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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 June 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 July 31, 1995:
Number of
Class Shares Outstanding
-------------------------------- ------------------
Common Stock, $.33-1/3 par value 309,887,594
======================================================================
<PAGE>
AMERICAN HOME PRODUCTS CORPORATION AND SUBSIDIARIES
INDEX
Page No.
--------
Part I - Financial Information 2
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets -
June 30, 1995 and December 31, 1994 3
Consolidated Condensed Statements of Income -
Three Months and Six Months Ended
June 30, 1995 and 1994 4
Consolidated Condensed Statements of Retained
Earnings and Additional Paid-in Capital -
Six Months Ended June 30, 1995 and 1994 5
Consolidated Condensed Statements of Cash Flows -
Six Months Ended June 30, 1995 and 1994 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-15
Part II - Other Information
Item 1. Legal Proceedings 16
Item 4. Submission of Matters to a Vote of
Security-Holders 16-17
Item 6. Exhibits and Reports on Form 8-K 17-18
Signature 19
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 June 30, 1995 and December 31, 1994, the results of its
operations for the three months and six months ended June 30,
1995 and 1994, and its cash flows and the changes in retained
earnings and additional paid-in capital for the six months ended
June 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 1994 Annual Report on Form 10-K and its first quarter
1995 Form 10-Q.
-2-
<PAGE>
AMERICAN HOME PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands Except Per Share Amounts)
June 30, Dec. 31,
1995 1994
----------- -----------
ASSETS
Cash and cash equivalents................... $ 1,319,204 $ 1,696,204
Marketable securities....................... 236,748 247,970
Accounts receivable less allowances......... 2,815,273 2,380,730
Inventories:
Finished goods......................... 1,154,313 1,158,045
Work in progress....................... 586,269 525,269
Materials and supplies................. 560,620 562,836
----------- -----------
2,301,202 2,246,150
Other current assets........................ 1,147,654 1,250,192
----------- -----------
Total Current Assets................... 7,820,081 7,821,246
Property, plant and equipment............... 5,674,832 5,458,075
Less accumulated depreciation.......... 1,753,460 1,646,145
----------- -----------
3,921,372 3,811,930
Goodwill.................................... 9,070,350 9,181,129
Other assets................................ 887,688 860,507
----------- -----------
Total Assets $21,699,491 $21,674,812
=========== ===========
LIABILITIES
Loans payable............................... $ 104,287 $ 113,284
Trade accounts payable...................... 1,111,786 1,042,468
Accrued expenses............................ 2,841,887 2,999,127
Accrued federal and foreign taxes........... 369,874 463,207
---------- -----------
Total Current Liabilities.............. 4,427,834 4,618,086
Long-term debt.............................. 8,726,472 9,973,240
Accrued postretirement benefit
obligation............................. 717,887 696,814
Other noncurrent liabilities................ 2,078,727 1,809,153
Minority interests.......................... 354,067 323,418
SHAREHOLDERS' EQUITY
$2 convertible preferred stock,
par value $2.50 per share.............. 89 91
Common stock, par value $.33-1/3 per share.. 103,085 101,994
Additional paid-in capital.................. 1,202,652 1,020,658
Retained earnings........................... 4,095,719 3,226,100
Currency translation adjustments............ (7,041) (94,742)
----------- -----------
Total Shareholders' Equity............. 5,394,504 4,254,101
----------- -----------
$21,699,491 $21,674,812
=========== ===========
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 Six Months
Ended June 30, Ended June 30,
1995 1994 1995 1994
---------- ---------- ---------- ----------
Net sales................. $3,299,300 $1,977,853 $6,790,329 $4,121,898
---------- ---------- ---------- ----------
Cost of goods sold........ 1,206,748 627,895 2,451,776 1,285,360
Selling, admin., and
general expenses........ 1,238,102 738,475 2,483,388 1,471,157
Research and development
expenses................ 323,100 179,915 643,288 352,819
Restructuring charge...... - 173,697 - 173,697
Other (income) exp., net.. 98,676 (60,965) (747,441) (57,472)
---------- ---------- ---------- ----------
Income before federal and
foreign taxes........... 432,674 318,836 1,959,318 896,337
