-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, qN5qMLgbiqtPaOtFMsiSuDoBOs8RMvfaLkLxH/1VGy92UD7EFS7EManp4OuJz+Gv 6BlbcSSBTEKjOdKQDiU2fw== 0000005187-95-000006.txt : 199507120000005187-95-000006.hdr.sgml : 19950711 ACCESSION NUMBER: 0000005187-95-000006 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19950328 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN HOME PRODUCTS CORP CENTRAL INDEX KEY: 0000005187 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 132526821 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-01225 FILM NUMBER: 95524052 BUSINESS ADDRESS: STREET 1: 5 GIRALDA FARMS CITY: MADISON STATE: NJ ZIP: 07940 BUSINESS PHONE: 201-660-5000 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended Commission file number December 31, 1994 1-1225 ----------------- ---------------------- AMERICAN HOME PRODUCTS CORPORATION ---------------------------------- (Exact name of registrant as specified in its charter) Delaware 13-2526821 -------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) Five Giralda Farms, Madison, NJ 07940-0874 - ------------------------------- ---------- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code (201) 660-5000 -------------- Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange On Title of Each Class Which Registered ------------------- ------------------------- $2 Convertible Preferred Stock, $2.50 par value New York Stock Exchange Common Stock, $.33 - 1/3 par value New York Stock Exchange 6 - 7/8% Notes due April 15, 1997 New York Stock Exchange Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---------- ---------- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X ----------- State the aggregate market value of the voting stock held by nonaffiliates of the registrant. (The aggregate market value shall be computed by reference to the price at which the stock was sold, or the average bid and asked prices of such stock, as of a specified date within 60 days prior to the date of filing). Aggregate market value at March 1, 1995 - $21,989,327,384 Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date (applicable only to corporate registrants). Outstanding at March 1, 1995 Common Stock, $.33 - 1/3 par value 306,679,958 Documents incorporated by reference: list hereunder the following documents if incorporated by reference and the part of the Form 10-K into which the document is incorporated: (1) any annual report to security holders; (2) any proxy or information statements; and (3) any prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of 1933 (the listed documents should be clearly described for identification purposes). (1) 1994 Annual Report to Shareholders - In Parts I, II and IV (2) Proxy Statement filed March 21, 1995 - In Parts III and IV PART I ITEM 1. DESCRIPTION OF BUSINESS ----------------------- General ------- American Home Products Corporation (the "Company"), a Delaware corporation organized in 1926, is engaged in the discovery, development, manufacture, distribution and sale of a diversified line of products in three business segments: health care products, agricultural products and food products. Health care products include branded and generic ethical pharmaceuticals, biologicals, nutritionals, consumer health care products, medical supplies and diagnostic products, animal biologicals and pharmaceuticals and feed additives. The Company holds majority interests in Genetics Institute, Inc. and Immunex Corporation, each a significant biopharmaceutical company whose stock is publicly traded. Agricultural products include crop protection and pest control products such as herbicides, fungicides, insecticides and plant growth regulators. Food products include entrees, side dishes, spreadable fruit products, snacks and other food products. In late 1994, the Company acquired all of the outstanding common stock of American Cyanamid Company ("Cyanamid"). The aggregate purchase price to acquire all of Cyanamid including related fees and expenses was approximately $9.6 billion. The acquisition was financed through the sale by the Company and certain of its subsidiaries of privately placed short- term notes and with the Company's general corporate funds. Additional information relating to the Cyanamid acquisition and certain other acquisitions and divestitures is set forth in Notes 1 and 2 of the Notes to Consolidated Financial Statements and in the Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's 1994 Annual Report to Shareholders, and is incorporated herein by reference. Unless stated to the contrary, or unless the context otherwise requires, references to the Company in this report include American Home Products Corporation, its divisions and subsidiaries. Industry Segments ----------------- Financial information, by geographic location and by the industry segments of the Company, for the three years ended December 31, 1994 is set forth on page 56 of the Company's 1994 Annual Report to Shareholders and is incorporated herein by reference. The Company is not dependent on any single or major group of customers for its sales. The Company currently manufactures, distributes and sells a diversified line of products in three I-1 business segments. The product designations appearing in differentiated type herein are trademarks. 1. HEALTH CARE PRODUCTS - Pharmaceuticals - This sector includes a wide variety of ethical pharmaceuticals and biological products for human and veterinary use which are promoted and sold worldwide primarily to wholesalers, pharmacies, hospitals and doctors. Some of these sales are made through large buying groups representing certain of these customers. Principal product categories for human use include female health care, infant nutritional, cardiovascular, mental health, anti- inflammatory, anti-infective, anti-cancer, analgesic and vaccine products, as well as generics. Principal veterinary product categories include vaccine products, antibiotics, analgesics and feed additives. The Company manufactures these products in the United States and Puerto Rico, and in 21 foreign countries. Except for the female health care category, no single category of products accounted for more than 10% of Health Care Products segment sales in 1994. Within the female health care category, sales of PREMARIN exceeded 10% of Health Care Products segment sales in 1994. The operating income from the female health care category in the aggregate, and PREMARIN individually, did not exceed 10% of total sales but did account for more than 10% of the Company's consolidated operating income before and after taxes. Consumer health care - The Company's over-the-counter health care products include analgesics, cough/cold/allergy remedies, hemorrhoidal and asthma relief items, vitamins and in-home diagnostic test products. These products are generally sold to wholesalers and retailers, and are primarily promoted to consumers through advertising. These products are manufactured in the United States and Puerto Rico and in 17 foreign countries. No single consumer health care product or line of products accounted for more than 10% of Health Care Products segment sales in 1994. Medical supplies and diagnostic products - Principal products in this segment include needles and syringes, catheters, tympanic thermometers, wound closure products, ophthalmic products, exercise equipment, arthroscopic instruments, diagnostic instrumentation, disposable laparoscopic and endoscopic surgical instruments and other hospital products which are promoted and sold principally to doctors, hospitals, other health care institutions and wholesalers. Buying groups also represent certain of these customers. In addition to the United States and Puerto Rico, these products are manufactured in 11 foreign countries. I-2 No single product or line of products in this sector accounted for more than 10% of Health Care Products segment sales in 1994. Further information regarding the principal products in the Health Care Products segment and the principal markets served therein is included in the text on pages 10 through 33 and pages 39 and 40 of the Company's 1994 Annual Report to Shareholders, which pages are incorporated herein by reference. 2. AGRICULTURAL PRODUCTS - This segment is new in 1994 and results from the Cyanamid acquisition. Agricultural products include herbicides, insecticides and fungicides which are promoted to consumers through advertising and generally sold directly to wholesalers and retailers. In addition to the United States, these products are manufactured in nine foreign countries. Further information regarding the principal products in the Agricultural Products segment and the principal markets served therein is included on pages 12, 13, 37 and 38 of the Company's 1994 Annual Report to Shareholders, which pages are incorporated herein by reference. 3. FOOD PRODUCTS - Products in this segment include prepared pastas and specialty food, condiments, snack products and jams, which are promoted to consumers through advertising and generally sold directly to wholesalers and retailers. Product line sales in 1994 under the CHEF BOYARDEE trademark exceeded 10% of Food Products segment sales but did not exceed 10% of total consolidated sales. Further information regarding the principal products in the Food Products segment and the principal markets served therein is included on pages 12, 13 and 35 of the Company's 1994 Annual Report to Shareholders, which pages are incorporated herein by reference. Sources and Availability of Raw Materials ----------------------------------------- Generally, raw materials and packaging supplies are purchased in the open market from various outside vendors. The loss of any one source of supply would not have a material adverse effect on the Company's financial position or results of operations. Patents and Trademarks ---------------------- The Company owns, has applications pending for, and is licensed under many patents relating to a wide variety of I-3 products. The Company believes that its patents and licenses are important to its business, but no one patent or license (or group of related patents or licenses) currently is of material importance in relation to its business as a whole. In the pharmaceuticals area, substantially all of the Company's major products are no longer patent protected. The oral contraceptive brand TRIPHASIL lost its patent protection in the United States in May 1993. SECTRAL and CORDARONE also lost patent protection in the United States in May 1993. The non-steroidal anti-inflammatory ("NSAID") LODINE remains under patent protection in the United States until early 1997. Other prescription products, such as the cardiovasculars INDERAL LA and INDERIDE LA remain patent protected until early 1996. EFFEXOR, a recently approved antidepressant, will have patent protection into 2007. PIPRACIL, a broad spectrum, semi-synthetic penicillin, remains protected by a patent for the product until 1995. TETRAMUNE, a combination vaccine, will have patent protection until 2007. SUPRAX, a third-generation cephalosporin antibiotic, remains under patent protection until 2002. VERELAN, a calcium channel blocker, will have patent protection until 2006. Sales in the consumer health care and medical supplies and diagnostic products businesses are largely supported by the Company's trademarks and brand names, as are food product sales. These trademarks and brand names are a significant part of the Company's business and have a perpetual life as long as they remain in use. For a discussion of generic and store brands competition in the consumer health care business, see "Competition," below. In the Agricultural Products segment, the imidazolinone herbicide products, SCEPTER and PURSUIT, will have patent protection until at least 2006. Seasonality ----------- Sales in the Agricultural Products segment are seasonal and tend to be heavily concentrated in the first six months of each year. Sales of consumer health care products are affected by seasonal demand for cold/flu products and, as a result, second quarter results for consumer health care products tend to be lower than results in other quarters. Competition ----------- HEALTH CARE PRODUCTS- Each of the industry segments in which the Company is engaged is highly competitive. Within the ethical pharmaceutical business, the Company has at least 30 major multi-national competitors and numerous other smaller domestic and foreign competitors. Based on net sales, the Company believes it ranks within the top 10% of major competitors within this I-4 category. The consumer health care business also has numerous competitors, of which approximately 20 represent major competitors. Within this business, the Company believes it ranks within the top 10%, based on net sales. The Company's competitive position is affected by several factors including resources available to develop, enhance and promote products, customer acceptance, product quality, patent protection, development of alternative therapies by competitors, governmental reforms on pricing and generic substitutes. For prescription products, the growth of generic substitutes is further promoted by legislation, regulation and various incentives enacted and promulgated in both the public and private sectors. The growth of managed care organizations, such as health maintenance organizations ("HMOs") and pharmaceutical benefit management companies, has resulted in further competitive pressures on health care products. Other significant competitive factors in the Health Care Products segment are scientific and technological advances, product quality, price and effective communication of product information to physicians, pharmacists, hospitals and trade customers. While naturally-sourced PREMARIN no longer has patent protection, it is not presently subject to generic competition in the United States. In 1994, a generic drug company announced it had filed an Abbreviated New Drug Application with the U.S. Food and Drug Administration ("FDA") for one strength of conjugated estrogens tablet. The Company cannot predict the timing of FDA action on this application. While the introduction of generic competition ordinarily is expected to significantly impact the market for a brand name product, the extent of such impact on PREMARIN and related products cannot be predicted with certainty due to a number of factors, including the nature of the product and the introduction of new combination estrogen and progestin products in the PREMARIN family. U.S. health care costs will continue to be a subject of debate in 1995. Similarly, in international markets, health care spending is subject to increasing governmental scrutiny, much of which is focused on pharmaceutical prices. While the Company cannot predict the impact proposed health care legislation will have on the Company's worldwide results of operations, the Company believes that the pharmaceutical industry will continue to play a very positive role in helping to contain global health care costs through the development of innovative products. However, it is expected that global market forces will continue to constrain price growth throughout 1995 and beyond. The growth of consumer health care generic and store brands continued to impact some of the Company's branded product line categories in 1994. Competition is also severe for the medical supplies and diagnostics business, particularly in the needle and syringe product line. I-5 AGRICULTURAL PRODUCTS - The Agricultural Products business has over 40 domestic and foreign competitors of which the Company's Agricultual Products segment ranks in the top 30%, based on net sales. Among these companies, the top ten competitors are multi- national, representing over 75% of the sales in the agrochemical market. Competitive factors include product efficacy, distribution channels and resource availability for development of new products and improvement of existing ones. There can also be generic pressure when products are no longer patent protected, although it is estimated that approximately 35% of products in the market are generic. FOOD PRODUCTS- In the Food Products segment, product quality, price and relevance to contemporary family needs are important competitive factors. In all business segments, advertising and promotional expenditures are significant costs to the Company and are necessary to effectively communicate information concerning the Company's products to health professionals, to the trade and to consumers. Research and Development ------------------------ Worldwide research and development activities are focused on developing and bringing to market new drugs to treat and/or prevent some of the most serious health care problems. Research and development expenditures totaled $817,090,000 in 1994, $662,689,000 in 1993 and $552,450,000 in 1992, with approximately 85% of these expenditures in the ethical pharmaceutical area. The Company received FDA approval in 1994 for PREMPRO and PREMPHASE. The Company currently has four New Drug Applications and three Supplemental Drug Applications filed with the FDA for review and 48 active Investigational New Drug Applications pending, of which 21 pertain to Cyanamid. During 1994, several major collaborative research and development arrangements continued with other pharmaceutical and biotechnology companies. Research and development projects continued at Genetics Institute, Inc., Immunex Corporation and at the Company's other health care operations. It is not anticipated, however, that the products developed as a result of these activities will contribute significantly to revenues or operating profits in the near future. The extent, if any, of subsequent contributions cannot presently be predicted. Additionally, the agricultural products business has three products awaiting approval by the United States Environmental Protection Agency ("EPA"). I-6 Regulation ---------- The Company's various health care, food and agricultural products are subject to regulation by government agencies throughout the world. The primary emphasis of these requirements is to assure the safety and effectiveness of the Company's products. In the United States, the FDA, under the Federal Food, Drug and Cosmetic Act (the "Act"), including several recent amendments to the Act, regulates many of the Company's health care and food products, including human and animal pharmaceuticals, vaccines, consumer health care products, medical supplies and diagnostic products and food products. FDA's powers include the imposition of criminal and civil sanctions against companies, including seizures of regulated products and criminal sanctions against individuals. To facilitate compliance, the Company from time to time may institute voluntary compliance actions such as product recalls when it believes it is appropriate to do so. In addition, many states have similar regulatory requirements. Most of the Company's pharmaceutical products, and an increasing number of its consumer health care products, are regulated under the FDA's new drug approval processes, which mandate pre-market approval of all new drugs. Such processes require extensive time, testing and documentation for approval, resulting in significant costs of new product introductions. The FDA has exercised its enforcement powers more aggressively in recent years, increasing both the number and intensity of its factory inspections. The Company's pharmaceutical business is also affected by the Controlled Substances Act, administered by the Drug Enforcement Administration, which regulates strictly all narcotic and habit-forming drug substances. The Company devotes significant resources to dealing with the extensive federal and state regulatory requirements applicable to its products. Federal law also requires drug manufacturers to pay rebates to state Medicaid programs in order for their products to be eligible for federal matching funds under the Social Security Act. Additionally, a number of states are, or may be, pursuing similar initiatives for rebates to Pharmaceutical Assistance to the Elderly programs and other strategies, to contain the cost of pharmaceutical products. The federal Vaccine for Children Entitlement program enables states to purchase vaccines at federal vaccine prices and limits federal vaccine price increases to the increase in the consumer price index. Federal and state rebate programs as well as infant nutritional products rebates under the federally sponsored Women, Infants and Children program are expected to continue. As a result of governmental investigations relating to CYGRO coccidiostat combinations, FDA review of Cyanamid's animal health products has been subject to the FDA's Application Integrity Policy and, as a result, the FDA has generally refused to review any of Cyanamid's new animal drug I-7 applications. Cyanamid has implemented procedures designed to remove itself from the Application Integrity Policy, and the FDA is presently evaluating these procedures. Cyanamid's human pharmaceutical and vaccine businesses have not been affected by this matter. The FDA is continuing to consider possible restriction on the use of sulfamethazine additives (which are sold by Cyanamid in combination with penicillin and tetracycline additives) in animal feed. The manufacture and sale of pesticides are regulated by the EPA. No new pesticide, and no existing pesticide for a new use, may be manufactured, processed or used without prior notice to the EPA. Outside the United States, agricultural chemicals are regulated by various agencies, often by standards which differ from those in the United States. Environmental ------------- Certain of the Company's operations are affected by a variety of federal, state and local environmental protection laws and regulations and the Company has, in a number of instances, been notified of its potential responsibility relating to the generation, storage, treatment and disposal of hazardous waste. In addition, the Company has been advised that it may be a responsible party in several sites on the National Priority List created by the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"). (See Item 3. Legal Proceedings.) In connection with the spin-off in 1993 by Cyanamid of Cytec Industries Inc. ("Cytec"), Cyanamid's former chemicals business, Cytec assumed the environmental liabilities relating to the chemicals businesses, except for the former chemical business site at Bound Brook, New Jersey. This assumption is not binding on third parties, and if Cytec were unable to satisfy these liabilities, they would, in the absence of other circumstances, be enforceable against Cyanamid. It is the Company's policy to accrue environmental cleanup costs if it is probable that a liability has been incurred and an amount is reasonably estimated. For further information on environmental matters, see Note 6 of the Notes to Consolidated Financial Statements which is incorporated herein by reference. Employees --------- At the end of 1994, the Company had 74,009 employees world- wide, with 39,177 employed in the United States including Puerto Rico. Approximately 33% of worldwide employees are represented by various collective bargaining groups. Relations with organized labor remain harmonious and responsible. I-8 Financial Information about the Company's Foreign and ----------------------------------------------------- Domestic Operations ------------------- Financial information about foreign and domestic operations for the three years ended December 31, 1994, as set forth on page 56 of the Company's 1994 Annual Report to Shareholders, is incorporated herein by reference. ITEM 2. PROPERTIES ---------- The Company's executive offices and the headquarters for its domestic consumer health care and food products businesses are located in Madison, New Jersey. The Company's domestic and international pharmaceutical operations and its international consumer health care business are headquartered in three executive/administrative buildings in Radnor and St. Davids, Pennsylvania. Sherwood, one of the Company's principal medical supplies and diagnostic operations, maintains its headquarters in St. Louis, Missouri. The agricultural products business maintains its headquarters in Wayne, New Jersey. The Company's foreign subsidiaries and affiliates, which generally own their properties, have manufacturing facilities in 21 countries outside the United States. The following are the principal manufacturing plants (M) and research laboratories (R) of the Company's operating units: INDUSTRY SEGMENT Health Care Products: Andover, Massachusetts (M,R) Askeaton, Ireland (M) Baie d'Urfe, Canada (M) Canlubang, Philippines (M) Catania, Italy (M,R) Deland, Florida (M) Fort Dodge, Iowa (M,R) Georgia, Vermont (M) Gosport, United Kingdom (M,R) Guayama, Puerto Rico (M) Havant, United Kingdom (M) Malvern, Pennsylvania (M) Marietta, Pennsylvania (M,R) Mason, Michigan (M) Monmouth Junction, New Jersey (R) Montreal, Canada (M,R) - 2 sites Newbridge, Ireland (M) Pearl River, New York (M,R) Radnor, Pennsylvania (R) Richmond, Virginia (M) Rouses Point, New York (M,R) Sanford, North Carolina (M,R) West Chester, Pennsylvania (M) I-9 Food Products: Milton, Pennsylvania (M,R) Vacaville, California (M,R) Agricultural Products: Catania, Italy (M,R) Genay, France (M) Gravelines, France (M) Hannibal, Missouri (M) Pearl River, New York (M,R) Princeton, New Jersey (R) Resende, Brazil (M,R) All of the above properties are owned except the land and a 757,000 sq. ft. facility in Guayama, Puerto Rico, which are under a lease expiring in 2007 with options for renewal and purchase. The Company also owns or leases a number of other smaller properties in the United States which are used for manufacturing, warehousing and office space. ITEM 3. 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. Included among these cases are lawsuits arising out of the use of the Company's DTP and polio vaccines and its agricultural products. There are approximately 532 cases pending, predominantly in the United Kingdom, based primarily on alleged dependence on the tranquilizer ATIVAN. Substantially all of the cases in the United Kingdom have been supported by governmental legal aid funding. During 1994, the Legal Aid Board in England, where more than 1,100 cases had been pending, discontinued funding for the litigation and, as a result, only 39 cases remain pending in that jurisdiction. The Northern Ireland Legal Aid Board has also discontinued the funding of the litigation in that jurisdiction. In Scotland, where 287 cases remain, the issue of continued funding is also being considered by the Scottish Legal Aid Board. The Company had been served with more than 160 lawsuits in federal and state courts in 32 states and the District of Columbia alleging injuries as a result of use of the NORPLANT SYSTEM, the Company's implantable contraceptive containing levonorgestrel. Forty-five of the cases have been filed as class actions and the remainder are proceeding as individual suits. In June 1994, a class of women who have had removal difficulties, scarring and related injuries allegedly as a result of the NORPLANT SYSTEM was certified. Doe v. Wyeth- ------------ Ayerst Laboratories (Cir. Ct. Ill., Cook Cty. 1993). ------------------- Plaintiffs later amended the suit to allege a variety of other injuries and increase the amount of damages demanded. The Company is contesting the certification of the class. On December 6, 1994, the Judicial Panel on Multi-District I-10 Litigation ordered that all NORPLANT SYSTEM lawsuits filed in federal court be consolidated in the United States District Court for the Eastern District of Texas in Beaumont. In 1986, due to the lack of availability of traditional insurance coverage, the Company began to completely self- insure against product liability risk. In 1988, the Company obtained liability coverage in excess of certain self- insurance limits from various carriers; however, coverage remains substantially below pre-1986 levels. On March 7, 1994, an action was brought against the Company by Johnson & Johnson ("J&J") and Ortho Pharmaceutical -------------------------------------------------- Corporation ("Ortho") seeking at least $160 million in -------------------- damages alleged to have arisen from a purportedly improper preliminary injunction. The preliminary injunction, which was granted in a patent infringement lawsuit brought by the Company, had prevented J&J and Ortho from marketing an oral contraceptive containing norgestimate for approximately 10 months until it was overturned by the Court of Appeals for the Federal Circuit in a two-to-one decision. In the district court in the underlying action, the jury found against the Company on its claim of infringement and the Company has appealed the jury verdict. The jury also rejected J&J's unfair competition claim for damages relating to the purportedly improper preliminary injunction. J&J has not appealed the denial of its unfair competition claim. On October 14, 1993, Rite Aid Corporation, Revco D.S. Inc. and other retail drug chains and retail pharmacies filed an action in U.S. District Court (M.D. Pa.) against the Company, other pharmaceutical manufacturers and a pharmacy benefit management company alleging that the Company and other defendants provided discriminatory price and promotional allowances to managed care organizations and others in violation of the Robinson-Patman Act. The complaint further alleges collusive conduct among the defendants related to the alleged discriminatory pricing in violation of the Sherman Antitrust Act as well as certain other violations of common law principles of unfair competition. Subsequently, numerous other cases, many of which are purported class actions brought on behalf of retail pharmacies and retail drug and grocery chains were filed in various federal courts against the Company as well as other pharmaceutical manufacturers and wholesalers. These cases make one or more similar allegations of violations of federal or state antitrust or unfair competition laws. In addition, a mail order pharmacy plaintiff alleges that it was forced out of business and certain plaintiffs also allege that the defendants' patents covering brand name prescription drugs give the defendants power to enter into exclusionary arrangements with certain managed care customers and seek compulsory patent licenses. All of the federal actions have been or are expected to be consolidated for pretrial purposes. Brand Name Prescription Drug Antitrust Litigation ----------------------- ------------------------- (MDL 997 M.D. Pa.). The above actions, which currently involve more than 3,000 individual I-11 pharmacy plaintiffs, seek treble damages in unspecified amounts and injunctive and other relief. In addition, similar litigation has been brought in various state courts, including purported class actions in Alabama, Wisconsin, Washington, Minnesota and California where six such actions have been consolidated. The Company has been involved in