=====================================================================
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, 1995 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 31, 1995:
Number of
Class Shares Outstanding
-------------------------------- ------------------
Common Stock, $.33-1/3 par value 312,711,204
======================================================================
<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, 1995 and December 31, 1994 3
Consolidated Condensed Statements of Income -
Three Months and Nine Months Ended
September 30, 1995 and 1994 4
Consolidated Condensed Statements of Retained
Earnings and Additional Paid-in Capital - Nine
Months Ended September 30, 1995 and 1994 5
Consolidated Condensed Statements of Cash Flows -
Nine Months Ended September 30, 1995 and 1994 6
Notes to Consolidated Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-17
Part II - Other Information
Item 1. Legal Proceedings 18-19
Item 6. Exhibits and Reports on Form 8-K 19
Signature 20
Exhibit Index Ex-1
-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, 1995 and December 31, 1994, the results of
its operations for the three months and nine months ended
September 30, 1995 and 1994, and its cash flows and the changes
in retained earnings and additional paid-in capital for the nine
months ended September 30, 1995 and 1994. 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 Annual Report on Form 10-K for
the year ended December 31, 1994 and its first and second quarter
1995 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,
1995 1994
----------- -----------
ASSETS
Cash and cash equivalents................... $ 1,866,860 $ 1,696,204
Marketable securities....................... 213,217 247,970
Accounts receivable less allowances......... 2,679,914 2,380,730
Inventories:
Finished goods......................... 1,086,188 1,158,045
Work in progress....................... 607,533 525,269
Materials and supplies................. 564,706 562,836
----------- -----------
2,258,427 2,246,150
Other current assets........................ 1,019,932 1,250,192
----------- -----------
Total Current Assets................... 8,038,350 7,821,246
Property, plant and equipment............... 5,936,016 5,458,075
Less accumulated depreciation.......... 1,949,573 1,646,145
----------- -----------
3,986,443 3,811,930
Goodwill.................................... 8,834,111 9,181,129
Other assets................................ 918,331 860,507
----------- -----------
Total Assets $21,777,235 $21,674,812
=========== ===========
LIABILITIES
Loans payable............................... $ 84,311 $ 113,284
Trade accounts payable...................... 1,086,182 1,042,468
Accrued expenses............................ 3,001,526 2,999,127
Accrued federal and foreign taxes........... 453,604 463,207
---------- -----------
Total Current Liabilities.............. 4,625,623 4,618,086
Long-term debt.............................. 8,491,801 9,973,240
Accrued postretirement benefit
obligation............................. 732,131 696,814
Other noncurrent liabilities................ 2,071,244 1,809,153
Minority interests.......................... 332,633 323,418
SHAREHOLDERS' EQUITY
$2 convertible preferred stock,
par value $2.50 per share.............. 88 91
Common stock, par value $.33-1/3 per share.. 103,852 101,994
Additional paid-in capital.................. 1,338,731 1,020,658
Retained earnings........................... 4,137,662 3,226,100
Currency translation adjustments............ (56,530) (94,742)
----------- -----------
Total Shareholders' Equity............. 5,523,803 4,254,101
----------- -----------
Total Liabilities and Shareholders' Equity $21,777,235 $21,674,812
=========== ===========
The accompanying notes are an integral part of these statements.