Provision for taxes....... 133,066 18,855 637,090 180,556
---------- ---------- ---------- ----------
Net income................ $ 299,608 $ 299,981 $1,322,228 $ 715,781
========== ========== ========== ==========
Net income per share of
common stock............ $ 0.97 $ 0.98 $ 4.30 $ 2.32
========== ========== ========== ==========
Dividends per share of
common stock............ $ 0.75 $ 0.73 $ 1.50 $ 1.46
========== ========== ========== ==========
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............... 308,664 307,349 307,744 308,618
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)
Six Months Ended June 30,
RETAINED EARNINGS 1995 1994
---------- ----------
Balance, beginning of period $3,226,100 $2,884,244
Add: Net income 1,322,228 715,781
---------- ----------
4,548,328 3,600,025
---------- ----------
Less: Cash dividends declared 461,159 450,553
Cost of treasury stock acquired,
less amounts charged to capital 2,566 213,320
---------- ----------
463,725 663,873
---------- ----------
Unrealized gain (loss) on marketable
securities 11,116 (8,423)
---------- ----------
Balance, end of period $4,095,719 $2,927,729
========== ==========
ADDITIONAL PAID-IN CAPITAL
Balance, beginning of period $1,020,658 $1,014,911
Add: Excess over par value of common
stock issued 182,321 24,376
Less: Cost of treasury stock acquired,
less amounts charged to retained
earnings 327 31,010
---------- ----------
Balance, end of period $1,202,652 $1,008,277
========== ==========
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)
Six Months Ended June 30,
1995 1994
---------- ----------
Operating Activities
--------------------
Net income................................... $1,322,228 $ 715,781
Adjustments to reconcile net income to net
cash provided from operating activities:
Gain on sale of oral health care business.. (959,845) -
Depreciation and amortization.............. 321,734 128,018
Deferred income taxes...................... (10,086) (110,750)
Restructuring charge....................... - 173,697
Changes in working capital, net............ (595,257) (387,049)
Other items, net........................... 242,678 (110,726)
---------- ----------
Net cash provided from operating activities.. 321,452 408,971
---------- ----------
Investing Activities
--------------------
Purchases of property, plant and equipment... (306,393) (190,655)
Proceeds from sales of businesses,
net of cash sold........................... 1,033,559 113,539
Purchases of businesses, net of
cash acquired.............................. - (22,238)
Proceeds of marketable securities, net....... 22,203 14,895
Proceeds from sales of other assets, net..... 61,558 51,875
---------- ----------
Net cash provided from/(used for)
investing activities....................... 810,927 (32,584)
---------- ----------
Financing Activities
--------------------
Dividends paid............................... (461,159) (450,553)
Net repayments of debt....................... (1,255,765) -
Purchases of treasury stock.................. (2,907) (245,729)
Exercise of stock options.................... 179,761 20,612
---------- ----------
Net cash used for financing activities....... (1,540,070) (675,670)
---------- ----------
Effects of exchange rates on cash balances... 30,691 7,942
---------- ----------
Decrease in cash and cash equivalents........ (377,000) (291,341)
Cash and cash equivalents, beginning
of period.................................. 1,696,204 1,936,834
---------- ----------
Cash and cash equivalents, end of period..... $1,319,204 $1,645,493
========== ==========
The accompanying notes are an integral part of these statements.
Supplemental Information
------------------------
Interest payments $ 339,037 $ 33,790
Income tax payments 470,273 295,898
-6-
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Six Months Ended June 30, 1995
Results of Operations
---------------------
Effective December 1, 1994, the Company consolidated the results
of operations of American Cyanamid Company (Cyanamid). As a
result, significant variations exist when the results for the
1995 second quarter and first half are compared to those for the
same periods of 1994 since the Company's 1995 operating results
reflect Cyanamid's operating results and related acquisition
interest expense and goodwill amortization. Accordingly,
management's discussion and analysis of results of operations for
the 1995 second quarter and first half has been presented, for
the most part, on a pro forma basis assuming the Cyanamid
acquisition had taken place on January 1, 1994, and excluding the
sales of businesses disposed of in 1994 and 1995.
