UNITED STATES
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, 1998 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 (973) 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
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. [ X ]
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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 15, 1999 $87,622,827,443
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 15, 1999
Common Stock, $0.33 - 1/3 par value 1,311,379,350
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) 1998 Annual Report to Shareholders - In Parts I, II and IV
(2) Proxy Statement filed March 18, 1999 - In Part III
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PART I
ITEM 1. BUSINESS
General
American Home Products Corporation (the "Company" or "AHPC"), a
Delaware corporation organized in 1926, is currently engaged in the
discovery, development, manufacture, distribution and sale of a
diversified line of products in three primary businesses:
Pharmaceuticals, Consumer Health Care and Agricultural Products.
Pharmaceuticals include branded and generic ethical pharmaceuticals,
biologicals, nutritionals, and animal biologicals and pharmaceuticals.
Principal products include women's health care products, cardiovascular
products, neuroscience therapies, anti-inflammatory and gastroenterology
drugs, anti-infectives, vaccines, biopharmaceuticals, oncology therapies
and infant nutritionals. Principal animal health products include
vaccines, pharmaceuticals, endectocides and growth implants. Consumer
Health Care products include analgesics, cough/cold/allergy remedies,
nutritional supplements including vitamins, minerals and herbal
products, and hemorrhoidal, antacid and asthma relief items sold
over-the-counter. Agricultural Products include crop protection and pest
control products such as herbicides, insecticides, fungicides and plant
growth regulators.
In July 1998, the Company purchased the vitamin and nutritional
supplement products business of Solgar Vitamin and Herb Company
Inc. and its related affiliates ("Solgar") for approximately $425
million in cash.
In February 1998, the Company sold the Sherwood-Davis & Geck medical
devices business for approximately $1.770 billion. This transaction
completed the Company's exit from the medical devices business.
In December 1997, the Company sold the stock of Storz Instrument
Company and affiliated companies, a global manufacturer and
marketer of ophthalmic products, and certain related assets for
approximately $380 million.
In February 1997, the Company purchased the worldwide animal
health business of Solvay S.A. for approximately $460 million.
In December 1996, the Company purchased the remaining equity
interest in the biopharmaceutical company, Genetics Institute, Inc.
("G.I."), that it did not already own for approximately $1.279 billion.
In November 1996, the Company sold a majority interest in the American
Home Foods business for approximately $1.209 billion. The Company
initially retained a 20% equity interest in International Home Foods,
the successor to American Home Foods. During 1998 and 1997, the Company
sold its remaining equity interest in International Home Foods.
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In late 1994, the Company purchased 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 Solgar, Solvay S.A., and
G.I. acquisitions, the Sherwood-Davis & Geck, Storz and American Home
Foods dispositions, 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 1998 Annual Report to Shareholders and is
incorporated herein by reference.
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 majority-owned subsidiaries.
Operating Segments
Financial information, by operating segment, for the three years ended
December 31, 1998 is set forth in Note 11 of the Notes to Consolidated
Financial Statements in the Company's 1998 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 has four reportable segments as outlined
below. The product designations appearing in differentiated type herein
are trademarks.
PHARMACEUTICALS SEGMENT -
The Pharmaceuticals segment manufactures, distributes, and sells branded
and generic ethical pharmaceuticals, biologicals, nutritionals, and
animal biologicals and pharmaceuticals. These products are promoted and
sold worldwide primarily to wholesalers, pharmacies, hospitals,
physicians, retailers, veterinarians and other human and animal health
care institutions. 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
products including PREMARIN, PREMPRO, PREMPHASE, LO/OVRAL (marketed as
MIN-OVRAL internationally), NORDETTE and TRIPHASIL (marketed as
TRINORDIOL internationally); infant nutritionals including S26 and 2ND
AGE PROMIL (international markets only); cardiovascular products
including CORDARONE and ZIAC; neuroscience therapies including ATIVAN,
EFFEXOR and EFFEXOR XR; anti-inflammatory and gastroenterology drugs
including LODINE and ZOTON (international markets only); anti-infectives
including MINOCIN and ZOSYN (marketed as TAZOCIN internationally);
vaccines; biopharmaceuticals including BENEFIX Coagulation Factor IX
(Recombinant) and recombinant Factor VIII; and oncology therapies.
Principal animal health product categories include vaccines,
pharmaceuticals (including anthelmintics), endectocides including
CYDECTIN, and growth implants. The Company manufactures these products
in the United States and Puerto Rico and in 21 foreign countries.
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Sales of women's health care products in the aggregate, and the
PREMARIN family of products individually, accounted for more than 10% of
consolidated net sales in 1998. Sales of women's health care products in
the aggregate accounted for more than 10% of consolidated net sales in
1997 and 1996. Operating income before taxes from women's health care
products in the aggregate, and the PREMARIN family of products
individually, accounted for more than 10% of consolidated operating
income before taxes in 1998, 1997 and 1996. Except for the products
noted above, no other single pharmaceutical product or category of
products accounted for more than 10% of consolidated net sales or
operating income before taxes in 1998, 1997 or 1996.
CONSUMER HEALTH CARE SEGMENT -
The Consumer Health Care segment manufactures, distributes and sells
over-the-counter products. Principle over-the-counter health care
product categories and their respective products are: analgesics
including ADVIL; cough/cold/allergy remedies including ROBITUSSIN and
DIMETAPP; nutritional supplements including CENTRUM and CENTRUM SILVER
vitamins, CENTRUM herbals and SOLGAR vitamins and herbal products; and
hemorrhoidal, antacid and asthma relief items. These products are
generally sold to wholesalers and retailers, and are primarily promoted
to consumers worldwide through advertising. These products are
manufactured in the United States and Puerto Rico and in 16 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 1998, 1997 or 1996.
AGRICULTURAL PRODUCTS SEGMENT -
The Agricultural Products segment manufactures, distributes
and sells crop protection and pest control products. Principal
agricultural product categories and their respective products
are: herbicides including PURSUIT (marketed as PIVOT
internationally), PROWL (marketed as STOMP internationally) and
RAPTOR; insecticides including COUNTER; fungicides and plant
growth regulators 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 accounted for
more than 10% of consolidated net sales or operating income before
taxes in 1998, 1997 or 1996.
CORPORATE AND ALL OTHER SEGMENT -
Corporate is responsible for the treasury, tax, legal and compliance
operations of the Company's businesses and incurs and maintains
certain assets, liabilities, expenses, gains and losses related to
the overall management of the Company which are not allocated to the
other reportable segments. These items include interest expense,
net, gains on the sales of businesses, investments and other Corporate
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assets, certain litigation provisions and other miscellaneous
items. All Other consists of certain divested businesses. Prior to
December 31, 1998, the Company operated in the medical devices and food
products businesses. The medical devices business, which the Company
exited completely in February 1998, manufactured, distributed and sold
medical devices products, which included needles and syringes, tubes,
catheters, wound closure products, ophthalmic surgical equipment,
enteral feeding systems, microsurgical equipment and other hospital
products. The food products business, which was sold in November 1996,
manufactured, distributed and sold food products, which included
prepared pastas and other entrees, regional specialty foods, condiments,
snack products, spreadable fruit products and other food products.
No single medical device or food product or category of products
accounted for more than 10% of consolidated net sales or operating
income before taxes in 1998, 1997 or 1996.
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
future results of operations. However, finished dosage forms of ENBREL
are produced by one third-party manufacturer.
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, many of the Company's major
products are not protected by patents. LODINE XL, a product extension of
LODINE, will have patent protection until at least 2007. ZIAC, a
combination beta blocker and diuretic, will have patent protection until
at least 2000. SYNVISC, a visco supplementation for treatment of
osteoarthritis of the knee, will have patent protection until at least
2010. The anti-infective ZOSYN will have patent protection until at
least 2007. The anti-depressant EFFEXOR will have patent protection
until at least 2007. SUPRAX, a third-generation cephalosporin
antibiotic, remains under patent protection until at least 2002.
PREMPRO, a combination estrogen and progestin product, will have patent
protection until at least 2015. Concentrated recombinant human
antihemophilic factor (Factor VIII), a product that helps regulate
activation of the body's coagulation pathway, will have patent
protection until 2014. CYDECTIN, a moxidectin product to control
parasites in animals, will have patent protection until at least 2011.
Sales in the consumer health care business 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.
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In the agricultural products business, the imidazolinone herbicide
products SCEPTER and PURSUIT will have patent protection until at
least 2006 and RAPTOR will have patent protection until at least
2011. ACROBAT, a fungicide, will have patent protection until at least
2016.
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 cough/cold products and, as a
result, second quarter results for consumer health care products tend
to be lower than results in other quarters.
Competition
PHARMACEUTICALS -
The Company operates in the highly competitive pharmaceutical
industry which includes the ethical pharmaceutical and animal health
businesses. Within these businesses, the Company has many major
multinational competitors and numerous smaller domestic and foreign
competitors. Based on net sales, the Company believes it ranks within
the top 10 major competitors within the ethical pharmaceutical industry
and ranks within the top five major competitors within the animal health
industry.
The Company's competitive position 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 actions affecting pricing and
generic substitutes. The growth of managed care organizations, such as
health maintenance organizations 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, one of the Company's conjugated estrogens products
manufactured from pregnant mare's urine, which has not had patent
protection for many years, is the leader in its category and contributes
significantly to sales and results of operations. PREMARIN's principal
uses are to manage the symptoms of menopause and osteoporosis, a
condition involving a loss of bone mass in postmenopausal women.
Estrogen-containing products manufactured by other companies have been
marketed for many years for the treatment of menopausal symptoms, and
some of these products also have obtained marketing approval for the
treatment of osteoporosis. During the past several years, other
manufacturers have introduced products for the treatment and/or
prevention of osteoporosis. Some companies have attempted to obtain
approval for generic versions of PREMARIN. These products, if approved,
could be routinely substitutable for PREMARIN under many state laws and
third-party insurance payer plans. In May 1997, the U.S. Food and Drug
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Administration ("FDA") announced that it would not approve certain
synthetic estrogen products as generic equivalents of PREMARIN given
known compositional differences between the active ingredient of these
products and PREMARIN. Although the FDA has not approved any generic
equivalent to PREMARIN to date, PREMARIN will continue to be subject
to competition from existing and new competing estrogen and other
products for its approved indications and may be subject to some form
of generic competition from either natural or synthetic generic
conjugated estrogens products in the future.
Health care costs will continue to be the subject of attention
in both the public and private sectors in the United States. 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.
CONSUMER HEALTH CARE -
The consumer health care business has many competitors. Based on
net sales, the Company believes it ranks within the top five major
competitors within the consumer health care industry. The Company's
competitive position is affected by several factors including resources
available to develop, enhance and promote products, customer acceptance,
product quality, development of alternative therapies by competitors,
and scientific and technological advances.
The growth of generic and store brands continued to impact some
of the Company's consumer health care branded product line categories in
1998 and is expected to continue during 1999.
AGRICULTURAL PRODUCTS -
The Company operates in the highly competitive agrochemical industry.
The agricultural products business has over 40 competitors worldwide
and ranks in the top 10 based on net sales. Among these companies,
the top 10 competitors are multinational, representing over 85% 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. Additionally, the rapid acceptance of genetically modified
seed, particularly for soybeans, has generated competition from
agricultural products not traditionally used on crops grown from
conventional seed. It is anticipated that approximately 50% of the
soybean crop in the United States and approximately 20% of the soybean
crop outside the United States will be genetically modified in 1999
compared to 38% and 6% in 1998, respectively, which could have an
adverse effect on the results of operations of the agricultural
products business in 1999 and thereafter.
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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 $1,654,745,000 in 1998,
$1,558,035,000 in 1997 and $1,429,056,000 in 1996 with approximately 84%
of these expenditures in the ethical pharmaceutical area in 1998.
The Company currently has five New Drug Applications and 20
Supplemental Drug Applications filed with the FDA for review, and 125
active Investigational New Drug Applications and one Biologics License
Application pending. During 1998, several major collaborative research
and development arrangements were commenced or continued with other
pharmaceutical and biotechnology companies. Additionally, the animal
health business has 58 Veterinary Biologics License Applications
awaiting approval by the United States Department of Agriculture
("USDA") and the agricultural products business has 28 applications and
the animal health business has one application for new products and/or
expanded use of existing products awaiting approval by the United States
Environmental Protection Agency ("EPA").
In 1998, FDA approval was granted for ENBREL, a first-in-class,
breakthrough product for the treatment of rheumatoid arthritis jointly
marketed in the United States by the Company and Immunex Corporation, a
majority-owned company. During 1998, the Company also received FDA
approval for the non-steroidal anti-inflammatory product LODINE XL 500
mg. tablets, the combination estrogen and progestin hormone replacement
product PREMPRO 0.625 mg./5 mg. tablet, the vaccine ROTASHIELD, for use
in the prevention of rotavirus gastroenteritis, the anti-infectives
product ZOSYN GALAXY SYSTEM, the animal health care endectocide product
CYDECTIN Pour-On (moxidectin), to treat beef cattle affected by
parasites, ETOGESIC (etodolac), a non-steroidal anti-inflammatory to
treat osteoarthritis in dogs, and the over-the-counter product ADVIL
Pediatric Drops and Chewable Tablets. In 1998, the Company also received
EPA approval for ACROBAT MZ, a fungicide product.
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 dietary supplements. The Federal Trade Commission
("FTC") has the authority to regulate the promotion and advertising of
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the consumer health care products including over-the-counter drugs and
dietary supplements. The USDA regulates the Company's domestic animal
vaccine products. The FDA's enforcement 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 U.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. In addition, in the foreign countries where the Company
does business, it is subject to regulatory and legislative climates
that, in many instances, are similar to or more restrictive than that
described above. The Company devotes significant resources to dealing
with the extensive federal, state and local regulatory requirements
applicable to its products in the United States and internationally.
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 in certain respects. 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 or approval of the EPA. Outside the United States,
agricultural chemicals are regulated by various agencies, often by
standards which differ from those in the United States.
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
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liabilities relating to the chemicals businesses, except for the former
chemical business site at Bound Brook, New Jersey, and certain sites for
which there is shared responsibility between Cyanamid and Cytec. 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. 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.
Additional information on environmental matters is set forth in
Notes 5 and 10 of the Notes to Consolidated Financial Statements in the
Company's 1998 Annual Report to Shareholders and is incorporated herein
by reference.
Employees
At the end of 1998, the Company had 52,984 employees worldwide,
with 27,447 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 international and United States operations
for the three years ended December 31, 1998 is set forth in Note 11
of the Notes to Consolidated Financial Statements in the Company's
1998 Annual Report to Shareholders and is incorporated herein by
reference.
The Company's operations outside the United States are conducted
primarily through subsidiaries. International sales in 1998 amounted to
43% of the Company's total worldwide sales.
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. Additional
information about international operations, specifically the
Asian-Pacific region, is set forth in Liquidity, Financial Condition and
Capital Resources in Management's Discussion and Analysis of Financial
Condition and Results of Operations in the Company's 1998 Annual Report
to Shareholders and is incorporated herein by reference.
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 agricultural products
business maintains its headquarters in Parsippany, New Jersey. The
Company's foreign subsidiaries and affiliates, which generally own their
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properties, have manufacturing facilities in 23 countries outside the
United States. The following are the principal manufacturing plants (M)
and research laboratories (R) of the Company as of December 31, 1998:
Pharmaceuticals and Consumer Health Care:
United States:
Charles City, Iowa (M)
Fort Dodge, Iowa (M, R)
Andover, Massachusetts (M, R)
Cambridge, Massachusetts (R)
Cherry Hill, New Jersey (M, R)
Princeton, New Jersey (R)
Chazy, New York (R)
Pearl River, New York (M, R)
Rouses Point, New York (M, R)
Sanford, North Carolina (M)
Marietta, Pennsylvania (M, R)
Radnor, Pennsylvania (R)
West Chester, Pennsylvania (M)
Carolina, Puerto Rico (M)
Guayama, Puerto Rico (M)
Georgia, Vermont (M)
Richmond, Virginia (M, R)
International:
St. Laurent, Canada (M, R)
Suzhou, China (M)
Munster, Germany (M)
Havant, Great Britain (M, R)
Askeaton, Ireland (M, R)
Newbridge, Ireland (M)
Catania, Italy (M, R)
Cabuyao, Philippines (M)
Hsin-Chu Hsien, Taiwan (M)
All of the above facilities are exclusively pharmaceuticals
facilities except for Pearl River, New York, Rouses Point, New York,
Guayama, Puerto Rico, Richmond, Virginia, St. Laurent, Canada, Suzhou,
China, Munster, Germany, Havant, Great Britain, Newbridge, Ireland and
Hsin-Chu Hsien, Taiwan which are both pharmaceutical and consumer health
care facilities.
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Agricultural Products:
United States:
Hannibal, Missouri (M)
Princeton, New Jersey (R)
International:
Paulinia, Brazil (M)
Resende, Brazil (M)
Genay, France (M)
Schwabenheim, Germany (R)
All of the above properties are owned except certain facilities
in Cambridge, Massachusetts, 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.
On September 15, 1997, the Company's Wyeth-Ayerst Laboratories
division, the manufacturer of PONDIMIN (fenfluramine hydrochloride)
tablets C-IV and the distributor of REDUX (dexfenfluramine hydrochloride
capsules) C-IV, announced a voluntary and immediate withdrawal of these
antiobesity medications. The Company took this action on the basis of
new, preliminary information provided to the Company on September 12,
1997 by the FDA regarding heart valve abnormalities in patients using
these medications. The Company estimates that approximately six million
people used these medications in the United States.
As of March 22, 1999, the Company has been served or is aware that
it has been named as a defendant in 2,615 lawsuits as the manufacturer
of PONDIMIN and/or the distributor of REDUX. These lawsuits have
been filed on behalf of individuals who claim to have been injured
as a result of their use of PONDIMIN and/or REDUX, either individually
or in combination with the prescription drug phentermine (which the
Company does not manufacture, distribute or market). The lawsuits also
often name as defendants other distributors and/or retailers of PONDIMIN
and/or REDUX, the manufacturers, distributors and/or retailers of
phentermine and physicians or other health care providers. The Company
anticipates that it will be named as a defendant in an unknown number of
additional PONDIMIN and/or REDUX lawsuits in the future.
Of the 2,615 lawsuits naming the Company as a defendant, 70 are
actions that seek certification of a class, some on a national and
others on a statewide basis. Of these 70 lawsuits, 29 are pending in
various federal district courts and 41 are pending in various state
courts. A number of the actions brought in state courts have been
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removed to federal courts. Individual plaintiffs have filed the
remaining lawsuits: 833 individual lawsuits are pending in various
federal district courts and 1,712 individual lawsuits are pending in
various state courts. On December 10, 1997, the federal Judicial Panel
on Multi-District Litigation ("MDL") transferred all pending federal
lawsuits alleging injuries from the use of REDUX and/or PONDIMIN to the
U.S. District Court for the Eastern District of Pennsylvania, where they
are being coordinated for all pretrial purposes before U.S. District
Judge Louis C. Bechtle. The state cases are pending in 45 different
states or jurisdictions, with the bulk of the cases in Alabama,
California, Florida, Kentucky, New Jersey, New York, Oklahoma,
Pennsylvania, Texas and Utah.
Plaintiffs' allegations of liability are based on various theories
of recovery, including, but not limited to, product liability,
strict liability, negligence, various breaches of warranty, conspiracy,
fraud, misrepresentation and deceit. These lawsuits typically allege
that the short or long-term use of PONDIMIN and/or REDUX, independently
or in combination (including the combination of PONDIMIN and phentermine
popularly known as "fen/phen"), causes, among other things, primary
pulmonary hypertension, valvular heart disease and/or neurological
dysfunctions. In addition, some lawsuits allege severe emotional
distress caused by the knowledge that ingestion of these drugs,
independently or in combination, could cause such injuries. Plaintiffs
typically seek relief in the form of monetary damages (including general
damages, medical care and monitoring expenses, loss of earnings and
earnings capacity, compensatory damages and punitive damages), generally
in unspecified amounts, on behalf of the individual or the class. In
addition, some actions seeking class certification ask for certain types
of purportedly equitable relief, including, but not limited to,
declaratory judgments and the establishment of a research or medical
surveillance program.
Motions to certify a class of state residents who used REDUX or
PONDIMIN and who are seeking medical monitoring or surveillance for
possible injuries have been granted in Illinois (Rhyne, et al. v. AHPC,
et al., Circuit Court, Chancery Division, Cook Cty., No. 98-CH-04099);
New Jersey (Vadino, et al. v. AHPC, et al., Superior Court, Middlesex
Cty., No. MID-L-425-98); Pennsylvania (In re Pennsylvania Diet Drugs
Litigation, Court of Common Pleas, Philadelphia Cty., No. 9709-3162);
Texas (Earthman, et al. v. AHPC, District Court, Montgomery Cty., No.
97-10-03790-CV); Washington (St. John, et al. v. AHPC, et al., Superior
Court, Spokane Cty., No. 97-2-06368-4); and West Virginia (Burch, et al.
v. AHPC, et al., Circuit Court, Brooke Cty., No. 97-C-204 (1-11)). All
of these decisions have been or will be appealed. In Arkansas (Baker, et
al. v. Wyeth-Ayerst Laboratories, et al., Circuit Court, Washington
Cty., No. CIV 97-1192), the court found that certification was precluded
by the myriad individual medical and legal issues presented by the
plaintiffs' claims. Class certification will be briefed and argued in
1999 in Iowa, Kentucky, Montana and New York. In Florida (Petito, et al.
v. A.H. Robins Company, Inc., et al., Circuit Court, Dade Cty., No.
97-26031 CA 21), the court has dismissed plaintiffs' claims for medical
monitoring on the grounds that no such cause of action exists under
Florida law. In the federal MDL proceedings, plaintiffs in 28 separate
actions have filed a total of 17 motions seeking class certification for
a variety of classes. The court heard argument on the motions on March
17, 1999. Several individual state cases are also expected to go to
trial during 1999.
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The Company is also named as a defendant in two shareholder
lawsuits arising out of the REDUX and PONDIMIN withdrawal. Oran, et al.
v. Stafford, et al. (No. 97-CV-4513 (NHP), U.S.D.C., D.N.J.), which was
commenced on September 18, 1997, is a securities fraud putative class
action in which plaintiffs allege, on behalf of a class of individuals
who purchased shares of AHPC Common Stock on the open market during the
period from March 1, 1997 through September 16, 1997, that the Company
(and nine officers and directors named as controlling persons under
section 20(a) of the Securities Exchange Act of 1934 (the "Exchange
Act")) engaged in a plan to defraud the market and purchasers of AHPC
Common Stock in violation of section 10(b) of the Exchange Act and SEC
Rule 10b-5 by failing to disclose material facts or making material
misstatements of fact regarding alleged adverse events associated with
REDUX and PONDIMIN, in particular the alleged association between those
two products and valvular heart disease. Plaintiffs' amended complaint
also includes claims for negligent misrepresentation and common law
fraud and deceit. Plaintiffs seek compensatory damages for themselves
and for the class. On February 5, 1999, the Oran case was dismissed with
prejudice by the U.S. District Court for the District of New Jersey.
Plaintiffs have filed a Notice of Appeal to the U.S. Court of Appeals
for the Third Circuit. Grill v. Stafford, et al., (No. MRS-L-164-98,
N.J. Sup. Ct., Morris Cty.), which was commenced on January 14, 1998, is
a shareholder derivative action filed against the Company, the directors
(other than Mr. Essner), a former director and officer of the Company,
and certain officers which seeks to recover any losses or damages
sustained by the Company, as well as profits from the sale of stock by
present and former officers and directors, as a result of alleged
intentional, reckless or negligent breaches of fiduciary duty by the
defendants. The complaint contains allegations of material misstatements
and omissions regarding alleged adverse events associated with REDUX and
PONDIMIN similar to those described above and alleges that the
defendants' actions have exposed the Company to liability for personal
injury lawsuits and securities claims.
The Company believes that it has meritorious defenses to these
actions and that it has acted properly at all times in dealing with
REDUX and PONDIMIN matters. The Company intends to defend all of the
REDUX and PONDIMIN litigation vigorously.
As of March 22, 1999, there were pending against the Company
approximately 3,730 lawsuits in federal or state courts on behalf of
approximately 41,082 plaintiffs alleging injuries as a result of use of
the NORPLANT SYSTEM, the Company's implantable contraceptive containing
levonorgestrel. Although approximately 60 of the cases have been filed
as class actions, class certification has been denied in the federal
actions. It has also been denied in each of the four states
that have decided motions for class certification. In West Virginia,
where the court had indicated during 1998 that it would certify a
statewide class of NORPLANT users, plaintiffs have moved the court for
the entry of a class certification order and a hearing on that motion
is scheduled for March 31, 1999 (Ramey, et al. v. Harts Health Clinic,
Inc., Circuit Court, Lincoln Cty., West Virginia, No. 97-C-132). A
motion to certify a class of Louisiana NORPLANT users is also expected
to be heard during 1999. On December 6, 1994, the MDL ordered that all
NORPLANT SYSTEM lawsuits filed in federal courts be consolidated for
pretrial proceedings in the U.S. District Court (E.D. Tex.) in
Beaumont. The MDL proceedings now account for approximately 30,000 of
the NORPLANT SYSTEM plaintiffs. Following the denial of class
certification at the federal level, the MDL court scheduled three
"bellwether" trials, each involving the claims of five Texas
plaintiffs. Rather than proceeding with the first of these trials,
the court entered summary judgment in favor of the Company on all of
plaintiffs' claims and that decision was affirmed by the U.S. Court of
Appeals for the Fifth Circuit during 1998. All but three of the state
NORPLANT SYSTEM cases involving the Company that have approached trial
have either been dismissed by the courts or withdrawn by the plaintiffs.
The first NORPLANT SYSTEM lawsuit to go to trial (Morales, et al. v.
Wyeth-Ayerst Laboratories, et al., District Court, Hidalgo Cty., Texas,
No. C-1679-95-F) ended with a mistrial being declared on January 23,
1998, due to conflicts among plaintiffs' attorneys. The first NORPLANT
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SYSTEM case to reach a jury verdict (Gaytan, et al. v. Wyeth-Ayerst
Laboratories, et al., District Court, Cameron Cty., Texas, No.
C-95-08-3985-A) resulted in a judgment in favor of the Company on
September 3, 1998. That judgment has not been appealed. The third case
to go to trial, and the second to reach a verdict (Davis, et al. v.
AHPC, et al., District Court, Jefferson Cty., Texas, No. B-150,760)
concluded with a verdict rendered on March 4, 1999. On March 24, 1999,
the court entered judgment in favor of the Company on the claims of
three of the four plaintiffs in the Davis case. Judgment on the claims
of the fourth plaintiff has not yet been entered. The Company will
continue to contest the NORPLANT SYSTEM litigation vigorously.
Two putative personal injury class actions have been filed in
connection with the Company's voluntary withdrawal from the market of
DURACT, its non-narcotic analgesic pain reliever. McGloin v.
Wyeth-Ayerst Laboratories, filed on June 30, 1998 in the U.S. District
Court for the Northern District of California (No. C-98-2596-CW), seeks
the certification of a nationwide class of persons who used DURACT and
who have suffered or may suffer liver damage or related conditions as a
result of using the product. Chimento, et al. v. Wyeth-Ayerst
Laboratories, et al., filed on July 21, 1998 in the 34th Judicial
District Court of Louisiana for the Parish of St. Bernard (No. 982488),
seeks the certification of a class of Louisiana residents who were
exposed to and who suffered injury from DURACT. Plaintiffs in both
cases seek compensatory and punitive damages, the refund of all
purchase costs, and the creation of a court-supervised medical
monitoring program for the diagnosis and treatment of liver damage and
related conditions allegedly caused by DURACT. The Company intends to
defend the DURACT litigation vigorously.
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 U.S. District Court in August 1993 (University of
Colorado et al. v. American Cyanamid Company, Docket No. 93-K-1657,
D.Col.). The plaintiffs had accused 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 Cyanamid in 1984. The Court
had previously granted 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 the plaintiffs had earlier been granted summary judgment
of their copyright infringement claim, the court had declined to award
plaintiffs damages on that claim. Plaintiffs' post-trial motions seeking
to increase the damages to approximately $111 million allegedly
representing Cyanamid's gross profit for 1982-1985 from the sale of the
reformulated MATERNA product and to recover approximately $800,000 of
attorneys fees has been denied. The Company has appealed the district
court decision to the U.S. Court of Appeals for the Federal Circuit.
Plaintiffs have cross-appealed the District Court's decision denying
damages on the copyright claim, denying plaintiffs post-trial motions
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<PAGE>
regarding the calculation of damages and all other orders entered
against the plaintiffs by the District Court. The Court of Appeals
decision is pending.
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 (M.D. Pa.) against the Company, 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 alleged
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 were 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 made one or more similar allegations of violations of federal or
state antitrust or unfair competition laws. In addition, a mail order
pharmacy plaintiff alleged that it was forced out of business and
certain plaintiffs also alleged 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 alleged
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 Drugs Antitrust Litigation (MDL
997 N.D. Ill.). These federal actions seek treble damages in unspecified
amounts and injunctive and other relief.
In June 1996, 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) total $42.5 million. Certain
provisions of the amended settlement, which became effective on January
28, 1998 and will be in effect for three years, prohibit the settling
manufacturers from refusing to grant discounts to retailers solely
because of their status as retailers and require that retailers be given
the opportunity to demonstrate their ability to move market share and to
negotiate and earn discounts similar to any discounts offered to managed
care organizations. The terms of the settlement also provide 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.
In January 1999, after a trial on the merits involving manufacturers
and wholesalers that had not previously settled the Consolidated Class
Action case, the district court granted a directed verdict to the
defendants in that case. Plaintiffs have appealed.
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The Company has also settled the following cases brought by
retailers that opted out of the Consolidated Class Action: Albertson's,
Inc., et al. v. Abbott Labs., et al. (Docket No. 94-C-3669, S.D. Ohio);
American Drug Stores, Inc. v. Abbott Labs., et al. (Docket No.
97-C-8076, N.D. Ill.); Eckerd Corp. v. Abbott Labs., et al. (Docket No.
97-C-8075, N.D. Ill.); and two groups of cases brought by retail
pharmacies, one involving five complaints with multiple plaintiffs and
the other involving 113 complaints with multiple plaintiffs. The terms
of the settlements, which are not material to the Company, provide that
they shall not be deemed to be an admission of or evidence of any
violation of any statute or law or of any liability or wrongdoing by the
Company. The remaining individual actions in MDL 997, including those
brought by Rite Aid Corporation, Revco D.S. Inc., and other retailers,
continue to be pending against the Company.
In 1997, the class action plaintiffs also filed a complaint against
the defendants that settled the Consolidated Class Action, including
the Company. The class action plaintiffs allege that the settling
defendants conspired to not implement the affirmative obligations in
the settlement agreements which were before the Seventh Circuit Court
of Appeals and not yet final at that time. The complaint seeks class
action status and requests preliminary and permanent injunctions. It
does not request money damages. The request for a preliminary
injunction was denied.
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, Mississippi, New York, North Carolina, North
Dakota, Tennessee, Washington and Wisconsin. The Company and certain
other defendants have entered into an agreement to settle the California
litigation. Under this agreement, which has not received final approval
by the court, the Company would pay approximately $3.1 million in cash
and approximately $16 million in product valued at the wholesale
acquisition cost. Additionally, the Company and other defendants have
entered into settlements to resolve the consumer actions in Arizona, the
District of Columbia, Florida, Kansas, Maine, Michigan, Minnesota, New
York, North Carolina, Tennessee and Wisconsin. The aggregate payments by
the Company under these settlements amounted to approximately $5.4
million. The Company and other defendants have also settled a purported
class action with similar allegations under state antitrust, unfair
competition and unitary pricing laws in Wisconsin state court on behalf
of retail pharmacies located in that state. The Company's share of that
settlement was approximately $440,000. Final approval was received for a
settlement of a similar state law case by retailers in Minnesota. The
Company's share of the Minnesota settlement with retailers was
approximately $99,000. The actions in Colorado and Washington were
dismissed on pre-trial motions.
The FTC has been investigating allegations of concerted action
in the pricing of pharmaceutical products and the Company has provided
information in response to a subpoena.
In an action commenced in state court in Texas in January 1997
by Avatex Corporation (formerly FoxMeyer Health Corporation) against
McKesson Corp., the Company's Wyeth-Ayerst Laboratories Division and
eleven other manufacturers, which was removed to U.S. District Court for
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<PAGE>
the Northern District of Texas (Civil Action No. 3:99-CV-0010-L) and
referred to U.S. Bankruptcy Court in Dallas, Texas (Adv. No. 397-3052,
U.S.B.C., N.D. Tex.), Avatex is seeking in excess of $400 million in
compensatory damages alleged to have risen from an alleged conspiracy to
drive Avatex's subsidiary into bankruptcy, ostensibly so that McKesson
could then purchase the drug distribution operations of the subsidiary
at a discounted price. Some of the plaintiff's counts were dismissed but
Avatex has appealed the dismissal.
