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, 1999 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, $0.33 - 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. [ ]
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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, 2000 $67,731,906,486
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Outstanding at
March 15, 2000
Common Stock, $0.33 - 1/3 par value 1,304,104,096
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) 1999 Annual Report to Shareholders - In Parts I, II and IV
(2) Proxy Statement filed March 17, 2000 - 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 human ethical
pharmaceuticals, biologicals, nutritionals, and animal biologicals
and pharmaceuticals. Principal products include women's health care
products, infant nutritionals, cardiovascular products, neuroscience
therapies, gastroenterology drugs, anti-infectives, vaccines,
biopharmaceuticals, oncology therapies, musculoskeletal therapies
and transplantation products. Principal animal health products
include vaccines, pharmaceuticals, endectocides and growth implants.
Consumer Health Care products include analgesics, cough/cold/allergy
remedies, vitamin, 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 and
fungicides.
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.
On March 21, 2000, the Company announced that it signed a definitive
agreement with BASF Aktiengesellschaft ("BASF") for the sale of the
Cyanamid Agricultural Products business. Under the terms of the
agreement, which are subject to certain customary conditions,
including regulatory approval, BASF will pay AHPC $3.8 billion in
cash and will assume certain debt. The Company will record a non
cash loss on the sale of this business of approximately $1.5 billion
in the 2000 first quarter. The loss is due primarily to basis
differences for tax and financial reporting purposes, primarily
goodwill related to the Cyanamid Agricultural Products business.
On November 3, 1999, the Company and Warner-Lambert Company entered
into an agreement to combine the two companies in a merger-of-equals
transaction. On February 6, 2000, the merger agreement was
terminated. In accordance with the merger agreement, the Company
received a payment of $1.8 billion as a termination fee.
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.
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In December 1997, the Company sold the stock of Storz Instrument
Company and affiliated companies ("Storz"), a global manufacturer
and marketer of ophthalmic products, and certain assets related to
the Storz business for approximately $380 million.
In February 1997, the Company purchased the worldwide animal health
business of Solvay S.A. for approximately $460 million in cash.
In December 1996, the Company purchased the remaining equity
interest in Genetics Institute, Inc. ("G.I."), that it did not
already own for approximately $1.279 billion in cash. The purchase
price exceeded the net assets acquired by approximately $1.057
billion, resulting in the recognition of goodwill related to the
commercial operations of approximately $359 million and a special
charge of $470 million for the portion of the purchase price
attributable to acquired in-process research and development. G.I.
also recorded a special charge of approximately $228 million for the
liquidation of its outstanding stock options as of December 31,
1996.
In November 1996, the Company sold a majority interest (80%) in
the American Home Foods business for approximately $1.209 billion.
During 1998 and 1997, the Company sold its remaining equity interest
in International Home Foods, Inc., the successor to American Home
Foods.
Additional information relating to the Solgar and Solvay S.A.
acquisitions, and the Sherwood-Davis & Geck and Storz dispositions
is set forth in Note 2 of the Notes to Consolidated Financial
Statements in the Company's 1999 Annual Report to Shareholders
and is incorporated herein by reference.
Operating Segments
Financial information, by operating segment, for the three years
ended December 31, 1999 is set forth in Note 11 of the Notes to
Consolidated Financial Statements in the Company's 1999 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 human 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), 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
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ATIVAN, EFFEXOR and EFFEXOR XR; gastroenterology drugs including
ZOTON (international markets only); anti-infectives including
MINOCIN and ZOSYN (marketed as TAZOCIN internationally); vaccines
including HIBTITER; biopharmaceuticals including BENEFIX
Coagulation Factor IX (Recombinant) and RECOMBINATE Factor VIII
(Recombinant); oncology therapies; musculoskeletal therapies
including ENBREL, SYNVISC and LODINE XL; and transplantation
products. Principal animal health product categories include
vaccines, pharmaceuticals, endectocides and growth implants. The
Company manufactures these products in the United States and Puerto
Rico, and 19 foreign countries.
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 1999 and 1998. Sales of women's
health care products in the aggregate accounted for more than 10%
of consolidated net sales in 1997. Additionally, women's health
care products in the aggregate, and the PREMARIN family of products
individually, were greater than 10% of consolidated operating
income (loss) before taxes in 1999, 1998 and 1997. Except for the
products noted above, no other single pharmaceutical product or
category of products accounted for more than 10% of consolidated
net sales in 1999, 1998 or 1997.
CONSUMER HEALTH CARE SEGMENT
The Consumer Health Care segment manufactures, distributes and
sells over-the-counter health care products. Principal consumer
health care product categories and their respective products are:
analgesics including ADVIL; cough/cold/allergy remedies including
ROBITUSSIN and DIMETAPP; nutritional supplements including CENTRUM
products, CALTRATE and SOLGAR products; and hemorrhoidal, antacid
and asthma relief items. These products are generally sold to
wholesalers and retailers and are promoted primarily to consumers
worldwide through advertising. These products are manufactured in
the United States and Puerto Rico, and 16 foreign countries.
No single consumer health care product or category of products
accounted for more than 10% of consolidated net sales in 1999,
1998 or 1997.
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),
and PROWL (marketed as STOMP internationally); insecticides
including COUNTER; and fungicides which are promoted to consumers
worldwide and generally sold directly to wholesalers and retailers.
In addition to the United States and Puerto Rico, these products
are manufactured in eight foreign countries.
On March 21, 2000, the Company announced that it signed a
definitive agreement with BASF for the sale of the Cyanamid
Agricultural Products business. (See Item 1. Business, General.)
No single agricultural product or category of products accounted
for more than 10% of consolidated net sales in 1999, 1998 or 1997.
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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
gains on sales of investments and other corporate assets, interest
expense, net, the gain on the sale of the Sherwood-Davis & Geck
medical devices business, certain litigation provisions, including
the REDUX and PONDIMIN litigation charge (see Item 3. Legal
Proceedings), special charges, and other miscellaneous items. All
Other consists of the medical devices businesses which the Company
exited completely in February 1998. These businesses 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.
No single medical device product or category of products
accounted for more than 10% of consolidated net sales in 1998 or
1997.
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, and
raw materials for oral contraceptives, EFFEXOR and EFFEXOR XR are
sourced from sole third-party suppliers.
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 U.S. 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 tumor
necrosis factor receptor (TNFR) ENBREL, will have patent protection
until at least 2014. The anti-depressant EFFEXOR will have patent
protection until at least 2007 and EFFEXOR XR will have patent
protection until at least 2017. PREMPRO, a combination estrogen
and progestin product, will have patent protection until at least
2015. BENEFIX Coagulation Factor IX (Recombinant), a blood
clotting factor for hemophilia B, will have patent protection until
2009 and RECOMBINATE, a 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.
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In 1999 and early 2000, the Company received market clearance for
several new pharmaceutical products including SONATA, REFACTO and
PREVNAR. SONATA, a non-benzodiazepine compound for the treatment of
insomnia in adults will have patent protection until at least 2008.
The albumin-free formulated recombinant factor VIII product for the
treatment of hemophilia A, REFACTO, will have patent protection
until at least 2014. PREVNAR, the Company's seven-valent
pneumococcal conjugate vaccine will have patent protection until
2004 and, patent extension under the Waxman-Hatch Act will be
applied for, extending this date until 2007.
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.
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 human 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 human 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. In the United States, 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 and 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 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
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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 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 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 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.
Health care costs will continue to be the subject of attention in
both the public and private sectors in the United States.
Similarly, health care spending, including pharmaceutical pricing,
is subject to increasing governmental review in international
markets. 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 1999 and is expected to continue during 2000.
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
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rapid acceptance of genetically modified seed has generated
competition from agricultural products not traditionally used on
crops grown from conventional seed. This had an adverse effect on
the results of operations of the agricultural products segment for
the year ended 1999 and is expected to continue to have an adverse
effect in subsequent periods. In addition, depressed agricultural
commodity prices had an adverse effect and are expected to continue
to have an adverse effect on farmer demand for premium crop
protection products.
On March 21, 2000, the Company announced that it signed a
definitive agreement with BASF for the sale of the Cyanamid
Agricultural Products business. (See Item 1. Business, General.)
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, the trade and 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
approximately $1.740 billion in 1999, $1.655 billion in 1998, and
$1.558 billion in 1997 with approximately 87%, 84% and 80% of these
expenditures in the pharmaceutical area in 1999, 1998 and 1997,
respectively.
The Company currently has nine New Drug Applications and 22
Supplemental Drug Applications filed with the FDA for review, and
128 active Investigational New Drug Applications and two Biologics
License Applications pending. During 1999, several major
collaborative research and development arrangements were continued
with other pharmaceutical and biotechnology companies.
Additionally, the animal health business has 64 Veterinary Biologics
License Applications awaiting approval by the U.S. Department of
Agriculture ("USDA"), and the agricultural products business has 25
applications and the animal health business has one application for
new products and/or expanded use of existing products awaiting
approval by the U.S. Environmental Protection Agency ("EPA").
In 1999, FDA approval was granted for SONATA, a first in a new class
of non-benzodiazepine chemical compounds for the treatment of
insomnia in adults, and RAPAMUNE Oral Solution, the first in a new
class of immunosuppressive agents developed for the prevention of
organ rejection in kidney transplant patients. EFFEXOR XR,
approved for the treatment of depression in 1997, was approved in
1999 for a new indication, generalized anxiety disorder (GAD).
Also during 1999, the Company received marketing approval for
MENINGITEC by the United Kingdom ("U.K.") Medicines Control Agency
for the world's first conjugate vaccine against meningococcal Group
C disease, one of the primary causes of meningitis and septicemia
in children in the U.K. and other countries of the world.
Additionally, in 1999, the European Medicines Evaluation Agency
issued marketing authorization for REFACTO, the Company's
albumin-free formulated recombinant factor VIII product for the
treatment of hemophilia A, which received FDA approval in March
2000. In 1999, the Company also received EPA approval for BACKDRAFT
and EXTREME herbicides that are combinations of glyphosate and
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Cyanamid's imidazolinones for use on soybeans, and HABITAT
herbicide, a wildlife habitat management 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 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 in the U.S. 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 from, the EPA. Outside the United
States, agricultural chemicals are regulated by various agencies,
often by standards which differ from those in the United States.
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Environmental
Certain of the Company's operations are affected by a variety of
federal, state and local environmental protection laws and
regulations and the Company has, in a number of instances, been
notified of its potential responsibility relating to the generation,
storage, treatment and disposal of hazardous waste. In addition,
the Company has been advised that it may be a responsible party in
several sites on the National Priority List created by the
Comprehensive Environmental Response, Compensation and Liability
Act ("CERCLA"), commonly known as Superfund. (See Item 3. Legal
Proceedings.) In connection with the spin-off in 1993 by American
Cyanamid Company ("Cyanamid") of Cytec Industries Inc. ("Cytec"),
Cyanamid's former chemicals business, Cytec assumed the
environmental liabilities relating to the chemicals businesses,
except for the former chemical business site at Bound Brook, New
Jersey, 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 1999 Annual Report to Shareholders and is
incorporated herein by reference.
Employees
At the end of 1999, the Company had 51,656 employees worldwide,
with 27,261 employed in the United States including Puerto Rico.
Approximately 26% 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 Domestic and Foreign
Operations
Financial information about U.S. and international operations for
the three years ended December 31, 1999 is set forth in Note 11 of
the Notes to Consolidated Financial Statements in the Company's
1999 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 1999
amounted to 43% of the Company's total worldwide net 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 is set forth
under the caption "Liquidity, Financial Condition and Capital
Resources" in Management's Discussion and Analysis of Financial
Condition and Results of Operations in the Company's 1999 Annual
Report to Shareholders and is incorporated herein by reference.
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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 human ethical
pharmaceutical operations and its international consumer health care
business are headquartered 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 properties,
have manufacturing facilities in 23 countries outside the United
States.
The properties listed below are the principal manufacturing plants
(M) and research laboratories (R) of the Company as of December 31,
1999, listed in alphabetical order by state or country. All of
these 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.
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)
Richmond, Virginia (M, R)
International:
St. Laurent, Canada (M, R)
Suzhou, China (M)
Havant, England (M, R)
Askeaton, Ireland (M, R)
Newbridge, Ireland (M)
Catania, Italy (M, R)
Weesp, Netherlands (M)
Cabuyao, Philippines (M)
Gerona, Spain (M, R)
Hsin-Chu Hsien, Taiwan (M)
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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, Havant, England, Newbridge, Ireland and Hsin-Chu
Hsien, Taiwan which are both pharmaceuticals and consumer health
care facilities.
Agricultural Products:
United States:
Hannibal, Missouri (M)
Princeton, New Jersey (R)
International:
Paulinia, Brazil (M)
Resende, Brazil (M)
Genay, France (M)
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) and the
distributor of REDUX (dexfenfluramine), announced a voluntary and
immediate withdrawal of these antiobesity products. 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 products. The
Company estimates that approximately 6 million people used these
products in the United States.
On October 7, 1999, the Company announced a comprehensive, national
settlement to resolve litigation brought against the Company
regarding the use of REDUX or PONDIMIN. This nationwide, class
action settlement is open to all REDUX or PONDIMIN users in the
United States, regardless of whether they have lawsuits pending, and
offers a range of benefits depending on a participant's particular
circumstances, including a refund program for the cost of the drugs;
medical screening; additional medical services or cash payments; and
compensation in the event of serious heart valve problems. The
settlement terms are reflected in a settlement agreement executed
on November 19, 1999 (In Re Diet Drugs Products Liability
Litigation, MDL No. 1203; Brown, et al. v. American Home Products
Corporation, No. 99-20593). The settlement covers all claims
arising out of the use of REDUX or PONDIMIN except for claims of
Primary Pulmonary Hypertension ("PPH"). The settlement provides
opportunities during three different time periods for claimants to
opt out of the settlement. Under certain circumstances, the Company
will receive credits for future settlement payments to claimants who
opt out of the settlement. The Company may terminate the settlement
at its discretion based on the number of initial opt outs. The
initial opt out period ends March 30, 2000. The settlement states
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that it shall not be construed to be an admission or evidence of any
liability or wrongdoing whatsoever by the Company or the truth of
any of the claims alleged.
On November 23, 1999, U.S. District Judge Louis C. Bechtle, the
judge overseeing the federal MDL litigation in Philadelphia, granted
preliminary approval of the settlement and directed that notice of
the settlement terms be provided to class members. The notice
program began in December 1999. Judge Bechtle has scheduled a
fairness hearing to take place in Philadelphia beginning on May 1,
2000.
Payments by the Company into the settlement funds will continue for
approximately 16 years after final judicial approval, if needed, to
provide settlement benefits to members of the class. Payments to
the settlement funds in 1999 were $75 million with approximately
$1.78 billion to be paid over approximately the next two years
(approximately $1.0 billion of which is subject to final judicial
approval). A charge of $4.75 billion has been recorded to provide
for expected payments to the settlement funds, other judgments and
settlements (including claims for PPH and opt outs), and future
legal costs, net of available insurance.
As of March 27, 2000, the Company has been served or is aware that
it has been named as a defendant in 9,456 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 9,456 lawsuits naming the Company as a defendant, 114 are
actions that seek certification of a class, some on a national and
others on a statewide basis. Of these 114 lawsuits, 47 are pending
in various federal district courts and 67 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: 1,725 such lawsuits are pending in
various federal district courts and 7,617 such lawsuits are
pending in various state courts. The 9,456 lawsuits contain a
total of 18,550 plaintiffs (not including spouse or consortium
claims). On December 10, 1997, the federal Judicial Panel on
Multidistrict Litigation 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
have been coordinated for all pretrial purposes. The state cases
are pending in 51 different states or jurisdictions, with the bulk
of the cases in Alabama, California, Florida, Nevada, New Jersey,
New York, 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, PPH, valvular heart disease and/or neurological
dysfunctions. In addition, some lawsuits allege severe emotional
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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 (or compensation for medical screening already
performed) have been granted in Illinois (Rhyne, et al. v. AHPC, et
al., Circuit Court, Chancery Division, Cook Cty., No. 98-CH-04099);
Montana (Lamping, et al. v. American Home Products, Inc., et al.,
Fourth Judicial District Court, Missoula Cty., No. DV-97-85786);
New Jersey (Vadino, et al. v. AHPC, et al., Superior Court,
Middlesex Cty., No. MID-L-425-98); New York (In re: New York Diet
Drug Litigation; Cunningham, et al. v. American Home Products
Corporation, et al., Sup. Ct., New York Cty., Nos. 70000/98,
401962/98); 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)). In Kentucky, one court has certified a medical
monitoring class for all Kentucky residents who were patients of a
particular Kentucky weight loss clinic (Guard, et al. v. A.H. Robins
Co., Inc., et al., Boone Circuit Court, No. 98-CI-795) and another
has certified, on an ex parte basis, a statewide medical monitoring
class (Feltner, et al. v. AHPC, et al., Leslie Circuit Court, No.
99-CI-00127), notwithstanding a recent opinion by a third court that
a medical monitoring cause of action does not exist under Kentucky
law (Wood, et al. v. AHPC, et al., Jefferson Circuit Court, No.
97-CI-5873, June 23, 1999). On August 26, 1999, Judge Bechtle
granted conditional class certification of an MDL medical
monitoring class comprising individuals who used either of the diet
drugs for 30 days or more and who (a) do not have a present lawsuit
alleging personal injury, (b) do not live in one of the states
where a statewide medical monitoring class has already been
certified, and (c) are not asymptomatic residents of states which
require actual injury to pursue a medical monitoring claim.
(Jeffers, et al. v. American Home Products Corporation, No.
98-20626, U.S.D.C., E.D. Pa.).
Claims for medical monitoring have also been dismissed or denied
class certification in several states. In Florida, the trial court
dismissed plaintiffs' claims for medical monitoring on the grounds
that no such cause of action exists under Florida law (Petito, et
al. v. A.H. Robins Company, Inc., et al., Circuit Court, Dade Cty.,
No. 97-26031 CA 21), although that decision was recently reversed
by an intermediate appellate court and the Company is now seeking
review by the Florida Supreme Court. The New Mexico District Court
has dismissed a proposed statewide medical monitoring class action
lawsuit in that state on the grounds that there is no cause of
action for medical monitoring under New Mexico law without physical
injury (Sandoval, et al. v. Wyeth-Ayerst Laboratories Division of
American Home Products Corporation, No. D0101-CV-9802295, First
Jud. Dist., Santa Fe Cty., NM). In California, the court
overseeing the California diet drug litigation has denied class
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certification in the proposed California medical monitoring action
on the grounds that common issues do not predominate over the many
individual issues (In re: Diet Drug Cases, No. JCCP 004032, Dep't
SE D, Super. Ct., CA). In Arkansas, a proposed class seeking
damages for personal injuries as well as monitoring was denied
certification because of the myriad individual medical and legal
issues presented by the plaintiffs' claims (Baker, et al. v.
Wyeth-Ayerst Laboratories Division, a Division of American Home
Products Corporation, et al., Circuit Court, Washington Cty., No.
CIV 97-1192). That decision has been affirmed by the Arkansas
Supreme Court. Class certification has also been denied in Iowa
(Luce, et al. v. Gate Pharmaceuticals, et al., No. CE 35476, Dist.
Ct., Polk Cty.). In Iowa, the court found that a cause of action
for medical monitoring existed under Iowa law, but only where the
exposure to the harmful substance is probable and the injury is
latent. The court denied certification of the medical monitoring
class on the ground that there was no evidence that the injuries
alleged by the diet drug plaintiffs were latent.
On August 6, 1999, the jury hearing the case of Lovett v.
Wyeth-Ayerst Laboratories Division of American Home Products Corp.,
et al. (294th Jud. Dist. Ct., Van Zandt Cty., TX) returned a
verdict in favor of the plaintiff and against the Company for
$3.3 million in compensatory damages and $20 million in punitive
damages. In September 1999, prior to consideration of the
Company's post-trial motions to reduce the award or overturn the
verdict, the Lovett case was settled for less than 10% of the
amounts awarded in the verdict.
In New Jersey, trial of the statewide medical monitoring class
action which had begun on August 11, 1999 (Vadino, et al. v. AHPC,
et al., Superior Court, Middlesex Cty., No. MID-L-425-98) has been
stayed pending finalization of the national settlement.
On December 22, 1999, a jury in Fayette, Mississippi hearing the
claims of five plaintiffs in the case of Washington v. AHPC returned
a verdict of $150 million in compensatory damages. Prior to the
jury's deliberation on plaintiffs' claims for punitive damages, the
Company and plaintiffs' counsel reached an agreement to settle the
cases of these five plaintiffs and virtually all of the diet drug
cases then pending in state court in Mississippi for an undisclosed
amount. The Mississippi court thereupon entered judgment for the
Company notwithstanding the verdict on compensatory damages and
directed a verdict in the Company's favor on punitive damages.
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.)
is a securities fraud putative class action in which plaintiffs
allege, on behalf of a class of individuals who purchased shares of
AHPC 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) engaged in a plan to defraud the
market and purchasers of AHPC 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
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prejudice by the U.S. District Court for the District of New Jersey.
Plaintiffs have appealed the decision 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.) is a shareholder derivative action
filed against the Company, the directors and certain officers which
seeks to recover any losses or damages sustained by the Company as
a result of alleged intentional, reckless or negligent breaches of
fiduciary duty by the directors and officers. The complaint alleges
that the directors and officers were aware of the propensity of
REDUX and/or PONDIMIN to cause serious heart valve damage and failed
to disclose that fact, exposing the Company to liability for
personal injury lawsuits and securities claims. The Grill action
has been stayed pending the outcome of the Oran appeal.
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 remaining REDUX and PONDIMIN litigation vigorously.
At December 31, 1999, there were 3,697 lawsuits, filed on behalf of
41,124 plaintiffs, against the Company or its Wyeth-Ayerst
Laboratories division alleging injuries as a result of use of the
NORPLANT SYSTEM, the Company's implantable contraceptive containing
levonorgestrel. The majority of the NORPLANT SYSTEM lawsuits,
representing approximately 3/4 of the plaintiffs, have been filed in
federal courts and have been consolidated before Judge Richard
Schell in the U.S. District Court for the Eastern District of Texas.
The remainder of the lawsuits are pending in state courts.
In September 1999, the Company announced that it had reached an
agreement with plaintiffs' counsel, representing virtually all of
the plaintiffs with lawsuits pending against the Company, to settle
the NORPLANT SYSTEM lawsuits for $1,500 per claimant. That
settlement proposal has been communicated by plaintiffs' attorneys
to their clients with a recommendation that they accept the offer.
The agreement to recommend settlement will not cover plaintiffs who
allege that they experienced either idiopathic intracranial
hypertension or stroke. The cost of the settlement is anticipated
to be approximately $50 million. As of March 27, 2000, releases had
been received from 30,105 plaintiffs pursuant to the settlement
program. The Company anticipates that its insurance coverage will
be sufficient to cover the cost of the settlement and any remaining
NORPLANT SYSTEM litigation. The Company will continue to contest
any remaining NORPLANT SYSTEM litigation vigorously.
Two putative personal injury class actions have been filed in
Louisiana in connection with the Company's voluntary market
withdrawal of DURACT, its non-narcotic analgesic pain reliever.
Chimento, et al. v. Wyeth-Ayerst Laboratories Company, et al., filed
in the District Court of Louisiana for the Parish of St. Bernard,
and Martin, et al. v. Wyeth-Ayerst Laboratories, et al., filed in
the District Court of Louisiana for Orleans Parish, each seek 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. A putative nationwide class
action, McGloin v. Wyeth-Ayerst Laboratories Division of American
Home Products Corporation, filed in the U.S. District Court for the
Northern District of California (No. C-98-2596-CW), has been
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dismissed. Additionally, there are 25 individual lawsuits involving
37 former DURACT users. They allege myriad injuries, from
gastrointestinal upset and distress to liver transplant and death.
The Company intends to defend the DURACT litigation vigorously.
The Company has been named as a defendant in ten 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
("Sherwood") subsidiary. The complaints have been filed in Alabama,
California, Florida, New Jersey, New York, Ohio, Oklahoma,
Pennsylvania, Texas and South Carolina and contain virtually
identical allegations. The cases that had been pending in
California, Florida, Ohio and New Jersey have been dismissed as to
Sherwood. Six cases remain pending. (Daniels v. AHPC, et al.,
No.2757-G, Circ. Ct., Montgomery Cty., AL; Benner v. Becton
Dickinson and Co., et al., No. 99 Civ. 4785 (JGK) U.S.D.C.,
S.D.N.Y; Palmer v. AHPC, et al., No. CJ-98-685, Dist. Ct., Sequoyah
Cty., OK; Brown v. AHPC, et al., No. 03474, Ct. Comm. Pleas,
Philadelphia Cty., PA; Calvin v. AHPC, et al., No. 342-173329-98,
Dist. Ct., Tarrant Cty., TX; Bales v. AHPC, et al., No. 98-CP-
40-4343, Ct. Comm. Pleas, Richland Cty., SC). Each lawsuit names
AHPC, Becton Dickinson and Company ("BD"), Sherwood's largest
competitor, and Tyco International (U.S.) Inc. ("Tyco"), Sherwood's
current corporate owner, 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 health care workers to the risk of accidental needlesticks
and the resultant possibility of acquiring blood-borne diseases.
Each named plaintiff seeks to represent a statewide class of
health care workers who have sustained a "contaminated" needlestick;
reported the incident to their employer and tested negative for
a blood-borne disease. The complaints seek recovery for the costs
of treating the needlesticks. 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, the date of the
closing of the sale of Sherwood to Tyco. The Company remains
responsible for injuries occurring prior to that date and is
defending and indemnifying Tyco for those injuries. On January 13,
2000, the court in the Calvin matter conditionally certified a
class. The class consists of all Texas health care workers who,
between April 9, 1998 and January 13, 2000, were stuck with a
Sherwood or BD standard (non-safety) needle or blood collection
device, after the needle was withdrawn from a patient, and who
reported the needlestick. Health care workers who were stuck with a
needle used on a patient who was infected by a blood-borne pathogen
are specifically excluded from the class. The defendants have
appealed the class certification order to the Texas Supreme Court.
Discovery in the remaining cases remains dormant pending resolution
of the Texas appeal. The Company will defend the needlestick
litigation vigorously.
