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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1997 Commission File Number 1-1225
AMERICAN HOME PRODUCTS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-2526821
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Five Giralda Farms, Madison, N.J. 07940
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (973) 660-5000
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
The number of shares of Common Stock outstanding as of the close of
business on July 31, 1997:
Number of
Class Shares Outstanding
Common Stock, $0.33-1/3 par value 648,384,132
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<PAGE>
AMERICAN HOME PRODUCTS CORPORATION AND SUBSIDIARIES
INDEX
Page No.
Part I - Financial Information 2
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets -
June 30, 1997 and December 31, 1996 3
Consolidated Condensed Statements of Income -
Three Months Ended and Six Months Ended
June 30, 1997 and 1996 4
Consolidated Condensed Statements of Retained
Earnings and Additional Paid-in Capital -
Six Months Ended June 30, 1997 and 1996 5
Consolidated Condensed Statements of Cash Flows -
Six Months Ended June 30, 1997 and 1996 6
Notes to Consolidated Condensed Financial Statements 7-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-14
Part II - Other Information 15
Item 1. Legal Proceedings 15-16
Item 4. Submission of Matters to a Vote of
Security-Holders 16-17
Item 6. Exhibits and Reports on Form 8-K 17
Signature 18
Exhibit Index EX-1
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<PAGE>
Part I - Financial Information
AMERICAN HOME PRODUCTS CORPORATION AND SUBSIDIARIES
The consolidated condensed financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations; however, the Company believes that
the disclosures are adequate to make the information presented not
misleading. In the opinion of management, the financial statements include
all adjustments necessary to present fairly the financial position of the
Company as of June 30, 1997 and December 31, 1996, the results of its
operations for the three months and six months ended June 30, 1997 and 1996,
and its cash flows and the changes in retained earnings and additional paid-
in capital for the six months ended June 30, 1997 and 1996. It is suggested
that these financial statements and management's discussion and analysis of
financial condition and results of operations be read in conjunction with the
financial statements and the notes thereto included in the Company's 1996
Annual Report on Form 10-K and Quarterly Report on Form 10-Q for the quarter
ended March 31, 1997.
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<PAGE>
<TABLE>
AMERICAN HOME PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands Except Per Share Amounts)
<CAPTION>
June 30, December 31
1997 1996
<S> <C> <C>
ASSETS
Cash and cash equivalents ....................... $962,196 $1,322,297
Marketable securities ........................... 5,717 221,820
Accounts receivable less allowances ............. 3,206,622 2,541,714
Inventories:
Finished goods ............................. 1,129,198 1,121,055
Work in progress ........................... 691,054 567,240
Materials and supplies ..................... 674,685 701,074
2,494,937 2,389,369
Other current assets including deferred taxes ... 988,106 995,219
Total Current Assets ....................... 7,657,578 7,470,419
Property, plant and equipment ................... 6,545,396 6,254,666
Less accumulated depreciation .............. 2,390,254 2,217,933
4,155,142 4,036,733
Goodwill and other intangibles, net of
accumulated amortization ................... 8,662,756 8,517,610
Other assets including deferred taxes ........... 953,068 760,581
Total Assets ............................... $21,428,544 $20,785,343
LIABILITIES
Loans payable ................................... $67,173 $76,574
Trade accounts payable .......................... 949,942 940,076
Accrued expenses ................................ 3,076,910 2,810,223
Accrued federal and foreign taxes ............... 417,540 510,762
Total Current Liabilities .................. 4,511,565 4,337,635
Long-term debt .................................. 5,952,425 6,020,575
Other noncurrent liabilities .................... 2,352,371 2,486,375
Postretirement benefit obligation other than
pensions ................................... 810,819 782,342
Minority interests .............................. 218,730 196,324
STOCKHOLDERS' EQUITY
$2 convertible preferred stock, par value $2.50
per share .................................. 76 79
Common stock, par value $0.33-1/3 per share ..... 215,827 213,328
Additional paid-in capital ...................... 2,306,152 2,034,337
Retained earnings ............................... 5,254,373 4,756,270
Currency translation adjustments ................ (193,794) (41,922)
Total Stockholders' Equity ................. 7,582,634 6,962,092
Total Liabilities and Stockholders' Equity . $21,428,544 $20,785,343
The accompanying notes are an integral part of these balance sheets.