The Company has agreed to pay $5.2 million to settle a purported
class action commenced in 1997 in state court in Tennessee, Fox v.
American Cyanamid Company (No. 19,996, Ch. Ct. Tenn.) that alleges
violations of state antitrust and consumer protection laws by Cyanamid
concerning pricing practices relating to marketing programs for 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. The
settlement is subject to court approval. The terms of the settlement
provide that it is not an admission or evidence of wrongdoing by the
Company or of the truth of any of the claims alleged. A purported class
action in federal court in Alabama, Lowell v. American Cyanamid Company
(No. 97-581-BH-M, U.S.D.C., S.D. Ala.) alleges violations of federal
antitrust laws involving pricing practices relating to marketing
programs for crop protection products. This action was dismissed but the
plaintiffs have appealed the dismissal to the U.S. Court of Appeals for
the 11th Circuit.
On November 24, 1998, two applicators of herbicides filed a complaint
(WoodTech Services, Inc. v. American Cyanamid Co., CV98-C-2935-W USDC
West. Dist. Ala.) alleging that Cyanamid discriminated in price in
connection with the sale of herbicides to the plaintiffs and to
applicators who are affiliated with distributors for Cyanamid. The
complaint seeks injunctive and other relief.
The Company has been named as a defendant in seven lawsuits in
which plaintiffs purport to represent a statewide class of health care
workers who have been injured by needle and syringe devices manufactured
by the Company's former Sherwood-Davis & Geck subsidiary. The complaints
have been filed in Alabama, Florida, New Jersey, Ohio, Oklahoma,
Pennsylvania, Texas and South Carolina and contain virtually identical
allegations. (Daniels v. AHPC, et al., No. 2757-G, Circ. Ct., Montgomery
Cty., Alabama; Swartley v. AHPC et al., No. L-9448-98, Sup. Ct., Camden
Cty., New Jersey; Grant v. AHPC, et al., No. C2-98-344, U.S.D.C., S. D.
Ohio; Palmer v. AHPC, et al., No. CJ-98-685, Dist. Ct., Sequoyah Cty.,
Oklahoma; Snodgrass v. AHPC et al., No. 1998-03474, Ct. of Common Pleas,
Philadelphia, Pennsylvania; Calvin v. AHPC, et al., No. 342-173329-98,
Dist. Ct., Tarrant Cty., Texas; Bates v. AHPC et al., No. 98-CP-40-4343,
Circ. Ct., Richland Cty., South Carolina). Each names AHPC, Becton
Dickinson and Company, Sherwood's largest competitor, and Tyco
International (U.S.) Inc., Sherwood's current corporate parent, as well
as several distributors of medical devices. The complaints allege that
the needle and syringe devices designed and manufactured by Sherwood are
defective in that they expose healthcare workers to the risk of
accidental needlesticks and the resultant possibility of acquiring
blood-borne diseases. Each named plaintiff seeks to represent a
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<PAGE>
statewide class of healthcare workers who have sustained a
"contaminated" needlestick; reported the incident to their employer and
have tested negative for a blood-borne disease. The complaints seek
recovery for the costs of treating the needlesticks and for the
emotional distress allegedly arising out of the fear of contracting a
disease from the incidents. The Company is being defended and
indemnified in each of these cases by Tyco with respect to injuries
alleged to have occurred after February 27, 1998 and the Company remains
responsible for injuries occurring prior to that date and is defending
and indemnifying Tyco for those injuries. A class has not been certified
in any of the cases. A class certification hearing is set for June 1,
1999 in the Calvin case in Texas. Discovery in the other six cases has
not yet commenced. The Company will defend the needlestick litigation
vigorously.
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 61 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 61 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.
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
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
None.
I-18
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT AS OF MARCH 29,1999
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
Name Age Offices and Positions Office
John R. Stafford 61 Chairman of the Board December 1986
President 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 60 Senior Executive Vice October 1995
President
Director,
Member of Executive,
Finance and Operations
Committees
Business Experience: To October 1995,
Executive Vice President
October 1995 to date,
Senior Executive Vice
President
Robert Essner 51 Executive Vice President September 1997
Director, Member of
Finance and
Operations Committees
Business Experience: To March 1997, President,
Wyeth-Ayerst Laboratories,
U.S. Pharmaceutical
Business
March 1997 to September
1997, President,
Wyeth-Ayerst Global
Pharmaceuticals
September 1997 to date,
Executive Vice President
Joseph J. Carr 56 Senior Vice President May 1993
Member of Finance and
Operations Committees
Business Experience: To May 1993, Group Vice
President
May 1993 to date,
Senior Vice President
I-19
<PAGE>
Elected to
Name Age Offices and Positions Office
Louis L. Hoynes,Jr. 63 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
Robert I. Levy, M.D. 61 Senior Vice President - March 1998
Science and Technology
Member of Finance and
Operations Committees
Business Experience: To March 1998, President,
Wyeth-Ayerst Research
March 1998 to date,
Senior Vice President -
Science and Technology
William J. Murray 53 Senior Vice President October 1995
Member of Finance and
Operations Committees
Business Experience: To January 1995, Group
Vice President,
American Cyanamid Company
January 1995 to October
1995, Vice President
October 1995 to date,
Senior Vice President
David M. Olivier 55 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
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<PAGE>
Elected to
Name Age Offices and Positions Office
John R. Considine 48 Vice President - Finance February 1992
Member of Finance and
Operations Committees
Business Experience: 1992 to date, Vice
President - Finance
Paul J. Jones 53 Vice President and May 1995
Comptroller
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 52 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
Thomas M. Nee 59 Vice President - Taxes May 1986
Member of Finance
Committee
Business Experience: 1991 to date, Vice
President - Taxes
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<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 Common 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
presented in Market Prices of Common Stock and Dividends
on page 45 of the Company's 1998 Annual Report to Shareholders,
are incorporated herein by reference.
There were 64,873 holders of record of the Company's Common
Stock as of March 15, 1999.
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 26 and 27 of
the Company's 1998 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 46 through 52 of the
Company's 1998 Annual Report to Shareholders, is incorporated
herein by reference.
ITEM 7(A). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Market Risk Disclosures as set forth in Management's
Discussion and Analysis of Financial Condition and Results of
Operations, appearing on page 51 of the Company's 1998 Annual Report
to Shareholders, are incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and Notes to Consolidated
Financial Statements on pages 28 through 43 of the Company's 1998
Annual Report to Shareholders, the Report of Independent Public
Accountants on page 44, and Quarterly Financial Data on page 45, are
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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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 and 3 of a definitive proxy
statement filed with the Securities and Exchange Commission on
March 18, 1999 ("the 1999 Proxy Statement").
(b) Information relating to the Company's executive officers as of March
29, 1999 is furnished in Part I hereof under a separate unnumbered
caption ("Executive Officers of the Registrant as of March 29,
1999").
(c) Information relating to certain filing obligations of directors
and executive officers of the Company under the federal
securities laws set forth on page 5 of the 1999 Proxy Statement
under the caption "Section 16(a) Beneficial Ownership Reporting
Compliance" is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information relating to executive compensation is incorporated herein
by reference to pages 8 through 15 (excluding the performance graph
on page 13) of the 1999 Proxy Statement. Information with respect
to compensation of directors is incorporated herein by reference to
pages 4 and 5 of the 1999 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information relating to security ownership is incorporated herein by
reference to pages 6 and 7 of the 1999 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
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<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)1. Financial Statements
The following Consolidated Financial Statements, Notes to
Consolidated Financial Statements and Report of Independent Public
Accountants, included on pages 28 through 44 of the Company's 1998
Annual Report to Shareholders, are incorporated herein by reference.
Pages
Consolidated Balance Sheets as of
December 31, 1998 and 1997 28
Consolidated Statements of Income
for the years ended December 31,
1998, 1997 and 1996 29
Consolidated Statements of Changes in
Stockholders' Equity for the years ended
December 31, 1998, 1997 and 1996 30
Consolidated Statements of Cash Flows
for the years ended December 31, 1998,
1997 and 1996 31
Notes to Consolidated Financial Statements 32-43
Report of Independent Public Accountants 44
(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, 1998,
1997 and 1996 IV-9
Schedules other than those listed above are omitted because they are
not applicable.
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<PAGE>
ITEM 14. (Continued)
(a)3. Exhibits
Exhibit No. Description
(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 May 4, 1998.
(3.2) The Company's By-Laws are incorporated herein by reference to
Exhibit 3.2 of the Company's Form 10/A dated May 4, 1998.
(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 (File 1-1225).
(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 the Company's Form 10-Q
for the quarter ended September 30, 1992 (File 1-1225).
(10.1) 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 incorporated herein by reference.
(10.2) 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.
(10.3) 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, is incorporated by reference to Exhibit 10.6 of the
Company's Form 10-K for the year ended December 31, 1996.
IV-2
<PAGE>
ITEM 14. (Continued)
(a)3. Exhibits
Exhibit No. Description
(10.4) Third Amendment to B Credit Agreement, dated as of July
31, 1997, among the Company, Sherwood Medical Company, A.H.
Robins Company, Incorporated, AC Acquisition Holding
Company, the several banks and other financial institutions
from time to time parties thereto and The Chase Manhattan
Bank, as agent for the lenders thereunder, is incorporated
by reference to Exhibit 10.8 of the Company's Form 10-K for
the year ended December 31, 1997.
(10.5) Letter, dated March 26, 1998, amending the B Credit Agreement,
among the Company, AC Acquisition Holding Company, A. H. Robins
Company, Incorporated, the lender parties thereto and The Chase
Manhattan Bank, as Agent, dated as of September 9, 1994 and as
amended is incorporated herein by reference to Exhibit 10.1 of the
Company's Form 10-Q for the quarter ended March 31, 1998.
(10.6)* 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 1-1225).
(10.7)* 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.
(10.8)* 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 1-1225).
(10.9)* 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.
(10.10)* Amendment to the 1985 Stock Option Plan is incorporated by
reference to Exhibit 10.12 of the Company's Form 10-K for the
year ended December 31, 1996.
(10.11)* 1990 Stock Incentive Plan is incorporated 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 1-1225).
(10.12)* 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.
* 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
(10.13)* Amendment to the 1990 Stock Incentive Plan is incorporated
by reference to Exhibit 10.21 of the Company's Form 10-K for the
year ended December 31, 1996.
(10.14)* 1993 Stock Incentive Plan, as amended to date, is incorporated
by reference to Appendix III of the Company's definitive
Proxy Statement filed March 18, 1999.
(10.15)* 1996 Stock Incentive Plan, as amended to date, is incorporated
by reference to Appendix II of the Company's definitive Proxy
Statement filed March 18, 1999.
(10.16)* 1999 Stock Incentive Plan, is incorporated by reference to
Appendix I of the Company's definitive Proxy Statement filed
March 18, 1999.
(10.17)* Form of Stock Option Agreement (phased vesting).
(10.18)* 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.
(10.19)* Form of 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.
(10.20)* Amendment to Special Stock Option Agreement is incorporated
by reference to Exhibit 10.30 of the Company's Form 10-K for the
year ended December 31, 1996.
(10.21)* Form of Stock Option Agreement (transferable options).
(10.22)* Form of Restricted Stock Performance Award Agreement under
the 1990 Stock Incentive Plan, 1993 Stock Incentive Plan and 1996
Stock Incentive Plan for a three year period.
(10.23)* Form of Restricted Stock Performance Award Agreement under
the 1990 Stock Incentive Plan, 1993 Stock Incentive Plan and 1996
Stock Incentive Plan for a two year period.
(10.24)* Special Restricted Stock Performance Award Agreement under
the 1996 Stock Incentive Plan for William J. Murray.
* Denotes management contract or compensatory plan or arrangement required to be
filed as an exhibit hereto.
IV-4
<PAGE>
ITEM 14. (Continued)
(a)3. Exhibits
Exhibit No. Description
(10.25)* 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.
(10.26)* Management Incentive Plan, as amended to date.
(10.27)* 1994 Restricted Stock Plan for Non-Employee Directors, as
amended to date.
(10.28)* Stock Option Plan for Non-Employee Directors.
(10.29)* Savings Plan, as amended, is incorporated 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 (File 1-1225).
(10.30)* Retirement Plan for Outside Directors, as amended on
January 27, 1994, is incorporated by reference to Exhibit 10.12
of the Company's Form 10-K for the year ended December 31, 1993.
(10.31)* Directors' Deferral Plan is incorporated by reference to
Exhibit 10.37 of the Company's Form 10-K for the year ended
December 31, 1996.
(10.32)* Deferred Compensation Plan,as amended to date.
(10.33)* Executive Retirement Plan is incorporated by reference to
Exhibit 10.2 of the Company's Form 10-Q for the quarter ended
September 30, 1997.
(10.34)* Supplemental Employee Savings Plan is incorporated by
reference to Exhibit 10.42 of the Company's Form 10-K for the
year ended December 31, 1997.
(10.35)* Supplemental Executive Retirement Plan is incorporated by
reference to Exhibit 10.6 of the Company's Form 10-K for the
year ended December 31, 1990 (File 1-1225).
(10.36)* 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).
* Denotes management contract or compensatory plan or arrangement required to be
filed as an exhibit hereto.
IV-5
<PAGE>
ITEM 14. (Continued)
(a)3. Exhibits
Exhibit No. Description
(10.37)* 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).
(10.38)* 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).
(10.39)* 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).
(10.40)* Form of Severance Agreement entered into between the Company
and the executive officers specified therein is incorporated by
reference to Exhibit 10.43 of the Company's Form 10-K for the year
ended December 31, 1997.
(10.41)* Form of Severance Agreement entered into between the Company
and the executive officers specified therein is incorporated by
reference to Exhibit 10.1 of the Company's Form 10-Q for the
quarter ended June 30, 1998.
(12) Computation of Ratio of Earnings to Fixed Charges.
(13) 1998 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 26, 1999, 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, 1998.
* Denotes management contract or compensatory plan or arrangement required to be
filed as an exhibit hereto.
IV-6
<PAGE>
ITEM 14. (Continued)
(a)3. Exhibits
Exhibit No. Description
(27) Financial Data Schedule.
(99) Cautionary Statements regarding "Safe Harbor" Provisions of the
Private Securities Litigation Reform Act of 1995.
(b) Reports on Form 8-K
A Current Report on Form 8-K regarding the Company's termination
of the merger agreement with Monsanto Company was filed on October
13, 1998.
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 26, 1999. 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 26, 1999
IV-8
<PAGE>
<TABLE>
American Home Products Corporation and Subsidiaries
Schedule II - Valuation and Qualifying Accounts
For the Years Ended December 31, 1998, 1997 and 1996
(Dollars in thousands)
<CAPTION>
Column A Column B Column C Column D Column E
Balance Balance
at at
Beginning Deductions End
of Period Additions (A) of Period
<S> <C> <C> <C> <C>
Description
Year ended 12/31/98:
Allowance for doubtful accounts $168,425 $ 58,685 $ 44,041 $183,069
Allowance for cash discounts 28,730 236,273 225,532 39,471
Allowance for deferred tax assets 299,424 10,245 60,618 249,051
$496,579 $305,203 $330,191 $471,591
Year ended 12/31/97:
Allowance for doubtful accounts $179,980 $ 9,974 $ 21,529 $168,425
Allowance for cash discounts 24,141 226,284 221,695 28,730
Allowance for deferred tax assets 294,840 19,486 14,902 299,424
$498,961 $255,744 $258,126 $496,579
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 assets 206,644 117,569 29,373 294,840
$342,253 $441,644 $284,936 $498,961
</TABLE>
(A) 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 29, 1999 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 29, 1999
John R. Stafford and Chief Executive Officer
Principal Financial Officer:
/S/ Robert G. Blount Senior Executive Vice March 29, 1999
Robert G. Blount President and Director
Principal Accounting Officer:
/S/ Paul J. Jones Vice President and March 29, 1999
Paul J. Jones Comptroller
Directors:
/S/ Clifford L. Alexander, Jr. Director March 29, 1999
Clifford L. Alexander, Jr.
/S/ Frank A. Bennack, Jr. Director March 29, 1999
Frank A. Bennack, Jr.
/S/ Robert Essner Director March 29, 1999
Robert Essner
IV-10
<PAGE>
Signatures Title Date
/S/ John D. Feerick Director March 29, 1999
John D. Feerick
/S/ John P. Mascotte Director March 29, 1999
John P. Mascotte
/S/ Mary Lake Polan, M.D., Ph.D. Director March 29, 1999
Mary Lake Polan, M.D., Ph.D.
/S/ Ivan G. Seidenberg Director March 29, 1999
Ivan G. Seidenberg
/S/ John R. Torell III Director March 29, 1999
John R. Torell III
IV-11
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description
(10.17)* Form of Stock Option Agreement (phased vesting).
(10.21)* Form of Stock Option Agreement (transferable options).
(10.22)* Form of Restricted Stock Performance Award Agreement under the
1990 Stock Incentive Plan, 1993 Stock Incentive Plan and 1996 Stock
Incentive Plan for a three year period.
(10.23)* Form of Restricted Stock Performance Award Agreement under the
1990 Stock Incentive Plan, 1993 Stock Incentive Plan and 1996 Stock
Incentive Plan for a two year period.
(10.24)* Special Restricted Stock Performance Award Agreement under the
1996 Stock Incentive Plan for William J. Murray.
(10.26)* Management Incentive Plan, as amended to date.
(10.27)* 1994 Restricted Stock Plan for Non-Employee Directors, as amended
to date.
(10.28)* Stock Option Plan for Non-Employee Directors.
(10.32)* Deferred Compensation Plan, as amended to date.
(12) Computation of Ratio of Earnings to Fixed Charges.
(13) 1998 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 26, 1999, 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, 1998.
(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 10.17
AMERICAN HOME PRODUCTS CORPORATION
STOCK OPTION AGREEMENT
(Phased Vesting)
UNDER:
[Name and address] DATED:
OPTION PRICE:
INCENTIVE STOCK OPTION SHARES:
NON-QUALIFIED STOCK OPTION SHARES:
1. Under the terms and conditions of this Agreement and of the American
Home Products Corporation (the "Company") 1996 Stock Incentive Plan (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) in the case
of the Incentive Stock Option, if any, and Non-Qualified Stock Option,
respectively, with respect to one-third of the Option Shares (rounded down), the
date that is one year from the date of grant of this Option, with respect to an
additional one-third of the Option Shares (rounded down), the date that is two
years from the date of grant of this Option and, with respect to the remaining
one-third of the Option Shares, the date that is three years from the date of
grant of this Option, or (ii) the date of the death, Disability or Retirement
(each as defined in the 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. 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 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: (i) the date that is three years from the date of Optionee's death,
Disability or Retirement, (ii) 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 (iii) 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. To the extent any Incentive Stock Option granted hereby becomes
exercisable for the first time in the aggregate amount of more than $100,000
(fair market value at time of grant) during any calendar year (including for
this purpose any other Incentive Stock Options previously granted to the
Optionee by the Company), such excess will be treated as a non-qualified stock
option under U.S. federal tax provisions, if applicable. In addition, any such
incentive stock option exercised by Optionee after three months after separation
from service to the Company (or after one year after total and permanent
disability) will be treated as a non-qualified stock option under applicable
U.S. federal tax provisions.
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 Optionee's 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 (i) 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 (ii) shares of the Company's
common stock issued in the Optionee's name and duly assigned to the Company or
(iii) 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 Optionee was entitled to exercise it at the time of Optionee's
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 PRODUCTS CORPORATION
/s/ John R. Stafford
Chairman of the Board
Accepted and agreed to:
Optionee's Signature Optionee's Social Security Number
- ------------------------ --------------------------------
Exhibit 10.21
AMERICAN HOME PRODUCTS CORPORATION
STOCK OPTION AGREEMENT
(Transferable Option)
UNDER:
[Name and address] DATED:
OPTION PRICE:
INCENTIVE STOCK OPTION SHARES:
NON-QUALIFIED STOCK OPTION SHARES:
1. Under the terms and conditions of this Agreement and of the American
Home Products Corporation (the "Company") 1996 Stock Incentive Plan (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) in the case
of the Incentive Stock Option, if any, and Non-Qualified Stock Option,
respectively, with respect to one-third of the Option Shares (rounded down), the
date that is one year from the date of grant of this Option, with respect to an
additional one-third of the Option Shares (rounded down), the date that is two
years from the date of grant of this Option and, with respect to the remaining
one-third of the Option Shares, the date that is three years from the date of
grant of this Option, or (ii) the date of the death, Disability or Retirement
(each as defined in the 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. 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 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: (i) the date that is three years from the date of Optionee's death,
Disability or Retirement, (ii) 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 (iii) 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. To the extent any Incentive Stock Option granted hereby becomes
exercisable for the first time in the aggregate amount of more than $100,000
(fair market value at time of grant) during any calendar year (including for
this purpose any other Incentive Stock Options previously granted to the
Optionee by the Company), such excess will be treated as a non-qualified stock
option under U.S. federal tax provisions, if applicable. In addition, any such
incentive stock option exercised by Optionee after three months after separation
from service to the Company (or after one year after total and permanent
disability) will be treated as a non-qualified stock option under applicable
U.S. federal tax provisions.
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
a Transferee (as defined in paragraph 7, below), or in Optionee's 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 (i) 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 (ii) shares of the Company's common stock issued in
the Optionee's (or permitted Transferee's) name and duly assigned to the Company
or (iii) 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 Optionee except that the Optionee may irrevocably transfer all
or a portion of the non-qualified stock options represented hereby to (i) the
spouse (current or former), children, stepchildren, grandchildren or
step-grandchildren of the Optionee ("Immediate Family Members"), (ii) a trust or
trusts for the exclusive benefit of such Immediate Family Members, or (iii) a
general or limited partnership or other entity in which such Immediate Family
Members are the only partners or beneficial owners, provided that (x) there may
be no consideration for any such transfer, (y) the Optionee submits to the
Company an Option Transfer Form duly completed and executed by the Optionee and
Transferee in the form attached as Exhibit A hereto, and (z) subsequent
transfers shall be prohibited except by will or the laws of descent and
distribution. Following transfer, any such Option shall continue to be subject
to the same terms and conditions as were applicable immediately prior to
transfer, provided that for purposes of the Plan the term "Optionee" shall be
deemed to include a permitted transferee hereunder (the "Transferee"), provided,
however, that (i) the events of death, Disability, Retirement or other
termination of employment (and any other provision regarding employment)
described in paragraphs 2 and 3 of this Agreement and Sections 5(f) and 5(g) of
the Plan shall continue to be applied with respect to the Optionee, and
following any such events, the transferred Option shall be exercisable by the
Transferee only to the extent, and for the periods specified in the Plan, (ii)
the cashless exercise program referred to in Section 5(d) of the Plan shall not
apply to Transferee unless specifically permitted by the Committee, and (iii)
Section 6A of the Plan shall not apply to Transferee. If such Option is
transferred to a Transferee, upon exercise of such Option, if any taxes are
withheld from the proceeds remitted (in cash or stock) to Transferee or if the
Transferee separately satisfies any withholding tax obligation, the amount of
the withholding tax shall be deemed to be a loan from Transferee to Optionee.
8. 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 or, subject to
paragraph 7 above, by other Transferees. The Option may be exercised after the
Optionee's death by any permitted distributee or Transferee only to the extent
that he or she was entitled to exercise it at the time of Optionee's death.
9. 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, provided,
however, that any permitted transfer of an Option, in accordance with paragraph
7 hereof, shall result in the automatic termination of any SARs in tandem with
such Option.
10. 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.
11. 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 PRODUCTS CORPORATION
/s/ John R. Stafford
Chairman of the Board
Accepted and agreed to:
Optionee's Signature Optionee's Social Security Number
- ------------------------ --------------------------------
<PAGE>
EXHIBIT A
OPTION TRANSFER FORM
Reference is made to the Stock Option Agreement dated _____________________ (the
"Agreement") under which American Home Products Corporation (the "Company")
granted to the undersigned transferor ("Optionee") non-qualified stock options
covering _________________ shares of the Company's Common Stock under the 1996
Stock Incentive Plan (the "Plan"). Capitalized terms used herein without
definition are used as defined in the Agreement and the Plan. The Optionee
hereby transfers non-qualified stock options covering __________________ shares
of the Company's Common Stock (the "Options") granted under the Plan pursuant to
the Agreement to the following transferee (the "Transferee"):
- --------------------------- ---------------------------
Name of person or entity Social security or tax ID number
- ---------------------------
Type of entity (if applicable)
- ---------------------------
Relationship to Optionee
- -----------------------------------------------------------------
Address
The Optionee and, by its execution of this form, the Transferee, hereby
represent and warrant to the Company that the Transferee is a permitted
transferee in accordance with paragraph 7 of the Agreement and under Section
5(h) of the Plan. It is understood and agreed by Optionee and Transferee that
(i) the Committee shall be entitled, in its sole discretion, to determine
whether such transfer is in accordance with such requirements, and (ii) the
Company and the Committee shall be under no obligation to notify the Transferee
of the termination date of any Option transferred hereunder.
The Transferee hereby agrees, subject to paragraph 7 of the Agreement, to be
bound by all of the terms, conditions and limitations set forth in the Agreement
and the Plan binding upon the Optionee under the Agreement, and specifically
understands that (i) the events of death, Disability, Retirement or other
termination of employment (and any other provisions regarding employment)
described in paragraphs 2 and 3 of the Agreement and Sections 5(f) and 5(g) of
the Plan shall continue to be applied with respect to the Optionee, and
following any such events, the transferred Options shall be exercisable by the
Transferee only to the extent, and for the periods specified in the Plan, and
(ii) the Options may not, without the consent of the Committee, be transferred
by the Transferee except by will or pursuant to the laws of descent and
distribution. The Transferee understands and acknowledges that any shares of
Common Stock purchased by the Transferee pursuant to the Options may not be
registered under the Securities Act of 1933, as amended, and that such shares
may contain a restrictive legend in substantially the form as set forth below
(in addition to any legend required under applicable state securities laws):
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED
IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO
THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO
THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD
PURSUANT TO RULE 144 OF SUCH ACT.
In order to enforce the foregoing, the Company may impose stop-transfer
instructions with respect to such securities until such time as the Company is
reasonably satisfied that such restrictions are no longer applicable to the sale
of such securities.
The Optionee further represents and warrants to the Company and the Transferee
that (i) Optionee has delivered to the Transferee a copy of the Agreement, (ii)
Optionee has consulted with qualified income and estate tax advisors in
determining to transfer the Options to the Transferee or waives any such
requirement to do so and (iii) Optionee has considered and understands each of
the following:
1. The transfer to the Transferee is irrevocable.
2. Optionee will not control the exercise of the Options once
they have been transferred.
3. Optionee is assuming all of the risks and possible
consequences associated with the transfer of the Options, and
acknowledges that the Company and its representatives are not
responsible or liable for any tax, penalty, judgment or
outcome resulting from the transfer of the Options.
OPTIONEE: TRANSFEREE:
- ---------------------------------- ----------------------------------
Exhibit 10.22
AMERICAN HOME PRODUCTS CORPORATION
RESTRICTED STOCK PERFORMANCE AWARD AGREEMENT
UNDER THE 1996 STOCK INCENTIVE PLAN
DATE:
NUMBER OF SHARES SUBJECT
TO TARGET AWARD:
[Name]
[Address]
Under the terms and conditions of this Agreement and of the Company's
1996 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 receive either (through book-entry form) a credit to
an account maintained on your behalf or a stock certificate representing such
shares of Common Stock and you 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 and subject to the additional
provisions of Paragraph 4. 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.
<PAGE>
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 $1.88 for 1998 and, for 1999 and 2000,
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
contribute as of the Conversion Date the shares of Restricted Stock, issuable
hereunder, to the Restricted Stock Trust (as defined below) by completing the
form set forth on Schedule A attached hereto wherein such shares of stock shall
be held, subject to claims of the Company's creditors, until delivery to you
under the terms of Paragraph 5 herein. 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 contributed to 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 (the "1934 Act"); and
(ii) "Restricted Stock Trust" means the trust fund established
under the Restricted Stock Trust Agreement dated as of April
20, 1994 (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) as
provided in Paragraph 5(a)(ii) of this agreement, which trust
fund is 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 in replacement thereof
you shall receive either (through book-entry form) a credit to an account
maintained on your behalf or a certificate representing the Common Stock free of
any restrictive legend other than as may be required by applicable state or
federal securities law, such Common Stock to be either (i) so delivered to you
promptly or (ii) if you have made or are deemed to have made the election under
Paragraph 4 above, contributed to the Restricted Stock Trust, in which case such
shares shall be maintained in the Restricted Stock Trust and delivery shall be
deferred until after your Retirement in accordance with the election set forth
on Schedule A attached hereto, or if either (1) no such election is made or (2)
your employment with the Company is terminated prior to Retirement for any
reason (including death), delivery shall be made on 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 as well as other withholding obligations (e.g. Social Security and
Medicare) which may be due and payable under applicable law as of the lapse of
the Restricted Period as defined in Paragraph 2, whether or not delivery of such
shares is deferred under Paragraph 4 (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.
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 Disability
or Retirement, or in the event of your death, 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. Each book-entry or 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 May 21, 1998, 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 of such shares
either (through book-entry form) by a credit to an account maintained on your
behalf or by delivery of certificates representing such shares 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 of such shares either (through
book-entry form) by a credit to an account maintained on your behalf or by
delivery of certificates representing such shares to comply with any such law or
regulation.
(b) If you are subject to Section 16 of 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.
10. No Change of Control. Notwithstanding Section 9 of the Plan, upon a
Change in Control (as defined in the Plan), (A) the date upon and after which
the Units will be converted to shares of Restricted Stock (or Common Stock free
from restriction) will not be accelerated and (B) the Units (or shares of
Restricted Stock) will not be cashed out, in each case unless and until the
Compensation and Benefits Committee provides otherwise. Furthermore, you hereby
waive all rights under the Severance Agreement entered into by and between you
and the Company and approved by the Board on January 29, 1998 (the "Severance
Agreement") to receive an amount in respect of the Units (or shares of
Restricted Stock) in the event that this Agreement is terminated or such Units
(or shares of Restricted Stock) are forfeited upon termination of your
employment following a Change in Control (as defined in the Severance Agreement)
to which you would otherwise be entitled thereunder.
<PAGE>
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, , hereby make an election to defer distribution of all shares of Common Stock
less those shares necessary to satisfy any applicable withholding obligation
under Paragraph 5(b) of the Restricted Stock Performance Award Agreement (the
"Agreement) and to cause the Company to contribute such shares to the Restricted
Stock Trust (with any dividends thereon to be reinvested under the AHPC Master
Investment Plan).
See Note Below
I, _______________________, hereby make an election to receive, after
Retirement, a distribution of such number of shares in the Restricted Stock
Trust to which I am entitled in substantially equal annual installments over a
period not to exceed ten years as follows, subject to the provisions of the
Agreement, including Paragraph 5, thereof (provided, however, that in the event
of my death all remaining installments shall be accelerated and promptly
distributed):
Circle the number of annual installments:
2 3 4 5 6 7 8 9 10
These elections 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 10.23
AMERICAN HOME PRODUCTS CORPORATION
RESTRICTED STOCK PERFORMANCE AWARD AGREEMENT
UNDER THE 1996 STOCK INCENTIVE PLAN
DATE:
NUMBER OF SHARES SUBJECT
TO TARGET AWARD:
[Name]
[Address]
Under the terms and conditions of this Agreement and of the Company's
1996 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 receive either (through book-entry form) a credit to
an account maintained on your behalf or a stock certificate representing such
shares of Common Stock and you 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 and subject to the additional
provisions of Paragraph 4. 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 2000 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 2000, 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, 2000; 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
contribute as of the Conversion Date the shares of Restricted Stock, issuable
hereunder, to the Restricted Stock Trust (as defined below) by completing the
form set forth on Schedule A attached hereto wherein such shares of stock shall
be held, subject to claims of the Company's creditors, until delivery to you
under the terms of Paragraph 5 herein. 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 contributed to 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 (the "1934 Act"); and
(ii) "Restricted Stock Trust" means the trust fund established
under the Restricted Stock Trust Agreement dated as of April
20, 1994 (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) as
provided in Paragraph 5(a)(ii) of this agreement, which trust
fund is 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 in replacement thereof
you shall receive either (through book-entry form) a credit to an account
maintained on your behalf or a certificate representing the Common Stock free of
any restrictive legend other than as may be required by applicable state or
federal securities law, such Common Stock to be either (i) so delivered to you
promptly or (ii) if you have made or are deemed to have made the election under
Paragraph 4 above, contributed to the Restricted Stock Trust, in which case such
shares shall be maintained in the Restricted Stock Trust and delivery shall be
deferred until after your Retirement in accordance with the election set forth
on Schedule A attached hereto, or if either (1) no such election is made or (2)
your employment with the Company is terminated prior to Retirement for any
reason (including death), delivery shall be made on 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 as well as other withholding obligations (e.g. Social Security and
Medicare) which may be due and payable under applicable law as of the lapse of
the Restricted Period as defined in Paragraph 2, whether or not delivery of such
shares is deferred under Paragraph 4 (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.
