as a regular or alternate member or pursuant to
the provisions of the last paragraph of Section 8 of this Article IV. In the
case of an Advisory Director, the occurrence of any event which in the case of a
Director would create a vacancy in the Board, shall not be deemed to create a
vacancy in the position of Advisory Director; but the Board of Directors may
declare the position terminated until such time as the Board shall deem it
proper again to create and fill the position.
SECTION 11. Retirement of Directors-No person shall be eligible to stand for
election, reelection or appointment to fill a vacancy as a Director of the
Corporation after having attained the age of seventy years. Notwithstanding the
foregoing, the Chief Executive Officer of the Corporation shall submit his or
her resignation as a Director of the Corporation concurrently with the
individual's retirement as an employee of the Corporation and shall not be
eligible to stand for election, reelection or appointment to fill a vacancy as a
Director of the Corporation.
<PAGE>
<PAGE>
SECTION 12. Honorary Chairmen of the Board-The Board of Directors may appoint
one or more Honorary Chairmen (each of whom shall be a Director) who shall
advise and counsel with the Chairman of the Board and who shall also have only
such other powers and perform such other duties as may be assigned to them by
the Board of Directors or the Chairman thereof.
SECTION 13. Audit Committee-There shall be appointed, from among the members of
the Board of Directors, an Audit Committee of not less than three members
comprised solely of persons who are independent of management and free from all
relationships that might in the opinion of the Board of Directors interfere with
the exercise of the independent judgment of such persons as members of the Audit
Committee; provided, however, that in no event shall any of such members be a
present officer or an employee of the Corporation or of any subsidiary of the
Corporation; and provided further that at least a majority of the members of the
Audit Committee shall be persons who were not formerly officers or employees of
the Corporation or any subsidiary of the Corporation. The members of the Audit
Committee shall be selected by the Board of Directors. The Audit Committee shall
(a) meet with the Corporation's independent accountants to review the proposed
scope of the annual audit of the Corporation's books and records and to review
the findings of the independent accountants upon completion of the annual audit
of the Corporation's books and records and (b) report to the entire Board of
Directors with respect to its meetings with the independent accountants and (c)
supervise the implementation of the Corporation's management integrity policies
and report annually to the entire Board of Directors with respect thereto and
(d) have such other duties as may from time to time be delegated to it by the
Board of Directors.
ARTICLE V
OFFICERS
SECTION 1. Number, Election and Term of Office-The offices of the Corporation
shall be the Chairman of the Board, the President, one or more Vice Presidents,
the Secretary, one or more Assistant Secretaries, the Treasurer and one or more
Assistant Treasurers, but each such office need not be filled. The Chairman of
the Board or the President shall also be the Chief Executive Officer of the
Corporation, who shall be a Director, and, subject to the direction and control
of the Board of Directors, shall have the
<PAGE>
<PAGE>
responsibility for the general and active management of the business of the
Corporation and shall see that all orders and resolutions of the Board of
Directors are carried into effect. In addition, the Chairman of the Board, the
President or any Vice President shall be the Chief Operating Officer of the
Corporation, who shall be a Director. The Officers of the Corporation shall be
elected by the Board of Directors at any regular or special meeting of the
Board, and shall hold their respective offices until their successors shall be
elected and shall have qualified; provided, however, that any Officer elected
or appointed by the Board of Directors may be removed at any time by the
affirmative vote of a majority of the Board of Directors. Any number of offices
may be held by the same person. The Board of Directors may from time to time
appoint such other officers and agents as the interest of the Corporation may
require and may fix their duties and terms of office. The Board of Directors
may from time to time appoint an officer to be the Chief Financial Officer of
the Corporation. The Board of Directors may also appoint or elect one or more
Vice Chairmen, who may but need not be officers or Directors of the
Corporation, and who shall perform such duties as may be assigned to them by
the Board of Directors or the Chairman of the Board and who, if an officer,
unless otherwise specified, shall have the duties and powers of a Vice
President.
SECTION 2. Chairman of the Board-The Chairman of the Board, who shall be a
Director, shall, if present, preside at all meetings of the Stockholders and of
the Board of Directors, shall keep the Board of Directors fully informed, and
shall freely consult them concerning the business of the Corporation. The
Chairman of the Board shall have the powers and duties delegated by these
By-Laws and the laws of the State of Delaware and such other powers and duties
as may be assigned from time to time by the Board of Directors.
SECTION 3. President-The President shall, subject to the direction and control
of the Chief Executive Officer, have the responsibility for overseeing the
operations of the business of the Corporation. In the absence of the Chairman of
the Board, the President shall preside at all meetings of the Stockholders and,
if a Director, of the Board of Directors at which he is present and otherwise
assume and perform the duties of the Chairman of the Board. The President shall
have the powers and duties delegated to him by these By-Laws and the laws of the
State of
<PAGE>
<PAGE>
Delaware and such other powers and duties as may be assigned from time to time
by the Chief Executive Officer.
SECTION 4. Vice Presidents-The Vice Presidents shall perform such duties as the
Chairman of the Board, the President or the Board of Directors shall require.
One or more of the Vice Presidents may be designated by the Board of Directors
as Senior Executive Vice Presidents, as Executive Vice Presidents or as Senior
Vice Presidents.
SECTION 5. Secretary-The Secretary may sign all certificates of stock of the
Corporation, shall keep a record in the proper books provided for that purpose
of all meetings and proceedings of the Board of Directors and of the
Stockholders of the Corporation, shall record all votes of the Directors and
Stockholders in a book to be kept for that purpose, shall notify the Directors
and Stockholders of the respective meetings as required by law or by these
By-Laws and shall perform such other duties as may be required by law or these
By-Laws, or which may be assigned from time to time by the Board of Directors.
SECTION 6. Assistant Secretaries-The Assistant Secretaries shall, during the
absence or incapacity of the Secretary, assume and perform all functions and
duties which the Secretary might lawfully do if present and not under any
incapacity.
SECTION 7. Treasurer-The Treasurer shall have charge of the funds of the
Corporation, may sign all certificates of stock, shall keep full and accurate
accounts of all receipts and disbursements of the Corporation in books belonging
to the Corporation, shall deposit all moneys and other valuable effects in the
name and to the credit of the Corporation in such depositories as may be
designated by the Board of Directors, shall disburse the funds of the
Corporation as may be ordered by the Board of Directors and shall render to the
Chairman of the Board, the President or the Directors, whenever they may require
it, an account of all transactions as Treasurer and an account of the business
of the Corporation.
SECTION 8. Assistant Treasurers-The Assistant Treasurers shall, during the
absence or incapacity of the Treasurer, assume and perform all functions and
duties which the Treasurer might lawfully do if present and not under any
incapacity.
<PAGE>
<PAGE>
SECTION 9. Treasurer's Bond-The Treasurer and Assistant Treasurers shall, if
required to do so by the Board of Directors, each give a bond in such sum and
with such surety or sureties as the Board of Directors may require.
SECTION 10. Duties May Be Transferred-The Board of Directors in its absolute
discretion may transfer the power and duties, in whole or in part, of any
Officer to any other Officer, or person, notwithstanding the provisions of these
By-Laws.
ARTICLE VI
RESIGNATIONS AND REMOVALS
SECTION 1. Resignations-Any Director, officer or agent of the Corporation may
resign at any time by giving written notice to the Board of Directors or to the
Chairman of the Board, the President or the Secretary of the Corporation; and
any member of any committee may resign by giving written notice either as
aforesaid or to the committee of which such person is a member or the chairman
thereof. Any such resignation shall take effect at the time specified therein
or, if the time be not specified, upon receipt thereof; and unless otherwise
specified therein, acceptance of such resignation shall not be necessary to make
it effective.
SECTION 2. Removals-The Stockholders, at any meeting called for the purpose, by
vote of the majority of the outstanding stock entitled to vote, may remove from
office any Director and elect such Director's successor. The Board of Directors
by vote of not less than a majority of the entire Board, may remove from office
any officer, agent or member of any committee elected or appointed by it.
ARTICLE VII
INDEMNIFICATION
SECTION 1. Basic Indemnification-The Corporation shall indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the Corporation) by
reason of the fact that such person is or was a Director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
<PAGE>
<PAGE>
joint venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the Corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
his or her conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which such person
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his or her conduct was unlawful.
SECTION 2. Derivative Suits-The Corporation shall indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that such person is or was a
Director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection with the defense or settlement of such action or suit
if such person acted in good faith and in a manner such person reasonably
believed to be in or not opposed to the best interests of the Corporation and
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
Corporation unless and only to the extent that the Court of Chancery of the
State of Delaware or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery of the State
of Delaware or such other court shall deem proper.
SECTION 3. Successful Defense-To the extent that a director, officer, employee
or agent of a corporation has been successful on the merits or otherwise in the
defense of any action, suit or
<PAGE>
<PAGE>
proceeding referred to in Sections 1 and 2, or in defense of any claim, issue or
matter therein, such person shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection
therewith.
SECTION 4. Determination of Standard-Any indemnification under Sections 1 and 2
(unless ordered by a court) shall be made by the Corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he or she has
met the applicable standard of conduct set forth in Sections 1 and 2. Such
determination shall be made (a) by the Board of Directors by a majority vote of
a quorum consisting of Directors who were not parties to such action, suit or
proceeding, or (b) if such a quorum is not obtainable, or, even if obtainable a
quorum of disinterested Directors so directs, by independent legal counsel in a
written opinion, or (c) by the Stockholders.
SECTION 5. Advancement of Expenses-Expenses incurred by a Director or officer in
defending a civil or criminal action, suit or proceeding shall be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such Director or
officer to repay such amount if it shall ultimately be determined that such
Director or officer is not entitled to be indemnified by the Corporation as
authorized in this Article VII. Such expenses incurred by other employees and
agents may be so paid upon such terms and conditions, if any, as the Board of
Directors deems appropriate.
SECTION 6. By-Laws Not Exclusive-The indemnification and advancement of expenses
provided by, or granted pursuant to, the other Sections of this Article VII
shall not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any by-law,
agreement, vote of stockholders or disinterested directors or otherwise, both as
to action in such person's official capacity and as to action in another
capacity while holding such office.
SECTION 7. Insurance-The Corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a Director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
<PAGE>
<PAGE>
joint venture, trust or other enterprise against any liability asserted against
such person and incurred by such person in any such capacity, or arising out of
such person's status as such, whether or not the Corporation would have the
power to indemnify such person against such liability under the provisions of
this Article VII.
SECTION 8. Consolidations and Mergers-For purposes of this Article VII,
references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under the provisions
of this Article VII with respect to the resulting or surviving corporation as
such person would have with respect to such constituent corporation if its
separate existence had continued.
SECTION 9. Employee Benefit Plans-For purposes of this Article VII, references
to "other enterprises" shall include employee benefit plans; references to
"fines" shall include any excise taxes assessed on a person with respect to an
employee benefit plan; and references to "serving at the request of the
Corporation" shall include any service as a Director, officer, employee or agent
of the Corporation which imposes duties on, or involves services by, such
Director, officer, employee or agent with respect to an employee benefit plan,
its participants, or beneficiaries; and a person who acted in good faith and in
a manner such person reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be deemed to
have acted in a manner "not opposed to the best interests of the Corporation" as
referred to in this Article VII.
SECTION 10. Indemnification Agreements-The Corporation shall have the express
authority from time to time to enter into such agreements, which may contain
provisions for indemnification under any and all circumstances permitted under
applicable law, as the Board of Directors deems appropriate for the
<PAGE>
<PAGE>
indemnification of present or future directors and officers of the Corporation
in connection with their service to, or status with, the Corporation or any
other corporation, entity or enterprise with which such person is serving at the
request of the Corporation.
SECTION 11. Survival-The indemnification and advancement of expenses provided
by, or granted pursuant to, this Article VII shall, unless otherwise provided
when authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
ARTICLE VIII
CONTRACTS, CHECKS AND NOTES
SECTION 1. Contracts-Unless the Board of Directors shall otherwise direct
generally or in specific instances, all contracts of the Corporation shall be
executed in the name of the Corporation by or on behalf of the Chairman of the
Board, the President, a Vice President or the Treasurer.
SECTION 2. Checks and Notes-All checks, drafts, bills of exchange and promissory
notes and other negotiable instruments of the Corporation shall be signed by
such officers or agents of the Corporation as may be designated by the Board of
Directors.
ARTICLE IX
STOCK
SECTION 1. Form of Issuance-Certificates of stock shall be issued in such form
as may be approved by the Board of Directors and shall be signed by, or in the
name of the Corporation by, the Chairman of the Board, or the President or a
Vice President and the Treasurer or an Assistant Treasurer or the Secretary or
an Assistant Secretary; provided, however, that when certificates are signed by
a transfer agent or a registrar (in either case other than the Corporation or an
employee), the signature of any such Chairman of the Board, President, Vice
President, Treasurer, Assistant Treasurer, Secretary or Assistant Secretary may
be facsimile. In case any officer or officers who shall have signed, or whose
facsimile signature or signatures shall have been used on, any such certificate
or certificates, shall cease to be such officer or officers of the Corporation,
whether because of death, resignation or otherwise, before such certificate or
certificates
<PAGE>
<PAGE>
shall have been delivered by the Corporation, such certificate or certificates
shall nevertheless, unless otherwise determined by the Board generally or in
particular instances, be deemed to have been adopted by the Corporation as and
for a stock certificate thereof without the necessity of any further action and
may be issued and delivered as though the person or persons who signed such
certificate or certificates or whose facsimile signature or signatures shall
have been used thereon had not ceased to be such officer or officers of the
Corporation.
SECTION 2. Transfer-The Board of Directors shall have power and authority to
make such rules and regulations as they may deem expedient concerning the issue,
registration and transfer of certificates of stock, and may appoint transfer
agents or clerks and registrars thereof.
SECTION 3. Lost Certificates, Etc.-In place of any certificates of stock lost,
stolen, mutilated or destroyed, the Board of Directors may authorize the
issuance of new certificates upon compliance with such terms and conditions as
may be approved by the Board or, within such limitations as may be prescribed by
the Board, by any officer or officers of the Corporation designated by the
Board, including as a condition in each case the furnishing of an appropriate
bond unless in the judgment of the Board no such bond is required to be
furnished.
ARTICLE X
REGISTERED STOCKHOLDERS
The Corporation shall be entitled to treat the holder of record of any share or
shares of stock as the holder in fact thereof and, accordingly, shall not be
bound to recognize any equitable or other claim to, or interest in, such share
or shares on the part of any other person, whether or not it shall have express
or other notice thereof, save as expressly provided by the laws of the State of
Delaware.
ARTICLE XI
INSPECTION OF BOOKS
The Board of Directors may determine from time to time whether and to what
extent and at what times and places and under what conditions, the books of the
Corporation, or any of them, shall be opened to the inspection of Stockholders
of the Corporation
<PAGE>
<PAGE>
and no Stockholder shall have any right to inspect any account or book or
document of the Corporation except as conferred by the laws of the State of
Delaware, unless and until authorized to do so by resolution of the Board of
Directors or of the Stockholders.
ARTICLE XII
VOTING OF STOCK HELD
Unless otherwise provided by resolution of the Board of Directors, the Chairman
of the Board, the President, or any Vice President may from time to time appoint
any attorney or attorneys or agent or agents of the Corporation, in the name and
on behalf of the Corporation, to cast the votes which the Corporation may be
entitled to cast as a stockholder or otherwise in any other corporation or
association, any of whose stock or securities may be held by the Corporation, at
meetings of the holders of the stock or other securities of such other
corporation or association, or to consent in writing to any action by any such
other corporation or association and may instruct the person or persons so
appointed as to the manner of casting such votes or giving such consent, and may
execute or cause to be executed on behalf of the Corporation and under its
corporate seal, or otherwise, such written proxies, consents, waivers or other
instruments as such officer may deem necessary or proper in the premises; or the
Chairman of the Board, the President or any Vice President may personally attend
any meetings of the holders of stock or other securities of any such other
corporation or association and thereat vote or exercise any or all other powers
of the Corporation as the holder of such stock or other securities of such other
corporation or association, or may consent in writing to any action by any such
other corporation or association.
ARTICLE XIII
FIXING OF RECORD DATE
The Board of Directors may fix in advance a date, not less than 10 nor more than
60 days preceding the date of any meeting of Stockholders, and not more than 60
days preceding the date for the payment of any dividend or other distribution or
the date for the allotment of rights, or the date when any change or conversion
or exchange of stock shall go into effect, as a record date for the
determination of the Stockholders entitled to notice of, and to vote at, any
such meeting and any adjournment thereof,
<PAGE>
<PAGE>
or entitled to receive payment of any such dividend or other distribution, or to
receive any such allotment of rights, or to exercise the rights in respect of
any such change, conversion or exchange of stock, and in such case only such
Stockholders as shall be Stockholders of record on the date so fixed shall be
entitled to such notice of, and to vote at, such meeting and any adjournment
thereof, or to receive payment of such dividend or other distribution, or to
receive such allotment of rights, or to exercise such rights, as the case may
be. If no such record date is fixed, the record date for such action shall be
determined as provided under the laws of the State of Delaware.
ARTICLE XIV
WAIVER OF NOTICE
Whenever any notice whatever is required to be given by statute or under the
provisions of the Certificate of Incorporation or these By-Laws, a waiver
thereof in writing signed by the person or persons entitled to said notice,
whether before or after the time stated therein, shall be equivalent thereto.
Attendance at a Stockholders' meeting shall constitute a waiver of notice
thereof unless the Stockholder is attending the meeting for the express purpose
of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Except as
otherwise required in the Certificate of Incorporation or these By-Laws, neither
the business to be transacted at, nor the purpose of, any annual or special
meeting of Stockholders need be specified in any written waiver of notice.
ARTICLE XV
SEAL
The corporate seal of the Corporation shall be circular and shall bear the name
of the Corporation, and the year and State of its incorporation.
ARTICLE XVI
FISCAL YEAR
The fiscal year of the Corporation shall begin on the first day of January of
each year and shall end on the thirty-first day of December following.
<PAGE>
<PAGE>
ARTICLE XVII
AMENDMENTS
All By-Laws of the Corporation shall be subject to alteration, amendment or
repeal, and new By-Laws may be made, either by affirmative vote of the holders
of record of a majority of the outstanding stock of the Corporation entitled to
vote, given at an annual meeting or at any special meeting, provided notice of
the proposed alteration, amendment or repeal or of the proposed new By-Laws is
included in or accompanies the notice of such meeting or waiver thereof, or
(except as otherwise provided in a By-Law adopted by the Stockholders) by the
affirmative vote of a majority of the whole Board of Directors given at a
regular or special meeting of the Board of Directors, provided that the notice
of such meeting indicates that the By-Laws are to be repealed, altered or
amended or that new By-Laws are to be adopted (but such notice need not specify
the particular By-Laws to be repealed, altered or amended or the new By-Laws to
be adopted), or if all of the Directors at the time in office be present at such
meeting or those not present shall at any time waive or have waived notice
thereof in writing.
<PAGE>
<PAGE>
WARNER-LAMBERT COMPANY
EXECUTIVE SEVERANCE PLAN
As Amended To October 1, 1997
<PAGE>
<PAGE>
WARNER-LAMBERT COMPANY
EXECUTIVE SEVERANCE PLAN
Section 1. Establishment of Plan. Warner-Lambert Company (the
"Company") hereby establishes this Executive Severance Plan (the "Plan"). The
Plan shall become effective as of February 17, 1988 (the "Effective Date").
Section 2. Purposes of Plan. In recognition of the establishment of the
Enhanced Severance Plan which is not applicable to Participants (as
hereinafter defined) in this Plan, and in further recognition of the several
different concerns of Executives encompassed hereby, the purposes of the Plan
are to: (a) fulfill the Company's commitment under the Warner-Lambert Creed
of attracting and retaining capable people as a means of both addressing the
health and well-being of people throughout the world and providing a fair and
attractive economic return to the Company's shareholders; (b) address the
concerns of the Company's Executives regarding job security; and (c) help
ensure that the Executives receive the benefits which they legitimately
expect in the normal course of their employment.
Section 3. Definition of Executives; Eligibility.
3.1. Definition of Executives. For purposes of this Plan, the term
"Executives" shall mean (a) all employees of the Company who are subject to
the reporting requirements of Section 16(a) of the Act (as hereinafter
defined) ("Corporate Officers") on the Effective Date; (b) all persons who
become Corporate Officers after the Effective Date and (c) all employees of
the Company who are designated by the Board of Directors of the Company (the
"Board") or
2
<PAGE>
<PAGE>
by the Executive Committee of the Company (as such bodies are constituted
prior to the occurrence of a Change in Control (as hereinafter defined)) as
eligible for participation in this Plan ("Designated Employees"). For
purposes of this Plan, the term "Act" shall mean the Securities Exchange Act
of 1934, as amended.
3.2. Eligibility. All Executives shall participate in the Plan (the
"Participants"); provided, however, that (i) except as provided in clauses
(iii) and (iv) of this subsection, an Executive shall cease to be a
Participant at the time such Executive ceases to be a Corporate Officer; (ii)
no person who is not an Executive at the time of the occurrence of a Change
in Control shall become a Participant thereafter; (iii) except as provided in
clause (iv) of this subsection, the participation of a Designated Employee
shall cease at the time that such employee ceases to be a corporate officer
appointed to such position by the Board of Directors, unless such employee
continues to be a Corporate Officer; and (iv) no Executives who are
Participants at the time of the occurrence of a Change in Control shall cease
participation without their written consent.
Section 4. Definition of Change in Control; Activation Event.
4.1. Change In Control. For purposes of this Plan, a "Change in
Control" of the Company shall be deemed to have occurred if (i) any person
(as such term is used in Sections 13(d) and 14(d)(2) of 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
3
<PAGE>
<PAGE>
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.
4.2. Activation Event. For purposes of this Plan, the term "Activation
Event" shall mean a termination of employment with the Company (whether
voluntary or involuntary) within three (3) years after a Change in Control
for any reason other than death or Termination for Just Cause (as hereinafter
defined).
