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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 September 30, 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 October 28, 1994:
Number of
Class Shares Outstanding
-------------------------------- ------------------
Common Stock, $.33-1/3 par value 305,861,106
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<PAGE>
AMERICAN HOME PRODUCTS CORPORATION AND SUBSIDIARIES
INDEX
Page No.
--------
Part I - Financial Information 2
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets -
September 30, 1994 and December 31, 1993 3
Consolidated Condensed Statements of Income -
Three Months and Nine Months Ended
September 30, 1994 and 1993 4
Consolidated Condensed Statements of Retained
Earnings and Additional Paid-in Capital - Nine
Months Ended September 30, 1994 and 1993 5
Consolidated Condensed Statements of Cash Flows -
Nine Months Ended September 30, 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 8-16
Part II - Other Information
Item 1. Legal Proceedings 17-20
Item 6. Exhibits and Reports on Form 8-K 20-21
Signature 22
Exhibit Index Ex-1
<PAGE>
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 September 30, 1994 and December 31, 1993, the results of
its operations for the three months and nine months ended September
30, 1994 and 1993, and its cash flows and the changes in retained
earnings and additional paid-in capital for the nine months ended
September 30, 1994 and 1993. 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
latest annual report on Form 10-K and its first and second quarter
1994 Form 10-Qs.
-2-
<PAGE>
AMERICAN HOME PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands Except Per Share Amounts)
Sept. 30, Dec. 31,
1994 1993
---------- ----------
ASSETS
Cash and cash equivalents................... $1,776,359 $1,936,834
Marketable securities....................... 253,704 283,449
Accounts receivable less allowances......... 1,677,851 1,389,555
Inventories:
Finished goods......................... 498,652 435,902
Work in process........................ 257,753 219,701
Materials and supplies................. 302,632 303,293
---------- ----------
1,059,037 958,896
Other current assets........................ 287,595 238,950
---------- ----------
Total Current Assets................... 5,054,546 4,807,684
Property, plant and equipment............... 3,698,804 3,460,365
Less accumulated depreciation.......... 1,534,675 1,400,580
---------- ----------
2,164,129 2,059,785
Goodwill.................................... 724,464 716,395
Other assets................................ 126,657 103,489
---------- ----------
Total Assets $8,069,796 $7,687,353
========== ==========
LIABILITIES
Loans payable to banks...................... $ 3,145 $ 4,280
Trade accounts payable...................... 365,421 388,804
Accrued expenses............................ 1,169,883 1,019,923
Accrued federal and foreign taxes........... 281,956 171,404
---------- ----------
Total Current Liabilities.............. 1,820,405 1,584,411
Long-term debt.............................. 863,523 859,278
Accumulated postretirement benefit
obligation............................. 279,005 264,553
Other noncurrent liabilities................ 788,500 903,993
Minority interests.......................... 204,797 198,630
STOCKHOLDERS' EQUITY
$2 convertible preferred stock,
par value $2.50 per share.............. 95 100
Common stock, par value $.33-1/3 per share.. 101,933 103,442
Additional paid-in capital.................. 1,007,517 1,014,911
Retained earnings........................... 3,059,043 2,884,244
Currency translation adjustments............ (55,022) (126,209)
---------- ----------
Total Stockholders' Equity............. 4,113,566 3,876,488
---------- ----------
$8,069,796 $7,687,353
========== ==========
The accompanying notes are an integral part of these balance sheets.
-3-
<PAGE>
AMERICAN HOME PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In Thousands Except Per Share Amounts)
Three Months Nine Months
Ended September 30, Ended September 30,
1994 1993 1994 1993
---------- ---------- ---------- ----------
Net sales................. $2,258,525 $2,168,116 $6,380,423 $6,188,547
---------- ---------- ---------- ----------
Cost of goods sold........ 735,003 713,063 2,020,363 2,024,326
Selling, admin., and
general expenses........ 781,845 752,094 2,253,002 2,195,379
Research and development
expenses................ 179,470 153,316 532,289 465,086
Restructuring charge...... - - 173,697 -
Other (income) exp., net.. (11,383) 8,769 (68,855) 22,266
---------- ---------- ---------- ----------
Income before federal and
foreign taxes........... 573,590 540,874 1,469,927 1,481,490
Provision for taxes....... 160,605 143,321 341,161 394,938
---------- ---------- ---------- ----------
Net income................ $ 412,985 $ 397,553 $1,128,766 $1,086,552
========== ========== ========== ==========
Net income per share of
common stock............ $ 1.35 $ 1.28 $ 3.67 $ 3.50
========== ========== ========== ==========
Dividends per share of
common stock............ $ 0.73 $ 0.71 $ 2.19 $ 2.13
========== ========== ========== ==========
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................ 306,230 310,305 307,813 310,722
The accompanying notes are an integral part of these statements.
