-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ITvxaPOOlJXwkf1BWrh0FDucp4wn5cgU1o7fEZMQQd8ao/0DJfD/qfom45z2RC5t DA8I5tIFLdwFsu7chdf29g== 0000005187-97-000008.txt : 19970814 0000005187-97-000008.hdr.sgml : 19970814 ACCESSION NUMBER: 0000005187-97-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970813 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN HOME PRODUCTS CORP CENTRAL INDEX KEY: 0000005187 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 132526821 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-01225 FILM NUMBER: 97658165 BUSINESS ADDRESS: STREET 1: 5 GIRALDA FARMS CITY: MADISON STATE: NJ ZIP: 07940 BUSINESS PHONE: 201-660-50 10-Q 1 ===================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended June 30, 1997 Commission File Number 1-1225 AMERICAN HOME PRODUCTS CORPORATION (Exact name of registrant as specified in its charter) Delaware 13-2526821 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) Five Giralda Farms, Madison, N.J. 07940 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (973) 660-5000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No The number of shares of Common Stock outstanding as of the close of business on July 31, 1997: Number of Class Shares Outstanding Common Stock, $0.33-1/3 par value 648,384,132 ====================================================================== AMERICAN HOME PRODUCTS CORPORATION AND SUBSIDIARIES INDEX Page No. Part I - Financial Information 2 Item 1. Financial Statements: Consolidated Condensed Balance Sheets - June 30, 1997 and December 31, 1996 3 Consolidated Condensed Statements of Income - Three Months Ended and Six Months Ended June 30, 1997 and 1996 4 Consolidated Condensed Statements of Retained Earnings and Additional Paid-in Capital - Six Months Ended June 30, 1997 and 1996 5 Consolidated Condensed Statements of Cash Flows - Six Months Ended June 30, 1997 and 1996 6 Notes to Consolidated Condensed Financial Statements 7-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9-14 Part II - Other Information 15 Item 1. Legal Proceedings 15-16 Item 4. Submission of Matters to a Vote of Security-Holders 16-17 Item 6. Exhibits and Reports on Form 8-K 17 Signature 18 Exhibit Index EX-1 -1- Part I - Financial Information AMERICAN HOME PRODUCTS CORPORATION AND SUBSIDIARIES The consolidated condensed financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations; however, the Company believes that the disclosures are adequate to make the information presented not misleading. In the opinion of management, the financial statements include all adjustments necessary to present fairly the financial position of the Company as of June 30, 1997 and December 31, 1996, the results of its operations for the three months and six months ended June 30, 1997 and 1996, and its cash flows and the changes in retained earnings and additional paid- in capital for the six months ended June 30, 1997 and 1996. It is suggested that these financial statements and management's discussion and analysis of financial condition and results of operations be read in conjunction with the financial statements and the notes thereto included in the Company's 1996 Annual Report on Form 10-K and Quarterly Report on Form 10-Q for the quarter ended March 31, 1997. -2- AMERICAN HOME PRODUCTS CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (In Thousands Except Per Share Amounts)
June 30, December 31 1997 1996 ASSETS Cash and cash equivalents ....................... $962,196 $1,322,297 Marketable securities ........................... 5,717 221,820 Accounts receivable less allowances ............. 3,206,622 2,541,714 Inventories: Finished goods ............................. 1,129,198 1,121,055 Work in progress ........................... 691,054 567,240 Materials and supplies ..................... 674,685 701,074 2,494,937 2,389,369 Other current assets including deferred taxes ... 988,106 995,219 Total Current Assets ....................... 7,657,578 7,470,419 Property, plant and equipment ................... 6,545,396 6,254,666 Less accumulated depreciation .............. 2,390,254 2,217,933 4,155,142 4,036,733 Goodwill and other intangibles, net of accumulated amortization ................... 8,662,756 8,517,610 Other assets including deferred taxes ........... 953,068 760,581 Total Assets ............................... $21,428,544 $20,785,343 LIABILITIES Loans payable ................................... $67,173 $76,574 Trade accounts payable .......................... 949,942 940,076 Accrued expenses ................................ 3,076,910 2,810,223 Accrued federal and foreign taxes ............... 417,540 510,762 Total Current Liabilities .................. 4,511,565 4,337,635 Long-term debt .................................. 5,952,425 6,020,575 Other noncurrent liabilities .................... 2,352,371 2,486,375 Postretirement benefit obligation other than pensions ................................... 810,819 782,342 Minority interests .............................. 218,730 196,324 STOCKHOLDERS' EQUITY $2 convertible preferred stock, par value $2.50 per share .................................. 76 79 Common stock, par value $0.33-1/3 per share ..... 215,827 213,328 Additional paid-in capital ...................... 2,306,152 2,034,337 Retained earnings ............................... 5,254,373 4,756,270 Currency translation adjustments ................ (193,794) (41,922) Total Stockholders' Equity ................. 7,582,634 6,962,092 Total Liabilities and Stockholders' Equity . $21,428,544 $20,785,343 The accompanying notes are an integral part of these balance sheets.
