Management's Discussion and Analysis
of Financial Condition and Results of Operations
Overview
- --------
Warner-Lambert continued to take actions in 1993 to strengthen
its overall competitive position and to address changing market
conditions and customer needs. During the year, the company
recorded net restructuring charges of $525 million pretax (after
tax $360 million or $2.67 per share), that included a charge for
a worldwide restructuring and plant rationalization program, a
gain on the sale of its chocolate/caramel business and a charge
for discontinuance of the Novon specialty polymers business. Also
in 1993, the company made several strategic acquisitions and
formed joint ventures with both Wellcome plc and Glaxo Holdings
plc that will develop and market a broad range of consumer health
care products.
The company reported net sales in 1993 of $5,794 million, an
increase of 4 percent over 1992, reflecting a difficult operating
environment in the pharmaceutical business. Net income in 1993
was $331 million or $2.45 per share compared to $644 million or
$4.78 per share in 1992. In addition to the restructuring
charges, 1993 net income includes the impact of the adoption of
Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes" and SFAS No. 112, "Employers'
Accounting for Postemployment Benefits." The Board of Directors
approved a 7 percent increase in the quarterly dividend rate,
payable in the first quarter of 1994.
Net Sales
- ---------
Worldwide sales for 1993 were $5,794 million compared to $5,598
million in 1992, a 4 percent increase. Unit volume gains and
price increases were each 3 percent. Foreign exchange rate
changes had an unfavorable impact of 2 percent on 1993 sales. In
1992, sales increased 11 percent, led by a 6 percent gain in unit
volume and a 4 percent gain in price, with the remaining 1
percent gain attributable to net favorable foreign exchange rate
changes.
On a geographic basis, U.S. sales decreased $67 million or 2
percent to $2,747 million, principally due to a decrease in
pharmaceutical segment sales of 10 percent for reasons discussed
below. International sales increased $263 million or 9 percent
to $3,047 million. At constant exchange rates, international
sales increased 14 percent from 1992. In 1992, U.S. sales
increased $199 million or 8 percent to $2,814 million and
international sales increased $340 million or 14 percent to
$2,784 million. After adjusting for the impact of exchange rate
changes, 1992 international sales increased 12 percent over 1991
levels.
Pharmaceutical Products
- -----------------------
1993 1992 1991
------------ ------------- -------
(Dollars in millions)
Net Sales $ 2,114 -7% $ 2,280 +13% $ 2,014
Worldwide sales of pharmaceutical products in 1993 decreased 7
percent compared to 1992, with U.S. sales down 10 percent to
$1,083 million and international sales down 4 percent to $1,031
million. At constant exchange rates, international sales
increased 2 percent from 1992. U.S. sales of pharmaceutical
products were $118 million less than 1992 primarily due to U.S.
Food and Drug Administration (FDA) regulatory issues related to
the company's pharmaceutical manufacturing. Compliance with FDA
restrictions (including the consent decree described below),
resulted in an estimated aggregate loss of sales revenue of
approximately $135 million in 1993. In addition, Medicaid
rebates, which began in 1991, state programs and other related
rebate programs reduced net sales (and income before taxes) by
$57 million in 1993, compared to $37 million in 1992 and $15
million in 1991.
In addition to the negative impact of foreign exchange rates,
international pharmaceutical sales were affected by the impact of
1993 health care reform measures in Germany, reflecting
restrictive government cost containment regulations.
Pharmaceutical products with worldwide sales growth during the
year included the cardiovascular drug ACCUPRIL, CAPSUGEL empty
hard-gelatin capsules and COGNEX, which was introduced in the
U.S. during the third quarter of 1993 for the treatment of mild-
to-moderate Alzheimer's disease.
On December 30, 1993, the company received FDA authorization to
market NEURONTIN (gabapentin) as a new add-on epilepsy therapy.
In 1993, the company launched NEURONTIN in the United Kingdom and
is attempting to obtain marketing approval in other major
European markets in 1994. In addition, three studies are under
way in the U.S. and Europe on the potential of NEURONTIN as a
first-line therapy.
During the third quarter of 1993, the company entered into a
consent decree with the FDA, covering issues related to
compliance with manufacturing and quality procedures. The decree
is a court-approved agreement that primarily requires the company
to certify that laboratory and/or manufacturing procedures at its
pharmaceutical manufacturing facilities in the U.S. and Puerto
Rico meet current Good Manufacturing Practices established by the
FDA. Warner-Lambert has made significant progress in resolving
many of the issues relating to this matter and most of its
pharmaceutical products have returned to full manufacture and
distribution.
In conjunction with the FDA, Warner-Lambert is also conducting
validity assessments of FDA filings made with respect to products
manufactured or to be manufactured at its facilities in Puerto
Rico, due to discrepancies found in data generated at these
facilities. The FDA has deferred substantive scientific reviews
of pending New Drug Applications (NDA) and Abbreviated New Drug
Applications for products to be manufactured at those facilities
(including the oral contraceptive ESTROSTEP), and for
supplements to such applications for products currently
manufactured at those facilities, until further assessment of
Warner-Lambert filings are completed. Warner-Lambert has pledged
its full cooperation and has actively worked with the FDA to
resolve all issues relating to this matter. However, it is not
possible to predict when these issues will finally be resolved or
whether the FDA will take additional action.
The U.S. patent for LOPID, a lipid-regulator, expired in January
1993, subjecting LOPID to generic competition. In December 1992,
the company, through its division, Warner Chilcott Laboratories,
began marketing gemfibrozil, the generic equivalent of LOPID. In
the third quarter of 1993, competitive generic versions of
gemfibrozil tablets were authorized for U.S. marketing. Combined
worldwide sales of LOPID and gemfibrozil declined 10 percent from
1992 and further erosion is anticipated in 1994.
In 1992, worldwide sales of pharmaceutical products increased 13
percent over 1991 levels, with U.S. and international sales
increasing 12 percent and 14 percent, respectively. Products
with U.S. sales growth included LOPID, ACCUPRIL, the oral
contraceptive LOESTRIN and CAPSUGEL. International sales growth
reflected gains achieved by ACCUPRIL, LOPID, the cardiovascular
drug DILZEM, and CAPSUGEL.
Consumer Health Care Products
- -----------------------------
1993 1992 1991
------------ ------------ -------
(Dollars in millions)
Net Sales $ 2,374 +12% $ 2,129 +9% $ 1,960
Worldwide sales of consumer health care products grew $245
million or 12 percent over 1992. The growth was partly due to
the March 1993 acquisition of the principal operations of
WILKINSON SWORD that increased the year-to-year comparison by 6
percentage points. U.S. sales grew 3 percent to $1,159 million,
while international sales rose 21 percent to $1,215 million. At
constant exchange rates, international sales increased 25 percent
from 1992. Products that achieved growth in the U.S. during 1993
were HALLS cough tablets, BENADRYL antihistamine and E.P.T. pregnancy
test kits. Major contributors to international sales growth were
HALLS, TETRA pet care products, SCHICK and WILKINSON
shaving products.
In December 1993, Warner-Lambert signed separate agreements with
both Wellcome plc and Glaxo Holdings plc to establish joint
ventures in various countries to develop and market a broad range
of non-prescription consumer health care products. Warner-
Lambert's agreement with Wellcome calls for both companies to
contribute to the joint ventures current and future over-the-
counter (OTC) products. Warner Wellcome joint ventures in both
the U.S. and Canada commenced operations in January 1994. Joint
ventures are expected to be established in Europe and Australia
in 1994 and ultimately in other countries throughout the world.
After a two-year phase-in period, Warner-Lambert will receive
approximately 70 percent and Wellcome 30 percent of the profits
generated in the U.S. An NDA for the conversion to OTC use of
Wellcome's anti-viral drug ZOVIRAX as an anti-herpes medication
was filed with the FDA in August 1993. Subject to such
conversion, OTC profits on ZOVIRAX in the U.S. will be shared in
favor of Wellcome. Profits on current products will be shared
equally in Canada, Australia and Europe. Profits on ZOVIRAX
cream outside the U.S. will also be shared equally, subject to a
royalty to Wellcome if sales exceed a threshold amount. Other
future OTC switch products will be subject to a profit split in
favor of the innovator. Warner-Lambert will have voting control
of each joint venture with Wellcome and will consolidate the
financial results beginning in 1994.
Warner-Lambert and Glaxo formed a joint venture in the U.S. that
commenced operations in December 1993. The joint venture will
develop, seek approval of and market OTC versions of Glaxo
prescription drugs in the U.S., including ZANTAC, its leading
pharmaceutical product. Additional joint ventures are expected
to be formed with Glaxo in other major markets outside the U.S.,
excluding Japan. Warner-Lambert and Glaxo will share development
costs and profits equally, with Glaxo receiving a royalty on all
OTC sales by the joint ventures.
In 1992, worldwide sales of consumer health care products
increased 9 percent over 1991. U.S. sales grew 5 percent and
international sales rose 13 percent. Key brands achieving growth
in the U.S. were COOL MINT LISTERINE Antiseptic mouthwash
(introduced in June 1992) and LUBRIDERM skin lotion.
International sales growth was led by LISTERINE mouthwash, HALLS,
SCHICK and TETRA.
Confectionery Products
- ----------------------
1993 1992 1991
------------- ------------- -------
(Dollars in millions)
Net Sales $ 1,306 +10% $ 1,189 +10% $ 1,085
Worldwide sales of confectionery products increased 10 percent in
1993. U.S. sales increased 3 percent to $505 million while
international sales rose 14 percent to $801 million. At constant
exchange rates, international sales increased 17 percent from
1992. U.S. sales growth was led by TRIDENT sugarless gum, the
new MINT*A*BURST mint chewing gum (introduced in December 1993)
and CINN*A*BURST cinnamon chewing gum. International sales
growth was led by TRIDENT, CLORETS gums and mints, CINN*A*BURST
and MENTOS mints. In addition, sales increased due to product
expansion into new markets and partly due to the acquisition of
the remaining 51 percent interest in an Italian confectionery
joint venture.
