-----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, HsAZm6jO94I5CPRkOb1yXJ4fIOiSBH0m5bXu2JR6Kvz9Fb22ALsxHw8xkwHibzii Z4jJB47DaZBnl4S5vI07dA== 0000005187-02-000007.txt : 20020514 0000005187-02-000007.hdr.sgml : 20020514 ACCESSION NUMBER: 0000005187-02-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020514 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: 02644897 BUSINESS ADDRESS: STREET 1: 5 GIRALDA FARMS CITY: MADISON STATE: NJ ZIP: 07940 BUSINESS PHONE: 9736605000 MAIL ADDRESS: STREET 1: 5 GIRALDA FARMS CITY: MADISON STATE: NJ ZIP: 07940 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN HOME PRODUCTS CORP DATE OF NAME CHANGE: 19920703 10-Q 1 ascii1st.txt ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended Commission file number 1-1225 March 31, 2002 Wyeth ----- (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 (973) 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 April 30, 2002: Number of Class Shares Outstanding ----- ------------------ Common Stock, $0.33-1/3 par value 1,326,272,902 ================================================================================ WYETH AND SUBSIDIARIES INDEX Page No. -------- Part I - Financial Information 2 Item 1. Consolidated Condensed Financial Statements: Consolidated Condensed Balance Sheets - March 31, 2002 and December 31, 2001 3 Consolidated Condensed Statements of Operations - Three Months Ended March 31, 2002 and 2001 4 Consolidated Condensed Statements of Changes in Stockholders' Equity - Three Months Ended March 31, 2002 and 2001 5 Consolidated Condensed Statements of Cash Flows - Three Months Ended March 31, 2002 and 2001 6 Notes to Consolidated Condensed Financial Statements 7-11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12-19 Part II - Other Information 20 Item 1. Legal Proceedings 20-21 Item 6. Exhibits and Reports on Form 8-K 22 Signature 23 Exhibit Index EX-1 Items other than those listed above have been omitted because they are not applicable. 1 Part I - Financial Information ------------------------------ WYETH AND SUBSIDIARIES The consolidated condensed financial statements included herein have been prepared by Wyeth (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 accounting principles generally accepted in the United States 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 consolidated condensed financial statements include all adjustments, all of which are of a normal recurring nature, necessary to present fairly the financial position of the Company as of March 31, 2002 and December 31, 2001, and the results of its operations, cash flows and changes in stockholders' equity for the three months ended March 31, 2002 and 2001. It is suggested that these consolidated condensed 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 2001 Annual Report on Form 10-K. As of January 1, 2002, the Company adopted new authoritative accounting guidance reflecting certain vendor allowances (i.e., cooperative advertising arrangements) as reductions of revenues instead of selling and marketing expenses. Financial information for all prior periods presented has been reclassified to comply with the income statement classification requirements of the new guidance. As of January 1, 2002, the Company also adopted SFAS No. 142, Goodwill and Other Intangible Assets and SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 did not have any impact on the Company during the 2002 first quarter. Refer to Note 1 of the Consolidated Condensed Financial Statements for disclosure relating to the implementation of SFAS No. 142. 2 WYETH AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (In Thousands Except Per Share Amounts) (Unaudited)
March 31, December 31, 2002 2001 ----------- ------------ ASSETS Cash and cash equivalents $2,340,924 $1,744,734 Marketable securities 695,214 1,281,988 Accounts receivable less allowances 2,753,858 2,743,040 Inventories: Finished goods 691,978 653,108 Work in progress 827,397 674,636 Materials and supplies 401,287 427,227 ----------- ------------ 1,920,662 1,754,971 Other current assets including deferred taxes 2,006,011 2,242,020 ----------- ------------ Total Current Assets 9,716,669 9,766,753 Property, plant and equipment 8,746,689 8,944,451 Less accumulated depreciation 2,746,860 2,662,291 ----------- ------------ 5,999,829 6,282,160 Goodwill 3,719,635 3,725,547 Other intangibles, net of accumulated amortization (March 31, 2002-$75,743 and December 31, 2001-$71,070) 125,348 126,387 Other assets including deferred taxes 3,454,203 3,067,075 ----------- ------------ Total Assets $23,015,684 $22,967,922 =========== ============ LIABILITIES Loans payable $2,742,080 $2,097,354 Trade accounts payable 546,098 672,457 Accrued expenses 3,275,416 4,257,523 Accrued federal and foreign taxes 149,767 229,847 ----------- ------------ Total Current Liabilities 6,713,361 7,257,181 Long-term debt 7,344,427 7,357,277 Other noncurrent liabilities 3,251,517 3,355,793 Accrued postretirement benefit obligations other than pensions 945,001 925,098 STOCKHOLDERS' EQUITY $2.00 convertible preferred stock, par value $2.50 per share 50 51 Common stock, par value $0.33-1/3 per share 441,840 440,190 Additional paid-in capital 4,458,740 4,295,051 Retained earnings 735,892 170,309 Accumulated other comprehensive loss (875,144) (833,028) ----------- ------------ Total Stockholders' Equity 4,761,378 4,072,573 ----------- ------------ Total Liabilities and Stockholders' Equity $23,015,684 $22,967,922 =========== ============ The accompanying notes are an integral part of these consolidated condensed financial statements.
3 WYETH AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (In Thousands Except Per Share Amounts) (Unaudited) Three Months Ended March 31, -------------------------- 2002 2001 ---------- ---------- Net revenue $3,643,521 $3,417,284 ---------- ---------- Cost of goods sold 802,179 798,603 Selling, general and administrative expenses 1,270,284 1,253,576 Research and development expenses 480,206 450,989 Interest expense, net 53,338 3,939 Other income, net (84,648) (70,811) ---------- ---------- Income before federal and foreign taxes 1,122,162 980,988 Provision for federal and foreign taxes 250,242 247,434 ---------- ---------- Net income $871,920 $733,554 ========== ========== Basic earnings per share $0.66 $0.56 ========== ========== Diluted earnings per share $0.65 $0.55 ========== ========== Dividends per share of common stock $0.23 $0.23 ========== ========== The accompanying notes are an integral part of these consolidated condensed financial statements. 4 WYETH AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (In Thousands) (Unaudited)
Three Months Ended March 31, 2002: $2.00 Accumulated Convertible Additional Other Total Preferred Common Paid-in Retained Comprehensive Stockholders' Stock Stock Capital Earnings Loss Equity ----------- -------- ---------- ----------- ------------- ------------- Balance at January 1, 2002 $51 $440,190 $4,295,051 $170,309 ($833,028) $4,072,573 Net income 871,920 871,920 Currency translation adjustments (33,711) (33,711) Unrealized gains on derivative contracts 274 274 Unrealized losses on marketable securities (8,679) (8,679) ------------ Comprehensive income 829,804 ------------ Cash dividends declared (304,377) (304,377) Common stock issued for stock options 1,541 136,739 138,280 Conversion of preferred stock and other exchanges (1) 109 26,950 (1,960) 25,098 ---------- -------- ---------- ---------- ------------ ------------ Balance at March 31, 2002 $50 $441,840 $4,458,740 $735,892 ($875,144) $4,761,378 ========== ======== ========== ========== ============ ============ Three Months Ended March 31, 2001: $2.00 Accumulated Convertible Additional Other Total Preferred Common Paid-in Accumulated Comprehensive Stockholders' Stock Stock Capital Deficit Loss Equity ----------- -------- ---------- ----------- ------------- ------------- Balance at January 1, 2001 $55 $437,258 $3,952,457 ($899,118) ($672,559) $2,818,093 Net income 733,554 733,554 Currency translation adjustments (112,279) (112,279) Unrealized gains on derivative contracts 31,683 31,683 Unrealized gains on marketable securities 1,317 1,317 ------------ Comprehensive income 654,275 ------------ Cash dividends declared (302,036) (302,036) Common stock issued for stock options 645 51,811 52,456 Conversion of preferred stock and other exchanges (1) 81 126 (1,470) (1,264) ---------- -------- ---------- ---------- ------------ ------------ Balance at March 31, 2001 $54 $437,984 $4,004,394 ($469,070) ($751,838) $3,221,524 ========== ======== ========== ========== ============ ============ The accompanying notes are an integral part of these consolidated condensed financial statements.
5 WYETH AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (In Thousands) (Unaudited)
Three Months Ended March 31, 2002 2001 ----------- ---------- Operating Activities - -------------------- Net income $871,920 $733,554 Adjustments to reconcile net income to net cash used for operating activities: Gains on sales of assets (47,191) (8,728) Depreciation and amortization 120,602 149,644 Deferred income taxes 221,787 53,398 Changes in working capital, net (522,248) (99,361) Diet drug litigation payments (712,176) (4,141,615) Security fund deposit (370,000) - Other items, net (24,235) (99,717) ---------- ---------- Net cash used for operating activities (461,541) (3,412,825) ---------- ---------- Investing Activities - -------------------- Purchases of property, plant and equipment (341,689) (361,749) Proceeds from sales of assets 348,315 24,573 Proceeds from sales and maturities of marketable securities 1,287,860 53,300 Purchases of marketable securities (701,086) (116,841) ---------- ---------- Net cash provided from (used for) investing activities 593,400 (400,717) ---------- ---------- Financing Activities - -------------------- Net proceeds from debt 632,309 4,942,467 Dividends paid (304,377) (302,036) Exercises of stock options 138,280 52,456 ---------- ---------- Net cash provided from financing activities 466,212 4,692,887 ---------- ---------- Effects of exchange rate changes on cash balances (1,881) (11,433) ---------- ---------- Increase in cash and cash equivalents 596,190 867,912 Cash and cash equivalents, beginning of period 1,744,734 2,644,306 ---------- ---------- Cash and cash equivalents, end of period $2,340,924 $3,512,218 ========== ========== Supplemental Information - ------------------------ Interest payments $162,362 $76,297 Income tax payments, net of refunds 126,053 162,097 The accompanying notes are an integral part of these consolidated condensed financial statements.