On a pro forma basis, consolidated net sales decreased 1% for the
second quarter and increased 3% for the first half of 1995. The
results reflect lower 1995 second quarter domestic sales due
primarily to the Company's Wyeth-Ayerst domestic pharmaceutical
division which changed the timing of trade incentive buying
programs, offset by higher international sales of pharmaceutical,
agricultural and consumer health care products for the 1995
second quarter and first half. The decrease in second quarter
sales was comprised of unit volume decreases of 4% offset by
favorable foreign exchange of 3%. The increase in first half
sales was comprised of price increases of 1% and favorable
foreign exchange of 2%. Pro forma health care product segment
sales decreased 2% for the 1995 second quarter and increased 1%
for the first half. Agricultural product sales increased 10% for
the 1995 second quarter and 18% for the first half. Food product
sales decreased 16% for the 1995 second quarter and 13% for the
first half.
The Agricultural Products business represents a significant
portion of Cyanamid's operations. Due to the seasonality of the
Agricultural Products business, which is concentrated primarily
in the first half of the year, Cyanamid's sales and results of
operations for the 1995 second quarter and first half are not
indicative of the results to be expected for the 1995 third
quarter, second half and full year. Due to this concentration in
the first half of the year, Cyanamid's results of operations,
which include acquisition related cost savings, more than offset
the dilutive effect of the interest expense and goodwill
amortization related to the acquisition for the 1995 second
quarter and first half. However, these costs are expected to
have a dilutive effect on earnings to be reported for the 1995
third quarter, second half 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:
-7-
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Six Months Ended June 30, 1995
Three Months As Reported Pro Forma
($ in Millions) Ended June 30, %Increase %Increase
Net Sales to Customers 1995 1994 (Decrease) (Decrease)
---------------------- -------- -------- ---------- ---------
Health Care Products
Pharmaceuticals $1,639.9 $1,170.3 40% (6)%
Consumer Health Care 403.3 344.2 17% 8%
Medical Supplies and
Diagnostics 293.7 214.7 37% 6%
-------- --------
Total Health Care 2,336.9 1,729.2 35% (2)%
Agricultural Products 754.3 - - 10%
Food Products 208.1 248.7 (16)% (16)%
-------- --------
Consolidated Net Sales $3,299.3 $1,977.9 67% (1)%
======== ========
Six Months As Reported Pro Forma
($ in Millions) Ended June 30, %Increase %Increase
Net Sales to Customers 1995 1994 (Decrease) (Decrease)
---------------------- -------- -------- ---------- ---------
Health Care Products
Pharmaceuticals $3,594.1 $2,443.1 47% 1%
Consumer Health Care 880.9 788.2 12% -
Medical Supplies and
Diagnostics 575.9 430.4 34% 6%
-------- --------
Total Health Care 5,050.9 3,661.7 38% 1%
Agricultural Products 1,339.2 - - 18%
Food Products 400.2 460.2 (13)% (13)%
-------- --------
Consolidated Net Sales $6,790.3 $4,121.9 65% 3%
======== ========
The following sales variation explanations by business line are
presented on a pro forma basis:
Worldwide pharmaceutical sales decreased 6% for the 1995
second quarter and increased 1% for the first half. U.S.
pharmaceutical sales decreased 20% for the 1995 second
quarter and 9% for the first half. The decline in 1995
second quarter and first half U.S. sales was due primarily
to the Company's Wyeth-Ayerst domestic pharmaceutical
division which changed the timing of trade incentive buying
programs in the second quarter. As a result, sales of all
major Wyeth-Ayerst product categories were lower for the
1995 second quarter and first half. The decrease in second
quarter U.S. sales was comprised of unit volume decreases of
17% and price decreases of 3%. The decrease in first half
-8-
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Six Months Ended June 30, 1995
U.S. sales was attributable to unit volume decreases.
International pharmaceutical sales increased 12% for the
1995 second quarter and 15% for the first half due primarily
to higher sales of veterinary, infant nutritional and oral
contraceptive products, TAZOCIN and PREMARIN, and favorable
foreign exchange. The increase in second quarter
international sales was comprised of unit volume increases
of 2%, price increases of 3% and favorable foreign exchange
of 7%. The increase in first half international sales was
comprised of unit volume increases of 8%, price increases of
2% and favorable foreign exchange of 5%.