various antitrust suits and government investigations relating to its marketing and sale of infant formula. The antitrust lawsuits, which were commenced in various federal and state courts, allege in general that the Company conspired with one or more of its competitors to fix prices of infant formula and to monopolize the market for infant formula products. As previously disclosed, the Company has settled most of the cases as well as a Federal Trade Commission proceeding. The Company is currently a defendant in litigation brought in federal court by the State of Louisiana and in purported class actions in Alabama and Texas (under the Texas Deceptive Trade Practices Act) state courts on behalf of indirect purchasers of infant formula in those states. The Company is also a defendant in a purported class action brought under Massachusetts state law on behalf of indirect purchasers of infant formula in Massachusetts. The government agencies that have been conducting investigations of pricing and marketing practices in the infant formula industry include three state attorneys general. The Company has been advised that two other state attorneys general have terminated their investigations of the Company without any action. In addition, the Canadian Bureau of Competition Policy is conducting civil and criminal inquiries into infant formula pricing and marketing practices in Canada. The Federal Trade Commission ("FTC") and the state of Florida have subpoenaed information concerning a marketing program for certain crop protection products. The FTC has also subpoenaed information concerning Cyanamid's opposition to a petition by another company to the FDA to reclassify sutures and a patent infringement lawsuit against that company. An FTC consent order entered into by the Company in connection with the acquisition of Cyanamid requires the Company to divest the Wyeth-Ayerst tetanus and diphtheria vaccines businesses and Lederle's rotavirus research program. The order also requires prior FTC approval of certain acquisitions involving tetanus, diphtheria and rotavirus vaccines and imposes certain reporting obligations. As discussed in Item I, the Company is a party to, or otherwise involved in, legal proceedings under CERCLA and similar state laws, directed at the cleanup of 63 Superfund sites, including the Cyanamid-owned Bound Brook site. The Company's potential liability varies greatly from site to site. For some sites, the potential liability is de minimis and, for others, the final costs of cleanup have not yet been determined. As assessments and cleanups proceed, these I-12 liabilities are reviewed periodically and adjusted as additional information becomes available. Environmental liabilities are inherently unpredictable. The liabilities can change substantially due to such factors as additional information on the nature or extent of contamination, methods of remediation required, and other actions by governmental agencies or private parties. The 63 Superfund sites exclude sites for which Cytec assumed full liability and agreed to indemnify Cyanamid but include certain sites for which there is shared responsibility between Cyanamid and Cytec. The Company has no reason to believe that it has any practical exposure to any of the liabilities against which Cytec has agreed to assume and indemnify Cyanamid. During 1992, the EPA filed an action against Ekco Housewares ("EKCO"), a former subsidiary of the Company, in the U.S. District Court for the Northern District of Ohio alleging violation of federal and state financial assurance regulations in connection with the required closure of a lagoon at Ekco's Massillon, Ohio facility. The Company assumed the defense of the action pursuant to an indemnification agreement. In January 1994, the court entered judgment against EKCO in the amount of $4,606,000, concluding that Ekco had violated regulations governing the posting of financial assurance for closure, post-closure and liability coverage. An appeal has been filed, with judgment stayed during the pendency of the appeal. For information concerning certain litigation involving Genetics Institute, Inc., see Part I, Item 3 of Genetics Institute, Inc., Annual Report on Form 10-K for the fiscal year ended December 31, 1994, which Item is incorporated herein by reference. For information concerning certain litigation involving Immunex Corporation, see Part I, Item 3 of Immunex Corporation, Annual Report on Form 10-K for the fiscal year ended December 31, 1994, which Item is incorporated herein by reference. In the opinion of the Company, although the outcome of any litigation cannot be predicted with certainty, the ultimate liability of the Company in connection with pending litigation and other matters described above will not have a material adverse effect on the Company's consolidated financial position but could be material to the results of operation in any one accounting period. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. I-13 EXECUTIVE OFFICERS OF THE REGISTRANT AS OF March 27, 1995 - --------------------------------------------------------- Each officer is elected to hold office until his successor is chosen or until his earlier removal or resignation. None of the executive officers is related to another: Elected to Name Age Offices and Positions Office ---- --- --------------------- ------ John R. Stafford 57 Chairman of the Board, December 1986 President and Chief Executive Officer, Chairman of Executive, Nominating, Finance and Operations Committees Business Experience: 1990 to date, Chairman of the Board, President and Chief Executive Officer (President to May 1990 and from February 1994) Robert G. Blount 56 Executive Vice President, August 1987 Director, Member of Executive, Finance and Operations Committees Business Experience: 1990 to date, Executive Vice President Stanley F. Barshay 55 Senior Vice President August 1987 Member of Finance and Oper- ations Committees Business Experience: 1990 to date, Senior Vice President Joseph J. Carr 52 Senior Vice President May 1993 Member of Finance and Oper- ations Committees Business Experience: To April 1991, Vice President April 1991 to May 1993, Group Vice President May 1993 to date, Senior Vice President I-14 Elected to Name Age Offices and Positions Office ---- --- --------------------- ------ Fred Hassan 49 Senior Vice President, May 1993 Director, Member of Finance and Operations Committees Business Experience: To March 1993, President of Wyeth-Ayerst Laboratories Division March 1993 to May 1993, Group Vice President, May 1993 to date, Senior Vice President Louis L. Hoynes, Jr. 59 Senior Vice President and November 1990 General Counsel Member of Finance and Operations Committees Business Experience: To November 1990, Partner, Willkie Farr & Gallagher November 1990 to date, Senior Vice President and General Counsel John R. Considine 44 Vice President - Finance February 1992 Member of Finance and Oper- ations Committees Business Experience: To February 1992, Vice President and Treasurer February 1992 to date, Vice President - Finance E. Thomas Corcoran 47 Vice President, July 1993 Member of Finance and Operations Committees Business Experience: To July 1993, President, Fort Dodge Laboratories July 1993 to date, Vice President I-15 Elected to Name Age Offices and Positions Office ---- --- --------------------- ------ Rene R. Lewin 48 Vice President, Member of May 1994 Finance Committee Business Experience: To May 1994, Executive Director Human Resources - Worldwide Pharmaceutical Division, Eli Lilly and Company May 1994 to date, Vice President - Human Resources David Lilley 48 Vice President January 1995 Member of Finance and Operations Committees Business Experience: To September 1990, Managing Director, Cyanamid Great Britain Ltd. September 1990 to November 1991, Vice President, Cyanamid International Lederle Division November 1991 to March 1992, President, Cyanamid International Chemicals Division March 1992 to January 1995, Group Vice President, American Cyanamid Company January 1995 to date - Vice President William J. Murray 49 Vice President January 1995 Member of Finance and Operations Committees Business Experience: To September 1992, President, Agricultural Division, American Cyanamid Company September 1992 to January 1995, Group Vice President, American Cyanamid Company January 1995 to date, Vice President Thomas M. Nee 55 Vice President - Taxes May 1986 Member of Finance Committee Business Experience: 1990 to date, Vice President - Taxes I-16 PART II ------- ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS ---------------------------------------------------- The New York Stock Exchange is the principal market on which the Company's common stock is traded. Tables showing the high and low sales price for the stock, as reported in the consolidated transaction reporting system, and the dividends paid per common share for each quarterly period during the past two years, as shown on page 58 of the Company's 1994 Annual Report to Shareholders, are incorporated herein by reference. There were 70,371 holders of record of the Company's common stock as of March 1, 1995. ITEM 6. SELECTED FINANCIAL DATA ----------------------- The data with respect to the last five fiscal years, appearing in the Ten-Year Selected Financial Data presented on pages 42 and 43 of the Company's 1994 Annual Report to Shareholders, are incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ------------------------------------------------- Management's Discussion and Analysis of Financial Condition and Results of Operations, appearing on pages 59 through 62 of the Company's 1994 Annual Report to Shareholders, is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ------------------------------------------- The Consolidated Financial Statements and Notes on pages 44 through 56 of the Company's 1994 Annual Report to Share- holders, the Report of Independent Public Accountants and the Management Report on Financial Statements on page 57, and Quarterly Financial Data on page 58, are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE ----------------------------------------------------------- None. II-1 PART III -------- ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT -------------------------------------------------- (a) Information relating to the Company's directors is incorporated herein by reference to pages 3 through 6 of a definitive proxy statement filed with the Securities and Exchange Commission on March 21, 1995 ("the 1995 Proxy Statement"). (b) Information relating to the Company's executive officers as of March 27, 1995 is furnished in Part I hereof under a separate unnumbered caption ("Executive Officers of the Registrant"). ITEM 11. EXECUTIVE COMPENSATION ---------------------- Information relating to executive compensation is in- corporated herein by reference to pages 11 through 17 of the 1995 Proxy Statement. Information with respect to compensation of directors is incorporated herein by reference to pages 7 and 8 of that proxy statement. Information relating to the Compensation Committee Interlocks and Insider Participation is incorporated by reference to pages 24 and 25 of the 1995 Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT --------------------------------------------------- Information relating to security ownership is incorporated by reference to pages 8 through 10 of the 1995 Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ---------------------------------------------- None. III-1 PART IV ------- ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K --------------------------------------------------- (a) 1. Financial Statements -------------------- The following Consolidated Financial Statements, related Notes and Report of Independent Public Accountants, included on pages 44 through 57 of the Company's 1994 Annual Report to Shareholders, are incorporated herein by reference. Pages ----- Consolidated Balance Sheets as of December 31, 1994 and 1993 44 Consolidated Statements of Income for the years ended December 31, 1994, 1993 and 1992 45 Consolidated Statements of Retained Earnings and Additional Paid-in Capital for the years ended December 31, 1994, 1993 and 1992 46 Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1993 and 1992 47 Notes to Consolidated Financial Statements 48-56 Report of Independent Public Accountants 57 (a) 2. Financial Statement Schedules ----------------------------- The following consolidated financial information is included in Part IV of this report: Pages ----- Report of Independent Public Accountants on Supplemental Schedule IV-6 Schedule II - Valuation and Qualifying Accounts for the years ended December 31, 1994, 1993 and 1992 IV-7 Schedules other than listed above are omitted because they are not applicable. IV-1 (a) 3. Exhibits -------- Exhibit No. Description ----------- ----------- (2.1) The Registrant's Statement on Schedule 14D-1 relating to the Registrant's tender offer for all issued and outstanding shares of American Cyanamid Company, filed on August 10, 1994 (the "Schedule 14D-1"), and all exhibits and amendments thereto are hereby incorporated herein by reference. (2.2) Agreement and Plan of Merger, dated August 17, 1994, as amended, among American Home Products Corporation, AC Acquisition Corp. and American Cyanamid Company, filed as Exhibit (I) to the Report on Schedule 13D for Immunex Corporation filed by the Registrant, dated December 1, 1994 for the event which occurred on November 21, 1994 is hereby incorporated herein by reference. (3.1) Restated Certificate of Incorporation, as amended to date, is incorporated herein by reference to Exhibit (3.1) of the Registrant's Form 10-K for the year ended December 31, 1990. (3.2) By-Laws, as amended to date, is incorporated herein by reference to Exhibit (3.2) of the Registrant's Form 10-K for the year ended December 31, 1992. (4.1) Indenture, dated as of April 10, 1992, between AHPC and Chemical Bank (as successor by merger to Manufacturers Hanover Trust Company), as Trustee, is incorporated by reference to Registrant's Form 8-A dated August 25, 1992. (4.2) Supplemental Indenture, dated October 13, 1992, between AHPC and Chemical Bank (as successor by merger to Manufacturers Hanover Trust Company) as Trustee, incorporated by reference to Registrant's Form 10-Q for the quarter ended September 30, 1992. (10.1) Credit Agreement, dated as of September 9, 1994, among American Home Products Corporation, American Home Food Products, Inc., Sherwood Medical Company, A.H. Robins Company, Incorporated, the several banks and other financial institutions from time to time parties thereto and Chemical Bank, as agent for the lenders thereunder, filed as Exhibit (11(b)(2)) in Amendment No. 7 to the Schedule 14D-1 is hereby incorporated herein by reference. IV-2 ITEM 14. (Continued) (a) 3. Exhibits -------- Exhibit No. Description ----------- ----------- (10.2) Credit Agreement, dated as of September 9, 1994, among American Home Products Corporation, American Home Food Products, Inc., Sherwood Medical Company, A.H. Robins Company, Incorporated, the several banks and other financial institutions from time to time parties thereto and Chemical Bank, as agent for the lenders thereunder, filed as Exhibit (11(b)(3)) in Amendment No. 7 to the Schedule 14D-1 is hereby incorporated herein by reference. (10.3) * 1978 Stock Option Plan, as amended to date, is incorporated herein by reference to Exhibit (10.2) of the Registrant's Form 10-K for the year ended December 31, 1990. (10.4) * 1980 Stock Option Plan, as amended to date is incorporated by reference to Exhibit (10.3) of the Registrant's Form 10-K for the year ended December 31, 1991. (10.5) * 1985 Stock Option Plan, as amended to date is incorporated by reference to Exhibit (10.4) of the Registrant's Form 10-K for the year ended December 31, 1991. (10.6) * Management Incentive Plan, as amended to date, is incorporated herein by reference to Exhibit (10.5) of the Registrant's Form 10-K for the year ended December 31, 1990. (10.7) * Supplemental Executive Retirement Plan is incorporated herein by reference to Exhibit (10.6) of the Registrant's Form 10-K for the year ended December 31, 1990. (10.8) * 1990 Stock Incentive Plan is incorporated herein by reference to Exhibit (28) of the Registrant's Form S-8 Registration Statement File No. 33-41434 under the Securities and Exchange Act of 1933, filed June 28, 1991. (10.9) * 1993 Stock Incentive Plan is incorporated herein by reference to Exhibit (I) of the Registrant's Proxy Statement filed March 17, 1994. (10.10)* 1994 Restricted Stock Plan for Non-Employee Directors is incorporated herein by reference to Exhibit II of the Registrant's Proxy Statement filed March 17, 1994. *Denotes management contract or compensatory plan or arrangement required to be filed as an exhibit hereto. IV-3 ITEM 14. (Continued) (a) 3. Exhibits -------- Exhibit No. Description ----------- ----------- (10.11)* Form of Deferred Compensation Agreement is herein incorporated by reference to Exhibit (10.10) of the Registrant's Form 10-K for the year ended December 31, 1993. (10.12)* Form of American Home Products Corporation Restricted Stock Performance Award Agreement under the 1993 Stock Incentive Plan. (10.13)* Form of Amendment to the American Home Products Corporation Restricted Stock Performance Award Agreement under the 1993 Stock Incentive Plan. (10.14)* American Home Products Savings Plan, as amended, is incorporated herein by reference to Exhibit 99 of the Registrant's Form S-8 Registration Statement File No. 33- 50149 under the Securities and Exchange Act of 1933, filed September 1, 1993. (10.15)* American Home Products Corporation Retirement Plan for Outside Directors, as amended on January 27, 1994 is herein incorporated by reference to Exhibit (10.12) of the Registrant's Form 10-K for the year ended December 31, 1993. (10.16) Agreement and Plan of Merger dated as of September 19, 1991 among Genetics Institute, Inc. ("G.I."), Registrant, AHP Biotech Holdings, Inc. and AHP Merger Subsidiary Corporation, is incorporated herein by reference to Exhibit (I) of Registrant's Schedule 13D dated January 24, 1992 filed with respect to the common stock of G.I. ("Schedule 13D"). (10.17) Depositary Agreement dated as of January 16, 1992 among Registrant, AHP Biotech Holdings, Inc., G.I. and The First National Bank of Boston, as Depositary, is incorporated herein by reference to Exhibit (II) of the Registrant's Schedule 13D. (10.18) Governance Agreement dated as of January 16, 1992 among Registrant, AHP Biotech Holdings, Inc. and G.I., is incorporated herein by reference to Exhibit (III) of the Registrant's Schedule 13D. (11) Calculation of per share earnings as reported in Note 1 to Consolidated Financial Statements on page 49 of the Company's 1994 Annual Report to Shareholders is incorporated herein by reference. (12) Computation of Ratio of Earnings to Fixed Charges. IV-4 ITEM 14. (Continued) (a) 3. Exhibits -------- Exhibit No. Description ----------- ----------- (13) 1994 Annual Report to Shareholders. Such report, except for those portions thereof which are expressly incorporated by reference herein, is furnished solely for the information of the Commission and is not to be deemed "filed" as part of this filing. (21) Subsidiaries of the Registrant. (23) Consent of Independent Public Accountants relating to their report dated January 23, 1995, consenting to the incorporation thereof in Registration Statements on Form S-3 (File Nos. 33-45324 and 33-57339) and on Form S-8 (File Nos., 2-96127, 33-24068, 33-41434, 33-53733, 33- 55449, 33-45970, 33-14458, 33-50149 and 33-55456) by reference to the Form 10-K of the Registrant filed for the year ended December 31, 1994. (27) Financial Data Schedule. (99.1) The Part I, Item 3 Legal Proceedings (pages 26-28) section of Genetics Institute Inc.'s Report on Form 10-K for the fiscal year ended December 31, 1994, filed on March 15, 1995, is incorporated herein by reference. (99.2) The Part I, Item 3 Legal Proceedings (pages 18 and 19) section of Immunex Corporation's Report on Form 10-K for the fiscal year ended December 31, 1994, filed on March 16, 1995, is incorporated herein by reference. (b) Reports on Form 8-K ------------------- During the fourth quarter of the year ended December 31, 1994, the following report on Form 8-K was filed: The Report on Form 8-K, filed on December 6, 1994, reported under Item 2 the completion of the tender offer for the common stock of Cyanamid. In addition, under Item 7, the Report included certain Financial Statements of Cyanamid, Unaudited Pro Forma Financial Statements of the Registrant combined with Cyanamid, certain exhibits relating to the acquisition of Cyanamid and a consent of KPMG Peat Marwick LLP. In addition, a Report on Form 8-K filed on August 17, 1994 reported under Items 5 and 7 the execution of the definitive merger agreement between the Registrant, AC Acquisition Corp. and Cyanamid and the issuance of a related press release. IV-5 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ---------------------------------------- To American Home Products Corporation: We have audited in accordance with generally accepted auditing standards, the consolidated financial statements included in American Home Products Corporation's Annual Report to Shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated January 23, 1995. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in the accompanying index is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. The schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP New York, New York January 23, 1995 IV-6 SCHEDULE II American Home Products Corporation and Subsidiaries Schedule II -- Valuation and Qualifying Accounts For the Years Ended December 31, 1994, 1993 and 1992 (Dollars in thousands) Column A Column B Column C Column D Column E Balance Balance at at Beginning Additions Deductions End of Description of Period (B) (A) Period ----------- --------- --------- --------- ------- Year ended 12/31/94: Allowance for doubtful accounts $ 25,631 $ 58,752 $ 8,484 $ 75,899 Allowance for cash discounts 20,318 151,783 150,618 21,483 Allowance for deferred tax assets 91,363 228,542 68,929 250,976 -------- -------- -------- -------- $137,312 $439,077 $228,031 $348,358 ======== ======== ======== ======== Year ended 12/31/93: Allowance for doubtful accounts $ 23,702 $ 7,101 $ 5,172 $ 25,631 Allowance for cash discounts 15,203 148,013 142,898 20,318 Allowance for deferred tax assets 101,324 -- 9,961 91,363 -------- -------- -------- -------- $140,229 $155,114 $158,031 $137,312 ======== ======== ======== ======== Year ended 12/31/92: Allowance for doubtful accounts $ 25,865 $ 5,147 $ 7,310 $ 23,702 Allowance for cash discounts 11,554 132,227 128,578 15,203 Allowance for deferred tax assets -- 101,324(C) -- 101,324 -------- -------- -------- -------- $ 37,419 $238,698 $135,888 $140,229 ======== ======== ======== ========== (A) Represents amounts used for the purposes for which the accounts were created and reversal of amounts no longer required. (B) Balances for 1994 reflect the acquisition of Cyanamid effective December 1, 1994. (C) Established upon the adoption of Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes" as disclosed in Note 10 on pages 54 and 55 of the Company's 1994 Annual Report to Shareholders. IV-7 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized. AMERICAN HOME PRODUCTS CORPORATION ---------------------------------- (Registrant) March 27, 1995 By /S/ Robert G. Blount ---------------- Robert G. Blount Executive Vice President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signatures Title Date ---------- ----- ---- Principal Executive Officer: /S/ John R. Stafford Chairman, President March 27, 1995 ---------------- John R. Stafford and Chief Executive Officer Principal Financial Officer: /S/ Robert G. Blount Executive Vice President March 27, 1995 ---------------- Robert G. Blount and Director Principal Accounting Officer: /S/ John R. Considine Vice President - Finance March 27, 1995 ----------------- John R. Considine A Majority of Directors: /S/ Clifford L. Alexander, Jr. Director March 27, 1995 -------------------------- Clifford L. Alexander, Jr. Director --------------------- Frank A. Bennack, Jr. /S/ K. Roald Bergethon Director March 27, 1995 ------------------ K. Roald Bergethon SIGNATURES (continued) ---------------------- Signatures Title Date ---------- ----- ---- /S/ John W. Culligan Director March 27, 1995 ---------------- John W. Culligan /S/ Robin Chandler Duke Director March 27, 1995 ------------------- Robin Chandler Duke /S/ John D. Feerick Director March 27, 1995 --------------- John D. Feerick /S/ Edwin A. Gee Director March 27, 1995 ------------ Edwin A. Gee /S/ Fred Hassan Director March 27, 1995 ----------- Fred Hassan /S/ John P. Mascotte Director March 27, 1995 ---------------- John P. Mascotte /S/ Mary Lake Polan M.D., Ph.D. Director March 27, 1995 --------------------------- Mary Lake Polan M.D., Ph.D. /S/ Robert W. Sarnoff Director March 27, 1995 ----------------- Robert W. Sarnoff /S/ John R. Torell III Director March 27, 1995 ------------------ John R. Torell III /S/ William Wrigley Director March 27, 1995 --------------- William Wrigley EX-10.12 2 Exhibit 10.12 AMERICAN HOME PRODUCTS CORPORATION RESTRICTED STOCK PERFORMANCE AWARD AGREEMENT UNDER THE 1993 STOCK INCENTIVE PLAN DATE NUMBER OF SHARES SUBJECT TO TARGET AWARD -------------------------- Name Home Address City, State, Zip Under the terms and conditions of this Agreement and of the Company's 1993 Stock Incentive Plan (the "Plan"), a copy of which has been delivered to you and is made a part hereof, the Company hereby awards to you units (the "Units") representing shares of the Company's Common Stock (the "Common Stock") subject to the restrictions set forth in this Agreement in the amount set forth above (the "Target Award"). Upon the satisfaction by the Company of certain performance criteria as described in Paragraph 3 of this Agreement, the Units will be converted into shares of the Company's Common Stock entitling the holder to all of the rights of a stockholder as described herein but subject to the restrictions set forth in this Agreement (the "Restricted Stock"). Except as provided herein, the terms used in this Agreement shall have the same meanings as in the Plan. 1. Rights as Stockholders. During the period from the date of this Agreement through the Conversion Date (as defined herein), no shares of the Company's Common Stock represented by the Units will be earmarked for you or your account nor shall you have any of the rights of a stockholder with respect to such shares. Upon issuance of the Restricted Stock as of the Conversion Date, you will be the owner of record of the shares of Common Stock represented by the Restricted Stock and shall be entitled to all of the rights of a stockholder of the Company, including the right to vote and the right to receive dividends, subject to the restrictions stated in this Agreement and referred to in the legend described in Paragraph 7 below. If you receive any additional shares by reason of being the holder of Restricted Stock under this Agreement, all the additional shares shall be subject to the provisions of this Agreement and all certificates evidencing ownership of the additional shares shall bear the legend. 2. Restricted Period. During the period from the date of this Agreement through the date which is three years after such date (the "Restricted Period"), you may not sell, transfer, assign, pledge, or otherwise encumber or dispose of any Units or Restricted Stock granted hereunder. 3. Conversion to Restricted Stock. (a) At meetings of the Committee to be held within 60 days after the end of each of the current year and the two immediately succeeding years or at such other time or times as the Committee in its discretion deems appropriate, the Committee shall determine the EPS Growth Rate (as defined below) of each of the Peer Group Companies (as defined below) for the preceding year and shall prepare a ranking of the Peer Group Companies on the basis of their relative EPS Growth Rates for such year, assigning them to Quartiles (as defined below) (the date on which each such determination is made being referred to herein as a "Conversion Date"). If, on the date of such meeting the Committee determines that, with respect to the preceding year: (i) the Company falls into the fourth Quartile, then all rights with respect to one-third of the Target Award (the "Annual Target Amount") shall thereupon be forfeited; (ii) the Company falls into the third Quartile, then Units representing 75% of the Annual Target Amount shall be converted into Restricted Stock and all rights with respect to the remaining portion of such Annual Target Amount shall thereupon be forfeited; (iii) the Company falls into the second Quartile, then Units representing the entire Annual Target Amount shall be converted into Restricted Stock; and (iv) the Company falls into the first Quartile, then Units representing the entire Annual Target Amount shall be converted into Restricted Stock and you shall be entitled to receive an additional grant of Restricted Stock representing 25% of the Annual Target Amount (a "Bonus Award"), such additional grant to be made by the Committee at such meeting. (b) Notwithstanding anything to the contrary contained in this Agreement, Units shall be converted into Restricted Stock in whole numbers of shares only and, if necessary, (i) the Annual Target Amount shall be rounded up or down (A) to the nearest whole number for the first two years and (B) for the third year to equal, together with the Annual Target Amounts for the first two years, the Target Award; and (ii) the calculations based upon such amounts in subparagraphs 3(a)(ii) and 3(a)(iv) above shall be rounded up or down to the nearest whole number. (c) As used in this Agreement, the term: (i) "EPS" means the earnings or net income per share of common stock of the Company or one of the Peer Group Companies, as the case may be, for such year based upon publicly disseminated earnings releases or such other publicly available information as the Committee in its sole discretion shall determine, adjusted to exclude the effect of extraordinary or unusual items of income or expense, all as determined in good faith by the Committee acting in its sole discretion. (ii) "EPS Growth Rate" for any year means (a) the EPS for such year minus EPS for the prior year divided by (b) EPS for the prior year; provided, however, that if for any reason the Committee shall determine that relative EPS Growth Rate is no longer a practicable or appropriate measure of comparative financial performance, the Committee may take such action, including without limitation substitution of another measure of financial comparison, as it deems appropriate under the circumstances. (iii) "Peer Group Companies" means a group including the Company and not less than seven nor more than ten other companies selected by the Committee as appropriate companies for purposes of financial performance comparisons, such other companies initially consisting of the following with such additions and deletions from time to time as the Committee, in its sole discretion, deems appropriate: Abbott Laboratories, American Cyanamid Company, Bristol-Myers Squibb Company, Johnson & Johnson, Eli Lilly and Company, Merck & Co., Inc., Pfizer Inc., Schering-Plough Corporation, The Upjohn Company and Warner-Lambert Company. (iv) "Quartiles" means, for each year with respect to which the Peer Group Companies are ranked on the basis of their relative EPS Growth Rates, the following four groups, assuming no additions or deletions to the Peer Group Companies included: (A) fourth Quartile -- the three Peer Group Companies ranked lowest; (B) third Quartile -- the three Peer Group Companies ranked immediately above the fourth Quartile; (C) second Quartile -- the three Peer Group Companies ranked immediately above the third Quartile; and (D) first Quartile - -the two Peer Group Companies ranked first and second. In the event of any additions or deletions to the Peer Group Companies, the composition of the Quartiles will be determined in accordance with Exhibit I attached hereto. 