=========================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000 Commission file number 1-1225
AMERICAN HOME PRODUCTS CORPORATION
----------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-2526821
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Five Giralda Farms, Madison, N.J. 07940
--------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (973) 660-5000
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15
(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
----- --
The number of shares of Common Stock outstanding as of the close of business on
July 31, 2000:
Number of
Class Shares Outstanding
----------------------------------------- ------------------
Common Stock, $0.33-1/3 par value 1,303,661,233
=========================================================================
<PAGE>
AMERICAN HOME PRODUCTS CORPORATION AND SUBSIDIARIES
Index
Page No.
--------
Part I - Financial Information 2
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets -
June 30, 2000 and December 31, 1999 3
Consolidated Condensed Statements of Operations -
Three and Six Months Ended June 30, 2000 and 1999 4
Consolidated Condensed Statements of Changes in
Stockholders' Equity - Six Months Ended June 30, 2000
and 1999 5
Consolidated Condensed Statements of Cash Flows -
Six Months Ended June 30, 2000 and 1999 6
Notes to Consolidated Condensed Financial Statements 7-12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13-21
Part II - Other Information 22
Item 1. Legal Proceedings 22-23
Item 4. Submission of Matters to a Vote of Security-Holders 23-25
Item 6. Exhibits and Reports on Form 8-K 25
Signature 26
Exhibit Index EX-1
1
<PAGE>
Part I - Financial Information
------------------------------
AMERICAN HOME PRODUCTS CORPORATION AND SUBSIDIARIES
The consolidated condensed financial statements included herein have been
prepared by American Home Products Corporation (the "Company"), without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations; however,
the Company believes that the disclosures are adequate to make the information
presented not misleading. In the opinion of management, the financial statements
include all adjustments necessary to present fairly the financial position of
the Company as of June 30, 2000 and December 31, 1999, and the results of its
operations for the three months and six months ended June 30, 2000 and 1999, and
its cash flows and changes in stockholders' equity for the six months ended June
30, 2000 and 1999. It is suggested that these financial statements and
management's discussion and analysis of financial condition and results of
operations be read in conjunction with the financial statements and the notes
thereto included in the Company's 1999 Annual Report on Form 10-K and Quarterly
Report on Form 10-Q for the quarter ended March 31, 2000.
2
<PAGE>
<TABLE>
AMERICAN HOME PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands Except Per Share Amounts)
<CAPTION>
June 30, December 31,
2000 1999
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $2,920,123 $1,892,715
Marketable securities 834,338 520,587
Accounts receivable less allowances 2,333,009 2,389,863
Inventories:
Finished goods 845,599 753,831
Work in progress 542,883 471,327
Materials and supplies 401,884 382,802
------------ ------------
1,790,366 1,607,960
Other current assets including deferred taxes 1,940,828 1,781,307
Net Assets - Discontinued business held for sale -- 4,192,346
------------ ------------
Total Current Assets 9,818,664 12,384,778
Property, plant and equipment 6,934,962 6,392,948
Less accumulated depreciation 2,463,539 2,274,771
------------ ------------
4,471,423 4,118,177
Goodwill and other intangibles, net of accumulated
amortization 4,763,674 4,823,309
Other assets including deferred taxes 1,346,672 1,797,492
------------ ------------
Total Assets $20,400,433 $23,123,756
============ ============
LIABILITIES
Loans payable $30,522 $1,880,816
Trade accounts payable 550,240 562,679
Accrued expenses 4,778,580 3,809,525
Accrued federal and foreign taxes 1,251,881 227,363
------------ ------------
Total Current Liabilities 6,611,223 6,480,383
Long-term debt 2,390,326 3,606,423
Other noncurrent liabilities 4,388,283 5,925,313
Postretirement benefit obligations other than pensions 886,468 896,890
STOCKHOLDERS' EQUITY
$2 convertible preferred stock, par value $2.50 per share 57 61
Common stock, par value $0.33-1/3 per share 434,430 434,639
Additional paid-in capital 3,543,865 3,392,705
Retained earnings 2,744,376 3,000,827
Accumulated other comprehensive loss (598,595) (613,485)
------------ ------------
Total Stockholders' Equity 6,124,133 6,214,747
------------ ------------
Total Liabilities and Stockholders' Equity $20,400,433 $23,123,756
============ ============
The accompanying notes are an integral part of these consolidated condensed financial statements.
</TABLE>
3
<PAGE>
<TABLE>
AMERICAN HOME PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In Thousands Except Per Share Amounts)
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
-------------------------- ---------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Sales $3,193,843 $2,743,164 $6,530,338 $5,601,213
----------- ----------- ----------- -----------
Cost of goods sold 825,736 736,059 1,652,309 1,436,365
Selling, general and administrative expenses 1,298,577 1,067,010 2,511,839 2,128,212
Research and development expenses 453,962 413,540 896,887 783,507
Interest expense, net 43,232 54,949 86,373 111,280
Other expense (income), net 10,052 (14,144) (42,349) (94,199)
Special charge -- 82,000 -- 82,000
Termination fee -- -- (1,709,380) --
----------- ----------- ----------- -----------
Income from continuing operations before
federal and foreign taxes 562,284 403,750 3,134,659 1,154,048
Provision for federal and foreign taxes 149,550 109,416 975,916 321,574
----------- ----------- ----------- -----------
Income from continuing operations 412,734 294,334 2,158,743 832,474
----------- ----------- ----------- -----------
Discontinued Operations:
Income from operations of discontinued
agricultural products business (net of federal and
foreign taxes of $43,192 for the 1999 second quarter, and
$57,289 and $90,613 for the 2000 and 1999 first half, respectively) -- 104,339 103,346 221,117
Loss on disposal of agricultural products business
(including federal and foreign tax charges of $855,248) -- -- (1,572,993) --
----------- ----------- ----------- -----------
Income (loss) from discontinued operations -- 104,339 (1,469,647) 221,117
----------- ----------- ----------- -----------
Net income $412,734 $398,673 $689,096 $1,053,591
=========== =========== =========== ===========
Basic Earnings Per Share from Continuing Operations $0.32 $0.22 $1.66 $0.63
Basic Earnings (Loss) Per Share from Discontinued Operations -- 0.08 (1.13) 0.17
----------- ----------- ----------- -----------
Basic Earnings Per Share $0.32 $0.30 $0.53 $0.80
=========== =========== =========== ===========
Diluted Earnings Per Share from Continuing Operations $0.31 $0.22 $1.63 $0.62
Diluted Earnings (Loss) Per Share from Discontinued Operations -- 0.08 (1.11) 0.17
----------- ----------- ----------- -----------
Diluted Earnings Per Share $0.31 $0.30 $0.52 $0.79
=========== =========== =========== ===========
Dividends per share of common stock $0.230 $0.225 $0.460 $0.450
=========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated condensed financial statements.