</TABLE>
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<PAGE>
<TABLE>
AMERICAN HOME PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In Thousands Except Per Share Amounts)
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net Sales.......................... $3,499,758 $3,489,821 $7,102,777 $7,136,635
Cost of goods sold ................ 1,059,002 1,162,632 2,090,940 2,368,586
Selling, general and administrative
expenses ........................ 1,321,293 1,317,942 2,666,552 2,647,189
Research and development expenses . 379,763 359,336 751,808 697,648
Interest expense, net ............. 104,462 118,108 201,509 236,681
Other income, net ................. (4,382) (21,791) (49,831) (47,992)
Income before federal and foreign
taxes ........................... 639,620 553,594 1,441,799 1,234,523
Provision for taxes ............... 180,528 162,317 406,030 353,883
Net Income......................... $459,092 $391,277 $1,035,769 $880,640
Net Income per Share of Common
Stock ........................... $0.71 $0.62 $1.61 $1.39
Dividends per share of common
stock ............................ $0.41 $0.385 $0.82 $0.77
Average number of common shares
outstanding during the period used
in the computation of net income
per share ........................ 645,758 633,937 644,042 632,155
The accompanying notes are an integral part of these statements.
</TABLE>
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<PAGE>
<TABLE>
AMERICAN HOME PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF RETAINED EARNINGS
AND ADDITIONAL PAID-IN CAPITAL
(In Thousands)
<CAPTION>
Six Months Ended June 30,
1997 1996
<S> <C> <C>
RETAINED EARNINGS
Balance, beginning of period .......... $4,756,270 $3,875,224
Add: Net income ...................... 1,035,769 880,640
5,792,039 4,755,864
Less: Cash dividends declared ......... 528,898 486,214
Cost of treasury stock acquired
(less amounts charged to capital)
and other items ................. 8,768 11,840
537,666 498,054
Balance, end of period ................ $5,254,373 $4,257,810
ADDITIONAL PAID-IN CAPITAL
Balance, beginning of period .......... $2,034,337 $1,515,154
Add: Excess over par value of common
stock issued .................... 272,497 266,839
Less: Cost of treasury stock acquired
(less amounts charged to retained
earnings) ....................... 682 881
Balance, end of period ................ $2,306,152 $1,781,112
The accompanying notes are an integral part of these statements.
</TABLE>
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<PAGE>
<TABLE>
AMERICAN HOME PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
<CAPTION>
Six Months Ended June 30,
1997 1996
<S> <C> <C>
Operating Activities
Net income ................................. $1,035,769 $880,640
Adjustments to reconcile net income to net
cash provided from operating activities:
Gains on sales of businesses and other
assets ............................... (100,940) (47,506)
Depreciation and amortization............ 381,531 336,403
Deferred income taxes ................... (245,931) (26,525)
Changes in working capital, net ......... (613,050) (298,764)
Other, net .............................. (72,685) 98,230
Net cash provided from operating activities. 384,694 942,478
Investing Activities
Purchases of property, plant and equipment . (343,314) (368,765)
Purchases of businesses, net of cash
acquired ................................. (479,694) -
Proceeds from sales of businesses and other
assets .................................. 221,962 192,469
Proceeds from sales of/(purchases of)
marketable securities, net ............... 216,295 (16,084)
Net cash used for investing activities ..... (384,751) (192,380)
Financing Activities
Net repayments of debt ..................... (77,582) (454,800)
Dividends paid ............................. (528,898) (486,214)
Purchases of treasury stock ................ (7,060) (8,460)
Exercise of stock options................... 259,615 259,461
Net cash used for financing activities...... (353,925) (690,013)
Effects of exchange rates on cash balances . (6,119) (3,988)
Increase/(decrease) in cash and cash
equivalents .............................. (360,101) 56,097
Cash and cash equivalents, beginning of
period ................................... 1,322,297 1,802,397
Cash and cash equivalents, end of period ... $962,196 $1,858,494
The accompanying notes are an integral part of these statements.