6 WYETH AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited) Note 1. Goodwill and Other Intangibles ------------------------------ Transitional Disclosure: On January 1, 2002, the Company adopted SFAS No. 142, Goodwill and Other Intangible Assets. With the adoption of SFAS No. 142, goodwill is no longer being amortized but is subject to at least an annual assessment for impairment by applying a fair-value based test. The same applies to other intangibles that have been determined to have indefinite useful lives. However, other intangibles with finite lives will continue to be amortized. The Company's other intangibles, which all have finite lives, have carrying values of $125.3 million and $126.4 million at March 31, 2002 and December 31, 2001, respectively and are being amortized over their estimated useful lives ranging from three to 10 years. The following table presents net income and basic and fully diluted earnings per share for 2002 and 2001 to reflect the adoption of SFAS No. 142 as of January 1, 2002. Three Months Ended March 31, ----------------------- (In thousands, except per share amounts) 2002 2001 ---------------------------------------- -------- -------- As-reported net income $871,920 $733,554 Add back: goodwill amortization - 38,713 -------- -------- Adjusted net income $871,920 $772,267 ======== ======== Basic earnings per share: As-reported $0.66 $0.56 Goodwill amortization - 0.03 -------- -------- Adjusted $0.66 $0.59 ======== ======== Diluted earnings per share: As-reported $0.65 $0.55 Goodwill amortization - 0.03 -------- -------- Adjusted $0.65 $0.58 ======== ======== Goodwill: The changes in the carrying amount of goodwill by segment for the three months ended March 31, 2002, are as follows:
Consumer (In thousands) Pharmaceuticals Healthcare Total -------------- --------------- ---------- ---------- Balance at January 1, 2002 $3,136,543 $589,004 $3,725,547 Currency translation adjustment (5,788) (124) (5,912) ---------- -------- ---------- Balance as of March 31, 2002 $3,130,755 $588,880 $3,719,635 ========== ======== ==========
7 WYETH AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited) Note 2. Credit Facilities ----------------- In March 2002, the Company renewed its $3,000.0 million credit facility for an additional 364-day term and reduced the $2,000.0 million credit facility to $1,000.0 million until it matures on July 31, 2002. Since the $1,000.0 million credit facility terminates in less than one year, commercial paper outstanding of $1,000.0 million, supported by this facility, was classified as current debt in Loans payable at March 31, 2002. Any borrowings under the $3,000.0 million, 364-day credit facility that are outstanding upon its termination in March 2003 are extendible by the Company for an additional year. The portion of commercial paper outstanding at March 31, 2002 supported by the $3,000.0 million, 364-day credit facility was classified as Long-term debt since the Company intends, and has the ability, to refinance these obligations through the issuance of additional commercial paper or through the use of its $3,000.0 million credit facility. At March 31, 2002, the Company has commercial paper outstanding of $5,474.5 million of which $4,000.0 million is supported by the credit facilities identified above, and $1,474.5 million (which is classified as current debt in Loans payable because it is not supported by the credit facilities) is supported by $3,036.1 million of cash and cash equivalents and marketable securities. Note 3. Contingencies and Litigation Settlement --------------------------------------- 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. The nationwide class action settlement to resolve litigation brought against the Company regarding use of the diet drugs REDUX or PONDIMIN received final judicial approval effective January 3, 2002. The Company recorded an initial litigation charge of $4,750.0 million, net of insurance, in connection with the REDUX and PONDIMIN litigation in 1999, an additional charge of $7,500.0 million in 2000, and a third litigation charge of $950.0 million in the 2001 third quarter. The combination of these three charges represents the estimated total amount required to resolve all diet drug litigation, including anticipated funding requirements for the nationwide, class action settlement, anticipated costs to resolve the claims of any members of the settlement class who in the future may exercise an intermediate or back-end opt out right, costs to resolve the claims of PPH claimants and initial opt out claimants, and administrative and litigation expenses. During the 2002 first quarter, payments to the nationwide, class action settlement funds, individual settlement payments, legal fees and other costs totaling $712.2 million were paid and applied against the litigation accrual. As of March 31, 2002, $1,145.5 million of the litigation accrual remained. On January 18, 2002, as collateral for the Company's financial obligations under the settlement, the Company established a security fund in the amount of $370.0 million and 8 WYETH AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited) recorded such amount in Other assets including deferred taxes. The funds are owned by the Company and will earn interest income for the Company while residing in the security fund. The Company will be required to deposit an additional $180.0 million in the security fund if the Company's credit rating, as reported by both Moody's and Standard & Poor's (S&P), falls below investment grade. 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 its legal proceedings will not have a material adverse effect on the Company's financial position but could be material to the results of operations or cash flows in any one accounting period. Note 4. Restructuring Programs ---------------------- In December 1998, the Company recorded a special charge for restructuring and related asset impairments of $321.2 million to recognize costs of the reorganization of its worldwide supply chains and U.S. distribution systems, and the globalization of certain business units. The restructuring will ultimately result in the elimination of approximately 3,900 positions worldwide offset, in part, by 1,000 newly created positions in the same functions at other locations. At March 31, 2002, approximately 3,750 positions had been eliminated, and two distribution centers owned by the Company and a leased distribution center had been closed. The Company anticipates closing a total of 14 manufacturing plants, of which eight were closed in 2000 and two were closed during 2001. The Company currently anticipates utilizing the remainder of the restructuring accruals in 2002, assuming no further delays in regulatory approval. The activity in the restructuring accruals was as follows:
Personnel Other Closure/ (In thousands) Costs Exit Costs Total -------------- --------- -------------- ------- Restructuring accruals at December 31, 2001 $9,037 $30,619 $39,656 Cash expenditures (835) (2,896) (3,731) ------ ------- ------- Restructuring accruals at March 31, 2002 $8,202 $27,723 $35,925 ====== ======= =======
Note 5. Company Data by Operating Segment --------------------------------- The Company has three reportable segments: Pharmaceuticals, Consumer Healthcare and Corporate. The Company's Pharmaceuticals and Consumer Healthcare reportable segments are strategic business units that are managed separately because they manufacture, distribute and sell distinct products and provide services, which require various technologies and marketing strategies. 9 WYETH AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited) Net Revenue (1) Income before Taxes (2) --------------------- ----------------------- Three Months Three Months Ended March 31, Ended March 31, (In millions) --------------------- ----------------------- Operating Segment 2002 2001 2002 2001 ----------------- -------- -------- -------- -------- Pharmaceuticals $3,149.0 $2,879.3 $1,073.2 $915.5 Consumer Healthcare 494.5 538.0 159.5 124.0 -------- -------- -------- ------- 3,643.5 3,417.3 1,232.7 1,039.5 Corporate - - (110.5) (58.5) -------- -------- -------- ------- Total $3,643.5 $3,417.3 $1,122.2 $981.0 ======== ======== ======== ======= (1) The Company adopted new authoritative accounting guidance as of January 1, 2002 reflecting the cost of certain vendor considerations (i.e., cooperative advertising payments) as reductions of revenue instead of selling and marketing expenses. Financial information for all prior periods presented has been reclassified to comply with the income statement classification requirements of the new guidance. These reclassifications had no effect on total net revenue growth between the periods presented. (2) In accordance with new authoritative accounting guidance, adopted as of January 1, 2002, the Company has ceased amortizing goodwill. The 2001 first quarter goodwill amortization was as follows: Pharmaceuticals - $34.6 and Consumer Healthcare - $6.0. Note 6. Earnings per Share ------------------ The following table sets forth the computations of basic earnings per share and diluted earnings per share:
Three Months Ended March 31, --------------------- (In thousands except per share amounts) 2002 2001 ----------------------------------------------- --------- --------- Net income less preferred dividends $871,910 $733,543 Denominator: Average number of common shares outstanding 1,323,940 1,313,855 --------- --------- Basic earnings per share $0.66 $0.56 ========= ========= Net income $871,920 $733,554 Denominator: Average number of common shares outstanding 1,323,940 1,313,855 Common share equivalents of outstanding stock options and deferred common stock awards 14,567 14,200 --------- --------- Total shares 1,338,507 1,328,055 --------- --------- Diluted earnings per share $0.65 $0.55 ========= =========
10 WYETH AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited) Note 7. Sale of Rhode Island Facility ----------------------------- During the first quarter of 2002, Wyeth sold a manufacturing plant located in West Greenwich, Rhode Island, to Immunex Corporation for $487.8 million. The Company received $189.2 million of these proceeds in 2001 and the remaining $298.6 million during the 2002 first quarter. The Company did not recognize a gain on this transaction because the facility was sold at net book value. The facility will be dedicated to expand the production capacity of ENBREL. 11 Management's Discussion and Analysis of Financial Condition and Results of Operations Three Months Ended March 31, 2002 Results of Operations --------------------- The Company adopted new authoritative accounting guidance as of January 1, 2002 reflecting the cost of certain vendor considerations (i.e., cooperative advertising payments) as reductions of revenue instead of selling and marketing expenses. Financial information for the prior period presented has been reclassified to comply with the income statement classification requirements of the new guidance. These reclassifications had no effect on total net revenue growth between the periods presented. Worldwide net revenue for the 2002 first quarter was 7% higher compared with prior year levels. The increase in worldwide net revenue for the 2002 first quarter was due primarily to higher worldwide net revenue of human pharmaceuticals. Excluding the negative impact of foreign exchange, worldwide net revenue increased 9% for the 2002 first quarter. The following table sets forth worldwide net revenue results by operating segment together with the percentage changes from the comparable period in the prior year: Net Revenue ----------------------- Three Months Ended March 31, ($ in Millions) ----------------------- % Increase Operating Segment 2002 2001 (Decrease) ------------------- -------- -------- ---------- Pharmaceuticals $3,149.0 $2,879.3 9% Consumer Healthcare 494.5 538.0 (8)% -------- -------- ---------- Total Net Revenue $3,643.5 $3,417.3 7% ======== ======== ========== Pharmaceuticals --------------- Worldwide pharmaceutical net revenue increased 9% for the 2002 first quarter due primarily to higher sales of human pharmaceuticals. Excluding the negative impact of foreign exchange, worldwide pharmaceutical net revenue increased 11% for the 2002 first quarter. Worldwide human pharmaceutical net revenue increased 10% due primarily to higher sales of EFFEXOR XR (as a result of higher volume and additional market share of new prescriptions), PROTONIX, CORDARONE I.V. and PREMARIN offset, in part, by lower sales of PREVNAR (due primarily to manufacturing-related constraints on product availability) and generic products (discontinuance of certain oral generics). Refer to the "Product Supply" section herein for further discussion of PREVNAR manufacturing issues. Excluding the negative impact of foreign exchange, worldwide human pharmaceutical net revenue increased 12% for the 2002 first quarter. Worldwide animal health product net revenue decreased 1% for the 2002 first quarter. The decline in sales of animal health products was due primarily to a continued weakening in the global livestock markets offset, in part, by sales of ProHeart 6 (introduced in the 2001 second quarter). 