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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, 1996 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 15, 1996:
Number of
Class Shares Outstanding
-------------------------------- ------------------
Common Stock, $.33-1/3 par value 638,624,513
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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, 1996 and December 31, 1995 3
Consolidated Condensed Statements of Income -
Three Months and Nine Months Ended
September 30, 1996 and 1995 4
Consolidated Condensed Statements of Retained
Earnings and Additional Paid-in Capital -
Nine Months Ended September 30, 1996 and 1995 5
Consolidated Condensed Statements of Cash Flows -
Nine Months Ended September 30, 1996 and 1995 6
Notes to Consolidated Condensed Financial Statements 7-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-17
Part II - Other Information 18
Item 1. Legal Proceedings 18
Item 6. Exhibits and Reports on Form 8-K 18-19
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, 1996 and December 31, 1995, the results of
its operations for the three months and nine months ended September
30, 1996 and 1995, and its cash flows and the changes in retained
earnings and additional paid-in capital for the nine months ended
September 30, 1996 and 1995. 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
1995 Annual Report on Form 10-K and Quarterly Reports on Form 10-Q for
the quarters ended March 31 and June 30, 1996.
-2-
<PAGE>
AMERICAN HOME PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands Except Per Share Amounts)
Sept. 30 Dec. 31
1996 1995
ASSETS ----------- ------------
Cash and cash equivalents................... $ 1,687,588 $ 1,802,397
Marketable securities....................... 232,178 217,672
Accounts receivable less allowances......... 2,496,833 2,613,439
Inventories:
Finished goods......................... 1,079,117 1,142,174
Work in progress....................... 603,595 567,437
Materials and supplies................. 685,543 592,342
----------- -----------
2,368,255 2,301,953
Other current assets........................ 1,106,374 1,050,676
----------- -----------
Total Current Assets................... 7,891,228 7,986,137
Property, plant and equipment............... 6,485,578 6,045,746
Less accumulated depreciation.......... 2,324,961 2,085,411
----------- -----------
4,160,617 3,960,335
Goodwill and other intangibles, net of
accumulated amortization............... 8,302,600 8,649,985
Other assets................................ 783,193 766,466
----------- -----------
$21,137,638 $21,362,923
=========== ===========
LIABILITIES
Loans payable .............................. $ 79,359 $ 72,217
Trade accounts payable...................... 787,543 980,114
Accrued expenses............................ 3,033,759 3,150,758
Accrued federal and foreign taxes........... 452,872 353,159
----------- -----------
Total Current Liabilities.............. 4,353,533 4,556,248
Long-term debt.............................. 6,694,420 7,808,757
Accrued postretirement benefit
obligation............................. 761,578 732,063
Other noncurrent liabilities................ 2,417,313 2,415,620
Minority interests.......................... 383,323 307,237
STOCKHOLDERS' EQUITY
$2 convertible preferred stock,
par value $2.50 per share.............. 81 85
Common stock, par value $.33-1/3 per share.. 212,757 210,008*
Additional paid-in capital.................. 1,874,817 1,515,154
Retained earnings........................... 4,512,026 3,875,224*
Currency translation adjustments............ (72,210) (57,473)
----------- -----------
Total Stockholders' Equity............. 6,527,471 5,542,998
----------- -----------
$21,137,638 $21,362,923
=========== ===========
* Restated to reflect a two-for-one common stock split effective April
23, 1996. See Note 1.