Supplemental Information
Interest payments $222,524 $298,145
Income tax and related interest payments,
net of refunds 720,623 122,875
</TABLE>
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<PAGE>
AMERICAN HOME PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 1. Contingencies
The Company is involved in various legal proceedings, including
product liability and environmental matters of a nature considered
normal to its business. It is the Company's policy to accrue for
amounts related to these legal matters if it is probable that a
liability has been incurred and an amount is reasonably estimable.
In the opinion of the Company, although the outcome of any legal
proceedings cannot be predicted with certainty, the ultimate
liability of the Company in connection with these proceedings will
not have a material adverse effect on the Company's financial
position but could be material to the results of operations in any
one accounting period.
Note 2. Derivatives and Other Financial Instruments
Cash and cash equivalents 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.
Long-term debt is stated at face value which approximates fair value.
The Company enters into interest rate swap and foreign currency
agreements to manage specifically identifiable risks. The
unleveraged interest rate swap agreements convert a portion of the
commercial paper from a floating rate obligation to a fixed rate
obligation. The short-term (approximately 30 days) foreign exchange
forward contracts are part of the Company's management of foreign
currency exposures. The Company does not speculate on interest or
foreign currency exchange rates.
Interest rate swap agreements are accounted for under the accrual
method. Amounts to be paid to the counter-parties of the agreements
are accrued during the period to which the payments relate and are
reflected in interest expense. The related amounts payable to the
counter-parties are included in accrued expenses. The fair value of
the swap agreements is not recognized in the consolidated condensed
financial statements since the agreements are accounted for as hedges.
If the swap agreements are terminated prior to maturity, any gains or
losses resulting from the termination are deferred and amortized as an
adjustment to interest expense over the remaining life of the
terminated swaps.
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<PAGE>
AMERICAN HOME PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Foreign currency agreements are accounted for under the fair value
method. The fair value of the foreign currency agreements is carried
on the balance sheet with changes in fair value recognized in the
results of operations offsetting any gains and losses recognized on
the underlying hedged transactions.
Note 3. Earnings per Share
In February 1997, Statement of Financial Accounting Standards
("SFAS") No. 128 - "Earnings per Share" was issued and is effective
for interim and annual reporting periods ending after December 15,
1997. SFAS No. 128 will require the presentation of Basic Earnings
per Share and Diluted Earnings per Share in the Company's Consolidated
Statements of Income. Net Income per Share of Common Stock presented
in these financial statements is equivalent to Basic Earnings per
Share. Pro forma Diluted Earnings per Share for the three months
ended June 30, 1997 and 1996 were $0.70 and $0.61. Pro forma Diluted
Earnings per Share for the six months ended June 30, 1997 and 1996
were $1.58 and $1.37.
Note 4. Other Recently Issued Accounting Standards
In June 1997, SFAS No. 130 - "Reporting Comprehensive Income" and SFAS
No. 131 - "Disclosures about Segments of an Enterprise and Related
Information" were issued and are effective for periods beginning after
December 15, 1997. SFAS No. 130 establishes standards for reporting
comprehensive income and its components. SFAS No. 131 establishes
standards for reporting financial and descriptive information
regarding an enterprise's operating segments. These standards
increase disclosure only and will have no impact on the Company's
financial position or results of operations.
Note 5. Solvay S.A. Animal Health Acquisition
On February 28, 1997, the Company completed the acquisition of the
worldwide animal health business of Solvay S.A. for approximately $460
million. The acquisition was financed partially through the issuance
of commercial paper and was accounted for under the purchase method of
accounting. The purchase price exceeded the net assets acquired by
approximately $310 million which is being amortized over periods of 20
to 40 years.
-8-
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Six Months Ended June 30, 1997
Results of Operations
Management's discussion and analysis of results of operations for the 1997
second quarter and first half has been presented on an as-reported basis except
for sales variation explanations which are presented on an as-reported and pro
forma basis. The pro forma sales results reflect businesses acquired and
divested in 1997 and 1996 assuming the transactions occurred as of January 1,
1996. This activity includes the acquisition of the worldwide animal health
business of Solvay S.A. in 1997 and the divestitures of the American Home Foods
business and the Symbiosis surgical products business in 1996.