Worldwide consumer health care sales increased 8% for the
1995 second quarter and were even for the first half. U.S.
consumer health care sales decreased 2% for the 1995 second
quarter and 8% for the first half. The decline in 1995
second quarter and first half U.S. sales was due to lower
sales of analgesics due primarily to the timing of certain
promotional programs. The decrease in second quarter U.S.
sales was comprised of unit volume decreases of 3% offset by
price increases of 1%. The decrease in first half U.S.
sales was comprised of volume decreases of 9% offset by
price increases of 1%. International consumer health care
sales increased 32% for the 1995 second quarter and 24% for
the first half due primarily to higher sales of cough/cold
products, analgesics and vitamins, and favorable foreign
exchange. The increase in second quarter international
sales was comprised of unit volume increases of 22%, price
increases of 7% and favorable foreign exchange of 3%. The
increase in first half international sales was comprised of
unit volume increases of 12%, price increases of 10% and
favorable foreign exchange of 2%.
Worldwide medical supplies and diagnostic product sales
increased 6% for both the 1995 second quarter and first half
due primarily to unit volume growth of tubes and catheters,
tympanic thermometry products and enteral devices, and
favorable foreign exchange. The increase in second quarter
sales was comprised of unit volume increases of 1% and
favorable foreign exchange of 5%. The increase in first
half sales was comprised of volume increases of 3%, price
decreases of 1% and favorable foreign exchange of 4%.
Worldwide agricultural product sales increased 10% for the
1995 second quarter and 18% for the first half. U.S. sales
decreased 2% for the 1995 second quarter as higher sales of
PURSUIT and PROWL herbicides were offset by lower sales of
SQUADRON and SCEPTER herbicides. U.S. sales increased 2%
for the first half as higher sales of PURSUIT, PROWL and
DETAIL herbicides were partially offset by lower sales of
SQUADRON and SCEPTER herbicides. The decrease in second
quarter U.S. sales was comprised of unit volume decreases of
-9-
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Six Months Ended June 30, 1995
3% offset by price increases of 1%. The increase in first
half U.S. sales was comprised of unit volume increases of 1%
and price increases of 1%. International agricultural
product sales increased 28% for the 1995 second quarter and
47% for the first half due primarily to higher sales of
PURSUIT and PROWL herbicides and other international crop
protection products. The increase in second quarter
international sales was comprised of unit volume increases
of 16%, price increases of 1% and favorable foreign exchange
of 11%. The increase in first half international sales was
comprised of unit volume increases of 35%, price increases
of 1% and favorable foreign exchange of 11%. As previously
discussed, agricultural product sales and results of
operations are concentrated primarily in the first half of
the year.
Sales of food products decreased 16% for the 1995 second
quarter and 13% for the first half due principally to
decreased sales of CHEF BOYARDEE canned pasta, PAM and
POLANER due primarily to competitive new products and
marketing activity, and the timing and extent of trade
incentives, promotions and product introductions.
The tables below present comparative net sales for the second
quarter and first half 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 unit volume sales of pharmaceutical, agricultural
and consumer health care products, as well as favorable foreign
exchange rates.
Three Months As Reported Pro Forma
($ in Millions) Ended June 30, %Increase %Increase
Net Sales to Customers 1995 1994 (Decrease) (Decrease)
---------------------- -------- -------- ---------- ----------
U.S. $1,829.4 $1,294.3 41% (12)%
Canada and Latin America 293.2 220.3 33% 24 %
Europe and Africa 893.4 320.3 179% 16 %
Asia and Australia 283.3 143.0 98% 16 %
-------- --------
Consolidated Net Sales $3,299.3 $1,977.9 67% (1)%
======== ========
Six Months As Reported Pro Forma
($ in Millions) Ended June 30, %Increase %Increase
Net Sales to Customers 1995 1994 (Decrease) (Decrease)
---------------------- -------- -------- ---------- ----------
U.S. $3,999.7 $2,788.9 43% (7) %
Canada and Latin America 630.1 451.4 40% 21 %
Europe and Africa 1,630.1 613.3 166% 21 %
Asia and Australia 530.4 268.3 98% 22 %
-------- --------
Consolidated Net Sales $6,790.3 $4,121.9 65% 3 %
======== ========
-10-
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Six Months Ended June 30, 1995
On a pro forma basis, cost of goods sold, as a percentage of net
sales, increased .7% in the 1995 second quarter and 1.1% in the
first half due, in part, to changes in product mix related to
pharmaceutical and agricultural products.