-3- AMERICAN HOME PRODUCTS CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME (In Thousands Except Per Share Amounts)
Three Months Six Months Ended June 30, Ended June 30, 1997 1996 1997 1996 Net Sales.......................... $3,499,758 $3,489,821 $7,102,777 $7,136,635 Cost of goods sold ................ 1,059,002 1,162,632 2,090,940 2,368,586 Selling, general and administrative expenses ........................ 1,321,293 1,317,942 2,666,552 2,647,189 Research and development expenses . 379,763 359,336 751,808 697,648 Interest expense, net ............. 104,462 118,108 201,509 236,681 Other income, net ................. (4,382) (21,791) (49,831) (47,992) Income before federal and foreign taxes ........................... 639,620 553,594 1,441,799 1,234,523 Provision for taxes ............... 180,528 162,317 406,030 353,883 Net Income......................... $459,092 $391,277 $1,035,769 $880,640 Net Income per Share of Common Stock ........................... $0.71 $0.62 $1.61 $1.39 Dividends per share of common stock ............................ $0.41 $0.385 $0.82 $0.77 Average number of common shares outstanding during the period used in the computation of net income per share ........................ 645,758 633,937 644,042 632,155 The accompanying notes are an integral part of these statements.
-4- AMERICAN HOME PRODUCTS CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF RETAINED EARNINGS AND ADDITIONAL PAID-IN CAPITAL (In Thousands)
Six Months Ended June 30, 1997 1996 RETAINED EARNINGS Balance, beginning of period .......... $4,756,270 $3,875,224 Add: Net income ...................... 1,035,769 880,640 5,792,039 4,755,864 Less: Cash dividends declared ......... 528,898 486,214 Cost of treasury stock acquired (less amounts charged to capital) and other items ................. 8,768 11,840 537,666 498,054 Balance, end of period ................ $5,254,373 $4,257,810 ADDITIONAL PAID-IN CAPITAL Balance, beginning of period .......... $2,034,337 $1,515,154 Add: Excess over par value of common stock issued .................... 272,497 266,839 Less: Cost of treasury stock acquired (less amounts charged to retained earnings) ....................... 682 881 Balance, end of period ................ $2,306,152 $1,781,112 The accompanying notes are an integral part of these statements.