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,
1996 1995 1996 1995
---------- ---------- ---------- -----------
Net sales................... $3,470,922 $3,257,789 $10,607,557 $10,048,118
---------- ---------- ---------- -----------
Cost of goods sold.......... 1,058,950 1,070,592 3,427,536 3,522,368
Selling, general and
administrative expenses... 1,267,663 1,196,582 3,914,852 3,679,970
Research and development
expenses.................. 350,823 341,329 1,048,471 984,617
Interest expense, net....... 104,577 124,208 341,258 405,310
Other income, net........... (4,546) (18,996) (52,538) (87,694)
Gain on sale of oral
health care business...... - - - (959,845)
Restructuring charge........ - 180,240 - 180,240
---------- ---------- ---------- -----------
Income before federal and
foreign taxes............. 693,455 363,834 1,927,978 2,323,152
Provision for taxes......... 202,330 87,308 556,213 724,398
---------- ---------- ---------- -----------
Net income.................. $ 491,125 $ 276,526 $1,371,765 $ 1,598,754
========== ========== ========== ===========
Net income per share of
common stock.............. $ 0.77 $ 0.45 $ 2.16 $ 2.59
========== ========== ========== ===========
Dividends per share of
common stock.............. $ .385 $ .375 $ 1.155 $ 1.125
========== ========== ========== ===========
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................. 637,410 621,250 633,920 617,430
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 1996 1995
---------- ----------
Restated balance, beginning of period.... $3,875,224* $3,120,659*
Add: Net income.......................... 1,371,765 1,598,754
---------- ----------
5,246,989 4,719,413
---------- ----------
Less: Cash dividends declared............ 731,383 693,991
Cost of treasury stock acquired,
less amounts charged to capital.. 8,799 5,019
---------- ----------
740,182 699,010
---------- ----------
Change in unrealized gain (loss) on
marketable securities.................. 5,219 11,818
---------- ----------
Balance, end of period................... $4,512,026 $4,032,221
========== ==========
ADDITIONAL PAID-IN CAPITAL
Balance, beginning of period............. $1,515,154 $1,020,658
Add: Excess over par value of common
stock issued...................... 360,688 318,716
Less: Cost of treasury stock acquired,
less amounts charged to retained
earnings......................... 1,025 643
---------- ----------
Balance, end of period................... $1,874,817 $1,338,731
========== ==========
* Restated to reflect a two-for-one common stock split effective April
23, 1996. See Note 1.
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,
1996 1995
---------- ----------
Operating Activities
- --------------------
Net income...................................... $1,371,765 $1,598,754
Adjustments to reconcile net income to net
cash provided from operating activities:
Gains on sales of businesses and other assets (51,069) (991,191)
Depreciation and amortization................. 510,316 431,104
Deferred income taxes......................... (29,076) (15,165)
Restructuring charge.......................... - 180,240
Changes in working capital, net............... (107,264) (456,522)
Other items, net.............................. 27,792 212,453
---------- ----------
Net cash provided from operating activities..... 1,722,464 959,673
---------- ----------
Investing Activities
- --------------------
Purchases of property, plant and equipment...... (523,022) (478,474)
Proceeds from sales of businesses............... 152,969 1,519,059
Purchases of businesses, net of cash acquired... - (130,000)
Proceeds from sales of other assets............. 47,455 195,902
Proceeds from/(purchases of) marketable
securities, net............................... (18,273) 46,571
---------- ----------
Net cash provided from/(used for) investing
activities.................................... (340,871) 1,153,058
---------- ----------
Financing Activities
- --------------------
Net repayments of debt.......................... (1,107,195) (1,510,412)
Dividends paid.................................. (731,383) (693,991)
Exercise of stock options....................... 353,692 317,337
Purchases of treasury stock..................... (9,887) (5,687)
Other items, net................................ - (58,502)
---------- ----------
Net cash used for financing activities.......... (1,494,773) (1,951,255)
---------- ----------
Effects of exchange rates on cash balances...... (1,629) 9,180
---------- ----------
(Increase)/decrease in cash and cash
equivalents................................... (114,809) 170,656
Cash and cash equivalents, beginning
of period..................................... 1,802,397 1,696,204
---------- ----------
Cash and cash equivalents, end of period........ $1,687,588 $1,866,860
========== ==========
The accompanying notes are an integral part of these statements.
Supplemental Information
- ------------------------
Interest payments $ 460,911 $ 538,738
Income tax payments, net 304,405 786,527
-6-
<PAGE>
AMERICAN HOME PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 1. Capital Stock
-------------
At the Company's April 23, 1996 Annual Meeting of
Stockholders, the stockholders approved an increase in
the number of authorized shares of common stock from
600,000,000 to 1,200,000,000 and thereafter the Company
completed a two-for-one stock split in the form of a
100% stock dividend. The par value of the common stock
was maintained at the pre-split amount of $.33 1/3 per
share. All references to common stock, retained
earnings, common shares outstanding and per share
amounts in these consolidated condensed financial
statements have been restated to reflect the two-for-
one stock split on a retroactive basis.
