SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission file number
December 31, 1996 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
incorporation or organization) Number)
Five Giralda Farms, Madison, NJ 07940-0874
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (201) 660-5000
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange On
Title of Each Class Which Registered
$2 Convertible Preferred Stock, $2.50 par value New York Stock Exchange
Common Stock, $.33 - 1/3 par value New York Stock Exchange
6 - 7/8% Notes due April 15, 1997 New York Stock Exchange
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. __
State the aggregate market value of the voting stock held by nonaffiliates of
the registrant. (The aggregate market value shall be computed by reference to
the price at which the stock was sold, or the average bid and asked prices of
such stock, as of a specified date within 60 days prior to the date of filing).
Aggregate market value at March 3, 1997 $41,679,526,717
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date (applicable only to corporate
registrants).
Outstanding at
March 3, 1997
Common Stock, $.33 - 1/3 par value 642,458,986
Documents incorporated by reference: list hereunder the following documents if
incorporated by reference and the part of the Form 10-K into which the document
is incorporated: (1) any annual report to security holders; (2) any proxy or
information statements; and (3) any prospectus filed pursuant to Rule 424(b) or
(c) under the Securities Act of 1933 (the listed documents should be clearly
described for identification purposes).
(1) 1996 Annual Report to Shareholders - In Parts I, II and IV
(2) Proxy Statement filed March 24, 1997 - In Part III
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PART I
ITEM 1. BUSINESS
General
American Home Products Corporation (the "Company"), a Delaware
corporation organized in 1926, is currently engaged in the discovery,
development, manufacture, distribution and sale of a diversified line
of products in two primary business segments: health care products
and agricultural products. Health care products include branded and
generic ethical pharmaceuticals, biologicals, nutritionals, consumer
health care products, medical devices and animal biologicals and
pharmaceuticals. Agricultural products include crop protection and
pest control products such as herbicides, insecticides, fungicides and
plant growth regulators. The Company holds a majority interest in
Immunex Corporation, a biopharmaceutical company whose stock is
publicly traded.
In December 1996, the Company acquired the remaining equity interest
in the biopharmaceutical company, Genetics Institute, Inc. ("G.I.")
that it did not already own for approximately $1.3 billion.
In November 1996, the Company sold a majority interest in the American
Home Foods business for approximately $1.2 billion. The Company
retained a 20% equity interest in International Home Foods, the
successor to American Home Foods.
In late 1994, the Company acquired the outstanding common stock of
American Cyanamid Company ("Cyanamid"). The aggregate purchase price
to acquire all of Cyanamid including acquisition-related fees and
expenses was approximately $9.6 billion.
Additional information relating to the G.I. and Cyanamid acquisitions,
the American Home Foods disposition, and certain other acquisitions
and divestitures is set forth in Notes 2 and 3 of the Notes to
Consolidated Financial Statements in the Company's 1996 Annual Report
to Shareholders and is incorporated herein by reference.
In February 1997, the Company acquired the worldwide animal health
business of Solvay S.A. for approximately $460 million.
Unless stated to the contrary, or unless the context otherwise
requires, references to the Company in this report include American
Home Products Corporation and its wholly-owned or majority-owned
subsidiaries.
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Industry Segments
Financial information, by industry segment, for the three years ended
December 31, 1996 is set forth on page 34 of the Company's 1996 Annual
Report to Shareholders and is incorporated herein by reference.
The Company is not dependent on any single or major group of customers
for its sales. The Company currently manufactures, distributes and
sells a diversified line of products in two primary industry segments.
The product designations appearing in differentiated type herein are
trademarks.
HEALTH CARE PRODUCTS -
Pharmaceuticals - This sector includes a wide variety of ethical
pharmaceutical and biological products for human and veterinary use
which are promoted and sold worldwide primarily to wholesalers,
pharmacies, hospitals, managed care organizations and physicians.
Some of these sales are made to large buying groups representing
certain of these customers. Principal product categories for human
use and their respective products are: women's health care including
PREMARIN, PREMPRO/PREMPHASE, LO/OVRAL (marketed as MIN-OVRAL
internationally), NORDETTE and TRIPHASIL (marketed as TRINORDIOL
internationally); infant nutritionals (international markets only);
cardiovascular including CORDARONE and ZIAC; antiobesity including
PONDIMIN and REDUX; mental health including ATIVAN and EFFEXOR; anti-
inflammatories including LODINE and ORUVAIL; anti-infectives including
MINOCIN, SUPRAX and ZOSYN (marketed as TAZOCIN internationally);
vaccines including ORIMUNE and TETRAMUNE; biopharmaceuticals including
recombinant Factor VIII; and oncology therapies. In addition, the
Company markets generic pharmaceutical products. Principal animal
health product categories include vaccines, pharmaceuticals including
anthelmintics, endectocides and growth implants. The Company
manufactures these products in the United States and Puerto Rico and
in 22 foreign countries.
Sales of women's health care products in the aggregate accounted for
more than 10% of consolidated net sales in 1996, 1995 and 1994.
Except for sales of women's health care products, no single
pharmaceutical product or other category of products accounted for
more than 10% of consolidated net sales in 1996, 1995 or 1994. The
operating income before taxes from the women's health care products in
the aggregate, and the PREMARIN line of products individually,
accounted for more than 10% of consolidated operating income before
taxes in 1996, 1995 and 1994.
Consumer health care - Principle over-the-counter health care product
categories and their respective products are analgesics including
ADVIL; cough/cold/allergy remedies including ROBITUSSIN and DIMETAPP;
vitamins and mineral supplements including CENTRUM; hemorrhoidal;
antacids; and asthma relief items. These products are generally sold
to wholesalers, retailers and managed care organizations, and are
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primarily promoted to consumers worldwide through advertising. These
products are manufactured in the United States and Puerto Rico and in
17 foreign countries.
No single consumer health care product or category of products
accounted for more than 10% of consolidated net sales or operating
income before taxes in 1996, 1995 or 1994.
Medical Devices - Principal products in this sector include MONOJECT
needles and syringes, ARGYLE tubes, catheters and chest drainage
devices, DAVIS & GECK wound closure products, tympanic and predictive
thermometers, ophthalmic surgical equipment and vision care products,
exercise equipment, cardiopulmonary instrumentation and devices,
enteral feeding systems and access devices, microsurgical equipment
and other hospital products which are promoted and sold worldwide,
principally to physicians, hospitals, other health care institutions
and wholesalers. Buying groups also represent certain of these
customers. In addition to the United States and Puerto Rico, these
products are manufactured in 11 foreign countries.
No single medical device product or category of products accounted for
more than 10% of consolidated net sales or operating income before
taxes in 1996, 1995 or 1994.
AGRICULTURAL PRODUCTS -
Principal agricultural product categories and their respective
products are herbicides including PURSUIT (marketed as PIVOT
internationally) and PROWL (marketed as STOMP internationally);
insecticides including COUNTER; and fungicides which are promoted to
consumers worldwide and generally sold directly to wholesalers and
retailers. In addition to the United States and Puerto Rico, these
products are manufactured in eight foreign countries.
No single agricultural product or category of products exceeded 10% of
consolidated net sales or operating income before taxes in 1996, 1995
or 1994.
FOOD PRODUCTS -
On November 1, 1996, the Company sold a majority interest in the
American Home Foods business. Products in this segment included
prepared pastas and other entrees, regional specialty foods,
condiments, snack products, spreadable fruit products and other food
products which were promoted to consumers through advertising and
generally sold directly to wholesalers and retailers. The Company
retained a 20% equity interest in International Home Foods, the
successor to American Home Foods.
No single food product or category of products exceeded 10% of
consolidated net sales or operating income before taxes in 1996, 1995
or 1994.
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Sources and Availability of Raw Materials
Generally, raw materials and packaging supplies are purchased in the
open market from various outside vendors. The loss of any one source
of supply would not have a material adverse effect on the Company's
consolidated financial position or results of operations.
Patents and Trademarks
The Company owns, has applications pending for, and is licensed under
many patents relating to a wide variety of products. The Company
believes that its patents and licenses are important to its business,
but no one patent or license (or group of related patents or licenses)
currently is of material importance in relation to its business as a
whole.
In the pharmaceuticals business, most of the Company's major products
are not protected by patents. The non-steroidal anti-inflammatory
("NSAID") LODINE ceased to be under patent protection in the United
States in February 1997. The product extensions LODINE XL and LODINE
500 mg. have market exclusivity until 1999. Other prescription
products, such as the cardiovasculars INDERAL LA and INDERIDE LA,
remain patent protected until late 1997. The anti-depressant EFFEXOR
will have patent protection into 2007. TETRAMUNE, a combination
vaccine, will have patent protection until 2007. SUPRAX, a third-
generation cephalosporin antibiotic, remains under patent protection
until 2002. VERELAN, a calcium channel blocker, will have patent
protection until 2006. PREMPRO, a combination estrogen and progestin
product, will have patent protection until 2006.
Sales in the consumer health care and medical devices businesses are
largely supported by the Company's trademarks and brand names. These
trademarks and brand names are a significant part of the Company's
business and have a perpetual life as long as they remain in use. See
"Competition" below, for a discussion of generic and store brands
competition.
In the Agricultural Products segment, the imidazolinone herbicide
products SCEPTER and PURSUIT will have patent protection until at
least 2006.
Seasonality
Sales and results of operations of the U.S. agricultural products
business are seasonal and tend to be heavily concentrated in the first
six months of each year. Sales of consumer health care products are
affected by seasonal demand for cold/flu products and, as a result,
second quarter results for consumer health care products tend to be
lower than results in other quarters.
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Competition
HEALTH CARE PRODUCTS -
The Company operates in the highly competitive health care industry
which includes the ethical pharmaceutical, animal health, consumer
health care and medical devices businesses. Within the ethical
pharmaceutical and animal health businesses, the Company has many
major multi-national competitors and numerous other smaller domestic
and foreign competitors. Based on net sales, the Company believes it
ranks within the top 10 major competitors within the ethical
pharmaceutical business category and, with the acquisition of the
Solvay S.A. animal health business in the first quarter of 1997, the
Company believes it ranks within the top 5 major competitors within
the animal health business category. The consumer health care
business also has many competitors. Based on net sales, the Company
believes it ranks within the top 10 major competitors within this
business category.
The Company's competitive position in the Health Care Products segment
is affected by several factors including resources available to
develop, enhance and promote products, customer acceptance, product
quality, patent protection, development of alternative therapies by
competitors, scientific and technological advances and governmental
reforms on pricing and generic substitutes. For prescription
products, the growth of managed care organizations, such as health
maintenance organizations ("HMOs") and pharmaceutical benefit
management companies, has resulted in increased competitive pressures.
The continued growth of generic substitutes is further promoted by
legislation, regulation and various incentives enacted and promulgated
in both the public and private sectors.
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. In November 1996, the FDA published and
sought comment on scientific data on the composition of conjugated
estrogens. 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.
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Health care costs will continue to be the subject of attention in both
the public and private sectors in the U.S. Similarly, in
international markets, health care spending is subject to increasing
governmental review, much of which is focused on pharmaceutical
prices. While the Company cannot predict the impact that any future
health care initiatives may 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.
The growth of generic and store brands continued to impact some of the
Company's consumer health care branded product line categories in 1996
and is expected to continue during 1997. The medical devices
business, particularly in the needle and syringe, and suture product
lines, is also impacted by competitive market conditions which
continue to place significant pressure on prices.
AGRICULTURAL PRODUCTS -
The Agricultural Products segment has over 40 competitors worldwide
and ranks in the top 10 based on net sales. Among these companies,
the top 10 competitors are multi-national, representing over 70% of
the sales in the agrochemical market. Competitive factors include
product efficacy, distribution channels and resource availability for
development of new products and improvement of existing ones. There
can also be generic competition when products are no longer patent
protected.
GENERAL -
In all business segments, advertising and promotional expenditures are
significant costs to the Company and are necessary to effectively
communicate information concerning the Company's products to health
professionals, to the trade and to consumers.
Research and Development
Worldwide research and development activities are focused on
developing and bringing to market new products to treat and/or prevent
some of the most serious health care and agricultural problems.
Research and development expenditures totaled $1,429,056,000 in 1996,
$1,354,963,000 in 1995 and $817,090,000 in 1994, with approximately
78% of these expenditures in the ethical pharmaceutical area in 1996.
The Company currently has 14 New Drug Applications and 23 Supplemental
Drug Applications filed with the FDA for review, and 86 active
Investigational New Drug Applications and one Biologics License
Application pending. During 1996, several major collaborative research
and development arrangements continued with other pharmaceutical and
biotechnology companies. It is not anticipated, however, that the
products developed as a result of these activities will contribute
significantly to consolidated revenues or operating profits in the
near future. The extent of subsequent contributions from these
potential products, if any, cannot presently be predicted.
Additionally, the Agricultural Products segment has four products
awaiting approval by the United States Environmental Protection Agency
("EPA").
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In December 1996, the Company acquired the remaining equity interest
in G.I. for approximately $1.3 billion. The completion of this
acquisition will facilitate research and development coordination with
Wyeth-Ayerst Research.
During 1996, the Company received FDA approval for the arthritis
product NAPRELAN, the antiobesity drug REDUX, the non-steroidal anti-
inflammatory drugs LODINE XL and LODINE 500 mg., the new rheumatoid
arthritis indication for LODINE and the OTC products AXID AR,
Children's ADVIL and Junior Strength ADVIL tablets (100 mg.).
Regulation
The Company's various health care and agricultural products are
subject to regulation by government agencies throughout the world.
The primary emphasis of these requirements is to assure the safety and
effectiveness of the Company's products. In the United States, the
FDA, under the Federal Food, Drug and Cosmetic Act and the Public
Health Service Act, regulates many of the Company's health care
products, including human and animal pharmaceuticals, vaccines,
consumer health care products and medical devices. The U.S.
Department of Agriculture ("USDA") regulates the Company's domestic
animal vaccine products. The FDA's powers include the imposition of
criminal and civil sanctions against companies, including seizures of
regulated products and criminal sanctions against individuals. The
FDA's enforcement powers also include its inspection of the numerous
facilities operated by the Company. To facilitate compliance, the
Company from time to time may institute voluntary compliance actions
such as product recalls when it believes it is appropriate to do so.
In addition, many states have similar regulatory requirements. Most
of the Company's pharmaceutical products, and an increasing number of
its consumer health care products, are regulated under the FDA's new
drug approval processes, which mandate pre-market approval of all new
drugs. Such processes require extensive time, testing and
documentation for approval, resulting in significant costs for new
product introductions. The Company's pharmaceutical business is also
affected by the Controlled Substances Act, administered by the Drug
Enforcement Administration, which regulates strictly all narcotic and
habit-forming drug substances. The Company devotes significant
resources to dealing with the extensive federal and state regulatory
requirements applicable to its products.
Federal law also requires drug manufacturers to pay rebates to state
Medicaid programs in order for their products to be eligible for
federal matching funds under the Social Security Act. Additionally, a
number of states are, or may be, pursuing similar initiatives for
rebates and other strategies to contain the cost of pharmaceutical
products. The federal Vaccines for Children entitlement program
enables states to purchase vaccines at federal vaccine prices and
limits federal vaccine price increases to the increase in the consumer
price index. Federal and state rebate programs are expected to
continue.
The manufacture and sale of pesticides are regulated by the EPA. No
new pesticide and no existing pesticide for a new use may be
manufactured, processed or used in the United States without prior
notice to the EPA. Outside the United States, agricultural chemicals
are regulated by various agencies, often by standards which differ
from those in the United States.
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Environmental
Certain of the Company's operations are affected by a variety of
federal, state and local environmental protection laws and regulations
and the Company has, in a number of instances, been notified of its
potential responsibility relating to the generation, storage,
treatment and disposal of hazardous waste. In addition, the Company
has been advised that it may be a responsible party in several sites
on the National Priority List created by the Comprehensive
Environmental Response, Compensation, and Liability Act ("CERCLA"),
commonly known as Superfund. (See Item 3. Legal Proceedings.) In
connection with the spin-off in 1993 by Cyanamid of Cytec Industries
Inc. ("Cytec"), Cyanamid's former chemicals business, Cytec assumed
the environmental liabilities relating to the chemicals businesses,
except for the former chemical business site at Bound Brook, New
Jersey. This assumption is not binding on third parties, and if Cytec
were unable to satisfy these liabilities, they would, in the absence
of other circumstances, be enforceable against Cyanamid.
It is the Company's policy to accrue environmental cleanup costs if it
is probable that a liability has been incurred and an amount is
reasonably estimable. For further information on environmental
matters, see Notes 3, 5 and 11 of the Notes to Consolidated Financial
Statements in the Company's 1996 Annual Report to Shareholders, which
are incorporated herein by reference.
Employees
At the end of 1996, the Company had 59,747 employees worldwide, with
31,447 employed in the United States including Puerto Rico.
Approximately 27% of worldwide employees are represented by various
collective bargaining groups. Relations with most organized labor
groups remain relatively stable.
Financial Information about the Company's Foreign and Domestic
Operations
Financial information about foreign and domestic operations for the
three years ended December 31, 1996, as set forth on page 34 of the
Company's 1996 Annual Report to Shareholders, is incorporated herein
by reference.
The Company's operations outside the United States are conducted
primarily through subsidiaries. International sales in 1996 amounted
to 41% of the Company's total worldwide sales.
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The Company's international businesses are subject to risks of
currency fluctuations, governmental actions and other governmental
proceedings which are inherent in conducting business outside of the
United States. The Company does not regard these factors as deterrents
to maintaining or expanding its non-U.S. operations.
ITEM 2. PROPERTIES
The Company's corporate headquarters and the headquarters of its
domestic consumer health care business are located in Madison, New
Jersey. The Company's domestic and international ethical
pharmaceutical operations and its international consumer health care
business are headquartered in three executive/administrative buildings
in Radnor and St. Davids, Pennsylvania. The Company's animal health
business is headquartered in Overland Park, Kansas. The Company's
principal medical devices business maintains its headquarters in St.
Louis, Missouri. The Agricultural Products segment maintains its
headquarters in Parsippany, New Jersey. The Company's foreign
subsidiaries and affiliates, which generally own their properties,
have manufacturing facilities in 26 countries outside the United
States. The following are the principal manufacturing plants (M) and
research laboratories (R) of the Company as of December 31, 1996:
INDUSTRY SEGMENT
Health Care Products:
Alpirsbach, Germany (M)
Andover, Massachusetts (M, R)
Askeaton, Ireland (M)
Balleymoney, N. Ireland (M)
Baulkham Hills, Australia (M)
Buenos Aires, Argentina (M)
Cabuyao, Philippines (M)
Carolina, Puerto Rico (M)
Catania, Italy (M)
Chazy, New York (R)
Cherry Hill, New Jersey (M, R)
Commerce, Texas (M)
Deland, Florida (M)
Fort Dodge, Iowa (M, R)
Fukuroi City, Japan (M, R)
Georgia, Vermont (M)
Gosport, Great Britain (M, R)
Guayama, Puerto Rico (M)
Havant, Great Britain (M, R)
Hsin-Chu Hsien, Taiwan (M, R)
Maracay, Venezuela (M)
Marietta, Pennsylvania (M, R)
Montreal, Canada (M, R)
Muenster, Germany (M)
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Newbridge, Ireland (M)
Norfolk, Nebraska (M)
Pearl River, New York (M, R)
Princeton, New Jersey (R)
Radnor, Pennsylvania (R)
Richmond, Virginia (M, R)
Rouses Point, New York (M, R)
Sanford, North Carolina (M)
Smithfield, Australia (M)
Suzhou, China (M)
West Chester, Pennsylvania (M)
Agricultural Products:
Catania, Italy (M)
Genay, France (M)
Gravelines, France (M)
Hannibal, Missouri (M)
Hsin-Chu Hsien, Taiwan (M, R)
Iracemapolis, Brazil (R)
Paulina, Brazil (M)
Princeton, New Jersey (R)
Resende, Brazil (M)
Schwabenheim, Germany (R)
All of the above properties are owned except certain facilities in
Cherry Hill, New Jersey, Guayama, Puerto Rico and Suzhou, China which
are under lease. The Company also owns or leases a number of other
smaller properties worldwide which are used for manufacturing,
research, warehousing and office space.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are parties to numerous lawsuits and
claims arising out of the conduct of its business, including product
liability and other tort claims.
There are approximately 250 cases pending, predominantly in Scotland,
based upon alleged injuries arising out of the use of the tranquilizer
ATIVAN. Substantially all of the cases in Scotland have been
supported by governmental legal aid funding, as had other related
litigation in the United Kingdom. In 1994, the Legal Aid Board in
England, where more than 1,100 cases had been pending, discontinued
funding for the English litigation and all of the English ATIVAN cases
have now been dismissed. The Northern Ireland Legal Aid Board has
also discontinued the funding of the litigation in that jurisdiction.
The Scottish Legal Aid Board is currently considering submissions by
the Company that public funding for the Scottish litigation should
also be discontinued. The Scottish cases have been stayed pending the
Legal Aid Board's determination.
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There are currently more than 2,700 lawsuits pending against the
Company in federal and state courts on behalf of approximately 42,000
plaintiffs alleging injuries as a result of use of the NORPLANT
SYSTEM, the Company's implantable contraceptive containing
levonorgestrel. Approximately 70 of the cases have been filed as
class actions and the remainder are proceeding as individual suits.
In December 1994, the Judicial Panel on Multi-District Litigation
("MDL") ordered that all NORPLANT SYSTEM lawsuits filed in federal
courts be consolidated for pretrial proceedings in the U.S. District
Court in Beaumont, Texas. In August 1996, the MDL court denied a
motion by the federal plaintiffs to certify the cases as a class
action. Class certification was also denied during 1996 in state
courts in New Jersey, Pennsylvania and Illinois and a class relating
to claims involving removal difficulties which had been certified by
the Circuit Court of Illinois in June 1994 ( Doe v. Wyeth-
Ayerst Laboratories (Cir. Ct. Ill., Cook Cty. 1993)) was decertified.
The only jurisdiction where the certification issue remains pending is
Louisiana, where the issue will not be fully briefed and decided until
1998. Following the denial of class certification, the MDL court
scheduled three "bellwether" trials, each involving the claims of five
Texas plaintiffs. Rather than proceeding with the first of these
trials as scheduled on February 24, 1997, the court entered summary
judgment in favor of the Company on all of plaintiffs' claims. It is
not known at this point whether the plaintiffs will appeal. The
Company will continue to contest these and all other NORPLANT SYSTEM
claims. A number of state court "bellwether" trials, primarily in
Texas and Indiana, are scheduled to take place during 1997.
On March 7, 1994, an action was brought against the Company by Johnson
& Johnson ("J&J") and Ortho Pharmaceutical Corporation ("Ortho")
currently seeking approximately $270 million in damages alleged to
have arisen from a preliminary injunction which was granted in a
patent infringement lawsuit brought by the Company and which had
prevented J&J and Ortho from marketing an oral contraceptive
containing norgestimate for approximately 10 months until it was
overturned by the Court of Appeals for the Federal Circuit in a two-
to-one decision. Thereafter, in the underlying action in the district
court, the jury found against the Company on its claim of infringement
and the trial of the damages action is expected to commence in 1997.
In an action for patent infringement pending in U.S. District Court
(Eastern District of Pennsylvania), McNeilab Inc. has recently alleged
that it is entitled to approximately $60 million in compensatory
damages against Scandipharm Inc., which would be entitled to seek
indemnification from a subsidiary of the Company, Eurand
Microencapsulation, S.A. In this action, McNeilab is alleging that
pancreatic tablets used to treat cystic fibrosis, which Eurand
exclusively supplies to Scandipharm, infringe U.S. patents licensed to
McNeilab. Treble damages are also sought for alleged willful
infringement. Although the trial court had previously dismissed this
action for lack of standing, the appeals court reinstated the lawsuit
and it is expected to proceed to trial in 1997.
On October 14, 1993, Rite Aid Corporation, Revco D.S. Inc. and other
retail drug chains and retail pharmacies filed an action in U.S.
District Court (Middle District of Pennsylvania) against the Company,
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other pharmaceutical manufacturers and a pharmacy benefit management
company alleging that the Company and other defendants provided
discriminatory price and promotional allowances to managed care
organizations and others in violation of the Robinson-Patman Act. The
complaint further alleges collusive conduct among the defendants
related to the alleged discriminatory pricing in violation of the
Sherman Antitrust Act as well as certain other violations of common
law principles of unfair competition. Subsequently, numerous other
cases, many of which are purported class actions brought on behalf of
retail pharmacies and retail drug and grocery chains, were filed in
various federal courts against the Company as well as other
pharmaceutical manufacturers and wholesalers. These cases make one or
more similar allegations of violations of federal or state antitrust
or unfair competition laws. In addition, a mail order pharmacy
plaintiff alleges that it was forced out of business and certain
plaintiffs also allege that the defendants' patents covering brand
name prescription drugs give the defendants power to enter into
exclusionary arrangements with certain managed care customers and seek
compulsory patent licenses. The various class actions were
consolidated as a single class action (the "Consolidated Class
Action") which alleges violations of Section 1 of the Sherman Act.
All of the federal actions have been coordinated and consolidated for
pretrial purposes under the caption In re Brand Name Prescription
Drug Antitrust Litigation (MDL 997 N.D.Ill.). These federal actions
seek treble damages in unspecified amounts and injunctive and other
relief. The court in the federal actions approved an amended
settlement among certain defendants, including the Company, and
the Consolidated Class Action plaintiffs. The settlement provides,
among other things, for certain payments to be made by the settling
defendants, over a period of three years, to the Consolidated Class
Action plaintiffs. The Company's settlement payments (including
payments to be made on behalf of Cyanamid) would total $42.5
million. Notices of appeal of the settlement have been filed by
certain class members. The amendment to the settlement, 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. The settlement also provides
that it shall not be deemed or construed to be an admission or
evidence of any violation of any statute or law or of any liability or
wrongdoing by the Company or of the truth of any of the claims or
allegations alleged in the Consolidated Class Action. 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
that indirect purchasers lack standing to bring federal price fixing
claims. The individual federal actions, including those brought by
Rite Aid Corporation, Revco D.S. Inc. and other retail drug chains,
remain pending against the Company. In addition to the federal
actions, similar litigation on behalf of consumers or retail
pharmacies has been brought in various state courts, including
purported class actions in Alabama, Arizona, California, Colorado,
District of Columbia, Florida, Kansas, Maine, Michigan, Minnesota, New
York, Tennessee, Washington and Wisconsin. These actions are all in
various pre-trial stages. The actions in Colorado, Washington and New
York have been dismissed on pre-trial motions. Plaintiffs have
appealed the dismissal of the Washington and New York actions.
I-12
<PAGE>
The FTC is also investigating allegations of concerted action in the
pricing of pharmaceutical products and the Company has provided
information in response to a subpoena.
The Company has been involved in various antitrust suits and
government investigations relating to its marketing and sale of infant
formula. The antitrust lawsuits, which were commenced in various
federal and state courts, alleged in general that the Company
conspired with one or more of its competitors to fix prices of infant
formula and to monopolize the market for infant formula products. As
previously disclosed, most of the cases as well as a Federal Trade
Commission ("FTC") proceeding have been settled and other cases have
been terminated without liability to the Company, including an action
brought in federal court by the State of Louisiana, which has been
dismissed. In Alabama, class certification has been denied in a state
court action on behalf of indirect purchasers. The Company is also a
defendant in a purported class action brought in federal court under
Massachusetts state law on behalf of indirect purchasers of infant
formula in Massachusetts. The government agencies that have been
conducting investigations of pricing and marketing practices in the
infant formula industry include three state attorneys general. The
Company has been advised that two other state attorneys general have
terminated their investigations of the Company without any action.
The Company has entered into settlements with the FTC and state
attorneys general concerning pricing practices relating to a marketing
program for certain crop protection products. These settlements,
which do not admit any liability by the Company, prohibit resale price
maintenance in the sale of such crop protection products. The state
settlement also provides for a payment of $7.3 million by the Company.
A purported class action was filed in state court in Tennessee and
alleges similar violations of state antitrust and consumer protection
laws by Cyanamid in the sale of crop protection products. The
complaint purports to be on behalf of indirect purchasers of
Cyanamid's crop protection products in the states of Tennessee,
Alabama, California, Florida, Kansas, Maine, Michigan, Minnesota,
Mississippi, New Mexico, North Carolina, North Dakota, South Dakota,
West Virginia, Wisconsin and the District of Columbia.
In response to a subpoena from the New York State Attorney General,
the Company has provided information relating to the Company's
copromotion of Merck's osteoporosis drug FOSAMAX and disease
management activities.
Pursuant to a consent order entered into by the Company in connection
with the acquisition from Solvay S.A. of its animal health business,
the Company has divested certain canine and feline vaccines to
Schering-Plough Corporation. If Schering-Plough does not obtain USDA
approval to manufacture these vaccines itself, the consent order may
require certain additional asset divestitures by the Company.
I-13
<PAGE>
As discussed in Item I, the Company is a party to, or otherwise
involved in, legal proceedings under CERCLA and similar state laws
directed at the cleanup of various sites including 62 Superfund sites,
including the Cyanamid-owned Bound Brook, N.J. site. The Company's
potential liability varies greatly from site to site. For some sites,
the potential liability is de minimis and, for others, the final costs
of cleanup have not yet been determined. As assessments and cleanups
proceed, these liabilities are reviewed periodically and are adjusted
as additional information becomes available. Environmental
liabilities are inherently unpredictable. The liabilities can change
substantially due to such factors as additional information on the
nature or extent of contamination, methods of remediation required,
and other actions by governmental agencies or private parties. The 62
Superfund sites exclude sites for which Cytec assumed full liability
and agreed to indemnify Cyanamid but include certain sites for which
there is shared responsibility between Cyanamid and Cytec. The
Company has no reason to believe that it has any practical exposure to
any of the liabilities against which Cytec has agreed to assume and
indemnify Cyanamid.
The Company has agreed to enter into a settlement with the EPA with
respect to a civil administrative action pending against Cyanamid for
alleged violation of a provision of the Emergency Planning & Community
Right-to-Know Act of 1986. Under the proposed settlement, the Company
would pay a civil penalty of $129,000 plus the donation to the local
county of certain emergency response equipment.
For information concerning certain litigation involving Immunex
Corporation, see Part I, Item 3 of the Immunex Corporation Annual
Report on Form 10-K for the fiscal year ended December 31, 1996, which
Item is incorporated herein by reference.
In the opinion of the Company, although the outcome of any litigation
cannot be predicted with certainty, the ultimate liability of the
Company in connection with pending litigation and other matters
described above will not have a material adverse effect on the
Company's consolidated financial position but could be material to the
results of operation in any one accounting period.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
I-14
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT AS OF MARCH 27, 1997
Each officer is elected to hold office until a successor is chosen or until
earlier removal or resignation. None of the executive officers is related to
another:
Elected to
Office
Name Age Offices and Positions
John R. Stafford 59 Chairman of the Board, President December 1986
and Chief Executive Officer,
Chairman of Executive,
Finance, Operations and
Nominating Committees
Business Experience: 1991 to date, Chairman of the
Board, President and Chief
Executive Officer (President
to May 1990 and from February
1994)
Robert G. Blount 58 Senior Executive Vice President, October 1995
Director, Member of Executive,
Finance and Operations
Committees
Business Experience: 1991 to October 1995, Executive
Vice President
October 1995 to date, Senior
Executive Vice President
Fred Hassan 51 Executive Vice President, October 1995
Director, Member of Finance
and Operations Committees
Business Experience: To March 1993, President,
Wyeth-Ayerst Laboratories
Division
March 1993 to May 1993, Group
Vice President
May 1993 to October 1995 Senior
Vice President
October 1995 to date, Executive
Vice President
I-15
<PAGE>
Elected to
Office
Name Age Offices and Positions
Joseph J. Carr 54 Senior Vice President May 1993
Member of Finance and
Operations Committees
Business Experience: To April 1991, Vice President
April 1991 to May 1993, Group
Vice President
May 1993 to date, Senior Vice
President
Louis L. Hoynes, Jr. 61 Senior Vice President and November 1990
General Counsel
Member of Finance and
Operations Committees
Business Experience: 1991 to date, Senior Vice
President and General
Counsel
William J. Murray 51 Senior Vice President October 1995
Member of Finance and
Operations Committees
Business Experience: To September 1992, President,
Agricultural Division,
American Cyanamid Company
September 1992 to January 1995,
Group Vice President, American
Cyanamid Company
January 1995 to October 1995,
Vice President
October 1995 to date, Senior Vice
President
I-16
<PAGE>
Elected to
Office
Name Age Offices and Positions
David M. Olivier 53 Senior Vice President January 1996
Member of Finance and
Operations Committees
Business Experience: To January 1996, President,
Wyeth-Ayerst International,Inc.
January 1996 to date, Senior Vice
President
John R. Considine 46 Vice President - Finance February 1992
Member of Finance and
Operations Committees
Business Experience: To February 1992,
Vice President and Treasurer
February 1992 to date, Vice
President- Finance
Paul J. Jones 51 Vice President and Comptroller May 1995
Member of Finance Committee
Business Experience: To April 1995, Senior Vice
President - Finance and
Administration, Wyeth-Ayerst
Laboratories Division
May 1995 to date, Vice President
and Comptroller
Rene R. Lewin 50 Vice President - Human May 1994
Resources, Member of Finance
Committee
Business Experience: To May 1994, Executive Director
Human Resources - Worldwide
Pharmaceutical Division,
Eli Lilly and Company
May 1994 to date, Vice President -
Human Resources
I-17
<PAGE>
Elected to
Office
Name Age Offices and Positions
Thomas M. Nee 57 Vice President - Taxes May 1986
Member of Finance Committee
Business Experience: 1991 to date, Vice President-Taxes
I-18
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The New York Stock Exchange is the principal market on which the
Company's common stock is traded. Tables showing the high and low
sales price for the stock, as reported in the consolidated transaction
reporting system, and the dividends paid per common share for each
quarterly period during the past two years, as shown on page 36 of the
Company's 1996 Annual Report to Shareholders, are incorporated herein
by reference.
There were 67,467 holders of record of the Company's common stock as
of March 3, 1997.
ITEM 6. SELECTED FINANCIAL DATA
The data with respect to the last five fiscal years, appearing in the
Ten-Year Selected Financial Data presented on pages 18 and 19 of the
Company's 1996 Annual Report to Shareholders, are incorporated herein
by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and
Results of Operations, appearing on pages 37 through 42 of the
Company's 1996 Annual Report to Shareholders, is incorporated herein
by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and Notes on pages 20 through 34
of the Company's 1996 Annual Report to Shareholders, the Report of
Independent Public Accountants and the Management Report on Financial
Statements on page 35, and Quarterly Financial Data on page 36, are
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
II-1
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Information relating to the Company's directors is incorporated herein
by reference to pages 2 through 4 of a definitive proxy statement
filed with the Securities and Exchange Commission on March 21, 1997
("the 1997 Proxy Statement").
(b) Information relating to the Company's executive officers as of March
27, 1997 is furnished in Part I hereof under a separate unnumbered
caption ("Executive Officers of the Registrant as of March 27, 1997").
ITEM 11. EXECUTIVE COMPENSATION
Information relating to executive compensation is incorporated herein
by reference to pages 9 through 14 of the 1997 Proxy Statement.
Information with respect to compensation of directors is incorporated
herein by reference to pages 5 and 6 of the 1997 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information relating to security ownership is incorporated by
reference to pages 7 and 8 of the 1997 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
III-1
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)1. Financial Statements
The following Consolidated Financial Statements, related Notes and
Report of Independent Public Accountants, included on pages 20 through
35 of the Company's 1996 Annual Report to Shareholders, are
incorporated herein by reference.
Pages
Consolidated Balance Sheets as of
December 31, 1996 and 1995 20
Consolidated Statements of Income
for the years ended December 31,
1996, 1995 and 1994 21
Consolidated Statements of Retained
Earnings and Additional Paid-in
Capital for the years ended
December 31, 1996, 1995 and 1994 22
Consolidated Statements of Cash Flows
for the years ended December 31, 1996,
1995 and 1994 23
Notes to Consolidated Financial Statements 24-34
Report of Independent Public Accountants 35
(a)2. Financial Statement Schedules
The following consolidated financial information is included in Part
IV of this report:
Pages
Report of Independent Public Accountants
on Supplemental Schedule IV-8
Schedule II - Valuation and Qualifying
Accounts for the years ended December 31, 1996,
1995 and 1994 IV-9
Schedules other than those listed above are omitted because they are
not applicable.
IV-1
<PAGE>
ITEM 14. (Continued)
(a)3. Exhibits
Exhibit No. Description
(2.1) The Company's Statement on Schedule 14D-1 relating to the Company's
tender offer for all issued and outstanding shares of American
Cyanamid Company, filed on August 10, 1994 (the "Schedule 14D-1"), and
all exhibits and amendments thereto are hereby incorporated herein by
reference.
(2.2) Agreement and Plan of Merger, dated August 17, 1994, as amended, among
the Company, AC Acquisition Corp. and American Cyanamid Company, filed
as Exhibit (I) to the Report on Schedule 13D for Immunex Corporation
filed by the Company, dated December 1, 1994 for the event which
occurred on November 21, 1994 is hereby incorporated herein by
reference.
(3.1) The Company's Restated Certificate of Incorporation is incorporated
herein by reference to Exhibit 3.1 of the Company's Form 10/A dated
April 30, 1996.
(3.2) By-Laws, as amended to date, is incorporated herein by reference to
Exhibit 3.2 of the Company's Form 10-Q for the quarter ended March 31,
1996.
(4.1) Indenture, dated as of April 10, 1992, between the Company and The
Chase Manhattan Bank (successor to Chemical Bank), as Trustee, is
incorporated by reference to Company's Exhibit 2 of the Company's Form
8-A dated August 25, 1992.
(4.2) Supplemental Indenture, dated October 13, 1992, between the Company
and The Chase Manhattan Bank (successor to Chemical Bank), as Trustee,
is incorporated by reference to Company's Form 10-Q for the quarter
ended September 30, 1992.
(10.1) A Credit Agreement, dated as of September 9, 1994, among the Company,
American Home Food Products, Inc., Sherwood Medical Company, A.H.