Section 5. Severance Benefits. Upon the occurrence of an Activation
Event with respect to a Participant, the following shall apply to such
Participant: (a) the benefits specified in Severance Policy #163, as such
policy is in effect immediately prior to the occurrence of the Change in
Control (including amounts due by reason of such event) (the "Severance
Policy"), shall be paid to the
4
<PAGE>
<PAGE>
Participant, in accordance with the coverage provisions thereof, even though
the termination would not otherwise give rise to severance payments,
provided, however, that the Severance Pay Duration Period (as defined in the
Severance Policy) of Participants shall be thirty-six (36) months; (b)
severance benefits shall be determined on the basis of base pay plus Bonus
Amount (as hereinafter defined), extrapolated for the entire Severance Pay
Duration Period, as determined in accordance with paragraph (a) hereof (for
example severance benefits shall include payment of, and benefits continuance
shall in part be based upon, three (3) times the Participant's Bonus Amount);
(c) severance payments and continued eligibility for other benefits shall not
terminate upon other employment, retirement or death; (d) severance payments
(including amounts paid in respect of the Participant's Bonus Amount) shall,
at the election of the Participant, be made monthly or in a lump sum
(regardless of eligibility therefor under the Severance Policy) and the
receipt of a lump sum payment shall not terminate coverage under other
benefit arrangements which are otherwise continued during the Severance Pay
Duration Period under the Severance Policy; and (e) the Company shall provide
third party outplacement assistance consistent with the Company's prior
practices. For purposes hereof, the term "Bonus Amount" shall mean the target
award for such Participant's job grade as set forth in Exhibit 5 hereto, as
such schedule may be revised from time to time; provided, however, that upon
the occurrence of a Change in Control, the target awards may not be reduced.
Section 6. Retirement Plans. Upon the occurrence of a Change in Control,
5
<PAGE>
<PAGE>
the vesting requirement applicable to Participants shall become five (5)
Years of Service (as defined in the Warner-Lambert Retirement Plan (the
"Retirement Plan")) and upon the occurrence of an Activation Event with
respect to a Participant, such Participant shall receive credit for all
purposes of the Retirement Plan for the Severance Pay Duration Period
(including the extension thereto provided under Section 5) and the payments
received in respect of such Period to the extent permissible under the
Internal Revenue Code of 1986, as amended (the "Code"), with the balance of
such credit, if any, being given under the Warner-Lambert Supplemental
Pension Income Plan (the "Supplemental Pension Plan"). In addition, upon the
occurrence of an Activation Event with respect to a Participant, eligibility
for Supplemental Pension Income under the Supplemental Pension Plan shall
become attainment of salary grade 17 prior to the Change in Control. To
implement the aforementioned, the Retirement Plan is hereby amended by (i)
deleting the second parenthetical in the first sentence of Section 7 of
Article XIII thereof, and (ii) revising the third sentence of Section 7 of
Section XIII thereof, to read in its entirety as provided in Exhibit 6(a)
hereto. Further, the Supplemental Pension Plan is hereby amended by (i)
adding the phrase "and the Warner-Lambert Executive Severance Plan" after the
fifteenth word of Section 13.3 of Article XIII thereof and revising Section
13.1(a) to read in its entirety as provided in Exhibit 6(b) hereto.
Section 7. Savings Plan. Upon the occurrence of an Activation Event with
respect to a Participant, such Participant shall receive credit for all
purposes of the Warner-Lambert Savings and Stock Plan (the "Savings Plan")
for the
6
<PAGE>
<PAGE>
Severance Pay Duration Period (including the extension thereto provided under
Section 5) and the payments received in respect of such Period (exclusive of
Bonus Amounts) to the extent permissible under the Code, with the balance of
such credit, if any, being given under the Warner-Lambert Supplemental
Savings Plan (the "Supplemental Savings Plan"). To implement the
aforementioned, the Savings Plan is hereby amended by (i) deleting the second
parenthetical in the first sentence of Section 7.6 thereof, (ii) revising the
third sentence of Section 7.6 thereof, to read in its entirety as provided in
Exhibit 7 hereto and (iii) the Supplemental Savings Plan is hereby amended by
adding the phrase "and the Warner-Lambert Executive Severance Plan" after the
fifteenth word of the last paragraph of Section 11.1 of Article 11 thereof.
Section 8. Incentive Compensation Plan. Upon the occurrence of a Change
in Control, (i) the formula for determining the rate for adjustments to
Deferred Bonus Accounts (as defined in the Warner-Lambert Company Incentive
Compensation Plan (the "Incentive Compensation Plan")) may not be lower for
succeeding periods than the formula in effect at the occurrence of the Change
in Control (for example, if the formula in effect at the Change in Control is
the average prime rate plus two (2) percent, the formula for all future years
may not be lower than the average prime rate plus two (2) percent); (ii) the
consulting and forfeiture provisions of the Incentive Compensation Plan shall
no longer apply; (iii) the Company shall promptly transfer an amount equal to
the aggregate of all Deferred Bonus Accounts to a trustee under an
irrevocable trust commonly known as a "Rabbi Trust"; (iv) if the Participant
had a Deferred Bonus Account
7
<PAGE>
<PAGE>
on September 27, 1994, and he or she did not consent in writing to the
provisions described in the following clause (v) prior to November 1, 1994,
then upon the Participant's termination of employment with the Company, he or
she shall promptly receive the balance in the Deferred Bonus Account in a
lump sum distribution; and (v) upon a Participant's termination of employment
with the Company within 3 years after a change in Control, he or she may,
within 30 days thereafter, designate a distribution schedule for their
Deferred Bonus Account which schedule may provide for a lump sum payment or
installment payments over a period of up to 15 years, provided, however, that
no payment shall be made until the end of the severance period (for example,
if the Participant is entitled to 3 years' severance pay, deferred bonus
payments may not begin until 3 years after termination even if such
Participant receives the severance pay in a lump sum at termination). To
implement the aforementioned, the Incentive Compensation Plan is hereby
amended by (i) deleting the second parenthetical in the third sentence of
Section 5.2 thereof and (ii) deleting the parenthetical in the first sentence
of Sections 6.3 and 7.1(d) thereof.
Section 9. Stock Option Plans. Upon the occurrence of a Change in
Control, all Options (as such term is defined in the Stock Option Plans (as
hereinafter defined)) then outstanding under the Warner-Lambert Company 1974
Stock Option and Alternate Stock Plan, the Warner-Lambert Company 1983 Stock
Option Plan and the Warner-Lambert Company 1987 Stock Option Plan
(collectively, the "Stock Option Plans") and held by Participants shall
become immediately exercisable by the optionee. Effective as of the Effective
Date of
8
<PAGE>
<PAGE>
the Plan, limited stock appreciation rights ("LSAR's") are hereby granted to
all Participants, at such Effective Date, in connection with all outstanding
options held by such Participants which are not Reference Options (as defined
in the Stock Option Plans). Such LSAR's shall only be exercisable for a
thirty (30) day period beginning on the date of the occurrence of a Change in
Control unless (i) the optionee is subject to the reporting requirements of
Section 16(a) of the Act at the time of the occurrence of the Change in
Control and (ii) such event occurs within six (6) months of the date of grant
of the LSAR's, in which case the LSAR's shall only be exercisable during the
thirty (30) day period beginning six (6) months after the grant of the
LSAR's. Such LSAR's shall remain exercisable (during the thirty (30) day
period beginning on the date of the occurrence of the Change in Control or
during the thirty (30) day period beginning six (6) months after the grant of
the LSAR's, as the case may be), notwithstanding the termination of the
optionee's employment with the Company. Upon the occurrence of the Change in
Control within six (6) months of the date of grant of the LSAR's, the Company
shall promptly transfer to a trustee under an irrevocable trust commonly
known as a "Rabbi Trust" for the benefit of the Participants the maximum
amount of cash estimated to be necessary to satisfy the Company's obligations
upon exercise of all such LSAR's. Upon exercise of an LSAR, a Participant
shall be entitled to receive a cash payment equal to the excess of the Fair
Market Value (as hereinafter defined) on the date of exercise of a share of
Warner-Lambert Common Stock over the grant price of the Option to which the
LSAR relates multiplied by the number of shares with respect to
9
<PAGE>
<PAGE>
which the LSAR is being exercised. For purposes hereof, the term "Fair Market
Value" shall have the same definition currently applicable to the exercise of
a Right (as defined in the Stock Option Plans) during the thirty (30) day
period following a Change in Control. In addition, upon the occurrence of a
Change in Control, all Rights then outstanding under the Stock Option Plans
and held by Participants shall become immediately exercisable by the grantee;
provided, however, that such Rights which have been held by the grantee for
less than six (6) months shall become fully exercisable only during the
thirty (30) day period beginning six (6) months after the date of grant,
notwithstanding the termination of the grantee's employment with the Company.
Upon the occurrence of a Change in Control, the Company shall promptly
transfer to a trustee under a Rabbi Trust for the benefit of Participants the
maximum amount of cash estimated to be necessary to satisfy the Company's
obligations upon exercise of all outstanding Rights then held by Participants
for less than six (6) months. To implement the aforementioned, (i) Article 7
of the Stock Option Plans is hereby amended by deleting paragraph (i) of
Section 7(b) thereof in its entirety and substituting a new Paragraph (i)
therefor, to read in its entirety as provided in Exhibit 9(a) hereto; (ii)
Article 8 of the Stock Option Plans is hereby amended by deleting Paragraph
(b) thereof in its entirety and substituting a new Paragraph (b) therefor, to
read in its entirety as provided in Exhibit 9(b) hereto; and (iii) Article 8
of the Stock Option Plans is hereby amended by adding a new Paragraph (f)
thereto, to read in its entirety as provided in Exhibit 9(c) hereto. In
addition, all Options and Rights presently outstanding are hereby amended by
10
<PAGE>
<PAGE>
deleting the last paragraph of Paragraph 1 thereof in its entirety and
substituting therefor the language as provided in Exhibit 9(d) hereto. In
addition, the Stock Option Plans and the Warner-Lambert Company 1989 Stock
Plan, the Warner-Lambert Company 1992 Stock Plan and the Warner-Lambert
Company 1996 Stock Plan (collectively, the "Stock Plans") are hereby amended
as set forth in Exhibit 9(e) hereof with respect to a "Merger of Equals" (as
therein defined).
Section 10. Medical Benefits. Upon the occurrence of an Activation Event
with respect to a Participant, such Participant's coverage under the
Warner-Lambert Medical Plan and the Warner-Lambert Dental Plan (or HMO, as
the case may be) shall continue for the duration of the Severance Pay
Duration Period (including the extensions thereto provided under Section 5),
whether or not the Participant receives the severance payments in a lump sum
or in monthly payments. In addition, the Participant shall be eligible for
the subsidized Retiree Medical/Dental Plan For Post 1991 Warner-Lambert
Retirees if the Participant's age (in full and partial years) plus service
(in full and partial years and counting all service which is credited for
determining vesting under the Retirement Plan) equals at least seventy (70),
with age and service being determined as of the end of the Severance Pay
Duration Period (including the extensions thereto provided under Section 5),
whether or not the Participant elects to receive severance payments in a lump
sum or in monthly payments (i.e., service shall be determined by including
the Severance Pay Duration Period (including the extensions thereto provided
under Section 5) as service, and age shall be determined as of the end of the
Severance Pay Duration Period (including the
11
<PAGE>
<PAGE>
extensions thereto provided under Section 5), even if the Participant elects
to receive severance in a lump sum). Further, upon the occurrence of a Change
in Control, the Company's retiree medical plan may not be terminated or
amended in a manner that is not also applicable to active employees.
Section 11. Termination of Plan. This Plan may not be terminated with
respect to any Participant without the written consent of such Participant.
Section 12. Amendment of Plan. This Plan may not be amended in any
manner which has a significant adverse effect on any Participant and his
rights hereunder without the written consent of such Participant.
Notwithstanding the foregoing, upon the occurrence of a Change in Control,
this Plan may not be amended in any respect without the written consent of
each Participant affected by such proposed amendment. Notwithstanding any
other provision hereof, the Plan may be amended in order to obtain or
maintain the status of (i) the Retirement Plan and Savings Plan as qualified
plans under Section 401(a) of the Code and (ii) the Stock Option Plans as
qualified under Rule 16b-3 promulgated pursuant to the Act.
Section 13. Administration. The Chief Executive Officer of the Company
shall appoint a committee (the "Committee") consisting of three (3)
Participants, one of whom shall be the Corporate Vice President, Human
Resources, who shall act as chairman, to administer the Plan. The Committee
shall have the authority to interpret the Plan and to adopt rules for the
implementation thereof.
Section 14. Termination for Just Cause. For purposes of this Plan, the
term "Termination for Just Cause" shall mean termination for the commission
of a
12
<PAGE>
<PAGE>
wrongful action such as theft of Company property or alcohol or drug abuse.
The Company intends that Termination for Just Cause shall be limited to
actions which are comparable to theft or substance abuse. The determination
of whether alleged grounds for termination qualify as a Termination for Just
Cause shall be made by an Arbitration Panel (as hereinafter defined).
Section 15. Contract Right of Participants. The Board of Directors of
the Company intends this Plan to constitute an enforceable contract between
the Company and each Participant and intends this Plan to vest rights in such
Participants as third party beneficiaries.
Section 16. Compensation. For all purposes hereof, except Section 3 and
except to the extent provided in Section 5 with respect to the determination
of a Participant's Bonus Amount, a Participant's compensation, rate of base
earnings, job grade, target award or similar amounts or status shall be the
higher of such amount, grade or status (as the case may be) at the time of
(i) the occurrence of a Change in Control, or (ii) the termination of the
Participant's employment.
Section 17. Construction. 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 18. Governing Law. 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).
13
<PAGE>
<PAGE>
Section 19. Successors and Assigns. The Plan shall be binding upon
the Company and upon any assignee or successor in interest to the Company.
Section 20. Excise Tax Reimbursement Agreements. As soon as practicable
after the Effective Date, all Participants shall enter into excise tax
reimbursement agreements substantially in the form provided in Exhibit 20
hereto. The objective of these agreements is to reimburse the Participants,
on an after-tax basis, for any federal excise tax or similar state or local
taxes (whether or not such taxes are in existence on the date hereof) that
would be imposed as a result of a change in control of the Company.
Section 21. Arbitration Panel. For purposes of this Plan, the term
"Arbitration Panel" shall mean three (3) independent arbitrators, one of whom
shall be selected by the Company, one by the Participant and the third shall
be selected by the two other arbitrators. In the event that agreement cannot
be reached on the selection of the third arbitrator, such arbitrator shall be
selected by the American Arbitration Association. All arbitrators shall be
selected from a list provided by the American Arbitration Association. All
matters presented to the Arbitration Panel shall be decided by majority vote.
All costs of the arbitration, including the Participant's attorneys' fees, if
any, shall be paid by the Company.
Section 22. Uniform Definition of Change in Control. The definitions of
change in control in the Retirement Plan, Savings Plan, Warner-Lambert
Company Supplemental Pension Income Plan, Severance Policy, Warner-Lambert
Supplemental Savings Plan, Stock Option Plans, Warner-Lambert
14
<PAGE>
<PAGE>
Company 1989 Stock Plan, Restricted Stock Plan for Directors of
Warner-Lambert Company, Deferred Compensation Plan for Directors of
Warner-Lambert Company and Warner-Lambert Company Directors' Retirement Plan
shall be amended to incorporate the definition of "Change in Control"
contained in Section 4 of this Plan. To implement the foregoing, such plans
are hereby amended as provided in Exhibit 22 hereto.
Section 23. Notice of Termination. During the three (3) year period
after the occurrence of a Change in Control, the employment of a Participant
may not be terminated, except in the event of Termination for Just Cause,
unless the Participant has received six (6) months' advance notice of the
termination in a letter written to such Participant, which letter shall
specify (i) the date of termination, which date shall not be sooner than six
(6) months after receipt of such letter by the Participant, (ii) the reason
for termination, and (iii) a commitment to honor this Plan, including,
without limitation, the Severance Policy, and to pay to the Participant all
amounts to which the Participant is entitled thereunder. In addition, the
expiration of such three (3) year period shall not extinguish the rights of
any Participant who has received notice of termination during such three (3)
year period (i) to a full six (6) month notice period (even if such notice
period thereby extends beyond the three (3) year period), and (ii) to a
payment of such Participant's severance and other benefits in accordance with
the provisions of this Plan.
Section 24. Maintenance of Status Quo. Upon the occurrence of a Change
in Control, no Participant's salary, bonus or benefits may be reduced for a
period
15
<PAGE>
<PAGE>
of three (3) years provided that such Participant's performance is
acceptable. For purposes of this Section, a Participant's performance shall
be considered "acceptable" unless the Participant receives a written
performance appraisal indicating (a) that such Participant's overall
performance (i) is not acceptable and (ii) has not been acceptable during a
performance review period extending at least six (6) months and (b) the
specific reasons the Participant's performance is not acceptable. Further,
such performance appraisal must have been (a) reviewed and concurred in by
the Participant's supervisor, the supervisor's supervisor (unless the
Participant's supervisor is the Chief Executive Officer of the Company) and
the Participant's Human Resources representative and (b) preceded by a
written warning given to such Participant which shall have provided a
reasonable opportunity for the Participant to improve his or her performance.
WARNER-LAMBERT COMPANY
16
<PAGE>
<PAGE>
EXHIBIT 5
1999 TARGET ANNUAL INCENTIVE AWARD
<TABLE>
<CAPTION>
Target (as % of
Senior Officers Base Salary)
--------------- -----------
<S> <C>
Chairman and CEO 105%
President and COO 95%
VP and President Confectionery Sector 65%
VP and President Pharm Sector 65%
VP and CFO 70%
VP and General Counsel 70%
VP Strategic Management Processes 55%
SR. VP & Chief Scientific Officer 55%
VP & President WL/PD R&D 55%
VP and President Consumer Healthcare Sector 65%
VP and President ACG 60%
VP and President Consumer Healthcare 60%
VP and President SPG 60%
President P-D U.S. and Mexico 50%
VP HR 65%
VP and President Eu/Me/Afr 60%
VP Knowledge Management 55%
VP Public Affairs 50%
</TABLE>
12/17/98
17
<PAGE>
<PAGE>
EXHIBIT 6(a)
Retirement Plan
"The term "Activation Event" shall also include a termination of
employment with the Company (whether voluntary or involuntary) within two (2)
years after a Change in Control for any reason other than death or
Termination for Just Cause (i) with respect to Participants who are covered
by the Executive Severance Plan at the time of occurrence of the Change in
Control, and (ii) with respect to all other Participants (x) if the Change in
Control occurs otherwise than through a transaction approved and authorized
or consented to by the Board of Directors of the Company, as constituted
prior to such transaction, or (y) in such other circumstance as the Board of
Directors shall deem appropriate."
18
<PAGE>
<PAGE>
EXHIBIT 6(b)
Supplemental Pension Plan
(a) an Employee shall be eligible to receive a Supplemental Pension
Income in an amount determined in accordance with Article VI hereof if he was
at salary grade 17 or higher prior to such Change in Control of the Company
and an "Activation Event" (as defined in the Executive Severance Plan) shall
have occurred with respect to such Employee;
19
<PAGE>
<PAGE>
EXHIBIT 7
Savings Plan
"The term "Activation Event" shall also include a termination of
employment with the Company (whether voluntary or involuntary) within two (2)
years after a Change in Control (as hereinafter defined) for any reason other
than death or Termination for Just Cause (i) with respect to Participants who
are covered by the Executive Severance Plan at the time of occurrence of the
Change in Control, and (ii) with respect to all other Participants (x) if the
Change in Control occurs otherwise than through a transaction approved and
authorized or consented to by the Board of Directors of the Company, as
constituted prior to such transaction, or (y) in such other circumstance as
the Board of Directors shall deem appropriate."
20
<PAGE>
<PAGE>
EXHIBIT 9(a)
Stock Option Plans
"(i) Notwithstanding any other provision contained in this Plan, no part
of an Option may be exercised unless the Optionee remains in the continuous
employ of the Company for one year from the date the Option is granted except
that upon the occurrence of a Change in Control of Warner-Lambert Company (as
hereinafter defined) all Options may be exercised without giving effect to
the one year limitation and the limitations, if any, which may have been
imposed by the Committee pursuant to paragraph (b)(ii) of this Article 7 with
respect to the percent of the total number of shares to which the Option
relates which may be purchased from time to time during the Option Period."
21
<PAGE>
<PAGE>
EXHIBIT 9(b)
Stock Option Plans
"(b) Exercise of Right. A Right shall become exercisable at such time,
and in respect of such number of shares of Common Stock, as the Reference
Option is then exercisable and such Right shall terminate upon termination of
the Reference Option, provided, however, that no Right shall be exercisable
unless the Grantee shall have remained in the continuous employ of the
Company for one year from the date the Right was granted except that upon the
occurrence of a Change in Control of Warner-Lambert Company, all Rights may
be exercised without giving effect to the one year limitation and the
limitations, if any, which may have been imposed by the Committee pursuant to
paragraph (b)(ii) of Article 7 with respect to the percent of the total
number of shares to which the Right relates which may be purchased from time
to time during the Option Period; provided, however, that Rights which have
been held for less than six months on the date of the occurrence of a Change
in Control by Grantees who at the time of the occurrence of the Change in
Control are subject to the reporting requirements of Section 16(a) of the Act
may be exercised only during the thirty (30) day period beginning six months
after the date of grant of the Right, notwithstanding the termination of the
Grantee's employment with the Company, and without giving effect to the one
year limitation and the limitations, if any, which may have been imposed by
the Committee pursuant to paragraph (b)(ii) of Article 7 with respect to the
percent of the total number of shares to which the Right relates which may be
purchased from time to time during the Option
22
<PAGE>
<PAGE>
Period. Except as provided in this paragraph (b) and in paragraphs (d) and
(e) of this Article 8, no Right shall be exercisable unless at the time of
such exercise the Grantee shall be in the employ of the Company. The date on
which the exercise of a Right is effective shall hereinafter be referred to
as the Valuation Date."