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 Disability
or Retirement, or in the event of your death, 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. Each book-entry or 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 May 21, 1998, 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 of such shares
either (through book-entry form) by a credit to an account maintained on your
behalf or by delivery of certificates representing such shares 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 of such shares either (through
book-entry form) by a credit to an account maintained on your behalf or by
delivery of certificates representing such shares to comply with any such law or
regulation.
(b) If you are subject to Section 16 of 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.
10. No Change of Control. Notwithstanding Section 9 of the Plan, upon a
Change in Control (as defined in the Plan), (A) the date upon and after which
the Units will be converted to shares of Restricted Stock (or Common Stock free
from restriction) will not be accelerated and (B) the Units (or shares of
Restricted Stock) will not be cashed out, in each case unless and until the
Compensation and Benefits Committee provides otherwise. Furthermore, you hereby
waive all rights under the Severance Agreement entered into by and between you
and the Company and approved by the Board on January 29, 1998 (the "Severance
Agreement") to receive an amount in respect of the Units (or shares of
Restricted Stock) in the event that this Agreement is terminated or such Units
(or shares of Restricted Stock) are forfeited upon termination of your
employment following a Change in Control (as defined in the Severance Agreement)
to which you would otherwise be entitled thereunder.
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, ___________________, hereby make an election to defer distribution of all
shares of Common Stock less those shares necessary to satisfy any applicable
withholding obligation under Paragraph 5(b) of the Restricted Stock
Performance Award Agreement (the "Agreement") and to cause the Company to
contribute such shares to the Restricted Stock Trust (with any dividends
thereon to be reinvested under the AHPC Master Investment Plan).
See Note Below
I, ______________________, hereby make an election to receive, after
Retirement, a distribution of such number of shares in the Restricted Stock
Trust to which I am entitled in substantially equal annual installments over a
period not to exceed ten years as follows, subject to the provisions of the
Agreement, including Paragraph 5, thereof (provided, however, that in the
event of my death all remaining installments shall be accelerated and
distributed promptly):
Circle the number of annual installments:
2 3 4 5 6 7 8 9 10
These elections 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 an Anniversary Date occurs, you will be deemed to
have elected deferred distribution hereunder.
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 10.24
AMERICAN HOME PRODUCTS CORPORATION
SPECIAL RESTRICTED STOCK PERFORMANCE AWARD AGREEMENT
UNDER THE 1996 STOCK INCENTIVE PLAN
AS OF: JANUARY 28, 1999
NUMBER OF SHARES SUBJECT
TO TARGET AWARD FOR 1999: 8,500
FOR 2000: 8,500
William J. Murray
Five Giralda Farms
Madison, New Jersey 07940
Under the terms and conditions of this Agreement and of the Company's
1996 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")
for 1999 and 2000, respectively, subject to the restrictions set forth in this
Agreement, in the amounts set forth above (each a "Target Award"). Upon the
satisfaction by the Company of the performance criteria as described in
Paragraph 3 of this Agreement, the Units will be converted into shares of the
Company's Common Stock entitling you 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 any 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 shares of Restricted Stock as of a Conversion
Date, you will be the owner of record of the shares of Common Stock represented
by such Restricted Stock and shall receive either (through book-entry form) a
credit to an account maintained on your behalf or a stock certificate
representing such shares of Common Stock and you 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 and subject to the
additional provisions of Paragraph 4. 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. Except as set forth in Section 5 or 6(b), during
the period from the date of this Agreement through the date on which the
Committee determines whether performance targets have been met for 2000 (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) Except if this Agreement is
earlier terminated in accordance with its terms, at meetings of the Committee to
be held within 60 days after the end of each of 1999 and 2000, respectively, or
at such other time or times as the Committee in its discretion deems
appropriate, the Committee shall compare the IBT (as defined below) for the
preceding year with the Target IBT (as defined below) for such year (the date on
which each such determination is made being referred to herein as a "Conversion
Date") and, if the Committee determines for such year that:
(i) IBT is less than 90% of the Target IBT, then all
rights with respect to the Target Award for such year
(the "Annual Target Amount") shall thereupon be
forfeited;
(ii) IBT is greater than or equal to 90% of the Target IBT
and less than 95% of the Target IBT, 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) IBT is greater than or equal to 95% of the Target IBT
and less than 105% of the Target IBT, then Units
representing the entire Annual Target Amount shall be
converted into Restricted Stock; and
(iv) IBT is greater than or equal to 105% of the Target
IBT, 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, shall be rounded up or down for each such year.
(c) As used in this Agreement, the term:
(i) "IBT" for any year means the net income before income
taxes of the Company's Agricultural Products Division
as determined in accordance with the Company's Master
Accounting Manual on a basis that is consistent with
past practice, such determination to be made in good
faith by the Committee acting in its sole discretion.
(ii) "Target IBT" means, for each of 1999 and 2000,
the amounts set forth on Exhibit I hereto.
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
contribute as of the Conversion Date the shares of Restricted Stock, issuable
hereunder, to the Restricted Stock Trust (as defined below) by completing the
form set forth on Schedule A attached hereto wherein such shares of stock shall
be held, subject to claims of the Company's creditors, until delivery to you
under the terms of Paragraph 5 herein. 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 contributed to 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 stockholders under the Securities Exchange Act of
1934, as amended (the "1934 Act"); and
(ii) "Restricted Stock Trust" means the trust fund established
under the Restricted Stock Trust Agreement dated as of April
20, 1994 (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) as
provided in Paragraph 5(a)(ii) of this agreement, which trust
fund is 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, all
shares of Restricted Stock (and any Bonus Award) granted hereunder shall be
canceled and in replacement thereof you shall receive either (through book-entry
form) a credit to an account maintained on your behalf or a stock certificate
representing the Common Stock free of any restrictive legend other than as may
be required by applicable state or federal securities law, such Common Stock to
be either (i) so delivered to you promptly or (ii) if you have made or are
deemed to have made the election under Paragraph 4 above, contributed to the
Restricted Stock Trust, in which case such shares shall be maintained in the
Restricted Stock Trust and delivery shall be deferred until after your
Retirement in accordance with the election set forth on Schedule A attached
hereto, or if either (1) no such election is made or (2) your employment with
the Company is terminated prior to Retirement for any reason (including death),
delivery shall be made on 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 as well as other withholding obligations (e.g., Social Security and
Medicare) which may be due and payable under applicable law as of the lapse of
the Restricted Period as defined in Paragraph 2, whether or not delivery of such
shares is deferred under Paragraph 4 (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.
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 stockholder 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 Disability
or Retirement, or in the event of your death, 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 and Paragraphs 10 and
11 below.
7. Legend. Each book-entry or 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 Special
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
Special Restricted Stock Performance Award Agreement dated as of
January 28, 1999, 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 of such shares
either (through book-entry form) by a credit to an account maintained on your
behalf or by delivery of certificates representing such shares is in compliance
with all applicable laws and regulations of governmental authority. The
Corporation shall in no event be obligated 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 of such shares either
(through book-entry form) by a credit to an account maintained on your behalf or
by delivery of certificates representing such shares to comply with any such law
or regulation.
(b) If you are subject to Section 16 of 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.
10. Sale of the Agricultural Products Division. Notwithstanding
anything to the contrary herein, in the event of a sale or other divestiture by
the Company of the Agricultural Products Division prior to December 31, 1999,
the Target Award for 2000 will be canceled and the Target Award for 1999 will be
subject to conversion to Restricted Stock in the sole discretion of the
Committee based upon the determination by the Committee as to whether and to
what extent the performance criteria would have (assuming that the divestiture
transaction had not occurred) been satisfied. In the event of any such
transaction occurring during 2000, no change shall be made with respect to the
Award for 1999 and the Target Award for 2000 will be subject to conversion to
Restricted Stock in the sole discretion of the Committee based upon the
determination by the Committee as to whether and to what extent the performance
criteria would have (assuming that the divestiture transaction had not occurred)
been satisfied.
11. Change of Control. Notwithstanding Section 9 of the Plan, upon a
Change in Control (as defined in the Plan), (A) the date upon and after which
the Units will be converted to shares of Restricted Stock (or Common Stock free
from restriction) will not be accelerated and (B) the Units (or shares of
Restricted Stock) will not be cashed out, in each case unless and until the
Committee provides otherwise. Furthermore, you hereby waive all rights under the
Severance Agreement entered into by and between you and the Company and approved
by the Board on January 29, 1998 (the "Severance Agreement") to receive an
amount in respect of the Units (or shares of Restricted Stock) in the event that
this Agreement is terminated or such Units (or shares of Restricted Stock) are
forfeited upon termination of your employment following a Change in Control (as
defined in the Severance Agreement) to which you would otherwise be entitled
thereunder.
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
Special Restricted Stock Performance Award Agreement)
I, , hereby make an election to defer distribution of all shares of Common Stock
less those shares necessary to satisfy any applicable withholding obligation
under Paragraph 5(b) of the Special Restricted Stock Performance Award Agreement
(the "Agreement) and to cause the Company to contribute such shares to the
Restricted Stock Trust (with any dividends thereon to be reinvested under the
AHPC Master Investment Plan).
See Note Below
I, _______________________, hereby make an election to receive, after
Retirement, a distribution of such number of shares in the Restricted Stock
Trust to which I am entitled in substantially equal annual installments over a
period not to exceed ten years as follows, subject to the provisions of the
Agreement, including Paragraph 5, thereof (provided, however, that in the event
of my death all remaining installments shall be accelerated and promptly
distributed):
Circle the number of annual installments:
2 3 4 5 6 7 8 9 10
These elections 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 10.26
American Home Products Corporation
MANAGEMENT INCENTIVE PLAN
(Approved by stockholders on April 28, 1997, as amended pursuant to Board
of Directors authorization on March 5, 1998 and adoption by the
Compensation and Benefits Committee on April 23, 1998)
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 $.1875 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
$.1875 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.
<PAGE>
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
48,000,000 (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 basis 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.
<PAGE>
(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 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 10.27
AMERICAN HOME PRODUCTS CORPORATION
1994 RESTRICTED STOCK PLAN FOR NON-EMPLOYEE DIRECTORS
(Initially approved by stockholders on April 20, 1994 and as amended by the
Board of Directors on January 28, 1999)
Section 1. Purpose. The purpose of the Restricted Stock Plan for
Non-Employee Directors of American Home Products Corporation is to attract and
retain qualified persons who are not employees or former employees of the
Corporation or any of its subsidiaries or affiliates for service as members of
the Board of Directors by granting such directors shares of the Company's Common
Stock, which are restricted in accordance with the terms and conditions set
forth below, and thereby encouraging ownership in the Company by non-employee
directors.
Section 2. Definitions. Whenever used herein, unless the context
otherwise indicates, the following terms shall have the respective meaning
set forth below:
Act: The Securities Exchange Act of 1934, as amended.
Board Membership: The period of time during which a person serves on
the Board of Directors, regardless of whether occurring before or after
the Effective Date.
Board of Directors (or Board): The Board of Directors of the Company.
Committee: The Compensation and Benefits Committee of the Board
of Directors appointed to administer the Plan in accordance with
Section 7 hereof.
Common Stock: Common Stock, par value $.33 1/3 per share, of American
Home Products Corporation.
Company: American Home Products Corporation or any successor to
it in ownership of substantially all of its assets, whether by merger,
consolidation or otherwise.
Director: Any member of the Board of Directors.
Disability: A medically determinable physical or mental impairment
which renders a participant substantially unable to function as a
Director.
Effective Date: The date specified in Section 10 hereof.
Eligible Director (or Non-Employee Director): Any Director who is
not an employee or former employee of the Company or any of its
subsidiaries or affiliates.
Participant: Each Director to whom Restricted Stock is granted under
the Plan.
Plan: The 1994 Restricted Stock Plan for Non-Employee Directors of
American Home Products Corporation.
Restricted Period: The period of time from the date of grant of the
Restricted Stock until the earliest to occur of the events described in
Section 4(b) hereof.
Retirement Benefit: A normal benefit payable under the Retirement Plan.
Retirement Plan: The American Home Products Corporation Retirement Plan
for Outside Directors, as amended.
Restricted Stock: Common Stock granted under the Plan which is
subject to restrictions in accordance with Section 4 hereof.
Year of Board Membership: 365 consecutive days of Board Membership.
Section 3. Eligibility and Grants.
(a) Grants. To be eligible to participate in the Plan, a Director must
not be an employee or former employee of the Company or any of its subsidiaries
or affiliates. Each Eligible Director on the Effective Date of the Plan shall
receive a grant of eight hundred (800) shares of Restricted Stock. In addition,
each person who becomes an Eligible Director for the first time after the
Effective Date of the Plan shall also receive a grant of eight hundred (800)
shares of Restricted Stock, effective as of the date of such person's election
as an Eligible Director. Thereafter, each Eligible Director shall be granted
eight hundred (800) shares of Restricted Stock for each subsequent Year of Board
Membership, up to a maximum of four thousand (4,000) shares of Restricted Stock
per Eligible Director. Notwithstanding anything to the contrary contained in
this Plan, if a Participant shall terminate service as a Director due to death
or Disability prior to having been granted the maximum number of shares of
Restricted Stock hereunder and provided the Participant is not then eligible for
a Retirement Benefit under the Retirement Plan, then such Participant, or such
Participant's beneficiary or estate, as the case may be, shall be granted
additional shares of Restricted Stock which together with the shares previously
granted under the Plan will equal such maximum number of shares and all
restrictions applicable to such shares shall lapse on the later of the date of
such termination of service or six months after the date of grant. If required
by the Committee, each grant of Restricted Stock shall be evidenced by a written
agreement duly executed by or on behalf of the Company and the Participant.
(b) Number of Shares. The total number of shares of Restricted Stock
which may be granted under the Plan shall not exceed 100,000. The shares may be
authorized and unissued or issued and reacquired shares, as the Board of
Directors from time to time may determine. Shares of Restricted Stock that are
forfeited before the restrictions lapse shall be available for subsequent grants
of Restricted Stock under the Plan.
(c) Non-Consecutive Terms. An Eligible Director who is elected to
non-consecutive terms of Board Membership shall receive additional grants of
shares of Restricted Stock at the time of such re-election to the Board and
thereafter as provided in Section 3, provided that the amounts so granted, when
aggregated with the number of shares of Restricted Stock previously granted to
such Director with respect to which the restrictions thereon shall have lapsed,
does not exceed four thousand (4,000) shares.
Section 4. Terms and Conditions of Restricted Stock. The restrictions
set forth in this section shall apply to each grant of Restricted Stock for the
duration of the Restricted Period.
(a) Restrictions. A stock certificate representing the number of shares
of Restricted Stock granted shall be registered in the Participant's name but
shall be held in custody by the Company for the Participant's account. The
Participant shall have all rights and privileges of a stockholder as to such
Restricted Stock, including the rights to vote and to receive dividends, except
that, subject to the provisions of Sections 3(a) and 4(b), the following
restrictions shall apply: (i) the Participant shall not be entitled to delivery
of the certificate until the expiration of the Restricted Period; (ii) none of
the shares of Restricted Stock may be sold, transferred, assigned, pledged or
otherwise encumbered or disposed of during the Restricted Period; (iii) the
Participant shall, if requested by the Company, execute and deliver to the
Company, a stock power endorsed in blank. The Participant shall forfeit all
shares of Restricted Stock with respect to which such restrictions do not lapse
at the end of the Restricted Period. Upon the forfeiture (in whole or in part)
of shares of Restricted Stock, such forfeited shares shall become treasury
shares of the Company without further action by the Participant. The Participant
shall have the same rights and privileges, and be subject to the same
restrictions, with respect to any shares received pursuant to Section 6.
(b) Events. The Restricted Period shall end upon the first to occur of
the following events:
(i) Five Years of Service. The Participant completes at least
five (5) years of service from the date of the initial grant of Restricted Stock
to the Participant under the Plan.
(ii) Disability. The Participant ceases to be a Director by
reason of Disability; provided, however, that if the Participant is at such time
entitled to a Retirement Benefit, then the Restricted Period shall be deemed not
to have lapsed. In such case, all shares of Restricted Stock will be forfeited.
(iii) Death. The Participant ceases to be a Director by reason
of death; provided, however, that if the Participant is at such time entitled to
a Retirement Benefit, then the Restricted Period shall be deemed not to have
lapsed. In such case, all shares of Restricted Stock will be forfeited.
(c) Delivery of Restricted Shares. At the end of the Restricted Period
as herein provided, subject to Section 3(a), a stock certificate for the number
of shares of Restricted Stock with respect to which the restrictions have lapsed
shall be delivered, free of all such restrictions, to the Participant or the
Participant's beneficiary or estate, as the case may be, subject to the
withholding requirements of Section 9 hereof. The Company shall not be required
to deliver any fractional share of Common Stock but will pay, in lieu thereof,
the fair market value (measured as of the date the restrictions lapse) of such
fractional share to the Participant or the Participant's beneficiary or estate,
as the case may be. Notwithstanding the foregoing, a Participant may make an
irrevocable election to cause the Company to contribute such Restricted Shares
to the Restricted Stock Trust which he or she otherwise would have received from
the Plan by completing a deferral election form provided by the Company, wherein
such shares shall be held, subject to the claims of the Company's creditors,
until delivered to the Participant in accordance with such election.
Section 5. Regulatory Compliance and Listing. The issuance or delivery
of any shares of Restricted Stock may be postponed by the Company for such
period as may be required to comply with any applicable requirements under the
federal securities laws, any applicable listing requirements of any national
securities exchange or any requirements under any other law or regulation
applicable to the issuance or delivery of such shares and the Company shall not
be obligated to issue or deliver any such shares if the issuance or delivery
thereof shall constitute a violation of any provision of any law or any
regulation of any governmental authority or any national securities exchange.
Section 6. Adjustments. In the event of a recapitalization, stock
split, stock dividend, combination or exchange of shares, merger, consolidation,
rights offering, separation, reorganization or liquidation, or any other change
in the corporate structure or shares of the Company, the Committee may make such
equitable adjustments, to prevent dilution or enlargement of rights, as it may
deem appropriate in the number and class of shares authorized to be granted
hereunder.
Section 7. Administration. The Plan shall be administered by the
Compensation and Benefits Committee, consisting of three or more Directors each
of whom shall be a "disinterested Director" within the meaning of Rule 16b-3
under the Act. All determinations of the Committee shall be conclusive. The
Committee may obtain such advice or assistance as it deems appropriate from
persons not serving on the Committee.
Section 8. Termination or Amendment. The Board may at any time
terminate the Plan and may from time to time alter or amend the Plan or any part
thereof (including any amendment deemed necessary to ensure that the Company may
comply with any regulatory requirement referred to in Section 5), provided,
however, that, unless otherwise required by law, the rights of a Participant
with respect to shares of Restricted Stock granted prior to such termination,
alteration or amendment may not be impaired without the consent of such
Participant and, provided further, without the approval of the Company's
stockholders, no alteration or amendment may be made which would (i) increase
the aggregate number of shares of Restricted Stock that may be granted under the
Plan (except by operation of Section 6), or (ii) change the category of
Directors eligible to receive shares of Restricted Stock under the Plan.
Notwithstanding the foregoing, the Plan shall not be amended more than once
every six months, other than to comport with changes in the Internal Revenue
Code, the Employee Retirement Income Security Act or the rules thereunder. The
Company intends that the Plan and the grants of Restricted Stock hereunder shall
comply with the conditions of Rule 16b-3 of the Act and qualify for the
exemption from Section 16(b) of the Act as a "formula plan". Should any
provisions hereof not be necessary in order to comply with the requirements of
such Rule or should any additional provisions be necessary in order to so
comply, the Board of Directors may amend the Plan accordingly, without the
necessity of obtaining the approval of the Company's stockholders.
Section 9. Miscellaneous.
(a) Right to Re-election. Nothing in the Plan shall be deemed to create
any obligation on the part of the Board to nominate any Director for re-election
by the Company's stockholders, nor confer upon any Director the right to remain
a member of the Board of Directors.
(b) Withholding and Responsibility For Taxes. The Company shall satisfy
any tax withholding obligation required by law by reducing the number of shares
of Common Stock otherwise deliverable to the Participant or the Restricted Stock
Trust, as the case may be. To the extent no taxes are required to be withheld on
the delivery of the shares of Common Stock to the Participant or the Restricted
Stock Trust, the Participant shall be responsible for the payment of all
applicable taxes.
(c) Governing Law. This Plan shall be governed by the law of the State
of Delaware and in accordance with such federal laws as may be applicable.
(d) Construction. Wherever any words are used herein in the masculine
gender they shall be construed as though they were also used in the feminine
gender in all cases where they would so apply, and wherever any words are used
herein in the singular form they shall be construed as though they were also
used in the plural form in all cases where they would so apply.
Section 10. Effective Date. The Plan shall be submitted to the
stockholders of the Company for their approval at the Annual Meeting of
Stockholders to be held on April 20, 1994. The Plan shall become effective upon
the affirmative vote of the holders of a majority of the shares of Common Stock
present, or represented, and entitled to vote at the meeting.
Exhibit 10.28
AMERICAN HOME PRODUCTS CORPORATION
STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
(Effective as of March 2, 1999)
1. Purpose. The purpose of the American Home Products Corporation Stock
Option Plan for Non-Employee Directors (the "Plan") is to attract and retain
qualified persons who are not employees or former employees of American Home
Products Corporation (the "Company") or any of its subsidiaries or affiliates
for service as members of the Board of Directors of the Company by providing
such members with an interest in the Company's success and progress by granting
them non-qualified options ("Options") to purchase shares of the Company's
common stock, par value $.33 1/3 per share (the "Common Stock").
2. Administration. The Plan shall be administered by the Compensation
and Benefits Committee or any successor thereto (the "Committee") of the Board
of Directors (the "Board") of the Company. Questions involving eligibility for
grants of Options, entitlement to Options or the operation of the Plan shall be
referred to the Committee. All determinations of the Committee shall be
conclusive. The Committee may obtain such advice or assistance as it deems
appropriate from persons not serving on the Committee.
3. Eligibility and Grants. To be eligible to participate in the Plan, a
director must not be an employee or former employee of the Company or any of its
subsidiaries or affiliates. On the date in each calendar year of the Annual
Meeting of Stockholders of the Company, each eligible director elected at such
Annual Meeting shall automatically be granted an Option to purchase 3,000 shares
of Common Stock; provided, however, that such amount may be increased or
decreased by the Committee in the first calendar quarter of each year to reflect
the competitive environment with respect to director compensation. Each eligible
director to whom Options are granted is hereinafter referred to as a
"Participant." Each grant of Options shall be evidenced by a written agreement
duly executed and delivered by or on behalf of the Company and the Participant.
4. Shares Available. Subject to adjustment as provided in Section 10,
the maximum aggregate number of shares of Common Stock which shall be available
under the Plan for the issuance upon the exercise of Options is 250,000 shares.
5. Term of Options. Each Option granted under the Plan shall have a
term of ten years from the date of grant, subject to earlier termination as
provided in Section 8.
6. Option Price. Options are priced at 100% of the fair market value of
the Common Stock on the date of grant. Such price shall be subject to adjustment
as provided in Section 10. The fair market value of a share of Common Stock
shall be the mean between the highest and lowest sales prices of the Common
Stock as reported on the Consolidated Transaction Reporting System ("Fair Market
Value").
7. Exercise of Options. (a) Subject to Section 8, each Option shall
become 100% exercisable on the later of (i) the date upon which the Participant
has served one term-year as a member of the Board since the date the Option was
granted (which for these purposes shall mean the period from one Annual Meeting
to the subsequent Annual Meeting), and (ii) the date on which the Participant
completes two years of continuous service as a director.
(b) An Option may be exercised at any time or from time to time, as to
any or all full shares of Common Stock as to which the Option is then
exercisable; provided, however, that any such exercise shall be for at least 100
shares of Common Stock or, if less, the total number of shares of Common Stock
as to which the Option is then exercisable.
(c) The purchase price of the Common Stock as to which an Option is
exercised shall be paid in full at the time of exercise; payment may be made in
cash or in shares of Common Stock valued at the number of shares to be purchased
multiplied by the option price per share or in any other form of consideration
which has been approved by the Committee under the most recent stock option or
incentive plan applicable to the executive officers of the Company (the "Stock
Incentive Plan").
8. Completion of Directorship. (a) In the event of the death of a
Participant or the termination of a Participant's service as a director upon
retirement after having attained age 65 with at least 10 years of service or on
account of disability, any outstanding Options held by a Participant who has
completed at least two years of continuous service as a director which are not
yet exercisable shall become exercisable on the day following the date of (i)
death; (ii) retirement; or (iii) termination of the Participant's service as a
director by reason of disability, as the case may be, and all outstanding
Options held by such Participant shall remain exercisable until the tenth
anniversary of the date of grant.
(b) In the event of a resignation or a termination of the service of a
Participant from the Board (i) for any reason prior to the completion of two
years of continuous service as a director; or (ii) thereafter, for any reason
other than death, disability or retirement as contemplated under subsection (a)
above, any outstanding Options held by such Participant shall expire at the
close of business on the effective date of such resignation or termination;
provided, however, that the Board may, in its discretion, cause the Options of
such Participant to become exercisable, and/or to remain exercisable, for a
period of time subsequent to such resignation or termination, but in no event
may the Options remain exercisable after the tenth anniversary of the date of
grant.
9. Regulatory Compliance and Listing. The issuance or delivery of any
shares of Common Stock upon the exercise of Options may be postponed by the
Company for such period as may be required to comply with any applicable
requirements under the federal securities laws, any applicable listing
requirements of any national securities exchange and requirements under any
other law or regulation applicable to the issuance or delivery of such shares,
and the Company shall not be obligated to issue or deliver any shares of Common
Stock if the issuance or delivery of such shares shall constitute a violation of
any provision of any law or of any rule or regulation of any governmental
authority or any national securities exchange.
10. Adjustment in Event of Changes in Capitalization. In the event of a
recapitalization, stock split, stock dividend, combination or exchange of
shares, merger, consolidation, rights offering, separation, reorganization or
liquidation, or any other change in the corporate structure or shares of the
Company, the number of shares of Common Stock that may be awarded as Options or
that are subject to outstanding Option grants, and the option price per share
under outstanding Options, shall be adjusted automatically to prevent dilution
or enlargement of rights.
11. Termination or Amendment of the Plan. The Board may at any time
terminate the Plan and may from time to time alter or amend the Plan or any part
thereof (including any amendment deemed necessary to ensure that the Company may
comply with any regulatory requirement referred to in Section 9), provided that,
unless otherwise required by law, the rights of a Participant with respect to
Options granted prior to such termination, alteration or amendment may not be
impaired without the consent of such Participant.
12. Miscellaneous. (a) Nothing in the Plan shall be deemed to create
any obligation on the part of the Board to nominate any director for reelection
by the Company's shareholders.
(b) The Company shall have the right to require, prior to the issuance
or delivery of any Common Stock upon the exercise of Options, payment by the
Participant of any taxes required by law with respect to the issuance or
delivery of such shares. Such amount may be paid in cash, in shares of Common
Stock previously owned by the Participant (based on the Fair Market Value), or a
combination of cash and shares of Common Stock.
(c) The shares of Common Stock to be issued upon the exercise of
Options under the Plan shall, unless otherwise determined by the Committee, be
shares which have been or may be reacquired by the Company.
(d) The Options granted hereunder shall not be transferable by the
Participants hereunder otherwise than by will or the laws of descent and
distribution except to the extent permitted under the Stock Incentive Plan with
respect to executive officers of the Company.
(e) This Plan and Options granted hereunder shall be governed by and
construed in accordance with the laws of Delaware and in accordance with such
federal laws as may be applicable.
Exhibit 10.32
AMERICAN HOME PRODUCTS CORPORATION
DEFERRED COMPENSATION PLAN
Effective as of July 31, 1997
As Amended Effective November 19, 1998
PURPOSE
The purpose of the Deferred Compensation Plan (the "Plan") is to encourage the
retention of a key group of management employees by allowing them to defer
various types of compensation.
SECTION ONE - DEFINITIONS
Whenever used in the Plan, the following terms shall have the following
meanings:
(a) "Administrator" - means the Committee or such entity or person to whom
the Committee may delegate responsibility for administration of the Plan.
(b) "Beneficiary" - means one or more persons or entities (including a
trust or estate) designated by an Employee, at any time or from time to time, to
receive any payment under the Plan at or after such Employee's death. Such
designation shall be made on a form provided or approved by the Administrator.
If at any time a deferred amount shall become payable at or after the death of
an Employee, and there shall not be in existence any person or entity so
designated, then "Beneficiary" means the estate of such Employee.
(c) "Board of Directors" - means the Board of Directors of the Company.
(d) A "Change of Control" - shall be deemed to have occurred 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 fifty percent (50%) or more of either the outstanding shares of
Common Stock or the combined voting power of the Company's then outstanding
voting securities entitled to vote generally, (ii) during any period of two (2)
consecutive years, individuals who constitute the Board of Directors of the
Company 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 Company's stockholders of each new director was approved by a vote of at
least three-quarters (3/4) of the directors then still in office who were
directors at the beginning of the period or (iii) the Company undergoes a
liquidation or dissolution or a sale of all or substantially all of the assets
of the Company. No merger, consolidation, or corporate reorganization in which
the owners of the combined voting power of the Company's then outstanding voting
securities entitled to vote generally prior to such combination, own fifty
percent (50%) or more of the resulting entity's outstanding voting securities
shall, by itself, be considered a Change of Control. As used herein, "Permitted
Holder" means: (i) the Company, (ii) any corporation, partnership, trust, or
other entity controlled by the Company and (iii) any employee benefit plan (or
related trust) sponsored or maintained by the Company or any such controlled
entity.
(e) "Code" - means the Internal Revenue Code of 1986, as amended from time
to time.
(f) "Committee" - means the Compensation and Benefits Committee of the
Board of Directors.
(g) "Company" - means American Home Products Corporation, a Delaware
Corporation.
(h) "Deemed Rate of Interest" - means a rate of interest deemed payable on
amounts deferred under the Plan equal to 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%). The Deemed Rate of Interest shall be
calculated, accrued, credited, and compounded quarterly by the Treasurer of the
Company. The Deemed Rate of Interest may be increased or decreased from time to
time by the Board as it may deem appropriate, provided that no such decrease
shall be effective for deemed interest accruing prior to the latest of (i) the
date of Board action implementing such decrease and (ii) the date such decrease
is communicated to Participants.
(i) "Eligible Employee" - means an employee of the Company employed in the
United States who either: (i) is a principal officer of the Company as that term
is defined at Paragraph 30 of the By-Laws of the Company, or (ii) earns an
annual base salary of not less than one hundred seventy-five thousand dollars
($175,000) or such greater amount as may be determined from time to time by the
Committee. Whether or not a person is an Eligible Employee will be determined on
a Plan Year by Plan Year basis, such that a person who qualifies as an Eligible
Employee in a particular Plan Year shall not qualify as an Eligible Employee in
a subsequent Plan Year in which he/she meets neither of criteria (i) or (ii)
above.
(j) "Exchange Act" - means the Securities Exchange Act of 1934, as amended.
(k) "Effective Date" - means July 31, 1997.
(l) "Normal Retirement Date" - shall have the same meaning as set forth in
the American Home Products Corporation Retirement Plan - United States.
(m) "Participant" - means an Eligible Employee who elects to defer
compensation under the terms of the Plan.
(n) "Plan" - means the American Home Products Corporation Deferred
Compensation Plan as set forth herein and as it may be amended and/or restated
from time to time.
(o) "Plan Year" - means the calendar year, except that the first Plan Year
which shall be the period beginning on the Effective Date and ending on December
31, 1997.
(p) "Retirement Date" - means the date an Employee elects to retire under
the provisions of the American Home Products Corporation Retirement Plan -
United States.
(q) "SESP" - means the American Home Products Corporation Supplemental
Employee Savings Plan, as amended from time to time.
(r) "Stock Plans" - means the 1996 Stock Incentive Plan of the Company and
all similar prior and subsequent plans of the Company providing for the granting
of stock options to officers and other key employees of the Company.
SECTION TWO - DEFERRALS UNDER PRIOR PLANS
An Eligible Employee who, prior to the Effective Date, elected to defer part or
all of (i) the cash portion of his/her Management Incentive Plan ("MIP")
compensation, (ii) his/her base salary under the Deferred Compensation Program
("Program") of the Company, (iii) the income on the proceeds (net of after-tax
withholding and prescribed fees) of the cashless exercise of his/her stock
options under the Stock Plans, i.e., proceeds from the sale of the stock
resulting from such exercise, or (iv) the proceeds (net after-tax withholding)
of the exercise of stock appreciation rights, may elect to have such deferrals
or proceeds considered to be credited under the Plan as of the Effective Date in
accordance with such terms and conditions as may be established by the
Committee. Thereafter, such deferrals shall continue in accordance with the
deferral and distribution provisions of the Plan; provided that amounts
attributable to such deferrals shall remain subject to the same elections and
restrictions as previously had been in effect with respect thereto, unless
thereafter changed by the Eligible Employee in accordance with the terms of the
Plan.