A purported class action has been filed in the Pennsylvania Court of
Common Pleas, Delaware County, on behalf of a proposed class
consisting of all persons in the Commonwealth of Pennsylvania who
have been administered and who paid for, in whole or in part, the
Company's ROTASHIELD vaccine. (Lennon, et al. v. Wyeth-Ayerst
Laboratories, et al., No. 99-13101). The complaint alleges, inter
alia, breach of contract, breach of warranty, unjust enrichment and
violation of the Pennsylvania Unfair Trade Practices Act and seeks
minimum damages of $100 per class member plus treble damages and
attorneys' fees. The Company intends to defend the case vigorously.
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On July 7, 1997, 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 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 was denied. In
November 1999, the Court of Appeals affirmed in part and vacated in
part the District Court's judgment, and remanded this case to the
District Court for further proceedings. Under this ruling, the
$45 million judgment against the Company was vacated.
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 sought 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 sought treble
damages in unspecified amounts and injunctive and other relief.
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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 provided,
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 federal district court granted
a directed verdict to the defendants in that case. The U.S. Court
of Appeals for the Seventh Circuit reaffirmed the directed verdict
in favor of defendants on the conspiracy allegations, except with
respect to the allegation of a conspiracy relating to
manufacturers' efforts to comply with government requests to limit
price increases to the increase in the Consumer Price Index ("CPI").
After remand of the case, the federal district court granted summary
judgment to the defendant manufacturers on the CPI issue.
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 Company has also settled a group of
cases brought by various retail pharmacies that had opted out of the
federal class action. (Marc Glassman, Inv. v. Abbott Labs. (N.D.
Ohio)). 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 certain other retailers, continue
to be pending against the Company.
In 1997, the Consolidated 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
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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 Mexico, New York, North
Carolina, North Dakota, South Dakota, Tennessee, Washington, West
Virginia and Wisconsin. The Company and other defendants have
settled the actions in Arizona, California, District of Columbia,
Florida, Kansas, Maine, Michigan, Minnesota, New York, North
Carolina, Tennessee and Wisconsin. 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 actions in Colorado and Washington were dismissed
on pre-trial motions. In Alabama, the Supreme Court held that
Alabama state antitrust law did not apply to primarily interstate
agreements. The defendants have moved to dismiss all of the claims
filed under Alabama antitrust law.
The cases currently remaining against the Company in the brand name
prescription drugs litigation are: a second consumer case filed in
Tennessee and the consumer cases in New Mexico, North Dakota, South
Dakota and West Virginia; a California case involving certain
retail pharmacies; a Mississippi case on behalf of two pharmacies;
and cases brought by the Rite Aid Pharmacy chain and certain other
pharmacies.
Additionally, 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 of 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. Avatex has conceded that the counts alleging violation of
the antitrust laws and unfair competition are property of the
debtor's estate. The Bankruptcy Trustee has agreed to dismiss any
claims against the Company that belong to the debtor's estate. The
plaintiff's conspiracy counts were dismissed, but that dismissal has
been appealed by Avatex.
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
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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. Cyanamid is seeking to appeal 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.
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 U.S. Court of Appeals
for the 11th Circuit reversed the dismissal and plaintiffs then
filed an amended complaint with similar allegations.
The FTC has initiated an investigation of possible anticompetitive
effects of the settlement of a patent litigation between Schering-
Plough and ESI Lederle relating to ESI Lederle's generic version of
Schering-Plough's long acting potassium chloride product. The
Company has responded to a subpoena issued by the FTC.
In 1999, the Brazilian Administrative Council for Economic Defense
("CADE") and other government bodies initiated investigations of
Laboratories Wyeth-Whitehall Ltda. and other pharmaceutical
companies concerning possible violation of Brazilian competition
laws. CADE alleges that the companies 1) sought to establish
uniform commercial policies regarding wholesalers and 2) refused to
sell product to wholesalers that distribute generic products
manufactured by certain Brazilian pharmaceutical companies. The
Company is providing information to CADE and other government
bodies.
In 1999, an application from certain drug wholesalers alleging that
the Company and certain other pharmaceutical manufacturers violated
South Africa's competition law by using a distributor jointly owned
by the manufacturers, resulted in an investigation by the
Competition Tribunal in South Africa regarding this matter. The
Company is cooperating with the Competition Tribunal and has
provided information in this regard.
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 57 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 57 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
I-20
<PAGE>
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-21
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT AS OF MARCH 29, 2000
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 62 Chairman of the Board, December 1986
President and Chief
Executive Officer
Chairman of
Executive, Finance,
Operations, Nominating
and Retirement Committees
Business Experience: 1991 to date, Chairman
of the Board, President and
Chief Executive Officer
(President to May 1990 and
from February 1994)
Robert Essner 52 Executive Vice President September 1997
Director, Member of Finance,
Operations and Retirement
Committees
Business Experience: To March 1997, President,
Wyeth-Ayerst Laboratories,
U.S. Pharmaceuticals Business
March 1997 to September 1997,
President, Wyeth-Ayerst
Global Pharmaceuticals
September 1997 to date,
Executive Vice President
Joseph J. Carr 57 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-22
<PAGE>
Elected to
Name Age Offices and Positions Office
John R. Considine 49 Senior Vice President February 2000
- Finance
Member of Finance, Operations
and Retirement Committees
Business Experience: 1992 to January 2000, Vice
President - Finance
February 2000 to date, Senior
Vice President - Finance
Louis L. Hoynes, Jr. 64 Senior Vice President and November 1990
General Counsel
Member of Finance, Operations
and Retirement Committees
Business Experience: 1991 to date, Senior Vice
President and General
Counsel
Robert I. Levy, M.D. 62 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
I-23
<PAGE>
Elected to
Name Age Offices and Positions Office
Kenneth J. Martin 46 Senior Vice President and February 2000
Chief Financial Officer
Member of Finance, Operations
and Retirement Committees
Business Experience: August 1995 To October 1996
President, American Home Foods
November 1996 To February 1997
President, International Home
Foods, Inc.
February 1997 To March 1997
Executive Vice President,
Wyeth-Ayerst Pharmaceuticals
March 1997 To September 1998
President, Whitehall-Robins
October 1998 To January 2000
Senior Vice President
and Chief Financial Officer,
Wyeth-Ayerst Pharmaceuticals
February 2000 to date, Senior
Vice President and Chief
Financial Officer
William J. Murray 54 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 56 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
I-24
<PAGE>
Elected to
Name Age Offices and Positions Office
Paul J. Jones 54 Vice President and Comptroller May 1995
Member of Finance Committee
Business Experience: To April 1995, Senior Vice
President - Finance and
Administration, Wyeth-Ayerst
Laboratories Division
May 1995 to date, Vice President
and Comptroller
Rene R. Lewin 53 Vice President - May 1994
Human Resources
Member of Finance and
Retirement Committees
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 60 Vice President - Taxes May 1986
Member of Finance and
Retirement Committees
Business Experience: 1991 to date, Vice President -
Taxes
I-25
<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 47
of the Company's 1999 Annual Report to Shareholders, are
incorporated herein by reference.
There were 61,995 holders of record of the Company's Common Stock as
of March 15, 2000.
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 28 and 29 of
the Company's 1999 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 48 through 55 of the
Company's 1999 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 54 of the Company's 1999 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 30 through 45 of the Company's 1999
Annual Report to Shareholders, the Report of Independent Public
Accountants on page 46, and Quarterly Financial Data on page 47,
are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
II-1
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Information relating to the Company's directors is incorporated
herein by reference to pages 2 and 3 of a definitive proxy
statement filed with the Securities and Exchange Commission on
March 17, 2000 ("the 2000 Proxy Statement").
(b) Information relating to the Company's executive officers as of
March 29, 2000 is furnished in Part I hereof under a separate
unnumbered caption ("Executive Officers of the Registrant as of
March 29, 2000").
(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 2000 Proxy Statement under the caption
"Section 16 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 14 (excluding the performance
graph on page 13) of the 2000 Proxy Statement. Information with
respect to compensation of directors is incorporated herein by
reference to pages 4 and 5 of the 2000 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 2000 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
III-1
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)1. Financial Statements
The following Consolidated Financial Statements, Notes to
Consolidated Financial Statements and Report of Independent Public
Accountants, included on pages 30 through 46 of the Company's 1999
Annual Report to Shareholders, are incorporated herein by reference.
Pages
Consolidated Balance Sheets as of
December 31, 1999 and 1998 30
Consolidated Statements of Operations
for the years ended December 31,
1999, 1998 and 1997 31
Consolidated Statements of Changes in
Stockholders' Equity for the years ended
December 31, 1999, 1998 and 1997 32
Consolidated Statements of Cash Flows
for the years ended December 31, 1999,
1998 and 1997 33
Notes to Consolidated Financial Statements 34-45
Report of Independent Public Accountants 46
(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, 1999,
1998 and 1997 IV-9
Schedules other than those listed above are omitted because they
are not applicable.
IV-1
<PAGE>
ITEM 14. (Continued)
(a)3. Exhibits
Exhibit No. Description
(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 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).
(4.3) Rights Agreement, dated as of October 13, 1999, by and between the
Company and ChaseMellon Shareholder Services, L.L.C., as Rights
Agent, is incorporated herein by reference to Exhibit 4.1 of the
Company's Form 8-A, dated October 14, 1999.
(4.4) Amendment to Rights Agreement, dated as of November 3, 1999,
between the Company and ChaseMellon Shareholder Services L.L.C.,
as Rights Agent, is incorporated by reference to Exhibit 4.3 of
the Company's Form 8-A/A dated November 18, 1999.
(4.5) Certificate of Designation of Series A Junior Participating
Preferred Stock of the Company is incorporated herein by
reference to Exhibit 4.2 of the Company's Form 8-A, dated October
14, 1999.
(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, dated September 22,
1994 (File 1-1225), is incorporated herein by reference.
IV-2
<PAGE>
ITEM 14. (Continued)
(a)3. Exhibits
Exhibit No. Description
(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.
(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 (File 1-1225).
(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).
*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
(10.9)* 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 (File 1-1225).
(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 (File 1-1225).
(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 (File 1-1225).
(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 (File 1-1225).
(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.
*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
(10.21)* Form of Stock Option Agreement(transferable options).
(10.22)* Form of Restricted Stock Performance Award Agreement under the
1996 Stock Incentive Plan and 1999 Stock Incentive Plan (Initial
Award).
(10.23)* Form of Restricted Stock Performance Award Agreement under the
1996 Stock Incentive Plan and 1999 Stock Incentive Plan
(Subsequent Award).
(10.24)* Special Restricted Stock Performance Award Agreement under the
1996 Stock Incentive Plan for William J. Murray is incorporated by
reference to Exhibit 10.24 of the Company's Form 10-K for the year
ended December 31, 1998.
(10.25)* Amendment to the Special Restricted Stock Performance Award
Agreement under the 1996 Stock Incentive Plan for William J.
Murray.
(10.26)* 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 (File
1-1225).
(10.27)* Management Incentive Plan, as amended to date.
(10.28)* 1994 Restricted Stock Plan for Non-Employee Directors, as amended
to date, is incorporated by reference to Exhibit 10.27 of the
Company's Form 10-K for the year ended December 31, 1998.
(10.29)* Stock Option Plan for Non-Employee Directors is incorporated by
reference to Exhibit 10.28 of the Company's Form 10-K for the year
ended December 31, 1998.
(10.30)* Form of Stock Option Agreement under the Stock Option Plan for
Non-Employee Directors.
(10.31)* 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).
*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
(10.32)* 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
(File 1-2225).
(10.33)* 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.
(10.34)* Deferred Compensation Plan, as amended to date.
(10.35)* 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.
(10.36)* 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.
(10.37)* 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).
(10.38)* American Cyanamid Company's Supplemental Executive Retirement Plan
is incorporated by reference to Exhibit 10K of American Cyanamid
Company's Form 10-K for the year ended December 31, 1988 (File
1-3426).
(10.39)* 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).
(10.40)* 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).
(10.41)* 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).
*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
(10.42)* 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.
(10.43)* 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) 1999 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 25, 2000, 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,
333-15509 and 333-76939) by reference to the Form 10-K of the
Company filed for the year ended December 31, 1999.
(27) Financial Data Schedule.
(99) Cautionary Statements regarding "Safe Harbor" Provisions of the
Private Securities Litigation Reform Act of 1995.
(b) Reports on Form 8-K
The following Current Reports on Form 8-K were filed by the
Company (each including disclosure under Items 5 and 7): October
8, 1999 and November 24, 1999 each relating to the national
settlement of the diet drug litigation; October 14, 1999 relating
to the adoption of a shareholder rights plan (poison pill);
November 8, 1999, November 9, 1999, November 18, 1999, November
19, 1999, November 22, 1999, December 17, 1999 and February 7,
2000 each relating to the proposed merger with Warner-Lambert
Company which has been terminated.
*Denotes management contract or compensatory plan or arrangement required to
be filed as an exhibit hereto.
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 25, 2000. 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, New York
January 25, 2000
IV-8
<PAGE>
<TABLE>
American Home Products Corporation and Subsidiaries
Schedule II - Valuation and Qualifying Accounts
For the Years Ended December 31, 1999, 1998 and 1997
(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 12/31/99:
Allowance for doubtful accounts $183,069 $68,117 $52,293 $198,893
Allowance for cash discounts 39,471 249,629 247,885 41,215
Allowance for deferred tax assets 249,051 13,005 110,647 151,409
$471,591 $330,751 $410,825 $391,517
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
</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, 2000 By /S/ Kenneth J. Martin
Kenneth J. Martin
Senior Vice President
and Chief Financial Officer
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, 2000
John R. Stafford and Chief Executive Officer
Principal Financial Officer:
/S/ Kenneth J. Martin Senior Vice President March 29, 2000
Kenneth J. Martin and Chief Financial Officer
Principal Accounting Officer:
/S/ Paul J. Jones Vice President and March 29, 2000
Paul J. Jones Comptroller
Directors:
/S/ Clifford L. Alexander, Jr. Director March 29, 2000
Clifford L. Alexander, Jr.
/S/ Frank A. Bennack, Jr. Director March 29, 2000
Frank A. Bennack, Jr.
/S/ Robert Essner Director March 29, 2000
Robert Essner
/S/ John D. Feerick Director March 29, 2000
John D. Feerick
IV-10
<PAGE>
Signatures Title Date
/S/ John P. Mascotte Director March 29, 2000
John P. Mascotte
/S/ Mary Lake Polan, M.D., Ph.D. Director March 29, 2000
Mary Lake Polan, M.D., Ph.D.
/S/ Ivan G. Seidenberg Director March 29, 2000
Ivan G. Seidenberg
/S/ John R. Torell III Director March 29, 2000
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
1996 Stock Incentive Plan and 1999 Stock Incentive Plan (Initial
Award).
(10.23)* Form of Restricted Stock Performance Award Agreement under the
1996 Stock Incentive Plan and 1999 Stock Incentive Plan
(Subsequent Award).
(10.25)* Amendment to the Special Restricted Stock Performance Award
Agreement under the 1996 Stock Incentive Plan for William J.
Murray.
(10.27)* Management Incentive Plan, as amended to date.
(10.30)* Form of Stock Option Agreement under the Stock Option Plan for
Non-Employee Directors.
(10.34)* Deferred Compensation Plan, as amended to date.
(12) Computation of Ratio of Earnings to Fixed Charges.
(13) 1999 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 25, 2000, 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, 333-15509 and 333-76939) by reference to
the Form 10-K of the Company filed for the year ended
December 31, 1999.
*Denotes management contract or compensatory plan or arrangement required
to be filed as an exhibit hereto.
<PAGE>
INDEX TO EXHIBITS
(Continued)
Exhibit No. Description
(27) Financial Data Schedule.
(99) Cautionary Statements regarding "Safe Harbor" Provisions of the
Private Securities Litigation Reform Act of 1995.
AMERICAN HOME PRODUCTS CORPORATION
STOCK OPTION AGREEMENT
(Phased Vesting)
UNDER: [Year] Stock Incentive Plan
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") Stock Incentive Plan set forth above
(the "Plan"), a copy of which is attached hereto and incorporated herein by
reference, the Company hereby grants to the Optionee an option or options
(together, the "Option") to purchase the number of shares of the Company's
Common Stock as specified above ("Option Shares") at the option price also above
specified. Capitalized terms not otherwise defined herein have the meanings
assigned to them in the Plan.
2. This Option may be exercised, in whole or in part from time to time in
any whole number of Option Shares, upon and after the earlier of (i) 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 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 (ii) 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 other than for
Disability or Retirement, 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
AMERICAN HOME PRODUCTS CORPORATION
STOCK OPTION AGREEMENT
(Transferable Option)
UNDER: [Year] STOCK INCENTIVE PLAN
[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") Stock Incentive Plan set forth above
(the "Plan"), a copy of which is attached hereto and incorporated herein by
reference, the Company hereby grants to the Optionee an option or options
(together, the "Option") to purchase the number of shares of the Company's
common stock as specified above ("Option Shares") at the option price also above
specified. Capitalized terms not otherwise defined herein have the meanings
assigned to them in the Plan.
2. This Option may be exercised, in whole or in part from time to time in
any whole number of Option Shares, upon and after the earlier of (i) 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 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 (ii) 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 other than for
Disability or Retirement, 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 permitted 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 Compensation and
Benefits, 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 [Year] 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 Compensation and Benefits shall be entitled, in its sole discretion, to
determine whether such transfer is in accordance with such requirements, and
(ii) the Company and the Compensation and Benefits 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 Compensation and Benefits,
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 and
the Plan, (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:
_____________________ _____________________
AMERICAN HOME PRODUCTS CORPORATION
RESTRICTED STOCK PERFORMANCE AWARD AGREEMENT
UNDER THE [1999] STOCK INCENTIVE PLAN
DATE:
NUMBER OF SHARES SUBJECT
TO TARGET AWARD:
Name
Address
City/State/Zip
Under the terms and conditions of this Agreement and of the Company's
[1999] 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 restricted stock
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
subject to certain restrictions (the "Restricted Stock") or Common Stock, in
each case, on the terms and conditions set forth herein. Except as provided
herein, the terms used in this Agreement shall have the same meanings as in the
Plan.
1. Rights as Stockholders. Prior to the satisfaction of the performance
criteria, 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 shares of
Restricted Stock as of a Conversion Date (as defined herein) or Common Stock as
of a Determination Date (as defined herein), as the case may be, you will be the
owner of record of such shares 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, in each case, to the provisions of
Paragraph 4 and, in the case of Restricted Stock, subject to the restrictions
set forth in paragraph 2 and the legend described in paragraph 7. If you receive
any additional shares by reason of being the holder of Restricted Stock under
this Agreement, all additional shares shall be subject to the provisions of this
Agreement and certificates (or book-entry accounts) evidencing ownership of the
additional shares thereon shall bear the legend.
2. Restricted Period. You may not sell, transfer, assign, pledge or
otherwise encumber or dispose of any Units granted hereunder prior to their
conversion to Restricted Stock or Common Stock. In addition, with respect to
shares of Restricted Stock which have been converted upon satisfaction of the
criteria set forth in Section 3(a) hereof, you may not sell, transfer, assign,
pledge, or otherwise encumber or dispose of any such shares of Restricted Stock
during the period (the "Restricted Period") from the date of this Agreement
through the last Conversion Date.
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 be subject to
subparagraph 3(b) below;
(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 be subject to subparagraph
3(b) below;
(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) In the event that, with respect to any one or more of the three
years covered by subparagraph (a) above, all or a portion of the Annual Target
Amount is not converted to Restricted Stock on the applicable Conversion Date
pursuant to subparagraph 3(a)(i) or (ii) above, or the Bonus Award is not earned
pursuant to subparagraph 3(a)(iv) above (each, an "Unearned Bonus Award"), the
Units represented by such Annual Target Amount or portion thereof, if any, shall
be eligible for subsequent conversion to shares of Common Stock as provided in
this subparagraph and the Unearned Bonus Award shall also be eligible to be
earned. At a meeting of the Committee to be held on a date within 60 days after
the end of (i) 2001, with respect to the unconverted Annual Target Amount or
portion thereof relating to 1999, if any (the "1999 Amount") and/or the
corresponding Unearned Bonus Award, if any, (ii) 2002, with respect to the
unconverted Annual Target Amount or portion thereof relating to 2000, if any
(the "2000 Amount") and/or the corresponding Unearned Bonus Award, if any, and
(iii) 2003, with respect to the unconverted Annual Target Amount or portion
thereof, if any (the "2001 Amount"), and/or the corresponding Unearned Bonus
Award, if any, or in any such case on such other date as the Committee in its
discretion deems appropriate (each, a "Determination Date") the Committee shall
determine the Total Shareholder Return (as defined herein) of the Company and of
each member of the Peer Group (as defined herein), and shall rank them
comparatively, for the years (x) 1999 through 2001, with respect to the 1999
Amount (and the corresponding Unearned Bonus Award, if any), (y) 2000 through
2002, with respect to the 2000 Amount (and the corresponding Unearned Bonus
Award, if any), and (z) 2001 through 2003, with respect to the 2001 Amount (and
the corresponding Unearned Bonus Award, if any), and, in the event that the
Company ranks within the highest three, then the 1999 Amount, the 2000 Amount or
the 2001 Amount, as the case may be, shall be converted to Common Stock on the
applicable Determination Date and/or you shall be entitled to receive the
Unearned Bonus Award, if any, corresponding to such years, which award shall be
granted by the Committee at such meeting, and if not, then such amounts shall be
forfeited and all rights thereto shall be surrendered to the Company.
(c) Notwithstanding anything to the contrary contained in this
Agreement, Units shall be converted 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.
(d) 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 $1.90 for 1999 and, for 2000 and 2001,
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.
(iii) "Peer Group" shall consist of those companies listed on Annex
A attached hereto which Annex may be amended from time to time
as a result of circumstances, e.g., merger, consolidations,
etc., deemed by the Committee in its sole discretion to
warrant such amendment.
(iv) "Total Shareholder Return" for any company for any period
shall mean the percentage change in the per share stock market
price of such company's common stock (or equivalent security)
during such period (assuming that each of such company's per
share dividends are reinvested in such security at the closing
market per share price as of the last trading day of the
calendar quarter in which the ex-dividend date for such
dividend occurs) which shall be calculated in good faith by
the Committee acting in its sole discretion.
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 each Conversion Date and/or Determination Date (as applicable)
the shares of Restricted Stock or Common 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 or
a Determination Date occurs, then you will be deemed to have made the election
under Paragraph 4(a) above to have the Restricted Stock or Common 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 as amended (the "Trust Agreement") to accommodate the
deferral of delivery of shares of Common Stock and/or
Restricted Stock represented by Units (and any 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 granted hereunder shall be cancelled and in
replacement thereof, or, in the case of Units converted to Common Stock, on any
Determination Date following the termination of the Restricted Period, 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, with 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 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 and all rights to any
unconverted Units to the Company and (ii) that you shall cease to be a
shareholder of the Company with respect to such Restricted Stock, 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 20, 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 Company
or its subsidiaries and your employment will continue to be at will and
terminable at will by the Company. 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 Company 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 Company
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.
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 or Restricted Stock issuable to me pursuant to the Restricted
Stock Performance Award Agreement (the "Agreement"), less those shares
necessary to satisfy any applicable withholding obligation under Paragraph 5(b)
of 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 a distribution of such number of
shares in the Restricted Stock Trust under the Agreement to which I am entitled
in substantially equal annual installments over a period not to exceed ten years
as follows, commencing at the time indicated by my election as set forth below,
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
Indicate your election:
Commencing after: ___ Retirement (as defined in the Plan)
___ Specific date to commence distribution
after my Retirement Date but in no event shall
any annual installment be made after the tenth
anniversary of my Normal Retirement Date (age 65).
Indicate specific date: ____________________
month/day/year
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 or Determination 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:_____________________
<PAGE>
Annex A
Peer Group
Bristol-Myers Squibb Company
Abbott Laboratories
Johnson & Johnson
Eli Lilly and Company
Merck & Co., Inc.
Pfizer Inc.
Schering-Plough Corporation
Warner-Lambert Company
AMERICAN HOME PRODUCTS CORPORATION
RESTRICTED STOCK PERFORMANCE AWARD AGREEMENT
UNDER THE [1999] STOCK INCENTIVE PLAN
DATE:
NUMBER OF SHARES SUBJECT
TO TARGET AWARD:
Name
Address
CityStateZip
Under the terms and conditions of this Agreement and of the Company's
[1999] 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 restricted stock
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, on the terms and conditions set forth herein. Except as provided herein,
the terms used in this Agreement shall have the same meanings as in the Plan.
1. Rights as Stockholders. Prior to the satisfaction of the performance
criteria, 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 shares of Common
Stock as of the Conversion Date (as defined herein) or the Determination Date
(as defined herein), as the case may be, you will be the owner of record of such
shares 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 provisions of Paragraph 4.
2. Restricted Period. During the period (the "Restricted Period") from
the date of this Agreement through the Conversion Date (with respect to the
Units converted on such date) and the Determination Date (with respect to the
remaining Units, if any), you may not sell, transfer, assign, pledge, or
otherwise encumber or dispose of the Units granted hereunder.
3. Conversion to Common Stock. (a) At a meeting of the Committee
to be held within 60 days after the end of 2001 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)
for such year. 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 be subject to subparagraph
3(b) below;
(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
Common Stock and all rights with respect to the remaining
portion of such Target Award shall be subject to subparagraph
3(b) below;
(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 Common Stock; and
(iv) EPS is greater than 105% of the EPS Target, then Units
representing the entire Target Award shall be converted into
Common Stock and you shall be entitled to receive an
additional grant of Common Stock representing 25% of the
Target Award (a "Bonus Award"); such additional grant to be
made by the Committee at such meeting.