Note 2. Contingencies
-------------
The Company is involved in various legal proceedings,
including product liability and environmental matters
of a nature considered normal to its business. It is
the Company's policy to accrue for amounts related to
these legal matters if it is probable that a liability
has been incurred and an amount is reasonably
estimable.
In the opinion of the Company, although the outcome of
any legal proceedings cannot be predicted with
certainty, the ultimate liability of the Company in
connection with these proceedings will not have a
material adverse effect on the Company's financial
position but could be material to the results of
operations in any one accounting period.
Note 3. Reclassifications
-----------------
Certain reclassifications have been made to the 1995
consolidated condensed financial statements to conform
with the 1996 presentation.
Note 4. 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
acquisition related to American Home Products
Corporation operations.
-7-
<PAGE>
AMERICAN HOME PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 5. Gain on Sale
------------
Results of operations for the nine months ended
September 30, 1995 include a pre-tax gain of $959.8
million ($623.9 million after-tax) on sale of the South
American oral health care business in January 1995.
Note 6. Sale of American Home Foods
---------------------------
On September 6, 1996, the Company signed a definitive
agreement to sell a majority interest in American Home
Foods (AHF) to an affiliate of Hicks, Muse, Tate and
Furst Incorporated for approximately $1.2 billion in
cash. Under the terms of the transaction, which is
subject to completion of financing, the Company will
retain 20% of the common stock of AHF. This
transaction is expected to be completed in the 1996
fourth quarter.
Note 7. Acquisition of Worldwide Animal Health Business of
--------------------------------------------------
Solvay S.A.
-----------
On September 20, 1996, the Company announced its
intention to enter into an agreement with Solvay S.A.,
a Belgian-based multinational corporation, to purchase
its worldwide animal health business. It is
anticipated that the purchase price will be
approximately $450 million. The purchase should become
effective on or before December 31, 1996 subject to the
receipt of all necessary approvals and regulatory
clearances.
-8-
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Nine Months Ended September 30, 1996
Results of Operations
- ---------------------
Net sales increased 7% for the 1996 third quarter and 6% for the
first nine months compared to 1995 results on an as-reported
basis. After adjusting for the effects of businesses disposed
of, discontinued and acquired in 1996 and 1995, assuming all
transactions occurred as of January 1, 1995, net sales increased
7% for both the 1996 third quarter and first nine months on a pro
forma basis. The pro forma results for the 1996 third quarter
reflect higher worldwide sales of pharmaceuticals, international
sales of agricultural products and domestic sales of food
products. The pro forma results for the 1996 first nine months
reflect higher worldwide sales of pharmaceuticals, consumer
health care and agricultural products and domestic sales of food
products.
The following tables set forth net sales results by major product
category and industry segment together with the percentage
changes in "As-Reported" and "Pro Forma" net sales from
comparable periods in the prior year:
Three Months Pro Forma(*)
($ in Millions) Ended Sept. 30, As-Reported %Increase
Net Sales to Customers 1996 1995 %Increase (Decrease)
- ---------------------- -------- -------- ---------- ----------
Health Care Products:
Pharmaceuticals $2,026.1 $1,909.0 6% 10%
Consumer Health Care 564.6 561.9 - -
Medical Devices 321.2 286.0 12% (5)%
-------- -------- ---------- ---------
Total Health Care 2,911.9 2,756.9 6% 6%
Agricultural Products 304.3 292.0 4% 4%
Food Products 254.8 208.9 22% 22%
-------- -------- ---------- ---------
Consolidated Net Sales $3,471.0 $3,257.8 7% 7%
======== ======== ========== =========
-9-
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Nine Months Ended September 30, 1996
Nine Months Pro Forma(*)
($ in Millions) Ended Sept. 30, As-Reported %Increase
Net Sales to Customers 1996 1995 %Increase (Decrease)
- ---------------------- --------- --------- ---------- ---------
Health Care Products:
Pharmaceuticals $ 5,705.0 $ 5,503.1 4% 8%
Consumer Health Care 1,496.2 1,442.8 4% 6%
Medical Devices 995.0 861.9 15% (2)%
-------- -------- ---------- ---------
Total Health Care 8,196.2 7,807.8 5% 6%
Agricultural Products 1,707.3 1,631.2 5% 5%
Food Products 704.1 609.1 16% 16%
--------- --------- ---------- ---------
Consolidated Net Sales $10,607.6 $10,048.1 6% 7%
========= ========= ========== =========
(*) Reflects all businesses disposed of, discontinued and
acquired in 1996 and 1995 assuming all transactions occurred
as of January 1, 1995.