4. Restricted Stock Trust. (a) Subject to Paragraph 4(b) below, you are eligible to make a one-time irrevocable election to cause the Company to deposit as of each Conversion Date the shares of Restricted Stock into which Units shall be converted on such date, together with a stock power to be executed by you, to an account in your name in the Restricted Stock Trust (as defined below) by completing the form set forth on Schedule A attached hereto. Subject to Paragraph 4(b), below, if you do not make such election, such shares shall be delivered to you as provided in Paragraph 5(a)(i) of this Agreement. (b) Notwithstanding anything to the contrary contained in this Agreement, if you are or, in the judgment of the Committee, are expected to be a Named Executive Officer with respect to any year in which a Conversion Date occurs, then you will be deemed to have made the election under Paragraph 4(a) above to have the Restricted Stock into which Units shall be converted on such date and thereafter deposited into the Restricted Stock Trust. (c) For purposes of this Agreement: (i) "Named Executive Officer" shall mean the Chief Executive Officer of the Company or any of the four highest compensated officers (other than the Chief Executive Officer of the Company) whose total compensation payable is required to be reported to shareholders under the Securities Exchange Act of 1934, as amended; and (ii) "Restricted Stock Trust" means the trust fund established or to be established by a trust agreement (the "Trust Agreement") to accommodate the deferral of delivery of shares of Common Stock represented by Units and/or Restricted Stock (and dividends paid thereon) until your termination of employment for any reason or as otherwise provided in the Trust Agreement, such trust fund to be subject to the claims of the Company's general creditors under federal and state law in the event of insolvency of the Company as described in the Trust Agreement. 5. Delivery of Shares of Common Stock. (a) Subject to Paragraphs 4 and 9 of this Agreement, as soon as practicable after the Restricted Period (or six months after the last Conversion Date with respect to a Bonus Award made on the final Conversion Date), all shares of Restricted Stock granted hereunder shall be cancelled and replaced with certificates representing Common Stock free of any restrictive legend other than as may be required by applicable state or federal securities law, such certificates to be either (i) delivered to you promptly or (ii) if you have made or are deemed to have made the election under Paragraph 4 above, deposited on your behalf in the Restricted Stock Trust, in which case delivery of such shares shall be deferred as provided in the Trust Agreement until the first business day of the calendar year following your termination of employment or as otherwise provided in the Trust Agreement. (b) Notwithstanding any other provisions hereof, the number of shares of the Common Stock which shall be delivered to you pursuant to Paragraph 5(a) either directly or from the Restricted Stock Trust shall be (i) the number of such shares which would have been delivered in the absence of this Paragraph 5(b) minus (ii) the number of whole shares of Common Stock necessary to satisfy the minimum federal, state and/or local income tax withholding obligations which are imposed on the Company by applicable law in respect of the delivery of such award (and which may be satisfied by the reduction effected hereby in the number of deliverable shares), it being understood that the value of the shares referred to in clause (ii) above shall be determined, for the purposes of satisfying such withholding obligations, on the basis of the average of the high and low per share prices for the Common Stock as reported on the Consolidated Transaction Reporting System on the designated date of delivery, or on such other reasonable basis for determining fair market value as the Committee may from time to time adopt. Any other withholding obligations (e.g. social security and Medicare) with respect to such award will be satisfied by separate arrangements between the Company and you but will not in any event involve a reduction in the number of shares that you are to receive. 6. Termination of Employment. (a) Subject to Section 7(f) of the Plan, in the event of your termination of employment during the Restricted Period for any reason other than death, disability or retirement, you shall forfeit all rights to all Units and Restricted Stock granted hereunder and you agree (i) to assign, transfer, and deliver the Restricted Stock to the Company and (ii) that you shall cease to be a shareholder of the Company with respect to such shares, provided, the Committee may provide for a partial or complete exception to this requirement as it deems equitable in its sole discretion. (b) In the event that your employment is terminated due to death, disability or retirement, vesting of all shares of Restricted Stock covered by the Target Award and any related Bonus Award and delivery of the shares of Common Stock of the Company represented thereby will be made to you or your designated beneficiary or your legal representative, legatee or such other person designated by an appropriate court as entitled to receive the same, as the case may be, on the terms and, subject to the conditions of this Agreement, including Paragraph 3 above. 7. Legend on Certificates. Each certificate evidencing ownership of Restricted Stock issued during the Restricted Period shall bear the following legend: "These shares have been issued or transferred subject to a Restricted Stock Performance Award and are subject to substantial restrictions, including a prohibition against transfer and a provision requiring transfer of these shares to the Company without payment in the event of termination of the employment of the registered owner under certain circumstances all as more particularly set forth in a Restricted Stock Performance Award Agreement dated May 26, 1994, a copy of which is on file with the Company." 8. Miscellaneous. This Agreement may not be amended except in writing and neither the existence of the Plan and this Agreement nor the Target Award granted hereby shall create any right to continue to be employed by the Corporation or its subsidiaries and your employment will continue to be at will and terminable at will by the Corporation. In the event of a conflict between this Agreement and the Plan, the Plan shall govern. 9. The state of Delaware and any applicable laws of the United States. 10. Compliance With Laws. (a) Notwithstanding anything herein to the contrary, the Corporation shall not be obligated to cause to be delivered any Restricted Stock or shares of Common Stock of the Company represented thereby pursuant to this Agreement unless and until the Company is advised by its counsel that the issuance and delivery of such certificates is in compliance with all applicable laws and regulations of governmental authority. The Corporation shall in no event be obliged to register any securities pursuant to the Securities Act of 1933 (as now in effect or as hereafter amended) or to take any other action in order to cause the issuance and delivery of such certificates to comply with any such law or regulation. (b) If you are subject to Section 16 of the Securities Exchange Act of 1934, as amended (the "1934 Act"), transactions under the Plan and this Agreement are intended to comply with all applicable conditions of Rule 16b-3 or its successors under the 1934 Act. To the extent any provision of the Plan, this Agreement or action by the Committee involving you is deemed not to comply with an applicable condition of Rule 16b-3, such provision or action shall be deemed null and void as to you, to the extent permitted by law and deemed advisable by the Committee. Moreover, in the event the Plan and/or this Agreement does not include a provision required by Rule 16b-3 to be stated therein, such provision (other than one relating to eligibility requirements or the price and amount of awards as applicable) shall be deemed automatically to be incorporated by reference into the Plan and/or this Agreement insofar as you are concerned, with such incorporation to be deemed effective as of the effective date of such Rule 16b-3 provision. In addition, the Committee in its discretion may cause the Company to retain custody of the certificates representing the Common Stock to be delivered under Paragraph 5 above so long as necessary or appropriate to ensure that any minimum holding period under Rule 16b-3 is satisfied. AMERICAN HOME PRODUCTS CORPORATION By: ------------------------ Corporate Treasurer Accepted and agreed to: --------------------- ------------------- Name (Please Print) Social Security Number --------------------- ------------------- Signature Date of Birth SCHEDULE A ELECTION FORM (To Be Completed in Conjunction with Your Restricted Stock Performance Award Agreement) I, , hereby make an election to defer ---------------- (PRINT NAME) distribution of all shares of Restricted Stock and to cause the Company to deposit such shares to an account in my name in the Restricted Stock Trust (with any dividends thereon to be reinvested under the AHPC Master Investment Plan) together with a stock power to be executed by me. See Note Below -------------- This election shall be irrevocable upon execution of the Agreement. ------------------------ Signature of Executive Dated: ------------------------ Witnessed: ------------------------ NOTE: 1. If you are or are expected to be a Named Executive Officer with respect to any year in which a Conversion Date occurs, you will be deemed to have elected deferred distribution hereunder. Beneficiary Designation ----------------------- In the event of my death, I designate the following beneficiary (ies) to receive any shares of the Company's Common Stock to be distributed to me or which have been deferred on my behalf to the Restricted Stock Trust under this Agreement together with any dividends thereon. ------------------------------------------ Beneficiary (ies) ------------------------------------------ Contingent Beneficiary (ies) ------------------------- Signature of Executive Dated: ------------------------------------------ Witnessed: ------------------------------------------ EX-10.13 3 Exhibit 10.13 AMENDMENT TO THE AMERICAN HOME PRODUCTS CORPORATION RESTRICTED STOCK PERFORMANCE AWARD AGREEMENT UNDER THE 1993 STOCK INCENTIVE PLAN AMENDMENT dated as of February 21, 1995 (the "Amendment") to the American Home Products Corporation Restricted Stock Performance Award Agreement Under the 1993 Stock Incentive Plan dated May 26, 1994 (the "Agreement") between American Home Products Corporation (the "Company") and the undersigned employee. Terms used herein without definition are used as defined in the Agreement. WHEREAS, the Company maintains the 1993 Stock Incentive Plan for the benefit of certain employees of the Company; WHEREAS, the Company and the undersigned entered into the Agreement awarding units representing shares of the Company's common stock (the "Target Award") subject to certain Company performance criteria set forth in Paragraph 3 of the Agreement; WHEREAS, on February 7, 1995, the Compensation and Benefits Committee of the Board of Directors (the "Committee") made its determinations with respect to 1994 performance and, in accordance with the Agreement, the Annual Target Amount for such year has been converted to shares of Restricted Stock of the Company; WHEREAS, with respect to performance for 1995 and 1996 the parties desire to modify and amend the performance criteria to which their conversion to Restricted Stock of the Company is subject; NOW THEREFORE, in consideration of the foregoing and the mutual promises, comments and conditions set forth herein, the parties hereto mutually agree as follows: RESOLVED, that Paragraph 3 of the Agreement is hereby amended as set forth below: 1. Subparagraph (a) of Paragraph 3 of the Agreement is hereby deleted and the following shall be substituted in its place: (a) At meetings of the Committee to be held within 60 days after the end of 1995 and 1996 or at such other time or times as the Committee in its discretion deems appropriate, the Committee shall compare the EPS (as defined below) for such year with the EPS Target (as defined below) for such year (the date on which each such determination is made being referred to herein as a "Conversion Date"). If, on the date of such meeting, the Committee determines that, with respect to the preceding year: (i) EPS is less than 90% of the EPS Target, then all rights with respect to one-third of the Target Award (the "Annual Target Amount") shall thereupon be forfeited; (ii) EPS is greater than or equal to 90% of the EPS Target and less than or equal to 95% of the EPS Target, then Units representing 75% of the Annual Target Amount shall be converted into Restricted Stock and all rights with respect to the remaining portion of such Annual Target Amount shall thereupon be forfeited; (iii) EPS is greater than 95% of the EPS Target and less than or equal to 105% of the EPS Target, then Units representing the entire Annual Target Amount shall be converted into Restricted Stock; and (iv) EPS is greater than 105% of the EPS Target, then Units representing the entire Annual Target Amount shall be converted into Restricted Stock and you shall be entitled to receive an additional grant of Restricted Stock representing 25% of the Annual Target Amount (a "Bonus Award"); such additional grant to be made by the Committee at such meeting. 2. Subparagraph (c) of Paragraph 3 of the Agreement is hereby deleted and the following shall be substituted in its place: (i) "EPS" for any year means the earnings or net income per share of common stock of the Company for such year, adjusted to exclude the effect of extraordinary or unusual items of income or expense, all as determined in good faith by the Committee acting in its sole discretion. (ii) "EPS Target" shall be $4.62 for 1995 and, for 1996, shall be the amount established by the Committee at a meeting to be held no later than March 1, 1996; provided, -------- however, that if for any reason the ------- Committee shall determine that the EPS Target is no longer a practicable or appropriate measure of financial performance, the Committee may take action to substitute another financial measure as it deems appropriate under the circumstances. Acceptance of and agreement to the terms of this Amendment is evidenced by the execution of this instrument by the parties hereto. AMERICAN HOME PRODUCTS CORPORATION By: ------------------------ Corporate Treasurer Accepted and agreed to: - ------------------------ ------------------------ Name (Please Print) Social Security Number - ------------------------ Dated: Signature ------------------------ EX-12 4 Exhibit 12 AMERICAN HOME PRODUCTS CORPORATION RATIO OF EARNINGS TO FIXED CHARGES (Thousands of dollars, except ratio amounts)
Year Ended December 31, ----------------------------------------------------------------- Earnings 1994* 1993 1992 1991 1990 1989 ---------- ---------- ---------- ---------- ---------- ---------- Earnings from continuing operations before taxes on income $2,029,760 $1,992,665 $1,724,070 $1,759,810 $1,828,278 $1,414,322 Add: Fixed charges 155,187 91,500 63,403 50,554 154,905 60,908 Minority interest in earnings of consolidated subsidiary 5,303 4,027 3,803 3,823 3,215 2,955 Minority interest in loss of consolidated subsidiary (17,873) (9,129) (3,149) - - - Equity loss 1,691 - - - - - Amortization of capitalized interest 497 - - - - - Less: Capitalized interest 9,792 14,898 - - - - Dividends on preferred stock of majority-owned subsidiary - 3,436 4,589 - - - ---------- ---------- ---------- ---------- ---------- ---------- Total earnings as defined $2,164,773 $2,060,729 $1,783,538 $1,814,187 $1,986,398 $1,478,185 ========== ========== ========== ========== ========== ========== Fixed Charges Interest and amortization of debt expense $116,661 $47,871 $35,503 $31,431 $136,225 $42,560 Capitalized interest 9,792 14,898 - - - - Interest factor of rental expense (a) 28,734 25,295 23,311 19,123 18,680 18,348 Dividends on preferred stock of majority-owned subsidiary - 3,436 4,589 - - - -------- ------- ------- ------- -------- ------- Total fixed charges as defined $155,187 $91,500 $63,403 $50,554 $154,905 $60,908 ======== ======= ======= ======= ======== ======= Ratio of earnings to fixed charges 14 23 28 36 13 24 * - The 1994 results include one-month results of American Cyanamid Company which was acquired by American Home Products in December in a purchase transaction. Assuming the acquisition took place on January 1, 1994 the pro forma ratio of earnings to fixed charges would be 2.9 for the year ended December 31, 1994. (a)- A 1/3 factor was utilized to compute the portion of rental expenses deemed representative of the interest factor.
EX-13 5 AMERICAN HOME PRODUCTS CORPORATION 1994 ANNUAL REPORT American Home Products Acquires American Cyanamid: an Expanded Commitment to Worldwide Leadership in Health Care [PHOTO] FINANCIAL HIGHLIGHTS--1994
Years Ended December 31, (In thousands except per share amounts) 1994* 1993 NET SALES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $8,966,214 $8,304,851 NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,528,254 1,469,300 NET INCOME PER COMMON SHARE. . . . . . . . . . . . . . . . . . . . . . 4.97 4.73 DIVIDENDS PER COMMON SHARE . . . . . . . . . . . . . . . . . . . . . . 2.94 2.86 WORKING CAPITAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,203,160 3,223,273 SHAREHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . 4,254,101 3,876,488
* The 1994 information reflects the acquisition of American Cyanamid Company, effective December 1, 1994. --------------------------------------------------------- CONTENTS 4 Chairman's Report to Shareholders 10 American Home Products at a Glance 13 Principal Products--United States 14 Review of Operations 41 Financial Section 63 Directors and Officers 64 Corporate Data --------------------------------------------------------- COVER Stephen S. Lin, Ph.D., Research Scientist, Wyeth-Ayerst Research, Princeton, New Jersey. The combination of American Home Products and American Cyanamid represents one of the leading commitments worldwide to pharmaceutical research and development. AMERICAN HOME PRODUCTS CORPORATION [GRAPHS] 3 CHAIRMAN'S REPORT TO SHAREHOLDERS I am pleased to report that 1994 was a year of substantial accomplishment for American Home Products Corporation. We reported record sales and earnings and increased the dividend for the 43rd consecutive year. The acquisition of American Cyanamid Company was completed in November 1994, strengthening our ability to discover, develop and market innovative, life-improving products while positioning our Company for accelerated growth in the future. Cyanamid adds to the competitiveness of all of our health care businesses and gives us a major presence in crop protection products, a new business for AHP. Also, the acquisition has strengthened our management ranks, and we are well along in combining operations to maximize our strengths in key businesses and achieve cost efficiencies. Overall, the new American Home Products is: * a premier, global health care, food and crop protection products company with pro forma sales in excess of $13 billion, operating in 145 countries; * among the world leaders in research and development investment; * one of the world's top three companies in sales of prescription drugs; * among the leading companies in sales of non-prescription medications worldwide and the leader in vitamin sales in the United States; * a leader in generic pharmaceuticals; * one of the largest crop protection products companies in the world; and * a leader in the global animal health care market. Cyanamid's impact on AHP is included in the discussion of financial results, major operational areas and growth strategies that follows. FINANCIAL HIGHLIGHTS OF 1994 * Net sales increased 8% from last year to $8.97 billion. * Net income increased 4% to $1.53 billion. * Earnings per share increased 5% to $4.97. * Dividends per share increased 3% to $2.94. RESEARCH AND DEVELOPMENT The combination of American Home Products and Cyanamid represents an R&D commitment of approximately $1 billion annually. The major portion of this investment is devoted to pharmaceutical research. The addition of Cyanamid's agricultural product research provides AHP with a comprehensive and global life science-based research program. The Company's research library now has more than 500,000 unique molecules and natural products that are available for screening as potential new products for human, animal and agricultural use. Lederle Laboratories enhances our discovery programs in the areas of central nervous system disorders and cardiovascular and inflammatory diseases, while Lederle-Praxis Biologicals significantly strengthens our vaccine discovery effort. ETHICAL PHARMACEUTICALS Excluding Cyanamid, worldwide pharmaceutical sales increased 5% in 1994 with domestic sales gains complemented by strong increases abroad. This performance was recorded despite a decline in Norplant and nutritional sales in the United States and declines in sales for several other products exposed to generics. Pharmaceutical sales increases were led by Premarin, oral contraceptives and cardiovascular products. Contributions also were made by newer products, including the antidepressant Effexor, the anti-inflammatory Oruvail and ISMO, a leading anti-anginal product. The decline in Norplant sales was attributable to patient and health care provider concerns over use of the product, largely generated by adverse publicity associated with product 4 [MISSING COPY] 5 liability lawsuits. The Company intends to vigorously defend the product and the lawsuits. We received FDA approval at year-end for Prempro and Premphase. These combination estrogen and progestin products offer a convenient way to take hormone replacement therapy. Prempro and Premphase provide proven endometrial protection for women while treating menopausal symptoms and preventing osteoporosis. Lederle adds to our already broad line of quality products in key therapeutic areas such as anti-infectives, vaccines, cardiovasculars and anti- cancer agents. Lederle also strengthens our presence in several key European markets and in the Pacific Rim. In China, construction was completed on a Lederle manufacturing plant that is expected to be operational in 1995 and will augment our base in that growing market for vitamins and antibiotics. Lederle Standard Products markets an expanding line of oral generic products that complements our strong line of injectable generics and is a leader in the United States. Our sales of generic pharmaceuticals now are in excess of $450 million. Consumer Health Care Whitehall-Robins, among the leading consumer health care companies in the world, increased sales in 1994 due to gains internationally. Advil continued to grow as the leading OTC ibuprofen in the United States. Robitussin and Dimetapp, our major cough/cold/allergy brands, were affected by a milder than usual cold and flu season. Whitehall-Robins is expected to benefit significantly from the addition of Lederle's Centrum vitamin line, the leader in the United States. Whitehall-Robins sharpened its focus on the transfer of prescription drugs to OTC status. In late 1994, the company submitted a New Drug Application seeking approval for an OTC version of Axid, an H2 antagonist developed under a licensing agreement with Eli Lilly and Company. This application was accepted for review by the FDA. The FDA also is reviewing an OTC version of Wyeth-Ayerst's analgesic Orudis. 6 "The consolidation of the health care products industry continues at a rapid pace, with fewer, stronger companies dominating the global marketplace." MEDICAL SUPPLIES AND DIAGNOSTIC PRODUCTS Sales of medical supplies and diagnostic products, excluding those of Corometrics Medical Systems which was sold in May, increased in 1994. Worldwide sales growth was recorded for needles and syringes as well as tympanic thermometry products. In addition, Symbiosis Corp., a leading U.S. developer and manufacturer of disposable instruments for laparoscopic and endoscopic surgery, had strong sales growth in 1994. AGRICULTURAL PRODUCTS The crop protection products of Cyanamid further diversify our Company and give us a leadership position in expanding global markets for herbicides, insecticides and fungicides. These products hold more than 50% of the worldwide soybean herbicide market. Cyanamid's crop protection R&D has generated 24 new products that have made a very significant contribution to sales over the past decade. Key herbicides are formulated with imidazolinones, a unique chemistry discovered by Cyanamid that is safe to wildlife. ANIMAL HEALTH Fort Dodge's strong U.S. franchise is well-complemented by Cyanamid's presence abroad. The acquisition provides increased opportunities in more than 40 countries to market a broad range of poultry, swine, bovine, equine and small animal products. FOOD PRODUCTS The growth of Polaner All Fruit and PAM and the addition of new Sesame Street Pasta resulted in a net sales increase for American Home Food Products. Sesame Street Pasta is the first line of food products to be licensed by the Children's Television Workshop, the creators of Sesame Street, and is specially formulated for children's tastes. CHANGES IN MANAGEMENT Four members of the Board of Directors will retire after the Company's Annual Meeting on April 26, 1995. K. Roald Bergethon, John W. Culligan, Edwin A. Gee and Robert W. Sarnoff have provided valuable guidance to our Company, and we are grateful for their many contributions. Three new members were elected to the Board of Directors, effective February 1, 1995: John P. Mascotte, Chairman and Chief Executive Officer of The Continental Corporation; Mary Lake Polan, M.D., Ph.D., Chairman and Professor, Department of Obstetrics and Gynecology of the Stanford University School of Medicine; and Fred Hassan, Senior Vice President, American Home Products Corporation. Two former Cyanamid executives, David Lilley and William J. Murray, were named to Corporate Vice President positions at American Home Products in January 1995. Mr. Lilley is responsible for our medical supplies and diagnostic products business, and Mr. Murray is responsible for our crop protection business. Also elected to corporate positions were Leo C. Jardot, Vice President - Government Relations, and Rene R. Lewin, Vice President - Human Resources. Joseph R. Bock, Senior Vice President, retired in 1994 after 30 years of dedicated and valued service. 