</TABLE>
4
<PAGE>
<TABLE>
AMERICAN HOME PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In Thousands)
<CAPTION>
Six Months Ended June 30, 2000:
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, 2000 $61 $434,639 $3,392,705 $3,000,827 ($613,485) $6,214,747
Net income 689,096 689,096
Currency translation adjustments (490) (490)
Unrealized gain on marketable
securities 15,380 15,380
-------------
Comprehensive income 703,986
-------------
Cash dividends declared (599,949) (599,949)
Treasury stock acquired (2,261) (14,884) (341,901) (359,046)
Common stock issued 1,948 144,880 146,828
Conversion of preferred stock
and other exchanges (4) 104 21,164 (3,697) 17,567
----------- ---------- ---------- ---------- ---------- -------------
Balance at June 30, 2000 $57 $434,430 $3,543,865 $2,744,376 ($598,595) $6,124,133
=========== ========== ========== ========== ========== =============
Six Months Ended June 30, 1999:
Accumulated
$2 Convertible Additional Other Total
Preferred Common Paid-in Retained Comprehensive Stockholders'
Stock Stock Capital Earnings Loss Equity
-------------- ---------- ---------- ---------- ------------- -------------
Balance at January 1, 1999 $64 $437,466 $3,072,874 $6,432,729 ($328,337) $9,614,796
Net income 1,053,591 1,053,591
Currency translation adjustments (208,209) (208,209)
Unrealized loss on marketable
securities (1,231) (1,231)
-------------
Comprehensive income 844,151
-------------
Cash dividends declared (589,570) (589,570)
Treasury stock acquired (4,408) (57,867) (716,419) (778,694)
Common stock issued 2,635 176,945 179,580
Conversion of preferred stock
and other exchanges (2) 178 20,604 (7,189) 13,591
-------------- ---------- ---------- ---------- ----------- -------------
Balance at June 30, 1999 $62 $435,871 $3,212,556 $6,173,142 ($537,777) $9,283,854
============== ========== ========== ========== =========== =============
The accompanying notes are an integral part of these consolidated condensed financial statements.
</TABLE>
5
<PAGE>
<TABLE>
AMERICAN HOME PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
<CAPTION>
Six Months Ended June 30,
2000 1999
---------- ----------
<S> <C> <C>
Operating Activities
--------------------
Income from continuing operations $2,158,743 $832,474
Adjustments to reconcile income from continuing operations to net cash
provided from operating activities of continuing operations:
Special charge -- 82,000
Gains on sales of assets (33,420) (83,809)
Depreciation and amortization 280,533 281,294
Deferred income taxes 355,784 31,953
Changes in working capital, net 439,682 58,391
Diet drug litigation payments (1,273,927) --
Other items, net (66,287) 29,068
----------- ----------
Net cash provided from continuing operations 1,861,108 1,231,371
Net cash provided from (used for) discontinued operations 127,574 (48,607)
----------- ----------
Net cash provided from operating activities 1,988,682 1,182,764
----------- ----------
Investing Activities
--------------------
Purchases of property, plant and equipment (592,404) (370,235)
Proceeds from sale of the agricultural products business 3,800,000 --
Proceeds from sales of assets 85,492 160,396
Proceeds from sales and maturities of marketable securities 441,868 147,694
Purchases of marketable securities (755,209) (468,994)
----------- ----------
Net cash provided from (used for) investing activities 2,979,747 (531,139)
----------- ----------
Financing Activities
--------------------
Net proceeds from (repayments of) debt (3,110,414) 1,157,496
Dividends paid (599,949) (589,570)
Exercises of stock options 146,828 179,580
Purchases of treasury stock (359,046) (778,694)
----------- ----------
Net cash used for financing activities (3,922,581) (31,188)
----------- ----------
Effects of exchange rates on cash balances (18,440) (23,146)
----------- ----------
Increase in cash and cash equivalents 1,027,408 597,291
Cash and cash equivalents, beginning of period 1,892,715 1,182,319
----------- ----------
Cash and cash equivalents, end of period $2,920,123 $1,779,610
=========== ==========
Supplemental Information
------------------------
Interest payments $235,751 $144,261
Income tax payments, net of refunds 343,792 367,603
The accompanying notes are an integral part of these consolidated condensed financial statements.
</TABLE>
6
<PAGE>
AMERICAN HOME PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 1. Discontinued Operations
-----------------------
On June 30, 2000, the Company announced that it had completed the sale
of the Cyanamid Agricultural Products business to BASF
Aktiengesellschaft (BASF). The Cyanamid Agricultural Products business
manufactures, distributes and sells crop protection and pest control
products worldwide, such as herbicides, insecticides and fungicides.
Under the terms of the definitive agreement dated as of March 20, 2000
and subsequently approved by the Federal Trade Commission and certain
international regulatory agencies, BASF paid the Company
$3,800,000,000 in cash and assumed certain debt. As a result, the
Company recorded an after-tax loss on the sale of this business of
$1,572,993,000 or $1.19 per share-diluted and reflected this business
as a discontinued operation beginning in the 2000 first quarter. The
loss on the sale included closing costs from the transaction, and
operating income of the discontinued business from April 1, 2000
through June 30, 2000 (the disposal date). The loss on the sale was
due primarily to a difference in the basis of the net assets sold for
financial reporting purposes compared to the Company's basis in such
net assets for tax purposes. This difference related, for the most
part, to goodwill which is not recognized for tax purposes. As a
result, the transaction generated a taxable gain requiring the
recording of a tax provision, in addition to a write-off of net assets
in excess of the selling price. The Consolidated Condensed Financial
Statements at December 31, 1999 and June 30, 1999 have been restated
to reflect the Cyanamid Agricultural Products business as a
discontinued operation. Operating results of discontinued operations
were as follows:
Six Months
(In thousands except per share amounts) Ended June 30,
---------------------------
2000 1999
------------- ------------
Net Sales $546,790 $1,160,431
------------- ------------
Income before federal and foreign taxes 160,635 311,730
Provisions for federal and foreign taxes 57,289 90,613
------------- ------------
Income from operations of discontinued
agricultural products business 103,346 221,117
Loss on disposal of agricultural
products business (including federal and
foreign tax charges of $855,248) (1,572,993) --
------------- ------------
Income (Loss) from Discontinued Operations ($1,469,647) $221,117
============= ============
Diluted Earnings (Loss) per Share
from Discontinued Operations ($1.11) $0.17
============= ============
7
<PAGE>
AMERICAN HOME PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 2. Warner-Lambert Termination Fee
------------------------------
During the 2000 first quarter, the Company and Warner-Lambert Company
terminated their merger agreement. The Company recorded income of
$1,709,380,000 ($1,111,097,000 after-tax or $0.84 per share - diluted)
in income from continuing operations resulting from the receipt of a
$1,800,000,000 termination fee provided for under the merger agreement
offset, in part, by certain related expenses.