Robins Company, Incorporated, the several banks and other financial
institutions from time to time parties thereto and The Chase Manhattan
Bank (successor to Chemical Bank), as agent for the lenders
thereunder, filed as Exhibit 11(b)(2) to Amendment No. 7 to the
Schedule 14D-1 is hereby incorporated herein by reference.
(10.2) B Credit Agreement, dated as of September 9, 1994, among the Company,
American Home Food Products, Inc., Sherwood Medical Company, A.H.
Robins Company, Incorporated, the several banks and other financial
institutions from time to time parties thereto and The Chase Manhattan
Bank (successor to Chemical Bank), as agent for the lenders
thereunder, filed as Exhibit 11(b)(3) to Amendment No. 7 to the
Schedule 14D-1 is hereby incorporated herein by reference.
IV-2
<PAGE>
ITEM 14. (Continued)
(a)3. Exhibits
Exhibit No. Description
(10.3) First Amendment to A Credit Agreement, dated as of August 4, 1995,
among the Company, American Home Food Products, Inc., Sherwood
Medical Company, A.H. Robins Company, Incorporated, the several
banks and other financial institutions from time to time parties
thereto and The Chase Manhattan Bank (as successor to Chemical
Bank), as agent for the lenders thereunder is incorporated by
reference to Exhibit 10.3 of the Company's Form 10-K for the year
ended December 31, 1995.
(10.4) First Amendment to B Credit Agreement, dated as of August 4, 1995,
among the Company, American Home Food Products, Inc., Sherwood
Medical Company, A.H. Robins Company, Incorporated, the several
banks and other financial institutions from time to time parties
thereto and The Chase Manhattan Bank (successor to Chemical Bank),
as agent for the lenders thereunder is incorporated by reference to
Exhibit 10.4 of the Company's Form 10-K for the year ended December
31, 1995.
(10.5) Second Amendment to A Credit Agreement, dated as of August 2, 1996,
among the Company, American Home Food Products, Inc., Sherwood
Medical Company, A.H. Robins Company, Incorporated, the several
banks and other financial institutions from time to time parties
thereto and The Chase Manhattan Bank, as agent for the lenders
thereunder.
(10.6) Second Amendment to B Credit Agreement, dated as of August 2, 1996,
among the Company, American Home Food Products, Inc., Sherwood
Medical Company, A.H. Robins Company, Incorporated, the several
banks and other financial institutions from time to time parties
thereto and The Chase Manhattan Bank, as agent for the lenders
thereunder.
(10.7)* 1978 Stock Option Plan, as amended to date, is incorporated herein
by reference to Exhibit 10.2 of the Company's Form 10-K for the year
ended December 31, 1990 (File Number 1-1225).
(10.8)* 1980 Stock Option Plan, as amended is incorporated by reference to
Exhibit 10.3 of the Company's Form 10-K for the year ended December
31, 1991 (File Number 1-1225).
(10.9)* Amendment to the 1980 Stock Option Plan is incorporated by reference
to Exhibit 10.7 of the Company's Form 10-K for the year ended
December 31, 1995.
*Denotes management contract or compensatory plan or arrangement required to be
filed as an exhibit hereto.
IV-3
<PAGE>
ITEM 14. (Continued)
(a)3. Exhibits
Exhibit No. Description
(10.10)* 1985 Stock Option Plan, as amended is incorporated by reference to
Exhibit 10.4 of the Company's Form 10-K for the year ended December
31, 1991 (File Number 1-1225).
(10.11)* Amendment to the 1985 Stock Option Plan is incorporated by
reference to Exhibit 10.9 of the Company's Form 10-K for the year
ended December 31, 1995.
(10.12)* Amendment to the 1985 Stock Option Plan.
.
(10.13)* Management Incentive Plan, as amended to date.
(10.14)* Supplemental Executive Retirement Plan is incorporated herein by
reference to Exhibit (10.6) of the Company's Form 10-K for the year
ended December 31, 1990.
(10.15)* American Cyanamid Company's Supplemental Executive Retirement Plan
is incorporated by reference to Exhibit 10K of American Cyanamid
Company's Form 10-K for the year ended December 31, 1988
(File 1-3426).
(10.16)* American Cyanamid Company's Supplemental Employees Retirement Plan
Trust Agreement, dated September 19, 1989, between American
Cyanamid Company and Morgan Guaranty Trust Company of New York
is incorporated by reference to Exhibit 10K of American Cyanamid
Company's Form 10-K for the year ended December 31, 1989
(File 1-3426).
(10.17)* American Cyanamid Company's ERISA Excess Retirement Plan is
incorporated by reference to Exhibit 10N of American Cyanamid
Company's Form 10-K for the year ended December 31, 1988
(File 1-3426).
(10.18)* American Cyanamid Company's Excess Retirement Plan Trust
Agreement, dated September 19, 1989, between American Cyanamid
Company and Morgan Guaranty Trust Company of New York is
incorporated by reference to Exhibit 10M of American Cyanamid
Company's Form 10-K for the year ended December 31, 1989
(File 1-3426).
(10.19)* 1990 Stock Incentive Plan is incorporated herein by reference to
Exhibit 28 of the Company's Form S-8 Registration Statement File
No. 33-41434 under the Securities and Exchange Act of 1933, filed
June 28, 1991 (File Number 1-1225).
*Denotes management contract or compensatory plan or arrangement required to be
filed as an exhibit hereto.
IV-4
<PAGE>
ITEM 14. (Continued)
(a)3. Exhibit
Exhibit No. Description
(10.20)* Amendment to the 1990 Stock Incentive Plan is incorporated by
reference to Exhibit 10.13 of the Company's Form 10-K for the year
ended December 31, 1995.
(10.21)* Amendment to the 1990 Stock Incentive Plan.
(10.22)* 1993 Stock Incentive Plan is incorporated herein by reference to
Exhibit I of the Company's Proxy Statement filed March 17, 1994.
(10.23)* Amendment to the 1993 Stock Incentive Plan is incorporated by
reference to Exhibit 10.15 of the Company's Form 10-K for the year
ended December 31, 1995.
(10.24)* Amendment to the 1993 Stock Incentive Plan.
(10.25)* 1996 Stock Incentive Plan is incorporated by reference to Exhibit
10.24 of the Company's Form 10-K for the year ended December
31, 1995.
(10.26)* Amendment to the 1996 Stock Incentive Plan.
(10.27)* Form of Stock Option Agreement.
(10.28)* Form of Special Stock Option Agreement (phased vesting) is
incorporated by reference to Exhibit 10.27 of the Company's
Form 10-K for the year ended December 31, 1995.
(10.29)* Form of the Company's Special Stock Option Agreement (three-year
vesting) is incorporated by reference to Exhibit 10.28 of the
Company's Form 10-K for the year ended December 31, 1995.
(10.30)* Amendment to Special Stock Option Agreement.
(10.31)* Form of the Company's Restricted Stock Performance Award Agreement
under the 1990 Stock Incentive Plan, 1993 Stock Incentive Plan and
1996 Stock Incentive Plan for an initial award (covering three
performance years).
(10.32)* Form of the Company's Restricted Stock Performance Award Agreement
under the 1990 Stock Incentive Plan, 1993 Stock Incentive Plan and
1996 Stock Incentive Plan for subsequent awards (covering one
performance year).
*Denotes management contract or compensatory plan or arrangement required to be
filed as an exhibit hereto.
IV-5
<PAGE>
ITEM 14. (Continued)
(a)3. Exhibit
Exhibit No. Description
(10.33)* 1994 Restricted Stock Plan for Non-Employee Directors is
incorporated herein by reference to Exhibit II of the Company's
Proxy Statement filed March 17, 1994.
(10.34)* Form of Deferred Compensation Agreement.
(10.35)* Savings Plan, as amended, is incorporated herein by reference to
Exhibit 99 of the Company's Form S-8 Registration Statement File
No. 33-50149 under the Securities and Exchange Act of 1933,
filed September 1, 1993.
(10.36)* Retirement Plan for Outside Directors, as amended on January 27,
1994 is herein incorporated by reference to Exhibit 10.12 of the
Company's Form 10-K for the year ended December 31, 1993.
(10.37)* Directors Deferral Plan.
(10.38)* Restricted Stock Trust Agreement under the 1993 Stock Incentive
Plan is incorporated by reference to Exhibit 10.23 of the Company's
Form 10-K for the year ended December 31, 1995.
(10.39)* Nonfunded Deferred Compensation Plan for Directors is incorporated
by reference to Exhibit 10.25 of the Company's Form 10-K for the
year ended December 31, 1995.
(11) Computation of Per Share Earnings.
(12) Computation of Ratio of Earnings to Fixed Charges.
(13) 1996 Annual Report to Shareholders. Such report, except for those
portions thereof which are expressly incorporated by reference
herein, is furnished solely for the information of the Commission
and is not to be deemed "filed" as part of this filing.
(21) Subsidiaries of the Company.
*Denotes management contract or compensatory plan or arrangement required to be
filed as an exhibit hereto.
IV-6
<PAGE>
ITEM 14. (Continued)
(a)3. Exhibit
Exhibit No. Description
(23) Consent of Independent Public Accountants relating to their report
dated January 28, 1997, consenting to the incorporation thereof in
Registration Statements on Form S-3 (File Nos. 33-45324 and 33-
57339) and on Form S-8 (File Nos. 2-96127, 33-24068, 33-41434, 33-
53733, 33-55449, 33-45970, 33-14458, 33-50149, 33-55456 and 333-
15509) by reference to the Form 10-K of the Company filed for the
year ended December 31, 1996.
(27) Financial Data Schedule.
(99) Cautionary Statements regarding "Safe Harbor" Provisions of the
Private Securities Litigation Reform Act of 1995.
(99.1) The Part I, Item 3 Legal Proceedings (page 21) section of Immunex
Corporation's Report on Form 10-K for the fiscal year ended December
31, 1996, filed on March 18, 1997, is incorporated herein by
reference.
(b) Reports on Form 8-K
None
IV-7
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To American Home Products Corporation:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements included in American Home Products
Corporation's Annual Report to Shareholders incorporated by reference in this
Form 10-K, and have issued our report thereon dated January 28, 1997. Our audit
was made for the purpose of forming an opinion on those statements taken as a
whole. The schedule listed in the accompanying index is the responsibility of
the Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. The schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
New York, N.Y.
January 28, 1997
IV-8
<PAGE>
<TABLE>
American Home Products Corporation and Subsidiaries
Schedule II - Valuation and Qualifying Accounts
For the Years Ended December 31, 1996, 1995 and 1994
(Dollars in thousands)
<CAPTION>
Column A Column B Column C Column D Column E
Balance Balance
at at
Beginning Additions Deductions End
of Period (A) (B) of Period
<S> <C> <C> <C> <C>
Description
Year ended 12/31/96:
Allowance for doubtful accounts $108,164 $88,273 $16,457 $179,980
Allowance for cash discounts 27,445 235,802 239,106 24,141
Allowance for deferred tax 206,644 117,569 29,373 294,840
assets
$342,253 $441,644 $284,936 $498,961
Year ended 12/31/95:
Allowance for doubtful accounts $77,985 $32,186 $2,007 $108,164
Allowance for cash discounts 21,483 240,871 234,909 27,445
Allowance for deferred tax 250,976 45,604 89,936 206,644
assets
$350,444 $318,661 $326,852 $342,253
Year ended 12/31/94:
Allowance for doubtful accounts $25,631 $58,752 $6,398 $77,985
Allowance for cash discounts 20,318 151,783 150,618 21,483
Allowance for deferred tax 91,363 228,542 68,929 250,976
assets
$137,312 $439,077 $225,945 $350,444
</TABLE>
(A) Balances for 1994 reflect the acquisition of American Cyanamid
Company effective December 1, 1994.
(B) Represents amounts used for the purposes for which the accounts
were created and reversal of amounts no longer required.
IV-9
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Annual Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AMERICAN HOME PRODUCTS CORPORATION
(Registrant)
March 27, 1997 By /S/ Robert G. Blount
Robert G. Blount
Senior Executive Vice President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signatures Title Date
Principal Executive Officer:
/S/ John R. Stafford Chairman, President March 27, 1997
John R. Stafford and Chief Executive Officer
Principal Financial Officer:
/S/ Robert G. Blount Senior Executive Vice March 27, 1997
Robert G. Blount President and Director
Principal Accounting Officer:
/S/ Paul J. Jones Vice President and March 27, 1997
Paul J. Jones Comptroller
Directors:
/S/ Clifford L. Alexander, Jr. Director March 27, 1997
Clifford L. Alexander, Jr.
/S/ Frank A. Bennack, Jr. Director March 27, 1997
Frank A. Bennack, Jr.
/S/ Robin Chandler Duke Director March 27, 1997
Robin Chandler Duke
IV-10
<PAGE>
Signatures Title Date
/S/ John D. Feerick Director March 27, 1997
John D. Feerick
/S/ Fred Hassan Director March 27, 1997
Fred Hassan
/S/ John P. Mascotte Director March 27, 1997
John P. Mascotte
/S/ Mary Lake Polan M.D., Ph.D. Director March 27, 1997
Mary Lake Polan M.D., Ph.D.
/S/ Ivan G. Seidenberg Director March 27, 1997
Ivan G. Seidenberg
/S/ John R. Torell III Director March 27, 1997
John R. Torell III
/S/ William Wrigley Director March 27, 1997
William Wrigley
IV-11
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description
(10.5) Second Amendment to A Credit Agreement, dated as of August 2, 1996,
among the Company, American Home Food Products, Inc., Sherwood
Medical Company, A.H. Robins Company, Incorporated, the several
banks and other financial institutions from time to time parties
thereto and The Chase Manhattan Bank, as agent for the lenders
thereunder.
(10.6) Second Amendment to B Credit Agreement, dated as of August 2, 1996,
among the Company, American Home Food Products, Inc., Sherwood
Medical Company, A.H. Robins Company, Incorporated, the several
banks and other financial institutions from time to time parties
thereto and The Chase Manhattan Bank, as agent for the lenders
thereunder.
(10.12)* Amendment to the 1985 Stock Option Plan.
(10.13)* Management Incentive Plan, as amended to date.
(10.21)* Amendment to the 1990 Stock Incentive Plan.
(10.24)* Amendment to the 1993 Stock Incentive Plan.
(10.26)* Amendment to the 1996 Stock Incentive Plan.
(10.27)* Form of Stock Option Agreement.
(10.30)* Amendment to Special Stock Option Agreement.
(10.31)* Form of the Company's Restricted Stock Performance Award Agreement
under the 1990 Stock Incentive Plan, 1993 Stock Incentive Plan and
1996 Stock Incentive Plan for an initial award (covering three
performance years).
(10.32)* Form of the Company's Restricted Stock Performance Award Agreement
under the 1990 Stock Incentive Plan, 1993 Stock Incentive Plan and
1996 Stock Incentive Plan for subsequent awards (covering one
performance year).
(10.34)* Form of Deferred Compensation Agreement.
(10.37)* Directors Deferral Plan.
*Denotes management contract or compensatory plan or arrangement required to
be filed as an exhibit hereto.
<PAGE>
Exhibit No. Description
(11) Computation of Per Share Earnings.
(12) Computation of Ratio of Earnings to Fixed Charges.
(13) 1996 Annual Report to Shareholders. Such report, except for those
portions thereof which are expressly incorporated by reference
herein, is furnished solely for the information of the Commission
and is not to be deemed "filed" as part of this filing.
(21) Subsidiaries of the Company.
(23) Consent of Independent Public Accountants relating to their report
dated January 28, 1997, consenting to the incorporation thereof in
Registration Statements on Form S-3 (File Nos. 33-45324 and 33-57339)
and on Form S-8 (File Nos. 2-96127, 33-24068, 33-41434, 33-53733, 33-
55449, 33-45970, 33-14458, 33-50149, 33-55456 and 333-15509) by
reference to the Form 10-K of the Company filed for the year ended
December 31, 1996.
(27) Financial Data Schedule.
(99) Cautionary Statements regarding "Safe Harbor" Provisions of the
Private Securities Litigation Reform Act of 1995.
* Denotes management contract or compensatory plan or arrangement required to
be filed as an exhibit hereto.
Exhibit 10.5
SECOND AMENDMENT TO A CREDIT AGREEMENT
Second Amendment (this "Amendment"), dated as of
August 2, 1996 among American Home Food Products, Inc.,
Sherwood Medical Company, A.H. Robins Company, Incorporated
(each, a "Subsidiary Borrower"), American Home Products
Corporation (the "Company", and together with the
Subsidiary Borrowers, the "Borrowers"), the lending
institutions party to the A Credit Agreement referred to
below (the "Banks") and The Chase Manhattan Bank, as Agent
(in such capacity, the "Agent"). All capitalized terms
used herein and not otherwise defined shall have the
respective meanings provided such terms in the A Credit
Agreement referred to below.
W I T N E S S E T H :
WHEREAS, the Borrowers, the Banks and the Agent are
parties to a Credit Agreement, dated as of September 9,
1994, (the "A Credit Agreement");
WHEREAS, the parties hereto wish to amend the A Credit
Agreement as herein provided;
NOW THEREFORE, it is agreed:
1. AC Acquisition Holding Company is hereby added as
a Subsidiary Borrower, with all references in the Credit
Documents to Subsidiary Borrower and/or Subsidiary
Borrowers to include such company.
2. The first recital of the A Credit Agreement is
hereby amended by deleting the amount "$4,000,000,000" in
its entirety and inserting in lieu thereof the amount
"$3,000,000,000 (as the same may be increased pursuant to
subsection 2.5(c) hereof)".
3. Section 1.1 of the A Credit Agreement is hereby
amended by deleting the definition of "Applicable Margin"
in its entirety and inserting in lieu thereof the following
new definition:
"Applicable Margin": a percentage equal to,
(x) for Alternate Base Rate Loans, 0%, (y) for C/D
Rate Loans, .305% and (z) for Eurodollar Rate Loans,
.180%.
4. Section 1.1 of the A Credit Agreement is hereby
amended by deleting the definition of "Facility Fee
Percentage" in its entirety and inserting in lieu thereof
the following definition:
""Facility Fee Percentage": a percentage
equal to .045%."
5. Section 1.1 of the A Credit Agreement is hereby
amended by deleting clause (a) of the definition of
"Termination Date" in its entirety and inserting in lieu
thereof "(a) August 1, 1997 (as such date may be extended
in accordance with the provisions of subsection 2.19)and ".
6. Section 1.1 of the A Credit Agreement is hereby
amended by adding the following definitions in appropriate
alphabetical order:
"Additional Lenders": as defined in subsection 2.5(c).
"B Commitments": as defined in subsection 2.5(c).
7. Section 2.5 of the Credit Agreement is hereby
amended by (x) deleting clause (b) thereof in its entirety
and by substituting therefore the following:
"(b)" Subject to the provisions of Section 2.5(c),
the Commitments once terminated or reduced pursuant to
subsection 2.5(a) may not be reinstated."
and (y) adding a new subsection 2.5(c) to read:
"(c) The Company may from time to time, by notice to
the Agent (which shall promptly deliver a copy to each of
the Lenders), request that the Commitments be increased
(regardless of whether the Commitments or the B Commitments
have theretofore been reduced) by an amount that is not
less than $100,000,000 and will not result in the
Commitments under this Agreement plus the Commitments under
and as defined in the B Credit Agreement (the "B
Commitments") exceeding $8,000,000,000. Each such notice
shall set forth the requested amount of the increase in the
Commitments and the B Commitments and the date (which date
shall be a Business Day) on which such increase is to
become effective (which shall be not fewer than 20 days
after the date of such notice), and shall offer some or all
Lenders the opportunity to increase their Commitments.
Each Lender (as determined by the Company, in its sole
discretion) that has received such request shall, by notice
to the Company and the Agent given not more than 10
Business Days after the date of the Company's notice,
either agree to increase its Commitment by all or a portion
of the offered amount or decline to increase its Commitment
(and any Lender that does not deliver such a notice within
such period of 10 Business Days shall be deemed to have
declined to increase its Commitment). In the event that,
on the 10th Business Day after the Company shall have
delivered a notice pursuant to the first sentence of this
paragraph, the requested Lenders shall have agreed pursuant
to the preceding sentence to increase their Commitments by
an aggregate amount less than the increase in the
Commitments requested by the Company, the Company shall
have the right to arrange for one or more banks or other
financial institutions (any such bank or other financial
institution being called an "Additional Lender"), which may
include any Lender, to extend Commitments or increase their
existing Commitments in an aggregate amount equal to the
unsubscribed amount, provided that each Additional Lender,
if not already a Lender hereunder, shall be subject to the
approval of the Agent (which approval shall not be
unreasonably withheld) and shall execute a joinder
agreement reasonably satisfactory to the Agent, pursuant to
which it agrees to be bound by the terms of this Agreement
as a Lender hereunder. If (and only if) Lenders (including
Additional Lenders) shall have agreed to increase their
Commitments or to extend new Commitments in an aggregate
amount not less than $100,000,000, such increases and such
new Commitments shall become effective on the date
specified in the notice delivered by the Company pursuant
to the first sentence of this subsection; provided that the
Company may elect not to so increase the Commitments in the
event that the amount of the increase approved by such
Lenders is less than the amount initially requested by the
Company."
8. In order to induce the Agent and the Banks to
enter into this Amendment, the Borrowers hereby represent
and warrant that (x) no Default or Event of Default exists
on the Second Amendment Effective Date (as defined herein)
both before and after giving effect to this Amendment and
(y) all of the representations and warranties contained in
the Credit Documents shall be true and correct in all
material respects on the Second Amendment Effective Date
both before and after giving effect to this Amendment with
the same effect as though such representations and
warranties had been made on and as of the Second Amendment
Effective Date (it being understood that any representation
or warranty made as of a specific date shall be true and
correct in all material respects as of such specific date).
9. This Amendment is limited as specified and shall
not constitute a modification, acceptance or waiver of any
other provision of the A Credit Agreement or any other
Credit Document.
10. This Amendment may be executed in any number of
counterparts and by the different parties hereto on
separate counterparts, each of which counterparts when
executed and delivered shall be an original, but all of
which shall together constitute one and the same
instrument. A complete set of counterparts shall be lodged
with the Company and the Agent.
11. This Amendment and the rights and obligations of
the parties hereunder shall be construed in accordance with
and governed by the law of the State of New York.
12. Notwithstanding anything to the contrary
contained in the A Credit Agreement or this Amendment, for
purposes of this Amendment "Banks" shall mean each of the
lending institutions who shall have delivered (including by
way of telecopier) by July 30, 1996 (or such later date as
the Agent and the Company shall agree) a signed copy hereof
to the Agent as provided in Section 8.2 of the A Credit
Agreement that has been accepted by the Company.
13. As of the Second Amendment Effective Date, (v)
Schedule I to the A Credit Agreement shall be revised to
read as set forth on Annex I hereto, (w) Schedule II to the
A Credit Agreement shall be revised by the Agent to give
effect to such revised Schedule I, (x) the Banks shall
constitute all the Lenders and no other entity that had
been a Lender will continue to be a Lender, (y) either (A)
all amounts owing to Lenders prior to July 30, 1996 who are
not Banks (the "Former Lenders") shall be paid to such
Former Lenders or (B) such Former Lenders shall assign
their Commitments to one or more Banks and (z) no such
Former Lender will continue to be a Lender.
14. This Amendment shall become effective as of the
date hereof (the "Second Amendment Effective Date") on the
date upon which (x) each of the Borrowers, the Agent and
Banks (as defined in paragraph 12 hereto) with Commitments
as set forth on Annex I hereto aggregating $3,000,000,000
shall have signed a copy hereof (whether the same or
different copies) and shall have delivered (including by
way of telecopier) the same to the Agent as provided in
Section 8.2 of the A Credit Agreement and (y) the Second
Amendment to the B Credit Agreement, dated as of the date
hereof, has become effective.
15. From and after the Second Amendment Effective
Date, all references in the A Credit Agreement and each of
the other A Credit Documents to the A Credit Agreement
shall be deemed to be references to the A Credit Agreement
after giving effect to this Amendment.
IN WITNESS WHEREOF, each of the parties hereto
has caused a counterpart of this Amendment to be duly
executed and delivered as of the date first above written.
AMERICAN HOME PRODUCTS CORPORATION
By:_______________________________
Title: Vice President - Finance
AMERICAN HOME FOOD PRODUCTS, INC.
By:
Title: Vice President
SHERWOOD MEDICAL COMPANY
By:
Title: Vice President
A. H. ROBINS COMPANY, INCORPORATED
By:_______________________________
Title: Vice President
AC ACQUISITION HOLDING COMPANY
By:___________________________________
Title: Vice President and Treasurer
ANNEX I
Schedule I
COMMITMENTS
Bank Commitment
$
TOTAL $3,000,000,000
<PAGE>
ABN AMRO BANK N.V.,
NEW YORK BRANCH
By:_____________________________
Title: Vice President
By:_____________________________
Title: Assistant Vice President
BANCA NAZIONALE DEL LAVORO S.p.A.
NEW YORK BRANCH
By:_____________________________
Title: First Vice President
By:_____________________________
Title: Vice President
BANCA COMMERCIALE ITALIANA
NEW YORK BRANCH
By:__________________________________
Title: Vice President
By:__________________________________
Title: Assistant Vice President
BANK OF AMERICA NT & SA
By:_____________________________
Title: Vice President
BANK OF MONTREAL
By:_____________________________
Title:
THE BANK OF NOVA SCOTIA
By:_____________________________
Title:
THE BANK OF TOKYO-MITSUBISHI, LTD.
NEW YORK BRANCH
By:_____________________________
Title: Vice President
BANQUE NATIONALE DE PARIS
By:____________________________________
By:____________________________________
BANQUE PARIBAS
By:_____________________________
Title:
By:_____________________________
Title:
BAYERISCHE LANDESBANK
GIROZENTRALE, NEW YORK BRANCH
By:_____________________________
Title:
By:_____________________________
Title:
BAYERISCHE VEREINSBANK AG,
NEW YORK BRANCH
By:_____________________________
Title:
By:_____________________________
Title:
THE BOATMEN'S NATIONAL BANK OF
ST. LOUIS
By:_____________________________
Title:
CANADIAN IMPERIAL BANK OF
COMMERCE, NEW YORK AGENCY
By:__________________________________
Title:
CARIPLO - CASSA DI RISPARMIO
DELLE PROVINCIE LOMBARDE SPA
GRAND CAYMAN BRANCH
By:_____________________________
Title: Vice President
By:_____________________________
Title: SVP & General Manager
CITIBANK, N.A.
By:_____________________________
Title:
COMMERZBANK AKTIENGESELLSCHAFT
New York and/or Grand Cayman Branches
By:__________________________________
Title:
By:__________________________________
Title
THE CHASE MANHATTAN BANK
By:__________________________________
Title: Vice President
CORESTATES BANK, N.A.
By:_____________________________
Title: Vice President
CRESTAR BANK
By:__________________________________
Title: Senior Vice President
THE DAI-ICHI KANGYO BANK LTD.
By:__________________________________
Title: Assistant Vice President
DEUTSCHE BANK AG, NEW YORK
AND/OR CAYMAN ISLANDS BRANCHES
By:_____________________________
Title:
By:_____________________________
Title:
THE FIRST NATIONAL BANK OF CHICAGO
By:_____________________________
Title:
FIRST UNION NATIONAL BANK
By:_____________________________
Title:
FIRST NATIONAL BANK
By:_____________________________
Title: Vice President
ISTITUTO BANCARIO SAN PAOLO DI
TORINA SPA -
NEW YORK LIMITED BRANCH
By:___________________________________
Title:
MELLON BANK, N.A.
By:_____________________________
Title:
MIDLAND BANK PLC, NEW YORK BRANCH
By:__________________________________
Title: Authorized Signatory
THE MITSUI TRUST AND BANKING
COMPANY, LIMITED - NEW YORK BRANCH
By:________________________________
Title: Vice President & Manager
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By:_____________________________
Title: Vice President
NATIONAL WESTMINSTER BANK PLC
By:_____________________________
Title: Vice President
NORDDEUTSCHE LANDESBANK
GIROZENTRALE, NEW YORK BRANCH
AND/OR CAYMAN ISLANDS BRANCH
By:_____________________________
Title: Senior Vice President
By:_____________________________
Title: Vice President
THE NORINCHUKIN BANK, NEW YORK BRANCH
By:_____________________________
Title: General Manager
PNC BANK, NATIONAL ASSOCIATION
By:_____________________________
Title: Vice President
COOPERATIVE CENTRALE RAIFFEISEN -
BOERENLEENBANK, B.A.,
"RABOBANK NEDERLAND"
By:__________________________________
Vice President
By:__________________________________
Vice President, Manager
ROYAL BANK OF CANADA
GRAND CAYMAN BRANCH
By:_____________________________
Title: Senior Manager
THE SAKURA BANK, LIMITED
By:__________________________________
Title: Vice President & Manager
THE SANWA BANK LTD, NEW YORK
BRANCH
By:____________________________________
Title: Vice President & Area Manager
STANDARD CHARTERED BANK
By:__________________________________
Title: Assistant Vice President
SWISS BANK CORPORATION, NEW YORK BRANCH
By:____________________________________
Title: Associate Director
Banking Finance Support, N.A.
By:___________________________________
Title: Associate Director
Credit Risk Mgmt.
THE BANK OF NEW YORK
By:__________________________________
Title: Vice President
THE FUJI BANK, LIMITED
New York Branch
By:__________________________________
Title: Senior Vice President
THE INDUSTRIAL BANK OF JAPAN
LIMITED
By:__________________________________
Title: Senior Vice President
THE MITSUBISHI TRUST AND BANKING
CORPORATION
By:__________________________________
Title: Senior Vice President
THE NORTHERN TRUST COMPANY
By:__________________________________
Title: Vice President
THE SUMITOMO BANK, LIMITED,
NEW YORK BRANCH
By:__________________________________
Title: Joint General Manager
THE SUMITOMO TRUST & BANKING CO., LTD.
New York Branch
By:__________________________________
Title: Senior Vice President
Manager, Corporate Finance Dept.
THE TOKAI BANK, LIMITED
NEW YORK BRANCH
By:_____________________________
Title: Vice President
TORONTO DOMINION (NEW YORK), INC.
By:_____________________________
Title: Vice President
THE TOYO TRUST & BANKING CO., LTD.
NEW YORK BRANCH
By:_____________________________
Title: Vice President
WACHOVIA BANK OF GEORGIA, N.A.
By:_____________________________
Title: Vice President
WESTPAC BANKING CORPORATION
By:__________________________________
Title: Assistant Vice President
YASUDA TRUST & BANKING
By:__________________________________
Title: First Vice President
Exhibit 10.6
SECOND AMENDMENT TO B CREDIT AGREEMENT
Second Amendment (this "Amendment"), dated as of
August 2, 1996 among American Home Food Products, Inc.,
Sherwood Medical Company, A.H. Robins Company, Incorporated
(each, a "Subsidiary Borrower"), American Home Products
Corporation (the "Company", and together with the
Subsidiary Borrowers, the "Borrowers"), the lending
institutions party to the B Credit Agreement referred to
below (the "Banks") and The Chase Manhattan Bank, as Agent
(in such capacity, the "Agent"). All capitalized terms
used herein and not otherwise defined shall have the
respective meanings provided such terms in the B Credit
Agreement referred to below.
W I T N E S S E T H :
WHEREAS, the Borrowers, the Banks and the Agent are
parties to a Credit Agreement, dated as of September 9,
1994, (the "B Credit Agreement");
WHEREAS, the parties hereto wish to amend the B Credit
Agreement as herein provided;
NOW THEREFORE, it is agreed:
1. AC Acquisition Holding Company is hereby added as
a Subsidiary Borrower, with all references in the Credit
Documents to Subsidiary Borrower and/or Subsidiary
Borrowers to include such company.
2. The first recital of the B Credit Agreement is
hereby amended by adding after the reference to
"3,000,000,000" therein the phrase "(as the same may be
increased pursuant to subsection 2.5(c) hereof)".
3. Section 1.1 of the B Credit Agreement is hereby
amended by deleting the definition of "Applicable Margin"
in its entirety and inserting in lieu thereof the following
new definition:
"Applicable Margin": for any day, the rate per annum
set forth below opposite the Rating Period then in effect,
it being understood that the Applicable Margin for (x)
Alternate Base Rate Loans shall be the percentage set forth
under the column "Alternate Base Rate Margin", (y) C/D Rate
Loans shall be the percentage set forth under the column
"C/D Rate Margin" and (z) Eurodollar Rate Loans shall be
the percentage set forth under the column "Eurodollar Rate
Margin":
Alternative Eurodollar
Rating Base Rate C/D Rate- Rate
Period Margin Margin Margin
Category A Period 0% .2250% .1000%
Category B Period 0% .2450% .1200%
Category C Period 0% .2850% .1600%
Category D Period 0% .3250% .2000%
Category E Period 0% .3750% .2500%
4. Section 1.1 of the B Credit Agreement is hereby
amended by deleting the definition of "Facility Fee
Percentage" in its entirety and inserting in lieu thereof
the following definition:
""Facility Fee Percentage": a percentage equal to at
any time (i) during a Category A Period, .0500%, (ii)
during a Category B Period, .0550%, (iii) during a
Category C Period, .0650%, (iv) during a Category D
Period, .1000% and (v) during a Category E Period,
.1500%."
5. Section 1.1 of the B Credit Agreement is hereby
amended by deleting clause (a) of the definition of
"Termination Date" in its entirety and inserting in lieu
thereof "(a) August 2, 2001 and ".
6. Section 1.1 of the B Credit Agreement is hereby
amended by adding the following definitions in appropriate
alphabetical order:
"A Commitments": as defined in subsection 2.5(c).
"Additional Lenders": as defined in subsection 2.5(c).
7. Subsection 2.5 of the B Credit Agreement is
hereby amended by (x) deleting clause (b) thereof in its
entirety and by substituting therefore the following:
"(b) Subject to the provisions of Section 2.5(c), the
Commitments once terminated or reduced pursuant to
subsection 2.5(a) may not be reinstated."
and (y) adding a new subsection 2.5(c) to read:
"(c) The Company may from time to time, by notice to
the Agent (which shall promptly deliver a copy to each of
the Lenders), request that the Commitments be increased
(regardless of whether the Commitments or the A Commitments
have theretofore been reduced) by an amount that is not
less than $100,000,000 and will not result in the
Commitments under this Agreement plus the Commitments under
and as defined in the A Credit Agreement (the "A
Commitments") exceeding $8,000,000,000. Each such notice
shall set forth the requested amount of the increase in the
Commitments and the A Commitments and the date (which date
shall be a Business Day) on which such increase is to
become effective (which shall be not fewer than 20 days
after the date of such notice), and shall offer some or all
Lenders the opportunity to increase their Commitments.
Each Lender (as determined by the Company, in its sole
discretion) that has received such request shall, by notice
to the Company and the Agent given not more than 10
Business Days after the date of the Company's notice,
either agree to increase its Commitment by all or a portion
of the offered amount or decline to increase its Commitment
(and any Lender that does not deliver such a notice within
such period of 10 Business Days shall be deemed to have
declined to increase its Commitment). In the event that,
on the 10th Business Day after the Company shall have
delivered a notice pursuant to the first sentence of this
paragraph, the requested Lenders shall have agreed pursuant
to the preceding sentence to increase their Commitments by
an aggregate amount less than the increase in the
Commitments requested by the Company, the Company shall
have the right to arrange for one or more banks or other
financial institutions (any such bank or other financial
institution being called an "Additional Lender"), which may
include any Lender, to extend Commitments or increase their
existing Commitments in an aggregate amount equal to the
unsubscribed amount, provided that each Additional Lender,
if not already a Lender hereunder, shall be subject to the
approval of the Agent (which approval shall not be
unreasonably withheld) and shall execute a joinder
agreement reasonably satisfactory to the Agent, pursuant to
which it agrees to be bound by the terms of this Agreement
as a Lender hereunder. If (and only if) Lenders (including
Additional Lenders) shall have agreed to increase their
Commitments or to extend new Commitments in an aggregate
amount not less than $100,000,000, such increases and such
new Commitments shall become effective on the date
specified in the notice delivered by the Company pursuant
to the first sentence of this subsection; provided that the
Company may elect not to so increase the Commitments in the
event that the amount of the increase approved by such
Lenders is less than the amount initially requested by the
Company."
8. In order to induce the Agent and the Banks to
enter into this Amendment, the Borrowers hereby represent
and warrant that (x) no Default or Event of Default exists
on the Second Amendment Effective Date (as defined herein)
both before and after giving effect to this Amendment and
(y) all of the representations and warranties contained in
the Credit Documents shall be true and correct in all
material respects on the Second Amendment Effective Date
both before and after giving effect to this Amendment with
the same effect as though such representations and
warranties had been made on and as of the Second Amendment
Effective Date (it being understood that any representation
or warranty made as of a specific date shall be true and
correct in all material respects as of such specific date).
9. This Amendment is limited as specified and shall
not constitute a modification, acceptance or waiver of any
other provision of the B Credit Agreement or any other
Credit Document.
10. This Amendment may be executed in any number of
counterparts and by the different parties hereto on
separate counterparts, each of which counterparts when
executed and delivered shall be an original, but all of
which shall together constitute one and the same
instrument. A complete set of counterparts shall be lodged
with the Company and the Agent.
11. This Amendment and the rights and obligations of
the parties hereunder shall be construed in accordance with
and governed by the law of the State of New York.
12. Notwithstanding anything to the contrary
contained in the B Credit Agreement or this Amendment, for
purposes of this Amendment "Banks" shall mean each of the
lending institutions who shall have delivered (including by
way of telecopier) by July 30, 1996 (or such later date as
the Agent and the Company shall agree) a signed copy hereof
to the Agent as provided in Section 8.2 of the B Credit
Agreement that has been accepted by the Company.
13. As of the Second Amendment Effective Date, (v)
Schedule I to the B Credit Agreement shall be revised to
read as set forth on Annex I hereto, (w) Schedule II to the
B Credit Agreement shall be revised by the Agent to give
effect to such revised Schedule I and (x) the Banks shall
constitute all the Lenders and no other entity that had
been a Lender will continue to be a Lender, (y) either (A)
all amounts owing to Lenders prior to July 30, 1996 who are
not Banks (the "Former Lenders") shall be paid to such
Former Lenders or (B) such Former Lenders shall assign
their Commitments to one or more Banks and (z) no such
Former Lender will continue to be a Lender.
