-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GvCixBFJrEkTSm4eluHVihz05iBCscNRxGKiBp8Kv3QExVvILV4hFMZo8gXoIquY DRD/fZaUDAI8JGqqL5hHVQ== 0000005187-96-000010.txt : 19960814 0000005187-96-000010.hdr.sgml : 19960814 ACCESSION NUMBER: 0000005187-96-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960813 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: 96610741 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, 1996 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, 1996: Number of Class Shares Outstanding -------------------------------- ------------------ Common Stock, $.33-1/3 par value 635,996,899 ====================================================================== AMERICAN HOME PRODUCTS CORPORATION AND SUBSIDIARIES INDEX Page No. -------- Part I - Financial Information 2 Item 1. Financial Statements: Consolidated Condensed Balance Sheets - June 30, 1996 and December 31, 1995 3 Consolidated Condensed Statements of Income - Three Months and Six Months Ended June 30, 1996 and 1995 4 Consolidated Condensed Statements of Retained Earnings and Additional Paid-in Capital - Six Months Ended June 30, 1996 and 1995 5 Consolidated Condensed Statements of Cash Flows - Six Months Ended June 30, 1996 and 1995 6 Notes to Consolidated Condensed Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-16 Part II - Other Information 17 Item 1. Legal Proceedings 17-18 Item 4. Submission of Matters to a Vote of Security-Holders 18-19 Item 6. Exhibits and Reports on Form 8-K 19 Signature 20 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, 1996 and December 31, 1995, the results of its operations for the three months and six months ended June 30, 1996 and 1995, and its cash flows and the changes in retained earnings and additional paid-in capital for the six months ended June 30, 1996 and 1995. 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 1995 Annual Report on Form 10-K and its first quarter 1996 Form 10-Q. -2- AMERICAN HOME PRODUCTS CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (In Thousands Except Per Share Amounts) June 30 Dec. 31 1996 1995* ASSETS ----------- ----------- Cash and cash equivalents................... $ 1,858,494 $ 1,802,397 Marketable securities....................... 229,440 217,672 Accounts receivable less allowances......... 2,960,838 2,613,439 Inventories: Finished goods......................... 927,830 1,142,174 Work in progress....................... 620,442 567,437 Materials and supplies................. 730,166 592,342 ----------- ----------- 2,278,438 2,301,953 Other current assets........................ 1,148,189 1,050,676 ----------- ----------- Total Current Assets................... 8,475,399 7,986,137 Property, plant and equipment............... 6,304,937 6,045,746 Less accumulated depreciation.......... 2,227,108 2,085,411 ----------- ----------- 4,077,829 3,960,335 Goodwill and other intangibles, net of accumulated amortization............... 8,398,172 8,649,985 Other assets................................ 706,760 766,466 ----------- ----------- $21,658,160 $21,362,923 =========== =========== LIABILITIES Loans payable .............................. $ 72,055 $ 72,217 Trade accounts payable...................... 949,857 980,114 Accrued expenses............................ 3,114,292 3,150,758 Accrued federal and foreign taxes........... 473,335 353,159 ----------- ----------- Total Current Liabilities.............. 4,609,539 4,556,248 Long-term debt.............................. 7,354,119 7,808,757 Accrued postretirement benefit obligation............................. 741,161 732,063 Other noncurrent liabilities................ 2,451,563 2,415,620 Minority interests.......................... 373,650 307,237 STOCKHOLDERS' EQUITY $2 convertible preferred stock, par value $2.50 per share.............. 83 85 Common stock, par value $.33-1/3 per share.. 211,848 210,008 Additional paid-in capital.................. 1,781,112 1,515,154 Retained earnings........................... 4,257,810 3,875,224 Currency translation adjustments............ (122,725) (57,473) ----------- ----------- Total Stockholders' Equity............. 6,128,128 5,542,998 ----------- ----------- $21,658,160 $21,362,923 =========== =========== * Stockholders' equity has been restated to reflect a two-for-one common stock split effective April 23, 1996. See Note 1. 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, 1996 1995 1996 1995 ---------- ---------- ---------- ---------- Net sales................... $3,489,821 $3,299,300 $7,136,635 $6,790,329 ---------- ---------- ---------- ---------- Cost of goods sold.......... 1,162,632 1,206,748 2,368,586 2,451,776 Selling, general and administrative expenses... 1,317,942 1,238,102 2,647,189 2,483,388 Research and development expenses.................. 359,336 323,100 697,648 643,288 Interest expense, net....... 118,108 140,030 236,681 281,102 Other income, net........... (21,791) (41,354) (47,992) (68,698) Gain on sale of oral health care business...... - - - (959,845) ---------- ---------- ---------- ---------- Income before federal and foreign taxes............. 