Note 3. Contingencies and Litigation Settlement
---------------------------------------
The Company is involved in various legal proceedings, including
product liability and environmental matters of a nature considered
normal to its business. It is the Company's policy to accrue for
amounts related to these legal matters if it is probable that a
liability has been incurred and an amount is reasonably estimable.
In the 1999 third quarter, the Company recorded a litigation charge
of $4,750,000,000 to provide for expected payments to the settlement
funds contemplated by the comprehensive nationwide, class action
settlement, other judgments and settlements (including estimated
claims for primary pulmonary hypertension and any opt outs), and
future legal costs, net of available insurance. During the 2000 first
half, individual settlement payments, legal fees and other items
totaling $1,273,927,000 were paid and applied against the litigation
accrual. At June 30, 2000, $3,358,492,000 of the litigation accrual
remained. On April 13, 2000, the Company announced that it will
proceed with the comprehensive, nationwide settlement to resolve
litigation brought against the Company regarding the use of REDUX
(dexfenfluramine) or PONDIMIN (fenfluramine). The comprehensive,
nationwide settlement is subject to judicial approval (and resolution
of appeals, if any) following the completion of a fairness hearing in
the U.S. District Court for the Eastern District of Pennsylvania. A
decision on approval of the settlement is expected during the 2000
third quarter. Of the estimated 5.8 million diet drug users,
approximately 200,000 individuals had registered for the settlement
and approximately 45,000 opted out during the four-month initial
opt-out period ended March 30, 2000. A majority of those who
registered have elected the settlement's Accelerated Implementation
Option, which provides for prompt benefits and resolves the claims of
those class members. An amendment dated July 20, 2000 to the
settlement agreement relates to the timing of payments by the Company
into the proposed settlement fund, administration of the settlement
trust and opt-out credits available to the Company.
The Company continues to monitor the status of all REDUX and PONDIMIN
diet drug matters, including the level of opt outs, payments made to
claimants, the number of registrations within the nationwide
settlement, other settlements, litigation costs and other matters. The
Company continues to resolve the cases of many claimants who have
opted out of the nationwide settlement, and expects that over time it
will be able to resolve the cases with the remaining claimants. The
Company anticipates that additional reserves will be required. While
it is not possible to determine at this time the extent of such
additional amounts, the Company believes that the substantial majority
of the ultimate liability will be covered by reserves previously
established.
8
<PAGE>
AMERICAN HOME PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
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.
Note 4. Restructuring Program
---------------------
In December 1998, the Company recorded a special charge for
restructuring and related asset impairments of $343,600,000 to
recognize costs of the reorganization of its worldwide supply chains
and U.S. distribution systems, and the globalization of certain
business units. The restructuring will result in the reduction of
4,100 positions worldwide offset, in part, by 1,000 newly created
positions in the same functions at other locations. During the 2000
first half, the Company has continued its personnel reductions and has
completed the closure of the third and final distribution center. The
manufacturing plants are continuing their phase-out period, and the
Company will begin the disposal process in late 2000. As of June 30,
2000, approximately 2,850 positions had been eliminated. The activity
in the restructuring accruals was as follows:
Personnel Other Closure/
(In thousands) Costs Exit Costs Total
------------------------------ --------- -------------- --------
Restructuring accruals at
December 31, 1999 $54,753 $79,261 $134,014
Cash expenditures (24,600) (4,985) (29,585)
--------- -------------- --------
Restructuring accruals at
June 30, 2000 $30,153 $74,276 $104,429
========== ============== ========
Note 5. Consolidation of Certain Subsidiaries
-------------------------------------
Effective January 1, 2000, the financial results of certain
pharmaceutical subsidiaries in Japan and India, which were previously
included on an equity basis, were consolidated in the results of the
Company due to changes which gave the Company ability to exercise
control over the operations of these affiliates. The consolidation of
the subsidiaries resulted in higher net sales of 2% for the 2000
second quarter and 3% for the 2000 first half; however, it had no
impact on income from continuing operations.
9
<PAGE>
AMERICAN HOME PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 6. Company Data by Operating Segment
---------------------------------
The Company has three reportable segments: Pharmaceuticals, Consumer
Health Care and Corporate.
Net Sales
---------------------------------------------
Three Months Six Months
($ in millions) Ended June 30, Ended June 30,
----------------------- --------------------
Operating Segment 2000 1999 2000 1999
--------------------- --------- --------- --------- ---------
Pharmaceuticals $2,683.0 $2,239.6 $5,423.6 $4,535.3
Consumer Health Care 510.8 503.6 1,106.7 1,065.9
--------- --------- --------- ---------
Total $3,193.8 $2,743.2 $6,530.3 $5,601.2
========= ========= ========= =========
Income from Continuing Operations
Before Federal and Foreign Taxes (1)
---------------------------------------------
Three Months Six Months
($ in millions) Ended June 30, Ended June 30,
----------------------- --------------------
Operating Segment 2000 1999 2000 1999
--------------------- --------- --------- --------- ---------
Pharmaceuticals $559.1 $477.9 $1,313.3 $1,178.1
Consumer Health Care 94.6 103.5 220.9 227.1
--------- --------- --------- ---------
653.7 581.4 1,534.2 1,405.2
Corporate (2) (91.4) (177.6) 1,600.5 (251.2)
--------- ---------- ---------- ---------
Total $562.3 $403.8 $3,134.7 $1,154.0
========= ========== ========= =========
(1) The second quarter results included goodwill amortization for 2000
and 1999 as follows: Pharmaceuticals - $38.0 and $38.3, and
Consumer Health Care - $8.0 and $8.0, respectively.
The first half results included goodwill amortization for 2000 and
1999 as follows: Pharmaceuticals - $78.2 and $76.8, and Consumer
Health Care - $16.0 and $16.1, respectively.
(2) Corporate expenses for the 2000 first half included income of
$1,709.4 resulting from the receipt of a $1,800.0 termination fee
provided for under the merger agreement with Warner-Lambert
Company offset, in part, by certain related expenses.