12 Management's Discussion and Analysis of Financial Condition and Results of Operations Three Months Ended March 31, 2002 Consumer Healthcare ------------------- Worldwide consumer healthcare net revenue decreased 8% for the 2002 first quarter due primarily to lower sales of cough/cold products offset, in part, by higher sales of the CENTRUM product line, primarily CENTRUM Silver. Excluding the negative impact of foreign exchange, worldwide consumer healthcare net revenue decreased 7% for the 2002 first quarter. The decline in sales of cough/cold products was primarily attributable to retailer inventory exceeding normal levels. In the fourth quarter of 2000, products containing phenylpropanolamine (PPA) were removed from the market. The Company was among the first to bring reformulated (without PPA) products to market and therefore filled retailer shelf space previously occupied by private labels and other brands. In the 2001 fourth quarter, the private label and other brands began to reclaim shelf space with their reformulated products. This, along with a mild cough/cold season, resulted in higher trade inventory levels during the first quarter. In addition, a major retailer filed for bankruptcy reorganization in January 2002 which impacted all of the consumer healthcare product lines. By the end of the first quarter, it appeared that inventory levels for all consumer healthcare product lines and shipments to the major retailer were both returning to normal seasonal levels. The following table sets forth the percentage changes in worldwide net revenue by operating segment compared to the prior year, including the effect volume, price and foreign exchange had on these percentage changes: % Increase (Decrease) Three Months Ended March 31, 2002 ----------------------------------------- Foreign Total Volume Price Exchange Net Revenue ------ ----- -------- ----------- Pharmaceuticals ------------------- United States 7% 7% - 14% International 5% 1% (4)% 2% ----- ---- ---- ---- Total 6% 5% (2)% 9% ===== ==== ==== ==== Consumer Healthcare ------------------- United States (10)% 1% - (9)% International (3)% 1% (4)% (6)% ----- ---- ---- ---- Total (8)% 1% (1)% (8)% ===== ==== ==== ==== Total ------------------- United States 4% 6% - 10% International 4% 1% (4)% 1% ----- ---- ---- ---- Total 5% 4% (2)% 7% ===== ==== ==== ==== Cost of goods sold, as a percentage of Net revenue, decreased more than one percentage point to 22.0% for the 2002 first quarter compared with 23.4% for the 2001 first quarter due primarily to an increase in sales volume on higher margin products and the discontinuance of the lower margin oral generics business in the pharmaceuticals segment, as well as a small 13 Management's Discussion and Analysis of Financial Condition and Results of Operations Three Months Ended March 31, 2002 impact relating to increased alliance revenue recorded in 2002 first quarter net revenue compared to 2001 first quarter net revenue. There are no costs of goods sold relating to alliance revenue, and therefore any net revenue fluctuations impacted by alliance revenue will also impact gross margins. Selling, general and administrative expenses, as a percentage of Net revenue, decreased to 34.9% for the 2002 first quarter compared with 35.5% (excluding the effect of goodwill amortization) for the 2001 first quarter. The decrease was due to net revenue growth outpacing spending for various selling and marketing programs. Research and development expenses increased 6% for the 2002 first quarter due primarily to increased headcount and other research operating expenses, including higher chemical and material costs, clinical grant spending and cost sharing expenditures from pharmaceutical collaborations offset, in part, by lower payments for licensing agreements. Interest expense, net increased substantially in the 2002 first quarter due primarily to higher weighted average debt outstanding, as compared with the 2001 first quarter. Weighted average debt outstanding during the 2002 and 2001 first quarters was $9,932.2 million and $3,920.2 million, respectively. The increase in interest expense was partially offset by lower interest rates on outstanding commercial paper. Other income, net increased 20% for the 2002 first quarter due primarily to a class action settlement gain relating to price fixing by certain vitamin suppliers and lower foreign exchange losses. These items were partially offset by lower gains on sales of non-strategic assets. The following table sets forth worldwide income before taxes by operating segment together with the percentage changes from the comparable period in the prior year: Income before Taxes* ----------------------- Three Months Ended March 31, ($ in millions) ----------------------- Operating Segment 2002 2001 % Increase ----------------- -------- ------- ---------- Pharmaceuticals $1,073.2 $915.5 17% Consumer Healthcare 159.5 124.0 29% -------- ------- --- 1,232.7 1,039.5 19% Corporate (110.5) (58.5) 89% -------- ------- --- Total $1,122.2 $981.0 14% ======== ======= === * In accordance with new authoritative accounting guidance, adopted as of January 1, 2002, the Company has ceased amortizing goodwill. The 2001 first quarter goodwill amortization was as follows: Pharmaceuticals - $34.6 and Consumer Healthcare - $6.0. Excluding goodwill amortization from the 2001 first quarter results, Pharmaceuticals and Consumer Healthcare income before taxes increased 13% and 23%, respectively, for the 2002 first quarter. 14 Management's Discussion and Analysis of Financial Condition and Results of Operations Three Months Ended March 31, 2002 Worldwide pharmaceutical income before taxes increased 13% (excluding goodwill amortization from the 2001 first quarter) for the 2002 first quarter due primarily to increased worldwide sales of human pharmaceuticals and higher gross profit margins earned on those sales offset, in part, by lower other income, net (primarily lower gains on sales of non-strategic assets) and higher research and development expenses. Worldwide consumer healthcare income before taxes increased 23% (excluding goodwill amortization from the 2001 first quarter) for the 2002 first quarter while consumer healthcare sales decreased 8%. This difference is primarily attributable to the class action settlement gain recorded in the 2002 first quarter relating to price fixing by certain vitamin suppliers, an asset sale gain, and lower selling, general and administrative expenses as a percentage of sales. Corporate expenses, net, increased 89% for the 2002 first quarter due primarily to higher interest expense resulting from higher weighted average debt outstanding, as compared with the 2001 first quarter. The effective tax rate decreased to 22.3% for the 2002 first quarter compared with 24.4% for the 2001 first quarter (excluding the effect of goodwill amortization). The tax rate reduction occurring in the 2002 first quarter was primarily due to an increased benefit from products manufactured in lower taxed jurisdictions. Consolidated Net Income and Diluted Earnings Per Share Results -------------------------------------------------------------- Net income and diluted earnings per share for the 2002 first quarter increased to $871.9 million and $0.65 compared with $733.6 million and $0.55 in the prior year, increases of 19% and 18%, respectively. On January 1, 2002, the Company adopted SFAS No. 142, which eliminated the amortization of goodwill. Excluding the after-tax goodwill amortization of $38.7 million and $0.03 per share-diluted from the 2001 first quarter results, net income and diluted earnings per share for the 2002 first quarter increased 13% and 12%, respectively. The increases in net income and diluted earnings per share for the 2002 first quarter were greater than the growth rate in net revenue due primarily to a higher gross profit margin earned on pharmaceutical product sales, lower selling, general and administrative expenses as a percentage of net revenue and a lower effective tax rate as a result of products manufactured in lower taxed jurisdictions offset, in part, by higher interest expense. Liquidity, Financial Condition and Capital Resources ---------------------------------------------------- The Company used net cash for operating activities totaling $461.5 million during the 2002 first quarter. Driving the cash outflows were payments of $712.2 million relating to the diet drug litigation (see Note 3 to the Consolidated Condensed Financial Statements), a payment of $370.0 million to establish a security fund as collateral for the Company's financial obligations under the diet drug settlement, payments made on outstanding payables and accrued expenses totaling $279.3 million and an increase in inventories of $174.7 million due 15 Management's Discussion and Analysis of Financial Condition and Results of Operations Three Months Ended March 31, 2002 primarily to production planning. These outflows more than offset earnings generated during the period. The Company used $1,042.8 million of cash during the 2002 first quarter for investments in property, plant and equipment and marketable securities. The capital expenditures made during the 2002 first quarter were consistent with the Company's commitment to expand existing manufacturing and research and development facilities worldwide, and build new biotechnology facilities. The Company received investment proceeds through the sales and maturities of marketable securities and the sales of assets totaling $1,636.2 million. Included in the proceeds from sales of assets is approximately $298.6 million relating to the sale of the Company's retrofitted Rhode Island facility to Immunex. The Company also used cash for financing activities related to dividend payments of $304.4 million, which was partially offset, by $138.3 million of cash provided by stock option exercises and $632.3 million of net proceeds from debt. At March 31, 2002, the Company had outstanding $10,086.5 million in total debt. The Company's total debt consisted of commercial paper of $5,474.5 million, and notes payable and other debt of $4,612.0 million. The Company offers its commercial paper in a very liquid market commensurate with its short-term credit ratings from Moody's (P2), S&P (A1) and Fitch (A1). Current debt at March 31, 2002, classified as Loans payable, consisted of: o $1,000.0 million of commercial paper supported by the $1,000.0 million credit facility that terminates in less than one year, o $1,474.5 million of commercial paper that is in excess of the $4,000.0 million credit facilities and is supported by $3,036.1 million of cash and cash equivalents and marketable securities, and o $267.6 million of notes payable and other debt that is due within one year. The Company currently anticipates receiving approximately $1,000.0 million of cash proceeds from the pending acquisition of Immunex by Amgen, Inc., which may be used to pay down current debt. If the Amgen acquisition of Immunex is not completed the Company may obtain new credit facilities or access the capital markets in order to meet its short-term liquidity requirements. The portion of commercial paper outstanding at March 31, 2002 supported by the $3,000.0 million, 364-day credit facility was classified as Long-term debt since the Company intends, and has the ability, to refinance these obligations through the issuance of additional commercial paper or through the use of its $3,000.0 million credit facility. Management remains confident that cash flows from operating activities and existing and prospective financing resources will be adequate to fund the Company's operations, pay opt out settlement payments and fund the nationwide, class action settlement relating to the REDUX and PONDIMIN diet drug litigation, pay dividends, maintain the ongoing programs of capital expenditures, and repay both the principal and interest on its outstanding obligations, without requiring the disposition of any significant strategic core assets or businesses. 16 Management's Discussion and Analysis of Financial Condition and Results of Operations Three Months Ended March 31, 2002 Quantitative and Qualitative Disclosures About Market Risk ---------------------------------------------------------- The market risk disclosures appearing on pages 64 and 65 of the Company's 2001 Annual Report as incorporated by reference on Form 10-K have not materially changed from December 31, 2001. At March 31, 2002, the fair values of the Company's financial instruments were as follows: (In millions) Notional/ Description Contract Amount Carrying Value Fair Value --------------------- --------------- -------------- ---------- Forward contracts (1) $489.4 $17.9 $17.9 Option contracts (1) 458.7 17.6 17.6 Interest rate swaps 1,500.0 (14.7) (14.7) Outstanding debt (2) 10,075.3 10,086.5 10,157.4 (1) If the value of the U.S. dollar were to increase or decrease by 10%, in relation to all hedged foreign currencies, the net receivable on the forward and option contracts would decrease or increase by approximately $53.9. (2) If the interest rates were to increase or decrease by one percentage point, the fair value of the outstanding debt would increase or decrease by approximately $202.3. The estimated fair values approximate amounts at which these financial instruments could be exchanged in a current transaction between willing parties. Therefore, fair values are based on estimates using present value and other valuation techniques that are significantly affected by the assumptions used concerning the amount and timing of estimated future cash flows and discount rates that reflect varying degrees of risk. Specifically, the fair value of outstanding debt instruments reflects a current yield valuation based on observed market prices as of March 31, 2002; the fair value of interest rate swaps and forward contracts reflects the present value of the future potential gain or (loss) if settlement were to take place on March 31, 2002; and the fair value of option contracts reflects the present value of future cash flows if the contracts were settled on March 31, 2002. Competition ----------- The Company operates in the highly competitive pharmaceutical and consumer health care industries. PREMARIN, the Company's principal conjugated estrogens product manufactured from pregnant mare's urine, and related products PREMPRO and PREMPHASE (which are single tablet combinations of the conjugated estrogens in PREMARIN and the progestin medroxyprogesterone acetate), are the leaders in their categories and contribute significantly to net revenue and results of operations. PREMARIN's natural composition is not subject to patent protection (although PREMPRO has patent protection). The principal uses of PREMARIN, PREMPRO and PREMPHASE are to manage the symptoms of menopause and to prevent osteoporosis, a condition involving a loss of bone mass in postmenopausal women. Estrogen-containing products manufactured by other companies have been marketed for many years for the treatment of menopausal symptoms, and several of these products also 17 Management's Discussion and Analysis of Financial Condition and Results of Operations Three Months Ended March 31, 2002 have an approved indication for the prevention of osteoporosis. During the past several years, other manufacturers have introduced products for the treatment and/or prevention of osteoporosis. New products containing different estrogens than those found in PREMPRO and PREMPHASE and having many forms of the same indications have also been introduced. Some companies have attempted to obtain approval for generic versions of PREMARIN. These products, if approved, would be routinely substitutable for PREMARIN and related products under many state laws and third-party insurance payer plans. In May 1997, the U.S Food and Drug Administration (FDA) announced that it would not approve certain synthetic estrogen products as generic equivalents of PREMARIN given known compositional differences between the active ingredient of these products and PREMARIN. Although the FDA has not approved any generic equivalent to PREMARIN to date, PREMARIN will continue to be subject to competition from existing and new competing estrogen and other products for its approved indications and may be subject to generic competition from either synthetic or natural conjugated estrogens products in the future. At least one other company has announced that it is in the process of developing a generic version of PREMARIN from the same natural source, and the Company currently cannot predict the timing or outcome of these or any other efforts. Product Supply -------------- Although the market demand for ENBREL is increasing, the sales growth currently is constrained by limits on the existing source of supply. This is expected to continue until the retrofitting of a Rhode Island facility owned by Immunex Corporation is completed and approved, which is currently anticipated to occur at the end of 2002, although there is no assurance that