0000005187-95-000015.txt : 19950815 0000005187-95-000015.hdr.sgml : 19950815 ACCESSION NUMBER: 0000005187-95-000015 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950814 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN HOME PRODUCTS CORP CENTRAL INDEX KEY: 0000005187 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 132526821 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-01225 FILM NUMBER: 95563227 BUSINESS ADDRESS: STREET 1: 5 GIRALDA FARMS CITY: MADISON STATE: NJ ZIP: 07940 BUSINESS PHONE: 201-660-5000 10-Q 1 ===================================================================== SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended June 30, 1995 Commission File Number 1-1225 AMERICAN HOME PRODUCTS CORPORATION ---------------------------------- (Exact name of registrant as specified in its charter) Delaware 13-2526821 -------- ---------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) Five Giralda Farms, Madison, N.J. 07940 --------------------------------- ----------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (201) 660-5000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------ ------- The number of shares of Common Stock outstanding as of the close of business on July 31, 1995: Number of Class Shares Outstanding -------------------------------- ------------------ Common Stock, $.33-1/3 par value 309,887,594 ====================================================================== AMERICAN HOME PRODUCTS CORPORATION AND SUBSIDIARIES INDEX Page No. -------- Part I - Financial Information 2 Item 1. Financial Statements: Consolidated Condensed Balance Sheets - June 30, 1995 and December 31, 1994 3 Consolidated Condensed Statements of Income - Three Months and Six Months Ended June 30, 1995 and 1994 4 Consolidated Condensed Statements of Retained Earnings and Additional Paid-in Capital - Six Months Ended June 30, 1995 and 1994 5 Consolidated Condensed Statements of Cash Flows - Six Months Ended June 30, 1995 and 1994 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7-15 Part II - Other Information Item 1. Legal Proceedings 16 Item 4. Submission of Matters to a Vote of Security-Holders 16-17 Item 6. Exhibits and Reports on Form 8-K 17-18 Signature 19 Exhibit Index Ex-1 -1- Part I - Financial Information ------------------------------ AMERICAN HOME PRODUCTS CORPORATION AND SUBSIDIARIES The consolidated condensed financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations; however, the Company believes that the disclosures are adequate to make the information presented not misleading. In the opinion of management, the financial statements include all adjustments necessary to present fairly the financial position of the Company as of June 30, 1995 and December 31, 1994, the results of its operations for the three months and six months ended June 30, 1995 and 1994, and its cash flows and the changes in retained earnings and additional paid-in capital for the six months ended June 30, 1995 and 1994. It is suggested that these financial statements and management's discussion and analysis of financial condition and results of operations be read in conjunction with the financial statements and the notes thereto included in the Company's 1994 Annual Report on Form 10-K and its first quarter 1995 Form 10-Q. -2- AMERICAN HOME PRODUCTS CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (In Thousands Except Per Share Amounts) June 30, Dec. 31, 1995 1994 ----------- ----------- ASSETS Cash and cash equivalents................... $ 1,319,204 $ 1,696,204 Marketable securities....................... 236,748 247,970 Accounts receivable less allowances......... 2,815,273 2,380,730 Inventories: Finished goods......................... 1,154,313 1,158,045 Work in progress....................... 586,269 525,269 Materials and supplies................. 560,620 562,836 ----------- ----------- 2,301,202 2,246,150 Other current assets........................ 1,147,654 1,250,192 ----------- ----------- Total Current Assets................... 7,820,081 7,821,246 Property, plant and equipment............... 5,674,832 5,458,075 Less accumulated depreciation.......... 1,753,460 1,646,145 ----------- ----------- 3,921,372 3,811,930 Goodwill.................................... 9,070,350 9,181,129 Other assets................................ 887,688 860,507 ----------- ----------- Total Assets $21,699,491 $21,674,812 =========== =========== LIABILITIES Loans payable............................... $ 104,287 $ 113,284 Trade accounts payable...................... 1,111,786 1,042,468 Accrued expenses............................ 2,841,887 2,999,127 Accrued federal and foreign taxes........... 369,874 463,207 ---------- ----------- Total Current Liabilities.............. 