-5- AMERICAN HOME PRODUCTS CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (In Thousands)
Six Months Ended June 30, 1997 1996 Operating Activities Net income ................................. $1,035,769 $880,640 Adjustments to reconcile net income to net cash provided from operating activities: Gains on sales of businesses and other assets ............................... (100,940) (47,506) Depreciation and amortization............ 381,531 336,403 Deferred income taxes ................... (245,931) (26,525) Changes in working capital, net ......... (613,050) (298,764) Other, net .............................. (72,685) 98,230 Net cash provided from operating activities. 384,694 942,478 Investing Activities Purchases of property, plant and equipment . (343,314) (368,765) Purchases of businesses, net of cash acquired ................................. (479,694) - Proceeds from sales of businesses and other assets .................................. 221,962 192,469 Proceeds from sales of/(purchases of) marketable securities, net ............... 216,295 (16,084) Net cash used for investing activities ..... (384,751) (192,380) Financing Activities Net repayments of debt ..................... (77,582) (454,800) Dividends paid ............................. (528,898) (486,214) Purchases of treasury stock ................ (7,060) (8,460) Exercise of stock options................... 259,615 259,461 Net cash used for financing activities...... (353,925) (690,013) Effects of exchange rates on cash balances . (6,119) (3,988) Increase/(decrease) in cash and cash equivalents .............................. (360,101) 56,097 Cash and cash equivalents, beginning of period ................................... 1,322,297 1,802,397 Cash and cash equivalents, end of period ... $962,196 $1,858,494 The accompanying notes are an integral part of these statements. Supplemental Information Interest payments $222,524 $298,145 Income tax and related interest payments, net of refunds 720,623 122,875
-6- AMERICAN HOME PRODUCTS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS Note 1. Contingencies The Company is involved in various legal proceedings, including product liability and environmental matters of a nature considered normal to its business. It is the Company's policy to accrue for amounts related to these legal matters if it is probable that a liability has been incurred and an amount is reasonably estimable. In the opinion of the Company, although the outcome of any legal proceedings cannot be predicted with certainty, the ultimate liability of the Company in connection with these proceedings will not have a material adverse effect on the Company's financial position but could be material to the results of operations in any one accounting period. Note 2. Derivatives and Other Financial Instruments Cash and cash equivalents consist primarily of certificates of deposit, time deposits and other short-term, highly liquid securities with original maturities of three months or less and are stated at cost, which approximates fair value. Long-term debt is stated at face value which approximates fair value. The Company enters into interest rate swap and foreign currency agreements to manage specifically identifiable risks. The unleveraged interest rate swap agreements convert a portion of the commercial paper from a floating rate obligation to a fixed rate obligation. The short-term (approximately 30 days) foreign exchange forward contracts are part of the Company's management of foreign currency exposures. The Company does not speculate on interest or foreign currency exchange rates. Interest rate swap agreements are accounted for under the accrual method. Amounts to be paid to the counter-parties of the agreements are accrued during the period to which the payments relate and are reflected in interest expense. The related amounts payable to the counter-parties are included in accrued expenses. The fair value of the swap agreements is not recognized in the consolidated condensed financial statements since the agreements are accounted for as hedges. If the swap agreements are terminated prior to maturity, any gains or losses resulting from the termination are deferred and amortized as an adjustment to interest expense over the remaining life of the terminated swaps. -7- AMERICAN HOME PRODUCTS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS Foreign currency agreements are accounted for under the fair value method. The fair value of the foreign currency agreements is carried on the balance sheet with changes in fair value recognized in the results of operations offsetting any gains and losses recognized on the underlying hedged transactions. Note 3. Earnings per Share In February 1997, Statement of Financial Accounting Standards ("SFAS") No. 128 - "Earnings per Share" was issued and is effective for interim and annual reporting periods ending after December 15, 1997. SFAS No. 128 will require the presentation of Basic Earnings per Share and Diluted Earnings per Share in the Company's Consolidated Statements of Income. Net Income per Share of Common Stock presented in these financial