7 OUTLOOK FOR 1995 AND BEYOND Some of the crucial trends that will affect AHP in years to come are the following: * Health care continues to undergo dramatic change worldwide, with mounting emphasis on the provision of affordable medical treatment. * There is growing interest in self-medication, and this is expected to double the $32 billion global consumer medication market in the next 10 years. * The consolidation of the health care products industry continues at a rapid pace, with fewer, stronger companies dominating the global marketplace. Over the past decade, we have been pursuing growth strategies that have placed AHP in a strong position to capitalize on these trends. The acquisition of Cyanamid is an important step in implementing these strategies, which cover the areas of R&D, finance, production and marketing. EXPANDING R&D PIPELINE--In our remarks about health care reform in recent years, we have pointed out that pharmaceuticals are the most cost-effective component of health care. As a research-intensive company, we are focused on finding breakthroughs in treating or preventing serious health problems that cost health care systems worldwide hundreds of billions of dollars annually. Our expanding R&D pipeline includes six new products in pre-registration as well as 18 products in Phase III and 11 products in Phase II clinical trials. Our developmental plan for new products includes all of the requirements that provide for global registration. Our drug discovery program involves more than 1,200 scientists and technicians, and our ongoing capital investment has provided our Company with state-of-the-art discovery facilities. The R&D expertise of Wyeth-Ayerst and Lederle is complemented by our expanding participation in the biotechnology field. The acquisition of Cyanamid provides us with a majority ownership position in Immunex Corporation, a leading biotechnology company. Along with our majority position in Genetics Institute, Inc. and the strategic alliances that we have formed with other innovative biotechnology companies, we are at the forefront of using genetic engineering to discover new therapies. "The addition of Lederle's pharmaceuticals enables us to provide a wider range of therapeutic category coverage than any other brand name company." FINANCIAL STRENGTH--We are committed to maintaining American Home Products as one of the most financially sound companies worldwide. We see substantial opportunity for synergies and resulting cost savings in all business areas affected by the acquisition of Cyanamid and are aggressively implementing our integration plan. Our acquisition debt of $8.8 billion will be paid down as quickly as possible by cash flows from the combined operations, cost savings including headcount reductions and the sale of non-core businesses, product lines and assets. On January 10, 1995, we sold our South American oral health care business for $1.04 billion, and on January 24, 1995, we announced the reduction of 4,000 positions. Combined with announcements made in July and November 1994, the number of positions to be eliminated by the end of 1995 totals 8,600. Further plans regarding reductions in 1996 will be announced later this year. PRODUCTION EFFICIENCIES--AHP's goal is to be the most efficient, lowest-cost manufacturer of quality products. In 1994, we initiated a program in the United States to yield greater efficiencies in materials procurement and in their manufacturing and distribution. We included a $174 million charge in the results of operations to record the costs of implementing this program. This initiative now is being extended to our international operations and will be part of the integration plans for Cyanamid. As in the research area, we have made substantial capital investments to keep our production and distribution facilities abreast of new technologies. In addition, we have 8 made good progress in consolidating our manufacturing and distribution centers to strengthen our competitive base in our major markets while reducing costs. EXPANDED PRODUCT PORTFOLIO--Our long-term success depends on growing worldwide market share by having major products in all markets where we compete. Product leadership facilitates the introduction of new products and line extensions and provides the revenue stream to expand global R&D. We are committed to vigorously building our product franchise, which is one of the strongest in the industry. The addition of Lederle's pharmaceuticals enables us to provide a wider range of therapeutic category coverage than any other brand name company. We have a leadership position in women's health care, anti-inflammatories, vaccines and generics and a strong presence in cardiovascular drugs, mental health products, anti-infectives and oncology therapies. Once again, in 1994, more prescriptions were written for Wyeth-Ayerst pharmaceuticals than for those of any other brand name company, and Premarin was the most frequently prescribed pharmaceutical in the United States. In our generic products portfolio, we offer 123 products in oral and injectable form that cover 58 product categories. In the consumer products area, Whitehall-Robins has 12 brands that are market leaders in a wide range of important categories, including the three largest markets: analgesics, cough/cold and vitamins. Our broad, growing portfolios of branded and generic pharmaceuticals and OTC medications place us in a strong position to help U.S. managed care organizations manage all aspects of illnesses and their side effects. We have restructured our marketing organizations to respond aggressively to the growing importance and influence of health maintenance organizations, group purchasing organizations and pharmacy benefit managers. In the agricultural products area, Cyanamid is a market leader in soybean herbicides and corn soil insecticides. New imidazolinone herbicides, pyrrole insecticides and fungicides from Cyanamid research will expand Cyanamid's presence in the global cotton, fruit, vegetable and rice markets. American Home Products is fully committed to being a world leader in health care. As we look to the future, our skilled, dedicated and hard-working employees remain our most important asset, and we are pleased to welcome the people of Cyanamid into the AHP family. On behalf of the Board of Directors, I thank all of our employees for their outstanding efforts in 1994. I also want to thank the Board for its continued counsel and support in this exceptionally eventful year. In this period of rapid change for our industry, our abilities and resolve are constantly tested. Working together, I am confident that we can meet the challenges that lie ahead and play an even greater role in improving the quality of life for people worldwide. /s/ JOHN R. STAFFORD - -------------------- John R. Stafford Chairman, President and Chief Executive Officer February 28, 1995 - ------------------------------------------------------------------------------ - -- In April 1995, John W. Culligan will retire from the American Home Products Corporation Board of Directors after nearly six decades of outstanding service to the Company as employee, officer, Chairman and Chief Executive Officer, and Director. Mr. Culligan joined American Home Products in 1937 and spent his early career with Whitehall Laboratories, rising to its Presidency in 1964. He was elected a Corporate Vice President in 1967 and became President of AHP and a member of the Board of Directors in 1973. From 1981 to 1986, Mr. Culligan was Chairman of the Board and Chief Executive Officer. Following his retirement from the Company, he continued to serve as a Director and a member of the Executive Committee of the Board. We extend to him our sincere gratitude for his significant achievements on behalf of American Home Products. In recognition of Mr. Culligan's invaluable contributions to the Company over the years, he will be named Director Emeritus. - ------------------------------------------------------------------------------ - -- 9 AMERICAN HOME PRODUCTS AT A GLANCE The diverse businesses of American Home Products span important, growing markets where they receive the highest recognition among health care professionals and consumers. The breadth and strength of the Company's product franchise place AHP among the top tier of global companies and position us for continued growth. Highlighted here are some of the major businesses in AHP's portfolio. ETHICAL PHARMACEUTICALS, VACCINES AND NUTRITIONALS WOMEN'S HEALTH CARE [PHOTO] Wyeth-Ayerst Laboratories is a global leader in women's health care with products, research and educational services that benefit millions of women. Wyeth-Ayerst is the largest provider of hormone replacement therapy and hormonal contraceptive products worldwide. Leading products include PREMARIN, TRIPHASIL and LO/OVRAL. A major event in 1994 was the approval of PREMPRO and PREMPAHSE in the United States for treatment and prevention of menopausal symptoms and osteoporosis. CARDIOVASCULAR AND GASTROENTEROLOGY THERAPIES [PHOTO] Wyeth-Ayerst ranks number one in sales and prescriptions in the United States for cardiac arrhythmia therapies, including CORDARONE, and is a leader in a broad range of cardiovascular therapies. Lederle Laboratories' VERELAN is a fast-growing anti-hypertensive agent in the U.S. calcium channel-blocker market. Internationally, Lederle introduced ZOTON, a second-generation proton pump inhibitor, which is a new, highly effective therapy for duodenal ulcers and reflux esophagitis. MENTAL HEALTH PRODUCTS [PHOTO] Wyeth-Ayerst markets therapies for depression, anxiety and sleep disorders worldwide. EFFEXOR/EFEXOR, a novel antidepressant discovered by Wyeth-Ayerst, was introduced in the United States during the year and continued to be expanded to international markets. ATIVAN is a leading product throughout the world for the short-term treatment of anxiety. 10 ANTI-INFLAMMATORY AND METABOLIC DISEASE THERAPIES [PHOTO] Wyeth-Ayerst holds the number one position in the branded non-steroidal anti-inflammatory drug (NSAID) market in the United States. In 1994, LODINE became one of the leading branded NSAIDs prescribed by primary care physicians in the United States. ORUVAIL gained additional dosing flexibility as U.S. Food and Drug Administration market clearance for 100 mg. and 150 mg. extended-release capsules was received. ANTI-INFECTIVES AND VACCINES [PHOTO] Lederle offers major antibiotic products that are marketed throughout the world. Lederle-Praxis and Wyeth-Ayerst together represent an important factor in the discovery, development and marketing of vaccines worldwide. In the United States, Lederle-Praxis is a leading producer of childhood vaccines. Wyeth-Ayerst is one of the largest suppliers of influenza, cholera, typhoid and adenovirus vaccines in the United States. PEDIATRIC HEALTH CARE [PHOTO] Wyeth-Ayerst's scientifically formulated nutritional products for infants and children are recommended by the medical community and are leaders worldwide. SMA and S-26 are widely used infant formulas in international markets, and BONAMIL, an economically priced first-stage formula, was introduced in the United States during 1994. ONCOLOGY THERAPIES [PHOTO] Anti-cancer agents from Lederle Laboratories and Immunex Corporation are used by oncologists throughout the world as therapy for anemia, breast cancer, leukemia and non-Hodgkin's lymphoma as well as cell-rescue therapy following anti-cancer therapy. Genetics Institute's research programs in blood cell growth factors and immune system modulation have produced products for use in cancer therapy. GENERIC PHARMACEUTICALS [PHOTO] Lederle Standard Products offers a wide portfolio of generic pharmaceuticals in the United States, augmented by the products of ESI-Pharma, Inc., formed by Wyeth-Ayerst in 1993. An extensive line of generic injectable products is marketed in the United States under the TUBEX and ELKINS-SINN trademarks. 11 AMERICAN HOME PRODUCTS AT A GLANCE CONSUMER HEALTH CARE [PHOTO] With the addition of the top-selling Lederle vitamin business, Whitehall-Robins grew as one of the largest consumer health care products companies in the world. The leading brands of Whitehall-Robins have top positions in major segments of growing categories, including analgesics, cough/cold/allergy remedies, hemorrhoidal and asthma relief, family planning and in-home diagnostics, lip care and medicated shampoo. MEDICAL SUPPLIES AND DIAGNOSTIC PRODUCTS [PHOTO] In the United States, Sherwood Medical is a leader in tubes, catheters, chest drainage products and safety syringes. Davis & Geck is a worldwide manufacturer of wound closure products. Quinton Instruments markets cardiopulmonary instrumentation and devices. Symbiosis Corp. develops and manufactures disposable products for less-invasive surgery, and Acufex manufactures devices for arthroscopic surgery. Vision care products are marketed worldwide by Storz Instruments. FOOD PRODUCTS [PHOTO] The ready-to-eat convenience foods of American Home Food Products, Inc. and Canadian Home Products Limited are among the most popular brands in major food categories in North America. The CHEF BOYARDEE line of prepared pastas is the market leader in the United States and Canada. POLANER ALL FRUIT is the number one line of fruit juice sweetened spreadable fruit. AGRICULTURAL PRODUCTS [PHOTO] Cyanamid is an innovator and leader in the crop protection market worldwide with some of the largest-selling herbicides and insecticides. Many of Cyanamid's key products are safe to wildlife and are effective at low application rates. ANIMAL HEALTH CARE [PHOTO] Fort Dodge Laboratories holds a leadership position in key segments of veterinary biological and pharmaceutical markets in the United States. Cyanamid markets an expanding line of veterinary biological products internationally and is a global marketer of medicated feed additives. 12 PRINCIPAL PRODUCTS--UNITED STATES ETHICAL PHARMACEUTICALS, VACCINES AND NUTRITIONALS ========================= WOMEN'S HEALTH Lo/Ovral Nordette Ovral Premarin Premphase Prempro Triphasil - ------------------------- CARDIOVASCULAR Cordarone Inderal ISMO Isordil Maxzide Quinidex Sectral Tenex Verelan Ziac - ------------------------ MENTAL HEALTH Ativan Effexor Serax - ------------------------ ANTI-INFLAMMATORIES Lodine Orudis Oruvail - ------------------------ ANTI-INFECTIVES Minocin Myambutol Pipracil Suprax Zosyn - ------------------------ VACCINES Acel-Imune FluShield HibTITER Orimune Pnu-Imune 23 Tetramune Tri-Immunol - ------------------------ PEDIATRIC HEALTH Bonamil Children's Advil Suspension Donnagel Nursoy SMA - ------------------------ ONCOLOGY THERAPIES Ativan Injection Leukine Novantrone Reglan Thioplex - ------------------------ OTHER PRODUCTS Dimetane Elkins-Sinn, ESI- Pharma and Lederle Standard generic pharmaceuticals Micro-K Phenergan Tubex CONSUMER HEALTH CARE ======================== ANALGESICS AND COUGH/COLD/ALLERGY Advil Advil Cold and Sinus Anacin Dimetapp Dristan Robitussin - ------------------------ VITAMIN AND MINERAL SUPPLEMENTS Caltrate Centrum Centrum, Jr. Centrum Silver - ------------------------ OTHER PRODUCTS Anbesol Chap Stick Clearblue Easy Clearplan Easy Denorex FiberCon Preparation H Primatene FOOD PRODUCTS ======================== CHEF BOYARDEE PREPARED FOODS Canned and microwave entrees Packaged dinners Pizza mixes, sauces - ------------------------ REGIONAL SPECIALTIES Dennison's Luck's Ranch Style Ro*Tel - ------------------------ FOOD ENHANCEMENTS AND SNACKS Crunch 'n Munch Gulden's Jiffy Pop PAM Polaner MEDICAL SUPPLIES AND DIAGNOSTIC PRODUCTS ======================== SHERWOOD MEDICAL Argyle tubes, catheters and drainage devices Blisterfilm, Ultec and Viasorb dressings FirstTemp Genius tympanic thermo- meters and Filac pre- dictive thermometers Kangaroo enteral feeding systems and enteral access devices Monoject needles and syringes Voldyne incentive breathers - ------------------------ QUINTON INSTRUMENTS Cardiac stress test systems Cath lab recording and analysis systems Dialysis catheters Electrocardiographs Electrophysiology data management systems Holter monitoring Image analysis systems Treadmills - ------------------------ DAVIS & GECK Wound closure products, including sutures, needles and skin staplers - ------------------------ STORZ INSTRUMENTS Vision care products, including surgical equipment, pharma- ceuticals, intraocular lenses and surgical instruments - ------------------------ SYMBIOSIS Disposable laparoscopic and endoscopic surgical products - ------------------------ ACUFEX MICROSURGICAL Instruments, supplies and television imaging systems for arthroscopic surgery AGRICULTURAL PRODUCTS ======================== HERBICIDES Arsenal Assert Prowl Pursuit Scepter Squadron - ------------------------ INSECTICIDES Amdro Counter Thimet ANIMAL HEALTH CARE ======================== VETERINARY PHARMACEUTICALS AND BIOLOGICALS Cefa-Dri Cefa-Lak Cefa-Tabs/Cefa Drops Cydectin Discovery Duramune Fel-O-Vax Fluvac Ketaset LymeVax PYRAMID ToDAY ToMORROW Triangle - ------------------------ 13 [PHOTO] ETHICAL PHARMACEUTICALS, VACCINES AND NUTRITIONALS The ethical pharmaceuticals, vaccines and nutritionals of Wyeth-Ayerst Laboratories and Wyeth-Ayerst International have enhanced their competitive position through the acquisition of Lederle Laboratories and Lederle-Praxis Biologicals, recent product introductions and a growing new product pipeline. In the United States, Wyeth-Ayerst and Lederle products are prescribed more often and used in a broader range of therapeutic categories than those of any other research-based pharmaceutical company. Internationally, Wyeth-Ayerst focuses on three major therapeutic areas in which it has a significant presence in key markets: women's health care, mental health and nutritionals. Lederle Laboratories adds an important presence worldwide in anti-infectives, oncologics and cardiovascular products. Lederle-Praxis is a worldwide leader in the field of vaccines. AHP is the majority shareholder in Genetics Institute, Inc. and Immunex Corporation. These companies are in the forefront of the biopharmaceutical industry and focus on the discovery of protein-based therapies. WOMEN'S HEALTH CARE--Wyeth-Ayerst is the world leader in women's health care, providing products, research and educational services to help improve the lives of millions of women. Wyeth-Ayerst continued to be the largest provider of hormone replacement therapy (HRT) and hormonal contraceptive products. Premarin (conjugated estrogens) remained the most frequently prescribed drug in the United States. - --- Left: Glenda Prechae of Metairie, Louisiana, has used Premarin for more than 10 years. Ms. Prechae, age 52, maintains a very active lifestyle, which includes coaching and referreeing local youth soccer. Today, millions of American women take Premarin for the symptoms of menopause and for the prevention of osteoporosis. LEDERLE AND LEDERLE-PRAXIS COMPLEMENT WYETH-AYERST ON A GLOBAL SCALE WITH IMPORTANT THERAPEUTICS AND VACCINES, EXPANDED MARKETING AND DISTRIBUTION IN KEY REGIONS, AND AN INTENSIVE RESEARCH AND DEVELOPMENT PROGRAM. THE ADDITION OF A MAJORITY INTEREST IN IMMUNEX STRENGTHENS THE COMPANY'S PRESENCE IN THE GROWING FIELD OF BIOTECHNOLOGY. Premarin is indicated as therapy for short-term symptoms of menopause such as hot flashes and vaginal atrophy and, more importantly, for the prevention of osteoporosis, a debilitating bone disease characterized by excessive loss of bone mass. Osteoporosis is one of the most serious conditions resulting from menopause. In the United States alone, osteoporosis causes approximately 1.5 million bone fractures each year and results in medical costs exceeding $10 billion annually. An estimated 43 million women in the United States have reached or are nearing menopause, and 20 million more will reach it by the year 2000. Internationally, Premarin now is registered in more than 90 countries and has approvals pending in four others. Two new HRT products, Prempro and Premphase, received U.S. Food and Drug Administration (FDA) market clearance in December 1994 and are the first combination estrogen and progestin products approved in the United States. Prempro and Premphase are the next generation of products in the Premarin family and were part of the largest prospective study on HRT, involving 1,700 women at 99 sites. These combination products are expected to expand the HRT market by providing proven and convenient new HRT options to the millions of women reaching menopause. Low-dose Prempro is a combination package providing daily, continuous use of both Premarin and medroxy-progesterone acetate tablets. Over time, daily usage of 15 "Two new HRT products, Prempro and Premphase, received FDA market clearance in December 1994 and are the first combination estrogen and progestin products approved in the United States." Prempro gives women the ability to eliminate their monthly, menstrual-like bleeding and still receive all the benefits of HRT. Low-dose Premphase, also a combination package, provides Premarin daily, but medroxyprogesterone acetate tablets are introduced in only the last two weeks of the monthly cycle, allowing a woman to have a regular period if she chooses. Both therapies prevent endometrial hyperplasia and are equally effective in treating moderate-to-severe menopausal symptoms and preventing osteoporosis. A New Drug Application (NDA) for single-tablet dosage of Prempro and Premphase was accepted for filing by the FDA in January 1995. Internationally, Premarin MPA (conjugated estrogens and medroxyprogesterone acetate) was approved for marketing in 10 countries, including Australia, Switzerland and the United Kingdom. Registration filings are pending in 12 countries. Registration filings also have been submitted in eight countries for a convenient, single-tablet formulation. Prempak C (conjugated estrogens and norgestrel) received physician and consumer support in the United Kingdom. During 1994, enrollment was completed in the four- to-five year Heart and Estrogen-Progestin Replacement Study (HERS). More than 2,700 patients have been recruited for this $40 million landmark study, which is being conducted and funded by Wyeth-Ayerst in the United States. HERS will be the largest clinical trial ever undertaken to examine the role of HRT - Premarin MPA in single-combination tablet dosage - as protection against coronary heart disease events in postmenopausal women with existing coronary heart disease. Wyeth-Ayerst is the supplier of more than 100 million tablets of Premarin, Premarin MPA and placebo for the Women's Health Initiative, a major National Institutes of Health trial involving 27,500 women for 14 years. Results of the PEPI (Postmenopausal Estrogen/Progestin Interventions) three-year trial involving 875 healthy menopausal women were published in the January 18, 1995 issue of the Journal of the American Medical Association. The Premarin and Premarin MPA arms of the study show a significant improvement in lipid profiles and other cardiovascular risk factors. Wyeth-Ayerst held the number one position in oral contraceptives worldwide. Triphasil (levonorgestrel), marketed internationally under the trademark Trinordiol, was the second most widely prescribed triphasic oral contraceptive in the United States. Triphasil Cycle Pack, an innovative, mini-sized dispenser designed to enhance user compliance, was successfully introduced during the year. Lo/Ovral (norgestrel) remained the number one selling monophasic contraceptive in the United States. Nordette (levonorgestrel) frequently was prescribed for first-time contraceptive users in the United States and was an important product worldwide. Tri-Minulet (triphasic gestodene) and Minulet (mono-phasic gestodene) recorded steady gains in Europe. Minulet did exceptionally well in Latin America. These low-dose gestodene-based formulations have pharmacologic and biochemical profiles similar to natural progesterone. Tri-Minulet is available in 21 countries with registrations pending in four others. Minulet is available in 70 countries. Wyeth-Ayerst continued to expand its oral contraceptive franchise. Registrations were filed in 10 European countries for a new, lower-dose gestodene-based product while an even lower-dose gestodene-based formulation entered Phase III clinical trials. Several other new, lower-dose contraceptives containing progestins and estrogens either began or advanced in clinical trials. 16 Mr. An Ngo's cardiac arrhythmia was life-threatening. Entered into the Cordarone IV investigational protocol at Lankenau Hospital in Philadelphia, Pennsylvania, he responded well. Later switched to Cordarone oral, Mr. Ngo, age 35, remains free of arrhythmia and enjoys a happy family life. [PHOTO] CARDIOVASCULAR AND METABOLIC DISEASE THERAPIES--Wyeth-Ayerst's family of cardiac arrhythmia therapies ranks number one in sales and prescriptions in their category in the United States. Key agents, which can treat symptomatic arrhythmias ranging from the mildest to the most life-threatening, are Quinidex Extentabs (long-acting quinidine sulfate), Sectral (acebutolol HCl) and Cordarone (amiodarone HCl). Impressive sales growth was recorded for Cordarone oral. Favorable results continued to be announced from clinical trials involving survivors of cardiac arrest and congestive heart failure. Ongoing trials in post-myocardial infarction patients will be completed in 1995. In October 1994, Cordarone IV was recommended for approval by the FDA's Cardio-Renal Advisory Committee and now has reached the approvable stage at the FDA. A New Drug Submission (NDS) for this product was filed in Canada. Cordarone IV, which is indicated for treatment of life-threatening ventricular tachycardia or ventricular fibrillation, has been granted orphan drug status and, upon NDA approval, will likely obtain exclusive seven-year marketing rights in the United States. ISMO (isosorbide mononitrate) remained the leader in the branded oral nitrate market in the United States. Launched in 1992, this medication is indicated for the prevention of angina due to coronary artery disease. Verelan (verapamil HCl), with its patented sustained release delivery system, continued to grow in the calcium channel-blocker market. In 1994, the drug became the first anti-hypertensive agent ever to receive FDA approval for a new "sprinkle-on" method of dosing for patients 17 Benson Stewart (center) is one of many depression sufferers who has found Effexor helpful in management of this serious, debilitating illness. Mr. Stewart, a high school senior from Baltimore, Maryland, also is a spokesperson for the National Alliance for the Mentally Ill. [PHOTO] who have difficulty swallowing. Also, results of a clinical study completed in 1994 demonstrated that the effectiveness of Verelan was not compromised when used in tandem with certain non-steroidal anti-inflammatory drugs. Wyeth-Ayerst's Sectral, Inderal (propranolol) and Inderal LA combined remained as leading beta-blocker agents in the treatment of cardiovascular disease, including hypertension. The company also markets Maxzide (triamterene/hydrochlorothiazide) and Tenex (guanfacine HCl) as anti-hypertensives in the United States. Clinical trials are proceeding for an angiotensin II receptor antagonist developed by Wyeth-Ayerst Research for treating hypertension. Alredase (tolrestat), an aldose reductase inhibitor developed by Wyeth-Ayerst for management of diabetic complications, continued to gain a more favorable medical consensus internationally as a therapy for diabetic neuropathy. Alredase, currently marketed in 10 countries, is registered in 24 countries and has registrations pending in 22 others. Analyses for patients in three North American nerve biopsy trials with Alredase are ongoing. Clinical trials for related conditions of retinopathy and nephropathy continue. Results of the eight-year retinopathy trials will be available in 1996. Clinical studies were begun for a growth hormone-releasing peptide developed by Kaken Pharmaceutical Co., Ltd. and Wyeth-Ayerst for treating pediatric short stature due to growth hormone deficiency. Lederle is conducting clinical studies for an ACAT inhibitor for lowering cholesterol as well as Phase II trials for a beta3 agonist for obesity and adult diabetes. An NDA was filed in May 1993 for a compound that has been shown in clinical studies to block the carbohydrate craving associated with obesity. This drug, licensed by Lederle for marketing in the United States, has been well-accepted in Europe. 18 "In 1994, Oruvail, the extended-release form of the NSAID Orudis, generated excellent sales growth..." MENTAL HEALTH PRODUCTS--Wyeth-Ayerst holds an important position in the mental health products category with innovative therapies for depression, anxiety and related disorders. Effexor/Efexor (venlafaxine HCl) was introduced in the United States in early 1994 and had been prescribed approximately 1 million times by the end of the year. This structurally novel antidepressant inhibits both serotonin and norepinephrine reuptake, which are believed to play pivotal roles in the cause of depression. Significant progress was made in expanding Effexor/ Efexor to international markets. Successful launches were completed in Canada and Holland in late 1994, and approvals were obtained in 11 other markets, including Australia, France, Italy and the United Kingdom. A once-a-day dosage form of Effexor/Efexor is in late-stage development, and an extended-release product providing constant blood levels of the drug is in early trials. Ativan (lorazepam), for the short-term treatment of anxiety, maintained a leading position in worldwide tranquilizer sales but experienced sales erosion from generics. Internationally, Loramet (lormetazepam), indicated for anxiety and sleep disorders, recorded steady growth in the hypnotic and sedative categories. Serax (oxazepam) continued to be a significant anti-anxiety drug internationally but lost sales to generics in the United States. Wyeth-Ayerst began Phase II trials for a new compound with potential use in treating anxiety and other psychiatric disorders. An additional compound is expected to enter clinical trials by late 1995 for treating stroke-related nerve damage. In addition, Lederle has initiated Phase III trials for a non-benzodiazepine product for insomnia. ANTI-INFLAMMATORY AND GASTROENTEROLOGY DRUGS--Wyeth-Ayerst is among the world leaders in pharmaceutical products for the treatment of pain and inflammation. In the United States, rapid market acceptance of Lodine 400 mg. (etodolac) and Oruvail (ketoprofen) moved Wyeth-Ayerst to the number one position in the $2 billion non-steroidal anti-inflammatory drug (NSAID) category. Lodine became one of the leading branded NSAIDs prescribed by primary care physicians in 1994. Lodine is marketed internationally as therapy for osteoarthritis, rheumatoid arthritis and pain. The drug is registered in 53 countries and is marketed in 32, including Japan, where it was successfully launched in 1994. Growth opportunities for Lodine include a co-promotion agreement that has initiated sales efforts covering more than 100,000 dental professionals. An NDA was filed in 1994 for the additional indication of rheumatoid arthritis, and an NDA filing is planned in early 1995 for Lodine XR, an extended-release form. This once-a-day version will have a formulation patent until 2007. Lodine SR, a once-a-day form, currently is registered in 11 countries outside the United States and has approvals pending in nine other countries. In 1994, Oruvail, the extended-release form of the NSAID Orudis (ketoprofen), generated excellent sales growth that more than offset the sales lost by Orudis to generics. Wyeth-Ayerst submitted an NDA in late 1994 for bromfenac sodium, a potent, non-narcotic analgesic with a long duration of effect. Advancing to Phase II trials were a new anti-asthmatic drug and a new, potentially potent analgesic. Immunex is developing cytokine receptor products that may have potential as anti-inflammatory or immune suppressive therapies. 19 Mrs. Frances Porembo-Krentz, age 70, takes Lodine for her osteoarthritis. Use of the product greatly increases her mobility and comfort. Mrs. Porembo-Krentz, who once again can enjoy crocheting, her favorite pastime, resides with her husband, George, in Aston, Pennsylvania. [PHOTO] Zoton (lansoprazole), a second-generation proton pump inhibitor licensed from Takeda Chemical Industries, was successfully launched by Lederle in several inter-national markets, including the United Kingdom. Proton pump inhibitors are the newest and most effective treatment for duodenal ulcers and reflux esophagitis. ANTI-INFECTIVES--Lederle offers major antibiotic products that are marketed worldwide. Sales of Suprax (cefixime), a third-generation cephalosporin, increased significantly in 1994 despite the introduction of new competitive products. Suprax offers convenient once-a-day dosing, which is advantageous in treating childhood ear infections and adult respiratory infections. Phase IV trials are under way to expand the indications for Suprax. Zosyn (piperacillin sodium/tazobactam sodium), a broad spectrum, intravenous therapy for a wide range of life-threatening infections, performed well in its first full year of sales in the United States. Sold in an expanding number of international markets as Tazocin, this product represents a therapeutic advance due to its stability in the presence of enzymes produced by some bacteria that inactivate other antibiotics. A new indication for nosocomial pneumonia, a condition that accounts for the largest hospital usage of antibiotics, is pending at the FDA. Other major Lederle antibiotics are Minocin (minocycline HCl), used worldwide for the treatment of moderate-to-severe acne, and Pipracil (piperacillin), a broad spectrum, semi-synthetic penicillin. Sales for both products have been adversely affected by generic competition in major markets. Clinical trials were begun by Wyeth-Ayerst for a new oral penem antibiotic that was developed with Suntory Ltd. in Japan for use in the United States. Penems are similar in structure to penicillins but have a broader spectrum of activity. Recombinant human interleukin-twelve (rhIL-12) began clinical trials in cancer patients and in Human Immunodeficiency Virus (HIV) sufferers. This immune system modulator is being developed and commercialized via a joint venture between Wyeth-Ayerst and Genetics Institute. Other infectious disease indications may be explored in the future. VACCINES--Vaccine technology is recognized as one of the most effective methods for preventing and controlling disease and for reducing health care costs. Lederle-Praxis and Wyeth-Ayerst together represent an important factor in the discovery, development and marketing of vaccines worldwide. 