The following sales variation explanations are presented on an
"As-Reported" and "Pro Forma" basis:
U.S. pharmaceutical sales increased 10% for the 1996 third
quarter and 5% for the first nine months. Sales gains in
the 1996 third quarter and first nine months were offset, in
part, by lower sales of infant nutritional products
resulting from the discontinuance of the U.S. infant
nutritional business in 1996. After adjusting for the
effects of businesses disposed of, discontinued and acquired
in 1996 and 1995, U.S. pharmaceutical sales increased 13%
for the 1996 third quarter and 9% for the first nine months.
U.S. sales gains for the 1996 third quarter and first nine
months were due primarily to higher sales of PREMARIN
products, the Company's anti-obesity products PONDIMIN and
REDUX (which was introduced earlier this year), Genetics
Institute's recombinant Factor VIII, CORDARONE and ZIAC
offset, in part, by lower sales of other cardiovascular and
pharmaceutical products. U.S. pharmaceutical sales for the
1996 third quarter and first nine months also reflect
introductory sales of NAPRELAN. The increase in U.S.
pharmaceutical sales for the 1996 third quarter and first
nine months consisted principally of unit volume growth.
-10-
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Nine Months Ended September 30, 1996
U.S. pharmaceutical price impacts were less than 1% for both
the 1996 third quarter and first nine months.
International pharmaceutical sales increased 2% for both the
1996 third quarter and first nine months. International
pharmaceutical sales in the 1996 third quarter and first
nine months were impacted by the disposition of the
medicated feed additives business in 1995. After adjusting
for the effects of businesses disposed of and acquired in
1995, international pharmaceutical sales increased 5% for
the 1996 third quarter and 6% for the first nine months.
International pharmaceutical sales gains for the 1996 third
quarter and first nine months were due primarily to higher
sales of EFFEXOR, ZOTON, veterinary products and infant
nutritionals. Launches of several pharmaceutical products,
in particular EFFEXOR, in additional international markets
contributed to the international pharmaceutical sales
increases in the 1996 third quarter and first nine months.
The increase in international pharmaceutical sales for the
1996 third quarter consisted of unit volume growth of 9%
offset by price decreases of 1% and unfavorable foreign
exchange of 3%. The increase in international
pharmaceutical sales for the 1996 first nine months was
composed of unit volume increases of 9% offset by
unfavorable foreign exchange of 3%. International
pharmaceutical price impacts were less than 1% for the 1996
first nine months.
U.S. consumer health care sales increased 1% for the 1996
third quarter and 5% for the first nine months. U.S. sales
gains for the 1996 first nine months were due primarily to
introductory sales of AXID AR, ORUDIS KT, and CHILDREN'S
ADVIL and higher sales of CENTRUM offset, in part, by lower
sales of ADVIL and ANACIN. Introductory U.S. sales in the
1996 third quarter were offset by lower U.S. sales of ADVIL.
The increase in U.S. consumer health care sales for the 1996
third quarter consisted of price increases of 2% offset by
unit volume decreases of 1%. The increase in U.S. consumer
health care sales for 1996 first nine months was composed of
unit volume growth of 4% and price increases of 1%.