4,427,834 4,618,086 Long-term debt.............................. 8,726,472 9,973,240 Accrued postretirement benefit obligation............................. 717,887 696,814 Other noncurrent liabilities................ 2,078,727 1,809,153 Minority interests.......................... 354,067 323,418 SHAREHOLDERS' EQUITY $2 convertible preferred stock, par value $2.50 per share.............. 89 91 Common stock, par value $.33-1/3 per share.. 103,085 101,994 Additional paid-in capital.................. 1,202,652 1,020,658 Retained earnings........................... 4,095,719 3,226,100 Currency translation adjustments............ (7,041) (94,742) ----------- ----------- Total Shareholders' Equity............. 5,394,504 4,254,101 ----------- ----------- $21,699,491 $21,674,812 =========== =========== The accompanying notes are an integral part of these balance sheets. -3- AMERICAN HOME PRODUCTS CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME (In Thousands Except Per Share Amounts) Three Months Six Months Ended June 30, Ended June 30, 1995 1994 1995 1994 ---------- ---------- ---------- ---------- Net sales................. $3,299,300 $1,977,853 $6,790,329 $4,121,898 ---------- ---------- ---------- ---------- Cost of goods sold........ 1,206,748 627,895 2,451,776 1,285,360 Selling, admin., and general expenses........ 1,238,102 738,475 2,483,388 1,471,157 Research and development expenses................ 323,100 179,915 643,288 352,819 Restructuring charge...... - 173,697 - 173,697 Other (income) exp., net.. 98,676 (60,965) (747,441) (57,472) ---------- ---------- ---------- ---------- Income before federal and foreign taxes........... 432,674 318,836 1,959,318 896,337 Provision for taxes....... 133,066 18,855 637,090 180,556 ---------- ---------- ---------- ---------- Net income................ $ 299,608 $ 299,981 $1,322,228 $ 715,781 ========== ========== ========== ========== Net income per share of common stock............ $ 0.97 $ 0.98 $ 4.30 $ 2.32 ========== ========== ========== ========== Dividends per share of common stock............ $ 0.75 $ 0.73 $ 1.50 $ 1.46 ========== ========== ========== ========== Average number of common shares and common share equivalents of preferred stock outstanding during the period used in the computation of net income per share............... 308,664 307,349 307,744 308,618 The accompanying notes are an integral part of these statements. -4- AMERICAN HOME PRODUCTS CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF RETAINED EARNINGS AND ADDITIONAL PAID-IN CAPITAL (In Thousands) Six Months Ended June 30, RETAINED EARNINGS 1995 1994 ---------- ---------- Balance, beginning of period $3,226,100 $2,884,244 Add: Net income 1,322,228 715,781 ---------- ---------- 4,548,328 3,600,025 ---------- ---------- Less: Cash dividends declared 461,159 450,553 Cost of treasury stock acquired, less amounts charged to capital 2,566 213,320 ---------- ---------- 463,725 663,873 ---------- ---------- Unrealized gain (loss) on marketable securities 11,116 (8,423) ---------- ---------- Balance, end of period $4,095,719 $2,927,729 ========== ========== ADDITIONAL PAID-IN CAPITAL Balance, beginning of period $1,020,658 $1,014,911 Add: Excess over par value of common stock issued 182,321 24,376 Less: Cost of treasury stock acquired, less amounts charged to retained earnings 327 31,010 ---------- ---------- Balance, end of period $1,202,652 $1,008,277 ========== ========== The accompanying notes are an integral part of these statements. -5- AMERICAN HOME PRODUCTS CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (In Thousands) Six Months Ended June 30, 1995 1994 ---------- ---------- Operating Activities -------------------- Net income................................... $1,322,228 $ 715,781 Adjustments to reconcile net income to net cash provided from operating activities: Gain on sale of oral health care business.. (959,845) - Depreciation and amortization.............. 321,734 128,018 Deferred income taxes...................... (10,086) (110,750) Restructuring charge....................... - 173,697 Changes in working capital, net............ (595,257) (387,049) Other items, net........................... 242,678 (110,726) ---------- ---------- Net cash provided from operating activities.. 321,452 408,971 ---------- ---------- Investing Activities -------------------- Purchases of property, plant and equipment... (306,393) (190,655) Proceeds from sales of businesses, net of cash sold........................... 1,033,559 113,539 Purchases of businesses, net of cash acquired.............................. - (22,238) Proceeds of marketable securities, net....... 22,203 14,895 Proceeds from sales of other assets, net..... 61,558 51,875 ---------- ---------- Net cash provided from/(used for) investing activities....................... 