Corporate expenses for the 1999 second quarter and first half
included a special charge of $82.0 related to the suspension of
shipments and the voluntary market withdrawal of ROTASHIELD, the
Company's rotavirus vaccine.
10
<PAGE>
AMERICAN HOME PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 7. Earnings per Share
------------------
<TABLE>
The following table sets forth the computations of Basic Earnings per
Share and Diluted Earnings per Share:
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
------------------------ --------------------------
(In thousands except per share amounts) 2000 1999 2000 1999
------------------------------------------------------------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Income from continuing operations less preferred dividends $412,723 $294,322 $2,158,720 $832,449
Income (loss) from discontinued operations -- 104,339 (1,469,647) 221,117
---------- ----------- ----------- -----------
Net income less preferred dividends $412,723 $398,661 $689,073 $1,053,566
Denominator:
Average number of common shares outstanding 1,304,049 1,310,194 1,304,631 1,311,074
---------- ----------- ----------- -----------
Basic Earnings per Share from Continuing Operations $0.32 $0.22 $1.66 $0.63
Basic Earnings (Loss) per Share from Discontinued Operations -- 0.08 (1.13) 0.17
---------- ----------- ----------- -----------
Basic Earnings per Share $0.32 $0.30 $0.53 $0.80
========== =========== =========== ===========
Income from continuing operations $412,734 $294,334 $2,158,743 $832,474
Income (loss) from discontinued operations -- 104,339 (1,469,647) 221,117
---------- ----------- ----------- -----------
Net income $412,734 $398,673 $689,096 $1,053,591
Denominator:
Average number of common shares outstanding 1,304,049 1,310,194 1,304,631 1,311,074
Common share equivalents of outstanding stock
options and deferred contingent common stock
awards 17,375 21,813 15,917 22,384
---------- ----------- ----------- -----------
Total shares 1,321,424 1,332,007 1,320,548 1,333,458
---------- ----------- ----------- -----------
Diluted Earnings per Share from Continuing Operations $0.31 $0.22 $1.63 $0.62
Diluted Earnings (Loss) per Share from Discontinued Operations -- 0.08 (1.11) 0.17
---------- ----------- ----------- -----------
Diluted Earnings per Share $0.31 $0.30 $0.52 $0.79
========== =========== =========== ===========
</TABLE>
Note 8. Subsequent Event
----------------
In August 2000, the Company's majority-owned subsidiary, Immunex
Corporation (Immunex) whose financial results are consolidated into
the results of the Company, filed a shelf registration statement
which, once it becomes effective, would allow Immunex to sell up to 20
million shares of newly-issued Immunex common stock in a primary
offering and the Company to sell up to 50 million shares of Immunex
common stock in a secondary offering.
The combined effect of the equity offering, if and when executed, is
expected to reduce the Company's ownership in Immunex from
approximately 55% to approximately 43%. Upon the Company's ownership
falling below 45%, it will retain two of its three seats on the
Immunex Board of Directors, and the Company and Immunex have agreed to
increase the number of independent directors from three to four. Upon
the reduction in ownership and control over the operations of Immunex,
the Company will include the financial results of Immunex on an equity
basis prospectively instead of consolidating such results.
11
<PAGE>
AMERICAN HOME PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Key elements of the new business arrangements between the Company and
Immunex include the future sale by the Company of its recently
acquired biotech facility in Rhode Island to Immunex, the provision of
up to $550 million in financing guarantees to Immunex toward the cost
of its proposed new research and technology center in Seattle, and the
concurrent conversion of the outstanding $450 million convertible
subordinate Immunex note held by the Company into Immunex shares. All
existing licensing and marketing rights to ENBREL remain unchanged.
The Company plans to use the net proceeds from the sale of its Immunex
common stock for general corporate purposes.
12
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Six Months Ended June 30, 2000
Results of Operations
---------------------
Management's discussion and analysis of results of operations for the 2000
second quarter and first half are presented on an as-reported basis, except for
sales variation explanations which are presented on an as-reported and pro forma
basis. Effective January 1, 2000, the financial results of certain
pharmaceutical subsidiaries in Japan and India, which were previously included
on an equity basis, were consolidated in the results of the Company. Pro forma
sales results reflect the consolidation of these subsidiaries as of January 1,
1999. The consolidation of the subsidiaries had no impact on income from
continuing operations.
On an as-reported basis, worldwide net sales for the 2000 second quarter and
first half were 16% and 17% higher, respectively, compared with prior year
levels. On a pro forma basis, worldwide net sales for both the 2000 second
quarter and first half were 14% higher compared with prior year levels. The
increase in pro forma worldwide net sales for the 2000 second quarter and first
half was due primarily to higher worldwide sales of pharmaceuticals. Excluding
the negative impact of foreign exchange, pro forma worldwide net sales increased
17% for the 2000 second quarter and 16% for the 2000 first half.
The following tables set forth worldwide net sales results by operating segment
together with the percentage changes in "As-Reported" and "Pro Forma" worldwide
net sales from the comparable period in the prior year:
Net Sales
------------------------
Three Months
($ in millions) Ended June 30,
------------------------ As-Reported Pro Forma
Operating Segment 2000 1999 % Increase % Increase
-------------------- ----------- ----------- ----------- -----------
Pharmaceuticals $2,683.0 $2,239.6 20% 17%
Consumer Health Care 510.8 503.6 1% 1%
----------- ----------- ----------- -----------
Total $3,193.8 $2,743.2 16% 14%
=========== =========== =========== ===========
Net Sales
------------------------
Six Months
($ in millions) Ended June 30,
------------------------ As-Reported Pro Forma
Operating Segment 2000 1999 % Increase % Increase
-------------------- ----------- ----------- ----------- -----------
Pharmaceuticals $5,423.6 $4,535.3 20% 16%
Consumer Health Care 1,106.7 1,065.9 4% 4%
---------- ----------- ----------- -----------
Total $6,530.3 $5,601.2 17% 14%
=========== =========== =========== ===========
13
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Six Months Ended June 30, 2000
On an as-reported basis, worldwide pharmaceutical sales increased 20% for both
the 2000 second quarter and first half. On a pro forma basis, worldwide
pharmaceutical sales increased 17% for the 2000 second quarter and 16% for the
2000 first half due primarily to higher sales of EFFEXOR XR (due to expanded
indications), MENINGITEC (introduced in the United Kingdom in the 1999 fourth
quarter), ENBREL, PREMARIN products, PREVNAR (introduced in the 2000 first
quarter), oral contraceptives, REFACTO and PROTONIX (introduced in the 2000
second quarter). The 2000 first half increase in worldwide pharmaceutical sales
was offset, in part, by lower sales of LODINE (due to additional competition).