International consumer health care sales were comparable for
both the 1996 third quarter and first nine months. After
adjusting for the effect of the sale of the South American
-11-
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Nine Months Ended September 30, 1996
oral health care business in January 1995, international
consumer health care sales increased 8% for the 1996 first
nine months. International consumer health care sales gains
for the 1996 first nine months were due primarily to the
launch of CENTRUM products in additional international
markets and higher sales of cough/cold products.
International consumer health care sales for the 1996 third
quarter consisted of price increases of 4% offset by unit
volume decreases of 1% and unfavorable foreign exchange of
3%. The increase in international consumer health care
sales for the 1996 first nine months was composed of unit
volume increases of 9% and price increases of 2% offset by
unfavorable foreign exchange of 3%.
Worldwide medical device sales increased 12% for the 1996
third quarter and 15% for the first nine months due
primarily to the Storz ophthalmic products business which
was reported as "held for sale" in 1995. When the sales of
this continuing business are included in 1995, and after
adjusting for the effect of a business disposed of in 1996,
worldwide medical device sales decreased 5% for the 1996
third quarter and 2% for the first nine months. The
decrease in 1996 third quarter and first nine months sales
was due primarily to lower U.S. sales of ophthalmic and
wound closure products. The decrease in worldwide medical
device sales for the 1996 third quarter consisted of unit
volume decreases of 2%, price decreases of 1% and
unfavorable foreign exchange of 2%. The decrease in
worldwide medical device sales for the 1996 first nine
months consisted principally of unfavorable foreign exchange
of 2%.
U.S. agricultural products sales decreased 6% for the 1996
third quarter and increased 4% for the first nine months.
Due to the seasonality of the U.S. agricultural products
business, a majority of U.S. agricultural product sales and
results of operations are realized in the first half of the
year. U.S. sales gains for the 1996 first nine months were
due primarily to higher sales of COUNTER insecticide and
PROWL, PURSUIT and CADRE herbicides offset, in part, by
lower sales of SQUADRON herbicide. The decrease in U.S.
agricultural products sales for the 1996 third quarter
consisted of unit volume decreases of 9% offset by price
increases of 3%. The increase in U.S. agricultural product
-12-
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Nine Months Ended September 30, 1996
sales for the 1996 first nine months consisted of unit
volume growth of 2% and price increases of 2%.
International agricultural products sales increased 9% for
the 1996 third quarter and 5% for the first nine months.
International agricultural products sales gains for the 1996
third quarter and first nine months were due primarily to
higher sales of STOMP (marketed as PROWL in the U.S.) and
PIVOT (marketed as PURSUIT in the U.S.) herbicides, FASTAC
insecticide and ACROBAT fungicide offset, in part, by the
discontinuance of a licensed herbicide product.
International agricultural products sales for the 1996 third
quarter consisted of unit volume increases of 7% and price
increases of 6% offset by unfavorable foreign exchange of
4%. The increase in international agricultural products
sales for the 1996 first nine months was composed of unit
volume increases of 5% and price increases of 3% offset by
unfavorable foreign exchange of 3%.
Food products sales increased 22% for the 1996 third quarter
and 16% for the first nine months. Sales gains for the 1996
third quarter and first nine months were due primarily to
higher sales of CHEF BOYARDEE canned pasta, PAM, CRUNCH N'
MUNCH and certain regional specialty products. The increase
in food products sales for the 1996 third quarter and first
nine months consisted principally of unit volume growth. As
previously announced, a definitive agreement has been signed
to sell a majority interest in American Home Foods (AHF) for
approximately $1.2 billion in cash. Under the terms of the
transaction, which is subject to completion of financing,
the Company will retain 20% of the common stock of AHF.
Cost of goods sold, as a percentage of net sales, decreased to
30.5% for the 1996 third quarter compared to 32.9% for the 1995
third quarter, and decreased to 32.3% for the 1996 first nine
months compared to 35.1% for the 1995 first nine months. The
decreases were due primarily to a combination of favorable
pharmaceutical and agricultural products sales mix, and to a
lesser extent, cost savings and synergies. Cost savings and
synergies resulted from the restructuring and consolidation of
various manufacturing and quality control functions, primarily in
the pharmaceutical business, related to the American Cyanamid
Company (ACY) acquisition and the Company's previously announced
Organizational Effectiveness and Supply Chain programs.