-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,
1995 1994 1995 1994
---------- ---------- ----------- ----------
Net sales................. $3,257,789 $2,258,525 $10,048,118 $6,380,423
---------- ---------- ----------- ----------
Cost of goods sold........ 1,070,592 735,003 3,522,368 2,020,363
Selling, admin., and
general expenses........ 1,196,582 781,845 3,679,970 2,253,002
Research and development
expenses................ 341,329 179,470 984,617 532,289
Restructuring charge...... 180,240 - 180,240 173,697
Interest expense.......... 165,975 17,820 512,654 51,409
Other (income) exp., net.. (60,763) (29,203) (1,154,883) (120,264)
---------- ---------- ----------- ----------
Income before federal and
foreign taxes........... 363,834 573,590 2,323,152 1,469,927
Provision for taxes....... 87,308 160,605 724,398 341,161
---------- ---------- ----------- ----------
Net income................ $ 276,526 $ 412,985 $ 1,598,754 $1,128,766
========== ========== =========== ==========
Net income per share of
common stock............ $ 0.89 $ 1.35 $ 5.18 $ 3.67
========== ========== =========== ==========
Dividends per share of
common stock............ $ 0.75 $ 0.73 $ 2.25 $ 2.19
========== ========== =========== ==========
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................ 310,625 306,230 308,715 307,813
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 1995 1994
---------- ----------
Balance, beginning of period $3,226,100 $2,884,244
Add: Net income 1,598,754 1,128,766
---------- ----------
4,824,854 4,013,010
---------- ----------
Less: Cash dividends declared 693,991 673,727
Cost of treasury stock acquired
less amounts charged to capital 5,019 271,118
---------- ----------
699,010 944,845
---------- ----------
Unrealized gain (loss) on marketable
securities 11,818 (9,122)
---------- ----------
Balance, end of period $4,137,662 $3,059,043
========== ==========
ADDITIONAL PAID-IN CAPITAL
Balance, beginning of period $1,020,658 $1,014,911
Add: Excess over par value of common
stock issued 318,716 32,429
Less: Cost of treasury stock acquired,
less amounts charged to retained
earnings 643 39,823
---------- ----------
Balance, end of period $1,338,731 $1,007,517
========== ==========
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,
1995 1994
---------- ----------
Operating Activities
- --------------------
Net income................................... $1,598,754 $1,128,766
Adjustments to reconcile net income to net
cash provided from operating activities:
Gains on sales of businesses............... (959,845) (51,612)
Gains on sales of other assets............. (31,346) (24,175)
Depreciation and amortization.............. 431,104 193,681
Deferred income taxes...................... (15,165) (122,214)
Restructuring charge....................... 180,240 173,697
Changes in working capital, net............ (456,522) (332,122)
Other items, net........................... 153,951 (34,952)
---------- ----------
Net cash provided from operating activities.. 901,171 931,069
---------- ----------
Investing Activities
- --------------------
Purchases of property, plant and equipment... (478,474) (316,634)
Proceeds from sales of businesses, net of
cash sold.................................. 1,519,059 113,539
Purchases of businesses, net of cash
acquired................................... (130,000) (28,472)
Proceeds of marketable securities, net....... 46,571 20,623
Proceeds from sales of other assets, net..... 195,902 59,219
---------- ----------
Net cash provided from/(used for) investing
activities................................. 1,153,058 (151,725)
---------- ----------
Financing Activities
- --------------------
Dividends paid............................... (693,991) (673,727)
Net repayments of debt....................... (1,510,412) 3,110
Purchases of treasury stock.................. (5,687) (312,730)
Exercise of stock options.................... 317,337 28,724
---------- ----------
Net cash used for financing activities....... (1,892,753) (954,623)
---------- ----------
Effects of exchange rates on cash balances... 9,180 14,804
---------- ----------
Increase/(decrease)in cash and cash
equivalents................................ 170,656 (160,475)
Cash and cash equivalents, beginning
of period.................................. 1,696,204 1,936,834
---------- ----------
Cash and cash equivalents, end of period..... $1,866,860 $1,776,359
========== ==========
The accompanying notes are an integral part of these statements.