In the fourth quarter of 1993 the company sold its
chocolate/caramel business, which included the Junior Mints,
Sugar Daddy, Sugar Babies, Charleston Chew! and Pom Poms product
lines. These products accounted for less than 4 percent of 1993
confectionery sales.
In 1992, worldwide sales of confectionery products increased 10
percent over 1991, with U.S. and international sales increasing
3 percent and 15 percent, respectively. U.S. sales growth was
led by CINN*A*BURST, BUBBLICIOUS chewing gum and TRIDENT.
International sales growth reflected the continued success of
CLORETS, TRIDENT and BUBBLICIOUS.
Cost and Expenses
- -----------------
Cost of goods sold increased 6 percent to $1,918 million in 1993
following a 12 percent increase to $1,814 million in 1992. In
addition to increased volume, the increase was due to costs
related to regulatory compliance issues in the pharmaceutical
segment combined with the inclusion of acquired companies'
results in both the consumer health care and confectionery
segments. In 1992, cost of goods sold increased due to higher
production costs at the company's Puerto Rico manufacturing
locations. Cost of goods sold as a percentage of net sales
increased to 33.1% in 1993 from 32.4% in 1992. The increase was
primarily attributable to the pharmaceutical segment. The 1992
ratio increased .3 percentage point from 32.1% in 1991, primarily
due to higher costs at the Puerto Rico manufacturing locations.
Marketing expense rose 5 percent to $2,196 million in 1993
following an 11 percent increase and a $2,099 million investment
in 1992. The increase in 1993 was due to the inclusion of
acquired companies' results, the introduction of new products
such as COGNEX and MINT*A*BURST and sales force expansions in
international markets. In 1992, marketing expenses increased due
to continued support of new and existing products. As a
percentage of net sales, these expenses were 37.9% in 1993 and
37.5% in both 1992 and 1991.
Administrative and general expense of $400 million increased 6
percent from $377 million in 1992 mainly due to costs associated
with corrective actions aimed at regulatory compliance issues at
certain manufacturing facilities, coupled with the inclusion of
acquired companies' results. 1992 expenses were 2 percent lower
than 1991, reflecting lower stock appreciation rights expense and
a decrease in the cost of certain employee benefits and savings
related to 1991 restructuring actions, which included a voluntary
retirement incentive program.
Research and development expense totaled $465 million in 1993,
decreasing 2 percent from 1992, following a 12 percent increase
in 1992. The decrease reflected the absence of spending on the
Novon business due to its discontinuance and more focused R&D
spending on selected pharmaceutical projects. In 1992, the
increase primarily reflected the company's commitment to expand
research efforts in pharmaceutical products.
Other (income) expense, net of $(29) million increased $(4)
million over 1992, partially reflecting lower financial expense
in Brazil, due to improved cash flow. For 1992, other (income)
expense, net of $(25) million declined $13 million, primarily
attributable to higher debt levels and financial expense in
Brazil, reflecting the country's restrictive monetary policy and
economic conditions.
Restructuring Actions
- ---------------------
A net restructuring charge of $525 million pretax ($360 million
after tax or $2.67 per share) is included in 1993 results, (see
Note 3 to the consolidated financial statements.)
The pretax charge reflects a provision of $70 million in the
first quarter for the disposition of the Novon Products Group.
In November, the company discontinued the operations of the Novon
Products Group. The pretax charge also reflects a gain of $13
million in the fourth quarter on the sale of the
chocolate/caramel business and a charge of $468 million in the
fourth quarter for a program covering the rationalization of
manufacturing facilities, principally in North America, including
the eventual closing of seven plants, and for organizational
restructuring and related workforce reductions of about 2,800
positions over the next several years. This program was prompted
by the combined impact of rapid and profound changes in the
company's competitive environment. These changes include the
growing impact of managed health care and other cost-containment
efforts in the U.S., cost regulations in Europe and changes in
U.S. tax law.
The company estimates that on completion of these actions it will
generate average annual pretax savings of approximately $150
million by the year 1997. The company will invest these savings
in its core businesses to further strengthen its overall
competitive position and enhance its long-term profitability.
Accounting Changes
- ------------------
The company adopted, effective January 1, 1993, Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes," which increased net income by $63 million or $.47
per share; and SFAS No. 112, "Employers' Accounting for
Postemployment Benefits," which decreased net income by $17
million ($27 million pretax)or $.13 per share.
Income Taxes
- ------------
1993 1992 1991
---- ---- ----
Effective tax rate before
accounting changes:
As reported 10.5% 25.0% 36.4%
Excluding restructuring 23.5% 25.0% 27.0%
The 1993 effective tax rate before accounting changes and
excluding restructuring declined to 23.5 percent due to the
retroactive extension of the research tax credit enacted as part
of the passage of the Omnibus Budget Reconciliation Act of 1993
by Congress, as well as an overall lower international tax rate.
The decline in the 1993 reported effective tax rate compared to
1992, was principally due to the effect of a 31.4 percent tax
benefit rate associated with the 1993 restructuring actions, (see
Note 19 to the consolidated financial statements). In 1992, the
decrease in the effective tax rate excluding restructuring from
the 1991 rate was primarily a result of an overall lower
international tax rate.
Primarily as a result of the passage of the above legislation,
including changes to Section 936 of the Internal Revenue Code,
the company estimates that its effective tax rate will increase
in 1994 by approximately 1.5 to 2.5 percentage points.
Net Income
- ----------
Net income in 1993 was $331 million or $2.45 per share compared
to $644 million or $4.78 per share in 1992. The decrease
primarily reflects the restructuring actions partially offset by
the net favorable impact of the adoption of the accounting
changes. Excluding the 1993 one-time net restructuring charge of
$360 million or $2.67 per share and the net impact of the
accounting changes of $46 million or $.34 per share, net income
was $645 million, in line with 1992. Earnings per share was
$4.78, unchanged from 1992 principally due to the pharmaceutical
segment, where regulatory issues related to the company's
pharmaceutical manufacturing had a negative impact on both sales
and profits. In 1992, net income and earnings per share
increased 15 percent, excluding the 1991 impact of the one-time
charges and the impact of the adoption of SFAS No. 106.
Inflation
- ---------
Inflation has not been a significant factor in Warner-Lambert's
business because of the modest rates of inflation in the U.S. and
the principal foreign countries in which the company maintains
operations. However, the company operates in certain Latin
American countries that have continued to experience currency
exchange rate deterioration and high rates of inflation,
principally Brazil and Venezuela. The company has continued to
mitigate the impact of inflation and devaluation in such
countries through the use of working capital management, cost
containment measures, financing and, to the extent possible,
price increases.
Liquidity and Capital Resources
- -------------------------------
Selected financial data presented below:
1993 1992 1991
---- ---- ----
Return on average shareholders'
equity
As reported 23% 48% 3%
Excluding restructuring and
accounting changes 40% 48% 36%
Return on average total assets
As reported 7% 17% 1%
Excluding restructuring and
accounting changes 14% 17% 16%
Total cash and cash equivalents amounted to $441 million at
December 31, 1993, a decrease of $278 million from 1992. The
company generated $466 million from operating activities and
received $436 million in net borrowings in 1993. These funds
were used for acquisitions of businesses of $429 million, to pay
dividends of $308 million, to finance purchases of property,
plant and equipment of $347 million and to repurchase company
stock in the amount of $112 million. The company also holds $161
million in securities and time deposits that do not qualify as
cash equivalents. Net debt (total debt less total cash and cash
equivalents, a portion of investments and other assets) of $598
million at December 31, 1993 changed from a net cash position of
$77 million at December 31, 1992.
At December 31, 1992, total cash and cash equivalents amounted to
$718 million, an increase of $183 million from 1991. The increase
primarily reflected cash flows from operations exceeding
expenditures for investing and financing activities. Net cash of
$77 million at December 31, 1992 improved from $27 million at
December 31, 1991.
Trade receivables days sales outstanding (DSO) increased to 45
days in 1993 compared to 42 days in 1992. The increase was
primarily attributable to the consumer health care segment. This
segment had higher DSO due to increased international sales,
which traditionally have a higher DSO than the company overall,
combined with the impact of acquired companies, which also have
higher DSO than the company. The inventory turnover rate
decreased to 3.9 from the previous year's 4.2, reflecting the
impact of regulatory compliance issues in the pharmaceutical
segment.
Expenditures for property, plant and equipment were $347 million
in 1993, $334 million in 1992 and $326 million in 1991. Capital
expenditures planned by the company include $455 million to be
spent over the next several years for the consolidation and
upgrading of manufacturing, distribution and research facilities,
and for organizational restructuring in connection with the
company's restructuring plans announced in 1993 and 1991. The
company estimates that 1994 expenditures for property, plant and
equipment will be approximately $360 million.
Acquisitions/Investments
- ------------------------
During 1993, Warner-Lambert completed the following acquisitions
and investments:
o September 1993 - Acquired Willinger Bros., Inc., a
privately owned manufacturer and distributor of
aquarium products; and acquired CACHOU LAJAUNIE, a
French manufacturer of breath freshening
confectioneries.
o July 1993 - Acquired the consumer health products
business of Fisons plc in Australia and New Zealand.