553,594 432,674 1,234,523 1,959,318 Provision for taxes......... 162,317 133,066 353,883 637,090 ---------- ---------- ---------- ---------- Net income.................. $ 391,277 $ 299,608 $ 880,640 $1,322,228 ========== ========== ========== ========== Net income per share of common stock.............. $ 0.62 $ 0.49 $ 1.39 $ 2.15 ========== ========== ========== ========== Dividends per share of common stock.............. $ 0.385 $ 0.375 $ 0.77 $ 0.75 ========== ========== ========== ========== 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................. 633,937 617,328 632,155 615,488 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 1996* 1995* ---------- ---------- Balance, beginning of period as originally reported.................... $3,980,665 $3,226,100 Less: Impact of stock split............. 105,441 105,441 ---------- ---------- Restated balance, beginning of period.... 3,875,224 3,120,659 Add: Net income.......................... 880,640 1,322,228 ---------- ---------- 4,755,864 4,442,887 ---------- ---------- Less: Cash dividends declared............ 486,214 461,159 Cost of treasury stock acquired, less amounts charged to capital.. 7,524 2,566 ---------- ---------- 493,738 463,725 ---------- ---------- Change in unrealized gain (loss) on marketable securities.................. (4,316) 11,116 ---------- ---------- Balance, end of period................... $4,257,810 $3,990,278 ========== ========== ADDITIONAL PAID-IN CAPITAL Balance, beginning of period............. $1,515,154 $1,020,658 Add: Excess over par value of common stock issued...................... 266,839 182,321 Less: Cost of treasury stock acquired, less amounts charged to retained earnings......................... 881 327 ---------- ---------- Balance, end of period................... $1,781,112 $1,202,652 ========== ========== * Restated to reflect a two-for-one common stock split effective April 23, 1996. See Note 1. 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, 1996 1995 ---------- ---------- Operating Activities - -------------------- Net income...................................... $ 880,640 $1,322,228 Adjustments to reconcile net income to net cash provided from operating activities: Gains on sales of businesses and other assets (47,506) (959,845) Depreciation and amortization................. 336,403 321,734 Deferred income taxes......................... (26,525) (10,086) Changes in working capital, net............... (298,764) (595,257) Other items, net.............................. 98,230 301,180 ---------- ---------- Net cash provided from operating activities..... 942,478 379,954 ---------- ---------- Investing Activities - -------------------- Purchases of property, plant and equipment...... (368,765) (306,393) Proceeds from sales of businesses............... 152,969 1,033,559 Proceeds from sales of other assets............. 39,500 61,558 Proceeds from/(purchases of) marketable securities, net............................... (16,084) 22,203 ---------- ---------- Net cash provided from/(used for) investing activities.................................... (192,380) 810,927 ---------- ---------- Financing Activities - -------------------- Net repayments of debt.......................... (454,800) (1,255,765) Dividends paid.................................. (486,214) (461,159) Purchases of treasury stock..................... (8,460) (2,907) Exercise of stock options....................... 259,461 179,761 Other items, net................................ - (58,502) ---------- ---------- Net cash used for financing activities.......... (690,013) (1,598,572) ---------- ---------- Effects of exchange rates on cash balances...... (3,988) 30,691 ---------- ---------- Increase/(decrease) in cash and cash equivalents................................... 56,097 (377,000) Cash and cash equivalents, beginning of period..................................... 1,802,397 1,696,204 ---------- ---------- Cash and cash equivalents, end of period........ $1,858,494 $1,319,204 ========== ========== The accompanying notes are an integral part of these statements. Supplemental Information - ------------------------ Interest payments $ 298,145 $ 339,037 Income tax payments, net 122,875 470,273 -6- AMERICAN HOME PRODUCTS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS Note 1. Capital Stock ------------- At the Company's April 23, 1996 Annual Meeting of Stockholders, the stockholders approved an increase in the number of authorized shares of common stock from 600,000,000 to 1,200,000,000 enabling the Company to complete a two-for-one stock split in the form of a 100% stock dividend which was approved by the Company's Board of Directors in January 1996. The record date for stockholders entitled to receive the additional shares was the close of business on April 24, 1996. The par value of the common stock was maintained at the pre-split amount