(b) In the event that all or a portion of the Target Award is not
converted to Common Stock on the Conversion Date pursuant to subparagraphs
3(a)(i) or (ii) above, or the Bonus Award is not earned pursuant to subparagraph
3(a)(iv) above (an "Unearned Bonus Award"), the Units represented by such Target
Award or portion thereof shall be eligible for subsequent conversion to shares
of Common Stock as provided in this subparagraph and the Unearned Bonus Award
shall also be eligible to be earned. At a meeting of the Committee to be held on
a date within 60 days after the end of 2003 or on such other date as the
Committee in its discretion deems appropriate (the "Determination Date"), the
Committee shall determine the Total Shareholder Return (as defined herein) of
the Company and of each member of the Peer Group (as defined herein), and shall
mark them comparatively, for the years 2001 through 2003 and, in the event that
the Company ranks within the highest three, then Units representing the Target
Award or portion thereof shall be converted to Common Stock on the applicable
Determination Date and/or you shall be entitled to receive the Unearned Bonus
Award, if any, which award shall be granted by the Committee at such meeting,
and if not, then such amounts shall be forfeited and all rights thereto shall be
surrendered to the Company.
(c) Notwithstanding anything to the contrary contained in this
Agreement, Units shall be converted into Common 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.
(d) As used in this Agreement, the term:
(i) "EPS" means the earnings or net income per share of common
stock of the Company for 2001, 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, 2001; 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.
(iii) "Peer Group" shall consist of those companies listed on Annex
A attached hereto which Annex may be amended from time to time
as a result of circumstances, e.g., merger, consolidations,
etc., deemed by the Committee in its sole discretion to
warrant such amendment.
(iv) "Total Shareholder Return" for any company for any period
shall mean the percentage change in the per share stock market
price of such company's common stock (or equivalent security)
during such period (assuming that each of such company's per
share dividends are reinvested in such security at the closing
market per share price as of the last trading day of the
calendar quarter in which the ex-dividend date for such
dividend occurs) which shall be calculated in good faith by
the Committee acting in its sole discretion.
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 and the Determination Date, the shares of
Common 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 or
the Determination Date occurs, then you will be deemed to have made the election
under Paragraph 4(a) above to have the Common Stock issuable hereunder as of
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 as amended (the "Trust Agreement"), to accommodate
the deferral of delivery of shares of Common Stock represented
by Units (and any 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 each of the Conversion Date
and the Determination Date, all shares of Common Stock, if any, to be issued to
you as of any such date, shall be issued either (through book-entry form) by 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, with 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 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 granted hereunder and you agree to assign, transfer, and
deliver such Units to the Company, 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 Units relating to 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. [Reserved].
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 Company
or its subsidiaries and your employment will continue to be at will and
terminable at will by the Company. 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 Company shall not be
obligated to cause to be delivered any Units 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 Company 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.
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 or Restricted Stock issuable to me pursuant to the Restricted
Stock Performance Award Agreement (the "Agreement"), less those shares
necessary to satisfy any applicable withholding obligation under Paragraph 5(b)
of 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 a distribution of such number of
shares in the Restricted Stock Trust under the Agreement to which I am entitled
in substantially equal annual installments over a period not to exceed ten years
as follows, commencing at the time indicated by my election as set forth below,
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
Indicate your election:
Commencing after: ___ Retirement (as defined in the Plan)
___ Specific date to commence distribution
after my Retirement Date but in no event shall
any annual installment be made after the tenth
anniversary of my Normal Retirement Date (age 65).
Indicate specific date: ____________________
month/day/year
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 or Determination 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:_____________________
<PAGE>
Annex A
Peer Group
Bristol-Myers Squibb Company
Abbott Laboratories
Johnson & Johnson
Eli Lilly and Company
Merck & Co., Inc.
Pfizer Inc.
Schering-Plough Corporation
Warner-Lambert Company
ON AHPC LETTERHEAD
January 4, 2000
William J. Murray
Madison, NJ
We are pleased to extend to you additional rights under your severance
agreement, dated February 10, 1998, (the "Severance Agreement") with American
Home Products Corporation, a Delaware corporation ("AHP"), which, upon the
signature of the parties below, is hereby amended as set forth below.
Capitalized terms used herein and not otherwise defined shall have the meanings
given such terms in the Severance Agreement.
For purposes of the Severance Agreement, in the event of any sale or
other disposition of (i) greater than fifty percent (50%) of the equity
securities of American Cyanamid Company, a subsidiary of AHP ("Cyanamid"), (ii)
assets of Cyanamid having a value equal to more than 50% of the value of the
assets of Cyanamid (as determined in good faith by AHP) or (ii) all or
substantially all of the business unit in which you are employed (each of (i),
(ii) and (iii) being referred to herein as a "Cyanamid Change in Control"),
unless with your consent you continue as an employee of AHP or its subsidiaries
(other than Cyanamid or its subsidaries), a Change in Control shall be deemed to
have occurred under the Severance Agremeent and, thereafter, the term "Company"
and each and every other reference in the Severance Agreement to AHP shall mean
Cyanamid. Notwithstanding the foregoing, upon a Cyanamid Change of Control, (x)
AHP shall retain the obligation to cause Cyanamid or any successor thereto (in
accordance with the terms of Section 6(i) of the Severance Agreement) to assume
and perform its obligations under the Severance Agreement, and (y) in the event
that Cyanamid or any such successor fails to make payments or provide other
benefits to which you are entitled in connection with a termination of
employment following a Cyanamid Change of Control as required under the
Severance Agreement, AHP shall make such payments and provide such benefits.
Notwithstanding the foregoing, any references in the Severance
Agreement after a Cyanamid Change of Control to benefit plans, programs and
arrangements of the "Company" shall be deemed to include those plans in which
you participate that are sponsored or maintained by AHP.
AMERICAN HOME PRODUCTS CORPORATION
By /s/ Rene R. Lewin
AGREED to as of even date herewith: Name: Rene R. Lewin
Title: Vice President
/s/ William J. Murray
William J. Murray
AMERICAN CYANAMID COMPANY
By /s/ Louis L. Hoynes, Jr.
Name: Louis L. Hoynes, Jr.
Title: Senior Vice President and General Counsel
American Home Products Corporation
MANAGEMENT INCENTIVE PLAN
(Approved by stockholders on April 28, 1997 and as amended by the Board of
Directors through May 20, 1999)
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.
(8) "Normal Retirement Date" shall have the same meaning as set forth
in the American Home Products Corporation Retirement Plan - United States.
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 number of shares of the Corporation's Common Stock (including
fractional shares) 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.
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 number of shares of the Corporation's Common Stock
(including fractional shares) 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).
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.
Notwithstanding the foregoing, certain Employees, at the discretion of the
Committee, may elect to defer commencement of such installments beyond the date
of their retirement to any year occurring no later than ten years following the
Employee's Normal Retirement Date, but in no event beyond the date of a
regularly scheduled meeting of the Committee to be held within the first sixty
(60) days of the year in which the tenth anniversary of such Employee's Normal
Retirement Date occurs. Provided, however, in no event shall the installments
extend beyond the date of the Committee meeting described in the foregoing
sentence.
(c) Notwithstanding any other provisions hereof, the Committee may in
its absolute discretion provide, with respect to any Contingent Stock Award made
to any participant or participants under the Plan, that in the event of any
delivery of shares of Common Stock by the Company pursuant to such Contingent
Stock Award, the number of such shares which the recipient thereof shall be
entitled to receive and which shall be delivered by the Company shall be (i) the
number of such shares which would have been delivered in the absence of this
paragraph VI(3)(c), minus (ii) the number of whole shares of Common Stock
necessary to satisfy the minimum federal, state and/or local income tax
withholding obligations which are imposed on the Company by applicable law in
respect of the delivery of such award (and which may be satisfied by the
reduction effected hereby in the number of deliverable shares), it being
understood that the value of the shares referred to in clause (ii) above shall
be determined, for the purposes of satisfying such withholding obligations, on
the basis of the average of the high and low per share prices for the Common
Stock as reported on the Consolidated Transaction Reporting System on the date
of authorization of delivery by the Committee, or on such other reasonable basis
for determining fair market value as the Committee may from time to time adopt.
Notwithstanding any term or provision of this paragraph VI(3)(c), in determining
the total number of shares authorized for issuance under the Plan pursuant to
paragraph V hereof and in calculating the limit set forth in paragraph V hereof
on the number of shares which may be awarded to any individual Employee under
the Plan, the reduction in the number of shares effected by this paragraph
VI(3)(c) shall not be taken into account.
(4) Conditions of Payment of Contingent Awards
(a) In the event that the Employee is discharged for, or after any
other termination of employment is found while employed by the Company to have
engaged in, deliberate gross misconduct, as determined by the Company, no
further payment or delivery shall thereafter be made in respect of his or her
Contingent Cash or Stock Awards and all his or her rights with respect to his or
her Contingent Cash or Stock Awards and all his or her rights with respect to
his or her Contingent Award Account shall thereupon be forfeited.
(b) In the event of termination of the Employee's employment prior to
his or her retirement for reasons other than death or discharge for deliberate
gross misconduct, as determined by the Company, any unpaid installments of his
or her Contingent Cash Awards and any undelivered shares of stock from his or
her Contingent Award Account shall, subject to the conditions set forth in
paragraph (d) below, be paid or delivered to him or her at the dates and in the
installments originally determined.
(c) In the event of the Employee's death, any unpaid installments of
his or her Contingent Cash Awards shall be paid and any undelivered shares of
stock from his or her Contingent Award Account shall be paid or delivered at the
dates and in the installments originally determined, unless the Committee shall
otherwise determine, to or as directed by his or her legal representative, or
legatee or such other person designated by an appropriate court as the person
entitled to receive the same, provided that the Employee was employed by the
Company at the time of his or her death or up to the date of his or her death
had complied with the conditions set forth in paragraph (d) below.
(d) No payment of a Contingent Cash Award or delivery from a Contingent
Award Account shall be made to any Employee after termination of employment
unless he or she shall have to the date fixed for such payment or delivery (i)
refrained from becoming or serving as an officer, director or employee of any
individual, partnership or corporation, or the 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.
AMERICAN HOME PRODUCTS CORPORATION
STOCK OPTION AGREEMENT
FOR NON-EMPLOYEE DIRECTORS
(Transferable Option)
UNDER STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
[Name and address] DATED:
OPTION PRICE: [Insert Fair Market Value on Grant Date]
NON-QUALIFIED STOCK OPTION SHARES: [3,000]
1. Under the terms and conditions of this Agreement and of the American
Home Products Corporation (the "Company") Stock Option Plan for Non-Employee
Directors (the "Plan"), a copy of which is attached hereto and incorporated
herein by reference, the Company hereby grants to the undersigned 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 specified above. Capitalized terms not otherwise defined herein have the
meanings assigned to them in the Plan.
2. This Option may be exercised as provided in Sections 7 and 8 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 8(b) of the Plan.
4. 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 subject to the provisions of Sections 7(a) and 7(b) of
the Plan, and the form in which the certificates are to be registered for Option
Shares purchased in the name of the Optionee (or a permitted Transferee (as
defined in paragraph 5, below), or in the 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 purchase price calculated pursuant to and in the
form set forth in Section 7(c) of the Plan.
5. 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 the Optionee except that the Optionee may irrevocably transfer
all or a portion of the Options 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, (iii) a general or limited partnership or other entity
in which such Immediate Family Members are the only partners or beneficial
owners, or (iv) any other party permitted by the Committee under the Stock
Incentive Plan, provided that, except as set forth in the Stock Incentive Plan,
(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 the 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"), and
provided, further, that (i) the provisions of Section 8 of the Plan with respect
to the Optionee's death, disability, retirement or other termination of service
as a member of the Board 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, and (ii) the cashless exercise program which may be referred to
under the Stock Incentive Plan shall not apply to the Transferee unless
specifically permitted by the Committee.
6. 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 5 above, by other Transferees. The Option may be exercised after the
Optionee's death by any permitted distributee or the Transferee only to the
extent that the Optionee was entitled to exercise it at the time of the
Optionee's death.
7. Subject to the express provisions of the Plan, this Agreement and the
Plan are to be interpreted and administered by the Committee or any successor
thereto, whose determination will be final.
8. 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 Stock Option Plan for Non-Employee Directors (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 5 of the Agreement and under Section
12(d) 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 5 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 provisions of Section 8 of the Plan with respect to the
Optionee's death, disability, retirement or other termination of service as a
member of the Board 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 and
the Plan, (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:
- ---------------------------------- ----------------------------------
Date: Date:
AMERICAN HOME PRODUCTS CORPORATION
DEFERRED COMPENSATION PLAN
Effective as of July 31, 1997
Amended as of November 18, 1999
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) "Bonus Compensation" - means cash compensation received by an Eligible
Employee in excess of amounts paid as salary, whether under any incentive
compensation or bonus plan, program or arrangement which is maintained or which
may be adopted by the Company including the AHPC Management Incentive Plan or
otherwise.
(e) "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.
(f) "Code" - means the Internal Revenue Code of 1986, as amended from time
to time.
(g) "Committee" - means the Compensation and Benefits Committee of the
Board of Directors.
(h) "Company" - means American Home Products Corporation, a Delaware
Corporation.
(i) "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%). Effective as of June 1, 1999 the Deemed
Rate of Interest shall be ten percent (10%). 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.
(j) "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.
(k) "Exchange Act" - means the Securities Exchange Act of 1934, as amended.
(l) "Effective Date" - means July 31, 1997.
(m) "Normal Retirement Date" - shall have the same meaning as set forth in
the American Home Products Corporation Retirement Plan - United States.
(n) "Participant" - means an Eligible Employee who elects to defer
compensation under the terms of the Plan.
(o) "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.
(p) "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.
(q) "Retirement Date" - means the date an Employee elects to retire under
the provisions of the American Home Products Corporation Retirement Plan -
United States.
(r) "SESP" - means the American Home Products Corporation Supplemental
Employee Savings Plan, as amended from time to time.
(s) "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.
(t) "Tier I Severance Payments" - means payments payable pursuant to change
in control severance agreements entered into between the Company and members of
the Finance Committee, Operations Committee and other principal elected
corporate officers of the Company, which provide for severance benefits to such
employees in the event of their termination following a change of control of the
Company as defined in the severance agreement.
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 Bonus Compensation.
(1) A Participant may designate a percentage of his or her Bonus
Compensation, including the cash portions of his/her MIP compensation, payable
from the Company which is payable in a Plan Year (the "Deferred Bonus
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 Bonus Compensation shall accrue deemed
interest, compounded quarterly, at the Deemed Rate of Interest from the date
such Deferred Bonus Compensation otherwise would have been paid to the date of
distribution.
(3) The Company shall distribute to a Participant his/her total Deferred
Bonus 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.
(e) Deferral of Payments from Tier I Severance Agreements.
(1) A Participant may designate all or a portion of the amount of Tier 1
Severance Payments, which are payable to him or her ("Deferred Tier I Severance
Payments") 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 Tier I Severance Payments shall accrue deemed
interest, compounded quarterly, at the Deemed Rate of Interest from the date
such Deferred Tier I Severance Payments otherwise would have been paid to the
Participant.
(3) The Company shall distribute to the Participant his/her total Deferred
Tier I Severance Payments (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 Bonus 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 Bonus 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 defer proceeds from a cashless/sale transaction held by
the Company in accordance with Section 4(c) or Tier I Severance Payments in
accordance with Section (4)(e) with respect to a particular Plan Year must be
received by the Committee or its designee in a timeframe established by the
Committee from time to time. Such election must designate the timing and form of
distribution of such proceeds or payments and earnings thereon in accordance
with the options described in Section 6(c) and/or 6(e), whichever being
applicable.
(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 first 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 Bonus Compensation payable with
respect to the Plan Year, provided, in the case of Bonus 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 Bonus Compensation.
(1) Commencement of Payment of Deferred Bonus Compensation. Deferred Bonus
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 Bonus Compensation otherwise would have been paid, or (ii)
at the Participant's Retirement Date.
(2) Form of Distribution of Deferred Bonus Compensation. Deferred Bonus
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) Deferred Tier I Severance Payment.
(1) Commencement of Payment of Deferred Tier I Severance Payments. Deferred
Tier I Severance Payments (together with deemed interest accrued thereon) shall
commence to be paid at the election of a Participant either (i) ten (10) years
following the deferral of the payments subject to such election, or (ii) at the
Participant's Retirement Date.
(2) Form of Distribution of Tier I Severance Payments. Deferred Tier I
Severance Payments (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(e)(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(e)(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.
(f) 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 Bonus
Compensation, Deferred Salary Compensation, Deferred Stock Option Proceeds,
Deferred SAR Proceeds, and/or Deferred Tier I Severance Payments 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).
(g) 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 Bonus Compensation, Deferred Salary Compensation, Deferred
Option Proceeds, Deferred SAR Proceeds, and/or Deferred Tier I Severance
Compensation 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.
(h) Notwithstanding anything in the Plan to the contrary, including
Sections 6(a)(1)(ii), 6(b)(1)(ii), 6(c)(1)(ii), 6(d)(1)(ii) and 6(e)(1)(ii), a
Participant who has elected to commence payment of any amounts deferred under
the Plan at his or her Retirement Date or Normal Retirement Date, may elect to
defer such commencement of payments beyond his or her Retirement Date or his or
her Normal Retirement Date to any date which occurs no later than ten (10) years
following his or her Normal Retirement Date. Provided, however, that if a
Participant elects to receive multiple installments, in no event shall such
installments extend beyond the tenth anniversary of the Participant's Normal
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
Bonus Compensation, Deferred Salary Compensation, Deferred Stock Option
Proceeds, Deferred SAR Proceeds or Deferred Tier I Severance Payments 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. Notwithstanding
any other provision of the Plan to the contrary, with respect to a Change of
Control which may occur as a result of the consummation of the transactions
contemplated by the Agreement and Plan of Merger, dated as of November 3, 1999,
among American Home Products Corporation, Wolverine Sub Corp. and Warner-Lambert
Company, the provisions of this Section 7(b) shall not apply with respect to any
Participant.
(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 Bonus Compensation and
deemed interest accrued thereon, third, out of Deferred Salary Compensation and
deemed interest accrued thereon, fourth, out of Deferred SAR Proceeds and deemed
interest accrued thereon and fifth, out of Deferred Tier I Severance Payments
and deemed interest 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: 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Income (loss) from continuing
operations before federal
and foreign taxes ($1,925,626) $3,585,460 $2,814,707 $2,755,460 $2,438,698
Add:
Fixed charges 407,251 376,253 518,661 605,011 705,047
Minority interests 30,738 2,177 721 18,084 717
Distributed equity income 0 920 0 0 0
Amortization of capitalized
interest 1,803 1,487 1,057 5,621 768
Less:
Equity income 3,877 522 10,840 10,431 8,129
Capitalized interest 15,375 9,497 12,898 0 7,681
Total earnings (loss) as defined ($1,505,086) $3,956,278 $3,311,408 $3,373,745 $3,129,420
Fixed Charges:
Interest and amortization of
debt expense $343,271 $322,970 $461,370 $571,414 $665,021
Capitalized interest 15,375 9,497 12,898 0 7,681
Interest factor of rental
expense (1) 48,605 43,786 44,393 33,597 32,345
Total fixed charges as
defined $407,251 $376,253 $518,661 $605,011 $705,047
Ratio of earnings to fixed
charges (2) - 10.5 6.4 5.6 4.4
</TABLE>
(1) A 1/3 factor was utilized to compute the portion of rental expenses deemed
representative of the interest factor.
(2) The results of operations for the year ended December 31, 1999 are
inadequate to cover total fixed charges as defined. The coverage
deficiency for the year ended December 31, 1999 is $407,251. Excluding
the charge for the REDUX and PONDIMIN litigation settlement of $4,750,000,
(See Item 3. Legal Proceedings) the pro forma ratio of earnings to fixed
charges would be 8.0 for the year ended December 31, 1999.
Accelerating the Pace of Innovation
American Home Products Corporation
Annual Report 1999
[GRAPHIC OMITTED]
<PAGE>
Targeting Disease with First-in-Class Products
AHP recently introduced - in a remarkably short timeframe - Sonata, Rapamune,
Meningitec, ReFacto and Prevnar. These innovative products target some of the
world's most debilitating diseases and challenging health problems. Their
introduction underscores the depth and productivity of AHP's pharmaceutical
product pipeline. A listing of other worldwide products in post-Phase I trials
follows.
Pipeline >
IFC Pharmaceutical Pipeline
2 Chairman's Report
7 AHP's Focus Franchises
22 AHP at a Glance
26 Research
27 Financial Section
56 Directors and Officers
57 Principal Products
58 Corporate Data
[GRAPHIC OMITTED]
<PAGE>
AHP's Pipeline:
Accelerating the Pace of New Products to Market
Phase II Phase III Registration
Women's Health
- --------------------------------------------------------------------------------
Minesse(R) Low-dose oral contraceptive (international)
- --------------------------------------------------------------------------------
Trimegestone
-----------------------------------------------------------------------------
With Premarin(R): hormone replacement therapy
with endometrial protection (United States)
-----------------------------------------------------------------------------
With 17 (beta)-estradiol: hormone replacement therapy
with endometrial protection (international)
-----------------------------------------------------------------------------
With ethinyl estradiol: oral contraception
- --------------------------------------------------------------------------------
Prempro(TM) Lower dosage for osteoporosis and
menopausal symptoms
- --------------------------------------------------------------------------------
TSE-424 Tissue-selective estrogen for osteoporosis
Neuroscience
- --------------------------------------------------------------------------------
Effexor(R) XR/Effexor(R)
-----------------------------------------------------------------------------
Long-term treatment of generalized anxiety disorder
-----------------------------------------------------------------------------
Social anxiety disorder
-----------------------------------------------------------------------------
Relapse/recurrence of depression
-----------------------------------------------------------------------------
Pediatric usage
- --------------------------------------------------------------------------------
Sonata(R)
-----------------------------------------------------------------------------
Thirty-five night usage
-----------------------------------------------------------------------------
Middle-of-night dosing
- --------------------------------------------------------------------------------
Retigabine Anti-epileptic
Vaccines
- --------------------------------------------------------------------------------
Meningitec(TM)
-----------------------------------------------------------------------------
Meningococcal C conjugate vaccine (Pan-European)
- --------------------------------------------------------------------------------
Prevnar(TM)/Prevenar(TM)
-----------------------------------------------------------------------------
Seven-valent pneumococcal conjugate vaccine
-----------------------------------------------------------------------------
Nine-valent pneumococcal conjugate vaccine
- --------------------------------------------------------------------------------
FluMist(TM) Cold adapted intranasal influenza vaccine
- --------------------------------------------------------------------------------
Meningococcal C conjugate/nine-valent
pneumococcal conjugate Combination vaccine
- --------------------------------------------------------------------------------
RSV subunit vaccine Respiratory syncytial virus vaccine
Anti-Infectives
- --------------------------------------------------------------------------------
Zosyn(R)/Tazocin(R)
-----------------------------------------------------------------------------
Intra-abdominal infections Q8H
-----------------------------------------------------------------------------
Febrile neutropenia
-----------------------------------------------------------------------------
Nosocomial pneumonia Q6H
-----------------------------------------------------------------------------
Pediatric indications
- --------------------------------------------------------------------------------
GAR-936 Antibiotic
<PAGE>
Phase II Phase III Registration
Musculoskeletal
- --------------------------------------------------------------------------------
Enbrel(R) Disease modification in early RA
- --------------------------------------------------------------------------------
Synvisc(R)
-----------------------------------------------------------------------------
Six-month duration of action
-----------------------------------------------------------------------------
Twelve-month duration of action
-----------------------------------------------------------------------------
Additional joints
- --------------------------------------------------------------------------------
rhBMP-2
-----------------------------------------------------------------------------
Orthopaedic trauma
-----------------------------------------------------------------------------
Dental/craniofacial surgery
-----------------------------------------------------------------------------
Spinal fusion
-----------------------------------------------------------------------------
Periodontal
-----------------------------------------------------------------------------
Osteonecrosis
Oncology
- --------------------------------------------------------------------------------
Mylotarg (TM) Relapsed acute myeloid leukemia
- --------------------------------------------------------------------------------
rhIL-11 Mucositis
Transplantation and Immunology
- --------------------------------------------------------------------------------
Rapamune(R)
-----------------------------------------------------------------------------
Renal transplantation - liquid (international)
-----------------------------------------------------------------------------
Renal transplantation - tablets (United States)
-----------------------------------------------------------------------------
Renal transplantation - tablets (Europe)
-----------------------------------------------------------------------------
Cyclosporin induction
-----------------------------------------------------------------------------
Liver transplantation
-----------------------------------------------------------------------------
Heart transplantation
- --------------------------------------------------------------------------------
rhIL-11 Crohn's disease
Hemophilia and Special Opportunities
- --------------------------------------------------------------------------------
BeneFIX(R) Hemophilia B (Japan)
- --------------------------------------------------------------------------------
ReFacto(R) Hemophilia A (United States)
- --------------------------------------------------------------------------------
Protonix(R) (United States)
-----------------------------------------------------------------------------
I.V. for erosive esophagitis
-----------------------------------------------------------------------------
Oral maintenance
-----------------------------------------------------------------------------
I.V. for Zollinger-Ellison Syndrome
-----------------------------------------------------------------------------
Oral H. pylori eradication
- --------------------------------------------------------------------------------
Enbrel(R) Congestive heart failure
<PAGE>
1999 Highlights
Years Ended December 31, 1999 1998
(In thousands except per share amounts)
- --------------------------------------------------------------------------------
Net Sales $13,550,176 $13,462,687
- --------------------------------------------------------------------------------
Net Income (Loss)* (1,227,121) 2,474,338
- --------------------------------------------------------------------------------
Diluted Earnings (Loss) per Share (0.94) 1.85
- --------------------------------------------------------------------------------
Dividends per Common Share 0.905 0.87
- --------------------------------------------------------------------------------
Total Assets 23,906,277 21,079,068
- --------------------------------------------------------------------------------
Stockholders' Equity 6,214,747 9,614,796
- --------------------------------------------------------------------------------
* See Management's Discussion and Analysis of Financial Condition and
Results of Operations for amounts related to the litigation charge, gain
on the sale of business and special charges for the years ended December
31, 1999 and 1998.
1999 in Brief
During 1999, AHP encountered difficulties that caused shareholder value to
decline. We are determined to recover this value and have taken significant
steps toward achieving this goal.
The biggest challenge faced by the Company in 1999 was litigation in
connection with the voluntary market withdrawal of our antiobesity products. We
made significant progress toward resolving this issue through the establishment,
in October 1999, of a comprehensive, national settlement agreement. This
settlement agreement was developed by attorneys for the Company and by
plaintiffs' attorneys involved in various federal and state cases. The Company
recorded a charge to provide for expected costs of the settlement and related
matters, resulting in a net loss for the year. The details of this action are
discussed in the financial section of this report.