-13-
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Nine Months Ended September 30, 1996
Selling, general and administrative expenses, as a percentage of
net sales, decreased to 36.5% for the 1996 third quarter compared
to 36.7% for the 1995 third quarter, and increased to 36.9% for
the 1996 first nine months compared to 36.6% for the 1995 first
nine months. For the 1996 first nine months, ACY acquisition-
related synergies were more than offset by increased marketing
and selling expenses related to pharmaceutical and consumer
health care product introductions, and pharmaceutical disease and
health management programs.
Research and development expenses increased 3% for the 1996 third
quarter and 6% for the first nine months compared to the same
periods in 1995. ACY acquisition-related synergies were more
than offset by increased pharmaceutical research and development
expenditures, particularly in the biopharmaceutical area for the
1996 first nine months.
Interest expense, net decreased 16% for both the 1996 third
quarter and first nine months compared to the same periods in
1995 due primarily to the reduction in long-term debt related to
the ACY acquisition during 1996 and 1995. Average long-term debt
outstanding during the 1996 and 1995 third quarter was $7,024.3
million and $8,609.1 million. Average long-term debt outstanding
during the 1996 and 1995 first nine months was $7,251.6 million
and $9,232.5 million.
Income before taxes increased for the 1996 third quarter compared
to the 1995 third quarter due, in part, to the 1995 third quarter
pre-tax restructuring charge of $180.2 million for the company's
integration plan related to the ACY acquisition. Excluding the
restructuring charge from 1995 results, income before taxes for
the 1996 third quarter increased 27% due primarily to higher U.S.
sales of pharmaceutical and food products, favorable
pharmaceutical sales mix, cost savings and synergies, and lower
ACY acquisition-related interest expense offset, in part, by
increased pharmaceutical and consumer health care marketing and
selling expenses.
Income before taxes decreased in the 1996 first nine months
compared to the 1995 first nine months due to the net effect of
the 1995 third quarter restructuring charge and first quarter
pre-tax gain of $959.8 million on the sale of the South American
oral health care business. Excluding the third quarter
restructuring charge and the gain on sale from 1995 results,
-14-
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Nine Months Ended September 30, 1996
income before taxes increased 25% for the 1996 first nine months
due primarily to higher worldwide sales of pharmaceutical and
agricultural products and domestic sales of food products,
favorable pharmaceutical and agricultural products sales mix,
cost savings and synergies, and lower ACY acquisition-related
interest expense offset, in part, by increased pharmaceutical and
consumer health care marketing and selling expenses and higher
pharmaceutical research and development expenditures.
Net income and net income per share for the 1996 third quarter
increased compared to the 1995 third quarter due primarily to the
1995 third quarter after-tax restructuring charge of $117.2
million ($.19 per share). Excluding the restructuring charge
from 1995 results, net income and net income per share for the
1996 third quarter increased 25% and 20%.
Net income and net income per share for the 1996 first nine
months decreased compared to the 1995 first nine months due to
the net effect of the 1995 third quarter restructuring charge and
first quarter after-tax gain on sale of $623.9 million ($1.01 per
share). Excluding the third quarter restructuring charge and the
first quarter gain on sale from 1995 results, net income and net
income per share for the 1996 first nine months increased 26% and
22%, respectively.
The following table sets forth income before taxes by industry
segment:
Three Months Nine Months
($ in Millions) Ended September 30, Ended September 30,
Income Before Taxes 1996 1995 (1) 1996 1995 (1)
- ------------------- ------- ------- -------- --------
Health Care Products (2)(3)$ 773.9 $ 737.0 $1,911.5 $1,708.6
Agricultural Products (7.6) (4.2) 355.8 305.7
Food Products 53.5 18.6 113.6 46.5
Corporate (3) (126.3) (207.4) (452.9) (517.3)
------- ------- -------- --------
Consolidated Income
Before Taxes (2)(3) $ 693.5 $ 544.0 $1,928.0 $1,543.5
======= ======= ======== ========
(1) Certain reclassifications have been made to income before
taxes for 1995 to conform with the 1996 presentation,
including the allocation of ACY goodwill amortization to the
appropriate industry segments.
