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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, 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 July 31, 1996:
Number of
Class Shares Outstanding
-------------------------------- ------------------
Common Stock, $.33-1/3 par value 635,996,899
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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 -
June 30, 1996 and December 31, 1995 3
Consolidated Condensed Statements of Income -
Three Months and Six Months Ended
June 30, 1996 and 1995 4
Consolidated Condensed Statements of Retained
Earnings and Additional Paid-in Capital -
Six Months Ended June 30, 1996 and 1995 5
Consolidated Condensed Statements of Cash Flows -
Six Months Ended June 30, 1996 and 1995 6
Notes to Consolidated Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-16
Part II - Other Information 17
Item 1. Legal Proceedings 17-18
Item 4. Submission of Matters to a Vote of
Security-Holders 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 June 30, 1996 and December 31, 1995, the results of its
operations for the three months and six months ended June 30,
1996 and 1995, and its cash flows and the changes in retained
earnings and additional paid-in capital for the six months ended
June 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 its first quarter
1996 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
1996 1995*
ASSETS ----------- -----------
Cash and cash equivalents................... $ 1,858,494 $ 1,802,397
Marketable securities....................... 229,440 217,672
Accounts receivable less allowances......... 2,960,838 2,613,439
Inventories:
Finished goods......................... 927,830 1,142,174
Work in progress....................... 620,442 567,437
Materials and supplies................. 730,166 592,342
----------- -----------
2,278,438 2,301,953
Other current assets........................ 1,148,189 1,050,676
----------- -----------
Total Current Assets................... 8,475,399 7,986,137
Property, plant and equipment............... 6,304,937 6,045,746
Less accumulated depreciation.......... 2,227,108 2,085,411
----------- -----------
4,077,829 3,960,335
Goodwill and other intangibles, net of
accumulated amortization............... 8,398,172 8,649,985
Other assets................................ 706,760 766,466
----------- -----------
$21,658,160 $21,362,923
=========== ===========
LIABILITIES
Loans payable .............................. $ 72,055 $ 72,217
Trade accounts payable...................... 949,857 980,114
Accrued expenses............................ 3,114,292 3,150,758
Accrued federal and foreign taxes........... 473,335 353,159
----------- -----------
Total Current Liabilities.............. 4,609,539 4,556,248
Long-term debt.............................. 7,354,119 7,808,757
Accrued postretirement benefit
obligation............................. 741,161 732,063
Other noncurrent liabilities................ 2,451,563 2,415,620
Minority interests.......................... 373,650 307,237
STOCKHOLDERS' EQUITY
$2 convertible preferred stock,
par value $2.50 per share.............. 83 85
Common stock, par value $.33-1/3 per share.. 211,848 210,008
Additional paid-in capital.................. 1,781,112 1,515,154
Retained earnings........................... 4,257,810 3,875,224
Currency translation adjustments............ (122,725) (57,473)
----------- -----------
Total Stockholders' Equity............. 6,128,128 5,542,998
----------- -----------
$21,658,160 $21,362,923
=========== ===========
* Stockholders' equity has been 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 Six Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
---------- ---------- ---------- ----------
Net sales................... $3,489,821 $3,299,300 $7,136,635 $6,790,329
---------- ---------- ---------- ----------
Cost of goods sold.......... 1,162,632 1,206,748 2,368,586 2,451,776
Selling, general and
administrative expenses... 1,317,942 1,238,102 2,647,189 2,483,388
Research and development
expenses.................. 359,336 323,100 697,648 643,288
Interest expense, net....... 118,108 140,030 236,681 281,102
Other income, net........... (21,791) (41,354) (47,992) (68,698)
Gain on sale of oral
health care business...... - - - (959,845)
---------- ---------- ---------- ----------
Income before federal and
foreign taxes............. 553,594 432,674 1,234,523 1,959,318
Provision for taxes......... 162,317 133,066 353,883 637,090
---------- ---------- ---------- ----------
Net income.................. $ 391,277 $ 299,608 $ 880,640 $1,322,228
========== ========== ========== ==========