Supplemental Information
- ------------------------
Interest payments $ 538,738 $ 45,696
Income tax payments $ 786,527 $ 388,780
-6-
<PAGE>
AMERICAN HOME PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 1. RESTRUCTURING CHARGE
--------------------
The 1995 third quarter results of operations include a pre-tax
restructuring charge of $180.2 million ($117.2 million after-tax)
to record the costs of implementing the integration plan for the
American Cyanamid Company (ACY) acquisition related to American
Home Products Corporation (AHP) operations. The integration plan
will eliminate excess production capacity and facilities, reduce
overhead and realign the Company's resources to achieve its
strategic objectives. The restructuring charge, which is related
to AHP personnel and facilities, includes provisions for severance
and related outplacement benefits of $93.4 million to reduce the
Company's workforce; reductions in the carrying values of certain
assets related to manufacturing operations to be eliminated as part
of the integration plan of $43.9 million; and production and
administrative facility closure costs of $42.9 million. The
restructuring charge excludes costs associated with ACY personnel
and facilities as these costs were included in the overall
evaluation of net assets acquired from ACY. The total workforce
reduction, primarily in the pharmaceutical, consumer health care
and medical supplies and diagnostic businesses, will be
approximately 7,100 positions worldwide. The facilities affected
include certain U.S. locations and multiple locations overseas.
Note 2. OTHER (INCOME) EXPENSE, NET
---------------------------
Other (income) expense, net for the nine months ended September 30,
1995 includes a pre-tax gain of $959.8 million on the sale of the
South American oral health care business in January 1995.
-7-
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Nine Months Ended September 30, 1995
Results of Operations
- ---------------------
Effective December 1, 1994, the Company consolidated the results
of operations of ACY. As a result, significant variations exist
when the results for the 1995 third quarter and first nine months
are compared to those for the same periods of 1994 since the
Company's 1995 operating results reflect ACY's operating results
and related acquisition interest expense and goodwill
amortization. Accordingly, management's discussion and analysis
of results of operations for the 1995 third quarter and first
nine months has been presented, for the most part, on a pro forma
basis assuming the acquisition of ACY and other businesses had
taken place on January 1, 1994, and excluding the sales of
businesses disposed of in 1994 and 1995. The 1994 pro forma
results of operations include the impact of adjustments for
interest expense on ACY acquisition debt, amortization of
goodwill and merger-related financing costs, and related income
tax benefits. The 1994 pro forma results are not necessarily
indicative of what actually would have occurred if the ACY
acquisition had taken place on January 1, 1994, and do not
reflect any cost savings from merger-related synergies. The 1994
pro forma amounts are consistent with those presented in the
Company's Annual Report on Form 10-K for the year ended December
31, 1994 and Current Report on Form 8-K dated December 6, 1994.
On a pro forma basis, consolidated net sales increased 5% for the
1995 third quarter and increased 3% for the first nine months.
The results reflect higher sales of international health care and
worldwide agricultural products, partially offset by lower sales
of domestic health care and food products. The increase in third
quarter sales was comprised of unit volume increases of 4% and
favorable foreign exchange of 1%. The increase in first nine
months sales was comprised of price increases of 1% and favorable
foreign exchange of 2%. Pro forma health care product segment
sales increased 3% for the 1995 third quarter and increased 2%
for the first nine months. Agricultural product sales increased
39% for the 1995 third quarter and 22% for the first nine months.
Food product sales decreased 21% for the 1995 third quarter and
16% for the first nine months.
ACY's 1995 third quarter and first nine months results of
operations, which include acquisition related cost savings, were
more than offset by the dilutive effect of the interest expense
and goodwill amortization related to the acquisition. Interest
expense and goodwill amortization costs are expected to have a
dilutive effect on earnings to be reported for the 1995 fourth
-8-
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Nine Months Ended September 30, 1995
quarter and full year.