-15-
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Nine Months Ended September 30, 1996
(2) Income before taxes for the 1995 third quarter and first
nine months excludes the restructuring charge of $180.2
million (Health Care Products).
(3) Income before taxes for the 1995 first nine months excludes
the gain on the sale of the South American oral health care
business of $959.8 million identified as follows: Health
Care Products - $814.9 million and Corporate - $144.9
million.
Competition
- -----------
The Company is not dependent on any one patent-protected product
or line of products for a substantial portion of its sales or
results of operations. However, PREMARIN, the Company's
conjugated estrogens product, which has not had patent protection
for many years, does contribute significantly to sales and
results of operations. PREMARIN is not currently subject to
generic competition in the United States. A U.S. Food and Drug
Administration (FDA) advisory committee meeting 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. While the introduction of generic competition
ordinarily is expected to significantly impact the market for a
brand name product, the extent of such impact on PREMARIN and
related products cannot be predicted with certainty due to a
number of factors, including the nature of the product and the
introduction of new combination estrogen and progestin products
in the PREMARIN family.
-16-
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Nine Months Ended September 30, 1996
Liquidity, Financial Condition and Capital Resources
- ----------------------------------------------------
Cash and cash equivalents decreased $114.8 million for the 1996
first nine months to $1,687.6 million. Cash flows from operating
activities of $1,722.5 million, proceeds from the exercise of
stock options of $353.7 million and proceeds from sales of
businesses of $153.0 million were used principally for long-term
debt reduction of $1,107.2 million, dividend payments of $731.4
million and capital expenditures of $523.0 million. Due to the
seasonality of the U.S. agricultural products business, a
significant portion of the annual U.S. agricultural products
sales are recorded in the first six months of the year; however,
a significant portion of the related accounts receivable are not
collected until the third quarter. As a result, cash flows from
operating activities in the 1996 first nine months are not
indicative of the results to be expected for the full year.
Capital expenditures included the expansion of the Company's
research and development facilities and continued strategic
investments in manufacturing/distribution/administrative
facilities worldwide.
The Company expects the pending sale of American Home Foods to be
completed in the 1996 fourth quarter. A portion of the proceeds
from this sale is expected to fund the Company's pending purchase
of the worldwide animal health business of Solvay S.A. The
purchase price is anticipated to be approximately $450 million.
The acquisition, which is subject to the receipt of all necessary
approvals and regulatory clearances, is also expected to be
completed in the 1996 fourth quarter.
Cautionary Statements for Forward Looking Information
- -----------------------------------------------------
Management's discussion and analysis set forth above contains
certain forward looking statements, including statements
regarding the Company's financial position, results of
operations, potential competition and pending acquisitions and
dispositions. These forward looking statements are based on
current expectations. Certain factors which could cause the
Company's actual results to differ materially from expected and
historical results have been identified by the Company in Exhibit
99 to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996, which exhibit is hereby incorporated by
reference.
-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, 1995 and Quarterly
Reports on Form 10-Q for the quarters ended March 31
and June 30, 1996.
In the NORPLANT liability litigation pending in
Illinois state court (Doe v. Wyeth-Ayerst
-------------------
Laboratories), on September 10, 1996, the circuit court
------------
decertified the pending class action relating to
alleged removal difficulties and ordered that the cases
proceed as individual actions. Adopting the same
reasons it used in its March ruling not to expand the
class, the court held that discovery in the case since
the original certification decision had demonstrated
that individual issues regarding removal predominated
over common ones and that a class action was not an
efficient method for adjudicating such claims. The
Company will continue to contest class certification in
any state jurisdiction in which it is raised.
In the opinion of the Company, although the outcome of
any legal proceedings cannot be predicted with
certainty, the ultimate liability of the Company in
connection with these proceedings will not have a
material adverse effect on the Company's financial
position but could be material to the results of
operations in any one accounting period.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a) Exhibits
--------
Exhibit No. Description
----------- -----------
(11) Computation of Per Share Earnings.