SECTION THREE - PARTICIPATION
(a) Participation on the Effective Date. An employee of the Company shall
become a Participant as of the Effective Date if he/she is an Eligible Employee
on the Effective Date and elects to include previously deferred amounts under
the Plan as described in Section Two above or elects to defer on and after the
Effective Date by filing a deferral election form with the Administrator in
accordance with Section 5.
(b) Participation after the Effective Date. Any Eligible Employee who has
not become a Participant on the Effective Date in accordance with Section 3(a)
above shall become a Participant as of the Effective Date of his/her first
deferral under the Plan in accordance with Section 5 following the Effective
Date.
SECTION FOUR - DEFERRALS UNDER THE PLAN
(a) Deferral of Cash Awards under the MIP.
(1) A Participant may designate a percentage of the cash portion of his/her
MIP compensation from the Company which is payable in a Plan Year (the "Deferred
MIP Compensation") to be deferred and distributed in accordance with a written
election made by the Participant in accordance with Section 5.
(2) A Participant's Deferred MIP Compensation shall accrue deemed interest,
compounded quarterly, at the Deemed Rate of Interest from the date such Deferred
MIP Compensation otherwise would have been paid to the date of distribution.
(3) The Company shall distribute to a Participant his/her total Deferred
MIP Compensation (together with deemed interest accrued thereon) in accordance
with the deferral period and distribution form designated by the Participant in
accordance with Section 5.
(b) Deferral of Base Salary.
(1) A Participant may designate a percentage of his/her total annual base
salary for a Plan Year (the "Deferred Salary Compensation") to be deferred and
distributed in accordance with a written election made by the Participant in
accordance with Section 5. However, no such deferral shall be effective unless
the Participant elects with respect to the same Plan Year to have no less than
six percent (6%) of his/her total base salary deferred in accordance with the
SESP, and such SESP deferral shall be subject to the terms of the SESP and not
to this Plan.
(2) A Participant's Deferred Salary Compensation shall accrue deemed
interest, compounded quarterly, at the Deemed Rate of Interest from the date
such Deferred Salary Compensation otherwise would have been paid to the date of
distribution.
(3) The Company shall distribute to the Participant his/her total Deferred
Salary Compensation (together with deemed interest accrued thereon) in
accordance with the deferral period and distribution form designated by the
Participant in accordance with Section 5.
(4) A Participant may, upon no less than thirty (30) days' advance written
notice to the Vice President Finance of the Company or any successor thereto as
designated by the Committee, prospectively terminate his/her deferral of base
salary, effective as of the date stated in such written notice. Such termination
shall not affect the treatment hereunder of amounts deferred prior to the
effective date of such written notice.
(c) Deferral of Proceeds from a Cashless Exercise/Sale Transaction.
(1) A Participant may designate an amount of the proceeds (net of withheld
taxes and prescribed fees) of a cashless exercise/sale transaction of stock
options granted under the Stock Plans to be held by the Company pursuant to the
Plan (the "Deferred Stock Option Proceeds") so that deemed interest accrued
thereon in accordance with clause (2) immediately below would be deferred and
distributed in accordance with a written election made by the Participant in
accordance with Section 5.
(2) A Participant's Deferred Stock Option Proceeds shall accrue deemed
interest, compounded quarterly, at the Deemed Rate of Interest from the date the
amount of such Deferred Stock Option Proceeds otherwise would have been paid.
(3) The Company shall distribute to a Participant his/her total Deferred
Stock Option Proceeds (together with deemed interest accrued thereon) in
accordance with the deferral period and distribution form designated by the
Participant in accordance with Section 5.
(4) For purposes of clarity, it shall be understood that the intent of this
Section 4(c) is to provide for a deferral of the Participant's taxation only
with respect to the deemed interest credited in accordance with clause (2) above
and not on the Deferred Stock Option Proceeds. As a result, it is intended that
the cashless exercise/sale transaction shall be taxable to the Participant as if
no election had been made hereunder and, upon distribution from the Plan, only
the deemed interest accrued on the Deferred Stock Option Proceeds, and not the
Deferred Stock Option Proceeds themselves, shall be taxable to the Participant.
(d) Deferral of Proceeds from Exercise of Stock Appreciation Rights
("SARs").
(1) A Participant may designate an amount of the proceeds of the exercise
of SARs ("Deferred SAR Proceeds"), as specified on the deferral election form,
to be deferred and distributed in accordance with a written election made by the
Participant in accordance with Section 5.
(2) A Participant's Deferred SAR Proceeds shall accrue deemed interest,
compounded quarterly, at the Deemed Rate of Interest from the date such Deferred
SAR Proceeds otherwise would have been paid to the Participant.
(3) The Company shall distribute to the Participant his/her total Deferred
SAR Proceeds (together with deemed interest accrued thereon) in accordance with
the deferral period and distribution form designated by the Participant in
accordance with Section 5.
SECTION FIVE - FORM OF DEFERRAL ELECTIONS
(a) All deferrals made under Section 4 shall be evidenced by the
Participant's properly executing a deferred compensation agreement form supplied
by the Administrator in accordance with the rules set forth in this Section 5.
(b) An election to consider amounts previously deferred to be credited
under this Plan in accordance with Section 2 must be received by the Committee
or its designee prior to the Effective Date.
(c) An election to defer MIP compensation in accordance with Section 4(a)
or base salary in accordance with Section 4(b) with respect to a particular Plan
Year must be received by the Committee or its designee no later than the last
day of the preceding Plan Year. Such election must designate the timing and form
of distribution of such Deferred MIP Compensation and/or base salary and
earnings thereon in accordance with the options described in Section 6(a) and
(b), respectively.
(d) An election to have the proceeds from a cashless exercise/sale
transaction held by the Company in accordance with Section 4(c) must be received
by the Committee within the time frame established by the Committee from time to
time. Such election must designate the timing and form of distribution of such
proceeds and earnings thereon in accordance with the options described in
Section 6(c).
(e) An election to defer proceeds from the exercise of SARs in accordance
with Section 4(d) must be received by the Committee no later than six months
prior to the exercise date of the SAR. Such election must designate the timing
and form of distribution of such deferred SAR proceeds and earnings thereon in
accordance with the options described in Section 6(d).
(f) Notwithstanding the above, an employee who becomes an Eligible Employee
for the first time during a Plan Year shall be permitted, within the thirty (30)
day period that begins on the day he/she becomes an Eligible Employee, to make
an election to defer base salary accrued after the effective date of such
election for the remainder of the Plan Year and MIP Compensation payable with
respect to the Plan Year, provided, in the case of MIP Compensation, that the
amount of such compensation, if any, is not known prior to the effective date of
such election.
SECTION SIX - DISTRIBUTIONS
(a) Deferred MIP Compensation.
(1) Commencement of Payment of Deferral of Deferred MIP Compensation.
Deferred MIP Compensation (together with deemed interest accrued thereon) shall
commence to be paid at the election of the Participant either: (i) ten (10)
years following the date the Deferred MIP Compensation otherwise would have been
paid, or (ii) at the Participant's Retirement Date.
(2) Form of Distribution of Deferred MIP Compensation. Deferred MIP
Compensation (together with deemed interest accrued thereon) shall be
distributed at the election of a Participant either: (i) in a lump sum payment
payable within ninety (90) days following the time designated pursuant to
Section 6(a)(1) above, or (ii) in installment payments of up to ten (10)
substantially equal annual installments, with the first installment payable
within ninety (90) days following the time designated pursuant to Section
6(a)(1) above, with the remaining installments payable within ninety (90) days
following the anniversaries of such time. The amount of each installment shall
be determined by dividing the amount credited to the Participant's account at
the time the installment is to be made (including deemed interest) by the number
of remaining installments (including the installment then due).
(b) Deferred Salary Compensation.
(1) Commencement of Payment of Deferred Salary Compensation. Deferred
Salary Compensation (together with deemed interest accrued thereon) shall
commence to be paid at the election of the Participant either: (i) ten (10)
years following the date the Deferred Salary Compensation otherwise would have
been paid, or (ii) at the Participant's Retirement Date.
(2) Form of Distribution of Deferred Salary Compensation. Deferred Salary
Compensation (together with interest accrued thereon) shall be distributed at
the election of the Participant either: (i) in a lump sum payable within ninety
(90) days following the time designated pursuant to Section 6(b)(1) above, or
(ii) in installment payments of up to ten (10) substantially equal annual
installments, with the first installment payable within ninety (90) days
following the time designated pursuant to Section 6(b)(1) above, with the
remaining installments payable within ninety (90) days following the
anniversaries of such time. The amount of each installment shall be determined
by dividing the amount credited to the Participant's account at the time the
installment is to be made (including deemed interest) by the number of remaining
installments (including the installment then due).
(c) Deferred Stock Option Proceeds.
(1) Commencement of Payment of Deferred Stock Option Proceeds. Deferred
Stock Option Proceeds (together with deemed interest accrued thereon) shall
commence to be paid at the election of a Participant either (i) not less than
three (3) years nor more than ten (10) years following the exercise of the stock
options subject to such election, or (ii) at the attainment of the Retirement
Date of the Participant.
(2) Form of Distribution of Deferred Stock Option Proceeds. Deferred Stock
Option Proceeds (together with deemed interest accrued thereon) shall be
distributed at the election of a Participant either: (i) in a lump sum payable
within ninety (90) days following the time designated in Section 6(c)(1) above,
or (ii) in installment payments of up to ten (10) substantially equal annual
installments, with the first installment payable within ninety (90) days
following the time designated in Section 6(c)(1) above, with the remaining
installments payable within ninety (90) days following the anniversaries of such
time. The amount of each installment shall be determined by dividing the amount
of deferrals in the Participant's account at the time the installment is to be
made (including deemed interest thereon) by the number of installments.
(3) Early Payment of Deferred Stock Option Proceeds. A Participant may,
upon written request to the Committee, receive payment of a portion or all of
his/her Deferred Stock Option Proceeds (as elected by the Participant) prior to
the date selected pursuant to Section 6(c)(1) above. In that event of such early
payment, the deemed interest credited to the Participant for that Plan Year
shall be one percent (1%) less than the rate otherwise applicable for the Plan
Year, and shall be credited on Deferred Stock Option Proceeds distributable
under this Section 6(c)(3) only through the date of distribution. A Participant
shall not be allowed to elect to receive early payment under this Section
6(c)(3) of any deemed interest credited to his/her Deferred Stock Option
Proceeds, but only of the Deferred Stock Option Proceeds themselves.
(d) Deferred SAR Proceeds.
(1) Commencement of Payment of Deferred SAR Proceeds. Deferred SAR Proceeds
(together with deemed interest accrued thereon) shall commence to be paid at the
election of a Participant either (i) ten (10) years following the exercise of
the SAR subject to such election, or (ii) at the Participant's Retirement Date.
(2) Form of Distribution of SAR Proceeds. Deferred SAR Proceeds (together
with deemed interest accrued thereon) shall be distributed at the election of a
Participant either: (i) in a lump sum payment payable within ninety (90) days
following the time designated pursuant to Section 6(d)(1) above, or (ii) in
installment payments of up to ten (10) substantially equal annual installments,
with the first installment payable within ninety (90) days following the time
period designated pursuant to Section 6(d)(1) above, with the remaining
installments payable within ninety (90) days following the anniversaries of such
time. The amount of each installment shall be determined by dividing the amount
of deferrals in the Participant's account at the time the installment is to be
made (including deemed interest thereon) by the number of installments.
(e) Payment Upon Separation From Service. Notwithstanding the above, in the
event a Participant shall separate from service with the Company (for reasons
other than death) prior to the commencement of payment of his/her Deferred MIP
Compensation, Deferred Salary Compensation, Deferred Stock Option Proceeds
and/or Deferred SAR Proceeds, the Participant's account shall be distributed to
the Participant in a single lump sum, together with deemed interest accrued
thereon through the date of distribution, within ninety (90) days following such
separation, provided that the foregoing shall not apply in the case of a
Participant who (i) separates from service on a Retirement Date and (ii) had
elected to receive payment of any amounts deferred under the Plan in the form of
installment payments, commencing at his/her Retirement Date (but only with
respect to amounts for which such election had been made).
(f) Payment Upon Death. Notwithstanding anything in the Plan to the
contrary, in the event a Participant dies prior to the receipt of any or all of
his/her Deferred MIP Compensation, Deferred Salary Compensation, Deferred Option
Proceeds, and/or Deferred SAR Proceeds, such amount shall be distributed in a
single lump sum to the Participant's Beneficiary(ies), together with deemed
interest accrued thereon through the date of such distribution, within ninety
(90) days following his/her death.
(g) Notwithstanding anything in the Plan to the contrary, including
Sections 6(a)(1)(ii), 6(b)(1)(ii), 6(c)(1)(ii), and 6(d)(1)(ii), (i) a
Participant who prior to November 19, 1998 has elected to commence payment at
his or her Retirement Date may elect to defer such commencement of payments
beyond his or her Retirement Date but in no event beyond his or her Normal
Retirement Date; and (ii) on or after November 19, 1998 a Participant may elect
to commence payment on or after his or her Retirement Date but in no event
beyond his or her Normal Retirement Date; provided in each case that such
deferral election or amended deferral election, as the case may be, is filed
with the Committee or its delegate at least six months prior to his or her
Retirement Date.
SECTION SEVEN - MISCELLANEOUS
(a) Funding of the Plan. The Plan is unfunded and the Company has no
obligation to set aside, earmark, or place in trust any funds with which to pay
its obligations under this Plan. The Company's obligation shall not be secured
in any way and a Participant's rights shall in no way be preferred over the
general creditors of the Company.
(b) Change of Control. In the event of a Change of Control, all Deferred
MIP Compensation, Deferred Salary Compensation, Deferred Stock Option Proceeds
and/or Deferred SAR Proceeds shall be paid to the Participant in a lump sum,
together with deemed interest accrued thereon, within ten (10) days following
the Change of Control.
(c) Employment. This Plan does not constitute an employment contract
between the Company and a Participant. Nothing in this Plan shall be construed
to give a Participant the right to be retained in the service of the Company,
nor interfere with the right of the Company to terminate or discipline a
Participant at any time.
(d) Construction. This Plan shall be construed and interpreted under the
laws of the State of New Jersey.
(e) Taxes. The Company may withhold from distributions made from the Plan
any taxes required to be withheld under federal, state, or local law.
(f) Non-Assignable. Benefits payable under this Plan may not be
anticipated, assigned (either at law or equity), alienated, pledged, encumbered,
or subjected to attachment, garnishment, levy, execution, or other legal
process, and any attempt to effect such distribution shall be void.
(g) Minors and Incompetents. If the Administrator determines that any
person to whom a payment is due hereunder is a minor or incompetent by reason of
physical or mental disability, the Administrator shall have the power to cause
the payments then due to such person to be made to another for the benefit of
the minor or incompetent, without responsibility of the Company or the
Administrator to see to the application of such payment, unless claim prior to
such payment is made therefor by a duly appointed legal representative. Payments
made pursuant to such power shall operate as a complete discharge of the Company
and the Administrator.
SECTION EIGHT - EMERGENCY BENEFIT
In the event that the Committee determines that the Employee has suffered an
unforeseeable financial emergency, the Administrator shall pay to the Employee
as soon as possible following such determination, an amount not in excess of the
amount needed to satisfy the emergency. Such payment shall be distributed first
out of the Employee's Deferred Stock Option Proceeds and deemed interest accrued
thereon, second, out of Deferred MIP Compensation and deemed interest accrued
thereon, third, out of Deferred Salary Compensation and deemed interest accrued
thereon, and fourth, out of Deferred SAR Proceeds and deemed interest accrued
thereon. Deemed interest shall not be accrued for any Employee on an amount paid
to the Employee after the date of such payment. For this purpose, an
"unforeseeable financial emergency " means an unanticipated emergency that is
caused by an event beyond the control of the Employee that would result in
severe financial hardship if the emergency distribution were not permitted. In
determining whether a Participant has suffered an unforeseeable financial
emergency, the Administrator shall apply principals similar to those contained
in Treasury Regulation Section 1.457-2(h)(4).
SECTION NINE - ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Administrator which shall have full
discretionary authority to interpret the Plan; to make all determinations as may
be necessary or advisable; and to adopt, amend or rescind any rules,
regulations, and procedures as it deems necessary or appropriate for the
administration of the Plan. The determinations, actions, and decisions of the
Administrator shall be binding and conclusive for all purposes and upon all
persons. The Administrator may delegate part or all of its responsibilities
under the Plan to such party or parties as it may deem necessary or appropriate.
SECTION TEN - AMENDMENT AND TERMINATION
The Board of Directors may from time to time amend or revise the terms of the
Plan, or may discontinue the Plan at any time. However, such amendment, revision
or discontinuance of the Plan may not adversely affect an Employee's benefit(s)
accrued under the Plan prior to the date of such action.
SECTION ELEVEN - CLAIMS PROCEDURE
If a Participant does not receive the timely payment of the benefits which
he/she believes are due under the Plan, the Participant may make a claim for
benefits in the manner hereinafter provided.
All claims for benefits under the Plan shall be made in writing and shall be
signed by the Participant. Claims shall be submitted to the Administrator. If
the Participant does not furnish sufficient information with the claim for the
Administrator to determine the validity of the claim, the Administrator shall
indicate to the Participant any additional information which is necessary for
the Administrator to determine the validity of the claim.
Each claim hereunder shall be acted on and approved or disapproved by the
Administrator within 90 days following the receipt by the Administrator of the
information necessary to process the claim. In the event the Administrator
denies a claim for benefits in whole or in part, the Administrator shall notify
the Participant in writing of the denial of the claim and notify the Participant
of his right to a review of the Administrator's decision by the Administrator.
Such notice by the Administrator shall also set forth, in a manner calculated to
be understood by the Participant, the specific reason for such denial, the
specific provisions of the Plan on which the denial is based, a description of
any additional material or information necessary to perfect the claim with an
explanation of the Plan's appeals procedure as set forth in this Section Eleven.
If no action is taken by the Administrator on a Participant's claim within 90
days after receipt by the Administrator, such claim shall be deemed to be denied
for purposes of the following appeals procedure. Any applicant whose claim for
benefits is denied in whole or in part may appeal for a review of the decision
by the Administrator. Such appeal must be made within three months after the
applicant has received actual or constructive notice of the denial as provided
above. An appeal must be submitted in writing within such period and must: (a)
request a review by the Administrator of the claim for benefits under the Plan;
(b) set forth all of the grounds upon which the Participant's request for
review is based or any facts in support thereof; and
(c) set forth any issues or comments which the Participant deems pertinent
to the appeal.
The Administrator shall act upon each appeal within 60 days after receipt
thereof unless special circumstances require an extension of the time for
processing, in which case a decision shall be rendered by the Administrator as
soon as possible but not later than 120 days after the appeal is received by it.
The Administrator may require the Participant to submit such additional facts,
documents or other evidence as the Administrator in its discretion deems
necessary or advisable in making its review. The Participant shall be given the
opportunity to review pertinent documents or materials upon submission of a
written request to the Administrator, provided the Administrator finds the
requested documents or materials are pertinent to the appeal.
On the basis of its review, the Administrator shall make an independent
determination of the Participant's eligibility for benefits under the Plan. The
decision of the Administrator on any appeal of a claim for benefits shall be
final and conclusive upon all parties thereto.
In the event the Administrator denies an appeal in whole or in part, it shall
give written notice of the decision to the Participant, which notice shall set
forth, in a manner calculated to be understood by the Participant, the specific
reasons for such denial and which shall make specific reference to the pertinent
provisions of the Plan on which the Administrator's decision is based.
EXHIBIT 12
<TABLE>
American Home Products Corporation
Computation of Ratio of Earnings To Fixed Charges
(Thousands of dollars, except ratio amounts)
<CAPTION>
Years Ended December 31,
Earnings: 1998 1997 1996 1995 1994 (1)
<S> <C> <C> <C> <C> <C>
Income from continuing operations
before federal and foreign taxes $3,585,460 $2,814,707 $2,755,460 $2,438,698 $2,029,760
Add:
Fixed charges 376,253 518,661 605,011 705,047 155,187
Minority interests 2,177 721 18,084 717 (12,570)
Distributed equity income 920 0 0 0 0
Amortization of capitalized interest 1,487 1,057 5,621 768 497
Less:
Equity income/(loss) 522 10,840 10,431 8,129 (1,691)
Capitalized interest 9,497 12,898 0 7,681 9,792
Total earnings as defined $3,956,278 $3,311,408 $3,373,745 $3,129,420 $2,164,773
Fixed Charges:
Interest and amortization of debt expense $ 322,970 $ 461,370 $ 571,414 $ 665,021 $ 116,661
Capitalized interest 9,497 12,898 0 7,681 9,792
Interest factor of rental expense (2) 43,786 44,393 33,597 32,345 28,734
Total fixed charges as defined $ 376,253 $ 518,661 $ 605,011 $ 705,047 $ 155,187
Ratio of earnings to fixed charges 10.5 6.4 5.6 4.4 13.9
</TABLE>
(1) - 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.
(2) - A 1/3 factor was utilized to compute the portion of rental expenses
deemed representative of the interest factor.
[PHOTO]
First in Class,
Best in Class:
Breakthrough
Therapies from
AHP's Pipeline
American
Home Products
Corporation
1998 Annual Report
<PAGE>
American Home Products
[GRAPHIC]
American Home Products is one of the world's largest research-based health care
and agricultural products companies, with leading positions in prescription and
non-prescription medications, nutritionals, crop protection products, and
veterinary pharmaceuticals and biologicals. Our Company is focused on the
discovery and development of breakthrough products through a significant
investment in research and development.
Millions of people worldwide benefit from AHP's broad and diverse lines of
pharmaceutical products. These include women's health care products,
neuroscience and cardiovascular therapies, vaccines, agents for pain and
arthritis, anti-infectives and treatments for use in oncology and hematology.
AHP also is recognized for its consumer health care products, holding one of the
largest global over-the-counter product franchises and demonstrating growth in
the area of nutritional supplements.
[GRAPHIC]
AHP is among the major agricultural products companies in the world with a
presence in all significant agricultural markets. Our Company produces
innovative crop protection products that meet stringent environmental safety
standards worldwide.
[GRAPHIC]
American Home Products also is a leading worldwide provider of animal health
care products for livestock and companion animals.
[GRAPHIC]
Contents
2 Chairman's Report
7 From Research to Results
18 Pharmaceutical Pipeline
20 AHP at a Glance
24 Research: Advancing AHP's Pharmaceutical Pipeline
25 Financial Section
53 Directors and Officers
54 Corporate Data
55 Principal Products - United States
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1998 1997
(In thousands except per share amounts) ----------- -----------
<S> <C> <C>
Net Sales $13,462,687 $14,196,026
Net Income 2,474,338 2,043,123
Diluted Earnings per Share 1.85 1.56
Dividends per Common Share 0.87 0.83
Total Assets 21,079,068 20,825,111
Stockholders' Equity 9,614,796 8,175,252
</TABLE>
Per share data for both years reflect the two-for-one stock split in April 1998.
See Note 7 to the Consolidated Financial Statements.
Net Sales ($ millions)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1998 1997 1996 1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF SALES AND EARNINGS
Net sales $13,462,687 $14,196,026 $14,088,326 $13,376,089 $8,966,214 $8,304,851 $7,873,687 $7,079,443
Net income 2,474,338 2,043,123 1,883,403 1,680,418 1,528,254 1,469,300 1,460,842 1,375,273
Diluted earnings per share 1.85 1.56 1.46 1.34 1.24 1.17 1.15 1.08
Dividends per common share 0.87 0.83 0.7825 0.755 0.735 0.715 0.665 0.5938
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1990 1989
---------- ----------
<S> <C> <C>
SUMMARY OF SALES AND EARNINGS
Net sales $6,775,182 $6,747,016
Net income 1,230,597 1,102,158
Diluted earnings per share 0.97 0.88
Dividends per common share 0.5375 0.4875
</TABLE>
On the Cover
[PHOTO]
"Life before Enbrel wasn't any life at all. You go to bed, you hurt. You wake
up, you hurt. It hurt to hold a book, let alone take care of four young
children. They took care of me! My rheumatoid arthritis made even the simplest
activities intolerable, let alone being able to make a living or just having
fun. The way I see it, Enbrel gave me a second chance. Now I can enjoy my kids,
work all day on my feet and even hike in my spare time."
Lindagail Dixon, age 44
1
<PAGE>
CHAIRMAN'S REPORT
1998 was an eventful and challenging year for American Home Products.
Substantial progress was made in focusing the Company's resources on areas of
highest growth potential and best strategic fit, as we refined our portfolio of
businesses by divesting our medical devices businesses and acquiring the Solgar
Vitamin and Herb business. Each of the Company's ongoing businesses -
pharmaceuticals, consumer health care, agricultural products and animal health
care - delivered sales increases through new product launches and global
expansion of existing product lines. AHP's pharmaceutical research and
development efforts advanced strongly, and, as a result, we believe that our
product pipeline is the best it has ever been, with products in all stages of
development, providing us with near- and long-term growth opportunities.
A REVIEW OF 1998
These achievements notwithstanding, last year was a difficult one given the loss
of U.S. revenues due to the voluntary market withdrawal of our antiobesity
products in September 1997 and Duract in June 1998 coupled with intense generic
competition for Oruvail and Lodine, two of our
[PHOTO]
John R. Stafford
Chairman, President and
Chief Executive Officer
[GRAPHIC]
"AHP'S PHARMACEUTICAL RESEARCH AND DEVELOPMENT EFFORTS ADVANCED STRONGLY, AND,
AS A RESULT, WE BELIEVE THAT OUR PRODUCT PIPELINE IS THE BEST IT HAS EVER BEEN,
WITH PRODUCTS IN ALL STAGES OF DEVELOPMENT, PROVIDING US WITH NEAR- AND
LONG-TERM GROWTH OPPORTUNITIES."
2
<PAGE>
anti-inflammatory drugs, and for Cordarone, an antiarrhythmia medication.
Additionally, the U.S. agricultural products industry experienced unfavorable
weather conditions and increased competition from genetically engineered
products, which affected AHP's domestic agricultural products business. Despite
all of these circumstances, pro forma net sales for AHP increased 2 percent
versus 1997.
Net income and diluted earnings per share for 1998 were $2.5 billion and
$1.85, respectively, compared with $2.0 billion and $1.56 in 1997. These results
include: the 1998 gain on the sale of the Sherwood-Davis & Geck medical devices
business; the 1998 restructuring charge related to the reorganization of our
pharmaceutical and nutritional supply chains; and other special items that are
more fully discussed in the financial section of this report. Excluding these
items, 1998 net income for AHP increased 10 percent compared with 1997, and
diluted earnings per share increased 8 percent. Additionally, AHP's stock price
advanced by nearly 50 percent, significantly outperforming the Standard & Poor's
500 Index.
A DECADE OF PROGRESS
Over the past 10 years, American Home Products has transformed itself from a
diversified company with $6.7 billion in net sales to a world leader in health
care and agricultural products with $13.5 billion in net sales. AHP today has 82
percent of net sales coming from prescription pharmaceuticals, vaccines,
nutritionals, consumer health care and animal health care products.
Net income also has risen sharply, increasing from $1.1 billion 10 years
ago to nearly $2.5 billion today. The current annualized dividend of $0.90 per
common share paid to shareholders has risen steadily in the past decade and, in
fact, has increased for 47 consecutive years.
Through continual efforts to improve its business portfolio and its
operating efficiency, AHP has been able to sustain income and dividend growth
while also dramatically increasing investment in research and development. The
Company's R&D spending has risen from $345 million in 1989 to a record $1.65
billion in 1998, of which more than 80 percent was dedicated to pharmaceutical
innovation, with emphasis on biotechnology.
This substantial expenditure underscores our commitment to grow sales by
identifying, developing and marketing breakthrough products in major worldwide
therapeutic categories. AHP is positioned to deliver new, advanced therapies
through its R&D skills, combining expertise in small chemical molecules, protein
biopharmaceuticals and vaccines. The productivity of our efforts has allowed us
to double the number of Investigational New Drug applications filed compared
with five years ago. To supplement our internal discovery capabilities, we have
formed important strategic alliances with outside partners.
A DECADE OF PROGRESS
<TABLE>
<CAPTION>
1989 NET SALES $6.7 BILLION
<S> <C>
Consumer Health Care 19%
Food and Household 22%
Medical Devices 10%
Pharmaceuticals 49%
</TABLE>
<TABLE>
<CAPTION>
1998 NET SALES $13.5 BILLION
<S> <C>
Consumer Health Care 16%
Agricultural Products 16%
Other 2%
Pharmaceuticals 66%
</TABLE>
"AHP TODAY HAS 82 PERCENT OF NET SALES COMING FROM PRESCRIPTION PHARMACEUTICALS,
VACCINES, NUTRITIONALS, CONSUMER HEALTH CARE AND ANIMAL HEALTH CARE PRODUCTS."
3
<PAGE>
STRATEGIES FOR GROWTH
Several highly differentiated pharmaceutical products that will provide growth
for AHP are awaiting global approval in 1999. These include Sonata, for the
treatment of general insomnia; ReFacto, a recombinant blood-clotting factor for
hemophilia A; Protonix, for erosive esophagitis (to be marketed in the United
States only); and Rapamune, an immunosuppressive therapy for prophylaxis of
renal transplant rejection. Expedited regulatory review of pneumococcal
conjugate vaccine, for the prevention of pneumococcal disease in infants and
young children, will begin in 1999. In addition, we expect Effexor XR to receive
market clearance for the treatment of general anxiety disorder as well as
labeling for rapid onset of action.
In 1999, we expect our consumer health care business to strengthen its
presence in the fast-growing U.S. nutritional supplements market and to continue
its worldwide expansion. Growth for our agricultural products business will be
driven by the products introduced in the last two years, by continued global
expansion of imidazolinone-tolerant technologies and crops and by licensing
agreements, including those signed in 1998 with leading seed breeders and
researchers.
ETHICAL PHARMACEUTICALS
Worldwide pharmaceutical sales increased to approximately $8.1 billion in 1998
as Wyeth-Ayerst Global Pharmaceuticals remained a leader in a broad range of
therapeutic categories, including: women's health care; neuroscience therapies;
vaccines; therapies for pain and arthritis; and oncology and hematology
medications.
The company's largest selling product - Premarin - led the worldwide
hormone replacement therapy market and remained the number one dispensed
prescription medication in the United States. The Premarin family of products,
including Prempro - which experienced fast growth as the leading combination
estrogen and progestin hormone replacement product - exceeded $1.6 billion in
worldwide sales during 1998.
Wyeth-Ayerst's worldwide pharmaceutical sales in 1998 also were driven by
strong demand for its oral contraceptives and the Effexor family of products,
which experienced double-digit percentage sales growth worldwide.
In 1998, Wyeth-Ayerst launched new products, including:
- - Neumega, a blood platelet growth factor that promotes production of the
body's platelet supply in cancer patients undergoing chemotherapy;
- - RotaShield, the first vaccine for use in the prevention of rotavirus
gastroenteritis;
- - Enbrel, a first-in-class, breakthrough product for the treatment of
rheumatoid arthritis, discovered by Immunex Corporation, an AHP
majority-owned company, and jointly marketed in the United States by
[GRAPHIC]
"AHP IS POSITIONED TO DELIVER NEW, ADVANCED THERAPIES THROUGH ITS R&D SKILLS,
COMBINING EXPERTISE IN SMALL CHEMICAL MOLECULES, PROTEIN BIOPHARMACEUTICALS AND
VACCINES."
4
<PAGE>
Wyeth-Ayerst and Immunex. Wyeth-Ayerst has exclusive marketing rights for Enbrel
outside the United States and expects European approval and launch during 1999.
CONSUMER HEALTH CARE
Whitehall-Robins Healthcare remained a global leader in consumer health care
products, recording approximately $2.2 billion in 1998 sales. It maintained one
of the largest over-the-counter (OTC) product franchises in the United States,
marketing three of the five top-selling brands in the U.S. OTC market: Advil,
Robitussin and Centrum. In the international OTC market, Advil, Centrum and
Caltrate continued to increase sales through geographic expansion.
In 1998, the company introduced new products, including Advil Liqui-Gels,
the first and only OTC single-ingredient pain reliever available in liqui-gel
form, and Centrum Herbals, a new line of herbal supplements.
With the acquisition of the Solgar Vitamin and Herb business in July 1998,
Whitehall-Robins Healthcare broadened its leadership position in the growing
nutritional supplements market. Solgar manufactures and markets a broad line of
premium products in this category.