Net income per share of
common stock.............. $ 0.62 $ 0.49 $ 1.39 $ 2.15
========== ========== ========== ==========
Dividends per share of
common stock.............. $ 0.385 $ 0.375 $ 0.77 $ 0.75
========== ========== ========== ==========
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................. 633,937 617,328 632,155 615,488
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 1996* 1995*
---------- ----------
Balance, beginning of period as
originally reported.................... $3,980,665 $3,226,100
Less: Impact of stock split............. 105,441 105,441
---------- ----------
Restated balance, beginning of period.... 3,875,224 3,120,659
Add: Net income.......................... 880,640 1,322,228
---------- ----------
4,755,864 4,442,887
---------- ----------
Less: Cash dividends declared............ 486,214 461,159
Cost of treasury stock acquired,
less amounts charged to capital.. 7,524 2,566
---------- ----------
493,738 463,725
---------- ----------
Change in unrealized gain (loss) on
marketable securities.................. (4,316) 11,116
---------- ----------
Balance, end of period................... $4,257,810 $3,990,278
========== ==========
ADDITIONAL PAID-IN CAPITAL
Balance, beginning of period............. $1,515,154 $1,020,658
Add: Excess over par value of common
stock issued...................... 266,839 182,321
Less: Cost of treasury stock acquired,
less amounts charged to retained
earnings......................... 881 327
---------- ----------
Balance, end of period................... $1,781,112 $1,202,652
========== ==========
* 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)
Six Months Ended June 30,
1996 1995
---------- ----------
Operating Activities
- --------------------
Net income...................................... $ 880,640 $1,322,228
Adjustments to reconcile net income to net
cash provided from operating activities:
Gains on sales of businesses and other assets (47,506) (959,845)
Depreciation and amortization................. 336,403 321,734
Deferred income taxes......................... (26,525) (10,086)
Changes in working capital, net............... (298,764) (595,257)
Other items, net.............................. 98,230 301,180
---------- ----------
Net cash provided from operating activities..... 942,478 379,954
---------- ----------
Investing Activities
- --------------------
Purchases of property, plant and equipment...... (368,765) (306,393)
Proceeds from sales of businesses............... 152,969 1,033,559
Proceeds from sales of other assets............. 39,500 61,558
Proceeds from/(purchases of) marketable
securities, net............................... (16,084) 22,203
---------- ----------
Net cash provided from/(used for) investing
activities.................................... (192,380) 810,927
---------- ----------
Financing Activities
- --------------------
Net repayments of debt.......................... (454,800) (1,255,765)
Dividends paid.................................. (486,214) (461,159)
Purchases of treasury stock..................... (8,460) (2,907)
Exercise of stock options....................... 259,461 179,761
Other items, net................................ - (58,502)
---------- ----------
Net cash used for financing activities.......... (690,013) (1,598,572)
---------- ----------
Effects of exchange rates on cash balances...... (3,988) 30,691
---------- ----------
Increase/(decrease) in cash and cash
equivalents................................... 56,097 (377,000)
Cash and cash equivalents, beginning
of period..................................... 1,802,397 1,696,204
---------- ----------
Cash and cash equivalents, end of period........ $1,858,494 $1,319,204
========== ==========
The accompanying notes are an integral part of these statements.
Supplemental Information
- ------------------------
Interest payments $ 298,145 $ 339,037
Income tax payments, net 122,875 470,273
-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 enabling the Company to
complete a two-for-one stock split in the form of a
100% stock dividend which was approved by the Company's
Board of Directors in January 1996. The record date
for stockholders entitled to receive the additional
shares was the close of business on April 24, 1996.
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.
-7-
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Six Months Ended June 30, 1996
Results of Operations
- ---------------------
Net sales increased 6% for the 1996 second quarter and 5% for the
1996 first half 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 the 1996 second quarter and 6% for the 1996 first half.