Excluding the negative impact of foreign exchange, pro forma worldwide
pharmaceutical sales increased 20% for the 2000 second quarter and 18% for the
2000 first half.
On an as-reported and pro forma basis, worldwide consumer health care sales
increased 1% for the 2000 second quarter and 4% for the 2000 first half led by
higher sales of nutritional supplements, principally CENTRUM and CALTRATE
offset, in part, by lower sales of cough/cold/allergy products. Excluding the
negative impact of foreign exchange, worldwide consumer health care sales
increased 3% for the 2000 second quarter and 5% for the 2000 first half.
The following table sets forth, on a pro forma basis, the percentage changes in
worldwide net sales by operating and geographic segment compared to the prior
year, including the effect volume, price and foreign exchange had on these
percentage changes:
<TABLE>
<CAPTION>
% Increase (Decrease) % Increase (Decrease)
Three Months Ended June 30, 2000 Six Months Ended June 30, 2000
------------------------------------ ------------------------------------
Foreign Total Foreign Total
Volume Price Exchange Net Sales Volume Price Exchange Net Sales
------ ------- -------- --------- ------ ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Pharmaceuticals
--------------------
U.S. 16% 8% -- 24% 12% 8% -- 20%
International 14% -- (6%) 8% 16% 1% (6%) 11%
------ ------- -------- --------- ------ ------- -------- ---------
Total 15% 5% (3%) 17% 13% 5% (2%) 16%
====== ======= ======== ========= ====== ======= ======== =========
Consumer Health Care
--------------------
U.S. (1%) 1% -- -- 2% 1% -- 3%
International 8% 2% (5%) 5% 9% 3% (5%) 7%
------ ------- -------- --------- ------ ------ ------- --------
Total 2% 1% (2%) 1% 4% 1% (1%) 4%
====== ======= ======== ========= ====== ====== ======== ========
Total
--------------------
U.S. 12% 7% -- 19% 10% 7% -- 17%
International 13% 1% (6%) 8% 15% 1% (6%) 10%
------ ------- -------- ---------- ------ ------ -------- ---------
Total 13% 4% (3%) 14% 12% 4% (2%) 14%
====== ======= ======== ========== ====== ====== ======== =========
</TABLE>
Cost of goods sold, as a percentage of net sales, decreased to 25.9% for the
2000 second quarter compared to 26.8% for the 1999 second quarter due primarily
to a favorable product mix in the pharmaceuticals segment, and decreased
slightly to 25.3% for the 2000 first half compared to 25.6% for the 1999 first
half.
14
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Six Months Ended June 30, 2000
Selling, general and administrative expenses increased 22% for the 2000 second
quarter and 18% for the 2000 first half. Higher selling, general and
administrative expenses were due primarily to higher selling and marketing
expenses, including increased headcount, related to recent pharmaceutical
product launches, direct-to-consumer programs, promotional costs for significant
established pharmaceutical products and additional sales force for rapid growth
products. Since the beginning of 2000, the financial results of certain
pharmaceutical subsidiaries in Japan and India were consolidated in the results
of the Company as opposed to the inclusion of their earnings on an equity basis
(classified as other expense (income), net) in prior years. The selling and
promotional expenses associated with Japan and India also contributed to the
higher selling, general and administrative expenses for both periods.
Research and development expenses increased 10% for the 2000 second quarter and
14% for the 2000 first half due primarily to certain advancements and ongoing
clinical trials of pharmaceuticals in several therapeutic categories. Also
contributing to the increase in the 2000 first half were payments for existing
licensing agreements.
Interest expense, net, decreased 21% for the 2000 second quarter and 22% for the
2000 first half due primarily to an increase in interest income as a result of
higher marketable securities. The increase in interest income was partially
offset by higher interest expense due primarily to higher commercial paper debt
outstanding during the 2000 second quarter and first half. The pay down of
increased commercial paper debt levels did not occur until June 30, 2000. In
addition, interest rates associated with such commercial paper have increased
throughout the 2000 first half. Partially offsetting the higher interest expense
on commercial paper was lower interest due to the payoff of the $1.0 billion of
7.70% notes on February 15, 2000. Weighted average debt outstanding during the
2000 and 1999 second quarter were $4,910.9 million and $4,649.3 million,
respectively. Weighted average debt outstanding during the 2000 and 1999 first
half were $4,887.2 million and $4,420.0 million, respectively.
Other expense (income), net, decreased for the 2000 second quarter and first
half due primarily to payments for access to various pharmaceutical
collaborations, costs related to a product discontinuance and lower gains on the
sales of non-strategic assets (including certain non-core product rights)
offset, in part, by insurance recoveries of environmental costs and lower Year
2000 conversion costs. In addition, during the 2000 first half the Company
realized higher unfavorable foreign exchange.
During the 2000 first quarter, the Company and Warner-Lambert Company terminated
their merger agreement. The Company recorded income of $1,709.4 million
($1,111.1 million after-tax or $0.84 per share - diluted) in income from
continuing operations resulting from the receipt of a $1,800.0 million
termination fee provided for under the merger agreement offset, in part, by
certain related expenses.
15
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Six Months Ended June 30, 2000
The following table sets forth worldwide income from continuing operations
before federal and foreign taxes, by operating segment together with the
percentage changes from the comparable periods in the prior year:
<TABLE>
<CAPTION>
Income from Continuing Operations
Before Federal and Foreign Taxes (1)
----------------------------------------------------------------------
Three Months Six Months
Ended June 30, Ended June 30,
--------------------------------- ----------------------------------
($ in millions) % Increase % Increase
Operating Segment 2000 1999 (Decrease) 2000 1999 (Decrease)
-------------------- ------- ------- ---------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Pharmaceuticals $559.1 $477.9 17% $1,313.3 $1,178.1 11%
Consumer Health Care 94.6 103.5 (9%) 220.9 227.1 (3%)
------- ------- ---------- -------- -------- -----------
653.7 581.4 12% 1,534.2 1,405.2 9%
Corporate (2) (91.4) (177.6) (49%) 1,600.5 (251.2) --
------- ------- ---------- -------- ------- -----------
Total (3) $562.3 $403.8 39% $3,134.7 $1,154.0 --
======= ======= ========== ======== ======== ===========
</TABLE>
(1) The second quarter results included goodwill amortization for 2000 and 1999
as follows: Pharmaceuticals - $38.0 and $38.3, and Consumer Health Care -
$8.0 and $8.0, respectively.
The first half results included goodwill amortization for 2000 and 1999 as
follows: Pharmaceuticals - $78.2 and $76.8, and Consumer Health Care - $16.0
and $16.1, respectively.