The following tables set forth net sales results by major product
category and business segment together with percentage changes of
the "As Reported" and "Pro Forma" net sales:
Three Months As Reported Pro Forma
($ in Millions) Ended September 30, %Increase %Increase
Net Sales to Customers 1995 1994 (Decrease) (Decrease)
- ---------------------- -------- -------- ---------- ---------
Health Care Products
Pharmaceuticals $1,909.0 $1,254.7 52% 6%
Consumer Health Care 561.9 535.3 5% 1%
Medical Supplies and
Diagnostics 286.0 204.5 40% 3%
-------- --------
Total Health Care
Products 2,756.9 1,994.5 38% 3%
Agricultural Products 292.0 - - 39%
Food Products 208.9 264.0 (21)% (21)%
-------- --------
Consolidated Net Sales $3,257.8 $2,258.5 44% 5%
======== ========
Nine Months As Reported Pro Forma
($ in Millions) Ended September 30, %Increase %Increase
Net Sales to Customers 1995 1994 (Decrease) (Decrease)
- ---------------------- --------- -------- ---------- ---------
Health Care Products
Pharmaceuticals $ 5,503.1 $3,697.8 49% 2%
Consumer Health Care 1,442.8 1,323.5 9% -
Medical Supplies and
Diagnostics 861.9 634.9 36% 5%
--------- --------
Total Health Care
Products 7,807.8 5,656.2 38% 2%
Agricultural Products 1,631.2 - - 22%
Food Products 609.1 724.2 (16)% (16)%
--------- --------
Consolidated Net Sales $10,048.1 $6,380.4 57% 3%
========= ========
-9-
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Nine Months Ended September 30, 1995
The following sales variation explanations are presented on a pro
forma basis:
Worldwide pharmaceutical sales increased 6% for the 1995
third quarter and 2% for the first nine months. U.S.
pharmaceutical sales increased 1% for the 1995 third quarter
and decreased 6% for the first nine months. The increase in
third quarter U.S. sales was comprised of unit volume
increases of 2% offset by price decreases of 1%. The
decrease in first nine months U.S. sales includes the impact
of a change in timing of trade incentive programs on Wyeth-
Ayerst products in the 1995 second quarter, which affected
all major Wyeth-Ayerst product categories, and declines in
Lederle antibiotics and vaccines as anticipated. The
decrease in first nine months U.S. sales was comprised of
unit volume decreases of 5% and price decreases of 1%.
International pharmaceutical sales increased 13% for the
1995 third quarter and 14% for the first nine months due
primarily to higher sales of oral contraceptives, infant
nutritionals, TAZOCIN and PREMARIN, and favorable foreign
exchange. The increase in third quarter international sales
was comprised of unit volume increases of 9%, price
increases of 2% and favorable foreign exchange of 2%. The
increase in first nine months international sales was
comprised of unit volume increases of 7%, price increases of
2% and favorable foreign exchange of 5%.
Worldwide consumer health care sales increased 1% for the
1995 third quarter and were even for the first nine months.
U.S. consumer health care sales decreased 2% for the 1995
third quarter and 6% for the first nine months. The
decrease in third quarter U.S. sales was due principally to
lower sales of cough/cold products. The decline in first
nine months U.S. sales was due to lower sales of analgesics
attributable primarily to the timing of certain promotional
programs. The decrease in third quarter U.S. sales was
comprised of unit volume decreases of 3% offset by price
increases of 1%. The decrease in first nine months U.S.
sales was comprised of volume decreases of 7% offset by
price increases of 1%.
International consumer health care sales increased 8% for
the 1995 third quarter and 18% for the first nine months due
principally to higher sales of analgesics, cough/cold
products, and vitamins, and favorable foreign exchange. The
increase in third quarter international sales was comprised
-10-
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Nine Months Ended September 30, 1995
of unit volume increases of 3%, price increases of 4% and
favorable foreign exchange of 1%. The increase in first
nine months international sales was comprised of unit volume
increases of 8%, price increases of 8% and favorable foreign
exchange of 2%.
Worldwide medical supplies and diagnostic product sales
increased 3% for the 1995 third quarter and 5% for the first
nine months due principally to higher international sales of
the Sherwood product line, and favorable foreign exchange.
The increase in third quarter sales was attributable
primarily to favorable foreign exchange. The increase in
first nine months sales was comprised of unit volume
increases of 2% and favorable foreign exchange of 3%.
Worldwide agricultural product sales increased 39% for the
1995 third quarter and 22% for the first nine months. U.S.
sales increased in the 1995 third quarter and first nine
months as unusually wet spring conditions resulted in the
following: a shift in sales from pre-emergent herbicides to
post-emergent herbicides; a shift in acreage from corn to
soybeans; and an extended planting season into mid July.