The pro forma results 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 June 30, As-Reported %Increase
Net Sales to Customers 1996 1995 %Increase (Decrease)
- ---------------------- -------- -------- ---------- ---------
Health Care Products
Pharmaceuticals $1,716.8 $1,639.9 5% 9%
Consumer Health Care 456.2 403.3 13% 13%
Medical Devices 327.7 293.7 12% (4)%
-------- -------- ---------- ---------
Total Health Care 2,500.7 2,336.9 7% 8%
-------- -------- ---------- ---------
Agricultural Products 767.1 754.3 2% 2%
Food Products 222.0 208.1 7% 7%
-------- -------- ---------- ---------
Consolidated Net Sales $3,489.8 $3,299.3 6% 7%
======== ======== ========== =========
-8-
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Six Months Ended June 30, 1996
Six Months Pro Forma(*)
($ in Millions) Ended June 30, As-Reported %Increase
Net Sales to Customers 1996 1995 %Increase (Decrease)
- ---------------------- -------- -------- ---------- ---------
Health Care Products
Pharmaceuticals $3,678.9 $3,594.1 2% 7%
Consumer Health Care 931.6 880.9 6% 10%
Medical Devices 673.8 575.9 17% (1)%
-------- -------- ---------- ---------
Total Health Care 5,284.3 5,050.9 5% 6%
-------- -------- ---------- ---------
Agricultural Products 1,403.0 1,339.2 5% 5%
Food Products 449.3 400.2 12% 12%
-------- -------- ---------- ---------
Consolidated Net Sales $7,136.6 $6,790.3 5% 6%
======== ======== ========== =========
(*) 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 9% for the 1996 second
quarter and increased 3% for the first half. Sales gains in
the 1996 second quarter and first half were offset, in part,
by lower sales of veterinary and infant nutritional products
resulting from the sale of the medicated feed additives
business in 1995 and 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 14%
and 7% in the 1996 second quarter and first half,
respectively. The sales gains were due primarily to
introductory sales of REDUX, indicated for the management of
obesity, and NAPRELAN, indicated for arthritis treatment,
and higher sales of PREMARIN products and PONDIMIN offset,
in part, by lower sales of cardiovascular products. The
increase in U.S. pharmaceutical sales for the 1996 second
quarter and first half consisted principally of unit volume
growth.
-9-
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Six Months Ended June 30, 1996
International pharmaceutical sales were comparable for the
1996 second quarter and increased 2% for the first half.
International sales in the 1996 second quarter and first
half were impacted by lower sales of veterinary products
resulting from the sale 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% and 7% in the 1996 second
quarter and first half, respectively. International sales
gains in the 1996 second quarter and first half were due
primarily to higher sales of EFFEXOR, TAZOCIN, ZOTON and
veterinary products offset, in part, by lower sales of
MINOCIN. Launches of several pharmaceutical products in
additional international markets, in particular EFFEXOR,
contributed to the international sales increases in the 1996
second quarter and first half. Higher international sales
of infant nutritionals also contributed to the 1996 first
half results. The increase in international pharmaceutical
sales for the 1996 second quarter consisted of unit volume
growth of 7% and price increases of 1% offset by unfavorable
foreign exchange of 3%. The increase in first half
international sales was composed of unit volume increases of
7% and price increases of 2% offset by unfavorable foreign
exchange of 2%.
U.S. consumer health care sales increased 16% for the 1996
second quarter and 9% for the first half. Sales gains in
the U.S. for the 1996 second quarter and first half were due
primarily to introductory sales of AXID AR and ORUDIS KT,
and higher sales of CENTRUM. Higher U.S. sales of ADVIL
also contributed to the 1996 second quarter results. The
increase in U.S. consumer health care sales for the 1996
second quarter consisted of unit volume growth of 14% and
price increases of 2%. The increase in 1996 first half U.S.
sales was composed of unit volume growth of 7% and price
increases of 2%.
International consumer health care sales increased 9% for
the 1996 second quarter and were comparable for the first
half. After adjusting for the effect of the sale of the
South American oral health care business in January 1995,
international consumer health care sales increased 12% for
the 1996 first half. International sales gains in the 1996
second quarter and first half were due primarily to higher
-10-
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Six Months Ended June 30, 1996
sales of vitamins, cough/cold products and analgesics in
Latin American and European markets. The increase in
international consumer health care sales for the 1996 second
quarter consisted of unit volume growth of 11% and price
increases of 3% offset by unfavorable foreign exchange of
5%. The increase in international consumer health care
sales for the 1996 first half was composed of unit volume
increases of 12% and price increases of 4% offset by
unfavorable foreign exchange of 4%.