23
<PAGE>
<PAGE>
EXHIBIT 9(c)
Stock Option Plans
"(f) Notwithstanding anything herein to the contrary, Limited Rights may
be granted hereunder by the Compensation Committee with respect to the
Options granted under the Plan (which are not Reference Options), which shall
be exercisable only upon the occurrence of a Change in Control. Such Limited
Rights may only be exercised by Optionees during the thirty (30) day period
beginning on the date of the occurrence of a Change in Control unless (i) at
the time of the occurrence of the Change in Control such Optionee is subject
to the reporting requirements of Section 16(a) of the Act and (ii) such event
occurs within six (6) months of the date of grant, in which case such Limited
Rights may only be exercised during the thirty (30) day period beginning six
(6) months after the grant of the Limited Rights. During the period specified
in the preceding sentence, such Limited Rights may be exercised
notwithstanding the termination of the Optionee's employment with the
Company. Upon the exercise of a Limited Right, the Optionee shall be entitled
to receive a cash payment equal to the excess of the Fair Market Value of a
share of Common Stock on the Valuation Date over the Option Price of the
related Option multiplied by the number of shares with respect to which the
Limited Right is being exercised (in such case the method of determining the
Fair Market Value in the third sentence of Section 6(i) shall apply). Limited
Rights shall expire on the first to occur of the date of exercise or
expiration of the right of exercise of the Limited Right or of the related
Option. Further, upon exercise of a Limited Right, the related Option
24
<PAGE>
<PAGE>
shall be cancelled. The Board of Directors reserves the right to cancel all
outstanding Limited Rights in accordance with Sections 11 and 12 of the
Executive Severance Plan. Except as otherwise provided herein, the provisions
of the Plan relating to Rights shall also apply to Limited Rights."
25
<PAGE>
<PAGE>
EXHIBIT 9(d)
Stock Option Plans
"Notwithstanding anything herein to the contrary, this Option may be
exercised in full as of the date on which there occurs a "Change in Control
of Warner-Lambert Company" (as defined in the Plan).
Further, you are hereby granted Limited Rights (as defined in the Plan)
with respect to those Options presently held by you which were not granted in
tandem with Rights. These Limited Rights may only be exercised by you during
the thirty (30) day period beginning on the date of the occurrence of a
"Change in Control" (as hereinafter defined) unless (i) you are subject to
the reporting requirements of Section 16(a) of the Securities Exchange Act of
1934, as amended (the "Act"), at the time of the occurrence of the Change in
Control (a "Reporting Person") and (ii) such Change in Control occurs within
six (6) months of the date of grant of the Limited Rights, in which case
these Limited Rights may only be exercised during the thirty (30) day period
beginning six (6) months after the date of grant of the Limited Rights.
Lastly, upon exercise of a Limited Right, you shall be entitled to receive a
cash payment equal to the excess of the "Fair Market Value" (as defined in
the Plan) of a share of Common Stock on the date of exercise over the Option
Price multiplied by the number of shares with respect to the Limited Right is
being exercised. Notwithstanding the foregoing, the Company reserves the
right to cancel all outstanding Limited Rights in the event that the Board of
Directors of the Company cancels the Executive Severance Plan. Except as
otherwise provided herein, the provisions of the Plan relating to
26
<PAGE>
<PAGE>
Rights shall also apply to Limited Rights.
In addition, notwithstanding anything herein to the contrary, Rights
which are outstanding on the date of the occurrence of a Change in Control
may be exercised in full; provided, however, that if you are a Reporting
Person and the Change in Control occurs within six (6) months after the date
of grant of the Right, the Right may only be exercised during the thirty (30)
day period beginning six (6) months after the date of grant of the Right.
For purposes hereof, a Change in Control shall be deemed to have
occurred if (i) any person (as such term is used in Sections 13(d) and
14(d)(2) of 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
of Directors of the Company 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
27
<PAGE>
<PAGE>
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."
28
<PAGE>
<PAGE>
EXHIBIT 9(e)
Stock Plans
1. Section 4.6 of the Warner-Lambert Company 1989 Stock Plan, the
Warner-Lambert Company 1992 Stock Plan and the Warner-Lambert Company 1996
Stock Plan shall be amended by adding "(a)" before the first sentence thereof
and by adding the following as (b) at the end thereof and Section 6(h) of the
Warner-Lambert Company 1983 Stock Option Plan and the Warner-Lambert Company
1987 Stock Option Plan shall be amended by adding "(I)" before the first
sentence thereof and by adding the following as (II) at the end thereof:
"As used in the Plan, a "Merger of Equals" shall mean either: (a) a
Change in Control of Warner-Lambert Company, pursuant to the terms of which
the stockholders of Warner-Lambert Company receive consideration, including
securities, with an Aggregate Value (as defined below) not greater than 115
percent of the average closing price of the Common Stock of Warner-Lambert
Company on the Composite Tape for New York Stock Exchange issues for the
twenty business days immediately preceding the earlier of the execution of
the definitive agreement pertaining to the transaction or the public
announcement of the transaction; or (b) any other Change in Control of
Warner-Lambert Company which the Board of Directors, in its sole discretion,
determines to be a "Merger of Equals" for the purposes of this provision. For
purposes of this section, "Aggregate Value" shall mean the consideration to
be received by the stockholders of Warner-Lambert Company equal to the sum of
(A) cash, (B) the value of any securities and (C) the value of any other
non-cash consideration.
29
<PAGE>
<PAGE>
The value of securities received shall equal the average closing price of the
security on the principal security exchange on which such security is listed
for the twenty business days immediately preceding the earlier of the
execution of the definitive agreement pertaining to the transaction or the
public announcement of the transaction. For securities not traded on a
security exchange, and for any other non-cash consideration that is received,
the value of such security or such non-cash consideration shall be determined
by the Board of Directors."
2. The Warner-Lambert Company 1989 Stock Plan, the Warner-Lambert
Company 1992 Stock Plan and the Warner-Lambert Company 1996 Stock Plan shall
be amended by adding the following as new Section 5.9 and the Warner-Lambert
Company 1983 Stock Option Plan and the Warner-Lambert Company 1987 Stock
Option Plan shall be amended by adding the following as new Section 7(h):
"Rollover Option. Notwithstanding anything herein to the contrary, in
the event of a Merger of Equals all Options granted hereunder shall become
immediately exercisable by the Optionee and the Options shall be converted
into options to purchase the stock of the company which other shareholders of
Warner-Lambert Company receive in the transaction (the "Rollover Options").
The Rollover Options shall be subject to the same terms and conditions as
those applicable to the Options held prior to the Merger of Equals,
including, but not limited to, exercisability and Option Period, except as
hereinafter provided. If the Aggregate Value consists only of shares of a
publicly traded security ("New
30
<PAGE>
<PAGE>
Security"), each Rollover Option shall entitle the holder to purchase the
number of shares of New Security which is equal to the product of (a) the
Exchange Ratio (as hereinafter defined) and (b) the number of shares of
Common Stock subject to the Option immediately prior to the effective date of
the Merger of Equals (rounded to the nearest full number of shares). The
exercise price for each Rollover Option shall be the exercise price per share
of each Option divided by the Exchange Ratio (rounded to the nearest full
cent). For purposes hereof, "Exchange Ratio" shall mean the ratio for
exchanging Common Stock held by the stockholders of Warner-Lambert Company
for shares of New Security which is set forth in the definitive agreement
pertaining to the transaction. If the Aggregate Value consists of
consideration other than New Securities, the Board shall make appropriate
adjustments to the number of Rollover Options and the exercise price thereof.
In addition, with respect to Options granted after March 25, 1997, if an
optionee who is not 55 years old is terminated within three (3) years
following the Merger of Equals (for a reason other than "Termination for Just
Cause," as defined in the Warner-Lambert Company Enhanced Severance Plan),
such optionee's Options shall remain exercisable notwithstanding such
termination of employment by the Company or any successor or its affiliates
and such Options shall be exercisable until two years following the
termination of employment, but in no event after the expiration of the Option
Period."
31
<PAGE>
<PAGE>
EXHIBIT 20
This AGREEMENT, made and entered into as of June __, 1990 (this
"Agreement"), between Warner-Lambert Company, a Delaware corporation (the
"Company"), and ________________ _________________________ (the "Executive").
WHEREAS, the Executive is a highly valued employee of the Company; and
WHEREAS, the Company has awarded the Executive, in the ordinary course
of business and during the Executive's employment with the Company, certain
employee benefits, including, but not limited to, employee stock options,
that are designed to compensate the Executive for his services to the Company
and to give him incentive to expend every effort to produce the best results
for the benefit of the Company's shareholders; and
WHEREAS, in light of the economic climate and in an effort to foster a
sense of job security for the Executive, the Company and the Executive have
entered into certain arrangements (the "Executive Compensation Arrangements")
regarding the Executive's employee benefits, including, but not limited to,
arrangements regarding the accelerated vesting of employee stock options and
the payment of severance, that are designed to preserve the Executive's
benefits in the event of a change in control of the Company; and
32
<PAGE>
<PAGE>
WHEREAS, there exists uncertainty in the tax law whether, and/or to what
extent, the Executive Compensation Arrangements will subject the Executive to
the tax imposed by Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code"), or any similar state or local taxes, (all such taxes,
whether or not in existence on the date hereof, being collectively referred
to herein as the "Excise Tax") thereby diminishing the value of the employee
benefits to which the Executive is entitled;
NOW, THEREFORE, in consideration of the mutual premises and covenants
contained herein, the Company and the Executive do hereby covenant and agree
as follows:
1. Special Payments. In the event that the Executive becomes entitled to
any payments and such payments, or any part thereof, will be subject to the
Excise Tax, the Company shall pay to the Executive, in accordance with the
provisions set forth below, an additional amount (a "Special Payment") that
may be necessary to reimburse the Executive, on an after-tax basis, for any
Excise Tax that may be imposed by reason of such payments, or any portion
thereof, and for any federal, state and local income tax and Excise Tax that
may be imposed by reason of the Special Payment.
2. Calculation of Excise Tax and Special Payment. The Special Payment
33
<PAGE>
<PAGE>
shall be paid to the Executive as promptly as practicable following a change
in control of the Company once Price Waterhouse has calculated the estimated
Excise Tax to be imposed on the Executive, except as otherwise provided in
paragraph 3. For purposes of determining whether any payments will be subject
to Excise Tax and the amount of such Excise Tax, all amounts in any manner
connected with a change in control, whether received by the Executive at such
time or not and including amounts which the Executive has the right to
receive in the future as a result of the change in control (i) shall be
treated as "parachute payments" within the meaning of Section 280G(b)(2) of
the Code, and all "excess parachute payments" within the meaning of Section
280G(b)(1) of the Code shall be treated as subject to the Excise Tax, and
(ii) the value of any non-cash benefits or any deferred payment or benefit
shall be determined by Price Waterhouse in accordance with the principles of
Section 280G(d)(3) and (4) of the Code. For purposes of determining the
amount of any Special Payment, the Executive shall be deemed to pay state and
local income taxes at the highest marginal rate of taxation imposed by the
state and locality in which the Executive resides or is employed (or both) in
the calendar year in which the Special Payment is to be made, and federal
income taxes at the highest marginal rate of taxation in the calendar year in
which the Special Payment is to be made, net of the maximum reduction in
federal income taxes which could be obtained from deduction of such state and
local taxes. At no additional cost to the Executive, Price Waterhouse shall
be responsible for completing and filing appropriate tax returns for the
Executive in connection with the Special Payment hereunder,
34
<PAGE>
<PAGE>
consistent with Price Waterhouse's calculation of such Special Payment.
3. Subsequent Special Payment. In the event that Price Waterhouse shall
determine that payments may be subject to the Excise Tax if made but that it
is uncertain whether such payments will in fact be made, for example,
payments of severance that will only be made if the Executive terminates his
employment, or in the event that Price Waterhouse shall determine that
payments are not subject to the Excise Tax but that there is a possibility of
such payments being so treated, Price Waterhouse shall provide the Company
and the Executive with an estimate of the maximum amount of the Special
Payment that might be required to be paid pursuant to this Agreement.
Thereupon the Company shall promptly transfer to a trustee of an irrevocable
trust commonly known as a "Rabbi Trust" the maximum additional amount of cash
estimated to be necessary to satisfy the Company's obligations under this
Agreement after taking into consideration any Special Payments previously
made to the Executive. The existence of such trust shall not discharge the
Company's obligations hereunder and the Company shall continue to have the
obligation to make such payments except to the extent that payments are
actually made to the Executive from such fund. Additional Special Payments
shall be made to the Executive upon a determination by Price Waterhouse that
subsequent payments received by the Executive, for example, payments of
severance following termination of employment, will result in additional
Excise Tax.
35
<PAGE>
<PAGE>
4. Adjustment of Special Payments. (a) In the event that subsequently
enacted or decided statutes, regulations, administrative rulings or case law
indicate, in the view of Price Waterhouse, that the calculation of the Excise
Tax previously made by Price Waterhouse overstates the Executive's liability
for such Excise Tax, the Company may direct the Executive, at the Company's
sole expense, to file for a refund of such Excise Tax or take such other
actions as Price Waterhouse reasonably may request in order to reduce the
Executive's liability for Excise Tax and to ensure that the payments and any
Special Payments made to the Executive pursuant to this Agreement are not
determined to be "parachute payments" within the meaning of Section
280G(b)(2) of the Code, provided that the Company shall have taken consistent
positions on its tax returns and the Company has issued similar directives to
all similarly situated executives or former executives of the Company who
have received Excise Tax reimbursement payments. The Executive shall
cooperate in good faith in assisting the Company and Price Waterhouse in
their actions pursuant to this paragraph 4(a).
(b) If it shall be determined, following the payment to the
Executive of the Special Payment, in a final judicial determination or a
final administrative settlement to which the Executive is a party that the
calculation of the Excise Tax and/or the Special Payment is in error, then
Price Waterhouse will determine the amount (the "Adjustment Amount"), if any,
which the Executive must pay to the Company or the Company must pay to the
Executive, as the case may be, in
36
<PAGE>
<PAGE>
order to put the Executive in the same position, after taking account of any
and all taxes (including penalties and interest) paid by or for the Executive
or refunded to or for the benefit of the Executive and of the value to the
Executive of any and all tax deductions allowed or disallowed with respect to
any adjustment made in such determination or settlement or pursuant to this
clause, as he would have been in had he received the Special Payment using
the calculations set forth in such determination or settlement; provided,
however, that as soon as practicable after the Adjustment Amount has been so
determined, the Company shall pay the Adjustment Amount to the Executive, or
the Executive shall pay the Adjustment Amount to the Company, as the case may
be. In the event that the amount of the estimated Special Payment exceeds the
amount subsequently determined to have been due, such excess shall constitute
a loan by the Company to the Executive payable on the fifth day after demand
by the Company (together with interest at the rate provided in Section
1274(b)(2)(B) of the Code).
(c) The Executive will promptly notify the Company in writing
whenever he receives notice of the institution of a judicial or
administrative proceeding, formal or informal, in which the federal tax
treatment of any amount paid or payable under this Agreement is being
reviewed or is in dispute. The Company agrees that, in the event it desires
the claim to be contested, it shall request promptly (but in no event later
than 30 days after notice from the Executive or such earlier period as the
Internal Revenue Service may specify for responding to such
37
<PAGE>
<PAGE>
claim) that the Executive contest the claim. Unless required by law, the
Executive agrees not to make any payment of any tax which is the subject of
the claim before he has given the notice or during the 30-day period
thereafter unless he receives written instruction from the Company to make
such payment, in which case the Executive will act promptly in accordance
with such instructions. If the Company requests that the Executive contest
the claim and provides the Executive with an opinion of its counsel, at the
Company's sole expense, setting forth the facts and legal analysis on which
it is based, to the effect that there exists a substantial likelihood of
success in contesting the claim, the Executive will contest the claim by
pursuing administrative remedies, suing for a refund in the appropriate court
or contesting the claim in the United States Tax Court, all at the Company's
sole expense. If requested by the Company in writing, the Executive will, at
the sole expense of the Company, take all reasonably necessary actions not
adverse to the Executive to compromise or settle the claim, but in no event
will the Executive compromise or settle the claim or cease to contest the
claim without the written consent of the Company, which consent shall not be
unreasonably withheld. The Executive agrees, at the sole expense of the
Company, to take appropriate appeals of any judgment or decision that would
require the Company to make a Special Payment under paragraph 1 if requested
by the Company and if the Executive is provided with an opinion of the
Company's counsel, at the Company's sole expense, setting forth the facts and
legal analysis on which it is based, to the effect that there exists a
substantial likelihood of success on appeal.
38
<PAGE>
<PAGE>
(d) The Company shall pay or reimburse the Executive from time to
time, within five business days after presentation of reasonable
documentation therefor, for all costs and expenses, including reasonable
attorney's fees incurred as a result of contesting a claim or seeking a
refund with respect to Excise Taxes.
(e) Should the Company fail to provide direction to the Executive in
accordance with the provisions of this Paragraph 4, the Executive, promptly
following the Executive's written request for such direction, shall take
whatever action he deems appropriate (the Company having no right to later
challenge that decision) and it shall be deemed that the Company requested
him to take that action.
5. State or Local Taxes. All issues surrounding the application of any
Excise Tax which is a state or local tax shall be resolved by Price
Waterhouse based upon the principles underlying the purpose of this Agreement
and by reference to the methodology, to the extent relevant, established in
Paragraphs 2, 3, and 4 hereof.
6. Amendment; Waiver. This Agreement may not be modified, amended,
waived or terminated in any manner except by an instrument in writing signed
by both parties hereto. At any time prior to a change in control, the Board
of
39
<PAGE>
<PAGE>
Directors of the Company may substitute another firm of certified public
accountants. The waiver by either party of compliance with any provision of
this Agreement by the other party shall not operate or be construed as a
waiver of any other provision of this Agreement, or of any subsequent breach
by such party of a provision of this Agreement.
7. Governing Law. All matters affecting this Agreement, including the
validity thereof, are to be governed by, interpreted and construed in
accordance with the laws of the State of New Jersey, except provisions
relating to conflict of laws.
8. Notices. Any notice hereunder by either party to the other shall be
given in writing by personal delivery or certified mail, return receipt
requested. If addressed to the Executive, the notice shall be delivered or
mailed to the Executive at the address specified under the Executive's
signature hereto, or if addressed to the Company, the notice shall be
delivered or mailed to the Company at its executive offices to the attention
of Vice President and General Counsel. A notice shall be deemed given, if by
personal delivery, on the date of such delivery or, if by certified mail, on
the date shown on the applicable return receipt.
9. Counterparts. This Agreement may be executed by either of the parties
hereto in counterpart, each of which shall be deemed to be an original, but
all
40
<PAGE>
<PAGE>
such counterparts shall together constitute one and the same instrument.
10. Headings. The headings of paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation
of any of the provisions of this Agreement.
41
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the Company has caused the Agreement to be signed by
its officer pursuant to the authority of its Board of Directors, and the
Executive has executed this Agreement, as of the day and year first written
above.
WARNER-LAMBERT COMPANY
By
----------------------------
Name:
Title:
[NAME]
------------------------------
Address:
42
<PAGE>
<PAGE>
EXHIBIT 22
1. The third sentence of the second paragraph of Section 1 of Article
XXI of the Retirement Plan, the second sentence of the second paragraph of
Section 14.1 of Article 14 of the Savings Plan, Section 13.2 of Article XIII
of the Supplemental Pension Income Plan, the second sentence of the second
paragraph of Section 11.1 of Article 11 of the Supplemental Savings Plan,
Article 6(h) of the Stock Option Plans and the first sentence of Section 4.6
of the Warner-Lambert Company 1989 Stock Plan, are hereby amended by deleting
the phrase "(with respect to persons who are not participants in the
Warner-Lambert Executive Severance Plan)".
2. Section 11.2 of Article XI of the Warner-Lambert Company Directors'
Retirement Plan, the last sentence of Section 4.6 of Article IV of the
Deferred Compensation Plan for Directors of Warner-Lambert Company and
Section 4.5(b) of the Restricted Stock Plan for Directors of Warner-Lambert
Company are hereby amended by adding the following provision at the end
thereof:
"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
43
<PAGE>
<PAGE>
(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."
44
<PAGE>
<PAGE>
EXHIBIT 12
WARNER-LAMBERT COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Earnings before income taxes (less minority
interests)............................................ $1,766.2 $1,233.4 $1,107.7 $1,018.6 $ 913.1
Add:
Interest on indebtedness -- excluding amount
capitalized...................................... 113.3 167.0 145.9 122.7 93.7
Amortization of debt expense....................... .8 .4 .5 .4 .4
Interest factor in rent expense(a)................. 37.7 30.7 27.5 26.9 26.2
-------- -------- -------- -------- --------
Adjusted earnings............................. $1,918.0 $1,431.5 $1,281.6 $1,168.6 $1,033.4
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Fixed Charges:
Interest on indebtedness........................... $ 113.3 $ 167.0 $ 145.9 $ 122.7 $ 93.7
Capitalized interest............................... 19.2 8.3 9.6 10.1 9.4
Amortization of debt expense....................... .8 .4 .5 .4 .4
Interest factor in rent expense(a)................. 37.7 30.7 27.5 26.9 26.2
-------- -------- -------- -------- --------
Total fixed charges........................... $ 171.0 $ 206.4 $ 183.5 $ 160.1 $ 129.7
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Ratio of earnings to fixed charges...................... 11.2 6.9 7.0 7.3 8.0
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
- ------------
(a) Represents one third of rental expense, which the Company believes is a
reasonable approximation.