-4-
<PAGE>
AMERICAN HOME PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF RETAINED EARNINGS
AND ADDITIONAL PAID-IN CAPITAL
(In Thousands)
Nine Months Ended September 30,
RETAINED EARNINGS 1994 1993
---------- ----------
Balance, beginning of period $2,884,244 $2,547,719
Add: Net income 1,128,766 1,086,552
---------- ----------
4,013,010 3,634,271
---------- ----------
Less: Cash dividends declared 673,727 661,789
Cost of treasury stock acquired
less amounts charged to capital 271,118 244,276
Other 9,122 -
---------- ----------
953,967 906,065
---------- ----------
Balance, end of period $3,059,043 $2,728,206
========== ==========
ADDITIONAL PAID-IN CAPITAL
Balance, beginning of period $1,014,911 $ 953,155
Add: Excess over par value of common
stock issued 32,429 69,137
Less: Cost of treasury stock acquired,
less amounts charged to retained
earnings 39,823 31,360
---------- ----------
Balance, end of period $1,007,517 $ 990,932
========== ==========
The accompanying notes are an integral part of these statements.
-5-
<PAGE>
AMERICAN HOME PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
Nine Months Ended September 30,
1994 1993
---------- ----------
Operating Activities
- --------------------
Net income................................... $1,128,766 $1,086,552
Adjustments to reconcile net income to net
cash provided from operating activities:
Depreciation and amortization.............. 193,681 181,640
Deferred income taxes...................... (122,214) 109,536
Restructuring charge....................... 173,697 -
Changes in working capital, net............ (332,122) (237,716)
Other items, net........................... (110,739) (116,961)
---------- ----------
Net cash provided from operating activities.. 931,069 1,023,051
---------- ----------
Investing Activities
- --------------------
Purchases of property, plant and equipment... (316,634) (374,347)
Acquisition of businesses for cash, net
of cash acquired........................... (28,472) (67,500)
Proceeds/(purchases) of marketable
securities, net............................ 20,623 (109)
Purchases of other assets.................... (3,797) (2,586)
Proceeds from sales of other assets.......... 176,555 9,832
---------- ----------
Net cash used for investing activities....... (151,725) (434,710)
---------- ----------
Financing Activities
- --------------------
Dividends paid............................... (673,727) (661,768)
Net proceeds of debt......................... 3,110 253,392
Purchases of treasury stock.................. (312,730) (277,135)
Exercise of stock options.................... 28,724 54,380
---------- ----------
Net cash used for financing activities....... (954,623) (631,131)
---------- ----------
Effects of exchange rates on cash balances... 14,804 (5,793)
---------- ----------
Decrease in cash and cash equivalents........ (160,475) (48,583)
Cash and cash equivalents, beginning
of period.................................. 1,936,834 1,692,761
---------- ----------
Cash and cash equivalents, end of period..... $1,776,359 $1,644,178
========== ==========
The accompanying notes are an integral part of these statements.
Supplemental Information
- ------------------------
Interest payments $ 45,696 $ 36,164
Income tax payments 388,780 280,078
-6-
<PAGE>
AMERICAN HOME PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
During the third quarter, the Company announced that it commenced
a tender offer for all of the outstanding shares of common stock
of American Cyanamid Company ("ACC"). On August 17, 1994, the
Company, a subsidiary of the Company and ACC entered into a
merger agreement which provides for (i) an increase in the price
per share to be paid in cash for each share of ACC common stock
from $95 to $101 (the "Offer") and (ii) the merger of a
subsidiary of the Company with and into ACC. The Offer is
currently scheduled to expire on November 21, 1994, and the
Company expects to consummate the tender offer at such time. The
Company expects that this acquisition will be dilutive to 1995
combined earnings, exclusive of any gains from the possible sale
of certain of the Company's existing businesses.