statements is equivalent to Basic Earnings per Share. Pro forma Diluted Earnings per Share for the three months ended June 30, 1997 and 1996 were $0.70 and $0.61. Pro forma Diluted Earnings per Share for the six months ended June 30, 1997 and 1996 were $1.58 and $1.37. Note 4. Other Recently Issued Accounting Standards In June 1997, SFAS No. 130 - "Reporting Comprehensive Income" and SFAS No. 131 - "Disclosures about Segments of an Enterprise and Related Information" were issued and are effective for periods beginning after December 15, 1997. SFAS No. 130 establishes standards for reporting comprehensive income and its components. SFAS No. 131 establishes standards for reporting financial and descriptive information regarding an enterprise's operating segments. These standards increase disclosure only and will have no impact on the Company's financial position or results of operations. Note 5. Solvay S.A. Animal Health Acquisition On February 28, 1997, the Company completed the acquisition of the worldwide animal health business of Solvay S.A. for approximately $460 million. The acquisition was financed partially through the issuance of commercial paper and was accounted for under the purchase method of accounting. The purchase price exceeded the net assets acquired by approximately $310 million which is being amortized over periods of 20 to 40 years. -8- Management's Discussion and Analysis of Financial Condition and Results of Operations Three Months and Six Months Ended June 30, 1997 Results of Operations Management's discussion and analysis of results of operations for the 1997 second quarter and first half has been presented on an as-reported basis except for sales variation explanations which are presented on an as-reported and pro forma basis. The pro forma sales results reflect businesses acquired and divested in 1997 and 1996 assuming the transactions occurred as of January 1, 1996. This activity includes the acquisition of the worldwide animal health business of Solvay S.A. in 1997 and the divestitures of the American Home Foods business and the Symbiosis surgical products business in 1996. On an as-reported basis, worldwide net sales for the 1997 second quarter and first half were comparable to prior year levels. On a pro forma basis, worldwide net sales increased 5% for both the 1997 second quarter and first half. The pro forma results reflect higher sales of pharmaceutical and agricultural products. The following tables set forth worldwide net sales results by major product category and industry segment together with the percentage changes in "As- Reported" and "Pro Forma" worldwide net sales from comparable periods in the prior year: Three Months As-Reported Pro Forma ($ in Millions) Ended June 30, % Increase % Increase Net Sales to Customers 1997 1996 (Decrease) (Decrease) Health Care Products: Pharmaceuticals $1,934.4 $1,716.8 13% 9% Consumer Health Care 445.8 456.2 (2)% (2)% Medical Devices 327.2 327.7 - - Total Health Care Products 2,707.4 2,500.7 8% 6% Agricultural Products 792.4 767.1 3% 3% Food Products - 222.0 (100)% - Consolidated Net Sales $3,499.8 $3,489.8 - 5%
-9- Management's Discussion and Analysis of Financial Condition and Results of Operations Three Months and Six Months Ended June 30, 1997
Six Months As-Reported Pro Forma ($ in Millions) Ended June 30, % Increase % Increase Net Sales to Customers 1997 1996 (Decrease) (Decrease) Health Care Products: Pharmaceuticals $4,032.9 $3,678.9 10% 8% Consumer Health Care 941.3 931.6 1% 1% Medical Devices 650.5 673.8 (3)% (2)% Total Health Care Products 5,624.7 5,284.3 6% 5% Agricultural Products 1,478.1 1,403.0 5% 5% Food Products - 449.3 (100)% - Consolidated Net Sales $7,102.8 $7,136.6 - 5%
The following sales variation explanations are presented on an as-reported and pro forma basis: On an as-reported basis, worldwide pharmaceutical sales increased 13% for the 1997 second quarter and 10% for the first half. On a pro forma basis, after adjusting for the acquisition of the worldwide animal health business of Solvay S.A. in February 1997, worldwide pharmaceutical sales increased 9% for the 1997 second quarter and 8% for the first half due primarily to higher sales of PREMARIN products, EFFEXOR, CORDARONE and ZOTON offset, in part, by lower sales of other pharmaceutical products. Worldwide pharmaceutical results for the 1997 second quarter also reflect higher sales of oral contraceptives while results for the first half reflect higher sales of REDUX (introduced in the 1996 second quarter) and LODINE. On an as-reported basis, U.S. pharmaceutical sales increased 19% for the 1997 second quarter and 16% for the first half. On a pro forma basis, U.S. pharmaceutical sales increased 17% for the 1997 second quarter and 15% for the first half. The increase in pro forma U.S. pharmaceutical sales for the 1997 second quarter consisted of unit volume growth of 12% and price increases of 5%. The increase in pro forma U.S. pharmaceutical sales for the 1997 first half consisted of unit volume growth of 12% and price increases of 3%. On an as-reported basis, international pharmaceutical sales increased 6% for the 