(2) Corporate expenses for the 2000 first half included income of $1,709.4
resulting from the receipt of a $1,800.0 termination fee provided for under
the merger agreement with Warner-Lambert Company offset, in part, by certain
related expenses.
Corporate expenses for the 1999 second quarter and first half included a
special charge of $82.0 related to the suspension of shipments and the
voluntary market withdrawal of ROTASHIELD, the company's rotavirus vaccine.
Excluding the termination fee and the ROTASHIELD special charge from 2000
and 1999 results, Corporate expenses decreased by 4% for the 2000 second
quarter and 36% for the 2000 first half.
(3) Excluding the termination fee and the ROTASHIELD special charge from the
2000 and 1999 results, total income from continuing operations before
federal and foreign taxes increased by 16% for the 2000 second quarter and
15% for the 2000 first half.
Worldwide pharmaceutical income from continuing operations before federal and
foreign taxes increased 17% for the 2000 second quarter and 11% for the 2000
first half due primarily to increased worldwide sales offset, in part, by higher
selling, general and administrative expenses, higher research and development
expenses and lower other income. Payments for access to various pharmaceutical
collaborations, lower gains on the sales of non-strategic assets and unfavorable
foreign exchange contributed to lower other income.
16
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Six Months Ended June 30, 2000
Worldwide consumer health care income from continuing operations before federal
and foreign taxes decreased 9% for the 2000 second quarter and 3% for the 2000
first half due primarily to higher selling, general and administrative expenses
offset, in part, by increased worldwide sales. Income from continuing operations
decreased while worldwide sales increased due primarily to additional marketing
costs such as promotional costs for new product launches and electronic
marketing initiatives, as well as certain asset write-offs.
Excluding the Warner-Lambert Company termination fee from the 2000 first half
and the ROTASHIELD special charge from the 1999 second quarter and first half,
corporate expenses decreased 4% for the 2000 second quarter and 36% for the 2000
first half due primarily to insurance recoveries of environmental costs and
lower interest expense, offset, in part, by costs related to a product
discontinuance.
The effective tax rate of continuing operations, excluding the effect of the
Warner-Lambert Company termination fee, decreased to 26.6% for the 2000 second
quarter compared to 27.1% for the 1999 second quarter. The effective tax rate
decreased to 26.5% compared to 27.9% for the 1999 first half. The decreases were
due primarily to higher research tax credits in 2000.
On June 30, 2000, the Company announced that it had completed the sale of the
Cyanamid Agricultural Products business to BASF. Under the terms of the
definitive agreement, BASF paid the Company $3,800.0 million in cash and assumed
certain debt. As a result, the Company recorded an after-tax loss on the sale of
this business of $1,573.0 million or $1.19 per share-diluted and reflected this
business as a discontinued operation beginning in the 2000 first quarter. The
loss on the sale included closing costs from the transaction, and operating
income of the discontinued business from April 1, 2000 through June 30, 2000
(the disposal date). (See Note 1 to the Consolidated Condensed Financial
Statements).
Income and diluted earnings per share from continuing operations for the 2000
second quarter were $412.7 million and $0.31 compared to $294.3 million and
$0.22 for the 1999 second quarter, respectively. Income and diluted earnings per
share from continuing operations for the 1999 second quarter included the
ROTASHIELD special charge of $53.0 million and $0.04, respectively. Excluding
the special charge from the 1999 second quarter results, both income and diluted
earnings per share from continuing operations for the 2000 second quarter
increased 19% compared to 1999 second quarter results.
Income and diluted earnings per share from continuing operations for the 2000
first half were $2,158.7 million and $1.63 compared to $832.5 million and $0.62
for the same period last year, respectively. Income and diluted earnings per
share from continuing operations for the 2000 first half included income of
$1,111.1 million and $0.84, respectively, resulting from the Warner-Lambert
Company termination fee. Income and diluted earnings per share from continuing
operations for the 1999 first half included the ROTASHIELD special charge
discussed above. Excluding the aforementioned items from the 2000 and 1999 first
half results, income and diluted earnings per share from continuing operations
were $1,047.6 million and $0.79 for the 2000 first half compared to $885.5
17
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Six Months Ended June 30, 2000
million and $0.66 for the 1999 first half, increases of 18% and 20%,
respectively. The increases in income and diluted earnings per share from
continuing operations for the 2000 second quarter and first half were due
primarily to additional worldwide sales of pharmaceuticals offset, in part, by
higher selling, general and administrative expenses, and research and
development expenses.
Net income and diluted earnings per share were $412.7 million and $0.31 for the
2000 second quarter compared to $398.7 million and $0.30 for the same period
last year, respectively. Net income and diluted earnings per share were $689.1
million and $0.52 for the 2000 first half compared to $1,053.6 million and $0.79
for the same period last year, respectively. Net income for the 2000 first half
included the loss on disposal of the Cyanamid Agricultural Products business and
the Warner-Lambert Company termination fee previously discussed.
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. However, the legacy currencies of the
member countries are scheduled to remain legal tender as sub-denominations of
the Euro between January 1, 1999 and January 1, 2002 (the transition period).
Critical areas impacted by the conversion to the Euro have been identified and
appropriate strategies are currently being implemented to facilitate the
adoption of the Euro and to facilitate business transactions during the
transition period. The costs related to the Euro conversion and transition
period will not have a material adverse effect on the Company's financial
position or results of operations. However, the Euro conversion 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 pharmaceutical and consumer
health care 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. PREMARIN, the Company's principal conjugated estrogens product
manufactured from pregnant mare's urine, and related products Prempro and
Premphase (which are single tablet combinations of the conjugated estrogens in
PREMARIN and the progestin medroxyprogesterone acetate), are the leaders in
their categories and contribute significantly to sales and results of
operations. Premarin's natural composition is not subject to patent protection
(although Prempro and Premphase are subject to various patents). The principal
uses of Premarin, Prempro and Premphase are to manage the symptoms of menopause
and to prevent 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 an approved indication for the
prevention of osteoporosis. During the past several years, other manufacturers
have introduced alternative products for the treatment and/or prevention of
osteoporosis. New products containing different estrogens than those found in
18
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Six Months Ended June 30, 2000
Prempro and Premphase and having many of the same indications have also been
introduced. Some companies have attempted to obtain approval for generic
versions of PREMARIN. These products, if approved, would be routinely
substitutable for PREMARIN and related products 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 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 generic competition from either synthetic or natural conjugated
estrogens products in the future. At least one other company has announced that
it is in the process of developing a generic version of PREMARIN from the same
natural source, and the Company currently cannot predict the timing or outcome
of these or any other efforts.