The Fisons operations include the ROSKEN line of
therapeutic skin care products.
o March 1993 - Acquired the European, U.S. and Canadian
operations of WILKINSON SWORD, an international
manufacturer and marketer of razors and blades.
o January 1993 - The company purchased a 34 percent
equity interest in Jouveinal S.A., a French
pharmaceutical company; and acquired the remaining 51
percent interest in an Italian confectionery joint
venture.
The cash consideration for all of the above acquisitions and
investments totaled $429 million.
Liquidity and the availability of adequate credit provide the
company with a high degree of flexibility to meet its obligations
and allow it to take advantage of growth opportunities. The
company has unused available lines of credit from banks totaling
$1.0 billion.
The company's bond ratings by Standard and Poor's Corporation
(AA), and Moody's Investor Services (Aa3) did not change during
1993.
Through December 31, 1993, the company has purchased
approximately 88 percent of the 20 million shares of common stock
authorized for repurchase from shareholders.
Insurance
- ---------
Consistent with trends in the pharmaceutical industry, the
company self-insures, up to certain threshold amounts, against
certain types of risk. The company also has in place risk
management programs to minimize exposure to loss. Management
believes its overall risk management programs are adequate to
protect its assets and earnings against significant loss.
Environment
- -----------
The company maintains control systems designed to assure
compliance in all material respects with applicable environmental
laws and regulations. During 1993, management initiated a
worldwide audit program to enhance environmental compliance with
a growing number of increasingly complex environmental
regulations. 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, also known as Superfund, or by
state authorities under similar state legislation or other
parties. It is not possible to predict with certainty the
outcome of such matters or the total cost of remediation. In the
opinion of management, such proceedings will not result in a
material adverse effect on the company's financial position,
liquidity, cash flow or results of operations for any year.
Other
- -----
The Clinton Administration has identified the containment of
health care costs as a major priority. The Administration's
proposed health care plan, along with a number of alternative
proposals, if enacted, will likely have an adverse impact on the
pharmaceutical industry.
Shareholder Information
- -----------------------
Book value per share of common stock at year-end 1993 was $10.36
compared with $11.29 in 1992, reflecting the impact of the 1993
restructuring charges. Cash dividends paid in 1993 totaled $308
million, or $2.28 per share, a 12 percent increase over the $2.04
annual dividend paid in 1992. In January 1994, the Board of
Directors approved a 7 percent increase in the quarterly dividend
rate to $.61 cents per share payable in the first quarter of
1994.
Dividend payments per share in 1993 and 1992 were as follows:
1993 1992
----- -----
First quarter $ .57 $ .51
Second quarter .57 .51
Third quarter .57 .51
Fourth quarter .57 .51
----- -----
$2.28 $2.04
Dividends have been paid on Warner-Lambert's common stock since
its listing on the New York Stock Exchange in 1951. Annual
dividend payments per share have increased for 42 consecutive
years.
Warner-Lambert's common stock ticker symbol is WLA. The principal
market on which the stock is traded is the New York Stock
Exchange, but it is also listed and traded on the following
domestic and international stock exchanges: Chicago, Pacific,
London and Zurich. The average number of common shares
outstanding in 1993 and 1992 was 135,000,000 and 134,717,000,
respectively. Shareholders of record totaled approximately 46,000
as of December 31, 1993 and 47,300 as of December 31, 1992.
First Chicago Trust Company of New York serves as the sole stock
transfer agent, registrar and dividend disbursing agent for
Warner-Lambert.
The high and low prices for Warner-Lambert's common stock for the
periods indicated were as follows:
1993 1992
----------------- ------------------
High Low High Low
------- ------- ------- -------
First quarter $70 3/4 $59 3/4 $79 1/4 $62 1/8
Second quarter 76 3/8 67 65 7/8 58 3/8
Third quarter 71 3/4 62 1/2 68 1/8 60 3/4
Fourth quarter 72 63 3/8 72 3/8 62 1/8
Warner-Lambert common stock closed at $67 1/2 on December 31,
1993.
Warner-Lambert Company and Subsidiaries
Five-year Summary of Selected Financial Data
- ------------------------------------------------------------------------------------------
1993 1992 1991 1990 1989
- ------------------------------------------------------------------------------------------
(Dollars in millions, except per share amounts)
RESULTS FOR YEAR:
Net sales $ 5,794 $ 5,598 $ 5,059 $ 4,687 $ 4,196
Cost of goods sold 1,918 1,814 1,626 1,515 1,383
Research and development
expense 465 473 423 379 309
Income before income taxes
and accounting changes 318 (a) 858 222 (c) 681 592
Income before accounting
changes 285 (a) 644 141 (c) 485 413
Net income 331 (a,b) 644 35 (c,d) 485 413
Per common share (e):
Income before accounting
changes 2.11 (a) 4.78 1.05 (c) 3.61 3.05
Net income $ 2.45 (a,b)$ 4.78 $ .26 (c,d)$ 3.61 $ 3.05
- ------------------------------------------------------------------------------------------
YEAR-END FINANCIAL POSITION:
Current assets $ 2,219 $ 2,176 $ 1,844 $ 1,559 $ 1,366
Current liabilities 2,016 1,333 1,250 1,101 1,031
Working capital 203 843 594 458 335
Property, plant and
equipment 1,599 1,507 1,350 1,301 1,133
Total assets 4,828 4,077 3,602 3,261 2,860
Long-term debt 546 565 448 307 303
Total debt 1,199 736 576 537 506
Shareholders' equity $ 1,390 $ 1,528 $ 1,171 $ 1,402 $ 1,130
- ------------------------------------------------------------------------------------------
COMMON STOCK INFORMATION (e):
Average number of common
shares outstanding
(in millions) 135.0 134.7 134.4 134.3 135.3
Common stock price per share:
High $76 3/8 $79 1/4 $82 1/4 $70 3/8 $59 3/8
Low 59 3/4 58 3/8 61 3/4 49 5/8 37 1/4
Year-end 67 1/2 69 1/8 77 5/8 67 1/2 57 3/4
Book value per common share 10.36 11.29 8.70 10.44 8.38
Cash dividends per
common share $ 2.28 $ 2.04 $ 1.76 $ 1.52 $ 1.28
- ------------------------------------------------------------------------------------------
OTHER DATA:
Capital expenditures $ 347 $ 334 $ 326 $ 240 $ 218
Cash dividends paid 308 275 237 204 173
Depreciation and amortization $ 170 $ 156 $ 135 $ 120 $ 105
Number of employees
(in thousands) 35 34 34 34 33
- ------------------------------------------------------------------------------------------
(a) Includes a net restructuring charge of $525 pretax ($360 after tax or $2.67 per
share).
(b) Includes a credit of $63 or $.47 per share for the adoption of SFAS No. 109,
"Accounting for Income Taxes" and a charge of $17 after tax or $.13 per share to
adopt SFAS No. 112, "Employers' Accounting for Postemployment Benefits."
(c) Includes a restructuring charge of $544 pretax ($418 after tax or $3.11 per share).
(d) Includes a charge of $106 after tax or $.79 per share to adopt SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions."
(e) Common stock data for 1989 have been restated to reflect a two-for-one stock split
effected in May 1990.
Warner-Lambert Company and Subsidiaries
Segment Information
Industry Segments
- -----------------------------------------------------------------------------------------------
Research and
Net Sales (1) Operating Profit (3) Development Expense
- -----------------------------------------------------------------------------------------------
1993 1992 1991 1993 1992 1991 1993 1992 1991
- -----------------------------------------------------------------------------------------------
(Millions of dollars)
Pharmaceutical $2,114 $2,280 $2,014 $ 384 $ 842 $ 488 $ (382) $ (383) $ (327)
Consumer Health Care 2,374 2,129 1,960 440 459 336 (61) (70) (75)
Confectionery 1,306 1,189 1,085 201 227 134 (22) (20) (21)
-------------------------
Research and Develop-
ment Expense (465) (473) (423) $ (465) $ (473) $ (423)
- -----------------------------------------------------------------------------------------------
Net sales and
Operating Profit $5,794 $5,598 $5,059 560 1,055 535
- --------------------------------------------
Corporate Expense (2) (242) (197) (313)
- --------------------- ----------------------
Income before income
taxes and accounting
changes $ 318 $ 858 $ 222
- --------------------- ----------------------
- ----------------------------------------------------------------------------------------------
Depreciation and
Identifiable Assets Amortization Capital Expenditures
- ----------------------------------------------------------------------------------------------
1993 1992 1991 1993 1992 1991 1993 1992 1991
- ----------------------------------------------------------------------------------------------
(Millions of dollars)
Pharmaceutical $1,769 $1,476 $1,307 $ 72 $ 67 $ 56 $ 160 $ 151 $ 150
Consumer Health Care 1,491 1,088 982 61 53 43 115 109 117
Confectionery 680 620 574 29 26 24 60 54 46
- ----------------------------------------------------------------------------------------------
Subtotal 3,940 3,184 2,863 162 146 123 335 314 313
Corporate 888 893 739 8 10 12 12 20 13
- ----------------------------------------------------------------------------------------------
Total $4,828 $4,077 $3,602 $ 170 $ 156 $ 135 $ 347 $ 334 $ 326
- ----------------------------------------------------------------------------------------------
Geographic Areas
- -----------------------------------------------------------------------------------------------
Net Sales (1) Operating Profit (3) Identifiable Assets
- -----------------------------------------------------------------------------------------------
1993 1992 1991 1993 1992 1991 1993 1992 1991
- -----------------------------------------------------------------------------------------------
(Millions of dollars)
United States $2,747 $2,814 $2,615 $ 441 $ 871 $ 723 $1,705 $1,616 $1,463
Europe, Middle East
and Africa 1,390 1,339 1,181 231 322 22 1,305 826 767
Americas and Far
East 1,657 1,445 1,263 353 335 213 930 742 633
- -----------------------------------------------------------------------------------------------
Subtotal 5,794 5,598 5,059 1,025 1,528 958 3,940 3,184 2,863
Research and develop-
ment expense (465) (473) (423)
- -----------------------------------------------------------------------------------------------
Total $5,794 $5,598 $5,059 $ 560 $1,055 $ 535 $3,940 $3,184 $2,863
- -----------------------------------------------------------------------------------------------
(1) Export sales, intersegment sales and intergeographic area sales were not material.