We are optimistic that the settlement will help to put this difficulty
behind us and will allow us to move forward.
With regard to the proposed merger between AHP and Warner-Lambert, we are
disappointed that this opportunity did not come to fruition. As we have noted in
the past, consolidation is attractive in our industry due to the high cost of
bringing a new drug to market. However, we strongly feel that our own resources,
including AHP's broad product franchise and our new product efforts, will allow
our Company to expand its position as a leader in the industry.
During 1999, we began to pursue the divestiture of our agricultural
products business. This business had a difficult year due, in large part, to
poor conditions in the agricultural industry. However, historically it has been
a significant contributor to AHP, demonstrating growth in preceding years. After
divestiture of our agricultural products business, virtually our entire
portfolio will consist of pharmaceutical, consumer health care and animal health
products.
- ----------
Cover: AHP enters 2000 with great momentum as several innovative products reach
the children and adults who can benefit most from the unique properties of these
therapies.
1
<PAGE>
Chairman's
Report
[PHOTO]
John R. Stafford Chairman, President and Chief Executive Officer
1999 was both a year of accomplishment and, as discussed in "1999 in Brief," a
year of difficulty for American Home Products Corporation. On the positive side,
our core pharmaceutical business performed well and launched four innovative and
important new products during the year - Sonata, Rapamune, ReFacto and
Meningitec. Additionally, in February 2000, we received U.S. market clearance
for Prevnar and European market clearance for Enbrel. Protonix also was approved
in the United States in February 2000.
Sales and Results of Operations in 1999
In 1999, total worldwide net sales for the Company exceeded $13.5 billion,
increasing 2 percent for the full year. This increase, which is adjusted for the
sale of the Sherwood-Davis & Geck medical devices business in February 1998, was
due primarily to a 9 percent increase in human pharmaceutical sales worldwide
and a 9 percent rise in global sales of consumer health care products. These
increases were offset, in part, by lower sales of U.S. agricultural and animal
health products. Excluding the negative impact of foreign exchange, pro forma
net sales increased 4 percent in 1999.
Net income (loss) and diluted earnings (loss) per share for 1999 were
($1.2 billion) and ($0.94), respectively, compared with $2.5 billion and $1.85
in 1998, respectively. These results include after-tax charges associated with
the antiobesity products litigation, the restructuring of the agricultural
products business, and the suspension of shipments and voluntary market
withdrawal of RotaShield, as well as other special items discussed in the
financial section of this report.
AHP increased its dividend to shareholders for the 48th consecutive year,
and in 2000, we anticipate double-digit earnings growth driven by our new
product launches and the continued strong growth of our global product
franchises.
Investing in Health Care
AHP continues to place increased emphasis on its pharmaceutical business, which,
in 1999, represented more than two-thirds of the Company's net sales. With a
significant commitment to developing innovative, breakthrough products, AHP is
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focusing its efforts in several large and growing areas, including: Women's
Health Care, with its lead product, Premarin; Neuroscience Therapies, anchored
by Sonata and Effexor XR; Musculoskeletal Therapies, with Enbrel as its
cornerstone product; Vaccines, led by Prevnar and Meningitec; Hemophilia
Products, expanded by the launch of ReFacto in Europe; Transplantation Products,
with Rapamune at the forefront; Oncology; and Anti-Infectives.
The Company's pharmaceutical research and development continued its
productivity, bolstering a product pipeline that is among the finest in the
industry. Driven by $1.5 billion in research and development spending during
1999 and supported by an expanding annual research and development budget that
emphasizes biotechnology, AHP's unique expertise in small molecules, proteins
and vaccines is expected to produce the scientific innovation necessary for
sustained market success.
To supplement our own expertise, AHP has formed several important
strategic alliances to provide us with advanced technologies and co-development
opportunities. Included in these is the December 1999 collaboration agreement
with ViroPharma Incorporated for development and commercialization of novel,
small-molecule, antiviral drug candidates for the treatment of hepatitis C.
In addition, we have made a major commitment to strengthening our
technological and manufacturing infrastructure as well as to expanding our sales
organization. In anticipation of new product launches, AHP added pharmaceutical
sales representatives worldwide in 1999. This larger, global presence will help
us to effectively launch new products while expanding our established
franchises.
Human Ethical Pharmaceuticals
Wyeth-Ayerst Global Pharmaceuticals had a strong year in 1999 as evidenced by
several new product approvals and launches, accompanied by solid sales growth.
Worldwide human pharmaceutical sales increased 9 percent in 1999 largely
due to higher sales of Enbrel, Effexor XR, Premarin products, Zosyn and
Meningitec. This increase was offset, in part, by lower sales of oral
contraceptives, Naprelan and Verelan (divested in 1998), and Cordarone, which
was impacted by generic competition.
In 1999 and early 2000, we received market clearance for several
innovative new products, including:
Sonata
This first in a new class of non-benzodiazepine compounds for the treatment of
insomnia in adults was launched in Europe in May 1999 and in the United States
in September 1999.
ReFacto
Launched in Europe in May 1999, ReFacto, the first albumin-free formulated
recombinant factor VIII product for the treatment of hemophilia A, achieved 1999
sales of more than $30 million. ReFacto now is pending U.S. Food and Drug
Administration (FDA) approval with its U.S. launch expected in 2000.
Rapamune
Following an FDA "priority review," Rapamune Oral Solution, the first in a new
class of immunosuppressive agents developed for the prevention of organ
rejection in kidney transplant patients, received market clearance in the United
States in September 1999. Rapamune already is being used by more than 80 of the
top 100 transplant centers in the United States. A New Drug Application filing
for the tablet formulation of Rapamune recently was accepted by the FDA. In
January 1999, AHP filed a Marketing Authorization Application, which was
accepted for review by the European Medicines Evaluation Agency.
Rapamune and ReFacto are novel therapies launched by Wyeth-Ayerst in 1999.
[PHOTO]
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Meningitec
In October 1999, AHP received marketing approval from the United Kingdom
Medicines Control Agency for Meningitec, the world's first conjugate vaccine
against meningococcal Group C disease. The United Kingdom promptly implemented a
national immunization program in November 1999. Within just two months,
Meningitec sales in the United Kingdom were nearly $50 million - considerably
ahead of expectations. Registration now is being pursued in other European
countries.
Prevnar
In March 1999, Prevnar, a novel, seven-valent pneumococcal conjugate vaccine,
was granted a "priority review" by the FDA. This was the first time the FDA
granted this status to a vaccine product. Prevnar subsequently received market
clearance and was launched in February 2000. A Centers for Disease Control and
Prevention advisory committee voted to recommend Prevnar for routine use in all
healthy children up to age two and for children in identified groups ages two to
five.
Protonix
In February 2000, the FDA approved Protonix tablet formulation for marketing.
Protonix is indicated for the short-term treatment of erosive esophagitis. When
its intravenous formulation, now pending approval, is cleared and an additional
research study is satisfactorily completed, it will be the first and only
intravenous formulation of a proton pump inhibitor to be marketed in the United
States.
Additional Therapies
In January 2000, the FDA accepted and designated "priority review" status to
Mylotarg (CMA-676), a new treatment for relapsed acute myeloid leukemia. This
action represented the third time in 12 months that New Drug Applications
submitted by AHP received accelerated review status from the FDA.
Several other AHP products warrant attention. Jointly marketed in the
United States by Wyeth-Ayerst and Immunex Corporation, in which AHP holds a
majority ownership, Enbrel, a breakthrough product for the treatment of moderate
to severe rheumatoid arthritis (RA), far exceeded Company and analyst forecasts,
with sales of more than $360 million in 1999. European approval for use in
moderate to severe RA and juvenile chronic arthritis was received in February
2000. In May 1999, Enbrel received U.S. approval for the treatment of moderately
to severely active juvenile rheumatoid arthritis in patients who have had
inadequate response to one or more disease- modifying medicines. In July 1999, a
Supplemental Biologic License Application was filed for Enbrel as a
disease-modifying agent in early active rheumatoid arthritis, further expanding
the drug's therapeutic and market potential. Regulatory action on this important
claim is expected in 2000.
Effexor XR, approved for treatment of depression in 1997, received U.S.
approval in March 1999 for a new indication, the treatment of generalized
anxiety disorder (GAD). It is the first and only antidepressant proved effective
in relieving GAD. As a result of its expanded utility, the drug experienced
rapidly rising sales, with the Effexor family of products showing a 48 percent
increase over the previous year. In the United States alone, Effexor sales
reached $525 million.
Sales of the Premarin family of products, our hormone replacement
therapies that are the most prescribed drugs in the United States today,
continued to grow strongly in 1999 with worldwide sales just under $1.8 billion,
up 8 percent from a year ago.
Wyeth Lederle's new, advanced vaccines prevent some of the world's most serious
diseases.
[PHOTO]
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[PHOTO]
Our OTC products recorded strong sales growth in 1999.
Consumer Health Care
Whitehall-Robins Healthcare continues to be a major force in the consumer health
care segment, recording net sales of $2.4 billion in 1999. This represented an
increase of 9 percent over 1998 due primarily to strong performance by
nutritional supplements - which include Centrum products and Caltrate - as well
as by cough/cold/allergy products, including Robitussin and Dimetapp, and by
Chap Stick.
In 1999, Whitehall-Robins introduced several new products in the
nutritional supplements category, including Centrum Performance, Centrum Focused
Formulas and Caltrate+Soy. The division's flagship brand, Advil, introduced
Children's Advil Chewables and Jr. Strength Advil Chewables, extending the
product's reach into the pediatric market. The Robitussin Honey Cough and Chap
Stick lines also were expanded.
Whitehall-Robins Healthcare will continue to build on its success in 2000,
with plans to grow the business through new product launches, international
expansion and licensing opportunities.
The acquisition of Solgar Vitamin and Herb Company Inc. in 1998 also
contributed to the growth of our consumer health care franchise in 1999. Solgar
nutritional supplements continued to expand their position within the health
food store channel. Future growth potential for Solgar remains significant due
to favorable demographic trends, licensing of new, proprietary formulas and
international expansion.
Animal Health Care
Fort Dodge Animal Health recorded more than $650 million in sales in 1999
despite a significant decline in worldwide livestock prices. The division's
ability to research, develop and deliver new and innovative products to the
marketplace is highly respected in the field. As one of the industry's more
successful companies in achieving U.S. Department of Agriculture registration
for new and innovative biological products, Fort Dodge Animal Health has
numerous registrations for canine, feline, equine and bovine biologicals, along
with several unique products in its development pipeline.
Agricultural Products
The Cyanamid Agricultural Products business, for which we are pursuing
divestiture, struggled with decreased demand for its products in 1999. Faced
with lower commodity prices and grain surpluses, farmers in the United States
applied fewer crop protection products and chose the lowest cost products.
In 1999, Cyanamid globally launched the Clearfield Production System,
which combines herbicide-tolerant crops with custom-designed herbicide
solutions. Also in 1999, Cyanamid received U.S. registration for two new
products that are combinations of glyphosate and Cyanamid's imidazolinones for
use on soybeans. These new products, Backdraft and Extreme herbicides, are being
launched in the 2000 season.
Inside AHP
As we enter the year 2000, we take note of important organizational changes.
Senior Executive Vice President Robert G. Blount, who served American Home
Products and its shareholders for more than 25 years, retired effective February
1, 2000. It was with personal regret that I accepted his retirement for we had
worked together virtually every day since he joined the Company. We wish him and
his family happiness and the best of health for the future. Kenneth J. Martin,
previously Senior Vice President and Chief Financial Officer of Wyeth-Ayerst
Global Pharmaceuticals, assumed the
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position of Senior Vice President and Chief Financial Officer of AHP effective
February 1, 2000. Also in February 2000, John R. Considine, previously Vice
President - Finance, was elected Senior Vice President - Finance, and Jack M.
O'Connor, previously Treasurer, was elected Vice President and Treasurer. In
March 1999, we were deeply saddened by the untimely death of William Wrigley, an
esteemed and valued member of the AHP Board of Directors. Mr. Wrigley was
President and Chief Executive Officer of the Wm. Wrigley Jr. Company - the
world's largest chewing gum company - and served on AHP's Board since 1981.
I am proud to report that for the second consecutive year, Working Mother
magazine recognized AHP as one of the "100 Best Companies for Working Mothers."
AHP offers employees dependent care financial assistance as well as adoption
assistance benefits. Many employees also have an annual opportunity to choose
their daily work schedules for greater flexibility. We continue to explore ways
to address challenges of balancing work and personal responsibilities as well as
to encourage the training and career development of employees throughout the
Company.
Positioned for the Future
This is an exciting time for AHP. We enter the year 2000 with a portfolio of
remarkable products, a research and development platform that has produced a
rich pipeline, and solid health care businesses that will support our growth.
The achievements of the past year, particularly the introduction of several new
premier products and the solid performance of our core businesses, are
attributable to the extraordinary dedication and effort of our employees. The
Board of Directors and I offer deep appreciation to all in the Company who gave
such excellent support during 1999. As we move forward in this new century, AHP
will continue to strengthen its commitment to discovering new and valuable
therapies for complex diseases and devising innovative solutions to global
health care issues.
/s/ John R. Stafford
John R. Stafford
Chairman, President and
Chief Executive Officer
March 1, 2000
Sonata was launched in the United States in September 1999. Protonix was
approved in February 2000.
[PHOTO]
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[PHOTO]
Deborah Smith, Research Scientist II, Wyeth-Ayerst Laboratories
AHP's Focus Franchises:
A Platform for Continued Innovation
In 1999, the approval and launch of several important products helped to expand
AHP's leadership in the global marketplace. These innovative pharmaceuticals and
vaccines are cornerstones of therapeutic areas targeted by AHP to address some
of the world's most debilitating diseases and health concerns. On the following
pages, we review our "focus franchises." The employees pictured are among the
many dedicated scientists and researchers worldwide who contribute to AHP's
research and development efforts.
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Women's Health Care:
Helping Women
Lead Healthier Lives
Premarin and its family of products are the most prescribed medications in the
United States today. Considering that Premarin has been on the market for nearly
60 years, this leadership position is particularly extraordinary. And now there
are tremendous opportunities to use Premarin as a springboard to expand our
women's health care franchise.
Research provides increasing evidence of the potential consequences of
estrogen deficiency on bone mineral density, cardiovascular health and cognitive
functioning. Wyeth-Ayerst, through its Women's Health Research Institute, is at
the forefront of research in hormone replacement and estrogens. Currently, the
company is pursuing Phase III studies of lower doses of Prempro to determine its
benefits on bone and on menopausal symptoms. Trimegestone, a new progestin for
hormone replacement and contraception, is undergoing evaluations in
combination with Premarin, as well as with 17 (beta)-estradiol for hormone
replacement and with ethinyl estradiol for contraception.
Another major focus of the Women's Health Research Institute is on
tissue-selective estrogens. These estrogens target certain tissue systems, such
as bone, creating the opportunity for highly selective drug candidates. TSE-424,
a new generation selective estrogen receptor modulator, was chosen from a large
number of candidate molecules because of its impressive tissue-selective
profile. The main clinical goal for this selective estrogen product is to
prevent osteoporosis.
Our contraceptive research explores new technologies, new formulations of
existing products, innovative delivery systems and novel approaches. All of
these efforts are aimed at giving women a greater choice in contraception and
providing them with products that are easier to use and are highly reliable.
[PHOTO]
Jim Pickar, MD, Assistant Vice President of Clinical Research and Development
"Trimegestone, in combination with estradiol for sequential hormone replacement
therapy, may be an effective new hormone replacement therapy regimen."
[PHOTO]
Ginger Constantine, MD, Vice President, Women's Health Clinical Research "Our
research, starting with discovery and continuing through clinical development,
is designed to give women fully integrated options throughout their lives."
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Margo Gill, age 56, on Premarin since 1990. Daughter Katherine Gill-St. Claire,
age 31. Granddaughter Amanda St. Claire, 10 months.
[PHOTO]
Margaret Weber, MD, Assistant Vice President of Global Medical Affairs and
Associate U.S. Medical Director "Wyeth-Ayerst is at the forefront of estrogen
research, exploring the `new science of Premarin' and its wide-ranging role in
women's health."
[PHOTO]
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[PHOTO]
Shelia Singleton, age 46, on Effexor since 1996.
[PHOTO]
Richard L. Rudolph, MD, Senior Director of Clinical Research and Development
"New medical knowledge and new discovery technologies provide an unprecedented
opportunity for the discovery of breakthrough CNS therapies."
[PHOTO]
Eliseo Salinas, MD, Vice President of Clinical Research "Neuroscience presents
both a huge challenge and a major opportunity for pharmacological research."
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Neuroscience Therapies:
Offering New Options
for CNS Disorders
Sonata and Effexor XR, cornerstone products in our neuroscience therapy area,
are improving the lives of individuals who suffer from central nervous system
(CNS) disorders that greatly affect their quality of life: sleep deprivation,
depression and generalized anxiety disorder (GAD).
Sonata, approved in the United States and in Europe during 1999, is the
first in a new class of non-benzodiazepine, sleep-inducing compounds. Sonata
offers help to the millions of individuals who simply cannot fall asleep. It
works within 30 minutes, brings on a more natural sleep and leaves no residual
effects, either physical or cognitive. This first-in-class product can be taken
as needed to fall asleep rather than in anticipation of sleep problems.
In 1999, Effexor XR, already indicated for depression, became the first
drug approved in more than 10 years in the United States for GAD, and it is the
only treatment indicated both for depression and GAD. Internationally, Effexor
XR has been approved for the short-term treatment of GAD in many major markets.
In 2001, we anticipate submitting registrations for the treatment of social
anxiety disorder.
Our research and development efforts in neuroscience continue to evaluate
additional clinical applications for Sonata and for Effexor XR, and we also are
studying other new products for central nervous system disorders.
In 1999, the research agreement between AHP and Millennium Pharmaceuticals
in the area of CNS disorders was renewed for an additional two years. This
alliance, which began in 1996, uses genomics and human genetics to discover
novel genes involved in neurodegenerative, neurological and psychiatric
disorders.
[PHOTO]
Richard Mangano, PhD, Senior Director of Clinical Science "Despite a continuous
improvement in our understanding of the underlying mechanisms for CNS disorders,
there still are major urgent medical needs in this therapeutic area."
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Musculoskeletal Therapies:
Breakthrough Treatments
for Joints and Bones
Enbrel, the first FDA-approved biological treatment for rheumatoid arthritis
(RA), is rapidly extending its reach. Discovered by Immunex Corporation, a
majority-owned subsidiary of AHP, and co-marketed in the United States by
Wyeth-Ayerst and Immunex, Enbrel was approved by the FDA in 1998 for the
treatment of moderate to severe RA in people who had not responded adequately to
disease-modifying medicines. In May 1999, a Supplemental Biologic License
Application was approved to treat children and teenagers (ages four to 17) with
juvenile rheumatoid arthritis, and in July 1999, a submission was made for
disease modification in early RA (less than three years' duration). In February
2000, Enbrel received approval in the European Union for the treatment of
rheumatoid arthritis and juvenile rheumatoid arthritis. Enbrel will be marketed
by Wyeth-Ayerst outside the United States.
Currently, there are numerous programs under way to study Enbrel in the
treatment of other diseases which may be driven by tumor necrosis factor,
including congestive heart failure and psoriasis as well as gastrointestinal
disorders.
Enbrel is the cornerstone product of AHP's musculoskeletal franchise. Also
included in this family of products is Synvisc, which supplements the synovial
fluid around the knee joint to lubricate and to relieve pain in osteoarthritis.
Synvisc was launched in 1997 and is a collaborative effort with Biomatrix.
Further studies are planned to extend the duration of action labeling and to
consider additional joints beyond the knee.
rhBMP-2, a bone morphogenetic protein that stimulates new bone growth when
administered locally, currently is in pivotal trials evaluating its safety and
efficacy in fracture repair (open tibial fractures), in spinal fusion (marketing
rights licensed to Sofamor Danek) and in dental/craniofacial surgery.
In orthopaedics, open tibial fractures are among the most difficult to
heal. Phase II studies suggest that rhBMP-2 may accelerate and assure successful
fracture healing and greatly decrease the need for follow-up interventions.
Spinal fusion surgery also is a significant opportunity. Thousands of patients
undergo spinal fusion each year in the United States, and virtually all of them
require autogenous bone to be harvested. rhBMP-2 is being studied as a
substitute for bone graft harvesting through stimulation of new bone growth to
stabilize the spine and achieve fusion. The dental/craniofacial surgical
community also is indicating widespread interest in the use of rhBMP-2.
Submissions of marketing authorization filings for rhBMP-2 are expected to
begin in 2000.
[PHOTO]
Cristina Csimma, Associate Director of Clinical Research "Bone morphogenetic
proteins, as a family, offer us a very rich source of potential musculoskeletal
therapies because of their unique biological activity."
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Jeanne Buckingham, age 45, on Enbrel since 1997.
[PHOTO]
Marie Sanda, MD, Vice President of Clinical Research "Enbrel therapy allows many
patients with rheumatoid arthritis to embrace life again. Its success derives
from remarkable efficacy hallmarked by rapid and sustained therapeutic
response."
[PHOTO]
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Dr. Richard Greene, Pediatrician, helping to prevent life-threatening diseases
in infants and young children. June Yee and son, Kevin.
[PHOTO]
[PHOTO]
Velupillai Puvanesarajah, PhD, Associate Director of Chemical Development "We
have additional generations of pneumococcal conjugate vaccine in the pipeline,
including a nine-valent formulation to provide increased coverage in Europe."
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Vaccines:
Ushering in a New Era
of Disease Prevention
Prevnar, a novel, seven-valent pneumococcal conjugate vaccine developed by Wyeth
Lederle Vaccines, was approved for U.S. marketing in February 2000. Previously,
the FDA had selected Prevnar for "priority review," making it the first vaccine
ever to receive this designation. Prevnar targets invasive pneumococcal disease,
the leading cause of bacterial blood stream infections and meningitis in infants
and children. In the United States, a Centers for Disease Control and Prevention
advisory committee voted to recommend Prevnar for routine use in all healthy
children up to age two, as well as for identified groups ages two to five who
are at high risk. In Europe, this vaccine, tradenamed Prevenar, is expected to
be launched in 2001. The company continues to study the utility of
Prevnar/Prevenar against middle ear infections and pneumonia.
In October 1999, Meningitec, a conjugate vaccine against meningococcal
Group C disease, was approved in the United Kingdom, making it the first
meningococcal conjugate vaccine to reach the market anywhere in the world.
Prevention of meningitis, an overwhelming infection that can kill healthy
people, often of school age, within 24 hours, is a top public health priority in
the United Kingdom. A major inoculation program was commenced following the
launch of Meningitec. We are pursuing additional approvals throughout Europe.
In the viral family, FluMist, a unique live, attenuated influenza vaccine
(licensed from Aviron) that will be delivered as a nasal spray, is expected to
increase the number of people protected against flu, especially children. Wyeth
Lederle Vaccines also is working on vaccines for respiratory syncytial virus, a
serious respiratory disease, and for parainfluenza virus, which causes severe
croup in children.
There are several sexually transmitted disease (STD) vaccine projects
undergoing active discovery and development efforts. These include Phase I
trials in herpes and HIV using proprietary DNA technology.
[PHOTO]
Sally Quataert, PhD, Associate Director of Immunobiological Laboratory Services
"Our research on vaccines for STDs focuses on the application of cutting-edge
technology."
[PHOTO]
Linda Biehl, Director of Materials Management "Our vaccine pipeline consists of
first-in-class products based on proprietary platform technologies in
glycoconjugate chemistry, genetic attenuation of viruses and DNA immunization."
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Hemophilia:
Using Recombinant Technology
for Risk-Free Treatment
ReFacto introduces a new era in the treatment of hemophilia. The product
recently was approved and launched in the European Union with U.S. approval
expected in 2000. ReFacto is the first and, currently, the only albumin-free
formulated recombinant factor VIII product indicated for the treatment of
hemophilia A. This makes it an inherently safer treatment option by reducing the
theoretical risk of contamination by blood-borne pathogens.
Hemophilia is a genetically inherited bleeding disorder that results from
a deficiency of natural factor VIII (hemophilia A) or factor IX (hemophilia B)
coagulant activity. In the past, this disorder was treated by replacement of the
deficient clotting factor with products purifid from plasma pooled from
thousands of blood donors. Now, recombinant DNA technology offers a
fundamentally safer approach, starting with non-human production cells as the
source of factor VIII or IX. It employs additional safety measures, including
extensive testing of the production cells and avoidance of the use of animal and
human proteins in the final formulation.
Clinical trials soon will begin for a next-generation ReFacto product.
This new therapy will be the first recombinant factor VIII product manufactured
with a process devoid of all human-derived materials, providing additional
assurance of safety.
Genetics Institute is the global leader in developing recombinant products
for hemophilia A and B. Our hemophilia franchise currently includes Recombinate,
our first factor VIII product (co-developed with Baxter), ReFacto and BeneFIX,
our recombinant factor IX product for hemophilia B launched in 1997. Our
commitment to the hemophilia community continues, not only through developing
newer and safer products but also by supporting patients, on a day-to-day basis,
and the organizations which advocate on their behalf. In March 1999, Genetics
Institute pledged $2.5 million to the National Hemophilia Foundation, joining as
a partner in its five-year campaign, "It's Time for a Cure."
[PHOTO]
Camille Bedrosian, MD, Director of Clinical Research and Development "We have
been at the forefront of every major development in hemophilia in the last
decade."
[PHOTO]
Karen Tubridy, RPh, Director of Clinical Affairs "The ReFacto clinical trials
are the largest prospective clinical studies for any hemophilia product,
covering more than five years of worldwide clinical use and more than 45,000
infusions."
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[PHOTO]
The Collier brothers: Charlie, age 17, and Fred, age 12, both on ReFacto.
John Edwards, MBA, Assistant Vice President of Hematology "Hemophilia patients
often develop a life-long affiliation with their physicians and nurses. This
relationship often extends to the company providing the hemophilia product."
[PHOTO]
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[PHOTO]
Humberto Aguirre, age 63, on Rapamune since 1997.