These factors resulted in higher third quarter sales of
PURSUIT herbicide and other crop protection products
partially offset by lower sales of COUNTER insecticide.
U.S. sales increased 8% for the first nine months as higher
sales of PURSUIT and PROWL herbicides and other crop
protection products were partially offset by lower sales of
SQUADRON and SCEPTER herbicides and COUNTER insecticide.
The increase in third quarter U.S. sales was attributable to
unit volume increases. The increase in first nine months
U.S. sales was comprised of unit volume increases of 7% and
price increases of 1%. Due to the seasonality of the U.S.
agricultural business, a majority of U.S. agricultural
product sales and results of operations are realized in the
first half of the year.
International agricultural product sales increased 23% for
the 1995 third quarter and 40% for the first nine months due
primarily to higher sales of PURSUIT and PROWL (marketed as
STOMP internationally) herbicides, DELAN fungicide and other
international crop protection products. The increase in
third quarter international sales was comprised of unit
volume increases of 22% and favorable foreign exchange of
1%. The increase in first nine months international sales
was comprised of unit volume increases of 31%, price
increases of 1% and favorable foreign exchange of 8%. Unit
-11-
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Nine Months Ended September 30, 1995
volume increases were due primarily to favorable weather
conditions in Europe throughout the growing season.
Sales of food products decreased 21% for the 1995 third
quarter and 16% for the first nine months due principally to
decreased sales of CHEF BOYARDEE canned pasta, PAM, POLANER
and CRUNCH & MUNCH. The sales decrease was due primarily to
competitive new products and marketing activity, and the
timing and extent of trade incentives. The decrease in
third quarter sales was attributable to unit volume
decreases. The decrease in the first nine months sales was
comprised of unit volume decreases of 17% offset by price
increases of 1%.
The tables below present comparative net sales for the third
quarter and first nine months of 1995 by geographic segments. On
a pro forma basis, the sales increases in foreign geographic
segments, in particular, Europe and Africa, are due primarily to
higher international sales of healthcare and agricultural
products, as well as favorable foreign exchange.
Three Months As Reported Pro Forma
($ in Millions) Ended September 30, %Increase %Increase
Net Sales to Customers 1995 1994 (Decrease) (Decrease)
- ---------------------- -------- -------- ---------- ----------
U.S. $1,952.8 $1,532.1 27% (1)%
Europe and Africa 732.3 329.9 122% 15%
Canada and Latin America 310.8 249.6 25% 18%
Asia and Australia 261.9 146.9 78% 5%
-------- --------
Consolidated Net Sales $3,257.8 $2,258.5 44% 5%
======== ========
Nine Months As Reported Pro Forma
($ in Millions) Ended September 30, %Increase %Increase
Net Sales to Customers 1995 1994 (Decrease) (Decrease)
- ---------------------- --------- -------- ---------- ----------
U.S. $ 5,952.5 $4,321.0 38% (5)%
Europe and Africa 2,362.4 943.2 150% 17%
Canada and Latin America 940.9 701.0 34% 26%
Asia and Australia 792.3 415.2 91% 15%
--------- --------
Consolidated Net Sales $10,048.1 $6,380.4 57% 3%
========= ========
On a pro forma basis, cost of goods sold, as a percentage of net
sales, decreased 1.8% in the 1995 third quarter and increased
-12-
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Nine Months Ended September 30, 1995
0.3% in the first nine months. The decrease in the 1995 third
quarter was due primarily to changes in the pharmaceutical and
agricultural product mix. The increase in the 1995 first nine
months was due, in part, to changes in product mix and
unfavorable manufacturing variances.
On a pro forma basis, selling, administrative and general
expenses, as a percentage of net sales, decreased 2.2% in the
1995 third quarter and 0.4% in the first nine months. Lower
selling and administrative expenses were due primarily to merger
related synergies and were partially offset by increased general
expenses in both the 1995 third quarter and first nine months.