of $.33 1/3 per share. All references to common stock, retained earnings, common shares outstanding and per share amounts in these consolidated condensed financial statements have been restated to reflect the two-for-one stock split on a retroactive basis. Note 2. Contingencies ------------- The Company is involved in various legal proceedings, including product liability and environmental matters of a nature considered normal to its business. It is the Company's policy to accrue for amounts related to these legal matters if it is probable that a liability has been incurred and an amount is reasonably estimable. In the opinion of the Company, although the outcome of any legal proceedings cannot be predicted with certainty, the ultimate liability of the Company in connection with these proceedings 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. Note 3. Reclassifications ----------------- Certain reclassifications have been made to the 1995 consolidated condensed financial statements to conform with the 1996 presentation. -7- Management's Discussion and Analysis of Financial Condition and Results of Operations Three Months and Six Months Ended June 30, 1996 Results of Operations - --------------------- Net sales increased 6% for the 1996 second quarter and 5% for the 1996 first half compared to 1995 results on an as-reported basis. After adjusting for the effects of businesses disposed of, discontinued and acquired in 1996 and 1995, assuming all transactions occurred as of January 1, 1995, net sales increased 7% for the 1996 second quarter and 6% for the 1996 first half. The pro forma results reflect higher worldwide sales of pharmaceuticals, consumer health care and agricultural products and domestic sales of food products. The following tables set forth net sales results by major product category and industry segment together with the percentage changes in "As-Reported" and "Pro Forma" net sales from comparable periods in the prior year: Three Months Pro Forma(*) ($ in Millions) Ended June 30, As-Reported %Increase Net Sales to Customers 1996 1995 %Increase (Decrease) - ---------------------- -------- -------- ---------- --------- Health Care Products Pharmaceuticals $1,716.8 $1,639.9 5% 9% Consumer Health Care 456.2 403.3 13% 13% Medical Devices 327.7 293.7 12% (4)% -------- -------- ---------- --------- Total Health Care 2,500.7 2,336.9 7% 8% -------- -------- ---------- --------- Agricultural Products 767.1 754.3 2% 2% Food Products 222.0 208.1 7% 7% -------- -------- ---------- --------- Consolidated Net Sales $3,489.8 $3,299.3 6% 7% ======== ======== ========== ========= -8- Management's Discussion and Analysis of Financial Condition and Results of Operations Three Months and Six Months Ended June 30, 1996 Six Months Pro Forma(*) ($ in Millions) Ended June 30, As-Reported %Increase Net Sales to Customers 1996 1995 %Increase (Decrease) - ---------------------- -------- -------- ---------- --------- Health Care Products Pharmaceuticals $3,678.9 $3,594.1 2% 7% Consumer Health Care 931.6 880.9 6% 10% Medical Devices 673.8 575.9 17% (1)% -------- -------- ---------- --------- Total Health Care 5,284.3 5,050.9 5% 6% -------- -------- ---------- --------- Agricultural Products 1,403.0 1,339.2 5% 5% Food Products 449.3 400.2 12% 12% -------- -------- ---------- --------- Consolidated Net Sales $7,136.6 $6,790.3 5% 6% ======== ======== ========== ========= (*) Reflects all businesses disposed of, discontinued and acquired in 1996 and 1995 assuming all transactions occurred as of January 1, 1995. The following sales variation explanations are presented on an "As-Reported" and "Pro Forma" basis: U.S. pharmaceutical sales increased 9% for the 1996 second quarter and increased 3% for the first half. Sales gains in the 1996 second quarter and first half were offset, in part, by lower sales of veterinary and infant nutritional products resulting from the sale of the medicated feed additives business in 1995 and the discontinuance of the U.S. infant nutritional business in 1996. After adjusting for the effects of businesses disposed of, discontinued and acquired in 1996 and 1995, U.S. pharmaceutical sales increased 14% and 7% in the 1996 second quarter and first half, respectively. The sales gains were due primarily to introductory sales of REDUX, indicated for the management of obesity, and NAPRELAN, indicated for arthritis treatment, and higher sales of PREMARIN products and PONDIMIN offset, in part, by lower sales of cardiovascular products. The increase in U.S. pharmaceutical sales for the 1996 second quarter and first half consisted principally of unit volume growth. -9- Management's Discussion and Analysis of Financial Condition and Results of Operations Three Months and Six Months Ended June 30, 1996 International pharmaceutical sales were comparable for the 1996 second quarter and increased 2% for the first half. International sales in the 1996 second quarter and first half were impacted by lower sales of veterinary products