The amount of funds required to acquire all of the ACC shares at
the Offer price and to pay related fees and expenses is
approximately $9.7 billion, which is intended to be initially
financed with a combination of bank borrowings and/or placement
of privately placed short-term notes and the Company's general
corporate funds. The Company and certain of its subsidiaries
have entered into two credit agreements, each dated as of
September 9, 1994, with a syndicate of lenders led by Chemical
Bank, as administrative agent for such lenders, whereby the
lenders agreed to lend the Company and its subsidiaries, pursuant
to the two credit facilities, an aggregate amount of up to $10
billion. The credit facilities are comprised of a $7 billion 364
day credit facility which may be renewed for up to four
successive 364 day periods and a $3 billion five year credit
facility. The interest rate on borrowings under the credit
facilities are based on a LIBOR based option, a certificate of
deposit based option, a prime rate based option, or a bid loan
option, at the Company's choice, and can vary depending on the
amount drawn and the Company's credit rating. The proceeds of
the credit facilities may be used by the borrowers (i) to finance
the Offer and subsequent merger, either directly or as a back-up
for privately placed short-term notes, (ii) to replace the
Company's existing $1 billion credit facility (under which there
are no amounts currently outstanding) and (iii) for 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.
-7-
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Nine Months Ended September 30, 1994
Results of Operations
- ---------------------
Net sales for the 1994 third quarter of $2.26 billion increased
4% from the corresponding 1993 period. This increase is
comprised of unit volume growth of 1%, price increases of 2% and
foreign exchange of 1%. Nine months net sales of $6.38 billion
increased 3% from prior year levels. This growth was due to unit
volume growth of 1% and price increases of 2%. Health care
products segment sales were 5% higher in the 1994 third quarter
and 3% higher for the first nine months. Food products sales for
the third quarter were comparable to 1993 levels, and increased
6% for the first nine months of 1994.
Three Months %
($ in Thousands) Ended September 30, Inc
Net Sales to Customers 1994 1993 (Decr)
- ---------------------- ---------- ---------- ----
Health Care Products
Pharmaceuticals $1,268,803 $1,194,923 6%
Consumer Health Care 521,179 493,441 6%
Medical Supplies and
Diagnostics 204,460 216,038 (5%)
---------- ----------
Total Health Care 1,994,442 1,904,402 5%
Food Products 264,083 263,714 -
---------- ----------
Consolidated Net Sales $2,258,525 $2,168,116 4%
========== ==========
Nine Months %
($ in Thousands) Ended September 30, Inc
Net Sales to Customers 1994 1993 (Decr)
- ---------------------- ---------- ---------- ----
Health Care Products
Pharmaceuticals $3,711,914 $3,569,006 4%
Consumer Health Care 1,309,412 1,296,453 1%
Medical Supplies and
Diagnostics 634,878 640,957 (1%)
---------- ----------
Total Health Care 5,656,204 5,506,416 3%
Food Products 724,219 682,131 6%
---------- ----------
Consolidated Net Sales $6,380,423 $6,188,547 3%
========== ==========
-8-
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Nine Months Ended September 30, 1994
U.S. pharmaceutical sales increased 2% for the third quarter and
3% for the first nine months of 1994 due to unit volume growth.
When sales of Agri-Bio Corporation, which was sold in the second
quarter are excluded, U.S. pharmaceutical sales increased 4% for
the third quarter and the first nine months of 1994. Third
quarter sales growth was attributable to increases in sales of
Premarin, cardiovascular and oral contraceptive products and the
recently introduced antidepressant Effexor. Offsetting these
increases, in part, were lower sales of Norplant, anti-
inflammatory and antibiotic products. Sales increases for the
first nine months were due to increased sales of Premarin, anti-
inflammatory and cardiovascular products, and the introduction of
Effexor. These increases were offset, in part, by sales declines
in Norplant, infant nutritional and antibiotic products.
Foreign pharmaceutical sales increased 14% for the 1994 third
quarter due to unit volume growth of 6%, price increases of 5%
and favorable foreign exchange of 3%. Sales for the first nine
months of 1994 increased 6% due to unit volume growth of 2% and
price increases of 6%, offset by unfavorable foreign exchange of
2%. Sales growth for the third quarter and the first nine months
of 1994 were primarily due to increased sales of infant
nutritional products, Premarin, Ativan and oral contraceptives.