AGRICULTURAL PRODUCTS
Cyanamid Global Agricultural Products, which recorded approximately $2.2 billion
in 1998 sales, is the third largest crop protection company in the United States
and the ninth largest in the world. Cyanamid manufactures and markets
herbicides, insecticides and fungicides to help protect the world's crop and
food supply.
Cyanamid's Lightning herbicide for Imi-Corn hybrids and Raptor herbicide
for soybeans achieved significant growth in the United States in 1998. Expansion
of Fastac insecticide in Europe and Latin America, coupled with sales increases
for Odyssey canola herbicide in Canada and Utopia rice herbicide in Japan,
contributed to growth internationally. New registrations included Acrobat MZ
fungicide in the United States, Caramba fungicide in Germany, and Intrepid and
Secure pyrrole insecticides in Australia.
Animal Health Care
Achieving approximately $800 million in 1998 sales, our Fort Dodge Animal Health
business maintained its position in the top tier of animal health companies
through new product launches in the United States. The integration of the Solvay
animal health business, acquired in 1997, allowed Fort Dodge to expand its
presence internationally.
The Board of Directors and Management
On October 31, 1998, Robin Chandler Duke retired from the Board of Directors.
Mrs. Duke provided valuable guidance to our Company for
[GRAPHIC]
"Cyanamid Global Agricultural Products, which recorded approximately $2.2
billion in 1998 sales, is the third largest crop protection company in the
United States and the ninth largest in the world."
5
<PAGE>
23 years, and we are grateful for her contributions. We wish her continued
success in her many endeavors.
Jean-Claude Leroux, President, Whitehall International, Inc., retired in
August 1998 after 13 years of exemplary service. He is succeeded by Bruce I.
Macphail. Among key management actions at Wyeth-Ayerst Global Pharmaceuticals,
Mark M. Larsen was named President, Intercontinental Region; Robert N. Power was
named President, Europe, Middle East and Africa; Kevin L. Reilly was named
President, Wyeth Vaccines and Nutrition; and Kenneth J. Martin, formerly
President of Whitehall-Robins Healthcare, was named Senior Vice President and
Chief Financial Officer.
LOOKING AHEAD
American Home Products is entering the most exciting period in its history,
introducing new therapies that will improve or save the lives of millions of
people around the world. While sales in 1999 are expected to start slowly, we
anticipate that they will accelerate as the year progresses, driven by the new
products we introduced in the fourth quarter of 1998 and by new product launches
in the second and third quarters of 1999. Sales in 2000 are expected to grow at
a faster rate as the full-year benefits of these new products are realized.
While significant growth opportunities in world markets led us to consider
a merger of AHP and the Monsanto Company in 1998, the Board of Directors of each
of the companies later determined that the merger would not be in the best
interests of their shareholders. In the coming year, we will remain open to
opportunities to expand our Company, but we are confident that AHP, on a
stand-alone basis, will continue its history of growth.
Our success is possible only through the extraordinary commitment of our
employees who earn us distinction in health care and agricultural markets
worldwide. The Company strives to provide a work environment supportive of their
efforts, including excellent compensation and benefit programs. AHP was among
the earliest companies to offer financial assistance with dependent care and
adoption expenses, and in 1998, we were proud to be named by Working Mother
magazine as one of the best companies in the United States for working mothers.
The Board of Directors joins me in expressing gratitude to our employees
for their outstanding efforts and to our shareholders for their continued
support.
/s/ John R. Stafford
John R. Stafford
Chairman, President and Chief Executive Officer
March 2, 1999
"AHP was among the earliest companies to offer financial assistance with
dependent care and adoption expenses, and in 1998, we were proud to be named by
Working Mother magazine as one of the best companies in the United States for
working mothers."
6
<PAGE>
From Research to Results:
New, Breakthrough Therapies from AHP
A significant number of new products from AHP recently have been introduced or
are pending regulatory approval. The new treatment options have the potential to
save lives and to offer relief from painful, life-threatening or disabling
diseases.
[GRAPHIC] Enbrel(R) Rheumatoid arthritis (RA) is a chronic inflammatory
disease affecting millions of people worldwide.
Discovered by Immunex and co-marketed by
Wyeth-Ayerst and Immunex, Enbrel, introduced in
November 1998, is a breakthrough bioengineered
product that offers the first major therapeutic
advance for RA in more than a decade.
[GRAPHIC] RotaShield(R) Before the availability of RotaShield in September
1998, there was no means to protect infants and
young children from rotaviral infections.
RotaShield is the first vaccine to prevent the
symptoms of rotaviral gastroenteritis, a cause of
diarrhea and vomiting so severe that it can lead to
dehydration and even death.
[GRAPHIC] Sonata(R) One in two adult Americans has difficulty sleeping.
Sonata, a new, non-benzodiazepine therapy filed for
worldwide approval in 1998, is intended to provide
a good night's sleep with reduced risk of next-day
residual sedation.
[GRAPHIC] Rapamune(R) Rapamune, a novel immunosuppressive agent awaiting
global market clearance, will decrease the risk of
organ rejection in kidney transplantation. Because
of its unique profile, the use of Rapamune is not
expected to be associated with many of the common
toxicities of currently available agents.
[GRAPHIC] ReFacto(R) People with hemophilia A soon may have a more
advanced treatment option - ReFacto. Currently
under global regulatory review, ReFacto is the
first albumin-free formulated recombinant factor
VIII product.
[GRAPHIC] Protonix(R) When gastric acid - produced by "proton pumps" -
damages the lining of the esophagus, severe pain
and discomfort result. Protonix, a new proton-pump
inhibitor awaiting U.S. Food and Drug
Administration (FDA) approval, will be the first
U.S. product in its class available both in
intravenous and oral formulations.
[GRAPHIC] Pneumococcal Currently, infants and very young children have no
Conjugate defense against streptococcus pneumoniae, a
Vaccine bacteria that causes life-threatening illnesses.
AHP's pneumococcal conjugate vaccine, marked for
fast-track regulatory filing in the United States,
is intended to offer safe and effective prevention.
7
<PAGE>
Enbrel Targeting Rheumatoid Arthritis Where It Hurts
As a writer, Susan Scott frequently was at a computer. As an avid tennis player,
she was regularly on the courts. This all changed when Susan began to have
symptoms of rheumatoid arthritis (RA). One by one, the disease robbed Susan of
her livelihood, her hobbies and her vitality. She's not alone - over 2 million
Americans, three-quarters of them women, suffer from this disease that generally
strikes people in the prime of their lives.
When Enbrel (etanercept) was approved by the FDA in November 1998, it
became the first entirely new approach to treating serious RA available in the
last 10 years. Discovered by Immunex - a majority-owned subsidiary of AHP - and
co-marketed by Wyeth-Ayerst and Immunex, Enbrel is used to treat moderate to
severe RA in people who have not responded adequately to disease-modifying
medicines. Enbrel is self-administered by patients twice weekly as a
subcutaneous injection.
Belonging to an emerging therapeutic class of drugs called biologic
response modifiers, Enbrel is a genetically engineered copy of the protein that
naturally inhibits tumor necrosis factor (TNF) - a known mediator of
inflammation. Enbrel captures excess TNF, suspending the cycle of reactions
involved in inflammation and cartilage destruction.
The results from Enbrel, according to Susan Scott and the physicians who
have studied this drug in clinical trials, are remarkable. They report the swift
and often complete relief of symptoms such as stiffness, swelling and pain.
8
<PAGE>
[PICTURE]
"When I was 40, I had some swelling in my fingers. I thought it must be from
years and years of playing competitive tennis. Over the next few years, more
symptoms appeared. My knees swelled and then my toes. I thought something really
was wrong. It was. I had rheumatoid arthritis. I tried 10 different drugs and
was taking up to 20 pills a day. It was a bad time. My doctor felt Enbrel just
might be the medication I needed. I began taking it as soon as it was approved.
For the first time in years, I could bend my fingers. During my third week of
therapy, the pain in my left elbow was gone. My toes weren't swollen. My friends
can't believe the change in me. I can't believe the change in me."
Susan Scott, age 49
9
<PAGE>
[PICTURE]
RotaShield Stopping a Toxic Virus in Toddlers
"They got sick so fast. I thought it was the usual stomach virus, but the
vomiting and diarrhea were nonstop. By the time we got Claudia to the emergency
room, she was dehydrated - her eyes were sunken, and she looked so bad. Within
hours, her younger sister Chloe was just as ill. No child should ever have to go
through this. With RotaShield, they won't have to."
Alex Young, Jr., father of Claudia and Chloe
10
<PAGE>
In January 1996, Claudia and Chloe Young contracted rotavirus - the most common
cause of severe diarrhea and vomiting in young children in the United States.
Claudia was almost three years old; Chloe was barely one year old.
Worldwide, rotavirus infects more than 125 million young children and is
responsible for approximately 870,000 deaths annually. In the United States,
160,000 infected children will need emergency room care each year, and 50,000
will be hospitalized. Rotavirus is extremely contagious, symptoms develop
quickly and, in severe cases, a young child may experience as many as 20
vomiting and diarrhea episodes per day - potentially fatal if the child becomes
severely dehydrated.
In August 1998, the FDA licensed RotaShield - the first vaccine to help
prevent the severe symptoms of rotaviral disease. Developed by Wyeth-Ayerst
Laboratories through a Cooperative Research and Development Agreement with the
National Institute of Allergy and Infectious Diseases, RotaShield - a vaccine
given in three oral doses at two, four and six months of age - was studied in
more than 10,000 infants, demonstrating a 65 percent to 82 percent reduction in
the need for medical intervention and a 97 percent to 100 percent efficacy
against dehydration. The Centers for Disease Control and Prevention recommend
the routine use of RotaShield for all healthy, full-term infants.
"I wish RotaShield had been available when Claudia and Chloe were born,"
says their mother Belinda Young. "After what we went through, we can only
encourage parents to make sure their infant gets the vaccine."
[PHOTO]
"Insomnia truly impairs quality of life. People who suffer from insomnia
experience the despair of sleeplessness at night and significant fatigue and
difficulties with performance during the day. Sleep quality is just as important
as sleep quantity."
Gary Zammit, Ph.D.,
Director, Sleep Disorders Institute, New York City
Sonata
Overcoming the Struggle for Sleep
According to the National Sleep Foundation, as many as one in two adult
Americans has difficulty sleeping. Most of them are women, with insomnia
reported as their most common sleep problem. Left untreated, sleep problems can
cause chronic fatigue, produce mood changes and impair daytime performance.
Sleep deprivation also leads to lost productivity, medical expenses and sick
leave.
Despite the enormity of the problem, most sufferers do not seek help or
are wary of taking sleep medications. They often are concerned about rebound
insomnia or residual drug sedation, side effects that are known to accompany
many currently available medications. Sonata (zaleplon) - a new
non-benzodiazepine hypnotic agent developed by Wyeth-Ayerst for the short-term
treatment of insomnia - is intended to help people with insomnia get a good
night's sleep and, equally as important, to enable them to wake up without
hangover or grogginess in the morning.
Sonata is expected to receive market clearance in the United States and
internationally in mid-year 1999.
11
<PAGE>
[PHOTO]
"Before I learned I needed a transplant, I just assumed my fatigue was related
to working hard. Other than feeling tired, I had no symptoms whatsoever.
Fortunately, my older brother was able to be a donor, and I needed dialysis only
for a short while. My surgery went extraordinarily well. That was a year ago.
Now my energy has returned, and I'm back in shape."
Richard Johnson, age 32
12
<PAGE>
RAPAMUNE REDUCING THE RISK OF TRANSPLANT REJECTION
Richard Johnson services commercial air conditioners. A routine test for blood
pressure during a company physical in 1998 began a cascade of events that led to
a kidney transplant a few months later. Although the operation was a success,
Richard's next challenge was to overcome the possibility of rejection of the
implanted life-saving organ and to face the potentially serious side effects of
the drugs that are used to prevent rejection. Richard was placed on an
experimental drug regimen that included Rapamune (sirolimus), a novel medication
developed by Wyeth-Ayerst that selectively blocks the proliferation of T cells-
essential components in the body's immune response.
Richard's challenge is similar to the one faced by the 250,000 patients
worldwide who continue to use immunosuppressant drugs after their transplant.
Although progress in technology has increased the number of patients receiving
solid organ transplants, researchers continue to look for advancements in
therapies to improve the long-term survival of the transplanted organ.
Because of its unique mechanism of action, Rapamune is intended to reduce
both the risk and the severity of acute rejection with minimal toxic effects. In
two of the largest kidney transplant studies ever conducted, Rapamune, in
combination with a standard immunosuppressive therapy regimen - cyclosporine and
corticosteroids - had impressive results versus other standard immunosuppressive
drug regimens. Rapamune now is undergoing priority review by the FDA and has
been filed in Canada and Europe.
13
<PAGE>
REFACTO ADDING A SAFETY MEASURE TO TREATMENT
[PHOTO]
"When my friends were over at my house, I had to take some medicine. It gives me
the things I need to make me stop bleeding. They asked me, 'How can you stand
that thing going in your hand?' I told them I'm used to it. I tell the kids, 'I
don't feel bad about having hemophilia - that's what makes me unique.' "
Christopher Ayad, age 11
14
<PAGE>
Hemophilia, an inherited blood-clotting disorder, is caused by a deficiency in
specialized proteins that promote the normal clotting process. Approximately
40,000 people in North America, Europe and Japan suffer from hemophilia A--the
result of a deficiency of the factor VIII protein. Another 8,000 people have
hemophilia B, in which the factor IX protein is the missing link in the clotting
chain.
Until the early 1990s, human plasma-derived products that carried the
possibility of viral transmission were the only therapies available to treat
hemophilia, prompting efforts to produce products by recombinant DNA technology.
In 1992, the first recombinant factor VIII product, cloned and discovered by
Genetics Institute (G.I.), a unit of Wyeth-Ayerst, became the first such
treatment commercially available. Not only was it a breakthrough for patients
with hemophilia A, but the product represented one of the most significant
technical achievements within the biotechnology industry.
In 1997, G.I. again launched a breakthrough recombinant product - BeneFIX
Coagulation Factor IX (Recombinant) - which provided hemophilia B patients with
the first plasma-free as well as albumin-free treatment option. Now G.I. is
planning to introduce ReFacto Antihemophilic Factor (Recombinant) - a
second-generation recombinant factor VIII for hemophilia A sufferers, which,
unlike other recombinant factor VIII products, is formulated without the use of
human serum albumin and reduces the potential for disease from blood-borne viral
contamination. FDA and European regulatory review of ReFacto is actively under
way.
[PHOTO]
"For several years, I thought I had indigestion. There would be times when I
literally couldn't swallow my food. I tried drinking milk or taking antacids,
but they provided only temporary relief."
Robert Lowe, age 54
PROTONIX
RECOVERING FROM REFLUX
For some people, it feels like mild heartburn. Others think they have suffered a
heart attack. In actuality, both extremes represent the symptoms of
gastroesophageal reflux disease (GERD) -- a condition in which gastric acid
flows up from the stomach and damages the lining of the esophagus. The disease
interferes with eating and sleeping and tends to dominate almost every aspect of
life.
GERD can occur for many reasons, including excess secretion of gastric
acid. This acid is produced by "proton pumps"--an enzyme system in the cells of
the stomach. While the stomach can handle acidic conditions, the esophagus
cannot. When the walls of the esophagus are exposed to stomach acid, the result
is sour taste, inflammation or irritation and, in severe cases, ulceration.
In the early 1990s, proton pump inhibitor (PPI) drugs were developed to
turn off the final pathway of acid production. Revolutionizing the field of acid
control, this class of compounds today is the most effective treatment for GERD
symptoms and for the healing of esophageal ulceration.
In mid-1998, Wyeth-Ayerst filed two New Drug Applications with the FDA for
a new PPI--Protonix (pantoprazole). Protonix suppresses acid production and has
minimal potential for interacting with other medications. Protonix is the first
U.S. product in its class that is formulated both in tablet and intravenous
form, the latter for patients who cannot take medications orally or who are at
increased risk of gastric ulceration and bleeding.
15
<PAGE>
Pneumococcal Conjugate Vaccine Defending
[Photo of two infants]
Worldwide, more than 1.2 million children under the age of five die as a result
of pneumococcal disease. And as pneumococcus bacteria have become increasingly
resistant to the antibiotics most commonly used to treat its infection, there is
an urgent need for a vaccine effective in infants and young children.
In a Phase III clinical trial involving more than 38,000 children,
Wyeth-Ayerst's pneumococcal conjugate vaccine - which contains the serotypes
that have been shown to be most commonly associated with drug resistance -
tested 100 percent effective against vaccine-type invasive pneumococcal
disease. The special conjugation process used in making this vaccine
dramatically enhances its ability to produce high protective levels of
antibodies in infants and very young children relative to the current
polysaccharide vaccine. This vaccine is formulated to protect against the seven
strains of pneumococci that cause approximately 80 percent of invasive
pneumococcal disease and 65 percent of pneumococcal otitis media infections
among young children in the United States.
With the pivotal clinical trial supporting U.S. licensure ending ahead of
schedule because of these positive results, the FDA granted the vaccine
fast-track regulatory filing status in January 1999. The product license
application for meningitis and bacteremia is expected to be completed in May
1999; a supplemental filing is planned for otitis media.
16
<PAGE>
the Young against Dangerous Diseases
[Photo of three infants]
Streptococcus pneumoniae is a bacteria that causes many serious and
life-threatening illnesses, including pneumonia, meningitis and bacteremia.
Infants and young children especially are at risk because no vaccine is
available to prevent infection by the bacteria in this vulnerable population.
17
<PAGE>
American
Home Products
Pharmaceutical
Pipeline
In 1998, AHP introduced several significant new pharmaceutical products, two of
which are first in their classes: Enbrel for the treatment of rheumatoid
arthritis and RotaShield for rotaviral gastroenteritis in infants. In 1999, AHP
is expected to show strong momentum in bringing new products to the health care
community with the anticipated approvals of Sonata, ReFacto, Protonix
<TABLE>
<CAPTION>
PHASE II PHASE III REGISTRATION
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Women's Health
MINESSE(R) Low-dose oral contraceptive (international) ............... ------------------------------------------------------
PREMARIN(R), PREMPRO(TM), PREMPHASE(R)
Alzheimer's disease ............................................. --------------------------------
Lower dosage for osteoporosis ................................... --------------------------------
TRIMEGESTONE
With 17 (beta)-estradiol: hormone replacement therapy
with endometrial protection (international) .................. --------------------------------
With Premarin(R): hormone replacement therapy
with endometrial protection (United States) .................. --------------------------------
With ethinyl estradiol: oral contraception ...................... ---------------
- ------------------------------------------------------------------------------------------------------------------------------------
Neuroscience Therapies
EFFEXOR(R)/EFFEXOR(R) XR
Generalized anxiety ............................................. ------------------------------------------------------
Fast onset in depression ........................................ -----------------------------------------------
Anxiety associated with depression .............................. -----------------------------------------------
Social phobia ................................................... --------------------------------
Panic ........................................................... --------------------------------
SONATA(R) Treatment of general insomnia .............................. ------------------------------------------------------
FIBLAST(R) Stroke (joint venture with Scios) ......................... ---------------
GKE-841 Epilepsy ..................................................... ---------------
- ------------------------------------------------------------------------------------------------------------------------------------
Infectious Diseases
ZOSYN(R)/TAZOCIN(R)
Intra-abdominal infections - (United States) .................... --------------------------------
Neutropenia - (United States) ................................... --------------------------------
Pediatric indications - (international) ......................... --------------------------------
Perioperative infections - (international) ...................... --------------------------------
rhIL-12 Hepatitis C .................................................. ---------------
- ------------------------------------------------------------------------------------------------------------------------------------
Internal Medicine
PROTONIX(R) (United States only)
Acute erosive esophagitis - oral ................................ -----------------------------------------------
GERD maintenance - oral ......................................... -----------------------------------------------
NPO patients - intravenous ...................................... -----------------------------------------------
H. pylori eradication - oral .................................... --------------------------------
Zollinger-Ellison Syndrome - intravenous and oral ............... --------------------------------
ENBREL(R) (joint venture with Immunex)
Congestive heart failure ........................................ ---------------
VPA-985 Hyponatremia ................................................. ---------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
and Rapamune, expanded indications for Effexor XR and the filings for
pneumococcal conjugate vaccine. Development continues on more than 80 new
compounds, biologicals or significant line extensions, the majority of which
have global potential. A number of promising worldwide products in post-Phase I
trials are identified on these pages.
<TABLE>
<CAPTION>
PHASE II PHASE III REGISTRATION
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Vaccines
ROTASHIELD(R) Rotavirus vaccine (international)* ..................... --------------------------------------------------------
PNEUMOCOCCAL CONJUGATE VACCINE
Seven-valent vaccine ............................................ -------------------------------------------
Second-generation vaccine ....................................... ---------------------------------
MENINGOCOCCAL CONJUGATE VACCINE (international) ...................... -------------------------------------------
RESPIRATORY SYNCYTIAL SUBUNIT VACCINE (high-risk patients) ........... -------------
- ------------------------------------------------------------------------------------------------------------------------------------
Hematology
REFACTO(R) Hemophilia A .............................................. --------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Inflammatory Diseases and Immunology
RAPAMUNE(R)
Oral liquid - renal transplantation ............................. --------------------------------------------------------
Oral tablet - renal transplantation ............................. -------------------------------------------
Monotherapy maintenance ......................................... ---------------------------------
Additional transplantation indications .......................... -------------
ENBREL(R) (joint venture with Immunex)
*Rheumatoid arthritis (international) .......................... --------------------------------------------------------
Juvenile RA ................................................... --------------------------------------------------------
Modification of RA disease progression ........................ ---------------------------------
SYNVISC(R)
Duration of action .............................................. ---------------------------------
Repeat courses .................................................. ---------------------------------
Additional indications .......................................... ---------------------------------
rhIL-11
Crohn's disease ................................................. -------------
Psoriasis ....................................................... -------------
- ------------------------------------------------------------------------------------------------------------------------------------
Oncology
NEUMEGA(R)
*Chemotherapy-induced thrombocytopenia (international) ......... -------------------------------------------
Acute myelogenous leukemia ..................................... -------------
Cancer treatment support ....................................... -------------
CMA-676 Adult, relapsed acute myelogenous leukemia ................... ---------------------------------
CMB-401 Ovarian, lung and pancreatic cancers ......................... -------------
- ------------------------------------------------------------------------------------------------------------------------------------
Bone and Tissue Repair
rhBMP-2
Orthopedic trauma ............................................... ---------------------------------
Spinal fusion ................................................... ---------------------------------
Oral/maxillofacial .............................................. ---------------------------------
</TABLE>
*Launched in the United States
19
<PAGE>
AHP AT A GLANCE
American Home Products' portfolio includes a wide range of pharmaceutical,
biological, consumer health care, agricultural and animal health care products
that are well-known to consumers and professionals worldwide. AHP's product
leadership is sustained through the research and development investments and
marketing efforts of its key companies: Wyeth-Ayerst Global Pharmaceuticals,
Whitehall-Robins Healthcare, Cyanamid Global Agricultural Products and Fort
Dodge Animal Health. Highlighted here are some of the most important products in
our major therapeutic categories and businesses.
- - PHARMACEUTICALS
- - CONSUMER HEALTH CARE
- - AGRICULTURAL PRODUCTS
- - ANIMAL HEALTH CARE
Women's Health Care
Wyeth-Ayerst is a global leader in women's health care and the leading provider
of hormone replacement therapies, including Premarin and the fast-growing
Prempro. Wyeth-Ayerst's oral contraceptive franchise continues to grow, driven
by Alesse and by the gestodene family of products, including Minulet,
Tri-Minulet and Harmonet.
[GRAPHIC]
Cardiovascular Therapies
Wyeth-Ayerst offers a broad range of cardiovascular therapies for treating
arrhythmia and hypertension. The company's top-selling anti-hypertensive
product is Ziac. Cordarone and Cordarone I.V. lead the U.S. market for
management of life-threatening ventricular arrhythmias.
[GRAPHIC]
20
<PAGE>
Neuroscience Therapies
Depression and anxiety disorders are significant mental health concerns
addressed by Wyeth-Ayerst. The Effexor family of products, approved in more than
60 countries, continues to grow as an important therapy for depression. Ativan,
used in the treatment of short-term anxiety, continues to contribute sales
within this therapeutic category.
[GRAPHIC]
Pain and Arthritis
Wyeth-Ayerst offers innovative therapies for pain and arthritis, including
Enbrel, a first-in-class biologic response modifer for treatment of rheumatoid
arthritis; Synvisc, a synovial fluid supplement for osteoarthritis of the knee;
and Lodine XL, a non-steroidal anti-inflammatory drug.
Vaccines
Wyeth-Ayerst is a major supplier of a broad range of pediatric and adult
vaccines. Wyeth-Ayerst's vaccines address serious, life-threatening diseases
such as diphtheria, influenza, meningitis, pneumonia, poliomyelitis, whooping
cough and, with the 1998 FDA licensure of RotaShield, rotaviral gastroenteritis.
[GRAPHIC]
<PAGE>
Oncology/Hematology
AHP continues to make strides in the development of oncology products. Neumega,
a blood platelet growth factor, promotes production of the body's platelet
supply in cancer patients undergoing chemotherapy. In the field of hematology,
BeneFIX remains the only recombinant clotting-factor treatment for hemophilia
B.
[GRAPHIC]
Anti-Infectives
Wyeth-Ayerst's portfolio includes important antibiotic products that are used to
treat infectious diseases globally. Our anti-infective franchise includes
Minocin, Pipracil, Zosyn and Suprax. Zosyn, an intravenous antibiotic used
throughout the world to treat nosocomial (hospital-acquired) bacterial
infections, is one of the fastest growing intravenous antibiotics in the United
States.
[GRAPHIC]
Nutritionals
The Wyeth-Ayerst nutritional franchise maintains a significant presence in the
international marketplace. Our portfolio of products, led by S-26, Promil and
SMA, was bolstered by the launches of S-26 Gold and Promise. Each of these
products represents a strategic fit within an established line of first-,
second-, third-age and problem-feeding formulas.
[GRAPHIC]
<PAGE>
Consumer Health Care
Whitehall-Robins has one of the largest consumer health care franchises in the
world and markets three of the five top-selling over-the-counter products in the
United States. The company expanded its leadership position with the acquisition
of the Solgar Vitamin and Herb business -- a leading manufacturer of more than
450 nutritional supplements.
[GRAPHIC]
Agricultural Products
Cyanamid's global growth is driven by a portfolio of products and technologies
that meets the continually evolving needs of agricultural producers around the
world. In 1998, Arsenal, Lightning and Raptor continued to gain market share
within the United States while international growth was fueled by Fastac and
Odyssey.
[GRAPHIC]
Animal Health Care
A leader in developing products for the animal health care industry, Fort Dodge
Animal Health launched several products in the United States in 1998, including:
Cydectin Pour-On to treat beef cattle affected by parasites and EtoGesic, a
non-steroidal anti-inflammatory to treat osteoarthritis in dogs.
[GRAPHIC]
<PAGE>
Research:
Advancing AHP's
Pharmaceutical
Pipeline
[PHOTO]
In laboratories around the world, thousands of AHP's scientists and technicians
are committed to research and development efforts targeted on preventing
illness, treating diseases and saving lives. The Company's R&D program, a
powerful combination of scientific expertise and diverse technological
resources, is producing a portfolio of superior products - many offering the
potential of being first in class or best in class.
With more than $1.3 billion dedicated to pharmaceutical research and
development, AHP has created a scientific environment designed to produce
important results. 1998 culminated in the integration of Wyeth-Ayerst's
experience and creativity in small chemical molecules with the innovative
biotechnological expertise of Genetics Institute in protein biopharmaceutical
products and the proven successes of Wyeth-Lederle in vaccines.
Immunex Corporation, an AHP majority-owned subsidiary, continued its progress
in developing immune system science to protect human health. Products under
development by Immunex include new treatments for cancer, asthma, rheumatoid
arthritis, and inflammatory, infectious and cardiovascular disease.
This unique blend of talent and technology-based discovery - available
in-house and through relationships with strong partners in genomics,
combinatorial chemistry and high-throughput robotic screening - significantly
enhances AHP's drug discovery and development process. As a result, our
pharmaceutical product pipeline contains an outstanding lineup of products in
the later phases of clinical trials, including:
CMA-676
A humanized monoclonal antibody linked to a potent cytotoxic agent targeted on
acute myelogenous leukemia, this first-in-class drug is on the cutting edge of
oncology therapy, showing promising results in the sickest of patients.
rhBMP-2
This recombinant human bone morphogenetic protein-2 has shown encouraging
results in accelerating bone repair in a variety of situations, including severe
orthopedic trauma, oral and maxillofacial surgery, and spinal fusion. rhBMP-2
should provide entree to a whole new grouping of biopharmaceutical protein
products.
TRIMEGESTONE
Co-developed by Hoechst Marion Roussel, trimegestone, to be used in hormone
replacement therapy along with either 17 (beta)-estradiol or Premarin, is the
first new progestin in many years. It may offer a more metabolically neutral
profile, including improved blood lipids, better bleeding control and a
reduction in nuisance side effects.
VPA-985
This first-in-class vasopressin antagonist (aquaretic) may be important in the
treatment of hyponatremia associated with congestive heart failure, cirrhosis of
the liver and other diseases associated with impairment of water metabolism.
rhIL-11
Recombinant human Interleukin-11 is a new immune modulator therapy with
promising Phase II results in treating Crohn's disease.
24
<PAGE>
Financial Section
Contents
26 Ten-Year Selected Financial Data
28 Consolidated Balance Sheets
29 Consolidated Statements of Income
30 Consolidated Statements of Changes in Stockholders' Equity
31 Consolidated Statements of Cash Flows
32 Notes to Consolidated Financial Statements
44 Report of Independent Public Accountants
44 Management Report on Financial Statements
45 Quarterly Financial Data
45 Market Prices of Common Stock and Dividends
46 Management's Discussion and Analysis of Financial Condition and Results
of Operations
American Home Products Corporation and Subsidiaries 25
<PAGE>
TEN-YEAR SELECTED FINANCIAL DATA
DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
SUMMARY OF SALES AND EARNINGS
Net sales ................................................. $13,462,687 $14,196,026 $14,088,326
Net income(1) ............................................. 2,474,338 2,043,123 1,883,403
Diluted earnings per share(1)(2) .......................... 1.85 1.56 1.46
Dividends per common share(2) ............................. 0.87 0.83 0.7825
----------- ----------- -----------
YEAR-END FINANCIAL POSITION
Current assets ............................................ $ 7,955,632 $ 7,361,326 $ 7,470,419
Current liabilities ....................................... 4,210,721 4,327,018 4,337,635
Ratio of current assets to current liabilities ............ 1.89 1.70 1.72
Total assets .............................................. 21,079,068 20,825,111 20,785,343
Long-term debt ............................................ 3,859,163 5,031,861 6,020,575
Average stockholders' equity .............................. 8,895,024 7,568,672 6,252,545
----------- ----------- -----------
STOCKHOLDERS - OUTSTANDING SHARES
Number of common stockholders ............................. 65,124 64,313 67,545
Average number of common shares outstanding used for
diluted earnings per share calculation (in thousands)(2) 1,336,641 1,312,975 1,287,790
----------- ----------- -----------
EMPLOYMENT DATA
Number of employees at year-end ........................... 52,984 60,523 59,747
Wages and salaries ........................................ $ 2,468,823 $ 2,726,877 $ 2,729,662
Benefits (including social security taxes) ................ 647,406 692,648 688,766
----------- ----------- -----------
</TABLE>
(1) See Management's Discussion and Analysis of Financial Condition and
Results of Operations for amounts related to gains on sales of businesses,
restructuring charge and special charges for the years ended December 31,
1998, 1997 and 1996.
(2) All references to average number of common shares outstanding and per
share amounts have been restated retroactively to reflect the two-for-one
common stock split effected in the form of a 100% stock dividend effective
April 24, 1998.
(3) The 1994 information reflects the acquisition of American Cyanamid Company
for the one-month period ended December 31, 1994.