20 RESEARCH REPORT AMONG THE LARGEST GLOBAL COMMITMENTS TO THE ADVANCEMENT OF MEDICAL THERAPY [PHOTO] THE COMBINED RESEARCH EFFORTS OF WYETH-AYERST RESEARCH, LEDERLE AND LEDERLE-PRAXIS REPRESENT ONE OF THE LARGEST COMMITMENTS WORLDWIDE TO BRINGING IMPORTANT THERAPEUTIC ADVANCES TO THE HEALTH CARE COMMUNITY. THE COMPANY'S SCIENTIFIC DISCOVERY PROGRAMS ARE ENHANCED BY THE WORK OF GENETICS INSTITUTE, INC. AND IMMUNEX CORPORATION, LEADING BIOTECHNOLOGY COMPANIES IN WHICH AMERICAN HOME PRODUCTS HAS MAJORITY OWNERSHIP. THE PROVEN ABILITY OF THESE COMPANIES TO USE GENETIC ENGINEERING TO DISCOVER AND DEVELOP PROTEIN-BASED THERAPIES COMPLEMENTS THE EXPERTISE OF WYETH-AYERST RESEARCH AND LEDERLE IN BIOLOGY, CHEMISTRY AND PHARMACOLOGY. THE SCOPE OF WYETH-AYERST'S MEDICAL TECHNOLOGY ALSO IS EXTENDED THROUGH A GROWING NUMBER OF IMPORTANT COLLABORATIVE ARRANGEMENTS WITH OTHER BIOTECHNOLOGY COMPANIES AND RESEARCH INSTITUTIONS. THE COMPANY IS FOCUSED ON FINDING BREAKTHROUGHS IN TREATING OR PREVENTING SERIOUS HEALTH PROBLEMS IN AREAS OF CRITICAL NEED THAT COST HEALTH SYSTEMS WORLDWIDE HUNDREDS OF BILLIONS OF DOLLARS ANNUALLY. WYETH-AYERST RESEARCH HAS MAJOR DISCOVERY PROGRAMS IN THE AREAS OF WOMEN'S HEALTH, CARDIOVASCULAR AND METABOLIC DISEASE, CENTRAL NERVOUS SYSTEM DISORDERS AND IMMUNO-INFLAMMATORY DISEASE. LEDERLE ALSO WORKS IN MOST OF THESE AREAS AND ADDS STRONG ONCOLOGY AND INFECTIOUS-DISEASE EFFORTS. LEDERLE-PRAXIS IS A LEADER IN VACCINE RESEARCH AND DEVELOPMENT. Lederle-Praxis, a leading producer of childhood vaccines in the United States, currently is the only U.S. manufacturer of oral polio vaccine, marketed under the Orimune trademark. Since its introduction in 1963, more than 600 million doses of Orimune have been distributed in the United States, virtually eliminating the threat of polio. Tetramune, introduced in 1993 as the first combination vaccine approved for protection against infant bacterial meningitis, diphtheria, tetanus and pertussis, grew significantly during its first full year of sales. Use of Tetramune reduces by half the number of injections a child requires by age 15 months for immunization against these diseases. Lederle-Praxis is developing important new vaccines to protect against infant pneumonia and middle ear infections. Research priorities also include new combination vaccines and delivery systems designed to reduce the number of injections required to fully immunize children. Wyeth-Ayerst is one of the largest suppliers of influenza, cholera, typhoid and adenovirus vaccines in the United States. Phase III trials continued for a Wyeth-Ayerst rotavirus vaccine that could represent a dramatic advance in the prevention of acute infantile gastroenteritis, which claims nearly 1 million lives each year. This vaccine is expected to be the first product manufactured in Wyeth-Ayerst's new Biological Development Center. The Center, validated in 1994, is a state-of-the-art facility in Marietta, Pennsylvania, dedicated to the development, production and testing of new live virus vaccines. PEDIATRIC HEALTH CARE--Wyeth-Ayerst is a leader worldwide in developing and marketing scientifically formulated products that meet the nutritional and therapeutic needs of infants and children. Demand for established nutritionals and new product introductions led to 21 Physicians like Dr. Thomas Moskow of Denville, New Jersey (shown here with Deborah and John Ryan Huffstutler), choose Lederle-Praxis' Tetramune for their pediatric patients. Lederle-Praxis is the leading producer of childhood vaccines in the United States. [PHOTO] increased sales in many international markets in 1994. SMA, marketed internationally as S-26, continued to hold the number one position in the first-stage formula segment in several key markets although, in the United States, SMA infant formula sales declined because of Wyeth-Ayerst's decision to exit some deep-discount markets due to low profitability. Nursoy, a soy-based formula for infants and children allergic to cow's milk, also declined in U.S. sales but continued to grow internationally. Sales growth of follow-on formulas for infants aged six months and older was led by Promil. Bonamil, an economical alternative to existing first-stage formulas, was launched in Canada in 1993 and was introduced in the United States in late 1994. Progress, specially formulated for children one to four years of age, successfully completed its first full year of sales in key Asian markets and was introduced in Middle Eastern markets. The nutritional franchise is complemented in the United States by pediatric pharmaceutical specialties. Children's Advil Suspension (ibuprofen), indicated for the reduction of fever and relief of the symptoms of juvenile arthritis, increased in sales. Donnagel is recommended as an anti-diarrheal product. COUGH/COLD/ALLERGY PRODUCTS--Wyeth-Ayerst is the leader in prescriptions for cough/cold/allergy products in the United States. Major products include codeine formulas of the Phenergan (promethazine) and Robitussin lines of cough control products and the combination antihistamine/decongestant formulas of Dimetane, which are used in the treatment of serious colds and allergies. 22 "Wyeth-Ayerst is a leader worldwide in developing and marketing scientifically formulated products that meet the nutritional and therapeutic needs of infants and children." ONCOLOGY THERAPIES--Effective cancer treatment remains one of the major challenges of medical practitioners and researchers. Lederle has developed several anti-cancer agents that are owned and marketed by Lederle internationally and by Immunex in North America. Major products include Novantrone (mitoxantrone), which is used in the treatment of acute myelogenous leukemia and currently is in a clinical study for non-Hodgkin's lymphoma and prostate cancer. Leucovorin calcium is used in combination with 5-fluorouracil in the treatment of colorectal cancer and methotrexate overdose. Thioplex (lyophilized thiotepa) recently was approved by the FDA and is used to treat a variety of tumors. Leukine (sargramostim), a biotechnology product of Immunex, is a white blood cell stimulant used to promote immune cell recovery following bone marrow transplantation. Additional indications for Leukine in the oncology setting currently are under review at the FDA. BIOPHARMACEUTICALS AND IMMUNOMODULATORS--Portfolios of genetically engineered human proteins and small molecules are being developed by Genetics Institute for use in treating a range of health problems. Several pilot studies continue for Genetics Institute's rhBMP-2, a protein that has shown encouraging pre-clinical activity as a treatment for multiple indications where bone growth or repair is desired. Phase I safety trials of rhIL-12, in both oncology and HIV infection, are under way. rhFactor IX, for treating hemophilia B, is expected to enter clinical studies early in 1995. Research continues at Genetics Institute in the areas of immunology and hematopoiesis, bone and connective tissue biology, soft tissue repair, organ regeneration and small molecule drug discovery. There are three Phase II studies under way in the United States and one Phase II study in Japan for Genetics Institute's Neumega rhIL-11, an agent for enhancing blood platelet production, which often is lowered by the side effects of chemotherapy in cancer patients. Research at Immunex focuses on proteins that regulate the immune system. Cytokines such as Leukine increase production of important cells that can restore the immune response or boost the body's ability to fight infection. Leukine is in Phase III studies for reduction of post-operative infections and Phase II studies for HIV infection. Immunex's focus on the immune system has led to discovery of other molecules, including Interleukin-15, with potential in the treatment of mucositis, and the CD40 ligand, which may play a role in the treatment of B-cell lymphoma. Phase IIItrials are ongoing with Immunex's PIXYKINE (PIXY321), a novel blood cell growth factor designed to stimulate white blood cells and platelets, essential blood elements that often are destroyed by cancer treatment. Wyeth-Ayerst began Phase II clinical studies for Rapamune (rapamycin) as first-line chronic therapy for the prevention and treatment of organ rejection. Rapamune has been shown to exert a unique pharmacologic effect on the immune system, in contrast to currently marketed immunosuppressant products. 23 "With a broad range of branded and generic products covering an extensive list of therapeutic areas, Wyeth-Ayerst and Lederle are well-positioned to be valuable partners with most managed providers of pharmaceutical care." GENERIC PRODUCTS--Lederle Standard Products is a leader in the United States in marketing generic versions of major pharmaceuticals. ESI-Pharma, Inc., formed by Wyeth-Ayerst in 1993, continues to build a portfolio of generic products. These products, combined with the extensive line of generic parenteral products marketed under the Elkins-Sinn and Tubex labels, give the Company a generic portfolio of 123 products in oral and injectable forms, covering 58 product categories. The Lederle Standard Products line of generic pharmaceuticals was expanded through the successful launch of new products, including cimetidine, the generic version of a top-selling anti-ulcer medication; gemfibrozil, the generic version of a widely used cholesterol-lowering agent; alprazolam, the generic of a leading anti-anxiety agent; and naproxen, the generic of a broadly prescribed anti-inflammatory therapy. The initial product introductions of ESI-Pharma gained market acceptance. These drugs include medroxy-progesterone acetate and norethindrone acetate. Internationally, several steps recently were taken by Wyeth-Ayerst to strengthen its competitive base in the generic marketplace. An agreement was reached with Novopharm Ltd., Canada's leading manufacturer of generic pharmaceuticals giving Wyeth-Ayerst access to more than 200 different generic products as well as use of Novopharm's product registration dossiers. A pan-European generics company was formed to coordinate activities throughout Europe and especially in Germany, where Wyeth-Ayerst has grown in the generic market through a series of acquisitions. MANAGED CARE--The United States continues to realize significant growth in managed health care. With a broad range of branded and generic products covering an extensive list of therapeutic areas, Wyeth-Ayerst and Lederle are well-positioned to be valuable partners with most managed providers of pharmaceutical care. The increase in the number of lives covered by managed care is driving the formation of integrated provider networks composed of medical centers, hospitals, clinics, specialists, primary care and pharmacy providers. Wyeth-Ayerst and Lederle are positioned to coordinate the offering of all products, services and materials to best serve these emerging health care systems. Wyeth-Ayerst now has entered into agreements with most of the major group purchasing organizations and continues to establish programs, services, software and educational resources to solidify relations with managed care customers. In 1994, Lederle-Praxis also launched a number of initiatives directed to managed care customers, including "Safeguards for the Future," a comprehensive teaching program that managed care organizations can provide to their constituents to educate them about common infectious diseases. 24 Manjari Joshi, M.D., Assistant Professor of Medicine at the University of Maryland, specializes in infectious diseases. Dr. Joshi, shown here with colleague Neal Reynolds, M.D., is the lead author on a study for the additional indication of nosocomial pneumonia for Lederle's antibiotic, Zosyn. [PHOTO] COLLABORATIVE VENTURES--Wyeth-Ayerst and Lederle initiated or progressed with several research and development partnerships during the year. Wyeth-Ayerst entered into a joint discovery program with Affymax N.V., a biotechnology company that is developing new technologies to accelerate the pace of drug discovery. A Wyeth-Ayerst discovery research program using proprietary screening technologies of Panlabs, Inc. identified several natural products that could have therapeutic applications for stroke, asthma and osteoporosis. Wyeth-Ayerst and Oncogene Science, Inc. made progress in identifying lead molecules that regulate genes in order to develop new therapies for asthma, osteoporosis, immune system modulation and diabetes. A research alliance was established by Wyeth-Ayerst with Ligand Pharmaceuticals to develop a new generation of estrogen- and progesterone-based products. Ongoing collaborations continued with specialized drug delivery companies in order to improve Wyeth-Ayerst's new product flow in the areas of contraception and HRT. 25 [PHOTO] CONSUMER HEALTH CARE Whitehall-Robins is a worldwide leader in the research and development, manufacturing and marketing of consumer health care products. The addition of Lederle's vitamin and mineral supplement products complements the OTC medications of Whitehall-Robins and further strengthens its competitive position. In 1994, U.S. sales for Whitehall-Robins, exclusive of Cyanamid, were slightly lower than the prior year because of a mild cold and flu season and also because of increased competition from private label copies of its leading brands. During the year, Whitehall-Robins continued its substantial investment in research and development and will further increase this investment in 1995. Concurrent with the increase in R&D investment is a substantial enhancement of the company's scientific infrastructure and capabilities, underscoring a commitment to introduce new, cost-effective health products through prescription to OTC s witches, major line extensions and product improvements. In late 1994, the company submitted an NDA for an OTC version of Axid (nizatidine), an H2 antagonist for the treatment of heartburn and acid indigestion. The application, which was accepted for review by the FDA, was developed under a licensing agreement with Eli Lilly and Company. In addition, an OTC version of the Wyeth-Ayerst prescription analgesic Orudis currently is under review by the FDA. The leadership of Whitehall-Robins in the United States also is sustained by a major medical detailing effort that includes a core group of specialists dedicated to forming partnerships with managed care organizations. THE NON-PRESCRIPTION MEDICATIONS FROM LEDERLE, COMBINED WITH THOSE OF WHITEHALL-ROBINS, ENHANCE AHP'S LEADERSHIP POSITION IN OTC SALES. THE COMPANY ALSO OCCUPIES THE LEADERSHIP POSITION IN THE U.S. VITAMIN MARKET AND HAS SIGNIFICANTLY IMPROVED ITS MARKET POSITION INTERNATIONALLY. Internationally, where Whitehall-Robins registered increased sales in 1994, the company is building a major OTC franchise that includes analgesics, digestive remedies, cough medicines, cold remedies and vitamins. Whitehall-Robins opened a state-of-the-art product development facility in the United Kingdom during 1994. ANALGESICS--Sales growth for Advil (ibuprofen) outpaced all established competitors in the expanding U.S. analgesic category despite pressure from a new prescription to OTC switch product and the introduction of line extensions for other established brands. Advil is the largest-selling OTC ibuprofen product in the United States and Canada and the second-largest selling non-prescription U.S. analgesic. In the United States, the brand benefited from new, easy-open cap packaging as well as extensive advertising, promotion, physician detailing and education programs. Although sales of aspirin-based products continued to diminish, Anacin remained an important aspirin-based analgesic in North America. Anadin Extra continued to lead sales gains for the Anadin line of products, the number one selling analgesics in the United Kingdom. COUGH/COLD/ALLERGY REMEDIES--In the United States, Robitussin, the leader in the cough syrup category, remained the brand most frequently recommended by Left: Bob Madonna, age 65, is an active marathon runner who has finished 60 of these endurance contests, including the 1994 New York Marathon. Mr. Madonna, of Rochelle Park, New Jersey, uses and recommends Advil for occasional muscle aches and soreness. 27 Josephine Fagone, who turned 101 years old on February 2, 1995, attributes her good health--in part--to regular use of Centrum. Ms. Fagone, pictured here with her daughter, Nell Compesi, lives in Garfield, New Jersey, and is an active senior with an upbeat outlook. [PHOTO] physicians and pharmacists. Sales for the OTC cough/cold/allergy category remained unchanged in 1994, although strong sales were recorded for Robitussin Cold & Cough Liqui-Gels in its first full year on the market. The Robitussin brand continued to expand in the cold category with the introduction of Robitussin Cold, Cough & Flu Liqui-Gels. Robitussin Cold & Cough Liqui-Fills was launched in Canada, where the brand recorded increased sales. Robitussin Pediatric Night Relief, also introduced last year, grew in sales. In addition, Robitussin and Dimetapp showed sales gains in Australia. Robitussin Cough Drops built on its position as the second-largest selling brand of cough drops in the United States, recording sales increases and introducing Robitussin Sugar-Free Cough Drops. In the increasingly competitive cold segment, Dimetapp remained the OTC antihistamine/decongestant most widely recommended by physicians in the United States for colds and allergies. The launch of Dimetapp Cold & Cough Liqui-Gels expanded the brand into the fastest growing product form in the cough relief segment. The introduction of Dimetapp Decongestant Pediatric Drops, for children ages two to three, is expected to enhance Dimetapp as the cold and allergy brand most frequently recommended by pediatricians. Advil Cold and Sinus (ibuprofen and pseudoephedrine) continued to generate strong sales growth in the United States. The brand also experienced success with a launch in Canada and continued to grow in France. VITAMIN AND MINERAL SUPPLEMENTS--Lederle's Centrum and Centrum Silver, the market leaders in the U.S. and Canadian adult multivitamin category, recorded sales increases in 1994 despite competitive pressure. Centrum received increased support from consumers who are new users of vitamins, drawn by extensive media coverage 28 "In the United States, Robitussin, the leader in the cough syrup category, remained the brand most frequently recommended by physicians and pharmacists." of nutritional issues as well as the brand's positioning as the leader in scientific advances. Aggressive marketing programs for Centrum, Jr. resulted in major sales gains and moved the brand to the number two position in the children's vitamin category. Protegra, an antioxidant vitamin and mineral supplement, had impressive sales in its first full year on the U.S. market, and FiberCon, a bulk-forming fiber laxative, increased in sales in 1994. Lederle is well-positioned to take advantage of expanded opportunities in the calcium supplement category with Caltrate. Sales in this category are expected to grow as a result of recommended guidelines, announced by the National Institutes of Health in December 1994, for calcium intake to prevent osteoporosis. HEMORRHOIDAL AND ASTHMA RELIEF--Preparation H registered sales equivalent to the prior year. The brand continued to be the largest-selling product in the hemorrhoidal relief category in the United States and Canada and maintained leadership in certain European countries. A new clinical study using Primatene Mist, the number one selling OTC asthma relief product in the United States, demonstrates that people with mild asthma can obtain significant benefits within 15 seconds of inhaling epinephrine, the brand's active ingredient. FAMILY PLANNING AND IN-HOME DIAGNOSTICS--Clearblue Easy declined in sales in the face of increased competition from new, lower-priced market entrants in the U.S. pregnancy test kit category. In Europe, Clearblue Easy was the market leader in Switzerland and Austria and also gained market leadership in Germany. New advertising and an innovative information program for obstetricians and gynecologists yielded sales growth for Clearplan Easy, which gained as the leader in the U.S. ovulation predictor category. Early in 1995, the decision was made to stop the manufacture of Today Sponge. The cost and time required to comply with more stringent government-directed manufacturing and testing mandates would have resulted in the Company having to price the product beyond the reach of many consumers. LIP CARE, TOPICAL ORAL ANALGESICS AND MEDICATED SHAMPOO--The success of its medicated line enabled the Chap Stick lip balm franchise to grow as a category leader in the United States and Australia. Additionally, Chap Stick sales increased significantly in other international markets. Anbesol, a leading line of topical oral analgesics in the United States, posted increased sales in both the adult and baby categories of the market. Sales growth for Denorex, a leading line of medicated shampoos in the United States, was driven by the strong performance of Denorex for Dry Scalp, a product for the relief of dryness and itching. 29 [PHOTO] MEDICAL SUPPLIES AND DIAGNOSTIC PRODUCTS Sherwood Medical Company, Quinton Instrument Company and Symbiosis Corp. manufacture and market innovative medical devices, supplies and diagnostic instrumentation that meet the specialized needs of patients and health care providers in the United States and throughout the world. Augmenting the Company's presence in medical supplies and instrumentation are the businesses acquired with Cyanamid in 1994. These include the Davis & Geck wound closure products company; Acufex Microsurgical Inc., which manufactures accessory products for arthroscopic surgery; and Storz Instrument Company, a manufacturer and marketer of ophthalmic products. DISPOSABLE SYRINGES AND NEEDLES--Sherwood increased sales in the United States and internationally in 1994. Sherwood is one of only two major suppliers of safety syringes in the United States and markets, under the Monoject trademark, a complete range of needle and syringe combinations that protect health care workers from accidental needlesticks and exposure to blood-borne pathogens. Late in the year, Sherwood introduced the Angel Wing Safety Needle System, a patented safety blood collection device designed to provide optimum protection during the collection of blood specimens. TUBES, CATHETERS AND CHEST DRAINAGE PRODUCTS--Sherwood's Argyle line is a leader in the United States in the important areas of umbilical vessel catheters, connecting tubes, naso-gastric tubes and chest drainage products. Sherwood continued to be a leader in tubes and catheters in Germany and showed strong growth in this category in Italy. In Japan, Nippon Sherwood, a joint venture with Mitsui, retained the leading share in gastric drainage products and was a leader in suction, intravenous hemodialysis and enteral feeding tube products. THE CYANAMID ACQUISITION PROVIDES AHP WITH PRODUCTS IN WORLDWIDE MARKETS FOR OPHTHALMIC EQUIPMENT AND WITH IMPORTANT BRANDS IN THE WOUND CLOSURE AND ARTHROSCOPIC SURGERY MARKETS. The initial market introduction of Angio-Seal was made by Sherwood in France late in 1994. Angio-Seal, an innovative hemostatic puncture closure device, is designed to significantly increase patient comfort while reducing costs related to arterial punctures during the termination of cardiac catheterization procedures. Clinical trials continue for this product in Europe and in the United States. A new range of patented arterial blood gas sampling products and a complete new line of spinal and epidural kits and trays were introduced by Sherwood in the United States. Also introduced in 1994 were the Argyle Turkel Safety Thoracentesis and Pneumothorax Systems, which are being marketed by Sherwood and manufactured by Symbiosis. These systems, used to drain fluid from the pleural space, incorporate many safety features and benefits. CARDIOPULMONARY INSTRUMENTATION AND DEVICES--The broad line of advanced monitoring products from the Quinton Instrument Company is designed to follow the patient from initial diagnosis through cardiac rehabilitation. Quinton, a leader in stress-testing equipment in Left: (Bernard Lancelin, M.D., Centre Chirurgical Marie Lannelongue, Cardiologie Interventionelle, Paris, France) Dr. Lancelin, a French cardiologist, now uses Sherwood's Angio-Seal to enhance patient comfort and increase operating room efficiency. 31 "Sherwood's Kangaroo line maintained a leadership position in enteral feeding devices in the United States and secured sales growth in Europe and Australia." the United States, registered sales increases in 1994. An expansion was made in the cardiac catheterization laboratory area with Quinton's acquisition of ImageCOMM Systems, Inc., a manufacturer of cardiac imaging products. Electrophysiology products from Quinton Electro-physiology Corporation now are part of Quinton's comprehensive line of diagnostic cardiology systems, and in 1994, sales for these products grew rapidly. EPAmp is a new amplifier designed to work with the EPLab Data Management System. It features improved touch-screen lead configuration at the patient table and stand-alone architecture for patient monitoring back-up. Continued enhancement of Q-Tel, Quinton's cardiac rehabilitation telemetry software product, bolstered Quinton as a leader in cardiac rehabilitation monitoring. Quinton re-entered Holter monitor sales with the launch of two products developed under agreement with Zymed Medical Instrumentation, a leading manufacturer and marketer of high-end Holter monitors. ENTERAL FEEDING SYSTEMS--Sherwood's Kangaroo line maintained a leadership position in enteral feeding devices in the United States and secured sales growth in Europe and Australia. Future global market growth opportunities were strengthened by the acquisition from Biosearch Medical Products of certain assets and licenses for patented technology in enteral access devices. Acquired products, marketed under the Dobbhoff and Entri-Flex trademarks, include a line of nasoenteric feeding tubes, percutaneous endoscopic gastrostomy devices and low-profile gastrostomy tubes. THERMOMETRY-Significant sales increases for FirstTemp Genius infrared tympanic thermometers increased Sherwood's leadership in the hospital sector of thermometry sales in the United States. Sales for tympanic thermometers also grew rapidly in Europe, led by gains in the United Kingdom and Nordic markets and in Canada. WOUND CARE AND WOUND CLOSURE PRODUCTS--Sales growth in the wound care dressings field in the United States was achieved by Sherwood's specialty brands Viasorb, Blisterfilm and Ultec, which offer cost-effective alternatives to conventional methods for treating chronic wounds. Davis & Geck is a worldwide manufacturer of wound closure products, including sutures designed for cardiovascular, ophthalmological, plastic, obstetrical/gynecological and other surgical specialties. In addition, Davis & Geck supplies the medical industry with unique bioabsorbable products and skin staplers. LESS-INVASIVE SURGICAL INSTRUMENTS--Symbiosis Corp., a leader in developing and manufacturing innovative disposable laparoscopic and endoscopic surgical products that are supplied to major surgical instrumentation companies for sale to customers, recorded strong sales increases in 1994. 32 Nannette Bac, R.N., is the Infection Control Supervisor at Mercer Medical Center in Trenton, New Jersey. Ms. Bac, pictured here with Sherwood Medical sales representative Marti Heckman, was instrumental in the Medical Center's decision to use Monoject Safety Syringes exclusively. [PHOTO] Radial Jaw 3, a biopsy forceps introduced in 1994, utilizes new sheath technology that improves gastrointestinal endoscopic procedures. Symbiosis acquired a worldwide license to manufacture and market laparoscopic instruments from Hemostatic Surgery Corp. This new technology provides superior control of bleeding with minimal tissue damage. Acufex Microsurgical also posted sales gains for the year. Acufex manufactures instruments, scopes, fiber-optic light sources and television imaging systems for arthroscopic surgical procedures. VISION CARE PRODUCTS-Major products of the Storz Instrument Company include ophthalmic microsurgical systems, intraocular lenses, ophthalmic pharmaceuticals and hand-held ophthalmic surgery instruments. Additionally, Storz markets instrumentation for the specialties of otolaryngology and plastic and reconstructive surgery. 33 [PHOTO] FOOD PRODUCTS The quality foods of American Home Food Products and Canadian Home Products represent some of the most popular brands in key food categories in North America. These products are in step with the increasing consumer demand for taste and convenience as well as health and dietary benefits. PREPARED MEALS AND SIDE DISHES--New products and line extensions enabled American Home Food Products to increase sales in 1994 and maintain its leading share of the prepared pasta category in the United States and Canada. The appeal of the Chef Boyardee brand to toddlers and younger children increased with the introduction of Sesame Street Pasta. This is the first line of food products to be affiliated with the Children's Television Workshop, creators of "Sesame Street." Each recipe consists of pasta shaped as Sesame Street characters and is lower in fat or sodium than many adult foods. The launch of fettuccine and tortellini varieties increased the appeal of Chef Boyardee to older children and adults. Chef Boyardee Microwave Meals maintained its leadership in the microwave segment by introducing the first rice products in chicken and beef varieties. Dennison's, a popular canned chili on the West Coast, introduced Jalapeno Chili. Ranch Style, a leading line of bean products in key geographic areas, added Black Beans and a beef stew product. A custom-formulated bean and jalapeno version of the brand now is being used by a leading restaurant group in a new burrito item. Luck's, a leading brand of beans and peas in the Southeast, introduced Light Red Kidney Beans, which is low in fat and high in fiber. FOOD ENHANCEMENTS AND SNACKS--Sales growth for PAM outpaced all competitors in an expanding category despite pressure from competitive introductions and private label products. PAM is the largest-selling no-stick cooking spray in the United States and Canada. It is positioned as a low fat, no cholesterol alternative to butter, margarine and oil. Polaner All Fruit, acquired in 1993, increased significantly in sales and remained the number one fruit juice sweetened spreadable fruit. Polaner, which contains no added sugar or fat, benefited from its national expansion and an increased user base in established markets. The brand's position as a leader in the wet spices category was strengthened with the launch of the first sun-dried tomato product cut into strips. Gulden's continued as the largest-selling spicy brown mustard in the United States. Ro*Tel, the leading brand of canned tomatoes and green chilies, was expanded to the West Coast. Crunch 'n Munch remained the leading brand of glazed popcorn in the United States and Canada. A new, unique Crunch 'n Munch Light product was successfully introduced in Canada. Left: (J. Baxter Urist, Senior Vice President, Children's Television Workshop) The Sesame Street line of Chef Boyardee canned and micro-wave pastas is the first food product to be licensed by Children's Television Workshop, the creators of Sesame Street. 