<PAGE>
<PAGE>
ITEM 6. Selected Financial Data
Warner-Lambert Company and Subsidiaries
Five-year Summary of Selected Financial Data
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------
(Dollars in millions, except per share amounts)
<S> <C> <C> <C> <C> <C>
RESULTS FOR YEAR:
Net sales $10,214 $8,180 $7,231 $7,040 $6,417
Cost of goods sold 2,629 2,408 2,347 2,428 2,155
Research and development
expense 877 672 555 501 456
Income before income taxes and
minority interests 1,766 1,233 1,177 1,149 1,005
Net income 1,254 870 787 740 694
Net income per common share*:
Basic 1.53 1.07 .97 .91 .86
Diluted 1.48 1.04 .95 .90 .86
- ----------------------------------------------------------------------------------------------
YEAR-END FINANCIAL POSITION:
Current assets $ 4,102 $3,297 $2,785 $2,778 $2,515
Current liabilities 3,230 2,537 2,137 2,425 2,353
Working capital 872 760 648 353 162
Property, plant and
equipment 2,775 2,427 2,168 2,006 1,846
Total assets 9,231 8,031 7,197 6,101 5,533
Long-term debt 1,260 1,831 1,720 634 535
Total debt 1,517 2,203 2,300 1,529 1,460
Shareholders' equity 3,612 2,836 2,581 2,246 1,816
- ----------------------------------------------------------------------------------------------
COMMON STOCK INFORMATION*:
Average number of common
shares outstanding (in millions):
Basic 820.0 815.2 813.7 810.1 804.7
Diluted 849.1 839.2 827.1 817.8 810.0
Common stock price per share:
High $85 15/16 $50 7/8 $26 43/64 $16 21/64 $14 29/64
Low 39 3/8 23 11/64 14 7/8 12 15/64 10
Year-end 75 3/16 41 25/64 25 16 3/16 12 53/64
Book value per common share 4.40 3.47 3.17 2.75 2.25
Cash dividends per common share .64 .51 .46 .43 .41
- ----------------------------------------------------------------------------------------------
OTHER DATA:
Number of employees (in thousands) 41 40 38 37 36
Capital expenditures $721 $495 $389 $387 $406
Cash dividends paid 525 413 374 351 327
Depreciation and amortization 296 275 231 202 181
- ----------------------------------------------------------------------------------------------
</TABLE>
*Amounts reflect a three-for-one stock split effective May 1998.
30
<PAGE>
<PAGE>
ITEM 8. Financial Statements and Supplementary Data
Warner-Lambert Company and Subsidiaries
Consolidated Statements of Income and
Comprehensive Income
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Years Ended December 31, 1998 1997 1996
- ----------------------------------------------------------------------
(Dollars in millions, except per share amounts)
<S> <C> <C> <C>
NET INCOME
Net sales $10,213.7 $8,179.8 $7,231.4
- ----------------------------------------------------------------------
Costs and expenses:
Cost of goods sold 2,629.3 2,407.6 2,346.9
Selling, general and
administrative 4,788.1 3,676.3 3,115.8
Research and development 877.2 672.2 554.8
Other expense (income), net 152.9 190.3 37.2
- ----------------------------------------------------------------------
Total costs and expenses 8,447.5 6,946.4 6,054.7
- ----------------------------------------------------------------------
Income before income taxes and
minority interests 1,766.2 1,233.4 1,176.7
Provision for income taxes 512.2 363.9 321.2
Minority interests - - 69.0
- ----------------------------------------------------------------------
Net income $ 1,254.0 $ 869.5 $ 786.5
- ----------------------------------------------------------------------
Net income per common share*:
Basic $ 1.53 $ 1.07 $ .97
Diluted $ 1.48 $ 1.04 $ .95
- ----------------------------------------------------------------------
Cash dividends per common share* $ .64 $ .51 $ .46
- ----------------------------------------------------------------------
COMPREHENSIVE INCOME
Net income $ 1,254.0 $ 869.5 $ 786.5
Other comprehensive income
(net of tax):
Foreign currency translation 57.7 (193.8) (19.9)
Other (18.1) (14.6) 6.4
- ----------------------------------------------------------------------
Total other comprehensive income 39.6 (208.4) (13.5)
- ----------------------------------------------------------------------
Comprehensive income $ 1,293.6 $ 661.1 $ 773.0
- ----------------------------------------------------------------------
</TABLE>
*Amounts reflect a three-for-one stock split effective May 1998.
See notes to consolidated financial statements.
31
<PAGE>
<PAGE>
Warner-Lambert Company and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
December 31, 1998 1997
- ---------------------------------------------------------------------
(Dollars in millions)
<S> <C> <C>
Assets:
Cash and cash equivalents $ 911.3 $ 756.5
Accounts receivable, less allowances of
$29.9 in 1998 and $34.5 in 1997 1,398.6 1,160.2
Other receivables 296.2 210.3
Inventories 888.4 742.9
Prepaid expenses and other current assets 607.8 427.1
- ---------------------------------------------------------------------
Total current assets 4,102.3 3,297.0
Investments and other assets 625.8 593.8
Property, plant and equipment 2,775.3 2,427.0
Intangible assets 1,727.2 1,712.7
- ---------------------------------------------------------------------
$ 9,230.6 $ 8,030.5
- ---------------------------------------------------------------------
Liabilities and shareholders' equity:
Short-term debt $ 256.3 $ 372.1
Accounts payable, trade 1,575.2 1,025.6
Accrued compensation 225.1 186.6
Other current liabilities 927.6 759.0
Federal, state and foreign income taxes 245.8 193.6
- ---------------------------------------------------------------------
Total current liabilities 3,230.0 2,536.9
Long-term debt 1,260.3 1,831.2
Deferred income taxes and other
noncurrent liabilities 1,128.2 826.9
Shareholders' equity:
Preferred stock - none issued - -
Common stock issued:
1998 - 961,981,608 shares;
1997 - 320,660,536 shares 962.0 320.7
Capital in excess of par value 182.3 225.4
Retained earnings 4,254.9 3,892.6
Accumulated other comprehensive income (399.1) (438.7)
Treasury stock, at cost:
1998 - 140,429,452 shares;
1997 - 48,436,529 shares (1,388.0) (1,164.5)
- ---------------------------------------------------------------------
Total shareholders' equity 3,612.1 2,835.5
- ---------------------------------------------------------------------
$ 9,230.6 $ 8,030.5
- ---------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
32
<PAGE>
<PAGE>
Warner-Lambert Company and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
Years Ended December 31, 1998 1997 1996
- -------------------------------------------------------------------------
(Dollars in millions)
<S> <C> <C> <C>
Operating Activities:
Net income $ 1,254.0 $ 869.5 $ 786.5
Adjustments to reconcile
net income to net cash
provided by operating activities:
Depreciation and amortization 296.3 275.5 230.8
Gains on sales of businesses - - (75.2)
Minority interests - - 69.0
Deferred income taxes (169.5) (27.6) 70.7
Changes in assets and liabilities,
net of effects from acquisitions/
dispositions of businesses:
Receivables (295.8) (121.3) (211.3)
Inventories (133.1) (110.1) (23.9)
Accounts payable and accrued
liabilities 759.3 608.6 108.4
Other, net 274.2 69.2 67.3
- -------------------------------------------------------------------------
Net cash provided by operating
activities 1,985.4 1,563.8 1,022.3
- -------------------------------------------------------------------------
Investing Activities:
Purchases of investments (19.4) (17.2) (217.1)
Proceeds from maturities/sales of
investments 83.6 112.5 500.4
Capital expenditures (721.3) (494.8) (389.0)
Acquisitions of businesses - (229.0) (1,064.8)
Proceeds from dispositions of businesses 125.0 - 137.4
Other, net 62.3 (16.8) (80.4)
- -------------------------------------------------------------------------
Net cash used by investing activities (469.8) (645.3) (1,113.5)
- -------------------------------------------------------------------------
Financing Activities:
Proceeds from borrowings 787.7 1,564.7 2,165.2
Principal payments on borrowings (1,483.2) (1,609.4) (1,422.7)
Purchases of treasury stock (265.2) (135.2) (138.9)
Cash dividends paid (524.6) (413.1) (374.4)
Distributions paid to minority interests - - (102.4)
Proceeds from stock option exercises 104.8 71.9 64.1
- -------------------------------------------------------------------------
Net cash (used) provided by
financing activities (1,380.5) (521.1) 190.9
- -------------------------------------------------------------------------
Effect of exchange rate changes on
cash and cash equivalents 19.7 (31.7) (4.7)
- -------------------------------------------------------------------------
Net increase in cash and cash equivalents 154.8 365.7 95.0
Cash and cash equivalents at beginning
of year 756.5 390.8 295.8
- -------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 911.3 $ 756.5 $ 390.8
- -------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
33
<PAGE>
<PAGE>
Notes to Consolidated Financial Statements
Warner-Lambert Company and Subsidiaries
(Dollars in millions, except per share amounts)
Note 1 - Significant Accounting Policies:
Basis of consolidation - The consolidated financial statements include the
accounts of Warner-Lambert Company and all controlled, majority-owned
subsidiaries ("Warner-Lambert" or the "company"). Investments in companies in
which Warner-Lambert's interest is between 20 percent and 50 percent are
accounted for using the equity method.
The company has consistently reported using a December 31 consolidated reporting
year end. Through December 31, 1995 international affiliates reported on a
fiscal-year basis ending November 30. Effective January 1, 1996, the company's
international operations changed to a calendar-year basis ending December 31.
The change was made primarily to reflect the results of these operations on a
more timely basis. The results of operations for international subsidiaries for
the month of December 1995 are included as a charge of $18.8 against retained
earnings.
Reclassification - Certain prior year amounts have been reclassified to conform
with current year presentation.
Use of estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and use assumptions that affect certain reported amounts. Actual amounts could
differ from those estimates.
Revenue recognition - Sales are recorded as product is shipped to customers.
Provisions for discounts, returns and other allowances are recorded in the same
period the related sales are recognized.
Cash equivalents - Cash equivalents include nonequity short-term investments
with original maturity dates of 90 days or less.
Inventories - Inventories are valued at the lower of cost or market. Cost is
determined principally on the basis of first-in, first-out or standards which
approximate average cost.
Property, plant and equipment - Property, plant and equipment are recorded at
cost. The cost of maintenance, repairs, minor renewals and betterments and minor
equipment items is charged to income; the cost of major renewals and betterments
is capitalized. Depreciation is calculated generally on the straight-line method
over the estimated useful lives of the various classes of assets.
Intangible assets - Intangible assets are recorded at cost and are amortized on
the straight-line method over appropriate periods not exceeding 40 years. The
company continually reviews goodwill and other intangible assets to evaluate
whether events or changes have occurred that would suggest an impairment of
carrying value. An impairment would be recognized when expected future operating
cash flows are lower than the carrying value.
Advertising costs - Advertising costs are expensed as incurred and amounted to
$904.4 in 1998, $819.8 in 1997, and $670.6 in 1996.
Newly issued accounting standard - In June 1998, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS)
No. 133, "Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments. The
Statement, which is effective for the first quarter 2000, requires all
derivatives to be measured at fair value and recognized as either assets or
liabilities. The adoption of this Statement is not expected to have a material
effect on the company's consolidated financial position, liquidity, cash flows
or results of operations.
Note 2 - Net Income Per Common Share:
The EPS computations were as follows:
(Shares in thousands)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
Years Ended December 31, 1998 1997 1996
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Basic EPS:
Net income $1,254.0 $869.5 $786.5
Average common shares outstanding 819,971 815,187 813,661
- ---------------------------------------------------------------------
$ 1.53* $ 1.07* $ .97*
- ---------------------------------------------------------------------
Diluted EPS:
Net income $1,254.0 $869.5 $786.5
Average common shares outstanding 819,971 815,187 813,661
Impact of potential future stock
option exercises, net of shares
repurchased 29,105 24,002 13,422
- ---------------------------------------------------------------------
Average common shares outstanding -
assuming dilution 849,076 839,189 827,083
- ---------------------------------------------------------------------
$ 1.48* $ 1.04* $ .95*
- ---------------------------------------------------------------------
</TABLE>
*Amounts reflect a three-for-one stock split effective May 1998.
34
<PAGE>
<PAGE>
The diluted EPS computation includes the potential impact on the average number
of common shares outstanding if all common stock options issued are exercised.
The dilutive effect of stock options is computed using the treasury stock method
which assumes the repurchase of common shares by the company at the average
market price for the period.
Note 3 - Interest Income and Interest Expense:
Interest income and interest expense are included in Other expense (income),
net. Interest income totaled $51.6, $41.7 and $54.8 and interest expense totaled
$113.3, $167.0 and $145.9 in 1998, 1997 and 1996, respectively. Total interest
paid was $102.9, $151.9 and $140.7 and interest costs of $19.2, $8.3 and $9.6
have been capitalized and included in Property, plant and equipment for those
respective periods.
Note 4 - Acquisitions and Divestitures:
On January 26, 1999, Warner-Lambert announced a definitive agreement to acquire
Agouron Pharmaceuticals, Inc., an integrated pharmaceutical company committed to
the discovery and development of innovative therapeutic products for treatment
of cancer, AIDS and other serious diseases. Agouron achieved total revenues of
$466.5 million for the fiscal year ended June 30, 1998. Under the terms of the
agreement, which is valued at approximately $2.1 billion, each share of Agouron
stock will be exchanged for a certain amount of Warner-Lambert common stock. The
exact exchange ratio will be based on the average price of Warner-Lambert stock
prior to closing. The transaction will be accounted for as a pooling of
interests and will require the approval of Agouron's shareholders and customary
regulatory approvals. The transaction will not require Warner-Lambert
shareholder approval.
On December 31, 1998, Warner-Lambert Company and certain of its affiliates and
Glaxo Wellcome plc and certain of its affiliates (Glaxo Wellcome) entered into
transactions in various countries whereby Glaxo Wellcome transferred to
Warner-Lambert rights to over-the-counter (OTC) ZANTAC products in the
United States and Canada, and Warner-Lambert principally transferred to Glaxo
Wellcome its rights to OTC ZANTAC products in all other markets and its
rights to OTC ZOVIRAX, OTC BECONASE and future Glaxo Wellcome prescription to
OTC switch products in all markets. These OTC products had been
marketed through joint ventures between Warner-Lambert and Glaxo Wellcome which
were formed to develop, seek approval of and market OTC versions of Glaxo
Wellcome prescription drugs. These joint ventures were accounted for as equity
method investments. For financial reporting purposes, the December 31, 1998
transactions, which ended the joint venture relationships between Warner-Lambert
and Glaxo Wellcome, were accounted for as a nonmonetary exchange of similar
assets with no gain or loss recognized.
On May 21, 1997, Warner-Lambert purchased the remaining 66 percent of the
Jouveinal group it did not already own. Consideration for this acquisition,
including estimated acquisition costs, net of cash acquired and proceeds from
the sale of certain acquired assets, was approximately $117. In January 1993,
Warner-Lambert initially acquired a 34 percent interest in Jouveinal, a
privately held French pharmaceutical group. Prior to the acquisition of the
remaining interest, Jouveinal was accounted for as an equity method investment.
In addition, the company acquired two Irish manufacturing facilities from
Hickson Pharmachem Limited and Plaistow Limited, respectively, during the second
quarter of 1997 for approximately $118. The consideration for these three
acquisitions was primarily charged to intangible assets and is being amortized
over periods of 40 years for goodwill and 5 to 20 years for trademarks and other
intangibles. The transactions were financed with a long-term credit facility.
In 1996, Warner-Lambert purchased Glaxo Wellcome's minority interest in the
Warner Wellcome joint venture operations. The transaction was completed in the
second half of the year. Total consideration for the acquisition, including
estimated acquisition costs, was approximately $1.1 billion, which was charged
primarily to goodwill and trademarks and is being amortized primarily over 40
years. The transaction was financed with commercial paper. Warner-Lambert
entered into an agreement in December 1993 with Wellcome plc to establish this
joint venture with operations in various countries to develop and market a broad
range of OTC products. The joint venture commenced operations in 1994. Glaxo plc
acquired Wellcome plc in 1995 and changed the name of the combined company to
Glaxo Wellcome plc.
All completed acquisitions, except the rights exchange with Glaxo Wellcome, have
been accounted for under the purchase method. The excess of purchase price over
the estimated fair values of net tangible and identifiable intangible assets
acquired has been treated as goodwill. Net assets and results of operations of
all acquisitions, except Warner Wellcome, have been included in the consolidated
financial statements since the effective acquisition dates. Financial results of
Warner Wellcome were consolidated prior to acquisition of the minority interest.
The completed acquisitions did not have a material pro forma impact on
consolidated earnings.
35
<PAGE>
<PAGE>
In the first quarter of 1998, the company sold its Rochester, Michigan
pharmaceutical manufacturing plant as well as certain minor prescription
products for approximately $125.0. The resulting pretax gain of $66.6 was offset
by costs related to the company's plans to close two of its foreign
manufacturing facilities. The results of these transactions are recorded in
Other expense (income), net for the year ended December 31, 1998.
In the first quarter 1996, Warner-Lambert sold Warner Chilcott Laboratories, its
generic pharmaceutical business. Net proceeds were $137.4. The sale resulted in
a pretax gain of $75.2, which is included in Other expense (income), net for the
year ended December 31, 1996. On an after-tax basis, the gain was $45.7 or $.06
per share.
Note 5- International Operations:
In translating foreign currency financial statements, local currencies of
foreign subsidiaries and branches have generally been determined to be the
functional currencies, except for those in hyperinflationary economies,
principally in Latin America. Net aggregate exchange (gains) losses resulting
from foreign currency transactions and translation adjustments related to
subsidiaries operating in highly inflationary countries amounted to $13.6,
$(18.2) and $7.6 in 1998, 1997 and 1996, respectively. The cumulative
translation adjustments component of shareholders' equity was charged (credited)
with $(57.7), $193.8 and $19.9 in 1998, 1997 and 1996, respectively.
Note 6 - Inventories:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
December 31, 1998 1997
- ---------------------------------------------------------------------
<S> <C> <C>
Raw materials $145.1 $167.7
Finishing supplies 48.8 53.1
Work in process 229.3 95.6
Finished goods 465.2 426.5
- ---------------------------------------------------------------------
$888.4 $742.9
- ---------------------------------------------------------------------
</TABLE>
Note 7 - Property, Plant and Equipment:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
December 31, 1998 1997
- ---------------------------------------------------------------------
<S> <C> <C>
Land $ 45.7 $ 38.6
Buildings 1,387.0 1,245.7
Machinery, furniture and fixtures 3,032.0 2,684.6
- ---------------------------------------------------------------------
4,464.7 3,968.9
Less accumulated depreciation (1,689.4) (1,541.9)
- ---------------------------------------------------------------------
$ 2,775.3 $ 2,427.0
- ---------------------------------------------------------------------
</TABLE>
Depreciation expense totaled $236.5, $218.8 and $199.1 in 1998, 1997 and 1996,
respectively. Depreciation expense is charged to various income statement line
items based upon the functions utilizing subject assets.
Note 8 - Intangible Assets:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
December 31, 1998 1997
- ---------------------------------------------------------------------
<S> <C> <C>
Goodwill $1,299.0 $1,267.5
Trademarks and other intangibles 662.2 602.3
- ---------------------------------------------------------------------
1,961.2 1,869.8
Less accumulated amortization (234.0) (157.1)
- ---------------------------------------------------------------------
$1,727.2 $1,712.7
- ---------------------------------------------------------------------
</TABLE>
Amortization expense, which is reflected in Other expense (income), net, totaled
$59.8, $56.7 and $31.7 in 1998, 1997 and 1996, respectively.
At December 31, 1998 and 1997, Goodwill is being amortized primarily over 40
years and Trademarks and other intangibles are being amortized over a weighted
average of approximately 33 years.
Note 9 - Debt:
The components of Short-term debt were as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
December 31, 1998 1997
- ---------------------------------------------------------------------
<S> <C> <C>
Notes payable $238.9 $209.7
Current portion of long-term debt 17.4 162.4
- ---------------------------------------------------------------------
$256.3 $372.1
- ---------------------------------------------------------------------
</TABLE>
The weighted-average interest rate for notes payable outstanding at December 31,
1998 and 1997 was 6.9 percent and 6.2 percent, respectively. The company has
lines-of-credit arrangements with numerous banks with interest rates generally
36
<PAGE>
<PAGE>
equal to the best prevailing rate. At December 31, 1998, worldwide unused lines
of credit amounted to $1.4 billion. The 1997 current portion of long-term debt
included $150.0 notes due 1998.
The components of Long-term debt were as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
December 31, 1998 1997
- ---------------------------------------------------------------------
<S> <C> <C>
Commercial paper $ 383.4 $ 990.0
Variable rate term loan - 354.7
Variable rate master note 100.0 200.0
6 5/8% notes due 2002 199.8 199.7
5 3/4% notes due 2003 250.0 -
6% notes due 2008 249.5 -
7.6% industrial revenue bonds due 2014 24.5 24.6
Other 53.1 62.2
- ---------------------------------------------------------------------
$1,260.3 $1,831.2
- ---------------------------------------------------------------------
</TABLE>
At December 31, 1998, all commercial paper and the master note have been
classified as long-term debt due to the company's intent and ability to
refinance on a long-term basis. These instruments are supported by lines of
credit. At December 31, 1998, the weighted-average interest rate was 5.2 percent
for commercial paper outstanding. The interest rate on the master note at
December 31, 1998 was 5.4 percent.
In January 1998, the company refinanced certain debt, primarily commercial
paper, by issuing $250.0 of 5 3/4 percent notes due 2003 and $249.5 of 6 percent
notes due 2008. In addition, the variable rate term loan was paid during 1998.
The aggregate annual maturities of long-term debt at December 31, 1998, payable
in each of the years 2000 through 2003, excluding short-term borrowings
reclassified to long-term are $14.2, $16.6, $207.5 and $256.5, respectively.
Note 10 - Financial Instruments:
The estimated fair values of financial instruments were as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
December 31, 1998 1997
- ---------------------------------------------------------------------
Carrying Fair Carrying Fair
( ) = Liability Amount Value Amount Value
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment securities $ 94.7 $ 94.5 $ 168.3 $ 168.7
Long-term debt (1,260.3) (1,288.3) (1,831.2) (1,836.9)
Foreign exchange
contracts .3 (8.5) (.7) 12.5
- ---------------------------------------------------------------------
</TABLE>
Investment securities and Long-term debt were valued at quoted market prices for
similar instruments. The fair values of the remaining financial instruments in
the preceding table are based on dealer quotes and reflect the estimated amounts
that the company would pay or receive to terminate the contracts. The carrying
values of all other financial instruments in the Consolidated Balance Sheets
approximate fair values.