14. This Amendment shall become effective as of the
date hereof (the "Second Amendment Effective Date") on the
date upon which (x) each of the Borrowers, the Agent and
the Banks (as defined in paragraph 12) with Commitments as
set forth on Annex I herein aggregating $3,000,000,000
shall have signed a copy hereof (whether the same or
different copies) and shall have delivered (including by
way of telecopier) the same to the Agent as provided in
Section 8.2 of the B Credit Agreement and (y) the Second
Amendment to the A Credit Agreement, dated as of the date
hereof, has become effective.
15. From and after the Second Amendment Effective
Date, all references in the B Credit Agreement and each of
the other Credit Documents to the B Credit Agreement shall
be deemed to be references to the B Credit Agreement after
giving effect to this Amendment.
IN WITNESS WHEREOF, each of the parties hereto has
caused a counterpart of this Amendment to be duly executed
and delivered as of the date first above written.
AMERICAN HOME PRODUCTS CORPORATION
By:
Title: Vice President - Finance
AMERICAN HOME FOOD PRODUCTS, INC.
By:
Title: Vice President
SHERWOOD MEDICAL COMPANY
By:
Title: Vice President
A. H. ROBINS COMPANY, INCORPORATED
By:
Title:
AC ACQUISITION HOLDING COMPANY
By:_____________________________
Title:Vice President and Treasurer
<PAGE>
ANNEX I
Schedule I
COMMITMENTS
Bank Commitment
$
TOTAL $3,000,000,000
<PAGE>
ABN AMRO BANK N.V.,
NEW YORK BRANCH
By:_____________________________
Title: Vice President
By:_____________________________
Title: Assistant Vice President
BANCA NAZIONALE DEL LAVORO S.p.A.
NEW YORK BRANCH
By:_____________________________
Title: First Vice President
By:_____________________________
Title: Vice President
BANCA COMMERCIALE ITALIANA
NEW YORK BRANCH
By:__________________________________
Title: Vice President
By:__________________________________
Title: Assistant Vice President
BANK OF AMERICA NT & SA
By:_____________________________
Title: Vice President
BANK OF MONTREAL
By:_____________________________
Title:
THE BANK OF NOVA SCOTIA
By:_____________________________
Title:
THE BANK OF TOKYO-MITSUBISHI, LTD.
NEW YORK BRANCH
By:_____________________________
Title: Vice President
BANQUE NATIONALE DE PARIS
By:____________________________________
By:____________________________________
BANQUE PARIBAS
By:_____________________________
Title:
By:_____________________________
Title:
BAYERISCHE LANDESBANK
GIROZENTRALE, NEW YORK BRANCH
By:_____________________________
Title:
By:_____________________________
Title:
BAYERISCHE VEREINSBANK AG,
NEW YORK BRANCH
By:_____________________________
Title:
By:_____________________________
Title:
THE BOATMEN'S NATIONAL BANK OF
ST. LOUIS
By:_____________________________
Title:
CANADIAN IMPERIAL BANK OF
COMMERCE, NEW YORK AGENCY
By:__________________________________
Title:
CARIPLO - CASSA DI RISPARMIO
DELLE PROVINCIE LOMBARDE SPA
GRAND CAYMAN BRANCH
By:_____________________________
Title: Vice President
By:_____________________________
Title: SVP & General Manager
CITIBANK, N.A.
By:_____________________________
Title:
COMMERZBANK AKTIENGESELLSCHAFT
New York and/or Grand Cayman Branches
By:__________________________________
Title:
By:__________________________________
Title
THE CHASE MANHATTAN BANK
By:__________________________________
Title: Vice President
CORESTATES BANK, N.A.
By:_____________________________
Title: Vice President
CRESTAR BANK
By:__________________________________
Title: Senior Vice President
THE DAI-ICHI KANGYO BANK LTD.
By:__________________________________
Title: Assistant Vice President
DEUTSCHE BANK AG, NEW YORK
AND/OR CAYMAN ISLANDS BRANCHES
By:_____________________________
Title:
By:_____________________________
Title:
THE FIRST NATIONAL BANK OF CHICAGO
By:_____________________________
Title:
FIRST UNION NATIONAL BANK
By:_____________________________
Title:
FIRST NATIONAL BANK
By:_____________________________
Title: Vice President
ISTITUTO BANCARIO SAN PAOLO DI
TORINA SPA -
NEW YORK LIMITED BRANCH
By:___________________________________
Title:
MELLON BANK, N.A.
By:_____________________________
Title:
MIDLAND BANK PLC, NEW YORK BRANCH
By:__________________________________
Title: Authorized Signatory
THE MITSUI TRUST AND BANKING
COMPANY, LIMITED - NEW YORK BRANCH
By:________________________________
Title: Vice President & Manager
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By:_____________________________
Title: Vice President
NATIONAL WESTMINSTER BANK PLC
By:_____________________________
Title: Vice President
NORDDEUTSCHE LANDESBANK
GIROZENTRALE, NEW YORK BRANCH
AND/OR CAYMAN ISLANDS BRANCH
By:_____________________________
Title: Senior Vice President
By:_____________________________
Title: Vice President
THE NORINCHUKIN BANK, NEW YORK BRANCH
By:_____________________________
Title: General Manager
PNC BANK, NATIONAL ASSOCIATION
By:_____________________________
Title: Vice President
COOPERATIVE CENTRALE RAIFFEISEN -
BOERENLEENBANK, B.A.,
"RABOBANK NEDERLAND"
By:__________________________________
Vice President
By:__________________________________
Vice President, Manager
ROYAL BANK OF CANADA
GRAND CAYMAN BRANCH
By:_____________________________
Title: Senior Manager
THE SAKURA BANK, LIMITED
By:__________________________________
Title: Vice President & Manager
THE SANWA BANK LTD, NEW YORK
BRANCH
By:____________________________________
Title: Vice President & Area Manager
STANDARD CHARTERED BANK
By:__________________________________
Title: Assistant Vice President
SWISS BANK CORPORATION, NEW YORK BRANCH
By:____________________________________
Title: Associate Director
Banking Finance Support, N.A.
By:___________________________________
Title: Associate Director
Credit Risk Mgmt.
THE BANK OF NEW YORK
By:__________________________________
Title: Vice President
THE FUJI BANK, LIMITED
New York Branch
By:__________________________________
Title: Senior Vice President
THE INDUSTRIAL BANK OF JAPAN
LIMITED
By:__________________________________
Title: Senior Vice President
THE MITSUBISHI TRUST AND BANKING
CORPORATION
By:__________________________________
Title: Senior Vice President
THE NORTHERN TRUST COMPANY
By:__________________________________
Title: Vice President
THE SUMITOMO BANK, LIMITED,
NEW YORK BRANCH
By:__________________________________
Title: Joint General Manager
THE SUMITOMO TRUST & BANKING CO., LTD.
New York Branch
By:__________________________________
Title: Senior Vice President
Manager, Corporate Finance Dept.
THE TOKAI BANK, LIMITED
NEW YORK BRANCH
By:_____________________________
Title: Vice President
TORONTO DOMINION (NEW YORK), INC.
By:_____________________________
Title: Vice President
THE TOYO TRUST & BANKING CO., LTD.
NEW YORK BRANCH
By:_____________________________
Title: Vice President
WACHOVIA BANK OF GEORGIA, N.A.
By:_____________________________
Title: Vice President
WESTPAC BANKING CORPORATION
By:__________________________________
Title: Assistant Vice President
YASUDA TRUST & BANKING
By:__________________________________
Title: First Vice President
Exhibit 10.12
WHEREAS, Section 8 of the American Home Products Corporation (the
"Company") 1985 Stock Option Plan (the "1985 Plan") authorizes
the Board of Directors to amend the 1985 Plan, the Compensation
and Benefits Committee recommends that certain amendments as
described below be made to the 1985 Plan;
NOW, THEREFORE, Section 6 of the 1985 Plan is hereby
amended as follows:
1. Section 6(c)(ii) of the 1985 Plan is deleted in
its entirety, with such Section to be reserved for
future amendment.
2. Section 6(c)(iii) of the 1985 Plan is hereby
amended by deleting therefrom the language
[surrounded by brackets] as follows:
(iii) Upon exercise of Stock
Appreciation Rights, the holder thereof
shall be entitled to elect to receive
therefor payment in the form of shares
of Common Stock (rounded down to the
next whole number so no fractional
shares are issued), cash or any
combination thereof in an amount equal
in value to the difference between the
Option Price per share and the fair
market value per share of Common Stock
on the date of exercise multiplied by
the number of shares in respect of which
the Stock Appreciation Rights shall have
been exercised, subject to any
limitation on such amount which the
Committee may in its discretion impose
[at the time of grant of the Stock
Appreciation Rights. Such election as
to the form of payment shall be subject
to the consent of the Committee which
consent or disapproval may be given at
any time after the election to which it
relates.] The fair market value of
Common Stock shall be deemed to be the
mean between the highest and lowest sale
prices of the Common Stock on the
Consolidated Transaction Reporting
System on the date the Stock
Appreciation Right is exercised or if no
transaction on the Consolidated
Transaction Reporting System occurred on
such date, then on the last preceding
day on which a transaction did take
place.
3. Section 6(c)(iv) of the 1985 Plan is hereby
amended by deleting therefrom the language
[surrounded by brackets] and adding text
*surrounded by stars* as follows:
(iv) Any exercise by an officer or
director of Stock Appreciation Rights,
as well as any election by such officer
or director as to the form of payment to
such officer or director (Common Stock,
cash or any combination thereof), [which
election is subject to the consent of
the Committee in its sole discretion as
provided in subparagraph (iii) hereof,]
shall be made during the ten-day period
beginning on the third business day
following the release for publication of
any quarterly or annual statement of
sales and earnings by the Company and
ending on the twelfth business day
following the date of such release
*("window period")*. For purposes
hereof officer shall mean only officers
who are subject to Section 16(b) of the
Securities Exchange Act of 1934, as
amended. In the event that a director
or officer of the Company subject to
Section 16(b) of the Securities Exchange
Act of 1934 exercises a Stock
Appreciation Right for cash or stock
pursuant to this Section 6 during a
"window period," [as provided in Rule
16b-3 under the Securities Exchange Act
of 1934], the day on which such right is
effectively exercised shall be that day,
if any, during such "window period"
which is designated by the Committee in
its discretion for all such exercises by
such individuals during such period. If
no such day is designated, the day of
effective exercise shall be determined
in accordance with normal administrative
practices of the Plan.
American Home Products Corporation
Management Incentive Plan
(As amended by the Board of Directors on February 6, 1997,
subject to approval by stockholders on April 28, 1997.)
I. Purpose
The Management Incentive Plan (the "Plan") is maintained by
the Corporation primarily for the purpose of providing immediate
and deferred incentive compensation for a select group of
management and highly compensated employees and is designed to
provide for awards to selected key salaried employees in
executive, administrative, technical, professional or other
important capacities, who individually, or as members of a group,
contribute in a substantial degree to the success of the Company,
thus affording to them a means of participating in that success
and an incentive to contribute further to that success.
II. Definitions
The following words and phrases as used herein shall have
the meanings set forth below:
(1) "Company" shall mean American Home Products Corporation
(the Corporation), and any corporation, domestic or foreign, 50%
or more of whose share voting power is held, directly or
indirectly, by the Company.
(2) "Employee" shall mean any key salaried employee of the
Company whether or not an Officer or Director, including
individuals whose employment has terminated during the applicable
year by reason of death or retirement.
(3) "Committee" shall mean the Compensation and Benefits
Committee consisting of three or more Corporation Directors who
are not Employees.
(4) "Average Net Capital" shall mean the average of the
beginning and ending balances, shown in the Corporation's
Consolidated Balance Sheet, of the Stockholders' Equity and
funded debt.
(5) "Net Income" shall mean the "net income for year," after
taxes, shown in the Corporation's Consolidated Statement of
Income, adjusted, however, by adding any amount by which such net
income after taxes has been reduced by provision for awards under
the Plan.
(6) "Incentive Earnings" shall mean the excess of Net Income
for any year over the greater of (a) an amount equal to 12% of
Average Net Capital or b) an amount equal to $.375 multiplied by
the average number of shares of the Corporation's Common Stock
outstanding at the close of business on each day of the year
assuming full conversion of the Corporation's Preferred Stock.
The amount of Incentive Earnings shall be reported to the
Committee by the Corporation's Treasurer as promptly after the
close of the year as is practical; provided, however, that such
Incentive Earning's and awards based thereon shall be adjusted
downward, if necessary, to reflect the net income for the year
certified by the Corporation's independent public accountants as
adjusted as provided in II (5) above. In the event of stock
split, stock dividend or other relevant change in the
Corporation's capitalization, the Committee shall, subject to the
approval of the Board of Directors, appropriately adjust such
$.375 per share of the Corporation's Common Stock.
(7) "Award Fund" shall mean the amount, not in excess of 12%
of Incentive Earnings, which is recommended by the Committee and
approved by the Board of Directors as the maximum amount to be
used for awards under the Plan for the applicable year. Any
unawarded portion of the Award Fund shall not be available for
awards for subsequent years.
III. Administration
The Plan shall be administered by the Committee which may
make such determinations, make such awards and take such other
action in connection with the Plan as it deems necessary, taking
into consideration the recommendations of management. Such
determinations, awards and action shall be binding and conclusive
for all purposes and upon all persons unless and except to the
extent that the Board of Directors of the Company shall have
previously directed that all or specified types of action by the
Committee shall be subject to approval by the Board of Directors.
IV. Eligibility
The individuals eligible to receive awards under the Plan
shall be such Employees as the Committee shall determine each
year.
V. Awards
The Committee shall determine the awards to be made for any
year subject to the following: (1) the award amounts payable with
respect to any year to an Employee who for such year is the Chief
Executive Officer of the Corporation or one of the Corporation's
four other highest compensated officers (as determined in
accordance with Section 162(m) of the Internal Revenue Code of
1986, as amended) shall not exceed 3% of the Award Fund, and, (2)
the portion of the Award Fund remaining after the awards to the
Employees in (1) above shall be available for awards to other
Employees in such amounts as the Committee determines. In no
event, however, shall the amount of an award payable to any
Employee exceed the Employee's total compensation for the year,
excluding only any award under the Plan. Awards may be in whole
or in part (a) current and payable in cash ("Cash Award"), or (b)
deferred and conditional and payable (i) in cash ("Contingent
Cash Award") or (ii) in shares of the Corporation's Common Stock
("Contingent Stock Award"). The aggregate number of shares of the
Corporation's Common Stock which may be issued under the Plan
shall be 24,000,000 (plus the number of shares credited in
respect of dividends as hereinafter provided) and all such shares
shall be from Treasury Stock or from authorized and unissued
shares as the Board of Directors shall from time to time
determine. In the event of stock split, stock dividend or other
relevant change in the Corporation's capitalization, the
Committee shall, subject to the approval of the Board of
Directors, appropriately adjust such maximum number of shares.
Insofar as the Committee has not predetermined the manner of
payment of awards, whether in terms of individuals or
classifications on the bases of age, salary, amount of award or
other criteria, the Committee may permit eligible Employees to
indicate a preference, which shall not be binding on the
Committee, within limits established by the Committee, that all
or any portion of an award be a Cash Award, a Contingent Cash
Award or a Contingent Stock Award.
VI. Payment of Awards
(1) Cash Awards
The amount of each Cash Award shall be paid in cash as soon
as practicable after the close of the calendar year for which the
award is made.
(2) Contingent Cash Awards
The Company shall credit the amount of each Contingent Cash
Award to the Employee's Contingent Award Account and shall,
subject to the conditions of paragraph VI(4), pay the same out in
equal installments on the five succeeding anniversaries of the
date of the award.
(3) Contingent Stock Awards
(a) The amount of each Contingent Stock Award shall be used
to determine the largest full number of shares of the
Corporation's Common Stock which such amount would purchase at
the average closing market price of such Common Stock on the
Consolidated Transaction Reporting System for the last five
business days, on which at least one sale of such Common Stock
took place on such System, of the calendar year for which the
award is made. The Company shall credit the Employee's Contingent
Award Account as of the date of the award with the number of
shares so determined. At no time after such credit and prior to
the delivery of the shares so credited shall any of such shares
be earmarked for his or her account, nor shall he or she have any
of the rights of a stockholder with respect to such shares. Any
excess of the Contingent Stock Award remaining after such
computation of shares of stock shall be carried forward and
treated as an addition to any future award to the Employee;
provided, however, that any such excess remaining after
termination of the Employee's employment shall be paid to him or
her in cash at the time of the first delivery from his or her
Contingent Award Account.
As of December 31 of each year, the Corporation shall
determine the amount of the dividends which would have been paid
during such calendar year with respect to the number of shares
credited in each Contingent Award Account at the record date for
each such dividend payment had the shares so credited then been
issued and outstanding. The Employee's Contingent Award Account
shall be credited with the largest full number of shares of the
Corporation's Common Stock purchasable with the above determined
amount at the average closing market price of such Common Stock
on the Consolidated Transaction Reporting System, for the last
five business days, on which at least one sale of such Common
Stock took place on such System, of the calendar year (such share
credits in respect of dividends shall not be deemed awards under
the Plan). The cash equivalent of any excess thereafter remaining
shall be carried forward and treated as an addition to the next
succeeding year's dividends on the shares credited to the
Employee's Contingent Award Account; provided, however, that the
cash equivalent of any such excess remaining after final delivery
from the Employee's Contingent Award Account shall be paid to him
or her in cash.
In the event of stock split, stock dividend or other
relevant change in the Corporation's capitalization, the
Committee shall, subject to the approval of the Board of
Directors, appropriately adjust the shares of stock theretofore
credited to the Contingent Award Accounts.
(b) The Company shall, subject to the conditions of
paragraph VI(4), deliver to the Employee the shares of stock
credited to his or her Contingent Award Account in approximately
equal installments as soon as practicable after the first day of
January of each of the five years following any termination of
his or her employment, unless the Committee shall otherwise
determine.
(c) Notwithstanding any other provisions hereof, the
Committee may in its absolute discretion provide, with respect to
any Contingent Stock Award made to any participant or
participants under the Plan, that in the event of any delivery of
shares of Common Stock by the Company pursuant to such Contingent
Stock Award, the number of such shares which the recipient
thereof shall be entitled to receive and which shall be delivered
by the Company shall be (i) the number of such shares which would
have been delivered in the absence of this paragraph VI(3)(c),
minus (ii) the number of whole shares of Common Stock necessary
to satisfy the minimum federal, state and/or local income tax
withholding obligations which are imposed on the Company by
applicable law in respect of the delivery of such award (and
which may be satisfied by the reduction effected hereby in the
number of deliverable shares), it being understood that the value
of the shares referred to in clause (ii) above shall be
determined, for the purposes of satisfying such withholding
obligations, on the basis of the average of the high and low per
share prices for the Common Stock as reported on the Consolidated
Transaction Reporting System on the date of authorization of
delivery by the Committee, or on such other reasonable basis for
determining fair market value as the Committee may from time to
time adopt. Notwithstanding any term or provision of this
paragraph VI(3)(c), in determining the total number of shares
authorized for issuance under the Plan pursuant to paragraph V
hereof and in calculating the limit set forth in paragraph V
hereof on the number of shares which may be awarded to any
individual Employee under the Plan, the reduction in the number
of shares effected by this paragraph VI(3)(c) shall not be taken
into account.
(4) Conditions of Payment of Contingent Awards
(a) In the event that the Employee is discharged for, or
after any other termination of employment is found while employed
by the Company to have engaged in, deliberate gross misconduct,
as determined by the Company, no further payment or delivery
shall thereafter be made in respect of his or her Contingent Cash
or Stock Awards and all his or her rights with respect to his or
her Contingent Cash or Stock Awards and all his or her rights
with respect to his or her Contingent Award Account shall
thereupon be forfeited.
(b) In the event of termination of the Employee's employment
prior to his or her retirement for reasons other than death or
discharge for deliberate gross misconduct, as determined by the
Company, any unpaid installments of his or her Contingent Cash
Awards and any undelivered shares of stock from his or her
Contingent Award Account shall, subject to the conditions set
forth in paragraph (d) below, be paid or delivered to him or her
at the dates and in the installments originally determined.
(c) In the event of the Employee's death, any unpaid
installments of his or her Contingent Cash Awards shall be paid
and any undelivered shares of stock from his or her Contingent
Award Account shall be paid or delivered at the dates and in the
installments originally determined, unless the Committee shall
otherwise determine, to or as directed by his or her legal
representative, or legatee or such other person designated by an
appropriate court as the person entitled to receive the same,
provided that the Employee was employed by the Company at the
time of his or her death or up to the date of his or her death
had complied with the conditions set forth in paragraph (d)
below.
(d) No payment of a Contingent Cash Award or delivery from a
Contingent Award Account shall be made to any Employee after
termination of employment unless he or she shall have to the date
fixed for such payment or delivery (i) refrained from becoming or
serving as an officer, director or employee of any individual,
partnership or corporation, or the the owner of a business, or a
member of a partnership which conducts a business in competition
with the Company or renders a service (including, without
limitations, advertising agencies and business consultants) to
competitors with any portion of the business of the Company, (ii)
made himself or herself available, if so requested by the
Company, at reasonable times and upon a reasonable basis to
consult with, supply information to, and otherwise cooperate
with, the Company and (iii) refrained from engaging in deliberate
action which, as determined by the Committee, causes substantial
harm to the interests of the Company. If these conditions are not
fulfilled, no further payment or delivery shall thereafter be
made with respect to the Employee's Contingent Cash or Stock
Awards and all his or her rights with respect to his or her
Contingent Award Account shall thereupon be forfeited.
VII. Limitations
No Employee, whether or not deemed eligible or offered an
opportunity to indicate a preference under the Plan, or other
person shall have any claim or right (legal, equitable or other)
to be granted an award under the Plan, and no Director, Officer,
Employee of the Company or any other person shall have the
authority to enter into any agreement with any person for the
making or payment of an award or to make any representation or
warranty with respect thereto.
No Employee to whom a Contingent Award has been made shall
have any rights to his or her Contingent Award Account other than
to receive the Contingent Award at the time and in the form
determined by the Committee, subject to the fulfillment of the
conditions prescribed herein, which right may not be assigned,
transferred or pledged during his or her lifetime.
Neither the action of the Corporation in establishing the
Plan nor any action taken by it or by the Committee under the
provisions hereof, nor any provision of the Plan, shall be
construed as giving to any Employee the right to be retained in
the employ of the Company.
VIII. Amendment, Suspension or Termination of the Plan in Whole
or in Part
The Board of Directors may discontinue the Plan at any time
and may from time to time amend the terms of the Plan; provided,
however, that no such discontinuance or amendment shall adversely
affect any right or obligation with respect to any award
theretofore made, and no such amendment shall, without the
approval of stockholders, operate so as to increase the annual
amount of the Award Fund or increase the aggregate number of
shares of the Corporation's Common Stock that may be issued under
the Plan.
IX. Construction
The Plan shall be governed by and construed in accordance
with the laws of the State of New York.
Exhibit 10.21
WHEREAS, Section 9 of the American Home Products
Corporation (the "Company") 1990 Stock Incentive Plan
(the "1990 Plan") authorizes the Board of Directors to
amend the 1990 Plan and the Compensation and Benefits
Committee recommends that certain amendments as
described below be made to the 1990 Plan;
NOW, THEREFORE, Section 6 of the 1990 Plan is hereby
amended as follows:
1. Section 6(c)(ii) of the 1990 Plan is deleted in
its entirety, with such Section to be reserved for
future amendment.
2. Section 6(c)(iii) of the 1990 Plan is hereby
amended by deleting therefrom the language
[surrounded by brackets] as follows:
(iii) Upon exercise of Stock
Appreciation Rights, the holder thereof
shall be entitled to elect to receive
therefor payment in the form of shares
of Common Stock (rounded down to the
next whole number so no fractional
shares are issued), cash or any
combination thereof in an amount equal
in value to the difference between the
Option Price per share and the fair
market value per share of Common Stock
on the date of exercise multiplied by
the number of shares in respect of which
the Stock Appreciation Rights shall have
been exercised, subject to any
limitation in such amount which the
Committee may in its discretion
impose[at the time of grant of the Stock
Appreciation Rights. Such election as
to the form of payment shall be subject
to the consent of the Committee which
consent or disapproval may be given at
any time after the election to which it
relates.] The fair market value of
Common Stock shall be deemed to be the
mean between the highest and lowest sale
prices of the Common Stock on the
Consolidated Transaction Reporting
System on the date the Stock
Appreciation Right is exercised or if no
transaction on the Consolidated
Transaction Reporting System occurred on
such date, then on the last preceding
day on which a transaction did take
place.
3. Section 6(c)(iv) of the 1990 Plan is hereby
amended by deleting therefrom the language
[surrounded by brackets] and adding text
*surrounded by stars* as follows:
(iv) Any exercise by an officer or
director of Stock Appreciation Rights,
as well as any election by such officer
or director as to the form of payment to
such officer or director (Common Stock,
cash or any combination thereof), [which
election is subject to the consent of
the Committee in its sole discretion as
provided in subparagraph (iii) hereof,]
shall be made during the ten-day period
beginning on the third business day
following the release for publication of
any quarterly or annual statement of
sales and earnings by the Company and
ending on the twelfth business day
following the date of such release
*("window period")*. For purposes
hereof officer shall mean only officers
who are subject to Section 16(b) of the
Securities Exchange Act of 1934, as
amended. In the event that a director
or officer of the Company subject to
Section 16(b) of the Securities Exchange
Act of 1934 exercises a Stock
Appreciation Right for cash or stock
pursuant to this Section 6 during a
"window period," [as provided in Rule
16b-3 under the Securities Exchange Act
of 1934,] the day on which such right is
effectively exercised shall be that day,
if any, during such "window period"
which is designated by the Committee in
its discretion for all such exercises by
such individuals during such period. If
no such day is designated, the day of
effective exercise shall be determined
in accordance with normal administrative
practices of the Plan.
Exhibit 10.24
WHEREAS, Section 9 of the American Home Products Corporation (the
"Company") 1993 Stock Incentive Plan (the "1993 Plan") authorizes
the Board of Directors to amend the 1993 Plan and the
Compensation and Benefits Committee recommends that certain
amendments as described below be made to the 1993 Plan;
NOW, THEREFORE, Section 6 of the 1993 Plan is hereby
amended as follows:
1. Section 6(c)(ii) of the 1993 Plan is deleted in
its entirety, with such Section to be reserved for
future amendment.
2. Section 6(c)(iii) of the 1993 Plan is hereby
amended by deleting therefrom the language
[surrounded by brackets] as follows:
(iii) Upon exercise of Stock
Appreciation Rights, the holder thereof
shall be entitled to elect to receive
therefor payment in the form of shares
of Common Stock (rounded down to the
next whole number so no fractional
shares are issued), cash or any
combination thereof in an amount equal
in value to the difference between the
Option Price per share and the fair
market value per share of Common Stock
on the date of exercise multiplied by
the number of shares in respect of which
the Stock Appreciation Rights shall have
been exercised, subject to any
limitation on such amount which the
Committee may in its discretion impose
[at the time of grant of the Stock
Appreciation Rights. Such election as
to the form of payment shall be subject
to the consent of the Committee which
consent or disapproval may be given at
any time after the election to which it
relates.] The fair market value of
Common Stock shall be deemed to be the
mean between the highest and lowest sale
prices of the Common Stock on the
Consolidated Transaction Reporting
System on the date the Stock
Appreciation Right is exercised or if no
transaction on the Consolidated
Transaction Reporting System occurred on
such date, then on the last preceding
day on which a transaction did take
place.
3. Section 6(c)(iv) of the 1993 Plan is hereby
amended by deleting therefrom the language
[surrounded by brackets] and adding text
*surrounded by stars* as follows:
(iv) Any exercise by an officer or
director of Stock Appreciation Rights,
as well as any election by such officer
or director as to the form of payment to
such officer or director (Common Stock,
cash or any combination thereof), [which
election is subject to the consent of
the Committee in its sole discretion as
provided in subparagraph (iii) hereof,]
shall be made during the ten-day period
beginning on the third business day
following the release for publication of
any quarterly or annual statement of
sales and earnings by the Company and
ending on the twelfth business day
following the date of such release
*("window period")*. For purposes
hereof officer shall mean only officers
who are subject to Section 16(b) of the
Securities Exchange Act of 1934, as
amended. In the event that a director
or officer of the Company subject to
Section 16(b) of the Securities Exchange
Act of 1934 exercises a Stock
Appreciation Right for cash or stock
pursuant to this Section 6 during a
"window period," [as provided in Rule
16b-3 under the Securities Exchange Act
of 1934], the day on which such right is
effectively exercised shall be that day,
if any, during such "window period"
which is designated by the Committee in
its discretion for all such exercises by
such individuals during such period. If
no such day is designated, the day of
effective exercise shall be determined
in accordance with normal administrative
practices of the Plan.
Exhibit 10.26
WHEREAS, Section 10 of the American Home Products Corporation
(the "Company") 1996 Stock Incentive Plan (the "1996 Plan")
authorizes the Board of Directors to amend the 1996 Plan and the
Compensation and Benefits Committee recommends that certain
amendments as described below be made to the 1996 Plan;
NOW, THEREFORE, Section 6 of the 1996 Plan is hereby
amended as follows:
1. Section 6(c)(ii) of the 1996 Plan is deleted in
its entirety, with such Section to be reserved for
future amendment.
2. Section 6(c)(iii) of the 1996 Plan is hereby
amended by deleting therefrom the language
[surrounded by brackets] as follows:
(iii) Upon exercise of Stock
Appreciation Rights, the holder thereof
shall be entitled to elect to receive
therefor payment in the form of shares
of the Company's Common Stock (rounded
down to the next whole number so no
fractional shares are issued), cash or
any combination thereof in an amount
equal in value to the difference between
the Option Price per share and the fair
market value per share of Common Stock
on the date of exercise multiplied by
the number of shares in respect of which
the Stock Appreciation Rights shall have
been exercised, subject to any
limitation on such amount which the
Committee may in its discretion impose
[at the time of grant of the Stock
Appreciation Rights. Such election as
to the form of payment shall be subject
to the consent of the Committee which
consent or disapproval may be given at
any time after the election to which it
relates.] The fair market value of
Common Stock shall be deemed to be the
mean between the highest and lowest sale
prices of the Common Stock on the
Consolidated Transaction Reporting
System on the date the Stock
Appreciation Right is exercised or if no
transaction on the Consolidated
Transaction Reporting System occurred on
such date, then on the last preceding
day on which a transaction did take
place.
3. Section 6(c)(iv) of the 1996 Plan is hereby
amended by deleting therefrom the language
[surrounded by brackets] and adding text
*surrounded by stars* as follows:
(iv) Any exercise of Stock Appreciation
Rights by an officer or director subject
to Section 16(b) of the Exchange Act, as
well as any election by such officer or
director as to the form of payment of
Stock Appreciation Rights (Common Stock,
cash or any combination thereof), [which
election is subject to the consent of
the Committee in its sole discretion as
provided in subparagraph (iii) hereof,]
shall be made during the ten-day period
beginning on the third business day
following the release for publication of
any quarterly or annual statement of
sales and earnings by the Company and
ending on the twelfth business day
following the date of such release
*("window period")*. In the event that
such a director or officer exercises a
Stock Appreciation Right for cash or
stock pursuant to this Section 6 during
a "window period," [as provided in Rule
16b-3 under the Exchange Act], the day
on which such right is effectively
exercised shall be that day, if any,
during such "window period" which is
designated by the Committee in its
discretion for all such exercises by
such individuals during such period. If
no such day is designated, the day of
effective exercise shall be determined
in accordance with normal administrative
practices of the Plan. [This clause
(iv) shall cease to apply at the
discretion of the Committee if any
amendment or Securities and Exchange
Commission interpretation of such Rule
16b-3 makes the application of this
clause (iv) unnecessary to exempt the
grant and/or exercise of Stock
Appreciation Rights from the application
of Section 16(b) of the Exchange Act.]
Exhibit 10.27
AMERICAN HOME PRODUCTS CORPORATION
STOCK OPTION AGREEMENT
UNDER 19__ STOCK INCENTIVE PLAN
DATED
OPTION PRICE
INCENTIVE STOCK OPTION SHARES
[Name/Address] NON-QUALIFIED STOCK OPTION SHARES
1. Under the terms and conditions of this Agreement and of the American
Home Products Corporation (the "Company") stock incentive plan
referred to above (the "Plan"), a copy of which is attached hereto
and incorporated herein by reference, the Company hereby grants to
the Optionee an option or options (together, the "Option") to
purchase the number of shares of the Company's common stock as
specified above ("Option Shares") at the option price also above
specified. Capitalized terms not otherwise defined herein have the
meanings assigned to them in the Plan.
2. This Option may be exercised, in whole or in part from time to time
in any whole number of Option Shares, upon and after the earlier of
(i) the date that is one year from the date of grant of this Option,
or (ii) the date of the death, Disability or Retirement (each
capitalized term as defined in the Company's [Year] Stock Incentive
Plan (the "[Year] Plan")) of Optionee, subject to the provisions of
Section 5 of the Plan which generally requires that at the time of
exercise or the date of termination of Optionee's employment with
the Company and its subsidiaries, the Optionee is or was employed
by the Company or one or more of its subsidiaries and has been
continuously employed by the Company or one or more of its
subsidiaries for at least two years and since the date of grant.
Once this Option becomes exercisable, it shall remain exercisable
until its expiration as described in paragraph 3 below. To the
extent Option Shares have been purchased pursuant to the exercise
of this Option, such shares shall no longer be available for
purchase hereunder. If this Option is granted under the [Year]
Plan, the date after which this Option may be exercised will be
accelerated upon a Change in Control of the Company (as defined in
the Plan) and upon such occurrence may be cashed out at the
discretion of the Compensation and Benefits Committee on the terms
described in Section 9 of the [Year] Plan.
3. This Option shall expire upon the date that is ten years from the
date of grant or earlier as provided in Section 5 of the Plan which
provides, among other things, that options shall expire upon the
first to occur of the following: (iii) the date that is three years
from the date of Optionee's death, Disability or Retirement, (iv)
the date that is three months from the date of the termination of
Optionee's employment with the Company and its subsidiaries by the
Company or any of its subsidiaries for any reason other than death,
Disability, Retirement or deliberate gross misconduct (as determined
by the Compensation and Benefits Committee), or (v) immediately upon
the date of (A) the termination of Optionee's employment with the
Company and its subsidiaries by the Company or any of its
subsidiaries because of Optionee's deliberate gross misconduct (as
determined by the Compensation and Benefits Committee), (B)
Optionee's voluntary termination of employment with the Company and
its subsidiaries, or (C) Optionee's violation of (x) the
noncompetition, or cooperation provisions of Section 5(g) of the
Plan or (y) the undertaking not to deliberately cause substantial
harm to the Company as set forth in Section 5(g) of the Plan.
4. Any Incentive Stock Option granted hereby shall become exercisable
for the first time in the aggregate amount of no more than $100,000
(fair market value at time of grant) during any calendar year. In
addition, any such incentive stock option exercised after three
months after separation from service to the Company will be treated
as a non-qualified stock option under U.S. federal tax provisions,
if applicable.
5. This Option may be exercised by sending the Treasurer of the Company
an option exercise notice indicating the number of Option Shares for
which the Option is to be exercised at that time and the form in
which the certificates are to be registered for Option Shares
purchased (in the name of the Optionee or in his or her name and
that of another person(s) as joint tenants with the right of
survivorship). This notice shall be accompanied by payment of the
Option Price for the Option Shares being purchased in the form of
(vi) a personal or bank check in U.S. Dollars payable to American
Home Products Corporation and drawn on or payable at a United States
bank and/or (vii) shares of the Company's common stock issued in the
Optionee's name and duly assigned to the Company or (viii) by any
other form of consideration which has been approved by the
Compensation and Benefits Committee, as and to the extent provided
and permitted by Section 5(d) of the Plan. Notwithstanding anything
to the contrary herein, the Company or its subsidiaries, as
appropriate, shall have the right to deduct from the number of
Option Shares to be delivered upon exercise such number of Option
Shares as may be necessary to satisfy all federal, state or local
taxes or other deductions legally required to be withheld or in the
alternative may require the Optionee to deliver to the Company or
a subsidiary an amount of cash or number of shares of common stock
of the Company to satisfy such withholding.
6. This Agreement and this Option as well as the Company's obligation
to sell and deliver Option Shares covered by this Option is subject
to all federal, state and other laws, rules and regulations of the
United States and/or of the country wherein the Optionee resides or
is employed. Compliance with any recording, protocolization or
registration requirements and payment of any fees or taxes
applicable to this Agreement or the transactions it contemplates are
the exclusive responsibility of the Optionee.
7. This Option is not transferable or assignable other than by will or
by the laws of descent and distribution and may be exercised during
the Optionee's lifetime only by him or her. After the Optionee's
death the Option may be exercised only by the Optionee's legal
representative or legatee or such other person designated by an
appropriate court as the person entitled to make such exercise. The
Option may be exercised after the Optionee's death only to the
extent that he or she was entitled to exercise it at the time of his
or her death.
8. In the event that this Agreement also contains a grant of a Stock
Appreciation Right (an "SAR") in connection with the Option, the
terms of the SAR shall be governed by the provisions of Section 6
of the Plan.
9. Subject to the express provisions of the Plan, this Agreement and
the Plan are to be interpreted and administered by the Compensation
and Benefits Committee, whose determination will be final.
10. This Agreement shall be governed by the laws of the State of
Delaware and in accordance with such federal law as may be
applicable.