Higher general expenses in the 1995 first nine months were due,
in part, to the reversal of certain litigation reserves that no
longer were required in the 1994 first quarter which lowered 1994
first nine months general expenses.
On a pro forma basis, research and development expenses in the
1995 third quarter and first nine months were comparable with
1994 amounts.
On a pro forma basis, interest expense decreased in the 1995
third quarter and first nine months due primarily to long-term
debt reduction and lower interest rates on ACY acquisition debt.
On an as reported basis, income before taxes, net income and net
income per share decreased in the 1995 third quarter compared to
1994 due primarily to the 1995 third quarter restructuring charge
which reduced income before taxes by $180.2 million and net
income and net income per share by $117.2 million and $.38 per
share. Excluding the 1995 third quarter restructuring charge,
income before taxes was $544.1 million and net income and net
income per share were $393.7 million and $1.27 per share for the
1995 third quarter versus income before taxes of $573.6 million
and net income and net income per share of $413.0 million and
$1.35 in 1994.
On a pro forma basis, net income and net income per share for the
1994 third quarter were $270.1 million and $.88 per share.
Excluding the 1995 third quarter restructuring charge, the higher
results for the 1995 third quarter were due primarily to lower
interest expense, increased net sales, and cost savings from
merger-related synergies with ACY and the Company's previously
announced Organizational Effectiveness and Supply Chain programs.
On an as reported basis, income before taxes, net income and net
income per share for the 1995 first nine months increased due
-13-
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Nine Months Ended September 30, 1995
primarily to the gain on the sale of the oral health care
business of $959.8 million before tax and $623.9 million and
$2.02 per share after tax in the 1995 first quarter. Excluding
this gain and the 1995 third quarter restructuring charge, income
before taxes was $1,543.5 million and net income and net income
per share were $1,092.0 million and $3.54 per share for the 1995
first nine months versus income before taxes of $1,567.8 million
(excluding the 1994 second quarter restructuring charge of $173.7
million and gains on sales of assets of $75.8 million) and net
income and net income per share of $1,128.8 million and $3.67 per
share in 1994. The 1994 second quarter restructuring charge,
gains on asset sales and reduction of certain tax accruals, in
the aggregate, had no effect on net income or net income per
share in 1994.
On a pro forma basis, net income and net income per share for the
1994 first nine months were $957.4 million or $3.11 per share.
Excluding the 1995 first quarter gain on the sale of the oral
health care business and the 1995 third quarter restructuring
charge, the higher results for the 1995 first nine months were
due principally to lower interest expense, increased net sales,
and cost savings from merger-related synergies with ACY and the
Company's previously announced Organizational Effectiveness and
Supply Chain programs.
-14-
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Nine Months Ended September 30, 1995
As Reported As Reported
Three Months Nine Months
($ in Millions) Ended September 30, Ended September 30,
Income Before Taxes 1995 1994 1995 1994
- ------------------- ------- ------ -------- --------
Health Care Products $ 544.9 (1) $548.1 $2,461.5 (1)(2) $1,318.5 (3)
Agricultural Products 10.2 - 382.3 -
Food Products 17.1 44.4 42.2 95.1
Corporate (208.3)(4) (18.9) (562.8)(2)(4) 56.3 (3)
------- ------ -------- --------
Consolidated Income
Before Taxes $ 363.9 $573.6 $2,323.2 $1,469.9
======= ====== ======== ========
As Reported As Reported
Three Months Nine Months
($ in Millions) Ended September 30, Ended September 30,
Income Before Taxes 1995 1994 1995 1994
- ------------------- ------- ------ -------- --------
United States $ 229.1 (1)(4) $410.3 $ 764.2 (1)(2)(4) $ 995.5 (3)
Europe and Africa 34.7 (1) 74.0 415.4 (1) 210.4
Canada and Latin
America 74.4 (1) 62.6 1,017.8 (1)(2) 188.9
Asia and Australia 25.7 (1) 26.7 125.8 (1) 75.1
------- ------ -------- --------
Consolidated Income
Before Taxes $ 363.9 $573.6 $2,323.2 $1,469.9
======= ====== ======== ========
(1) Includes the 1995 restructuring charge of $180.2 million identified as
follows: Health Care Products ($180.2 million), United States ($66.2
million), Europe and Africa ($100.3 million), Canada and Latin America
($9.1 million) and Asia and Australia ($4.6 million).
