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<PAGE>1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1994 Commission File Number 1-1225
AMERICAN HOME PRODUCTS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-2526821
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Five Giralda Farms, Madison, N.J. 07940
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (201) 660-5000
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
The number of shares of Common Stock outstanding as of the close of
business on May 2, 1994:
Number of
Class Shares Outstanding
Common Stock, $.33-1/3 par value 307,192,966
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<PAGE>2
AMERICAN HOME PRODUCTS CORPORATION AND SUBSIDIARIES
INDEX
Page No.
Part I - Financial Information 2
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets -
March 31, 1994 and December 31, 1993 3
Consolidated Condensed Statements of Income -
Three Months Ended March 31, 1994 and 1993 4
Consolidated Statements of Retained Earnings and
Additional Paid-in Capital - Three Months Ended
March 31, 1994 and 1993 5
Consolidated Condensed Statements of Cash Flows -
Three Months Ended March 31, 1994 and 1993 6
Notes to Consolidated Condensed Financial
Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-12
Part II - Other Information
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 14
Signature 15
<PAGE>3
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 March 31, 1994 and December 31, 1993, and the results of
its operations, cash flows and the changes in retained earnings and
additional paid-in capital for the three months ended March 31, 1994
and 1993. It is suggested that these financial statements be read in
conjunction with the financial statements and the notes thereto
included in the Company's latest annual report on Form 10-K.
<PAGE>4
AMERICAN HOME PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands Except Per Share Amounts)
March 31, Dec. 31,
1994 1993
---------- ----------
ASSETS
Cash and cash equivalents.................... $1,760,183 $1,936,834
Marketable securities........................ 281,293 283,449
Accounts receivable less allowances.......... 1,456,022 1,389,555
Inventories:
Finished goods.......................... 454,376 435,902
Work in process......................... 251,059 219,701
Materials and supplies.................. 304,169 303,293
---------- ----------
1,009,604 958,896
Other current assets......................... 249,838 238,950
---------- ----------
Total Current Assets.................... 4,756,940 4,807,684
Property, plant and equipment................ 3,534,335 3,460,365
Less accumulated depreciation........... 1,444,205 1,400,580
---------- ----------
2,090,130 2,059,785
Goodwill..................................... 728,841 716,395
Other assets................................. 108,426 103,489
---------- ----------
$7,684,337 $7,687,353
========== ==========
LIABILITIES
Loans payable to banks....................... $ 2,222 $ 4,280
Trade accounts payable....................... 400,254 388,804
Accrued expenses............................. 998,513 1,019,923
Accrued federal and foreign taxes............ 204,808 171,404
---------- ----------
Total Current Liabilities............... 1,605,797 1,584,411
Long-term debt............................... 860,692 859,278
Accumulated postretirement benefit
obligation.............................. 269,383 264,553
Other noncurrent liabilities................. 849,025 903,993
Minority interests........................... 197,486 198,630
STOCKHOLDERS' EQUITY
$2 convertible preferred stock,
par value $2.50 per share.............. 99 100
Common stock, par value $.33-1/3 per share.. 102,553 103,442
Additional paid-in capital.................. 1,006,217 1,014,911
Retained earnings........................... 2,913,958 2,884,244
Currency translation adjustments............ (120,873) (126,209)
---------- ----------
Total Stockholders' Equity............. 3,901,954 3,876,488
---------- ----------
$7,684,337 $7,687,353
========== ==========
The accompanying notes are an integral part of these statements.
<PAGE>5
AMERICAN HOME PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In Thousands Except Per Share Amounts)
Three Months Ended March 31,
1994 1993
---------- ----------
Net sales.............................. $2,144,045 $2,111,015
---------- ----------
Cost of goods sold..................... 657,465 660,592
Selling, administrative and general
expenses............................. 732,682 742,736
Research and development expenses...... 172,904 150,629
Other expense, net..................... 3,493 7,684
---------- ----------
Income before federal and foreign taxes 577,501 549,374
Provision for taxes.................... 161,701 147,865
---------- ----------
Net income............................. $ 415,800 $ 401,509
========== ==========
Net income per share of common stock... $1.34 $1.29
===== =====
Dividends per share of common stock.... $0.73 $0.71
===== =====
Average number of common shares and
common share equivalents of preferred
stock outstanding during the period
used in the computation of net income
per share............................ 309,900 311,961
The accompanying notes are an integral part of these statements.