On an as-reported basis, worldwide net sales for the 1997 second quarter and
first half were comparable to prior year levels. On a pro forma basis,
worldwide net sales increased 5% for both the 1997 second quarter and first
half. The pro forma results reflect higher sales of pharmaceutical and
agricultural products.
The following tables set forth worldwide net sales results by major product
category and industry segment together with the percentage changes in "As-
Reported" and "Pro Forma" worldwide net sales from comparable periods in the
prior year:
<TABLE>
<S>
Three Months As-Reported Pro Forma
($ in Millions) Ended June 30, % Increase % Increase
Net Sales to Customers 1997 1996 (Decrease) (Decrease)
Health Care Products:
<C> <C> <C> <C>
Pharmaceuticals $1,934.4 $1,716.8 13% 9%
Consumer Health Care 445.8 456.2 (2)% (2)%
Medical Devices 327.2 327.7 - -
Total Health Care Products 2,707.4 2,500.7 8% 6%
Agricultural Products 792.4 767.1 3% 3%
Food Products - 222.0 (100)% -
Consolidated Net Sales $3,499.8 $3,489.8 - 5%
</TABLE>
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<PAGE>
<TABLE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Six Months Ended June 30, 1997
<CAPTION>
Six Months As-Reported Pro Forma
($ in Millions) Ended June 30, % Increase % Increase
Net Sales to Customers 1997 1996 (Decrease) (Decrease)
<S> <C> <C> <C> <C>
Health Care Products:
Pharmaceuticals $4,032.9 $3,678.9 10% 8%
Consumer Health Care 941.3 931.6 1% 1%
Medical Devices 650.5 673.8 (3)% (2)%
Total Health Care Products 5,624.7 5,284.3 6% 5%
Agricultural Products 1,478.1 1,403.0 5% 5%
Food Products - 449.3 (100)% -
Consolidated Net Sales $7,102.8 $7,136.6 - 5%
</TABLE>
The following sales variation explanations are presented on an as-reported and
pro forma basis:
On an as-reported basis, worldwide pharmaceutical sales increased 13% for
the 1997 second quarter and 10% for the first half. On a pro forma basis,
after adjusting for the acquisition of the worldwide animal health business
of Solvay S.A. in February 1997, worldwide pharmaceutical sales increased
9% for the 1997 second quarter and 8% for the first half due primarily to
higher sales of PREMARIN products, EFFEXOR, CORDARONE and ZOTON offset, in
part, by lower sales of other pharmaceutical products. Worldwide
pharmaceutical results for the 1997 second quarter also reflect higher
sales of oral contraceptives while results for the first half reflect
higher sales of REDUX (introduced in the 1996 second quarter) and LODINE.
On an as-reported basis, U.S. pharmaceutical sales increased 19% for the
1997 second quarter and 16% for the first half. On a pro forma basis, U.S.
pharmaceutical sales increased 17% for the 1997 second quarter and 15% for
the first half. The increase in pro forma U.S. pharmaceutical sales for
the 1997 second quarter consisted of unit volume growth of 12% and price
increases of 5%. The increase in pro forma U.S. pharmaceutical sales for
the 1997 first half consisted of unit volume growth of 12% and price
increases of 3%. On an as-reported basis, international pharmaceutical
sales increased 6% for the 1997 second quarter and 3% for the first half.
On a pro forma basis, international pharmaceutical sales for the 1997
second quarter and first half were comparable to prior year levels. Pro
forma international pharmaceutical sales for the 1997 second quarter
consisted of unit volume growth of 4% and price increases of 1% which were
offset by unfavorable foreign exchange of 5%. Pro forma international
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<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Six Months Ended June 30, 1997
pharmaceutical sales for the 1997 first half consisted of unit volume
growth of 3% and price increases of 1% which were offset by unfavorable
foreign exchange of 4%.