resulting from the sale of the medicated feed additives business in 1995. After adjusting for the effects of businesses disposed of and acquired in 1995, international pharmaceutical sales increased 5% and 7% in the 1996 second quarter and first half, respectively. International sales gains in the 1996 second quarter and first half were due primarily to higher sales of EFFEXOR, TAZOCIN, ZOTON and veterinary products offset, in part, by lower sales of MINOCIN. Launches of several pharmaceutical products in additional international markets, in particular EFFEXOR, contributed to the international sales increases in the 1996 second quarter and first half. Higher international sales of infant nutritionals also contributed to the 1996 first half results. The increase in international pharmaceutical sales for the 1996 second quarter consisted of unit volume growth of 7% and price increases of 1% offset by unfavorable foreign exchange of 3%. The increase in first half international sales was composed of unit volume increases of 7% and price increases of 2% offset by unfavorable foreign exchange of 2%. U.S. consumer health care sales increased 16% for the 1996 second quarter and 9% for the first half. Sales gains in the U.S. for the 1996 second quarter and first half were due primarily to introductory sales of AXID AR and ORUDIS KT, and higher sales of CENTRUM. Higher U.S. sales of ADVIL also contributed to the 1996 second quarter results. The increase in U.S. consumer health care sales for the 1996 second quarter consisted of unit volume growth of 14% and price increases of 2%. The increase in 1996 first half U.S. sales was composed of unit volume growth of 7% and price increases of 2%. International consumer health care sales increased 9% for the 1996 second quarter and were comparable for the first half. After adjusting for the effect of the sale of the South American oral health care business in January 1995, international consumer health care sales increased 12% for the 1996 first half. International sales gains in the 1996 second quarter and first half were due primarily to higher -10- Management's Discussion and Analysis of Financial Condition and Results of Operations Three Months and Six Months Ended June 30, 1996 sales of vitamins, cough/cold products and analgesics in Latin American and European markets. The increase in international consumer health care sales for the 1996 second quarter consisted of unit volume growth of 11% and price increases of 3% offset by unfavorable foreign exchange of 5%. The increase in international consumer health care sales for the 1996 first half was composed of unit volume increases of 12% and price increases of 4% offset by unfavorable foreign exchange of 4%. Worldwide medical device sales increased 12% for the 1996 second quarter and 17% for the first half due primarily to the Storz ophthalmic products business which was reported as "held for sale" in 1995. When the sales of this continuing business are included in 1995, and after adjusting for the effect of a business disposed of in 1996, worldwide medical device sales decreased 4% for the 1996 second quarter and 1% for the first half. The decrease in 1996 second quarter and first half sales was due primarily to unfavorable foreign exchange and lower U.S. sales of ophthalmic products. The decrease in worldwide medical device sales for the 1996 second quarter consisted of volume decreases of 1%, price decreases of 1% and unfavorable foreign exchange of 2%. The decrease in worldwide medical device sales for the 1996 first half was composed of volume increases of 1% offset by unfavorable foreign exchange of 2%. U.S. agricultural products sales increased 3% for the 1996 second quarter and 5% for the first half. Sales gains in the U.S. for the 1996 second quarter were due primarily to higher sales of ARSENAL AC, ASSERT and CADRE herbicides and COUNTER insecticide offset, in part, by lower sales of PURSUIT herbicide. Sales gains in the U.S. for the 1996 first half were due primarily to higher sales of PURSUIT, ARSENAL AC and CADRE herbicides and COUNTER insecticide offset, in part, by lower sales of SQUADRON herbicide. The increase in U.S. agricultural products sales for the 1996 second quarter consisted of unit volume growth of 1% and price increases of 2%. The increase in U.S. agricultural product sales for the 1996 first half consisted of unit volume growth of 3% and price increases of 2%. Due to the seasonality of the U.S. agricultural products business, which is concentrated primarily in the first six months of the year, U.S. agricultural products sales and results of -11- Management's Discussion and Analysis of Financial Condition and Results of Operations Three Months and Six Months Ended June 30, 1996 operations for the 1996 second quarter and first half may not be indicative of the results to be expected in subsequent fiscal quarters or for the full year. International agricultural products sales were comparable for the 1996 second quarter