Worldwide medical device sales increased 12% for the 1996
second quarter and 17% for the first half 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 4% for the 1996 second quarter and 1%
for the first half. The decrease in 1996 second quarter and
first half sales was due primarily to unfavorable foreign
exchange and lower U.S. sales of ophthalmic products. The
decrease in worldwide medical device sales for the 1996
second quarter consisted of volume decreases of 1%, price
decreases of 1% and unfavorable foreign exchange of 2%. The
decrease in worldwide medical device sales for the 1996
first half was composed of volume increases of 1% offset by
unfavorable foreign exchange of 2%.
U.S. agricultural products sales increased 3% for the 1996
second quarter and 5% for the first half. Sales gains in
the U.S. for the 1996 second quarter were due primarily to
higher sales of ARSENAL AC, ASSERT and CADRE herbicides and
COUNTER insecticide offset, in part, by lower sales of
PURSUIT herbicide. Sales gains in the U.S. for the 1996
first half were due primarily to higher sales of PURSUIT,
ARSENAL AC and CADRE herbicides and COUNTER insecticide
offset, in part, by lower sales of SQUADRON herbicide. The
increase in U.S. agricultural products sales for the 1996
second quarter consisted of unit volume growth of 1% and
price increases of 2%. The increase in U.S. agricultural
product sales for the 1996 first half consisted of unit
volume growth of 3% and price increases of 2%. Due to the
seasonality of the U.S. agricultural products business,
which is concentrated primarily in the first six months of
the year, U.S. agricultural products sales and results of
-11-
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Six Months Ended June 30, 1996
operations for the 1996 second quarter and first half may
not be indicative of the results to be expected in
subsequent fiscal quarters or for the full year.
International agricultural products sales were comparable
for the 1996 second quarter and 4% higher for the first
half. The 1996 second quarter international sales results
were impacted by unfavorable weather conditions in certain
European markets and the discontinuance of a licensed
herbicide product. International sales gains for the 1996
first half were due primarily to higher sales of STOMP
herbicide (marketed as PROWL in the U.S.), FASTAC
insecticide, and CARAMBA and ACROBAT fungicides offset, in
part, by the discontinuance of a licensed herbicide product.
International agricultural products sales for the 1996
second quarter consisted of unit volume increases of 5% and
price increases of 1% offset by unfavorable foreign exchange
of 6%. The increase in international agricultural product
sales for the 1996 first half was composed of volume
increases of 5% and price increases of 2% offset by
unfavorable foreign exchange of 3%.
Food products sales increased 7% for the 1996 second quarter
and 12% for the first half. Sales gains in the 1996 second
quarter were due principally to higher sales of CRUNCH N'
MUNCH, PAM and certain regional specialty products. Sales
gains in the 1996 first half were due primarily to higher
sales of CHEF BOYARDEE canned pasta, PAM and certain
regional specialty products. Sales increases in the 1996
second quarter and first half were due to increased
marketing activity in 1996 and lower 1995 second quarter and
first half sales resulting from high levels of customer
inventories. The increase in food products sales for the
1996 second quarter and first half consisted entirely of
unit volume growth.
Cost of goods sold as a percentage of net sales, decreased to
33.3% in the 1996 second quarter versus 36.6% in the 1995 second
quarter, and decreased to 33.2% in the 1996 first half versus
36.1% in the 1995 first half, due primarily to a combination of
favorable pharmaceutical sales mix, and to a lesser extent, cost
savings. Cost savings resulted from the restructuring and
consolidation of various manufacturing and quality control
functions primarily in the pharmaceutical business related to the
-12-
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Six Months Ended June 30, 1996
American Cyanamid Company (ACY) acquisition and the Company's
previously announced Organizational Effectiveness and Supply
Chain programs.
Selling, general and administrative expenses, as a percentage of
net sales, increased to 37.8% in the 1996 second quarter compared
to 37.5% in the 1995 second quarter, and increased to 37.1% in
the 1996 first half compared to 36.6% in the 1995 first half. ACY
acquisition-related synergies were more than offset by increased
marketing and selling expenses related to pharmaceutical and
consumer health care product introductions and disease management
programs.
Research and development expenses increased 11% for the 1996
second quarter and 8% for the first half. ACY acquisition-
related synergies were more than offset by increased
pharmaceutical research and development expenditures,
particularly in the biopharmaceutical area.