1997 second quarter and 3% for the first half. On a pro forma basis, international pharmaceutical sales for the 1997 second quarter and first half were comparable to prior year levels. Pro forma international pharmaceutical sales for the 1997 second quarter consisted of unit volume growth of 4% and price increases of 1% which were offset by unfavorable foreign exchange of 5%. Pro forma international -10- Management's Discussion and Analysis of Financial Condition and Results of Operations Three Months and Six Months Ended June 30, 1997 pharmaceutical sales for the 1997 first half consisted of unit volume growth of 3% and price increases of 1% which were offset by unfavorable foreign exchange of 4%. On an as-reported and pro forma basis, worldwide consumer health care sales decreased 2% for the 1997 second quarter and increased 1% for the first half. Worldwide consumer health care results for the 1997 second quarter and first half reflect the disposal of several non-core products in late 1996 and early 1997 which was offset, in part, by higher sales of ADVIL. Worldwide consumer health care results for the 1997 second quarter also reflect lower sales of AXID AR (due to the 1996 second quarter product launch) while results for the first half reflect higher sales of CENTRUM offset, in part, by lower sales of ORUDIS KT. On an as-reported and pro forma basis, U.S. consumer health care sales decreased 7% for the 1997 second quarter and 2% for the first half. The decrease in U.S. consumer health care sales for the 1997 second quarter consisted of unit volume declines of 8% offset by price increases of 1%. The decrease in U.S. consumer health care sales for the 1997 first half consisted of unit volume declines of 4% offset by price increases of 2%. On an as-reported and pro forma basis, international consumer health care sales increased 6% for the 1997 second quarter and 8% for the first half. The increase in international consumer health care sales for the 1997 second quarter consisted of unit volume growth of 5% and price increases of 4% which were offset by unfavorable foreign exchange of 3%. The increase in international consumer health care sales for the 1997 first half consisted of unit volume growth of 8% and price increases of 2% which were offset by unfavorable foreign exchange of 2%. On an as-reported and pro forma basis, worldwide medical devices sales for the 1997 second quarter were comparable to prior year levels. On an as- reported basis, worldwide medical devices sales decreased 3% for the 1997 first half. On a pro forma basis, after adjusting for the divestiture of the Symbiosis surgical products business in March 1996, worldwide medical devices sales decreased 2% for the 1997 first half. Worldwide medical devices results for both periods reflect lower sales of wound closure products offset, in part, by higher sales of needles and syringes. Worldwide medical devices sales for the 1997 second quarter consisted of unit volume growth of 5% which was offset by price decreases of 2% and unfavorable foreign exchange of 3%. The decrease in pro forma worldwide medical devices sales for the 1997 first half consisted of unit volume growth of 1% which was offset by price decreases of 1% and unfavorable foreign exchange of 2%. On an as-reported and pro forma basis, worldwide agricultural products sales increased 3% for the 1997 second quarter and 5% for the first half due to higher sales of herbicides resulting primarily from increased soybean acreage and new product launches offset, in part, by lower sales -11- Management's Discussion and Analysis of Financial Condition and Results of Operations Three Months and Six Months Ended June 30, 1997 of insecticides and fungicides due primarily to poor weather conditions in several major European markets during the current growing season. On an as-reported and pro forma basis, U.S. agricultural products sales increased 3% for the 1997 second quarter and 5% for the first half. The increase in U.S. agricultural products sales for the 1997 second quarter consisted of unit volume growth of 1% and price increases of 2%. The increase in U.S. agricultural products sales for the 1997 first half consisted of unit volume growth of 3% and price increases of 2%. Due to the seasonality of the U.S. agricultural products business, which is concentrated primarily in the first six months of the year, U.S. agricultural products sales and results of operations for the 1997 second quarter and first half are not indicative of the results to be expected in subsequent fiscal quarters or for the full year. On an as-reported and pro forma basis, international agricultural products sales increased 4% for the 1997 second quarter and 6% for the first half. The increase in international agricultural products sales for the 1997 second quarter consisted of unit volume growth of 6% and price increases of 3% which were offset by unfavorable foreign exchange of 5%. The increase in international agricultural products sales for the 1997 first half consisted of unit volume growth of 8% and price increases of 3% which were offset by unfavorable foreign exchange