26 American Home Products Corporation and Subsidiaries
<PAGE>
<TABLE>
<CAPTION>
1995 1994(3) 1993 1992 1991 1990 1989
- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
$13,376,089 $ 8,966,214 $ 8,304,851 $ 7,873,687 $ 7,079,443 $ 6,775,182 $ 6,747,016
1,680,418 1,528,254 1,469,300 1,460,842 1,375,273 1,230,597 1,102,158
1.34 1.24 1.17 1.15 1.08 0.97 0.88
0.755 0.735 0.715 0.665 0.5938 0.5375 0.4875
- ----------- ----------- ----------- ----------- ----------- ----------- -----------
$ 7,986,137 $ 7,821,246 $ 4,807,684 $ 4,552,077 $ 4,119,057 $ 3,826,075 $ 3,532,786
4,556,248 4,618,086 1,584,411 1,492,717 1,270,135 1,693,852 1,108,895
1.75 1.69 3.03 3.05 3.24 2.26 3.19
21,362,923 21,674,812 7,687,353 7,141,405 5,938,797 5,637,107 5,681,487
7,808,757 9,973,240 859,278 601,934 104,710 111,430 1,895,796
4,898,550 4,065,295 3,719,539 3,431,568 2,987,885 2,322,623 1,651,050
- ----------- ----------- ----------- ----------- ----------- ----------- -----------
68,763 71,223 72,664 73,064 71,209 69,907 70,904
1,250,902 1,234,100 1,252,990 1,267,240 1,273,390 1,266,696 1,256,927
- ----------- ----------- ----------- ----------- ----------- ----------- -----------
64,712 74,759 51,399 50,653 47,938 48,700 50,816
$ 2,757,664 $ 1,820,450 $ 1,654,984 $ 1,575,615 $ 1,388,397 $ 1,398,721 $ 1,391,233
703,756 441,768 396,045 367,899 300,810 312,750 256,458
- ----------- ----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
American Home Products Corporation and Subsidiaries 27
<PAGE>
Consolidated Balance Sheets In thousands except share amounts
<TABLE>
<CAPTION>
DECEMBER 31, 1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents ................................................. $ 1,182,319 $ 1,051,372
Marketable securities ..................................................... 119,210 48,363
Accounts receivable less allowances (1998 - $222,540 and 1997 - $197,155) . 3,276,597 2,843,099
Inventories ............................................................... 2,237,918 2,412,406
Other current assets including deferred taxes ............................. 1,139,588 1,006,086
------------ ------------
Total Current Assets ...................................................... 7,955,632 7,361,326
Property, plant and equipment:
Land .................................................................... 147,611 152,942
Buildings ............................................................... 2,901,355 2,865,501
Machinery and equipment ................................................. 3,669,398 3,703,606
------------ ------------
6,718,364 6,722,049
Less accumulated depreciation ............................................. 2,428,699 2,425,143
------------ ------------
4,289,665 4,296,906
Goodwill and other intangibles, net of accumulated amortization
(1998 - $1,964,546 and 1997 - $1,863,773) .............................. 7,995,082 8,338,695
Other assets including deferred taxes ..................................... 838,689 828,184
------------ ------------
Total Assets .............................................................. $ 21,079,068 $ 20,825,111
============ ============
LIABILITIES
Loans payable ............................................................. $ 79,728 $ 89,041
Trade accounts payable .................................................... 680,961 794,291
Accrued expenses .......................................................... 3,037,239 3,019,805
Accrued federal and foreign taxes ......................................... 412,793 423,881
------------ ------------
Total Current Liabilities ................................................. 4,210,721 4,327,018
Long-term debt ............................................................ 3,859,163 5,031,861
Other noncurrent liabilities .............................................. 2,312,261 2,248,282
Accrued postretirement benefits other than pensions ....................... 860,908 833,916
Minority interests ........................................................ 221,219 208,782
STOCKHOLDERS' EQUITY
$2 convertible preferred stock, par value $2.50 per share; 5,000,000
shares authorized ....................................................... 64 72
Common stock, par value $0.33 1/3 per share; 2,400,000,000 shares authorized
(outstanding shares: 1998 - 1,312,399,000 and 1997 - 1,300,755,000) ..... 437,466 435,298
Additional paid-in capital ................................................ 3,072,874 2,530,696
Retained earnings ......................................................... 6,432,729 5,489,292
Accumulated other comprehensive loss ...................................... (328,337) (280,106)
------------ ------------
Total Stockholders' Equity ................................................ 9,614,796 8,175,252
------------ ------------
Total Liabilities and Stockholders' Equity ................................ $ 21,079,068 $ 20,825,111
============ ============
</TABLE>
The accompanying notes are an integral part of these Consolidated Balance
Sheets.
28 American Home Products Corporation and Subsidiaries
<PAGE>
Consolidated Statements of Income In thousands except per share amounts
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Net Sales .................................. $ 13,462,687 $ 14,196,026 $ 14,088,326
------------ ------------ ------------
Cost of goods sold ......................... 3,616,832 4,101,309 4,449,783
Selling, general and administrative expenses 4,924,919 5,292,585 5,232,830
Research and development expenses .......... 1,654,745 1,558,035 1,429,056
Interest expense, net ...................... 207,157 370,696 433,034
Other income, net .......................... (277,942) (121,306) (96,159)
Gains on sales of businesses ............... (592,084) -- (813,532)
Special charges ............................ -- 180,000 697,854
Restructuring charge ....................... 343,600 -- --
------------ ------------ ------------
9,877,227 11,381,319 11,332,866
------------ ------------ ------------
Income before federal and foreign taxes .... 3,585,460 2,814,707 2,755,460
Provision for taxes:
Federal .................................. 627,071 309,981 437,682
Foreign .................................. 484,051 461,603 434,375
------------ ------------ ------------
1,111,122 771,584 872,057
------------ ------------ ------------
Net Income ................................. $ 2,474,338 $ 2,043,123 $ 1,883,403
------------ ------------ ------------
Basic Earnings per Share ................... $ 1.88 $ 1.58 $ 1.48
------------ ------------ ------------
Diluted Earnings per Share ................. $ 1.85 $ 1.56 $ 1.46
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
American Home Products Corporation and Subsidiaries 29
<PAGE>
Consolidated Statements of Changes In thousands except per share amounts
in Stockholders' Equity
<TABLE>
<CAPTION>
ACCUMULATED
$2 CONVERTIBLE ADDITIONAL OTHER TOTAL
PREFERRED COMMON PAID-IN RETAINED COMPREHENSIVE STOCKHOLDERS'
STOCK STOCK CAPITAL EARNINGS LOSS EQUITY
-------------- ------ ---------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996 ............. $85 $428,514 $1,515,154 $ 3,652,403 $ (53,158) $5,542,998
=== ======== ========== =========== ========== ==========
Net income ............................. 1,883,403 1,883,403
Currency translation adjustments ....... 15,551 15,551
Unrealized gain on marketable securities 1,334 1,334
----------
Comprehensive income ................ 1,900,288
----------
Cash dividends declared:
Preferred stock (per share: $2.00) .. (65) (65)
Common stock (per share: $0.7825) ... (993,487) (993,487)
Treasury stock acquired ................ (71) (1,172) (10,139) (11,382)
Common stock issued for stock options .. 4,161 408,036 412,197
Conversion of preferred stock
and other exchanges ................. (6) (770) 112,319 111,543
--- -------- ---------- ----------- ---------- ----------
Balance at December 31, 1996 ........... 79 431,834 2,034,337 4,532,115 (36,273) 6,962,092
=== ======== ========== =========== ========== ==========
Net income ............................. 2,043,123 2,043,123
Currency translation adjustments ....... (241,278) (241,278)
Unrealized loss on marketable securities (2,555) (2,555)
----------
Comprehensive income ................ 1,799,290
----------
Cash dividends declared:
Preferred stock (per share: $2.00) .. (60) (60)
Common stock (per share: $0.83) ..... (1,073,140) (1,073,140)
Treasury stock acquired ................ (52) (1,079) (10,204) (11,335)
Common stock issued for stock options .. 3,251 366,310 369,561
Conversion of preferred stock
and other exchanges ................. (7) 265 131,128 (2,542) 128,844
--- -------- ---------- ----------- ---------- ----------
Balance at December 31, 1997 ........... 72 435,298 2,530,696 5,489,292 (280,106) 8,175,252
=== ======== ========== =========== ========== ==========
Net income ............................. 2,474,338 2,474,338
Currency translation adjustments ....... (45,803) (45,803)
Unrealized loss on marketable securities (2,428) (2,428)
----------
Comprehensive income ................ 2,426,107
----------
Cash dividends declared:
Preferred stock (per share: $2.00) .. (54) (54)
Common stock (per share: $0.87) ..... (1,143,198) (1,143,198)
Treasury stock acquired ................ (2,521) (34,984) (377,098) (414,603)
Common stock issued for stock options .. 4,342 399,488 403,830
Conversion of preferred stock
and other exchanges ................. (8) 347 177,674 (10,551) 167,462
--- -------- ---------- ----------- ---------- ----------
Balance at December 31, 1998 ........... $64 $437,466 $3,072,874 $ 6,432,729 $(328,337) $9,614,796
=== ======== ========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
30 American Home Products Corporation and Subsidiaries
<PAGE>
Consolidated Statements of Cash Flows In thousands
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income ...................................................... $ 2,474,338 $ 2,043,123 $ 1,883,403
Adjustments to reconcile net income to net cash
provided from operating activities:
Gains on sales of businesses ................................. (592,084) -- (813,532)
Special and restructuring charges ............................ 343,600 180,000 697,854
Gains on sales of other assets ............................... (445,485) (375,925) (98,809)
Depreciation ................................................. 371,057 394,287 367,834
Amortization ................................................. 293,598 307,738 290,232
Deferred income taxes ........................................ 74,472 (220,214) 101,592
Changes in working capital, net of
businesses acquired or sold:
Accounts receivable ....................................... (601,627) (329,537) 18,675
Inventories ............................................... (121,414) (50,927) (213,037)
Other current assets ...................................... (198,815) 28,143 65,901
Trade accounts payable and accrued expenses ............... (164,648) (171,666) (354,132)
Accrued federal and foreign taxes ......................... (4,008) (80,873) 154,271
Other items, net ............................................. 85,675 (28,695) 298,003
----------- ----------- -----------
Net cash provided from operating activities ..................... 1,514,659 1,695,454 2,398,255
=========== =========== ===========
INVESTING ACTIVITIES
Purchases of property, plant and equipment ...................... (809,774) (830,351) (652,226)
Purchases of businesses, net of cash acquired ................... (425,041) (479,694) --
Purchase of remaining equity interest in Genetics Institute, Inc.
and another subsidiary ....................................... -- -- (1,326,351)
Proceeds from sales of businesses ............................... 1,770,000 380,000 1,361,969
Proceeds from sales of other assets ............................. 592,034 494,850 121,740
Proceeds from sales of/(purchases of) marketable securities, net (72,397) 172,236 (7,924)
----------- ----------- -----------
Net cash provided from/(used for) investing activities .......... 1,054,822 (262,959) (502,792)
=========== =========== ===========
FINANCING ACTIVITIES
Net repayments of debt .......................................... (1,179,657) (976,926) (1,783,825)
Dividends paid .................................................. (1,143,252) (1,073,200) (993,552)
Purchases of treasury stock ..................................... (414,603) (11,335) (11,382)
Exercise of stock options ....................................... 403,830 369,561 412,197
Termination of interest rate swap agreements .................... (96,655) -- --
----------- ----------- -----------
Net cash used for financing activities .......................... (2,430,337) (1,691,900) (2,376,562)
----------- ----------- -----------
Effects of exchange rates on cash balances ...................... (8,197) (11,520) 999
----------- ----------- -----------
Increase/(decrease) in cash and cash equivalents ................ 130,947 (270,925) (480,100)
Cash and cash equivalents, beginning of year .................... 1,051,372 1,322,297 1,802,397
----------- ----------- -----------
Cash and cash equivalents, end of year .......................... $ 1,182,319 $ 1,051,372 $ 1,322,297
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
American Home Products Corporation and Subsidiaries 31
<PAGE>
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 three primary businesses:
Pharmaceuticals, Consumer Health Care and Agricultural Products. Pharmaceuticals
include branded and generic ethical pharmaceuticals, biologicals, nutritionals,
and animal biologicals and pharmaceuticals. Principal products include women's
health care products, infant nutritionals, cardiovascular products, neuroscience
therapies, anti-inflammatory and gastroenterology drugs, anti-infectives,
vaccines, biopharmaceuticals and oncology therapies. Principal animal health
products include vaccines, pharmaceuticals, endectocides and growth implants.
Consumer Health Care products include analgesics, cough/cold/allergy remedies,
vitamins, mineral and nutritional supplements, herbal products, and
hemorrhoidal, antacid and asthma relief items sold over-the-counter.
Agricultural Products include crop protection and pest control products such as
herbicides, insecticides, fungicides and plant growth regulators. The Company
sells its diversified line of products to wholesalers, pharmacies, hospitals,
physicians, retailers and other health care institutions located in various
markets in more than 150 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, one of the Company's conjugated estrogens products, 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 pages 50 and 51 for
further details.
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. The carrying value of cash equivalents
approximates fair value due to the short-term, highly liquid nature of the cash
equivalents.
Marketable Securities consist of U.S. government or agency issues,
commercial paper and corporate bonds and are stated at fair value, which
approximates 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 $751,691,000 and
$764,409,000 at December 31, 1998 and 1997, respectively. Current value exceeded
LIFO value by $76,104,000 and $73,411,000 at December 31, 1998 and 1997,
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) 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Finished goods ..................... $1,012,679 $1,042,065
Work in progress ................... 604,647 657,033
Materials and supplies ............. 620,592 713,308
---------- ----------
$2,237,918 $2,412,406
---------- ----------
- --------------------------------------------------------------------------------
</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 using 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.
Foreign Currency Agreements: The Company enters into short-term foreign
currency agreements to manage specifically identifiable risks. 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 foreign currency exchange rates. The fair value of foreign currency
agreements is based on market prices. The fair value represents the estimated
amount the Company would receive/pay to terminate the agreements taking into
consideration current currency exchange rates. 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 results of operations offsetting any gains and losses recognized
on the underlying hedged transactions.
32 American Home Products Corporation and Subsidiaries
<PAGE>
Currency Translation: The majority of the Company's international
operations are translated into U.S. dollars using current exchange rates with
currency translation adjustments reflected in accumulated other comprehensive
loss in stockholders' equity. Translation adjustments related to international
operations in highly inflationary economies are included in results of
operations.
Earnings per Share: The following table sets forth the computations of
Basic Earnings per Share and Diluted Earnings per Share:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(In thousands except
per share amounts) 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income less
preferred dividends ...... $2,474,284 $2,043,063 $1,883,338
Denominator:
Average number of
common shares ............ 1,314,580 1,293,765 1,270,852
---------- ---------- ----------
Basic earnings per share .... $ 1.88 $ 1.58 $ 1.48
---------- ---------- ----------
Net income .................. $2,474,338 $2,043,123 $1,883,403
Denominator:
Average number of
common shares ............ 1,314,580 1,293,765 1,270,852
Common share equivalents
of outstanding stock
options and deferred
contingent common
stock awards ............. 22,061 19,210 16,938
---------- ---------- ----------
Total shares ................ 1,336,641 1,312,975 1,287,790
---------- ---------- ----------
Diluted earnings per share .. $ 1.85 $ 1.56 $ 1.46
========== ========== ==========
- --------------------------------------------------------------------------------
</TABLE>
Reclassifications: Effective January 1, 1998, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 130 - "Reporting
Comprehensive Income," SFAS No. 131 - "Disclosures about Segments of an
Enterprise and Related Information" and SFAS No. 132 - "Employers' Disclosures
about Pensions and Other Postretirement Benefits." These standards increased
financial reporting disclosures and had no impact on the Company's financial
position or results of operations. Certain reclassifications have been made to
the December 31, 1997 and 1996 Consolidated Financial Statements to conform with
the financial reporting requirements of SFAS No. 130 (see Consolidated
Statements of Changes in Stockholders' Equity and Note 7), SFAS No. 131 (see
Note 11) and SFAS No. 132 (see Note 6).
Recently Issued Accounting Standards: In June 1998, SFAS No. 133 -
"Accounting for Derivative Instruments and Hedging Activities" was issued and is
effective for fiscal years beginning after June 15, 1999 although earlier
application is permitted. SFAS No. 133 requires all derivatives to be measured
at fair value and recognized as assets or liabilities on the balance sheet.
Changes in the fair value of derivatives should be recognized in either net
income or other comprehensive income, depending on the designated purpose of the
derivative. SFAS No. 133 is not expected to have a material impact on the
Company's financial position or results of operations. In February 1998,
Statement of Position (SOP) 98-1 - "Accounting for Costs of Computer Software
Developed or Purchased for Internal Use" was issued and is effective for fiscal
years beginning after December 15, 1998. SOP 98-1 is not expected to have a
material impact on the Company's financial position or results of operations.
2. ACQUISITIONS AND DIVESTITURES
During 1998, 1997 and 1996, the Company acquired and divested various businesses
and other assets as follows:
In July 1998, the Company purchased the vitamin and nutritional supplement
products business of Solgar Vitamin and Herb Company Inc. and its related
affiliates for $425,041,000 in cash. The purchase price exceeded the net assets
acquired by $397,568,000, which is being amortized over periods of four to 25
years.
In February 1998, the Company sold the Sherwood-Davis & Geck medical
devices business for approximately $1.770 billion, resulting in a pre-tax gain
of $592,084,000. The proceeds from the sale were used primarily to reduce
outstanding commercial paper. Net income and diluted earnings per share for 1998
included an after-tax gain on the sale of $330,782,000 and $0.25.
In December 1997, the Company sold the stock of Storz Instrument Company
and affiliated companies, a global manufacturer and marketer of ophthalmic
products, and certain assets relating to the Storz business for approximately
$380,000,000, resulting in a pre-tax gain of $71,861,000 ($46,710,000
after-tax), which was recorded in other income, net.
In February 1997, the Company purchased the worldwide animal health
business of Solvay S.A. for approximately $460,000,000. The purchase price
exceeded the net assets acquired by $368,303,000 and is being amortized over
periods of 10 to 25 years.
In December 1996, the Company purchased the remaining equity interest in
Genetics Institute, Inc. (G.I.) 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
(see Note 3).
In November 1996, the Company sold a majority interest (80%) in the
American Home Foods business for approximately $1.209 billion, resulting in a
pre-tax gain of $813,532,000. The proceeds from the sale were used primarily to
purchase the remaining equity interest in G.I. Net income and diluted earnings
per share for 1996 included an after-tax gain on the sale of $706,279,000 and
$0.55. During 1998 and 1997, the Company sold its remaining equity interest in
the foods business, resulting in pre-tax gains of $135,000,000 ($87,750,000
after-tax) and $66,939,000 ($43,510,000 after-tax), respectively, which were
recorded in other income, net.
In March 1996, the Company sold Symbiosis Corp. for $148,672,000,
resulting in a pre-tax gain of $22,677,000 ($14,740,000 after-tax), which was
recorded in other income, net. Symbiosis Corp. develops and manufactures
disposable laparoscopic and endoscopic surgical products.
The Company had other acquisitions and divestitures during 1998, 1997 and
1996, the effects of which, individually and in the aggregate, were not material
to the Company's consolidated
American Home Products Corporation and Subsidiaries 33
<PAGE>
financial position or results of operations. The operations of all businesses
acquired and divested during 1998, 1997 and 1996, individually and in the
aggregate, were not material to the Company's consolidated financial position or
results of operations in any of these years.
3. RESTRUCTURING AND SPECIAL CHARGES
In December 1998, the Company recorded a charge for restructuring and related
asset impairments of $343,600,000 ($240,500,000 after-tax or $0.18 per share -
diluted) to recognize the costs of the reorganization of the pharmaceutical and
nutritional supply chains (primarily in the Asian-Pacific and Latin American
regions), the reorganization of the U.S. pharmaceutical and consumer health care
distribution systems and a reduction in personnel from the globalization of
certain business units. The reorganization of the pharmaceutical and nutritional
supply chains will result in the closure of 14 plants (nine pharmaceuticals and
five nutritionals). The reorganization of the U.S. pharmaceutical and consumer
health care distribution systems will result in the closure of three
distribution centers. Workforce reductions as a result of these plans, including
the elimination of vacant positions, are expected to result in the elimination
of approximately 3,100 positions worldwide. The components of this charge were
as follows: personnel costs of $142,375,000, fixed asset write-offs of
$115,225,000 and other closure/exit costs of $86,000,000. The majority of these
costs will be incurred within one year of the announcement date; however, due to
regulatory requirements for product transfers, some of the restructuring costs
will not be incurred until after 1999. This charge included noncash costs to
reduce the carrying value of certain fixed assets related to manufacturing and
distribution operations aggregating $115,225,000. Cash expenditures, primarily
for production and distribution facility closure/exit costs, aggregating
$1,449,000 as of December 31, 1998 were applied against the restructuring
accruals.
In September 1997, the Company announced the voluntary market withdrawal
of fenfluramine HCl, manufactured and sold under the name Pondimin, and
dexfenfluramine HCl, marketed under the name Redux. The 1997 results of
operations included special charges aggregating $180,000,000 ($117,000,000
after-tax or $0.09 per share -diluted) to record the one-time costs associated
with the voluntary market withdrawal. The special charges included provisions
for product returns, notification and administrative handling fees, the
writedown of inventory and supplies, and other related costs. These costs did
not include provisions for any subsequent charges which may result from legal
actions related to these products (see Note 10). As of December 31, 1998, these
accruals have been utilized.
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. Net income and diluted earnings per share for 1996
included total special charges related to the acquisition of the remaining
equity interest in G.I. of $697,854,000 and $0.54.
In 1995 and 1994, the Company recorded restructuring charges related to
the American Cyanamid Company (ACY) acquisition and the U.S. pharmaceutical and
consumer health care businesses, respectively. As of December 31, 1998, these
restructuring programs have been substantially completed, and the related
accruals have been utilized for these programs.
34 American Home Products Corporation and Subsidiaries
<PAGE>
4. DEBT AND FINANCING ARRANGEMENTS
The Company's debt at December 31 consisted of:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
(In thousands) 1998 1997
- ---------------------------------------------------------------------------------
<S> <C> <C>
Commercial paper .............................. $1,213,470 $2,340,357
Notes payable:
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:
3.75% - 7.00% due 1999 - 2020 .............. 110,865 123,900
Other debt:
1.27% - 22.75% due 1999 - 2009 ............. 114,556 156,645
---------- ----------
3,938,891 5,120,902
Less current portion .......................... 79,728 89,041
---------- ----------
$3,859,163 $5,031,861
========== ==========
- ---------------------------------------------------------------------------------
</TABLE>
The fair value of the Company's long-term debt, excluding the interest
rate swap agreements discussed below, was $4,123,938,000 and $5,255,737,000 at
December 31, 1998 and 1997, respectively. The fair value of the Company's
long-term debt is estimated based on market prices.
The weighted average interest rate on the commercial paper outstanding at
December 31, 1998 and 1997 was 5.10% and 5.76%, respectively. The commercial
paper has original maturities not exceeding 270 days and a weighted average
remaining maturity of 45 days and 35 days as of December 31, 1998 and 1997,
respectively.
In 1998, the Company reduced its $5.0 billion of revolving credit
facilities to $2.0 billion by terminating the $2.5 billion, 364-day credit
facility in its entirety and reducing the $2.5 billion, five-year credit
facility to $2.0 billion. The remaining $2.0 billion, five-year credit facility
supports the Company's commercial paper program and has a maturity date of July
31, 2002.
The interest rate on borrowings under the credit facility is based on
various rate options available to the Company. The proceeds of the credit
facility may be used to support commercial paper and the Company's general
corporate and working capital requirements. The credit facility contains a
financial covenant and various other customary covenants, representations,
warranties, conditions and default provisions. As of December 31, 1998 and 1997,
there were no borrowings outstanding under the credit facility. Commercial paper
outstanding at December 31, 1998 and 1997 was classified as long-term debt since
the Company intends, and has the ability, to re-finance these obligations
through the issuance of additional commercial paper, through the use of its
credit facility or through the issuance of long-term debt.
At December 31, 1997, the Company had interest rate swap agreements
outstanding with a notional amount of $2.3 billion under which the Company paid
a fixed rate of interest and received a floating rate of interest over the term
of the interest rate swap agreements without the exchange of the underlying
notional amounts. The interest rate swap agreements converted a portion of the
commercial paper from a floating rate obligation to a fixed rate obligation. The
fair value of the $2.3 billion of interest rate swap agreements outstanding at
December 31, 1997 was $98,463,000. The fair value of the interest rate swap
agreements was not recognized in the Consolidated Financial Statements at that
time since the agreements were accounted for as hedges. In 1998, proceeds from
the sale of the Sherwood-Davis & Geck medical devices business were used
primarily to reduce outstanding commercial paper and terminate the $2.3 billion
of interest rate swap agreements. The cost to unwind these interest rate swap
agreements was charged against the gain on the sale.
The Company has outstanding $1.0 billion of 7.70% notes due February 2000
and $1.0 billion of 7.90% notes due February 2005 under a $3.5 billion shelf
registration statement. The non-callable notes, which have semiannual interest
payments due on February 15 and August 15, are unsecured and unsubordinated. The
Company also has outstanding $250,000,000 of 6.50% notes due October 2002 and
$250,000,000 of 7.25% debentures due March 2023. The 6.50% non-callable notes
have semiannual interest payments due on April 15 and October 15. 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, 1998 are as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
(In thousands)
- -------------------------------------------------------------------
<S> <C>
1999 ............................................ $ 79,728
2000 ............................................ 1,024,053
2001 ............................................ 16,946
2002 ............................................ 252,919
2003 ............................................ 8,003
Thereafter ...................................... 1,343,772
----------
2,725,421
Commercial paper ................................ 1,213,470
----------
Total debt ...................................... $3,938,891
==========
- -------------------------------------------------------------------
</TABLE>
Interest payments in connection with the Company's debt obligations,
excluding the termination of interest rate swap agreements, for the years ended
December 31, 1998, 1997 and 1996 amounted to $316,018,000, $471,120,000 and
$562,733,000, respectively.
Interest expense, net in the Consolidated Statements of Income includes
interest income of $115,813,000, $90,674,000 and $138,380,000 for the years
ended December 31, 1998, 1997 and 1996, respectively.
American Home Products Corporation and Subsidiaries 35
<PAGE>
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, 1998 and 1997, the
Company had notional amounts of $799,255,000 and $977,459,000, respectively, of
foreign exchange forward contracts outstanding. At December 31, 1998 and 1997,
the fair value of the foreign exchange forward contracts was a net payable of
$453,000 and a net receivable of $14,368,000, respectively. As foreign exchange
rates change from period to period, the fluctuations in the fair value of the
foreign exchange forward contracts are offset by fluctuations in the fair value
of the underlying hedged transactions.
The Company believes that the risk of loss associated with the foreign
currency agreements, from non-performance by the counterparties or due to
fluctuations in foreign exchange rates, is not material to its financial
position or results of operations.
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 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, 1998, the Company was a party to, or
otherwise involved in, legal proceedings directed at the cleanup of 61 Superfund
sites.
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 $385,040,000 and $424,330,000 at December 31, 1998 and 1997,
respectively. Environmental-related accruals have been recorded without giving
effect to any possible future insurance proceeds or the timing of the payments.
See Note 10 for a discussion of contingencies.
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 48,000,000, of which 36,688,924 have
been awarded through December 31, 1998. Deferred contingent common stock awards
plus accrued dividends totaling 1,731,004 shares were outstanding at December
31, 1998. The value of awards for 1998, 1997 and 1996 was $65,847,000,
$67,045,000 and $60,306,000, which included deferred contingent common stock of
$15,516,000 (284,244 shares), $14,834,000 (396,832 shares) and $12,283,000
(411,162 shares), respectively.
6. PENSIONS AND OTHER POSTRETIREMENT BENEFITS
Pensions: The Company sponsors various retirement plans for most full-time
employees. Total pension expense for 1998, 1997 and 1996 was $112,209,000,
$146,403,000 and $120,621,000, 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 $64,006,000 in 1998, $65,645,000 in 1997 and
$66,674,000 in 1996.
Other 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.
The change in benefit obligation, change in plan assets and reconciliation
of funded status (principally U.S. plans) for 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
PENSIONS OTHER POSTRETIREMENT BENEFITS
------------------------------ ------------------------------
Change in Benefit Obligation (In thousands) 1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Benefit obligation at January 1 ........... $ 3,069,613 $ 2,858,544 $ 980,998 $ 982,172
Service cost .............................. 70,902 66,236 18,963 19,494
Interest cost ............................. 219,852 213,055 66,722 70,791
Amendments ................................ -- 4,806 -- --
Net actuarial loss/(gain) ................. 152,505 166,829 63,092 (48,686)
Acquisitions/(divestitures) ............... -- 7,921 -- 9,623
Curtailments/settlements .................. (23,281) (2,892) (46,427) --
Benefits paid ............................. (262,296) (244,886) (58,062) (52,396)
----------- ----------- ----------- -----------
Benefit obligation at December 31 ......... $ 3,227,295 $ 3,069,613 $ 1,025,286 $ 980,998
=========== =========== =========== ===========
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
36 American Home Products Corporation and Subsidiaries
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
PENSIONS OTHER POSTRETIREMENT BENEFITS
------------------------------ ------------------------------
Change in Benefit Obligation (In thousands) 1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fair value of plan assets at January 1 . $ 2,723,177 $ 2,332,432 -- --
Actual return on plan assets ........... 396,366 419,424 -- --
Acquisitions/(divestitures) ............ -- -- -- --
Curtailments/settlements ............... -- (1,062) -- --
Company contributions .................. 34,363 217,269 $ 58,062 $ 52,396
Benefits paid .......................... (262,296) (244,886) (58,062) (52,396)
----------- ----------- ----------- -----------
Fair value of plan assets at December 31 $ 2,891,610 $ 2,723,177 $ -- $ --
=========== =========== =========== ===========
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
PENSIONS OTHER POSTRETIREMENT BENEFITS
------------------------------- -------------------------------
Reconciliation of Funded Status (In thousands) 1998 1997 1998 1997
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Benefit obligation in excess of plan assets .. $ 335,685 $ 346,436 $ 1,025,286 $ 980,998
Unrecognized net actuarial gain/(loss) ....... (1,950) (7,400) (106,772) (89,118)
Unrecognized prior service cost .............. (85,903) (111,780) (2,606) (2,964)
Unrecognized net transition obligation ....... (7,176) (8,713) -- --
----------- ----------- ----------- -----------
Accrued benefit liability .................... $ 240,656 $ 218,543 $ 915,908 $ 888,916
=========== =========== =========== ===========
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1998 and 1997, the Company had nine unfunded pension plans
with aggregate accumulated benefit obligations of $256,611,000 and $208,982,000,
respectively. In addition, at December 31, 1997, the Company had four
underfunded pension plans with aggregate accumulated benefit obligations and
plan assets of $175,359,000 and $160,787,000, respectively. There were no plan
assets for the Company's other postretirement benefit plans at December 31, 1998
and 1997 as postretirement benefits are funded by the Company when the claims
are paid. The current portion of the accrued benefit liability for other
postretirement benefits was $55,000,000 at December 31, 1998 and 1997.
Assumptions used in developing the benefit obligations as of December 31
were as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
PENSIONS OTHER POSTRETIREMENT BENEFITS
--------------------------- -----------------------------------------
Weighted Average Assumptions as of December 31, 1998 1997 1996 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Discount rate ..................................... 7.0% 7.25% 7.5% 7.0% 7.25% 7.5%
Rate of compensation increase ..................... 4.0% 4.0% 4.0% -- -- --
Expected return on plan assets .................... 9.5% 9.5% 9.0% -- -- --
Increase in per capita cost of health care benefits
that gradually decreases and is held constant
thereafter beginning in 2004 for 1998, 2004 for
1997 and 2002 for 1996 ......................... -- -- -- 8.0%-5.0% 8.5%-5.0% 9.0%-6.0%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The assumed health care cost trend rates have a significant effect on the
amounts reported. A one percentage point increase in the assumed health care
cost trend rates would increase the postretirement benefit obligation by
$130,225,000 and the total service and interest cost components by $12,442,000.
A one percentage point decrease in the assumed health care cost trend rates
would decrease the postretirement benefit obligation by $106,250,000 and the
total service and interest cost components by $9,965,000.
American Home Products Corporation and Subsidiaries 37
<PAGE>
Net periodic benefit cost for 1998, 1997 and 1996 was as follows
(principally U.S. plans):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
PENSIONS OTHER POSTRETIREMENT BENEFITS
------------------------------------ -----------------------------------
Components of Net Periodic Benefit Cost (In thousands) 1998 1997 1996 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost ......................................... $ 70,902 $ 66,236 $ 58,434 $ 18,963 $ 19,494 $ 20,474
Interest cost ........................................ 219,852 213,055 194,056 66,722 70,791 68,902
Expected return on plan assets ....................... (253,034) (214,812) (193,701) -- -- --
Amortization of prior service cost ................... 11,880 13,888 1,373 357 357 357
Amortization of transition obligation ................ 1,143 324 47 -- -- --
Recognized net actuarial loss/(gain) ................. 3,200 2,067 527 (103) 1,923 4,079
Curtailment loss/(gain) .............................. (5,740) -- (6,789) -- -- --
--------- --------- --------- --------- --------- ---------
Net periodic benefit cost ............................ $ 48,203 $ 80,758 $ 53,947 $ 85,939 $ 92,565 $ 93,812
========= ========= ========= ========= ========= =========
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Net periodic pension benefit cost was lower in 1998 compared with 1997 due
primarily to the unusually high actual return on plan assets in 1997 and a
$200,000,000 contribution to the American Home Products Corporation Retirement
Plan - U.S. in late 1997. Net periodic pension benefit cost was higher in 1997
compared with 1996 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.