(2) Corporate expense included general corporate income and expense, corporate investment
income, interest expense and net foreign currency adjustments.
(3) Operating profit (loss) by industry segments and geographic areas included restructuring
charges (see Note 3 to the consolidated financial statements) as follows:
Restructuring
- -----------------------------------------------------------------------------------------------
Industry Segments Geographic Areas
- ------------------------------------- -------------------------------------------
1993 1991 1993 1991
- ------------------------------------- -------------------------------------------
(Millions of dollars) (Millions of dollars)
Pharmaceutical $(314) $(258) United States $(314) $(112)
Consumer Health Europe, Middle East
Care (105) (103) and Africa (119) (240)
Confectionery (46) (50) Americas and Far East (32) (59)
- ------------------------------------- -------------------------------------------
Operating loss (465) (411) Operating loss $(465) $(411)
Corporate expense (60) (133) -------------------------------------------
- -------------------------------------
Loss before
Income taxes $(525) $(544)
- -------------------------------------
Warner-Lambert Company and Subsidiaries
Consolidated Statements of Income
- --------------------------------------------------------------------
Years Ended December 31, 1993 1992 1991
- --------------------------------------------------------------------
(Millions of dollars,
except per share amounts)
Net sales $5,793.7 $5,597.6 $5,059.0
- --------------------------------------------------------------------
Costs and expenses:
Cost of goods sold 1,918.1 1,814.3 1,626.4
Marketing 2,196.5 2,099.1 1,895.6
Administrative and general 399.6 377.4 385.7
Research and development 464.9 473.5 423.2
Other (income) expense, net (29.1) (24.9) (37.4)
Restructuring 525.2 - 544.0
- --------------------------------------------------------------------
Total costs and expenses 5,475.2 4,739.4 4,837.5
- --------------------------------------------------------------------
Income before income taxes and
accounting changes 318.5 858.2 221.5
Provision for income taxes 33.5 214.5 80.7
- --------------------------------------------------------------------
Income before accounting changes 285.0 643.7 140.8
Accounting changes (net of tax) 46.0 - (106.0)
- --------------------------------------------------------------------
Net income $ 331.0 $ 643.7 $ 34.8
- --------------------------------------------------------------------
Per common share:
Income before accounting changes $ 2.11 $ 4.78 $ 1.05
Accounting changes .34 - (.79)
- --------------------------------------------------------------------
Net income $ 2.45 $ 4.78 $ .26
- --------------------------------------------------------------------
Consolidated Statements of Retained Earnings
- --------------------------------------------------------------------
Years Ended December 31, 1993 1992 1991
- --------------------------------------------------------------------
(Millions of dollars,
except per share amounts)
Retained earnings at beginning
of year $2,264.6 $1,895.7 $2,097.5
Net income 331.0 643.7 34.8
Cash dividends paid
on common shares (307.9) (274.8) (236.6)
- --------------------------------------------------------------------
Retained earnings at end of year $2,287.7 $2,264.6 $1,895.7
- --------------------------------------------------------------------
Cash dividends per common share $ 2.28 $ 2.04 $ 1.76
- --------------------------------------------------------------------
See notes to consolidated financial statements.
Warner-Lambert Company and Subsidiaries
Consolidated Balance Sheets
- ---------------------------------------------------------------------
December 31, 1993 1992
- ---------------------------------------------------------------------
(Millions of dollars)
Assets:
Cash and cash equivalents $ 440.5 $ 718.4
Receivables, less allowances of
$20.5 in 1993 and $18.6 in 1992 890.8 752.8
Inventories 476.5 424.6
Prepaid expenses and other current
assets 410.9 280.5
- ---------------------------------------------------------------------
Total current assets 2,218.7 2,176.3
Investments and other assets 487.4 214.9
Equity investments in
affiliated companies 208.6 22.6
Property, plant and equipment 1,599.3 1,507.1
Intangible assets 314.1 156.5
- ---------------------------------------------------------------------
Total assets $4,828.1 $4,077.4
- ---------------------------------------------------------------------
Liabilities and shareholders' equity:
Commercial Paper $ 507.5 $ -
Notes payable - banks and other 145.3 171.5
Accounts payable, trade 427.1 399.4
Accrued compensation 116.9 112.3
Other current liabilities 638.8 493.3
Federal, state and foreign income taxes 180.3 156.8
- ---------------------------------------------------------------------
Total current liabilities 2,015.9 1,333.3
Long-term debt 546.2 564.6
Deferred income taxes 69.2 52.2
Other noncurrent liabilities 807.2 598.8
- ---------------------------------------------------------------------
Total liabilities 3,438.5 2,548.9
- ---------------------------------------------------------------------
Shareholders' equity:
Preferred stock - none issued - -
Common stock - 160,330,268 shares
issued 160.3 160.3
Capital in excess of par value 120.1 114.5
Retained earnings 2,287.7 2,264.6
Cumulative translation adjustments (224.8) (159.7)
Treasury stock, at cost:
1993 - 26,190,513 shares;
1992 - 24,990,170 shares (953.7) (851.2)
- ---------------------------------------------------------------------
Total shareholders' equity 1,389.6 1,528.5
- ---------------------------------------------------------------------
Total liabilities and
shareholders' equity $4,828.1 $4,077.4
- ---------------------------------------------------------------------
See notes to consolidated financial statements.
Warner-Lambert Company and Subsidiaries
Consolidated Statements of Cash Flows
- ----------------------------------------------------------------------
Years Ended December 31, 1993 1992 1991
- ----------------------------------------------------------------------
(Millions of dollars)
Operating Activities:
Net income $ 331.0 $ 643.7 $ 34.8
Adjustments to reconcile
net income to net cash
provided by operating activities:
Depreciation and amortization 170.4 155.6 135.5
Restructuring 525.2 - 544.0
Accounting changes (net of tax) (46.0) - 106.0
Deferred income taxes (129.6) 5.6 (122.1)
Changes in assets and liabilities,
net of effects from acquisitions/
dispositions of businesses:
Receivables (134.1) (172.6) (45.9)
Inventories (70.3) (19.8) (16.6)
Accounts payable and accrued
liabilities (87.3) 27.6 53.1
Federal, state and foreign
income taxes 8.1 (3.0) 64.9
Pension contributions (100.0) (18.5) (24.8)
Other items, net (1.2) 17.8 6.9
- ----------------------------------------------------------------------
Net cash provided by operating
activities 466.2 636.4 735.8
- ----------------------------------------------------------------------
Investing Activities:
Purchase of investments (236.5) (76.0) (212.5)
Proceeds from sale of investments 166.2 56.6 223.8
Purchase of property, plant and equipment (347.1) (334.3) (326.0)
Acquisitions of businesses (429.0) - (2.5)
Proceeds from disposition of businesses 83.4 - -
Other 4.4 18.2 11.7
- ----------------------------------------------------------------------
Net cash used by investing
activities (758.6) (335.5) (305.5)
- ----------------------------------------------------------------------
Financing Activities:
Proceeds from borrowings 627.6 332.8 281.5
Principal payments on borrowings (192.1) (161.9) (230.6)
Purchase of treasury stock (112.4) (22.8) (20.6)
Cash dividends paid (307.9) (274.8) (236.6)
Proceeds from exercise of stock options 14.5 22.7 11.1
- ----------------------------------------------------------------------
Net cash provided (used) by
financing activities 29.7 (104.0) (195.2)
- ----------------------------------------------------------------------
Effect of exchange rate changes on
cash and cash equivalents (15.2) (14.2) (5.5)
- ----------------------------------------------------------------------
Net (decrease) increase in cash and
cash equivalents (277.9) 182.7 229.6
Cash and cash equivalents at beginning
of year 718.4 535.7 306.1
- ----------------------------------------------------------------------
Cash and cash equivalents at end of year $ 440.5 $ 718.4 $ 535.7
- ----------------------------------------------------------------------
See notes to consolidated financial statements.
Warner-Lambert Company and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions, except per share amounts)
Note 1 - Significant Accounting Policies:
Basis of consolidation - The consolidated financial statements include
the accounts of Warner-Lambert Company and all controlled,
majority-owned subsidiaries ("Warner-Lambert"). Substantially all
foreign subsidiaries and branches are consolidated on the basis of
fiscal years ending on November 30. Investments in companies in which
Warner-Lambert's interest is between 20 percent and 50 percent are
accounted for using the equity method.
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 for financial statement purposes generally by use of the
straight-line method based on the estimated useful lives of the
various classes of assets.
Intangible assets - Intangible assets are recorded at cost and are
amortized using the straight-line method over appropriate periods not
exceeding 40 years.
Income taxes - Statement of Financial Accounting Standards (SFAS) No.
109 was adopted effective January 1, 1993. Under SFAS No. 109,
deferred taxes are based on temporary differences between assets and
liabilities for financial reporting purposes and for tax purposes.
Deferred taxes are measured using the enacted tax rates expected to
apply when temporary differences are settled or are realized. Prior
to 1993, deferred taxes were computed based on Accounting Principles
Board Opinion (APB) No. 11.