35 [PHOTO] AGRICULTURAL PRODUCTS Cyanamid is an innovator and a global leader in the crop protection market with some of the largest-selling herbicides and insecticides as well as a growing presence in fungicides. The acquisition of the international agricultural products business of Shell Petroleum Company Limited by Cyanamid in 1993 significantly broadened the product franchise internationally and provided a direct, well-established international distribution capability. HERBICIDES--Cyanamid's key herbicides are formulated from the imidazolinones, a unique class of compound that essentially is safe to wildlife and is effective at low application rates. Pursuit is the leading soybean broadleaf herbicide in the United States, and sales continued to grow for this product internationally, particularly in Argentina and Brazil. Cyanamid strengthened its position as the U.S. market leader among soybean grass herbicides, with Prowl remaining a major product internationally where it is marketed as Stomp. Squadron, another major U.S. herbicide, grew in sales. Scepter, a soybean herbicide, remained an important product in the United States and Latin America, and Assert, a wheat herbicide, gained in Canada and the United States. Arsenal, a leading herbicide in the forestry market, had strong growth in the United States and internationally. INSECTICIDES--Cyanamid markets leading corn soil insecticides in the United States and other countries. Counter maintained a strong market position as customers shifted to its new, easier-to-use packaging. Thimet sales increased in the United States and internationally. Fastac, used for a variety of crops, was a major contributor to sales in international markets. A submission is planned to reregister this product in the European Union. WITH THE ADDITION OF LEADING CROP PROTECTION PRODUCTS MANUFACTURED AND MARKETED BY CYANAMID, AHP ENTERED A MAJOR, GLOBAL BUSINESS. CYANAMID'S CROP PROTECTION RESEARCH AND DEVELOPMENT EFFORTS HAVE GENERATED NUMEROUS NEW PRODUCTS THAT HAVE MADE SUBSTANTIAL CONTRIBUTIONS TO SALES. FUNGICIDES--Delan and Saprol, sold internationally for use with a wide range of crops, were major contributors to sales in Japan, Italy and other international markets. Acrobat/Forum, which provides a new mode of action, was launched during the year in key markets. RESEARCH--The products discovered and developed over the past several years have become major factors in soybean and cereal markets and have increased Cyanamid's presence in the corn herbicide market. Products currently in development will expand Cyanamid's participation in the cotton, fruit and vegetable insecticide markets and in the rice herbicide market. A registration dossier was submitted late in 1994 to the U.S. Environmental Protection Agency for a new cotton insecticide from the novel pyrrole family, a new class of compounds developed by Cyanamid researchers. In field trials, the pyrroles have produced excellent results in controlling insects, including those that have become resistant to other insecticide classes. European and other international submissions will be made in 1995. Left: In Ashburn, Georgia, Cyanamid AgriCenter dealer Tim Floyd (top) of Coley Farm Service works with Cyanamid Master Sales Representative Wiley Durden in planning crop protection strategies for his customers. Cyanamid is a global leader in products that protect soybeans, corn, cotton and other major crops. 37 Marinus Los, Ph.D., Director, Crop Sciences Discovery, pictured here at Cyanamid's Princeton, New Jersey-based Agricultural Research Center, was instrumental in the discovery and development of the imidazolinones, a new class of chemistry. In recognition of his achievement, Dr. Los received the National Medal of Technology from the President of the United States. [PHOTO] Several combination products with imidazolinones are anticipated to receive registration. These will strengthen Cyanamid's competitive position by minimizing the impact of weed resistance. Cyanamid also will develop combination products using the fungicide dimethomorph to increase the spectrum of disease control and to minimize potential for the development of resistance. In discovery, Cyanamid has compounds that will be approaching the development stage in late 1995. These compounds have the potential to maintain the company's momentum in global herbicide, insecticide and fungicide markets and help further penetrate crop segments where Cyanamid currently is not a major factor. These compounds include a new herbicide, a second pyrrole insecticide, a new fungicide and a genetically engineered biopesticide. 38 ANIMAL HEALTH CARE Fort Dodge Laboratories markets a broad range of products in more than 40 countries and ranks second in animal vaccines in North America while sustaining a major animal health research and development effort. The Cyanamid acquisition provides an expanded presence for Fort Dodge, both in North America and internationally, for poultry, swine, bovine, equine and small animal products. Excluding Cyanamid, 1994 sales for Fort Dodge were consistent with the prior year. SMALL ANIMAL AND EQUINE PRODUCTS--The first fungal vaccine licensed by the U.S. Department of Agriculture (USDA) for prevention and treatment of feline ringworm was introduced by Fort Dodge. Marketed as Fel-O-Vax MC-K, this new product boosted sales in the fast-growing feline biological field. Sales for Duramune (coronavirus) combination canine biologicals and LymeVax (Borrelia burgdorferi bacterin), the canine Lyme disease vaccine, maintained Fort Dodge's leadership in U.S. canine biologicals. LymeVax remained the single-largest dollar-volume canine vaccine in the United States. Sales increases were recorded for key antibiotic products, among them Amiglyde-V (amikacin sulfate) and Cefa-Tabs/Cefa Drops (cefadroxil), and the anesthetics Ketaset (ketamine HCl) and Telazol (tiletamine HCl/zolazepam HCl). New small animal pharmaceuticals introduced in 1994 included Torbugesic SA (butophanol tartrate), a potent analgesic for pain relief in cats; Arquel Tablets (meclofenamic acid), an oral NSAID for the relief of pain and inflammation in dogs; Robamox-V Suspension (amoxicillin), a liquid formulation of the popular antibiotic amoxicillin; and Sedazine (xylazine), a potent sedative/analgesic. THE INTEGRATION OF CYANAMID'S ANIMAL HEALTH BUSINESSES INTO FORT DODGE ENHANCES THE COMPANY'S POSITION IN ANIMAL BIOLOGICALS AND PHARMACEUTICALS WORLDWIDE. IT ALSO PROVIDES A STRONG ENTRY INTO THE MEDICATED FEED ADDITIVES MARKET. Fort Dodge's position as a leader in equine vaccines was maintained through increased sales for several key products. A new equine biological introduced during the year - Fluvac EHV 4/1 with MetaStim - features a new adjuvant system that stimulates the immune system to respond to vaccination more effectively. DAIRY AND CATTLE PRODUCTS--Fort Dodge and Franklin Laboratories, its OTC entity, exhibited a strong performance in sales of mastitis prevention and treatment products for the U.S. dairy industry, including ToDAY, ToMORROW, Cefa-Lak, Cefa-Dri, Hetacin-K and Dry-Clox. Fort Dodge strengthened its leadership in bovine biological sales through the introduction of PYRAMID MLV 4. This is the first four-way modified live vaccine licensed by the USDA that provides single-dose administration as well as the option of subcutaneous or intramuscular injection. Fort Dodge's leading line of inactivated bovine biologicals expanded with the launch of Triangle 4+PH/HS and Discovery 4+PH/Somnus. In the bovine reproductive biological category, Trichguard and Reprotec registered increased sales. Cydectin (moxidectin) is an endectocide developed by Cyanamid to protect cattle and sheep against a broad range of internal and external parasites. Cydectin annualized sales continued to grow as registrations were achieved around the world. The product gained acceptance in Australia where it was launched in 1994. In 1995, several 39 Gilbert Griffith, D.V.M., of Prairieville, Louisiana, recommends Fort Dodge's newest feline vaccine - Fel-O-Vax MC-K - for the prevention and treatment of ringworm in cats. [PHOTO] formulations will be launched in Europe. Registration is pending in the United States and other countries while new species-specific formulations and delivery systems are in advanced development. Presponse (pasteurella haemolytica toxoid), a respiratory bacterin for cattle developed by Cyanamid, experienced growth in the United States after receiving approval for single-dose administration. The product also was launched in France. Two other Cyanamid vaccines experiencing rapid growth are Cyblue, for the prevention of PRRS (porcine respiratory and reproduction syndrome), and Bursavac, for the prevention of infectious bursal disease in poultry. Annualized sales exceeded expectations for Cyanamid livestock anti-parasite products such as Flectron (cypermethrin) and Renegade (alphacypermethrin). MEDICATED FEED ADDITIVES--Cyanamid's medicated feed additives include antibacterials, anticoccidials and productivity growth enhancers for livestock. These products are used to combat respiratory and intestinal infections in livestock, meeting global needs for increased food production and disease control. NEW PRODUCT AND MARKETING INITIATIVES--Fort Dodge will seek to complete development of a proprietary sustained release formulation of porcine somatotropin developed by Cyanamid that would allow swine producers to grow leaner pigs more quickly. Additionally, an agreement was signed that provides worldwide rights to develop and market a new behavior modifying drug for use in small animals. Other products in early stages of development are a novel biological treatment/prophylaxis for allergic dermatitis in dogs, an equine respiratory disease vaccine and a second-generation Lyme disease vaccine. Continuing its commitment to the European Common Market, Fort Dodge recently purchased major distribution channels in Holland and Spain. 40 FINANCIAL SECTION -------------------------------------------- CONTENTS 42 Ten-Year Selected Financial Data 44 Consolidated Balance Sheets 45 Consolidated Statements of Income 46 Consolidated Statements of Retained Earnings and Additional Paid-in Capital 47 Consolidated Statements of Cash Flows 48 Notes to Consolidated Financial Statements 57 Report of Independent Public Accountants 57 Management Report on Financial Statements 58 Quarterly Financial Data 58 Market Prices of Common Stock and Dividends 59 Management's Discussion and Analysis of Financial Condition and Results of Operations
- ------------------------------------------------------------------------------ - ---------------------------- TEN-YEAR SELECTED FINANCIAL DATA American Home Products Corporation and Subsidiaries - ------------------------------------------------------------------------------ - ---------------------------- Years Ended December 31, 1994(2) 1993 1992 (Dollar amounts in thousands except per share amounts) SUMMARY OF SALES AND EARNINGS - ------------------------------------------------------------------------------ - ---------------------------- Net sales . . . . . . . . . . . . . . . . . . . . . . . . $ 8,966,214 $8,304,851 $7,873,687 Net income (1) . . . . . . . . . . . . . . . . . . . . . . 1,528,254 1,469,300 1,460,842 Net income per common share . . . . . . . . . . . . . . . 4.97 4.73 4.65 Dividends per common share . . . . . . . . . . . . . . . . 2.94 2.86 2.66 YEAR-END FINANCIAL POSITION - ------------------------------------------------------------------------------ - ---------------------------- Current assets . . . . . . . . . . . . . . . . . . . . . . $ 7,821,246 $4,807,684 $4,552,077 Current liabilities. . . . . . . . . . . . . . . . . . . . 4,618,086 1,584,411 1,492,717 Ratio of current assets to current liabilities . . . . . . 1.69 3.03 3.05 Total assets . . . . . . . . . . . . . . . . . . . . . . . 21,674,812 7,687,353 7,141,405 Long-term debt . . . . . . . . . . . . . . . . . . . . . . 9,973,240 859,278 601,934 Average shareholders' equity . . . . . . . . . . . . . . . 4,065,295 3,719,539 3,431,568 SHAREHOLDERS - OUTSTANDING SHARES - ------------------------------------------------------------------------------ - ---------------------------- Number of common shareholders . . . . . . . . . . . . . . 71,223 72,664 73,064 Number of preferred shareholders . . . . . . . . . . . . . 666 726 780 Average number of common shares outstanding . . . . . . . used for earnings per share calculation (in thousands). . 307,413 310,668 314,201 Preferred shares outstanding at year-end (in thousands). . 37 40 43 EMPLOYMENT DATA - ------------------------------------------------------------------------------ - ---------------------------- Number of employees at year-end . . . . . . . . . . . . . 74,009 51,399 50,653 Wages and salaries . . . . . . . . . . . . . . . . . . . . $ 1,820,450 $ 1,654,984 $1,575,615 Benefits (including social security taxes) . . . . . . . . 441,768 396,045 367,899 - ------------------------------------------------------------------------------ - ----------------------------
(1) Net income in 1992 includes the impact of accounting changes and the charge for acquired research discussed in Notes 2, 5 and 10. Excluding these items, 1992 net income was $1,370,738, and net income per common share was $4.36. Net income in 1987 excludes a provision related to Dalkon Shield claims of $1.75 billion recorded by A.H. Robins Company, Incorporated prior to its acquisition by the Company in 1989. (2) The 1994 information reflects the acquisition of American Cyanamid Company, effective December 1, 1994. 42
- ------------------------------------------------------------------------------ - ------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------ 1991 1990 1989 1988 1987 1986 1985 - ------------------------------------------------------------------------------ - ------------------------------------------------------ $7,079,443 $6,775,182 $6,747,016 $6,401,454 $5,850,383 $5,683,507 $5,358,376 1,375,273 1,230,597 1,102,158 995,461 928,232 865,922 818,459 4.36 3.92 3.54 3.22 2.98 2.73 2.54 2.375 2.15 1.95 1.80 1.67 1.55 1.45 - ------------------------------------------------------------------------------ - ------------------------------------------------------ $4,119,057 $3,826,075 $3,532,786 $3,256,494 $3,310,467 $3,249,404 $2,634,616 1,270,135 1,693,852 1,108,895 1,067,599 1,392,800 1,103,109 754,216 3.24 2.26 3.19 3.05 2.38 2.95 3.49 5,938,797 5,637,107 5,681,487 5,492,424 5,411,150 4,928,476 3,972,634 104,710 111,430 1,895,796 100,057 90,076 70,815 63,017 2,987,885 2,322,623 1,651,050 1,077,462 1,572,972 2,227,801 1,977,817 - ------------------------------------------------------------------------------ - ------------------------------------------------------ 71,209 69,907 70,904 70,021 73,353 75,405 77,797 870 931 1,021 1,110 1,187 1,314 1,417 315,726 314,066 311,644 309,396 311,975 317,678 322,259 51 57 64 71 77 87 98 - ------------------------------------------------------------------------------ - ------------------------------------------------------ 47,938 48,700 50,816 51,464 50,623 49,896 53,337 $1,388,397 $1,398,721 $1,391,233 $1,284,208 $1,171,788 $1,045,691 $1,052,264 300,810 312,750 256,458 245,834 215,109 164,306 188,946 - ------------------------------------------------------------------------------ - ------------------------------------------------------
43
- ------------------------------------------------------------------------------ - ----------------------------------------------------- CONSOLIDATED BALANCE SHEETS American Home Products Corporation and Subsidiaries - ------------------------------------------------------------------------------ - ----------------------------------------------------- December 31, 1994 1993 (In thousands except per share amounts) ASSETS - ------------------------------------------------------------------------------ - ----------------------------------------------------- Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,696,204 $1,936,834 Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247,970 283,449 Accounts receivable less allowances (1994 - $97,382 and 1993 - $45,949) . . . . . . . . 2,380,730 1,389,555 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,246,150 958,896 Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,250,192 238,950 ----------- ---------- TOTAL CURRENT ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,821,246 4,807,684 Property, plant and equipment: Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178,693 89,375 Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,422,113 1,473,413 Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,857,269 1,897,577 ----------- ---------- 5,458,075 3,460,365 Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,646,145 1,400,580 ----------- ---------- 3,811,930 2,059,785 Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,181,129 716,395 Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 860,507 103,489 ----------- ---------- $21,674,812 $7,687,353 =========== ========== LIABILITIES - ------------------------------------------------------------------------------ - ----------------------------------------------------- Loans payable to banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 113,284 $ 4,280 Trade accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,042,468 388,804 Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,999,127 1,019,923 Accrued federal and foreign taxes on income . . . . . . . . . . . . . . . . . . . . . . 463,207 171,404 ----------- ---------- TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,618,086 1,584,411 Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,973,240 859,278 Accrued postretirement benefit obligation . . . . . . . . . . . . . . . . . . . . . . . 696,814 264,553 Other noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,809,153 903,993 Minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 323,418 198,630 SHAREHOLDERS' EQUITY - ------------------------------------------------------------------------------ - ----------------------------------------------------- $2 convertible preferred stock, par value $2.50 per share; 5,000,000 shares authorized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 91 $ 100 Common stock, par value $.33 1/3 per share; 600,000,000 shares authorized . . . . . . . 101,994 103,442 Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,020,658 1,014,911 Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,226,100 2,884,244 Currency translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . (94,742) (126,209) ----------- ---------- TOTAL SHAREHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,254,101 3,876,488 ----------- ---------- $21,674,812 $7,687,353 =========== ========== - ------------------------------------------------------------------------------ - -----------------------------------------------------
The accompanying notes are an integral part of these consolidated balance sheets. 44
- ------------------------------------------------------------------------------ - ----------------------------------------------------- CONSOLIDATED STATEMENTS OF INCOME American Home Products Corporation and Subsidiaries - ------------------------------------------------------------------------------ - ----------------------------------------------------- Years Ended December 31, 1994 1993 1992 (In thousands except per share amounts) NET SALES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $8,966,214 $8,304,851 $7,873,687 ---------- ---------- ---------- Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,795,581 2,723,902 2,568,690 Selling, administrative and general expenses . . . . . . . . . . . . . . . . . . . 3,175,684 2,922,579 2,846,365 Research and development expenses . . . . . . . . . . . . . . . . . . . . . . . . 817,090 662,689 552,450 Other (income) expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . (25,598) 3,016 (37,888) Restructuring and special charge . . . . . . . . . . . . . . . . . . . . . . . . 173,697 -- 220,000 ---------- ---------- ---------- 6,936,454 6,312,186 6,149,617 ---------- ---------- ---------- Income before federal and foreign taxes on income . . . . . . . . . . . . . . . . 2,029,760 1,992,665 1,724,070 Provision for taxes on income: Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 249,961 287,846 351,193 Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 251,545 235,519 222,139 ---------- ---------- ---------- 501,506 523,365 573,332 ---------- ---------- ---------- Income before accounting changes . . . . . . . . . . . . . . . . . . . . . . . . . 1,528,254 1,469,300 1,150,738 Cumulative effect of accounting changes: Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- 383,295 Postretirement benefits other than pensions (net of taxes of $37,704) . . . . . . . . . . . . . . . . . . . . . . . . . -- -- (73,191) ---------- ---------- ---------- NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,528,254 $1,469,300 $1,460,842 ========== ========== ========== Income per share of common stock before accounting changes . . . . . . . . . . . . $ 4.97 $ 4.73 $ 3.66 Cumulative effect of accounting changes: Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- 1.22 Postretirement benefits other than pensions . . . . . . . . . . . . . . . . . -- -- (.23) ---------- ---------- ---------- NET INCOME PER SHARE OF COMMON STOCK . . . . . . . . . . . . . . . . . . . . . . . $ 4.97 $ 4.73 $ 4.65 ========== ========== ========== - ------------------------------------------------------------------------------ - -----------------------------------------------------
The accompanying notes are an integral part of these consolidated statements. 45
- ------------------------------------------------------------------------------ - ----------------------------------------------------- CONSOLIDATED STATEMENTS OF RETAINED EARNINGS AND ADDITIONAL PAID-IN CAPITAL American Home Products Corporation and Subsidiaries - ------------------------------------------------------------------------------ - ----------------------------------------------------- Years Ended December 31, 1994 1993 1992 (In thousands except per share amounts) RETAINED EARNINGS - ------------------------------------------------------------------------------ - ----------------------------------------------------- Balance, beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . $2,884,244 $2,547,719 $2,316,555 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,528,254 1,469,300 1,460,842 ---------- ---------- ---------- 4,412,498 4,017,019 3,777,397 ---------- ---------- ---------- Cash dividends declared: Preferred stock (per share: 1994 - 1992, $2.00) . . . . . . . . . . . . . 76 82 92 Common stock (per share: 1994 - 1992, $2.94, $2.86, $2.66) . . . . . . . . 903,089 888,100 833,758 ---------- ---------- ---------- 903,165 888,182 833,850 Cost of treasury stock acquired, less amount charged to capital . . . . . . . 272,061 244,593 395,828 Unrealized loss on marketable securities . . . . . . . . . . . . . . . . . . 11,172 -- -- ---------- ---------- ---------- 1,186,398 1,132,775 1,229,678 ---------- ---------- ---------- Balance, end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,226,100 $2,884,244 $2,547,719 ========== ========== ========== ADDITIONAL PAID-IN CAPITAL - ------------------------------------------------------------------------------ - ----------------------------------------------------- Balance, beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . $1,014,911 $ 953,155 $ 838,099 Excess over par value of common stock issued . . . . . . . . . . . . . . . . 41,448 84,013 125,513 Miscellaneous, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (35,701) (22,257) (10,457) ---------- ---------- ---------- Balance, end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,020,658 $1,014,911 $ 953,155 ========== ========== ========== - ------------------------------------------------------------------------------ - -----------------------------------------------------
The accompanying notes are an integral part of these consolidated statements. 46
- ------------------------------------------------------------------------------ - ----------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS American Home Products Corporation and Subsidiaries - ------------------------------------------------------------------------------ - ----------------------------------------------------- Years Ended December 31, 1994 1993 1992 (In thousands) OPERATING ACTIVITIES - ------------------------------------------------------------------------------ - ----------------------------------------------------- Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,528,254 $1,469,300 $ 1,460,842 Adjustments to reconcile to net cash provided from operating activities: . . . Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . 306,169 241,068 210,213 Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . (92,259) 153,314 (223,484) Restructuring and special charge . . . . . . . . . . . . . . . . . . . . . 163,697 -- 220,000 Changes in working capital, net of businesses acquired or sold: Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,972 (135,038) (192,150) Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (157,072) (8,341) (72,057) Trade accounts payable and accrued expenses . . . . . . . . . . . . . . . 324,795 62,758 104,217 Accrued taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121,807 27,333 31,457 Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . (161,674) (13,101) 138 Other items, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (146,180) (115,905) (26,031) ----------- ---------- ----------- Net cash provided from operating activities . . . . . . . . . . . . . . . . . . $ 1,901,509 $1,681,388 $ 1,513,145 =========== ========== =========== INVESTING ACTIVITIES - ------------------------------------------------------------------------------ - ----------------------------------------------------- Purchases of businesses for cash, net of cash acquired . . . . . . . . . . . . $(9,356,230) $ (67,500) $ (565,952) Purchases of property, plant and equipment . . . . . . . . . . . . . . . . . . (472,510) (517,912) (428,109) Proceeds/(purchases) of marketable securities, net . . . . . . . . . . . . . . 24,307 6,154 (238,589) Proceeds from sales of businesses/assets . . . . . . . . . . . . . . . . . . . 195,078 13,614 60,341 Purchases of other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,104) (16,038) (10,165) ----------- ---------- ----------- Net cash used for investing activities . . . . . . . . . . . . . . . . . . . . $(9,615,459) $ (581,682) $(1,182,474) =========== ========== =========== FINANCING ACTIVITIES - ------------------------------------------------------------------------------ - ---------------------------------------------------- Net proceeds of commercial paper and notes . . . . . . . . . . . . . . . . . . $ 8,639,718 $ 251,646 $ 503,759 Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (903,165) (888,182) (833,850) Purchases of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . (313,807) (277,495) (434,947) Exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,805 69,255 95,431 ----------- ---------- ----------- Net cash provided by/(used for) financing activities . . . . . . . . . . . . . 7,460,551 (844,776) (669,607) ----------- ---------- ----------- Effects of exchange rates on cash balances . . . . . . . . . . . . . . . . . . 12,769 (10,857) (32,906) ----------- ---------- ----------- (Decrease)/increase in cash and cash equivalents . . . . . . . . . . . . . . . (240,630) 244,073 (371,842) Cash and cash equivalents, beginning of year . . . . . . . . . . . . . . . . . 1,936,834 1,692,761 2,064,603 ----------- ---------- ----------- Cash and cash equivalents, end of year . . . . . . . . . . . . . . . . . . . . $ 1,696,204 $1,936,834 $ 1,692,761 =========== ========== =========== - ------------------------------------------------------------------------------ - ----------------------------------------------------
The accompanying notes are an integral part of these consolidated statements. 47 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation: The accompanying consolidated financial statements include the accounts of American Home Products Corporation and its subsidiaries (the Company). Acquisition of American Cyanamid Company: On November 21, 1994, the Company acquired substantially all the outstanding shares of American Cyanamid Company (Cyanamid) for approximately $9.6 billion, including acquisition-related costs. Cyanamid is a research-based life sciences company which discovers and develops medical and agricultural products and manufactures and markets such products in more than 135 countries. The acquisition was accounted for under the purchase method of accounting, effective December 1, 1994, and, accordingly, the operating results of Cyanamid for the month of December 1994 have been included in the consolidated operating results of the Company. The purchase price exceeded the net assets acquired by approximately $8.5 billion, which is being amortized over 40 years. The net assets were valued using preliminary estimates of fair values and include the cost of integration. The Company will continue its evaluation of the estimated fair values that were allocated to the net assets of Cyanamid during 1995. The following unaudited pro forma results of operations reflect the acquisition as if it had occurred at the beginning of each year presented after including the impact of adjustments for interest expense on acquisition debt, amortization of goodwill and merger-related financing costs, and related income tax benefits.