of 5%. Cost of goods sold, as a percentage of net sales, decreased to 30.3% for the 1997 second quarter versus 33.3% for the 1996 second quarter, and decreased to 29.4% for the 1997 first half versus 33.2% for the 1996 first half due primarily to favorable pharmaceutical and agricultural products sales mix, an overall product mix improvement as higher sales of pharmaceuticals and agricultural products replaced the loss of lower margin food products sales, and to a lesser extent, cost savings. Selling, general and administrative expenses, as a percentage of net sales, were 37.8% for both the 1997 and 1996 second quarters, and increased to 37.5% for the 1997 first half versus 37.1% for the 1996 first half. Higher marketing and selling costs related to pharmaceutical and agricultural product introductions were offset by the elimination of marketing and selling costs associated with the foods business. Research and development expenses increased 6% for the 1997 second quarter and 8% for the first half due primarily to higher pharmaceutical research and development expenditures and operating costs related to recent pharmaceutical research and development facility expansions. Interest expense, net decreased in the 1997 second quarter and first half due primarily to the reduction in long-term debt during 1996. Average long-term debt outstanding during the 1997 and 1996 second quarter was $6,024.3 million and $7,553.0 million, respectively. Average long-term debt outstanding during the 1997 and 1996 first half was $5,986.5 million and $7,581.4 million, respectively. -12- Management's Discussion and Analysis of Financial Condition and Results of Operations Three Months and Six Months Ended June 30, 1997 Other income, net for the 1997 second quarter and first half included the settlement of the lawsuit brought by Johnson & Johnson and its wholly-owned subsidiary, Ortho Pharmaceutical Corporation. See "Legal Proceedings" under Part II - Other Information. This settlement was offset by a previously established reserve for this litigation and a gain on the sale of the Company's investment in the common stock of certain publicly traded insurance companies. Income before taxes, net income and net income per share increased 16%, 17% and 15%, respectively, in the 1997 second quarter compared to the 1996 second quarter and increased 17%, 18% and 16%, respectively, in the 1997 first half compared to the 1996 first half due primarily to favorable pharmaceutical and agricultural products sales mix, higher sales of pharmaceutical and agricultural products, cost savings and lower interest expense offset, in part, by the divestiture of the foods business and higher research and development expenses. The following table sets forth income before taxes by industry segment: Three Months Six Months ($ in Millions) Ended June 30, Ended June 30, Income before Taxes 1997 1996 1997 1996 Health Care Products $510.3 $476.3 $1,280.8 $1,137.6 Agricultural Products 259.8 216.6 431.2 363.4 Corporate (130.5) (176.4) (270.2) (326.6) Food Products - 37.1 - 60.1 Consolidated Income before Taxes $639.6 $553.6 $1,441.8 $1,234.5
Competition The Company is not dependent on any one patent-protected product or line of products for a substantial portion of its sales or results of operations. However, PREMARIN, the Company's conjugated estrogens product, which has not had patent protection for many years, does contribute significantly to sales and results of operations. PREMARIN is not currently subject to generic competition in the United States and, on May 5, 1997, the U.S. Food and Drug Administration (FDA) announced that it will not approve synthetic generic conjugated estrogens products at this time because these products have not been shown to contain the same active ingredient as PREMARIN. The FDA further stated that, until the full composition of PREMARIN is determined, a synthetic generic version cannot be approved, although a generic product derived from the same natural source could be approved earlier under certain circumstances. Although the Company believes that, as a result of this announcement, PREMARIN -13- Management's Discussion and Analysis of Financial Condition and Results of Operations Three Months and Six Months Ended June 30, 1997 is not likely to face generic competition in the near term, it cannot predict the timing or outcome of continued efforts to obtain approval for a generic conjugated estrogens product. Liquidity, Financial Condition and Capital Resources Cash and cash equivalents decreased $360.1 million in the 1997 first half to $962.2 million. Proceeds from sales of marketable securities and other assets of $438.3 million, cash flows from operating activities of $384.7 million and proceeds from the exercise of stock options of $259.6 million were used principally for dividend payments of $528.9 million, the purchase of the worldwide animal health business of Solvay S.A. for $460.0 million, capital expenditures of $343.3 million and long-term debt reduction of $77.6 million. Cash flows from operating activities for the 1997 first half were impacted by payments of $381.8 million