Net income per share - Net income per share is computed based on the
average number of common shares outstanding during the year. The
dilutive effect of common stock equivalents is immaterial. The
average number of shares used in the determination of net income per
share was 135,000,000 in 1993, 134,717,000 in 1992 and 134,441,000 in
1991.
Note 2 - Interest Income and Interest Expense:
Interest income and interest expense are included in other (income)
expense, net. Interest income totaled $39.7, $53.1 and $32.3 and
interest expense totaled $64.2, $80.8 and $58.2 in 1993, 1992 and
1991, respectively. Total interest paid was $65.4, $78.4 and $53.7 in
1993, 1992 and 1991, respectively. Interest costs of $8.6, $8.1 and
$9.4 in 1993, 1992 and 1991, respectively, have been capitalized and
included in property, plant and equipment.
Note 3 - Restructuring:
In the first quarter of 1993, the company recorded a one-time charge
of $70.0 relating to the disposition of its Novon Products Group. The
charge included $26.0 for the write-down of property, plant and
equipment to its net realizable value and $44.0 for operating losses
and other expenses anticipated to be incurred during the phase-out
period. In November 1993, the company discontinued the operations of
the Novon Products Group.
In October 1993, Warner-Lambert sold the assets of its
chocolate/caramel business associated with its plant in Cambridge,
Massachusetts. The sale was made to Chicago-based Tootsie Roll
Industries, Inc. for consideration of approximately $82.0, resulting
in a pretax gain of $13.1. The sale included the Junior Mints, Sugar
Daddy, Sugar Babies, Charleston Chew! and Pom Poms product lines.
In response to rapid and profound changes taking place in the global
health care environment, the company announced in November 1993, a
program of plant rationalization and organizational restructuring.
This program resulted in a pretax charge of $468.3 which included
$210.9 for the rationalization of manufacturing facilities,
principally in North America and $257.4 for organizational
restructuring and related workforce reductions. Noncash charges
included in the overall provision amounted to $117.4 mainly for the
write-down of property, plant and equipment to its net realizable
value.
The restructuring line on the 1993 consolidated statement of income
reflects a net pretax charge of $525.2 ($360.4 after tax or $2.67 per
share) for all of the above actions. Other current liabilities
included $180.8 and other noncurrent liabilities included $178.4 for
these actions as of December 31, 1993.
In the fourth quarter of 1991, Warner-Lambert adopted a series of
actions as a result of falling trade barriers primarily in Europe,
North America and the Andean region. These actions resulted in a
fourth quarter pretax charge of $544.0 ($418.0 after tax or $3.11 per
share). The pretax provision included a charge of $422.3 for the
worldwide rationalization of manufacturing and distribution
facilities, a charge of $76.0 for a worldwide staff reduction program,
including a voluntary retirement incentive program, and a charge of
$45.7 for other issues. The provision included $84.9 for the write-
down of property, plant and equipment to its net realizable value.
Note 4 - Investments, Acquisitions and Alliances:
In January 1993, Warner-Lambert purchased a 34 percent equity interest
in Jouveinal S.A., a French pharmaceutical company, and entered into a
license option agreement which grants Warner-Lambert the right of
first refusal to license future Jouveinal products outside of France,
Canada and French-speaking Africa. The investment in Jouveinal
increased the equity investments in affiliated companies line on the
consolidated balance sheets. Warner-Lambert also acquired the
remaining 51 percent interest in an Italian confectionery joint
venture. Total consideration approximated $225 for these
transactions.
In March 1993, Warner-Lambert acquired the European, U.S. and Canadian
operations of WILKINSON SWORD, an international manufacturer and
marketer of razors and blades, for consideration of approximately $145
including debt assumed.
In July 1993, Warner-Lambert acquired the assets of the consumer
health products business of Fisons plc in Australia and New Zealand
for a total consideration of $23. The Fisons operations include the
ROSKEN line of therapeutic skin care products.
In September 1993, two acquisitions were completed. Warner-Lambert
acquired Willinger Bros., Inc., a privately owned manufacturer of
aquarium products. Willinger, based in New Jersey, markets products
largely under the WHISPER and SECOND NATURE trade names. It has four
major product lines: power filters and replacement cartridges, air
pumps, plastic plants and aquarium accessory products. In addition,
Warner-Lambert acquired CACHOU LAJAUNIE, a French manufacturer of
breath freshening confectioneries. Total consideration including debt
assumed for these acquisitions approximated $67.
Cash consideration for all the above acquisitions totaled $429.0
excluding cash acquired and debt assumed. Reported results of
operations for 1993 and 1992 would not have differed significantly had
all of the above acquisitions taken place at the beginning of 1992.
The above acquisitions have been accounted for by the purchase method
of accounting, and accordingly, the net assets and results of
operations have been included in the accompanying consolidated
financial statements since the dates of acquisition. The excess of
purchase price over the estimated fair values of the net assets
acquired for the above investments has been treated as goodwill and is
being amortized over 40 years.
In December 1993, Warner-Lambert signed separate agreements with Glaxo
Holdings plc ("Glaxo") and Wellcome plc ("Wellcome") to establish
joint ventures in various countries to develop and market non-
prescription consumer health care products.
Warner-Lambert established the first of these joint ventures in the
U.S. with Glaxo, whereby the two parties have formed Glaxo Warner-
Lambert OTC G.P. The joint venture will develop, seek approval of and
market OTC versions of Glaxo prescription drugs in the U.S., including
ZANTAC, the leading prescription ulcer treatment product. The joint
venture will concentrate initially on developing ZANTAC for sale as an
OTC product in the U.S. Additional joint ventures are expected to be
formed in other major markets outside the U.S., excluding Japan.
Development costs, profits and voting control will be shared equally.
Glaxo will receive a royalty on all OTC sales by the joint ventures.
Warner-Lambert will use the equity method of accounting for its share
of profits and losses.
Warner-Lambert and Wellcome have also formed joint ventures in the
U.S. and Canada, each named Warner Wellcome Consumer Health Products,
and expect to form joint ventures in Europe and Australia in 1994.
The alliance calls for both companies to contribute to the joint
ventures current and future OTC products excluding HALLS and ROLAIDS.
After a two-year phase-in period, Warner-Lambert and Wellcome
respectively will receive approximately 70 percent and 30 percent of
the profits generated in the U.S. A new drug application for the
conversion to OTC use of Wellcome's anti-viral drug ZOVIRAX as an
anti-herpes medication was filed with the FDA in August 1993. Subject
to such conversion, OTC profits on ZOVIRAX in the U.S. will be shared
in favor of Wellcome. Profits on current products will be shared
equally in Canada and, when joint ventures are established, in Europe
and Australia. Profits on ZOVIRAX cream outside the U.S. will also be
shared equally, subject to a royalty to Wellcome if sales exceed a
threshold amount. Other future OTC switch products will be subject to
a profit split favoring the innovator. Warner-Lambert has and will
have voting control of each joint venture with Wellcome and will
consolidate the financial results as joint ventures are established
beginning in 1994.
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 Brazil and Venezuela). Net aggregate
transaction gains and losses amounted to a $9.8 loss in 1993 and gains
of $1.1 and $2.9 in 1992 and 1991, respectively.
Amounts relative to foreign subsidiaries and branches included in the
consolidated balance sheets were as follows:
- ---------------------------------------------------------------------
December 31, 1993 1992
- ---------------------------------------------------------------------
Total assets $2,235.1 $1,567.6
Total liabilities 1,234.7 976.3
- ---------------------------------------------------------------------
Net assets $1,000.4 $ 591.3
- ---------------------------------------------------------------------
Note 6 - Inventories:
- ---------------------------------------------------------------------
December 31, 1993 1992
- ---------------------------------------------------------------------
Raw materials $ 88.6 $ 77.2
Finishing supplies 38.6 36.4
Goods in process 79.3 64.6
Finished goods 270.0 246.4
- ---------------------------------------------------------------------
$476.5 $424.6
- ---------------------------------------------------------------------
Note 7 - Property, Plant and Equipment:
- ---------------------------------------------------------------------
December 31, 1993 1992
- ---------------------------------------------------------------------
Land $ 33.8 $ 31.5
Buildings 915.0 839.5
Machinery, furniture and fixtures 1,885.4 1,675.1
- ---------------------------------------------------------------------
2,834.2 2,546.1
Less accumulated depreciation (1,234.9) (1,039.0)
- ---------------------------------------------------------------------
$ 1,599.3 $ 1,507.1
- ---------------------------------------------------------------------
Depreciation expense totaled $159.0, $148.7 and $129.4 in 1993, 1992
and 1991, respectively.
As a result of the Novon charge and fourth quarter 1993 restructuring
charge discussed in Note 3, accumulated depreciation was increased
$108.5 in 1993, reflecting the write-down of assets to their net
realizable values.
Note 8 - Intangible Assets:
- ---------------------------------------------------------------------
December 31, 1993 1992
- ---------------------------------------------------------------------
Purchased patents, trademarks and other
intangibles $179.9 $145.0
Goodwill 181.5 66.0
- ---------------------------------------------------------------------
361.4 211.0
Less accumulated amortization (47.3) (54.5)
- ---------------------------------------------------------------------
$314.1 $156.5
- ---------------------------------------------------------------------
Amortization expense totaled $11.4, $6.9 and $6.1 in 1993, 1992 and
1991, respectively.
As a result of the acquisitions discussed in Note 4, patents,
trademarks and other intangibles increased $98.8 and goodwill
increased $127.4. As a result of the sale of the chocolate/caramel
business discussed in Note 3, trademarks and other intangibles
decreased $54.6, goodwill decreased $8.0 and accumulated amortization
decreased $14.3.