810,927 (32,584) ---------- ---------- Financing Activities -------------------- Dividends paid............................... (461,159) (450,553) Net repayments of debt....................... (1,255,765) - Purchases of treasury stock.................. (2,907) (245,729) Exercise of stock options.................... 179,761 20,612 ---------- ---------- Net cash used for financing activities....... (1,540,070) (675,670) ---------- ---------- Effects of exchange rates on cash balances... 30,691 7,942 ---------- ---------- Decrease in cash and cash equivalents........ (377,000) (291,341) Cash and cash equivalents, beginning of period.................................. 1,696,204 1,936,834 ---------- ---------- Cash and cash equivalents, end of period..... $1,319,204 $1,645,493 ========== ========== The accompanying notes are an integral part of these statements. Supplemental Information ------------------------ Interest payments $ 339,037 $ 33,790 Income tax payments 470,273 295,898 -6- Management's Discussion and Analysis of Financial Condition and Results of Operations Three Months and Six Months Ended June 30, 1995 Results of Operations --------------------- Effective December 1, 1994, the Company consolidated the results of operations of American Cyanamid Company (Cyanamid). As a result, significant variations exist when the results for the 1995 second quarter and first half are compared to those for the same periods of 1994 since the Company's 1995 operating results reflect Cyanamid's operating results and related acquisition interest expense and goodwill amortization. Accordingly, management's discussion and analysis of results of operations for the 1995 second quarter and first half has been presented, for the most part, on a pro forma basis assuming the Cyanamid acquisition had taken place on January 1, 1994, and excluding the sales of businesses disposed of in 1994 and 1995. On a pro forma basis, consolidated net sales decreased 1% for the second quarter and increased 3% for the first half of 1995. The results reflect lower 1995 second quarter domestic sales due primarily to the Company's Wyeth-Ayerst domestic pharmaceutical division which changed the timing of trade incentive buying programs, offset by higher international sales of pharmaceutical, agricultural and consumer health care products for the 1995 second quarter and first half. The decrease in second quarter sales was comprised of unit volume decreases of 4% offset by favorable foreign exchange of 3%. The increase in first half sales was comprised of price increases of 1% and favorable foreign exchange of 2%. Pro forma health care product segment sales decreased 2% for the 1995 second quarter and increased 1% for the first half. Agricultural product sales increased 10% for the 1995 second quarter and 18% for the first half. Food product sales decreased 16% for the 1995 second quarter and 13% for the first half. The Agricultural Products business represents a significant portion of Cyanamid's operations. Due to the seasonality of the Agricultural Products business, which is concentrated primarily in the first half of the year, Cyanamid's sales and results of operations for the 1995 second quarter and first half are not indicative of the results to be expected for the 1995 third quarter, second half and full year. Due to this concentration in the first half of the year, Cyanamid's results of operations, which include acquisition related cost savings, more than offset the dilutive effect of the interest expense and goodwill amortization related to the acquisition for the 1995 second quarter and first half. However, these costs are expected to have a dilutive effect on earnings to be reported for the 1995 third quarter, second half and full year. The following tables set forth net sales results by major product category and business segment together with percentage changes of the as reported and pro forma net sales: -7- Management's Discussion and Analysis of Financial Condition and Results of Operations Three Months and Six Months Ended June 30, 1995 Three Months As Reported Pro Forma ($ in Millions) Ended June 30, %Increase %Increase Net Sales to Customers 1995 1994 (Decrease) (Decrease) ---------------------- -------- -------- ---------- --------- Health Care Products Pharmaceuticals $1,639.9 $1,170.3 40% (6)% Consumer Health Care 403.3 344.2 17% 8% Medical Supplies and Diagnostics 293.7 214.7 37% 6% -------- -------- Total Health Care 2,336.9 1,729.2 35% (2)% Agricultural Products 754.3 - - 10% Food Products 208.1 248.7 (16)% (16)% -------- -------- Consolidated Net Sales $3,299.3 $1,977.9 67% (1)% ======== ======== Six