[PHOTO]
Joe Scarola, MD, Assistant Vice President of Clinical Research and Development
"Therapies such as Rapamune, to reduce the potential for organ rejection and
nephrotoxicity, have become increasingly important due to a global shortage of
donor organs."
[PHOTO]
Bernadette Maida, MS, Director, Transplantation/Immunology and Global Clinical
Team Leader "Rapamune is able to minimize the toxicities of multi-drug regimens
while enhancing the transplant clinicians' ability to customize
immunosuppressive therapy."
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Transplantation:
Advancing the Science
of Immunosuppression
Rapamune is the first in a new class of immunosuppressive agents indicated for
the prevention of organ rejection following renal transplantation. In September
1999, after "priority review," Rapamune Oral Solution received approval in the
United States and presently is being reviewed by regulatory agencies throughout
the world. The FDA currently is reviewing an application for approval of a more
convenient, once-a-day tablet formulation. Rapamune Oral Solution, immediately
launched in the United States following its approval, has demonstrated its
potential to have a significant impact in the field of kidney transplantation
and now is undergoing further study to substantiate its role for other organ
transplants.
In addition to addressing kidney rejection, studies of kidney transplant
patients are under way to examine the potential of Rapamune as the
immunosuppressant of choice for long-term maintenance therapy. Rapamune can be
used with other currently available immunosuppressive agents, making it very
desirable to clinicians who must achieve the right combination of drugs to
prevent rejection and minimize side effects in each of their patients.
Other studies are in progress to determine if established transplant
patients who are experiencing toxicity from their current drug regimens can
safely convert to Rapamune. This product also is the subject of studies in
pediatric kidney transplants as well as heart and liver transplants.
Earlier in development, our proprietary anti-B7 monoclonal antibodies are
being evaluated as inhibitors of T-cell responses, potentially offering a more
specific approach to immunosuppression. Two anti-B7 clinical programs are under
way evaluating potential synergies with Rapamune in solid organ transplantation
and the prevention of acute and chronic Graft versus Host Disease in bone marrow
transplantation. If anti-B7 monoclonal antibodies can induce tolerance to poorly
matched donor bone marrow, they will expand the donor pool and find application
in cancer and hematological disorders.
James Zimmerman, PhD, Senior Director of Clinical Pharmacokinetics "Rapamune is
a clear example of an innovative discovery in a highly specialized area of
medicine that has significant ramifications for therapeutic challenges well
beyond its initial target."
[PHOTO]
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Oncology:
Innovative Technology
for Life-Threatening Diseases
Mylotarg, a novel and important product for treating relapsed adult acute
myeloid leukemia (AML), was developed in collaboration with Celltech Group Plc.
In January 2000, the New Drug Application for Mylotarg was assigned "priority
review" status by the FDA, thereby establishing a goal to act on this
application within six months of filing.
Designated CMA-676 in clinical trials, Mylotarg is the first in a new
class of anticancer therapies known as antibody-targeted chemotherapy. It is a
recombinant humanized antibody (produced by Celltech) linked with a proprietary
cytotoxic antitumor antibiotic - calicheamicin - which was isolated by
Wyeth-Ayerst researchers. Unlike conventional treatments which generally involve
aggressive combinations of chemotherapeutic agents that cannot distinguish
between healthy and leukemic cells, Mylotarg zeros in on a specific protein
(CD33) expressed on the vast majority of leukemic cells in AML.
The most common form of adult leukemia, AML often is fatal. Most patients
initially are treated successfully but virtually all relapse within one to two
years. The safety and novel mechanism of action of Mylotarg offers these
patients options, especially when they are very ill or when response to
conventional therapy no longer is attainable. Remission rates for Mylotarg as a
sole therapy are comparable to existing agents, but Mylotarg has a superior
safety profile, including a reduction in mucositis, the elimination of hair
loss, a lower infection rate and a reduction in hospitalization days, with some
cases treated completely as outpatients.
Future plans for Mylotarg include broadening its development to other
categories of AML, including pediatric relapsed AML, and initiating trials to
test the drug in combination with other chemotherapies to increase the response
rate in first-line therapy.
In the next few years, we expect other innovative drugs to be introduced
through our oncology pipeline, with a focus on therapies for non-small cell lung
cancer as well as for breast, prostate, renal cell, colon and pancreatic cancers
and sarcoma.
[PHOTO]
Mark Berger, MD, Director of Clinical Research "Mylotarg is one of the most
complicated drugs we have ever produced. It is at the cutting edge between
elegant chemistry and new biologic discoveries."
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Clifford Jonatzke, age 52, in Mylotarg (CMA-676) clinical trials since 1997.
[PHOTO]
Matthew L. Sherman, MD, Assistant Vice President of Clinical Research and
Development "Mylotarg is expected to be the first of many antibody-targeted
brands using the proprietary calicheamicin and linker technology platform."
[PHOTO]
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AHP at a Glance
Product Innovation, Market Success
American Home Products is recognized worldwide for its strong capabilities in
discovery, development, manufacturing and marketing. Its key divisions -
Wyeth-Ayerst Global Pharmaceuticals, Whitehall-Robins Healthcare, Fort Dodge
Animal Health and Cyanamid Global Agricultural Products - are industry leaders
that offer cutting-edge products. Featured here are some of the significant
brands underpinning AHP's global strength.
Women's Health Care
Wyeth-Ayerst is the worldwide leader in women's health care. Its Women's Health
Research Institute remains at the forefront of new discoveries on the role of
estrogens in a woman's body throughout her life. The benefits of this experience
and leadership are clearly demonstrated in the growth of the Premarin family of
products, the most prescribed hormone replacement therapies in the world, and
Alesse, the top selling 20 microgram birth control pill in the United States.
[PHOTO]
Neuroscience Therapies
The neuroscience franchise within Wyeth-Ayerst is fast becoming a leading growth
area through expansion of the Effexor family coupled with the recent approval of
Sonata. Effexor XR received an indication for generalized anxiety disorder which
helped make it one of the fastest growing antidepressants in the United States
in 1999. Sonata, for insomnia, is a unique agent that helps patients fall asleep
fast while allowing them to wake refreshed in the morning.
[PHOTO]
22
<PAGE>
Musculoskeletal Therapies
Wyeth-Ayerst is emerging as a global leader in musculoskeletal medicine. Strong
biotechnology platforms are yielding innovative new therapies for diseases and
disorders of the bone and joint. Enbrel, for rheumatoid arthritis, is a
first-in-class biologic response modifier. Synvisc, for osteoarthritis of the
knee, is the leading viscosupplement in the United States.
[PHOTO]
Vaccines
Wyeth Lederle Vaccines is a major supplier of a broad range of pediatric and
adult vaccines. These vaccines address serious, life-threatening diseases such
as diphtheria, influenza, meningitis, pneumonia and whooping cough.
[PHOTO]
Specialty Products
Wyeth-Ayerst has expanded its presence in several important specialty markets
through the introduction of new products, including ReFacto for hemophilia A and
Rapamune for renal transplantation. This stream of new products will be expanded
further as new product candidates, including Mylotarg for acute myeloid
leukemia, are reviewed by regulatory agencies around the globe.
[PHOTO]
23
<PAGE>
Cardiovascular Therapies
Wyeth-Ayerst has long maintained a strong position in cardiovascular medicine,
addressing disorders ranging from arrhythmia and myocardial infarction to
hypertension. Our Cordarone I.V. franchise has experienced strong growth
recently with the recognition of its beneficial effect on improving survival to
hospital admission rates among heart attack victims. A landmark study in the New
England Journal of Medicine reported that, when treated with Cordarone I.V.,
nearly 30 percent more patients who experienced a heart attack survived to
hospital admission compared with patients treated according to standard therapy.
[PHOTO]
Anti-Infectives
The Wyeth-Ayerst anti-infective portfolio of antibiotics includes Suprax and
Minocin as well as the intravenous (I.V.) life-saving antibiotics Zosyn and
Pipracil. Zosyn, also known as Tazocin outside the United States, is the lead
franchise product and is available in more than 80 countries globally. It is
used to treat a variety of infections in hospitalized patients, fever associated
with cancer chemotherapy and pneumonia. Zosyn was among the fastest growing I.V.
antibiotics in the United States in 1999 and is expected to have additional uses
in the future.
[PHOTO]
Nutritionals
Wyeth-Ayerst Nutrition markets a complete line of nutritional products for
children, along with specialty formulas, on a global basis. The product line,
which enjoys a strong and growing presence in the international pediatric
nutritional marketplace, has a new global brand look that is attractive and
vibrant.
[PHOTO]
24
<PAGE>
Consumer Health Care
Whitehall-Robins Healthcare offers some of the world's best-known and
most-trusted over-the-counter (OTC) medications. The company's status in the OTC
industry is impressive: it holds a leadership position worldwide in OTC sales
and has three of the top 10 OTC brands in the United States. An aggressive new
product effort, coupled with sales of Solgar products, propelled
Whitehall-Robins to a record performance in 1999.
[PHOTO]
Animal Health
Fort Dodge Animal Health launched a new line of its popular Duramune canine
vaccine, which offers pet owners broader protection against two clinically
significant strains of leptospira. Cydectin, a product used to control internal
and external parasites in beef cattle, received approval for an additional label
claim to include dairy cattle.
[PHOTO]
Agricultural Products
Cyanamid's global product portfolio is based on leading-edge synthetic chemistry
and biotechnology. In 1999, Cyanamid launched the Clearfield Production System,
a global brand that combines herbicide-tolerant crops with custom-designed
herbicide solutions for agricultural producers around the globe.
[PHOTO]
25
<PAGE>
Research:
A Global Leader in Scientific Discovery and Clinical Development
[PHOTO]
Christopher Aston, Senior Research Scientist, Wyeth-Ayerst Laboratories
The unfolding of the human genome sequence, rapid advances in technology and
greater understanding of disease mechanisms is facilitating discovery and
development of safe and efficacious drugs that more specifically target serious
diseases.
American Home Products is well-positioned for this new era of
pharmaceutical research and has taken major steps to secure a leadership role.
These include an increasing investment in pharmaceutical research and
development, which, in the year 2000, will approach $1.8 billion. Additionally,
AHP has strategic alliances to provide advanced technologies, particularly in
genomics and combinatorial chemistry, to complement our own expertise. We have
refocused our discovery and development efforts into specific therapeutic areas
that hold great potential for drug development and also target significant unmet
medical needs. Underpinning these efforts is our Company's combination of
discovery platforms in small molecules, proteins and vaccines as well as our
leading presence in major therapeutic categories.
Many compelling drugs are entering the clinical pipeline or are in the
more advanced stages of clinical evaluation. Listed according to their primary
therapeutic area, these include:
Neuroscience Therapies
Retigabine This compound, licensed from Asta Medica, is expected to be a potent
anti-convulsive therapy and currently is in Phase II clinical trials.
DAB-452 This selective D2 agonist is being evaluated as an innovative,
first-line treatment for managing psychotic disorders.
Oncology
CYA-246 This bacterial cell wall mimetic, a potent inducer of cytokines, is
beginning Phase II trials in combination with chemotherapy for patients with
non-small cell lung cancer.
CCI-779 Soon to be under study in several Phase II clinical trials, this drug
can inhibit cell cycle progression through a complex intracellular pathway. It
will be evaluated in breast, prostate, renal cell, colon and pancreatic cancers
and sarcoma.
Immunology
IL-11 Previously approved for the prevention of platelet loss associated with
chemotherapy, IL-11 is a potent anti-inflammatory cytokine that now is, at lower
doses, in Phase III studies for the treatment of Crohn's disease.
P-Selectin Glycoprotein Ligand (PSGL-Ig) This recombinant hybrid protein is
designed to disrupt the interaction between platelets and leukocytes in order to
reduce inflammation and thrombosis locally. Currently, PSGL-Ig is entering a
Phase II evaluation, testing its ability to enhance thrombolysis, to prevent or
reduce the reformation of clots, and to reduce reperfusion injury in patients
with acute myocardial infarction.
Infectious Disease
GAR-936 This novel antibiotic, in the glycylcycline class, has a broad spectrum
of activity against microorganisms, including multi-drug-resistant strains. To
take advantage of its unique profile, ongoing and planned Phase II trials will
position GAR-936 for intravenous use against serious infections.
RFI-641 This very specific inhibitor of the viral fusion process required for
respiratory syncytial virus (RSV) infection is being developed for treatment and
early intervention of RSV infection in the upper and lower respiratory tract.
Clinical studies began early in 2000.
26
<PAGE>
Financial Section
Contents
28 Ten-Year Selected Financial Data
30 Consolidated Balance Sheets
31 Consolidated Statements of Operations
32 Consolidated Statements of Changes
in Stockholders' Equity
33 Consolidated Statements of Cash Flows
34 Notes to Consolidated Financial Statements
46 Report of Independent Public Accountants
46 Management Report on Financial Statements
47 Quarterly Financial Data
47 Market Prices of Common Stock
and Dividends
48 Management's Discussion and Analysis
of Financial Condition and Results
of Operations
27
<PAGE>
Ten-Year Selected Financial Data
(Dollar amounts in thousands except per share amounts)
<TABLE>
<CAPTION>
Years Ended December 31, 1999 1998 1997
Summary of Sales and Earnings
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 13,550,176 $ 13,462,687 $ 14,196,026
Net income (loss)(1) (1,227,121) 2,474,338 2,043,123
Diluted earnings (loss) per share(1)(2) (0.94) 1.85 1.56
Dividends per common share 0.905 0.87 0.83
Year-End Financial Position
- ------------------------------------------------------------------------------------------------------------------------------------
Current assets $ 9,738,108 $ 7,955,632 $ 7,361,326
Current liabilities 7,110,223 4,210,721 4,327,018
Ratio of current assets to current liabilities 1.37 1.89 1.70
Total assets 23,906,277 21,079,068 20,825,111
Long-term debt 3,668,643 3,859,163 5,031,861
Average stockholders' equity 7,914,772 8,895,024 7,568,672
Stockholders--Outstanding Shares
- ------------------------------------------------------------------------------------------------------------------------------------
Number of common stockholders 62,482 65,124 64,313
Average number of common shares outstanding used for
diluted earnings per share calculation (in thousands)(2) 1,308,876 1,336,641 1,312,975
Employment Data
- ------------------------------------------------------------------------------------------------------------------------------------
Number of employees at year-end 51,656 52,984 60,523
Wages and salaries $ 2,326,807 $ 2,468,823 $ 2,726,877
Benefits (including social security taxes) 665,620 647,406 692,648
</TABLE>
(1) See Management's Discussion and Analysis of Financial Condition and
Results of Operations for amounts related to the litigation charge, gain
on the sale of business and special charges for the years ended December
31, 1999, 1998 and 1997.
(2) The average number of common shares outstanding for diluted loss per share
for 1999 did not include common share equivalents as the effect would have
been antidilutive.
(3) The 1994 information reflects the acquisition of American Cyanamid Company
(ACY) for the one-month period ended December 31, 1994.
28 American Home Products Corporation and Subsidiaries
<PAGE>
<TABLE>
<CAPTION>
1996 1995 1994(3) 1993 1992 1991 1990
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$14,088,326 $13,376,089 $ 8,966,214 $ 8,304,851 $ 7,873,687 $ 7,079,443 $ 6,775,182
1,883,403 1,680,418 1,528,254 1,469,300 1,460,842 1,375,273 1,230,597
1.46 1.34 1.24 1.17 1.15 1.08 0.97
0.7825 0.755 0.735 0.715 0.665 0.5938 0.5375
- ------------------------------------------------------------------------------------------------------------------------------------
$ 7,470,419 $ 7,986,137 $ 7,821,246 $ 4,807,684 $ 4,552,077 $ 4,119,057 $ 3,826,075
4,337,635 4,556,248 4,618,086 1,584,411 1,492,717 1,270,135 1,693,852
1.72 1.75 1.69 3.03 3.05 3.24 2.26
20,785,343 21,362,923 21,674,812 7,687,353 7,141,405 5,938,797 5,637,107
6,020,575 7,808,757 9,973,240 859,278 601,934 104,710 111,430
6,252,545 4,898,550 4,065,295 3,719,539 3,431,568 2,987,885 2,322,623
- ------------------------------------------------------------------------------------------------------------------------------------
67,545 68,763 71,223 72,664 73,064 71,209 69,907
1,287,790 1,250,902 1,234,100 1,252,990 1,267,240 1,273,390 1,266,696
- ------------------------------------------------------------------------------------------------------------------------------------
59,747 64,712 74,759 51,399 50,653 47,938 48,700
$ 2,729,662 $ 2,757,664 $ 1,820,450 $ 1,654,984 $ 1,575,615 $ 1,388,397 $ 1,398,721
688,766 703,756 441,768 396,045 367,899 300,810 312,750
</TABLE>
American Home Products Corporation and Subsidiaries 29
<PAGE>
Consolidated Balance Sheets
(In thousands except share and per share amounts)
<TABLE>
<CAPTION>
December 31, 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 1,892,715 $ 1,182,319
Marketable securities 520,587 119,210
Accounts receivable less allowances (1999--$240,108 and 1998--$222,540) 3,280,298 3,276,597
Inventories 2,244,834 2,237,918
Other current assets including deferred taxes 1,799,674 1,139,588
---------------------------------
Total Current Assets 9,738,108 7,955,632
Property, plant and equipment:
Land 151,795 147,611
Buildings 3,186,841 2,901,355
Machinery and equipment 3,723,226 3,669,398
---------------------------------
7,061,862 6,718,364
Less accumulated depreciation 2,496,836 2,428,699
---------------------------------
4,565,026 4,289,665
Goodwill and other intangibles, net of accumulated amortization
(1999--$2,169,291 and 1998--$1,964,546) 7,724,997 7,995,082
Other assets including deferred taxes 1,878,146 838,689
---------------------------------
Total Assets $ 23,906,277 $ 21,079,068
=================================
- ------------------------------------------------------------------------------------------------------------------------------------
Liabilities
Loans payable $ 1,912,491 $ 79,728
Trade accounts payable 757,815 680,961
Accrued expenses 4,212,554 3,037,239
Accrued federal and foreign taxes 227,363 412,793
---------------------------------
Total Current Liabilities 7,110,223 4,210,721
Long-term debt 3,668,643 3,859,163
Other noncurrent liabilities 6,015,774 2,533,480
Accrued postretirement benefits other than pensions 896,890 860,908
---------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Stockholders' Equity
$2 convertible preferred stock, par value $2.50 per share; 5,000,000
shares authorized 61 64
Common stock, par value $0.331/3 per share; 2,400,000,000 shares authorized
(outstanding shares: 1999--1,303,916,000 and 1998--1,312,399,000) 434,639 437,466
Additional paid-in capital 3,392,705 3,072,874
Retained earnings 3,000,827 6,432,729
Accumulated other comprehensive loss (613,485) (328,337)
---------------------------------
Total Stockholders' Equity 6,214,747 9,614,796
---------------------------------
Total Liabilities and Stockholders' Equity $ 23,906,277 $ 21,079,068
=================================
</TABLE>
The accompanying notes are an integral part of these Consolidated Balance
Sheets.
30 American Home Products Corporation and Subsidiaries
<PAGE>
Consolidated Statements of Operations
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Years Ended December 31, 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $ 13,550,176 $ 13,462,687 $ 14,196,026
--------------------------------------------------------
Cost of goods sold 3,692,522 3,616,832 4,101,309
Selling, general and administrative expenses 5,039,862 4,924,919 5,292,585
Research and development expenses 1,739,960 1,654,745 1,558,035
Interest expense, net 213,866 207,157 370,696
Other income, net (237,408) (277,942) (121,306)
Gain on sale of business -- (592,084) --
Litigation charge 4,750,000 -- --
Special charges 277,000 343,600 180,000
--------------------------------------------------------
15,475,802 9,877,227 11,381,319
--------------------------------------------------------
Income (loss) before federal and foreign taxes (1,925,626) 3,585,460 2,814,707
Provision (benefit) for taxes:
Federal (1,190,395) 627,071 309,981
Foreign 491,890 484,051 461,603
--------------------------------------------------------
(698,505) 1,111,122 771,584
--------------------------------------------------------
Net Income (Loss) $ (1,227,121) $ 2,474,338 $ 2,043,123
========================================================
Basic Earnings (Loss) per Share $ (0.94) $ 1.88 $ 1.58
========================================================
Diluted Earnings (Loss) per Share $ (0.94) $ 1.85 $ 1.56
========================================================
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
American Home Products Corporation and Subsidiaries 31
<PAGE>
Consolidated Statements of Changes
in Stockholders' Equity
(In thousands except per share amounts)
<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, 1997 $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
================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
Net loss (1,227,121) (1,227,121)
Currency translation adjustments (285,963) (285,963)
Unrealized gain on marketable securities 815 815
-----------
Comprehensive loss (1,512,269)
-----------
Cash dividends declared:
Preferred stock (per share: $2.00) (50) (50)
Common stock (per share: $0.905) (1,183,571) (1,183,571)
Treasury stock acquired (6,409) (39,505) (1,012,385) (1,058,299)
Common stock issued for stock options 3,376 230,894 234,270
Conversion of preferred stock
and other exchanges (3) 206 128,442 (8,775) 119,870
--------------------------------------------------------------------------------
Balance at December 31, 1999 $61 $434,639 $3,392,705 $3,000,827 $(613,485) $6,214,747
================================================================================
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
32 American Home Products Corporation and Subsidiaries
<PAGE>
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Years Ended December 31, 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net income (loss) $(1,227,121) $2,474,338 $2,043,123
Adjustments to reconcile net income (loss) to net cash
provided from operating activities:
Litigation charge 4,750,000 -- --
Special charges 277,000 343,600 180,000
Gain on sale of business -- (592,084) --
Gains on sales of other assets (194,798) (445,485) (375,925)
Depreciation 386,037 371,057 394,287
Amortization 296,302 293,598 307,738
Deferred income taxes (1,528,316) 74,472 (220,214)
Changes in working capital, net of businesses acquired or sold:
Accounts receivable (91,966) (601,627) (329,537)
Inventories (122,705) (121,414) (50,927)
Other current assets (140,978) (198,815) 28,143
Trade accounts payable and accrued expenses (372,113) (164,648) (171,666)
Accrued federal and foreign taxes (157,430) (4,008) (80,873)
Other items, net 307,690 85,675 (28,695)
-----------------------------------------------
Net cash provided from operating activities 2,181,602 1,514,659 1,695,454
===============================================
- ------------------------------------------------------------------------------------------------------------------------------------
Investing Activities
Purchases of property, plant and equipment (1,000,314) (809,774) (830,351)
Purchases of businesses, net of cash acquired -- (425,041) (479,694)
Proceeds from sales of businesses -- 1,770,000 380,000
Proceeds from sales of other assets 323,488 592,034 494,850
Purchases of marketable securities (784,645) (350,687) (468,426)
Proceeds from sales and maturities of marketable securities 383,941 278,290 640,662
-----------------------------------------------
Net cash provided from/(used for) investing activities (1,077,530) 1,054,822 (262,959)
===============================================
- ------------------------------------------------------------------------------------------------------------------------------------
Financing Activities
Net proceeds from/(repayments of) debt 1,639,392 (1,179,657) (976,926)
Dividends paid (1,183,621) (1,143,252) (1,073,200)
Purchases of treasury stock (1,058,299) (414,603) (11,335)
Exercises of stock options 234,270 403,830 369,561
Termination of interest rate swap agreements -- (96,655) --
-----------------------------------------------
Net cash used for financing activities (368,258) (2,430,337) (1,691,900)
-----------------------------------------------
Effects of exchange rates on cash balances (25,418) (8,197) (11,520)
-----------------------------------------------
Increase/(decrease) in cash and cash equivalents 710,396 130,947 (270,925)
Cash and cash equivalents, beginning of year 1,182,319 1,051,372 1,322,297
-----------------------------------------------
Cash and cash equivalents, end of year $1,892,715 $1,182,319 $1,051,372
===============================================
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
American Home Products Corporation and Subsidiaries 33
<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 multi national
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 human ethical pharmaceuticals, biologicals,
nutritionals, and animal biologicals and pharmaceuticals. Principal products
include women's health care products, infant nutritionals, cardiovascular
products, neuroscience therapies, gastroenterology drugs, anti-infectives,
vaccines, biopharmaceuticals, oncology therapies, musculoskeletal therapies and
transplantation products. Principal animal health products include vaccines,
pharmaceuticals, endectocides and growth implants. Consumer Health Care products
include analgesics, cough/cold/allergy remedies, vitamin, 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 and
fungicides. 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 customer 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, contributes significantly to sales and
results of operations. See "Competition" in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" on pages 53 and 54
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 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 market prices.
Inventories are valued at the lower of cost or market. Inventories valued
under the last-in, first-out (LIFO) method amounted to $709,609,000 and
$751,691,000 at December 31, 1999 and 1998, respectively. The current value
exceeded the LIFO value by $66,879,000 and $76,104,000 at December 31, 1999 and
1998, respectively. The remaining inventories are valued under the first-in,
first-out (FIFO) method or the average cost method.
Inventories at December 31 consisted of:
(In thousands) 1999 1998
- --------------------------------------------------------------------------------
Finished goods $1,078,234 $1,012,679
Work in progress 572,489 604,647
Materials and supplies 594,111 620,592
-----------------------------
$2,244,834 $2,237,918
=============================
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 amortized using the straight-line method over various periods ranging from 15
to 40 years. The Company continually reviews goodwill to evaluate whether
changes have occurred that would suggest goodwill may be impaired. If
circumstances suggest an impairment, undiscounted cash flows of the assets
acquired are estimated. If this estimate 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. To date, no impairments of
goodwill have been identified from these reviews.
Customer Rebates: Rebates are offered to customers based on volume
purchases, the attainment of market share levels, sales support, government
mandates and wholesaler credits. At December 31, 1999 and 1998, accrued expenses
included customer rebates of $542,031,000 and $603,343,000, respectively.
Foreign Currency Agreements: The Company enters into short-term foreign
currency agreements to manage specifically identifiable risks. 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 foreign 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 the
fair value recognized in results of operations offsetting any gains and losses
recognized on the underlying hedged transactions.
34 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 foreign currency
exchange rates with currency translation adjustments reflected in accumulated
other comprehensive loss in stockholders' equity. Currency translation
adjustments comprise the majority of accumulated other comprehensive loss on the
Consolidated Balance Sheets and the Consolidated Statements of Changes in
Stockholders' Equity. Currency translation adjustments related to international
operations in highly inflationary economies are included in the results of
operations.