(2) Includes the gain on sale of South American oral health care business of
$959.8 million identified as follows: Health Care Products ($814.9
million), Corporate ($144.9 million), United States ($144.9 million) and
Canada and Latin America ($814.9 million).
(3) Includes the 1994 restructuring charge of $173.7 million in Heath Care
Products and United States partially offset by gains on sale of assets of
$75.8 million in Corporate and United States.
(4) Includes ACY acquisition related interest expense and goodwill amortization
of $129.6 million and $57.3 million, respectively, for the three months
ended September 30, 1995 and $406.3 million and $171.9 million,
respectively, for the nine months ended September 30, 1995 until the
evaluation of fair values of ACY net assets acquired is finalized.
-15-
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Nine Months Ended September 30, 1995
Health Care Reform and Competition
- ----------------------------------
U.S. health care costs and coverage continue to be a subject of
debate by the Congress in 1995. Similarly, in international
markets, health care spending is subject to increasing
governmental scrutiny, some of which is focused on pharmaceutical
prices. While the Company cannot predict the impact proposed
health care legislation will have on the Company's worldwide
results of operations, the Company believes that the
pharmaceutical industry will continue to play a very positive
role in helping to contain global health care costs through the
development of innovative products. However, it is expected that
global market forces will continue to constrain price growth
throughout 1995 and beyond.
The Company is not dependent on any one patent-protected product
or line of products for a substantial portion of its revenues or
profits. However, PREMARIN, the Company's conjugated estrogens
product, which has not had patent protection for many years, does
contribute significantly to sales and, more significantly, to
profits. An FDA Advisory Committee was held in July 1995 to
discuss relative differences in safety and efficacy among
estrogen products and to advise the FDA on the activity of
various estrogenic components in PREMARIN relative to the FDA's
review of applications for generic conjugated estrogens. The FDA
Advisory Committee concluded that there is insufficient data to
assess whether or not any individual component or combination of
components of PREMARIN, other than estrone and equilin, must be
present to achieve clinical efficacy and safety. The Company
cannot predict the timing or outcome of the FDA's action on
currently pending applications for generic conjugated estrogen
products. For further discussion on PREMARIN, see Item 1,
Competition of the Company's 1994 Annual Report on Form 10-K.
- -----------
Liquidity, Financial Condition and Capital Resources
- ----------------------------------------------------
Cash and cash equivalents increased $171 million in the first
nine months of 1995 to $1.9 billion. Cash flows from operating
activities of $901 million, proceeds from sales of businesses and
other assets of $1.7 billion and proceeds from the exercise of
stock options of $317 million were used principally for long-term
debt reduction of $1.5 billion, dividend payments of $694 million
and capital expenditures of $478 million.
In February 1995, the Company issued, under a $3.5 billion shelf
registration statement, $1.0 billion of 7.70% notes due February
-16-
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Nine Months Ended September 30, 1995
2000 and $1.0 billion of 7.90% notes due February 2005. Net
proceeds from these issuances were used to repay commercial
paper. The notes are unsecured and unsubordinated and may not be
redeemed prior to maturity.
On November 1, 1995, the Company proposed to Immunex Corporation,
a majority owned subsidiary of the Company, a transaction
pursuant to which the Company would acquire all of the
outstanding shares of Immunex not already owned by the Company
for $14.50 per share in cash, aggregating in excess of $266
million including fees and expenses, subject to the satisfaction
of the requirements of a "Permitted Acquisition Transaction" set
forth in the existing governance agreement between the Company
and Immunex. On November 13, 1995, a special committee of
Immunex's Board of Directors rejected the Company's transaction
proposal.