and 4% higher for the first half. The 1996 second quarter international sales results were impacted by unfavorable weather conditions in certain European markets and the discontinuance of a licensed herbicide product. International sales gains for the 1996 first half were due primarily to higher sales of STOMP herbicide (marketed as PROWL in the U.S.), FASTAC insecticide, and CARAMBA and ACROBAT fungicides offset, in part, by the discontinuance of a licensed herbicide product. International agricultural products sales for the 1996 second quarter consisted of unit volume increases of 5% and price increases of 1% offset by unfavorable foreign exchange of 6%. The increase in international agricultural product sales for the 1996 first half was composed of volume increases of 5% and price increases of 2% offset by unfavorable foreign exchange of 3%. Food products sales increased 7% for the 1996 second quarter and 12% for the first half. Sales gains in the 1996 second quarter were due principally to higher sales of CRUNCH N' MUNCH, PAM and certain regional specialty products. Sales gains in the 1996 first half were due primarily to higher sales of CHEF BOYARDEE canned pasta, PAM and certain regional specialty products. Sales increases in the 1996 second quarter and first half were due to increased marketing activity in 1996 and lower 1995 second quarter and first half sales resulting from high levels of customer inventories. The increase in food products sales for the 1996 second quarter and first half consisted entirely of unit volume growth. Cost of goods sold as a percentage of net sales, decreased to 33.3% in the 1996 second quarter versus 36.6% in the 1995 second quarter, and decreased to 33.2% in the 1996 first half versus 36.1% in the 1995 first half, due primarily to a combination of favorable pharmaceutical sales mix, and to a lesser extent, cost savings. Cost savings resulted from the restructuring and consolidation of various manufacturing and quality control functions primarily in the pharmaceutical business related to the -12- Management's Discussion and Analysis of Financial Condition and Results of Operations Three Months and Six Months Ended June 30, 1996 American Cyanamid Company (ACY) acquisition and the Company's previously announced Organizational Effectiveness and Supply Chain programs. Selling, general and administrative expenses, as a percentage of net sales, increased to 37.8% in the 1996 second quarter compared to 37.5% in the 1995 second quarter, and increased to 37.1% in the 1996 first half compared to 36.6% in the 1995 first half. ACY acquisition-related synergies were more than offset by increased marketing and selling expenses related to pharmaceutical and consumer health care product introductions and disease management programs. Research and development expenses increased 11% for the 1996 second quarter and 8% for the first half. ACY acquisition- related synergies were more than offset by increased pharmaceutical research and development expenditures, particularly in the biopharmaceutical area. Interest expense, net decreased in the 1996 second quarter and first half compared to last year due primarily to the reduction in long-term debt related to the ACY acquisition during 1996 and 1995. Average long-term debt outstanding during the 1996 and 1995 second quarter was $7,553.0 and $8,667.0 million, respectively. Average long-term debt outstanding during the 1996 and 1995 first half was $7,581.4 million and $9,349.9 million, respectively. Income before taxes increased 28% in the 1996 second quarter compared to the 1995 second quarter due primarily to higher U.S. sales of pharmaceuticals and consumer health care products, favorable pharmaceutical sales mix, cost savings and lower acquisition-related interest expense offset, in part, by increased pharmaceutical and consumer health care marketing and selling expenses and higher pharmaceutical research and development expenditures. Income before taxes decreased in the 1996 first half compared to the 1995 first half due to the pre-tax gain of $959.8 million on the sale of the South American oral health care business in the 1995 first quarter. Excluding this gain from 1995 results, income before taxes increased 24% in the 1996 first half due primarily to higher worldwide sales of pharmaceuticals and agricultural products and domestic sales of consumer health care -13- Management's Discussion and Analysis of Financial Condition and Results of Operations Three Months and Six Months Ended June 30, 1996 products, favorable pharmaceutical sales mix, cost savings and lower acquisition-related interest expense offset, in part, by increased pharmaceutical and consumer health care marketing and selling expenses and higher pharmaceutical research and development expenditures. Net income and net income per share for the 1996 second quarter increased 31% and 27%. Net income and net income per share for the 1996 first half decreased compared to last year due to the after-tax