On a pro forma basis, selling, administrative and general
expenses, as a percentage of net sales, increased 2.0% in the
1995 second quarter and .8% in the first half. Lower selling
and administrative expenses were offset by higher general
expenses in both the 1995 second quarter and first half. Higher
general expenses in the 1995 first half 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 half
general expenses.
On a pro forma basis, research and development expenses decreased
$13.4 million or 4.0% to $323.1 million for the 1995 second
quarter, and decreased $18.7 million or 2.8% to $643.3 million
for the first half due primarily to higher collaborative research
and development revenues attributable to Genetics Institute,
Inc., and acquisition related cost reductions.
Other (income) expense, net in the Consolidated Condensed
Statements of Income is summarized as follows:
As Reported As Reported
Three Months Six Months
(In thousands) Ended June 30, Ended June 30,
1995 1994 1995 1994
--------- -------- --------- --------
Interest Income.......... $ (28,472) $(23,943) $ (70,539) $(48,428)
Interest Expense......... 168,502 17,021 351,641 33,589
Foreign exchange
and other............. (21,159) 22,088 (36,146) 38,051
Gain on the sale of oral
health care business.. - - (959,845) -
Gains on sales of
other assets.......... (20,195) (76,131) (32,552) (80,684)
--------- -------- --------- --------
Total.................... $ 98,676 $(60,965) $(747,441) $(57,472)
========= ======== ========= ========
On an as reported basis, income before taxes increased in the
second quarter of 1995 compared to the second quarter of 1994 due
primarily to the 1994 second quarter restructuring charge of
$173.7 million, which was partially offset by gains on sales of
assets of $75.8 million recorded in the same period. Cyanamid's
income before taxes for the 1995 second quarter, which includes
acquisition related cost savings, interest expense and goodwill
amortization, offset the effect of the lower sales of Wyeth-
Ayerst's domestic pharmaceuticals.
On an as reported basis, income before taxes increased in the
-11-
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Six Months Ended June 30, 1995
1995 first half versus 1994 due primarily to the pre-tax gain of
$959.8 million on the sale of the South American oral health care
business in January 1995, and the 1994 second quarter
restructuring charge as noted above. In the 1995 first half
segment tables below, $814.9 million of this gain is included in
Health Care Products and Canada and Latin America; the remaining
$144.9 million is included in Corporate and United States.
Excluding this gain, income before taxes would have been $999.5
million for the 1995 first half versus $896.3 million in 1994.
Cyanamid's income before taxes for the 1995 first half, which
includes acquisition related cost savings, interest expense and
goodwill amortization, mostly offset the effect of the lower
sales of Wyeth-Ayerst's domestic pharmaceuticals. Acquisition
related interest expense and goodwill amortization have been
included in Corporate and United States in the segment tables
below until the evaluation of fair values of net assets acquired
is finalized.