(27) Financial Data Schedule.
-18-
<PAGE>
(99) Cautionary Statements regarding
"Safe Harbor" Provisions of the
Private Securities Litigation
Reform Act of 1995 is hereby
incorporated by reference to
Exhibit 99 to the Company's
Quarterly Report on Form 10-Q
for the quarter ended June 30,
1996.
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 and Comptroller
(Duly Authorized Signatory
and Chief Accounting Officer)
Date: October 31, 1996
-20-
<PAGE>
Exhibit Index
-------------
Exhibit No. Description
----------- -----------
(11) Computation of Per Share Earnings.
(27) Financial Data Schedule.
Ex-1
Exhibit 11
----------
American Home Products Corporation and Subsidiaries
Computation of Per Share Earnings
(In thousands except per share amounts)
Quarter Ended Nine Months Ended
September 30, September 30,
1996 1996
----------- -----------
1. Net income ................................ $ 491,125 $ 1,371,765
2. Reported earnings per share:
a. Average number of shares outstanding... 636,819 633,321
b. Shares issuable upon the conversion
of preferred stock .................... 591 599
----------- -----------
c. Shares for reported earnings per share
calculation (2a+2b).................... 637,410 633,920
=========== ===========
d. Reported earnings per share(1/2c)...... $ .77 $ 2.16
=========== ===========
3. Primary earnings per share:
a. Average number of shares outstanding... 636,819 633,321
b. Shares issuable upon the conversion of
preferred stock........................ 591 599
c. Shares deemed outstanding from the
assumed exercise of stock options
reduced by the number of shares
purchased with the proceeds (determined
using average market price during the
period)................................ 12,955 11,054
d. Deferred contingent common stock awards 457 457
----------- -----------
e. Shares for primary earnings per share
calculation (3a+3b+3c+3d) ............. 650,822 645,431
=========== ===========
f. Primary earnings per share (1/3e)...... $ .75 $ 2.13
=========== ===========
4. Fully diluted earnings per share:
a. Average number of shares outstanding... 636,819 633,321
b. Shares issuable upon conversion of
preferred stock ....................... 591 599
c. Shares deemed outstanding from the
assumed exercise of stock options reduced
by the number of shares purchased with
the proceeds (determined using market
price at end of period)................ 14,505 14,505
d. Deferred contingent common stock awards 457 457
----------- -----------
e. Shares for fully diluted earnings per
share calculation (4a+4b+4c+4d)........ 652,372 648,882
=========== ===========
f. Fully diluted earnings per share (1/4e) $ .75 $ 2.11
=========== ===========
<TABLE> <S> <C>
<ARTICLE> 5
Exhibit No. 27
--------------
<LEGEND> THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE AMERICAN HOME PRODUCTS CORPORATION
AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEET AS
OF SEPTEMBER 30, 1996 AND CONSOLIDATED CONDENSED
STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1996, 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-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,687,588
<SECURITIES> 232,178
<RECEIVABLES> 2,667,841
<ALLOWANCES> 171,008
<INVENTORY> 2,368,255
<CURRENT-ASSETS> 7,891,228
<PP&E> 6,485,578
<DEPRECIATION> 2,324,961
<TOTAL-ASSETS> 21,137,638
<CURRENT-LIABILITIES> 4,353,533
<BONDS> 6,694,420
<COMMON> 212,757
0
81
<OTHER-SE> 6,314,633
<TOTAL-LIABILITY-AND-EQUITY> 21,137,638
<SALES> 10,607,557
<TOTAL-REVENUES> 10,607,557
<CGS> 3,427,536
<TOTAL-COSTS> 3,427,536
<OTHER-EXPENSES> 1,048,471
<LOSS-PROVISION> 189,868
<INTEREST-EXPENSE> 341,258
<INCOME-PRETAX> 1,927,978
<INCOME-TAX> 556,213
<INCOME-CONTINUING> 1,371,765
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,371,765
<EPS-PRIMARY> 2.13
<EPS-DILUTED> 2.11
</TABLE>