Note 9 - Long-Term Debt:
- ---------------------------------------------------------------------
December 31, 1993 1992
- ---------------------------------------------------------------------
6 5/8% notes due 2002 $199.6 $ 199.5
8% notes due 1998 150.0 150.0
8 1/8% notes due 1996 100.0 100.0
7 1/2% notes due 1993 - 100.0
Industrial revenue bonds due 2014 24.7 24.7
Other 93.7 116.9
- ---------------------------------------------------------------------
568.0 691.1
Current maturities (21.8) (126.5)
- ---------------------------------------------------------------------
$546.2 $ 564.6
- ---------------------------------------------------------------------
In September 1992, Warner-Lambert issued $200.0 of unsecured 6 5/8
percent notes due September 15, 2002. The notes were issued at a
discount and are not callable prior to maturity.
The industrial revenue bonds due 2014 have a stated interest rate of
7.6 percent and an effective interest rate of 7.2 percent.
The aggregate annual maturities of long-term debt at December 31,
1993, payable in each of the years 1995 through 1998, are $21.1,
$113.7, $3.9 and $163.0, respectively.
Warner-Lambert has lines of credit arrangements with numerous banks
with interest rates generally equal to the prime rate for domestic
banks and the best prevailing rate for foreign banks. At December 31,
1993, worldwide unused lines of credit amounted to $1.0 billion.
Note 10 - Financial Instruments:
The company had forward exchange contracts at December 31, 1993 and
1992 totaling $209.4 and $266.9, respectively. These contracts mature
at various dates through 1996. Gains or losses on these contracts
primarily serve to mitigate the impact of foreign exchange
fluctuations on foreign currency denominated transactions, assets and
liabilities. These contracts were in an unrealized loss position of
$16.1 and $10.7 as of December 31, 1993 and December 31, 1992,
respectively.
The company has entered into a series of interest rate swap agreements
having a notional principal amount of $450.0. The swap agreements
have maturity dates ranging from 1995 to 2002 and require the company
to make floating rate payments in exchange for fixed rate payments.
As of December 31, 1993, the floating rates on these swaps ranged from
3.5 to 5.9 percent. The company is exposed to credit risk in the
unlikely event of nonperformance by the counterparties. Interest to
be paid or received is accrued over the life of the agreements at the
net effective interest rates for the swap and corresponding debt
instruments.
The cash flows associated with forward exchange contracts and the
interest rate swap agreements are classified as operating in the
consolidated statements of cash flows.
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 health care and confectionery businesses worldwide.
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 places substantially all of its interest-bearing investments
with major banks throughout the world in high-quality short-term
liquid instruments, and limits the amount of credit exposure to any
one financial institution.
The estimated fair values of financial instruments, based on quotes on
similar instruments, were as follows:
- ---------------------------------------------------------------------
December 31, 1993 1992
- ---------------------------------------------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
- ---------------------------------------------------------------------
Marketable securities
and other investments $ 565.5 $ 569.8 $ 777.4 $ 780.6
Long-term debt (546.2) (575.9) (564.6) (575.6)
Interest rate swaps 5.1 8.8 - -
- ---------------------------------------------------------------------
The carrying values of all other financial instruments on the
consolidated balance sheets approximate their estimated fair values.
Note 11 - Leases:
Warner-Lambert rents various facilities and equipment. Rental costs
charged to income under all operating leases totaled $76.3, $70.1 and
$66.9 in 1993, 1992 and 1991, respectively.
The future minimum rental commitments under noncancellable capital and
operating leases at December 31, 1993 are summarized below:
- ---------------------------------------------------------------------
Capital Operating
- ---------------------------------------------------------------------
1994 $ 4.7 $ 29.4
1995 4.5 23.6
1996 3.7 13.7
1997 3.5 11.7
1998 3.0 9.3
Remaining years 22.1 90.2
- -------------------------------------------------------------------
Total minimum lease payments 41.5 177.9
Less minimum sublease income (.5) (28.9)
---------------------
Net minimum lease payments 41.0 $149.0
-------
Less amount representing interest (16.8)
- -----------------------------------------------------
Present value of minimum lease payments $24.2
- -----------------------------------------------------
Property, plant and equipment included capitalized leases of $33.0,
less accumulated depreciation of $11.7, at December 31, 1993 and
$19.9, less accumulated depreciation of $9.8, at December 31, 1992.
Long-term debt included $22.3 and $12.4, respectively, at those dates
relating to capital leases.
Note 12 - Stock Options and Awards:
Warner-Lambert has stock plans established in 1992, 1989, 1987 and
1983 which provide for the granting of options to employees to
purchase shares of common stock within prescribed periods at a price
equal to the fair market value on the date of the grant. There are
outstanding options under the 1989, 1987 and 1983 plans. However, no
additional options will be granted under the 1987 and 1983 plans. In
1992, the company implemented SuccesShare, a program which expanded
the granting of options to substantially all employees worldwide.
All plans contain provisions for the granting of rights which permit
the optionee to receive an amount equal to the excess of the market
price of the common stock over the option price when the rights are
exercised and receive payment in shares of common stock, cash or a
combination of both. Options and rights granted generally become
exercisable after one year in 25 percent increments per annum and
expire ten years from the date of grant. The value of rights granted
is charged to income over the vesting period from the date the market
price first exceeds the option price, with adjustments made based on
market fluctuations to the date of exercise. At December 31, 1993,
rights with respect to 769,000 shares of common stock were
outstanding.
The aggregate number of shares of common stock which may be awarded
under the 1992 Stock Plan in any year during the five-year term of the
1992 Stock Plan is not more than 1.75 percent of the company's issued
shares of common stock on January 1 of the year of grant. Eight
million shares of common stock have been reserved for the granting of
all awards under the 1989 Stock Plan until April 25, 1994. The 1992
and 1989 Stock Plans also provide for the granting of restricted stock
and performance awards. Restricted shares granted to employees are
delivered upon the expiration of restricted periods established at the
time of grant. The value of the shares at the date of grant is being
amortized to compensation expense over the restricted periods, with
the unamortized portion representing unearned compensation reflected
as a reduction of shareholders' equity. Performance awards provide
for the recipient to receive payment in shares, cash or any
combination thereof equivalent to the award being granted.
Transactions involving stock options, rights and awards are summarized
as follows:
- ---------------------------------------------------------------------
Number Price
of Shares Per Share
- ---------------------------------------------------------------------
Stock options, rights and awards
outstanding, December 31, 1991 7,586,484 $13.38 - $77.75
Stock options and rights:
Granted 2,665,910 62.31 - 76.38
Exercised (1,122,157) 13.38 - 73.69
Cancelled (321,723) 18.03 - 73.69
Stock awards:
Granted 29,185 59.75 - 76.98
Delivered (61,780) 44.56 - 77.06
Cancelled (28,586) 44.56 - 73.94
- ---------------------------------------------------------------------
Stock options, rights and awards
outstanding, December 31, 1992 8,747,333 14.81 - 77.75
Stock options and rights:
Granted 1,519,725 65.06 - 75.25
Exercised (439,454) 14.81 - 73.69
Cancelled (282,951) 14.81 - 77.75
Stock awards:
Granted 51,270 65.69 - 75.75
Delivered (55,875) 44.56 - 77.06
Cancelled (13,453) 44.16 - 77.75
- ---------------------------------------------------------------------
Stock options, rights and awards
outstanding, December 31, 1993 9,526,595 17.00 - 76.98
- ---------------------------------------------------------------------
Stock options and rights
exercisable, December 31, 1993 4,263,891 $17.00 - $76.38
- ---------------------------------------------------------------------
Shares available for annual grants:
December 31, 1992 4,422,938
December 31, 1993 3,108,171
- ------------------------------------------------
Note 13 - Contingencies:
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 Warner-Lambert, 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 consolidated financial position of
Warner-Lambert if disposed of unfavorably.
Note 14 - Environmental Liabilities:
The company accrues for estimated environmental liabilities under SFAS
No. 5, "Accounting for Contingencies." Costs are accrued when
management becomes aware that a liability exists and is able to
reasonably estimate the amount, generally no later than the completion
of studies to determine the feasibility and cost of remedial
techniques. Outside consultants are generally used to assess the cost
of remediation.
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 legislation and similar legislation),
various state environmental organizations and other parties. The
company is presently remediating environmental problems at certain
sites, including sites it previously owned. For most sites, there are
other potentially responsible parties (PRPs); for these sites, all
PRPs may be jointly and severally liable to pay all cleanup costs.
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 matters mentioned
above which are probable and reasonably estimable are adequately
accrued for including remediation costs, penalties and legal fees.
The amount accrued for environmental liabilities is not considered
material. While it is not possible to predict with certainty the
outcome of the matters described above 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
financial position, liquidity, cash flows or results of operations for
any year.
Note 15 - Shareholders' Equity:
The authorized preferred stock of Warner-Lambert Company is 5 million
shares with a par value of $1.00 per share, of which there are no shares issued.
The authorized common stock of Warner-Lambert Company is 300 million
shares with a par value of $1.00 per share.