The investment securities were reported in the following balance sheet
categories:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
December 31, 1998 1997
- -------------------------------------------------------------------
<S> <C> <C>
Cash and cash equivalents $ 8.6 $ 28.8
Prepaid expenses and other
current assets 14.5 16.0
Investments and other assets 71.6 123.5
- -------------------------------------------------------------------
$94.7 $168.3
- -------------------------------------------------------------------
</TABLE>
The investment securities portfolio was primarily comprised of negotiable
certificates of deposit, U.S. and Puerto Rico government securities, guaranteed
collateralized mortgage obligations and Ginnie Mae certificates as of year-end
1998 and 1997. These securities are classified as "held-to-maturity." Equity
securities, categorized as "available-for-sale," were immaterial.
As of December 31, 1998, the long-term investments of $71.6 included a $4.1
interest-bearing, mortgage-backed security maturing beyond 10 years.
Financial instruments that potentially subject the company to concentrations of
credit risk are trade receivables and interest-bearing investments. The company
sells a broad range of products in the pharmaceutical, consumer health care and
confectionery businesses worldwide. The company's products are distributed to
wholesalers and directly or indirectly to pharmacies, chain food stores, mass
merchandisers, smaller independent retailers, hospitals, government agencies,
health
37
<PAGE>
<PAGE>
maintenance organizations and other managed care entities. Due to the large
number and diversity of the company's customer base, concentrations of credit
risk with respect to trade receivables are limited. The company does not
normally require collateral. The company's interest-bearing investments are
high-quality liquid instruments, such as certificates of deposit issued by major
banks or securities issued or guaranteed by the U.S. or other governments. The
company limits the amount of credit exposure to any one issuer.
The company does not hold or issue financial instruments for trading purposes
nor is it a party to leveraged derivatives. The company uses derivatives,
particularly interest rate swaps and forward or purchased option foreign
exchange contracts, that are relatively straightforward and involve little
complexity as hedge instruments to manage interest rate and foreign currency
risks.
The company's foreign exchange risk management objectives are to stabilize cash
flows and reported income from the effect of foreign currency fluctuations and
reduce the overall foreign exchange exposure to insignificant levels. Extensive
international business activities result in a variety of foreign currency
exposures including foreign currency denominated assets and liabilities, firm
commitments, anticipated intercompany sales and purchases of goods and services,
intercompany lending, net investments in foreign subsidiaries and anticipated
net income of foreign affiliates. The company continually monitors its exposures
and enters into foreign exchange contracts for periods of up to two years to
hedge such exposures.
At December 31, 1998 and 1997, the company had forward or purchased option
foreign exchange contracts with contractual amounts of $552.0 and $514.2,
respectively. These contracts principally exchange Japanese yen, Australian
dollars and Portuguese escudos for U.S. dollars; Canadian dollars for U.S.
dollars and Irish punts; Australian dollars for Irish punts; and U.S. dollars
for German marks in 1998; and Japanese yen, German marks, British pounds and
French francs for U.S. dollars; Canadian dollars for Italian lira and British
pounds; and U.S. dollars for Irish punts in 1997.
The company's interest rate risk management objectives are to manage the
interest cost of debt by using a mix of long-term fixed rate and short-term
variable rate instruments and entering into certain interest rate swap
agreements. Interest rate swap agreements were not material during 1998 or 1997.
The counterparties to the company's derivatives consist of major international
financial institutions. Because of the number of these institutions and their
high credit ratings, management believes derivatives do not present significant
credit risk to the company.
Gains and losses related to derivatives designated as effective hedges of firm
commitments are deferred and recognized in income as part of, and concurrent
with, the underlying hedged transaction. Other derivative instruments, which are
primarily related to hedging foreign currency denominated assets and liabilities
and anticipated net income of foreign subsidiaries, are marked to market on a
current basis with gains and losses recognized in Other expense (income), net.
Cash flows associated with derivative financial instruments are classified as
operating in the Consolidated Statements of Cash Flows.
Note 11 - Leases:
The company rents various facilities and equipment. Rental expense amounted to
$113.0, $92.1 and $82.6 in 1998, 1997 and 1996, respectively.
The future minimum rental commitments under noncancellable capital and operating
leases at December 31, 1998 are summarized below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Capital Operating
- --------------------------------------------------------------------
<S> <C> <C>
1999 $ 6.2 $ 69.0
2000 1.5 46.4
2001 2.9 25.8
2002 .5 18.1
2003 .6 14.8
Remaining years 2.8 105.2
- --------------------------------------------------------------------
Total minimum lease payments 14.5 279.3
Less minimum sublease income - (29.9)
------------------------
Net minimum lease payments 14.5 $249.4
-------
Less amount representing interest (3.0)
- -----------------------------------------------------
Present value of minimum lease payments $11.5
- -----------------------------------------------------
</TABLE>
Property, plant and equipment included capitalized leases of $63.2, less
accumulated depreciation of $2.8, at December 31, 1998 and $30.2, less
accumulated
38
<PAGE>
<PAGE>
depreciation of $3.5, at December 31, 1997. Long-term debt included capitalized
lease obligations of $6.2 and $24.2 at those respective dates.
Note 12 - Pensions and Other Postretirement Benefits:
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits," which standardizes and combines the
disclosures for pensions and other postretirement benefits. The Statement was
effective December 31, 1998.
The company has various pension plans covering substantially all of its
employees in the U.S. and certain foreign subsidiaries.
The company provides other postretirement benefits, primarily health insurance,
to qualifying domestic retirees and their dependents. These plans are currently
noncontributory for domestic employees who retired prior to January 1, 1992.
Effective January 1, 1998 the company expanded the health insurance program by
offering contributory benefits to all domestic employees who have retired after
December 31, 1991 and their dependents, and future retirees meeting minimum age
and service requirements. This amendment increased the accumulated
postretirement benefit obligation by $88.8 million as of December 31, 1997. This
amount is being amortized to expense over the average remaining employee service
period of six years to reach eligibility at age 55. Postretirement benefits for
foreign subsidiary employees are not material.
The following tables present the benefit obligation and funded status of the
plans:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Pension Postretirement
- ----------------------------------------------------------------------
1998 1997 1998 1997
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at
beginning of year $2,276.6 $2,144.5 $ 273.1 $ 186.0
Service cost 60.0 53.5 6.2 .4
Interest cost 160.1 156.0 19.9 14.0
Plan participants' contributions 2.4 2.0 .2 -
Amendments 11.6 1.7 (3.5) 88.8
Actuarial loss 221.7 46.4 10.5 3.6
Benefits paid (138.9) (127.5) (22.7) (19.7)
- ----------------------------------------------------------------------
Benefit obligation
at end of year $2,593.5 $2,276.6 $ 283.7 $ 273.1
- ----------------------------------------------------------------------
CHANGE IN PLAN ASSETS
Fair value of plan assets
at beginning of year $2,276.6 $2,052.3 $ - $ -
Actual return on plan assets 230.1 287.6 - -
Company contributions 53.6 62.2 22.7 19.7
Plan participants' contributions 2.4 2.0 - -
Benefits paid (138.9) (127.5) (22.7) (19.7)
- ----------------------------------------------------------------------
Fair value of plan assets at
end of year $2,423.8 $2,276.6 $ - $ -
- ----------------------------------------------------------------------
Funded status $ (169.7) $ - $(283.7) $(273.1)
Unrecognized actuarial loss 197.3 32.6 59.8 51.6
Unrecognized prior service
cost 40.9 39.1 78.1 96.5
Unrecognized net transition
obligation (1.9) (.7) - -
- ----------------------------------------------------------------------
Net amount recognized $ 66.6 $ 71.0 $(145.8) $(125.0)
- ----------------------------------------------------------------------
Amounts recognized in the
Consolidated Balance Sheets
consist of:
Prepaid benefit cost $ 197.7 $ 184.0 $ - $ -
Accrued benefit liability (154.7) (131.3) (145.8) (125.0)
Intangible asset 1.8 3.3 - -
Accumulated other
comprehensive income 21.8 15.0 - -
- ----------------------------------------------------------------------
Net amount recognized $ 66.6 $ 71.0 $(145.8) $(125.0)
- ----------------------------------------------------------------------
</TABLE>
Foreign pension plan assets at fair value included in the preceding table were
$757.5 in 1998 and $760.0 in 1997. The foreign pension plan projected benefit
obligation was $784.0 in 1998 and $710.6 in 1997.
The projected benefit obligation, accumulated benefit obligation and fair value
of plan assets for the pension plans with accumulated benefit obligations in
excess of plan assets were $457.1, $392.6 and $270.6, respectively as of
December 31, 1998, and $163.2, $136.5 and $22.6, respectively as of December 31,
1997.
39
<PAGE>
<PAGE>
The following table presents the annual cost related to the plans:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
Pension Postretirement
- ------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
COMPONENTS OF NET PENSION
AND POSTRETIREMENT
COSTS
Service cost $ 60.0 $ 53.5 $ 52.4 $ 6.2 $ .4 $ .5
Interest cost 160.1 156.0 153.3 19.9 14.0 13.7
Expected return on plan
assets (187.3) (175.5) (170.2) - - -
Amortization of prior
service cost and net
transition obligation 7.5 7.2 7.7 14.7 .6 (.2)
Recognized actuarial loss 3.6 4.0 8.7 2.6 2.5 3.0
Curtailment and special
benefit charge 5.3 - - - - -
- ------------------------------------------------------------------------
Net pension and post-
retirement costs $ 49.2 $ 45.2 $ 51.9 $43.4 $17.5 $17.0
- ------------------------------------------------------------------------
</TABLE>
The sale of the Rochester plant, as discussed in Note 4, resulted in a
curtailment and special benefit charge of $5.3 in 1998.
The assumptions for the U.S. pension and postretirement plans included an
expected increase in salary levels of 4.0 percent for each of the years ended
December 31, 1998, 1997 and 1996. The weighted-average discount rate was 7.25
percent, 7.75 percent and 8.0 percent for 1998, 1997 and 1996, respectively. The
expected long-term rate of return on U.S. pension plan assets was 10.5 percent
for each of the years ended December 31, 1998, 1997 and 1996. Assumptions for
foreign pension plans did not vary significantly from the U.S. plans. Foreign
postretirement plans for 1998, 1997 and 1996 were not material and are not
included in the preceding table.
Net pension expense attributable to foreign plans included in the preceding
table was $15.0, $14.8 and $17.5 in 1998, 1997 and 1996, respectively.
Separate assumed health care cost trend rates have been used in the valuation of
postretirement health insurance benefits. For those employees retiring before
January 1, 1992, the assumed health care cost trend rate was 9.2 percent in 1998
declining to 5.5 percent in 2005 for retirees under age 65. For those 65 and
over, a rate of 5.9 percent was used in 1998 declining to 5.5 percent in 2000.
For those employees retiring after December 31, 1991, rates of either 8.8
percent or 6.7 percent were used in 1998 depending on coverage option, with both
rates declining to 5.0 percent in 2004. A one percentage point increase in
health care cost trend rates in each year would increase the accumulated
postretirement benefit obligation as of December 31, 1998 by $14.6 and the net
periodic postretirement benefit cost by $1.8. A one percentage point decrease in
the health care cost trend rates in each year would decrease the accumulated
postretirement benefit obligation as of December 31, 1998 by $14.5 and the net
periodic postretirement benefit cost for 1998 by $1.7.
Other postretirement benefits for foreign plans expensed under the cash method
in 1998, 1997 and 1996 were not material.
Note 13- Income Taxes:
The components of income before income taxes and minority interests were:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
Years Ended December 31, 1998 1997 1996
- ---------------------------------------------------------------------
<S> <C> <C> <C>
U.S. and Puerto Rico $ 925.9 $ 560.5 $ 515.1
Foreign 840.3 672.9 661.6
- ---------------------------------------------------------------------
$1,766.2 $1,233.4 $1,176.7
- ---------------------------------------------------------------------
The Provision for income taxes consisted of:
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Years Ended December 31, 1998 1997 1996
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 342.4 $132.9 $ 39.2
Foreign 290.6 219.5 195.9
State and Puerto Rico 48.7 39.1 15.4
- ----------------------------------------------------------------------
681.7 391.5 250.5
- ----------------------------------------------------------------------
Deferred:
Federal (105.7) (26.7) 25.8
Foreign (60.8) (1.9) 39.5
State and Puerto Rico (3.0) 1.0 5.4
- ----------------------------------------------------------------------
(169.5) (27.6) 70.7
- ----------------------------------------------------------------------
Provision for income taxes $ 512.2 $363.9 $321.2
- ----------------------------------------------------------------------
</TABLE>
40
<PAGE>
<PAGE>
The tax effects of significant temporary differences which comprise the deferred
tax assets and liabilities were as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
December 31, 1998 1997
- ----------------------------------------------------------------------
Assets Liabilities Assets Liabilities
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Restructuring reserves $ 30.3 $ - $ 62.4 $ -
Compensation/benefits 118.0 - 103.4 -
Postretirement/post-
employment obligations 69.6 - 60.3 -
Inventory 125.3 13.1 42.2 10.8
Foreign tax loss and
other carryforwards 52.7 - 42.2 -
Research tax credit carry-
forwards 35.6 - 30.2 -
Pensions 13.2 65.9 14.2 61.0
Property, plant and equip-
ment 33.9 216.2 30.3 200.0
Intangibles 52.4 93.3 27.6 80.0
Other 255.5 84.9 130.9 60.4
- ----------------------------------------------------------------------
786.5 473.4 543.7 412.2
Valuation allowances (34.4) - (28.9) -
- ----------------------------------------------------------------------
$752.1 $473.4 $514.8 $412.2
- ----------------------------------------------------------------------
</TABLE>
The research tax credit carryforwards of $35.6 expire in 2010 through 2018.
Valuation allowances on deferred tax assets are provided if it is more likely
than not that some portion or all of the deferred tax asset will not be
realized.
Income taxes of $287.6, $246.5 and $205.1 were paid during 1998, 1997 and 1996,
respectively. Prepaid expenses and other current assets included deferred income
taxes of $336.5 and $206.4 at December 31, 1998 and 1997, respectively.
The earnings of Warner-Lambert's operations in Puerto Rico are subject to tax
pursuant to a grant, effective through September 2011. The grant provides for
certain tax relief if certain conditions are met. The company continued to be in
compliance with these conditions at December 31, 1998.
Earnings of foreign subsidiaries considered to be reinvested for an indefinite
period at December 31, 1998 were approximately $1.8 billion. No additional U.S.
income taxes or foreign withholding taxes have been provided on these earnings.
It would be impractical to compute the estimated deferred tax liability on these
earnings.
The Provision for income taxes in 1997 was reduced by 1.4 percentage points due
to the favorable tax impact of the liquidation of a foreign affiliate.
As of December 31, 1998, Warner-Lambert's U.S. federal income tax returns
through 1992 have been examined and settled with the Internal Revenue Service.
The company's effective income tax rate differed from the U.S. statutory tax
rate as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Years Ended December 31, 1998 1997 1996
- --------------------------------------------------------------------
<S> <C> <C> <C>
U.S. statutory tax rate 35.0% 35.0% 35.0%
Benefit from U.S. possession tax credit (1.8) (3.3) (6.2)
Foreign income subject to increased
(reduced) tax rates including
taxes on repatriation (3.4) .9 .5
U.S. research tax credit, net (1.3) (1.2) (.6)
State and local taxes, net 1.0 1.0 1.0
Other items, net (.5) (2.9) (.7)
Effect of minority interests - - (1.7)
- --------------------------------------------------------------------
Effective tax rate 29.0% 29.5% 27.3%
- --------------------------------------------------------------------
</TABLE>
Note 14 - Shareholders' Equity:
The authorized preferred stock of Warner-Lambert is 5 million shares with a par
value of $1.00 per share, of which there are no shares issued.
On April 28, 1998 the stockholders approved an increase in the number of
authorized shares of common stock from 500 million to 1.2 billion in order to
effectuate a three-for-one stock split effective May 8, 1998. Par value remained
at $1.00 per share. The stock split was recorded by increasing Common stock
issued by $641.3 and reducing Capital in excess of par value by $274.2 and
Retained earnings by $367.1. In addition, the average number of common shares
outstanding and all per share information have been restated to reflect the
stock split.
Common stock issued was $962.0, $320.7 and $320.7 at December 31, 1998, 1997 and
1996, respectively.
41
<PAGE>
<PAGE>
Changes in certain components of shareholders' equity are summarized as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
Treasury Stock
Capital in --------------------
Excess of Shares in Retained
Par Value Thousands Cost Earnings
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 $ 218.0 (24,731) $ (958.3) $3,042.9
Two-for-one stock split (160.3) (24,731) - -
Shares repurchased, at cost - (2,423) (138.9) -
Employee benefit plans 62.2 2,429 31.7 -
Net income - - - 786.5
Cash dividends paid - - - (374.4)
International operations
year-end change (Note 1) - - - (18.8)
- --------------------------------------------------------------------------
Balance at December 31, 1996 119.9 (49,456) (1,065.5) 3,436.2
Shares repurchased, at cost - (1,436) (135.2) -
Employee benefit plans 105.5 2,455 36.2 -
Net income - - - 869.5
Cash dividends paid - - - (413.1)
- --------------------------------------------------------------------------
Balance at December 31, 1997 225.4 (48,437) (1,164.5) 3,892.6
Three-for-one stock split (274.2) (96,873) - (367.1)
Shares repurchased, at cost - (4,050) (265.2) -
Employee benefit plans 231.1 8,931 41.7 -
Net income - - - 1,254.0
Cash dividends paid - - - (524.6)
- --------------------------------------------------------------------------
Balance at December 31, 1998 $ 182.3 (140,429) $(1,388.0) $4,254.9
- --------------------------------------------------------------------------
</TABLE>
Pursuant to the company's Stockholder Rights Plan, as amended March 25, 1997, a
right is attached to each outstanding share of common stock. In the event that
any person or group acquires 15 percent or more of the outstanding common
shares, or acquires the company in a merger or other business combination, each
right (other than those held by the "Acquiring Person") will entitle its holder
to purchase, for a specified purchase price, stock of the company or the
Acquiring Person having a market value of twice such purchase price. The rights
expire on March 25, 2007 and can be redeemed for $.003 per right by the Board of
Directors prior to the time the rights become exercisable.
Tax benefits credited to Capital in excess of par for employee stock options
exercised were $165.2 and $64.8 for the years ended December 31, 1998 and 1997,
respectively.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
which requires reporting the components of comprehensive income in a financial
statement as part of a full set of general purpose financial statements. Total
comprehensive income includes net income and other comprehensive income, which
consists of foreign currency translation adjustments, unrealized net gains
(losses) on investments and minimum pension liability adjustments. The
components of other comprehensive income were as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
Foreign Other Accumulated
Currency Items, Other
Translation Net of Comprehensive
Adjustments Tax Income
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1995 $(216.3) $ (.5) $(216.8)
Current period change (19.9) 6.4 (13.5)
- -----------------------------------------------------------------------
Balance at December 31, 1996 (236.2) 5.9 (230.3)
Current period change (193.8) (14.6) (208.4)
- -----------------------------------------------------------------------
Balance at December 31, 1997 (430.0) (8.7) (438.7)
Current period change 57.7 (18.1) 39.6
- -----------------------------------------------------------------------
Balance at December 31, 1998 $(372.3) $(26.8) $(399.1)
- -----------------------------------------------------------------------
</TABLE>
In the above table, "Other Items" includes an adjustment for the realization of
an after-tax gain of approximately $23.0 on the sale of an investment security
in 1998.
In 1998, cumulative translation adjustments, and certain other equity
adjustments which were previously reported in Capital in excess of par, have
been combined in one line item, Accumulated other comprehensive income, in the
Consolidated Balance Sheets.
Note 15 - Stock Options and Awards:
Warner-Lambert has stock awards outstanding at December 31, 1998 granted under
various stock plans. Future grants may be issued under the 1996 Stock Plan which
became effective January 1, 1997. The 1996 Stock Plan provides for the granting
of stock awards to employees in the form of options to purchase shares of common
stock at a price equal to fair market value on the date of the grant, restricted
stock and performance awards. Options generally become exercisable in
installments of 25 percent per year on each of the first through the fourth
anniversaries of the grant date and have a maximum term of 10 years. Restricted
stock granted to employees is delivered upon the expiration of restricted
periods established at the time of grant. Performance awards, which are also
subject to restricted periods, provide for the recipient to receive payment in
shares, cash or any combination thereof equivalent to the award being granted.
The aggregate number of shares of common stock which may be awarded under the
1996 Stock Plan in any year is not more than 1.65 percent of the issued shares
on January 1 of the year of the grant. In any year in which stock awards are
granted for less than the maximum permissible number of shares, the balance of
unused shares will be added to the number of shares permitted to be granted
42
<PAGE>
<PAGE>
during the following year. No stock awards may be made under the 1996 Stock Plan
after April 23, 2007.
The company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and related Interpretations in accounting for its stock awards.
Accordingly, no compensation cost has been recognized for stock options.
Compensation expense is recorded over the vesting period for restricted stock
and performance awards. Expense of $17.0, $13.3 and $9.2 for restricted stock
and performance awards was charged to income in 1998, 1997 and 1996,
respectively. Had compensation cost been recorded as an alternative provided by
FASB Statement No. 123, "Accounting for Stock-Based Compensation," for options
granted in 1998, 1997 and 1996, the company's net income and basic earnings per
share would have been reduced by $44.4 or $.05 per share in 1998, by $29.2 or
$.04 per share in 1997 and by $10.7 or $.01 per share in 1996. These amounts are
for disclosure purposes only and may not be representative of future
calculations since the estimated fair value of stock options would be amortized
to expense over the vesting period, and additional options may be granted in
future years. The fair value for these options was estimated at the date of
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions for 1998: dividend yield of 2.37 percent; expected
volatility of 24.21 percent; risk free interest rate of 5.55 percent; and
expected life of 5.9 years. Assumptions did not vary significantly for prior
years.