As Reported As Reported
Three Months Six Months
($ in Millions) Ended June 30, Ended June 30,
Income Before Taxes 1995 1994 1995 1994
------------------- ------- ------ -------- ------
Health Care Products $ 482.9 $228.1 $1,916.6 $770.4
Agricultural Products 228.6 - 372.1 -
Food Products 14.5 30.0 25.1 50.7
Corporate (293.3) 60.7 (354.5) 75.2
------- ------ -------- ------
Consolidated Income
Before Taxes $ 432.7 $318.8 $1,959.3 $896.3
======= ====== ======== ======
As Reported As Reported
Three Months Six Months
($ in Millions) Ended June 30, Ended June 30,
Income Before Taxes 1995 1994 1995 1994
------------------- ------- ------ -------- ------
United States $ 55.5 $153.2 $ 535.1 $585.2
Canada and Latin America 58.5 60.7 943.4 126.3
Europe and Africa 259.9 77.7 380.7 136.4
Asia and Australia 58.8 27.2 100.1 48.4
------- ------ -------- ------
Consolidated Income
Before Taxes $ 432.7 $318.8 $1,959.3 $896.3
======= ====== ======== ======
On an as reported basis, net income and net income per share for the
1995 second quarter were comparable to last year as Cyanamid's net
earnings, which includes acquisition related cost savings, interest
expense and goodwill amortization, offset the effect of the lower
sales of Wyeth-Ayerst's domestic pharmaceuticals. 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
-12-
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Six Months Ended June 30, 1995
income per share for the 1994 second quarter would have been $319.9
million or $1.04 per share. The lower pro forma results for the 1995
second quarter were due primarily to the decrease in domestic
pharmaceutical sales.
On an as reported basis, net income and net income per share for the
1995 first half increased due primarily to the after-tax gain on the
sale of the oral health care business of $623.8 million or $2.03 per
share. Excluding this gain, net income and net income per share for
the 1995 first half would have been $698.4 million and $2.27 per share
versus $715.8 million and $2.32 per share in 1994. Cyanamid's net
earnings for the 1995 first half, which includes acquisition related
cost savings, interest expense and goodwill amortization, mostly
offset the effect of the lower sales of Wyeth-Ayerst's domestic
pharmaceuticals. On a pro forma basis, net income and net income per
share for the 1994 first half would have been $687.3 million or $2.23
per share. The higher pro forma results for the 1995 first half were
due principally to increased international sales of agricultural
products.
The Company is continuing its evaluation of the estimated fair values
that were allocated to the net assets of Cyanamid. The evaluation is
expected to result in adjustments to goodwill and will be finalized in
1995.
The Company is also currently in the process of implementing an
integration plan for the operations acquired from Cyanamid. The
integration plan is intended to eliminate excess production capacity,
reduce overhead and realign the Company's resources to achieve its
strategic objectives. The costs of this integration plan, related to
AHP facilities and personnel, are expected to result in a
restructuring charge in the second half of 1995. The restructuring
charge associated with the integration plan will include provisions
for facility shutdowns and relocations, and employee reassignments and
severance benefits.
Health Care Reform and Competition
----------------------------------
Although various proposals for comprehensive health care reform
were rejected by Congress in 1994, 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
-13-
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Six Months Ended June 30, 1995
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 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 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 decreased $377 million in the first
half of 1995 to $1.3 billion. Cash flow from the sale of
businesses and other assets of $1.1 billion and available cash
and cash equivalents were used principally for dividend payments
of $461 million, long-term debt reduction of $1.3 billion and
capital expenditures of $306 million. Due to the seasonality of
the Agricultural Products business, a significant portion of the
annual domestic sales are recorded in the first six months of the
year; however, a majority of the related accounts receivable is
not collected until the third quarter. As a result, cash flows
from operating activities in the first half of 1995 are not
indicative of the results to be expected for the 1995 third
quarter, second half and full year.
Capital expenditures included the expansion of the Company's
research and development facilities and continued strategic
investments in manufacturing/distribution facilities worldwide.
In February 1995, the Company issued, under a $3.5 billion shelf
registration statement, $1.0 billion of 7.70% notes due February
2000 and $1.0 billion of 7.90% notes due February 2005. Net
proceeds from these issuances were used to repay commercial
paper. The notes are unsecured and unsubordinated and may not be
redeemed prior to maturity. In connection with the $2.0 billion
note issue, the Company terminated $2.0 billion of interest rate
swap agreements. The effect of terminating these swap agreements
was deferred and will be amortized to interest expense over the
five and ten-year terms of the related notes.
Management is confident that the cash flows from the combined
businesses will be adequate to repay both the principal and
-14-
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Six Months Ended June 30, 1995
interest on the acquisition financing without requiring the
disposition of any significant strategic core businesses or
assets and, further, to allow the Company to continue to fund its
operations, pay dividends and maintain its ongoing programs of
capital expenditures without restricting its ability to make
further acquisitions as may be appropriate.
-15-
<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.