this estimate will prove accurate. If the market demand continues to grow, there may be further supply constraints even after the Rhode Island facility begins producing ENBREL. In April 2002, Immunex announced a manufacturing agreement with Genentech, Inc. to produce ENBREL beginning in 2004, subject to FDA approval. The current plan for the longer term includes an additional manufacturing facility, which is being constructed by the Company in Ireland and is expected to be completed during 2005. The Company has been experiencing inconsistent results on dissolution testing of certain dosage forms of PREMARIN and is working with the FDA to resolve this issue. Until this issue is resolved, supply shortages of one or more dosage strengths may occur. Although these shortages may adversely affect PREMARIN sales in one or more accounting periods, the Company believes that, as a result of current inventory levels and the Company's enhanced process controls, testing protocols and the ongoing formulation improvement project, overall PREMARIN family sales will not be significantly impacted. Sales of PREVNAR continue to be affected by manufacturing-related constraints on product availability. The Company is in the process of implementing manufacturing improvements and allocating additional personnel and equipment to increase production of PREVNAR. However, the manufacturing processes for this product are very complex and there can be no assurance that manufacturing-related difficulties will not result in further reductions in 2002 sales. Additionally, the manufacturing processes and planned improvements for PREVNAR 18 Management's Discussion and Analysis of Financial Condition and Results of Operations Three Months Ended March 31, 2002 entail long lead times. Accordingly, the Company's efforts are not expected to significantly increase supply until 2003 and, as a result, 2002 PREVNAR sales will in no event significantly exceed prior year levels. Cautionary Statements for Forward-Looking Information ----------------------------------------------------- This Form 10-Q, including management's discussion and analysis set forth above, contains certain forward-looking statements, including, among other things, statements regarding the Company's results of operations, competition, liquidity, financial condition and capital resources, PREVNAR sales, PREMARIN, product supply, foreign currency and interest rate risk, the nationwide, class action settlement relating to REDUX and PONDIMIN, and additional litigation charges related to REDUX and PONDIMIN including those for opt outs. These forward-looking statements are based on current expectations of future events that involve risks and uncertainties including, without limitation, risks associated with the inherent uncertainty of pharmaceutical research, product development, manufacturing, commercialization, economic conditions including interest and currency exchange rate fluctuations, the impact of competitive or generic products, product liability and other types of lawsuits, the impact of legislative and regulatory compliance and obtaining approvals, and patents. From time to time, we also may provide oral or written forward-looking statements in other materials we release to the public. However, the Company assumes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. Certain factors which could cause the Company's actual results to differ materially from expected and historical results are discussed above and have been identified by the Company in Exhibit 99 to the Company's 2001 Annual Report on Form 10-K, which exhibit is incorporated herein by reference. 19 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, including product liability and other tort claims, the most significant of which are described in the Company's Annual Report on Form 10-K for the year ended December 31, 2001. In the litigation involving those formulations of the Company's DIMETAPP and ROBITUSSIN cough/cold products that contained the ingredient phenylpropanolamine ("PPA"), one additional class action has been filed. McColl, et al. v. Wyeth, et al., No. 02-CV-227220C73, Super. Ct. of Just., Ont., Canada, is a purported Canadian class action seeking medical monitoring and damages. The Company has now been named as a defendant in 379 lawsuits involving 877 named plaintiffs. Of these lawsuits, 362 are individual product liability suits and 17 are purported class actions. The Company expects that additional PPA cases may be filed in the future against it and the other companies that marketed PPA-containing products. In the litigation involving allegations that the cumulative effect of thimerosal, a preservative used in certain vaccines manufactured and distributed by the Company as well as by other vaccine manufacturers, causes severe neurological damage, including autism in children, one additional class action has been filed. Shadie, et al. v. Aventis Pasteur, Inc., et al., No. 02-1605, Ct. Com. Pleas, Lackawanna Cty., PA, is a purported nationwide class action for damages and injunctive relief. The Company has now been named as a defendant in 51 lawsuits involving 195 named plaintiffs. Of these lawsuits, 41 are individual product liability suits and 10 are purported class actions. The Company expects that additional thimerosal cases may be filed in the future against it and the other companies that marketed thimerosal-containing products. In connection with the proposed merger between Immunex Corporation and Amgen Inc., three putative class actions were filed naming as defendants, inter alia, the Company and certain executives of the Company who serve as members of the Immunex board. (Osher, et al. v. Immunex Corporation, et al., No. 01-2-35162-1 SEA, Super. Ct., King Cty., WA; Brody, et al. v. Immunex Corporation, et al., No. 01-2-35307-1 SEA, Super. Ct., King Cty., WA; Weiner, et al. v. Immunex Corporation, et al., No. 01-2-35458-2 SEA, Super. Ct., King Cty., WA.) The complaints alleged that the defendants had breached their fiduciary duties to the Immunex shareholders in agreeing to the merger with Amgen. On April 29, 2002, Immunex announced that the lawsuits had been settled, subject to court approval. The terms of the settlement, which are not material to the results of operations or financial position of the Company are described in a Current Report on Form 8-K filed by Immunex Corporation on April 30, 2002. The Company has been named as a defendant in an additional lawsuit alleging Medicare fraud arising out of the alleged manipulation of the Average Wholesale Price (AWP) of Medicare Part B "Covered Drugs." State of Nevada v. American Home Products Corporation, et al., No. CV02-01340, Dist. Ct., Washoe Cty., NV, was brought by the Nevada Attorney General and alleges that the state and its citizens have been injured by the defendants' alleged practice of 20 inflating their AWP for pharmaceuticals. The AWP sets the reimbursement amount of Medicare Part B Covered Drugs and also is typically used in calculating Medicare rebates. The Complaint names sixteen other pharmaceutical manufacturers as co-defendants. It seeks injunctive relief and compensatory and punitive damages under Nevada state unfair and deceptive trade practices statutes, among others. The Company intends to continue to defend all of the foregoing litigation vigorously. 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 its legal proceedings will not have a material adverse effect on the Company's financial position but could be material to the results of operations and cash flows in any one accounting period. 21 Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits -------- Exhibit No. Description ----------- ----------- (10) Deferred Compensation Plan, as amended to date. (12) Computation of Ratio of Earnings to Fixed Charges. (b) Reports on Form 8-K ------------------- The following Current Reports on Form 8-K were filed by the Company: o January 8, 2002 relating to an Amended and Restated Rights Agreement by and between the Company and The Bank of New York. o March 11, 2002 announcing that the Company formally changed its name to Wyeth. o March 13, 2002 to file the Company's 2001 Annual Report to Stockholders. o March 18, 2002 relating to the change in the Company's independent public accountants. 22 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. Wyeth ----- (Registrant) By /s/ Paul J. Jones -------------------- Paul J. Jones Vice President and Comptroller (Duly Authorized Signatory and Chief Accounting Officer) Date: May 14, 2002 23 Exhibit Index ------------- Exhibit No. Description ----------- ----------- (10) Deferred Compensation Plan, as amended to date. (12) Computation of Ratio of Earnings to Fixed Charges. EX-1 EX-10 3 defer.txt DEFERRED COMPENSATION PLAN WYETH DEFERRED COMPENSATION PLAN PLAN DOCUMENT Restated as of April 1, 2001 As Amended to March 11, 2002 PLAN DOCUMENT PURPOSE The Wyeth Deferred Compensation Plan (the "Plan") is an unfunded deferred compensation plan, that provides certain key employees of Wyeth, a Delaware corporation ("Wyeth") and its wholly-owned Subsidiaries in the United States, including Puerto Rico (together with Wyeth, the "Company") with the opportunity to voluntarily defer receipt of a portion of their compensation. Wyeth adopted the Plan to enable the Company to attract and retain a select group of management and highly compensated Employees. SECTION ONE - DEFINITIONS Whenever used in the Plan, unless clearly apparent from the context, the following terms shall have the following meanings: (a) "Administrator" means the Committee or such entity or person to whom the Committee may delegate responsibility for administration of the Plan. (b) "Amended and Restated Effective Date" means April 1, 2001. (c) "Base Salary" means, except as set forth in the next sentence, for purposes of deferrals under the Plan, the annual base cash compensation to be paid during a Plan Year by the Company to an Eligible Employee for services rendered during such Plan Year. Notwithstanding the foregoing, solely for purposes of determining whether an Employee is an Eligible Employee, "Base Salary" means the annual base compensation from all sources (i.e., regardless of whether United States source or foreign source) to be paid during a Plan Year by Wyeth and its Subsidiaries to an Employee for services rendered during such Plan Year. (d) "Beneficiary" means one or more persons or entities (including a trust or estate) designated by a Participant to receive payment of any unpaid balance in the Participant's Deferral Account under the Plan in the event of the Participant's death. Such designation shall be made on a form provided by the Recordkeeper and approved by the Administrator in accordance with its rules as provided in Section 9(i). (e) "Board of Directors" means the Board of Directors of Wyeth. (f) "Bonus Compensation" means cash compensation to be paid during a Plan Year to an Eligible Employee by the Company for services rendered under any incentive compensation or bonus plan, program or arrangement which is maintained or which may be adopted by the Company. (g) "Change in Control" means the first to occur of any of the following events: (i) any person or persons acting in concert (excluding Wyeth benefit plans) becomes the beneficial owner of securities of Wyeth having at least twenty percent (20%) of the voting power of Wyeth's then outstanding securities (unless the event causing the twenty percent (20%) threshold to be crossed is an acquisition of voting common securities directly from Wyeth); or (ii) the consummation of any merger or other business combination of Wyeth, sale or lease of Wyeth's assets, or combination of the foregoing transactions (the "Transactions"), other than a Transaction immediately following which the shareholders of Wyeth who owned shares immediately prior to the Transaction (including any trustee or fiduciary of any Wyeth employee benefit plan) own, by virtue of their prior ownership of Wyeth's shares, at least sixty-five percent (65%) of the voting power, directly or indirectly, of (a) the surviving corporation in any such merger or other business combination; (b) the purchaser or lessee of the Wyeth's assets; or (c) both the surviving corporation and the purchaser or lessee in the event of any combination of Transactions; or (iii)within any twenty-four (24) month period, the persons who were directors immediately before the beginning of such period (the "Incumbent Directors") shall cease (for any reason other than death) to constitute at least a majority of the Board of Directors or the board of directors of a successor to Wyeth. For this purpose, any director who was not a director at the beginning of such period shall be deemed to be an Incumbent Director if such director was elected to the Board of Directors by, or on the recommendation of or with the approval of, at least two-thirds of the directors who then qualified as Incumbent Directors (so long as such director was not nominated by a person who has expressed an intent to effect a Change in Control or engage in a proxy or other control contest). (h) "Code" means the Internal Revenue Code of 1986, as amended from time to time. (i) "Committee" means the Compensation and Benefits Committee of the Board of Directors. (j) "Company" means Wyeth, a Delaware corporation ("Wyeth"), together with its wholly owned Subsidiaries in the United States, including Puerto Rico. (k) "Deemed Interest" means the amount of interest that would have been earned had an amount deferred hereunder been invested at the Deemed Rate of Interest. (l) "Deemed Rate of Interest" - means (i) prior to June 1, 1999, the average of the quarter end yields for a ten (10) year period ending September 30 of the prior year of the ten (10) year U.S. Treasury notes plus two percent (2%); and (ii) thereafter, ten percent (10%) per annum, compounded quarterly. The Deemed Rate of Interest in subparagraph (ii) above may be increased or decreased from time to time by the Committee as it may deem appropriate; provided that no such decrease shall be effective for Deemed Interest accruing prior to the latest of: (i) April 1, 2004, (ii) the date of the Committee action implementing such decrease, and (iii) the date such decrease is communicated generally to Participants; and provided, further, that, if effective on or after April 1, 2004 the Committee decreases the Deemed Rate of Interest below ten percent (10%) per annum, such decrease shall not apply to any amounts which were deferred prior to the date of such decrease, and the ten percent (10%) per annum rate shall continue to apply with respect to such amounts (unless and until another Investment Option is subsequently elected). (m) "Deferral Account" means a bookkeeping account (including all subaccounts) maintained by the Recordkeeper for each Participant to record his or her balance under the Plan. A Participant's Deferral Account shall consist of the sum of: (i) all of a Participant's deferrals under the Plan, whether made before or after the Amended and Restated Effective Date, including amounts rolled into the Predecessor