Liquidity, Financial Condition and Capital Resources
----------------------------------------------------
Cash and cash equivalents increased $1,027.4 million in the 2000 first half to
$2,920.1 million. Proceeds from the sale of the Cyanamid Agricultural Products
business of $3,800.0 million, cash flows from operating activities of $1,988.7
million (which included a termination fee, net of related expenses, received
from Warner-Lambert Company of $1,709.4 million, and payments related to the
REDUX and PONDIMIN litigation of $1,273.9 million), proceeds from sales and
maturities of marketable securities of $441.9 million and proceeds from the
exercises of stock options of $146.8 million were used principally for net
repayments of debt of $3,110.4 million, purchases of marketable securities of
$755.2 million, dividend payments of $599.9 million, capital expenditures of
$592.4 million and purchases of treasury stock of $359.0 million. The litigation
payments in the 2000 first half may not be indicative of payments expected in
future periods. Capital expenditures included strategic investments in
manufacturing and distribution facilities worldwide and expansion of the
Company's research and development facilities.
The Company's $1.0 billion of 7.70% notes, which matured on February 15, 2000,
were classified as current at December 31, 1999. In addition, $841.6 million of
outstanding commercial paper at December 31, 1999 was classified as current,
representing the amount of the outstanding commercial paper borrowings in excess
of the Company's $2.0 billion credit facility that supports the commercial paper
program. The Company used a portion of the proceeds from the $1,800.0 million
Warner-Lambert Company termination fee to payoff the $1.0 billion of 7.70% notes
on February 15, 2000.
On June 30, 2000, upon completing the sale of the Cyanamid Agricultural Products
business, the Company received $3,800.0 million in cash from BASF. The Company
used a substantial portion of the proceeds to pay down outstanding commercial
paper borrowings. The balance was invested in marketable securities and used for
working capital needs.
19
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Six Months Ended June 30, 2000
At June 30, 2000, the fair value of the Company's outstanding debt was $2,418.7
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
$73.1 million.
The Company has established programs to protect against adverse changes in
exchange rates due to foreign currency volatility. At June 30, 2000, the fair
value of the $1,118.3 million notional amount of foreign currency contracts was
a net payable of $5.3 million. The foreign currency contracts consisted of
purchased foreign exchange forward contracts and put options. 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 increase or decrease by approximately
$25.4 million.
The notional amount related to the purchase of forward contracts designed to
protect balance sheet exposures totaled $934.4 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. The notional amount related to the
purchase of local currency put options designed to protect future translation
exposure totaled $183.9 million, $83.2 million of which were considered
speculative and were marked to market and recorded at fair value.
Management is confident that cash flows from operating activities will be
adequate to repay both the principal and interest on its outstanding obligations
without requiring the disposition of any significant strategic core businesses
or assets and, further, to allow the Company to continue to fund its operations
and the litigation settlement, pay dividends, and maintain its ongoing programs
of capital expenditures which are expected to be significantly higher in 2000
than in recent years, without restricting its ability to make further
acquisitions as may be appropriate. Proceeds received as a result of the
termination of its merger agreement with Warner-Lambert Company and the
disposition of its Cyanamid Agricultural Products business enhanced the
Company's financial position.
ENBREL Supply
-------------
The market demand for ENBREL is growing and cannot be predicted with certainty.
If demand for ENBREL continues to grow, it is expected that within the next year
the sole source third party will be unable to support growing market demand.
This near term potential shortfall would continue unless and until the
retrofitting of a Rhode Island facility is completed and approved, which is not
expected to occur until the first half of 2002. The current plan for the longer
term includes a new manufacturing facility that will be built in Ireland. If
this facility is not completed and approved before supply constraints are
encountered, future ENBREL sales could again be restricted.
20
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Six Months Ended June 30, 2000
Year 2000
---------
The Company successfully completed the Year 2000 rollover with no business
interruptions. There has been no material change in total costs since the last
estimate, and all costs have been substantially incurred at June 30, 2000. The
Company has not experienced any detrimental effects of the Year 2000 rollover in
the 2000 first half. The Company is not aware of any material problems resulting
from Year 2000 issues, either with the Company's products, internal systems, or
the Company's products and services of third parties. The Company will continue
to monitor mission critical computer applications and those of the Company's
suppliers and vendors throughout 2000 to ensure that any latent Year 2000
matters that may arise are addressed promptly.
Cautionary Statements for Forward Looking Information
-----------------------------------------------------
This Form 10-Q, including management's discussion and analysis set forth above,
contains certain forward-looking statements, including, among other things,
statements regarding the Company's results of operations, Euro currency,
competition, liquidity, financial condition and capital resources, ENBREL
supply, the selling of a portion of Immunex common stock, and the comprehensive,
nationwide settlement relating to REDUX and PONDIMIN. 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 its other periodic reports filed
with the Securities and Exchange Commission including the Company's 1999 Annual
Report on Form 10-K and Exhibit 99 to such report, which exhibit is incorporated
herein by reference.
21
<PAGE>
Part II - Other Information
Item 1. Legal Proceedings
-----------------
The Company and its subsidiaries are parties to numerous lawsuits and
claims arising out of the conduct of its business, including product
liability and other tort claims, the most significant of which are
described in the Company's Annual Report on Form 10-K for the year
ended December 31, 1999 and Quarterly Report on Form 10-Q for the
period ended March 31, 2000.
As of August 7, 2000, the Company has been served or is aware that it
has been named as a defendant in 10,815 suits as the manufacturer of
PONDIMIN and/or the distributor of REDUX. Of the 10,815 lawsuits
naming the Company as a defendant, 122 are actions that seek
certification of a class, some on a national and others on a statewide
basis. Of these 122 lawsuits, 53 are pending in various federal
district courts and 69 are pending in various state courts. A number
of the actions brought in state courts have been removed to federal
courts. Individual plaintiffs have filed the remaining lawsuits: 2,045
such lawsuits are pending in various federal district courts and 8,648
such lawsuits are pending in various state courts. The 10,815 lawsuits
contain a total of 24,738 plaintiffs (not including spouse or
consortium claims).
In early May 2000, the United States District Court for the Eastern
District of Pennsylvania held a hearing on the fairness of the terms
of the Company's comprehensive nationwide diet drug settlement. An
amendment dated July 20, 2000 to the settlement agreement relates to
the timing of payments by the Company into the proposed settlement
fund, administration of the settlement trust and opt-out credits
available to the Company. A decision on approval of the settlement is
expected during the third quarter of 2000.