U.S. consumer health care sales increased 2% for the third
quarter of 1994 due to product price increases with unit volume
unchanged from the prior year. Sales growth for the third
quarter was attributable to the analgesics product line which was
offset, in part, by decreases in the cough/cold and family
planning categories. Sales for the first nine months decreased
1% due to unit volume decreases of 5%, offset by price increases
of 4%. Sales shortfalls for the first nine months were due to
decreases in the cough/cold and family planning product lines,
which were offset, in part, by increases in the analgesics and
lip care categories.
International consumer health care sales increased 14% for the
third quarter of 1994. This increase is attributable to unit
volume growth of 4%, price increases of 9% and favorable foreign
exchange of 1%. Sales for the first nine months of 1994
increased 6% due to unit volume growth of 1% and price increases
of 5%. Price increases in the third quarter and first nine
-9-
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Nine Months Ended September 30, 1994
months of 1994 outpaced devaluations due to inflation in certain
hyper-inflationary countries, particularly Brazil. Due to the
volatilities in these economies, this trend may not be sustained
in the future. Sales increases for the third quarter and first
nine months of 1994 were primarily due to increased sales of oral
health care products in Brazil and cough/cold products in certain
Latin American countries.
Sales of medical supplies and diagnostic products decreased 5%
for the third quarter of 1994. This decrease was due to unit
volume shortfalls of 6%, offset by favorable foreign exchange of
1%. Sales decreases for the first nine months of 1994 of 1% were
attributable to unit volume decreases of 1% and product price
decreases of 1%, offset by favorable foreign exchange of 1%. The
volume decreases in both periods were due primarily to the sale
of Corometrics Medical Systems, Inc. in May 1994. Excluding the
results of Corometrics, sales for the segment would have
increased 6% for the third quarter and 5% for the first nine
months of 1994 due to increases in worldwide sales of needles and
syringes, tympanic thermometry products and surgical devices.
Net sales of food products for the third quarter were comparable
to the 1993 levels as a result of unit volume decreases of 1%
being offset by price increases of 1%. Sales for the first nine
months of 1994 increased 6% due primarily to unit volume growth
of 5% and price increases of 1%. Products which contributed to
sales growth for the first nine months of 1994 were Polaner and
the introduction of the Sesame Street line of nutritional pasta
for children.
The tables that follow present comparative net sales for the
third quarter and first nine months of 1994 by geographic
segment. The third quarter and first nine months results for the
Canada and Latin America segment were adversely impacted by
unfavorable foreign exchange rate fluctuations. Excluding the
effects of the rate fluctuations, sales in Canada and Latin
America would have increased 13% for the 1994 third quarter and
would have increased 7% for the first nine months. Sales for the
Europe and Africa segment were favorably impacted by foreign
exchange in the third quarter and adversely impacted by foreign
exchange for the first nine months of 1994. Excluding the
effects of foreign exchange, sales in the Europe and Africa
segment would have increased 9% for the third quarter and 7% for
-10-
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Nine Months Ended September 30, 1994
the first nine months of 1994. The Asia and Australia segment was
favorably impacted by foreign exchange rates in the third quarter
and first nine months of 1994. Excluding the effects of foreign
exchange, sales for the Asia and Australia segment would have
increased 9% for the third quarter and 5% for the first nine
months of 1994.
Three Months %
($ in Thousands) Ended September 30, Inc
Net Sales 1994 1993 (Decr)
- ---------------------- ---------- ---------- ----
U.S. $1,532,060 $1,525,290 -
Canada and Latin America 249,677 224,158 11%
Europe and Africa 329,910 289,531 14%
Asia and Australia 146,878 129,137 14%
---------- ----------
Consolidated Net Sales $2,258,525 $2,168,116 4%
========== ==========
Nine Months %
($ in Thousands) Ended September 30, Inc
Net Sales 1994 1993 (Decr)
- ---------------------- ---------- ---------- ----
U.S. $4,320,973 $4,243,421 2%
Canada and Latin America 701,059 669,492 5%
Europe and Africa 943,171 891,131 6%
Asia and Australia 415,220 384,503 8%
---------- ----------
Consolidated Net Sales $6,380,423 $6,188,547 3%
========== ==========
Cost of goods sold, as a percentage of net sales, decreased 0.4%
from 1993 levels for the third quarter and 1.0% for the first
nine months due primarily to lower royalty expenses, certain non-
recurring product recall expenses incurred in 1993 and a more
favorable product mix.