Plan as of the Original Effective Date, plus or minus (ii) Investment Earnings/Losses on those amounts in accordance with the applicable crediting provisions of the Plan that relate to the Participant's Deferral Account, minus (iii) all distributions or withdrawals made to a Participant or his or her Beneficiary pursuant to the Plan that relate to his or her Deferral Account. (n) "Disability" means a period of disability during which a Participant qualifies for permanent disability benefits under the Company's long-term disability plan, or, if a Participant does not participate in such a plan, a period of disability during which the Participant would have qualified for permanent disability benefits under such a plan had the Participant been a Participant in such a plan, as determined in the sole discretion of the Administrator. If the Company does not sponsor such a plan, or discontinues to sponsor such a plan, Disability shall be determined by the Administrator in its sole discretion. (o) "Election Form" means the form or forms established from time to time by the Administrator, that a Participant completes, signs and returns to the Recordkeeper to make an election under the Plan. (p) "Eligible Employee" means an active Employee of the Company who is scheduled to receive Base Salary for the Plan Year of not less than one hundred fifty-five thousand dollars ($155,000) or such other amount as may be determined from time to time by the Administrator. The determination of whether an Employee is an Eligible Employee shall be made at the sole discretion of the Administrator. (q) "Employee" means any employee of the Company. (r) "Executive Retirement Payments" means the payments an Eligible Employee is eligible to receive from the Wyeth ERP, the Wyeth SERP, and the Wyeth SESP. (s) "Investment Earnings/Losses" means the income, gains and losses that would have been realized had an amount deferred hereunder actually been invested in the Investment Option or Options selected by a Participant. (t) "Investment Options" means the investment options as listed in Appendix A, which is attached hereto and incorporated herein by this reference, that are used as hypothetical investment options among which the Participant may allocate all or a portion of his or her Deferral Account. The Administrator may amend or change available Investment Options (other than the Deemed Rate of Interest Investment Option) from time to time as it deems appropriate in its sole discretion, as provided for in Section 7(f); it being understood that the Deemed Rate of Interest may be amended only by the Committee in accordance with Section 1(o) above. (u) "Normal Retirement Date" shall have the same meaning as set forth in the Wyeth Retirement Plan - United States. (v) "Original Effective Date" means the original effective date for the Predecessor Plan, which was July 31, 1997. (w) "Participant" means an Employee or Retiree (for so long as he or she retains a Deferral Account under the Plan): (i) who at the time of commencement of his or her participation in the Plan was an Eligible Employee, (ii) who elects to participate in the Plan, (iii) who signs and returns all enrollment forms required by the Recordkeeper, and (iv) whose signed form(s) are accepted by the Recordkeeper. The term "Participant" shall include an individual, including a Retiree, who is not making deferrals but retains a Deferral Account in the Plan (including through the Predecessor Plan). (x) "Plan" means the Wyeth Deferred Compensation Plan as set forth herein and as it may be amended and/or restated from time to time. (y) "Plan Year" means the calendar year. (z) "Predecessor Plan" means the American Home Products Corporation Deferred Compensation Plan, which was effective as of July 31, 1997, and which replaced and subsumed all Company sponsored deferral plans or programs that existed for members of a select group of management Employees prior to July 31, 1997. (aa) "Recordkeeper" means the entity selected by the Administrator from time to time to maintain records of the Deferral Accounts of Participants and provide administrative services. (bb) "Retiree" - means an individual who is Retired. (cc) "Retirement", "Retire(s)" or "Retired" means separation from employment from the Company for any reason other than a leave of absence, death or Disability on or after the earlier of the attainment of (i) age sixty-five (65) or (ii) age fifty-five (55) with five (5) Years of Service. (dd) "Retirement Benefit" means the type and form of payments available to a Participant upon Retirement as described in Section 8(b). (ee) "Retirement Benefit Installment Payout Dates" means, with respect to a deferral made by a Participant, the first day of the calendar quarter elected (initially or upon re-deferral pursuant to Section 8(b)(3)) by the Participant for the commencement of installment payments and, in the case of annual installments, the anniversary dates thereof and, in the case of quarterly installments, the first day of each calendar quarter thereafter, in each case through the final installment payout date elected by the Participant with respect to such deferral; provided that the first of such dates shall be (A) with respect to Executive Retirement Payments, not less than twelve (12) months after the Participant's Retirement date and (B) with respect to all other Retirement Benefit payments, on or after the Participant's Retirement date; and provided, further, that the final installment payout date with respect to such deferral occurs (X) no earlier than the second anniversary of the first installment payment and (Y) no later than the earlier of (I) the quarter prior to the fifteenth anniversary of the first installment payment and (II) the fifteenth anniversary of the Participant's Normal Retirement Date. (ff) "Retirement Benefit Lump Sum Payout Date" means, with respect to a deferral made by a Participant, the first day of the calendar quarter elected (initially or upon re-deferral pursuant to Section 8(b)(3)) by the Participant for a lump sum payout of a Retirement Benefit; provided that such date shall be (A) with respect to Executive Retirement Payments, not less than twelve (12) months after the Participant's Retirement date and (B) with respect to all other Retirement Benefit payments, on or after the Participant's Retirement date; and provided, further, that such date shall be no later than the fifteenth anniversary of the Participant's Normal Retirement Date. (gg) "Retirement Eligible" means a Participant who is an Employee and who has attained the earlier of (i) age sixty-five (65), or (ii) age fifty-five (55) with five (5) Years of Service. (hh) "Severance Payments" means severance payments (including pension enhancements) payable pursuant to Change in Control severance agreements entered into between Wyeth and members of the Finance Committee, Operations Committee, and other principal elected corporate officers and key Employees of Wyeth, which provide for severance benefits to such Employees in the event of their termination of employment following a Change in Control. (ii) "Short-Term Payout" means the type of payout available to a Participant as described in Section 8(a). (jj) "Short-Term Payout Date" means, with respect to a deferral made by a Participant, the first day of the calendar quarter elected by the Participant for payment of a Short-Term Payout; provided that such date shall be in a Plan Year which, in the case of an initial election, is at least three (3) but no more than fifteen (15) years after the end of the Plan Year in which the deferral occurs and in the case of a re-deferral pursuant to Section 8(a)(2), is at least three (3) but not more than fifteen (15) years after the date on which the Short-Term Payout, but for the re-deferral, would have been paid; and provided, further, that in each case such date shall be no later than the fifteenth anniversary of the Participant's Normal Retirement Date. (kk) "Subsidiary(ies)" means, as to any person, any corporation, partnership or joint venture, of which (or in which) such person, together with one or more of its subsidiaries, directly or indirectly owns more than fifty percent (50%) of the interest in the capital or profits of such corporation, partnership or joint venture. (ll) "Trust Agreement" means an agreement between the Trustee and Wyeth covering a grantor trust which Wyeth may, in its sole discretion, establish in connection with the Plan as described in Section 9(g). (mm) "Trustee" means the trustee named by Wyeth from time to time as the trustee for the Trust Agreement. (nn) "Wyeth ERP" means the Wyeth Executive Retirement Plan, as amended from time to time. (oo) "Wyeth SERP" means the Wyeth Supplemental Executive Retirement Plan, as amended from time to time. (pp) "Wyeth SESP" means the Wyeth Supplemental Employee Savings Plan, as amended from time to time. (qq) "Year of Service" shall have the same meaning as in the Wyeth Retirement Plan. (rr) "Yearly or Quarterly Installment Method" means a yearly (or quarterly) installment payment over the number of years (or quarters) selected by the Participant in accordance with the Plan, calculated as follows: the Deferral Account of the Participant shall be calculated as of the close of business on the date of reference (or, if the date of reference is not a business day, on the immediately following business day). The date of reference with respect to the first yearly (or quarterly) installment payment dates shall be as provided in Section 1(hh), and the date of reference with respect to subsequent yearly (or quarterly) installment payment dates shall be the anniversary date or dates thereof in the applicable year. The yearly (or quarterly) installment shall be calculated by multiplying the portion of the Deferral Account not allocated to the Deemed Interest Investment Option by a fraction, the numerator of which is one (1), and the denominator of which is the remaining number of yearly (or quarterly) payments due the Participant. By way of example, if the Participant elects ten (10) yearly (or forty (40) quarterly) installment payments, the first payment shall be one-tenth (1/10) (or one-fortieth (1/40)) of the Deferral Account, calculated as described in this definition. For the following payment, the payment shall be one-ninth (1/9) (or one thirty-ninth (1/39)) of the Deferral Account, calculated as described in this definition. SECTION TWO - DEFERRALS UNDER THE PREDECESSOR PLAN Prior to the Amended and Restated Effective Date of the Plan, Wyeth maintained the Predecessor Plan, which allowed members of a select group of management or highly compensated employees to defer receipt of various types of compensation. In addition, some of those employees had separate non-qualified plan balances consolidated into the Predecessor Plan as of the Original Effective Date. Except as otherwise provided herein, any Participant who has a Deferral Account as of the Amended and Restated Effective Date shall continue to have that portion of his or her Deferral Account that is in existence as of that date governed under the Plan by the distribution provisions of the Predecessor Plan as elected by the Participant prior to the Amended and Restated Effective Date. Notwithstanding the foregoing, a Participant with such a balance who is an Eligible Employee on March 31, 2001, shall have the right (1) by June 1, 2001 to amend any distribution election made prior to the Amended and Restated Effective Date to conform with the distribution options allowed under Section 8, provided that (i) such election is in a form and manner approved by the Administrator, (ii) to the extent that such amendment relates to the deferrals of Base Salary for the 2001 Plan Year, the distribution election designated by the Participant in such amendment shall govern all deferrals of Base Salary during the 2001 Plan Year and (iii) any such election does not apply (A) to the portion of each balance that is otherwise payable under a prior election within six (6) months of June 1, 2001, or (B) to the extent that it would accelerate the payment of any distribution to a date on or before December 1, 2001; and (2) thereafter, to amend any distribution election in accordance with and subject to the provisions of Section 8. Further, notwithstanding the foregoing, a Participant with such a balance may elect Investment Options with respect thereto in accordance with and subject to the provisions of Section 7(d). SECTION THREE - PARTICIPATION IN THE PLAN (a) Participation on the Amended and Restated Effective Date. A Participant in the Predecessor Plan on the Amended and Restated Effective Date shall continue to be a Participant in the Plan. An Employee who is not a Participant as of the Amended and Restated Effective Date but is an Eligible Employee, shall become a Participant as of the Amended and Restated Effective Date if he or she completes and files in a timely manner all forms required to become a Participant in the Plan in accordance with the enrollment procedures set forth below. (b) Participation after the Amended and Restated Effective Date. An Employee who is an Eligible Employee on the Amended and Restated Effective Date, and who does not initially elect to become a Participant, or an Employee who first becomes an Eligible Employee after the Amended and Restated Effective Date during a Plan Year, may commence participation in the Plan as set forth in Section 3(c) and (d) below. (c) Enrollment Requirements. As a condition to participation, each Eligible Employee who elects to participate in the Plan shall complete, execute, and return to the Recordkeeper such forms as are required from time to time by the Administrator, and all such forms must be submitted to the Recordkeeper within thirty (30) days (or such other time period as the Administrator determines in its sole discretion) of the date that an Employee is first notified that he or she is an Eligible Employee. In addition, the Administrator may establish from time to time such other enrollment requirements as it determines in its sole discretion are appropriate. (d) Commencement of Participation. Except as provided in Section 3(a) above, once an Eligible Employee has met all of the enrollment requirements set forth in the Plan, including returning all required documents within the specified time period, the Eligible Employee shall commence participation in the Plan on the first day of the month following the month in which the Eligible Employee completes all enrollment requirements; provided, however that the Administrator may designate, in its sole discretion, another commencement date that is administratively reasonable. If an Eligible Employee fails to meet all of the enrollment requirements within the period required in accordance with Section 3(c), that Employee shall not be eligible to participate in the Plan again until the first day of the following Plan Year, again subject to timely delivery to and acceptance by the Recordkeeper of the required forms. SECTION FOUR - DEFERRALS UNDER THE PLAN (a) Deferral of Base Salary and/or Bonus Compensation. (1) Subject