AMERICAN HOME PRODUCT CORPORATION
Chairman of the Board
Accepted and agreed to:
Optionee's Signature
Optionee's Social Security Number
Exhibit 10.30
AMENDMENT TO THE
AMERICAN HOME PRODUCTS CORPORATION
SPECIAL STOCK OPTION AGREEMENT
The Special Stock Option Agreement, dated __________, 199_, by
and between American Home Products Corporation (the "Corporation")
and _____________ (the "Agreement") is hereby amended by this
Amendment, dated _________, 199_, by adding a new paragraph 9 which
states as follows:
9. Notwithstanding the holding period set forth in
paragraph 2 of this Agreement, effective on the date that
is one year after the date of grant of these options, in
the event of a Change of Control (as defined below) (i)
these options shall become immediately exercisable options
with respect to 100 percent of the Option Shares; and (ii)
the Compensation and Benefits Committee may, in its
discretion and upon at least 10 days advance notice to the
optionee, cancel any options and pay to the optionee in
cash, the value thereof based upon the highest price per
share of the Corporation's common stock received or to be
received by other stockholders of the Corporation in
connection with the Change of Control.
"Change in Control" shall, unless the Board of Directors of
the Corporation otherwise directs by resolution adopted
prior thereto, be deemed to occur if (i) any "person" (as
that term is used in Sections 13 and 14(d)(2) of the
Exchange Act) other than a Permitted Holder (as defined
below) is or becomes the beneficial owner (as that term is
used in Section 13(d) of the Exchange Act), directly or
indirectly, of 50% or more of either the outstanding shares
of common stock of the Corporation or the combined voting
power of the Corporation's then outstanding voting
securities entitled to vote generally, (ii) during any
period of two consecutive years, individuals who constitute
the Board of Directors of the Corporation at the beginning
of such period cease for any reason to constitute at least
a majority thereof, unless the election or the nomination
for election by the Corporation's stockholders of each new
director was approved by a vote of at least three-quarters
of the directors then still in office who were directors at
the beginning of the period or (iii) the Corporation
undergoes a liquidation or dissolution or a sale of all or
substantially all of the assets of the Corporation. No
merger, consolidation or corporate reorganization in which
the owners of the combined voting power of the
Corporation's then outstanding voting securities entitled
to vote generally prior to said combination, own 50% or
more of the resulting entity's outstanding voting
securities shall, by itself, be considered a Change in
Control. As used herein, "Permitted Holder" means (i) the
Corporation, (ii) any corporation, partnership, trust or
other entity controlled by the Corporation and (iii) any
employee benefit plan (or related trust) sponsored or
maintained by the Corporation or any such controlled
entity.
Accepted and agreed to: AMERICAN HOME PRODUCTS CORPORATION
_________________ ___________________________
Optionee's Signature Chairman of the Board
Exhibit 10.31
AMERICAN HOME PRODUCTS CORPORATION
RESTRICTED STOCK PERFORMANCE AWARD AGREEMENT
UNDER THE [Year] STOCK INCENTIVE PLAN
DATE: [Year]
NUMBER OF SHARES SUBJECT
TO TARGET AWARD: [ ]
______________________________
[Name/Address]
Under the terms and conditions of this Agreement and of the
Company's [Year] Stock Incentive Plan (the "Plan"), a copy of
which has been delivered to you and is made a part hereof, the
Company hereby awards to you units (the "Units") representing
shares of the Company's Common Stock (the "Common Stock") subject
to the restrictions set forth in this Agreement in the amount set
forth above (the "Target Award"). Upon the satisfaction by the
Company of certain performance criteria as described in Paragraph
3 of this Agreement, the Units will be converted into shares of
the Company's Common Stock entitling the holder to all of the
rights of a stockholder as described herein but subject to the
restrictions set forth in this Agreement (the "Restricted
Stock"). Except as provided herein, the terms used in this
Agreement shall have the same meanings as in the Plan.
1. Rights as Stockholders. During the period from the
date of this Agreement through the Conversion Date (as defined
herein), no shares of the Company's Common Stock represented by
the Units will be earmarked for you or your account nor shall you
have any of the rights of a stockholder with respect to such
shares. Upon issuance of the Restricted Stock as of the
Conversion Date, you will be the owner of record of the shares of
Common Stock represented by the Restricted Stock and shall be
entitled to all of the rights of a stockholder of the Company,
including the right to vote and the right to receive dividends,
subject to the restrictions stated in this Agreement and referred
to in the legend described in Paragraph 7 below. If you receive
any additional shares by reason of being the holder of Restricted
Stock under this Agreement, all the additional shares shall be
subject to the provisions of this Agreement and all certificates
evidencing ownership of the additional shares shall bear the
legend.
2. Restricted Period. During the period from the date of
this Agreement through the date which is three years after such
date (the "Restricted Period"), you may not sell, transfer,
assign, pledge, or otherwise encumber or dispose of any Units or
Restricted Stock granted hereunder.
3. Conversion to Restricted Stock. (a) At meetings of the
Committee to be held within 60 days after the end of each of the
current year and the two immediately succeeding years or at such
other time or times as the Committee in its discretion deems
appropriate, the Committee shall compare the EPS (as defined
below) for such year with the EPS Target (as defined below) for
such year (the date on which each such determination is made
being referred to herein as a "Conversion Date"). If, on the
date of such meeting, the Committee determines that, with respect
to the preceding year:
(i) EPS is less than 90% of the EPS Target, then all
rights with respect to one-third of the Target
Award (the "Annual Target Amount") shall thereupon
be forfeited;
(ii) EPS is greater than or equal to 90% of the EPS
Target and less than or equal to 95% of the EPS
Target, then Units representing 75% of the Annual
Target Amount shall be converted into Restricted
Stock and all rights with respect to the remaining
portion of such Annual Target Amount shall
thereupon be forfeited;
(iii) EPS is greater than 95% of the EPS Target and less
than or equal to 105% of the EPS Target, then
Units representing the entire Annual Target Amount
shall be converted into Restricted Stock; and
(iv) EPS is greater than 105% of the EPS Target, then
Units representing the entire Annual Target Amount
shall be converted into Restricted Stock and you
shall be entitled to receive an additional grant
of Restricted Stock representing 25% of the Annual
Target Amount (a "Bonus Award"); such additional
grant to be made by the Committee at such meeting.
(b) Notwithstanding anything to the contrary contained in
this Agreement, Units shall be converted into Restricted Stock in
whole numbers of shares only and, if necessary, (i) the Annual
Target Amount shall be rounded up or down (A) to the nearest
whole number for the first two years and (B) for the third year
to equal, together with the Annual Target Amounts for the first
two years, the Target Award; and (ii) the calculations based upon
such amounts in subparagraphs 3(a)(ii) and 3(a)(iv) above shall
be rounded up or down to the nearest whole number.
(c) As used in this Agreement, the term:
(i) "EPS" for any year means the earnings or net income per
share of common stock of the Company for such year,
adjusted to exclude the effect of extraordinary or
unusual items of income or expense, all as determined
in good faith by the Committee acting in its sole
discretion.
(ii) "EPS Target" shall be $2.88 for [Year] and, for [Next
Year] and [Following Year], shall be the amount
established by the Committee at a meeting to be held no
later than March 1 of each such year; provided,
however, that if for any reason the Committee shall
determine that the EPS Target is no longer a
practicable or appropriate measure of financial
performance, the Committee may take action to
substitute another financial measure as it deems
appropriate under the circumstances.
4. Restricted Stock Trust. (a) Subject to Paragraph 4(b)
below, you are eligible to make a one-time irrevocable election
to cause the Company to deposit as of each Conversion Date the
shares of Restricted Stock into which Units shall be converted on
such date, together with a stock power to be executed by you, to
an account in your name in the Restricted Stock Trust (as defined
below) by completing the form set forth on Schedule A attached
hereto. Subject to Paragraph 4(b), below, if you do not make such
election, such shares shall be delivered to you as provided in
Paragraph 5(a)(i) of this Agreement.
(b) Notwithstanding anything to the contrary contained in
this Agreement, if you are or, in the judgment of the Committee,
are expected to be a Named Executive Officer with respect to any
year in which a Conversion Date occurs, then you will be deemed
to have made the election under Paragraph 4(a) above to have the
Restricted Stock into which Units shall be converted on such date
and thereafter deposited into the Restricted Stock Trust.
(c) For purposes of this Agreement:
(i) "Named Executive Officer" shall mean the Chief
Executive Officer of the Company or any of the
four highest compensated officers (other than the
Chief Executive Officer of the Company) whose
total compensation payable is required to be
reported to shareholders under the Securities
Exchange Act of 1934, as amended; and
(ii) "Restricted Stock Trust" means the trust fund
established or to be established by a trust
agreement (the "Trust Agreement") to accommodate
the deferral of delivery of shares of Common Stock
represented by Units and/or Restricted Stock (and
dividends paid thereon) until your termination of
employment for any reason or as otherwise provided
in the Trust Agreement, such trust fund to be
subject to the claims of the Company's general
creditors under federal and state law in the event
of insolvency of the Company as described in the
Trust Agreement.
5. Delivery of Shares of Common Stock. (a) Subject to
Paragraphs 4 and 9 of this Agreement, as soon as practicable
after the Restricted Period (or six months after the last
Conversion Date with respect to a Bonus Award made on the final
Conversion Date), all shares of Restricted Stock granted
hereunder shall be cancelled and replaced with certificates
representing Common Stock free of any restrictive legend other
than as may be required by applicable state or federal securities
law, such certificates to be either (i) delivered to you promptly
or (ii) if you have made or are deemed to have made the election
under Paragraph 4 above, deposited on your behalf in the
Restricted Stock Trust, in which case delivery of such shares
shall be deferred as provided in the Trust Agreement until the
first business day of the calendar year following your
termination of employment or as otherwise provided in the Trust
Agreement.
(b) Notwithstanding any other provisions hereof, the number
of shares of Common Stock which shall be delivered to you
pursuant to Paragraph 5(a) either directly or from the Restricted
Stock Trust shall be (i) the number of such shares which would
have been delivered in the absence of this Paragraph 5(b) minus
(ii) the number of whole shares of Common Stock necessary to
satisfy the minimum federal, state and/or local income tax
withholding obligations which are imposed on the Company by
applicable law in respect of the delivery of such award (and
which may be satisfied by the reduction effected hereby in the
number of deliverable shares), it being understood that the value
of the shares referred to in clause (ii) above shall be
determined, for the purposes of satisfying such withholding
obligations, on the basis of the average of the high and low per
share prices for the Common Stock as reported on the Consolidated
Transaction Reporting System on the designated date of delivery,
or on such other reasonable basis for determining fair market
value as the Committee may from time to time adopt. Any other
withholding obligations (e.g. Social Security and Medicare) with
respect to such award will be satisfied by separate arrangements
between the Company and you but will not in any event involve a
reduction in the number of shares that you are to receive.
6. Termination of Employment. (a) Subject to Section 7(f)
of the Plan, in the event of your termination of employment
during the Restricted Period for any reason other than death,
disability or retirement, you shall forfeit all rights to all
Units and Restricted Stock granted hereunder and you agree (i) to
assign, transfer, and deliver the Restricted Stock to the Company
and (ii) that you shall cease to be a shareholder of the Company
with respect to such shares, provided, the Committee may provide
for a partial or complete exception to this requirement as it
deems equitable in its sole discretion.
(b) In the event that your employment is terminated due to
death, disability or retirement, vesting of all shares of
Restricted Stock covered by the Target Award and any related
Bonus Award and delivery of the shares of Common Stock of the
Company represented thereby will be made to you or your
designated beneficiary or your legal representative, legatee or
such other person designated by an appropriate court as entitled
to receive the same, as the case may be, on the terms and,
subject to the conditions of this Agreement, including Paragraph
3 above.
7. Legend on Certificates. Each certificate evidencing
ownership of Restricted Stock issued during the Restricted Period
shall bear the following legend:
"These shares have been issued or transferred subject to a
Restricted Stock Performance Award and are subject to
substantial restrictions, including a prohibition against
transfer and a provision requiring transfer of these shares
to the Company without payment in the event of termination
of the employment of the registered owner under certain
circumstances all as more particularly set forth in a
Restricted Stock Performance Award Agreement dated [Date], a
copy of which is on file with the Company."
8. Miscellaneous. This Agreement may not be amended
except in writing and neither the existence of the Plan and this
Agreement nor the Target Award granted hereby shall create any
right to continue to be employed by the Corporation or its
subsidiaries and your employment will continue to be at will and
terminable at will by the Corporation. In the event of a
conflict between this Agreement and the Plan, the Plan shall
govern.
9. Compliance With Laws. (a) This Agreement shall be
governed by the laws of the state of Delaware and any applicable
laws of the United States. Notwithstanding anything herein to the
contrary, the Corporation shall not be obligated to cause to be
delivered any Restricted Stock or shares of Common Stock of the
Company represented thereby pursuant to this Agreement unless and
until the Company is advised by its counsel that the issuance and
delivery of such certificates is in compliance with all
applicable laws and regulations of governmental authority. The
Corporation shall in no event be obliged to register any
securities pursuant to the Securities Act of 1933 (as now in
effect or as hereafter amended) or to take any other action in
order to cause the issuance and delivery of such certificates to
comply with any such law or regulation.
(b) If you are subject to Section 16 of the Securities
Exchange Act of 1934, as amended (the "1934 Act"), transactions
under the Plan and this Agreement are intended to comply with all
applicable conditions of Rule 16b-3 or its successors under the
1934 Act. To the extent any provision of the Plan, this
Agreement or action by the Committee involving you is deemed not
to comply with an applicable condition of Rule 16b-3, such
provision or action shall be deemed null and void as to you, to
the extent permitted by law and deemed advisable by the
Committee. Moreover, in the event the Plan and/or this Agreement
does not include a provision required by Rule 16b-3 to be stated
therein, such provision (other than one relating to eligibility
requirements or the price and amount of awards as applicable)
shall be deemed automatically to be incorporated by reference
into the Plan and/or this Agreement insofar as you are concerned,
with such incorporation to be deemed effective as of the
effective date of such Rule 16b-3 provision. In addition, the
Committee in its discretion may cause the Company to retain
custody of the certificates representing the Common Stock to be
delivered under Paragraph 5 above so long as necessary or
appropriate to ensure that any minimum holding period under Rule
16b-3 is satisfied.
AMERICAN HOME PRODUCTS CORPORATION
By: ______________________________
Corporate Treasurer
Accepted and agreed to:
____________________________________ _______________________
Name (Please Print) Social Security Number
____________________________________ _______________________
Signature Date of Birth
<PAGE>
SCHEDULE A
ELECTION FORM
(To Be Completed in Conjunction with Your
Restricted Stock Performance Award Agreement)
I, [PRINT NAME] , hereby make an election to defer
distribution of all shares of Restricted Stock and to cause the
Company to deposit such shares to an account in my name in the
Restricted Stock Trust (with any dividends thereon to be
reinvested under the AHPC Master Investment Plan) together with a
stock power to be executed by me.
See Note Below
This election shall be irrevocable upon execution of the
Agreement.
_________________________________
Signature of Executive
Dated: ______________________________________________________
Witnessed: __________________________________________________
NOTE: 1. If you are or are expected to be a Named Executive
Officer with respect to any year in which a Conversion
Date occurs, you will be deemed to have elected
deferred distribution hereunder.
<PAGE>
Beneficiary Designation
In the event of my death, I designate the following beneficiary
(ies) to receive any shares of the Company's Common Stock to be
distributed to me or which have been deferred on my behalf to the
Restricted Stock Trust under this Agreement together with any
dividends thereon.
__________________________________________________
Beneficiary (ies)
__________________________________________________
Contingent Beneficiary (ies)
_____________________________
Signature of Executive
Dated: ______________________________________________________
Witnessed: __________________________________________________
Exhibit 10.32
AMERICAN HOME PRODUCTS CORPORATION
RESTRICTED STOCK PERFORMANCE AWARD AGREEMENT
UNDER THE [Year]STOCK INCENTIVE PLAN
DATE: [Date]
NUMBER OF SHARES SUBJECT
TO TARGET AWARD: [ ]
______________________________
[Name/Address]
Under the terms and conditions of this Agreement and of the Company's
[Year] Stock Incentive Plan (the "Plan"), a copy of which has been delivered
to you and is made a part hereof, the Company hereby awards to you units (the
"Units") representing shares of the Company's Common Stock (the "Common
Stock") subject to the restrictions set forth in this Agreement in the amount
set forth above (the "Target Award"). Upon the satisfaction by the Company of
certain performance criteria as described in Paragraph 3 of this Agreement,
the Units will be converted into shares of the Company's Common Stock
entitling the holder to all of the rights of a stockholder as described herein
but subject to the restrictions set forth in this Agreement (the "Restricted
Stock"). Except as provided herein, the terms used in this Agreement shall
have the same meanings as in the Plan.
1. Rights as Stockholders. During the period from the date of this
Agreement through the Conversion Date (as defined herein), no shares of the
Company's Common Stock represented by the Units will be earmarked for you or
your account nor shall you have any of the rights of a stockholder with
respect to such shares. Upon issuance of the Restricted Stock as of the
Conversion Date, you will be the owner of record of the shares of Common Stock
represented by the Restricted Stock and shall be entitled to all of the rights
of a stockholder of the Company, including the right to vote and the right to
receive dividends, subject to the restrictions stated in this Agreement and
referred to in the legend described in Paragraph 7 below. If you receive any
additional shares by reason of being the holder of Restricted Stock under this
Agreement, all the additional shares shall be subject to the provisions of
this Agreement and all certificates evidencing ownership of the additional
shares shall bear the legend.
2. Restricted Period. During the period from the date of this
Agreement through the date which is three years after such date (the
"Restricted Period"), you may not sell, transfer, assign, pledge, or otherwise
encumber or dispose of any Units or Restricted Stock granted hereunder.
3. Conversion to Restricted Stock. (a) At a meeting of the Committee
to be held within 60 days after the end of [second year] or at such other time
or times as the Committee in its discretion deems appropriate, the Committee
shall compare the EPS (as defined below) with the EPS Target (as defined
below). If, on the date of such meeting (the "Conversion Date"), the
Committee determines that:
(i) EPS is less than 90% of the EPS Target, then all rights with
respect to the Target Award shall thereupon be forfeited;
(ii) EPS is greater than or equal to 90% of the EPS Target and less
than or equal to 95% of the EPS Target, then Units representing
75% of the Target Award shall be converted into Restricted Stock
and all rights with respect to the remaining portion of such
Target Award shall thereupon be forfeited;
(iii) EPS is greater than 95% of the EPS Target and less than or equal
to 105% of the EPS Target, then Units representing the entire
Target Award shall be converted into Restricted Stock; and
(iv) EPS is greater than 105% of the EPS Target, then Units
representing the entire Target Award shall be converted into
Restricted Stock and you shall be entitled to receive an
additional grant of Restricted Stock representing 25% of the
Target Award (a "Bonus Award"); such additional grant to be made
by the Committee at such meeting.
(b) Notwithstanding anything to the contrary contained in this
Agreement, Units shall be converted into Restricted Stock in whole numbers of
shares only and, if necessary, the calculations based upon such amounts in
subparagraphs 3(a)(ii) and 3(a)(iv) above shall be rounded up or down to the
nearest whole number.
(c) As used in this Agreement, the term:
(i) "EPS" means the earnings or net income per share of common stock
of the Company for 1998, adjusted to exclude the effect of
extraordinary or unusual items of income or expense, all as
determined in good faith by the Committee acting in its sole
discretion.
(ii) "EPS Target" shall be the amount established by the Committee at a
meeting to be held no later than March 1, 1998; provided, however,
that if for any reason the Committee shall determine that the EPS
Target is no longer a practicable or appropriate measure of
financial performance, the Committee may take action to substitute
another financial measure as it deems appropriate under the
circumstances.
4. Restricted Stock Trust. (a) Subject to Paragraph 4(b) below, you
are eligible to make a one-time irrevocable election to cause the Company to
deposit as of the Conversion Date the shares of Restricted Stock, issuable
hereunder, together with a stock power to be executed by you, to an account in
your name in the Restricted Stock Trust (as defined below) by completing the
form set forth on Schedule A attached hereto. Subject to Paragraph 4(b),
below, if you do not make such election, such shares shall be delivered to you
as provided in Paragraph 5(a)(i) of this Agreement.
(b) Notwithstanding anything to the contrary contained in this
Agreement, if you are or, in the judgment of the Committee, are expected to be
a Named Executive Officer with respect to the year in which the Conversion
Date occurs, then you will be deemed to have made the election under Paragraph
4(a) above to have the Restricted Stock issuable hereunder deposited into the
Restricted Stock Trust.
(c) For purposes of this Agreement:
(i) "Named Executive Officer" shall mean the Chief Executive Officer
of the Company or any of the four highest compensated officers
(other than the Chief Executive Officer of the Company) whose
total compensation payable is required to be reported to
shareholders under the Securities Exchange Act of 1934, as
amended; and
(ii) "Restricted Stock Trust" means the trust fund established or to be
established by a trust agreement (the "Trust Agreement") to
accommodate the deferral of delivery of shares of Common Stock
represented by Units and/or Restricted Stock (and dividends paid
thereon) until your termination of employment for any reason or as
otherwise provided in the Trust Agreement, such trust fund to be
subject to the claims of the Company's general creditors under
federal and state law in the event of insolvency of the Company as
described in the Trust Agreement.
5. Delivery of Shares of Common Stock. (a) Subject to Paragraphs 4
and 9 of this Agreement, as soon as practicable after the Restricted Period
(or six months after the Conversion Date with respect to a Bonus Award) all
shares of Restricted Stock granted hereunder shall be cancelled and replaced
with certificates representing Common Stock free of any restrictive legend
other than as may be required by applicable state or federal securities law,
such certificates to be either (i) delivered to you promptly or (ii) if you
have made or are deemed to have made the election under Paragraph 4 above,
deposited on your behalf in the Restricted Stock Trust, in which case delivery
of such shares shall be deferred as provided in the Trust Agreement until the
first business day of the calendar year following your termination of
employment or as otherwise provided in the Trust Agreement.
(b) Notwithstanding any other provisions hereof, the number of shares
of Common Stock which shall be delivered to you pursuant to Paragraph 5(a)
either directly or from the Restricted Stock Trust shall be (i) the number of
such shares which would have been delivered in the absence of this Paragraph
5(b) minus (ii) the number of whole shares of Common Stock necessary to
satisfy the minimum federal, state and/or local income tax withholding
obligations which are imposed on the Company by applicable law in respect of
the delivery of such award (and which may be satisfied by the reduction
effected hereby in the number of deliverable shares), it being understood that
the value of the shares referred to in clause (ii) above shall be determined,
for the purposes of satisfying such withholding obligations, on the basis of
the average of the high and low per share prices for the Common Stock as
reported on the Consolidated Transaction Reporting System on the designated
date of delivery, or on such other reasonable basis for determining fair
market value as the Committee may from time to time adopt. Any other
withholding obligations (e.g. Social Security and Medicare) with respect to
such award will be satisfied by separate arrangements between the Company and
you but will not in any event involve a reduction in the number of shares that
you are to receive.
6. Termination of Employment. (a) Subject to Section 7(f) of the
Plan, in the event of your termination of employment during the Restricted
Period for any reason other than death, disability or retirement, you shall
forfeit all rights to all Units and Restricted Stock granted hereunder and you
agree (i) to assign, transfer, and deliver the Restricted Stock to the Company
and (ii) that you shall cease to be a shareholder of the Company with respect
to such shares, provided, the Committee may provide for a partial or complete
exception to this requirement as it deems equitable in its sole discretion.
(b) In the event that your employment is terminated due to death,
disability or retirement, vesting of all shares of Restricted Stock covered by
the Target Award and any related Bonus Award and delivery of the shares of
Common Stock of the Company represented thereby will be made to you or your
designated beneficiary or your legal representative, legatee or such other
person designated by an appropriate court as entitled to receive the same, as
the case may be, on the terms and, subject to the conditions of this
Agreement, including Paragraph 3 above.
7. Legend on Certificates. Each certificate evidencing ownership of
Restricted Stock issued during the Restricted Period shall bear the following
legend:
"These shares have been issued or transferred subject to a Restricted
Stock Performance Award and are subject to substantial restrictions,
including a prohibition against transfer and a provision requiring
transfer of these shares to the Company without payment in the event of
termination of the employment of the registered owner under certain
circumstances all as more particularly set forth in a Restricted Stock
Performance Award Agreement dated [Date], a copy of which is on file
with the Company."
8. Miscellaneous. This Agreement may not be amended except in
writing and neither the existence of the Plan and this Agreement nor the
Target Award granted hereby shall create any right to continue to be employed
by the Corporation or its subsidiaries and your employment will continue to be
at will and terminable at will by the Corporation. In the event of a conflict
between this Agreement and the Plan, the Plan shall govern.
9. Compliance With Laws. (a) This Agreement shall be governed by the
laws of the state of Delaware and any applicable laws of the United States.
Notwithstanding anything herein to the contrary, the Corporation shall not be
obligated to cause to be delivered any Restricted Stock or shares of Common
Stock of the Company represented thereby pursuant to this Agreement unless and
until the Company is advised by its counsel that the issuance and delivery of
such certificates is in compliance with all applicable laws and regulations of
governmental authority. The Corporation shall in no event be obliged to
register any securities pursuant to the Securities Act of 1933 (as now in
effect or as hereafter amended) or to take any other action in order to cause
the issuance and delivery of such certificates to comply with any such law or
regulation.
(b) If you are subject to Section 16 of the Securities Exchange Act of
1934, as amended (the "1934 Act"), transactions under the Plan and this
Agreement are intended to comply with all applicable conditions of Rule 16b-3
or its successors under the 1934 Act. To the extent any provision of the
Plan, this Agreement or action by the Committee involving you is deemed not to
comply with an applicable condition of Rule 16b-3, such provision or action
shall be deemed null and void as to you, to the extent permitted by law and
deemed advisable by the Committee. Moreover, in the event the Plan and/or
this Agreement does not include a provision required by Rule 16b-3 to be
stated therein, such provision (other than one relating to eligibility
requirements or the price and amount of awards as applicable) shall be deemed
automatically to be incorporated by reference into the Plan and/or this
Agreement insofar as you are concerned, with such incorporation to be deemed
effective as of the effective date of such Rule 16b-3 provision. In addition,
the Committee in its discretion may cause the Company to retain custody of the
certificates representing the Common Stock to be delivered under Paragraph 5
above so long as necessary or appropriate to ensure that any minimum holding
period under Rule 16b-3 is satisfied.
AMERICAN HOME PRODUCTS CORPORATION
By: ______________________________
Corporate Treasurer
Accepted and agreed to:
____________________________________ _______________________
Name (Please Print) Social Security Number
____________________________________ _______________________
Signature Date of Birth
<PAGE>
SCHEDULE A
ELECTION FORM
(To Be Completed in Conjunction with Your
Restricted Stock Performance Award Agreement)
I, (PRINT NAME) , hereby make an election to defer distribution of all
shares of Restricted Stock and to cause the Company to deposit such shares to an
account in my name in the Restricted Stock Trust (with any dividends thereon to
be reinvested under the AHPC Master Investment Plan) together with a stock power
to be executed by me.
See Note Below
This election shall be irrevocable upon execution of the Agreement.
_________________________________
Signature of Executive
Dated: ______________________________________________________
Witnessed: __________________________________________________
NOTE: 1. If you are or are expected to be a Named Executive Officer with
respect to the year in which the Conversion Date occurs, you will be
deemed to have elected deferred distribution hereunder.
<PAGE>
Beneficiary Designation
In the event of my death, I designate the following beneficiary (ies) to receive
any shares of the Company's Common Stock to be distributed to me or which have
been deferred on my behalf to the Restricted Stock Trust under this Agreement
together with any dividends thereon.
___________________________________________________________________________
Beneficiary (ies)
___________________________________________________________________________
Contingent Beneficiary (ies)
_____________________________
Signature of Executive
Dated: ______________________________________________________
Witnessed: __________________________________________________
EXHIBIT 10.34
AMERICAN HOME PRODUCTS CORPORATION ("AHPC") ELECTION FORM FOR THE DIRECTORS'
DEFERRAL PLAN (THE "PLAN")
TO: Treasurer
American Home Products Corporation
1.
Transfer of Account Balance From the AHPC Nonfunded Deferred Compensation
Plan for Outside Directors ("Deferred Compensation Plan")
FOR DIRECTORS WHO ARE PARTICIPANTS IN THE DEFERRED COMPENSATION PLAN AS
OF THE EFFECTIVE DATE OF THE PLAN
I hereby elect to transfer the following portion of my account balance in
the Deferred Compensation Plan into Share Equivalents under the Plan effective
as of May 1, 1997: % or $ of my account balance
to be transferred and converted into Share Equivalents (select either a
percentage or dollar amount of your account to be transferred to the Plan). I
understand that any portion of my account in the Deferred Compensation Plan
which I do not elect to transfer into Share Equivalents will automatically be
transferred to a Deferred Compensation Account on my behalf on the effective
date of May 1, 1997.
2. DEFERRAL ELECTION
(a) Amount of Deferral
Pursuant to the AHPC Director's Deferral Plan (the "Plan"), I hereby elect
to defer receipt of my compensation for services as a Director in the following
amounts:
(i) $ (must be minimum of $1,000--all compensation will be
deferred until the amount you elected is reached).
(ii) % of my compensation (to be applied pro rata against all
compensation earned as a Director).
For purposes of this election, I understand that my compensation includes
all retainers and fees payable to me for services performed by me as a Director,
including fees for services on a committee of the Board. I understand that the
election I am making is irrevocable with respect to amounts deferred under the
election for the deferred periods selected below. I further understand that I
may amend or revoke my election, in writing, with respect to compensation I will
earn in the future
NOTE: The terms capitalized on this form which are not otherwise defined are
used as defined in the Plan document.
(b) Length of Deferral
My election will continue in effect (select one):
(i) for calendar quarters (specify the number of
calendar quarters you wish your election to remain in effect).
(ii) until revoked or amended (check if you want
election to continue indefinitely but only with respect to
compensation you will earn in the future).
3. DISTRIBUTION ELECTION
I hereby elect to have amounts credited to my Deferred Compensation Account
and/or Vested Share Account (including amounts transferred from the Deferred
Compensation Plan, if any, and all amounts transferred from the AHPC Retirement
Plan for Outside Directors following satisfaction of the vesting requirements)
distributed to me as follows (check (a), (b) or (c)):
(a) a lump sum distribution of all amounts in my Accounts.
(b) in substantially equal annual installment payments (select a
number of installment payments of between 2 and 10 installments). Note: If you
select this option, any Share Equivalents in your Vested Share Account will be
converted to cash at the time of the first installment payment and, thereafter,
your account will be credited with deemed interest (Company Credit) until
distributed.
(c) in annual installment payments (select a number of
installment payments of between 2 and 10 installments). Note: If you select
this option, the Share Equivalents in your Vested Share Account will remain in
the form of Share Equivalents until they are converted to cash at the time they
will be paid to you as part of an installment payment. Any dividend equivalents
earned on the Share Equivalents will be converted to cash and distributed as
part of the last installment.
I understand that if I elect payment option (a), I will receive a lump sum
payment of my account as of the first day of the calendar quarter following the
calendar quarter in which I cease to be a Director. If I elect payment option
(b) or (c), I will receive my first installment payment in January of the year
following the year in which I cease to be a Director.
4. Form of Deferral
I hereby elect to have the amount of compensation I am deferring pursuant
to my election above credited to my Individual Accounts set forth below in the
following percentages (select percentages to be deferred in (a) and (b)):
(a) % in cash in my Deferred Compensation Account.
(b) % in Share Equivalents in my Vested Share Account.
5.. Beneficiary Designation
If I die before all amounts in my Deferred Compensation Account and/or Share
Accounts have been distributed to me, I direct that the amounts remaining in my
Accounts be paid to:
(Please Print Name of Beneficiary) (Street )
(City) (State) (Zip Code)
I understand that if I die without having designated a Beneficiary, or in the
event my designated Beneficiary predeceases me, then any amounts remaining in my
Accounts at the date of my death will be paid to my estate.
Please sign and date the form below:
(Date) (Signature)
(Please Print Name)
Exhibit 10.37
AMERICAN HOME PRODUCTS CORPORATION
DIRECTORS' DEFERRAL PLAN
Section 1. Establishment of the Plan .
Effective May 1, 1997, there is hereby established a plan whereby Directors
of the Company who are not current employees of the Company may voluntarily
defer compensation (the "Deferred Compensation" portion of the Plan), and may
share in the long-term growth of the Company (the "Deferred Stock" portion of
the Plan). Prior to May 1, 1997, the Company maintained the Deferred
Compensation portion of the Plan as a separate plan, The AHPC Nonfunded Deferred
Compensation Plan for Directors (the "Prior Plan"). The Plan is deemed to
consist, in part, of the amounts held under the Prior Plan and any election made
by a Director under the Prior Plan, unless and until amended by the Director in
accordance with this Plan, shall remain in effect under this Plan.
Section 2. Definitions .
When used in the Plan, the following terms shall have the definitions set
forth in this Section 2:
2.1. Average Closing Price . The term "Average Closing Price" means the
average closing market price of the Shares on the Consolidated Transaction
Reporting System for the New York Stock Exchange for the last five (5)
consecutive trading days on which at least one sale of Shares took place on such
System up to and including the date of determination.
2.2. Beneficiary . The term "Beneficiary" means the beneficiary or
beneficiaries (including any contingent beneficiary or beneficiaries) designated
by the Participant pursuant to Section 7.3 hereof.
2.3. Board of Directors . The term "Board of Directors" means the Board of
Directors of the Company.
2.4. Company . The terms "Company" or "AHPC" mean American Home Products
Corporation, a Delaware corporation.
2.5. Company Credit . The term "Company Credit" means an amount computed
and credited to a Participant's Deferred Compensation Account, as described in
Section 6.3, at an annual rate based on the average of the quarter-end yields
for a ten-year period (ending September 30 of the prior year) of ten-year U.S.
Treasury notes plus two percent (2%).
2.6. Compensation . The term "Compensation" means the retainer and the
aggregate of all fees for service and attendance at Board of Director and
committee meetings to which a Director is entitled for services rendered to the
Company as a Director.
2.7. Deferral Allocation Date . The term "Deferral Allocation Date" means
the third Monday of any month, or if Shares are not traded on the New York Stock
Exchange on such third Monday of the month, the last day before the third Monday
of the month on which Shares are traded on the New York Stock Exchange, that
follows the date on which an amount deferred under the Plan would have been paid
in cash if a deferral election had not been made hereunder.
2.8. Deferred Amount . The term "Deferred Amount" means the amount of
Compensation that a Deferred Compensation Participant elects to defer in
accordance with Section 4 hereof.
2.9. Deferred Compensation Account . The term "Deferred Compensation
Account" means the account described in Section 6.1.
2.10. Deferred Compensation Participant . The term "Deferred Compensation
Participant" means a Director who is not a current employee of the Company and
who has currently or previously elected to defer all or part of his/her
Compensation pursuant to the Prior Plan or in accordance with Section 4 of this
Plan, and for whom a Deferred Compensation Account is currently maintained.
2.11. Deferred Stock Participant . The term "Deferred Stock Participant"
means a Director who is not a current employee of the Company and who becomes a
Participant in the Plan in accordance with Section 3 hereof.
2.12. Director . The term "Director" means each member of the Board of
Directors.
2.13. Disability . The term "Disability" means the complete and permanent
inability of an individual, by reason of illness or accident, to perform the
individual's duties as a Director. The determination whether a Director has
suffered a Disability shall be made by the Board of Directors based upon such
evidence as it deems appropriate.
2.14. Dividend Allocation Date . The term "Dividend Allocation Date" means
the first Monday that (a) follows a Dividend Payment Date and (b) is the third
Monday of a month.
2.15. Dividend Payment Date . The term "Dividend Payment Date" means the
date as of which the Company pays a cash dividend on Shares.
2.16. Dividend Record Date . The term "Dividend Record Date" means, with
respect to any Dividend Payment Date, the date established by the Board of
Directors as the record date for determining shareholders entitled to receive
payment of the dividend on such Dividend Payment Date.
2.17. Individual Accounts . The term "Individual Accounts" or "Accounts"
means the separate Deferred Compensation Account and Share Accounts, described
in Section 6 hereof, which are established under the Plan for each Participant.
When used in the singular, the term shall refer to one of these accounts, as the
context requires.
2.18. Participant . The term "Participant" means a Director who is a
Deferred Stock Participant, a Deferred Compensation Participant, or both, as the
case may be.
2.19. Plan . The term "Plan" means the AHPC Directors' Deferral Plan, as
set forth herein and as it may be amended from time to time.
2.20. Prior Plan . The term "Prior Plan" has the meaning set forth in
Section 1 hereof.
2.21. Share . The term "Share" means a share of Common Stock, par value
$.33-1/3 per share, of the Company.
2.22. Share Accounts . The term "Share Accounts" means a Participant's
Vested Share Account and Unvested Share Account.
2.23. Share Equivalents . The term "Share Equivalents" means bookkeeping
entries credited to a Participant's Share Accounts and denominated in Shares.
2.24. Unvested Share Account . The term "Unvested Share Account" means an
account consisting of amounts transferred under Section 5.4 for which the
vesting requirements of Section 5.5(ii) have not been satisfied, and which are
denominated in Share Equivalents as described in Section 6.2.
2.25. Vested Share Account . The term "Vested Share Account" means an
account consisting of amounts transferred under Section 5.4 for which the
vesting requirements of Section 5.5(ii) have been satisfied together with
amounts deferred hereunder, and which are denominated in Share Equivalents as
described in Section 6.2, and including any amounts previously maintained in a
Participant's Unvested Share Account which are transferred to such account
following satisfaction of the vesting requirements described in Section 5.5(ii).
2.26. Year of Service. The term "Year of Service" means each full year and
any partial year an individual served as a Director. For this purpose a "year"
is the twelve-month period commencing with the first day of the individual's
service as a Director of the Company both before and after the effective date of
the Plan.
Section 3. Deferred Stock Participant.
Each person who as of the effective date of this Plan is currently serving
or who is hereafter elected or appointed to serve as a Director, as the case may
be, who is not an employee of the Company, and who elects to become a
Participant by making a deferral under Section 5.2, or for whom a transfer is
made under Section 5.4, shall become a Deferred Stock Participant. A Deferred
Stock Participant shall cease to participate in the Plan when the Participant
ceases to be a Director. For purposes of the Plan, a Director shall be deemed
to cease to be a Deferred Stock Participant on the first day of the month next
following the month in which he/she last serves as a Director.