On an as-reported and pro forma basis, worldwide consumer health care
sales decreased 2% for the 1997 second quarter and increased 1% for the
first half. Worldwide consumer health care results for the 1997 second
quarter and first half reflect the disposal of several non-core products
in late 1996 and early 1997 which was offset, in part, by higher sales of
ADVIL. Worldwide consumer health care results for the 1997 second quarter
also reflect lower sales of AXID AR (due to the 1996 second quarter
product launch) while results for the first half reflect higher sales of
CENTRUM offset, in part, by lower sales of ORUDIS KT. On an as-reported
and pro forma basis, U.S. consumer health care sales decreased 7% for the
1997 second quarter and 2% for the first half. The decrease in U.S.
consumer health care sales for the 1997 second quarter consisted of unit
volume declines of 8% offset by price increases of 1%. The decrease in
U.S. consumer health care sales for the 1997 first half consisted of unit
volume declines of 4% offset by price increases of 2%. On an as-reported
and pro forma basis, international consumer health care sales increased 6%
for the 1997 second quarter and 8% for the first half. The increase in
international consumer health care sales for the 1997 second quarter
consisted of unit volume growth of 5% and price increases of 4% which were
offset by unfavorable foreign exchange of 3%. The increase in
international consumer health care sales for the 1997 first half consisted
of unit volume growth of 8% and price increases of 2% which were offset by
unfavorable foreign exchange of 2%.
On an as-reported and pro forma basis, worldwide medical devices sales for
the 1997 second quarter were comparable to prior year levels. On an as-
reported basis, worldwide medical devices sales decreased 3% for the 1997
first half. On a pro forma basis, after adjusting for the divestiture of
the Symbiosis surgical products business in March 1996, worldwide medical
devices sales decreased 2% for the 1997 first half. Worldwide medical
devices results for both periods reflect lower sales of wound closure
products offset, in part, by higher sales of needles and syringes.
Worldwide medical devices sales for the 1997 second quarter consisted of
unit volume growth of 5% which was offset by price decreases of 2% and
unfavorable foreign exchange of 3%. The decrease in pro forma worldwide
medical devices sales for the 1997 first half consisted of unit volume
growth of 1% which was offset by price decreases of 1% and unfavorable
foreign exchange of 2%.
On an as-reported and pro forma basis, worldwide agricultural products
sales increased 3% for the 1997 second quarter and 5% for the first half
due to higher sales of herbicides resulting primarily from increased
soybean acreage and new product launches offset, in part, by lower sales
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<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Six Months Ended June 30, 1997
of insecticides and fungicides due primarily to poor weather conditions in
several major European markets during the current growing season. On an
as-reported and pro forma basis, U.S. agricultural products sales
increased 3% for the 1997 second quarter and 5% for the first half. The
increase in U.S. agricultural products sales for the 1997 second quarter
consisted of unit volume growth of 1% and price increases of 2%. The
increase in U.S. agricultural products sales for the 1997 first half
consisted of unit volume growth of 3% and price increases of 2%. Due to
the seasonality of the U.S. agricultural products business, which is
concentrated primarily in the first six months of the year, U.S.
agricultural products sales and results of operations for the 1997 second
quarter and first half are not indicative of the results to be expected in
subsequent fiscal quarters or for the full year. On an as-reported and pro
forma basis, international agricultural products sales increased 4% for the
1997 second quarter and 6% for the first half. The increase in
international agricultural products sales for the 1997 second quarter
consisted of unit volume growth of 6% and price increases of 3% which were
offset by unfavorable foreign exchange of 5%. The increase in international
agricultural products sales for the 1997 first half consisted of unit
volume growth of 8% and price increases of 3% which were offset by
unfavorable foreign exchange of 5%.
Cost of goods sold, as a percentage of net sales, decreased to 30.3% for the
1997 second quarter versus 33.3% for the 1996 second quarter, and decreased to
29.4% for the 1997 first half versus 33.2% for the 1996 first half due
primarily to favorable pharmaceutical and agricultural products sales mix,
an overall product mix improvement as higher sales of pharmaceuticals and
agricultural products replaced the loss of lower margin food products sales,
and to a lesser extent, cost savings.
Selling, general and administrative expenses, as a percentage of net sales,
were 37.8% for both the 1997 and 1996 second quarters, and increased to 37.5%
for the 1997 first half versus 37.1% for the 1996 first half. Higher marketing
and selling costs related to pharmaceutical and agricultural product
introductions were offset by the elimination of marketing and selling costs
associated with the foods business.
Research and development expenses increased 6% for the 1997 second quarter and
8% for the first half due primarily to higher pharmaceutical research and
development expenditures and operating costs related to recent pharmaceutical
research and development facility expansions.