to the following sentence, for each Plan Year, a Participant may designate a percentage of his or her Base Salary and/or Bonus Compensation that is payable in a Plan Year to be deferred in accordance with Section 6. To be eligible to make a deferral of Base Salary (but not Bonus Compensation) into the Plan, six percent (6%) of the amount of Base Salary elected must be deferred in accordance with the Plan for a Plan Year to be deferred under the Wyeth SESP for the same Plan Year in accordance with the Wyeth SESP's rules. The remaining elected deferral amount under the Plan shall then be deferred into the Plan. (2) For each Base Salary and/or Bonus Compensation deferral (adjusted to reflect Investment Earnings/Losses with respect thereto), a Participant shall make appropriate distribution elections in accordance with Section 8 below with respect to such deferral amounts. Notwithstanding any provision of the Plan to the contrary, all elections with respect to the 2002 Plan Year and each Plan Year thereafter shall be required to provide for the same Short-Term Payout Date, Retirement Benefit Lump Sum Payout Date or Retirement Benefit Installment Payout Dates, as the case may be, for all deferrals of Base Salary and Bonus Compensation in the same Plan Year. (3) A deferral election described above in this Section 4(a) with respect to any Plan Year may not be revoked, except that a Participant may revoke completely a deferral election for Base Salary not yet earned at the time of the Participant's revocation election (which revocation will itself be irrevocable for the remainder of the Plan Year). (b) Deferral of Severance Payments. (1) A Participant may designate a percentage of any Severance Payment that is payable in a Plan Year to be deferred in accordance with Section 6, provided, however, that such designation shall be given effect only if the Participant is Retirement Eligible at the time of his or her termination of employment. (2) For any Severance Payment deferral (adjusted to reflect Investment Earnings/Losses with respect thereto), a Participant shall make appropriate distribution elections in accordance with Section 8 below with respect to each such deferral. (c) Deferral of Executive Retirement Payments. (1) A Participant may designate a percentage of his or her Executive Retirement Payments to be deferred in accordance with Section 6, provided, however, that such designation shall be given effect only if the Participant is Retirement Eligible at the time of his or her termination of employment. (2) For each Executive Retirement Payment deferral (adjusted to reflect Investment Earnings/Losses with respect thereto), a Participant shall make appropriate distribution elections in accordance with Section 8 below. A Participant shall be permitted to make a separate deferral election with respect to amounts transferred to the Plan from the Wyeth SERP, the Wyeth ERP and/or the Wyeth SESP. (d) Minimum/Maximum Amount of Deferral. For each Plan Year, a Participant may elect to defer Base Salary, Bonus Compensation, Severance Payments and/or Executive Retirement Payments, if applicable, under Section 4(a)-(c) in increments of at least five percent (5%) (unless the Administrator determines otherwise in its sole discretion) up to a maximum deferral of one hundred percent (100%) of each type of deferral the Participant elects to make with respect to that Plan Year. SECTION FIVE - INVESTMENT EARNINGS/LOSSES (a) Deemed Interest Prior to the Amended and Restated Effective Date. Prior to the Amended and Restated Effective Date, amounts credited to the Predecessor Plan shall be deemed to have earned interest at the Deemed Rate of Interest then in effect, as adjusted. Such Deemed Interest shall be credited to the Deferral Accounts of Participants in accordance with the crediting provisions of Section 7(g). (b) Investment Earnings/Losses On and After the Amended and Restated Effective Date. On and after the Amended and Restated Effective Date: (i) amounts in the Plan on the Amended and Restated Effective Date, (ii) Base Salary and/or Bonus Compensation deferred under the Plan, (iii) Executive Retirement Payments deferred under the Plan, and (iv) Severance Payments deferred under the Plan, shall be deemed to have realized Investment Earnings/Losses based on the Investment Option or Options selected from time to time by the respective Participants. Such Investment Earnings/Losses shall be credited and debited to the Deferral Accounts of Participants in accordance with the debiting and crediting provisions of Section 7(g). SECTION SIX - DEFERRAL ELECTIONS (a) Deferral Elections. All deferrals made in accordance with Section 4 shall be evidenced by the Participant's properly executing and submitting such Election Forms and other forms as may be required by the Recordkeeper in accordance with its rules and the rules set forth in this Section 6. (b) Deferrals of Base Salary and/or Bonus Compensation. Except for a Participant's first year of Plan participation, a Participant's election to defer Base Salary and/or Bonus Compensation in accordance with Section 4(a) with respect to a particular Plan Year must be received by the Recordkeeper no later than the last day of the preceding Plan Year. For a Participant's first year of Plan participation, deferral elections must be made in accordance with Section 3(c) and shall only apply to Base Salary earned and Bonus Compensation first determined after the election. Each Participant must designate on the Election Form the timing and form of distribution of such Base Salary and/or Bonus Compensation (adjusted to reflect Investment Earnings/Losses with respect thereto) in accordance with the distribution options described in Section 8. (c) Deferrals of Severance Payments. A Participant's election to defer a Severance Payment in accordance with Section 4(b) must be received by the Recordkeeper prior to the date the applicable Change in Control following which a Participant becomes entitled to receive such Severance Payment. The Participant must designate on the Election Form the timing and form of distribution of the Severance Payment (adjusted to reflect Investment Earnings/Losses with respect thereto) in accordance with the options described in Section 8. (d) Deferrals of Executive Retirement Payments. A Participant's election to defer Executive Retirement Payments in accordance with Section 4(c) must be received by the Recordkeeper prior to the date of the Participant's Retirement. The Participant must designate on the Election Form the timing and form of such distribution of Executive Retirement Payments (adjusted to reflect Investment Earnings/Losses with respect thereto) in accordance with the options described in Section 8. Notwithstanding any other provision of the Plan to the contrary, an election to defer such payments made after the Amended and Restated Effective Date shall not apply (i) unless the payment elected is scheduled to commence not less than twelve (12) months after the election is made, or (ii) to any payment scheduled to commence within twelve (12) months of such election. SECTION SEVEN - DEFERRAL ACCOUNTS (a) Establishment of Deferral Accounts.The Recordkeeper shall establish and maintain an individual Deferral Account under the Plan on behalf of each Participant by or on behalf of whom deferrals have been made under Section 4 to track the Investment Earnings/Losses or other elections applicable to the Deferral Account of the Participant. The Deferral Account of each Participant may have subaccounts established and maintained as appropriate to reflect the Investment Option(s) and/or distribution elections selected by the Participant. (b) Crediting of Amounts Deferred. A Participant's Deferral Account shall be credited by the Recordkeeper for deferral amounts after such amounts are withheld and deferred pursuant to a Participant's elections on the appropriate Election Form with an amount equal to the amounts deferred by the Participant in accordance with Section 7(g). Such amounts shall be allocated among the available Investment Options in accordance with the selections made by the Participant among the Investment Options pursuant to Section 7(f). (c) Crediting/Debiting of Deferral Account. In accordance with Section 7(g) and subject to the rules and procedures that are established from time to time by the Administrator and/or the Recordkeeper (which may or may not be in writing), Investment Earnings/Losses shall be credited or debited to a Participant's Deferral Account. (d) Election of Investment Options. A Participant, in connection with his or her initial deferral election under the Plan or in connection with the amendment and restatement of the Plan, shall elect, on the Election Form(s), one or more Investment Option(s) as described in Section 7(f) below to be used to determine the additional amounts to be credited or debited to his or her Deferral Account. Such elections shall continue to apply to his or her Deferral Account unless changed in accordance with the next sentence. The Participant may (but is not required to) elect on any business day, by submitting an Election Form(s) to the Recordkeeper that is accepted by the Recordkeeper (which submission may take the form of an electronic or telephonic transmission, if required or permitted by the Administrator), to add or delete one or more Investment Option(s) to be used to determine the additional amounts to be credited or debited to his or her Deferral Account, or to change the portion of his or her Deferral Account allocated to each previously or newly elected Investment Option(s). If an election is made in accordance with the previous sentence, it shall apply the next business day (unless otherwise determined by the Administrator) and shall continue until the Participant makes any changes to those elections in accordance with the previous sentence. Notwithstanding the foregoing, in no event may a Participant elect to add or delete the Deemed Rate of Interest as an Investment Option or add amounts to or transfer amounts from that Investment Option, once any Retirement Benefit payment as described in Section 8(b) has commenced. The Company may impose such restrictions on transfers by Participants in the Company Stock Fund as it deems necessary or advisable in order to comply with federal or state securities laws (including, but not limited to Rule 16b-3 of the Securities Exchange Act of 1934, as amended). Any Participant subject to such restrictions shall be notified by the Administrator or its delegate. (e) Proportionate Allocation. In making any election described in Section 7(d) above, the Participant shall specify on the Election Form(s), in percentage increments of at least five percent (5%) (unless the Administrator determines otherwise in its sole discretion) the percentage of his or her Deferral Account to be allocated to an Investment Option. (f) Investment Options. The Administrator may, in its sole discretion, amend or change available Investment Options in accordance with Section 1(w) and subject to Section 1(o). Any discontinuation of an Investment Option shall not take effect prior to the first day of the calendar quarter that follows by at least thirty (30) days the day on which the Administrator generally gives Participants written notice of such change. If any Investment Option is discontinued, Participants having selected such Investment Option must designate another Investment Option for the portion by his or her Deferral Account allocated thereto within the timeframe designated by the Administrator. A Participant may elect any new Investment Option added by the Administrator ten (10) business days after being notified that the Investment Option was added. If the Recordkeeper receives an initial Election Form that it deems to be incomplete, unclear or improper, the Participant shall be deemed to have filed no direction with respect thereto. If the Recordkeeper receives a revised Election Form that it deems to be incomplete, unclear or improper, or fails to receive a revised Election Form when one is required to be filed, the Participant's Investment Option election then in effect shall remain in effect, except in the case of a discontinued Investment Option, in which case the Participant shall be deemed to have filed no direction with respect thereto. If the Recordkeeper possesses (or is deemed to possess as provided in the previous sentence) at any time directions as to Investment Options of less than all of the Participant's Deferral Account, the Participant shall be deemed to have elected for the undesignated portion of his or her Deferral Account the Deemed Interest Investment Option or such other Investment Option as determined by the Administrator in its sole discretion. Each Participant hereunder, as a condition to his or her participation hereunder, agrees to indemnify and hold harmless the Committee, the Administrator, and the Company, and their agents and representatives, from any losses or damages of any kind relating to the Investment Options made available hereunder. (g) Crediting or Debiting Method. The performance of each elected Investment Option (either positive or negative) will be determined by the Recordkeeper, in accordance with the rules established by the Administrator in its sole discretion, based on the performance of the actual Investment Options themselves. A Participant's Deferral Account shall be credited or debited on each business day, or as otherwise determined by the Recordkeeper in accordance with the rules established by the Administrator in its sole discretion, as though: (i) the amounts of the Participant's deferral election were actually deferred no later than the close of business on the third business day after the day on which (x) such amounts were otherwise payable to the Participant as Base Salary, Bonus Compensation, or a Severance Payment and (y) in the case of Executive Retirement Payments the date of the Participant's Retirement; (ii) a Participant's Deferral Account was actually invested in the Investment Options(s) selected by the Participant, in the percentages elected by the Participant as of such date, at the closing price on such date; and (iii) any distribution made to a Participant that decreases such Participant's Deferral Account ceased being invested in the Investment Options(s), in the percentages applicable to such day, no earlier than three (3) business days prior to the distribution, at the closing price on such date. (h) No Actual Investment. Notwithstanding any other provision of the Plan, the Investment Options are to be used for measurement purposes only, and a Participant's election of any such Investment Options, the allocation to his or her Deferral Account thereto, the calculation of additional amounts and the crediting or debiting of such amounts to a Participant's Deferral Account shall not be considered or construed in any manner as an actual investment of his or her Deferral Account in any such Investment Options. In the event that Wyeth, in its discretion, decides to invest funds in any or all of the Investment Options, no