<PAGE>
<PAGE>6
AMERICAN HOME PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF RETAINED EARNINGS
AND ADDITIONAL PAID-IN CAPITAL
(In Thousands)
Three Months Ended March 31,
RETAINED EARNINGS 1994 1993
---------- ----------
Balance, beginning of period $2,884,244 $2,547,719
Add: Net income 415,800 401,509
---------- ----------
3,300,044 2,949,228
---------- ----------
Less: Cash dividends declared 226,510 221,964
Cost of treasury stock acquired
less amounts charged to capital 155,233 240,630
Other 4,343 -
---------- ----------
386,086 462,594
---------- ----------
Balance, end of period $2,913,958 $2,486,634
========== ==========
ADDITIONAL PAID-IN CAPITAL
Balance, beginning of period $1,014,911 $ 953,155
Add: Excess over par value of common
stock issued 13,490 30,866
Less: Cost of treasury stock acquired,
less amounts charged to retained
earnings 22,184 30,889
---------- ----------
Balance, end of period $1,006,217 $ 953,132
========== ==========
The accompanying notes are an integral part of these statements.
<PAGE>7
AMERICAN HOME PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
Three Months Ended March 31,
1994 1993
---------- ----------
Operating Activities
- --------------------
Net income................................... $ 415,800 $ 401,509
Adjustments to reconcile net income to net
cash provided from operating activities:
Depreciation and amortization.............. 64,842 59,441
Deferred income taxes...................... 10,863 31,162
Changes in working capital, net............ (94,643) (131,889)
Other items, net........................... (74,827) 27,025
---------- ----------
Net cash provided from operating activities.. 322,035 387,248
---------- ----------
Investing Activities
- --------------------
Purchases of property, plant and equipment... (87,133) (111,023)
Acquisition of businesses for cash, net
of cash acquired........................... (22,238) (67,500)
Proceeds/(purchases) of marketable
securities, net............................ 2,156 (732)
Proceeds from sales of other assets, net..... 1,239 453
---------- ----------
Net cash used for investing activities....... (105,976) (178,802)
---------- ----------
Financing Activities
- --------------------
Dividends paid............................... (226,510) (221,943)
Net (repayments)/proceeds of debt............ (644) 248,449
Purchases of treasury stock.................. (178,404) (272,997)
Exercise of stock options.................... 9,735 24,929
---------- ----------
Net cash used for financing activities....... (395,823) (221,562)
---------- ----------
Effects of exchange rates on cash balances... 3,113 (14,817)
---------- ----------
Decrease in cash and cash equivalents........ (176,651) (27,933)
Cash and cash equivalents, beginning
of period.................................. 1,936,834 1,692,761
---------- ----------
Cash and cash equivalents, end of period.... $1,760,183 $1,664,828
========== ==========
The accompanying notes are an integral part of these statements.
Supplemental Information
- ------------------------
Interest payments $ 12,823 $ 4,004
Income tax payments 141,630 114,510
<PAGE>8
AMERICAN HOME PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 1. The Company adopted Statement of Financial Accounting
Standards No. 115 - "Accounting for Certain Investments
in Debt and Equity Securities" (SFAS No. 115) effective
January 1, 1994. The Company's portfolio of debt securities
consists of cash equivalents classified as held-to-maturity
(recorded at cost) and marketable securities, consisting
entirely of debt securities which are classified as
available-for-sale (recorded at fair value). The cumulative
effect of implementing SFAS No. 115 and the first quarter
impact of the changes in fair value of the Company's
marketable securities on shareholders' equity, were not
material. The portfolio of debt securities consists
principally of U.S. government and agency obligations with
an average maturity of 3.3 years, and corporate obligations
with an average maturity of 3.0 years. The fair value of
cash equivalents approximated cost at March 31, 1994. For
periods prior to 1994, marketable securities were recorded
at cost which approximated market.
Note 2. The Company also was required to adopt Statement of
Financial Accounting Standards No. 112 - "Employers'
Accounting for Postemployment Benefits," effective
January 1, 1994. The effect on the financial statements
of this standard was not significant.
Note 3. On February 19, 1993, the Company issued $250 million of
30 year debentures due March 1, 2023, under a shelf
registration statement previously filed with the Securities
and Exchange Commission. The debentures bear interest at
the rate of 7 1/4% payable semiannually on March 1 and
September 1.
Note 4. On February 18, 1994, the Company acquired all the
outstanding common stock and certain international
trademarks of Siegfried Pharma GmbH for $23.2 million. On
March 19, 1993, the Company acquired all the outstanding
common stock of M. Polaner, Inc. ("Polaner") for $67.5
million.
<PAGE>9
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Three Months Ended March 31, 1994
Results of Operations
Net sales for the 1994 first quarter of $2.1 billion increased 2% from
prior year levels. Health care product segment sales were 1% above
1993 levels and food product sales increased 7% over prior year
amounts. The negative impact of foreign exchange rates on
consolidated worldwide net sales was approximately 1% in the first
quarter of 1994.