7. CAPITAL STOCK
At the Company's April 23, 1998 Annual Meeting of Stockholders, an increase in
the number of authorized shares of common stock from 1,200,000,000 to
2,400,000,000 was approved enabling the Company to complete a two-for-one common
stock split effected in the form of a 100% stock dividend which was declared by
the Company's Board of Directors in March 1998. The par value of the common
stock was maintained at the pre-split amount of $0.33-1/3 per share. All
references to retained earnings, common stock, common shares outstanding,
average numbers of common shares outstanding, stock options and per share
amounts in these Consolidated Financial Statements, Notes to Consolidated
Financial Statements and Management's Discussion and Analysis of Financial
Condition and Results of Operations prior to the record date of the stock split
have been restated to reflect the two-for-one common stock split on a
retroactive basis.
There were 5,000,000 shares of preferred stock authorized at December 31,
1998 and 1997. Of the authorized preferred shares, there is a series of shares
(25,480 and 28,845 outstanding at December 31, 1998 and 1997, respectively)
which is designated as $2 convertible preferred stock. Each share of the $2
series is convertible at the option of the holder into 36 shares of common
stock. This series may be called for redemption at $60 per share plus accrued
dividends.
Changes in outstanding common shares during 1998, 1997 and 1996 were as
follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
(IN THOUSANDS EXCEPT
SHARES OF PREFERRED STOCK) 1998 1997 1996
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of year ... 1,300,755 1,279,966 1,254,800
Issued for stock options ..... 19,811 20,723 24,989
Purchases of shares
for treasury .............. (8,284) (419) (424)
Conversions of preferred stock
(3,365, 2,588 and 2,709
shares in 1998, 1997
and 1996, respectively)
and other exchanges ....... 117 485 601
--------- --------- ---------
Balance, end of year ......... 1,312,399 1,300,755 1,279,966
========= ========= =========
- ---------------------------------------------------------------------------------------
</TABLE>
The Company has a common stock repurchase program under which the Company
is authorized to repurchase 33,132,860 shares at December 31, 1998.
8. STOCK OPTIONS
The Company has two Stock Option Plans and three Stock Incentive Plans. No
further grants will be made under the two Stock Option Plans. Under the three
Stock Incentive Plans, options to purchase a maximum of 60,000,000, 56,000,000
and 48,000,000 shares, respectively, may be granted at prices not less than 100%
of the fair market value at the date of option grant. At December 31, 1998,
14,104,550 shares were available for future grants under the Stock Incentive
Plans. In January 1999, the Board of Directors adopted, subject to stockholder
approval at the Company's annual meeting on April 22, 1999, the 1999 Stock
Incentive Plan under which 65,000,000 shares are available for future grants.
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
38 American Home Products Corporation and Subsidiaries
<PAGE>
equal to the excess of the market price of the common stock over the option
price when the right is exercised. As of December 31, 1998, there were no
outstanding SARs.
The Stock Incentive Plans, among other things, provide for the issuance of
up to 8,000,000 of the shares covered by the plans as restricted stock
performance awards under each plan. Restricted stock performance awards
representing 68,400, 88,400 and 107,000 units were granted in 1998, 1997 and
1996, respectively, under the plans to certain key executives. These units are
converted to shares of restricted stock based on the achievement of certain
performance criteria related to performance years 1996 through 2000.
Transactions involving the plans were as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTION SHARES 1998 PRICE 1997 PRICE 1996 PRICE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding January 1 .... 83,306,276 $24.86 80,278,690 $19.03 94,973,568 $17.06
---------- ---------- ----------
Granted .................. 15,167,210 50.13 27,868,770 36.20 15,941,900 26.58
Canceled ................. (2,872,314) 37.03 (4,118,604) 22.89 (5,647,778) 18.54
Exercised (1998 - $8.90 to
$36.22 per share) ..... (19,810,543) 20.79 (20,722,580) 17.93 (24,989,000) 16.45
---------- ---------- ----------
Outstanding December 31
(1998 - $11.80 to
$56.31 per share) ..... 75,790,629 30.53 83,306,276 24.86 80,278,690 19.03
---------- ---------- ----------
Exercisable December 31 .. 54,471,524 24.51 53,472,180 19.28 60,985,222 17.13
========== ========== ==========
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table summarizes information regarding stock options
outstanding at December 31, 1998:
<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>
$11.80 to 19.99 29,797,094 5.0 years $17.56 29,797,094 $17.56
20.00 to 29.99 8,348,921 7.1 years 26.40 8,348,921 26.40
30.00 to 39.99 22,727,234 8.1 years 36.18 16,255,099 36.18
40.00 to 49.99 652,080 9.2 years 46.24 -- --
50.00 to 56.31 14,265,300 9.3 years 50.32 70,410 50.06
---------- ----------
11.80 to 56.31 75,790,629 7.0 years 30.53 54,471,524 24.51
========== ==========
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Under the 1994 Restricted Stock Plan for Non-Employee Directors, a maximum
of 100,000 restricted shares may be granted to non-employee directors. The
restricted shares will not be delivered prior to the end of the five-year
restricted period.
The Company accounts for stock-based compensation using the intrinsic
value method. 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 1998, 1997 and
1996 had been determined based on the fair value method of accounting, the
Company's net income and earnings per share would have been reduced to the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
(IN THOUSANDS EXCEPT
PER SHARE AMOUNTS) 1998 1997 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income less preferred
dividends:
As reported ............ $ 2,474,284 $ 2,043,063 $ 1,883,338
Pro forma .............. $ 2,412,431 $ 1,981,826 $ 1,841,092
Basic earnings per share:
As reported ............ $ 1.88 $ 1.58 $ 1.48
Pro forma .............. $ 1.84 $ 1.53 $ 1.45
Net income:
As reported ............ $ 2,474,338 $ 2,043,123 $ 1,883,403
Pro forma .............. $ 2,412,485 $ 1,981,886 $ 1,841,157
Diluted earnings per share:
As reported ............ $ 1.85 $ 1.56 $ 1.46
Pro forma .............. $ 1.80 $ 1.51 $ 1.43
- -------------------------------------------------------------------------------------------
</TABLE>
American Home Products Corporation and Subsidiaries 39
<PAGE>
The fair value of issued stock options is estimated on the date of grant
using a variant of the Black-Scholes option pricing model incorporating the
following assumptions for stock options granted in 1998, 1997 and 1996,
respectively: expected volatility (the amount by which the stock price is
expected to fluctuate) of 24.2%, 18.3% and 15.0%; expected dividend yield of
2.8%, 3.7% and 4.3%; risk-free interest rate of 5.6%, 6.5% and 6.4%; and
expected life of four years. The weighted average fair value of stock options
granted during 1998, 1997 and 1996 was $10.03, $5.86 and $3.42 per option share,
respectively.
9. INCOME TAXES
The provision for income taxes consisted of:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
(IN THOUSANDS) 1998 1997 1996
- --------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal ... $ 518,450 $ 531,770 $348,649
Foreign ... 518,200 460,028 421,816
----------- --------- --------
1,036,650 991,798 770,465
Deferred:
Federal ... 108,621 (221,789) 89,033
Foreign ... (34,149) 1,575 12,559
----------- --------- --------
74,472 (220,214) 101,592
----------- --------- --------
$ 1,111,122 $ 771,584 $872,057
=========== ========= ========
- --------------------------------------------------------------------
</TABLE>
Net deferred tax assets, 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) 1998 1997
- -----------------------------------------------------------------------
<S> <C> <C>
Net current deferred tax assets .. $ 674,518 $ 721,811
Net noncurrent deferred tax assets 480,913 508,092
---------- ----------
Net deferred tax assets .......... $1,155,431 $1,229,903
========== ==========
- -----------------------------------------------------------------------
</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 the use of
accelerated depreciation for tax purposes.
The components of the Company's deferred tax assets and liabilities at
December 31 were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(In thousands) 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Product and environmental liabilities
and other operating accruals ..... $ 751,140 $ 787,656
Postretirement, pension and other
employee benefits ................ 455,999 496,905
Net operating loss and other tax
credit carryforwards ............. 157,034 207,664
Restructuring and
reorganization accruals .......... 283,614 201,104
Inventory reserves .................. 161,252 188,749
Investments and advances ............ 45,608 45,838
Other ............................... 20,537 43,089
----------- -----------
Total deferred tax assets .............. 1,875,184 1,971,005
----------- -----------
Deferred tax liabilities:
Investments ......................... (9,514) (13,595)
Depreciation ........................ (311,645) (287,658)
Pension benefits and other
employee benefits ................ (68,911) (77,429)
Other ............................... (80,632) (62,996)
----------- -----------
Total deferred tax liabilities ......... (470,702) (441,678)
----------- -----------
Deferred tax asset
valuation allowances ................ (249,051) (299,424)
----------- -----------
Net deferred tax assets ................ $ 1,155,431 $ 1,229,903
=========== ===========
- --------------------------------------------------------------------------------
</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 1998, the valuation allowance
decreased by $50,373,000 due primarily to the utilization of net operating loss
carryforwards. During 1997, the valuation allowance increased by $4,584,000 due
primarily to additional allowances related to net operating loss carryforwards.
Reconciliations between the Company's effective tax rate and the U.S.
statutory rate were as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
TAX RATE 1998 1997 1996
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. statutory rate .......... 35.0% 35.0% 35.0%
Effect of Puerto Rico and
Ireland manufacturing
operations ................ (5.5) (6.1) (5.6)
Research credits ............. (1.2) (1.8) (0.6)
ACY goodwill amortization .... 2.0 2.7 2.8
Gains on sales of businesses
and other assets .......... 2.7 -- (6.4)
Special charges related to the
acquisition of G.I ........ -- -- 8.5
Other, net ................... (2.0) (2.4) (2.1)
---- ---- ----
Effective tax rate ........... 31.0% 27.4% 31.6%
==== ==== ====
- -----------------------------------------------------------------------------
</TABLE>
40 Home Products Corporation and Subsidiaries
<PAGE>
The effective tax rate increased in 1998 due primarily to basis
differences for tax and financial reporting purposes, primarily goodwill,
related to the gain on the sale of the Sherwood-Davis & Geck medical devices
business (see Note 2) and gains on the sales of certain non-core product rights
in 1998. The effective tax rate decreased in 1997 due primarily to the
reinstatement of the U.S. research tax credit in 1997 and the net tax impact of
the gain on the sale of a majority interest in the foods business (see Note 2)
and the special charges related to the acquisition of the remaining equity
interest in G.I. in 1996 (see Note 3). The tax impact related to the gain on the
sale of a majority interest in the foods business in 1996 was due to basis
differences for tax and financial reporting purposes. No tax benefit was
recorded with regard to the special charges related to the acquisition of the
remaining equity interest in G.I. in 1996 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.
Total income tax payments, net of tax refunds, for the years ended
December 31, 1998, 1997 and 1996 amounted to $897,361,000, $1,021,505,000 and
$435,069,000, respectively.
10. 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 has been named as a defendant in numerous legal actions, many
of which are purported class actions, relating to Pondimin and/or Redux, which
the Company estimates were used in the United States prior to their voluntary
market withdrawal by approximately 6 million people. These actions typically
allege, among other things, that the use of Pondimin and/or Redux, independently
or in combination with the prescription drug phentermine (which the Company does
not manufacture, distribute or market), causes certain serious conditions,
including valvular heart disease. The Company believes that it has meritorious
defenses to these actions and that it has acted properly at all times in dealing
with Pondimin and Redux matters.
The Company is a defendant in numerous cases that have been consolidated
in federal district court in Illinois as Brand Name Prescription Drugs Antitrust
Litigation (MDL 997) relating to claims made by certain retail pharmacies
against the Company and other pharmaceutical manufacturers. The Company and
other pharmaceutical manufacturers also are defendants in similar litigation
brought on behalf of consumers and in some cases on behalf of pharmacies in
various state courts. The Company has settled the class action case in MDL 997
and certain other cases but remains as a defendant in other cases. The Company
believes it has complied with the antitrust laws and other applicable laws and
settled these cases in order to avoid the costs and risks of litigation. The
settlement agreements are not admissions of any violation of law.
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 its legal 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, 1998
are as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
(IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C>
1999 $109,184
2000 101,109
2001 88,209
2002 82,344
2003 79,430
Thereafter 121,579
-------
Total rental commitments $581,855
========
- ------------------------------------------------------------------
</TABLE>
Rental expense for all operating leases was $131,358,000 in 1998,
$133,179,000 in 1997 and $121,147,000 in 1996.
11. COMPANY DATA BY OPERATING AND GEOGRAPHIC SEGMENT
The Company has four reportable segments: Pharmaceuticals, Consumer Health Care,
Agricultural Products, and Corporate and All Other.
The Pharmaceuticals segment manufactures, distributes and sells branded
and generic ethical pharmaceuticals, biologicals, nutritionals, and animal
biologicals and pharmaceuticals. Principal products include women's health care
products, infant nutritionals, cardiovascular products, neuroscience therapies,
anti-inflammatory and gastroenterology drugs, anti-infectives, vaccines,
biopharmaceuticals and oncology therapies. Principal animal health products
include vaccines, pharmaceuticals, endectocides and growth implants.
The Consumer Health Care segment manufactures, distributes and sells
over-the-counter health care products whose principal products include
analgesics, cough/cold/allergy remedies, vitamins, mineral and nutritional
supplements, herbal products, and hemorrhoidal, antacid and asthma relief items.
The Agricultural Products segment manufactures, distributes and sells crop
protection and pest control products whose principal products include
herbicides, insecticides, fungicides and plant growth regulators.
Corporate is responsible for the treasury, tax, legal and compliance
operations of the Company's businesses and incurs and maintains certain assets,
liabilities, expenses, gains and losses related to the overall management of the
Company which are not allocated to the other reportable segments. These items
include interest expense, net, gains on the sales of businesses, investments and
other Corporate assets, certain litigation provisions and other miscellaneous
items. All Other consists of certain
American Home Products Corporation and Subsidiaries 41
<PAGE>
divested businesses. Prior to December 31, 1998, the Company operated in the
medical devices and food products businesses. The medical devices business,
which the Company exited completely in February 1998, manufactured, distributed
and sold medical devices products, which included needles and syringes, tubes,
catheters, wound closure products, ophthalmic surgical equipment, enteral
feeding systems, microsurgical equipment and other hospital products. The food
products business, which was sold in November 1996, manufactured, distributed
and sold food products, which included prepared pastas and other entrees,
regional specialty foods, condiments, snack products, spreadable fruit products
and other food products.
The accounting policies of the segments described above are the same as
those described in the summary of significant accounting policies. The Company
evaluates performance based on income from operations before income taxes after
goodwill amortization, special charges, gains on the sales of operating assets
and certain other items. It does not include interest expense, net, gains on the
sales of businesses, investments and other Corporate assets, certain litigation
provisions and other miscellaneous items which are accumulated in Corporate.
The Company's reportable segments are strategic business units that offer
different products and services. The reportable segments are managed separately
because they manufacture, distribute and sell distinct products and provide
services which require various technologies and marketing strategies.
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 the reportable segments as outlined above.
COMPANY DATA BY OPERATING SEGMENT
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
(IN MILLIONS)
YEARS ENDED DECEMBER 31, 1998 1997 1996
- ----------------------------------------------------------------------------------------------
NET SALES TO CUSTOMERS
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pharmaceuticals ......................... $ 8,901.8 $ 8,669.1 $ 7,924.0
Consumer Health Care .................... 2,174.7 2,091.3 2,054.6
Agricultural Products ................... 2,194.1 2,119.4 1,988.9
Corporate and All Other ................. 192.1 1,316.2 2,120.8
--------- --------- ---------
Consolidated Total ...................... $13,462.7 $14,196.0 $14,088.3
========= ========= =========
INCOME BEFORE TAXES
- ----------------------------------------------------------------------------------------------
Pharmaceuticals(1) (4) .................. $ 2,488.3 $ 2,169.6 $ 2,149.6
Consumer Health Care(1) ................. 509.7 505.1 426.1
Agricultural Products(1) ................ 494.9 429.9 337.7
Corporate and All Other (1) (2) (3) (5) . 92.6 (289.9) (157.9)
--------- --------- ---------
Consolidated Total ...................... $ 3,585.5 $ 2,814.7 $ 2,755.5
========= ========= =========
DEPRECIATION AND
AMORTIZATION EXPENSE
- ----------------------------------------------------------------------------------------------
Pharmaceuticals ......................... $ 443.8 $ 416.0 $ 386.2
Consumer Health Care .................... 52.3 40.0 31.3
Agricultural Products ................... 153.2 154.8 145.5
Corporate and All Other ................. 15.4 91.2 95.1
--------- --------- ---------
Consolidated Total ...................... $ 664.7 $ 702.0 $ 658.1
========= ========= =========
TOTAL ASSETS
- ----------------------------------------------------------------------------------------------
Pharmaceuticals ......................... $11,158.2 $10,758.8 $10,335.3
Consumer Health Care .................... 1,809.6 1,319.2 1,232.2
Agricultural Products ................... 5,026.4 4,763.9 4,727.5
Corporate and All Other ................. 3,084.9 3,983.2 4,490.3
--------- --------- ---------
Consolidated Total ...................... $21,079.1 $20,825.1 $20,785.3
========= ========= =========
EXPENDITURES FOR LONG-LIVED ASSETS (6)(7)
- ----------------------------------------------------------------------------------------------
Pharmaceuticals ......................... $ 571.3 $ 568.4 $ 471.4
Consumer Health Care .................... 100.3 95.8 26.0
Agricultural Products ................... 119.3 115.8 48.6
Corporate and All Other ................. 20.5 111.9 106.2
--------- --------- ---------
Consolidated Total ...................... $ 811.4 $ 891.9 $ 652.2
========= ========= =========
- ----------------------------------------------------------------------------------------------
</TABLE>
42 American Home Products Corporation and Subsidiaries
<PAGE>
COMPANY DATA BY GEOGRAPHIC SEGMENT
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
(IN MILLIONS)
YEARS ENDED DECEMBER 31, 1998 1997 1996
- ----------------------------------------------------------------------------------------
NET SALES TO CUSTOMERS(7)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
United States ...................... $ 7,724.7 $ 8,063.0 $ 8,159.0
International ...................... 5,738.0 6,133.0 5,929.3
--------- --------- ---------
Consolidated Total ................. $13,462.7 $14,196.0 $14,088.3
========= ========= =========
LONG-LIVED ASSETS AT DECEMBER 31,(7)
- ----------------------------------------------------------------------------------------
United States ...................... $ 8,582.4 $ 8,705.4 $ 8,595.1
International ...................... 3,981.2 4,147.0 4,291.1
--------- --------- ---------
Consolidated Total ................. $12,563.6 $12,852.4 $12,886.2
========= ========= =========
- ----------------------------------------------------------------------------------------
</TABLE>
(1) Income before taxes includes goodwill amortization for 1998, 1997 and 1996
as follows: Pharmaceuticals - $158.2, $145.1 and $140.6, Consumer Health
Care - $22.6, $16.9 and $12.0, Agricultural Products - $97.1, $96.2 and
$91.8, and Corporate and All Other - $0.9, $14.4 and $16.5, respectively.
(2) 1998 Corporate and All Other includes the gain on the sale of the
Sherwood-Davis & Geck medical devices business of $592.1 (see Note 2).
(3) 1998 Corporate and All Other includes the charge for restructuring and
related asset impairments of $343.6. The charge relates to the operating
segments as follows: Pharmaceuticals - $294.9, Consumer Health Care -
$26.3 and Agricultural Products - $22.4 (see Note 3).
(4) 1997 Pharmaceuticals includes the special charges of $180.0 associated
with the voluntary market withdrawal of Pondimin and Redux (see Note 3).
(5) 1996 Corporate and All Other includes the gain on the sale of a majority
interest in the foods business of $813.5 (see Note 2) and the special
charges of $697.9 associated with the acquisition of the remaining equity
interest in G.I. (see Note 3).
(6) Expenditures for long-lived assets exclude expenditures for goodwill and
long-lived assets acquired in purchase business combinations as follows:
1998 - Consumer Health Care - $408.6, 1997 -Pharmaceuticals - $413.5 and
1996 - Pharmaceuticals - $390.9, Consumer Health Care - $4.2, Agricultural
Products - $17.4, and Corporate and All Other - $2.8.
(7) Other than the United States, no other country in which the Company
operates had net sales or long-lived assets greater than 5% of the
respective consolidated totals. The basis for attributing net sales to
geographic areas is the location of the customer. Long-lived assets
consist of property, plant and equipment, goodwill and other intangibles,
and other assets excluding deferred taxes, net investments in equity
companies and other investments.
American Home Products Corporation and Subsidiaries 43
<PAGE>
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, 1998 and 1997, and the related consolidated statements of income,
changes in stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1998. 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, 1998 and 1997, and the results
of their operations and cash flows for each of the three years in the period
ended December 31, 1998 in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
New York, N.Y.
January 26, 1999
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 public
accountants 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 independent public accountants 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
44 American Home Products Corporation and Subsidiaries
<PAGE>
QUARTERLY FINANCIAL DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 1998 1998 1998 1998
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales ............................. $3,666,395 $3,341,960 $3,224,119 $3,230,213
Gross Profit .......................... 2,661,965 2,421,719 2,414,535 2,347,636
Net Income ............................ 982,210(1) 523,511 618,995 349,622(2)
Diluted Earnings per Share ............ 0.74(1) 0.39 0.46 0.26(2)
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
1997 1997 1997 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales ...................... $3,603,019 $3,499,758 $3,481,870 $3,611,379
Gross Profit ................... 2,571,081 2,440,756 2,511,204 2,571,676
Net Income ..................... 576,677 459,092 435,532(3) 571,822
Diluted Earnings per Share ..... 0.44 0.35 0.33(3) 0.43
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) First Quarter 1998 includes the gain on the sale of the Sherwood-Davis &
Geck medical devices business of $592,084 ($330,782 after-tax or $0.25 per
share - diluted).
(2) Fourth Quarter 1998 includes the charge for restructuring and related
asset impairments of $343,600 ($240,500 after-tax or $0.18 per share -
diluted).
(3) Third Quarter 1997 includes the special charges aggregating $180,000
($117,000 after-tax or $0.09 per share - diluted) associated with the
voluntary market withdrawal of Pondimin and Redux.
MARKET PRICES OF COMMON STOCK AND DIVIDENDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
1998 RANGE OF PRICES* 1997 RANGE OF PRICES*
- --------------------------------------------------------------------------------------------------------------------
DIVIDENDS DIVIDENDS
HIGH LOW PER SHARE HIGH LOW PER SHARE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First Quarter $ 48.88 $ 37.75 $ 0.215 $ 34.44 $ 28.81 $ 0.205
Second Quarter 54.25 43.75 0.215 40.38 28.50 0.205
Third Quarter 58.75 46.19 0.215 42.44 34.19 0.205
Fourth Quarter 56.50 43.94 0.225 39.41 33.72 0.215
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
* Prices are those of the New York Stock Exchange - Composite Transactions.
All amounts reflect the two-for-one common stock split effected in the
form of a 100% stock dividend effective April 24, 1998.
American Home Products Corporation and Subsidiaries 45
<PAGE>
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 28
to 43.
RESULTS OF OPERATIONS
Management's discussion and analysis of results of operations for 1998 has been
presented on an as-reported basis except for sales variation explanations which
have been presented on an as-reported and a pro forma basis. The 1998 pro forma
sales results reflect businesses acquired and divested in 1998 and 1997,
assuming all transactions occurred as of January 1, 1997. This activity includes
the divestitures of the Sherwood-Davis & Geck (effective February 27, 1998) and
Storz Instrument Company (effective December 31, 1997) medical devices
businesses and the acquisition of the worldwide animal health business of Solvay
S.A. (effective February 28, 1997). The pro forma sales results also include the
reclassification of certain retained ophthalmic pharmaceutical sales from the
medical devices business to pharmaceuticals (effective January 1, 1998) assuming
the reclassification had occurred as of January 1, 1997.
Management's discussion and analysis of results of operations for 1997 has
been presented on an as-reported basis except for sales variation explanations
which have been presented on an as-reported and a pro forma basis. The 1997 pro
forma sales results reflect businesses acquired and divested in 1997 and 1996
(except for the divestiture of Storz Instrument Company that was completed on
December 31, 1997), assuming the transactions occurred as of January 1, 1996.
This activity includes the acquisition of the worldwide animal health business
of Solvay S.A. (effective February 28, 1997) and the divestitures of the foods
business (effective November 1, 1996) and a surgical products business
(effective March 14, 1996).
Net sales decreased 5% to $13.5 billion in 1998 on an as-reported basis.
On a pro forma basis, net sales increased 2%. The pro forma results reflect
higher U.S. sales of pharmaceuticals and consumer health care and international
sales of agricultural products offset, in part, by lower international sales of
pharmaceuticals. The increase in pro forma 1998 sales was composed of unit
volume growth of 3% and price increases of 1%, which were offset, in part, by
unfavorable foreign exchange of 2%.
Net sales increased 1% to $14.2 billion in 1997 on an as-reported basis.
On a pro forma basis, net sales increased 5%. The pro forma results reflect
higher U.S. sales of pharmaceuticals and worldwide sales of agricultural
products. The increase in pro forma 1997 sales was composed of unit volume
growth of 6% and price increases of 2%, which were offset, in part, by
unfavorable foreign exchange of 3%.
The following table sets forth 1998, 1997 and 1996 worldwide net sales
results by operating segment together with the percentage changes in
"As-Reported" and "Pro Forma" worldwide net sales from prior years:
<TABLE>
<CAPTION>
1998 VERSUS 1997 1997 VERSUS 1996
----------------------- ------------------------
(DOLLAR AMOUNTS IN MILLIONS) YEARS ENDED DECEMBER 31, AS-REPORTED PRO FORMA AS-REPORTED PRO FORMA
---------------------------------- % INCREASE % INCREASE % INCREASE % INCREASE
NET SALES TO CUSTOMERS 1998 1997 1996 (DECREASE) (DECREASE) (DECREASE) (DECREASE)
- ---------------------- ---- ---- ---- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Segment
Pharmaceuticals $ 8,901.8 $ 8,669.1 $ 7,924.0 3% 2% 9% 7%
Consumer Health Care 2,174.7 2,091.3 2,054.6 4% 4% 2% 2%
Agricultural Products 2,194.1 2,119.4 1,988.9 4% 4% 7% 7%
Corporate and All Other* 192.1 1,316.2 2,120.8 (85)% - (38)% -
--------- --------- ---------
Consolidated Net Sales $13,462.7 $14,196.0 $14,088.3 (5)% 2% 1% 5%
--------- --------- ---------
</TABLE>
* As discussed in Note 11 to the Consolidated Financial Statements,
Corporate and All Other for 1998 and 1997 includes the net sales of the
Company's divested medical devices business. Corporate and All Other for
1996 includes the net sales of the divested medical devices and food
products businesses.
46 American Home Products Corporation and Subsidiaries
<PAGE>
Worldwide pharmaceutical sales increased 3% for the year ended 1998. U.S.
pharmaceutical sales increased 5% for the year ended 1998. After adjusting for
the acquisition of the animal health business of Solvay S.A. in 1997 and the
reclassification of certain retained ophthalmic pharmaceutical sales from the
medical devices business effective January 1, 1998, pro forma U.S.
pharmaceutical sales also increased 5% for the year ended 1998 due primarily to
higher sales of Premarin products, oral contraceptives, Effexor, Synvisc
(introduced in 1997), generic pharmaceuticals, BeneFIX (introduced in 1997),
Neumega (introduced in 1997), RotaShield (introduced in 1998) and Zosyn, which
were offset, in part, by the voluntary market withdrawal of the Company's
antiobesity products in 1997 and Duract in 1998 and lower sales of Oruvail (due
to generic competition), Naprelan and Verelan (divested in 1998), Lodine
products (due to generic competition) and vaccines. The increase in pro forma
U.S. pharmaceutical sales for the year ended 1998 consisted of unit volume
growth of 3% and price increases of 2%. Adjusting for the voluntary market
withdrawals and divested products, U.S. pharmaceutical sales would have
increased 13% in 1998.
International pharmaceutical sales decreased 1% for the year ended 1998.
After adjusting for the acquisition of the animal health business of Solvay S.A.
in 1997 and the reclassification of certain retained ophthalmic pharmaceutical
sales from the medical devices business effective January 1, 1998, pro forma
international pharmaceutical sales decreased 3% for the year ended 1998. Higher
sales of Effexor, Zoton, Premarin products, oral contraceptives and Tazocin were
more than offset by lower sales of Minocin, infant nutritionals and other
pharmaceutical products. The decrease in pro forma international pharmaceutical
sales for the year ended 1998 consisted of unit volume growth of 2%, which was
more than offset by unfavorable foreign exchange of 5%.
Worldwide pharmaceutical sales increased 9% for the year ended 1997. U.S.
pharmaceutical sales increased 15% for the year ended 1997. After adjusting for
the acquisition of the animal health business of Solvay S.A. in 1997, pro forma
U.S. pharmaceutical sales increased 13% for the year ended 1997 due primarily to
higher sales of Premarin products, Effexor, Cordarone, Ziac, Naprelan
(introduced in 1996), BeneFIX (introduced in 1997), Duract (introduced in 1997),
Oruvail and veterinary products, which were offset, in part, by lower sales of
Lodine and the voluntary market withdrawal of the Company's antiobesity
products. The increase in pro forma U.S. pharmaceutical sales for the year ended
1997 consisted of unit volume growth of 11% and price increases of 2%.
International pharmaceutical sales increased 3% for the year ended 1997.
After adjusting for the acquisition of the animal health business of Solvay S.A.
in 1997, pro forma international pharmaceutical sales decreased 1% for the year
ended 1997. Higher sales of Zoton, Effexor, Premarin products and Tazocin were
more than offset by lower sales of other pharmaceutical products. The decrease
in pro forma international pharmaceutical sales for the year ended 1997
consisted of unit volume growth of 3% and price increases of 2%, which were more
than offset by unfavorable foreign exchange of 6%.
Worldwide consumer health care sales increased 4% for the year ended 1998.
U.S. consumer health care sales increased 6% for the year ended 1998 due
primarily to higher sales of nutritional supplements, including Centrum
products, Solgar products (acquired in 1998) and Caltrate, and Advil, which were
offset, in part, by lower sales of Axid AR and cough/cold products. The increase
in U.S. consumer health care sales for the year ended 1998 consisted of unit
volume growth of 5% and price increases of 1%. Solgar products contributed 3% to
1998 unit volume growth.
International consumer health care sales increased 1% for the year ended
1998 due primarily to higher sales of nutritional supplements, including Centrum
products, Caltrate and Solgar products (acquired in 1998), and Advil, which were
offset, in part, by the effect of the disposal of several non-core products in
1997 and lower sales of cough/cold products. The increase in international
consumer health care sales for the year ended 1998 consisted of unit volume
growth of 5% and price increases of 1%, which were offset, in part, by
unfavorable foreign exchange of 5%. Solgar products contributed 1% to 1998 unit
volume growth.
Worldwide consumer health care sales increased 2% for the year ended 1997.
U.S. consumer health care sales decreased 2% for the year ended 1997. Higher
sales of Advil and Centrum products were more than offset by the effect of the
disposal of several non-core products in late 1996 and early 1997 and lower
sales of Orudis KT. The decrease in U.S. consumer health care sales for the year
ended 1997 consisted of unit volume declines of 3%, which were offset, in part,
by price increases of 1%.
American Home Products Corporation and Subsidiaries 47
<PAGE>
International consumer health care sales increased 9% for the year ended
1997 due primarily to higher sales of Centrum products (which were launched in
additional international markets) and Advil. The increase in international
consumer health care sales for the year ended 1997 consisted of unit volume
growth of 10% and price increases of 3%, which were offset, in part, by
unfavorable foreign exchange of 4%.
Worldwide agricultural products sales increased 4% for the year ended
1998. U.S. agricultural products sales for the year ended 1998 were comparable
with the prior year. Higher sales of Raptor and Lightning herbicides (both
introduced in 1997) and Counter insecticide were offset by lower sales of
Pursuit, Scepter and Squadron herbicides (due primarily to unfavorable weather
conditions, sales of Raptor and other competitive factors). U.S. agricultural
products sales for the year ended 1998 consisted of unit volume declines of 4%,
which were offset by price increases of 4%. Due to the seasonality of the U.S.
agricultural products business, 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 6% for the year ended
1998 due primarily to higher sales of Odyssey (introduced in 1997), Squadron,
Utopia (introduced in 1997) and other herbicides, and Acrobat fungicide, which
were offset, in part, by lower sales of Scepter herbicide and other fungicides.
The increase in international agricultural products sales for the year ended
1998 consisted of unit volume growth of 9% and price increases of 1%, which were
offset, in part, by unfavorable foreign exchange of 4%.