Transactions involving stock options are summarized as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
Number Weighted-
of Average
Shares Exercise
(in thousands) Price
- ---------------------------------------------------------------------
<S> <C> <C>
Stock options outstanding, December 31, 1995 58,806 $11.42
Granted 12,133 19.84
Exercised (7,009) 9.14
Forfeited (1,442) 15.25
- ---------------------------------------------------------------------
Stock options outstanding, December 31, 1996 62,488 13.23
Granted 14,456 29.05
Exercised (7,172) 10.03
Forfeited (1,326) 21.05
- ---------------------------------------------------------------------
Stock options outstanding, December 31, 1997 68,446 16.75
Granted 8,141 49.03
Exercised (8,832) 11.87
Forfeited (1,131) 25.69
- ---------------------------------------------------------------------
Stock options outstanding, December 31, 1998 66,624 21.19
- ---------------------------------------------------------------------
Weighted-average fair value of stock options:
Granted during 1996 4.60
Granted during 1997 6.99
Granted during 1998 12.79
Shares available for annual stock award grants at:
December 31, 1996 15,873
December 31, 1997 17,212
December 31, 1998 25,366
- -----------------------------------------------------------
</TABLE>
The following table summarizes outstanding and exercisable stock options as of
December 31, 1998:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Stock Options Outstanding Stock Options Exercisable
- ----------------------------------------------------------------------
Weighted-
Average Weighted- Weighted-
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices (in thousands) Life (years) Price (in thousands) Price
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 8 - $24 45,402 5.4 $14.23 35,876 $13.34
25 - 44 13,325 8.2 29.05 3,052 28.82
45 - 62 7,767 9.1 47.57 9 46.01
63 - 80 130 9.7 72.70 - -
- ----------------------------------------------------------------------
8 - 80 66,624 6.4 21.19 38,937 14.56
- ----------------------------------------------------------------------
</TABLE>
43
<PAGE>
<PAGE>
Note 16 - Contingencies and Environmental Liabilities:
Various claims, suits and complaints, such as those involving government
regulations, patents and trademarks and product liability, arise in the ordinary
course of Warner-Lambert's business. In the opinion of management, all such
pending matters are without merit or are of such kind, or involve such amounts,
as would not have a material adverse effect on the company's consolidated
financial position, liquidity, cash flows or results of operations for any year.
The company is involved in various environmental matters including actions
initiated by the Environmental Protection Agency under the Comprehensive
Environmental Response, Compensation and Liability Act (i.e., CERCLA or
Superfund and similar legislation), various state environmental organizations
and other parties. The company is presently engaged in environmental remediation
at certain sites, including sites previously owned.
The company accrues costs for an estimated environmental liability when
management becomes aware that a liability is probable and is able to reasonably
estimate the company's share. Generally, that occurs no later than when
feasibility studies and related cost assessments of remedial techniques are
completed, and the extent to which other potentially responsible parties (PRPs)
can be expected to contribute is determined. For most sites, there are other
PRPs that may be jointly and severally liable to pay all cleanup costs. As of
December 31, 1998 and 1997, the accrual for environmental liabilities was
approximately $34 covering 50 and 48 sites, respectively. Outside consultants
are generally used to assess the costs of remediation. Accruals are established
based on current technology and are not discounted. While it is reasonably
possible that additional costs may be incurred beyond the amounts accrued as a
result of new information, those costs, if any, cannot be estimated currently.
Some portion of the liabilities associated with the company's environmental
actions may be covered by insurance. The company is currently in litigation with
respect to the scope and extent of liability coverage from certain insurance
companies; however, recoveries will not be recorded as income until there is
assurance that recoveries are forthcoming.
In management's opinion, the liabilities for all environmental matters mentioned
above which are probable and reasonably estimable are adequately accrued.
Although it is not possible to predict with certainty the outcome of these
matters or the ultimate costs of remediation, management believes it is unlikely
that their ultimate disposition will have a material adverse effect on the
company's consolidated financial position, liquidity, cash flows or results of
operations for any year.
Note 17 - Segment Information:
In 1998 the company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which requires reporting certain financial
information according to the "management approach." This approach requires
reporting information regarding operating segments on the basis used internally
by management to evaluate segment performance. SFAS 131 also requires
disclosures about products and services, geographic areas and major customers.
The Statement was effective December 31, 1998 and has been adopted for all
periods presented.
The accounting policies of the segments are the same as those described in the
"Significant Accounting Policies." Segments are determined based on product
categories. The company evaluates performance based on profit or loss before
income taxes.
Reportable segments are comprised as follows: Pharmaceutical - consisting of
ethical pharmaceuticals, biologicals and empty hard-gelatin capsules; Consumer
Health Care - consisting of OTC, shaving and pet care products; Confectionery -
consisting of chewing gums, breath mints and cough tablets.
The company's pharmaceutical products are promoted primarily to health care
professionals and are sold either directly or through wholesalers. Consumer
Health Care products are promoted principally through consumer advertising and
promotional programs. They are sold principally to drug wholesalers, pharmacies,
food stores, mass merchandisers, physician supply houses and hospitals.
Confectionery products are promoted primarily through consumer advertising and
in-store promotions and are sold directly to food stores, pharmacies and mass
merchandisers which in turn sell to consumers.
44
<PAGE>
<PAGE>
Reportable Segment Data
<TABLE>
<CAPTION>
Net Sales Income Before Taxes
------------------------ ------------------------
1998 1997 1996 1998 1997 1996
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Pharmaceutical $ 5,604 $3,620 $2,505 $1,474 $ 830 $ 478
Consumer Health Care 2,722 2,691 2,797 510 549 527
Confectionery 1,888 1,869 1,929 159 185 260
------- ------ ------ ------ ------ ------
Total Segments 10,214 8,180 7,231 2,143 1,564 1,265
Corporate (1) - - - (377) (331) (157)
------- ------ ------ ------ ------ ------
Consolidated Total $10,214 $8,180 $7,231 $1,766 $1,233 $1,108
======= ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Segment Assets (2) Depreciation/Amortization Capital Expenditures
------------------------ ------------------------- ------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Pharmaceutical $3,184 $2,624 $1,874 $ 127 $ 113 $ 88 $ 491 $ 251 $ 177
Consumer Health Care 2,471 2,384 2,433 85 83 67 90 108 82
Confectionery 960 908 1,070 49 51 48 78 80 102
------ ------ ------ ------ ------ ------ ------ ------ ------
Total Segments 6,615 5,916 5,377 261 247 203 659 439 361
Corporate (3) 2,616 2,115 1,820 35 28 28 62 56 28
------ ------ ------ ------ ------ ------ ------ ------ ------
Consolidated Total $9,231 $8,031 $7,197 $ 296 $ 275 $ 231 $ 721 $ 495 $ 389
====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
(1) Corporate expense includes general corporate income and expense, corporate
investment income and interest expense. Corporate expense in 1998 includes a
pretax gain on the sale of the company's Rochester, Michigan manufacturing
plant and certain minor prescription products of $67 which was offset by
costs related to the company's plans to close two foreign manufacturing
facilities. Corporate expense in 1996 includes a $75 pretax gain on the sale
of Warner Chilcott Laboratories.
(2) Segment assets consist of Accounts receivable, Inventories, Intangible
assets, Other investments and Property, plant and equipment.
(3) Corporate assets include Cash and cash equivalents, and other unallocated
assets.
Geographic Data
<TABLE>
<CAPTION>
1998 1997 1996 1998 1997 1996
---- ----- ----- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales: (a) Long-Lived Assets:
United States $ 5,887 $4,200 $3,185 United States $ 1,515 $1,405 $1,249
Foreign 4,327 3,980 4,046 Ireland 311 125 38
------- ------ ------ Germany 248 205 144
Total $10,214 $8,180 $7,231 All other foreign 701 692 737
======= ====== ====== ------- ------ ------
Total $ 2,775 $2,427 $2,168
======= ====== ======
</TABLE>
(a) Net sales are attributed to countries based on location of customer. No
single foreign country was material to consolidated Net sales.
45
<PAGE>
<PAGE>
Note 18 - Restructuring and Plant Closures:
In 1993 and 1991, the company recorded, as a separate income statement
component, restructuring charges of $525.2 ($360.4 after tax or $.45 per share)
and $544.0 ($418.0 after tax or $.52 per share), respectively. The total of
$1,069.2 was recorded for worldwide rationalization of manufacturing and
distribution facilities and for organizational restructuring and related
workforce reductions of about 5,500 positions. These rationalization programs
were prompted by changes in the company's competitive environment, including the
growing impact of managed health care, cost containment efforts in the U.S.,
cost regulations in Europe, the elimination of trade barriers throughout the
world and changes in U.S. tax law. As of December 31, 1998, 24 manufacturing
sites were closed and workforce reductions of approximately 4,400 positions were
made primarily in the U.S. sales force, Puerto Rico manufacturing, worldwide
administrative operations and European research. Activities still to be
completed include closing 2 facilities, worldwide work-systems redesign and
severance associated with these projects.
Initial 1993 and 1991 provisions and the subsequent utilization by major
components are summarized in the table below:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Amounts Reserve
1993 & 1991 Utilized Amounts Balance at
Restructuring Through Utilized in 1996, December
Provisions 1995 1997 and 1998 31, 1998
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Severance and related costs $ 468.0 $315.5 $136.9 $15.6
Plant closures and related costs 161.5 120.5 38.4 2.6
Work-systems redesign 71.5 9.9 40.9 20.7
Operating losses during
phase-out period 35.3 35.3 - -
Other 107.3 95.0 11.5 .8
Asset write-offs 225.6 225.6 - -
- ------------------------------------------------------------------------------------------
Total $1,069.2 $801.8 $227.7 $39.7
- ------------------------------------------------------------------------------------------
</TABLE>
Amounts utilized include redistribution among categories based on actual
restructuring actions and project forecasts. The company reduced reserve
balances designated for severance and related costs by
$110.0 and increased balances for plant closures and related costs by $69.2,
work-systems redesign by $29.8 and other costs by $11.0. These redistributions
were necessary due to delays in completion, higher projected costs for plant
closures and the acceleration of the work-systems redesign projects enabling
some positions to be eliminated through attrition rather than severance. The
original scopes of the restructuring projects and the number of positions to be
eliminated remain substantially unchanged.
Reserves are considered utilized when specific restructuring criteria are
completed or benefits paid. As of December 31, 1998, Other current liabilities
included $31.5 and Other noncurrent liabilities included $8.2 of the remaining
restructuring reserve balance to be utilized. The company has determined that
the 1991 and 1993 restructuring reserve balance is adequate to cover the
remaining restructuring actions and that these restructuring programs will be
completed by the fourth quarter of 1999, with spending occurring
evenly throughout the year. The payment of the remaining reserves will be funded
from operations and will not have a material impact on earnings.
In the first quarter of 1998, the company committed to a plan to close two
foreign manufacturing facilities and committed to closing a third foreign
manufacturing facility in the third quarter of 1998. The planned closures are
due to a consolidation of certain product manufacturing resources in Europe. The
costs of the three closings consist primarily of $47 for severance and related
expenses, $35 for asset write-offs and $11 for other costs. The provisions for
these costs are reflected in Other expense (income), net for the year ended
December 31, 1998. The charges will be funded by operations and will not have a
material impact on liquidity. The three closures will result in a workforce
reduction of approximately 450 positions. As of December 31, 1998 the severance
and other amounts have not been expended and $45 is reflected in other current
liabilities and $13 is reflected in other long-term liabilities. The $35 in
asset write-offs has been reflected as a reduction of property, plant and
equipment. Management expects expenditures to occur throughout 1999 with
substantially all amounts expended by the end of 1999. Completion of these
closures is expected in the first quarter 2000. Cost savings associated with
these closures which is expected to be partially realized in 1999 and fully
realized in 2000, is estimated to be approximately $28 annually. Management
plans to sell the plants following the closures. Proceeds on the sales are not
expected to be material.
46A
<PAGE>
<PAGE>
Report by Management
Management of Warner-Lambert Company has prepared the accompanying consolidated
financial statements and related information in conformity with generally
accepted accounting principles and is responsible for the information and
representations in such financial statements, including estimates and judgments
required for their preparation. PricewaterhouseCoopers LLP, independent
accountants, has audited the consolidated financial statements and their report
appears herein.
In order to meet its responsibilities, management maintains a system of internal
controls designed to provide reasonable assurance that assets are safeguarded
and that financial records properly reflect all transactions. The internal
control system is augmented by an ongoing internal audit program, an
organizational structure that provides for appropriate division of
responsibility and communication programs that explain the company's policies
and standards.
The Audit Committee of the Board of Directors, composed entirely of nonemployee
directors, meets periodically with the independent accountants, management and
internal auditors to review auditing, internal accounting controls and other
financial reporting matters. Both the independent accountants and internal
auditors have full access to the Audit Committee.
Management also recognizes its responsibility for fostering a strong ethical
climate so that the company's affairs are conducted according to the highest
standards of personal and corporate conduct. This responsibility is
characterized and reflected in the company's Creed, which summarizes
Warner-Lambert's commitment to its customers, colleagues, shareholders,
suppliers and society, and the creation of a corporate compliance program, which
is a formal system designed to oversee compliance with applicable laws,
regulations, policies and procedures on a worldwide basis.
Melvin R. Goodes Ernest J. Larini
Chairman and Chief Vice President and
Executive Officer Chief Financial Officer
<PAGE>
<PAGE>
Report of Independent Accountants
PRICEWATERHOUSECOOPERS LLP
To the Board of Directors and Shareholders of Warner-Lambert Company
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income and comprehensive income
and of cash flows present fairly, in all material respects, the financial
position of Warner-Lambert Company and its subsidiaries at December 31, 1998 and
1997, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
- --------------------
400 Campus Drive
Florham Park, New Jersey
January 25, 1999
46
<PAGE>
<PAGE>
Quarterly Financial Information:
(Dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
1998 Quarters
- ----------------------------------------------------------------------------
First Second Third Fourth
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $2,218.9 $2,556.7 $2,560.2 $2,877.9
Gross profit 1,614.3 1,900.9 1,913.8 2,155.4
Net income 279.3 338.1 295.5 341.1
Net income per common share*:
Basic .34 .41 .36 .42
Diluted .33 .40 .35 .40
- ----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
1997 Quarters
- ----------------------------------------------------------------------------
First Second Third Fourth
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $1,777.4 $1,966.7 $2,108.3 $2,327.4
Gross profit 1,228.2 1,373.1 1,494.3 1,676.6
Net income 204.1 231.4 198.3 235.7
Net income per common share*:
Basic .25 .28 .24 .29
Diluted .24 .28 .24 .28
- ----------------------------------------------------------------------------
</TABLE>
*Amounts reflect a three-for-one stock split effective May 1998.
Market Prices of Common Stock and Dividends*:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
1998 Range of Prices 1997 Range of Prices
- ----------------------------------------------------------------------------
Dividends Dividends
High Low per Share High Low per Share
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
First quarter $56 7/8 $39 3/8 $.16 $31 5/64 $23 11/64 $.13
Second quarter 71 9/16 55 .16 41 53/64 27 7/8 .13
Third quarter 85 15/16 64 3/4 .16 49 5/64 41 7/16 .13
Fourth quarter 82 60 1/8 .16 50 7/8 36 11/64 .13
- ----------------------------------------------------------------------------
</TABLE>
*Amounts reflect a three-for-one stock split effective May 1998.
47
<PAGE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
NET SALES
- ---------
Sales in 1998 of $10.2 billion were 25 percent higher than in 1997. Sales
increased 28 percent adjusting for the unfavorable impact of foreign exchange
rate changes. Unit volume grew by 29 percent offset by price decreases of 1
percent.
Sales in 1997 of $8.2 billion were 13 percent higher than in 1996. Sales
increased 17 percent adjusting for the unfavorable impact of foreign exchange
rate changes. Unit volume grew by 16 percent with price increases adding 1
percent to sales growth.
On a geographic basis, U.S. sales increased $1.7 billion or 40 percent to $5.9
billion in 1998. International sales increased $347 million or 9 percent to $4.3
billion. At constant exchange rates, international sales increased 15 percent.
U.S. sales in 1997 increased $1.0 billion or 32 percent to $4.2 billion from
1996. International sales decreased $66 million or 2 percent to $4.0 billion in
1997. At constant exchange rates, international sales increased 6 percent.
Pharmaceutical Products
- -----------------------
<TABLE>
<CAPTION>
(Dollars in millions) 1998 1997 1996
------------- ------------- --------
<S> <C> <C> <C> <C> <C>
Net Sales $ 5,604 +55% $ 3,620 +45% $ 2,505
</TABLE>
Worldwide pharmaceutical sales increased 55 percent to $5.6 billion in 1998
compared to 1997. The sales increase was primarily attributable to the continued
growth of the cholesterol-lowering agent LIPITOR, the oral agent for the
treatment of type 2 diabetes REZULIN, the anticonvulsant NEURONTIN and the
antihypertensive ACCUPRIL which achieved worldwide sales as follows:
<TABLE>
<CAPTION>
Year ended Year ended
December 31, 1998 December 31, 1997
(Dollars in millions) ----------------- -----------------
<S> <C> <C>
LIPITOR $ 2,185 $ 865
REZULIN 748 420
NEURONTIN 514 292
ACCUPRIL 454 378
</TABLE>
With the growth of these products, pharmaceutical segment sales now represent a
significantly greater percentage of the company's total sales and profits,
particularly in the U.S. and to a lesser degree in international markets.
Pharmaceutical sales in the U.S. increased 75 percent to $3.8 billion in 1998.
International pharmaceutical sales increased 26 percent to $1.8 billion in 1998
or 32 percent at constant exchange rates.
Worldwide sales of LIPITOR more than doubled to $2.2 billion in 1998 compared to
1997. LIPITOR has recently received additional indications for types III
(dysbetalipoproteinemia) and IV (isolated hypertriglyceridemia) lipid disorders.
As a result, LIPITOR continues to be the cholesterol-lowering medication
indicated for the broadest range of lipid abnormalities. LIPITOR now holds a 38
percent share of new prescriptions in the U.S. cholesterol-lowering market. In
most countries Warner-Lambert promotes and markets LIPITOR with Pfizer Inc. The
agreements with Pfizer consist of three broad categories: markets in which
Warner-Lambert and Pfizer co-promote Lipitor under a single brand name, markets
in which the two companies co-market the product under separate brand names in
competition with each other, and markets in which Pfizer has exclusive rights.
Pfizer does not have rights to the product in France and Japan. The co-promotion
agreement applies in most major markets, including the U.S., Canada, Germany and
the U.K. Under the agreement, the parties generally share certain product
expenses and sales force efforts. Pfizer is compensated on a sliding percentage
of sales basis depending on achieving certain sales objectives. The agreements
generally run, on a country by country basis, for ten years from the date of
product launch in the respective country. The agreement includes a provision
giving Warner-Lambert the right to co-promote one of Pfizer's products.
REZULIN achieved worldwide sales of $748 million during 1998. Warner-Lambert
markets REZULIN with Sankyo Company, Ltd., from whom the company licenses the
product for North America and other areas. Since its launch in March 1997, more
than 1.4 million Americans with type 2 diabetes have initiated treatment with
REZULIN.
Warner-Lambert and the FDA have been discussing reports of rare adverse liver
events (including liver-related deaths) associated with REZULIN. The company has
modified the labeling of the product to provide for the monitoring of liver
enzymes in an effort to reduce the occurrence of these rare events. The FDA held
a public meeting of the Endocrinologic and Metabolic Drugs Advisory Committee on
March 26, 1999 to discuss the REZULIN post-marketing safety data as well as the
company's supplemental new drug application for combination therapy with
metformin and a sulfonylurea. The Committee members voted 11-1 that the benefits
of REZULIN outweigh its risks when used in combination with insulin. The
Committee members also voted 12-0 that the benefits of REZULIN outweigh its
risks when used in combination with sulfonylureas. In addition, at least half of
the members voted that the benefits of REZULIN as monotherapy do not outweigh
its risks with current labeling. Warner-Lambert believes that sales of REZULIN
for monotherapy approximate 15% of total REZULIN sales. The Advisory Committee
did not vote on whether any restrictions or limitations should be imposed on
future REZULIN sales, but some members commented that changes to the current
labeling could be made that would serve to improve the benefit to risk ratio and
some members expressed the view that REZULIN sales should be limited to patients
whose diabetes cannot be controlled by other drugs. The FDA is not bound by the
findings of the Advisory Committee. While the company remains convinced of the
favorable risk/benefit profile of the drug, it cannot predict what action, if
any, the FDA may take with respect thereto. Such action can include further
labeling changes, additional monitoring, warnings to patients or limitations in
the patient population. The FDA also has the power to order the removal of
REZULIN from the market. Any such FDA action could adversely affect the sales of
REZULIN and the profits and stock price of the company. In addition, competitive
drugs will be reviewed at upcoming FDA Advisory Committee meetings in April. If
approved, such drugs could have an adverse effect on the sales of REZULIN and
the profits and stock price of the company.
48
<PAGE>
<PAGE>
During the third quarter of 1998, the company introduced two new pharmaceutical
products, OMNICEF (cefdinir) and CELEXA (citalopram). OMNICEF is a new, broad
spectrum cephalosporin antibiotic for the treatment of common respiratory tract
infections in adults and adolescents and uncomplicated skin and skin structure
infections. CELEXA is a selective serotonin reuptake inhibitor for the treatment
of depression that participates in the $6 billion U.S. market for
antidepressants. Warner-Lambert co-promotes CELEXA in the United States with
Forest Laboratories, Inc. CELEXA was developed in the U.S. by Forest
Laboratories, Inc. who has the manufacturing and marketing rights under license
from H. Lundbeck A/S. The co-promotion agreement requires each company to
provide agreed upon sales force efforts. Warner-Lambert will receive a quarterly
settlement from Forest Laboratories, Inc. based on a percentage of the profits
from the sales of CELEXA.
Pharmaceutical segment sales in the U.S. increased 83 percent to $2.1 billion in
1997. The sales increase was attributable to the successful 1997 launches of
LIPITOR and REZULIN generating sales of $739 million and $416 million,
respectively. Other pharmaceutical products in the U.S., including the
anticonvulsant DILANTIN, ACCUPRIL and the oral contraceptive LOESTRIN,
experienced sales declines of $55 million, $32 million and $31 million,
respectively due to an adjustment of wholesaler inventory levels during 1997.