Three Months %
($ in Millions) Ended March 31, Increase
Net Sales to Customers 1994 1993 (Decrease)
Health Care Products
Pharmaceuticals $1,272.8 $1,256.6 +1%
Consumer Health Care 444.0 448.5 -1%
Medical Supplies &
Diagnostics 215.7 207.6 +4%
Total Health Care 1,932.5 1,912.7 +1%
Food Products 211.5 198.3 +7%
Consolidated Net Sales $2,144.0 $2,111.0 +2%
Worldwide pharmaceutical sales increased 1% from the corresponding
1993 period. U.S. pharmaceutical sales, which include infant
nutritionals, increased 3%, due to higher prices and volume growth
from the roll-out of the Company's new antidepressant product Effexor
and increases in the cardiovascular and oral contraceptive product
lines. Also contributing to this volume increase were sales of
Genetics Institute, Inc.'s recombinant antihemophilic factor (rAHF).
Partly offsetting these increases were volume declines in the Norplant
System, anti-inflammatory products, infant nutritionals and Premarin.
Premarin's decline was due, for the most part, to the December 1993
buy-in in anticipation of a January 1994 price increase. Foreign
pharmaceutical sales decreased 1% for the 1994 first quarter as
unfavorable exchange rates and lower unit sales of infant nutritionals
more than offset price increases and unit volume growth in the female
health care product line. Excluding the effects of exchange rate
fluctuations, foreign pharmaceutical sales would have increased 3% for
the first quarter.
<PAGE>
<PAGE>10
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Three Months Ended March 31, 1994
Worldwide consumer health care sales decreased 1% for the 1994 first
quarter. U.S. consumer health care sales decreased 5% in the first
quarter, due largely to unit shortfalls in the cough/cold category
resulting from a mild cold and flu season. Foreign consumer health
care sales increased 7% for the 1994 first quarter, due principally to
inflationary price increases in Brazil and volume growth in the oral
health care product line in certain Latin American markets. Partially
offsetting these increases were unfavorable exchange rate
fluctuations. Excluding the effects of exchange rate fluctuations,
foreign consumer health care sales would have increased 9% in the
first quarter.
Worldwide medical supplies and diagnostics products sales increased 4%
in the 1994 first quarter. U.S. sales increased 3% in the 1994 first
quarter, principally as a result of unit volume growth in needles and
syringes. Foreign sales in this sector increased 8% in the 1994 first
quarter, principally due to unit volume growth in tubes and catheters,
particularly in Japan, as well as favorable foreign exchange rates.
Food products sales increased 7% for the 1994 first quarter,
principally due to increased unit volume resulting from the
acquisition of M. Polaner, Inc. in March 1993.
The table below presents comparative first quarter net sales by
geographic segments. Canada and Latin America sales increases were
primarily related to Brazil. Results in Europe and Africa were
adversely impacted by a stronger U.S. dollar versus year ago levels.
Three Months %
($ in Millions) Ended March 31, Increase
Net Sales to Customers 1994 1993 (Decrease)
United States $1,494.6 $1,469.1 +2%
Canada and Latin America 231.1 218.9 +6%
Europe and Africa 293.0 296.6 -1%
Asia and Australia 125.3 126.4 -1%
Consolidated Net Sales $2,144.0 $2,111.0 +2%
Cost of goods sold, as a percentage of net sales, in the first quarter
of 1994 was consistent with the first quarter of 1993.<PAGE>
<PAGE>11
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Three Months Ended March 31, 1994
Selling, administrative and general expenses, as a percentage of net
sales decreased to 34.2% in the first quarter of 1994 compared to
35.2% in the first quarter of 1993. Contributing to this decrease was
the reduction of legal reserves relating to certain Ativan claims in
the United Kingdom due to favorable developments that occurred in the
first quarter of 1994.
Research and development expenses increased $22 million in the 1994
first quarter to $173 million. Included in this amount are
expenditures by Genetics Institute, Inc., net of related collaborative
revenues, of $26.2 million versus $18.6 million in the first quarter
of 1993.
<PAGE>
<PAGE>12
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Three Months Ended March 31, 1994
Income before taxes increased 5% in the first quarter of 1994.