related to certain previously accrued long-term tax liabilities which were required to be paid in connection with the filing of a tax claim. Due to the seasonality of the U.S. agricultural products business, a significant portion of the annual U.S. agricultural products sales are recorded in the first six months of the year; however, a significant amount of the related accounts receivable are not collected until the third quarter. As a result, cash flows from operating activities for the 1997 first half are not indicative of the results to be expected in subsequent fiscal quarters or for the full year. Capital expenditures included the expansion of the Company's research and development facilities and continued strategic investments in manufacturing and distribution facilities worldwide. Cautionary Statements for Forward Looking Information Management's discussion and analysis set forth above contains certain forward looking statements, including statements regarding the Company's financial position, results of operations and potential competition. These forward looking statements are based on current expectations. Certain factors which could cause the Company's actual results to differ materially from expected and historical results have been identified by the Company in Exhibit 99 to the Company's 1996 Annual Report on Form 10-K which exhibit is hereby incorporated by reference. -14- Part II - Other Information Item 1. Legal Proceedings The Company and its subsidiaries are parties to numerous lawsuits and claims arising out of the conduct of its business, the most significant of which are described in the Company's Annual Report on Form 10-K for the year ended December 31, 1996 and Quarterly Report on Form 10-Q for the quarter ended March 31, 1997. On June 16, 1997, the parties settled the action brought against the Company by Johnson & Johnson ("J&J") and its wholly-owned subsidiary, Ortho Pharmaceutical Corporation ("Ortho"), which had been seeking in excess of $300 million in damages alleged to have arisen from a preliminary injunction which was granted in a patent infringement lawsuit brought by the Company and which had prevented J&J and Ortho from marketing an oral contraceptive containing norgestimate for approximately 10 months in 1991-1992 until it was overturned on appeal. In the underlying action in the district court, the Company's patent was found to be valid but not infringed by J&J and Ortho. Under the settlement, the Company paid $100 million to the plaintiffs. On July 7, 1997, the plaintiffs were awarded $44 million in compensatory damages and $1 million in punitive damages in an action which was commenced in the U.S. District Court for the District of Colorado in August 1993 (University of Colorado et al. v. American Cyanamid). The plaintiffs had accused American Cyanamid of misappropriating the invention of, and patenting as its own, the formula for the current MATERNA Multi-Vitamins. The complaint also contained allegations of conversion, fraud, misappropriation, wrongful naming of inventor and copyright and patent infringement. The patent whose ownership and inventorship is in dispute was granted to American Cyanamid in 1984. The Court had previously granted American Cyanamid's summary judgment motions dismissing all counts for relief except for unjust enrichment and fraud, which were the issues tried before the court in a three-week bench trial in May 1996. Although plaintiffs had earlier been granted summary judgment on their copyright infringement claim, the court had declined to award plaintiffs damages on that claim. Plaintiffs have filed motions seeking to increase the damages to approximately $111 million allegedly representing American Cyanamid's gross profit for 1982-1995 from the sale of the reformulated MATERNA product and to recover approximately $800,000 of attorneys' fees. The Company intends vigorously to contest these motions and to pursue the appeal of the district court decision to the U.S. Court of Appeals for the Federal Circuit. In the brand name prescription drug antitrust litigation, a purported class action by certain retailers was filed on March 14, 1997 in Mississippi state court (Montgomery Drug Co. v. The Upjohn Co., et al.) and a purported class action on behalf of indirect purchasers -15- was filed on June 27, 1997 in state court in North Carolina (Long v. Abbott Laboratories, et al.). The allegations raised and relief sought in these cases is similar to those in the related cases pending in other state courts. A purported class action complaint was filed on June 25, 1997 in federal district court in Mobile, Alabama, alleging that American Cyanamid violated section 1 of the Sherman Act through a promotional program for crop protection chemicals. The complaint seeks treble damages, attorneys' fees and other relief (Lowell v. American Cyanamid). The Company has completed the settlement of the U.S. Environmental Protection Agency civil administrative action for alleged violation by American Cyanamid of a provision of the Emergency Planning & Community Right-to-Know Act of 1986 in Pearl River, New York. Under the