Participant shall have any rights in or to such investments themselves. Without limiting the foregoing, a Participant's Deferral Account shall at all times be a bookkeeping entry only and shall not represent any investment made on his or her behalf by Wyeth or the Trust. The Participant shall at all times remain an unsecured creditor of Wyeth. SECTION EIGHT- DISTRIBUTIONS (a) Short-Term Payouts. (1) Commencement of Payment of Short-Term Payouts. In connection with each election to defer Base Salary and/or Bonus Compensation, a Participant may elect to receive a "Short-Term Payout" with respect to each such elected deferral. Each Short-Term Payout shall be a lump-sum payment equal to the deferred amount, plus or minus Investment Earnings/Losses debited or credited thereto in the manner provided in Section 7(g), determined at the time the Short-Term Payout becomes payable. Each Short-Term Payout elected shall be payable on the Short-Term Payout Date designated by the Participant on the Election Form with respect thereto. Short-Term Payouts shall be made as soon as practicable after the applicable Short-Term Payout Date elected by the Participant on the applicable Election Form, provided, that in no event shall such payment be made later than thirty (30) days after the relevant elected date. (2) Re-Deferral of Short Term Payout. Notwithstanding anything in the Plan to the contrary, a Participant who is an active Employee, may, with respect to each elected Short-Term Payout, on a form designated by the Recordkeeper, elect (on one or more occasions) to re-defer such Short-Term Payout to another allowable Short-Term Payout Date; provided, however, that any such re-deferral election shall not apply (i) unless it is accepted by the Recordkeeper in accordance with the rules established by the Administrator in its sole discretion, and (ii) to any payment that would have been made under a prior election within twelve (12) months of the date of such new election. In the event that a scheduled Short-Term Payout, if paid, would (or in the judgment of the Administrator, acting in its sole discretion, would be reasonably likely to) result in the loss of deductibility for federal income tax purposes of any compensation paid by the Company due to the limitations of Section 162(m) of the Code in any given year, then the scheduled Short-Term Payout shall be automatically re-deferred for a period of three (3) years. Subject to the foregoing, the last Election Form accepted by the Recordkeeper shall govern the Short-Term Payout Date of that Short-Term Payout (adjusted to reflect Investment Earnings/Losses with respect thereto). (3) Changing a Short-Term Payout to a Retirement Benefit. A Participant may change any Short-Term Payout election up to the date of Retirement to an allowable Retirement Benefit payout by submitting a new Election Form to the Recordkeeper; provided that any such Election Form is (i) submitted at least twelve (12) months prior to the Retirement Benefit Lump Sum Payout Date or the initial Retirement Benefit Installment Payout Date, as the case may be, elected by the Participant, and (ii) accepted by the Recordkeeper in accordance with the rules established by the Administrator in its sole discretion; provided, further, that such election shall not apply to any payment that would have been made under a prior election within twelve (12) months of the date of such new election. (b) Retirement Benefit Payout. (1) Commencement of Retirement Benefit. A Participant who Retires shall receive, as a "Retirement Benefit", the portion of his or her Deferral Account that he or she has not elected to be distributed in the form of a Short-Term Payout, or that is not distributed in accordance with another provision of the Plan as a result of the Participant's death, Disability or termination of employment prior to Retirement. (2) Time of Payment of Retirement Benefit. An active Participant, in connection with each type of deferral of Retirement Benefits, shall elect to receive that deferral (adjusted to reflect Investment Earnings/Losses with respect thereto) on either a Retirement Benefit Lump Sum Payout Date or on Retirement Benefit Installment Payout Dates elected by such Participant. A Participant may change any Retirement Benefit payout election up to the date of Retirement to an allowable alternative Retirement Benefit payout date or dates by submitting a new Election Form to the Recordkeeper; provided that any such Election Form is (i) submitted at least twelve (12) months prior to the Retirement Benefit Lump Sum Payout Date or the initial Retirement Benefit Installment Payout Date, as the case may be, elected by the Participant, and (ii) accepted by the Recordkeeper in accordance with rules established by the Administrator in its sole discretion; and provided, further, that such election shall not apply to any payments that would have been made under a prior election or the terms of any other plan within twelve (12) months of the date of such new election. The last Election Form accepted by the Recordkeeper shall govern the payout date or dates of that Retirement Benefit (adjusted to reflect Investment Earnings/Losses with respect thereto). (3) Re-deferral of Retirement Benefits. A Retired Participant who Retires on or after the Amended and Restated Effective Date may elect to re-defer Retirement Benefits prior to the commencement of any payments thereof to another allowable Retirement Benefit Lump Sum Payout Date or other allowable Retirement Benefit Installment Payout Dates; provided that such re-deferral election shall not apply (i) to any Retiree to whom payment of any Retirement Benefit has already commenced and (ii) unless it is accepted by the Recordkeeper in accordance with the rules established by the Administrator in its sole discretion; and provided, further, that such re-deferral election shall not apply to any payments that would have been made under a prior election or the terms of any other plan within twelve (12) months of the date of such new election. (4) Form of Distribution of Retirement Benefits. A Participant, in connection with each deferral of Retirement Benefits, shall elect to receive the deferral (adjusted to reflect Investment Earnings/Losses with respect thereto) in a lump sum on a Retirement Benefit Lump Sum Payout Date elected by the Participant or in quarterly or yearly installment payments on Retirement Benefit Installment Payout Dates elected by the Participant. A Participant may change his or her election up to the date of Retirement to an allowable alternative form of payout by submitting a new Election Form to the Recordkeeper; provided that any such Election Form is (i) submitted at least twelve (12) months prior to the Retirement Benefit Lump Sum Payout Date or the initial Retirement Benefit Installment Payout Date, as the case may be, elected by the Participant, and (ii) accepted by the Recordkeeper in accordance with rules established by the Administrator in its sole discretion; and provided, further, that such election shall not apply to any payments that would have been made under a prior election or the terms of any other plan within twelve (12) months of the date of such new election. (Changes may not be made after Retirement except in accordance with Section 8(b)(3).) The Election Form last accepted by the Recordkeeper shall govern the form of a Retirement Benefit (adjusted to reflect Investment Earnings/Losses with respect thereto). Retirement Benefit payments shall be made as soon as practicable after the applicable Retirement Benefit Lump Sum Payout Date or Retirement Benefit Installment Payout Dates elected by the Participant on the applicable Election Form; provided, that in no event shall such payments be made later than thirty (30) days after the relevant elected dates. (5) Installment Payments for Retirement Benefits Allocated to Investment Options (Other than the Deemed Interest Investment Option). The amount of each installment payment with respect to the portion of a Deferral Account that is allocated to an Investment Option (other than the Deemed Interest Investment Option) shall be determined by the Yearly installment method, if the Participant elected to receive annual installments or the Quarterly Installment Method, if the Participant elected to receive quarterly installments. (6) Installment Payments for Retirement Benefits Allocated to the Deemed Interest Investment Option. The amount of each installment payment with respect to the portion of a Deferral Account that is allocated to the Deemed Interest Investment Option shall be determined by the following annuity methodology. The amount of each installment payment shall be calculated as an annuity at the beginning of the installment payout period elected by the Participant, based on: (i) the balance of the applicable portion of the Deferral Account that is allocated to the Deemed Interest Investment Option (adjusted to reflect Deemed Interest with respect thereto) on the business day prior to the payout date of each installment, (ii) the number of remaining installments, (iii) the Deemed Rate of Interest then in effect, and (iv) a final value of zero dollars ($0). To illustrate, assume a retiring Participant has a Plan balance of $100,000 as of June 30 and has elected to receive his/her payout over a ten-year period quarterly installments, commencing July 1. Assume further that the annual Deemed Rate of Interest is 10%, compounded quarterly. The amount of the installment payments to commence July 1 would be calculated based on a June 30 Plan balance of $100,000, an interest rate of 2.5% (i.e., the annual interest rate of 10% divided by four), and forty (40) payments (i.e., ten years times four quarters). Calculating an annuity at the beginning of the installment period selected by the Participant, and assuming the Deemed Rate of Interest remains unchanged throughout the payout period, the Participant would receive forty quarterly payments of $3,886.46. Over the ten-year payout period, the Participant would receive payments totaling $155,458.40, of which $100,000 represents the deferred amount and $55,458.40 represents Deemed Interest with respect thereto. Notwithstanding the foregoing, in the event that more than one Deemed Rate of Interest is applicable to a Deferral Account (as contemplated by Section 1(o) above), the foregoing calculation shall be made separately for each portion of the Deferral Account allocated to the Deemed Rate of Interest Investment Option at each applicable Deemed Rate of Interest. (c) Payment Upon Separation From Service. Notwithstanding anything in the Plan to the contrary, in the event a Participant terminates employment with the Company for reasons other than Retirement, death or Disability, or in the event that any Subsidiary that employs a Participant ceases to be a wholly-owned Subsidiary of Wyeth, the entire balance of the Participant's Deferral Account (adjusted to reflect Investment Earnings/Losses with respect thereto) shall be distributed to the Participant in a single lump sum within ninety (90) days thereafter. The foregoing shall not apply in the case of a Participant who is Retirement Eligible as of his or her date of termination of employment or the date on which such Subsidiary ceases to be a wholly-owned Subsidiary of Wyeth, as the case may be. (d) Payment Upon Death. Notwithstanding anything in the Plan to the contrary, in the event a Participant dies prior to the receipt of any or all of his or her Deferral Account, the balance of such account shall be distributed in a single lump sum to the Participant's Beneficiary(ies) within ninety (90) days following the date the Administrator is notified of his or her death. (e) Acceleration of Payments. Notwithstanding anything in the Plan to the contrary, during the twenty-four (24) month period following a Change in Control, a Participant may elect to accelerate any or all payments not currently due under the Plan to a single sum payment to be made on (i) a date that is at least twelve (12) months subsequent to such election, without a penalty or forfeiture, or (ii) with the imposition of a withdrawal penalty equal to six percent (6%) of the accelerated payment, any date within twelve (12) months of such election. Payments shall be made as soon as practicable after the date elected for payment; provided, that in no event shall payment be made later than thirty (30) days thereafter. (f) Disability Waiver. (1) Waiver of Deferral. A Participant who is determined by the Administrator to be suffering from a Disability shall be excused from fulfilling that portion of any current deferral election that would otherwise have been withheld for the Plan Year during which the Participant first suffers a Disability. During the period of Disability, the Participant shall not be allowed to make any additional deferral elections, but will continue to be considered a Participant for all other purposes of the Plan. (2) Return to Work. If a Participant returns to employment with the Company after a Disability ceases, the Participant may elect to defer additional amounts in accordance with the Plan for the Plan Year following his or her return to employment or service and for every Plan Year thereafter while an Eligible Employee and Participant, provided such deferral elections are otherwise allowed and an Election Form is delivered to and accepted by the Recordkeeper. (3) Continued Eligibility; Disability Benefit. A Participant suffering a Disability shall, for benefit purposes under the Plan, continue to be considered to remain a Participant to be eligible for the benefits provided for in this Section 8 in accordance with its provisions. Notwithstanding the above, the Administrator shall have the right to, in its sole discretion and for purposes of the Plan only, with respect to a Participant who has been determined to have suffered a Disability, pay out his or her Deferral Account balance in a lump-sum. (g) Other Distributions. Any distributions that are required to be made due to the provisions of the Predecessor Plan with respect to a type of deferral no longer eligible to be deferred as of the Amended and Restated Effective Date, shall be made in accordance with Section 2. SECTION NINE - MISCELLANEOUS (a) Funding of the Plan. The Plan is unfunded and Wyeth has no obligation to set aside, earmark, or place in trust any funds with which to pay its obligations under the Plan. Wyeth's obligation under the Plan shall not be secured in any way and a Participant's rights shall not be secured in any way and a Participant's rights shall in no way be preferred over the general creditors of Wyeth. (b) Employment. Neither the Plan nor any agreement, document, form or instrument delivered or entered into pursuant hereto constitutes an employment contract between the Company and a Participant. Nothing herein or therein shall be construed to give a Participant the right to be retained in the service of the Company, nor interfere with the right of the Company to terminate or discipline a Participant at any time. (c) Governing Law. The Plan shall be construed and