On June 27, 2000, a jury in the Oregon Circuit Court, Coos County,
hearing the cases of Juanita Batson v. Wyeth-Ayerst Laboratories,
Division of American Home Products Corporation, et al., and Richard
Wirt v. Wyeth-Ayerst Laboratories, Division of American Home Products
Corporation, et al., returned verdicts in the combined amounts of
$3.897 million in compensatory damages and $25.350 million in punitive
damages. Following the verdicts, and prior to post-trial motions, the
cases were settled.
In the litigation involving DURACT, the Company's non-narcotic
analgesic pain reliever which was voluntarily withdrawn from the
market, one additional putative personal injury class action and one
putative economic damage class action have been filed. Smoger v.
Wyeth-Ayerst Laboratories Company, et al., No. L006199-00, N.J. Super.
Ct., Essex Cty., seeks the certification of a class of individuals who
were exposed to and who suffered injury from DURACT. Plaintiffs 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. Rivera, et al. v. Wyeth-Ayerst
22
<PAGE>
Laboratories Company and AHPC, No. G-00-345, U.S.D.C., S.D. Tex.,
seeks economic damages and a refund of product purchase costs only in
a class of individuals who ingested DURACT or paid for its use. No
personal injuries are alleged among the Rivera class members.
Additionally, there are 21 individual lawsuits involving 21 former
DURACT users alleging myriad injuries, from gastrointestinal upset and
distress to liver transplant and death.
In June of this year, a small quantity of certain products
manufactured at the Company's Marietta, Pennsylvania, facility were
seized at Company distribution centers in Tennessee and Puerto Rico.
The seizures were based on FDA allegations that products were not
manufactured in conformance with current Good Manufacturing Practices.
Prior to the seizure, the Company had ceased production at portions of
the Marietta facility in order to implement process and facility
improvements. In response to similar issues raised by an FDA
inspection of the Pearl River plant, improvements are also ongoing at
that location. The Company is in discussions with the FDA to resolve
the issues at these facilities, but cannot predict with certainty the
outcome of those discussions.
Plaintiffs in a purported class action commenced in 1997 in state
court in Tennessee, Fox v. American Cyanamid Company (No. 19,996,
Ch.Ct. Tenn) alleged violations of state antitrust and consumer
protection laws by Cyanamid concerning pricing practices relating to
marketing programs for crop protection products. The action purported
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. An agreement to settle the case for $5.2 million
was initially approved by the court but was subsequently set aside.
The Court of Appeals of Tennessee has agreed to hear an interlocutory
appeal of the decision setting aside the settlement. Plaintiffs have
filed an amended complaint on behalf of a purported class of indirect
purchasers in Tennessee and Kansas only.
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.
Item 4. Submission of Matters to a Vote of Security-Holders
---------------------------------------------------
(a) The matters described under item 4(c) below were submitted to a
vote of security-holders, through the solicitation of proxies
pursuant to Section 14 under the Securities Exchange Act of 1934,
as amended, at the Annual Meeting of Stockholders held on April
27, 2000 (the "Annual Meeting").
23
<PAGE>
(b) Not applicable.
(c) The following describes the matters voted upon at the Annual
Meeting and sets forth the number of votes cast for, against or
withheld and the number of abstentions as to each such matter
(except as provided below, there were no broker non-votes):
(i) Election of directors:
Nominee For Withheld
------- --- --------
Clifford L. Alexander, Jr. 1,071,189,248 51,444,707
Frank A. Bennack, Jr. 1,071,196,163 51,437,792
Robert Essner 1,071,440,661 51,193,294
John D. Feerick 1,071,298,178 51,335,777
John P. Mascotte 1,071,310,557 51,323,398
Mary Lake Polan, M.D., Ph.D 1,071,509,240 51,124,715
Ivan G. Seidenberg 1,064,661,794 57,972,161
John R. Stafford 1,064,313,443 58,320,512
John R. Torell III 1,071,399,558 51,234,397
(ii) Ratification of the appointment of Arthur Andersen LLP as
principal independent public accountants for 2000:
For Against Abstain
--- ------- -------
1,116,523,733 2,259,523 3,849,896
There were 803 broker non-votes with reference to this item.
(iii) To act upon adoption of the stockholder proposal on
separation of the oral contraceptive business from the
non-contraceptive business:
For Against Abstain
--- ------- -------
19,698,143 922,050,782 35,032,996
There were 145,852,034 broker non-votes with reference to this
item.
(iv) To act upon adoption of the stockholder proposal on price
restraints on pharmaceutical products.
For Against Abstain
--- ------- -------
36,213,680 913,179,015 27,394,860
There were 145,846,400 broker non-votes with reference to this
item.
(v) To act upon adoption of the stockholder proposal on
genetically engineered agricultural products.
24
<PAGE>
Since the Company signed a definitive agreement with BASF, on
March 20, 2000, for the sale of the Cyanamid Agricultural
Products business, this proposal was withdrawn by the proponents
from the floor of the Annual Meeting.
(d) Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
(10.1) Purchase Agreement, by and among American Cyanamid
Company, American Home Products Corporation and BASF
Aktiengesellschaft, dated as of March 20, 2000 is
incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the
period ended March 31, 2000 (Confidential Treatment
Requested - confidential portions have been omitted
and filed separately with the commission).
(10.2) First Amendment to the Purchase Agreement, by and
among American Cyanamid Company, American Home
Products Corporation, and BASF Aktiengesellschaft
dated as of June 30, 2000 is incorporated by
reference to Exhibit 10.2 to the Company's Current
Report on Form 8-K filed on July 17, 2000
(Confidential Treatment Requested - confidential
portions have been omitted and filed separately with
the Commission).
(12) Computation of Ratio of Earnings to Fixed Charges
(27.1) Financial Data Schedule - Period Ended June 30, 2000
(27.2) Restated Financial Data Schedule - Period Ended June
30, 1999
(b) Reports on Form 8-K
On July 17, 2000, the Company filed a Current Report on Form 8-K
(including disclosure under Items 2 and 7) relating to the sale
of the Cyanamid Agricultural Products business.
25
<PAGE>
Signature
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN HOME PRODUCTS CORPORATION
----------------------------------
(Registrant)
By /s/ Paul J. Jones
-----------------
Paul J. Jones
Vice President and Comptroller
(Duly Authorized Signatory
and Chief Accounting Officer)
Date: August 14, 2000
26
<PAGE>
Exhibit Index
Exhibit No. Description
----------- -----------
(12) Computation of Ratio of Earnings to Fixed Charges
(27.1) Financial Data Schedule - Period Ended June 30, 2000
(27.2) Restated Financial Data Schedule - Period Ended June 30,
1999
EX-1