Months As Reported Pro Forma ($ in Millions) Ended June 30, %Increase %Increase Net Sales to Customers 1995 1994 (Decrease) (Decrease) ---------------------- -------- -------- ---------- --------- Health Care Products Pharmaceuticals $3,594.1 $2,443.1 47% 1% Consumer Health Care 880.9 788.2 12% - Medical Supplies and Diagnostics 575.9 430.4 34% 6% -------- -------- Total Health Care 5,050.9 3,661.7 38% 1% Agricultural Products 1,339.2 - - 18% Food Products 400.2 460.2 (13)% (13)% -------- -------- Consolidated Net Sales $6,790.3 $4,121.9 65% 3% ======== ======== The following sales variation explanations by business line are presented on a pro forma basis: Worldwide pharmaceutical sales decreased 6% for the 1995 second quarter and increased 1% for the first half. U.S. pharmaceutical sales decreased 20% for the 1995 second quarter and 9% for the first half. The decline in 1995 second quarter and first half U.S. sales was due primarily to the Company's Wyeth-Ayerst domestic pharmaceutical division which changed the timing of trade incentive buying programs in the second quarter. As a result, sales of all major Wyeth-Ayerst product categories were lower for the 1995 second quarter and first half. The decrease in second quarter U.S. sales was comprised of unit volume decreases of 17% and price decreases of 3%. The decrease in first half -8- Management's Discussion and Analysis of Financial Condition and Results of Operations Three Months and Six Months Ended June 30, 1995 U.S. sales was attributable to unit volume decreases. International pharmaceutical sales increased 12% for the 1995 second quarter and 15% for the first half due primarily to higher sales of veterinary, infant nutritional and oral contraceptive products, TAZOCIN and PREMARIN, and favorable foreign exchange. The increase in second quarter international sales was comprised of unit volume increases of 2%, price increases of 3% and favorable foreign exchange of 7%. The increase in first half international sales was comprised of unit volume increases of 8%, price increases of 2% and favorable foreign exchange of 5%. Worldwide consumer health care sales increased 8% for the 1995 second quarter and were even for the first half. U.S. consumer health care sales decreased 2% for the 1995 second quarter and 8% for the first half. The decline in 1995 second quarter and first half U.S. sales was due to lower sales of analgesics due primarily to the timing of certain promotional programs. The decrease in second quarter U.S. sales was comprised of unit volume decreases of 3% offset by price increases of 1%. The decrease in first half U.S. sales was comprised of volume decreases of 9% offset by price increases of 1%. International consumer health care sales increased 32% for the 1995 second quarter and 24% for the first half due primarily to higher sales of cough/cold products, analgesics and vitamins, and favorable foreign exchange. The increase in second quarter international sales was comprised of unit volume increases of 22%, price increases of 7% and favorable foreign exchange of 3%. The increase in first half international sales was comprised of unit volume increases of 12%, price increases of 10% and favorable foreign exchange of 2%. Worldwide medical supplies and diagnostic product sales increased 6% for both the 1995 second quarter and first half due primarily to unit volume growth of tubes and catheters, tympanic thermometry products and enteral devices, and favorable foreign exchange. The increase in second quarter sales was comprised of unit volume increases of 1% and favorable foreign exchange of 5%. The increase in first half sales was comprised of volume increases of 3%, price decreases of 1% and favorable foreign exchange of 4%. Worldwide agricultural product sales increased 10% for the 1995 second quarter and 18% for the first half. U.S. sales decreased 2% for the 1995 second quarter as higher sales of PURSUIT and PROWL herbicides were offset by lower sales of SQUADRON and SCEPTER herbicides. U.S. sales increased 2% for the first half as higher sales of PURSUIT, PROWL and DETAIL herbicides were partially offset by lower sales of SQUADRON and SCEPTER herbicides. The decrease in second quarter U.S. sales was comprised of unit volume decreases of -9- Management's Discussion and Analysis of Financial Condition and Results of Operations Three Months and Six Months Ended June 30, 1995 3% offset by price increases of 1%. The increase in first half U.S. sales was comprised of unit volume increases of 1% and price increases of 1%. International agricultural product sales increased 28% for the 1995 second quarter and 47% for the first half due primarily to higher sales of PURSUIT and PROWL herbicides and other international