Interest expense, net decreased in the 1996 second quarter and
first half compared to last year 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 second quarter was $7,553.0 and $8,667.0 million,
respectively. Average long-term debt outstanding during the 1996
and 1995 first half was $7,581.4 million and $9,349.9 million,
respectively.
Income before taxes increased 28% in the 1996 second quarter
compared to the 1995 second quarter due primarily to higher U.S.
sales of pharmaceuticals and consumer health care products,
favorable pharmaceutical sales mix, cost savings and lower
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.
Income before taxes decreased in the 1996 first half compared to
the 1995 first half due to the pre-tax gain of $959.8 million on
the sale of the South American oral health care business in the
1995 first quarter. Excluding this gain from 1995 results,
income before taxes increased 24% in the 1996 first half due
primarily to higher worldwide sales of pharmaceuticals and
agricultural products and domestic sales of consumer health care
-13-
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Six Months Ended June 30, 1996
products, favorable pharmaceutical sales mix, cost savings and
lower 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 second quarter
increased 31% and 27%. Net income and net income per share for
the 1996 first half decreased compared to last year due to the
after-tax gain of $623.9 million or $1.01 per share on the sale
of the South American oral health care business in the 1995 first
quarter. Excluding this gain from 1995 results, net income and
net income per share for the 1996 first half increased 26% and
22%, respectively.
The following table sets forth income before taxes by industry
segment:
As-Reported As-Reported
Three Months Six Months
($ in Millions) Ended June 30, Ended June 30,
Income Before Taxes 1996 1995 (1) 1996 1995 (1)
- ------------------- ------- ------- -------- --------
Health Care Products (2) $ 476.3 $ 387.2 $1,137.6 $ 971.6
Agricultural Products 216.6 192.0 363.4 309.9
Food Products 37.1 16.3 60.1 27.9
Corporate (2) (176.4) (162.8) (326.6) (309.9)
------- ------- -------- --------
Consolidated Income
Before Taxes (2) $ 553.6 $ 432.7 $1,234.5 $ 999.5
======= ======= ======== ========
(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.
(2) Income before taxes for the six months ended June 30, 1995
excludes the gain on the sale of the South American oral
health care business of $959.8 identified as follows:
Health Care Products - $814.9 and Corporate - $144.9.
Competition
- -----------
The Company is not dependant on any one patent-protected product
-14-
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Six Months Ended June 30, 1996
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.
Liquidity, Financial Condition and Capital Resources
- ----------------------------------------------------
Cash and cash equivalents increased $56 million in the 1996 first
half to $1,858 million. Cash flows from operating activities of
$942 million, proceeds from the exercise of stock options of $259
million and proceeds from sales of businesses of $153 million
were used principally for dividend payments of $486 million,
long-term debt reduction of $455 million and capital expenditures
of $369 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 first
half of 1996 are not indicative of the results to be expected for
the 1996 third quarter, second half or full year.
Capital expenditures included the expansion of the Company's
research and development facilities and continued strategic
-15-
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Six Months Ended June 30, 1996
investments in manufacturing/distribution/administrative
facilities worldwide.
The Company continues to explore the possible sale of its foods
business. When the review of offers from all potential buyers is
complete, management will make a decision as to whether the foods
business will be sold or retained.
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
and potential competition. These forward looking statements are
based on current expectations. Certain factors have been
identified by the Company in Exhibit 99 to this Quarterly Report
on Form 10-Q which could cause the Company's actual results to
differ materially from expected and historical results. Exhibit
99 is incorporated by reference herein.
-16-
<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.
In the brand name prescription drug litigation, the
court in the federal actions that have been coordinated
and consolidated for pretrial purposes under the
caption In re Brand Name Prescription Drug Antitrust
--------------------------------------------
Litigation (MDL 997 N.D. Ill.) denied approval of a
----------
settlement among certain defendants, including the
Company and the Consolidated Class Action plaintiffs.
The court also denied defendants' motion for summary
judgment. Subsequently, the Company and certain other
defendants agreed to an amendment of the settlement
agreement with the Consolidated Class Action
plaintiffs. The court approved the amended settlement
agreement with the class action plaintiffs and notices
of appeal have been filed by certain class members.