Section 4. Deferred Compensation Participant .
Prior to the beginning of any calendar quarter in each calendar year, any
Director who is not an employee of the Company may defer the receipt of
Compensation to be earned by the Director during such calendar quarter and the
ensuing calendar quarters by filing with the Company a written election that:
(i) defers payment of a designated amount (of One Thousand Dollars
($1,000) or more) or a percentage of his/her Compensation for services
attributable to such calendar quarters (the "Deferred Amount");
(ii) specifies the payment option selected by the Participant pursuant to
Section 7.2 hereof for such Deferred Amount; and
(iii) specifies the options selected by the Participant pursuant to
Section 5 hereof for such Deferred Amount.
The amount deferred may not exceed the Director's Compensation for the
period of deferral. Notwithstanding the foregoing, any individual who is not an
employee of the Company, and who is newly elected or appointed to serve as a
Director may, not later than thirty (30) days after his/her election or
appointment as a Director becomes effective, elect in accordance with the
preceding provisions of this Section 4, to defer the receipt of Compensation
earned during the portion of the current calendar quarter that follows his/her
filing of the election with the Company. Any elections made pursuant to this
Section 4 shall be irrevocable when made. Notwithstanding the foregoing, the
Board of Directors in its sole discretion, may make a distribution to a
Participant under either Section 7.2(i)(a) or 7.4. If a Participant fails to
discontinue an election under Section 5 with respect to his/her Deferred Amount
for a future period, the Participant's current election shall remain in effect,
provided, however, that the Participant may thereafter make a new election with
regard to a future period at any time in accordance with the first paragraph of
this Section 4.
Section 5. Form of Deferred Compensation Credits .
5.1. Deferred Compensation Account . Except with respect to the deferral
of Compensation for a quarter in which a Deferred Compensation Participant
elects to have all or a percentage of the Deferred Amount credited in Shares in
accordance with Section 5.2 hereof, the Deferred Amount shall be denominated in
U.S. dollars and credited to the Participant's Deferred Compensation Account
pursuant to Section 6.1 hereof.
5.2. Shares . Prior to the beginning of any calendar quarter, a Deferred
Compensation Participant may elect, by filing a written election with the Board
of Directors, to have all or a percentage of the Deferred Amount for the
following calendar quarter and/or ensuing calendar quarters credited in Share
Equivalents and allocated to the Participant's Vested Share Account pursuant to
Section 6.2 hereof. Any elections made pursuant to this Section 5.2 shall be
irrevocable when made. If a Participant fails to discontinue an election under
this Section 5 with respect to his/her Deferred Amount for a future period,
his/her current election shall remain in effect, provided, however, that the
Participant may thereafter make a new election with regard to a future period at
any time.
5.3. Transfer of Deferred Compensation Account Balance to Share Account .
Prior to the effective date of the Plan, a Deferred Compensation Participant may
elect to have all or a portion of his/her final credited account balance in the
Prior Plan ( i.e. , the balance as of April 30, 1997) converted to Share
Equivalents and credited to the Participant's Vested Share Account. Such
conversion shall take place as of May 1, 1997, based on the Average Closing
Price as of May 1, 1997.
5.4.
Transfer of Present Value of Accrued Benefits Under Retirement Plan to Sha
re Account . Prior to the effective date of the Plan, a Deferred Compensation
Participant shall have allocated to his/her Unvested Share Account, or if a
Participant has satisfied the vesting requirements set forth in Section 5.5(ii)
hereof, to his/her Vested Share Account, the number of Share Equivalents
(maintained in fractions and rounded to three (3) decimal places) having a
market value (calculated as set forth below) equal to the actuarial present
value as of May 1, 1997, of the amount that would have been due to such
Participant under the AHPC Retirement Plan for Outside Directors at the time of
his/her earliest retirement date assuming that the Participant has then
satisfied the vesting requirements thereunder. Such actuarial present value
calculation shall be performed by the Company in its discretion and shall be
converted to Share Equivalents and credited to the Participant's Unvested or
Vested Share Account, as the case may be. Such conversion shall take place as
of May 1, 1997, based on the Average Closing Price as of that date.
5.5. Vesting of Unvested Share Account .
(i) All amounts transferred pursuant to Section 5.4 shall be
maintained in a Vested Share Account to the extent vested at the time of
transfer. All amounts which are not vested will be held in an Unvested
Share Account until the Participant shall have satisfied the vesting
requirements set forth in Section 5.5(ii), at which time such amounts in
the Participant's Unvested Share Account shall be transferred from such
Unvested Share Account and shall become a part of or be added to the
Participant's Vested Share Account.
(ii) A Participant shall have satisfied the vesting requirements upon
completion of at least ten (10) Years of Service and attainment of age
sixty-five (65), provided, however, that a Participant who ceases to be a
Director prior to attainment of age sixty-five (65) with at least ten (10)
Years of Service shall be deemed to have satisfied the vesting requirements
upon the first to occur of (1) attainment of age sixty-five (65), (2)
death, or (3) Disability.
Section 6. Individual Accounts .
The Company shall maintain Individual Accounts for Participants, as
follows:
6.1. Deferred Compensation Account . The Company shall maintain a Deferred
Compensation Account in the name of each Deferred Compensation Participant with
respect to any amounts deferred under the Plan which the Deferred Compensation
Participant does not elect to have credited in Share Equivalents pursuant to
Section 5.2 or 5.3 hereof. The opening balance of each Participant's Deferred
Compensation Account on the effective date of this Plan shall be equal to the
closing balance on the immediately preceding date of the corresponding account
maintained on the Participant's behalf under the Prior Plan, if any, less any
portion of such account converted to Share Equivalents and allocated to the
Participant's Vested Share Account pursuant to Section 5.3 hereof. The Deferred
Compensation Account shall be denominated in U.S. dollars, rounded to the
nearest whole cent. A Deferred Amount allocated to a Deferred Compensation
Account pursuant to Section 5.1 hereof shall be credited to the Deferred
Compensation Account as of the Deferral Allocation Date.
6.2. Share Accounts . The Company shall maintain Share Accounts consisting
of (i) a Vested Share Account and (ii) an Unvested Share Account. The Share
Accounts shall be denominated in Share Equivalents, and shall be maintained in
fractions rounded to three (3) decimal places. Share Equivalents allocated to a
Deferred Stock Participant's Vested Share Account in accordance with the
Participant's election under Section 5.2 hereof, shall be credited to the
Participant's Vested Share Account as of the Deferral Allocation Date. Share
Equivalents and, if necessary, fractional Share Equivalents, shall be credited
to a Participant's Vested Share Account based on the Average Closing Price at
the Deferral Allocation Date.
6.3. Accrual of Company Credit . The Treasurer of the Company shall
determine the annual rate of Company Credit on or before December 31 of each
calendar year. This rate shall be effective for the following calendar year.
The Company Credit shall be compounded and credited to each Deferred
Compensation Account as of the last day of each calendar quarter for each month
(or part thereof) that the Participant serves as a Director during such calendar
quarter. If a Participant elects the payment option under either Section
7.2(i)(b) or Section 7.2(i)(c) below, the Company Credit shall continue to be
credited to the Participant's account until distributed.
6.4. Cash Dividends . Cash dividends paid on Shares shall be deemed to
have been paid on the Share Equivalents allocated to each Participant's Share
Accounts and shall be treated as if the allocated Share Equivalents were actual
Shares issued and outstanding on the Dividend Record Date. An amount equal to
the amount of such dividends shall be credited in Share Equivalents to each
Share Account as of each Dividend Allocation Date based on the Average Closing
Price at the Dividend Allocation Date.
6.5. Capital Adjustments . The number of Share Equivalents allocated to
Share Accounts shall be adjusted by the Board of Directors, as it deems
appropriate, to reflect stock dividends, stock splits, reclassifications,
spinoffs, and other extraordinary distributions, as if those Share Equivalents
were actual Shares.
6.6. Account Statements . Within a reasonable time following the end of
each calendar year, the Company shall provide an annual statement to each
Participant. The annual statement for each Participant shall report the number
of Share Equivalents credited to each of the Participant's Share Accounts and
shall report the dollar amount credited to the Participant's Deferred
Compensation Account as of December 31 of that year.
Section 7. Payment Provisions .
7.l. Method of Payment . All payments to a Participant (or to a
Participant's Beneficiary or estate, as the case may be) with respect to the
Participant's Deferred Compensation Account and Vested Share Account shall be
paid in cash only, with Share Equivalents valued as set forth in Section 7.2
below.
7.2. Payment Options .
(i) At the time each Director elects to make a deferral or, for
Participants who are Directors on May 1, 1997, prior to the effective date
of the Plan, the Participant shall select a payment option with respect to
the payment of the Participant's Individual Accounts from the following
payment options:
(a) a lump sum paid in the calendar quarter first day of the
calendar quarter following the calendar quarter in which the
Participant ceases to be a Director;
(b) payments in substantially equal annual installments over a
period of between two (2) to ten (10) years, as elected by the
Participant at the time he/she makes his/her election under this
paragraph (i)(b), commencing in January of the calendar year
following the calendar year during which the Participant ceases
to be a Director with Share Equivalents in the Participant's
Vested Share Account treated as described in paragraph (iii)
below; or
(c) payments in annual installments over a period of between two
(2) to ten (10) years as elected by the Participant at the time
he/she makes his/her election under this paragraph (i)(c),
commencing in January of the calendar year following the calendar
year during which the Participant ceases to be a Director, with
Share Equivalents in the Participant's Vested Share Account
treated as described in paragraph (iv) below.
(ii) If the payment option described in paragraph (i)(a) above has
been elected, the amount of the lump sum with respect to the Participant's
Deferred Compensation Account shall be equal to the amount credited to the
Participant's Deferred Compensation Account as of the last business day of
the calendar quarter preceding the date of payment, and the amount of the
lump sum with respect to the Participant's Vested Share Account shall be
equal to the Average Closing Price as of last business day of the calendar
quarter preceding the date of payments multiplied by the number of Share
Equivalents credited to the Participant's Vested Share Account as of such
date.
(iii) If the payment option described in paragraph (i)(b) above
has been elected, the value of the Participant's Vested Share Account shall
be added to the amount in such Participant's Deferred Compensation Account
based on the Average Closing Price at the date of the first payment and the
amount of each installment with respect to the Participant's Deferred
Compensation Account (including the amount transferred from the
Participant's Vested Share Account) shall be paid annually, in
substantially equal installment amounts. The determination of the amount
of substantially equal installment payments shall be a fixed annuity
computation determined based on the amount of the Participant's Deferred
Compensation Account (including the amount transferred from the
Participant's Vested Share Account) at the time of the first payment, the
annual rate of the Company Credit at that time and the number of
installments selected, assuming compounding of the Company Credit on a
quarterly basis.
(iv) If the payment option described in paragraph (i)(c) above has
been elected, the amount of each installment with respect to the
Participant's Deferred Compensation Account and Vested Share Account shall
be paid annually, in installment amounts. The amount to be distributed
annually with respect to Share Equivalents shall be computed by dividing
the number of Share Equivalents in the Participant's Vested Share Account
by the number of installment payments selected, with the resulting number
of Share Equivalents paid in cash, based on the Average Closing Price as of
the December 31 preceding each date of payment. Any additional amounts in
respect of Share Equivalents relating to dividend equivalents during the
duration of installment payments shall be included with and paid as part of
the last installment.
(v) If the Participant fails to elect a payment option, the amount
credited to the Participant's Deferred Compensation Account and Vested
Share Account shall be distributed in a lump sum in accordance with the
payment option described in paragraph (i)(a) and paragraph (ii) above. If,
at the time a Participant ceases to be a Director, the amount credited to a
Participant's Deferred Compensation Account and the value of Share
Equivalents credited to a Participant's Share Accounts is less than $25,000
in the aggregate, the Board of Directors, in its sole discretion, may pay
out the amount credited to such Account in a lump sum as if such
Participant elected distribution under paragraph (i)(a) above.
(vi) Notwithstanding the foregoing, any amounts in a Participant's
Unvested Share Account at the time the Participant ceases to be a Director
shall be (a) forfeited if the Participant has not completed at least ten
(10) Years of Service, or (b) if the Participant has completed at least ten
(10) Years of Service, shall be paid to the Participant, in the manner
selected in paragraph (i)(a), (i)(b), or (i)(c) above, upon the first to
occur of (1) attainment of age sixty-five (65),or (2) Disability, provided,
however, that if the payment option described in paragraph (i)(a) above has
been selected, the value of such Unvested Share Account shall be determined
based on the Average Closing Price as of the December 31 preceding the date
of payment , and thereafter shall be treated as if it were part of the
Participant's Deferred Compensation Account. If the payment option
described in paragraph (i)(b) above has been selected, payment shall be
made in accordance with Section 7.2(iii). If the payment option in
paragraph (i)(c) above has been selected, payment shall be made in
accordance with Section 7.2(iv). Notwithstanding the foregoing, any
benefits in the Unvested Share Account at the date of a Participant's death
shall be paid to the Participant's Beneficiary or estate, as the case may
be, in accordance with Section 7.3.
7.3. Payment Upon Death . Notwithstanding any other provision of the Plan
to the contrary, within a reasonable period of time following the death of a
Participant, the amount credited to the Participant's Deferred Compensation
Account and all of the Share Equivalents credited to the Participant's Share
Accounts shall be paid by the Company in a lump sum to the Participant's
Beneficiary. For purposes of this Section 7.3, the amount credited to the
Participant's Deferred Compensation Account, and the number and value of Share
Equivalents credited to the Participant's Share Accounts, shall be determined as
of the date of payment using the Average Closing Price. A Participant may
designate a Beneficiary, in writing, in a form acceptable to the Board of
Directors. A Participant may revoke a prior designation of a Beneficiary and
may also designate a new Beneficiary without the consent of the previously
designated Beneficiary, provided, however, that such revocation and new
designation (if any) are in writing, in a form acceptable to the Board of
Directors, and filed with the Board of Directors before the Participant's death.
If the Participant does not designate a Beneficiary, or if no designated
Beneficiary survives the Participant, any amount not distributed to the
Participant during the Participant's life shall be paid to the Participant's
estate in a lump sum in accordance with this Section 7.3.
7.4. Payment on Unforeseeable Emergency . The Board of Directors may, in
its sole discretion, direct payment to a Participant of all or of any portion of
the vested portion of a Participant's Accounts, notwithstanding an election of a
payment option under Section 7.2 above, at any time that the Board of Directors
determines that such Participant has an unforeseeable emergency, and then only
to the extent reasonably necessary to meet the emergency. For purposes of this
section, "unforeseeable emergency" means severe financial hardship to the
Participant resulting from a sudden and unexpected illness or accident of the
Participant or of a dependent of the Participant, loss of the Participant's
property due to casualty, or other similar extraordinary and unforeseeable
circumstances arising as a result of events beyond the control of the
Participant.
Section 8. Ownership of Shares .
A Participant shall have no rights as a shareholder of the Company with
respect to any Shares represented by the Share Equivalents described hereunder.
Section 9. Prohibition Against Transfer .
The right of a Participant to receive payments under the Plan may not be
transferred except by will or applicable laws of descent and distribution. A
Participant may not assign, sell, pledge, or otherwise transfer amounts to which
he/she is entitled hereunder prior to payment thereof to the Participant.
Section 10. General Provisions .
10.1. Director's Rights Unsecured . The Plan is unfunded. The right of
any Participant to receive payments of cash under the provisions of the Plan
shall be an unsecured claim against the general assets of the Company.
10.2. Administration . Except as otherwise provided in the Plan, the Plan
shall be administered by the Board of Directors, which shall have the authority
to adopt rules and regulations for carrying out the Plan, and which shall
interpret, construe, and implement the provisions of the Plan. This Plan is
intended to comply with Section 16 of the Securities Exchange Act of 1934, as
amended (the "Act") and the rules promulgated thereunder. Any election by a
Participant which would be in violation of the Act or the rules thereunder
causing short-swing liability shall be deemed ineffective under the Plan, and
such election shall be deemed to be null and void.
10.3. Legal Opinions . The Board of Directors may consult with legal
counsel, who may be counsel for the Company or other counsel, with respect to
its obligations and duties under the Plan, or with respect to any action,
proceeding, or any questions of law, and shall not be liable with respect to any
good faith action taken, or omitted, by it pursuant to the advice of such
counsel.
10.4. Liability . Any decision made or action taken by the Board of
Directors, or any employee of the Company or any of its subsidiaries, arising
out of or in connection with the construction, administration, interpretation,
or effect of the Plan, shall be absolutely discretionary, and shall be
conclusive and binding on all parties. Neither the Board of Directors nor any
employee of the Company or any of its subsidiaries shall be liable for any act
or action hereunder, whether of omission or commission, by any other member or
employee or by any agent to whom duties in connection with the administration of
the Plan have been delegated or, except in circumstances involving bad faith,
for anything done or omitted to be done.
10.5. Withholding . The Company shall have the right to deduct from all
payments hereunder any taxes required by law to be withheld from such payments.
The recipients of such payments shall bear all taxes on amounts paid under the
Plan to the extent that no taxes are withheld thereon, irrespective of whether
withholding is required.
10.6. Legal Holidays . If any day on (or on or before) which action under
the Plan must be taken falls on a Saturday, Sunday, or legal holiday, such
action may be taken on (or on or before) the next succeeding day that is not a
Saturday, Sunday, or legal holiday; provided, however, that this Section 10.6
shall not permit any action that must be taken in one calendar year to be taken
in any subsequent calendar year.
Section 11. Amendment, Suspension, and Termination .
The Board of Directors shall have the right at any time, and for any
reason, to amend, suspend, or terminate the Plan, provided, however, that no
amendment, suspension, or termination shall reduce the number of Share
Equivalents or the cash balance in an Individual Account.
Section 12. Applicable Law .
The Plan shall be governed by, and construed in accordance with, the laws
of the State of Delaware, except to the extent that such laws are preempted by
federal law.
Section 13. Effective Date .
The effective date of this Plan is May 1, 1997. Nothing herein shall
invalidate or adversely affect any previous election, designation, deferral, or
accrual in accordance with the terms of the Prior Plan that were in effect prior
to the effective date of this Plan.
EXHIBIT 11
American Home Products Corporation and
Subsidiaries
Computation of Per Share Earnings
(In thousands except per share amounts)
Year Ended
December 31,
1996
1.Net Income ................................. $1,883,403
2.Reported earnings per share:
a. Average number of shares outstanding
during the year ............................ 634,834
b. Shares issuable upon the conversion of
preferred stock ............................ 592
c. Shares for reported earnings per share
calculation (2a+2b) ........................ 635,426
d. Reported earnings per share (1/2c) ... $2.96
3.Primary earnings per share:
a. Average number of share outstanding
during the year ............................ 634,834
b. Shares issuable upon the conversion of
preferred stock ............................ 592
c. Shares deemed outstanding from the
assumed execise of stock options reduced
by the number of shares purchased with the
proceeds (determined using average market
price during the year)...................... 11,198
d. Deferred contingent common stock awards 457
e. Shares for primary earnings per share
calculation (+3b+3c+3d).................... 647,081
f. Primary earnings per share (1/3e)..... $2.91
4.Fully diluted earnings per share:
a. Average number of shares outstanding
during the year ........................... 634,834
b. Shares issuable upon the conversion of
preferred stock ........................... 592
c. Shares deemed outstanding from the
assumed execise of stock options reduced by
the number of shares purchased with the
proceeds (determined using market price at
year-end)............................... 11,924
d. Deferred contingent common stock awards 457
e. Shares for fully diluted earnings per
share calculation (4a+4b+4c+4d)........ 647,807
f. Fully diluted earnings per share (1/4e) $2.91
<TABLE>
EXHIBIT 12
American Home Products Corporation
Computation of Ratio of Earnings To Fixed Charges
(Thousands of dollars, except ratio amounts)
<CAPTION>
Years Ended December 31,
Earnings: 1996 1995 1994* 1993 1992
<S> <C> <C> <C> <C> <C>
Earnings from continuing operations before
taxes on income $2,755,460 $2,438,698 $2,029,760 $1,992,665 $1,724,070
Add:
Fixed charges 605,011 705,047 155,187 91,500 63,403
Minority interest
in earnings of
consolidated subsidiary 32,496 5,642 5,303 4,027 3,803
Equity loss 0 0 1,691 0 0
Amoritization of capitalized interest 5,621 768 497 0 0
Less:
Minority interest in loss of consolidated
subsidiary 14,412 4,925 17,873 9,129 3,149
Equity income 10,431 8,129 0 0 0
Capitalized interest 0 7,681 9,792 14,898 0
Dividends on preferred stock of majority-
owned subsidiary 0 0 0 3,436 4,589
Total earnings as defined $3,373,745 $3,129,420 $2,164,773 $2,060,729 $1,783,538
Fixed Charges:
Interest and amortization of debt expense $571,414 $665,021 $116,661 $47,871 $35,503
Capitalized interest 0 7,681 9,792 14,898 0
Interest factor of rental expense (a) 33,597 32,345 28,734 25,295 23,311
Dividends on preferred stock of majority-owned
subsidiary 0 0 0 3,436 4,589
Total fixed charges as defined $605,011 $705,047 $155,187 $91,500 $63,403
Ratio of earnings to fixed charges 5.6 4.4 13.9 22.5 28.1
</TABLE>
* - The 1994 results include one month of results of American Cyanamid
Company which was acquired by American Home Products Corporation
effective December 1, 1994. Assuming the acquisition took place
January 1, 1994, the pro forma ratio of earnings to fixed charges
would be 2.9 for the year ended December 31, 1994.
(a) A 1/3 factor was utilized to compute the portion of rental expenses
deemed representative of the interest factor.
1996 ANNUAL REPORT
[AMERICAN HOME PRODUCTS LOGO]
AMERICAN HOME PRODUCTS CORPORATION
IN 1996, AHP INCREASED ITS FOCUS ON GLOBAL HEALTH
CARE WHILE ACHIEVING RECORD SALES AND EARNINGS. WE
ALSO INTRODUCED SEVERAL IMPORTANT NEW PRODUCTS AND
SIGNIFICANTLY ENHANCED OUR PRODUCT PIPELINE.
[Graphic]
<PG$PCN>
AMERICAN HOME PRODUCTS CORPORATION
AMERICAN HOME PRODUCTS CORPORATION CONTRIBUTES TO THE QUALITY OF LIFE WORLDWIDE
AS A GLOBAL LEADER IN DISCOVERING AND COMMERCIALIZING INNOVATIVE, COST-EFFECTIVE
HEALTH CARE AND AGRICULTURAL PRODUCTS.
OUR COMPANY IS FOCUSED ON FINDING BREAKTHROUGH MEDICAL THERAPIES IN AREAS OF
CRITICAL NEED, WITH ONE OF THE LARGEST COMMITMENTS TO BASIC AND CLINICAL
RESEARCH IN OUR INDUSTRY.
MILLIONS OF PEOPLE BENEFIT FROM OUR COMPANY'S BROAD, EXPANDING LINES OF
PRESCRIPTION DRUGS, VACCINES, NUTRITIONALS, OVER-THE-COUNTER MEDICATIONS AND
MEDICAL DEVICES. IN 1996, MORE PRESCRIPTIONS WERE DISPENSED IN THE UNITED STATES
FOR THE PHARMACEUTICALS OF AHP THAN FOR THOSE OF ANY OTHER COMPANY. WE ALSO ARE
RECOGNIZED FOR LEADERSHIP IN DEVELOPING, MANUFACTURING AND MARKETING ANIMAL
HEALTH CARE AND AGRICULTURAL PRODUCTS.
IN 1996, THE COMPANY ACHIEVED RECORD SALES AND EARNINGS, AND THE DIVIDEND WAS
INCREASED FOR THE 45TH CONSECUTIVE YEAR.
CONTENTS:
2 Chairman's Report to Shareholders
6 AHP at a Glance
8 1996 Highlights
14 Pharmaceutical Products Pipeline
16 Principal Products - United States
17 Financial Section
43 Board of Directors and Principal Officers
44 Corporate Data
[GRAPHIC]
<PG$PCN>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Years Ended December 31, 1996 1995
- -------------------------------------------------------------------------------------------
<S> <C> <C>
(In thousands except per share amounts)
Net sales ............................. $14,088,326 $13,376,089
Net income ............................ 1,883,403 1,680,418
Net income per common share ........... 2.96 2.71
Dividends per common share ............ 1.565 1.51
Total assets .......................... 20,785,343 21,362,923
Stockholders' equity .................. 6,962,092 5,542,998
- -------------------------------------------------------------------------------------------
</TABLE>
[Bar Graph omitted]
EARNINGS PER SHARE
[Bar Graph omitted]
DIVIDENDS PER SHARE
[Bar Graph omitted]
NET SALES
[Bar Graph omitted]
NET INCOME(1)
(1) Net income in 1987 excludes a provision related to Dalkon Shield claims of
$1,750 recorded by A.H. Robins Company, Incorporated prior to its
acquisition by the Company in 1989.
1
<PG$PCN>
"Looking ahead, we have many reasons to believe that American Home Products is
in an exceptional position to continue its robust growth in earnings and global
market share. Management, throughout our operating companies and at the
corporate level, shares a commitment to build our Company and displays the
resourcefulness and flexibility to move quickly and decisively as opportunities
unfold."
John R. Stafford
Chairman, President and
Chief Executive Officer
[Picture of John R. Stafford]
Chairman's Report to Shareholders
I am pleased to report that 1996 - our 70th anniversary - was by all standards a
very good year for American Home Products Corporation. We recorded a strong
sales increase that was in line with our expectations, and net income was up
substantially as well. The year also saw significant developments that
underscore our determination to sustain AHP's growth as a leader in global
health care and agricultural markets. We introduced several major new products
in our pharmaceutical and consumer businesses. Our ability to discover and
commercialize new products was strengthened considerably by the largest annual
research and development expenditure in our Company's history and through the
acquisition of Genetics Institute. We realized significant cost savings by
completing the integration of American Cyanamid, which has strengthened our
health care businesses and given us a major presence in agricultural products.
By completing the sale of a
2
<PG$PCN>
majority interest in the American Home Foods business for $1.2 billion, we are
able to devote more resources to our core businesses. All of these factors were
reflected in another year of gains for our Company's stock. Over the past two
years, AHP's share price has increased more than 83%.
The international portion of our business exhibited continued growth,
accounting for more than 40% of total sales in 1996. This is a significant
increase versus only five years ago. We have strong momentum in many markets
outside the United States that we believe offer excellent opportunities for our
human health care, veterinary care and agricultural products franchises in years
to come.
In 1996, net sales increased to $14.1 billion, and income before taxes
increased to $2.8 billion. After adjusting for businesses sold, discontinued or
acquired in 1996 and 1995, net sales increased 7% for the year. Excluding from
1996 results the gain on the sale of American Home Foods and the special charges
related to the acquisition of the remaining equity interest in Genetics
Institute, net income and net income per share for the 1996 full year were $1.9
billion and $2.95, respectively. This represents increases of 27% and 23%,
respectively, over 1995 comparable amounts. The dividend increased for the 45th
consecutive year, and in April 1996, the shareholders approved a two-for-one
stock split of the Company's common stock.
RESEARCH AND DEVELOPMENT
American Home Products is committed to being at the forefront of the world's
health care and agricultural products companies. This requires a significant and
sustained commitment to innovative R&D. In 1996, we invested more than $1.4
billion in R&D, of which $1.1 billion was in pharmaceutical research.
Wyeth-Ayerst now has more than 60 potential new pharmaceutical products in
clinical development or on file with the U.S. Food and Drug Administration. Our
expanding pipeline, which is profiled on pages 14-15, includes numerous product
candidates in Phase III and Phase II clinical trials. Three New Drug
Applications were filed with the FDA in 1996. They include Verdia, an
angiotensin II antagonist that controls hypertension with fewer side effects and
with better compliance than current therapies; Effexor XR, a once-a-day dosing
version of our antidepressant Effexor; and Alesse, a low-dose
levonorgestrel/ethinyl estradiol oral contraceptive. Also in 1996, the
Biological License Application for Neumega rhIL-11 was filed for
chemotherapy-induced thrombocytopenia. In January 1997, a Product License
Application (PLA) was filed for Rotashield, the first effective vaccine to
prevent rotaviral gastroenteritis in infants. We also filed a PLA for Tetracel,
which provides prophylaxis against diphtheria, tetanus, pertussis and
Haemophilus influenzae b infections with reduced side effects. In addition, an
approvable letter was received for Normiflo, a low molecular-weight
anticoagulant used in knee surgery. Duract, which received an approvable letter
in 1995 as a therapy for moderate to moderately severe pain, is in the final
stages of labeling discussions.
[PIE CHART - Sales by Geographic Segment - omitted]
In December, we took a major step to further strengthen our biotechnology
effort by exercising our option to acquire the outstanding shares of Genetics
Institute not already owned by AHP for $1.3 billion. Genetics Institute has a
powerful drug discovery program and a growing pipeline with promising
biotechnology products in important therapeutic areas such as anemia,
hemophilia, cancer, bone damage and infectious disease. The completion of this
acquisition signals our confidence that Genetics Institute has the potential to
be a world leader in biotechnology and facilitates R&D coordination with
Wyeth-Ayerst Research.
ETHICAL PHARMACEUTICALS
Strong sales gains were registered by our pharmaceutical business. Wyeth-Ayerst
made excellent progress in expanding its global pharmaceutical franchise,
launching five new pharmaceutical products as well as several important new
claims or dosage forms for established products in the United States. The
company also received marketing approvals for many products in other countries.
Premarin, our hormone replacement therapy, was the most widely dispensed
prescription drug in the United States in 1996. Single tablet Prempro and
3
<PG$PCN>
Premphase, unique, patented formulations, were introduced in January 1996 and
were very well received as convenient therapies for vasomotor symptoms related
to menopause and the prevention of osteoporosis. Redux, the first prescription
weight-loss drug to be cleared by the FDA in more than 20 years, was one of the
most successful drug launches ever. Effexor, our dual-acting antidepressant
achieved rapid growth in U.S. and international markets. We continued to expand
our major presence in non-steroidal anti-inflammatories, introducing Naprelan,
which is an improvement over the conventional formulation of naproxen sodium,
and extending the Lodine franchise. Lodine, the second most prescribed branded
non-steroidal anti-inflammatory drug in the United States, added a 500 mg.
dosage strength, a new rheumatoid arthritis indication and an extended-release
formulation. Zosyn received an additional indication for nosocomial pneumonia,
an illness that accounts for the largest hospital usage of antibiotics. At year
end, the FDA approved Acel-Imune, our acellular pertussis vaccine, for all five
doses in the diphtheria, tetanus and pertussis immunization series. In February
1997, BeneFIX, our Hemophilia B therapy, also received FDA approval.
CONSUMER HEALTH CARE
Whitehall-Robins remained one of the world's leading OTC health care companies.
On a pro forma basis, our international business grew at a double-digit pace
while sales were up slightly in the United States. We continue to have very high
growth expectations for this business for three reasons. First, health care
systems worldwide are showing increased interest in OTC products as a means of
containing costs. Second, we have one of the strongest franchises with leading
products - including Advil, Robitussin and Centrum - in key categories. Third,
we are taking steps to ensure that Whitehall-Robins is a leader in R&D. In 1996,
we broke ground on a $75 million expanded laboratory complex in Richmond,
Virginia, that will serve as our OTC R&D center for the Americas. We are
particularly focused on Rx to OTC conversions. This is an area in which we
recorded significant accomplishments in 1996, introducing Children's Advil in
the pediatric analgesic market and Axid AR in the rapidly growing acid
reducer/antacid market.
[PIE CHART - Net Sales by Segment - omitted]
MEDICAL DEVICES
The highly competitive environment in the medical devices business affected
sales for Sherwood-Davis & Geck, one of the world's leading manufacturers and
marketers of specialized medical devices. However, cost reductions from the
integration of Sherwood Medical and Davis & Geck significantly improved
profitability, and we expect sales to increase in 1997. The company's strategy
of developing products in higher margin businesses took a step forward with the
approval of Angio-Seal. This innovative arterial puncture closure device
improves patient comfort, minimizes the risk of complications and significantly
reduces costs associated with treating arterial punctures in cardiac
catheterization and diagnostic angiography procedures.
ANIMAL HEALTH CARE
Our animal health business continues to grow worldwide and is an increasingly
important contributor to our earnings. In 1996, sales were up significantly for
Fort Dodge Animal Health in pharmaceutical and biological markets.
In September, we announced our intention to acquire the worldwide animal
health business of Solvay S.A. for approximately $460 million. Solvay's product
lines will complement Fort Dodge Animal Health and will provide a greater market
presence in Europe and the Far East. The combined businesses will represent the
third largest animal health franchise in the world. We expect to complete the
purchase in the first quarter of 1997.
AGRICULTURAL PRODUCTS
Worldwide growth was recorded for Cyanamid Agricultural Products, a global
leader with major herbicides, insecticides and fungicides. This growth was
partially attributable to recently introduced products, reflecting Cyanamid's
excellent R&D capability, historically one of the strongest in the industry. In
1997, we expect full regulatory approval of a potent new insecticide for use on
cotton, vegetables and citrus, and we will continue our further development of
the imidazolinone class of herbicide for use on soybeans and other crops.
4
<PG$PCN>
[Picture of AHP on-site child development center]
- --------------------------------------------------------------------------------
American Home Products is committed to assisting employees in balancing work and
family responsibilities. In 1996, AHP was proud to be included in the "Working
Women Count Honor Roll," a Department of Labor initiative recognizing
corporations that take new steps to improve the workplace and accommodate the
needs of working families.
AHP's on-site child development centers in Madison, New Jersey; and Pearl
River, New York, as well as dependent care spending accounts and resource and
referral services, are examples of AHP's commitment to practices that are
friendly to families. These programs underscore our Company's belief that
employee satisfaction increases productivity and improves overall performance.
In recognition of the Company's family-friendly policies, Tipper Gore, wife of
Vice President Al Gore, visited AHP's corporate headquarters in May 1996. During
her visit, Mrs. Gore stated: "AHP was one of the first to answer President
Clinton's call for companies to adopt more pro-family policies. Its programs
provide a model for other corporations."
- --------------------------------------------------------------------------------
CHANGES IN THE BOARD OF DIRECTORS AND MANAGEMENT
Ivan Seidenberg, Chairman and Chief Executive Officer of NYNEX, was elected to
the Board of Directors effective November 1996. Our Company will benefit greatly
from the knowledge and experience he brings to our Board as a highly respected
business leader.
Stanley F. Barshay, Senior Vice President of American Home Products, retired
in the early part of 1997 after 32 years of exemplary service. We thank him for
his fine work and many contributions to our Company.
Carol G. Emerling, Secretary of American Home Products, retired in January
1997 after 19 years of outstanding service. We thank her for her many
contributions to our Company. Eileen M. Lach assumed the role of Secretary
effective January 1, 1997. Egon E. Berg, head of the Patents and Trademarks
section of the Law Department, was promoted to Vice President and Associate
General Counsel.
OUTLOOK FOR 1997 AND BEYOND
Looking ahead, we have many reasons to believe that American Home Products is in
an exceptional position to continue its robust growth in earnings and global
market share. Management, throughout our operating companies and at the
corporate level, shares a commitment to build our Company and displays the
resourcefulness and flexibility to move quickly and decisively as opportunities
unfold. As it has been historically, a key to our long-term growth is the
breadth and strength of our product franchise. In virtually every ethical
pharmaceutical, OTC, medical devices, animal health and agricultural products
category in which we compete, we have products that are leaders or are among the
leaders. This gives us a major advantage in extending product lines and
introducing new, more advanced products. Further, our well-financed R&D program
is productive, high quality, and well-staffed and equipped and will continue
generating major new products that will propel our Company in the future. We
have very promising collaborative agreements with top-quality research-based
companies that complement our R&D. Also, with our financial strength, we are
able to continue exploring acquisitions that can accelerate our growth.
Building our Company worldwide in competitive, changing markets depends, of
course, on having top-quality employees at all levels in all of our businesses.
In 1996, we enhanced our benefits and compensation programs to ensure that we
continue to attract and retain the very best people in our industry. On behalf
of the Board of Directors, I would like to thank our employees for their efforts
in 1996 and express our enthusiasm about working with them in the future.
Together, I am confident that we can face the challenges of the competitive
marketplace and that this will continue to be reflected in shareholder value.
/s/ John R. Stafford
- -----------------------
John R. Stafford
Chairman, President and Chief Executive Officer
February 26, 1997
5
<PG$PCN>
[Graphics omitted]
AMERICAN HOME PRODUCTS CORPORATION
AT A GLANCE...
Underpinning the growth of American Home Products worldwide is a global product
franchise that is among the strongest and most extensive in the world. We are
recognized for marketing high-quality health care products which contribute to
the well-being of millions of people worldwide. We also are known for innovative
agricultural products which support the world's food production system.
Highlighted here are some of AHP's major businesses.
[Picture of Ethical Pharmaceuticals, Vaccines and Nutritionals]
ETHICAL PHARMACEUTICALS, VACCINES AND NUTRITIONALS
WOMEN'S HEALTH CARE
Wyeth-Ayerst's commitment to women's health care is unsurpassed. The company is
the largest provider of hormone replacement therapy and hormonal contraceptive
products worldwide and is a leader in product innovation, basic and clinical
research, and educational and informational initiatives.
CARDIOVASCULAR AND ANTIOBESITY THERAPIES
The broad, growing line of cardiovascular products available from Wyeth-Ayerst
includes Cordarone, the number one selling antiarrhythmia product in the United
States, as well as major treatments for hypertension and angina. Redux, the
first prescription weight-loss product approved in more than 20 years, is a
significant new therapy for one of the most prevalent metabolic diseases.
MENTAL HEALTH PRODUCTS
Important, innovative therapies for depression, anxiety and related disorders
are marketed by Wyeth-Ayerst worldwide. Effexor, a novel antidepressant, is
gaining recognition internationally and is benefiting in the United States from
increased awareness of the serious implications of depression for patients and
society and the importance of effective treatment.
ANTI-INFLAMMATORY DRUGS
Wyeth-Ayerst's position as a leader in the branded non-steroidal
anti-inflammatory drug (NSAID) category in the United States was strengthened by
the introduction of Naprelan and the further expansion of Lodine, the second
most widely prescribed NSAID.