Interest expense, net decreased in the 1997 second quarter and first half due
primarily to the reduction in long-term debt during 1996. Average long-term
debt outstanding during the 1997 and 1996 second quarter was $6,024.3 million
and $7,553.0 million, respectively. Average long-term debt outstanding during
the 1997 and 1996 first half was $5,986.5 million and $7,581.4 million,
respectively.
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<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Six Months Ended June 30, 1997
Other income, net for the 1997 second quarter and first half included the
settlement of the lawsuit brought by Johnson & Johnson and its wholly-owned
subsidiary, Ortho Pharmaceutical Corporation. See "Legal Proceedings" under
Part II - Other Information. This settlement was offset by a previously
established reserve for this litigation and a gain on the sale of the
Company's investment in the common stock of certain publicly traded insurance
companies.
Income before taxes, net income and net income per share increased 16%, 17%
and 15%, respectively, in the 1997 second quarter compared to the 1996 second
quarter and increased 17%, 18% and 16%, respectively, in the 1997 first half
compared to the 1996 first half due primarily to favorable pharmaceutical and
agricultural products sales mix, higher sales of pharmaceutical and
agricultural products, cost savings and lower interest expense offset, in part,
by the divestiture of the foods business and higher research and development
expenses.
The following table sets forth income before taxes by industry segment:
<TABLE>
Three Months Six Months
($ in Millions) Ended June 30, Ended June 30,
Income before Taxes 1997 1996 1997 1996
<S> <C> <C> <C> <C>
Health Care Products $510.3 $476.3 $1,280.8 $1,137.6
Agricultural Products 259.8 216.6 431.2 363.4
Corporate (130.5) (176.4) (270.2) (326.6)
Food Products - 37.1 - 60.1
Consolidated Income before
Taxes $639.6 $553.6 $1,441.8 $1,234.5
</TABLE>
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 and, on May 5, 1997, the U.S. Food and Drug
Administration (FDA) announced that it will not approve synthetic generic
conjugated estrogens products at this time because these products have not
been shown to contain the same active ingredient as PREMARIN. The FDA further
stated that, until the full composition of PREMARIN is determined, a synthetic
generic version cannot be approved, although a generic product derived from the
same natural source could be approved earlier under certain circumstances.
Although the Company believes that, as a result of this announcement, PREMARIN
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<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Six Months Ended June 30, 1997
is not likely to face generic competition in the near term, it cannot predict
the timing or outcome of continued efforts to obtain approval for a generic
conjugated estrogens product.
Liquidity, Financial Condition and Capital Resources
Cash and cash equivalents decreased $360.1 million in the 1997 first half to
$962.2 million. Proceeds from sales of marketable securities and other assets
of $438.3 million, cash flows from operating activities of $384.7 million and
proceeds from the exercise of stock options of $259.6 million were used
principally for dividend payments of $528.9 million, the purchase of the
worldwide animal health business of Solvay S.A. for $460.0 million, capital
expenditures of $343.3 million and long-term debt reduction of $77.6 million.
Cash flows from operating activities for the 1997 first half were impacted by
payments of $381.8 million related to certain previously accrued long-term tax
liabilities which were required to be paid in connection with the filing of a
tax claim. Due to the seasonality of the U.S. agricultural products business,
a significant portion of the annual U.S. agricultural products sales are
recorded in the first six months of the year; however, a significant amount of
the related accounts receivable are not collected until the third quarter. As
a result, cash flows from operating activities for the 1997 first half are not
indicative of the results to be expected in subsequent fiscal quarters or for
the full year.
Capital expenditures included the expansion of the Company's research and
development facilities and continued strategic investments in manufacturing
and distribution facilities worldwide.
Cautionary Statements for Forward Looking Information
Management's discussion and analysis set forth above contains certain forward
looking statements, including statements regarding the Company's financial
position, results of operations and potential competition. These forward
looking statements are based on current expectations. Certain factors 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 1996 Annual Report on Form 10-K which exhibit is hereby
incorporated by reference.
-14-
<PAGE>
Part II - Other Information
Item 1. Legal Proceedings
The Company and its subsidiaries are parties to numerous lawsuits
and claims arising out of the conduct of its business, the most
significant of which are described in the Company's Annual Report on
Form 10-K for the year ended December 31, 1996 and Quarterly Report
on Form 10-Q for the quarter ended March 31, 1997.