The amendment, which would be in effect for three
years, would prohibit the settling manufacturers from
refusing to grant discounts to retailers solely because
of their status as retailers and would require that
retailers be given the opportunity to demonstrate their
ability to move market share and to negotiate and earn
discounts similar to the discounts offered to managed
care organizations. Also, the Court of Appeals for the
Seventh Circuit has agreed to hear the appeal of the
denial of the manufacturer defendants' motion for
summary judgment under the Supreme Court's Illinois
--------
Brick ruling that indirect purchasers lack standing to
-----
bring federal price fixing claims.
In the NORPLANT product liability litigation, the court
in the federal actions that have been coordinated and
consolidated for pretrial purposes (In re Norplant
--------------
Contraceptive Products Liability Litigation (MDL No.
-------------------------------------------
1038 E.D. Tex.)) had issued an order in March 1996
indicating that it had reached a tentative conclusion,
subject to further briefing and consideration, that a
class action directed at certain specified issues or
sub-issues relating to the NORPLANT SYSTEM might
satisfy the requirements under the federal rules for
class action treatment. The court subsequently
reconsidered its approach and, on August 5, 1996,
denied plaintiffs' motion for class certification and
dismissed plaintiffs' class action complaint, without
-17-
<PAGE>
prejudice to the plaintiffs' right to re-urge
certification following the trial of several individual
NORPLANT lawsuits next year. The first such trial,
which will involve five plaintiffs chosen jointly by
the parties from a pool of plaintiffs, is scheduled for
February 24, 1997. The Company will continue to
contest class certification in any state jurisdictions
in which it is raised.
In U.S. Environmental Protection Agency v. Ekco
--------------------------------------------
Housewares, the U.S. District Court (N.D. Ohio) has
----------
entered a stipulated judgement in the amount of
$400,000 with respect to all remaining claims which had
been remanded by the Court of Appeals for the Sixth
Circuit.
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 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
the solicitation of proxies pursuant to Regulation
14 under the Securities Exchange Act, at the
Annual Meeting of Stockholders held on April 23,
1996 (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. 267,873,107 772,697
Frank A. Bennack, Jr. 267,948,958 696,846
Robert G. Blount 267,959,243 686,561
Robin Chandler Duke 267,494,647 1,151,157
John D. Feerick 267,772,692 873,112
Fred Hassan 267,943,105 702,699
John P. Mascotte 267,669,306 976,498
Mary Lake Polan, M.D., Ph.D. 267,812,671 833,133
-18-
<PAGE>
John R. Stafford 267,895,789 750,015
John R. Torell, III 267,911,749 734,055
William Wrigley 267,946,536 699,268
(ii) Ratification of the appointment of Arthur
Andersen LLP, as independent public
accountants for 1996:
For Against Abstain
--- ------- -------
267,409,246 404,226 742,970
There were 89,362 broker non-votes with reference
to this item.
(iii)Proposal to increase to 1,200,000,000 the
number of authorized shares of Common Stock:
For Against Abstain
--- ------- -------
265,845,260 1,903,244 868,796
There were 28,504 broker non-votes with reference
to this item.
(iv) To adopt the 1996 Stock Incentive Plan:
For Against Abstain
--- ------- -------
250,979,027 15,284,553 2,333,058
There were 49,166 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
----------- -----------
(11) Computation of Per Share Earnings.
(27) Financial Data Schedule.
(99) Cautionary Statements regarding
"Safe Harbor" Provisions of the
Private Securities Litigation
Reform Act of 1995.
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: August 13, 1996
-20-
<PAGE>
Exhibit Index
-------------
Exhibit No. Description
----------- -----------
(11) Computation of Per Share Earnings.
(27) Financial Data Schedule.
(99) Cautionary Statements regarding "Safe Harbor"
Provisions of the Private Securities
Litigation Reform Act of 1995.