6
<PG$PCN>
[Picture of Ethical Pharmaceuticals, Vaccines and Nutritionals]
ETHICAL PHARMACEUTICALS, VACCINES AND NUTRITIONALS
VACCINES AND ONCOLOGY THERAPIES
Wyeth-Lederle Vaccines and Pediatrics is a leader in childhood and adult
vaccines in the United States and is at the forefront of efforts to discover
vaccines for deadly diseases that remain significant risks globally. Leukine, an
oncology drug from Immunex, was approved in 1996 in a new, convenient, liquid
multiple-dose formulation.
NUTRITIONALS
Infant nutritional products developed by Wyeth-Ayerst are among the leaders in
many international markets. These products, which include first-age, soy-based,
follow-on and growing-up formulas, are scientifically formulated to meet the
nutritional and therapeutic needs of infants and children.
GENERIC PRODUCTS
ESI Lederle, one of the largest suppliers of generic oral and injectable
products in the United States and a leading supplier of injectables to
hospitals, is well-positioned to capitalize on positive long-term growth
potential in the generics business. In 1996, this Wyeth-Ayerst business division
launched eight new products, bringing its total franchise to more than 130
products.
ANTI-INFECTIVES
Wyeth-Ayerst has important anti-infective products that are marketed worldwide.
In 1996, Zosyn received clearance for the critically important indication of
nosocomial pneumonia, a condition accounting for the largest hospital usage of
antibiotics.
[Picture]
CONSUMER HEALTH CARE
The OTC medications and vitamin and mineral supplements of Whitehall-Robins and
Lederle represent one of the largest consumer health care franchises in the
world, with key products holding the number one or number two position in many
major OTC segments. Key to this leadership is the ability to switch major
prescription drugs to the OTC market and the continuing globalization of key
brands.
[Picture]
MEDICAL DEVICES
Sherwood-Davis & Geck, Storz and Quinton manufacture and market a leading
portfolio of specialized medical devices recognized worldwide for quality and
cost-efficiency. Key market segments include tubes, catheters and chest drainage
products; disposable syringes and needles; enteral feeding systems; thermometry;
wound care and wound closure products; cardiopulmonary instrumentation and
devices; and vision care products.
[Picture]
ANIMAL HEALTH CARE
Fort Dodge Animal Health ranks second in animal vaccines in North America and is
expanding rapidly in international biological and pharmaceutical markets. The
acquisition of Solvay S.A.'s animal health business will move Fort Dodge into
the global top tier, providing a significant presence in Europe and the Far East
and a strong entry into the global swine and poultry biological markets.
[Picture]
AGRICULTURAL PRODUCTS
Cyanamid's growth as a leader in the global agricultural products market is
based on innovative herbicide, insecticide and fungicide products that meet
increasingly stringent safety and environmental demands. In 1996, more than 120
registrations were received for new uses and combinations of existing products.
Approvals are expected in 1997 for five major new products, each of which
provides significant advantages over currently available products.
7
<PG$PCN>
1996 HIGHLIGHTS
Building Leadership Worldwide
THROUGH THE DYNAMIC EFFORTS OF THE PEOPLE OF AHP OPERATING IN 145 COUNTRIES, OUR
COMPANY IS CONTINUALLY STRENGTHENED AS A WORLDWIDE LEADER IN HEALTH CARE AND
AGRICULTURAL PRODUCTS. THIS SECTION HIGHLIGHTS A NUMBER OF MAJOR ACCOMPLISHMENTS
IN 1996 THAT EXPAND-ED OUR GLOBAL PRODUCT PORTFOLIO AND ENHANCED OUR ABILITY TO
DISCOVER AND MAKE AVAILABLE NEW, INNOVATIVE PRODUCTS FOR YEARS TO COME.
[graphic omitted]
- --------------------------------------------------------------------------------
[ Picture of X. Jian Li, M.D.]
X. Jian Li, M.D., Principal Scientist-Image Analyst, Bone Biology and
Applications, is one of the many dedicated scientists and technicians who
contribute to Genetics Institute's leadership in biopharmaceutical research.
- --------------------------------------------------------------------------------
MAJOR STEP TOWARD A PREMIER POSITION IN BIOPHARMACEUTICALS
In 1996, we acquired the remaining equity interest in Genetics Institute, Inc.,
underscoring the emergence of this world-class biopharmaceutical company and
strengthening a relationship that began in 1992 when we purchased 60% of its
capital stock. As a full member of the AHP family, there will be greater
opportunities for Genetics Institute to coordinate with other units of our
Company on the discovery and commercialization of innovative biotechnology
products.
Genetics Institute's principal focus is on developing genetically
engineer-ed human proteins for use in treating a wide range of health problems.
It has a diversified portfolio of licensed and proprietary pharmaceutical
products at various stages of development, including treatments for anemia,
hemophilia, cancer, bone damage, infectious disease, inflammatory conditions and
immune system disorders.
Genetics Institute is the world's leading supplier of bulk recombinant Factor
VIII, which has captured a significant share of the worldwide market for
products that treat Hemophilia A, a hereditary bleeding disorder.
In February 1997, BeneFIX coagulation Factor IX (Recombinant) received
approval from the U.S. Food and Drug Administration. As the only recombinant
treatment for Hemophilia B, BeneFIX is expected to be an important alternative
to clotting factor products derived from human plasma, which can present a risk
of viral contamination and are dependent on blood donor supply.
Also, in December 1996, Genetics Institute filed a Biological License
Application for Neumega rhIL-11, an agent useful in preventing platelet
deficiency in cancer patients undergoing chemotherapy.
8
<PG$PCN>
- --------------------------------------------------------------------------------
[Picture]
Solvay offers breeders and veterinarians a wide range of vaccines and
pharmaceutical products. Chad Henning (left), Supervisor, Iowa Select Farms,
Iowa Falls, Iowa, consults with Solvay's Ron White, DVM,
Professional Services Veterinarian. [Picture of Vaccine Bottle]
- --------------------------------------------------------------------------------
ANIMAL HEALTH BUSINESS ENTERS GLOBAL TOP TIER
Fort Dodge Animal Health significantly strengthened its ability to address the
needs of livestock producers and veterinarians worldwide with the signing of a
definitive purchase agreement for the acquisition of the animal health business
of Solvay S.A., a Belgium-based multinational corporation. Solvay's product
lines complement Fort Dodge's veterinary business, giving the company a greater
market presence in Europe and the Far East as well as a strong entry into the
global swine and poultry biological markets. By combining the research and
development of these organizations, Fort Dodge will be able to more rapidly
bring to market new, innovative biologicals and pharmaceuticals worldwide.
The acquisition is expect-ed to be completed during the first quarter of
1997.
- --------------------------------------------------------------------------------
[Picture]
Wyeth-Ayerst field sales representatives like Gloria Tillotson shown here with
Carmen Balzano, M.D., of Hamden, Connecticut educate physicians about the use of
Redux as part of a comprehensive weight-loss plan. [Picture of Redux bottle]
- --------------------------------------------------------------------------------
IMPORTANT NEW OPTION FOR TREATING OBESITY
The introduction of Redux (dexfenfluramine HCl) was one of the most successful
U.S. drug launches ever. Redux is the first prescription weight-loss product to
be approved in more than 20 years and the only pharmaceutical indicated for
maintenance of weight loss. The product answers a very serious medical need.
Obesity is a disease that is reaching epidemic proportions in the United States,
where it affects one in three adults and is the second leading preventable cause
of death. Doctors are using this new product to help patients actively manage
their weight as part of a plan that includes diet, exercise and behavior
modification. Redux is recommended for obese patients with an initial body mass
index (BMI) of at least 30 kg/m2 (which is approximately 30% over desirable
weight) or, in the presence of other risk factors, including hypertension,
diabetes and hyperlipidemia, a BMI of at least 27 kg/m2 (which is approximately
20% over desirable weight). Studies have shown that even modest weight loss of
5% to 10% of overall body weight can significantly improve a patient's health
and well-being. Such weight loss has been associated with a reduction in blood
pressure and high glucose levels and improvement in lipid profiles.
9
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- --------------------------------------------------------------------------------
[Picture]
Wilfred Weinstein, M.D. - shown performing an endoscopy procedure at the
U.C.L.A. Medical Center in Los Angeles, California - is part of the team of
medical researchers conducting Phase III clinical trials in the United States on
pantoprazole.
- --------------------------------------------------------------------------------
LICENSED PRODUCTS HOLD PROMISE OF HEALTH ADVANCES
Several new licensing agreements broadened Wyeth-Ayerst's research and
development pipeline in major therapeutic areas. Pantoprazole, to be licensed
from Byk-Gulden of Germany, is a proton pump inhibitor that is expected to be a
significant entry in the $5.5 billion U.S. upper G.I. distress market. This
drug, which entered Phase III trials in the United States at the end of 1996,
has been shown to have greater efficacy than H2 antagonists, a reduced level of
interaction with other drugs and the potential for intravenous administration.
Wyeth-Ayerst's leader-ship in women's health care is expected to benefit in
the coming years from ongoing development of the new progestin trimegestone.
This licensed product is in Phase III trials in Europe for use in combination
with estrogen in hormone replacement therapy (HRT) and is in earlier trials - in
combination with estrogen - as an oral contraceptive. It has been shown to
provide the high efficacy levels required of contraceptives and HRT products
with fewer side effects.
Fiblast (trafermin) is expected to enter Phase II trials in 1997 for use in
treating acute stroke. Licensed from Scios, Inc., of California,Fiblast is a
genetically engineered version of human basic fibroblast growth factor, a
naturally occurring substance that plays an important role in defending nerve
tissues against oxygen deprivation and other life-threatening events.
- --------------------------------------------------------------------------------
[Picture]
Children's Advil is the medicine preferred by physicians for treating fever in
children. Pediatrician Lisa Ponce, M.D., of Palo Alto, California (shown here
with patient Jakes Bercow, age 2, and Jake's mother, Michelle), recommends
Children's Advil because it controls children's fevers faster and longer.
- --------------------------------------------------------------------------------
RX TO OTC SWITCHES EXPAND CONSUMER CHOICES
A key to the leadership of Whitehall-Robins in consumer health care is a major,
coordinated research, development, marketing and manufacturing effort to provide
new, cost-effective products by bringing prescription drugs to the OTC market.
Two important new switch products were introduced in 1996. Children's Advil
(ibuprofen) - introduced as a prescription product in 1992 extends the trusted
Advil heritage to the growing pediatric analgesic market where it is indicated
for relief of fever, minor aches and pains from colds, flu, sore throat,
headaches and toothaches. This product provides up to eight hours of relief per
dose, allowing children to sleep through the night without remedicating.
Axid AR is a non-prescription dose of nizatidine, which has a rapid onset of
stomach acid prevention and an excellent safety profile. Acid reducers have
become the fastest-growing OTC segment, and Axid AR is the only OTC product in
its category with clinical proof that it can completely prevent heartburn when
taken as little as 30 minutes prior to a meal.
10
<PG$PCN>
PREMARIN(R)INITIATIVES UNDERSCORE WORLDWIDE LEADERSHIP IN WOMEN'S HEALTH
[Picture of bottle]
In 1996, Wyeth-Ayerst funded two studies that will use Premarin (conjugated
estrogens) and Prempro (conjugated estrogens/medroxyprogesterone acetate) to
assess the benefits and risks of hormone replacement therapy in a range of
serious health problems.
The Women's Health Initiative Memory Study (WHIMS) will be the first of its
kind to evaluate the role of HRT in the prevention and treatment of Alzheimer's
disease. This landmark study, involving 8,000 women, supplements the Women's
Health Initiative, supported by Wyeth-Ayerst since 1992, in examining the role
of HRT in cardiovascular disease, osteoporosis and other serious health
problems.
In addition, the Women's International Study of Long Duration Oestrogen after
Menopause (WISDOM) will be the first multinational study to assess the benefits
and risks of HRT in postmenopausal women. WISDOM is planned for 34,000 women in
14 countries.
These initiatives follow the early 1996 launch of single tablet Prempro and
Premphase, which provide the more than 4.5 million postmenopausal women in the
United States who use estrogen and progestin an opportunity for the first time
to take just one tablet each day for prevention of osteoporosis and relief of
menopausal symptoms.
Also, according to the latest findings of the Post-menopausal Estrogen/
Progestin Interventions trial, combination HRT not only prevents bone loss but
it also increases bone mineral density at critical locations such as the spine
and hip. Low bone mineral density is a serious condition of osteoporosis, which
contributes to approximately 1.5 million bone fractures each year in the United
States alone.
- --------------------------------------------------------------------------------
[Picture]
Sally Schumaker, Ph.D., of The Bowman Gray School of Medicine at Wake Forest
University, is the lead investigator for the milestone Women's Health Initiative
Memory Study (WHIMS), spearheaded by The Bowman Gray/Baptist Medical Center in
Winston-Salem, North Carolina.
- --------------------------------------------------------------------------------
11
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- --------------------------------------------------------------------------------
[Picture]
Alexandra Glucksmann, Ph.D., Senior Scientist, is among the scientists at
Millennium Pharmaceuticals, Inc., who work with Wyeth-Ayerst in an alliance that
is using genomics technology to discover new therapies for central nervous
system disorders.
- --------------------------------------------------------------------------------
ALLIANCES FOCUS ADVANCED GENE TECHNOLOGY ON DRUG DISCOVERY
Wyeth-Ayerst is extending its medical technology through a growing number of
important collaborative research arrangements, including alliances with
Millennium Pharmaceuticals, Inc., ChemGenics Pharmaceuticals Inc., and Apollon,
Inc.
Millennium, a drug discovery company, focuses on identifying the function of
genes responsible for chronic diseases and using its technology platform to
develop new products that address these diseases at their root causes. Through
the agreement, Millennium will provide advanced bioinformatics tools as well as
its proprietary RADE and additional transcriptional profiling technologies for
application across all of Wyeth-Ayerst's R&D programs.
The Wyeth-Ayerst/ Millennium research collaboration initially will
concentrate on central nervous system disorders such as anxiety, depression and
schizophrenia.
ChemGenics is combining its premier gene technology for discovering novel
drugs with Wyeth-Ayerst's expertise in antibacterial drug discovery, development
and commercialization. The goal is to discover new antibiotics to address the
growing problems of poorly treated infections and drug resistant bacteria.
Wyeth-Lederle Vaccines and Pediatrics is currently developing a new series of
DNA-based vaccines through a strategic alliance with Apollon, Inc.
GROWTH POTENTIAL IN AGRICULTURAL PRODUCTS FUELED BY INNOVATION
[Picture of Lightning box]
New Cyanamid products representing major advances in effectiveness and safety
are gaining recognition worldwide. Three of these products are expected to
receive approval for the U.S. market in 1997. Lightning (imazethapyr/ imazapyr)
is a new formulation of imidazolinones for use as a herbicide on corn hybrids
that contain the imidazolinone tolerant trait. Imidazolinones essentially are
non-toxic to wildlife and other non-target species and are effective at low
application rates. Raptor, (imazamox), an imidazolinone herbicide for use on
soy-beans and other legumes, provides season-long control of a variety of weeds.
It will be marketed for use in areas where other imidazolinones cannot be used
because of restrictions with rotational crops. Pirate (chlorfenapyr) is the
first of the new pyrrole class of insecticides, which have proved to be
effective in controlling insects that infest a wide range of crops, even where
resistance to current insecticides exists. This product has been available since
1995 in certain U.S. states for use on cotton under an EPA-approved emergency
exemption and was approved in 1996 in Japan, Thailand, the Republic of Korea and
Chile for use on various crops.
- --------------------------------------------------------------------------------
[Picture]
Tom Whatley, Ph.D., Manager, North America Product Development,observes
experimental herbicide studies in a greenhouse at Cyanamid's Agricultural
Research Center in Princeton, New Jersey.
- --------------------------------------------------------------------------------
12
<PG$PCN>
STRONG, GROWING PRESENCE IN PAIN AND INFLAMMATION THERAPIES
[Picture of Naprelan bottle]
The introduction of Naprelan (naproxen sodium) and continued expansion of the
Lodine (etodolac) franchise strengthened Wyeth-Ayerst as a leader in the highly
competitive $1.8 billion non-steroidal anti-inflammatory drug (NSAID) category
in the United States. Naprelan offers important improvements over the widely
used conventional formulation of naproxen sodium. It uses the proprietary
Intestinal Protective Drug Absorption System to provide patients with rapid
onset and 24-hour relief from inflammation and pain with a single dose.
Lodine was strengthened as the second most widely dispensed branded NSAID in
the United States with the addition of a 500 mg. dosage, a new rheumatoid
arthritis indication and the launch of an extended-release formulation. Lodine
XL (etodolac extended-release tablets) provides affordable, effective relief of
pain and inflammation associated with osteoarthritis and rheumatoid arthritis as
well as a convenient, once-a-day treatment schedule that enables patients to
better manage their condition.
- --------------------------------------------------------------------------------
[Picture]
Arthritis sufferer Mary Britton of Atherton, California, found relief from pain
and inflammation with Naprelan extended-release tablets. Naprelan is the first
once-a-day prescription arthritis medicine to offer fast pain relief and 24-hour
control.
- --------------------------------------------------------------------------------
13
<PG$PCN>
AMERICAN HOME PRODUCTS CORPORATION
PHARMACEUTICAL PRODUCTS PIPELINE
American Home Products enters 1997 with unprecedented momentum in bringing new
products to the health care community worldwide. Fifteen major new products,
indications or dosage forms were approved in the United States, and
approximately 150 approvals were obtained in countries internationally in the
prior year. Clinical development is proceeding for more than 60 new
pharmaceutical products. A number of the most promising products in post-Phase I
trials are described below. The majority of these products have worldwide market
potential and are under review by regulatory authorities.
<TABLE>
<CAPTION>
A Approved NDA NDA filed PLA PLA amendment filed III Phase 3 II Phase 2 * U.S. + International - U.S. and International
NDA
PRODUCT NAME DESCRIPTION/INDICATION STATUS A PLA III II
- ------------ ---------------------- ------ - --- --- --
<S> <C> <C> <C> <C> <C>
BeneFIX(TM) Hemophilia B; blood-clotting factor * +
Crinone(R) Menstrual disorders and Assisted Reproductive Technologies + *
HRT in combination with estrogen +
Novantrone(R) Metastatic breast cancer + * *
(Immunex) Hormone refractory prostate cancer * +
Non-Hodgkin's lymphoma (U.S. Phase I and II) + *
Synvisc(R) Viscosupplementation for the treatment of
osteoarthritis of the knee; joint venture
with Biomatrix + *
Alesse(TM) Oral contraceptive; lowest available estrogen
dose with proven progestin performance of
levonorgestrel -
Duract(TM) Analgesia for acute and chronic pain
(including primary dysmenorrhea) *
Effexor(R) XR Once-a-day dosing alternative for Effexor(R) antidepressant -
Generalized anxiety disorder; once-a-day -
Leukine(R) Prophylaxis of neutropenia resulting from chemotherapy *
(Immunex) Prevention of infections in very low birth weight
babies; HIV; fungal infections *
Melanoma; flu vaccine adjuvant *
Lyrelle(TM) Patch Treatment of vasomotor symptoms related to
menopause; 3.5 days +
Neumega(R) rhIL-11 Chemotherapy-induced thrombocytopenia *
Inflammatory bowel disease and chemotherapy-
induced mucositis (Phase I and II) *
</TABLE>
14
<PG$PCN>
<TABLE>
<CAPTION>
NDA
Product Name Description/Indication Status A PLA III II
<S> <C> <C> <C> <C> <C>
Normiflo(TM) Prophylaxis of DVT and PE in knee surgery *
Rotashield(TM)/Rotamune(TM) First effective vaccine to prevent rotaviral gastroenteritis
in infants * +
Tetracel(TM) Prophylaxis vs. D, T and P and Haemophilus influenzae b
diseases (acellular pertussis component) * +
Verdia(TM) (tasosartan) Once-a-day anti-hypertensive with improved side effects and
compliance * +
Enbrel(TM) (TNR-001) Rheumatoid arthritis; joint venture with Immunex -
ERT Patch Treatment of vasomotor symptoms related to menopause; 7 days -
Gestodene/EE Lowest-dose estrogen/progestin OCto be available -
HRT Patch Treatment of vasomotor symptoms related to menopause; 3.5 days -
Pantoprazole Erosive esophagitis *
Pneumococcal Conjugate Vaccine Prophylaxis against pneumococcal systemic diseases, e.g. otitis
media, pneumonia, meningitis -
Rapamune(R) Immunosuppressive therapy for prophylaxis of renal, liver, bone
marrow and cardiac transplant rejection -
rhBMP-2* Bone repair and regeneration + *
Tasosartan/HCTZ Once-a-day anti-hypertensive/diuretic with improved side effects
and compliance -
Trimegestone/17 (beta)-estradiol Treatment of vasomotor symptoms and prevention of osteoporosis
with endometrial protection +
Zaleplon Non-benzodiazepine sedative/hypnotic for the treatment of
general insomnia -
CMA-676 Acute myelogenous leukemia -
Effexor(R) XL (OROS(R)) Once-a-day Effexor(R) dose form with improved convenience,
compliance and side effect profile -
Fiblast(R) Stroke (Phase I and II); peripheral vascular disease (Phase I);
joint venture with Scios -
GPA-748 Oral therapy for the treatment of growth hormone deficiency *
Meningococcal Conjugate Vaccine Prophylaxis against meningococcal systemic type C disease -
Minalrestat (ARI-509) Adjunct to insulin/oral hypoglycemic agents for
prevention/treatment of diabetic complications -
rhIL-12 Novel immunomodulator (Phase I and II) -
RSV Subunit Vaccine Prevention of RSV-mediated lower respiratory disease for at-risk
children and the elderly -
VPA-985 Aquaresis -
</TABLE>
* Under evaluation by the U.S. Food and Drug Administration as a combination
device; currently in pilot studies in the United States
15
<PG$PCN>
Principal Products - United States
ETHICAL
PHARMACEUTICALS
AND VACCINES
WOMEN'S HEALTH
Lo/Ovral
Nordette
Ovral
Ovrette
Premarin
Premphase
Prempro
Stuartnatal Plus
Triphasil
CARDIOVASCULAR
Cordarone
Cordarone I.V.
Inderal LA
ISMO
Isordil
Quinidex
Sectral
Tenex
Verelan
Ziac
ANTIOBESITY
Pondimin
Redux
MENTAL HEALTH
Ativan
Effexor
Serax
ANTI-INFLAMMATORIES
Lodine
Lodine XL
Naprelan
Orudis
Oruvail
ANTI-INFECTIVES
Minocin
Myambutol
Pipracil
Suprax
Zosyn
VACCINES
Acel-Imune
FluShield
HibTTTER
Orimune
Pnu-Imune 23
Tetramune
Tri-Immunol
ONCOLOGY THERAPIES
Leukine
Novantrone
Reglan
Thioplex
GENERIC PRODUCTS
atenolol
Aygestin
Cycrin
dipyridamole
fentanyl citrate
heparin
minocycline HCl
propranolol HCl
selegiline HCl
sufentanil citrate
Tubex
Wydase
SPECIALTY
PHARMACEUTICAL
PRODUCTS
Bulk pancreatin and
heparin
Oral drug delivery
systems
OTHER PRODUCTS
Micro-K
Phenergan
CONSUMER HEALTH CARE
ANALGESICS AND COUGH/COLD/ALLERGY
Advil
Advil Cold & Sinus
Anacin
Children's Advil
Dimetapp
Dristan
Orudis KT
Robitussin
VITAMIN AND MINERAL SUPPLEMENTS
Caltrate
Centrum
Centrum, Jr.
Centrum Silver
OTHER PRODUCTS
Anbesol
Axid AR
Chap Stick
Denorex
FiberCon
Preparation H
Primatene
MEDICAL DEVICES
SHERWOOD-DAVIS
& GECK
Argyle tubes,
catheters and
drainage devices
Blisterfilm, Ultec and
Viasorb dressings
Davis & Geck wound
closure products,
including sutures,
needles and skin
staplers
FirstTemp Genius
tympanic thermome-
ters and Filac predic-
tive thermometers
Kangaroo enteral
feeding systems and
enteral access devices
Monoject needles
and syringes
Quinton dialysis
catheters
Voldyne incentive
breathers
QUINTON INSTRUMENTS
Cardiac stress test
systems
Cath lab hemody-
namic systems
Electrocardiographs
Electrophysiology
systems
Filmless angiography
systems
Holter monitoring
systems
Intravascular ultra-
sound image proc-
essing systems
Telemetry systems
Treadmills and
ergometers
STORZ INSTRUMENTS
Diamox, Neptazane
glaucoma therapies
ErgoTec instruments
Hydroview foldable
intraocular lenses
MicroSeal, MicroFlow
microsurgical hand-
pieces and needles
OcuCoat viscoelastic
Ocuvite vitamins
Premiere, Protege
microsurgical
equipment
ANIMAL HEALTH CARE
VETERINARY PHARMACEUTICALS AND BIOLOGICALS
Discovery
Duramune
Fel-O-Vax
Fluvac
Keraset
LymeVax
Presponse
PYRAMID
Synanthic
Synovex
ToDAY
ToMORROW
Triangle
AGRICULTURAL PRODUCTS
HERBICIDES
Arsenal
Assert
Cadre
Detail
Prowl
Pursuit
Resolve
Scepter
Squadron
Steel
INSECTICIDES
Amdro
Counter
Thimet
16
<PG$PCN>
Financial Section
Contents
18 Ten-Year Selected Financial Data
20 Consolidated Balance Sheets
21 Consolidated Statements of Income
22 Consolidated Statements of Retained
Earnings and Additional Paid-in Capital
23 Consolidated Statements of Cash Flows
24 Notes to Consolidated Financial Statements
35 Report of Independent Public Accountants
35 Management Report on Financial Statements
36 Quarterly Financial Data
36 Market Prices of Common Stock
and Dividends
37 Management's Discussion and Analysis
of Financial Condition and Results
of Operations
17
<PG$PCN>
Ten-Year Selected Financial Data
(Dollar amounts in thousands except per share amounts)
<TABLE>
<CAPTION>
Years Ended December 31, 1996 1995 1994(3)
---- ---- -------
<S> <C> <C> <C>
Summary of Sales and Earnings
Net sales ................................................. $14,088,326 $13,376,089 $ 8,966,214
Net income(1) ............................................. 1,883,403 1,680,418 1,528,254
Net income per common share(1)(2) ......................... 2.96 2.71 2.49
Dividends per common share(2) ............................. 1.565 1.51 1.47
Year-End Financial Position
Current assets ............................................ $ 7,470,419 $ 7,986,137 $ 7,821,246
Current liabilities ....................................... 4,337,635 4,556,248 4,618,086
Ratio of current assets to current liabilities ............ 1.72 1.75 1.69
Total assets .............................................. 20,785,343 21,362,923 21,674,812
Long-term debt ............................................ 6,020,575 7,808,757 9,973,240
Average stockholders' equity .............................. 6,252,545 4,898,550 4,065,295
Shareholders - Outstanding Shares
Number of common shareholders ............................. 67,545 68,763 71,223
Number of preferred shareholders .......................... 541 605 666
Average number of common shares outstanding
used for earnings per share calculation (in thousands)(2) 635,426 619,670 614,826
Preferred shares outstanding at year-end (in thousands) ... 31 34 37
Employment Data
Number of employees at year-end ........................... 59,747 64,712 74,759
Wages and salaries ........................................ $ 2,634,351 $ 2,674,330 $ 1,820,450
Benefits (including social security taxes) ................ 616,478 684,077 441,768
</TABLE>
(1) Net income in 1996 includes a gain of $706,279 on the sale of a majority
interest in the American Home Foods business and special charges aggregating
$697,854 related to the acquisition of the remaining equity interest in
Genetics Institute, Inc. Excluding the gain and special charges, 1996 net
income was $1,874,978, and net income per common share was $2.95. Net income
in 1995 includes a gain of $623,870 on the sale of the South American oral
health care business, special charges of $308,317 and a restructuring charge
of $117,156. Excluding these items, 1995 net income was $1,482,021, and net
income per common share was $2.39. Net income in 1992 includes the impact of
Statement of Financial Accounting Standards (SFAS) No. 106 - "Employers'
Accounting for Postretirement Benefits Other Than Pensions," which was a
charge of $73,191, and SFAS No. 109 - "Accounting for Income Taxes," which
was a credit of $383,295 due to the recognition of tax benefits related to
remaining net operating loss carryforwards. The net impact of adopting these
statements was an increase to net income of $310,104. Net income in 1992
also includes a charge of $220,000 for acquired in-process research and
development acquired from Genetics Institute, Inc. Excluding these items,
1992 net income was $1,370,738, and net income per common share was $2.18.
Net income in 1987 excludes a provision related to Dalkon Shield claims of
$1,750,000 recorded by A.H. Robins Company, Incorporated prior to its
acquisition by the Company in 1989.
(2) All common share and per common share amounts have been adjusted
retroactively for a two-for-one common stock split effective April 23, 1996
in the form of a dividend distributed on May 6, 1996.
(3) The 1994 information reflects the acquisition of American Cyanamid Company
for the one month ended December 31, 1994.
18
<PG$PCN>
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ----
<C> <C> <C> <C> <C> <C> <C>
$8,304,851 $7,873,687 $7,079,443 $6,775,182 $6,747,016 $6,401,454 $5,850,383
1,469,300 1,460,842 1,375,273 1,230,597 1,102,158 995,461 928,232
2.37 2.33 2.18 1.96 1.77 1.61 1.49
1.43 1.33 1.1875 1.075 0.975 0.90 0.835
$4,807,684 $4,552,077 $4,119,057 $3,826,075 $3,532,786 $3,256,494 $3,310,467
1,584,411 1,492,717 1,270,135 1,693,852 1,108,895 1,067,599 1,392,800
3.03 3.05 3.24 2.26 3.19 3.05 2.38
7,687,353 7,141,405 5,938,797 5,637,107 5,681,487 5,492,424 5,411,150
859,278 601,934 104,710 111,430 1,895,796 100,057 90,076
3,719,539 3,431,568 2,987,885 2,322,623 1,651,050 1,077,462 1,572,972
72,664 73,064 71,209 69,907 70,904 70,021 73,353
726 780 870 931 1,021 1,110 1,187
621,336 628,402 631,452 628,132 623,288 618,792 623,950
40 43 51 57 64 71 77
51,399 50,653 47,938 48,700 50,816 51,464 50,623
$1,654,984 $1,575,615 $1,388,397 $1,398,721 $1,391,233 $1,284,208 $1,171,788
396,045 367,899 300,810 312,750 256,458 245,834 215,109
</TABLE>
19
<PG$PCN>
American Home Products Corporation and Subsidiaries
Consolidated Balance Sheets
(In thousands except share amounts)
<TABLE>
<CAPTION>
December 31, 1996 1995
---- ----
<S> <C> <C>
Assets
Cash and cash equivalents ................................................. $ 1,322,297 $ 1,802,397
Marketable securities ..................................................... 221,820 217,672
Accounts receivable less allowances (1996 - $204,121 and 1995 - $135,609) . 2,541,714 2,613,439
Inventories ............................................................... 2,389,369 2,301,953
Other current assets ...................................................... 995,219 1,050,676
------------ ------------
Total Current Assets .................................................... 7,470,419 7,986,137
Property, plant and equipment:
Land .................................................................... 184,200 174,534
Buildings ............................................................... 2,675,838 2,705,772
Machinery and equipment ................................................. 3,394,628 3,165,440
------------ ------------
6,254,666 6,045,746
Less accumulated depreciation ............................................. 2,217,933 2,085,411
------------ ------------
4,036,733 3,960,335
Goodwill and other intangibles, net of accumulated amortization
(1996 - $1,597,049 and 1995 - $971,057) ................................. 8,517,610 8,649,985
Other assets .............................................................. 760,581 766,466
------------ ------------
$ 20,785,343 $ 21,362,923
============ ============
Liabilities
Loans payable ............................................................. $ 76,574 $ 72,217
Trade accounts payable .................................................... 940,076 980,114
Accrued expenses .......................................................... 2,810,223 3,150,758
Accrued federal and foreign taxes ......................................... 510,762 353,159
------------ ------------
Total Current Liabilities ............................................... 4,337,635 4,556,248
Long-term debt ............................................................ 6,020,575 7,808,757
Other noncurrent liabilities .............................................. 2,486,375 2,415,620
Postretirement benefit obligation other than pensions ..................... 782,342 732,063
Minority interests ........................................................ 196,324 307,237
Stockholders' Equity
$2 convertible preferred stock, par value $2.50 per share; 5,000,000 shares
authorized .............................................................. 79 85
Common stock, par value $0.33 1/3 per share; 1,200,000,000 shares
authorized (outstanding shares: 1996 - 639,983,000 and 1995 -
627,400,000) ........................................................... 213,328 210,008
Additional paid-in capital ................................................ 2,034,337 1,515,154
Retained earnings ......................................................... 4,756,270 3,875,224
Currency translation adjustments .......................................... (41,922) (57,473)
------------ ------------
Total Stockholders' Equity .............................................. 6,962,092 5,542,998
------------ ------------
$ 20,785,343 $ 21,362,923
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
20
<PG$PCN>
American Home Products Corporation and Subsidiaries
Consolidated Statements of Income
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Years Ended December 31, 1996 1995 1994
<S> <C> <C> <C>
Net Sales .................................. $ 14,088,326 $ 13,376,089 $ 8,966,214
------------ ------------ ------------
Cost of goods sold ......................... 4,449,783 4,534,320 2,795,581
Selling, general and administrative expenses 5,232,830 4,974,253 3,175,684
Research and development expenses .......... 1,429,056 1,354,963 817,090
Interest expense, net ...................... 433,034 514,920 8,756
Other income, net .......................... (96,159) (98,184) (34,354)
Gains on sales of businesses ............... (813,532) (959,845) --
Special charges ............................ 697,854 436,724 --
Restructuring charges ...................... -- 180,240 173,697
------------ ------------ ------------
11,332,866 10,937,391 6,936,454
------------ ------------ ------------
Income before federal and foreign taxes .... 2,755,460 2,438,698 2,029,760
Provision for taxes:
Federal .................................. 437,682 401,573 249,961
Foreign .................................. 434,375 356,707 251,545
------------ ------------ ------------
872,057 758,280 501,506
------------ ------------ ------------
Net Income ................................. $ 1,883,403 $ 1,680,418 $ 1,528,254
============ ============ ============
Net Income per Share of Common Stock ....... $ 2.96 $ 2.71 $ 2.49
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
21
<PG$PCN>
Consolidated Statements of Retained Earnings and Additional Paid-in Capital
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Years Ended December 31, 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Retained Earnings
Balance, beginning of year ....................................... $ 3,875,224 $ 3,120,659 $ 2,778,803
Add: Net income .................................................. 1,883,403 1,680,418 1,528,254
----------- ----------- -----------
5,758,627 4,801,077 4,307,057
----------- ----------- -----------
Less: Cash dividends declared:
Preferred stock (per share: 1996 - 1994, $2.00) ................ 65 71 76
Common stock (per share: 1996 - 1994, $1.565, $1.51, $1.47) .... 993,487 934,725 903,089
----------- ----------- -----------
993,552 934,796 903,165
Cost of treasury stock acquired, less amounts charged to capital 10,139 6,544 272,061
----------- ----------- -----------
1,003,691 941,340 1,175,226
----------- ----------- -----------
Change in unrealized gain/(loss) on marketable securities ........ 1,334 15,487 (11,172)
----------- ----------- -----------
Balance, end of year ............................................. $ 4,756,270 $ 3,875,224 $ 3,120,659
=========== =========== ===========
Additional Paid-in Capital
Balance, beginning of year ....................................... $ 1,515,154 $ 1,020,658 $ 1,014,911
Add: Excess over par value of common stock issued ................ 520,355 495,323 41,448
Less: Cost of treasury stock acquired, less amounts
charged to retained earnings ................................... 1,172 827 35,701
----------- ----------- -----------
Balance, end of year ............................................. $ 2,034,337 $ 1,515,154 $ 1,020,658
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
22
<PG$PCN>
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Years Ended December 31, 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Operating Activities
Net income ........................................................ $ 1,883,403 $ 1,680,418 $ 1,528,254
Adjustments to reconcile net income to
net cash provided from operating activities:
Gains on sales of businesses .................................... (813,532) (959,845) (51,612)
Restructuring and special charges ............................... 697,854 616,964 173,697
Gains on sales of other assets .................................. (98,809) (23,703) (42,115)
Depreciation .................................................... 367,834 367,394 207,476
Amortization .................................................... 290,232 311,827 98,693
Deferred income taxes ........................................... 101,592 (145,070) (92,259)
Changes in working capital, net of businesses acquired or sold:
Accounts receivable .......................................... 18,675 (268,445) 13,972
Inventories .................................................. (213,037) (111,147) (157,072)
Other current assets ......................................... 65,901 (102,073) (161,674)
Trade accounts payable and accrued expenses .................. (354,132) (85,331) 324,795
Accrued taxes ................................................ 154,271 (110,720) 121,807
Other items, net ................................................ 298,003 342,795 (16,040)
----------- ----------- -----------
Net cash provided from operating activities ....................... $ 2,398,255 $ 1,513,064 $ 1,947,922
=========== =========== ===========
Investing Activities
Purchases of property, plant and equipment ........................ $ (652,226) $ (637,501) $ (472,510)
Purchases of businesses for cash, net of cash acquired ............ -- (130,000) (9,356,230)
Purchases of remaining equity interests in Genetics Institute, Inc.
and another subsidiary ......................................... (1,326,351) -- --
Proceeds from sales of businesses ................................. 1,361,969 1,519,059 113,539
Proceeds from sales of other assets and marketable securities, net 113,816 572,830 99,742
----------- ----------- -----------
Net cash provided from/(used for) investing activities ............ $ (502,792) $ 1,324,388 $(9,615,459)
=========== =========== ===========
Financing Activities
Net proceeds from/(repayments of) debt ............................ $(1,783,825) $(2,205,550) $ 8,639,718
Dividends paid .................................................... (993,552) (934,796) (903,165)
Purchases of treasury stock ....................................... (11,382) (7,402) (313,807)
Exercise of stock options ......................................... 412,197 469,763 37,805
Other items, net .................................................. -- (58,502) (46,413)
----------- ----------- -----------
Net cash provided from/(used for) financing activities ............ (2,376,562) (2,736,487) 7,414,138
----------- ----------- -----------
Effects of exchange rates on cash balances ........................ 999 5,228 12,769
----------- ----------- -----------
Increase/(decrease) in cash and cash equivalents .................. (480,100) 106,193 (240,630)
Cash and cash equivalents, beginning of year ...................... 1,802,397 1,696,204 1,936,834
----------- ----------- -----------
Cash and cash equivalents, end of year ............................ $ 1,322,297 $ 1,802,397 $ 1,696,204
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
23
<PG$PCN>
Notes to Consolidated Financial Statements
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The accompanying consolidated financial statements
include the accounts of American Home Products Corporation and its
majority-owned subsidiaries (the Company). The financial statements have been
prepared in accordance with generally accepted accounting principles and
necessarily include amounts based on judgments and estimates made by management.