gain of $623.9 million or $1.01 per share on the sale of the South American oral health care business in the 1995 first quarter. Excluding this gain from 1995 results, net income and net income per share for the 1996 first half increased 26% and 22%, respectively. The following table sets forth income before taxes by industry segment: As-Reported As-Reported Three Months Six Months ($ in Millions) Ended June 30, Ended June 30, Income Before Taxes 1996 1995 (1) 1996 1995 (1) - ------------------- ------- ------- -------- -------- Health Care Products (2) $ 476.3 $ 387.2 $1,137.6 $ 971.6 Agricultural Products 216.6 192.0 363.4 309.9 Food Products 37.1 16.3 60.1 27.9 Corporate (2) (176.4) (162.8) (326.6) (309.9) ------- ------- -------- -------- Consolidated Income Before Taxes (2) $ 553.6 $ 432.7 $1,234.5 $ 999.5 ======= ======= ======== ======== (1) Certain reclassifications have been made to income before taxes for 1995 to conform with the 1996 presentation, including the allocation of ACY goodwill amortization to the appropriate industry segments. (2) Income before taxes for the six months ended June 30, 1995 excludes the gain on the sale of the South American oral health care business of $959.8 identified as follows: Health Care Products - $814.9 and Corporate - $144.9. Competition - ----------- The Company is not dependant on any one patent-protected product -14- Management's Discussion and Analysis of Financial Condition and Results of Operations Three Months and Six Months Ended June 30, 1996 or line of products for a substantial portion of its sales or results of operations. However, PREMARIN, the Company's conjugated estrogens product, which has not had patent protection for many years, does contribute significantly to sales and results of operations. PREMARIN is not currently subject to generic competition in the United States. A U.S. Food and Drug Administration (FDA) advisory committee meeting 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 or not 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 conjugated estrogen products. While the introduction of generic competition ordinarily is expected to significantly impact the market for a brand name product, the extent of such impact on PREMARIN and related products cannot be predicted with certainty due to a number of factors, including the nature of the product and the introduction of new combination estrogen and progestin products in the PREMARIN family. Liquidity, Financial Condition and Capital Resources - ---------------------------------------------------- Cash and cash equivalents increased $56 million in the 1996 first half to $1,858 million. Cash flows from operating activities of $942 million, proceeds from the exercise of stock options of $259 million and proceeds from sales of businesses of $153 million were used principally for dividend payments of $486 million, long-term debt reduction of $455 million and capital expenditures of $369 million. Due to the seasonality of the U.S. agricultural products business, a significant portion of the annual U.S. agricultural products sales are recorded in the first six months of the year; however, a significant portion of the related accounts receivable are not collected until the third quarter. As a result, cash flows from operating activities in the first half of 1996 are not indicative of the results to be expected for the 1996 third quarter, second half or full year. Capital expenditures included the expansion of the Company's research and development facilities and continued strategic -15- Management's Discussion and Analysis of Financial Condition and Results of Operations Three Months and Six Months Ended June 30, 1996 investments in manufacturing/distribution/administrative facilities worldwide. The Company continues to explore the possible sale of its foods business. When the review of offers from all potential buyers is complete, management will make a decision as to whether the foods business will be sold or retained. Cautionary Statements for Forward Looking Information - ----------------------------------------------------- Management's discussion and analysis set forth above contains certain forward looking statements, including statements regarding the Company's financial position, results of operations and potential competition. These forward looking statements are based on current expectations. Certain factors have been identified by the Company in Exhibit 99 to this Quarterly Report on Form 10-Q which could cause the Company's actual results to differ materially from expected and historical results. Exhibit 99 is incorporated by reference herein. -16- 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, 1995. In the brand name prescription drug litigation, the court in the federal actions that have been coordinated and consolidated for pretrial purposes under the caption In re Brand Name Prescription Drug Antitrust -------------------------------------------- Litigation (MDL 997 N.D. Ill.) denied