crop protection products. The increase in second quarter international sales was comprised of unit volume increases of 16%, price increases of 1% and favorable foreign exchange of 11%. The increase in first half international sales was comprised of unit volume increases of 35%, price increases of 1% and favorable foreign exchange of 11%. As previously discussed, agricultural product sales and results of operations are concentrated primarily in the first half of the year. Sales of food products decreased 16% for the 1995 second quarter and 13% for the first half due principally to decreased sales of CHEF BOYARDEE canned pasta, PAM and POLANER due primarily to competitive new products and marketing activity, and the timing and extent of trade incentives, promotions and product introductions. The tables below present comparative net sales for the second quarter and first half of 1995 by geographic segments. On a pro forma basis, the sales increases in foreign geographic segments, in particular, Europe and Africa, are due primarily to higher international unit volume sales of pharmaceutical, agricultural and consumer health care products, as well as favorable foreign exchange rates. Three Months As Reported Pro Forma ($ in Millions) Ended June 30, %Increase %Increase Net Sales to Customers 1995 1994 (Decrease) (Decrease) ---------------------- -------- -------- ---------- ---------- U.S. $1,829.4 $1,294.3 41% (12)% Canada and Latin America 293.2 220.3 33% 24 % Europe and Africa 893.4 320.3 179% 16 % Asia and Australia 283.3 143.0 98% 16 % -------- -------- Consolidated Net Sales $3,299.3 $1,977.9 67% (1)% ======== ======== Six Months As Reported Pro Forma ($ in Millions) Ended June 30, %Increase %Increase Net Sales to Customers 1995 1994 (Decrease) (Decrease) ---------------------- -------- -------- ---------- ---------- U.S. $3,999.7 $2,788.9 43% (7) % Canada and Latin America 630.1 451.4 40% 21 % Europe and Africa 1,630.1 613.3 166% 21 % Asia and Australia 530.4 268.3 98% 22 % -------- -------- Consolidated Net Sales $6,790.3 $4,121.9 65% 3 % ======== ======== -10- Management's Discussion and Analysis of Financial Condition and Results of Operations Three Months and Six Months Ended June 30, 1995 On a pro forma basis, cost of goods sold, as a percentage of net sales, increased .7% in the 1995 second quarter and 1.1% in the first half due, in part, to changes in product mix related to pharmaceutical and agricultural products. On a pro forma basis, selling, administrative and general expenses, as a percentage of net sales, increased 2.0% in the 1995 second quarter and .8% in the first half. Lower selling and administrative expenses were offset by higher general expenses in both the 1995 second quarter and first half. Higher general expenses in the 1995 first half were due, in part, to the reversal of certain litigation reserves that no longer were required in the 1994 first quarter which lowered 1994 first half general expenses. On a pro forma basis, research and development expenses decreased $13.4 million or 4.0% to $323.1 million for the 1995 second quarter, and decreased $18.7 million or 2.8% to $643.3 million for the first half due primarily to higher collaborative research and development revenues attributable to Genetics Institute, Inc., and acquisition related cost reductions. Other (income) expense, net in the Consolidated Condensed Statements of Income is summarized as follows: As Reported As Reported Three Months Six Months (In thousands) Ended June 30, Ended June 30, 1995 1994 1995 1994 --------- -------- --------- -------- Interest Income.......... $ (28,472) $(23,943) $ (70,539) $(48,428) Interest Expense......... 168,502 17,021 351,641 33,589 Foreign exchange and other............. (21,159) 22,088 (36,146) 38,051 Gain on the sale of oral health care business.. - - (959,845) - Gains on sales of other assets.......... (20,195) (76,131) (32,552) (80,684) --------- -------- --------- -------- Total.................... $ 98,676 $(60,965) $(747,441) $(57,472) ========= ======== ========= ======== On an as reported basis, income before taxes increased in the second quarter of 1995 compared to the second quarter of 1994 due primarily to the 1994 second quarter restructuring charge of $173.7 million, which was partially offset by gains on sales of assets of $75.8 million recorded in the same period. Cyanamid's income before taxes for the 1995 second quarter, which includes acquisition related cost savings, interest expense and goodwill amortization, offset the effect of the lower sales of Wyeth- Ayerst's domestic pharmaceuticals. On an as reported basis, income before taxes increased in the -11- Management's Discussion and Analysis of Financial Condition and Results of