Selling, administrative and general expenses for the third
quarter and first nine months of 1994 approximated 1993 levels as
a percentage of net sales.
-11-
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Nine Months Ended September 30, 1994
Research and development expenses increased $26 million for the
third quarter or 17% over prior year levels to $179 million, and
increased $67 million or 14% over prior year levels to $532
million for the first nine months of 1994. Included in research
and development expenses were expenditures for Genetics
Institute, Inc. of approximately $27 million for the third
quarter and $81 million for the first nine months of 1994, net of
collaborative revenues.
The results of operations for the first nine months of 1994
include, as previously announced in the second quarter, a $174
million charge to record the costs of implementing several
restructuring programs primarily related to the U.S.
pharmaceutical and consumer health care businesses, a gain of
approximately $76 million from the sale of certain businesses and
the Company's former headquarters building, and a reduction of
certain tax accruals of approximately $64 million. Although the
restructuring programs have been initiated, there have been
minimal cash outlays under these programs to date. During the
third quarter, employees that will be impacted by these
restructurings were notified, some of the distribution center
closures were completed and the registration process to transfer
certain production amongst the Company's U.S. manufacturing
facilities was initiated.
The restructuring charge, the gain on the asset sales and the tax
adjustment, in the aggregate, had no effect on the Company's 1994
earnings per share.
Income Before Taxes - Segment Data
- ----------------------------------
Three Months %
($ in Thousands) Ended September 30, Inc
Income Before Taxes 1994 1993 (Decr)
- ---------------------- ---------- ---------- ----
Health Care Products $548,162 $483,367 13%
Food Products 44,388 48,616 (9%)
Corporate (18,960) 8,891 -
-------- --------
Consolidated Income
Before Taxes $573,590 $540,874 6%
======== ========
-12-
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Nine Months Ended September 30, 1994
Nine Months %
($ in Thousands) Ended September 30, Inc
Income Before Taxes 1994 1993 (Decr)
- ---------------------- ---------- ---------- ----
Health Care Products $1,318,528 $1,384,845 (5%)
Food Products 95,080 97,334 (2%)
Corporate 56,319 (689) -
---------- ----------
Consolidated Income
Before Taxes $1,469,927 $1,481,490 (1%)
========== ==========
Three Months %
($ in Thousands) Ended September 30, Inc
Income Before Taxes 1994 1993 (Decr)
- ---------------------- ---------- ---------- ----
U.S. $ 410,332 $ 406,032 1%
Canada and Latin America 62,529 57,000 10%
Europe and Africa 74,002 57,398 29%
Asia and Australia 26,727 20,444 31%
---------- ----------
Consolidated Income
Before Taxes $ 573,590 $ 540,874 6%
========== ==========
Nine Months %
($ in Thousands) Ended September 30, Inc
Income Before Taxes 1994 1993 (Decr)
- ---------------------- ---------- ---------- ----
U.S. $ 995,488 $1,066,215 (7%)
Canada and Latin America 188,885 161,714 17%
Europe and Africa 210,394 183,412 15%
Asia and Australia 75,160 70,149 7%
---------- ----------
Consolidated Income
Before Taxes $1,469,927 $1,481,490 (1%)
========== ==========
-13-
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Nine Months Ended September 30, 1994
Health Care Reform and Competition
- ----------------------------------
In September 1994, it was announced that the effort to pass a
U.S. health care reform bill in 1994 had been discontinued. It
is expected that the debate will continue when Congress
reconvenes in 1995. While the Company cannot predict with
certainty the nature of these potential reforms and the impact
they might have on its domestic business, market competition has
put pressures on pricing and operating results. These trends are
expected to continue throughout the remainder of 1994 and beyond.
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 line, which has not had patent protection for many years,
does contribute significantly to sales and more significantly to
profits. For further discussion on PREMARIN see Item 1,
COMPETITION of the Company's 1993 Annual Report on Form 10-K. In
September 1994, a generic drug company announced that it filed an
Abbreviated New Drug Application with the Federal Food and Drug
Administration for a single strength conjugated estrogens tablet
product. The Company has no further information upon which to
base any predictions concerning this application at this time.