Earnings (Loss) per Share: The following table sets forth the computations
of basic earnings (loss) per share and diluted earnings (loss) per share:
(In thousands except
per share amounts)
Years Ended December 31, 1999 1998 1997
- --------------------------------------------------------------------------------
Net income (loss) less
preferred dividends $(1,227,171) $ 2,474,284 $ 2,043,063
Denominator:
Average number of
common shares 1,308,876 1,314,580 1,293,765
----------------------------------------
Basic earnings (loss) per share $ (0.94) $ 1.88 $ 1.58
========================================
Net income (loss) $(1,227,121) $ 2,474,338 $ 2,043,123
Denominator:
Average number of
common shares 1,308,876 1,314,580 1,293,765
Common share equivalents
of outstanding stock
options and deferred
contingent common
stock awards* -- 22,061 19,210
----------------------------------------
Total shares* 1,308,876 1,336,641 1,312,975
----------------------------------------
Diluted earnings (loss)
per share* $ (0.94) $ 1.85 $ 1.56
========================================
* The total average number of common shares outstanding for diluted loss per
share for 1999 did not include common share equivalents as the effect
would have been antidilutive. Therefore, the total average number of
common shares outstanding for diluted loss per share was the same as for
basic loss per share.
Recently Issued Accounting Standards: In June 1998, Statement of Financial
Accounting Standards (SFAS) No. 133 -- "Accounting for Derivative Instruments
and Hedging Activities" was issued. 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. In June 1999, the Financial Accounting Standards Board delayed
the required adoption of SFAS No. 133 for companies with fiscal years beginning
after June 15, 2000. The Company currently is evaluating the impact that SFAS
No. 133 will have on the Company's consolidated financial position and results
of operations.
Reclassifications: Certain reclassifications have been made to the December 31,
1998 Consolidated Financial Statements to conform with the December 31, 1999
presentation.
2. Acquisitions, Divestitures and Proposed Merger
On November 3, 1999, the Company and Warner-Lambert Company entered into an
agreement to combine the two companies in a merger-of-equals transaction. On
February 6, 2000, subsequent to the date of the Report of Independent Public
Accountants, the merger agreement was terminated. In accordance with the merger
agreement, the Company received a payment of $1.8 billion as a termination fee.
During 1998 and 1997, 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. The excess purchase price has been recorded to
goodwill and other intangibles, which are being amortized over periods of four
to 25 years.
In February 1998, the Company sold the Sherwood-Davis & Geck medical
devices business for approximately $1.77 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, respectively.
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 related 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 in cash. The purchase
price exceeded the net assets acquired by $368,303,000. The excess purchase
price has been recorded to goodwill and other intangibles, which are being
amortized over periods of 10 to 25 years.
The Company had other acquisitions and divestitures during 1999, 1998 and
1997, the effects of which, individually and in the aggregate, were not material
to the Company's consolidated financial position or results of operations. The
operations of all businesses acquired and divested during 1999, 1998 and 1997,
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. Special Charges
1999 Cyanamid Restructuring Charge and Asset Impairments
During the 1999 third quarter, a special charge of $195,000,000 ($126,750,000
after-tax or $0.10 per share--diluted) was recorded to provide for the
restructuring of the Company's Cyanamid Agricultural Products business segment
(Cyanamid) aggregating $113,000,000 and the impairment of a Cyanamid
manufacturing facility aggregating $82,000,000.
The restructuring of Cyanamid was initiated to improve the effectiveness
and efficiency of this business in light of current conditions in the global
farm economy and to better align resources and capacity with present and future
product needs. The restructuring is being accomplished through revisions in the
practices used by Cyanamid to sell, market, manufacture and distribute products
to the global farm market and to realign its research activities.
The restructuring will result in the elimination of approximately 700
positions worldwide and the closing of three research facilities located in the
European and Asian-Pacific regions. The workforce
American Home Products Corporation and Subsidiaries 35
<PAGE>
reductions cover personnel in marketing, sales, administration and research. The
components of the $113,000,000 charge were as follows: (i) personnel costs of
$73,000,000, (ii) noncash costs for fixed asset write-offs of $30,000,000 that
represented the net book value of the research facilities that will be closed
and (iii) other closure/exit costs of $10,000,000. Most of these costs will be
paid within one year. Except for shutdown activities during the transition
period related to the relocation of recurring research functions to other
facilities, the research facilities no longer are operational, and no new
research projects have commenced. Closure of these facilities is anticipated in
the 2000 third quarter. Due to the highly specialized nature of these
facilities, no proceeds were anticipated from the disposal of these facilities.
Other closure/exit costs are a direct result of the restructuring plan and
include security, utilities, property taxes, lease termination costs and other
related costs that will be paid during the disposal period. Since the 1999 third
quarter, the Company has begun its personnel reductions and has initiated the
closure of the research facilities. At December 31, 1999, approximately 175
employees had been severed.
Activity in the Cyanamid restructuring accruals was as follows:
<TABLE>
<CAPTION>
Personnel Fixed Asset Other Closure/
(In thousands) Costs Write-offs Exit Costs Total
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Restructuring accruals at inception $ 73,000 $ 30,000 $ 10,000 $ 113,000
Cash expenditures* (3,112) -- -- (3,112)
Write-offs of fixed assets -- (30,000) -- (30,000)
--------------------------------------------------------------
Restructuring accruals at December 31, 1999 $ 69,888 $ -- $ 10,000 $ 79,888
==============================================================
</TABLE>
* Cash expenditures represent partial severance payments related to
approximately 175 employees who were severed to date. Remaining severance
related to these employees is anticipated to be paid in the 2000 first
quarter.
The noncash charge for the impairment of a Cyanamid manufacturing facility
was recognized since the facility was dedicated primarily to a product that did
not obtain regulatory approval from the U.S. Environmental Protection Agency
(EPA). Based on a review of existing resources, the Company determined that it
had no alternative future use for a significant portion of this facility.
Therefore, an impairment loss of $82,000,000 was recorded based upon the
expected future discounted cash flows from the projected utilization of the
facility.
RotaShield Voluntary Market Withdrawal
During the 1999 second quarter, the Company recorded a special charge
aggregating $82,000,000 ($53,000,000 after-tax or $0.04 per share--diluted) for
estimated costs associated with the suspension of shipments and the voluntary
market withdrawal of RotaShield, the Company's rotavirus vaccine.
1998 Restructuring Charge and Related Asset Impairments
In December 1998, the Company recorded a special 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. The restructuring will result in the
elimination of 4,100 positions offset, in part, by 1,000 newly created positions
in the same functions at other locations. The components of this charge were as
follows: (i) personnel costs of $142,375,000, (ii) noncash costs for fixed asset
write-offs of $115,225,000 and (iii) other closure/exit costs of $86,000,000.
While some of these costs were paid within one year of the announcement date,
due to regulatory requirements for product transfers, some of the restructuring
costs will not be paid until after 2000. The noncash costs of $115,225,000
reduced the carrying value of the fixed assets to their estimated fair value,
taking into consideration depreciation expected during the transition period,
which was determined by experience with similar properties and external
appraisals. These fixed assets, with a fair value of $11,575,000, have remained
operational during the transition period of obtaining the necessary regulatory
approvals to relocate these operations to new facilities. Since these fixed
assets have remained in use, depreciation was not suspended and will be
recognized over the transition period. Other closure/exit costs are a direct
result of the restructuring plan. The majority of the other closure/exit costs
are anticipated to be realized after the facilities cease production and prior
to disposition. These costs include non-cancelable operating leases, security,
utilities, maintenance, property taxes and other related costs that will be paid
during the disposal period. Due to the specialized nature of these facilities,
the costs will be paid over a two- to three-year period as product transfers are
approved by regulatory authorities and manufacturing sites are closed.
Since the end of 1998, the Company has begun its personnel reductions and
has initiated/completed the closure/sale of certain manufacturing
facilities/distribution centers. At December 31, 1999, approximately 2,500
positions had been eliminated, two distribution centers had been sold, and the
third is expected to be fully closed in the 2000 first quarter. The
manufacturing plants are continuing their phase-out period, and the Company will
begin the disposal process in late 2000.
36 American Home Products Corporation and Subsidiaries
<PAGE>
Activity in the restructuring accruals was as follows:
<TABLE>
<CAPTION>
Personnel Fixed Asset Other Closure/
(In thousands) Costs Write-offs Exit Costs Total
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Restructuring accruals at inception $ 142,375 $ 115,225 $ 86,000 $ 343,600
Cash expenditures (527) -- (922) (1,449)
Write-offs of fixed assets -- (115,225) -- (115,225)
---------------------------------------------------------------
Restructuring accruals at December 31, 1998 141,848 -- 85,078 226,926
Cash expenditures (87,095) -- (5,817) (92,912)
---------------------------------------------------------------
Restructuring accruals at December 31, 1999 $ 54,753 $ -- $ 79,261 $ 134,014
===============================================================
</TABLE>
Redux and Pondimin Voluntary Market Withdrawal
The 1997 results of operations included a special charge 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 of Redux
(dexfenfluramine) and Pondimin (fenfluramine). The special charge included
provisions for product returns, notification and administrative handling fees,
the writedown of inventory and supplies, and other related costs. At December
31, 1998, these accruals were fully utilized. These costs did not include
provisions for any subsequent charges which resulted from legal actions related
to these products (see Note 10).
4. Debt and Financing Arrangements
The Company's debt at December 31 consisted of:
(In thousands) 1999 1998
- --------------------------------------------------------------------------------
Commercial paper $2,841,630 $1,213,470
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:
5.1%-5.8% due 2000-2020 100,300 110,865
Other debt:
1.3%-21.6% due 2000-2009 139,204 114,556
------------------------
5,581,134 3,938,891
Less current portion 1,912,491 79,728
------------------------
$3,668,643 $3,859,163
========================
The fair value of the Company's outstanding debt was $5,584,415,000 and
$4,123,938,000 at December 31, 1999 and 1998, respectively. The fair value of
the Company's outstanding debt was estimated based on market prices.
The weighted average interest rate on the commercial paper outstanding at
December 31, 1999 and 1998 was 5.72% and 5.10%, respectively. The commercial
paper had original maturities that did not exceed 270 days and a weighted
average remaining maturity of 42 days and 45 days at December 31, 1999 and 1998,
respectively.
In 1998, the Company reduced its $5.0 billion revolving credit facility to
$2.0 billion by terminating a $2.5 billion, 364-day credit facility in its
entirety and by reducing a $2.5 billion, five-year credit facility to $2.0
billion. The remaining $2.0 billion, five-year credit facility supports a
significant portion of the Company's commercial paper program and has a maturity
date of July 31, 2002.
The interest rate on borrowings under the $2.0 billion 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. At December 31, 1999 and 1998,
there were no borrowings outstanding under the credit facility. The portion of
commercial paper outstanding at December 31, 1999 supported by the credit
facility ($2.0 billion) and the entire balance of commercial paper outstanding
at December 31, 1998 were classified as long-term debt since the Company
intends, and has the ability, to refinance these obligations through the
issuance of additional commercial paper, through the use of its credit facility
or through the issuance of long-term debt. Outstanding commercial paper of
$841,630,000 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
significant increase in commercial paper was due primarily to financing treasury
stock acquisitions as part of the Company's common stock repurchase program and
funding the purchase of a $450,000,000 convertible subordinated note issued by
Immunex Corporation, a majority-owned subsidiary of the Company. The increase in
marketable securities represents the investment by Immunex Corporation of the
proceeds from this note.
In early 1998, 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. Proceeds from
the sale of the Sherwood-Davis & Geck medical devices business, which was sold
effective February 27, 1998, were used primarily to reduce outstanding
commercial paper and terminate the $2.3 billion of interest rate swap
agreements. The cost to terminate 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,
which have been classified as current at December 31, 1999, and $1.0 billion of
7.90% notes due February 2005, both under a $3.5 billion shelf registration
statement. These 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
American Home Products Corporation and Subsidiaries 37
<PAGE>
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 at December
31, 1999 are as follows:
(In thousands)
- ---------------------------------------------------------------------
2000 $1,912,491
2001 18,343
2002 301,039
2003 7,620
2004 6,012
Thereafter 1,335,629
----------
3,581,134
Commercial paper (classified as long-term debt) 2,000,000
----------
Total debt $5,581,134
==========
Interest payments in connection with the Company's debt obligations,
excluding the cost to terminate the interest rate swap agreements in 1998, for
the years ended December 31, 1999, 1998 and 1997 amounted to $294,790,000,
$316,018,000 and $471,120,000, respectively.
Interest expense, net in the Consolidated Statements of Operations
included interest income of $129,406,000, $115,813,000 and $90,674,000 for the
years ended December 31, 1999, 1998 and 1997, respectively.
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, 1999 and 1998, the
Company had notional amounts of $837,883,000 and $799,255,000, respectively, of
foreign exchange forward contracts outstanding. At December 31, 1999 and 1998,
the fair value of the foreign exchange forward contracts was a net payable of
$14,059,000 and $453,000, respectively. As foreign currency 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 is not material to its consolidated financial position or results
of operations.
5. Other Noncurrent Liabilities
Other noncurrent liabilities include a reserve for Redux and Pondimin litigation
(see Note 10), reserves relating to income taxes, environmental matters, product
liability and other litigation, as well as restructuring, pension and other
employee benefit liabilities, and minority interests.
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. At December 31, 1999, the Company was a party to, or
otherwise involved in, legal proceedings directed at the cleanup of 57 Superfund
sites.
It is the Company's policy to accrue for 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 $359,190,000 and $385,040,000 at December 31, 1999 and 1998,
respectively. Environmental-related accruals have been recorded without giving
effect to any possible future insurance proceeds or the timing of 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 36,651,432 have
been awarded through December 31, 1999. Deferred contingent common stock awards
plus accrued dividends totaling 1,448,256 shares were outstanding at December
31, 1999. As a result of the net loss realized by the Company in 1999, no awards
under this plan were issued. However, cash bonuses totaling $39,808,000 were
approved by the Board of Directors for key employees in 1999. The value of
management incentive plan awards for 1998 and 1997 was $65,847,000 and
$67,045,000, respectively, which included deferred contingent common stock of
$15,516,000 (284,244 shares) and $14,834,000 (396,832 shares), respectively.
6. Pensions and Other Postretirement Benefits
Pensions: The Company sponsors various retirement plans for most full-time
employees. Total pension expense for 1999, 1998 and 1997 was $114,995,000,
$112,209,000 and $146,403,000, 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 the minimum amount required by local regulations of
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 for 1999, 1998 and 1997 totaled $66,811,000, $64,006,000 and $65,645,000,
respectively.
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 of the Company's defined benefit plans (principally U.S. plans)
for 1999 and 1998 were as follows:
38 American Home Products Corporation and Subsidiaries
<PAGE>
<TABLE>
<CAPTION>
Pensions Other Postretirement Benefits
------------------------------ ------------------------------
Change in Benefit Obligation (In thousands) 1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Benefit obligation at January 1 $ 3,227,295 $ 3,069,613 $ 1,025,286 $ 980,998
Service cost 76,987 70,902 25,229 18,963
Interest cost 218,410 219,852 76,629 66,722
Amendments 28,518 -- -- --
Net actuarial loss/(gain) (120,082) 152,505 13,640 63,092
Curtailments/settlements (4,922) (23,281) -- (46,427)
Benefits paid (355,451) (262,296) (64,486) (58,062)
--------------------------------------------------------------------
Benefit obligation at December 31 $ 3,070,755 $ 3,227,295 $ 1,076,298 $ 1,025,286
====================================================================
<CAPTION>
Pensions Other Postretirement Benefits
------------------------------ ------------------------------
Change in Plan Assets (In thousands) 1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fair value of plan assets at January 1 $ 2,891,610 $ 2,723,177 -- --
Actual return on plan assets 439,515 396,366 -- --
Amendments 6,343 -- -- --
Company contributions 19,137 34,363 $ 64,486 $ 58,062
Benefits paid (355,451) (262,296) (64,486) (58,062)
--------------------------------------------------------------------
Fair value of plan assets at December 31 $ 3,001,154 $ 2,891,610 $ -- $ --
====================================================================
<CAPTION>
Pensions Other Postretirement Benefits
------------------------------ ------------------------------
Reconciliation of Funded Status (In thousands) 1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Benefit obligation in excess of plan assets $ 69,601 $ 335,685 $ 1,076,298 $ 1,025,286
Unrecognized net actuarial gain/(loss) 283,620 (1,950) (112,160) (106,772)
Unrecognized prior service cost (74,198) (85,903) (2,248) (2,606)
Unrecognized net transition obligation (4,606) (7,176) -- --
--------------------------------------------------------------------
Accrued benefit liability $ 274,417 $ 240,656 $ 961,890 $ 915,908
====================================================================
</TABLE>
Unrecognized net actuarial gain for pensions increased in 1999 compared
with an unrecognized net loss in 1998 due primarily to the actual return
exceeding the expected return on plan assets in 1999 and the net effect of
changes in actuarial assumptions.
At December 31, 1999 and 1998, the Company had seven unfunded pension
plans with aggregate projected benefit obligations and accumulated benefit
obligations of $289,778,000 and $262,205,000 at December 31, 1999, respectively,
and $291,535,000 and $256,611,000 at December 31, 1998, respectively.
There were no plan assets for the Company's other postretirement benefit
plans at December 31, 1999 and 1998 as postretirement benefits are funded by the
Company when claims are paid. The current portion of the accrued benefit
liability for other postretirement benefits was $65,000,000 and $55,000,000 at
December 31, 1999 and 1998, respectively.
Assumptions used in developing the benefit obligations at December 31 were
as follows:
<TABLE>
<CAPTION>
Pensions Other Postretirement Benefits
--------------------------- -----------------------------
Weighted Average Assumptions at December 31, 1999 1998 1997 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Discount rate 7.75% 7.0% 7.25% 7.75% 7.0% 7.25%
Rate of compensation increase 4.5% 4.0% 4.0% -- -- --
Expected return on plan assets 9.5% 9.5% 9.5% -- -- --
Increase in per capita cost of health care benefits that gradually
decreases and is held constant thereafter beginning in 2004 -- -- -- 7.5%-5.0% 8.0%-5.0% 8.5%-5.0%
</TABLE>
American Home Products Corporation and Subsidiaries 39
<PAGE>
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
$127,852,000 and the total service and interest cost components by $15,113,000.
A one percentage point decrease in the assumed health care cost trend rates
would decrease the postretirement benefit obligation by $106,794,000 and the
total service and interest cost components by $12,191,000.
Net periodic benefit cost for 1999, 1998 and 1997 of the Company's defined
benefit plans (principally U.S. plans) was as follows:
<TABLE>
<CAPTION>
Pensions Other Postretirement Benefits
------------------------------------- ------------------------------------
Components of Net Periodic Benefit Cost (In thousands) 1999 1998 1997 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 76,987 $ 70,902 $ 66,236 $ 25,229 $ 18,963 $ 19,494
Interest cost 218,410 219,852 213,055 76,629 66,722 70,791
Expected return on plan assets (260,323) (253,034) (214,812) -- -- --
Amortization of prior service cost 11,352 11,880 13,888 357 357 357
Amortization of transition obligation 1,114 1,143 324 -- -- --
Recognized net actuarial loss/(gain) 3,122 3,200 2,067 7,082 (103) 1,923
Curtailment gain (2,478) (5,740) -- -- -- --
------------------------------------------------------------------------------
Net periodic benefit cost $ 48,184 $ 48,203 $ 80,758 $ 109,297 $ 85,939 $ 92,565
==============================================================================
</TABLE>
Net periodic other postretirement benefit cost was higher in 1999 compared
with 1998 due primarily to a change in early retirement assumptions. 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.
7. Capital Stock
There were 2,400,000,000 shares of common stock and 5,000,000 shares of
preferred stock authorized at December 31, 1999 and 1998, respectively. Of the
authorized preferred shares, there is a series of shares (24,241 and 25,480
outstanding at December 31, 1999 and 1998, 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.
On October 7, 1999, the Company's Board of Directors declared a dividend
of one preferred share purchase right for each share of common stock outstanding
on October 18, 1999. The rights also will apply to all future stock issuances.
Each right permits the holder, under certain circumstances and upon the
occurrence of certain events, to purchase from the Company one one-thousandth of
a share of Series A Junior Participating Preferred Stock of the Company (the
Series A Preferred Stock) at an exercise price of $225 per one one-thousandth of
a share of Series A Preferred Stock under a Rights Plan relating to such Series
A Preferred Stock. The 5,000,000 shares of preferred stock authorized will be
used for the exercise of any preferred share purchase rights. The Rights Plan
has provisions that are triggered if any person or group acquires beneficial
ownership of 15% or more of the outstanding common stock or acquires the Company
in a merger or other business combination (an Acquiring Person). In such event,
stockholders (other than the Acquiring Person) would receive stock of the
Company or the Acquiring Person, as the case may be, having a market value of
twice the exercise price along with substantially increased voting and dividend
rights, among other things. The rights expire on October 7, 2009, and prior to
there being an Acquiring Person, the Company may redeem the rights issued under
the Rights Plan for $0.01 per right. The Board can, except with respect to the
redemption price, amend the Rights Plan in any manner without the consent of the
holders of the rights, provided that such amendment does not adversely affect
the rights of the holder at any time after there is an Acquiring Person.
Changes in outstanding common shares during 1999, 1998 and 1997 were as
follows:
(In thousands except
shares of preferred stock) 1999 1998 1997
- --------------------------------------------------------------------------------
Balance at January 1 1,312,399 1,300,755 1,279,966
Issued for stock options 10,589 19,811 20,723
Purchases of common shares
for treasury (19,226) (8,284) (419)
Conversions of preferred stock
(1,239, 3,365 and 2,588
shares in 1999, 1998
and 1997, respectively)
and other exchanges 154 117 485
---------------------------------------
Balance at December 31 1,303,916 1,312,399 1,300,755
=======================================
The Company has a common stock repurchase program under which the Company
is authorized to repurchase shares. At December 31, 1999, 13,906,960 shares were
authorized for future repurchases.
8. Stock Options
The Company has two Stock Option Plans and four Stock Incentive Plans. Included
in the four Stock Incentive Plans is the 1999 Stock Incentive Plan, authorized
to grant 65,000,000 options to purchase shares, which was approved at the
Company's April 22, 1999 Annual Meeting of Stockholders. No further grants may
be made under the two Stock Option Plans. Under the four Stock Incentive Plans,
options to purchase a maximum of 229,000,000 shares may be granted at prices not
less than 100% of the fair market value at the date of option grant. At December
31, 1999, 58,952,633 shares were available for future grants under the Stock
Incentive Plans.
The plans provide for the granting of incentive stock options as defined
under the Internal Revenue Code. Under the plans, grants may be made to selected
officers and employees of non-qualified
40 American Home Products Corporation and Subsidiaries
<PAGE>
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 (SARs), which entitle the holder to receive an amount equal to the excess
of the market price of the common stock over the exercise price when exercised.
At December 31, 1999, there were no outstanding SARs.
Each Stock Incentive Plan, among other things, provides for the issuance
of up to 8,000,000 shares (32,000,000 shares in the aggregate for all Stock
Incentive Plans) as restricted stock awards. Restricted stock awards
representing 148,850, 68,400 and 88,400 units were granted in 1999, 1998 and
1997, respectively, under the plans to certain key executives. These units
generally are converted to shares of restricted stock based on the achievement
of certain performance criteria related to performance years 1997 through 2003.
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 granted to each non-employee director are not delivered prior
to the end of a five-year restricted period. At December 31, 1999, 68,800 shares
were available for future grants.
At the Company's April 22, 1999 Annual Meeting of Stockholders, the
stockholders approved the 1999 Stock Option Plan for Non-Employee Directors.
Under the Plan, a maximum of 250,000 shares may be granted to non-employee
directors at 100% of the fair market value of the common stock on the date of
the grant. During 1999, 21,000 stock options were granted to non-employee
directors, and 229,000 shares were available for future grants at December 31,
1999.
Stock option information related to the plans was as follows:
<TABLE>
<CAPTION>
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Option Shares 1999 Price 1998 Price 1997 Price
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1 75,790,629 $ 30.53 83,306,276 $ 24.86 80,278,690 $ 19.03
Granted 21,945,755 62.00 15,167,210 50.13 27,868,770 36.20
Canceled (1,903,601) 51.83 (2,872,314) 37.03 (4,118,604) 22.89
Exercised (1999--$11.80 to $50.06 per share) (10,588,653) 22.76 (19,810,543) 20.79 (20,722,580) 17.93
----------- ----------- -----------
Outstanding at December 31
(1999--$11.80 to $65.19 per share) 85,244,130 39.13 75,790,629 30.53 83,306,276 24.86
=========== =========== ===========
Exercisable at December 31 52,789,450 28.27 54,471,524 24.51 53,472,180 19.28
=========== =========== ===========
</TABLE>
The following table summarizes information regarding stock options
outstanding at December 31, 1999:
<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 22,901,025 4.2 years $17.80 22,901,025 $17.80
20.00 to 29.99 7,278,617 5.9 years 26.40 7,278,617 26.40
30.00 to 39.99 19,889,770 6.9 years 36.18 17,396,734 36.18
40.00 to 49.99 754,430 8.6 years 46.52 186,419 46.28
50.00 to 59.99 13,815,673 8.4 years 50.43 4,865,435 50.22
60.00 to 65.19 20,604,615 9.4 years 62.33 161,220 62.31
---------- ----------
85,244,130 7.0 years 39.13 52,789,450 28.27
========== ==========
</TABLE>
American Home Products Corporation and Subsidiaries 41
<PAGE>
The Company accounts for stock-based compensation using the intrinsic
value method. Accordingly, no compensation expense has been recognized for stock
options. If compensation expense for the Company's stock options issued in 1999,
1998 and 1997 had been determined based on the fair value method of accounting,
the Company's net income (loss) and earnings (loss) per share would have been
reduced (increased) to the pro forma amounts indicated below:
(In thousands except
per share amounts) 1999 1998 1997
- --------------------------------------------------------------------------------
Net income (loss) less preferred dividends:
As-reported $(1,227,171) $2,474,284 $2,043,063
Pro forma (1,312,238) 2,412,431 1,981,826
Basic earnings (loss) per share:
As-reported $ (0.94) $ 1.88 $ 1.58
Pro forma (1.00) 1.84 1.53
Net income (loss):
As-reported $(1,227,121) $2,474,338 $2,043,123
Pro forma (1,312,188) 2,412,485 1,981,886
Diluted earnings (loss) per share:
As-reported $ (0.94) $ 1.85 $ 1.56
Pro forma (1.00) 1.80 1.51
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 1999, 1998 and 1997,
respectively: expected volatility (the amount by which the stock price is
expected to fluctuate) of 23.2%, 24.2% and 18.3%; expected dividend yield of
2.2%, 2.8% and 3.7%; risk-free interest rate of 5.6%, 5.6% and 6.5%; and
expected life of four years. The weighted average fair value of stock options
granted during 1999, 1998 and 1997 was $14.36, $10.03 and $5.86 per option
share, respectively.