Operations Three Months and Six Months Ended June 30, 1995 1995 first half versus 1994 due primarily to the pre-tax gain of $959.8 million on the sale of the South American oral health care business in January 1995, and the 1994 second quarter restructuring charge as noted above. In the 1995 first half segment tables below, $814.9 million of this gain is included in Health Care Products and Canada and Latin America; the remaining $144.9 million is included in Corporate and United States. Excluding this gain, income before taxes would have been $999.5 million for the 1995 first half versus $896.3 million in 1994. Cyanamid's income before taxes for the 1995 first half, which includes acquisition related cost savings, interest expense and goodwill amortization, mostly offset the effect of the lower sales of Wyeth-Ayerst's domestic pharmaceuticals. Acquisition related interest expense and goodwill amortization have been included in Corporate and United States in the segment tables below until the evaluation of fair values of net assets acquired is finalized. As Reported As Reported Three Months Six Months ($ in Millions) Ended June 30, Ended June 30, Income Before Taxes 1995 1994 1995 1994 ------------------- ------- ------ -------- ------ Health Care Products $ 482.9 $228.1 $1,916.6 $770.4 Agricultural Products 228.6 - 372.1 - Food Products 14.5 30.0 25.1 50.7 Corporate (293.3) 60.7 (354.5) 75.2 ------- ------ -------- ------ Consolidated Income Before Taxes $ 432.7 $318.8 $1,959.3 $896.3 ======= ====== ======== ====== As Reported As Reported Three Months Six Months ($ in Millions) Ended June 30, Ended June 30, Income Before Taxes 1995 1994 1995 1994 ------------------- ------- ------ -------- ------ United States $ 55.5 $153.2 $ 535.1 $585.2 Canada and Latin America 58.5 60.7 943.4 126.3 Europe and Africa 259.9 77.7 380.7 136.4 Asia and Australia 58.8 27.2 100.1 48.4 ------- ------ -------- ------ Consolidated Income Before Taxes $ 432.7 $318.8 $1,959.3 $896.3 ======= ====== ======== ====== On an as reported basis, net income and net income per share for the 1995 second quarter were comparable to last year as Cyanamid's net earnings, which includes acquisition related cost savings, interest expense and goodwill amortization, offset the effect of the lower sales of Wyeth-Ayerst's domestic pharmaceuticals. The 1994 second quarter restructuring charge, gains on asset sales and reduction of certain tax accruals, in the aggregate, had no effect on net income or net income per share in 1994. On a pro forma basis, net income and net -12- Management's Discussion and Analysis of Financial Condition and Results of Operations Three Months and Six Months Ended June 30, 1995 income per share for the 1994 second quarter would have been $319.9 million or $1.04 per share. The lower pro forma results for the 1995 second quarter were due primarily to the decrease in domestic pharmaceutical sales. On an as reported basis, net income and net income per share for the 1995 first half increased due primarily to the after-tax gain on the sale of the oral health care business of $623.8 million or $2.03 per share. Excluding this gain, net income and net income per share for the 1995 first half would have been $698.4 million and $2.27 per share versus $715.8 million and $2.32 per share in 1994. Cyanamid's net earnings for the 1995 first half, which includes acquisition related cost savings, interest expense and goodwill amortization, mostly offset the effect of the lower sales of Wyeth-Ayerst's domestic pharmaceuticals. On a pro forma basis, net income and net income per share for the 1994 first half would have been $687.3 million or $2.23 per share. The higher pro forma results for the 1995 first half were due principally to increased international sales of agricultural products. The Company is continuing its evaluation of the estimated fair values that were allocated to the net assets of Cyanamid. The evaluation is expected to result in adjustments to goodwill and will be finalized in 1995. The Company is also currently in the process of implementing an integration plan for the operations acquired from Cyanamid. The integration plan is intended to eliminate excess production capacity, reduce overhead and realign the Company's resources to achieve its strategic objectives. The costs of this integration plan, related to AHP facilities and personnel, are expected to result in a restructuring charge in the second half of 1995. The restructuring charge associated with the integration plan will include provisions for facility shutdowns and relocations, and employee reassignments and severance benefits. Health Care Reform and Competition ---------------------------------- Although various proposals for comprehensive