-14-
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Nine Months Ended September 30, 1994
Liquidity, Financial Condition and Capital Resources
- ----------------------------------------------------
The Company continues to generate positive cash flow from
operating activities. Cash and cash equivalents decreased $160
million in the first nine months of 1994 to $1.78 billion. Cash
flow from operating activities of approximately $931 million,
proceeds of approximately $177 million from sales of assets as
well as available cash reserves were used principally for
dividend payments of $674 million, common share repurchases of
$313 million and capital expenditures of $317 million.
The Company repurchased 5,292,700 shares of common stock during
the first nine months of 1994. On July 28, 1994, the Board of
Directors authorized the repurchase of an additional 10 million
shares of the Company's common stock, subject to price and market
conditions. A program to repurchase 10 million shares originally
announced on June 25, 1992 is nearing completion. The Company
does not anticipate additional share repurchases at a rate
comparable to the first nine months of 1994 in the near future
given the debt that will be incurred in connection with the
pending acquisition of American Cyanamid Company.
Capital expenditures included the expansion of the Company's
Wyeth-Ayerst R&D facilities in New Jersey, New York and
Pennsylvania, facilities expansion projects at Genetics Institute
and continued strategic investments in manufacturing/distribution
facilities worldwide.
The Company's pending acquisition of American Cyanamid Company
and the related financing arrangements are discussed in the Notes
to the Consolidated Condensed Financial Statements. Further
information regarding the acquisition, the merger and the
proposed financing is set forth in a filing with the Securities
and Exchange Commission on Schedule 14D-1, as amended, which
statement is incorporated in this Form 10-Q by reference.
On September 23, 1994, the Company and certain of its
subsidiaries established a program providing for the private
placement of short-term notes, whereby the Company and certain of
its subsidiaries may issue up to $10 billion of unsecured
commercial paper notes, with maturities of up to 270 days. The
Company will unconditionally guarantee any notes issued by the
-15-
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Nine Months Ended September 30, 1994
subsidiaries. The Company's new credit facility will support
these commercial paper issuances. (See Notes to the Consolidated
Condensed Financial Statements.)
The Company has been notified that, in connection with the
consummation of the acquisition and subsequent merger, its
commercial paper and long-term debt has been downgraded by the
following rating agencies as follows: (i) Standard & Poor's
Ratings Group -- commercial paper: A-2, long-term debt: A-; and
(ii) Moody's Investors Service, Inc. -- commercial paper: P-1,
long-term debt: A2. In addition, Duff & Phelps Credit Rating Co.
has rated the Company's commercial paper: D-1 and its long-term
debt: A.
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 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.
-16-
<PAGE>
Part II - Other Information
----------------------------
Item 1. Legal Proceedings
-----------------
As described in the Company's Annual Report on Form
10-K for the year ended December 31, 1993 and on the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1994, the Company has been involved in
the brand name prescription drug antitrust litigation
which has been consolidated for pretrial purposes in
the U.S. District Court for the Northern District of
Illinois, Brand Name Prescription Drug Antitrust
--------------------------------------
Litigation (MDL 997) (the "Multidistrict Litigation"),
----------
and state court actions with similar allegations have
been brought in California. All of these actions seek
treble damages in unspecified amounts, injunctive and
other relief. Recently, the California state court
actions have been consolidated in the Superior Court in
San Francisco. Judicial Council Coordination
-----------------------------
Proceedings I, II and III (Nos. 2969, 2971, 2972). On
-------------------------
September 15, 1994, RxUSA, Inc., a mail order pharmacy
that had been affiliated with Rite Aid Corporation,
commenced an action in U.S. District Court (M.D.Pa.)