(In thousands except per share amounts) 1994 1993 - --------------------------------------------------------------------------- Sales . . . . . . . . . . . . . . . . . . . $13,500,376 $12,581,651 Net income . . . . . . . . . . . . . . . . $ 1,273,000 $ 645,212 Net income per share of common stock . . . $ 4.14 $ 2.08 - ---------------------------------------------------------------------------
The above pro forma results are not necessarily indicative of what actually would have occurred if the acquisition had been in effect for the periods presented. Further, the pro forma results are not intended to be a projection of future results and do not reflect any cost savings resulting from synergistic opportunities. Cash and Cash Equivalents, for purposes of reporting cash flows, consists primarily of certificates of deposit, time deposits and other short-term, highly liquid securities and is stated at cost, which approximates fair value. Marketable Securities consists of U.S. government or agency issues and corporate bonds and are stated at fair value. The fair values are estimated based on quoted market prices. Effective January 1, 1994, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 115 - Accounting for Certain Investments in Debt and Equity Securities. The impact of this statement was not material to the Company as cost approximated fair value. Inventories are valued at the lower of cost or market. Inventories valued under the last-in, first-out (LIFO) method amounted to $716,354,000 at December 31, 1994 and $148,700,000 at December 31, 1993. Current value exceeded LIFO value by $70,206,000 and $65,607,000 at December 31, 1994 and 1993, respectively. The remaining inventories are valued under the first-in, first-out (FIFO) or the average cost method. Inventories at December 31 consisted of:
(In thousands) 1994 1993 - -------------------------------------------------------------------- Finished goods . . . . . . . . . . . $1,158,045 $435,902 Work in progress . . . . . . . . . . 525,269 219,701 Materials and supplies . . . . . . . 562,836 303,293 ---------- -------- $2,246,150 $958,896 ========== ======== - --------------------------------------------------------------------
48 Property, Plant and Equipment is carried at cost. Depreciation is provided over the estimated useful lives of the related assets, principally on the straight-line method. Goodwill is being amortized on the straight-line method over periods not exceeding 40 years. Accumulated amortization was $705,399,000 and $636,385,000 at December 31, 1994 and 1993, respectively. The Company evaluates whether changes have occurred that would require revision of the remaining estimated useful life of the assigned goodwill or rendered the goodwill not recoverable. If such circumstances arise, the Company uses an estimate of the related business' after-tax income contribution on a discounted basis to determine whether the goodwill is recoverable. Long-Term Debt is stated at face value, which approximates fair value. The fair value of the Company's long-term debt is estimated based on quoted market prices. Interest Rate Swap and Foreign Currency Agreements: The fair value of interest rate swap and foreign currency agreements is based on market prices. This value represents the estimated amount the Company would receive/pay to terminate the agreements taking into consideration current interest rates or currency exchange rates. Currency Translation: The majority of the Company's international operations are translated into U.S. dollars using current exchange rates with translation adjustments accumulated in shareholders' equity. For other international operations, certain financial statement accounts are translated at historical exchange rates. The resultant translation adjustments for these international operations are recorded in results of operations. These international operations pertain to countries with hyper-inflationary economies and are located principally in Latin America. Net Income per Share of Common Stock is based on the average of common shares and common share equivalents outstanding during the year: 307,413,000 shares in 1994, 310,668,000 shares in 1993 and 314,201,000 shares in 1992. 2 OTHER ACQUISITIONS AND DIVESTITURES In addition to the Cyanamid acquisition, the Company purchased and divested various other businesses as follows: In May 1994, the Company sold Corometrics Medical Systems, Inc., a manufacturer of perinatal monitoring systems, for $73,600,000 and Agri-Bio Corp., a manufacturer of a medicated feed additive for the poultry industry, for $39,939,000. In addition, the Company sold its former corporate headquarters facility in New York City for $50,000,000. Other (income) expense, net includes a gain of approximately $75,787,000 from these sales. In March 1993, the Company acquired M. Polaner, Inc. (Polaner), a manufacturer of spreadable fruit products, for $67,500,000 in a purchase transaction. The excess of the purchase price over the net assets acquired was approximately $65,600,000. As of December 31, 1994, the Company owned approximately 64% of Genetics Institute, Inc. (G.I.). Approximately $220,000,000 of the initial purchase price was attributable to acquired research and was expensed as a special charge in 1992. The Company holds an option to acquire the remaining shares of G.I. from the public shareholders until December 31, 1996 at prices escalating by approximately $1.84 per quarter, to $85 per share. At January 1, 1995, the option price per share was $72.11. The Company has the right to acquire additional shares through open market or privately negotiated purchases, provided that its aggregate holdings do not exceed 75% of G.I.'s outstanding shares. G.I. continues as a publicly traded company. In September 1992, the Company acquired Symbiosis Corp. (Symbiosis), a manufacturer of disposable surgical instruments for $175,000,000. The purchase price exceeded the net assets acquired by approximately $173,000,000. The results of operations of G.I., Symbiosis and Polaner have been included in the consolidated statements of income since their acquisition dates. The Company also acquired all the outstanding stock of Intelligent Medical Systems, Inc. (IMS) in exchange for 498,242 shares of the Company's common stock. This acquisition was accounted for as a pooling-of-interests, effective January 1, 1992. The Company had other acquisitions and divestitures during the 1992-1994 period, the effects of which, individually and in the aggregate, were not material to the consolidated financial position or results of operations. 49 Unaudited pro forma results of operations to reflect the 1994 and 1993 transactions as if they had taken place on January 1 of those years, other than the Cyanamid acquisition which is discussed in Note 1, are not presented as the effects are immaterial. In January 1995, the Company sold its South American oral health care business for $1.04 billion, the net proceeds from which will be used primarily to reduce the acquisition debt incurred relating to the Cyanamid purchase. 3 DEBT AND FINANCING ARRANGEMENTS The Company's debt at December 31 consisted of:
(In thousands) 1994 1993 - -------------------------------------------------------------------- Commercial paper . . . . . . . . . $ 8,796,507 -- Notes payable 6.875% notes due 1997. . . . . . 250,000 $250,000 6.50% notes due 2002 . . . . . . 250,000 250,000 7.25% debentures due 2023 . . . 250,000 250,000 Pollution control and industrial revenue bonds 5.10%-8.75% due 1995-2020 . . . 165,932 41,675 Sinking fund debentures 7.375%-8.375% due 2001-2006. . . 95,129 -- Other debt 5.60%-9.61% due 1995-2009 . . . 278,956 71,883 ----------- -------- 10,086,524 863,558 Less current portion . . . . . . . 113,284 4,280 ----------- -------- $ 9,973,240 $859,278 =========== ======== - --------------------------------------------------------------------
In connection with the acquisition of Cyanamid, the Company and certain of its subsidiaries issued short-term notes (commercial paper), of which $8.8 billion was outstanding at December 31, 1994. The weighted average interest rate on the commercial paper outstanding at December 31, 1994 was 6.06%. The commercial paper has original maturities not exceeding 270 days and a weighted average remaining maturity of 36 days as of December 31, 1994. The commercial paper is supported by two credit agreements totaling $10.0 billion, each dated September 9, 1994, among the Company and certain of its subsidiaries and a syndicate of lenders. The credit facilities are composed of a $3.0 billion, five-year credit facility and a $7.0 billion, 364-day credit facility which may be renewed annually with the consent of the majority lenders in amounts equal to the commitments of the consenting lenders and replacement lenders, if any. The interest rate on borrowings under the credit facilities is based on various rates at the option of the Company. The proceeds of the credit facilities may be used to support commercial paper and the Company's general corporate and working capital purposes. The credit facilities contain a financial covenant and various other customary covenants, representations, warranties, conditions and default provisions. As of December 31, 1994, there were no borrowings outstanding under the credit facilities. Commercial paper outstanding at December 31, 1994 is classified as long-term since the Company intends, and has the ability, to refinance these obligations through the issuance of additional commercial paper, through the use of its credit facilities or through the issuance of long-term debt. The 6.875% and 6.50% notes payable have semiannual interest payments due on April 15 and October 15. The 7.25% debentures have semiannual interest payments due on March 1 and September 1. These notes payable are unsecured and unsubordinated and may not be redeemed prior to maturity. The aggregate maturities of debt during the next five years as of December 31, 1994 are as follows: (In thousands) - ------------------------------------------------------ 1995 . . . . . . . . . . . . . . . . . . $ 113,284 1996 . . . . . . . . . . . . . . . . . . 48,166 1997 . . . . . . . . . . . . . . . . . . 288,240 1998 . . . . . . . . . . . . . . . . . . 71,859 1999 . . . . . . . . . . . . . . . . . . 29,915 Thereafter . . . . . . . . . . . . . . . 738,553 ----------- 1,290,017 Commercial paper . . . . . . . . . . . . 8,796,507 ----------- Total debt . . . . . . . . . . . . . . . $10,086,524 =========== - ------------------------------------------------------
Interest payments in connection with the Company's debt obligations for the years ended December 31, 1994, 1993 and 1992 amounted to $114,831,000, $55,215,000 and $26,151,000, respectively. In October 1994, the Company entered into $4.75 billion notional amount of simple, unleveraged interest rate 50 swap agreements as a means of (1) locking in the underlying U.S. treasury security rates to be paid in connection with long-term debt planned to be issued during 1995 and (2) converting a portion of the commercial paper issued in connection with the acquisition of Cyanamid from a floating rate obligation to a fixed rate obligation. The swap agreements are contracts under which the Company pays a fixed rate of interest and receives a floating rate of interest over the term of the swap agreements without the exchange of the underlying notional amounts. During 1994, the weighted average interest rates paid and received on these agreements were 7.9% and 5.9%, respectively. The swap agreements have maturities ranging from 1996 to 2005. At December 31, 1994, the fair value of these interest rate swap agreements was $32,964,000. The Company has other interest rate swap agreements in the notional amount of approximately $6,250,000 as of December 31, 1994, under which the Company also pays a fixed rate of interest and receives a floating rate of interest. These interest rate swap agreements were entered into to manage specifically identifiable risks. The Company does not speculate on interest rates as a means of enhancing yield. The Company enters into foreign exchange forward contracts as part of its management of foreign currency exposure. The Company does not engage in speculation on foreign currency. At December 31, 1994, the Company had notional amounts of $312,100,000 of foreign exchange forward contracts outstanding. The Company believes that the risk of loss associated with the interest rate or foreign currency agreements, from either non-performance by the counterparties or due to fluctuations in interest or foreign exchange rates, would not be material. 4 RESTRUCTURING CHARGE In the second quarter of 1994, the Company recorded a $173,697,000 charge for the cost of implementing two restructuring programs related primarily to the U.S. pharmaceutical and consumer health care businesses. These programs will result in the elimination of excess production capacity and associated workforce, primarily through the closure of a manufacturing facility and further workforce reductions through various organizational effectiveness initiatives. The restructuring programs have been initiated with cash outlays of approximately $10,000,000 through December 31, 1994. Employees who will be impacted by these restructurings were notified, some of the distribution center closures were completed and the registration process to transfer certain production among the Company's U.S. manufacturing facilities was initiated during 1994. 5 EMPLOYEE BENEFIT PLANS Pension Plans: The Company sponsors various retirement plans for most full-time employees. Total pension expense for 1994, 1993 and 1992 was $68,652,000, $50,660,000 and $46,003,000, respectively. Pension plan benefits are based primarily on participants' compensation and years of credited service. It has been the Company's policy to fund all current and prior year service costs under retirement plans, and substantially all liabilities for accrued vested and nonvested benefits have been fully funded. Prior to the acquisition, Cyanamid had various pension plans covering substantially all employees in the United States and Canada. Effective December 31, 1994, Cyanamid's U.S. Employee Retirement Plan was merged with the Company's U.S. pension plan. Net periodic pension cost of domestic pension plans was as follows:
(In thousands) 1994 1993 1992 - ------------------------------------------------------------------------------ Service cost on benefits earned during the year . . . . . . . . $ 35,642 $ 31,520 $ 28,237 Interest cost on projected benefit obligation . . . . . . . 69,598 59,485 54,226 Actual loss (return) on plan assets . . . . . . . . . . . . . 62,498 (113,393) (53,600) Net amortization and deferral . . . . . . . . . . . . (120,372) 57,642 2,502 --------- -------- -------- Net periodic pension cost . . . . . $ 47,366 $ 35,254 $ 31,365 ========= ======== ======== - ------------------------------------------------------------------------------
The net amortization and deferral for 1994 primarily reflects the difference between the expected return on plan assets and the actual loss on plan assets for this period. 51 The Company's pension plans are substantially fully funded. The actuarial present value of benefit obligations and funded status for the Company's pension plans, including Cyanamid's plans as of December 31, 1994, were as follows:
(In thousands) 1994 1993 - ------------------------------------------------------------------- Benefit obligations: Vested benefits . . . . . . . . $2,062,791 $620,872 Nonvested benefits . . . . . . 89,103 45,702 ---------- -------- Accumulated benefit obligation . . 2,151,894 666,574 Effect on benefits from projected compensation increases. . . . . 276,139 160,079 ---------- -------- Projected benefit obligation . . . 2,428,033 826,653 Plan assets at fair value. . . . . 2,053,595 743,292 ---------- -------- Projected benefit obligation in excess of plan assets. . . . (374,438) (83,361) Unrecognized net loss. . . . . . . 36,235 16,457 Unrecognized net transition obligation. . . . . . . . . . . 3,787 2,891 Unrecognized prior service cost. . 18,991 26,177 ---------- -------- Net pension (liability). . . . . . $ (315,425) $(37,836) ========== ======== - -------------------------------------------------------------------
Assumptions used in developing the projected benefit obligation as of December 31 were as follows:
1994 1993 1992 - ------------------------------------------------------------------ Discount rate . . . . . . . . . . . . . 8.5% 7.5% 8.5% Rate of increase in compensation . . . . . . . . . . . . 5.0% 4.5% 6.0% Rate of return on plan assets. . . . . . 8.5-9.0% 8.5% 9.0% - ------------------------------------------------------------------
Postretirement Benefits: The Company provides postretirement health care and life insurance benefits for retired employees. Most full-time employees become eligible for these benefits after attaining specified age and service requirements. Effective January 1, 1992, the Company adopted SFAS No. 106 - Employers' Accounting for Postretirement Benefits Other Than Pensions. SFAS No. 106 requires the Company to accrue the estimated cost of retiree benefit payments, other than pensions, during the employee's active service period. The Company had established reserves in prior years for the postretirement health care benefits of existing retirees totaling $129,084,000 as of December 31, 1991. Prior to adoption of SFAS No. 106, the Company expensed the cost of these benefits, principally health care and related benefits, as claims were paid. The Company recognized this change as a cumulative effect of a change in accounting principle as of January 1, 1992, resulting in a non-recurring after-tax charge of $73,191,000. The Company's unfunded accumulated postretirement benefit obligation (APBO) increased to $830,625,000 as of December 31, 1994, due principally to the addition of $461,660,000 for Cyanamid. Net periodic postretirement health care cost includes the following components:
(In thousands) 1994 1993 1992 - ------------------------------------------------------------------------- Service cost on benefits earned during the year . . . . . . $13,447 $ 9,759 $ 8,439 Interest cost on APBO . . . . . . . . . 31,612 26,765 21,456 Amortization of loss . . . . . . . . . 6,016 1,230 -- ------- ------- ------- Net periodic postretirement health care cost. . . . . . . . . . $51,075 $37,754 $29,895 ======= ======= ======= - -------------------------------------------------------------------------
The APBO, including Cyanamid's plans as of December 31, 1994, was as follows:
(In thousands) 1994 1993 - ------------------------------------------------------------------- Retirees . . . . . . . . . . . . . . . . $538,617 $165,797 Fully eligible active participants . . . 147,852 151,753 Other active participants. . . . . . . . 144,156 38,314 -------- -------- APBO . . . . . . . . . . . . . . . . . . 830,625 355,864 Unrecognized net loss. . . . . . . . . . (78,811) (91,311) -------- -------- Accrued postretirement benefit obligation. . . . . . . . . . $751,814 $264,553 ======== ======== - -------------------------------------------------------------------
Assumptions used in developing the APBO were as follows:
1994 1993 1992 - ---------------------------------------------------------------------------- Discount rate . . . . . . . . . . . . . . 8.5% 7.5% 9.0% Increase in per capita cost of health care benefits that gradually was decreased over 10 years and held constant thereafter . . . . . . . 10.5%-6% 11%-6% 12%-6% - ----------------------------------------------------------------------------
52 A one percentage point increase in the assumed health care cost trend rates would increase the APBO as of December 31, 1994 by approximately $91,730,000, and the total of the service and interest cost components of the net annualized periodic postretirement health care cost would increase by approximately $11,563,000. 6 OTHER NONCURRENT LIABILITIES Other noncurrent liabilities include reserves for contingencies relating to income taxes, environmental matters and product liability, as well as Management Incentive Plan and other employee benefit liabilities. The Company has responsibilities for environmental safety and cleanup under various state, local and federal laws, including the Comprehensive Environmental Response, Compensation and Liability Act, commonly known as Superfund. As of December 31, 1994, the Company was a party to, or otherwise involved in, legal proceedings directed at the cleanup of 63 Superfund sites. Thirty-three of these sites are the result of acquiring Cyanamid. These sites exclude sites for which full liability was assumed by Cytec Industries Inc. (Cytec), which was spun off by Cyanamid in 1993, but include certain sites for which there is shared responsibility between Cyanamid and Cytec. Cytec encompassed substantially all of Cyanamid's former chemical businesses. The Company has various preferred stock interests in Cytec, including one series that contains various financial and other covenants designed to preserve Cytec's ability to discharge certain liabilities of Cyanamid which Cytec assumed upon the spin-off, particularly certain environmental matters. In many cases, future environmental-related expenditures cannot be quantified with a reasonable degree of accuracy. It is the Company's policy to accrue environmental cleanup costs if it is probable that a liability has been incurred and an amount is reasonably estimable. As investigations and cleanups proceed, these liabilities are reviewed and adjusted as additional information becomes available. The aggregate environmental-related accruals were $248,772,000 and $79,501,000 at December 31, 1994 and 1993, respectively. Accruals have been recorded without giving effect to any possible future insurance proceeds or the timing of the payments. The Company's Management Incentive Plan provides for cash and deferred contingent common stock awards to key employees. The maximum shares issuable under the plan are 12,000,000 common shares, of which 8,795,045 have been awarded through December 31, 1994. Deferred contingent common stock awards totaling 354,154 shares were outstanding at December 31, 1994. Awards for 1994 amounted to $35,842,408, which included deferred contingent common stock of $6,512,513 (102,398 shares). Awards for 1993 were $31,266,000, which included deferred contingent common stock of $7,120,000 (101,348 shares). Awards for 1992 amounted to $30,337,000, which included deferred contingent common stock of $7,201,000 (104,098 shares). 7 CAPITAL STOCK There were 600,000,000 shares of common stock and 5,000,000 shares of preferred stock authorized at December 31, 1994. Of the authorized preferred shares, there is a series of shares (36,513 outstanding), which is designated as $2 convertible preferred stock. Each share of the $2 series is convertible at the option of the holder into nine shares of common stock. This series may be called for redemption at $60 per share plus accrued dividends. Changes in outstanding common shares during 1994, 1993 and 1992 are summarized as follows:
(In thousands) 1994 1993 1992 - --------------------------------------------------------------------------- Balance, beginning of year . . . . . . . 310,326 313,048 315,623 Issued for stock options and Management Incentive Plan . . . . . . . . . . . . . . . . 958 1,754 2,681 Conversions of preferred stock (3,624 shares in 1994, 3,011 shares in 1993 and 7,900 shares in 1992). . . . . . . . 33 27 72 Purchase of shares for treasury. . . . . (5,336) (4,503) (5,826) Issued for acquisition of IMS. . . . . . -- -- 498 ------- ------- ------- Balance, end of year . . . . . . . . . . 305,981 310,326 313,048 ======= ======= ======= - --------------------------------------------------------------------------- 53 8 STOCK OPTIONS The Company has three Stock Option Plans - 1985, 1980 and 1978 - and two Stock Incentive Plans - 1993 and 1990. Under the 1993 and 1990 plans, a maximum of 14,000,000 and 12,000,000 option shares, respectively, may be granted at prices not less than 100% of the fair market value at the date of option grant. No further grants will be made under the 1985, 1980 and 1978 plans. The plans provide for the granting of incentive stock options as defined under the Internal Revenue Code. Under the plans, grants may be made to selected officers and employees of non-qualified stock options with a 10-year term or incentive stock options with a term not exceeding 10 years. In addition, the 1993 and 1990 plans, among other things, provide for the issuance of up to 2,000,000 of the available options as restricted stock performance awards under each plan. In 1994, restricted stock performance awards representing 54,400 units were granted under the plan to certain key executives. These units will be converted to shares of restricted stock based on the achievement of certain performance criteria over a three-year period of restriction. In April 1994, the shareholders approved the Restricted Stock Plan for Non-Employee Directors. Under the plan, a maximum of 25,000 restricted shares may be granted to non-employee directors at not less than 100% of the fair market value at the date of grant. The restricted shares will not be delivered until the end of the restricted period which does not exceed five years. Transactions involving the plans are summarized as follows:
OPTION SHARES 1994 1993 - --------------------------------------------------------------------- Outstanding January 1 . . . . . . . . . 21,340,924 12,465,013 Granted . . . . . . . . . . . . . . . . 1,984,050 10,710,210 Canceled. . . . . . . . . . . . . . . . (971,380) (322,450) Exercised (1994 - $27.06 to $65.19 per share). . . . . . . . . . (885,562) (1,511,849) ---------- ---------- Outstanding December 31 . . . . . . . . 21,468,032 21,340,924 ---------- ---------- Exercisable December 31 (1994 - $31.75 to $79.31 per share). . . . . . . . . . 19,379,282 10,805,634 ========== ========== - ---------------------------------------------------------------------
At December 31, 1994, 11,594,810 shares were available for future grants under the 1993 and 1990 plans. 9 OTHER (INCOME) EXPENSE, NET This caption in the Consolidated Statements of Income is summarized as follows: (In thousands) 1994 1993 1992 - --------------------------------------------------------------------- Interest income . . . . . . . . $(106,430) $(89,677) $(108,720) Interest expense. . . . . . . . 115,186 47,174 35,503 Foreign exchange loss and other . . . . . . . 41,433 45,519 35,329 Gain on the sale of certain assets . . . . . . . (75,787) -- -- --------- ------- --------- Total . . . . . . . . . . . . . $ (25,598) $ 3,016 $ (37,888) ========= ======= ========= - ---------------------------------------------------------------------
10 INCOME TAXES The provision for income taxes consisted of:
(In thousands) 1994 1993 1992 - ---------------------------------------------------------------------- Current: Domestic . . . . . . . . . . . . $351,581 $150,916 $154,572 Foreign . . . . . . . . . . . . 242,184 219,135 221,245 -------- -------- -------- 593,765 370,051 375,817 Deferred: Domestic . . . . . . . . . . . . (101,620) 136,930 196,621 Foreign . . . . . . . . . . . . 9,361 16,384 894 -------- -------- -------- (92,259) 153,314 197,515 -------- -------- -------- $501,506 $523,365 $573,332 ======== ======== ======== - ----------------------------------------------------------------------
54 Deferred tax assets (liabilities), inclusive of a valuation allowance for deferred tax assets, were reflected in the consolidated balance sheets at December 31 as follows:
(In thousands) 1994 1993 - --------------------------------------------------------------- Net current assets . . . . . . . . . $629,205 $ 140,902 Net noncurrent assets. . . . . . . . 345,730 -- Net noncurrent liabilities . . . . . -- (148,558) -------- --------- $974,935 $ (7,656) ======== ========= - ---------------------------------------------------------------
Deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities. Deferred tax benefits result principally from the recording of certain reserves which currently are not deductible for tax purposes. Deferred tax credits result principally from temporary differences in the recognition of gains and losses from certain investments and from the use, for tax purposes, of accelerated depreciation. As a result of the acquisition of Cyanamid, the Company recorded a net deferred tax asset of $890,332,000, which is inclusive of a valuation allowance of $228,542,000 for differences between the estimated fair value and tax basis of the net assets acquired. In 1992, the Company adopted SFAS No. 109 - Accounting for Income Taxes. The impact of SFAS No. 109 resulted in the accelerated recognition of $301,706,000 of tax benefits related to the remaining net operating loss (NOL) carryforward as of January 1, 1992 of its subsidiary, A.H. Robins Company, Incorporated (Robins), and additional tax benefits of $81,589,000 not previously recognized. The aggregate amount of the tax benefits was $383,295,000. The Robins' NOL for tax purposes was fully utilized during 1994. The Company has recorded deferred tax assets as of December 31, 1994 of approximately $1.5 billion related principally to reserves for product and environmental liabilities, postretirement benefit obligations, and other employee benefits and reorganizations. A valuation allowance was established for certain deferred tax assets related to reorganizations, product liability and other matters as the Company determined that it was more likely than not that these benefits will not be realized. During 1994, the valuation allowance increased by $159,613,000 as reductions in these reserves of $68,929,000 were more than offset by increases as a result of the Cyanamid acquisition. During 1993, the valuation allowance was reduced by $9,961,000. There was no change to the allowance in 1992. The balance in the valuation allowance at December 31, 1994 was $250,976,000. Deferred tax liabilities of $558,823,000 as of December 31, 1994 related principally to accelerated depreciation, losses on securities and employee compensation. A reconciliation between the Company's effective tax rate and the U.S. statutory rate is as follows:
TAX RATE 1994 1993 1992 - ------------------------------------------------------------------------- U.S. statutory rate . . . . . . . . . . 35.0% 35.0% 34.0% Effect of Puerto Rico and Ireland manufacturing operations. . . . . . (5.5) (6.1) (6.1) Reversal of reserves. . . . . . . . . . (3.4) (0.7) -- Expenses for which no tax benefits were recorded. . . . . . . -- -- 4.5 Research credits. . . . . . . . . . . . (1.2) (1.3) (0.4) Other . . . . . . . . . . . . . . . . . (0.2) (0.6) 1.3 ---- ---- ---- Effective tax rate. . . . . . . . . . . 24.7% 26.3% 33.3% ==== ==== ==== - -------------------------------------------------------------------------
The lower effective tax rate in 1994 was attributable, in part, to the reversal of certain tax reserves that no longer were deemed necessary in the second quarter of 1994. Total income tax payments for the years ended December 31, 1994, 1993 and 1992 amounted to $536,854,000, $335,102,000 and $292,170,000, respectively. 11 CONTINGENCIES The Company is involved in various legal proceedings, including product liability and environmental matters of a nature considered normal to its business. The Company is self-insured against ordinary product liability risks and has liability coverage in excess of certain limits from various insurance carriers. See Note 6 for a discussion of environmental matters. In the opinion of the Company, although the outcome of any litigation cannot be predicted with certainty, the ultimate liability of the Company in connection with pending litigation will not have a material adverse effect on the Company's financial position but could be material to the results of operations in any one accounting period. 55 12 COMPANY DATA BY INDUSTRY SEGMENT
Years Ended December 31, ------------------------------ (In millions) 1994 1993 1992 - ----------------------------------------------------------------------- NET SALES TO CUSTOMERS - ----------------------------------------------------------------------- Health Care Products: Pharmaceuticals . . . . . . . . . $5,199.9 $4,774.6 $4,589.3 Consumer Health Care. . . . . . . . . . . . . . 1,802.1 1,743.0 1,611.0 Medical Supplies and Diagnostic Products . . . . . . 883.6 851.5 807.6 -------- -------- -------- 7,885.6 7,369.1 7,007.9 Food Products . . . . . . . . . . . 997.3 935.8 865.8 Agricultural Products. . . . . . . . 83.3 -- -- -------- -------- -------- Consolidated Total . . . . . . . . . $8,966.2 $8,304.9 $7,873.7 ======== ======== ======== - ----------------------------------------------------------------------- INCOME BEFORE TAXES - ----------------------------------------------------------------------- Health Care Products (4) . . . . . . $1,839.9 $1,836.7 $1,755.7 Food Products . . . . . . . . . . . 155.6 152.4 146.1 Agricultural Products. . . . . . . . 16.8 -- -- Corporate (2). . . . . . . . . . . . 17.5 3.6 (177.7) -------- -------- -------- Consolidated Total . . . . . . . . . $2,029.8 $1,992.7 $1,724.1 ======== ======== ======== - ----------------------------------------------------------------------- TOTAL ASSETS AT DECEMBER 31 - ----------------------------------------------------------------------- Health Care Products . . . . . . . . $ 8,118.4 $5,165.3 $4,944.4 Food Products . . . . . . . . . . . 558.8 504.4 384.0 Agricultural Products. . . . . . . . 1,173.9 -- -- Corporate (1). . . . . . . . . . . . 11,823.7 2,017.7 1,813.0 -------- -------- -------- Consolidated Total . . . . . . . . . $21,674.8 $7,687.4 $7,141.4 ======== ======== ======== - ----------------------------------------------------------------------- DEPRECIATION EXPENSE - ----------------------------------------------------------------------- Health Care Products . . . . . . . . $200.7 $172.3 $169.3 Food Products . . . . . . . . . . . 13.3 11.8 10.6 Agricultural Products. . . . . . . . 5.2 -- -- Corporate . . . . . . . . . . . . . 9.4 6.8 3.7 -------- -------- -------- Consolidated Total . . . . . . . . . $228.6 $190.9 $183.6 ======== ======== ======== - ----------------------------------------------------------------------- CAPITAL EXPENDITURES (3) - ----------------------------------------------------------------------- Health Care Products . . . . . . . . $424.4 $416.3 $474.4 Food Products . . . . . . . . . . . 35.5 24.9 20.0 Agricultural Products. . . . . . . . 6.3 -- -- Corporate . . . . . . . . . . . . . 6.3 76.7 60.9 -------- -------- -------- Consolidated Total . . . . . . . . . $472.5 $517.9 $555.3 ======== ======== ======== - -----------------------------------------------------------------------
COMPANY DATA BY GEOGRAPHIC SEGMENT