9. Income Taxes
The provision (benefit) for income taxes consisted of:
(In thousands)
Years Ended December 31, 1999 1998 1997
- -------------------------------------------------------------------------------
Current:
Federal $ 328,862 $ 518,450 $ 531,770
Foreign 500,949 518,200 460,028
-------------------------------------------------
829,811 1,036,650 991,798
Deferred:
Federal (1,519,257) 108,621 (221,789)
Foreign (9,059) (34,149) 1,575
-------------------------------------------------
(1,528,316) 74,472 (220,214)
-------------------------------------------------
$ (698,505) $ 1,111,122 $ 771,584
=================================================
Net deferred tax assets, inclusive of valuation allowances for certain
deferred tax assets, were reflected on the Consolidated Balance Sheets at
December 31 as follows:
(In thousands) 1999 1998
- --------------------------------------------------------------------------------
Net current deferred tax assets $1,216,983 $ 674,518
Net noncurrent deferred tax assets 1,466,764 480,913
---------------------------
Net deferred tax assets $2,683,747 $1,155,431
===========================
Deferred income taxes are provided for 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 significant increase in net
deferred tax assets for the year ended 1999 was due primarily to deferred tax
assets generated as a result of the litigation charge related to Redux and
Pondimin (see Note 10).
The components of the Company's deferred tax assets and liabilities at
December 31 were as follows:
(In thousands) 1999 1998
- --------------------------------------------------------------------------------
Deferred tax assets:
Product, litigation and environmental
liabilities, and other operating accruals $ 2,211,410 $ 751,140
Postretirement, pension and other
employee benefits 458,322 455,999
Net operating loss and other tax
credit carryforwards 107,095 157,034
Restructuring and
reorganization accruals 205,923 283,614
Inventory reserves 161,026 161,252
Investments and advances 39,700 45,608
Other 56,479 20,537
--------------------------
Total deferred tax assets 3,239,955 1,875,184
--------------------------
Deferred tax liabilities:
Investments (9,203) (9,514)
Depreciation (268,322) (311,645)
Pension benefits and other
employee benefits (58,168) (68,911)
Other (69,106) (80,632)
--------------------------
Total deferred tax liabilities (404,799) (470,702)
--------------------------
Deferred tax asset
valuation allowances (151,409) (249,051)
--------------------------
Net deferred tax assets $ 2,683,747 $ 1,155,431
==========================
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 1999 and 1998, the valuation
allowance decreased by $97,642,000 and $50,373,000, respectively, due primarily
to the utilization of net operating loss carryforwards.
42 American Home Products Corporation and Subsidiaries
<PAGE>
Reconciliations between the Company's effective tax rate and the U.S.
statutory rate, excluding the effect of the litigation charge in 1999 (see Note
10), were as follows:
Tax Rate
Years Ended December 31, 1999 1998 1997
- -----------------------------------------------------------------------------
U.S. statutory rate 35.0% 35.0% 35.0%
Effect of Puerto Rico and
Ireland manufacturing
operations (9.4) (5.5) (6.1)
Research credits (1.6) (1.2) (1.8)
ACY goodwill amortization 2.4 2.0 2.7
Gains on sales of business
and other assets -- 2.7 --
Other, net 0.7 (2.0) (2.4)
------------------------------
Effective tax rate 27.1% 31.0% 27.4%
==============================
Including the effect of the 1999 litigation charge, which had a 30.8% tax
benefit, the overall effective tax rate in 1999 was a 36.3% tax benefit. The
difference in the tax benefit related to the litigation charge versus the
statutory rate of 35.0% was caused by a $200 million provision for additional
U.S. income tax, net of foreign tax credits, that will have to be paid to the
extent that foreign earnings, taxed at a lower rate than in the United States,
are remitted back to the United States for litigation settlement payments.
Total income tax payments, net of tax refunds, for the years ended
December 31, 1999, 1998 and 1997 amounted to $717,174,000, $897,361,000 and
$1,021,505,000, respectively.
10. 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 (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 is a defendant in numerous legal actions, many of which are
purported class actions, relating to the antiobesity products Redux or Pondimin,
which the Company estimated were used in the United States, prior to their 1997
voluntary market withdrawal, by approximately 6 million people. These actions
allege, among other things, that the use of Redux and/or Pondimin, independently
or in combination with the prescription drug phentermine (which the Company did
not manufacture, distribute or market), caused certain serious conditions,
including valvular heart disease.
On October 7, 1999, the Company announced a comprehensive, national
settlement to resolve litigation brought against the Company regarding the use
of Redux or Pondimin. This nationwide, class action settlement is open to all
Redux or Pondimin users in the United States, regardless of whether they have
lawsuits pending. The settlement agreement is subject to judicial approval.
Preliminary approval was granted on November 23, 1999, and a fairness hearing is
scheduled for May 2000. Payments by the Company will be made into settlement
Funds A and B. Payments to the settlement funds in 1999 were $75,000,000, with
approximately $1.78 billion expected to be paid over approximately the next two
years (approximately $1.0 billion of which is subject to final judicial
approval). Payments to provide settlement benefits, if needed, may continue for
approximately 16 years after final judicial approval. Fund A is intended to
cover refunds, medical screening costs, additional medical services and cash
payments, education and research costs, and administration costs. Fund B will
compensate claimants with significant heart valve disease. The settlement covers
all claims arising out of the use of Redux or Pondimin except for claims of
primary pulmonary hypertension (PPH). The settlement provides opportunities
during three different time periods for claimants to opt out of the settlement.
Under certain circumstances, the Company will receive credits for future
settlement payments to claimants who opt out of the settlement. The Company may
terminate the settlement at its discretion based on the number of initial opt
outs. The initial opt out period ends March 30, 2000. The nationwide, class
action settlement states that it shall not be construed to be an admission or
evidence of any liability or wrongdoing whatsoever by the Company or the truth
of any of the claims alleged.
The Company recorded a litigation charge of $4,750,000,000 ($3,287,500,000
after-tax or $2.51 per share--diluted) in the 1999 third quarter to provide for
expected payments to the settlement funds contemplated by the nationwide, class
action settlement as discussed above, other judgments and settlements (including
estimated claims for PPH and any opt outs), and future legal costs, net of
available insurance. At December 31, 1999, $4,632,419,000 of the litigation
accrual remained; $1,400,000,000 and $3,232,419,000 were included in accrued
expenses and other noncurrent liabilities, respectively. The amount of the
reserve is based upon, among other things, the assumption that the Company will
not terminate the nationwide, class action settlement based upon the number of
initial opt outs and that the settlement will receive final judicial approval. A
receivable of $316,092,000 from the Company's insurance carriers related to
these litigation expenditures was included in other current assets at December
31, 1999. The Company believes that this receivable is fully recoverable.
The scientific studies conducted to date and clinical experience indicate
that the health of the overwhelming majority of people who took Redux or
Pondimin has not been adversely affected. The studies also show no increased
risk of valvular heart disease among persons who took the drugs for three months
or less--more than 75% of those who took the drugs.
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
has settled these cases in order to avoid the costs and risks of litigation. The
settlement agreements are not admissions of any violation of law.
In September 1999, the Company announced that it had reached an agreement
with plaintiffs' counsel, representing virtually all of the plaintiffs with
lawsuits pending against the Company, involving the Norplant System, the
Company's implantable contraceptive containing levonorgestrel, to settle the
Norplant System lawsuits for
American Home Products Corporation and Subsidiaries 43
<PAGE>
$1,500 per claimant. That settlement proposal has been communicated by
plantiffs' attorneys to their clients with a recommendation that they accept the
offer. The agreement to recommend settlement will not cover plaintiffs who
allege that they experienced either idiopathic intracranial hypertension or
stroke. The cost of the settlement is anticipated to be approximately
$50,000,000 and is anticipated to be covered by insurance.
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, 1999
are as follows:
(In thousands)
- ----------------------------------------------------
2000 $123,253
2001 113,685
2002 108,580
2003 100,067
2004 93,420
Thereafter 65,852
--------
Total rental commitments $604,857
========
Rental expense for all operating leases was $145,814,000, $131,358,000 and
$133,179,000 in 1999, 1998 and 1997, respectively.
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 Company is not dependent
on any single customer 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 below.
The Pharmaceuticals segment manufactures, distributes and sells branded
and generic human ethical pharmaceuticals, biologicals, nutritionals, and animal
biologicals and pharmaceuticals. Principal products include women's health care
products, infant nutritionals, cardiovascular products, neuroscience therapies,
gastroenterology drugs, anti-infectives, vaccines, biopharmaceuticals, oncology
therapies, musculoskeletal therapies and transplantation products. 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, vitamin, 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 and fungicides. The Company is pursuing the divestiture
of the agricultural products business.
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. All Other
consists of the medical devices businesses, which the Company exited completely
in February 1998. These businesses 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 accounting policies of the segments described above are the same as
those described in the Summary of Significant Accounting Policies in Note 1. The
Company evaluates the performance of the Pharmaceuticals, Consumer Health Care
and Agricultural Products reportable segments based on income from operations
before taxes which includes goodwill amortization, gains on the sales of non-
corporate assets and certain other items. Corporate and All Other includes
special charges, interest expense, net, the gain on the sale of the
Sherwood-Davis & Geck medical devices business, gains on the sales of
investments and other corporate assets, certain litigation provisions, including
the Redux and Pondimin litigation charge, and other miscellaneous items.
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.
44 American Home Products Corporation and Subsidiaries
<PAGE>
Company Data by Operating Segment
(In millions)
Years Ended December 31, 1999 1998 1997
- ------------------------------------------------------------------------------
Net Sales to Customers
- ------------------------------------------------------------------------------
Pharmaceuticals $ 9,505.9 $ 8,901.8 $ 8,669.1
Consumer Health Care 2,375.3 2,174.7 2,091.3
Agricultural Products(1) 1,669.0 2,194.1 2,119.4
Corporate and All Other -- 192.1 1,316.2
------------------------------------
Consolidated Total $ 13,550.2 $ 13,462.7 $ 14,196.0
====================================
Income (Loss) before Taxes(2)
- ------------------------------------------------------------------------------
Pharmaceuticals $ 2,554.6 $ 2,488.3 $ 2,349.6
Consumer Health Care 578.6 509.7 505.1
Agricultural Products(1) 152.7 494.9 429.9
Corporate and All Other(3) (5,211.5) 92.6 (469.9)
------------------------------------
Consolidated Total $ (1,925.6) $ 3,585.5 $ 2,814.7
====================================
Depreciation and
Amortization Expense
- ------------------------------------------------------------------------------
Pharmaceuticals $ 465.6 $ 443.8 $ 416.0
Consumer Health Care 57.3 52.3 40.0
Agricultural Products 154.1 153.2 154.8
Corporate and All Other 5.3 15.4 91.2
------------------------------------
Consolidated Total $ 682.3 $ 664.7 $ 702.0
====================================
Total Assets
- ------------------------------------------------------------------------------
Pharmaceuticals $ 11,101.4 $ 11,158.2 $ 10,758.8
Consumer Health Care 1,864.4 1,809.6 1,319.2
Agricultural Products 4,968.0 5,026.4 4,763.9
Corporate and All Other 5,972.5 3,084.9 3,983.2
------------------------------------
Consolidated Total $ 23,906.3 $ 21,079.1 $ 20,825.1
====================================
Expenditures for Long-Lived Assets(4)
- ------------------------------------------------------------------------------
Pharmaceuticals $ 1,038.9 $ 571.3 $ 568.4
Consumer Health Care 66.8 100.3 95.8
Agricultural Products 87.8 119.3 115.8
Corporate and All Other 21.2 20.5 111.9
------------------------------------
Consolidated Total $ 1,214.7 $ 811.4 $ 891.9
====================================
Company Data by Geographic Segment
(In millions)
Years Ended December 31, 1999 1998 1997
- ------------------------------------------------------------------------------
Net Sales to Customers(5)
- ------------------------------------------------------------------------------
United States(1) $ 7,671.5 $ 7,724.7 $ 8,063.0
United Kingdom 787.3 662.7 713.0
Other International 5,091.4 5,075.3 5,420.0
------------------------------------
Consolidated Total $ 13,550.2 $ 13,462.7 $ 14,196.0
====================================
Long-Lived Assets at December 31(5),
- ------------------------------------------------------------------------------
United States $ 8,735.7 $ 8,582.4 $ 8,705.4
International 3,888.3 3,981.2 4,147.0
------------------------------------
Consolidated Total $ 12,624.0 $ 12,563.6 $ 12,852.4
====================================
(1) In September 1999, Cyanamid decided to repurchase selected U.S. field
inventories from the trade, primarily soybean herbicides. As a result of
this Cyanamid U.S. inventory buyback program, the Company reduced net
sales of Agricultural Products by $175.0, which had the effect of
increasing the consolidated loss before taxes by $135.0 ($93.2 after-tax
or $0.07 per share--diluted). The Cyanamid U.S. inventory buyback program
was a result of changes in the way Cyanamid will market and distribute its
products, primarily a reduction in distributors to achieve efficiencies,
and also is in preparation for the launch of new U.S. soybean herbicide
premixed products containing glyphosate and Cyanamid's imidazolinone
chemistry. Cyanamid obtained EPA registration for its new proprietary
imidazolinone and glyphosate herbicide premixed products and will market
these products to be used on Roundup Ready(R) (a registered trademark of
the Monsanto Company) soybeans in the 2000 selling season.
(2) Income (loss) before taxes included goodwill amortization for 1999, 1998
and 1997 as follows: Pharmaceuticals--$154.3, $158.2 and $145.1, Consumer
Health Care--$32.7, $22.6 and $16.9, Agricultural Products--$97.0, $97.1
and $96.2, respectively, and Corporate and All Other of $0.9 in 1998 and
$14.4 in 1997.
(3) 1999 Corporate and All Other included a litigation charge of $4,750.0 in
connection with litigation brought against the Company regarding the use
of the antiobesity products Redux or Pondimin. The charge provided for
expected payments to settlement funds contemplated by the nationwide,
class action settlement, other judgments and settlements (including
estimated claims for PPH and any opt outs), and future legal costs, net of
available insurance (see Note 10). The charge related to the
Pharmaceuticals operating segment.
1999 Corporate and All Other included a special charge of $195.0 to
provide for the restructuring of Cyanamid and the impairment of a Cyanamid
manufacturing facility (see Note 3). The charge related to the
Agricultural Products operating segment.
1999 Corporate and All Other 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 (see Note 3). The charge
related to the Pharmaceuticals operating segment.
1998 Corporate and All Other included a special charge for restructuring
and related asset impairments of $343.6. The charge related to the
operating segments as follows: Pharmaceuticals--$294.9, Consumer Health
Care--$26.3 and Agricultural Products--$22.4 (see Note 3).
1998 Corporate and All Other included the gain on the sale of the
Sherwood-Davis & Geck medical devices business of $592.1 (see Note 2).
1997 Corporate and All Other included a special charge of $180.0
associated with the voluntary market withdrawal of Redux and Pondimin (see
Note 3). The charge related to the Pharmaceuticals operating segment.
(4) Expenditures for long-lived assets excluded expenditures for goodwill and
long-lived assets acquired in purchase business combinations as follows:
1998--Consumer Health Care--$408.6 and 1997--Pharmaceuticals--$413.5.
(5) Other than the United States and the United Kingdom, no other country in
which the Company operates had net sales greater than 5% of the respective
consolidated total. Other than the United States, no country in which the
Company operates had long-lived assets greater than 5% of the respective
consolidated total. 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 45
<PAGE>
Report of Independent
Public Accountants
To the Board of Directors and Stockholders 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, 1999 and 1998, and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1999. 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, 1999 and 1998, and the results
of their operations and cash flows for each of the three years in the period
ended December 31, 1999 in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
New York, New York
January 25, 2000
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 Kenneth J. Martin
Chairman, President and Senior Vice President and
Chief Executive Officer Chief Financial Officer
46 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) 1999 1999 1999 1999
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales(2) $ 3,442,352 $ 3,319,292 $ 3,321,254 $ 3,467,278
Gross profit(2) 2,529,440 2,368,635 2,434,083 2,525,496
Net income (loss)(1)(2)(3) 654,918 398,673 (2,873,944) 593,232
Diluted earnings (loss) per share(1)(2)(3)(4) 0.49 0.30 (2.20) 0.45
<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(5)(6) 982,210 523,511 618,995 349,622
Diluted earnings per share(5)(6) 0.74 0.39 0.46 0.26
</TABLE>
(1) Second Quarter 1999 included a special charge of $53,000 after-tax and
$0.04 per share--diluted related to the suspension of shipments and the
voluntary market withdrawal of RotaShield, the Company's rotavirus
vaccine.
(2) Third Quarter 1999 included a reduction in net sales of $175,000, which
had the effect of reducing gross profit by $135,000, increasing net loss
by $93,150 and increasing diluted loss per share by $0.07 due to the
Cyanamid U.S. inventory buyback program.
(3) Third Quarter 1999 included a litigation charge of $3,287,500 after-tax
and $2.51 per share--diluted in connection with litigation brought against
the Company regarding the use of the antiobesity products Redux or
Pondimin.
Third Quarter 1999 included a special charge of $126,750 after-tax and
$0.10 per share--diluted to provide for the restructuring of Cyanamid and
the impairment of a Cyanamid manufacturing facility.
(4) The average number of common shares outstanding for diluted loss per share
for the Third Quarter 1999 did not include common share equivalents as the
effect would have been antidilutive. In addition, the sum of the 1999
diluted earnings (loss) per share for each quarter did not equal the full
year 1999 diluted loss per share for the same reason.
(5) First Quarter 1998 included the gain on the sale of the Sherwood-Davis &
Geck medical devices business of $330,782 after-tax and $0.25 per
share--diluted.
(6) Fourth Quarter 1998 included a special charge for restructuring and
related asset impairments of $240,500 after-tax and $0.18 per
share--diluted.
Market Prices of Common
Stock and Dividends
1999 Range of Prices* 1998 Range of Prices*
--------------------------- ---------------------------
Dividends Dividends
High Low per Share High Low per Share
- --------------------------------------------------------------------------------
First quarter $68.19 $51.19 $0.225 $48.88 $37.75 $0.215
Second quarter 70.25 51.00 0.225 54.25 43.75 0.215
Third quarter 58.44 38.50 0.225 58.75 46.19 0.215
Fourth quarter 58.00 36.50 0.230 56.50 43.94 0.225
* Prices are those of the New York Stock Exchange--Composite Transactions.
American Home Products Corporation and Subsidiaries 47
<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 30
to 45.
Results of Operations
Worldwide net sales increased 2% to $13.6 billion for the year ended 1999 after
adjusting for the sale of the Sherwood-Davis & Geck medical devices business,
which was sold effective February 27, 1998. The increase in 1999 was due
primarily to higher worldwide sales of pharmaceuticals and consumer health care,
which were offset, in part, by significantly lower sales of U.S. agricultural
products and the Cyanamid U.S. inventory buyback program discussed below.
Including net sales of Sherwood-Davis & Geck prior to its sale, worldwide net
sales increased 1% for the year ended 1999.
In September 1999, Cyanamid decided to repurchase selected U.S. field
inventories from the trade, primarily soybean herbicides (see Note 11 to the
Consolidated Financial Statements). As a result of the Cyanamid U.S. inventory
buyback program, the Company reduced net sales by $175.0 million, which had the
effect of increasing the consolidated loss before taxes by $135.0 million ($93.2
million after-tax or $0.07 per share--diluted).
Worldwide net sales decreased 5% to $13.5 billion in 1998 on an
as-reported basis and 2% on a pro forma basis. The 1998 pro forma sales results
reflected businesses acquired and divested in 1998 and 1997, assuming all
transactions occurred as of January 1, 1997. This activity included 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 included
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. The pro forma
sales results reflected 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 following table sets forth 1999, 1998 and 1997 worldwide net sales
results by operating segment together with the percentage changes in
"As-Reported" and "Pro Forma" (where applicable) worldwide net sales from prior
years:
<TABLE>
<CAPTION>
1999 vs. 1998 1998 vs. 1997
---------------- --------------------------
Years Ended December 31, As-Reported As-Reported Pro Forma
(Dollar amounts in millions) --------------------------------------------- % Increase % Increase % Increase
Net Sales to Customers 1999 1998 1997 (Decrease) (Decrease) (Decrease)
- ------------------------------------------------------------------------------------------------------------------------------------
Operating Segment:
<S> <C> <C> <C> <C> <C> <C>
Pharmaceuticals $ 9,505.9 $ 8,901.8 $ 8,669.1 7% 3% 2%
Consumer Health Care 2,375.3 2,174.7 2,091.3 9% 4% 4%
Agricultural Products 1,669.0 2,194.1 2,119.4 (24)% 4% 4%
--------------------------------------------- --------------------------------------------
13,550.2 13,270.6 12,879.8 2% 3% 2%
Corporate and All Other* -- 192.1 1,316.2 (100)% (85)% --
--------------------------------------------- --------------------------------------------
Consolidated Net Sales $ 13,550.2 $ 13,462.7 $ 14,196.0 1% (5)% 2%
============================================= ============================================
</TABLE>
* Corporate and All Other, as-reported, for 1998 and 1997 included the net sales
of the Company's divested medical devices businesses discussed above.
48 American Home Products Corporation and Subsidiaries
<PAGE>
Worldwide pharmaceutical sales increased 7% (9% for human pharmaceuticals)
for the year ended 1999. Excluding the negative impact of foreign exchange,
worldwide pharmaceutical sales increased 8% for the year ended 1999. U.S.
pharmaceutical sales increased 7% for the year ended 1999 due primarily to
higher sales of Enbrel (introduced in 1998), Effexor XR (due to increased
selling efforts and expanded indications), Premarin products and Zosyn, which
were offset, in part, by lower sales of animal health products, Naprelan and
Verelan (divested in 1998), oral contraceptives and Cordarone (due to generic
competition). Lower sales of animal health products were due primarily to
customers reducing consumption of livestock-related animal health products, in
part, as a result of continuing commodity price declines in the livestock
markets.
International pharmaceutical sales increased 6% for the year ended 1999
due primarily to higher sales of Effexor XR (due to increased selling efforts
and expanded indications), Meningitec (introduced in the United Kingdom in
1999), ReFacto (introduced in 1999), Tazocin, HibTITER and Zoton.
Worldwide pharmaceutical sales increased 3% (2% for human pharmaceuticals)
for the year ended 1998. After adjusting for the acquisition of the worldwide
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, worldwide pro forma pharmaceutical sales
increased 2% for the year ended 1998. Excluding the negative impact of foreign
exchange, worldwide pro forma pharmaceutical sales increased 4% for the year
ended 1998. As-reported and pro forma U.S. pharmaceutical sales increased 5% for
the year ended 1998 due primarily to higher sales of Premarin products, oral
contraceptives, Effexor XR, 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 Redux and
Pondimin 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. 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.
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.
Worldwide consumer health care sales increased 9% for the year ended 1999.
Excluding the negative impact of foreign exchange, worldwide consumer health
care sales increased 11% for the year ended 1999. U.S. consumer health care
sales increased 10% for the year ended 1999 due primarily to higher sales of
nutritional supplements, which consist of Centrum products, Solgar products
(acquired in 1998) and Caltrate, cough/cold/allergy products and Chap Stick.
Solgar products contributed 3% to the U.S. sales increase for the year ended
1999.
International consumer health care sales increased 7% for the year ended
1999 due primarily to higher sales of nutritional supplements, which consist of
Centrum products, Caltrate and Solgar products (acquired in 1998), and Advil.
Solgar products contributed 3% to the international sales increase for the year
ended 1999.
Worldwide consumer health care sales increased 4% for the year ended 1998.
Excluding the negative impact of foreign exchange, worldwide consumer health
care sales increased 6% 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, which consist of 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/allergy products. Solgar products contributed 3%
to the U.S. sales increase for the year ended 1998.
International consumer health care sales increased 1% for the year ended
1998 due primarily to higher sales of nutritional supplements, which consist of
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/allergy products. Solgar products
contributed 1% to the international sales increase for the year ended 1998.
Worldwide agricultural products sales decreased 24% for the year ended
1999. Excluding the negative impact of foreign exchange, worldwide agricultural
products sales decreased 23% for the year ended 1999. U.S. agricultural products
sales decreased 53% for the year ended 1999 due primarily to the Cyanamid U.S.
inventory buyback program previously discussed and lower sales of herbicides,
predominately Pursuit, Raptor, Prowl, Squadron and Scepter, and insecticides.
The lower U.S. sales of herbicides for the year ended 1999 were due principally
to various competitive factors and reduced demand for grain coupled with high
inventories from record harvests over the last two years. As a result of these
high inventory levels, commodity prices have declined causing farmers to reduce
input costs by lowering application rates and choosing the lowest cost crop
protection product. 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 decreased 3% for the year ended
1999 due primarily to lower sales of Pursuit and other herbicides offset, in
part, by higher sales of fungicides and insecticides.
Worldwide agricultural products sales increased 4% for the year ended
1998. Excluding the negative impact of foreign exchange, worldwide agricultural
products sales increased 6% 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). 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.
American Home Products Corporation and Subsidiaries 49
<PAGE>
Corporate and All Other sales, which consist of the Company's divested
medical devices businesses (Sherwood-Davis & Geck in 1998 and 1997, and Storz
Instrument Company in 1997), decreased 100% and 85% for the years ended 1999 and
1998, respectively.