asserting claims and seeking relief substantially
similar to the claims asserted and relief sought by
Rite Aid in the Multidistrict Litigation, and also
claiming that it was forced out of business. This
action has been transferred for coordination with the
Multidistrict Litigation. In addition, the Company has
received notice of 15 additional lawsuits filed on
October 17, 1994 on behalf of a total of 1,346
individual pharmacies. It is anticipated that all the
actions will be transferred to and coordinated with the
Multidistrict Litigation. These actions have claims
and seek relief that are substantially similar to the
claims brought and relief sought by other individual
pharmacies which are currently coordinated in the
Multidistrict Litigation, although certain of the new
actions 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 in
order to insulate the defendants from competition. The
cases with this new claim also seek an order compelling
defendants to license patents at reasonable royalty
rates. These cases have been filed in U.S. District
Courts in the following jurisdictions:
- -17-
<PAGE>
Illinois (N.D.); Florida (M.D.), Kansas; Tennessee
(M.D.); Georgia (S.D.); Ohio (N.D.); South Carolina;
Texas (S.D.); Idaho; North Carolina (E.D.); Louisiana
(E.D.); Kentucky (E.D.); and Pennsylvania (M.D.). On
May 2, 1994, a purported class action with similar
allegations under Alabama law was brought in Alabama
state court by plaintiffs purporting to represent a
class of all drug stores and pharmacies (excluding
"chain" drug stores and pharmacies)in Alabama that have
purchased in the past 10 years any prescription drugs
sold by any of the defendants. Durrett, et al. v.
------------------
American Home Products Corporation, et al. (Class
------------------------------------------
Action, No. CV-94-029, Cir. Ct. Greene County). The
defendants in all of the above actions include other
pharmaceutical manufacturers, wholesalers and a
pharmacy benefit management company. Furthermore, on
July 14, 1994, a purported class action with similar
allegations under state antitrust, unfair competition
and unitary pricing laws was instituted in Wisconsin
state court on behalf of retail pharmacists. K-S
---
Pharmacies, Inc., et al. v. Abbott Laboratories, et al.
------------------------------------------------------
(Civ. No. 94 CV 2384, Cir. Ct. Dane County). The
defendants in the K-S Pharmacies action include other
--------------
pharmaceutical manufacturers and wholesalers. The
Alabama and Wisconsin actions seek treble damages in
unspecified amounts, injunctive and other relief.
There are approximately 1,645 cases pending,
predominantly in the United Kingdom, involving
allegations of dependence on the tranquilizer ATIVAN.
Most of these cases are pending in England, where they
have been consolidated for discovery purposes as A. B.
-----
and Others v. John Wyeth & Brother in the High Court of
----------------------------------
Justice, Queen's Bench Division, under the direction of
Mr. Justice Ian Kennedy. Substantially all of the
cases in the United Kingdom have been supported by
governmental legal aid funding. The Legal Aid Board in
England, where more than 1,100 cases are pending, has
determined to discontinue funding of these cases. If
this decision is not appealed or is upheld on appeal,
these cases will be dismissed and the other legally-
aided cases in Scotland and Northern Ireland
(approximately 340 cases) may be discontinued as well.
A class of women who are seeking damages for injuries
allegedly suffered as a result of the removal of
NORPLANT, the Company's implantable contraceptive
product, was certified on June 20, 1994 in Doe v.
------
Wyeth-Ayerst Laboratories, a class action instituted in
-------------------------
the Circuit Court of Illinois for Cook County and
removed on September 1, 1994 to the United States
- -18-
<PAGE>
District Court for the Northern District of Illinois.
The Company is seeking reconsideration of the
certification order on the grounds that the
individualized issues raised by claims arising out of
NORPLANT insertions preclude class treatment. Twenty-
nine other purported class actions seeking damages for
various injuries allegedly associated with the
insertion, use or removal of NORPLANT have been filed
in state and federal courts, although no other classes
have been certified to date. The Company also is the
sole or principal defendant in approximately 40 other
individual lawsuits seeking damages for injuries
allegedly caused by NORPLANT. Three of the class
action plaintiffs have petitioned the federal Judicial
Panel on Multidistrict Litigation to transfer all
pending federal cases to a single district court for
purposes of coordinating discovery. In re Norplant
--------------
Contraceptive Products Liability Litigation, MDL-1038
-----------------------------------------------------
(J.P.M.L.).
As described in the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1994, the Company
commenced an action against American Cyanamid Company
("ACC") and certain members of its Board of Directors
in connection with the tender offer commenced by the
Company. Pursuant to the terms of the Merger Agreement
among the Company, one of its subsidiaries and ACC, on
August 17, 1994, the Company filed a notice of
dismissal of the litigation without prejudice to all
claims against ACC and without costs to any party.
Further information concerning this litigation and
subsequent dismissal is set forth in the Company's
Statement on Schedule 14D-1, as amended, relating to
the tender offer, which Statement is incorporated in
this Form 10-Q by reference.