Changes in certain components of shareholders' equity are summarized as follows:
- -----------------------------------------------------------------------------------------------
Capital in Cumulative Treasury Stock
Common Excess of Translation -----------------------
Stock Par Value Adjustments Shares Cost
- -----------------------------------------------------------------------------------------------
Balance at December 31, 1990 $160.3 $ 71.0 $ (87.7) (25,988,851) $(838.8)
Shares repurchased, at cost - - - (292,080) (20.6)
Employee benefit plans - 21.6 - 544,923 10.4
Translation adjustment - - (41.2) - -
- -----------------------------------------------------------------------------------------------
Balance at December 31, 1991 160.3 92.6 (128.9) (25,736,008) (849.0)
Shares repurchased, at cost - - - (325,118) (22.8)
Employee benefit plans - 21.9 - 1,070,956 20.6
Translation adjustment - - (30.8) - -
- -----------------------------------------------------------------------------------------------
Balance at December 31, 1992 160.3 114.5 (159.7) (24,990,170) (851.2)
Shares repurchased, at cost - - - (1,680,290) (112.4)
Employee benefit plans - 5.6 - 479,947 9.9
Translation adjustment - - (65.1) - -
- -----------------------------------------------------------------------------------------------
Balance at December 31, 1993 $160.3 $120.1 $(224.8) (26,190,513) $(953.7)
- -----------------------------------------------------------------------------------------------
Pursuant to the Stockholder Rights Plan of the company, a right is
attached to each outstanding share of the company's common stock. In
the event that any person or group acquires 20 percent or more of the
company's outstanding common shares, or acquires the company in a
merger or other business combination, or engages in certain
self-dealing transactions, 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 July 8, 1998 and can be redeemed for $.005 per right at any time by
the Board of Directors prior to the time the rights become
exercisable.
Note 16 - Other Postretirement Benefits:
The company provides other postretirement benefits, primarily health
insurance, for domestic employees who retired prior to January 1, 1992
and their dependents. Although the plans are currently
noncontributory, the company has implemented a cap which limits the
future company contributions for medical and dental coverage under
these plans. The company is generally self-insured for these costs
and the plans are unfunded. It is the company's policy to fund these
benefits on a pay-as-you-go basis. Domestic employees who retire
after December 31, 1991 are no longer eligible to receive these
benefits; rather, they will receive additional pension benefits based
on years of service.
In 1991, the company adopted the provisions of SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than
Pensions," for its domestic plans, effective January 1, 1991 as an
accounting change. This standard requires accrual accounting for
these benefits rather than the cash basis of accounting. Upon
adoption, the company elected to record the transition obligation of
$146.0 pretax ($106.0 after tax or $.79 per share) as a one-time
charge against earnings, rather than amortize it over a longer period.
Because of the plan change noted above, the transition obligation
represented the present value of estimated future benefits payable to
employees who retired before January 1, 1992.
The annual cost of providing other postretirement benefits for
domestic retirees under SFAS No. 106 amounted to $14.0, $13.4 and
$14.1 in 1993, 1992 and 1991, respectively. These amounts primarily
represent the accrual of interest on the present value obligation.
A reconciliation from the plans' benefit obligation to the liabilities
recognized in the consolidated balance sheets at December 31, 1993 and
1992, as of the latest actuarial valuations, was as follows:
- ---------------------------------------------------------------------
1993 1992
- ---------------------------------------------------------------------
Accumulated postretirement benefit
obligation $180.2 $161.3
Unrecognized prior service cost 2.0 -
Unrecognized net actuarial loss (45.9) (19.5)
- ---------------------------------------------------------------------
Accrued postretirement benefit cost
recognized in the consolidated
balance sheets $136.3 $141.8
- ---------------------------------------------------------------------
The health care cost trend rate used to develop the accumulated
postretirement benefit obligation for those retirees under age 65 was
12.9 percent in 1993 declining to 6 percent over 13 years. For those
65 and over, a rate of 8.3 percent was used in 1993 declining to 6
percent over 8 years. The health care cost trend rate has a
significant effect on the amounts reported. To illustrate, increasing
the rate by one percentage point in each year would increase the
accumulated postretirement benefit obligation as of December 31, 1993
by $5.4 and the interest cost component of postretirement benefit cost
for the year then ended by $.5. The weighted average discount rate
used to develop the accumulated postretirement benefit obligation was
7.5 percent, 8.8 percent and 9.5 percent for 1993, 1992 and 1991,
respectively.
Other postretirement benefit costs for the company's foreign plans
expensed in 1993, 1992 and 1991 under the cash method were not
material.
Note 17 - Postemployment Benefits:
The company adopted the provisions of SFAS No. 112, "Employers'
Accounting for Postemployment Benefits," effective January 1, 1993.
This accounting change resulted in a cumulative effect adjustment
which decreased net income upon adoption by $17.0 ($27.0 pretax) or
$.13 per share. SFAS No. 112 requires employers to recognize an
obligation for postemployment benefits to former or inactive employees
after employment but before retirement. This one-time charge
primarily represented the present value of medical and life insurance
costs for employees receiving long-term disability benefits. Amounts
included in expense do not differ significantly from the prior cash
method.
Note 18 - Pensions:
Warner-Lambert has various pension plans covering substantially all
of its employees in the U.S. The company's current policy is to
fund these plans in an amount that ranges from the minimum contribution
required by ERISA to the maximum tax deductible contribution. Certain
foreign subsidiaries also have various plans, many of which are correlated
to the statutory requirements of the particular countries. Benefits
covering most employees are based on years of service and average
compensation during the last years of employment.
Pension costs for the plans included the following components:
- ----------------------------------------------------------------------------------------------
Domestic Plans Foreign Plans
- ----------------------------------------------------------------------------------------------
1993 1992 1991 1993 1992 1991
- ----------------------------------------------------------------------------------------------
Service cost - benefits earned
during the year $ 25.7 $ 23.2 $ 21.4 $ 19.2 $ 18.8 $ 15.4
Interest cost on projected
benefit obligation 94.6 92.6 83.2 35.5 30.0 27.3
Return on assets (127.4) (107.1) (148.9) (71.8) (20.1) (45.5)
Net amortization and deferral 24.4 5.0 45.5 35.0 (10.5) 15.9
- ----------------------------------------------------------------------------------------------
Net pension expense $ 17.3 $ 13.7 $ 1.2 $ 17.9 $ 18.2 $ 13.1
- ----------------------------------------------------------------------------------------------
The 1993 restructuring charge discussed in Note 3 included a $4.6
curtailment loss representing a decrease in unrecognized prior service
costs resulting from a reduction in domestic plan participants.
The 1991 restructuring charge discussed in Note 3 included an $18.1
charge reflecting pension enhancements included in the voluntary
retirement incentive program.
The funded status of the plans and amounts recognized in the
consolidated balance sheets at December 31, 1993 and 1992, as of
the latest actuarial valuations, are as follows:
- ----------------------------------------------------------------------------------------------
Plans in which Assets Plans in which Accumulated
Exceed Accumulated Benefits Benefits Exceed Assets
- ----------------------------------------------------------------------------------------------
Domestic Foreign Domestic Foreign
Plans Plans Plans Plans
- ----------------------------------------------------------------------------------------------
1993 1992 1993 1992 1993 1992 1993 1992
- ----------------------------------------------------------------------------------------------
Plan assets at fair value
(invested primarily in
equities and bonds) $1,111.9 $ 983.2 $494.0 $181.8 $ 50.5 $ 49.6 $ 30.1 $131.2
- ----------------------------------------------------------------------------------------------
Accumulated benefit
obligation:
Vested 1,080.6 945.3 384.3 133.1 87.1 80.5 54.5 158.0
Nonvested 20.1 15.2 10.2 7.0 1.0 .4 9.4 5.8
- ----------------------------------------------------------------------------------------------
1,100.7 960.5 394.5 140.1 88.1 80.9 63.9 163.8
Estimated future
salary increases 117.7 109.0 53.8 18.0 11.7 3.5 24.0 59.2
- ----------------------------------------------------------------------------------------------
Projected benefit
obligation 1,218.4 1,069.5 448.3 158.1 99.8 84.4 87.9 223.0
- ----------------------------------------------------------------------------------------------
Funded status (106.5) (86.3) 45.7 23.7 (49.3) (34.8) (57.8) (91.8)
Unrecognized net (asset)
obligation at December
31, 1993 and 1992 (30.8) (46.4) (7.3) (7.9) 4.2 4.6 3.6 4.5
Unrecognized prior service
cost 41.0 51.6 .8 (.6) 3.0 3.3 - -
Unrecognized net actuarial
loss (gain) 224.1 156.8 (15.6) (2.2) 22.8 8.6 5.9 9.6
Adjustment required to
recognize minimum
liability - - - - (18.3) (13.0) (.7) (.3)
- ----------------------------------------------------------------------------------------------
Net pension asset
(liability) recognized
in the consolidated
balance sheets $ 127.8 $ 75.7 $ 23.6 $ 13.0 $(37.6) $(31.3) $(49.0) $(78.0)
- ----------------------------------------------------------------------------------------------
The assumptions used to develop the actuarial present value of
benefit obligations were as follows:
- ---------------------------------------------------------------------------------------
Domestic Plans Foreign Plans
- ---------------------------------------------------------------------------------------
1993 1992 1991 1993 1992 1991
- ---------------------------------------------------------------------------------------
Expected long-term rate of return
on plan assets 10.5% 10.5% 10.5% 8.6% 9.0% 9.6%
Expected increase in salary levels 4.0% 5.0% 6.0% 5.1% 5.7% 5.9%
Weighted average discount rate 7.5% 8.8% 9.5% 7.7% 8.1% 8.4%
- ---------------------------------------------------------------------------------------
Note 19 - Income Taxes:
Effective January 1, 1993, the company changed its method of
accounting for income taxes from the deferred method to the liability
method required by SFAS No. 109, "Accounting for Income Taxes." This
accounting change resulted in a cumulative effect adjustment which
increased net income upon adoption by $63.0 or $.47 per share.
Valuation allowances as of January 1, 1993 of $92.0 primarily relate
to the potential inability to utilize foreign operating loss and
capital loss carryforwards. Valuation allowances increased $16.9
primarily due to the potential inability to realize deferred tax
assets associated with the 1993 restructuring.