Management is confident that the cash flows from the combined
businesses will be adequate to repay both the principal and
interest on the ACY acquisition financing.
-17-
<PAGE>
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, 1994 (the "Form 10-K").
Additional lawsuits have been filed alleging injuries
as a result of use of the NORPLANT SYSTEM, the
Company's implantable contraceptive containing
levonorgestrel, and there are currently pending more
than 500 lawsuits in federal and state courts in 34
states and the District of Columbia. Sixty-two of
these cases have been filed as class actions and the
remainder are proceeding as individual suits.
Additional suits have been brought against the Company
in the Rite Aid line of lawsuits, which is described in
the Form 10-K. The additional federal actions, which
have been or are expected to be consolidated for
pretrial purposes (Brand Name Prescription Drug
-----------------------------
Antitrust Litigation (MDL 997 M.D. Pa.)), seek similar
--------------------
relief including treble damages in unspecified amounts
and injunctive and other relief. Additionally, similar
litigation is pending in various state courts,
including class actions or purported class actions in
Alabama, Arizona, Wisconsin, Colorado, New York,
Washington, Minnesota and California where seven such
actions have been consolidated.
On March 7, 1994, an action was brought against the
Company by Johnson & Johnson ("J&J") and Ortho
Pharmaceutical Corporation ("Ortho") currently seeking
$217 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 until it was overturned by the Court of
Appeals for the Federal Circuit in a two-to-one
decision. Thereafter, in the underlying action in the
district court, the jury found against the Company on
its claim of infringement. This verdict was recently
affirmed by the Court of Appeals for the Federal
Circuit.
The U.S. Court of Appeals for the Sixth Circuit
affirmed $2.8 million of the penalty imposed in U.S. v.
-18-
<PAGE>
Ekco Housewares, Inc. and reversed and remanded for
further proceedings the remainder of the $4.6 million
penalty. A petition for rehearing has been filed.
In the opinion of the Company, although the outcome of
any litigation cannot be predicted with certainty, the
ultimate liability of the Company in connection with
pending litigation will not have a material adverse
effect on the Company's financial position but could be
material to the results of operations in any one
accounting period.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a) Exhibits
--------
Exhibit No. Description
----------- -----------
(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.
-19-
<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/ Paul J. Jones
-------------------------------
Paul J. Jones
Vice President - Comptroller
(Duly Authorized Signatory
and Chief Accounting Officer)
Date: November 14, 1995
-20-
<PAGE>
Exhibit Index
-------------
Exhibit No. Description
----------- -----------
(27) Financial Data Schedule
Ex-1
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE AMERICAN HOME PRODUCTS CORPORATION
AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEET AS
OF SEPTEMBER 30, 1995 AND CONSOLIDATED CONDENSED
STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1995, 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-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 1,866,860
<SECURITIES> 213,217
<RECEIVABLES> 2,679,914
<ALLOWANCES> 0
<INVENTORY> 2,258,427
<CURRENT-ASSETS> 8,038,350
<PP&E> 5,936,016
<DEPRECIATION> 1,949,573
<TOTAL-ASSETS> 21,777,235
<CURRENT-LIABILITIES> 4,625,623
<BONDS> 8,491,801
<COMMON> 103,852
0
88
<OTHER-SE> 5,419,863
<TOTAL-LIABILITY-AND-EQUITY> 21,777,235
<SALES> 10,048,118
<TOTAL-REVENUES> 10,048,118
<CGS> 3,522,368
<TOTAL-COSTS> 8,367,195
<OTHER-EXPENSES> (1,154,883)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 512,654
<INCOME-PRETAX> 2,323,152
<INCOME-TAX> 724,398
<INCOME-CONTINUING> 1,598,754
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,598,754
<EPS-PRIMARY> 5.18
<EPS-DILUTED> 0
</TABLE>