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 products. The Company has
settled most of the cases as well as a Federal Trade
Commission proceeding. Each of these settlements was
entered into by the Company in order to avoid the
burden and expense of protracted litigation and did not
involve any admission of wrongdoing by the Company.
- -19-
<PAGE>
The terms of the settlements, individually and in the
aggregate, have not and will not have a material
adverse effect on the Company's operations, liquidity
or capital resources. For further information
concerning the infant formula legal matters, see the
Company's Annual Report on Form 10-K for the year ended
December 31, 1993.
Other significant legal proceedings are described in
the Company's Annual Report on Form 10-K for the year
ended December 31, 1993 and in the Company's Quarterly
Reports on Form 10-Q for the quarters ended March 31
1994 and June 30, 1994.
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.
Item 6. Exhibits and Reports on Form 8-K
---------------------------------
a) Exhibits
--------
Exhibit No. Description
----------- -----------
(2.1) The Company's Statement on Schedule 14D-
1 relating to the Company'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, among the Company, a
wholly owned subsidiary of the Company
and American Cyanamid Company (the
"Merger Agreement"), filed as Exhibit
11(c)(1) in Amendment No.3 to the
Schedule 14D-1 is hereby incorporated
herein by reference.
(2.3) Clarifying Amendment, dated as of
September 22, 1994, among the Company, a
wholly owned subsidiary of the Company
and American Cyanamid to the Merger
Agreement filed as Exhibit 11(c)(2) in
-20-
<PAGE>
Amendment No. 7 to the Schedule 14D-1 is
hereby incorporated herein by reference.
(10.1) Credit Agreement, dated as of September
9, 1994, among 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.
(10.2) Credit Agreement, dated as of September
9, 1994, among 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.
(27) Financial Data Schedule
b) Reports on Form 8-K
During the three months ending September 30, 1994,
the following report was filed on Form 8-K under
Item 5, Other Events:
The Report on Form 8-K, filed on August 4, 1994
reporting the delivery on August 2, 1994 of the
Company's letter to American Cyanamid Company
("ACC") offering to acquire ACC for $95 per share
in cash (the "Offer"). Additionally, the Report
on Form 8-K included two related press releases as
exhibits under item 7.
-21-
<PAGE>
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: November 14, 1994
-22-
<PAGE>
Exhibit Index
-------------
Exhibit No. Description
----------- -----------
(2.1) The Company's Statement on Schedule 14D-1 relating
to the Company'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, among the Company, a wholly owned subsidiary
of the Company and American Cyanamid Company (the
"Merger Agreement"), filed as Exhibit 11(c)(1) in
Amendment No.3 to the Schedule 14D-1 is hereby
incorporated herein by reference.
(2.3) Clarifying Amendment, dated as of September 22,
1994, among the Company, a wholly owned subsidiary
of the Company and American Cyanamid to the Merger
Agreement filed as Exhibit 11(c)(2) in Amendment
No. 7 to the Schedule 14D-1 is hereby incorporated
herein by reference.
(10.1) Credit Agreement, dated as of September 9, 1994,
among 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.
(10.2) Credit Agreement, dated as of September 9, 1994,
among 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.
(27) Financial Data Schedule
Ex-1
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE AMERICAN HOME PRODUCTS CORPORATION
AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEET AS
OF SEPTEMBER 30, 1994 AND CONSOLIDATED CONDENSED INCOME
STATEMENT FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 1,776,359
<SECURITIES> 253,704
<RECEIVABLES> 1,677,851
<ALLOWANCES> 0
<INVENTORY> 1,059,037
<CURRENT-ASSETS> 5,054,546
<PP&E> 3,698,804
<DEPRECIATION> 1,534,675
<TOTAL-ASSETS> 8,069,796
<CURRENT-LIABILITIES> 1,820,405
<BONDS> 863,523
<COMMON> 101,933
0
95
<OTHER-SE> 4,011,538
<TOTAL-LIABILITY-AND-EQUITY> 8,069,796
<SALES> 6,380,423
<TOTAL-REVENUES> 6,380,423
<CGS> 2,020,363
<TOTAL-COSTS> 4,979,351
<OTHER-EXPENSES> (68,855)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,469,927
<INCOME-TAX> 341,161
<INCOME-CONTINUING> 1,128,766
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,128,766
<EPS-PRIMARY> 3.67
<EPS-DILUTED> 0
</TABLE>