Years Ended December 31, (In millions) 1994 1993 1992 - ----------------------------------------------------------------------- NET SALES TO CUSTOMERS - ----------------------------------------------------------------------- United States . . . . . . . . . . . $5,908.0 $5,695.8 $5,387.1 Canada and Latin America . . . . . . . . . . . . . 1,022.4 897.7 758.9 Europe and Africa. . . . . . . . . . 1,422.7 1,196.6 1,244.1 Asia and Australia . . . . . . . . . 613.1 514.8 483.6 -------- -------- -------- Consolidated Total . . . . . . . . . $8,966.2 $8,304.9 $7,873.7 ======== ======== ======== - ----------------------------------------------------------------------- INCOME BEFORE TAXES - ----------------------------------------------------------------------- United States (2, 4) . . . . . . . . $1,346.2 $1,465.7 $1,245.9 Canada and Latin America . . . . . . . . . . . . . 270.5 214.9 158.9 Europe and Africa. . . . . . . . . . 299.9 224.0 233.6 Asia and Australia . . . . . . . . . 113.2 88.1 85.7 -------- -------- -------- Consolidated Total . . . . . . . . . $2,029.8 $1,992.7 $1,724.1 ======== ======== ======== - ----------------------------------------------------------------------- TOTAL ASSETS AT DECEMBER 31 - ----------------------------------------------------------------------- United States (1). . . . . . . . . . $17,828.1 $5,736.6 $5,249.6 Canada and Latin America . . . . . . . . . . 902.7 467.5 436.6 Europe and Africa. . . . . . . . . . 2,192.5 1,075.7 1,065.3 Asia and Australia . . . . . . . . . 751.5 407.6 389.9 -------- -------- -------- Consolidated Total . . . . . . . . . $21,674.8 $7,687.4 $7,141.4 ======== ======== ======== - -----------------------------------------------------------------------
(1) Goodwill of approximately $8.5 billion related to the purchase of Cyanamid is included in these segments for 1994. The Company currently is performing an evaluation of the estimated fair values of the net assets acquired. This evaluation will be completed in 1995. (2) These segments include the special charge of $220,000,000 in 1992 (see Note 2). (3) Capital expenditures for 1992 include additions from businesses acquired. (4) Segments include the restructuring charge of $173,697,000 in 1994 (see Note 4). Transactions between industry and geographic segments are not material. Foreign exchange adjustments, which were included in operating income before taxes in this note and in other (income) expense, net in the Consolidated Statements of Income on page 45, resulted in net charges to income of $35,694,000 in 1994, $55,475,000 in 1993 and $23,662,000 in 1992, principally in the Canada and Latin America segment (see Note 9). 56 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Shareholders of American Home Products Corporation: We have audited the accompanying consolidated balance sheets of American Home Products Corporation (a Delaware corporation) and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of income, retained earnings, additional paid-in capital and cash flows for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of American Home Products Corporation and subsidiaries as of December 31, 1994 and 1993, and the results of their operations and cash flows for each of the three years in the period ended December 31, 1994 in conformity with generally accepted accounting principles. As discussed in Notes 5 and 10 to the consolidated financial statements, effective January 1, 1992, the Company changed its methods of accounting for postretirement benefits other than pensions and income taxes. Arthur Andersen LLP New York, N.Y. January 23, 1995 MANAGEMENT REPORT ON FINANCIAL STATEMENTS Management has prepared and is responsible for the Company's consolidated financial statements and related notes. They have been prepared in accordance with generally accepted accounting principles and necessarily include amounts based on judgments and estimates made by management. All financial information in this Annual Report is consistent with the financial statements. The Company maintains internal accounting control systems and related policies and procedures designed to provide reasonable assurance that assets are safeguarded, that transactions are executed in accordance with management's authorization and are properly recorded, and that accounting records may be relied upon for the preparation of financial statements and other financial information. The design, monitoring and revision of internal accounting control systems involve, among other things, management's judgment with respect to the relative cost and expected benefits of specific control measures. The Company also maintains an internal auditing function which evaluates and formally reports on the adequacy and effectiveness of internal accounting controls, policies and procedures. The Company's financial statements have been audited by independent auditors who have expressed their opinion with respect to the fairness of these statements. The Audit Committee of the Board of Directors, composed of non-employee directors, meets periodically with the external and internal auditors to evaluate the effectiveness of the work performed by them in discharging their respective responsibilities and to assure their independent and free access to the Committee. John R. Stafford Robert G. Blount Chairman, President and Executive Vice President and Chief Executive Officer Chief Financial Officer 57
- ------------------------------------------------------------------------------ - ------------------------------------------- QUARTERLY FINANCIAL DATA - ------------------------------------------------------------------------------ - ------------------------------------------- First Quarter Second Quarter Third Quarter Fourth Quarter (In thousands except per share amounts) 1994 1994 1994 1994 - ------------------------------------------------------------------------------ - ------------------------------------------- Net Sales . . . . . . . . . . . . . . . . . $2,144,045 $1,977,853 $2,258,525 $2,585,791 Gross Profit . . . . . . . . . . . . . . . . 1,486,580 1,349,958 1,523,522 1,810,573 Net Income . . . . . . . . . . . . . . . . . 415,800 299,981 412,985 399,488 Net Income per Common Share . . . . . . . . $ 1.34 $ 0.98 $ 1.35 $ 1.30 - ------------------------------------------------------------------------------ - ------------------------------------------- - ------------------------------------------------------------------------------ - ------------------------------------------- First Quarter Second Quarter Third Quarter Fourth Quarter 1993 1993 1993 1993 - ------------------------------------------------------------------------------ - ------------------------------------------- Net Sales . . . . . . . . . . . . . . . . . $2,111,015 $1,909,416 $2,168,116 $2,116,304 Gross Profit . . . . . . . . . . . . . . . . 1,450,423 1,258,745 1,455,053 1,416,728 Net Income . . . . . . . . . . . . . . . . . 401,509 287,490 397,553 382,748 Net Income per Common Share. . . . . . . . . $ 1.29 $ 0.93 $ 1.28 $ 1.23 - ------------------------------------------------------------------------------ - ------------------------------------------- - ------------------------------------------------------------------------------ - ------------------------------------------- MARKET PRICES OF COMMON STOCK AND DIVIDENDS 1994 RANGE OF PRICES* 1993 Range of Prices* - ----------------------------------------------------------------------------- ----------------------------------- DIVIDENDS Dividends HIGH LOW PER SHARE High Low per Share - ------------------------------------------------------------------------------ - ------------------------------------------- First Quarter . . . . . . . . . . . . $65.75 $57.25 $0.73 $68.00 $55.50 $0.71 Second Quarter. . . . . . . . . . . . 60.50 55.63 0.73 69.00 62.38 0.71 Third Quarter . . . . . . . . . . . . 60.50 55.38 0.73 65.75 58.38 0.71 Fourth Quarter. . . . . . . . . . . . 67.25 58.00 0.75 65.38 58.88 0.73 - ------------------------------------------------------------------------------ - -------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following commentary should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements on pages 44 to 56. RESULTS OF OPERATIONS Net sales increased 8% to $9.0 billion in 1994 while net sales for 1993 increased 5% from 1992 levels. In the fourth quarter of 1994, the Company completed its acquisition of American Cyanamid Company (Cyanamid). Operating results for the fourth quarter and the 12 months ended December 31, 1994 reflect Cyanamid's operating results and related acquisition interest expense and goodwill amortization for the month of December. Excluding the impact of Cyanamid, net sales for the year ended 1994 would have increased 4%. Net income and net income per share for 1994 increased 4% and 5%, respectively, above 1993 levels. The Cyanamid operating income for the month of December was more than offset by acquisition-related interest expense and goodwill amortization and resulted in net dilution of four cents per share for the fourth quarter and the full year 1994. Excluding the effects of Cyanamid, net income and net income per share for 1994 would have increased 5% and 6%, respectively, over 1993. Net income and net income per share for 1993 increased 1% and 2%, respectively, above 1992 levels. The 1992 results include the cumulative effect of certain accounting changes and a charge for acquired research in connection with the acquisition of Genetics Institute, Inc. Excluding the impact of the accounting changes and the charge for acquired research from 1992 results, net income and net income per share in 1993 increased 7% and 8%, respectively. The increase in worldwide net sales of 4%, exclusive of Cyanamid, is composed of unit volume growth of 2% and price increases of 2%. Foreign exchange had less than a 1% effect on the Company's consolidated worldwide sales for 1994. The 1993 worldwide increase in net sales of 5% is composed of unit volume growth of 3% with price increases of 4% being offset by unfavorable foreign exchange of 2%. Worldwide net sales of health care products increased 7% in 1994 and 5% in 1993. Food products sales increased 7% in 1994 and 8% in 1993. Worldwide pharmaceutical sales increased 9% in 1994 and 4% in 1993. U.S. pharmaceutical sales increased 5% in 1994 and 1993. When sales of Cyanamid and Agri-Bio Corp. (which was sold in 1994) are excluded, U.S. pharmaceutical sales would have increased 3% in 1994 due to unit volume growth. There was no pricing impact on the Company's U.S. pharmaceutical business in 1994. The 1994 sales growth, exclusive of Cyanamid and Agri-Bio, was attributable to increased sales of Premarin as well as cardiovascular, anti-inflammatory and oral contraceptive products. Effexor, an antidepressant which was introduced in the United States in early 1994, also contributed to these sales increases. Offsetting these increases, in part, were lower sales of Norplant, Ativan and infant nutritional products. The decline in Norplant sales was attributable to patient and health care provider concerns over use of the product, largely generated by adverse publicity associated with product liability lawsuits. The Company intends to vigorously defend the product and the lawsuits. Ativan sales continue to erode due to generic competition. Nutritional products sales declines reflect, in part, the Company's decision to refrain from bidding on certain state contracts under which Women, Infants and Children (WIC) infant formula programs are awarded in an effort to improve the profitability of this product line. The U.S. pharmaceutical sales increase of 5% in 1993 was due to unit volume growth of 3% and price increases of 2%. This growth was led by increases in Premarin and the anti-inflammatory and veterinary products categories. Genetics Institute, Inc.'s recombinant antihemophilic 59 factor (rhAHF) bulk product sales also contributed to this volume growth. International pharmaceutical sales increased 16% in 1994 and 2% in 1993. Excluding the impact of Cyanamid, international pharmaceutical sales would have increased 9% in 1994 due to unit volume growth of 4% and price increases of 5%. Foreign exchange had less than a 1% effect on 1994 international pharmaceutical sales. In 1993, the international pharmaceutical sales increase was due to unit volume growth of 4%, with price increases of 6% being more than offset by unfavorable foreign exchange of 8%. The sales increases for both 1994 and 1993 were driven by increased growth of infant nutritional and female health care products. The Company operates under governmental price controls in many of its more significant international markets, particularly in Europe. Worldwide consumer health care sales increased 3% in 1994 and 8% in 1993. Excluding the effects of Cyanamid, U.S. consumer health care sales would have decreased 1% in 1994. U.S. consumer health care price increases in 1994 of 4% were more than offset by the 5% decline in unit volumes, particularly in the cough/cold/allergy, family planning and asthma relief product lines. These decreases were partially offset by increased sales in 1994 of analgesics and lip care products. The sales increase in 1993 of 5% in the U.S. consumer health care business was due to price increases of 8% being offset, in part, by unit volume declines of 3%. Growth in 1993 in the cough/cold/allergy product line was more than offset by sales declines in the Company's analgesics products, particularly Anacin. U.S. consumer health care sales continued to be unfavorably impacted in 1994 by the continued growth of private label brands, particularly in the analgesics and asthma categories. However, despite the introduction of new competitive products in the analgesics category in 1994 and increased competition from other branded and private label products, the Advil franchise continued to grow as sales increased 8% over 1993. The cough/cold/allergy product category, particularly the Robitussin, Dimetapp and Dristan product lines, was negatively impacted by the mild cold and flu season in the latter part of 1993 and early 1994. This trend is repeating itself as the 1994/1995 cold and flu season has again been mild. Sales decreased in the family planning category in 1994 as a result of lower sales of Today Sponge, which was voluntarily discontinued in early 1995. The discontinuation was due to new governmental manufacturing mandates which would require extensive resources that would make this product uneconomical. International consumer health care sales increased 10% in 1994 and 16% in 1993. Excluding the effects of Cyanamid, international consumer health care sales in 1994 would have increased 9%. This increase is attributable to unit volume growth of 3%, with price increases of 7% being slightly offset by unfavorable foreign exchange of 1%. The Company was able to increase prices in line with inflation and related currency devaluations in several Latin American markets in 1994 and 1993, particularly Brazil, which contributed to the sales gains for both the international consumer health care and pharmaceutical businesses. The 1994 increase is due primarily to increased sales of oral health care products and cough/cold products in certain Latin American countries. In January 1995, the Company sold its oral health care business in South America for $1.04 billion. This business had sales of approximately $290 million in 1994. Excluding these sales, international consumer health care sales would have increased 6% in 1994. The 1993 increase of 16% was attributable to unit volume growth of 7%, price increases of 14% and unfavorable foreign exchange of 5%. The 1993 increase was primarily due to growth in the oral health care product line, particularly in Argentina, and inflation-related price increases in Brazil. Sales of medical supplies and diagnostic products increased 4% in 1994. Excluding the effects of Cyanamid and Corometrics Medical Systems, Inc. (which was sold in 1994), sales for this segment would have increased 6% in 1994 and 7% in 1993 due to increases in sales of needles and syringes, tympanic thermometry products and surgical devices. The 1994 increase was composed of unit volume increases of 5% and favorable foreign exchange of 1%. The 1993 increase was composed of unit volume growth of 6% being offset by a 1% decline in prices. Competitive conditions in the hospital supply market continued to place significant pressure on prices in both 1994 and 1993. Sales of food products increased 7% in 1994 and 8% in 1993. The 1994 increase was attributable to a 6% volume increase and a 1% increase in price. The 1994 sales growth was attributable primarily to PAM, Polaner and the newly introduced Sesame Street nutritional pasta line. In 1993, the increase was led by volume growth of 7%, principally as a result of the acquisition of M. Polaner, Inc., with price 60 increases contributing another 1% to the growth. The 1993 growth, in addition to the contribution from the Polaner acquisition, was led by increased sales of Crunch 'n Munch. Agricultural products is a new business segment of the Company as a result of the Cyanamid acquisition. This segment discovers, develops, manufactures and markets crop protection products on a worldwide basis. On a pro forma basis, this segment would have had $1.6 billion of sales in 1994. Sales in this segment are seasonal and are heavily concentrated in the first six months of the year. Therefore, performance in the first half of 1995 will not be indicative of the results to be expected for the full year 1995. The Company's 1994 operating results included a $174 million charge to record the costs of implementing certain restructuring programs primarily related to the U.S. pharmaceutical and consumer health care businesses and gains of approximately $76 million from the sale of Corometrics Medical Systems, Agri-Bio and the Company's former headquarters building. Also recorded was a reversal of certain tax reserves of approximately $64 million related to reserves that no longer were deemed necessary. In the aggregate, these items had no net impact on 1994 net income and earnings per share. In 1994, the restructuring program was initiated, and through year-end, there was approximately $10 million of cash outlays. Employees who will be impacted were notified, some of the distribution center closures were completed and the registration process to transfer certain production among the Company's U.S. manufacturing facilities was initiated. The remaining portions of this restructuring program, as well as pre-acquisition Cyanamid restructuring programs, currently are being re-evaluated due to the integration of Cyanamid. It is anticipated that even if the priorities of the restructuring programs are changed, all remaining restructuring program funds will be used in the integration. Excluding the impact of Cyanamid and of the items discussed in the preceding paragraph, income before tax increased 7% in 1994 and outpaced the 1994 sales growth of 4% primarily due to a reduction in cost of sales as a percentage of total sales, which decreased due to improved product mix, reductions in inventory losses and reduced royalties. Cost of goods sold in 1993, as a percentage of net sales, was consistent with prior year levels. Selling, administrative and general expenses, as a percentage of net sales, excluding the effects of Cyanamid, was comparable to 1993. This expense category was favorably impacted in 1994 by the reversal of certain litigation reserves that no longer were required. In 1993, this percentage decreased one percentage point from 1992 due primarily to decreases in media spending, particularly in the U.S. consumer health care segment. Research and development expense increased 23% in 1994 and 20% in 1993. Excluding the effects of Cyanamid, the 1994 increase was 16%. Pharmaceutical research and development expense, as a percentage of worldwide pharmaceutical sales, exclusive of nutritional sales, was 13% and 14% in 1994 and 1993, respectively. As previously discussed, other (income) expense, net includes the gain on the sale of Corometrics Medical Systems, Agri-Bio and the Company's former headquarters building. Also included in other (income) expense, net, and offsetting these gains, was interest related to the Cyanamid acquisition. Other (income) expense, net in 1993 reflected reduced net interest income, which was caused primarily by the use of cash balances and of the proceeds from certain debt issuances for acquisitions and common share repurchases and, to a lesser extent, lower interest rates on invested funds. The effective tax rate decreased to 24.7% in 1994 from 26.3% in 1993 due primarily to the reversal of certain tax reserves as previously discussed. Excluding this reduction and the impact related to the non-deductibility of goodwill amortization related to the Cyanamid acquisition, the effective tax rate for 1994 would have been 28%. The increase in rates between years is due to the reduced Section 936 tax benefits derived from the Company's manufacturing operations in Puerto Rico. The Company's effective tax rate is expected to increase to approximately 30% in 1995 due primarily to the non-deductibility of the Cyanamid goodwill amortization. While plans currently are well under way to implement the integration of Cyanamid, the Company expects that the Cyanamid acquisition will be dilutive to 1995 earnings from operations. The gain on the sale of the South American oral health care business will be recognized in the first quarter of 1995. 61 HEALTH CARE REFORM AND COMPETITION In 1994, the effort to pass a U.S. health care reform bill was discontinued by the Congress. It is expected that an effort will be reinitiated in 1995 to make less comprehensive changes to the U.S. health care system. While the Company cannot predict with any certainty the nature of the potential reforms and the impact they may have on its domestic business, market forces are continuing to place pressures on pricing of pharmaceuticals and operating results. This trend is expected to continue throughout the remainder of 1995 and beyond. Moreover, it is expected that global market forces will continue to constrain price growth regardless of health care reform in the United States. The Company is not dependent on any one patent-protected product or line of products for a substantial portion of its revenues or profits. However, Premarin, the Company's conjugated estrogens product, which has not had patent protection for many years, does contribute significantly to sales and, more significantly, to profits. In 1994, a generic drug company announced it had filed an Abbreviated New Drug Application with the U.S. Food and Drug Administration (FDA)for one strength of conjugated estrogens tablet. The Company cannot predict the timing of FDA action on this application. While the introduction of generic competition ordinarily is expected to significantly impact the market for a brand name product, the extent of such impact on Premarin and related products cannot be predicted with certainty due to a number of factors, including the nature of the product and the introduction of new combination estrogen and progestin products in the Premarin family. LIQUIDITY, FINANCIAL CONDITION AND CAPITAL RESOURCES The acquisition cost of $9.6 billion for Cyanamid was financed through the issuance of short-term commercial paper, which was supported by $10.0 billion of credit facilities established in 1994, and the use of the Company's general corporate funds. The credit facilities are composed of a $3.0 billion, five-year credit facility and a $7.0 billion, 364-day credit facility. In connection with the acquisition, the Company's commercial paper and long-term debt ratings were downgraded. In February 1995, the Company issued, under a $3.5 billion shelf registration statement, $1.0 billion of 7.70% notes due February 2000 and $1.0 billion of 7.90% notes due February 2005. Net proceeds from these issuances were used to repay commercial paper. The notes are unsecured and unsubordinated and may not be redeemed prior to maturity. In connection with the $2.0 billion note issue, the Company terminated $2.0 billion of the interest rate swap agreements that previously had been entered into. The effect of terminating these swap agreements was deferred and will be amortized to interest expense over the five- and 10-year terms of the related notes. The acquisition-related financings are anticipated to be repaid not only with cash flows from operations but through the use of proceeds from the sale of certain assets, including approximately $900 million of net proceeds from the sale of the South American oral health care business. Cash flows from operations continued to be strong in 1994. These funds were used principally for dividend payments of $903 million, capital expenditures of $473 million and $314 million for common share repurchases. Capital expenditures included the expansion of the Company's research and development facilities in New Jersey, New York and Pennsylvania, facilities expansion projects at Genetics Institute, Inc. and continued strategic investments in manufacturing/distribution facilities worldwide. In 1993, besides operating cash flows, proceeds from the issuance of $250 million of 30-year debentures were used primarily for dividend payments, common share repurchases, capital additions and certain other acquisitions, including Polaner. The Company believes that the foreign currency risks to which it is exposed are not reasonably likely to have a material adverse effect on the Company's results of operations or financial position given the concentration of sales in the United States. No single foreign currency accounted for more than 5% of 1994 worldwide sales. The Company has established aggressive objectives in order to reduce its current debt position, including, but not limited to, the sale of non-strategic assets. Synergies from the Cyanamid acquisition, which are targeted to begin in 1995, are expected to substantially increase operating cash flows. Therefore, management is confident that the cash flows from the combined businesses will be adequate to repay both the principal and interest on the acquisition financing without requiring the disposition of any significant strategic core businesses or assets and, further, to allow the Company to continue to fund its operations, pay dividends and maintain its ongoing programs of capital expenditures without restricting its ability to make further acquisitions as may be appropriate. 62 DIRECTORS AND OFFICERS BOARD OF DIRECTORS John R. Stafford(1) Chairman, President and Chief Executive Officer Clifford L. Alexander, Jr. President, Alexander & Associates, Inc. Frank A. Bennack, Jr.(1) President and Chief Executive Officer, The Hearst Corporation *K. Roald Bergethon Educational Consultant Robert G. Blount(1) Executive Vice President *John W. Culligan(1) Retired-Former Chairman of the Board Robin Chandler Duke National Chair, Population Action International John D. Feerick Dean, Fordham University School of Law *Edwin A. Gee Retired-Former Chairman, International Paper Company Fred Hassan Senior Vice President John P. Mascotte Chairman and Chief Executive Officer, The Continental Corporation Mary Lake Polan, M.D., Ph.D. Chairman, Department of OB/GYN Stanford University School of Medicine *Robert W. Sarnoff Director/Consultant John R. Torell III Chairman, Torell Management Inc. William Wrigley President and Chief Executive Officer, Wm. Wrigley Jr. Company DIRECTOR EMERITUS William F. Laporte Retired-Former Chairman of the Board PRINCIPAL CORPORATE OFFICERS John R. Stafford(2,3) Chairman, President and Chief Executive Officer Robert G. Blount(2,3) Executive Vice President Stanley F. Barshay(2,3) Senior Vice President Joseph J. Carr(2,3) Senior Vice President Fred Hassan(2,3) Senior Vice President Louis L. Hoynes, Jr.(2,3) Senior Vice President and General Counsel John B. Adams Vice President-Corporate Development Thomas G. Cavanagh Vice President-Investor Relations John R. Considine(2,3) Vice President-Finance E. Thomas Corcoran(2,3) Vice President Paul M. Heinrich Vice President-Engineering Leo C. Jardot Vice President-Government Relations Gerald A. Jibilian Vice President and Associate General Counsel Rene R. Lewin(2) Vice President-Human Resources David Lilley(2,3) Vice President William J. Murray(2,3) Vice President Thomas M. Nee(2) Vice President-Taxes Edward A. Schefer Vice President-Management Information Systems Steven A. Tasher Vice President-Environmental Affairs and Associate General Counsel-Environment Carol G. Emerling Secretary Roxanne E. Parker Treasurer Charles P. Slacik Comptroller PRINCIPAL DIVISION AND SUBSIDIARY OFFICERS Acufex Microsurgical Inc. James R. Stitt, President American Home Food Products, Inc. Charles E. LaRosa,(3) President Cyanamid Agricultural Products Howard L. Minigh, Ph.D., President Cyanamid Agricultural Products Research Mark W. Atwood, Ph.D., President Cyanamid International Agricultural Products Marco A. Fonseca, President Cyanamid Latin America Agricultural Products Ken Bakshi, Vice President Davis & Geck Jeffrey P. Ashpitz, President Fort Dodge Laboratories E. Thomas Corcoran,(2,3) Vice President, AHPC Genetics Institute, Inc.** Gabriel Schmergel, President and Chief Executive Officer Immunex Corporation** Edward V. Fritzky, Chairman and Chief Executive Officer Quinton Instrument Company Anthony G. Perri, President Sherwood Medical Company David A. Low,(3) President Specialty Pharmaceuticals Division David Strunce, President Storz Instrument Company Robert H. Blankemeyer, President Symbiosis Corp. Kevin W. Smith, President Whitehall International, Inc. Jean-Claude Leroux,(3) President Whitehall-Robins Healthcare Terrence L. Stecz,(3) President Wyeth-Ayerst International, Inc. David M. Olivier,(3) President Wyeth-Ayerst Laboratories Robert Essner,(3) President Wyeth-Ayerst Research Robert I. Levy, M.D.,(3) President (1) Executive Committee (2) Finance Committee (3) Operations Committee * Not a candidate for re-election to the Board of Directors ** AHP is majority owner 63 CORPORATE DATA INDEPENDENT AUDITORS Arthur Andersen LLP TRANSFER AGENT AND REGISTRAR Chemical Bank 450 West 33rd Street New York, NY 10001 EXECUTIVE OFFICES American Home Products Corporation Five Giralda Farms Madison, NJ 07940 ANNUAL MEETING The Annual Meeting of Shareholders will be held on April 26, 1995, in Whippany, New Jersey. FORM 10-K A copy of the Company's Form 10-K Annual Report to the Securities and Exchange Commission may be obtained by any shareholder without charge upon request to: American Home Products Corporation Treasurer's Department Five Giralda Farms Madison, NJ 07940 (201) 660-6936 MASTER INVESTMENT PLAN The plan provides shareholders with the opportunity to automatically reinvest dividends or to make cash purchases of additional shares of the Company's common stock. Inquiries should be directed to: Chemical Bank Dividend Reinvestment Department J.A.F. Building P.O. Box 3069 New York, NY 10116-3069 Shareholder Relations (800) 565-2067 POLICY ON HEALTH, SAFETY AND ENVIRONMENTAL PROTECTION A copy of the Company's "Policy on Health, Safety and Environmental Protection" may be obtained upon written request to: American Home Products Corporation Department of Environment and Safety Five Giralda Farms Madison, NJ 07940 Product designations appearing in differentiated type are trademarks. [LOGO] Pages 41-64 are printed on recycled paper. 64 EX-21 6 EXHIBIT (21) SUBSIDIARIES OF THE REGISTRANT DECEMBER 31, 1994 State or Country of Name Incorporation Domestic AH Investments Ltd. Delaware A.H. Robins Company, Inc. Virginia A.H. Robins International Company Nevada AHP Leasing, Inc. Delaware AHP Subsidiary Holding Corporation Delaware AHP Subsidiary (10) Corporation Delaware American Cyanamid Company New Jersey American Home Food Products, Inc. Delaware Ayerst Laboratories Incorporated New York Ayerst-Wyeth Pharmaceuticals Inc. Delaware Cyanamid Agricultural de Puerto Rico, Inc. New Jersey Cyanamid de Argentina S.A. Delaware Cyanamid International Corporation Limited Delaware Genetics Institute, Inc. Delaware Immunex Corporation Delaware Lederle Parenterals, Inc. New Jersey Lederle Piperacillin, Inc. New Jersey Quinton Instrument Company Washington Route 24 Holdings, Inc. Delaware Sherwood Medical Company Delaware Storz Instrument Company Missouri Storz Opthalmics, Inc. Delaware Symbiosis Corp. Florida Viobin Corporation Illinois Whitehall Laboratories Inc. Delaware Wyeth-Ayerst International Inc. New York Wyeth Laboratories Inc. New York Wyeth Nutritionals Inc. Delaware Wyeth-Ayerst (Asia) Limited Delaware Foreign AHP Holdings B.V. Netherlands American Drug Corporation Panama American Home Investments (Hong Kong) Limited Hong Kong Ayerst International S.A. France Brenner-EFEKA Pharma G.m.b.H. Germany Cyanamid Australia Pty. Limited Victoria Cyanamid Canada Inc. Ontario Cyanamid (Far East) Limited Hong Kong Cyanamid GmbH Germany Cyanamid Italia, S.p.A. Italy Cyanamid of Great Britain Limited United Kingdom Cyanamid Quimica do Brasil Ltda. Brazil Cyanamid Taiwan Corporation Republic of China Dimminaco A.G./S.A./Ltd. Switzerland Eurand International, S.p.A. Italy John Wyeth Laboratorios S.A. Argentina Laboratoires Lederle S.A. France Laboratorios Wyeth Whitehall Ltda. Brazil Leipziger Arzneimittelwerke GmbH Germany Much Pharma A.G. Germany Sherwood Medical Industries Limited England Sherwood Medical Industries of Ireland Ltd. Ireland Whitehall Italia SpA Italy State or Country of Name Incorporation Foreign (Continued) Whitehall Laboratories Limited England Whitehall-Robins Canada, Inc. Canada Wyeth A.G. Switzerland Wyeth (Japan) Corporation Japan John Wyeth & Brother Limited England Wyeth-Ayerst Canada, Inc. Canada Wyeth Hong Kong, Ltd. Hong Kong Wyeth-Pharma G.m.b.H. Germany Wyeth Pharmaceuticals Pty. Limited Australia Wyeth S.A. de C.V. Mexico Wyeth S.p.A. Italy Wyeth-Philippines Inc. Philippines There have been omitted from the above list the names of subsidiaries which, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary. EX-23 7 EXHIBIT (23) CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference in this Form 10-K of our report dated January 23, 1995 included in American Home Products Corporation's (the Company) Annual Report to Shareholders for the year ended December 31, 1994. Furthermore, we consent to the incorporation of our reports dated January 23, 1995 included in or made part of this Form 10-K, into the Company's previously filed Registration Statements on Form S-3 (File Nos. 33-45324 and 33-57339) and on Form S-8 (File Nos. 2- 96127, 33-24068, 33-53733, 33-41434, 33-55449, 33-45970, 33-14458, 33- 50149 and 33-55456). ARTHUR ANDERSEN LLP New York, New York March 27, 1995 EX-27 8
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AMERICAN HOME PRODUCTS CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEET AS OF DECEMBER 31, 1994 AND CONSOLIDATED CONDENSED INCOME STATEMENT FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1994, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 1,000 12-MOS DEC-31-1994 DEC-31-1994 1,696,204 247,970 2,380,730 0 2,246,150 7,821,246 5,458,075 1,646,145 21,674,812 4,618,086 9,973,240 101,994 0 91 4,152,016 21,674,812 8,966,214 8,966,214 2,795,581 6,962,052 (25,598) 0 0 2,029,760 501,506 1,528,254 0 0 0 1,528,254 4.97 0
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