Ex-1
<PAGE>
Exhibit 11
----------
American Home Products Corporation and Subsidiaries
Computation of Per Share Earnings
(In thousands except per share amounts)
Quarter Ended Six Months Ended
June 30, June 30,
1996 1996
----------- -----------
1. Net income ................................ $ 391,277 $ 880,640
2. Reported earnings per share:
a. Average number of shares outstanding... 633,338 631,553
b. Shares issuable upon the conversion
of preferred stock .................... 599 602
----------- -----------
c. Shares for reported earnings per share
calculation (2a+2b).................... 633,937 632,155
=========== ===========
d. Reported earnings per share(1/2c)...... $ .62 $ 1.39
=========== ===========
3. Primary earnings per share:
a. Average number of shares outstanding.. 633,338 631,553
b. Shares issuable upon the conversion of
preferred stock........................ 599 602
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)................................ 12,136 10,945
d. Deferred contingent common stock awards 457 457
----------- -----------
e. Shares for primary earnings per share
calculation (3a+3b+3c+3d) ............. 646,530 643,557
=========== ===========
f. Primary earnings per share (1/3e). $ .61 $ 1.37
=========== ===========
4. Fully diluted earnings per share:
a. Average number of shares outstanding... 633,338 631,553
b. Shares issuable upon conversion of
preferred stock ....................... 599 602
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)................ 14,488 14,488
d. Deferred contingent common stock awards 457 457
----------- -----------
e. Shares for fully diluted earnings per
share calculation (4a+4b+4c+4d)........ 648,882 647,100
=========== ===========
f. Fully diluted earnings per share (1/4e) $ .60 $ 1.36
=========== ===========
<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 JUNE 30, 1996 AND CONSOLIDATED CONDENSED STATEMENT
OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1996, 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-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,858,494
<SECURITIES> 229,440
<RECEIVABLES> 3,117,855
<ALLOWANCES> 157,017
<INVENTORY> 2,278,438
<CURRENT-ASSETS> 8,475,399
<PP&E> 6,304,937
<DEPRECIATION> 2,227,108
<TOTAL-ASSETS> 21,658,160
<CURRENT-LIABILITIES> 4,609,539
<BONDS> 7,354,119
<COMMON> 211,848
0
83
<OTHER-SE> 5,916,197
<TOTAL-LIABILITY-AND-EQUITY> 21,658,160
<SALES> 7,136,635
<TOTAL-REVENUES> 7,136,635
<CGS> 2,368,586
<TOTAL-COSTS> 2,368,586
<OTHER-EXPENSES> 697,648
<LOSS-PROVISION> 122,864
<INTEREST-EXPENSE> 236,681
<INCOME-PRETAX> 1,234,523
<INCOME-TAX> 353,883
<INCOME-CONTINUING> 880,640
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 880,640
<EPS-PRIMARY> 1.37
<EPS-DILUTED> 1.36
</TABLE>
Exhibit No. 99
--------------
Exhibit 99 to the Quarterly Report on Form 10-Q
for the Quarter Ended June 30, 1996
Cautionary Statements Regarding "Safe Harbor"
Provisions of the Private Securities Litigation Reform
Act of 1995
The Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1996 is among certain
communications by the Company which contain forward
looking statements, including statements regarding its
financial position, results of operations, market
position and product development. These forward
looking statements are based on current expectations.
As permitted by the Private Securities Litigation
Reform Act of 1995, the Company is hereby filing the
following cautionary statements identifying important
factors which, among others, could cause the Company's
actual results to differ materially from expected and
historical results:
Changing business conditions including inflation
and fluctuations in interest rates and foreign
currency exchange rates.
Competitive factors including managed care groups,
institutions and government agencies seeking price
discounts; technological advances attained by
competitors; patents granted to competitors;
potential generic competition for PREMARIN and for
other health care and crop protection products as
such products mature.
Government laws and regulations affecting U.S. and
international operations, including trade,
monetary and fiscal policies, taxes (including the
Section 936 income tax credit), price controls,
changes in governments and legal systems, as well
as actions affecting approvals of products and
licensing.
Difficulties or delays in product development
including, but not limited to, the inability to
identify viable new chemical compounds,
successfully complete clinical trials, obtain and
maintain regulatory approval for the compounds or
gain and maintain market acceptance of approved
product. Similar difficulties or delays can also
affect the development of the Company's other
businesses.
Growth in costs and expenses, including changes in
product mix and the impact of divestitures,
restructuring and other unusual items that could
result from evolving business strategies,
evaluation of asset realization, and
organizational structures.
Significant litigation adverse to the Company
including product liability risks related to the
Company's health care and other products.
Continued consolidation in the pharmaceutical
industry could affect the Company's competitive
position.