settlement, the Company paid a civil penalty of $129,000 and donated certain emergency response equipment to the local county. In the opinion of the Company, although the outcome of any legal proceedings cannot be predicted with certainty, the ultimate liability of the Company in connection with these proceedings will not have a material adverse effect on the Company's financial position but could be material to the results of operations in any one accounting period. Item 4. Submission of Matters to a Vote of Security-Holders (a) The matters described under item 4(c) below were submitted to a vote of security-holders, through the solicitation of proxies pursuant to Section 14 under the Securities Exchange Act of 1934, as amended, at the Annual Meeting of Stockholders held on April 28, 1997 (the "Annual Meeting"). (b) Not applicable. (c) The following describes the matters voted upon at the Annual Meeting and sets forth the number of votes cast for, against or withheld and the number of abstentions as to each such matter (except as provided below, there were no broker non-votes): (i) Election of directors: Nominee For Withheld Clifford L. Alexander, Jr. 543,652,385 6,331,740 Frank A. Bennack, Jr. 547,736,964 2,247,161 Robert G. Blount 547,194,391 2,789,734 Robin Chandler Duke 546,706,099 3,278,026 -16- John D. Feerick 547,556,443 2,427,682 Fred Hassan* 547,175,991 2,808,134 John P. Mascotte 547,698,759 2,285,366 Mary Lake Polan, M.D., Ph.D. 543,764,195 6,219,930 Ivan G. Seidenberg 546,819,308 3,164,817 John R. Stafford 547,122,493 2,861,632 John R. Torell III 547,757,750 2,226,375 William Wrigley 547,742,566 2,241,559 *Effective May 8, 1997, Fred Hassan resigned as Executive Vice President and Director of the Company. (ii) Ratification of the appointment of Arthur Andersen LLP as principal independent public accountants for 1997: For Against Abstain 547,583,649 758,242 1,642,234 (iii) Approval of the proposed amendment to the Management Incentive Plan: For Against Abstain 531,697,858 12,330,115 5,952,264 There were 3,888 broker non-votes with reference to this item. (d) Not applicable. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit No. Description (11) Computation of Earnings Per Share. (27) Financial Data Schedule. (b) Reports on Form 8-K The Company did not file any reports on Form 8-K during the quarter covered by this report. -17- Signature Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AMERICAN HOME PRODUCTS CORPORATION (Registrant) By /s/ Paul J. Jones Paul J. Jones Vice President and Comptroller (Duly Authorized Signatory and Chief Accounting Officer) Date: August 13, 1997 -18- Exhibit Index Exhibit No. Description (11) Computation of Earnings Per Share. (27) Financial Data Schedule. EX-1 EX-11 2 EXHIBIT 11 AMERICAN HOME PRODUCTS CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE (In Thousands Except Per Share Amounts)
Three Months Ended Six Months Ended June 30, June 30, 1997 1997 1. Net Income ............................................. $459,092 $1,035,769 2. Reported earnings per share: a. Average number of common shares outstanding during the period ................................ 645,758 644,042 b. Reported earnings per share (1/2a) ............... $0.71 $1.61 3. Primary earnings per share: a. Average number of common shares outstanding during the period ................................ 645,758 644,042 b. Common shares deemed outstanding from the assumed exercise of stock options reduced by the number of common shares purchased with the proceeds (determined using the average market price during the period)................................ 13,006 12,212 c. Deferred contingent common stock awards .......... 494 494 d. Shares for primary earnings per share calculation (3a+3b+3c) ....................................... 659,258 656,748 e. Primary earnings per share (1/3d) ................ $0.70 $1.58 4. Fully diluted earnings per share: a. Average number of common shares outstanding during the period ................................ 645,758 644,042 b. Common shares deemed outstanding from the assumed exercise of stock options reduced by the number of common shares purchased with the proceeds (determined using the higher of the average market price during the period or the market price at the end of the period)................... 14,973 14,973 c. Deferred contingent common stock awards .......... 494 494 d. Shares for fully diluted earnings per share calculation (4a+4b+4c)............................ 661,225 659,509 e. Fully diluted earnings per share (1/4d) .......... $0.69 $1.57
EX-27 3
5 EXHIBIT 27 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AMERICAN HOME PRODUCTS CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEET AS OF JUNE 30, 1997 AND CONSOLIDATED CONDENSED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1997 JUN-30-1997 962,196 5,717 3,206,622 0 2,494,937 7,657,578 6,545,396 2,390,254 21,428,544 4,511,565 5,952,425 215,827 0 76 7,366,731 21,428,544 7,102,777 7,102,777 2,090,940 2,090,940 751,808 0 201,509 1,441,799 406,030 1,035,769 0 0 0 1,035,769 1.58 1.57
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