Three Months %
($ in Millions) Ended March 31, Increase
Income Before Taxes 1994 1993 (Decrease)
Health Care Products $542.3 $538.5 +1%
Food Products 20.7 20.4 +1%
Corporate 14.5 (9.5) -
Consolidated Income Before Taxes $577.5 $549.4 +5%
Income Before Taxes
United States $432.0 $411.9 +5%
Canada and Latin America 65.6 47.0 +40%
Europe and Africa 58.7 65.7 -11%
Asia and Australia 21.2 24.8 -15%
Consolidated Income Before Taxes $577.5 $549.4 +5%
Net income and net income per share, increased 4% for the 1994 first
quarter.
Health Care Reform and Competition
The uncertainty about health care reform in the United States
continued during the first quarter of 1994. The proposals by the
Clinton Administration have been presented to Congress. The Company
cannot predict with certainty the impact these reforms might have and
the extent Congress will modify the Administration's proposals, except
that it is the Company's belief that the pharmaceutical industry will
continue to play a very positive role in helping to contain health
care costs. In international markets, health care spending is subject
to increasing governmental scrutiny, much of which is focused on
pharmaceutical prices. In the United States, pricing pressures are
being exercised increasingly by managed care providers. It is expected
that these market forces will continue to constrain price growth in
1994 regardless of the outcome of health care reform. In 1993, the
Company's weighted average U.S. prescription pharmaceutical price
increase was approximately 2.6%.
As to competition, the Company is not dependent on any patent-
protected product or line of products for a substantial portion of its
revenues or profits. However, PREMARIN, the Company's conjugated
estrogens product, does contribute significantly to sales and profits.
For further discussion on PREMARIN see Item 1, Competition of the
Company's 1993 Annual Report on Form 10-K.
<PAGE>13
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Three Months Ended March 31, 1994
Liquidity, Financial Condition and Capital Resources
Cash and cash equivalents decreased $176.7 million in the first
quarter of 1994 to $1.8 billion. Cash flow from operating activities
of $322.0 million as well as available cash reserves, were used
principally for dividend payments of $226.5 million, common share
repurchases of $178.4 million and capital expenditures of $87.1
million.
The Company repurchased 2,954,600 common shares during the 1994 first
quarter. Capital expenditures included the continuation of the
Company's investment to expand and upgrade its research and
development facilities in Radnor and Marietta, Pennsylvania,
Princeton, New Jersey and Andover, Massachusetts and certain strategic
manufacturing/distribution facilities worldwide.
The Company continues to generate positive cash flow from operating
activities and foresees no difficulty in maintaining its financial
position and liquidity while financing its research and development,
common share repurchase and capital expenditure programs.
<PAGE>
<PAGE>14
Part II - Other Information
Item 1. Legal Proceedings
The Company is involved in various legal proceedings of a
nature considered normal to its business. The most
significant of these are described in the Company's Annual
Report on Form 10-K for the year ended December 31, 1993.
In addition, on March 7, 1994, the Company was served in an
action seeking at least $160 million in damages alleged to
have arisen from a purportedly improper preliminary
injunction. Johnson & Johnson ("J&J") and Ortho
Pharmaceutical Corporation ("Ortho") v. American Home
Products Corporation (E.D.Pa. 1994). 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, American Home Products Corporation et al.
v. Ortho et al., the jury found against the Company on its
claim of infringement and the Company has commenced an
appeal. The jury also rejected J&J's unfair competition
claim for damages relating to the purportedly improper
preliminary injunction.
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 financial position
or results of operations.
Regulation
In the ordinary course of business, the Company's health
care and food products facilities are inspected periodically
by the U.S. Food and Drug Administration ("FDA"). (See page
I-6 of the Company's Annual Report on Form 10-K for the year
ended December 31, 1993 for a general discussion of FDA and
other regulatory matters). Following a series of
inspections at a consumer health care products manufacturing
facility in Hammonton, New Jersey, the Company recently
received an unusually lengthy FDA observation report
containing what the FDA believes are violations of good
manufacturing practice requirements. Although the Company
believes that it will be successful in its efforts to work
with the FDA in resolving these issues and to avert
regulatory action, there is no assurance that supply of some
of the products produced at this facility will not be
disrupted. However, the Company believes that such
disruption or other consequences, if any, would not have a
material effect on its financial position or results of operations.
<PAGE>15
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(11) Calculation of per share earnings as reported in Part I
on Page 4 of this Form 10-Q is incorporated herein by
reference.
(b) Reports
The Company did not file any reports on Form 8-K during
the quarter covered by this report, however, Genetics
Institute, Inc. filed a Form 8-K on February 3, 1994
to change its fiscal year end from November 30 to
December 31.
<PAGE>
<PAGE>16
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/ John R. Considine
John R. Considine
Vice President - Finance
(Duly Authorized Signatory
and Chief Accounting Officer)
Date: May 13, 1994