health care reform were rejected by Congress in 1994, U.S. health care costs and coverage continue to be a subject of debate by the Congress in 1995. Similarly, in international markets, health care spending is subject to increasing governmental scrutiny, some of which is focused on pharmaceutical prices. While the Company cannot predict the impact proposed health care legislation will have on the Company's worldwide results of operations, the Company believes that the pharmaceutical industry will continue to play a very positive role in helping to contain global health care costs through the development of innovative products. However, it is expected that global market forces will continue to constrain price growth throughout 1995 and beyond. The Company is not dependent on any one patent-protected product -13- Management's Discussion and Analysis of Financial Condition and Results of Operations Three Months and Six Months Ended June 30, 1995 or line of products for a substantial portion of its revenues or profits. However, PREMARIN, the Company's conjugated estrogens product, which has not had patent protection for many years, does contribute significantly to sales and, more significantly, to profits. An FDA Advisory Committee was held in July 1995 to discuss relative differences in safety and efficacy among estrogen products and to advise the FDA on the activity of various estrogenic components in PREMARIN relative to the FDA's review of applications for generic conjugated estrogens. The FDA Advisory Committee concluded that there is insufficient data to assess whether any individual component or combination of components of PREMARIN, other than estrone and equilin, must be present to achieve clinical efficacy and safety. The Company cannot predict the timing or outcome of the FDA's action on currently pending applications for generic products. For further discussion on PREMARIN, see Item 1, Competition of the Company's ----------- 1994 Annual Report on Form 10-K. Liquidity, Financial Condition and Capital Resources ---------------------------------------------------- Cash and cash equivalents decreased $377 million in the first half of 1995 to $1.3 billion. Cash flow from the sale of businesses and other assets of $1.1 billion and available cash and cash equivalents were used principally for dividend payments of $461 million, long-term debt reduction of $1.3 billion and capital expenditures of $306 million. Due to the seasonality of the Agricultural Products business, a significant portion of the annual domestic sales are recorded in the first six months of the year; however, a majority of the related accounts receivable is not collected until the third quarter. As a result, cash flows from operating activities in the first half of 1995 are not indicative of the results to be expected for the 1995 third quarter, second half and full year. Capital expenditures included the expansion of the Company's research and development facilities and continued strategic investments in manufacturing/distribution facilities worldwide. In February 1995, the Company issued, under a $3.5 billion shelf registration statement, $1.0 billion of 7.70% notes due February 2000 and $1.0 billion of 7.90% notes due February 2005. Net proceeds from these issuances were used to repay commercial paper. The notes are unsecured and unsubordinated and may not be redeemed prior to maturity. In connection with the $2.0 billion note issue, the Company terminated $2.0 billion of interest rate swap agreements. The effect of terminating these swap agreements was deferred and will be amortized to interest expense over the five and ten-year terms of the related notes. Management is confident that the cash flows from the combined businesses will be adequate to repay both the principal and -14- Management's Discussion and Analysis of Financial Condition and Results of Operations Three Months and Six Months Ended June 30, 1995 interest on the acquisition financing without requiring the disposition of any significant strategic core businesses or assets and, further, to allow the Company to continue to fund its operations, pay dividends and maintain its ongoing programs of capital expenditures without restricting its ability to make further acquisitions as may be appropriate. -15- Part II - Other Information --------------------------- Item 1. Legal Proceedings ----------------- The Company and its subsidiaries are parties to numerous lawsuits and claims arising out of the conduct of its business, the most significant of which are described in the Company's Annual Report on Form 10-K for the year ended December 31, 1994. Additional lawsuits have been filed alleging injuries as a result of use of the NORPLANT