approval of a ---------- settlement among certain defendants, including the Company and the Consolidated Class Action plaintiffs. The court also denied defendants' motion for summary judgment. Subsequently, the Company and certain other defendants agreed to an amendment of the settlement agreement with the Consolidated Class Action plaintiffs. The court approved the amended settlement agreement with the class action plaintiffs and notices of appeal have been filed by certain class members. The amendment, which would be in effect for three years, would prohibit the settling manufacturers from refusing to grant discounts to retailers solely because of their status as retailers and would require that retailers be given the opportunity to demonstrate their ability to move market share and to negotiate and earn discounts similar to the discounts offered to managed care organizations. Also, the Court of Appeals for the Seventh Circuit has agreed to hear the appeal of the denial of the manufacturer defendants' motion for summary judgment under the Supreme Court's Illinois -------- Brick ruling that indirect purchasers lack standing to ----- bring federal price fixing claims. In the NORPLANT product liability litigation, the court in the federal actions that have been coordinated and consolidated for pretrial purposes (In re Norplant -------------- Contraceptive Products Liability Litigation (MDL No. ------------------------------------------- 1038 E.D. Tex.)) had issued an order in March 1996 indicating that it had reached a tentative conclusion, subject to further briefing and consideration, that a class action directed at certain specified issues or sub-issues relating to the NORPLANT SYSTEM might satisfy the requirements under the federal rules for class action treatment. The court subsequently reconsidered its approach and, on August 5, 1996, denied plaintiffs' motion for class certification and dismissed plaintiffs' class action complaint, without -17- prejudice to the plaintiffs' right to re-urge certification following the trial of several individual NORPLANT lawsuits next year. The first such trial, which will involve five plaintiffs chosen jointly by the parties from a pool of plaintiffs, is scheduled for February 24, 1997. The Company will continue to contest class certification in any state jurisdictions in which it is raised. In U.S. Environmental Protection Agency v. Ekco -------------------------------------------- Housewares, the U.S. District Court (N.D. Ohio) has ---------- entered a stipulated judgement in the amount of $400,000 with respect to all remaining claims which had been remanded by the Court of Appeals for the Sixth Circuit. In the opinion of the Company, although the outcome of any legal proceedings cannot be predicted with certainty, the ultimate liability of the Company in connection with these proceedings 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 the solicitation of proxies pursuant to Regulation 14 under the Securities Exchange Act, at the Annual Meeting of Stockholders held on April 23, 1996 (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. 267,873,107 772,697 Frank A. Bennack, Jr. 267,948,958 696,846 Robert G. Blount 267,959,243 686,561 Robin Chandler Duke 267,494,647 1,151,157 John D. Feerick 267,772,692 873,112 Fred Hassan 267,943,105 702,699 John P. Mascotte 267,669,306 976,498 Mary Lake Polan, M.D., Ph.D. 267,812,671 833,133 -18- John R. Stafford 267,895,789 750,015 John R. Torell, III 267,911,749 734,055 William Wrigley 267,946,536 699,268 (ii) Ratification of the appointment of Arthur Andersen LLP, as independent public accountants for 1996: For Against Abstain --- ------- ------- 267,409,246 404,226 742,970 There were 89,362 broker non-votes with reference to this item. (iii)Proposal to increase to 1,200,000,000 the number of authorized shares of Common Stock: For Against Abstain --- ------- ------- 265,845,260 1,903,244 868,796 There were 28,504 broker non-votes with reference to this item. (iv) To adopt the 1996 Stock Incentive Plan: For Against Abstain --- ------- ------- 250,979,027 15,284,553 2,333,058 There were 49,166 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 ----------- ----------- (11) Computation of Per Share Earnings. (27) Financial Data Schedule. (99) Cautionary Statements regarding "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995. b) Reports on Form 8-K ------------------- The Company did not file any reports on Form 8-K during the quarter covered by this report. -19- 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 and Comptroller (Duly Authorized Signatory and Chief Accounting Officer) Date: August 13, 1996 -20- Exhibit Index ------------- Exhibit No. Description ----------- ----------- (11) Computation of Per Share Earnings. (27) Financial Data Schedule. (99) Cautionary Statements regarding "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995. Ex-1 EX-11 2 Exhibit 11 ---------- American Home Products Corporation and Subsidiaries Computation of Per Share Earnings (In thousands except per share amounts) Quarter Ended Six Months Ended June 30, June 30, 1996 1996 ----------- ----------- 1. Net income ................................ $ 391,277 $ 880,640 2. Reported earnings per share: a. Average number of shares outstanding... 633,338 631,553 b. Shares issuable upon the conversion of preferred stock .................... 599 602 ----------- ----------- c. Shares for reported earnings per share calculation (2a+2b).................... 633,937 632,155 =========== =========== d. Reported earnings per share(1/2c)...... $ .62 $ 1.39 =========== =========== 3. Primary earnings per share: a. Average number of shares outstanding.. 633,338 631,553 b. Shares issuable upon the conversion of preferred stock........................ 599 602 c. Shares deemed outstanding from the assumed exercise of stock options reduced by the number of shares purchased with the proceeds (determined using average market price during the period)................................ 12,136 10,945 d. Deferred contingent common stock awards 457 457 ----------- ----------- e. Shares for primary earnings per share calculation (3a+3b+3c+3d) ............. 646,530 643,557 =========== =========== f. Primary earnings per share (1/3e). $ .61 $ 1.37 =========== =========== 4. Fully diluted earnings per share: a. Average number of shares outstanding... 633,338 631,553 b. Shares issuable upon conversion of preferred stock ....................... 599 602 c. Shares deemed outstanding from the assumed exercise of stock options reduced by the number of shares purchased with the proceeds (determined using market price at end of period)................ 14,488 14,488 d. Deferred contingent common stock awards 457 457 ----------- ----------- e. Shares for fully diluted earnings per share calculation (4a+4b+4c+4d)........ 648,882 647,100 =========== =========== f. Fully diluted earnings per share (1/4e) $ .60 $ 1.36 =========== =========== EX-27 3
5 Exhibit No. 27 -------------- THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AMERICAN HOME PRODUCTS CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEET AS OF JUNE 30, 1996 AND CONSOLIDATED CONDENSED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1996 JUN-30-1996 1,858,494 229,440 3,117,855 157,017 2,278,438 8,475,399 6,304,937 2,227,108 21,658,160 4,609,539 7,354,119 211,848 0 83 5,916,197 21,658,160 7,136,635 7,136,635 2,368,586 2,368,586 697,648 122,864 236,681 1,234,523 353,883 880,640 0 0 0 880,640 1.37 1.36
EX-99 4 Exhibit No. 99 -------------- Exhibit 99 to the Quarterly Report on Form 10-Q for the Quarter Ended June 30, 1996 Cautionary Statements Regarding "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995 The Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996 is among certain communications by the Company which contain forward looking statements, including statements regarding its financial position, results of operations, market position and product development. These forward looking statements are based on current expectations. As permitted by the Private Securities Litigation Reform Act of 1995, the Company is hereby filing the following cautionary statements identifying important factors which, among others, could cause the Company's actual results to differ materially from expected and historical results: Changing business conditions including inflation and fluctuations in interest rates and foreign currency exchange rates. Competitive factors including managed care groups, institutions and government agencies seeking price discounts; technological advances attained by competitors; patents granted to competitors; potential generic competition for PREMARIN and for other health care and crop protection products as such products mature. Government laws and regulations affecting U.S. and international operations, including trade, monetary and fiscal policies, taxes (including the Section 936 income tax credit), price controls, changes in governments and legal systems, as well as actions affecting approvals of products and licensing. Difficulties or delays in product development including, but not limited to, the inability to identify viable new chemical compounds, successfully complete clinical trials, obtain and maintain regulatory approval for the compounds or gain and maintain market acceptance of approved product. Similar difficulties or delays can also affect the development of the Company's other businesses. Growth in costs and expenses, including changes in product mix and the impact of divestitures, restructuring and other unusual items that could result from evolving business strategies, evaluation of asset realization, and organizational structures. Significant litigation adverse to the Company including product liability risks related to the Company's health care and other products. Continued consolidation in the pharmaceutical industry could affect the Company's competitive position. -----END PRIVACY-ENHANCED MESSAGE-----