International pharmaceutical sales increased 10 percent to $1.5 billion in 1997,
20 percent at constant exchange rates. The increase was attributable to the 1997
launch of LIPITOR in several countries and the May 1997 acquisition of the
remaining 66 percent of the Jouveinal group that the company did not already
own. Jouveinal sales of $105 million are included in the company's 1997 sales.
Prior to April 30, 1997, Jouveinal sales were not reflected in reported
Warner-Lambert sales results since the company's 34 percent interest in the
Jouveinal group was accounted for using the equity method.
Consumer Health Care Products
- -----------------------------
<TABLE>
<CAPTION>
(Dollars in millions) 1998 1997 1996
------------- ------------- --------
<S> <C> <C> <C> <C> <C>
Net Sales $ 2,722 +1% $ 2,691 -4% $ 2,797
</TABLE>
Consumer health care segment sales in the U.S. increased 5 percent to $1.5
billion in 1998. Within the segment, U.S. shaving products sales increased 14
percent to $226 million for the year. The increase is due to strong sales of the
PROTECTOR shaving system and the newly designed SLIM TWIN disposable razor. Also
contributing to the sales growth within the segment were increased U.S. sales of
SUDAFED cold/sinus medication, BENADRYL allergy medication and LISTERINE
mouthwash and the launch of LUBRIDERM UV moisturizing and sun protection lotion.
International consumer health care segment sales decreased 3 percent to $1.2
billion in 1998. The decrease reflects the impact of the overall economic
weakness in Asian markets coupled with the unfavorable impact of exchange in
Canada and Australia. At constant exchange rates, international segment sales
increased 3 percent for the year.
Within the consumer health care segment, international sales of the company's
shaving products decreased 4 percent to $518 million and was unchanged at
constant exchange rates in 1998. International sales of the company's TETRA pet
care products business also fell 5 percent to $114 million and 2 percent at
constant exchange rates for the year. Both the shaving products and TETRA pet
care divisions were significantly impacted by the broad economic downturn in
Southeast Asia and Japan.
During the third quarter of 1998 the company introduced the new QUANTERRA line
of standardized herbal supplements in the U.S.
QUANTERRA Mental Sharpness, with Ginkgo Biloba, and QUANTERRA Prostate, with
Saw Palmetto, represent the first two products in a new line of clinically
proven herbal supplements. In January1999 the company introduced QUANTERRA
Emotional Balance with St. John's Wort. "Clinically proven" reflects the
fact that the extracts contained in the products have been the subject of
numerous clinical studies. These products are regulated as dietary supplements
according to the Dietary Supplement and Health Education Act of 1994. Under
the Act there is no pre-approval required for dietary supplements. The
products' labels are required to carry a disclaimer stating "These statements
have not been evaluated by the Food and Drug Administration. This product is
not intended to diagnose, treat, cure, or prevent any disease." These products
address the rapidly growing demand for complementary medicines - a market driven
by strong consumer interest and the increasing integration of complementary
medicines into clinical practice by health care professionals.
Net sales, presented in graphic format, were $6,416.8 million in 1994, $7,039.8
million in 1995, $7,231.4 million in 1996, $8,179.8 million in 1997 and
$10,213.7 million in 1998.
49
<PAGE>
<PAGE>
On December 31, 1998, Warner-Lambert Company and certain of its affiliates and
Glaxo Wellcome plc and certain of its affiliates (Glaxo Wellcome) entered into
transactions in various countries whereby Glaxo Wellcome transferred to
Warner-Lambert rights to OTC ZANTAC products in the United States and Canada,
and Warner-Lambert principally transferred to Glaxo Wellcome its rights to OTC
ZANTAC products in all other markets and its rights to OTC ZOVIRAX, OTC BECONASE
and future Glaxo Wellcome prescription to OTC switch products in all markets.
These OTC products had been marketed through joint ventures between
Warner-Lambert and Glaxo Wellcome which were formed to develop, seek approval of
and market OTC versions of Glaxo Wellcome prescription drugs. These joint
ventures were accounted for as equity method investments and therefore none of
the sales are currently reflected in reported sales. For financial reporting
purposes, the December 31, 1998 transactions, which ended the joint venture
relationships between Warner-Lambert and Glaxo Wellcome, were accounted for as a
nonmonetary exchange of similar assets with no gain or loss recognized. In 1998
the joint ventures recorded ZANTAC 75 sales of $170 million in the United States
and Canada.
Consumer health care sales in the U.S. of $1.4 billion were essentially
unchanged for 1997. U.S. shaving products sales increased 22 percent to $199
million in 1997 due to the launch of the PROTECTOR shaving system and the newly
designed SLIM TWIN disposable razor.
International consumer health care sales fell 8 percent to $1.3 billion for
1997, or 1 percent at constant exchange rates. In mid-1996 the Glaxo Wellcome
Warner-Lambert joint venture agreement was revised to include ZOVIRAX cold sore
cream. Therefore, ZOVIRAX sales are no longer recorded in the company's
consolidated sales since the company uses the equity method of accounting for
this joint venture. If international sales of the Glaxo Wellcome Warner-Lambert
joint venture were consolidated, the decline in international sales would have
been positively impacted by 2 percentage points.
Net income per share - diluted, presented in graphic format, was $.86 in 1994,
$.90 in 1995, $.95 in 1996, $1.04 in 1997 and $1.48 in 1998. These amounts
reflect a three-for-one stock split effective May 1998.
International shaving products sales decreased 6 percent to $540 million in 1997
but increased 3 percent at constant rates. The negative currency impact related
to shaving products sales is due to weakness in the Japanese yen and the German
mark. International sales of the company's TETRA pet care products business fell
16 percent to $121 million, or 7 percent at constant exchange rates. This
decline was primarily attributable to Japan, where sales fell due to market
weakness and the decrease in the value of the yen.
Confectionery Products
- ----------------------
<TABLE>
<CAPTION>
(Dollars in millions) 1998 1997 1996
------------- ------------ -------
<S> <C> <C> <C> <C> <C>
Net Sales $ 1,888 +1% $ 1,869 -3% $ 1,929
</TABLE>
Confectionery sales in the U.S. increased 3 percent to $659 million in 1998 due
to strong sales of DENTYNE ICE and TRIDENT chewing gum and CERTS COOL MINT DROPS
and CERTS Powerful Mints breath fresheners.
International confectionery sales of $1.2 billion in 1998 were virtually
unchanged compared to 1997 but increased 7 percent at constant exchange rates.
The increase at constant exchange rates is primarily due to strong sales in
Mexico, where sales increased across all gum brands, and successful product
launches in Japan. The negative impact of exchange for the year was most
significant in Brazil, Japan, Colombia and Canada.
Confectionery sales in the U.S. increased 7 percent to $641 million in 1997
primarily due to the launches of DENTYNE ICE chewing gum, HALLS Zinc Defense
cold season dietary supplement and CERTS Powerful Mints breath freshener.
International confectionery sales were $1.2 billion in 1997, a decrease of 7
percent or 2 percent at constant exchange rates. The international sales decline
was primarily attributable to Japan, where sales fell due to intense
competition, market weakness and the decrease in the value of the yen and was
partly attributable to the weakness in most European currencies.
50
<PAGE>
<PAGE>
COSTS AND EXPENSES
- ------------------
Cost of goods sold increased 9 percent in 1998 and 3 percent in 1997. As a
percentage of net sales, cost of goods sold fell to 25.7% from 29.4% in 1997 and
32.5% in 1996. The improvement in the ratio was partly attributable to an
increase in pharmaceutical segment product sales, with generally higher margins
than consumer health care or confectionery products, as a percentage of total
company sales. Also contributing to the improvement in the ratio was a favorable
product mix within the pharmaceutical segment.
Selling, general and administrative expense in 1998 and 1997 increased $1.1
billion and $561 million or 30 percent and 18 percent, respectively.
Pharmaceutical segment expenses significantly increased in 1998 and 1997 to
support new products. Quarterly settlements of co-promotion agreements related
to LIPITOR and REZULIN that are recorded in selling, general and administrative
expense increased $505 million and $198 million for the year ended December 31,
1998 and 1997, respectively, compared to the same periods a year ago. In 1997,
international pharmaceutical segment expenses also increased partly due to the
May 1997 Jouveinal acquisition. As a percentage of net sales, selling, general
and administrative expense was 46.9% compared with 44.9% in 1997 and 43.1% in
1996.
Research and development expense increased 30 percent and 21 percent in 1998 and
1997, respectively. As a percentage of net sales, research and development
expense was 8.6% in 1998, 8.2% in 1997 and 7.7% in 1996. For 1999 the company
plans to invest over $1 billion in research and development, a projected
increase of over 20 percent compared with 1998.
In 1993 and 1991, the company recorded as a separate income statement
component, restructuring charges of $525 million ($360 million after tax or
$.45 per share) and $544 million ($418 milion after tax or $.52 per share),
respectively, as described in Note 18 to the consolidated financial statements.
These restructuring charges include worldwide pharmeceutical manufacturing
rationalizations, which include extensive product relocations requiring
regulatory approvals. The time involved in completion of these activities
requires strategic planning and systematic executions of the tranfers of
manufacturing operations to other locations. The product relocations have
been phased in with the related approval processes taking approximately two
years for each relocation. Charges of $38 million, $60 million and $129
million were recorded against the reserves during the years 1998, 1997 and
1996, respectively. The charges during this period represent costs associated
with the closing of nine manufacturing sites, the elimination of approximately
1,000 positions and the cost of work-systems redesign. Work-systems redesign
costs primarily relate to reengineering efforts surrounding the replacement of
systems and simplification of work processes which will enable the company to
conduct its businesses, as restructured, with fewer employees. The reserve
balance at December 31, 1998 is $40 million. All remaining activities will be
completed by the fourth quarter of 1999. The remaining costs include the cost
of closing two facilities with the elimination of approximately 575 positions
and the completion of work-systems redesign activities including the elimination
of an additional 525 positions.
In 1993 the company estimated that the 1993 restructuring actions would
generate average annual pretax savings compared with pre-restructuring
spending levels of approximately $150 million upon completion of the project.
In 1998, the company has realized actual annual pretax savings of
$135 million. Similarly, in 1991, the company estimated that the 1991
restructuring actions would generate approximately $1 billion in cumulative
pretax savings upon completion of the activities. Through 1998, the company
has realized actual annual pretax savings of approximately $900 million. The
company expects the original estimated savings level for both projects to be
attained by the end of 1999.
Other expense (income), net in 1998 compared favorably by $37 million to 1997.
The favorability is primarily attributable to income of $29 million realized
from the Glaxo Wellcome Warner-Lambert joint venture in 1998 as compared to a
loss in 1997 of $14 million. Other expense (income), net in 1998 includes a gain
on the sale of the company's Rochester, Michigan manufacturing plant and certain
minor prescription products of $67 million which was offset by charges of $52
million and $20 million related to the company's plans to close two of its
European manufacturing facilities. The costs of the two closings consist
primarily of $30 million for asset write-offs and $33 million for severance and
related expenses. The two closures will result in a workforce reduction of
approximately 320 positions. Due to the time required for regulatory approval
and implementation planning, as of December 31, 1998 none of the amounts have
been expended. The plant closings are expected to be substantially completed
during 1999 and all amounts expended by that time. Also included in other
expense (income), net is a gain on the sale of certain investment securities of
$24 million which is principally offset by a $21 million provision for the
closing of another European manufacturing facility. The costs consist primarily
of $5 million for asset write-offs and $14 million for severance and related
expenses. The closure will result in a workforce reduction of approximately 130
positions. Due to the time required for regulatory approval and implementation
planning, as of December 31, 1998 none of the amounts have been expended. The
plant closing is expected to be substantially completed during 1999 and all
amounts expended by that time.
Other expense (income), net in 1997 included increases in intangible
amortization of $25 million and net interest expense of $34 million. These
increases resulted primarily from the company's purchase of Glaxo Wellcome's
interest in the Warner Wellcome joint venture operations in mid-1996 and, to a
lesser degree, the May 1997 Jouveinal acquisition.
INCOME TAXES
- ------------
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Effective tax rate:
As reported 29.0% 29.5% 27.3%
After minority interests 29.0% 29.5% 29.0%
</TABLE>
The company's 1998 tax rate on a reported basis decreased .5 percentage points
due to increased income generated in foreign jurisdictions with lower tax rates,
partially offset by reduced U.S. possession tax credits.
The company's 1997 tax rate on a reported basis increased 2.2 percentage points.
An increase of 1.7 percentage points resulted from the absence of minority
interests in 1997. In addition, a net increase of .5 percentage points is
related to a 1996 tax law change that subjects a greater amount of income in
Puerto Rico to taxation as well as to increased taxes on income generated in
high tax jurisdictions. These increases are partly offset by the absence of
higher taxes on the 1996 gain from the sale of the Warner Chilcott business, the
favorable impact of the extension of the U.S. research tax credit enacted in
August 1997 and the favorable impact of the liquidation of a foreign affiliate.
The company anticipates a slight decrease in its effective tax rate in 1999. The
projected decrease is primarily due to increased income generated in foreign
jurisdictions with lower tax rates.
NET INCOME
- ----------
In 1998 net income of $1.3 billion increased 44 percent and diluted earnings per
share of $1.48 increased 42 percent. In 1997 net income of $870 million
increased 11 percent and diluted earnings per share of $1.04 increased 9
percent. Based on current planning assumptions, the company expects to increase
earnings per share by 30 percent in 1999.
Research and development expenditures, presented in graphic format, were $456.0
million in 1994, $501.2 million in 1995, $554.8 million in 1996, $672.2 million
in 1997 and $877.2 million in 1998.
51
<PAGE>
<PAGE>
LIQUIDITY AND FINANCIAL CONDITION
- ---------------------------------
Selected data:
(Dollars in millions)
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Net debt $531 $1,347 $1,712
Net debt to net capital(equity
and net debt) 13% 32% 40%
Return on average shareholders'
equity 39% 32% 33%
Return on average total assets 15% 11% 12%
</TABLE>
Net debt (total debt less cash and cash equivalents and other nonequity
securities) decreased $816 million from December 31, 1997. Cash and cash
equivalents were $911 million at December 31, 1998, an increase of $155 million
from December 31, 1997.
The company also held $75 million in nonequity securities, included in other
asset categories, that management views as cash equivalents for purposes of
calculating net debt, representing a decrease of $26 million from December 31,
1997. The total increase in cash and cash equivalents of $129 million combined
with a decrease in total debt of $687 million accounts for the total decrease in
net debt.
Net debt decreased $365 million in 1997 from December 31, 1996. Cash and cash
equivalents were $757 million at December 31, 1997, an increase of $366 million
from December 31, 1996. The company also held $100 million in nonequity
securities, included in short-term investments and investments and other assets,
that management views as cash equivalents, representing a decrease of $97
million from 1996. This net increase of $269 million is primarily attributable
to an increase in cash provided by operating activities which was partly
attributable to the timing of new product co-promotion payments which are made
subsequent to the end of each quarter. Total debt of $2.2 billion at December
31, 1997, decreased $96 million from December 31, 1996.
In 1998 cash provided by operating activities of $2.0 billion was primarily used
to fund capital expenditures of $721 million, to reduce total debt by $687
million and to pay dividends of $525 million. In 1997 cash provided by operating
activities of $1,564 million was primarily used to fund capital expenditures of
$495 million, to pay dividends of $413 million and for business acquisitions of
$229 million.
Planned capital expenditures for 1999 are estimated to be $990 million in
support of additional manufacturing operations and expanded research facilities.
Over the next four years the company plans to invest nearly $1 billion in
pharmaceutical research and manufacturing infrastructure alone. The company
believes that the amounts available from operating cash flow and future
borrowings will be sufficient to meet expected operating needs and planned
capital expenditures for the foreseeable future.
The company has readily available financial resources, including unused
worldwide lines of credit totaling $1.4 billion. The company has the ability to
issue commercial paper at favorable rates. The lines of credit support
commercial paper and bank borrowing arrangements. As of December 31, 1997, the
company had shelf registrations filed with the Securities and Exchange
Commission under which it could issue up to $850 million of debt securities for
general corporate purposes. In January 1998, the company refinanced certain
other debt by issuing $250 million of 5 3/4% notes due 2003 and $250 million of
6% notes due 2008 leaving $350 million of debt registered under the shelf
registration.
In January 1999, the Board of Directors approved a 25 percent increase in the
quarterly dividend to $.20 per share payable in the first quarter of 1999. The
company anticipates that the quarterly dividend rate will remain $.20 per share
during 1999 and that dividends will be paid with cash provided by operations.
MARKET RISK
- -----------
The company's primary market risk exposures consist of interest rate risk and
foreign currency exchange risk. See Note 10 "Financial Instruments" to the
consolidated financial statements for the company's objectives and strategies
for managing potential exposures related to these risks. The company's financial
instrument holdings were analyzed to determine their sensitivity to changes in
market rates. The model used to assess sensitivity assumed a 10% hypothetical
rate change on all instruments. All other factors were held constant in the
analysis. The parameters of the analysis included all instruments subject to
changes in market rates including foreign denominated assets and liabilities
hedged by foreign exchange contracts. Unhedged foreign currency denominated
assets and liabilities were not significant at December 31, 1998.
Management primarily uses derivative instruments, the majority of which are
forward exchange contracts involving multiple currencies, to hedge exposures to
certain foreign currency fluctuations as described in Note 10. As hedges, gains
and losses on forward contracts are offset by the effects of currency movements
on respective underlying hedged transactions. Therefore, with respect to
derivative instruments outstanding at December 31, 1998, using a sensitivity
analysis, a change of 10 percent in currency rates would not have a material
effect on the company's consolidated financial position, liquidity, cash flows
or results of operations.
52
<PAGE>
<PAGE>
The company holds certain instruments, primarily debt obligations, which are
sensitive to changes in market interest rates. At December 31, 1998, the
majority of the company's variable rate debt consisted of short-term commercial
paper which is subject to changes in market interest rates. However, at December
31, 1998, using a sensitivity analysis, a change of 10 percent in interest rates
would not have a material effect on the company's consolidated financial
position, liquidity, cash flows or results of operations.
OTHER MATTERS
- -------------
Euro
On January 1, 1999, the euro was introduced as the common currency in the 11
European Union member states participating in the Economic and Monetary Union.
The conversion to the euro provides for a three-year transition period during
which transactions may be conducted using either the euro or the legacy currency
of the participating country. Effective January 1, 2002, only the euro will be
legal tender in these countries. The company has proactively prepared for the
advent of the single European currency. Modifications to information systems
have proven to be effective in processing business transactions. Further steps
toward the adoption of the euro as the sole currency in these countries will be
taken during the transition period to meet the January 2002 deadline. The
company has invested and continues to invest in a training and communication
program to enable its colleagues to understand, address and communicate the
implications of the single currency.
Increased price transparency resulting from conversion to a single currency is
not expected to have a material impact on the pharmaceutical business because
individual European countries closely regulate pricing of pharmaceutical
products. Pricing issues in the consumer health care and confectionery
businesses have been identified and incorporated into our normal business
planning process. On a total company basis pricing issues are expected to have a
neutral impact on our business.
Year 2000
In early 1995 the company embarked on a reengineering initiative to replace
certain of its information systems and related technology infrastructure which
also addressed Year 2000 issues. The company began specifically addressing its
Year 2000 issues in 1996 and expanded its efforts in 1997 by creating a
multi-disciplinary Year 2000 Task Force to coordinate the company's Year 2000
compliance activities. The Year 2000 Task Force is chaired by the company's Vice
President and Associate General Counsel, Worldwide Corporate Compliance, who
reports on all Year 2000 and Task Force issues to the company's Office of the
Chairman. The Task Force makes regular reports on the status and progress of the
company's Year 2000 compliance program to the Office of the Chairman and the
Audit Committee of the company's Board of Directors.
Within the business units of the company, senior managers have been assigned
responsibility for directing the Year 2000 compliance efforts of each business
and these managers have formed teams to assist them in doing so. In addition,
the company has retained external consultants for critical and specialized
aspects of its compliance strategy. The company's Year 2000 compliance efforts
are directed toward all aspects of its worldwide operations, including office
systems, manufacturing and processing, quality control and assurance,
distribution, sales and marketing, finance and administration, research and
development, and facilities. These efforts apply to both information and
embedded technology systems.
The company has made considerable progress towards achieving Year 2000
compliance. It is pursuing compliance by addressing both its internal technology
systems and its business stakeholders, whose own technology systems must also be
compliant.
Dividends per share, presented in graphic format, were $.41 in 1994, $.43 in
1995, $.46 in 1996, $.51 in 1997 and $.64 in 1998. These amounts reflect a
three-for-one stock split effective May 1998. A 26 percent dividend increase in
1998 marked the 47th consecutive year of dividend increases.
The company continues to follow its 5-step approach for resolving Year 2000
issues regarding its internal technology systems. The five steps are: (1)
inventory of all date-dependent systems; (2) assessment of inventoried systems
to identify the systems that are non-Year 2000 compliant; (3) remediation of
noncompliant systems; (4) testing of remediated and compliant systems to verify
Year 2000 compliance; and (5) implementation and monitoring of remediated
systems for ongoing compliance. The company has been assisted by its external
consultants in
53
<PAGE>
<PAGE>
performing its inventory and assessment, in developing and implementing
remediation strategies and in developing test protocols and strategies.
In pursuing this strategy, the company has identified its "mission critical"
information and embedded technology systems, and is giving its primary attention
to those systems. A mission critical system is a high priority system whose
failure would adversely impact other systems or cause material loss or
disruption of business for the company or third parties. A majority of the
company's mission critical projects have been completed and are being monitored
on an ongoing basis. The company plans to complete its mission critical projects
and non-mission critical projects by the third quarter of 1999. To verify its
progress, the company has an active internal audit program in place, utilizing
internal resources and external consultants.
The company also continues to follow its 5-step approach for addressing the Year
2000 compliance of its business stakeholders (the suppliers, vendors, customers,
distributors, business partners, government agencies, public utilities, etc. on
which the company relies in doing business). The five steps are: (1) inventory,
or identification, and prioritization of all business stakeholders; (2)
assessment of Year 2000 readiness of the business stakeholders; (3) monitoring
of the ongoing Year 2000 efforts of the business stakeholders; (4) verification
of business stakeholder assurances of Year 2000 compliance; and (5) auditing of
business stakeholders, if possible and as necessary.