SYSTEM, the Company's implantable contraceptive containing levonorgestrel, and there are currently pending more than 230 lawsuits in federal and state courts in 34 states and the District of Columbia. Fifty of these cases have been filed as class actions and the remainder are proceeding as individual suits. On June 29, 1995, an action was brought in the United States District Court for the Southern District of New York on behalf of plaintiffs and all similarly situated individuals who contracted paralytic poliomyelitis as a direct result of the administration of the Company's oral polio vaccine, ORIMUNE, or through contact with an immunized person. Plaintiffs seek compensatory and punitive damages on behalf of the putative class. Stuart, et al. v. American Cyanamid, et al. ------------------------------------------- Additional suits have been brought against the Company in the Rite Aid line of lawsuits, which are described -------- in the Company's Annual Report on Form 10-K for the year ended December 31, 1994. The additional federal actions, which have been or are expected to be consolidated for pretrial purposes (Brand Name ---------- Prescription Drug Antitrust Litigation (MDL 997 M.D. -------------------------------------- Pa.)), seek similar relief including treble damages in unspecified amounts and injunctive and other relief. Additionally, similar litigation is pending in various state courts, including class actions or purported class actions in Alabama, Wisconsin, Colorado, New York, Washington, Minnesota and California where six such actions have been consolidated. In the opinion of the Company, although the outcome of any litigation cannot be predicted with certainty, the ultimate liability of the Company in connection with pending litigation will not have a material adverse effect on the Company's financial position but could be material to the results of operations in any one accounting period. Item 4. Submission of Matters to a Vote of Security-Holders --------------------------------------------------- (a) The matters described under item 4(c) below were submitted to a vote of security-holders, through -16- the solicitation of proxies pursuant to Regulation 14 under the Securities Exchange Act, at the Annual Meeting of Stockholders held on April 26, 1995 (the "Annual Meeting"). (b) Not applicable. (c) The following describes the matters voted upon at the Annual Meeting and sets forth the number of votes cast for, against or withheld and the number of abstentions as to each such matter (except as provided below, there were no broker non-votes): (i) Election of directors: Nominee For Withheld ------- --- -------- Clifford L. Alexander, Jr. 263,938,625 2,918,973 Frank A. Bennack, Jr. 265,739,631 1,117,967 Robert G. Blount 265,789,643 1,067,955 Robin Chandler Duke 265,518,537 1,339,061 John D. Feerick 265,489,934 1,367,664 Fred Hassan 265,769,791 1,087,807 John P. Mascotte 265,730,387 1,127,211 Mary Lake Polan, M.D., Ph.D. 265,521,801 1,335,797 John R. Stafford 265,733,170 1,124,428 John R. Torell, III 265,723,271 1,134,327 William Wrigley 265,781,812 1,075,786 (ii) Ratification of the Appointment of Arthur Andersen & Co., as independent public accounts for 1995: For Against Abstain --- ------- ------- 265,530,806 698,863 627,929 (iii)Proposal to abolish political action committee: For Against Abstain --- ------- ------- 13,059,550 213,280,906 15,826,782 There were 24,690,360 broker non-votes with reference to this item. (d) Not applicable. Item 6. Exhibits and Reports on Form 8-K -------------------------------- a) Exhibits -------- Exhibit No. Description ----------- ----------- (27) Financial Data Schedule -17- b) Reports on Form 8-K ------------------- The Company did not file any reports on Form 8-K during the quarter covered by this report. -18- Signature --------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AMERICAN HOME PRODUCTS CORPORATION ---------------------------------- Registrant By /s/ Paul J. Jones ------------------------------ Paul J. Jones Vice President - Comptroller (Duly Authorized Signatory and Chief Accounting Officer) Date: August 14, 1995 -19- Exhibit Index ------------- Exhibit No. Description ----------- ----------- (27) Financial Data Schedule -Ex-1- EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AMERICAN HOME PRODUCTS CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEET AS OF JUNE 30, 1995 AND CONSOLIDATED CONDENSED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1995 JUN-30-1995 1,319,204 236,748 2,815,273 0 2,301,202 7,820,081 5,674,832 1,753,460 21,699,491 4,427,834 8,726,472 103,085 0 89 5,291,330 21,699,491 6,790,329 6,790,329 2,451,776 5,578,452 (747,441) 0 0 1,959,318 637,090 1,322,228 0 0 0 1,322,228 4.30 0