Description of Business: The Company is a U.S.-based multinational corporation
engaged in the discovery, development, manufacture, distribution and sale of a
diversified line of products in two primary business segments: health care and
agricultural products. Health care products include branded and generic ethical
pharmaceuticals, biologicals, nutritionals, consumer health care products,
medical devices, and animal biologicals and pharmaceuticals. Agricultural
products include crop protection and pest control products such as herbicides,
insecticides, fungicides and plant growth regulators. See Note 2 regarding the
divestiture of a majority interest in the American Home Foods business. The
Company sells its diversified line of products to wholesalers, pharmacies,
hospitals, physicians, retailers and other health care institutions located in
various markets in 145 countries throughout the world. The Company is not
dependent on any single or major group of customers for its sales.
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. See "Competition" in Management's Discussion and Analysis
of Financial Condition and Results of Operations on page 41 for further details.
Cash and Cash Equivalents, for purposes of reporting cash flows, consist
primarily of certificates of deposit, time deposits and other short-term, highly
liquid securities with original maturities of three months or less and are
stated at cost, which approximates fair value.
Marketable Securities consist of U.S. government or agency issues and corporate
bonds and are stated at fair value, which approximates amortized cost. The fair
values are estimated based on quoted market prices.
Inventories are valued at the lower of cost or market. Inventories valued under
the last-in, first-out (LIFO) method amounted to $806,661,000 at December 31,
1996 and $688,736,000 at December 31, 1995. Current value exceeded LIFO value by
$63,639,000 and $66,367,000 at December 31, 1996 and 1995, respectively. The
remaining inventories are valued under the first-in, first-out (FIFO) or the
average cost method.
Inventories at December 31 consisted of:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
---- ----
<S> <C> <C>
Finished goods ....... $1,121,055 $1,142,174
Work in progress ..... 567,240 567,437
Materials and supplies 701,074 592,342
---------- ----------
$2,389,369 $2,301,953
---------- ----------
</TABLE>
Property, Plant and Equipment is carried at cost. Depreciation is provided over
the estimated useful lives of the related assets, principally on the
straight-line method.
Goodwill, the excess of cost over the fair value of net assets acquired, is
being amortized on the straight-line method over various periods not exceeding
40 years. The Company continually reviews goodwill to evaluate whether changes
have occurred that would suggest goodwill may be impaired based on the estimated
undiscounted cash flows of the entity acquired over the remaining amortization
period. If this review indicates that the remaining estimated useful life of
goodwill requires revision or that the goodwill is not recoverable, the carrying
amount of the goodwill is reduced by the estimated shortfall of cash flows on a
discounted basis.
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 121 - "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The adoption of
SFAS No. 121 did not have an impact on the Company's financial position or
results of operations.
Long-Term Debt is stated at face value, which approximates fair value. The fair
value of the Company's long-term debt is estimated based on market prices.
Interest Rate Swap and Foreign Currency Agreements: The Company enters into
interest rate swap and foreign currency agreements to manage specifically
identifiable risks. The Company does not speculate on interest or currency
exchange rates. The fair value of interest rate swap and foreign currency
agreements is based on market prices. The value represents the estimated amount
the Company would receive/pay to terminate the agreements taking into
consideration current interest or currency exchange rates.
24
<PG$PCN>
Currency Translation: The majority of the Company's international operations are
translated into U.S. dollars using current exchange rates with translation
adjustments accumulated in stockholders' equity. Translation adjustments related
to international operations in highly inflationary economies are included in net
income.
Net Income per Share of Common Stock is based on the average number of common
shares outstanding during the year: 635,426,000 shares in 1996, 619,670,000
shares in 1995 and 614,826,000 shares in 1994. The dilutive effect of the
Company's common share equivalents related to outstanding stock options was not
considered in the calculations of net income per share of common stock since the
effect was less than 3%. As a result, the presentation of fully diluted earnings
per share is not shown.
2 ACQUISITIONS AND DIVERSTITURES
In November 1994, the Company acquired substantially all the outstanding shares
of American Cyanamid Company (ACY) for approximately $9.6 billion, including
acquisition-related costs. The acquisition was accounted for under the purchase
method of accounting and, accordingly, ACY's operating results have been
included with the Company's since December 1, 1994. Based upon a final
evaluation of the fair values allocated to the net assets of ACY, the purchase
price exceeded the net assets acquired by approximately $8.1 billion.
In addition to the ACY acquisition, the Company acquired and divested various
businesses and other assets as follows:
In December 1996, the Company acquired the remaining equity interest in
Genetics Institute, Inc. (G.I.) that it did not already own by exercising its
option to purchase the outstanding capital stock from public shareholders at $85
per share. The total consideration paid for the remaining equity interest in
G.I. was $1.279 billion. The acquisition was financed through the issuance of
additional commercial paper and was accounted for under the purchase method of
accounting effective December 31, 1996 (see Note 3).
In November 1996, the Company sold a majority interest in the American Home
Foods business for approximately $1.2 billion, resulting in a pre-tax gain of
$813,532,000. The net proceeds from the sale were used primarily to reduce
outstanding commercial paper. Net income and net income per share for 1996
include an after-tax gain of $706,279,000 or $1.11 per share. The Company
retained a 20% equity interest in the foods business and, accordingly, did not
reflect the foods business as a discontinued operation.
In March 1996, the Company sold Symbiosis Corp. for approximately
$148,672,000, resulting in a pre-tax gain of $22,677,000. Symbiosis Corp.
developed and manufactured disposable laparoscopic and endoscopic surgical
products.
In January 1995, the Company sold its South American oral health care
business for approximately $1.0 billion, resulting in a pre-tax gain of
$959,845,000. The net proceeds from the sale were used primarily to reduce
outstanding commercial paper. Net income and net income per share for 1995
include an after-tax gain of $623,870,000 or $1.01 per share related to this
transaction.
During 1995, the Company sold certain businesses and other assets acquired in
the ACY acquisition for total pre-tax proceeds aggregating $956,004,000. This
activity included the sales of a preferred stock investment in Cytec Industries
Inc. for $395,101,000, the medicated feed additives business for $344,500,000
and Acufex Microsurgical Inc., a manufacturer of arthroscopic instruments and
scopes, for $141,000,000. Gains on the sales of these items reduced ACY
acquisition-related goodwill.
The Company had other acquisitions and divestitures during the 1996 - 1994
period, the effects of which, individually and in the aggregate, were not
material to the Company's consolidated financial position or results of
operations.
3 RESTRUCTURING AND SPECIAL CHARGES
In December 1996, the Company completed a study and evaluation of the purchase
price allocation related to the acquisition of the remaining equity interest in
G.I. (see Note 2). The purchase price exceeded the net assets acquired by $1.057
billion, resulting in the recognition of goodwill related to the commercial
operations of $359,513,000 and a special charge of $470,000,000 for the portion
of the G.I. goodwill attributable to acquired in-process research and
development. G.I. also recorded a special charge of $227,854,000 for the
liquidation of its outstanding stock options as of December 31, 1996. The
goodwill recognized in this acquisition was based on the estimated future cash
flows of existing, approved products of G.I. attributed to the remaining equity
interest acquired. The total special charges related to the acquisition of the
remaining equity interest in G.I. were $697,854,000 or $1.10 per share.
Special charges aggregating $436,724,000 ($308,317,000 after-tax or $0.50 per
share) were recorded in 1995. The special charges included provisions for
environmental liabilities related to ACY due to changes in estimates of
$228,224,000 and provisions for other special
25
<PG$PCN>
charges of $208,500,000, including the shutdown and discontinuance of the U.S.
infant nutritional business and other contingent liability adjustments.
In 1995, the Company recorded a restructuring charge of $180,240,000
($117,156,000 after-tax or $0.19 per share) to recognize the costs of
implementing the integration plan for the ACY acquisition related to American
Home Products Corporation operations. The integration plan eliminated excess
production capacity and facilities, reduced overhead and realigned the Company's
resources to achieve its strategic objectives. The restructuring charge excluded
costs associated with ACY personnel and facilities as these costs were included
in the overall evaluation of net assets acquired from ACY.
In 1994, the Company recorded a restructuring charge of $173,697,000
($112,903,000 after-tax or $0.18 per share) to recognize the costs of
consolidating the manufacturing, distribution and quality control functions for
the U.S. pharmaceutical and consumer health care businesses.
Since the implementation of these restructuring programs, the combined
restructuring accruals have decreased by approximately $222,227,000 due to cash
expenditures primarily for severance and related personnel benefits, production
and administrative facility closure costs, and noncash charges to reduce the
carrying value of certain assets related to manufacturing operations. Since
1994, total workforce reductions related to restructuring programs, integration
plans and the discontinuance of the U.S. infant nutritional business have
resulted in the elimination of approximately 9,570 positions worldwide.
4 DEBT AND FINANCING ARRANGEMENTS
The Company's debt at December 31 consisted of:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
---- ----
<S> <C> <C>
Commercial paper .............................. $2,997,771 $4,749,680
Notes payable:
6.875% notes due 1997 ....................... 250,000 250,000
7.70% notes due 2000 ........................ 1,000,000 1,000,000
6.50% notes due 2002 ........................ 250,000 250,000
7.90% notes due 2005 ........................ 1,000,000 1,000,000
7.25% debentures due 2023 ................... 250,000 250,000
Pollution control and industrial revenue bonds:
4.25% - 7.00% due 1997-2020 ................. 136,990 162,405
Other debt:
1.18% - 11.28% due 1997-2009 ................ 212,388 218,889
---------- ----------
6,097,149 7,880,974
Less current portion .......................... 76,574 72,217
---------- ----------
$6,020,575 $7,808,757
========== ==========
</TABLE>
In connection with the acquisition of ACY, the Company and certain of its
subsidiaries issued short-term notes (commercial paper), of which approximately
$3.0 billion were outstanding at December 31, 1996. The weighted average
interest rate on the commercial paper outstanding at December 31, 1996 and 1995
was 5.47% and 5.69%, respectively. The commercial paper has original maturities
not exceeding 270 days and a weighted average remaining maturity of 40 days as
of December 31, 1996. As of December 31, 1996, the Company has reflected the
issuance of commercial paper used to finance the $1.279 billion acquisition of
the remaining equity interest in G.I.
The commercial paper is supported by two credit agreements established in
1994 to finance the acquisition of ACY among the Company and certain of its
subsidiaries and a syndicate of lenders. The credit facilities were composed
initially of a $3.0 billion, five-year credit facility and a $7.0 billion,
364-day credit facility which may be renewed annually with the consent of the
majority lenders for an additional 364-day period. In 1995, the $10.0 billion of
credit facilities were amended to $7.0 billion consisting of a $3.0 billion,
five-year credit facility and a $4.0 billion, 364-day credit facility. In 1996,
the $7.0 billion of credit facilities were amended to $6.0 billion consisting of
a $3.0 billion, five-year credit facility and a $3.0 billion, 364-day credit
facility. Under the terms of the 364-day credit facility, if this facility is
utilized, the borrowing is extendible for another 364-day period at the option
of the Company.
The interest rate on borrowings under the credit facilities is based on
various rate options available to the Company. The proceeds of the credit
facilities may be used to support commercial paper and the Company's general
corporate and working capital purposes. The credit facilities contain a
financial covenant and various other customary covenants, representations,
warranties, conditions and default provisions. As of December 31, 1996, there
were no borrowings outstanding under the credit facilities. Commercial paper
outstanding at December 31, 1996 is classified as long-term debt since the
Company intends, and has the ability, to refinance these obligations through the
issuance of additional commercial paper, through the use of its credit
facilities or through the issuance of long-term debt.
In 1995, the Company issued, under a $3.5 billion shelf registration
statement, $1.0 billion of 7.70% notes due February 2000 and $1.0 billion of
7.90% notes due February 2005. Net proceeds from these issuances were used to
repay commercial paper. The non-callable notes, which have semiannual interest
payments due on February 15 and August 15, are unsecured and unsubordinated.
The 6.875% and 6.50% non-callable notes have semiannual interest payments due
on April 15 and October 15. At December 31, 1996, the 6.875% notes due April 15,
1997 are classified as long-term debt as
26
<PG$PCN>
the Company has both the intent and ability to refinance these notes on a
long-term basis. The 7.25% non-callable debentures have semiannual interest
payments due on March 1 and September 1. The non-callable notes and debentures
are unsecured and unsubordinated.
The aggregate maturities of debt during the next five years as of December
31, 1996 are as follows:
(In thousands)
<TABLE>
<S> <C>
1997 ........... $ 76,574
1998 ........... 62,708
1999 ........... 17,968
2000 ........... 1,024,874
2001 ........... 260,227
Thereafter ..... 1,657,027
----------
3,099,378
Commercial paper 2,997,771
----------
Total debt ..... $6,097,149
----------
</TABLE>
In 1994, the Company entered into $4.75 billion notional amount of simple,
unleveraged interest rate swap agreements as a means of (1) locking in the
underlying U.S. treasury security rates to be paid in connection with long-term
debt issued during 1995 and long-term debt expected to be issued and (2)
converting a portion of the commercial paper issued in connection with the
acquisition of ACY from a floating rate obligation to a fixed rate obligation.
The swap agreements are contracts under which the Company pays a fixed rate
of interest and receives a floating rate of interest over the term of the swap
agreements without the exchange of the underlying notional amounts. During 1996,
the weighted average interest rates paid and received on these agreements were
7.77% and 5.46%, respectively. The swap agreements have maturities ranging from
1997 to 2005.
In 1995, the Company terminated $2.0 billion of interest rate swap agreements
in connection with the $2.0 billion issuance of five- and 10-year notes as
previously discussed. The effect of terminating these swap agreements was
deferred and is being amortized to interest expense over the five- and 10-year
terms of the related notes. In 1996, a $250,000,000 interest rate swap agreement
matured and was not replaced. At December 31, 1996, the fair value of the
remaining $2.5 billion of interest rate swap agreements was a payable of
$113,808,000.
The Company enters into short-term foreign exchange forward contracts as part
of its management of foreign currency exposures. The Company does not engage in
speculation on foreign currency. At December 31, 1996 and 1995, the Company had
notional amounts of $724,200,000 and $458,900,000, respectively, of foreign
exchange forward contracts outstanding. The notional amounts of foreign exchange
forward contracts approximate fair value.
The Company believes that the risk of loss associated with the interest rate
or foreign currency agreements, from either non-performance by the
counterparties or due to fluctuations in interest or foreign exchange rates, is
not material to its financial position or results of operations.
Interest payments in connection with the Company's debt obligations for the
years ended December 31, 1996, 1995 and 1994 amounted to $562,733,000,
$655,111,000 and $114,831,000, respectively.
5 OTHER NONCURRENT LIABILITIES
Other noncurrent liabilities include reserves for contingencies relating to
income taxes, environmental matters, product liability and other litigation, as
well as restructuring, pension, Management Incentive Plan and other employee
benefit liabilities.
The Company has responsibility for environmental, safety and cleanup
obligations under various local, state and federal laws, including the
Comprehensive Environmental Response, Compensation and Liability Act, commonly
known as Superfund. As of December 31, 1996, the Company was a party to, or
otherwise involved in, legal proceedings directed at the cleanup of 62 Superfund
sites. Thirty-one of these sites are the result of acquiring ACY.
It is the Company's policy to accrue environmental cleanup costs if it is
probable that a liability has been incurred and an amount is reasonably
estimable. In many cases, future environmental-related expenditures cannot be
quantified with a reasonable degree of accuracy. Environmental expenditures that
relate to an existing condition caused by past operations that do not contribute
to current or future results of operations are expensed. As investigations and
cleanups proceed, environmental-related liabilities are reviewed and adjusted as
additional information becomes available. The aggregate environmental-related
accruals were $447,050,000 #and $467,800,000 at December 31, 1996 and 1995,
respectively. As discussed in Note 3, during 1995, a provision of $228,224,000
was recorded for environmental liabilities related to ACY due to changes in
estimates. Environmental-related accruals have been recorded without giving
effect to any possible future insurance proceeds or the timing of the payments.
See Note 11 for a discussion of contingencies.
During 1996, the American Institute of Certified Public Accountants issued
Statement of Position (SOP) 96-1 - "Environmental Remediation Liabilities." This
SOP provides additional guidance regarding the recognition, measurement and
disclosure of environmental remediation liabilities and is effective for fiscal
years beginning after December 15, 1996. The SOP will not have a material impact
on the Company's financial position or results of operations.
27
<PG$PCN>
The Company's Management Incentive Plan provides for cash and deferred
contingent common stock awards to key employees. The maximum number of shares of
common stock issuable under the plan is 24,000,000, of which 18,008,495 have
been awarded through December 31, 1996. Deferred contingent common stock awards
plus accrued dividends totaling 857,774 shares were outstanding at December 31,
1996. Awards for 1996 were $60,306,185, which included deferred contingent
common stock of $12,283,465 (205,581 shares). Awards for 1995 amounted to
$52,909,000, which included deferred contingent common stock of $10,197,000
(212,542 shares). Total participants in the plan increased to 2,360 employees in
1995 versus 1,429 in 1994 due primarily to the addition of ACY participants.
Awards for 1994 were $35,842,000, which included deferred contingent common
stock of $6,513,000 (204,796 shares).
6 EMPLOYEE BENEFIT PLANS
Pension Plans: The Company sponsors various retirement plans for most full-time
employees. Total pension expense for 1996, 1995 and 1994 was $130,090,000,
$139,329,000 and $90,395,000, respectively. The Company sponsors defined benefit
and defined contribution plans for most domestic and certain foreign locations.
Pension plan benefits for defined benefit plans are based primarily on
participants' compensation and years of credited service. It has been the
Company's policy to fund all current and prior year service costs under defined
benefit retirement plans. Contributions to defined contribution plans are based
on a percentage of employees' compensation. Pension expense recognized for
defined contribution plans totaled $76,143,000 in 1996, $64,682,000 in 1995 and
$43,029,000 in 1994.
Net periodic pension cost of defined benefit pension plans was as follows
(principally U.S. pension plans):
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Service cost on benefits earned
during the year ............. $ 58,434 $ 55,283 $ 35,642
Interest cost on projected
benefit obligation .......... 194,056 180,859 69,598
Actual (return)/loss on plan
assets ...................... (240,809) (490,286) 62,498
Net amortization and deferral . 42,266 328,791 (120,372)
--------- --------- ---------
Net periodic pension cost ..... $ 53,947 $ 74,647 $ 47,366
========= ========= =========
</TABLE>
Net periodic pension cost was lower in 1996 compared with 1995 due primarily
to the unusually high actual return on plan assets in 1995, offset, in part, by
an increase in pension costs related to a change in mortality assumptions to
reflect increased life expectancies. Net periodic pension cost was higher in
1995 versus 1994 due primarily to the ACY acquisition effective December 1,
1994.
The actuarial present value of benefit obligations and funded status of the
Company's defined benefit pension plans, as of December 31, was as follows
(principally U.S. pension plans):
<TABLE>
<CAPTION>
(In thousands) 1996 1995
---- ----
<S> <C> <C>
Benefit obligations:
Vested benefits .................. $ 2,479,139 $ 2,126,995
Nonvested benefits ............... 110,482 85,840
----------- -----------
Accumulated benefit obligation ..... 2,589,621 2,212,835
Effect on benefits from projected
compensation increases ........... 268,923 244,943
----------- -----------
Projected benefit obligation ....... 2,858,544 2,457,778
Plan assets at fair value, primarily
listed stocks and bonds .......... 2,332,432 2,281,772
----------- -----------
Projected benefit obligation in
excess of plan assets ............ 526,112 176,006
Unrecognized net gain/(loss) ....... (55,013) 171,404
Unrecognized net transition
obligation ....................... (3,827) (5,499)
Unrecognized prior service cost .... (134,064) 5,925
----------- -----------
Net pension liability .............. $ 333,208 $ 347,836
----------- -----------
</TABLE>
The change in the unrecognized net gain (loss) in 1996 is due primarily to an
unrecognized loss resulting from a change in mortality assumptions to reflect
increased life expectancies. The change in the unrecognized prior service cost
in 1996 is due primarily to a plan amendment which revised the benefit formula
of the American Home Products Corporation Retirement Plan - U.S., from a final
10-year average to an average of the five highest paid years within the final 10
years of service.
Assumptions used in developing the projected benefit obligation as of
December 31 were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Discount rate .................. 7.5% 7.5% 8.5%
Rate of increase in compensation 4.0% 4.0% 5.0%
Rate of return on plan assets .. 9.0% 9.0% 8.5%-9.0%
</TABLE>
28
<PG$PCN>
Postretirement Benefits: The Company provides postretirement health care and
life insurance benefits for retired employees of most domestic locations and
Canada. Most full-time employees become eligible for these benefits after
attaining specified age and service requirements.
Net periodic postretirement health care cost includes the following
components:
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Service cost on benefits
earned during the year ... $20,474 $15,057 $13,447
Interest cost on accumulated
postretirement benefit
obligation (APBO) ........ 68,902 61,693 31,612
Net amortization ........... 4,436 290 6,016
------- ------- -------
Net periodic postretirement
health care cost ......... $93,812 $77,040 $51,075
======= ======= =======
</TABLE>
Net periodic postretirement health care cost was higher in 1996 compared with
1995 due primarily to a change in mortality assumptions to reflect increased
life expectancies. Net periodic postretirement health care cost was higher in
1995 versus 1994 due primarily to the ACY acquisition effective December 1,
1994.
The APBO as of December 31 was as follows:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
---- ----
<S> <C> <C>
Retirees ...................... $ 648,763 $ 540,404
Fully eligible active
participants ................ 124,131 118,505
Other active participants ..... 209,278 164,500
--------- ---------
APBO .......................... 982,172 823,409
Unrecognized net loss ......... (141,510) (33,300)
Unrecognized prior service cost (3,320) (3,046)
--------- ---------
Accrued postretirement
benefit obligation .......... 837,342 787,063
Less current portion .......... 55,000 55,000
--------- ---------
$ 782,342 $ 732,063
========= =========
</TABLE>
The change in the unrecognized net loss in 1996 is due primarily to an
unrecognized loss from a change in mortality assumptions to reflect increased
life expectancies, offset by an unrecognized gain from a revision in the health
care cost trend rate and a plan curtailment gain related to the sale of a
majority interest in the foods business.
Assumptions used in developing the APBO were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Discount rate ............. 7.5% 7.5% 8.5%
Increase in per capita cost
of health care benefits
that gradually decreases
over 10 years and is held
constant thereafter ..... 9.0%-6.0% 10.0%-6.0% 10.5%-6.0%
</TABLE>
A one percentage point increase in the assumed health care cost trend rates
would increase the APBO as of December 31, 1996 by approximately $125,810,000,
and the total of the service and interest cost components of the net periodic
postretirement health care cost would increase by approximately $13,596,000.
7 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 additional shares, which were distributed on May 6, 1996,
was the close of business on April 24, 1996. The par value of the common stock
was maintained at the pre-split amount of $0.33 1/3 per share. All references to
common stock, retained earnings, common shares outstanding and per share amounts
in these consolidated financial statements have been restated to reflect the
two-for-one stock split on a retroactive basis.
There were 5,000,000 shares of preferred stock authorized at December 31,
1996. Of the authorized preferred shares, there is a series of shares (31,433
outstanding), which is designated as $2 convertible preferred stock. Each share
of the $2 series is convertible at the option of the holder into 18 shares of
common stock. This series may be called for redemption at $60 per share plus
accrued dividends.
29
<PG$PCN>
Changes in outstanding common shares during 1996, 1995 and 1994 are
summarized as follows:
<TABLE>
<CAPTION>
(In thousands except
shares of preferred stock) 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Balance, beginning of year ... 627,400 611,962 620,652
Issued for stock options
and Management
Incentive Plan ............. 12,746 15,584 1,916
Conversions of preferred stock
(2,709, 2,371 and 3,624
shares in 1996, 1995
and 1994, respectively) .... 49 42 66
Purchase of shares
for treasury ............... (212) (188) (10,672)
------- ------- -------
Balance, end of year ......... 639,983 627,400 611,962
======= ======= =======
</TABLE>
8 STOCK OPTIONS
The Company has three Stock Option Plans and three Stock Incentive Plans,
including the 1996 Stock Incentive Plan which was approved at the Company's
April 23, 1996 Annual Meeting of Stockholders. Under the three Stock Incentive
Plans, a maximum of 30,000,000, 28,000,000 and 24,000,000 options to purchase
shares, respectively, may be granted at prices not less than 100% of the fair
market value at the date of option grant. No further grants will be made under
the three Stock Option Plans. At December 31, 1996, 28,137,620 shares were
available for future grants under the Stock Incentive Plans.
The plans provide for the granting of incentive stock options as defined
under the Internal Revenue Code. Under the plans, grants may be made to selected
officers and employees of non-qualified stock options with a 10-year term or
incentive stock options with a term not exceeding 10 years. The plans provide
for the granting of stock appreciation rights (SAR), which permit the optionee
to surrender an exercisable option for an amount equal to the excess of the
market price of the common stock over the option price when the right is
exercised. During 1996 and 1995, SARs were granted to executive officers in
tandem with outstanding and newly granted stock options at the exercise price of
the underlying option. A pre-tax charge of $54,815,000 and $62,716,000 was
incurred related to SARs in 1996 and 1995 due to an increase in the market price
of the Company's common stock and the increased number of outstanding SARs. The
charge incurred related to SARs in 1994 was not material. SARs in tandem with
options covering 4,574,400 and 2,096,866 shares were outstanding and
exercisable, respectively, at December 31, 1996.
The stock incentive plans, among other things, provide for the issuance of up
to 4,000,000 of the available options as restricted stock performance awards
under each plan. Restricted stock performance awards representing 53,500, 52,200
and 108,800 units were granted in 1996, 1995 and 1994, respectively, under the
plans to certain key executives. These units will be converted to shares of
restricted stock based on the achievement of certain performance criteria over a
three-year period of restriction.
Transactions involving the plans are summarized as follows:
<TABLE>
<CAPTION>
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Option Shares 1996 Price 1995 Price 1994 Price
---- ----- ---- ----- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding January 1 ..... 47,486,784 $ 34.12 42,936,064 $ 30.23 42,681,848 $ 30.06
Granted ................... 7,970,950 53.16 20,839,500 38.33 3,968,100 29.10
Canceled .................. (1,117,450) 42.92 (817,080) 35.74 (1,942,760) 32.61
Exercised (1996 - $17.80 to
$53.06 per share) ........ (14,200,939) 32.95 (15,471,700) 28.92 (1,771,124) 21.43
Outstanding December 31
(1996 - $17.80 to
$62.70 per share) ........ 40,139,345 38.07 47,486,784 34.12 42,936,064 30.23
Exercisable December 31 ... 30,492,611 34.27 27,203,484 30.97 38,758,564 30.33
</TABLE>
30
<PG$PCN>
The following table summarizes information regarding stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- --------------------------------------------------------------------------- -----------------------------------
Weighted Average Weighted Average Weighted Average
Range of Number Remaining Exercise Number Exercise
Exercise Prices Outstanding Contractual Life Price Exercisable Price
- --------------------------------------------------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C>
$17.80 to 26.78 2,717,869 2.5 years $23.76 2,717,869 $23.76
26.79 to 35.76 12,798,845 6.3 years 31.81 12,798,845 31.81
35.77 to 44.74 16,518,631 8.1 years 38.10 14,626,997 38.09
44.75 to 53.72 8,014,900 9.4 years 52.58 348,900 46.04
53.73 to 62.70 89,100 9.9 years 62.69 -- --
---------- ----------
17.80 to 62.70 40,139,345 7.4 years 38.07 30,492,611 34.27
========== ==========
</TABLE>
In April 1994, the stockholders approved the Restricted Stock Plan for
Non-Employee Directors. Under the plan, a maximum of 50,000 restricted shares
may be granted to non-employee directors at not less than 100% of the fair
market value at the date of grant. The restricted shares will not be delivered
until the end of the restricted period which does not exceed five years.
Effective January 1, 1996, the Company adopted the provisions of SFAS No.
123 - "Accounting for Stock-Based Compensation." As permitted by the statement,
the Company has elected to continue to account for stock-based compensation
using the intrinsic value method under Accounting Principles Board Opinion No.
25. Accordingly, no compensation expense has been recognized for stock options
other than for SARs granted in tandem with stock options. If compensation
expense for the Company's stock options issued in 1996 and 1995 had been
determined based on the fair value method of accounting, as defined in SFAS No.
123, the Company's net income and net income per share would have been reduced
to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
(In thousands except per share amounts) 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Net income As reported $ 1,883,403 $ 1,680,418
Pro forma $ 1,841,157 $ 1,647,085
Net income
per share As reported $ 2.96 $ 2.71
Pro forma $ 2.90 $ 2.66
---------------------------------
</TABLE>
The fair value method of accounting has not been determined for options
granted prior to January 1, 1995.
The fair value of issued stock options is estimated on the date of grant
using the Black-Scholes option-pricing model incorporating the following
assumptions for options granted in 1996 and 1995, respectively: Expected
volatility (the amount by which the stock price is expected to fluctuate) of
15.0% and 15.7%; expected dividend yield of 4.3% and 4.4%; risk-free interest
rate of 6.4% and 6.1%; and expected life of four years. The weighted average
fair value of options granted during 1996 and 1995 was $6.83 and $4.88,
respectively.
9 INTEREST EXPENSE, NET
Interest expense, net in the Consolidated Statements of Income includes interest
income of $138,380,000, $150,101,000 and $106,430,000 for the years ended
December 31, 1996, 1995 and 1994, respectively.
31
<PG$PCN>
10 INCOME TAXES
The provision for income taxes consisted of:
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Domestic $ 348,649 $ 545,434 $ 351,581
Foreign 421,816 357,916 242,184
------------------------------------------------
770,465 903,350 593,765
Deferred:
Domestic 89,033 (143,861) (101,620)
Foreign 12,559 (1,209) 9,361
------------------------------------------------
101,592 (145,070) (92,259)
------------------------------------------------
$ 872,057 $ 758,280 $ 501,506
===============================================
</TABLE>
Deferred tax assets (liabilities), inclusive of valuation allowances for
certain deferred tax assets, were reflected in the consolidated balance sheets
at December 31 as follows:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Net current deferred tax assets $ 668,215 $ 638,291
Net noncurrent deferred tax assets 303,034 374,839
-----------------------------
Net deferred tax assets $ 971,249 $1,013,130
=============================
</TABLE>
Deferred income taxes are provided for the temporary differences between
the financial reporting basis and the tax basis of the Company's assets and
liabilities. Deferred tax assets result principally from the recording of
certain accruals and reserves which currently are not deductible for tax
purposes. Deferred tax liabilities result principally from temporary differences
in the recognition of gains and losses from certain investments and from the
use, for tax purposes, of accelerated depreciation.
The components of the Company's deferred tax assets and liabilities at
December 31 are as follows:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Product and environmental liabilities
and other operating accruals $ 700,736 $ 675,180
Postretirement, pension and other
employee benefits 451,431 478,177
Net operating loss and other tax
credit carryforwards 203,464 125,950
Restructuring and
reorganization accruals 225,644 346,927
Inventory reserves 178,505 131,657
Investments and advances 60,123 54,402
Other 42,123 67,757
------------------------------
Total deferred tax assets $ 1,862,026 $ 1,880,050
------------------------------
Deferred tax liabilities:
Investments $ (249,573) $ (228,394)
Depreciation (268,875) (315,124)
Pension and other
employee benefits (17,566) (65,218)
Other (59,923) (51,540)
------------------------------
Total deferred tax liabilities $ (595,937) $ (660,276)
------------------------------
Deferred tax asset
valuation allowance (294,840) (206,644)
------------------------------
Net deferred tax assets $ 971,249 $ 1,013,130
------------------------------
</TABLE>
Valuation allowances have been established for certain deferred tax assets
related primarily to net operating loss carryforwards and portions of other
deferred tax assets as the Company determined that it was more likely than not
that these benefits will not be realized. During 1996, the valuation allowance
increased by $88,196,000 due primarily to additional allowances related to net
operating loss carryforwards resulting from the Company's acquisition of the
remaining equity interest in G.I. that it did not already own (see Note 2).
During 1995, the valuation allowance decreased by $44,332,000 due primarily to
the reversal of allowances of $89,936,000 on investments which were sold during
the year. These decreases were offset partially by additional allowances of
$45,604,000 for deferred tax assets related primarily to net operating loss
carryforwards. During 1994, the valuation allowance increased by $159,613,000 as
reductions in these reserves of $68,929,000 were more than offset by increases
of $228,542,000 as a result of the ACY acquisition.
32
<PG$PCN>
A reconciliation between the Company's effective tax rate and the U.S.
statutory rate is as follows:
<TABLE>
<CAPTION>
Tax Rate 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. statutory rate 35.0% 35.0% 35.0%
Effect of Puerto Rico and
Ireland manufacturing
operations (5.6) (6.4) (5.5)
Research credits (0.6) (0.6) (1.2)
ACY goodwill amortization 2.8 3.3 --
Gain on sale of foods business (6.4) -- --
Special charges related to the
acquisition of G.I. 8.5 -- --
Other, net (2.1) (0.2) (3.6)
--------------------------------
Effective tax rate 31.6% 31.1% 24.7%
--------------------------------
</TABLE>
The tax effect related to the gain on the sale of the foods business was
due to basis differences for tax and financial reporting purposes. No tax
benefit was recorded with regard to the G.I. special charges due to the
non-deductibility of the acquired in-process research and development and the
uncertainty of the realizability of G.I. net operating loss carryforwards.
The higher effective tax rate in 1995 versus 1994 was due primarily to
nondeductible goodwill amortization related to the ACY acquisition and the
reversal of certain tax reserves that no longer were deemed necessary in 1994.
Total income tax payments, net of tax refunds, for the years ended December
31, 1996, 1995 and 1994 amounted to $435,069,000, $992,393,000 and $536,854,000,
respectively.
11 CONTINGENCIES
The Company is involved in various legal proceedings, including product
liability and environmental matters of a nature considered normal to its
business. See Note 5 for a discussion of environmental matters. 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.
The Company entered into an agreement to settle the class action case in
the Brand Name Prescription Drug Antitrust Litigation relating to claims made by
certain retail pharmacies against the Company. An appeal of the settlement has
been filed, and the Company continues to be a defendant in the remaining cases
in this litigation. The Company believes it has complied with the antitrust laws
and other applicable laws and has settled this matter in order to avoid the
costs and risks of litigation. The settlement agreement is not an admission of
any violation of law. The Company had accrued for the costs of this settlement
at December 31, 1995.
The Company is self-insured against ordinary product liability risks and
has liability coverage in excess of certain limits from various insurance
carriers.
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.
The Company leases certain property and equipment for varying periods under
operating leases. Future minimum rental payments under non-cancelable operating
leases with terms in excess of one year in effect at December 31, 1996 are as
follows:
<TABLE>
<CAPTION>
(In thousands)
- --------------------------------------------------------------------------------
<S> <C>
1997 $ 95,403
1998 84,790
1999 76,334
2000 58,668
2001 43,966
Thereafter 50,009
--------
Total rental commitments $409,170
========
</TABLE>
Rental expense for all operating leases was $100,790,000 in 1996,
$97,036,000 in 1995 and $50,736,000 in 1994.