In addition to prioritizing business stakeholders, the company has identified
those business stakeholders it considers mission critical and is giving its
primary attention to them. The company has substantially completed its inventory
of its mission critical business stakeholders (Step 1) and has assessed the
majority of them (Step 2) and is monitoring their Year 2000 compliance progress
through the use of written questionnaires, oral inquiries, on-site visits and
other means (Step 3). In some cases, the company has completed the verification
and auditing steps (4 and 5). With respect to business stakeholders, the company
currently anticipates completing its inventory and assessment, and substantially
completing verification, to the extent possible or permitted, of its business
stakeholders by mid-1999. Ongoing monitoring, verification and any necessary
audits will continue throughout 1999.
Year-end stock price, presented in graphic format, was $12 53/64 in 1994, $16
3/16 in 1995, $25 in 1996, $41 25/64 in 1997 and 75 3/16 in 1998. These amounts
reflect a three-for-one stock split effective May 1998. The value of
Warner-Lambert stock has increased 568 percent in the last five years or 646
percent with dividends reinvested.
Management continues to assess the business risks associated with Year 2000
compliance issues and is developing contingency plans, as needed, to address the
potential Year 2000 failure of mission critical internal information and
embedded technology systems and business stakeholders. If such failures should
occur, they could potentially cause the company to experience delays in receipt
of raw materials for manufacturing, interruptions in manufacturing resulting
from possible third party or internal systems compliance issues, delayed
shipments of finished product and non-provision of critical services, such as
utility services, among other issues. Contingency plans being developed include
increases in certain inventory levels, use of alternate suppliers, and other
backup procedures. Management expects to implement specific contingency plans
which it determines to be both prudent and cost effective.
Year 2000-related maintenance and modification costs will be expensed as
incurred, while the costs of new information technology will be capitalized and
amortized in accordance with company policy. Management currently estimates
incremental expenditures of approximately $120 million will be necessary to
address and remediate Year 2000 compliance issues, of which approximately $50
million has been incurred as of December 31, 1998. Currently unforeseen
developments or delays could cause this cost estimate to change.
Although management believes that its Year 2000 compliance program reduces the
risk of an internal compliance failure and is taking a proactive approach with
business stakeholders, there can be no assurances that the company or its
business stakeholders will achieve timely Year 2000 compliance or that such
noncompliance will not have a material adverse impact on the company.
54
<PAGE>
<PAGE>
ACQUISITION
On January 26, 1999, the company announced a definitive agreement to acquire
Agouron Pharmaceuticals, Inc., an integrated pharmaceutical company committed to
the discovery and development of innovative therapeutic products for treatment
of cancer, AIDS and other serious diseases. Agouron achieved total revenues of
$467 million for the fiscal year ended June 30, 1998. Under the terms of the
agreement, which is valued at approximately $2.1 billion, each share of Agouron
stock will be exchanged for a certain amount of Warner-Lambert stock. The exact
exchange ratio will be based on the average price of Warner-Lambert stock prior
to closing. The transaction will be accounted for as a pooling of interests and
will require the approval of Agouron's shareholders and customary regulatory
approvals. The transaction will not require Warner-Lambert shareholder approval.
ENVIRONMENTAL
The company is involved in various administrative or judicial proceedings
related to environmental actions initiated by the Environmental Protection
Agency (EPA) under the Comprehensive Environmental Response, Compensation and
Liability Act (also know as Superfund) or by state authorities under similar
state legislation, or by third parties. The company accrues costs for an
estimated environmental liability when management becomes aware that a liability
is probable and is able to reasonably estimate the company's share. While it is
reasonably possible that additional costs may be incurred beyond the amounts
accrued as a result of new information, those costs, if any, cannot be estimated
currently. As of December 31, 1998 and 1997 the accrual for environmental
liabilities was $34 million covering 50 and 48 sites, respectively. For 11
sites, generally those which the company currently owns or previously owned, the
company may be the sole party responsible for clean-up costs. For other sites,
other parties (defined as potentially responsible parties) may be jointly and
severally responsible, along with Warner-Lambert, to pay remediation and other
related expenses. Warner Lambert's share of costs at a given site is determined
through an allocation process which takes into account many factors including
volume and the nature of a company's waste. Once established, remediation costs
for a given site may be paid out over several years. While it is not possible to
predict with certainty the outcome of such matters or the total cost of
remediation, management believes it is unlikely that their ultimate disposition
will have a material adverse effect on the company's financial position,
liquidity, cash flows or results of operations for any year.
Statements made in this report that state "we believe," "we expect" or otherwise
state the company's predictions for the future are forward-looking statements.
Actual results might differ materially from those projected in the
forward-looking statements. Additional information concerning factors that could
cause actual results to materially differ from those in the forward-looking
statements is contained in Exhibit 99 of the company's December 31, 1998 Form
10-K filed with the Securities and Exchange Commission. Exhibit 99 to the Form
10-K is incorporated by reference herein.
55
<PAGE>
<PAGE>
Product names appearing in capital letters are trademarks of Warner-Lambert
Company, its affiliates, related companies or its licensors. ZANTAC, ZANTAC 75,
ZOVIRAX and BECONASE are registered trademarks of Glaxo Wellcome, its
affiliates, related companies or licensors. CELEXA is a registered trademark of
Forest Laboratories Inc., its affiliates, related companies or its licensors.
OMNICEF is a registered trademark of Fujisawa Pharmaceutical Co., Ltd.
56
<PAGE>
<PAGE>
EXHIBIT 21
The following is a list of subsidiaries of Warner-Lambert showing the state
or country of organization and the percentage of voting securities owned by
Warner-Lambert or by subsidiaries of Warner-Lambert as of December 31, 1998.
Except as otherwise indicated, such subsidiaries are included in the
consolidated financial statements.
<TABLE>
<CAPTION>
STATE OR COUNTRY
NAME OF SUBSIDIARY OF ORGANIZATION PERCENTAGE OF OWNERSHIP
- ----------------------------------- --------------------------- --------------------------------------------------------
<S> <C> <C> <C>
American Chicle Company............ Delaware 100
Euronett, Inc...................... Delaware 100
International Affiliated
Corporation...................... Delaware 100
Warner-Lambert GmbH............ Germany 100 International Affiliated Corporation
Parke-Davis GmbH........... Germany 100 Warner-Lambert GmbH
Goedecke
Aktiengesellschaft....... Germany 100 Warner-Lambert GmbH
Adenylchemie GmbH...... Germany 100 Goedecke Aktiengesellschaft
Goedecke Gesellschaft
m.b.H................ Austria 100 Goedecke Aktiengesellschaft
International Company for
Gum and Confectionery
(INCOGUM) S.A.E. ........ Egypt 57 Warner-Lambert GmbH
PanServ-Anzeigen-Service
GmbH..................... Germany 100 Warner-Lambert GmbH
Warner-Lambert Consumer
Products GmbH, Berlin.... Germany 100 Warner-Lambert GmbH
Wilkinson Sword GmbH... Austria 100 Warner-Lambert Consumer Products GmbH, Berlin
S.A. Wilkinson Sword
NV................... Belgium 100 Warner-Lambert Consumer Products GmbH, Berlin
Wilkinson Sword
S.p.A. .............. Italy 99 Warner-Lambert Consumer Products GmbH, Berlin
1 Wilkinson Sword Limited
Wilkinson Sword
S.A.E. .............. Spain 100 Warner-Lambert Consumer Products GmbH, Berlin
Wilkinson Sword Tras
Urunleri Ticaret Ltd
Sirketi.............. Turkey 99.8 Warner-Lambert Consumer Products GmbH, Berlin
.2 Warner-Lambert GmbH
Wilkinson Sword
Verwaltungs
GmbH................. Germany 100 Warner-Lambert Consumer Products GmbH, Berlin
W&A
Grundstucksverwaltungs
GbR.............. Germany 98 Wilkinson Sword Verwaltungs GmbH
2 Warner-Lambert Consumer Products GmbH, Berlin
Warner-Lambert Europaische
Beteiligungs GmbH........ Germany 100 Warner-Lambert GmbH
Parke-Davis GmbH....... Austria 100 Warner-Lambert Europaische Beteiligungs GmbH
Warner-Lambert
(Schweiz) AG......... Switzerland 100 Warner-Lambert Europaische Beteiligungs GmbH
Keystone Chemurgic Corp............ Delaware 100
Exchic C.A. Limited............ Bermuda 57.5
42.5 Keystone Chemurgic Corp.
Warner-Lambert Guatemala,
S.A. ........................ Guatemala 100 Keystone Chemurgic Corp.
Lambert & Feasley, Inc............. New York 100
Latin American Holdings Inc. ...... Delaware 100
Laboratorios Laprofa, Sociedad
Anonima...................... Guatemala 100 Latin American Holdings Inc.
Warner-Lambert Industria e
Comercio Limitada............ Brazil 100 Latin American Holdings Inc.
Quantum Investments
S.A. .................... Uruguay 100 Warner-Lambert Industria e Comercio Limitada
Adams S.A.............. Argentina 100 Quantum Investments S.A.
Med-Tech Ventures, Inc. ........... Delaware 100
Meito Adams Co., Ltd.*............. Japan 50
Parke-Davis Sales Corporation...... Virgin Islands 100
Parke, Davis & Company
('Parke-Davis').................. Michigan 100
Parke-Davis Korea Limited...... Korea 100 Parke-Davis
P-D Co., Inc. ................. Delaware 100 Parke-Davis
Warner-Lambert (Belgium)
N.V. .................... Belgium 100 P-D Co., Inc.
Capsugel AG................ Switzerland 100 P-D Co., Inc.
Empresas Warner Lambert
S.A. .................... Chile 90 P-D Co., Inc.
10 Tabor Corporation
Parke-Davis (Thailand)
Limited.................. Thailand 100 P-D Co., Inc.
Substantia (France)........ France 84.1 P-D Co., Inc.
14 Warner-Lambert Ireland Limited
1.9 Goedecke Aktiengesellschaft
Cachou Lajaunie........ France 100 Substantia (France)
Capsugel France........ France 100 Substantia (France)
Societe Nouvelle des
Pastilles de Vichy... France 100 Substantia (France)
Warner-Lambert Company
AG....................... Switzerland 100 P-D Co., Inc.
Adams (Thailand)
Limited.............. Thailand 100 Warner-Lambert Company AG
</TABLE>
<PAGE>
<PAGE>
(continued from previous page)
<TABLE>
<CAPTION>
STATE OR COUNTRY
NAME OF SUBSIDIARY OF ORGANIZATION PERCENTAGE OF OWNERSHIP
- ----------------------------------- --------------------------- --------------------------------------------------------
<S> <C> <C> <C>
Warner-Lambert (East
Africa) Limited...... Kenya 100 Warner-Lambert Company AG
Warner-Lambert Pottery
Road Limited......... Ireland 100 Warner-Lambert Company AG
Parke, Davis & Company,
Limited...................... Pakistan 75.6 Parke-Davis
Parke Davis International
Limited...................... Bahamas 100 Parke-Davis
Parke Davis Pty. Limited....... Australia 100 Parke-Davis
Warner-Lambert Pty.
Limited.................. Australia 100 Parke Davis Pty. Limited
Warner-Lambert Consumer
Healthcare Pty.
Limited.................. Australia 100 Parke Davis Pty. Limited
Warner-Lambert (UK) Limited.... United Kingdom 100 Parke-Davis
Lambert Chemical Company
Limited.................. United Kingdom 100 Warner-Lambert (UK) Limited
Parke Davis & Co.
Limited.................. Jersey, Channel Islands 100 Warner-Lambert (UK) Limited
Wilkinson Sword Limited.... United Kingdom 100 Warner-Lambert (UK) Limited
Warner-Lambert Canada Inc. .... Canada 100 Parke-Davis
Omni Laboratories Inc. .... Canada 100 Warner-Lambert Canada Inc.
Parke-Davis Afrique de
l'Ouest.................. Senegal 100 Warner-Lambert Canada Inc.
Renrall K.K. .............. Japan 75 Warner-Lambert Canada Inc.
25 Warner-Lambert K.K.
Warner-Lambert Espana, S.A. ....... Spain 85.6
14.4 Warner-Lambert Company AG
Laboratorios Parke Davis,
S.L. ........................ Spain 100 Warner-Lambert Espana, S.A.
Parke-Davis S.p.A. ................ Italy 100 (Indirect)
Warner-Lambert Nordic AB........... Sweden 100
P.T. Capsugel Indonesia............ Indonesia 90
10 International Affiliated Corporation
Suzhou Capsugel'r' Ltd.*........... People's Republic of China 50
Tabor Corporation.................. Delaware 100
Chicle Adams, S.A.............. Colombia 80.3 Tabor Corporation
19.7 Latin American Holdings Inc.
Tetra-Werke Dr. rer. nat. Ulrich
Baensch GmbH..................... Germany 100 (Indirect)
Tetra Heimtierbedarf
Verwaltungsgesellschaft
m.b.H. ...................... Germany 100 Tetra-Werke Dr. rer. nat. Ulrich Baensch GmbH
Tetra Werke Holding GmbH....... Germany 100 Tetra-Werke Dr. rer. nat. Ulrich Baensch GmbH
Tetra Heimtierbedarf
GmbH..................... Germany 100 Tetra Werke Holding GmbH
Biorell GmbH........... Germany 100 Tetra Heimtierbedarf GmbH
HILENA Biologische
und Chemische
Erzeugnisse
GmbH............. Germany 100 Biorell GmbH
Zoomedica Frickhinger
GmbH................. Germany 100 Tetra Heimtierbedarf GmbH
Wilkinson Sword GmbH........... Germany 59.4 Tetra-Werke Dr. rer. nat. Ulrich Baensch GmbH
40.6 Warner-Lambert Consumer Products GmbH, Berlin
Warner-Lambert Consumer
Healthcare....................... New York 92.4
7.6 Warner-Lambert Ltd.
Warner-Lambert de Venezuela
S.A. ............................ Venezuela 93.2
6.8 Parke-Davis
Chicle Adams, S.A. ............ Venezuela 100 Warner-Lambert de Venezuela S.A.
Laboratorios Substantia,
C.A. ........................ Venezuela 80 Warner-Lambert de Venezuela S.A.
Warner-Lambert Europe N.V. ........ Belgium 99.8
.2 P-D Co., Inc.
Warner-Lambert Holland B.V. ....... Netherlands 100
Parke-Davis B.V. .............. Netherlands 100 Warner-Lambert Holland B.V.
Grupo Warner Lambert
Mexico, S.A. de C.V. .... Mexico 100 Parke-Davis B.V.
Warner Lambert
Distribuidora, S.A. de
C.V. .................... Mexico 100 Parke-Davis B.V.
Warner-Lambert Philippines,
Inc. .................... Philippines 100 Parke-Davis B.V.
Zalmplaat Holding B.V. .... Netherlands 100 Parke-Davis B.V.
Parke-Davis S.C.A. .... France 65.7 Zalmplaat Holding B.V.
33.6 Substantia (France)
.7 Parke-Davis
Parke-Davis Pharmaceuticals
Limited...................... Cayman Islands, 99 Warner-Lambert Holland B.V.
British West Indies
1 Parke-Davis B.V.
Schick Nederland B.V. ......... Netherlands 100 Warner-Lambert Holland B.V.
Warner Lambert A.E. ....... Greece 99 Schick Nederland B.V.
</TABLE>
<PAGE>
<PAGE>
(continued from previous page)
<TABLE>
<CAPTION>
STATE OR COUNTRY
NAME OF SUBSIDIARY OF ORGANIZATION PERCENTAGE OF OWNERSHIP
- ----------------------------------- --------------------------- --------------------------------------------------------
<S> <C> <C> <C>
1 Warner-Lambert Holland B.V.
Warner-Lambert Ireland
Limited...................... Ireland 100 Warner-Lambert Holland B.V.
Plaistow Limited........... Ireland 100 Warner-Lambert Ireland Limited
Warner-Lambert Plaistow
Manufacturing........ Ireland 50 Plaistow Limited
50 Warner-Lambert Export Limited
Warner-Lambert Distributors
(Ireland) Limited........ Ireland 100 Warner-Lambert Ireland Limited
Warner-Lambert Export
Limited.................. Ireland 100 Warner-Lambert Ireland Limited
Island
Pharmaceuticals...... Ireland 100 Warner-Lambert Export Limited
Warner-Lambert Cork
Limited.............. Ireland 100 Warner-Lambert Export Limited
Wilkinson Sword Nederland
B.V. ........................ Netherlands 100 Warner-Lambert Holland B.V.
Warner-Lambert Inc. ............... Nevada 100
Warner-Lambert India Limited....... India 100
Warner-Lambert K.K. ............... Japan 65
35 Tetra-Werke Dr. rer. nat. Ulrich Baensch GmbH
Warner-Lambert Ltd. ............... Delaware 100
Warner-Lambert de Panama,
Sociedad Anonima............. Panama 100 Warner-Lambert Ltd.
Warner-Lambert Manufacturing
(Ireland) Ltd.................... Cayman Islands, 100
British West Indies
Warner-Lambert (NZ) Limited........ New Zealand 100
Warner-Lambert Consumer
Healthcare Pty. Limited...... New Zealand 100 Warner-Lambert (NZ) Limited
Warner-Lambert (Portugal) Comercio
e Industria, Limitada............ Portugal 99.9
.1 Parke-Davis
Warner-Lambert S.A. (Proprietary)
Limited.......................... South Africa 100
Wilcox Sweets (Proprietary)
Limited...................... South Africa 100 Warner-Lambert S.A. (Proprietary) Limited
Warner-Lambert (Thailand)
Limited.......................... Thailand 100 (Indirect)
W-C Laboratories Inc............... Delaware 100
Willinger Bros., Inc. ............. Delaware 100
</TABLE>
- ------------
* Subsidiary not consolidated
The foregoing list omits 11 domestic subsidiaries and 86 foreign
subsidiaries which, considered in the aggregate, would not constitute a
significant subsidiary.
<PAGE>
<PAGE>
EXHIBIT 23
WARNER-LAMBERT COMPANY AND CONSOLIDATED SUBSIDIARIES
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements on Form S-3 (Registration Nos.
33-4049, 33-38725, 33-55692, 333-04353 and 333-51533) and to the incorporation
by reference in the Registration Statements on Form S-8 (Registration Nos.
33-21123, 33-28375, 33-12209, 33-49244, 33-57918 and 333-19311) of
Warner-Lambert Company of our report dated January 25, 1999, which appears on
page 46 of Warner-Lambert Company's 1998 Annual Report on Form 10-K, as amended.
We also consent to the incorporation by reference of our report on the
Financial Statement Schedule, which appears on page 18 of this Form 10-K, as
amended.
PRICEWATERHOUSECOOPERS LLP
400 Campus Drive
Florham Park, New Jersey
April 16, 1999
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1998 AND FROM THE RELATED
CONSOLIDATED STATEMENT OF INCOME FOR THE 12 MONTH PERIOD ENDED
DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 911
<SECURITIES> 0
<RECEIVABLES> 1,399
<ALLOWANCES> 0
<INVENTORY> 888
<CURRENT-ASSETS> 4,102
<PP&E> 4,465
<DEPRECIATION> 1,689
<TOTAL-ASSETS> 9,231
<CURRENT-LIABILITIES> 3,230
<BONDS> 1,260
0
0
<COMMON> 962
<OTHER-SE> 2,650
<TOTAL-LIABILITY-AND-EQUITY> 9,231
<SALES> 10,214
<TOTAL-REVENUES> 10,214
<CGS> 2,629
<TOTAL-COSTS> 2,629
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 113
<INCOME-PRETAX> 1,766
<INCOME-TAX> 512
<INCOME-CONTINUING> 1,254
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,254
<EPS-PRIMARY> 1.53<F1>
<EPS-DILUTED> 1.48
<FN>
<F1> Amount represents basic earnings per share.
</FN>
<PAGE>
<PAGE>
EXHIBIT 99(a)
CAUTIONARY STATEMENTS RELATING TO 'SAFE HARBOR' PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Certain Company communications contain forward-looking statements. These
statements may be identified by the use of forward-looking words or phrases such
as 'believe,' 'expect,' 'anticipate,' 'should,' 'planned,' 'may,' 'estimated'
and 'potential.' These forward-looking statements are based on the Company's
current expectations. The Private Securities Litigation Reform Act of 1995
provides a 'safe harbor' for such forward-looking statements. In order to comply
with the terms of the safe harbor, the Company notes that a variety of factors
could cause actual results and experience to differ materially from the
anticipated results or other expectations expressed in such forward-looking
statements. The risks and uncertainties that may affect the operations,
performance, development and results of the Company's business include:
Changes in the favorable market reaction to the Company's significant
pharmaceutical products, such as the cholesterol-lowering agent LIPITOR and
the type 2 diabetes drug REZULIN.
Competitive factors, including managed care and other groups or
institutions seeking price discounts; technological advances attained by
competitors; and patents granted to or contested by competitors, which
would result in their ability to compete against the Company more
effectively.
Difficulties or delays in pharmaceutical product development,
including, but not limited to, the inability to identify viable new
chemical compounds, to successfully complete toxicology testing and/or
clinical trials, to obtain regulatory approval for the compounds or to gain
market acceptance of approved products.
Unexpected safety or efficacy concerns arising with respect to
marketed products, whether or not scientifically justified, leading to
product recalls, withdrawals or other actions which could result in
declining sales.
The expiration of patents or governmental grants of exclusivity with
respect to the Company's products.
Government laws and regulations affecting domestic and international
operations, which could include matters affecting drug approval and
pricing; or actions of regulatory agencies with respect to products and/or
manufacturing facilities which could result in fines, product interruptions
or withdrawals, plant closures or consent decrees.
Changes in economic conditions (including inflation, interest rates
and foreign currency exchange rates) in the global marketplace, including
Canada, Japan, Mexico and Western Europe, where the Company has significant
businesses.
Significant litigation adverse to the Company, including,
particularly, product liability litigation, antitrust litigation and patent
and trademark litigation.