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 230 lawsuits in federal and state courts in 34
states and the District of Columbia. Fifty of these
cases have been filed as class actions and the
remainder are proceeding as individual suits.
On June 29, 1995, an action was brought in the United
States District Court for the Southern District of New
York on behalf of plaintiffs and all similarly situated
individuals who contracted paralytic poliomyelitis as a
direct result of the administration of the Company's
oral polio vaccine, ORIMUNE, or through contact with an
immunized person. Plaintiffs seek compensatory and
punitive damages on behalf of the putative class.
Stuart, et al. v. American Cyanamid, et al.
-------------------------------------------
Additional suits have been brought against the Company
in the Rite Aid line of lawsuits, which are described
--------
in the Company's Annual Report on Form 10-K for the
year ended December 31, 1994. 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, Wisconsin, Colorado, New
York, Washington, Minnesota and California where six
such actions have been consolidated.
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 4. Submission of Matters to a Vote of Security-Holders
---------------------------------------------------
(a) The matters described under item 4(c) below were
submitted to a vote of security-holders, through
-16-
<PAGE>
the solicitation of proxies pursuant to Regulation
14 under the Securities Exchange Act, at the
Annual Meeting of Stockholders held on April 26,
1995 (the "Annual Meeting").
(b) Not applicable.
(c) The following describes the matters voted upon at
the Annual Meeting and sets forth the number of
votes cast for, against or withheld and the number
of abstentions as to each such matter (except as
provided below, there were no broker non-votes):
(i) Election of directors:
Nominee For Withheld
------- --- --------
Clifford L. Alexander, Jr. 263,938,625 2,918,973
Frank A. Bennack, Jr. 265,739,631 1,117,967
Robert G. Blount 265,789,643 1,067,955
Robin Chandler Duke 265,518,537 1,339,061
John D. Feerick 265,489,934 1,367,664
Fred Hassan 265,769,791 1,087,807
John P. Mascotte 265,730,387 1,127,211
Mary Lake Polan, M.D., Ph.D. 265,521,801 1,335,797
John R. Stafford 265,733,170 1,124,428
John R. Torell, III 265,723,271 1,134,327
William Wrigley 265,781,812 1,075,786
(ii) Ratification of the Appointment of Arthur
Andersen & Co., as independent public
accounts for 1995:
For Against Abstain
--- ------- -------
265,530,806 698,863 627,929
(iii)Proposal to abolish political action
committee:
For Against Abstain
--- ------- -------
13,059,550 213,280,906 15,826,782
There were 24,690,360 broker non-votes with
reference to this item.
(d) Not applicable.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a) Exhibits
--------
Exhibit No. Description
----------- -----------
(27) Financial Data Schedule
-17-
<PAGE>
b) Reports on Form 8-K
-------------------
The Company did not file any reports on Form 8-K
during the quarter covered by this report.
-18-
<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: August 14, 1995
-19-
<PAGE>
Exhibit Index
-------------
Exhibit No. Description
----------- -----------
(27) Financial Data Schedule
-Ex-1-
<PAGE>
<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 JUNE 30, 1995 AND CONSOLIDATED CONDENSED STATEMENT OF
INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1995, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 1,319,204
<SECURITIES> 236,748
<RECEIVABLES> 2,815,273
<ALLOWANCES> 0
<INVENTORY> 2,301,202
<CURRENT-ASSETS> 7,820,081
<PP&E> 5,674,832
<DEPRECIATION> 1,753,460
<TOTAL-ASSETS> 21,699,491
<CURRENT-LIABILITIES> 4,427,834
<BONDS> 8,726,472
<COMMON> 103,085
0
89
<OTHER-SE> 5,291,330
<TOTAL-LIABILITY-AND-EQUITY> 21,699,491
<SALES> 6,790,329
<TOTAL-REVENUES> 6,790,329
<CGS> 2,451,776
<TOTAL-COSTS> 5,578,452
<OTHER-EXPENSES> (747,441)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,959,318
<INCOME-TAX> 637,090
<INCOME-CONTINUING> 1,322,228
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,322,228
<EPS-PRIMARY> 4.30
<EPS-DILUTED> 0
</TABLE>