On June 16, 1997, the parties settled the action brought against the
Company by Johnson & Johnson ("J&J") and its wholly-owned
subsidiary, Ortho Pharmaceutical Corporation ("Ortho"), which had
been seeking in excess of $300 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 in 1991-1992 until it was
overturned on appeal. In the underlying action in the district
court, the Company's patent was found to be valid but not infringed
by J&J and Ortho. Under the settlement, the Company paid $100 million
to the plaintiffs.
On July 7, 1997, the plaintiffs were awarded $44 million in
compensatory damages and $1 million in punitive damages in an action
which was commenced in the U.S. District Court for the District of
Colorado in August 1993 (University of Colorado et al. v. American
Cyanamid). The plaintiffs had accused American Cyanamid of
misappropriating the invention of, and patenting as its own, the
formula for the current MATERNA Multi-Vitamins. The complaint also
contained allegations of conversion, fraud, misappropriation, wrongful
naming of inventor and copyright and patent infringement. The patent
whose ownership and inventorship is in dispute was granted to
American Cyanamid in 1984. The Court had previously granted
American Cyanamid's summary judgment motions dismissing all counts
for relief except for unjust enrichment and fraud, which were the
issues tried before the court in a three-week bench trial in May
1996. Although plaintiffs had earlier been granted summary judgment
on their copyright infringement claim, the court had declined to
award plaintiffs damages on that claim. Plaintiffs have filed
motions seeking to increase the damages to approximately $111 million
allegedly representing American Cyanamid's gross profit for 1982-1995
from the sale of the reformulated MATERNA product and to recover
approximately $800,000 of attorneys' fees. The Company intends
vigorously to contest these motions and to pursue the appeal of the
district court decision to the U.S. Court of Appeals for the Federal
Circuit.
In the brand name prescription drug antitrust litigation, a purported
class action by certain retailers was filed on March 14, 1997 in
Mississippi state court (Montgomery Drug Co. v. The Upjohn Co., et
al.) and a purported class action on behalf of indirect purchasers
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<PAGE>
was filed on June 27, 1997 in state court in North Carolina (Long v.
Abbott Laboratories, et al.). The allegations raised and relief
sought in these cases is similar to those in the related cases pending
in other state courts.
A purported class action complaint was filed on June 25, 1997 in
federal district court in Mobile, Alabama, alleging that American
Cyanamid violated section 1 of the Sherman Act through a promotional
program for crop protection chemicals. The complaint seeks treble
damages, attorneys' fees and other relief (Lowell v. American
Cyanamid).
The Company has completed the settlement of the U.S. Environmental
Protection Agency civil administrative action for alleged violation
by American Cyanamid of a provision of the Emergency Planning &
Community Right-to-Know Act of 1986 in Pearl River, New York. Under
the settlement, the Company paid a civil penalty of $129,000 and
donated certain emergency response equipment to the local county.
In the opinion of the Company, although the outcome of any legal
proceedings cannot be predicted with certainty, the ultimate
liability of the Company in connection with these proceedings will
not have a material adverse effect on the Company's financial
position but could be material to the results of operations in any
one accounting period.
Item 4. Submission of Matters to a Vote of Security-Holders
(a) The matters described under item 4(c) below were submitted to a
vote of security-holders, through the solicitation of proxies
pursuant to Section 14 under the Securities Exchange Act of
1934, as amended, at the Annual Meeting of Stockholders held on
April 28, 1997 (the "Annual Meeting").
(b) Not applicable.
(c) The following describes the matters voted upon at the Annual
Meeting and sets forth the number of votes cast for, against or
withheld and the number of abstentions as to each such matter
(except as provided below, there were no broker non-votes):
(i) Election of directors:
Nominee For Withheld
Clifford L. Alexander, Jr. 543,652,385 6,331,740
Frank A. Bennack, Jr. 547,736,964 2,247,161
Robert G. Blount 547,194,391 2,789,734
Robin Chandler Duke 546,706,099 3,278,026
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<PAGE>
John D. Feerick 547,556,443 2,427,682
Fred Hassan* 547,175,991 2,808,134
John P. Mascotte 547,698,759 2,285,366
Mary Lake Polan, M.D., Ph.D. 543,764,195 6,219,930
Ivan G. Seidenberg 546,819,308 3,164,817
John R. Stafford 547,122,493 2,861,632
John R. Torell III 547,757,750 2,226,375
William Wrigley 547,742,566 2,241,559
*Effective May 8, 1997, Fred Hassan resigned as Executive
Vice President and Director of the Company.