33
<PG$PCN>
12 COMPANY DATA BY INDUSTRY SEGMENT
<TABLE>
<CAPTION>
(In millions)
Years Ended December 31, 1996 1995 1994
- ----------------------------------------------------------------------------------------
NET SALES TO CUSTOMERS
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Health Care Products:
Pharmaceuticals $ 7,924.0 $ 7,521.2 $ 5,180.8
Consumer Health Care 2,054.6 1,994.8 1,821.2
Medical Devices 1,331.5 1,131.4 883.6
--------------------------------------------
11,310.1 10,647.4 7,885.6
Agricultural Products 1,988.9 1,909.8 83.3
Food Products 789.3 818.9 997.3
--------------------------------------------
Consolidated Total $ 14,088.3 $ 13,376.1 $ 8,966.2
--------------------------------------------
INCOME BEFORE TAXES
- ----------------------------------------------------------------------------------------
Health Care Products(4)(5)(6)(7) $ 2,770.4 $ 1,989.3 $ 1,828.9
Agricultural Products 337.7 272.5 8.7
Food Products 129.1 66.5 155.6
Corporate(1)(2)(3)(5)(7) (481.7) 110.4 36.6
--------------------------------------------
Consolidated Total $ 2,755.5 $ 2,438.7 $ 2,029.8
--------------------------------------------
TOTAL ASSETS AT DECEMBER 31,
- ----------------------------------------------------------------------------------------
Health Care Products $ 12,902.6 $ 12,584.8 $ 13,026.2
Agricultural Products 4,727.5 4,671.2 4,616.1
Food Products -- 485.9 558.8
Corporate 3,155.2 3,621.0 3,473.7
--------------------------------------------
Consolidated Total $ 20,785.3 $ 21,362.9 $ 21,674.8
--------------------------------------------
DEPRECIATION AND AMORTIZATION EXPENSE
- ----------------------------------------------------------------------------------------
Health Care Products $ 483.6 $ 488.2 $ 258.7
Agricultural Products 145.5 141.0 14.7
Food Products 15.2 23.8 19.1
Corporate 13.8 26.2 13.7
--------------------------------------------
Consolidated Total $ 658.1 $ 679.2 $ 306.2
--------------------------------------------
CAPITAL EXPENDITURES
- ----------------------------------------------------------------------------------------
Health Care Products $ 545.5 $ 521.4 $ 424.4
Agricultural Products 48.6 52.1 6.3
Food Products 9.2 26.4 35.5
Corporate 48.9 37.6 6.3
--------------------------------------------
Consolidated Total $ 652.2 $ 637.5 $ 472.5
--------------------------------------------
</TABLE>
COMPANY DATA BY GEOGRAPHIC SEGMENT
<TABLE>
<CAPTION>
(In millions)
Years Ended December 31, 1996 1995 1994
- ----------------------------------------------------------------------------------------
NET SALES TO CUSTOMERS
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
United States $ 8,334.9 $ 7,878.1 $ 5,908.0
Europe and Africa 3,212.4 3,085.6 1,422.7
Canada and Latin America 1,333.3 1,291.8 1,022.4
Asia and Australia 1,207.7 1,120.6 613.1
--------------------------------------------
Consolidated Total $ 14,088.3 $ 13,376.1 $ 8,966.2
--------------------------------------------
INCOME BEFORE TAXES
- ----------------------------------------------------------------------------------------
United States(1)(2)(3)(4)(5)(6)(7) $ 1,447.2 $ 681.8 $ 1,353.0
Europe and Africa(4) 831.2 526.7 295.7
Canada and Latin America(3)(4) 294.0 1,080.8 269.1
Asia and Australia(4) 183.1 149.4 112.0
--------------------------------------------
Consolidated Total $ 2,755.5 $ 2,438.7 $ 2,029.8
--------------------------------------------
TOTAL ASSETS AT DECEMBER 31,
- ----------------------------------------------------------------------------------------
United States $ 13,730.1 $ 14,746.0 $ 14,794.5
Europe and Africa 4,279.8 3,894.2 4,098.6
Canada and Latin America 1,506.0 1,547.4 1,517.5
Asia and Australia 1,269.4 1,175.3 1,264.2
--------------------------------------------
Consolidated Total $ 20,785.3 $ 21,362.9 $ 21,674.8
--------------------------------------------
</TABLE>
(1) 1996 includes the gain on the sale of a majority interest in the foods
business of $813.5 identified as follows: Corporate - $813.5 and United
States - $813.5 (see Note 2).
(2) 1996 includes special charges of $697.9 identified as follows: Corporate -
$697.9 and United States - $697.9 (see Note 3).
(3) 1995 includes the gain on the sale of the South American oral health care
business of $959.8 identified as follows: Corporate - $959.8, United States
- $144.9, Canada and Latin America - $814.9 (see Note 2).
(4) 1995 includes the restructuring charge of $180.2 identified as follows:
Health Care Products - $180.2, United States - $66.2, Europe and Africa -
$100.3, Canada and Latin America - $9.1, Asia and Australia - $4.6 (see Note
3).
(5) 1995 includes special charges of $436.7 identified as follows: Health Care
Products - $208.5, Corporate - $228.2, United States - $436.7 (see Note 3).
(6) 1994 includes the restructuring charge of $173.7 identified as follows:
Health Care Products - $173.7 and United States - $173.7 (see Note 3).
(7) 1994 includes gains on sales of assets of $75.8 identified as follows:
Health Care Products - $32.8, Corporate - $43.0, United States - $75.8.
Certain reclassifications have been made to the 1995 industry and geographic
segment information to conform with the 1996 presentation.
34
<PG$PCN>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of American Home Products
Corporation:
We have audited the accompanying consolidated balance sheets of American Home
Products Corporation (a Delaware corporation) and subsidiaries as of December
31, 1996 and 1995, and the related consolidated statements of income, retained
earnings, additional paid-in capital and cash flows for each of the three years
in the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of American Home Products
Corporation and subsidiaries as of December 31, 1996 and 1995, and the results
of their operations and cash flows for each of the three years in the period
ended December 31, 1996 in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
New York, N.Y.
January 28, 1997
MANAGEMENT REPORT ON FINANCIAL STATEMENTS
Management has prepared and is responsible for the Company's consolidated
financial statements and related notes. They have been prepared in accordance
with generally accepted accounting principles and necessarily include amounts
based on judgments and estimates made by management. All financial information
in this Annual Report is consistent with the financial statements.
The Company maintains internal accounting control systems and related
policies and procedures designed to provide reasonable assurance that assets are
safeguarded, that transactions are executed in accordance with management's
authorization and are properly recorded, and that accounting records may be
relied upon for the preparation of financial statements and other financial
information. The design, monitoring and revision of internal accounting control
systems involve, among other things, management's judgment with respect to the
relative cost and expected benefits of specific control measures. The Company
also maintains an internal auditing function which evaluates and formally
reports on the adequacy and effectiveness of internal accounting controls,
policies and procedures.
The Company's financial statements have been audited by independent
auditors who have expressed their opinion with respect to the fairness of these
statements.
The Audit Committee of the Board of Directors, composed of non-employee
directors, meets periodically with the external and internal auditors to
evaluate the effectiveness of the work performed by them in discharging their
respective responsibilities and to assure their independent and free access to
the Committee.
John R. Stafford Robert G. Blount
Chairman, President and Senior Executive Vice
Chief Executive Officer President and Chief
Financial Officer
35
<PG$PCN>
QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter
(In thousands except per share amounts) 1996 1996 1996 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $3,646,814 $3,489,821 $3,470,922 $3,480,769
Gross Profit 2,440,860 2,327,189 2,411,972 2,458,522
Net Income 489,363 391,277 491,125 511,638(1)
Net Income per Common Share 0.78 0.62 0.77 0.80(1)
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter
1995 1995 1995 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $3,491,029 $3,299,300 $3,257,789 $3,327,971
Gross Profit 2,246,001 2,092,552 2,187,197 2,316,019
Net Income 1,022,620(2) 299,608 276,526(3) 81,664(4)
Net Income per Common Share 1.67(2) 0.49 0.45(3) 0.13(4)
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Fourth quarter 1996 includes an after-tax gain of $706,279 ($1.10 per share)
on the sale of a majority interest in the American Home Foods business and
special charges aggregating $697,854 ($1.09 per share) related to the
acquisition of the remaining equity interest in Genetics Institute, Inc.
(2) First quarter 1995 includes an after-tax gain of $623,870 ($1.01 per share)
on the sale of the South American oral health care business.
(3) Third quarter 1995 includes an after-tax restructuring charge of $117,156
($0.19 per share) to record the costs of implementing the integration plan
for the American Cyanamid Company (ACY) acquisition related to American Home
Products Corporation operations.
(4) Fourth quarter 1995 includes after-tax special charges of $308,317 ($0.49
per share) to record provisions for ACY environmental liabilities due to
changes in estimates and provisions for other special charges, including the
shutdown and discontinuance of the U.S. infant nutritional business.
MARKET PRICES OF COMMON STOCK AND DIVIDENDS
<TABLE>
<CAPTION>
1996 Range of Prices* 1995 Range of Prices*
- ------------------------------------------------------------------------------------------------------------------------------
Dividends Dividends
High Low per Share High Low per Share
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First Quarter $55.25 $47.06 $0.385 $38.19 $30.88 $0.375
Second Quarter 56.13 50.00 0.385 39.88 35.75 0.375
Third Quarter 64.88 52.63 0.385 43.75 36.82 0.375
Fourth Quarter 66.50 58.63 0.410 49.94 41.75 0.385
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Prices are those of the New York Stock Exchange - Composite Transactions.
All amounts reflect the two-for-one common stock split effective April 23,
1996 in the form of a dividend distributed on May 6, 1996.
36
<PG$PCN>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following commentary should be read in conjunction with the
Consolidated Financial Statements and Notes to Consolidated Financial Statements
on pages 20 to 34.
RESULTS OF OPERATIONS
Management's discussion and analysis of results of operations for 1996 has been
presented on an as-reported basis except for sales variation explanations which
are presented on an as-reported and a pro forma basis. The 1996 pro forma sales
results reflect all businesses disposed of, discontinued and acquired in 1996
and 1995, assuming all transactions occurred as of January 1, 1995. This
activity includes the dispositions of the foods business, the medicated feed
additives business, the oral health care business and a surgical products
business, the discontinuance of the U.S. infant nutritional business and the
acquisition of an animal health care business. The 1996 pro forma sales results
also include revenues of the ophthalmic products business which was reported as
"held for sale" in 1995.
Management's discussion and analysis of results of operations for 1995 has
been presented for the most part on a pro forma basis only. The 1995 pro forma
sales results reflect all businesses acquired and disposed of in 1995 and 1994,
assuming all transactions occurred as of January 1, 1994. This activity includes
the acquisitions of American Cyanamid Company (ACY) and an animal health care
business and the dispositions of two medicated feed additives businesses, the
oral health care business and a perinatal monitoring systems business.
The 1994 pro forma results of operations reflect the impact of adjustments
for ACY acquisition interest expense and goodwill amortization, merger-related
financing costs and related income tax benefits, assuming the acquisition of ACY
occurred as of January 1, 1994. The 1994 pro forma results are not necessarily
indicative of what actually would have occurred and do not reflect any
integration costs, cost savings from merger-related synergies or results of
operations of other businesses acquired or disposed of in 1995 and 1994.
Net sales increased 5% to $14.1 billion in 1996 on an as-reported basis. On
a pro forma basis, net sales increased 7%. The pro forma results reflect higher
worldwide sales of pharmaceutical, consumer health care and agricultural
products. The increase in 1996 sales was composed of volume increases of 6% and
price increases of 2%, offset by unfavorable foreign exchange of 1%. Worldwide
pro forma sales of health care products increased 7% and agricultural products
increased 4% in 1996.
Net sales increased 49% to $13.4 billion in 1995 on an as-reported basis.
On a pro forma basis, net sales increased 4% for the year ended 1995. The pro
forma results reflect higher sales of international health care and worldwide
agricultural products, offset partially by lower sales of domestic food and
health care products. The increase in 1995 sales was composed of volume
increases of 2%, price increases of 1% and favorable foreign exchange of 1%.
Worldwide sales of health care products increased 4%, agricultural products
increased 18% and food products decreased 18% in 1995.
37
<PG$PCN>
The following table sets forth 1996, 1995 and 1994 net sales results by
industry segment and geographic segment together with percentage changes of the
"As-Reported" and "Pro Forma" net sales:
<TABLE>
<CAPTION>
1996 versus 1995 1995 versus 1994
As-Reported Pro Forma As-Reported Pro Forma
($ in Millions) Year Ended December 31, %Increase %Increase %Increase %Increase
----------------------------------
Net Sales to Customers 1996 1995 1994 (Decrease) (Decrease) (Decrease) (Decrease)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Industry Segment
Health Care Products:
Pharmaceuticals $ 7,924.0 $ 7,521.2 $5,180.8 5% 9% 45% 4%
Consumer Health Care 2,054.6 1,994.8 1,821.2 3% 5% 10% 4%
Medical Devices 1,331.5 1,131.4 883.6 18% -- 28% 3%
----------------------------------
Total Health Care Products 11,310.1 10,647.4 7,885.6 6% 7% 35% 4%
Agricultural Products 1,988.9 1,909.8 83.3 4% 4% -- 18%
Food Products 789.3 818.9 997.3 (4)% -- (18)% (18)%
----------------------------------
Consolidated Net Sales $14,088.3 $ 13,376.1 $8,966.2 5% 7% 49% 4%
----------------------------------
Geographic Segment
United States $ 8,334.9 $ 7,878.1 $5,908.0 6% 7% 33% (3)%
Europe and Africa 3,212.4 3,085.6 1,422.7 4% 4% 117% 19%
Canada and Latin America 1,333.3 1,291.8 1,022.4 3% 8% 26% 3%
Asia and Australia 1,207.7 1,120.6 613.1 8% 10% 83% 23%
----------------------------------
Consolidated Net Sales $14,088.3 $13,376.1 $8,966.2 5% 7% 49% 4%
----------------------------------
</TABLE>
Worldwide pharmaceutical sales increased 5% for the year ended 1996. U.S.
pharmaceutical sales increased 7% for the year ended 1996. U.S. sales gains 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 11% for the year ended 1996. The sales
gains were due primarily to higher sales of the Company's antiobesity products
Pondimin and Redux (introduced in 1996), Premarin products, recombinant Factor
VIII, Naprelan (introduced in 1996), Cordarone, Ziac, Lodine, Effexor and
veterinary products, offset, in part, by lower sales of other cardiovascular and
pharmaceutical products. The pro forma increase in U.S. pharmaceutical sales for
the year ended 1996 consisted of unit volume growth of 9% and price increases of
2%.
International pharmaceutical sales increased 3% for the year ended 1996.
International sales gains 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 6% for the year ended 1996.
International pharmaceutical sales gains in 1996 were due primarily to higher
sales of Zoton, Effexor, veterinary products, infant nutritionals, Tazocin and
Premarin products. Launches of several pharmaceutical products in additional
international markets, in particular Effexor, contributed to the international
sales increases in 1996. The pro forma increase in international pharmaceutical
sales for the year ended 1996 consisted of unit volume growth of 8%, offset by
unfavorable foreign exchange of 2%.
Worldwide pharmaceutical sales increased 4% on a pro forma basis for the
year ended 1995. U.S. pharmaceutical sales decreased 1% for the year ended 1995
as higher sales of Effexor, Oruvail, Ziac, Cordarone and Premarin products were
offset by lower sales of Ativan, oral contraceptives, infant nutritionals,
veterinary products, and Lederle antibiotic and generic products. U.S.
pharmaceutical sales reflect the impact of a change in timing of trade incentive
programs on Wyeth-Ayerst products in the 1995 second quarter, which affected all
major Wyeth-Ayerst product categories. The decrease in U.S. pharmaceutical sales
in 1995 was composed of unit volume decreases of 1%.
International pharmaceutical sales increased 12% for the year ended 1995
due primarily to higher sales of oral contraceptives, Tazocin, Premarin, infant
nutritionals, Ativan, Effexor and veterinary products. The increase in
international pharmaceutical sales in 1995 was composed of unit volume increases
of 7%, price increases of 2% and favorable foreign exchange of 3%.
38
<PG$PCN>
Worldwide consumer health care sales increased 3% for the year ended 1996.
U.S. consumer health care sales increased 2% for the year ended 1996. U.S. sales
gains for the year ended 1996 were due primarily to introductory sales of Axid
AR, Children's Advil and Orudis KT and higher sales of Centrum, offset, in part,
by lower sales of Advil, Anacin and family planning products. The increase in
U.S. consumer health care sales for the year ended 1996 consisted of price
increases of 2%.
International consumer health care sales increased 6% for the year ended
1996. After adjusting for the effect of the sale of the South American oral
health care business in 1995, international consumer health care sales increased
12% for the year ended 1996. International sales gains were due primarily to
higher sales of Centrum (which was launched in additional international
markets), Advil, cough/cold products and other consumer health care products.
The pro forma increase in international consumer health care sales for the year
ended 1996 consisted of unit volume growth of 11% and price increases of 4%,
offset by unfavorable foreign exchange of 3%.
Worldwide consumer health care sales increased 4% on a pro forma basis for
the year ended 1995. U.S. consumer health care sales for the year ended 1995
were comparable to 1994 levels as introductory sales of Orudis KT and higher
sales of Centrum and other vitamins were offset by lower sales of Advil and
Anacin. The decrease in Advil and Anacin sales was due to a combination of
increased competition and the timing and extent of trade incentive programs and
promotional efforts. U.S. consumer health care sales in 1995 included volume
decreases of 1%, offset by price increases of 1%.
International consumer health care sales increased 13% for the year ended
1995 due principally to higher sales of vitamins, analgesics and cough/cold
products. Sales gains in the international consumer health care market were led
by higher sales of Centrum, Advil and Anacin. Higher sales of Robitussin and
Dimetapp also contributed to the increase. The increase in international
consumer health care sales in 1995 was composed of unit volume increases of 5%
and price increases of 8%.
Worldwide medical devices sales increased 18% for the year ended 1996 due
primarily to the Storz ophthalmic products business being 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 devices sales were comparable to the year ended 1995. Higher sales of
needles and syringes and cardiopulmonary instrumentation were offset by lower
sales of ophthalmic products. Pro forma medical devices sales for the year ended
1996 included volume increases of 2%, offset by unfavorable foreign exchange of
2%.
Worldwide medical devices sales increased 3% on a pro forma basis for the
year ended 1995. Sales gains were led by higher sales of needles and syringes,
tubes and catheters, tympanic thermometry products, probe covers and enteral
feeding devices. The increase in worldwide medical devices sales in 1995 was
composed of unit volume increases of 1% and favorable foreign exchange of 3%,
offset by price decreases of 1%.
Worldwide agricultural products sales increased 4% for the year ended 1996.
U.S. agricultural products sales increased 4% for the year ended 1996. U.S.
sales gains for the year ended 1996 were due primarily to higher sales of
Counter insecticide and Prowl and Assert herbicides, offset, in part, by lower
sales of Prestige herbicide. The increase in U.S. agricultural products sales
for the year ended 1996 consisted of unit volume growth of 2% 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, a
majority of the U.S. agricultural products sales and results of operations are
realized in the first half of the year.
International agricultural products sales increased 4% for the year ended
1996. International sales gains for the year ended 1996 were due primarily to
higher sales of Stomp (marketed as Prowl in the United States) herbicide, Fastac
and Cascade insecticides, and Acrobat and Caramba fungicides, offset, in part,
by the discontinuance of a licensed herbicide product. The increase in
international agricultural products sales for the year ended 1996 consisted of
unit volume increases of 4% and price increases of 3%, offset by unfavorable
foreign exchange of 3%.
Worldwide agricultural products sales increased 18% on a pro forma basis
for the year ended 1995. U.S. agricultural products sales increased 8% for the
year ended 1995 as unusually wet spring conditions resulted in the following: a
shift in sales from pre-emergent herbicides to post-emergent herbicides; a shift
in acreage from corn to soybeans; and an extended planting season into mid-July.
These factors resulted in higher sales of Pursuit and Prowl herbicides and other
crop protection products
39
<PG$PCN>
which were offset partially by lower sales of Squadron and Scepter herbicides
and Counter insecticide. The increase in U.S. agricultural products sales in
1995 was composed of unit volume increases of 7% and price increases of 1%.
International agricultural products sales increased 28% for the year ended
1995 due primarily to higher sales of Prowl (marketed as Stomp internationally)
and Pursuit herbicides, Caramba and Delan fungicides, and other international
crop protection products. The increase in international agricultural products
sales in 1995 was composed of unit volume increases of 21% and favorable foreign
exchange of 7%. Unit volume increases were due primarily to favorable weather
conditions in Europe throughout the 1995 growing season.
On November 1, 1996, the Company completed the sale of a majority interest
in the American Home Foods business. Sales of food products decreased 4% for the
year ended 1996 due to the divestiture. Sales of the foods business were
consolidated by the Company through October 31, 1996, representing 10 months of
operating activity compared with a full year in 1995.
Sales of food products decreased 18% for the year ended 1995. The sales
decrease was due primarily to competitive new products and marketing activity
and the timing and extent of trade incentives, promotions and product
introductions. The decrease in sales of food products in 1995 was composed of
unit volume decreases of 19%, offset by price increases of 1%.
Cost of goods sold, as a percentage of net sales, decreased to 31.6% for
the year ended 1996 compared with 33.9% in 1995 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 ACY
acquisition and the Company's previously announced Organizational Effectiveness
and Supply Chain programs. On a pro forma basis, cost of goods sold, as a
percentage of net sales, decreased for the year ended 1995. The decrease was
due, in part, to changes in the pharmaceutical and agricultural products sales
mix and the realization of ACY acquisition-related synergies.
Selling, general and administrative expenses, as a percentage of net sales,
decreased to 37.1% for the year ended 1996 compared with 37.2% in 1995. Cost
savings and synergies were offset partially by increased marketing and selling
expenses related to pharmaceutical and consumer health care product
introductions and pharmaceutical disease and health management programs. On a
pro forma basis, selling, general and administrative expenses, as a percentage
of net sales, increased for the year ended 1995. Lower selling and
administrative expenses resulting from ACY acquisition-related synergies were
offset by increased general expenses. Higher general expenses in 1995 were due,
in part, to the reversal of certain litigation reserves in 1994 that no longer
were required, which lowered 1994 general expenses.
Research and development expenses increased 5.5% for the year ended 1996
compared with 1995. ACY acquisition-related synergies were more than offset by
increased pharmaceutical research and development expenditures. On a pro forma
basis, research and development expenses decreased for the year ended 1995 due
primarily to ACY acquisition-related synergies. Pharmaceutical research and
development expenditures accounted for 78% of total research and development
expenditures in both 1996 and 1995. Pharmaceutical research and development
expenses, as a percentage of worldwide pharmaceutical sales, exclusive of
nutritional sales, were 15% in both 1996 and 1995.
Interest expense, net decreased for the year ended 1996 compared with 1995
due primarily to the reduction in long-term debt related to the ACY acquisition
during 1996. Average long-term debt outstanding during 1996 and 1995 was
$6,914.7 million and $8,891.0 million, respectively. On a pro forma basis,
interest expense, net decreased for the year ended 1995 due primarily to the
reduction of long-term debt during 1995.
The effective tax rate increased to 31.6% in 1996 from 31.1% in 1995 due
primarily to the tax impact of the special charges related to the acquisition of
the remaining equity interest in Genetics Institute, Inc. (G.I.), offset, in
part, by the tax impact of the gain on the sale of a majority interest in the
foods business. The effective tax rate increased to 31.1% in 1995 compared with
24.7% in 1994 due primarily to the non-deductibility of goodwill amortization
related to the ACY acquisition and the reversal of certain tax reserves which
lowered the tax provision in 1994. Also on June 30, 1995, the U.S. research tax
credit expired, which negatively impacted the effective tax rate. These items
were offset partially by additional Section 936 tax benefits derived from ACY
manufacturing operations in Puerto Rico. Additional tax benefits also were
recognized from the Company's manufacturing operations in Ireland.
40
<PG$PCN>
Net income and net income per share for the year ended 1996 on an
as-reported basis increased 12% and 9%, respectively, above 1995 levels. Net
income and net income per share for the year ended 1996 included an after-tax
gain on the sale of a majority interest in the foods business of $706.3 million
or $1.11 per share and the special charges related to the acquisition of the
remaining equity interest in G.I. aggregating $697.9 million or $1.10 per share.
Net income and net income per share for 1995 included after-tax special charges
aggregating $308.3 million or $0.50 per share, an after-tax restructuring charge
of $117.2 million or $0.19 per share and an after-tax gain of $623.9 million or
$1.01 per share from the sale of the oral health care business. Excluding the
gain on the sale of a majority interest in the foods business and the special
charges from 1996 results and the special charges, restructuring charge and the
gain on the sale of the oral health care business from 1995 results, net income
and net income per share for the year ended 1996 increased 27% and 23%,
respectively, over 1995 amounts. This increase was due primarily to higher
worldwide sales of pharmaceuticals, agricultural products and consumer health
care 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 1995 on an as-reported basis
increased 10% and 9%, respectively, above 1994 levels. Excluding the special
charges, the restructuring charge and the gain from the sale of the oral health
care business from 1995 results, net income and net income per share on an
as-reported basis decreased 3% and 4%, respectively, due primarily to the net
dilution, as anticipated, resulting from the ACY acquisition. ACY operating
results for 1995 were more than offset by acquisition-related interest expense
and goodwill amortization. On a pro forma basis, net income and net income per
share for 1995, excluding the items previously discussed from 1995 results,
increased 16% and 15%, respectively, due principally to lower interest expense,
increased net sales and cost savings from acquisition-related synergies with ACY
and the Company's previously announced Organizational Effectiveness and Supply
Chain programs.
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. In
November 1996, the FDA published and sought comment on scientific data on the
composition of conjugated estrogens. 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
The Company's $10.0 billion of credit facilities, which were initially
established in 1994 to finance the ACY acquisition, were amended to $7.0 billion
in 1995 and were further amended to $6.0 billion in 1996. The amended credit
facilities are composed of a $3.0 billion, five-year credit facility and a $3.0
billion, 364-day credit facility. In 1995, the Company issued, under a $3.5
billion shelf registration statement, $1.0 billion of 7.70% notes due February
2000 and $1.0 billion of 7.90% notes due February 2005. Net proceeds from these
issuances were used to repay commercial paper. The
41
<PG$PCN>
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 the interest rate swap agreements that previously had been
entered into. The cost to unwind these swap agreements was deferred and is being
amortized to interest expense over the five- and 10-year terms of the related
notes. At December 31, 1996, there were $250 million of 6.875% non-callable
notes due April 15, 1997 classified as long term since the Company intends and
has the ability to refinance these notes on a long-term basis. As of December
31, 1996, the Company has included the issuance of the commercial paper used to
finance the $1.279 billion acquisition of the remaining equity interest in G.I.
Cash flows from operations continued to be strong in 1996. Cash flows from
operating activities of $2.4 billion, proceeds from sales of businesses and
other assets of $1.5 billion and proceeds from the exercise of stock options of
$412 million were used principally for long-term debt reduction of $1.8 billion,
purchases of remaining equity interests in Genetics Institute, Inc. and another
subsidiary of $1.3 billion, dividend payments of $994 million and capital
expenditures of $652 million. These activities resulted in a net decrease in
cash and cash equivalents during 1996. Capital expenditures included the
expansion of the Company's research and development facilities and continued
strategic investments in manufacturing, distribution and administrative
facilities worldwide. The Company believes that the foreign currency risks to
which it is exposed are not reasonably likely to have a material adverse effect
on the Company's cash flows, results of operations or financial position given
the concentration of sales in the United States. No single foreign currency
accounted for more than 5% of 1996 worldwide sales.
The ratio of earnings to fixed charges increased to 5.6 in 1996 from 4.4 in
1995. The increase was due primarily to reduced fixed charges, which resulted
from lower interest expense due to the reduction in long-term debt, and
increased earnings from operations before taxes. The reduction in long-term debt
in 1996 was due primarily to cash flows from operating activities.
In late 1996, the Company entered into a definitive purchase agreement to
acquire the worldwide animal health business of Solvay S.A. for approximately
$460 million. The acquisition will be financed partially through the issuance of
commercial paper and is expected to be completed during the first quarter of
1997.
The Company's objectives are to continue to further reduce its current debt
position, including, but not limited to, additional sales of non-strategic
assets. Synergies from the ACY acquisition are expected to continue to increase
operating cash flows, though not at the pace realized in 1996 and 1995.
Management is confident that the cash flows from the combined businesses will be
adequate to repay both the principal and interest on the remaining 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, including the amount already committed at December 31, 1996 of
approximately $322 million, without restricting its ability to make further
acquisitions as may be appropriate.
COMPANY STATEMENTS FOR FORWARD LOOKING INFORMATION
This annual report, including management's discussion and analysis set forth
above, contains certain forward-looking statements, including statements
regarding the Company's results of operations, financial position and potential
competition. These forward-looking statements are based on current expectations.
Certain factors which could cause the Company's actual results to differ
materially from expected and historical results have been identified by the
Company in Exhibit 99 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996 and the Company's 1996 Annual Report on Form 10-K,
which will be filed by March 31, 1997.
42
<PG$PCN>
BOARD OF DIRECTORS
John R. Stafford(1),(5)
Chairman, President and
Chief Executive Officer
Clifford L. Alexander, Jr.(2),(4),(5)
President, Alexander &
Associates, Inc.
Frank A. Bennack, Jr.(1),(3),(5)
President and Chief Executive Officer, The Hearst Corporation
Robert G. Blount(1)
Senior Executive Vice President
Robin Chandler Duke(3),(5)
National Chair, Population
Action International
John D. Feerick(2),(5)
Dean, Fordham University
School of Law
Fred Hassan
Executive Vice President
John P. Mascotte(3),(5)
Consultant
Mary Lake Polan,
M.D., Ph.D.(4),(5)
Chairman, Department of OB/GYN, Stanford University School of Medicine
Ivan G. Seidenberg(2),(5)
Chairman and Chief
Executive Officer,
NYNEX Corporation
John R. Torell III(4),(5)
Chairman, Torell Management Inc.
William Wrigley(2),(5)
President and Chief Executive Officer, Wm. Wrigley Jr. Company
DIRECTORS EMERITI
- -----------------
John W. Culligan
Retired - Former Chairman
of the Board
William F. Laporte
Retired - Former Chairman
of the Board
(1) Executive Committee
(2) Audit Committee
(3) Compensation and Benefits Committee
(4) Corporate Issues Committee
(5) Nominating Committee
PRINCIPAL OFFICERS
PRINCIPAL CORPORATE OFFICERS
John R. Stafford(6),(7)
Chairman, President and
Chief Executive Officer
Robert G. Blount(6),(7)
Senior Executive Vice President
Fred Hassan(6),(7)
Executive Vice President
Joseph J. Carr(6),(7)
Senior Vice President
Louis L. Hoynes, Jr.(6),(7)
Senior Vice President and
General Counsel
William J. Murray(6),(7)
Senior Vice President
David M. Olivier(6),(7)
Senior Vice President
John B. Adams
Vice President-Corporate Development
Egon E. Berg
Vice President and
Associate General Counsel
Thomas G. Cavanagh
Vice President-Investor Relations
John R. Considine(6),(7)
Vice President-Finance
Leo C. Jardot
Vice President-Government Relations
Gerald A. Jibilian
Vice President and
Associate General Counsel
Paul J. Jones(6)
Vice President and Comptroller
Rene R. Lewin(6)
Vice President-Human Resources
Thomas M. Nee(6)
Vice President-Taxes
Edward A. Schefer
Vice President-Management
Information Systems
Steven A. Tasher
Vice President-Environmental
Affairs and Associate General
Counsel-Environment
Eileen M. Lach
Secretary
Jack M. O'Connor
Treasurer
PRINCIPAL DIVISION AND SUBSIDIARY OFFICERS
Cyanamid Agricultural Products
Howard L. Minigh, Ph.D.(7), President
Cyanamid Agricultural Products Research
Mark W. Atwood, Ph.D., President
Cyanamid International Agricultural Products
Marco A. Fonseca(7), President
Fort Dodge Animal
Health Division
E. Thomas Corcoran(7), President
Genetics Institute, Inc.
L. Patrick Gage, Ph.D.(7), President
Immunex Corporation*
Edward V. Fritzky, Chairman and
Chief Executive Officer
Quinton Instrument Company
Steven C. Tallman, President
Sherwood-Davis & Geck
David A. Low(7), President
Specialty Pharmaceuticals Division
David G. Strunce, President
Storz Instrument Company
Robert H. Blankemeyer, President
Whitehall International, Inc.
Jean-Claude Leroux(7), President
Whitehall-Robins Healthcare
Terrence L. Stecz(7), President
Wyeth-Ayerst International, Inc.
Bernard Poussot(7), President
Wyeth-Ayerst Laboratories
Robert Essner(7), President
Wyeth-Ayerst Research
Robert I. Levy, M.D.(7), President
(6) Finance Committee
(7) Operations Committee
* AHP is majority owner
43
<PG$PCN>
[GRAPHIC]
<PG$PCN>
CORPORATE DATA
INDEPENDENT AUDITORS
Arthur Andersen LLP
EXECUTIVE OFFICES
American Home Products Corporation
Five Giralda Farms
Madison, NJ 07940
(201) 660-5000
ANNUAL MEETING
The Annual Meeting of Shareholders will be held on April 28, 1997, in Mahwah,
New Jersey.
FORM 10-K
A copy of the Company's Form 10-K Annual Report to the Securities and Exchange
Commission may be obtained by any shareholder without charge upon request to:
American Home Products Corporation
Treasurer's Department
Five Giralda Farms
Madison, NJ 07940
(201) 660-6936
SHAREHOLDER ACCOUNT INFORMATION
ChaseMellon Shareholder Services, L.L.C. is the transfer agent, registrar,
dividend disbursing agent and dividend reinvestment agent for the Company.
Shareholders of record with questions about lost certificates, lost or missing
dividend checks, or notification of change of address should contact:
ChaseMellon Shareholder Services, L.L.C. Overpeck Center 85 Challenger Road
Ridgefield Park, NJ 07660 (800) 565-2067 For the hearing impaired: (800)
231-5469 (TDD)
MASTER INVESTMENT PLAN
The plan provides shareholders of record with the opportunity to automatically
reinvest dividends or to make cash purchases of additional shares of the
Company's common stock. Inquiries should be directed to ChaseMellon Shareholder
Services, L.L.C.
EQUAL EMPLOYMENT OPPORTUNITY
Our established affirmative action and equal employment programs demonstrate our
long-standing commitment to provide job and promotional opportunities for all
qualified persons regardless of age, color, national origin, physical or mental
disability, race, religion, sex, status as a Vietnam-era veteran or a special
disabled veteran, or any military uniformed services obligation.
POLICY ON HEALTH, SAFETY AND ENVIRONMENTAL PROTECTION
A copy of the Company's "Policy on Health, Safety and Environmental Protection"
may be obtained upon written request to:
American Home Products Corporation
Department of Environment and Safety
Five Giralda Farms
Madison, NJ 07940
AHP ON THE INTERNET
American Home Products' Internet address is:
[http://www.ahp.com].
Product designations appearing in differentiated type are trademarks.
Design: Context Inc., South Norwalk, CT
Text: Gabbe & Gabbe
Executive Photography: John Madere
Location Photography: Mark Tuschman and Ted Horowitz
Product Photography: Jim Barber
Printing: Avanti/Case-Hoyt
[LOGO]This report is printed on recycled paper.
44
<PG$PCN>
AMERICAN HOME PRODUCTS CORPORATION
Five Giralda Farms
Madison, New Jersey 07940
[GRAPHIC]
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
DECEMBER 31, 1996
State or Country
Name of Incorporation
Domestic
AH Investments Ltd. Delaware
A.H. Robins Company, Incorporated Delaware
AHP Subsidiary Holding Corporation Delaware
American Cyanamid Company Maine
Ayerst Laboratories Incorporated New York
Ayerst-Wyeth Pharmaceuticals Incorporated Delaware
Cyanamid Agricultural de Puerto Rico, Inc. New Jersey
Cyanamid International Corporation Limited Delaware
ESI Lederle Inc. Delaware
Genetics Institute, Inc. Delaware
Immunex Corporation Washington
Lederle Parenterals, Inc. New Jersey
Lederle Piperacillin, Inc. New Jersey
Quinton Instrument Company Washington
Route 24 Holdings, Inc. Delaware
Sherwood Medical Company Delaware
Wyeth Laboratories Inc. New York
Foreign
AHP Manufacturing B.V. Netherlands
American Home Products Holding (UK) plc Great Britain
Cyanamid Finance B.V. Netherlands
Cyanamid GmbH Germany
Cyanamid Iberica, S.A. Spain
State or Country
Name of Incorporation
Cyanamid Italia, S.p.A. Italy
Cyanamid (Japan), Ltd. Japan
Cyanamid of Great Britain Limited Great Britain
Cyanamid Quimica do Brasil Ltda. Brazil
Cyanamid Taiwan Corporation Taiwan
Dimminaco AGSA Ltd Switzerland
John Wyeth & Brother Limited Great Britain
Laboratorios Wyeth-Whitehall Ltda. Brazil
L.W. Investments Limited Bermuda
Nippon Sherwood Medical Industries Ltd. Japan
Wyeth (Japan) Corporation Japan
Wyeth Australia Pty. Limited Australia
Wyeth-Ayerst Canada Inc. Canada
Wyeth-Lederle France
Wyeth-Pharma G.m.b.H. Germany
Wyeth Philippines, Inc. Philippines
There have been omitted from the above list the names of subsidiaries which,
considered in the aggregate as a single subsidiary, would not constitute a
significant subsidiary.
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Form 10-K of our report dated January 28, 1997 included in
American Home Products Corporation's (the Company) Annual Report to Shareholders
for the year ended December 31, 1996. Furthermore, we consent to the
incorporation of our reports dated January 28, 1997 included in or made part of
this Form 10-K, into the Company's previously filed Registration Statements on
Form S-3 (File Nos. 33-45324 and 33-57339) and on Form S-8 (File Nos. 2-96127,
33-24068, 33-41434, 33-53733, 33-55449, 33-45970, 33-14458, 33-50149, 33-55456
and 333-15509).
ARTHUR ANDERSEN LLP
New York, N.Y.
March 27, 1997
<TABLE> <S> <C>
<ARTICLE> 5
EXHIBIT 27
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE AMERICAN HOME PRODUCTS CORPORATION
AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET AS OF
DECEMBER 31, 1996 AND CONSOLIDATED STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,322,297
<SECURITIES> 221,820
<RECEIVABLES> 2,745,835
<ALLOWANCES> 204,121
<INVENTORY> 2,389,369
<CURRENT-ASSETS> 7,470,419
<PP&E> 6,254,666
<DEPRECIATION> 2,217,933
<TOTAL-ASSETS> 20,785,343
<CURRENT-LIABILITIES> 4,337,635
<BONDS> 6,020,575
<COMMON> 213,328
0
79
<OTHER-SE> 6,748,685
<TOTAL-LIABILITY-AND-EQUITY> 20,785,343
<SALES> 14,088,326
<TOTAL-REVENUES> 14,088,326
<CGS> 4,449,783
<TOTAL-COSTS> 4,449,783
<OTHER-EXPENSES> 1,429,056
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 433,034
<INCOME-PRETAX> 2,755,460
<INCOME-TAX> 872,057
<INCOME-CONTINUING> 1,883,403
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,883,403
<EPS-PRIMARY> 2.91
<EPS-DILUTED> 2.91
</TABLE>
Exhibit No. 99
Exhibit 99 to the Annual Report on Form 10-K
for the Fiscal Year Ended December 31, 1996
Cautionary Statements Regarding "Safe Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995
The Company's Annual Report to Shareholders and its periodic reports filed
with the Securities and Exchange Commission, including its Annual Report on Form
10-K for the fiscal year ended December 31, 1996, are 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 agricultural
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 products.
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 any acquisitions or divestitures, restructuring and other unusual
items that could result from evolving business strategies, evaluation of
asset realization, and changing 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.