Worldwide agricultural products sales increased 7% for the year ended
1997. U.S. agricultural products sales increased 6% for the year ended 1997 due
primarily to introductory sales of Steel and Lightning herbicides and higher
sales of Prowl and Squadron herbicides due, in part, to increased soybean
acreage. The increase in U.S. agricultural products sales for the year ended
1997 consisted of unit volume growth of 3% and price increases of 3%.
International agricultural products sales increased 7% for the year ended
1997 due primarily to higher sales of Pursuit and Scepter herbicides,
particularly in Latin America, resulting primarily from increased soybean
acreage, Counter insecticide and Acrobat fungicide, which were offset, in part,
by lower sales of other insecticides and fungicides. The increase in
international agricultural products sales for the year ended 1997 consisted of
unit volume growth of 11% and price increases of 2%, which were offset, in part,
by unfavorable foreign exchange of 6%.
All other sales, which consist of the Company's divested medical devices
(1998, 1997 and 1996) and food products (1996) businesses, decreased 85% and 38%
for the years ended 1998 and 1997, respectively. In February 1998, the Company
sold the Sherwood-Davis & Geck medical devices business. This transaction
completed the Company's exit from the medical devices business. In December
1997, the Company sold the stock of Storz Instrument Company and affiliated
companies and certain assets related to the Storz business. In November 1996,
the Company completed the sale of a majority interest (80%) in the American Home
Foods business. During 1998 and 1997, the Company sold its remaining equity
interest in the foods business.
Cost of goods sold, as a percentage of net sales, decreased to 26.9% for
the year ended 1998 compared with 28.9% for the year ended 1997 due primarily to
an overall product mix improvement as increased sales of higher margin
pharmaceuticals, consumer health care and agricultural products partially
replaced the loss of lower margin medical devices sales resulting from the
divestitures of the medical devices businesses, and, to a lesser extent, cost
savings and synergies. Cost of goods sold, as a percentage of net sales,
decreased to 28.9% for the year ended 1997 compared with 31.6% in 1996 due
primarily to an overall product mix improvement as increased sales of higher
margin pharmaceuticals and agricultural products replaced the loss of lower
margin food products sales, a favorable pharmaceutical and agricultural products
sales mix, and, to a lesser extent, cost savings and synergies. Cost savings and
synergies resulted from the restructuring and consolidation of various
manufacturing and quality control functions, primarily in the pharmaceutical
business, related to the American Cyanamid Company (ACY) acquisition and the
Company's previously announced Organizational Effectiveness and Supply Chain
programs.
Selling, general and administrative expenses, as a percentage of net
sales, decreased to 36.6% for the year ended 1998 versus 37.3% for the year
ended 1997. Lower selling, general and administrative expenses resulting from
the divestitures of the medical devices businesses, lower marketing expenses due
to pharmaceutical product withdrawals and divestitures, and lower promotional
expenses for certain consumer health care products were offset, in part, by
higher marketing and selling expenses for product launches and additional
expenses relating to information technology initiatives. Selling, general and
administrative
48 American Home Products Corporation and Subsidiaries
<PAGE>
expenses, as a percentage of net sales, increased to 37.3% for the year ended
1997 compared with 37.1% in 1996. Higher marketing and selling expenses related
to pharmaceutical and agricultural product introductions were offset by the
elimination of marketing and selling expenses associated with the divestiture of
the foods business. Higher general and administrative expenses were due, in
part, to increased pension costs and additional goodwill amortization related to
the Genetics Institute, Inc. (G.I.) and Solvay S.A. animal health acquisitions.
Research and development expenses increased 6% for the year ended 1998 due
primarily to higher pharmaceutical research and development expenditures,
particularly in the biopharmaceutical area, and operating costs related to
pharmaceutical research and development facility expansions, which were offset,
in part, by lower research and development expenses resulting from the
divestitures of the medical devices businesses. Research and development
expenses increased 9% for the year ended 1997 compared with 1996 due primarily
to higher pharmaceutical research and development expenditures and operating
costs related to pharmaceutical research and development facility expansions.
Pharmaceutical research and development expenditures accounted for 84%, 80% and
78% of total research and development expenditures in 1998, 1997 and 1996,
respectively. Pharmaceutical research and development expenses, as a percentage
of worldwide pharmaceutical sales, exclusive of infant nutritional sales, were
17%, 16% and 15% in 1998, 1997 and 1996, respectively.
Interest expense, net decreased 44% for the year ended 1998 due primarily
to the reduction in long-term debt during 1998 as the proceeds from the sale of
the Sherwood-Davis & Geck medical devices business were used primarily to reduce
outstanding commercial paper. Interest expense, net decreased 14% for the year
ended 1997 due primarily to the reduction in long-term debt during 1997 and
1996. Average long-term debt outstanding during 1998 and 1997 was $4,445.5
million and $5,526.2 million, respectively.
Other income, net for 1998, 1997 and 1996 included gains on the sales of
non-strategic assets, including certain generic and non-core product rights, and
foreign exchange losses. Other income, net for 1998 also included a gain on the
sale of the remaining portion of the equity interest in the foods business.
Other income, net for the year ended 1997 also included gains on the sales of
Storz Instrument Company, investments in the common stock of certain publicly
traded insurance companies and a portion of the equity interest in the foods
business, which were offset, in part, by the cost of the settlement of a lawsuit
and other contingent liability adjustments (excluding any charges which may
result from legal actions related to Pondimin and Redux). Other income, net for
the year ended 1996 also included a gain on the sale of Symbiosis Corp.
As discussed in Note 3 to the Consolidated Financial Statements, in
December 1998, the Company recorded a charge for restructuring and related asset
impairments of $343.6 million ($240.5 million after-tax or $0.18 per share -
diluted) to recognize the costs of the reorganization of the pharmaceutical and
nutritional supply chains (primarily in the Asian-Pacific and Latin American
regions), the reorganization of the U.S. pharmaceutical and consumer health care
distribution systems and a reduction in personnel from the globalization of
certain business units. The restructuring charge included provisions for
personnel costs, fixed asset write-offs and other closure/exit costs. Annual
pre-tax savings from these initiatives are expected to be fully realized in 2002
and total approximately $160.0 million.
As discussed in Note 3 to the Consolidated Financial Statements, in
September 1997, the Company announced the voluntary market withdrawal of
fenfluramine HCl, manufactured and sold under the name Pondimin, and
dexfenfluramine HCl, marketed under the name Redux. The Company took this action
and withdrew the products on the basis of new, preliminary information regarding
heart valve abnormalities in patients using these medications. The 1997 results
of operations included special charges aggregating $180.0 million ($117.0
million after-tax or $0.09 per share - diluted) to record the one-time costs
associated with the voluntary market withdrawal. The special charges included
provisions for product returns, notification and administrative handling fees,
the writedown of inventory and supplies, and other related costs. These costs
did not include provisions for any subsequent charges which may result from
legal actions related to these products.
As discussed in Note 10 to the Consolidated Financial Statements, the
Company has been named as a defendant in numerous legal actions, many of which
are purported class actions, relating to Pondimin and/or Redux. It is likely
that additional legal actions, including purported class actions, will be filed.
The Company believes that it has meritorious defenses to these actions and that
it has acted properly at all times in dealing with Pondimin and Redux matters.
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.
American Home Products Corporation and Subsidiaries 49
<PAGE>
The effective tax rate increased to 31.0% in 1998 from 27.4% in 1997 due
primarily to basis differences for tax and financial reporting purposes,
primarily goodwill, related to the gain on the sale of the Sherwood-Davis & Geck
medical devices business and gains on the sales of certain non-core product
rights in 1998. The effective tax rate decreased to 27.4% in 1997 from 31.6% in
1996 due primarily to the reinstatement of the U.S. research tax credit in 1997
and the 1996 net tax impact of the gain on the sale of a majority interest in
the foods business and the special charges related to the acquisition of the
remaining equity interest in G.I.
Net income and diluted earnings per share for the year ended 1998 on an
as-reported basis increased 21% and 19%, respectively, above 1997 levels.
Results for the year ended 1998 included the after-tax gain on the sale of the
Sherwood-Davis & Geck medical devices business of $330.8 million ($0.25 per
share - diluted) and the after-tax charge for restructuring and related asset
impairments of $240.5 million ($0.18 per share - diluted) associated with the
reorganization of the pharmaceutical and nutritional supply chains (primarily in
the Asian-Pacific and Latin American regions), the reorganization of the U.S.
pharmaceutical and consumer health care distribution systems and a reduction in
personnel from the globalization of certain business units. Results for the year
ended 1997 included the after-tax special charges aggregating $117.0 million
($0.09 per share - diluted) associated with the voluntary market withdrawal of
Pondimin and Redux. Excluding the gain on the sale and restructuring charge from
1998 results and the special charges from 1997 results, net income and diluted
earnings per share for the year ended 1998 increased 10% and 8%, respectively,
over 1997 amounts. The increases in net income and diluted earnings per share,
excluding the special items, were greater than the as-reported net sales results
due primarily to increased sales of higher margin pharmaceuticals, consumer
health care and agricultural products; lower selling, general and administrative
expenses and interest expense; lower provisions for litigation and other
accruals; and additional one-time gains from the sale of certain non-strategic
assets, which were offset, in part, by the divestiture of lower margin medical
devices sales and higher pharmaceutical research and development expenditures.
Net income and diluted earnings per share for the year ended 1997 on an
as-reported basis increased 8% and 7%, respectively, above 1996 levels. Results
for the year ended 1997 included the after-tax special charges aggregating
$117.0 million ($0.09 per share - diluted) associated with the voluntary market
withdrawal of Pondimin and Redux. Results 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 ($0.55 per share - diluted) and the special charges related to
the acquisition of the remaining equity interest in G.I. aggregating $697.9
million ($0.54 per share - diluted). Excluding the special charges from 1997
results and the gain on the sale of a majority interest in the foods business
and the special charges from 1996 results, net income and diluted earnings per
share for the year ended 1997 increased 15% and 13%, respectively, over 1996
amounts. The increases in net income and diluted earnings per share, excluding
the special items, were greater than the as-reported net sales results due
primarily to increased sales of higher margin pharmaceuticals and agricultural
products, a favorable pharmaceutical and agricultural products sales mix, lower
interest expense, and cost savings and synergies offset, in part, by the
divestiture of lower margin food products sales and higher pharmaceutical
research and development expenditures.
EURO CURRENCY
On January 1, 1999, 11 of the 15 member countries of the European Union adopted
the "Euro" as a new common legal currency. The Company has evaluated the impact
of the Euro conversion on its businesses. Critical areas of potential business
impact were identified and appropriate strategies developed. The costs related
to the Euro conversion will not have a material adverse effect on the Company's
financial position or results of operations. However, the conversion to the Euro
may have competitive implications on the Company's pricing and marketing
strategies, the total impact of which is not known at this time.
COMPETITION
The Company operates in the highly competitive health care and agrochemical
industries. 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, one of the Company's conjugated estrogens
products manufactured from pregnant mare's urine, which has not had patent
protection for many years, is the leader in its category and does contribute
significantly to sales and results of operations. Premarin's principal uses are
to treat the symptoms of menopause and osteoporosis, a condition involving a
loss of bone mass in postmenopausal women. Estrogen-containing products
manufactured by other companies have been marketed for many years for the
treatment of menopausal symptoms, and some of these products also have obtained
marketing approval for the treatment of osteoporosis. During the past several
years, other manufacturers have introduced products for the treatment and/or
prevention of osteoporosis. Some companies have attempted to obtain approval for
generic versions of Premarin. These products, if approved, would be routinely
substitutable for Premarin under many state laws and third-party insurance payer
plans. In May 1997, the U.S. Food and Drug Administration (FDA) announced that
it would not approve certain synthetic estrogen products as generic equivalents
of Premarin given
50 American Home Products Corporation and Subsidiaries
<PAGE>
known compositional differences between the active ingredient of these products
and Premarin. Although the FDA has not approved any generic equivalent to
Premarin to date, Premarin will continue to be subject to competition from
existing and new competing estrogen and other products for its approved
indications and may be subject to some form of generic competition from either
natural or synthetic generic conjugated estrogens products in the future.
LIQUIDITY, FINANCIAL CONDITION AND CAPITAL RESOURCES
Cash and cash equivalents increased $130.9 million in 1998 to $1,182.3 million.
Proceeds from the sale of the Sherwood-Davis & Geck medical devices business and
sales of other assets of $2,362.0 million, cash flows from operating activities
of $1,514.7 million and proceeds from the exercise of stock options of $403.8
million were used principally for long-term debt reduction of $1,179.7 million,
dividend payments of $1,143.3 million, capital expenditures of $809.8 million,
the purchase of the vitamin and nutritional supplement business of Solgar
Vitamin and Herb Company Inc. for $425.0 million and common stock repurchases of
$414.6 million. Capital expenditures included strategic investments in
manufacturing and distribution facilities worldwide and the expansion of the
Company's research and development facilities.
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 1998 worldwide sales. However, the Company
anticipates that the Euro will account for more than 5% of worldwide sales in
future periods. Asian-Pacific financial instability did not have a material
impact on the Company's results of operations in 1998 since these operations are
not material to the Company's consolidated operations. In addition, the Company
believes that if Asian-Pacific financial instability continues, it will not have
a material impact on the Company's future results of operations.
In 1998, the Company reduced its $5.0 billion of revolving credit
facilities to $2.0 billion by terminating the $2.5 billion, 364-day credit
facility in its entirety and by reducing the $2.5 billion, five-year credit
facility to $2.0 billion. The Company has outstanding $1.0 billion of 7.70%
notes due February 2000 and $1.0 billion of 7.90% notes due February 2005 under
a $3.5 billion shelf registration statement. The non-callable notes are
unsecured and unsubordinated.
Proceeds from the sale of the Sherwood-Davis & Geck medical devices
business were used primarily to reduce outstanding commercial paper and to
terminate the Company's $2.3 billion of interest rate swap agreements. The cost
to unwind these interest rate swap agreements was charged against the gain on
the sale.
At December 31, 1998, the carrying values of cash and cash equivalents
approximate fair value due to the short-term, highly liquid nature of the cash
equivalents which have original maturities of three months or less. Interest
rate fluctuations would not have a significant effect on the fair value of cash
equivalents held by the Company.
At December 31, 1998, the fair value of the Company's long-term debt,
including the current portion, was $4,123.9 million. If interest rates were to
increase or decrease by one percentage point, the fair value of the long-term
debt would decrease or increase by approximately $114.2 million.
At December 31, 1998, the fair value of the $799.3 million notional amount
of foreign exchange forward contracts was a net payable of $0.5 million. As
foreign exchange rates change from period to period, the fluctuations in the
fair value of the foreign exchange forward contracts are offset by fluctuations
in the fair value of the underlying hedged transactions. If the value of the
U.S. dollar were to increase or decrease by 10% in relation to all hedged
foreign currencies, the net payable would decrease or increase by approximately
$68.7 million.
The ratio of earnings to fixed charges increased to 10.5 in 1998 from 6.4
in 1997. The increase was due to increased income before federal and foreign
taxes and reduced fixed charges, which resulted from lower interest expense due
to the reduction in long-term debt. Excluding the gain on the sale and the
restructuring charge from 1998 results and the special charges from 1997
results, the ratio of earnings to fixed charges increased to 9.8 in 1998 from
6.7 in 1997.
The Company has a common stock repurchase program under which the Company
is authorized to repurchase 33,132,860 shares at December 31, 1998. Depending
upon, among other things, market conditions, the Company intends to continue to
repurchase common stock during 1999.
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. Management is confident that cash flows from operating activities will
be adequate to repay both the principal and interest on the remaining ACY
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,
1998 of approximately $278.5 million, without restricting its ability to make
further acquisitions as may be appropriate.
American Home Products Corporation and Subsidiaries 51
<PAGE>
YEAR 2000
As described below, the Company has recognized the importance of addressing Year
2000 problems and has committed certain resources to identify and correct
potential problems in order to minimize the impact on its business.
The Company's Year 2000 program is organized into three functional areas:
Information Technology (IT), which includes computer systems and related
application software; Embedded Chips (EC), which are hidden internal components
of many non-computer devices and machinery; and Business Partners (BP), which
include suppliers, customers and governmental agencies. The program methodology
is organized into three phases: Phase I: Inventory, Assessment and Project
Planning; Phase II: Remediation and Testing; and Phase III: Certification,
Implementation and Contingency Planning. Phase I activities for IT have been
completed. Various Phase II activities for IT are in process or have been
substantially completed with the application software returned to production.
Certain Phase III activities for IT currently are under way. A substantial
amount of Phase I activities for EC have been completed. Several Phase II
activities for EC have commenced with some remediation and testing completed.
The inventory of critical BP at most locations has been substantially completed,
and assessment and project planning currently are under way. For all three
functional areas, Phase I activities are expected to be completed by the end of
the 1999 first quarter, Phase II activities are expected to be completed by the
end of the 1999 second quarter and Phase III activities are expected to be
completed by the end of the 1999 third quarter.
The costs of remediation and appropriate replacement projects for Year
2000 activities are estimated to be, in the aggregate, approximately $150
million. The costs include operating and capital costs of approximately $100
million and $50 million, respectively, for all phases within each functional
area. These costs do not include any internal costs. Through December 31, 1998,
$38 million and $11 million have been incurred for operating and capital costs,
respectively, related to the Year 2000 program. The costs related to Year 2000
are not expected to have a material adverse effect on the Company's results of
operations or financial position.
The Company has not yet formulated its most reasonably likely worst-case
scenario with respect to possible losses related to Year 2000 problems.
The Company has initiated the Contingency Planning process. The Company
will be developing business continuity plans for those areas that are critical
to the Company's business. These business continuity plans will be designed to
mitigate significant disruptions to business flows beyond the end of 1999.
The Company anticipates that the required modifications and replacements
of its critical systems and applications will be completed prior to the Year
2000. However, the Company may be unable to implement these modifications and
replacements on a timely basis, and, even if the Company does make these
modifications and replacements, they may not be effective in addressing the
problems identified. If the required modifications and replacements are not
completed in a timely manner or are not successful, there could be a material
adverse effect on the Company's results of operations.
The Company currently has limited information on Year 2000 compliance by
its key third-party suppliers, service providers, distributors, wholesalers and
certain other entities with which the Company has a business relationship
(business partners). There could be a material adverse effect on the Company's
business partners' operations if they do not successfully and timely achieve
Year 2000 compliance. If the Company's business partners experience Year 2000
compliance issues, there could be a material adverse effect on the Company's
results of operations.
The Company cannot guarantee that its remediation efforts will adequately
address Year 2000 problems in a timely manner or that it will be able to modify
and replace any or all of the Company's critical systems and applications in
accordance with its plans. In addition, the Company cannot assure that any
modifications and replacements will effectively address Year 2000 problems. If
the Company does not complete the required conversions on time, or if it is not
successful, there could be a material adverse effect on the Company's results of
operations. Furthermore, the Company cannot guarantee that other companies will
make necessary, timely and successful conversions to their systems on which the
Company's systems and business flows depend. Although the Company intends in the
second and third quarters of 1999 to develop contingency plans detailing actions
that the Company will take in the event the execution of its Year 2000
remediation efforts are not successfully completed on a timely basis, the
Company has not yet developed such plans. As discussed below, the Company will
identify additional risk factors related to Year 2000 problems in Exhibit 99 to
the Company's 1998 Annual Report on Form 10-K, which will be filed by March 31,
1999.
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, Euro currency, competition,
liquidity, financial condition and capital resources, and Year 2000. 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 1997 Annual Report on Form 10-K and the Company's 1998
Annual Report on Form 10-K, which will be filed by March 31, 1999.
52 American Home Products Corporation and Subsidiaries
<PAGE>
Directors and Officers
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
Robert Essner
Executive Vice President
John D. Feerick (2),(3),(5)
Dean, Fordham University School of Law
John P. Mascotte (3),(5)
President and CEO,
Blue Cross and Blue Shield
of Kansas City
Mary Lake Polan,
M.D., Ph.D. (4),(5)
Professor and Chairman,
Department of Gynecology
and Obstetrics, Stanford
University School of Medicine
Ivan G. Seidenberg (2),(5)
Chairman and Chief Executive Officer,
Bell Atlantic 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
PRINCIPAL CORPORATE OFFICERS
John R. Stafford (6),(7)
Chairman, President and
Chief Executive Officer
Robert G. Blount (6),(7)
Senior Executive Vice
President
Robert Essner (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
Robert I. Levy, M.D. (6),(7)
Senior Vice President -
Science and Technology
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
Bruce Fadem
Vice President - Corporate
Systems and Chief Information Officer
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
Marily H. Rhudy
Vice President - Public Affairs
Steven A. Tasher
Vice President - Environmental
Affairs and Associate
General Counsel
Jack M. O'Connor
Treasurer
Eileen M. Lach
Secretary
PRINCIPAL DIVISION AND SUBSIDIARY OFFICERS
Global Agricultural
Products, American
Cyanamid Company
Howard L. Minigh, Ph.D. (7)
President
Global Agricultural
Products Research
Division
Mark W. Atwood, Ph.D.
President
Fort Dodge Animal
Health Division
E. Thomas Corcoran (7)
President
Immunex Corporation*
Edward V. Fritzky
Chairman and Chief
Executive Officer
Specialty Pharmaceuticals
Division
David G. Strunce
President
Whitehall International,
Inc.
Bruce I. Macphail (7)
President
Whitehall-Robins
Healthcare
David M. Olivier (6),(7)
Senior Vice President, AHP
Wyeth-Ayerst Global
Pharmaceuticals
Bernard Poussot (7)
President
Wyeth-Ayerst Global
Pharmaceuticals -
Europe, Middle East
and Africa
Robert N. Power
President
Wyeth-Ayerst Global
Pharmaceuticals -
Intercontinental Region
Mark M. Larsen
President
Wyeth-Ayerst Global
Pharmaceuticals -
North America
Joseph M. Mahady (7)
President
Wyeth-Ayerst Research
L. Patrick Gage, Ph.D.(7)
President
Wyeth Vaccines and
Nutrition
Kevin L. Reilly
President
(1) Executive Committee
(2) Audit Committee
(3) Compensation and Benefits Committee
(4) Corporate Issues Committee
(5) Nominating Committee
(6) Finance Committee
(7) Operations Committee
- ----------
* AHP is majority owner
American Home Products Corporation and Subsidiaries 53
<PAGE>
Corporate Data
EXECUTIVE OFFICES
American Home Products Corporation
Five Giralda Farms
Madison, NJ 07940
(973) 660-5000
STOCK TRADING INFORMATION
American Home Products stock is listed on the
New York Stock Exchange (ticker symbol: AHP).
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
1345 Avenue of the Americas
New York, NY 10105
ANNUAL MEETING
The Annual Meeting of Stockholders will be held on Thursday, April 22, 1999, at
the Headquarters Plaza Hotel in Morristown, New Jersey.
FORM 10-K
A copy of the Company's Annual Report on Form 10-K may be obtained by any
shareholder without charge upon request to:
American Home Products Corporation
Treasurer's Department
Five Giralda Farms
Madison, NJ 07940
(973) 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)
Internet address: http://www.chasemellon.com
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, disability, national origin, race,
religion, sex, sexual orientation, 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
TRADEMARKS
Product designations appearing in differentiated type are trademarks.
54 American Home Products Corporation and Subsidiaries
<PAGE>
Principal Products - United States
ETHICAL PHARMACEUTICALS AND VACCINES
Women's Health Pain and Arthritis
Alesse Enbrel
Crinone Lodine XL
Lo/Ovral Oruvail
Nordette Synvisc
Premarin
Premarin Vaginal Cream Vaccines
Premphase Acel-Imune
Prempro FluShield
Triphasil HibTITER
Orimune
Cardiovascular Pnu-Imune 23
Cordarone RotaShield
Cordarone I.V. Tetramune
Inderal LA
ISMO Oncology Therapies
Isordil Leukine
Quinidex Neumega
Sectral Novantrone
Tenex Thioplex
Zebeta
Ziac Anti-Infectives
Bicillin
Neuroscience Therapies Minocin
Ativan Pipracil
Effexor Suprax
Effexor XR Zosyn
Serax
Other Products
BeneFIX
Diamox
Phenergan
CONSUMER HEALTH CARE
Analgesics and
Cough/Cold/Allergy
Advil
Advil Cold & Sinus
Anacin
Children's Advil
Dimetapp
Dristan
Robitussin
Nutritional
Supplements
Caltrate
Centrum
Centrum Herbals
Centrum Silver
Solgar
Other Products
Anbesol
Axid AR
Chap Stick
Denorex
FiberCon
Preparation H
Primatene
AGRICULTURAL PRODUCTS
Herbicides
Arsenal
Assert
Cadre
Lightning
Prowl
Pursuit
Raptor
Scepter
Squadron
Steel
Fungicides and
Insecticides
Acrobat
Amdro
Counter
Thimet
ANIMAL HEALTH CARE
Veterinary
Pharmaceuticals and
Biologicals
Cydectin
Dicural
Duramune
EtoGesic
Fel-O-Vax
Fluvac
GiardiaVax
Ketaset
LymeVax
Nolvasan
Panalog
PolyFlex
PYRAMID
Quest
Suvaxyn
Synanthic
Synovex
ToDAY
ToMORROW
Torbugesic
Triangle
The above principal products are identified as trademarks used by American Home
Products Corporation and its subsidiaries.
Design: Arnold Saks Associates
Text: Linda Errante
[RECYCLE LOGO]
This report is printed
on recycled paper.
American Home Products Corporation and Subsidiaries 55
<PAGE>
EXHIBIT 21
<TABLE>
SUBSIDIARIES OF THE COMPANY
DECEMBER 31, 1998
<CAPTION>
State or Country
Name of Incorporation
<S> <C>
Domestic
AHP Subsidiary Holding Corporation Delaware
American Cyanamid Company Maine
Ayerst-Wyeth Pharmaceuticals Incorporated Delaware
Berdan Insurance Company Vermont
Cyanamid Agricultural de Puerto Rico, Inc. New Jersey
Cyanamid International Corporation Limited Delaware
Genetics Institute, Inc. Delaware
Immunex Corporation Washington
Lederle Parenterals, Inc. New Jersey
Lederle Piperacillin, Inc. New Jersey
Route 24 Holdings, Inc. Delaware
Wyeth-Ayerst International Inc. New York
Wyeth-Ayerst Pharmaceuticals, Inc. New York
Wyeth Nutritionals, Inc. Delaware
Wyeth-Whitehall Pharmaceuticals, Inc. Puerto Rico
Foreign
AHP Finance B.V. Netherlands
AHP Manufacturing B.V. Netherlands
Cyanamid Agro France
Cyanamid de Argentina S.A. Delaware
Cyanamid Agrar GmbH & Co. KG Germany
Cyanamid Iberica, S.A. Spain
Cyanamid (Japan) Ltd. Japan
Cyanamid of Great Britain Limited Great Britain
Cyanamid Quimica do Brasil Ltda. Brazil
Cyanamid Taiwan Corporation Taiwan
Dimminaco AG Switzerland
John Wyeth & Brother Limited Great Britain
Laboratorios Wyeth-Whitehall Ltda. Brazil
Wyeth (H.K.) Limited Hong Kong
Wyeth Australia Pty. Limited Australia
Wyeth-Ayerst Canada Inc. Canada
Wyeth-Lederle France
Wyeth-Lederle S.p.A. Italy
Wyeth Lederle Portugal (Farma), Lda. Portugal
Wyeth-Pharma GmbH Germany
Wyeth Philippines, Inc. Philippines
Wyeth S.A. de C.V. Mexico
</TABLE>
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 26, 1999 included in
American Home Products Corporation's (the Company) Annual Report to Shareholders
for the year ended December 31, 1998. Furthermore, we consent to the
incorporation of our reports dated January 26, 1999 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 29, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE AMERICAN HOME PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1998 AND
CONSOLIDATED STATEMENT OF INCOME FOR THE TWELVE MONTHS ENDED
DECEMBER 31, 1998, 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-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,182,319
<SECURITIES> 119,210
<RECEIVABLES> 3,499,137
<ALLOWANCES> 222,540
<INVENTORY> 2,237,918
<CURRENT-ASSETS> 7,955,632
<PP&E> 6,718,364
<DEPRECIATION> 2,428,699
<TOTAL-ASSETS> 21,079,068
<CURRENT-LIABILITIES> 4,210,721
<BONDS> 3,859,163
<COMMON> 437,466
0
64
<OTHER-SE> 9,177,266
<TOTAL-LIABILITY-AND-EQUITY> 21,079,068
<SALES> 13,462,687
<TOTAL-REVENUES> 13,462,687
<CGS> 3,616,832
<TOTAL-COSTS> 3,616,832
<OTHER-EXPENSES> 1,654,745
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 207,157
<INCOME-PRETAX> 3,585,460
<INCOME-TAX> 1,111,122
<INCOME-CONTINUING> 2,474,338
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,474,338
<EPS-PRIMARY> 1.88 <F1>
<EPS-DILUTED> 1.85 <F2>
<FN>
<F1> This amount represents Basic Earnings per Share in accordance with
the requirements of Statement of Financial Accounting Standards
No. 128 - "Earnings per Share."
<F2> This amount represents Diluted Earnings per Share in accordance with
the requirements of Statement of Financial Accounting Standards
No. 128 - "Earnings per Share."
</FN>
</TABLE>
Exhibit No. 99
Exhibit 99 to the Annual Report on Form 10-K
for the Fiscal Year Ended December 31, 1998
Cautionary Statements Regarding "Safe Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995
The Company may from time to time make written or verbal forward-looking
statements. Forward-looking statements may appear in periodic reports filed
with the Securities and Exchange Commission (including the Company's Annual
Reports on Form 10-K and Quarterly Reports on Form 10-Q), in press releases,
in the Company's Annual Report to Shareholders and other reports to
shareholders, and in other communications made by the Company. These forward-
looking statements can be identified by their use of words such as
"anticipates," "expects," "plans," "could," "will," " believes," "estimates,"
"forecasts," "projects" and other words of similar meaning. These forward-
looking statements address various matters including the Company's results of
operations, Euro Currency, competition, liquidity, financial condition and
capital resources, Year 2000, market position and product development. These
forward-looking statements are based on current expectations. The Company
undertakes no obligation to update any forward-looking statements, but
investors are advised to consult any further disclosures by the Company on
these forward-looking statements in its subsequent filings pursuant to the
Securities Exchange Act of 1934. 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:
The Company's Year 2000 remediation efforts are based on numerous
expectations which are subject to uncertainties. Certain risk
factors which could have a material adverse effect on the Company's
results of operations include but are not limited to: failure to
identify critical systems which will experience failures, errors in
the remediation efforts, unexpected failures by key business
partners, inability to obtain new replacements for non-compliant
systems or equipment, failures by governmental agencies causing
delays in approval of new products or sales of approved products,
general economic downturn relating to Year 2000 failures in the
U.S. and in other countries, failures in global banking systems and
capital markets, or extended failures by public and private utility
companies or common carriers supplying services to the Company.
Competitive implications on the Company's pricing and marketing
strategies due to the conversion to the Euro.
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. In the U.S., among
other developments, consolidation among managed care organizations
may increase price pressure and may result in managed care
organizations having greater influence over prescription decisions
through formulary decisions and other policies.
<PAGE>
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. Uncertainties of
the FDA approval process and the regulatory approval processes of
other non-U.S. countries, including, without limitation, delays in
approval of new products.
Governmental factors including laws, regulations and judicial
decisions at the state and federal level related to Medicare,
Medicaid and health care reform; and laws and regulations affecting
international pricing and pharmaceutical reimbursement.
Inherent uncertainty of pharmaceutical research, difficulties or
delays in product development and commercialization including, but
not limited to, the inability to identify viable new chemical
compounds, successfully complete clinical trials, and gain and
maintain market acceptance of approved products. Difficulties or
delays in product development can also affect the Company's other
businesses. New product candidates that appear promising in
development may fail to reach market for numerous reasons. They
may be found to be ineffective or to have harmful side effects in
clinical or pre-clinical testing.
Unexpected safety or efficacy concerns arising with respect to
marketed products, whether or not scientifically justified, leading
to product recalls, withdrawals or declining sales.
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.
Product liability litigation related to the Company's health care
and other products including, without limitation, litigation
associated with the Company's antiobesity products, PONDIMIN and
REDUX. Other legal factors include, without limitation, antitrust
litigation, environmental concerns and patent disputes with
competitors, any of which could preclude commercialization of
products or negatively affect the profitability of existing
products.
Changes in accounting standards promulgated by the Financial
Accounting Standards Board, the Securities and Exchange Commission,
and the American Institute of Certified Public Accountants which
are adverse to the Company.
Continued consolidation in the health care and agrochemical
industries could affect the Company's competitive position.
Changing business conditions including inflation and fluctuations
in interest rates and foreign currency exchange rates.
Factors such as changes in business strategies and the impact of
restructurings, impairments in asset carrying values and business
combinations.