(ii) Ratification of the appointment of Arthur Andersen LLP
as principal independent public accountants for 1997:
For Against Abstain
547,583,649 758,242 1,642,234
(iii) Approval of the proposed amendment to the Management
Incentive Plan:
For Against Abstain
531,697,858 12,330,115 5,952,264
There were 3,888 broker non-votes with reference to this item.
(d) Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
(11) Computation of Earnings Per Share.
(27) Financial Data Schedule.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the
quarter covered by this report.
-17-
<PAGE>
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN HOME PRODUCTS CORPORATION
(Registrant)
By /s/ Paul J. Jones
Paul J. Jones
Vice President and Comptroller
(Duly Authorized Signatory
and Chief Accounting Officer)
Date: August 13, 1997
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<PAGE>
Exhibit Index
Exhibit No. Description
(11) Computation of Earnings Per Share.
(27) Financial Data Schedule.
EX-1
<PAGE>
EXHIBIT 11
<TABLE>
AMERICAN HOME PRODUCTS CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(In Thousands Except Per Share Amounts)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1997
<S> <C> <C>
1. Net Income ............................................. $459,092 $1,035,769
2. Reported earnings per share:
a. Average number of common shares outstanding
during the period ................................ 645,758 644,042
b. Reported earnings per share (1/2a) ............... $0.71 $1.61
3. Primary earnings per share:
a. Average number of common shares outstanding
during the period ................................ 645,758 644,042
b. Common shares deemed outstanding from the assumed
exercise of stock options reduced by the number
of common shares purchased with the proceeds
(determined using the average market price
during the period)................................ 13,006 12,212
c. Deferred contingent common stock awards .......... 494 494
d. Shares for primary earnings per share calculation
(3a+3b+3c) ....................................... 659,258 656,748
e. Primary earnings per share (1/3d) ................ $0.70 $1.58
4. Fully diluted earnings per share:
a. Average number of common shares outstanding
during the period ................................ 645,758 644,042
b. Common shares deemed outstanding from the assumed
exercise of stock options reduced by the number
of common shares purchased with the proceeds
(determined using the higher of the average
market price during the period or the market
price at the end of the period)................... 14,973 14,973
c. Deferred contingent common stock awards .......... 494 494
d. Shares for fully diluted earnings per share
calculation (4a+4b+4c)............................ 661,225 659,509
e. Fully diluted earnings per share (1/4d) .......... $0.69 $1.57
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
EXHIBIT 27
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE AMERICAN
HOME PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET AS OF
JUNE 30, 1997 AND CONSOLIDATED CONDENSED
STATEMENT OF INCOME FOR THE SIX MONTHS
ENDED JUNE 30, 1997, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 962,196
<SECURITIES> 5,717
<RECEIVABLES> 3,206,622
<ALLOWANCES> 0
<INVENTORY> 2,494,937
<CURRENT-ASSETS> 7,657,578
<PP&E> 6,545,396
<DEPRECIATION> 2,390,254
<TOTAL-ASSETS> 21,428,544
<CURRENT-LIABILITIES> 4,511,565
<BONDS> 5,952,425
<COMMON> 215,827
0
76
<OTHER-SE> 7,366,731
<TOTAL-LIABILITY-AND-EQUITY> 21,428,544
<SALES> 7,102,777
<TOTAL-REVENUES> 7,102,777
<CGS> 2,090,940
<TOTAL-COSTS> 2,090,940
<OTHER-EXPENSES> 751,808
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 201,509
<INCOME-PRETAX> 1,441,799
<INCOME-TAX> 406,030
<INCOME-CONTINUING> 1,035,769
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,035,769
<EPS-PRIMARY> 1.58
<EPS-DILUTED> 1.57
</TABLE>