interpreted under the laws of the State of New Jersey (without giving effect to the principles of conflicts of laws) and applicable provisions of federal law. (d) Taxes. The Company shall have the right to deduct from distributions otherwise payable from any deferral under the Plan any taxes required to be withheld under federal, state, or local law. For each Plan Year in which a deferral is being deducted for a Participant, the Company shall withhold from that portion of the Participant's Base Salary and/or Bonus Compensation that is not being deferred, in a manner determined by the Company, the Participant's share of FICA and other employment taxes on such deferral amounts. If necessary, the Company may reduce any amount deferred in order to comply with this Section. (e) Non-Assignable. A Participant's right to receive the amounts in his or her Deferral Account under the Plan may not be anticipated, assigned (either at law or equity), alienated, pledged, encumbered, or subjected to attachment, garnishment, levy, execution, or other legal process, and any attempt to effect any of the foregoing shall be void. (f) Minors and Incompetents. If the Administrator determines that any person to whom a payment is due hereunder is a minor or incompetent by reason of physical or mental disability, the Administrator shall have the power to cause the payments then due to such person to be made to another for the benefit of the minor or incompetent, without responsibility of the Company, the Committee, the Administrator or the Recordkeeper to see to the application of such payment, unless claim prior to such payment is made therefor by a duly appointed legal representative. Payments made pursuant to such power shall operate as a complete discharge of the Company, the Committee, and the Administrator. (g) Trust Fund. In connection with the Plan, Wyeth may, but shall not be required to, establish a grantor trust for the purpose of accumulating funds to satisfy the obligations incurred by Wyeth under the Plan. At any time, Wyeth may transfer assets to the trust to satisfy all or part of the obligations incurred by Wyeth, subject to the return of such assets at a time as determined in accordance with the terms of such trust. Any assets of the trust shall remain at all times subject to the claims of creditors of Wyeth in the event of Wyeth's insolvency, and no asset or other funding medium used to pay benefits accrued under the Plan shall result in the Plan not being considered as "unfunded" under ERISA. Notwithstanding the establishment of the trust, the right of any Participant to receive future payments under the Plan shall remain an unsecured claim against the general assets of Wyeth. (h) Severability. In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining provisions of the Plan, and the Plan shall be constructed and enforced as if the illegal or invalid provision had not been included in the Plan. (i) Beneficiary. Each Participant shall have the right, at any time, to designate his or her Beneficiary(ies) (both primary as well as contingent) to receive any benefits payable under the Plan upon the death of a Participant. The Beneficiary(ies) designated under the Plan may be the same as or different from the Beneficiary designation under any other plan of Wyeth in which the Participant participates. A Participant shall designate his or her Beneficiary(ies) by completing and signing the beneficiary designation form, and returning it to the Administrator or its designated agent. A Participant shall have the right to change his or her Beneficiary(ies) by completing, signing and otherwise complying with the terms of the beneficiary designation form and the Administrator's rules and procedures, as in effect from time to time. Upon the acceptance by the Administrator of a new beneficiary designation form, all Beneficiary designations previously filed shall be canceled. The Administrator shall be entitled to rely on the last beneficiary designation form filed by the Participant and accepted by the Administrator prior to his or her death. No designation or change in designation of a Beneficiary shall be effective until received and acknowledged in writing by the Administrator or its designated agent. If a Participant fails to designate a Beneficiary(ies) as provided above or, if all designated Beneficiaries predecease the Participant or die prior to complete distribution of the Participant's benefits, then the benefits remaining under the Plan to be paid to a Beneficiary shall be payable to the executor or personal representative of the Participant's estate. (j) Insurance. Wyeth, on its own behalf or on behalf of the Trustee of the trust, and, in its sole discretion, may apply for and procure insurance on the life of some or all Participants, in such amounts and in such forms as Wyeth may choose. Wyeth or the Trustee of the trust, as the case may be, shall be the sole owner and beneficiary of any such insurance. The Participant shall have no interest whatsoever in any such policy or policies, and at the request of Wyeth shall submit to medical examinations and supply such information and execute such documents as may be required by the insurance company or companies to whom Wyeth has applied for insurance. SECTION TEN - EMERGENCY BENEFIT In the event that the Administrator, upon the written request of the Participant, determines that the Participant has suffered an unforeseeable financial emergency, the Administrator shall in accordance with the request of the Participant (i) pay to the Participant as soon as possible following such determination, an amount not in excess of the amount needed to satisfy the emergency and any taxes payable on those amounts, and/or (ii) suspend any deferrals required to be made to the Plan by the Participant. The Participant making the request must document to the satisfaction of the Administrator that the distribution of the amount requested is necessary to satisfy the financial emergency and the amount requested is not in excess of the amount needed to satisfy the emergency and the taxes payable on those amounts. For this purpose, an "unforeseeable financial emergency" means an unanticipated emergency that is caused by an event beyond the control of the Employee that would result in severe financial hardship if the emergency distribution were not permitted and would include (i) a sudden and unexpected illness or accident of the Participant or a dependent of the Participant, (ii) a loss of the Participant's property due to casualty, or (iii) such other extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant, all as determined in the sole discretion of the Administrator. SECTION ELEVEN - ADMINISTRATION OF THE PLAN The Plan shall be administered by the Administrator which shall have full discretionary authority to interpret the Plan; to make all determinations as may be necessary or advisable; and to adopt, amend or rescind any rules, regulations, and procedures as it deems necessary or appropriate for the administration of the Plan. The interpretations, determinations, actions, and decisions of the Administrator shall be binding and conclusive for all purposes and upon all persons. The Administrator may delegate part or all of its responsibilities under the Plan to such party or parties as it may deem necessary or appropriate. SECTION TWELVE - AMENDMENT AND TERMINATION The Board of Directors may amend or revise the terms of the Plan from time to time, or may discontinue the Plan, in whole or in part, at any time. However, such amendment, revision or discontinuance of the Plan may not adversely affect a Participant's benefit(s) accrued under the Plan prior to the date of such action. SECTION THIRTEEN - CLAIMS PROCEDURE If a Participant does not receive the timely payment of the benefits that he or she believes are due under the Plan, the Participant may make a claim for benefits in the manner hereinafter provided. All claims for benefits under the Plan shall be made in writing and shall be signed by the Participant. Claims shall be submitted to the Administrator. If the Participant does not furnish sufficient information with the claim for the Administrator to determine the validity of the claim, the Administrator shall indicate to the Participant any additional information, which is necessary for the Administrator to determine the validity of the claim. Each claim hereunder shall be acted on and approved or disapproved by the Administrator within ninety (90) days following the receipt by the Administrator of the information necessary to process the claim. In the event the Administrator denies a claim for benefits in whole or in part, the Administrator shall notify the Participant in writing of the denial of the claim and notify the Participant of his right to a review of the Administrator's decision by the Committee or such entity or person delegated such authority by the Committee. Such notice by the Administrator shall also set forth, in a manner calculated to be understood by the Participant, the specific reason for such denial, the specific provisions of the Plan on which the denial is based, and a description of any additional material or information necessary to perfect the claim, with an explanation of the Plan's appeals procedure as set forth in this Section 13. If the Administrator takes no action on a Participant's claim within ninety (90) days after receipt by the Administrator, such claim shall be deemed to be denied for purposes of the following appeals procedure. Any Participant whose claim for benefits is denied in whole or in part may appeal for a review of the decision by the Administrator. Such appeal must be made within three (3) months after the applicant has received actual or constructive notice of the denial as provided above. An appeal must be submitted in writing within such period and must: (a) request a review by the Administrator of the claim for benefits under the Plan; (b) set forth all of the grounds upon which the Participant's request for review is based or any facts in support thereof; and (c) set forth any issues or comments that the Participant deems pertinent to the appeal. The Administrator shall act upon each appeal within sixty (60) days after receipt thereof unless special circumstances require an extension of the time for processing, in which case a decision shall be rendered by the Administrator as soon as possible but not later than one hundred and twenty (120) days after the appeal is received. The Administrator may require the Participant to submit such additional facts, documents or other evidence as the Administrator in its discretion deems necessary or advisable in making its review. The Participant shall be given the opportunity to review pertinent documents or materials upon submission of a written request to the Administrator, provided the Administrator finds the requested documents or materials are pertinent to the appeal. On the basis of its review, the Administrator shall make an independent determination of the Participant's eligibility for benefits under the Plan. The decision of the Administrator on any appeal of a claim for benefits shall be final and conclusive upon all parties thereto. In the event the Administrator denies an appeal in whole or in part, it shall give written notice of the decision to the Participant, which notice shall set forth, in a manner calculated to be understood by the Participant, the specific reasons for such denial and which shall make specific reference to the pertinent provisions of the Plan on which the Administrator's decision is based. APPENDIX A INVESTMENT OPTIONS 1. Balanced Portfolio 2. S&P 500 Index Portfolio or Total Stock Market Index Portfolio 3. International Equity Portfolio 4. Deemed Interest Option - a hypothetical investment option which earns interest at the Deemed Rate of Interest 5. Company Stock Fund EX-12 4 exhibit12.txt Exhibit 12 Wyeth Computation of Ratio of Earnings to Fixed Charges (3) (In Thousands, except ratio amounts)
Three Months Ended Year ended December 31, ------------------ -------------------------------------------------------------- March, 31, 2002 2001 2000 1999 1998 1997 ------------------ ---------- ------------ ------------ ---------- ---------- Earnings Income (loss) from continuing operations before federal and foreign taxes (2) $1,122,162 $2,868,747 ($1,101,040) ($1,907,299) $3,089,936 $2,364,753 Add: Fixed charges 104,665 439,058 324,887 403,694 371,986 513,860 Minority interests 4,666 20,841 26,784 30,301 620 2,421 Distributed equity income 0 0 0 0 771 0 Amortization of capitalized interest 1,500 2,497 1,917 1,803 1,487 1,057 Less: Equity income 14,353 70,372 55,991 2,122 473 9,777 Capitalized interest 17,287 94,257 43,303 15,375 9,497 12,898 ---------- ---------- ----------- ----------- ---------- ---------- Total earnings (loss) as defined $1,201,353 $3,166,514 ($846,746) ($1,488,998) $3,454,830 $2,859,416 ========== ========== =========== =========== ========== ========== Fixed Charges: Interest and amortization of debt expense $76,464 $301,145 $238,840 $343,271 $322,970 $461,370 Capitalized interest 17,287 94,257 43,303 15,375 9,497 12,898 Interest factor of rental expense (1) 10,914 43,656 42,744 45,048 39,519 39,592 ---------- ---------- ----------- ----------- ---------- ---------- Total fixed charges as defined $104,665 $439,058 $324,887 $403,694 $371,986 $513,860 ========== ========== =========== =========== ========== ========== Ratio of earnings to fixed charges (2) 11.5 7.2 - - 9.3 5.6 (1) A 1/3 factor was used to compute the portion of rental expenses deemed representative of the interest factor. (2) The results of operations for the twelve months ended December 31, 2001 are adequate to cover fixed charges as defined. However, the ratio is negatively affected by the REDUX and PONDIMIN diet drug litigation charge of $950,000 taken in the third quarter of 2001. Excluding the additional charge for the REDUX and PONDIMIN diet drug litigation, the pro forma ratio of earnings to fixed charges would be 9.4 for the twelve months ended December 31, 2001. The results of operations for the year ended December 31, 2000 are inadequate to cover total fixed charges as defined. The coverage deficiency for the year ended December 31, 2000 is $324,887. Excluding the charge for the REDUX and PONDIMIN diet drug litigation of $7,500,000, the gain on sale of Immunex common stock of $2,061,204 and the Warner-Lambert Company termination fee of $1,709,380, the pro forma ratio of earnings to fixed charges would be 8.9 for the year ended December 31, 2000. The results of operations for the year ended December 31, 1999 are inadequate to cover total fixed charges as defined. The coverage deficiency for the year ended December 31, 1999 is $403,694. Excluding the charge for the REDUX and PONDIMIN diet drug litigation of $4,750,000, the pro forma ratio of earnings to fixed charges would be 8.1 for the year ended December 31, 1999. (3) Amounts have been restated to reflect the Cyanamid Agricultural Products business as a discontinued operation.
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