The components of income before income taxes and accounting changes
were:
- ---------------------------------------------------------------------
Years Ended December 31, 1993 1992 1991
- ---------------------------------------------------------------------
U.S. and Puerto Rico $ 15.8 $473.6 $197.6
Foreign 302.7 384.6 23.9
- ---------------------------------------------------------------------
$318.5 $858.2 $221.5
- ---------------------------------------------------------------------
The 1993 income before income taxes and accounting changes included a
restructuring charge of $374.6 for U.S. and Puerto Rico and $150.6 for
foreign, see Note 3.
The 1991 income before income taxes and accounting change included a
restructuring charge of $245.4 for U.S. and Puerto Rico and $298.6 for
foreign, see Note 3.
The provision (benefit) for income taxes consisted of:
- ---------------------------------------------------------------------
Liability Deferred Deferred
Method Method Method
- ---------------------------------------------------------------------
Years Ended December 31, 1993 1992 1991
- ---------------------------------------------------------------------
Current:
Federal $ 22.0 $ 54.2 $ 36.8
Foreign 123.4 127.3 139.9
State and Puerto Rico 17.7 27.4 26.1
- ---------------------------------------------------------------------
163.1 208.9 202.8
- ---------------------------------------------------------------------
Deferred:
Federal (95.0) (14.5) (33.6)
Foreign (19.6) 14.4 (76.4)
State and Puerto Rico (15.0) 5.7 (12.1)
- ---------------------------------------------------------------------
(129.6) 5.6 (122.1)
- ---------------------------------------------------------------------
Provision for income taxes $ 33.5 $214.5 $ 80.7
- ---------------------------------------------------------------------
The principal timing differences included in the deferred tax
provision (benefit) for 1992 and 1991 were restructuring items of
$26.7 and $(96.3), respectively.
The tax effects of significant temporary differences which comprise
the deferred tax assets and liabilities at December 31, 1993, were as
follows:
- --------------------------------------------------------------------
Assets Liabilities
- --------------------------------------------------------------------
Restructuring reserves $ 287.9 $ -
Postretirement/postemployment
obligations 64.6 -
Pensions 25.2 55.9
Compensation/benefits 61.3 -
Property, plant and equipment 47.8 162.4
Research tax credit carryforwards 27.0 -
Other 103.8 13.0
- -------------------------------------------------------------------
617.6 231.3
Valuation allowances (108.9) -
- -------------------------------------------------------------------
$ 508.7 $ 231.3
- -------------------------------------------------------------------
The company's research tax credit carryforwards of $27.0 will be
available until the years 2007 and 2008.
The company paid income taxes of $155.0, $211.8 and $139.4 during
1993, 1992 and 1991, respectively. Prepaid expenses and other current
assets included deferred income taxes amounting to $218.0 and $129.9
at December 31, 1993 and 1992, respectively. Investments and other
assets included deferred income taxes of $135.8 at December 31, 1993.
The earnings of Warner-Lambert's subsidiary operating in Puerto Rico
are subject to tax pursuant to a grant, effective through December
2003. The grant provides for certain tax relief and for reduced
withholding tax rates upon repatriation of Puerto Rico earnings
provided that certain conditions are met. The company continued to be
in compliance with these conditions at December 31, 1993. The
combined income and withholding taxes are accrued at the applicable
rates as income is earned.
Earnings of foreign subsidiaries considered to be reinvested for an
indefinite period at December 31, 1993 totaled approximately $353.4.
Accordingly, 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 reinvested
earnings.
As of December 31, 1993, Warner-Lambert's U.S. federal income tax
returns through 1986 had been examined and settled with the Internal
Revenue Service.
Warner-Lambert's effective income tax rate before accounting changes
differed from the U.S. statutory tax rate as follows:
- ---------------------------------------------------------------------
Liability Deferred Deferred
Method Method Method
- ---------------------------------------------------------------------
Years Ended December 31, 1993 1992 1991
- ---------------------------------------------------------------------
U.S. statutory tax rate 35.0% 34.0% 34.0%
Income earned in Puerto Rico (5.5) (6.8) (6.7)
Foreign income subject to
reduced tax rates including
taxes on repatriation (4.6) (1.4) (.4)
U.S. research tax credit, net (1.8) (.5) (1.0)
State and local taxes, net .9 1.3 1.2
Other items, net (.5) (1.6) (.1)
Effect of restructuring (13.0) - 9.4
- ---------------------------------------------------------------------
Effective tax rate before
accounting changes 10.5% 25.0% 36.4%
- ---------------------------------------------------------------------
The 1993 effective tax rate of 10.5 percent included the effect of a
31.4 percent tax benefit rate on the restructuring charge discussed in
Note 3. Excluding the effect of the restructuring charge, the
effective tax rate was 23.5 percent. The lower effective tax rate for
1993 also reflected the retroactive extension of the research tax
credit enacted as part of The Omnibus Budget Reconciliation Act of
1993 and a decrease in the overall international tax rate, due to
changes in certain affiliates' operating results, coupled with a $3.0
tax effect of applying the one percentage point increase in the U.S.
statutory tax rate to existing net deferred tax assets. There was a
separate 37.0 percent tax benefit rate on the $27.0 charge for the
change in accounting principle discussed in Note 17 regarding SFAS No.
112.
The company's 1991 restructuring charge resulted in a 9.4 percentage
point increase in the effective tax rate, which reflected the
inability to fully recognize the tax benefits of this charge in
accordance with APB No. 11. These benefits were more fully recognized
upon the adoption of SFAS No. 109. The company's 1993 restructuring
charge resulted in a 13.0 percentage point decrease in the effective
tax rate, which reflected the ability to more fully recognize tax
benefits of this charge in accordance with SFAS No. 109.
The 1991 effective tax rate of 36.4 percent included the effect of a
23.2 percent tax benefit rate on the $544.0 restructuring charge
discussed in Note 3. There was a separate 27.4 percent tax benefit
rate on the $146.0 charge for the change in accounting principle
discussed in Note 16 regarding SFAS No. 106.
Note 20 - Segment Information:
Financial information by industry segment and geographic area for
1993, 1992 and 1991 is presented on page 35 of this report under the
caption "Segment Information."
Industry segments are comprised as follows: Pharmaceutical -
consisting of ethical pharmaceuticals, biologicals, specialty
chemicals and empty hard-gelatin capsules; Consumer Health Care -
consisting of over-the-counter products, razors and blades, pet care
products and the Novon Products Group which was discontinued in 1993,
see Note 3; Confectionery - consisting of chewing gums, breath mints
and, until their disposition in the fourth quarter of 1993,
chocolate/caramel brands, see Note 3.
Note 21 - Quarterly Financial Information - Unaudited:
- -----------------------------------------------------------------------------------------------
1993 Quarters 1992 Quarters
- -----------------------------------------------------------------------------------------------
First Second Third Fourth First Second Third Fourth
- -----------------------------------------------------------------------------------------------
Net sales $1,331.7 $1,449.7 $1,478.5 $1,533.8 $1,311.5 $1,373.4 $1,438.3 $1,474.4
Gross profit 920.8 977.8 980.2 996.8 910.6 939.9 956.9 975.9
Income (loss)
before accounting
changes 136.1 189.9 155.9 (196.9) 163.6 177.9 164.5 137.7
Net income (loss) 182.1 189.9 155.9 (196.9) 163.6 177.9 164.5 137.7
Per common share:
Income (loss)
before accounting
changes 1.01 1.40 1.16 (1.46) 1.22 1.32 1.22 1.02
Net income (loss) $ 1.35 $ 1.40 $ 1.16 $ (1.46)$ 1.22 $ 1.32 $ 1.22 $ 1.02
- -----------------------------------------------------------------------------------------------
First quarter 1993 results included a pretax restructuring charge
of $70.0 or $45.0 after tax for the disposition of the Novon Products
Group as discussed in Note 3 and a charge of $17.0 after tax or $.13
per share to adopt SFAS No. 112, "Employers' Accounting for
Postemployment Benefits," and a credit of $63.0 or $.47 per share for
the adoption of SFAS No. 109, "Accounting for Income Taxes." The third
quarter 1993 effective tax rate was 19.6 percent compared with 23.3 percent
for the first half of 1993 due to the retroactive extension of the research
tax credit enacted in August 1993. Fourth quarter 1993 results included a net
pretax restructuring charge of $455.2 or $315.4 after tax, see Note 3. Compared
to previous quarters of 1993, the fourth quarter results of 1993 reflected
reduced gross profit primarily related to regulatory compliance issues in the
pharmaceutical segment.
Compared to previous quarters of 1992, the fourth quarter results of 1992
reflected increased investment in marketing and research and development,
partially offset by the impact of a reduction in the effective tax rate.
Report by Management
The 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. Price Waterhouse, 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, business partners and society.
Report of Independent Accountants
PRICE WATERHOUSE
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 retained earnings and of
cash flows present fairly, in all material respects, the financial
position of Warner-Lambert Company and its subsidiaries at December
31, 1993 and 1992, and the results of their operations and their cash
flows for each of the three years in the period ended December 31,
1993, 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.
As discussed in Notes 17 and 19 to the financial statements, effective
January 1, 1993 the company adopted Statement of Financial Accounting
Standards No. 112, "Employers' Accounting for Postemployment Benefits"
and Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes," respectively. As discussed in Note 16 to the
financial statements, effective January 1, 1991, the company adopted
Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions."
Price Waterhouse
- ----------------
4 Headquarters Plaza North
Morristown, New Jersey
January 24, 1994