The following table sets forth the percentage changes in worldwide net
sales by operating and geographic segment compared with the prior year,
including the effect volume, price and foreign exchange had on these percentage
changes:
<TABLE>
<CAPTION>
% Increase (Decrease) % Increase (Decrease)
Year Ended December 31, 1999(1) Year Ended December 31, 1998(2)
---------------------------------------- ---------------------------------------
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. 4% 3% -- 7% 3% 2% -- 5%
International 7% 3% (4)% 6% 2% -- (5)% (3)%
-----------------------------------------------------------------------------------
Total 5% 3% (1)% 7% 3% 1% (2)% 2%
-----------------------------------------------------------------------------------
Consumer Health Care(3)(4)
U.S. 9% 1% -- 10% 5% 1% -- 6%
International 8% 5% (6)% 7% 5% 1% (5)% 1%
-----------------------------------------------------------------------------------
Total 9% 2% (2)% 9% 5% 1% (2)% 4%
-----------------------------------------------------------------------------------
Agricultural Products
U.S.(5) (44)% (9)% -- (53)% (4)% 4% -- --
International (2)% -- (1)% (3)% 9% 1% (4)% 6%
-----------------------------------------------------------------------------------
Total (20)% (3)% (1)% (24)% 4% 2% (2)% 4%
-----------------------------------------------------------------------------------
Total
U.S. (1)% 1% -- -- 2% 2% -- 4%
International 5% 3% (4)% 4% 4% 1% (5)% --
-----------------------------------------------------------------------------------
Total 2% 2% (2)% 2% 3% 1% (2)% 2%
-----------------------------------------------------------------------------------
</TABLE>
(1) Net sales results are presented after adjusting for the sale of the
Sherwood-Davis & Geck medical devices business (effective February 27,
1998).
(2) Net sales results are presented on a pro forma basis. Pharmaceuticals was
adjusted for the acquisition of the worldwide animal health business of
Solvay S.A. (effective February 28, 1997) and the reclassification of
certain retained ophthalmic pharmaceutical sales from the medical devices
business (effective January 1, 1998). In addition, net sales results were
adjusted for the divestitures of the Sherwood-Davis & Geck (effective
February 27, 1998) and Storz Instrument Company (effective December 31,
1997) medical devices businesses.
(3) Solgar products contributed 3% to the U.S., international and total sales
volume increases, respectively, for the year ended 1999.
(4) Solgar products contributed 3%, 1% and 2% to the U.S., international and
total sales volume increases, respectively, for the year ended 1998.
(5) The sales volume decrease for the year ended 1999 included the effect of
the Cyanamid U.S. inventory buyback program, which reduced net sales by
$175.0 million.
Cost of goods sold, as a percentage of net sales, increased to 27.3% for
the year ended 1999 compared with 26.9% for the year ended 1998 due primarily to
an unfavorable product mix in all operating segments. 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.
Selling, general and administrative expenses, as a percentage of net
sales, increased to 37.2% for the year ended 1999 compared with 36.6% for the
year ended 1998. Higher selling, general and administrative expenses were due
primarily to higher selling expenses related to certain pharmaceutical and
consumer health care product launches in late 1998 and in 1999, pre-launch
marketing costs for certain pharmaceutical products expected to be launched in
2000 and increased headcount to support new product initiatives; and higher bad
debt provisions and other administrative expenses, which were offset, in part,
by lower selling and general expenses for agricultural products as a result of
cost-reduction efforts in response to current economic conditions, and the
divested Sherwood-Davis & Geck medical devices business. Selling, general and
administrative expenses, as a percentage of net sales, decreased to 36.6% for
the year ended 1998 compared with 37.3% for the year ended 1997. Lower selling,
general and administrative expenses resulted 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, which were offset, in part, by higher marketing
and selling expenses for product launches and additional expenses related to
information technology initiatives.
Research and development expenses increased 5% for the year ended 1999 due
primarily to higher pharmaceutical research and development expenditures as a
result of new product introductions, discovery initiatives and license payments,
which were offset, in part, by lower research and development expenses for
agricultural products as a result of cost-containment efforts. 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
50 American Home Products Corporation and Subsidiaries
<PAGE>
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. Pharmaceutical research and
development expenditures accounted for 87%, 84% and 80% of total research and
development expenditures in 1999, 1998 and 1997, respectively. Pharmaceutical
research and development expenses, as a percentage of worldwide pharmaceutical
sales exclusive of infant nutritional sales, were 17%, 17% and 16% in 1999, 1998
and 1997, respectively.
Interest expense, net increased 3% for the year ended 1999 due primarily
to increased borrowings of commercial paper to finance treasury stock
acquisitions as part of the Company's common stock repurchase program offset, in
part, by higher interest income and a reduction in long-term debt from the
proceeds of the divestiture of the Sherwood-Davis & Geck medical devices
business during the 1998 first quarter. 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 medical devices business were used
primarily to reduce outstanding commercial paper. Weighted average debt
outstanding during 1999 and 1998 was $4,930.8 million and $4,134.3 million,
respectively.
Other income, net decreased for the year ended 1999 due primarily to lower
gains on the sales of non-strategic assets, including certain non-core product
rights offset, in part, by lower non-recurring charges and lower unfavorable
foreign exchange results. Other income, net increased for the year ended 1998
due primarily to higher gains on the sales of non-strategic assets, including
certain generic and non-core product rights, and lower litigation costs offset,
in part, by Year 2000 conversion costs and other one-time charges.
On October 7, 1999, the Company announced a comprehensive, national
settlement to resolve litigation brought against the Company regarding the use
of Redux or Pondimin (see Note 10 to the Consolidated Financial Statements). The
Company recorded a litigation charge of $4,750.0 million ($3,287.5 million
after-tax or $2.51 per share--diluted) in the 1999 third quarter to provide for
expected payments to the settlement funds contemplated by the nationwide, class
action settlement, other judgments and settlements (including estimated claims
for PPH and any opt outs), and future legal costs, net of available insurance.
This nationwide, class action settlement is open to all Redux or Pondimin users
in the United States, regardless of whether they have lawsuits pending.
Preliminary approval of the settlement was granted on November 23, 1999, and a
fairness hearing is scheduled for May 2000.
During the 1999 third quarter, a special charge of $195.0 million ($126.8
million after-tax or $0.10 per share--diluted) was recorded to provide for the
restructuring of Cyanamid aggregating $113.0 million and the impairment of a
Cyanamid manufacturing facility aggregating $82.0 million (see Note 3 to the
Consolidated Financial Statements).
During the 1999 second quarter, the Company recorded a special charge
aggregating $82.0 million ($53.0 million after-tax or $0.04 per share--diluted)
for estimated costs associated with the suspension of shipments and the
voluntary market withdrawal of RotaShield, the Company's rotavirus vaccine (see
Note 3 to the Consolidated Financial Statements).
In December 1998, the Company recorded a special 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 (see Note 3 to the Consolidated
Financial Statements).
In February 1998, the Company sold the Sherwood-Davis & Geck medical
devices business (see Note 2 to the Consolidated Financial Statements) for
approximately $1.77 billion, resulting in a pre-tax gain of $592.1 million
($330.8 million after-tax or $0.25 per share--diluted).
In September 1997, the Company announced the voluntary market withdrawal
of Redux and Pondimin. The 1997 results of operations included a special charge
aggregating $180.0 million ($117.0 million after-tax or $0.09 per
share--diluted) to record the one-time costs associated with this voluntary
market withdrawal (see Note 3 to the Consolidated Financial Statements). These
costs did not include provisions for any subsequent charges which resulted from
legal actions related to these products as previously discussed.
American Home Products Corporation and Subsidiaries 51
<PAGE>
The following table sets forth worldwide income (loss) before taxes by
operating segment together with the percentage changes from the comparable
periods in the prior year on an as-reported basis:
<TABLE>
<CAPTION>
Years Ended December 31, 1999 vs. 1998 1998 vs. 1997
(Dollar amounts in millions) ----------------------------------------------- % Increase % Increase
Income (Loss) before Taxes(1) 1999 1998 1997 (Decrease) (Decrease)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating Segment:
Pharmaceuticals $ 2,554.6 $ 2,488.3 $ 2,349.6 3% 6%
Consumer Health Care 578.6 509.7 505.1 14% 1%
Agricultural Products(2) 152.7 494.9 429.9 (69)% 15%
----------------------------------------------- --------------------------------
3,285.9 3,492.9 3,284.6 (6)% 6%
Corporate and All Other(3) (5,211.5) 92.6 (469.9) -- --
----------------------------------------------- --------------------------------
Total(4) $ (1,925.6) $ 3,585.5 $ 2,814.7 -- 27%
=============================================== ================================
</TABLE>
(1) Income (loss) before taxes included goodwill amortization for 1999, 1998
and 1997 as follows: Pharmaceuticals--$154.3, $158.2 and $145.1, Consumer
Health Care--$32.7, $22.6 and $16.9, Agricultural Products--$97.0, $97.1
and $96.2, respectively, and Corporate and All Other of $0.9 in 1998 and
$14.4 in 1997.
(2) 1999 Agricultural Products income before taxes was decreased by $135.0 as
a result of the Cyanamid U.S. inventory buyback program. Excluding the
Cyanamid U.S. inventory buyback program, income before taxes for
Agricultural Products decreased 42% for the year ended 1999.
(3) 1999 Corporate and All Other included a litigation charge of $4,750.0 in
connection with litigation brought against the Company regarding the use
of the antiobesity products Redux or Pondimin. The charge provided for
expected payments to settlement funds contemplated by the nationwide,
class action settlement, other judgments and settlements (including
estimated claims for PPH and any opt outs), and future legal costs, net of
available insurance.
1999 Corporate and All Other included a special charge of $195.0 to
provide for the restructuring of Cyanamid and the impairment of a Cyanamid
manufacturing facility.
1999 Corporate and All Other 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.
1998 Corporate and All Other included a special charge for restructuring
and related asset impairments of $343.6.
1998 Corporate and All Other included the gain on the sale of the
Sherwood-Davis & Geck medical devices business of $592.1.
1997 Corporate and All Other included a special charge of $180.0
associated with the voluntary market withdrawal of Redux and Pondimin.
Excluding the Corporate and All Other charges and the gain on the sale of
the Sherwood-Davis & Geck medical devices business from 1999, 1998 and
1997 results, Corporate and All Other expenses, net increased 18% for the
year ended 1999 and decreased 46% for the year ended 1998.
(4) Excluding the 1999 litigation charge, the 1999 Cyanamid U.S. inventory
buyback program, the 1999, 1998 and 1997 special charges, and the 1998
gain on the sale, total income before taxes decreased 3% for the year
ended 1999 and increased 11% for the year ended 1998.
The following explanations of changes in income before taxes by operating
segment for the year ended 1999 compared with 1998, and 1998 compared with 1997,
exclude items (2) and (3) discussed above.
Worldwide pharmaceutical income before taxes increased 3% (9% for human
pharmaceuticals) for the year ended 1999 due primarily to higher worldwide
sales, which were offset, in part, by higher selling, general and administrative
expenses, higher research and development expenses, lower gains on the sales of
non-strategic assets and an unfavorable product mix. Higher selling, general and
administrative expenses for worldwide pharmaceuticals for the year ended 1999
were the result of higher selling expenses related to certain product launches
in late 1998 and in 1999, pre-launch marketing costs for certain products
expected to be launched in 2000 and increased headcount to support new product
initiatives. Worldwide pharmaceutical income before taxes increased 6% (4% for
human pharmaceuticals) for the year ended 1998 due primarily to higher U.S.
sales, which were offset, in part, by lower international sales and higher
selling, general and administrative expenses.
Worldwide consumer health care income before taxes increased 14% for the
year ended 1999 due primarily to higher worldwide sales, which were offset, in
part, by higher selling, general and administrative expenses. Worldwide consumer
health care income before taxes increased 1% for the year ended 1998 due
primarily to higher U.S. sales, which were offset, in part, by lower gains on
the sales of non-strategic assets.
Worldwide agricultural products income before taxes decreased 42% for the
year ended 1999 due primarily to lower U.S. sales and additional bad debt
provisions, which were offset, in part, by lower selling expenses, primarily
marketing, general expenses, and research and development expenses as a result
of cost-containment efforts. Worldwide agricultural products income before taxes
increased 15% for the year ended 1998 due primarily to higher international
sales and a favorable product mix, which were offset, in part, by higher
selling, general and administrative expenses.
Corporate and All Other expenses, net increased 18% for the year ended
1999 due primarily to higher general and administrative expenses, the loss of
the Sherwood-Davis & Geck medical devices business operating profit and lower
gains on the sales of non-strategic assets, which were offset, in part, by lower
one-time charges. Corporate and All Other expenses, net decreased 46% for the
year ended 1998 due primarily to lower interest expense, net, higher gains on
the sales of non-strategic assets, lower litigation provisions, and lower
general and administrative expenses, which were offset, in part, by the loss of
the medical devices businesses operating profit.
The effective tax rate, excluding the effect of the 1999 litigation charge
(see Notes 9 and 10 to the Consolidated Financial Statements), for the year
ended 1999 was 27.1% compared with 31.0% for the year ended 1998. The effective
tax rate decreased in 1999 due primarily to an increased benefit from products
manufactured in lower taxed jurisdictions and basis differences for tax and
financial reporting purposes, primarily goodwill, on the sale of the
Sherwood-Davis & Geck medical devices business and sales of certain other
non-core
52 American Home Products Corporation and Subsidiaries
<PAGE>
assets in 1998. The effective tax rate increased to 31.0% in 1998 from 27.4% in
1997 due primarily to basis differences on the sale of the medical devices
business and the sales of certain non-core assets in 1998.
Net loss and diluted loss per share for the year ended 1999 were $1,227.1
million and $0.94, respectively. Results for the year ended 1999 included an
after-tax charge of $3,287.5 million ($2.51 per share --diluted) in connection
with litigation brought against the Company regarding the use of the antiobesity
products Redux or Pondimin. The charge provided for expected payments to the
settlement funds contemplated by the nationwide, class action settlement, other
judgments and settlements (including estimated claims for PPH and any opt outs),
and future legal costs, net of available insurance. Also included in the results
for the year ended 1999 was an after-tax special charge of $126.8 million ($0.10
per share--diluted) to provide for the restructuring of Cyanamid and the
impairment of a Cyanamid manufacturing facility, as well as an after-tax charge
of $93.2 million ($0.07 per share--diluted) to repurchase selected U.S. field
inventories from the trade, primarily soybean herbicides, as part of the
Cyanamid U.S. inventory buyback program. In addition, results for the year ended
1999 included an after-tax special charge of $53.0 million ($0.04 per
share--diluted) for estimated costs associated with the suspension of shipments
and the voluntary market withdrawal of RotaShield, the Company's rotavirus
vaccine. Excluding these charges, net income and diluted earnings per share for
the year ended 1999 were $2,333.4 million and $1.78, respectively. The $1.78
diluted earnings per share calculation included the $0.02 per share benefit of
excluding the dilutive impact of common share equivalents. 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 special 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. Excluding the gain on the sale and the
special charge, net income and diluted earnings per share for the year ended
1998 were $2,384.0 million and $1.78, respectively. Excluding these charges and
the gain on the sale from the 1999 and 1998 results, net income and diluted
earnings per share for the year ended 1999 decreased 2% and remained flat,
respectively, compared with 1998 results. Including the dilutive impact of
common share equivalents, diluted earnings per share would have decreased 1% for
the year ended 1999 compared with the year ended 1998. The decrease in net
income was due primarily to a significantly lower earnings contribution from the
agricultural products segment, higher pharmaceutical research and development
expenses, and the loss of the Sherwood-Davis & Geck medical devices business
operating profit, which were offset, in part, by higher net income from
increased sales of pharmaceuticals and consumer health care.
Net income and diluted earnings per share for the year ended 1998 were
$2,474.3 million and $1.85, respectively. 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 an after-tax
charge for restructuring and related asset impairments of $240.5 million ($0.18
per share--diluted) discussed above. Excluding the gain on the sale and the
special charge, net income and diluted earnings per share for the year ended
1998 were $2,384.0 million and $1.78, respectively. Results for the year ended
1997 included the after-tax special charge aggregating $117.0 million ($0.09 per
share--diluted) associated with the voluntary market withdrawal of Redux and
Pondimin. Excluding the special charge, net income and diluted earnings per
share for the year ended 1997 were $2,160.1 million and $1.65, respectively.
Excluding these special charges and the gain on the sale from the 1998 and 1997
results, net income and diluted earnings per share for the year ended 1998
increased 10% and 8%, respectively, compared with 1997 amounts. These increases
in net income and diluted earnings per share were greater than the as-reported
net sales increase 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.
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 developed, which currently are 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 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 pharmaceutical, consumer 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 and 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 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 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
American Home Products Corporation and Subsidiaries 53
<PAGE>
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.
The rapid acceptance of genetically modified seed has generated
competition from agricultural products not traditionally used on crops grown
from conventional seed, which has had an adverse effect on the results of
operations of the agricultural products segment for the year ended 1999 and is
expected to continue to have an adverse effect in subsequent periods. In
addition, depressed agricultural commodity prices are expected to continue to
have an adverse effect on farmer demand for premium crop protection products.
The Company is pursuing the divestiture of the agricultural products business.
Liquidity, Financial Condition and Capital Resources
Cash and cash equivalents increased $710.4 million in 1999 to $1,892.7 million.
Cash flows from operating activities of $2,181.6 million, net proceeds from debt
issuances of $1,639.4 million, proceeds from the sales and maturities of
marketable securities of $383.9 million, proceeds from the sales of other assets
of $323.5 million and proceeds from exercises of stock options of $234.3 million
were used principally for dividend payments of $1,183.6 million, purchases of
treasury stock of $1,058.3 million, capital expenditures of $1,000.3 million and
purchases of marketable securities of $784.6 million. Capital expenditures
included strategic investments in manufacturing and distribution facilities
worldwide, and the expansion of the Company's research and development
facilities.
At December 31, 1999, the carrying values of cash and cash equivalents
approximated fair value due to the short-term, highly liquid nature of 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.
As discussed in Note 10 to the Consolidated Financial Statements, on
October 7, 1999, the Company announced a comprehensive, national settlement to
resolve litigation brought against the Company regarding the use of Redux or
Pondimin and recorded a charge of $4,750.0 million in the 1999 third quarter to
provide for expected payments to the settlement funds contemplated by the
nationwide, class action settlement, other judgments and settlements (including
estimated claims for PPH and any opt outs), and future legal costs, net of
available insurance. Payments to the settlement funds in 1999 were $75.0
million, with approximately $1.78 billion expected to be paid over approximately
the next two years (approximately $1.0 billion of which is subject to final
judicial approval). Payments to provide settlement benefits, if needed, may
continue for approximately 16 years after final judicial approval. Future
payments related to the litigation settlement are anticipated to be financed
through additional commercial paper borrowings, existing cash resources and cash
flows from operating activities.
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 due to the
high concentration of sales in the United States. No single foreign currency
accounted for more than 5% of 1999 worldwide sales, except for the British Pound
which accounted for 6% of 1999 worldwide sales. As previously discussed, 11
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 until January 1, 2002.
Collectively, these countries accounted for 14% of 1999 worldwide sales.
The Company's $1.0 billion of 7.70% notes, which were due February 15,
2000, have been 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
$1.8 billion termination fee received as a result of the termination of the
merger agreement with Warner-Lambert Company to pay the $1.0 billion of 7.70%
notes on February 15, 2000. The significant increase in commercial paper was due
primarily to financing treasury stock acquisitions as part of the Company's
common stock repurchase program and funding the purchase of a $450.0 million
convertible subordinated note issued by Immunex Corporation, a majority-owned
subsidiary of the Company. The increase in marketable securities represents the
investment by Immunex Corporation of the proceeds from this note.
The Company has outstanding $1.0 billion of 7.90% notes due February 2005,
under a $3.5 billion shelf registration statement. The Company also has
outstanding $250.0 million of 6.50% notes due October 2002 and $250.0 million of
7.25% debentures due March 2023. These non-callable notes and debentures are
unsecured and unsubordinated.
At December 31, 1999, the fair value of the Company's outstanding debt was
$5,584.4 million. If interest rates were to increase or decrease by one
percentage point, the fair value of the outstanding debt would decrease or
increase by approximately $79.9 million.
At December 31, 1999, the fair value of the $837.9 million notional amount
of foreign exchange forward contracts was a net payable of $14.1 million. As
foreign currency 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 $78.9 million.
The Company has a common stock repurchase program under which the Company
is authorized, at December 31, 1999, to repurchase 13,906,960 additional shares
in the future. Depending upon, among other things, market conditions, the
Company intends to continue to repurchase common stock during 2000.
54 American Home Products Corporation and Subsidiaries
<PAGE>
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, including the amount already committed at December 31,
1999 of $606.7 million, without restricting its ability to make further
acquisitions as may be appropriate. The Company received a $1.8 billion
termination fee as a result of the termination of its merger agreement with
Warner- Lambert Company. These proceeds will further enhance the Company's cash
flow position.
Year 2000
The Company recognized the importance of addressing Year 2000 problems and
committed certain resources to identify and correct potential problems in order
to minimize the impact on its business. The Company successfully completed the
Year 2000 rollover with no business interruptions.
The Company's Year 2000 program was organized into three functional areas:
Information Technology, which included computer systems and related application
software; Embedded Chips, which were hidden internal components of many
non-computer devices and machinery; and Business Partners, which included
suppliers, customers and governmental agencies.
The costs of remediation and appropriate replacement projects for Year
2000 activities were, in the aggregate, approximately $123.0 million through the
end of 1999, and $7.0 million is expected to be incurred in 2000. The total
costs included capital and operating costs of approximately $37.0 million and
$93.0 million, respectively, for all phases within each functional area. These
costs did not include any internal costs.
The remediation effort involved updating and improving existing systems
and processes that will support the Company in the future. Business continuity
plans also were prepared for more than 170 locations around the world to help
maintain critical business operations in the event of a Year 2000-related
disruption. The Company's investment in the Year 2000 program was prudent and
necessary to sustain normal operations.
Company Statements for Forward-Looking Information
This Annual Report, 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. 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 1998 Annual Report on Form 10-K and the Company's 1999
Annual Report on Form 10-K, which will be filed by March 30, 2000.
American Home Products Corporation and Subsidiaries 55
<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 Essner
Executive Vice President
John D. Feerick 2,3,5
Dean, Fordham University School of Law
John P. Mascotte 3,5
President and
Chief Executive Officer,
Blue Cross and Blue Shield
of Kansas City, Inc.
Mary Lake Polan,
M.D., Ph.D. 4,5
Chairman and Professor,
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.
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 6,7,8
Chairman, President and
Chief Executive Officer
Robert Essner 6,7,8
Executive Vice President
Joseph J. Carr 6,7
Senior Vice President
John R. Considine 6,7,8
Senior Vice President--Finance
Louis L. Hoynes, Jr. 6,7,8
Senior Vice President and
General Counsel
Robert I. Levy, M.D. 6,7
Senior Vice President--
Science and Technology
Kenneth J. Martin 6,7,8
Senior Vice President and
Chief Financial Officer
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
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 6,8
Vice President--
Human Resources
Thomas M. Nee 6,8
Vice President--Taxes
Jack M. O'Connor
Vice President and Treasurer
Marily H. Rhudy
Vice President--
Public Affairs
Steven A. Tasher
Vice President--Environmental
Affairs and Associate
General Counsel
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
8 Retirement Committee
* AHP is majority owner
56 American Home Products Corporation and Subsidiaries
<PAGE>
Principal Products - United States
Ethical Pharmaceuticals and Vaccines
Anti-Infectives
Bicillin
Minocin
Pipracil
Suprax
Zosyn
Cardiovascular
Cordarone
Cordarone I.V.
Inderal LA
ISMO
Sectral
Zebeta
Ziac
Musculoskeletal
Enbrel
Lodine XL
Oruvail
Synvisc
Neuroscience
Ativan
Effexor
Effexor XR
Sonata
Specialty Products
BeneFIX
Neumega
Rapamune
Vaccines
Acel-Imune
FluShield
HibTITER
Pnu-Imune 23
Prevnar
Tetramune
Women's Health
Alesse
Lo/Ovral
Nordette
Premarin
Premarin Vaginal
Cream
Premphase
Prempro
Triphasil
Consumer Health Care
Analgesics and
Cough/Cold/Allergy
Advil
Advil Cold & Sinus
Anacin
Children's Advil
Dimetapp
Dristan
Robitussin
Robitussin Honey
Products
Nutritional
Supplements
Caltrate
Centrum
Centrum Focused
Formulas
Centrum Herbals
Centrum Performance
Centrum Silver
Solgar
Other Products
Anbesol
Chap Stick
Denorex
FiberCon
Preparation H
Primatene
Agricultural Products
Herbicides
Arsenal
Assert
Backdraft
Cadre
Chopper
Extreme
Lightning
Prowl
Pursuit
Raptor
Scepter
Squadron
Steel
Fungicides and
Insecticides
Acrobat
Amdro
Counter
Thimet
Animal Health Care
Veterinary
Pharmaceuticals and
Biologicals
Cydectin
Duramune
EtoGesic
Fel-O-Vax
Fluvac
Ketaset
LymeVax
Nolvasan
Panalog
PolyFlex
PYRAMID
Quest
Rabvac
Suvaxyn
Synovex
Telazol
ToDAY
ToMORROW
Torbugesic
Triangle
The above principal products are identified as trademarks used by American Home
Products Corporation and its subsidiaries.
American Home Products Corporation and Subsidiaries 57
<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 27, 2000,
at the Headquarters Plaza Hotel in Morristown, New Jersey.
Stockholder Account Information
ChaseMellon Shareholder Services, L.L.C. is the transfer agent, registrar,
dividend disbursing agent and dividend reinvestment agent for the Company.
Stockholders 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
Form 10-K
A copy of the Company's Annual Report on Form 10-K may be obtained by any
stockholder without charge through ChaseMellon Shareholder Services, L.L.C.
Master Investment Plan
The plan provides stockholders 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.
58 American Home Products Corporation and Subsidiaries
<PAGE>
Design: Arnold Saks Associates
Text: Linda Errante
Page 21 cell photo: University of Washington
American Home Products Corporation and Subsidiaries 59
<PAGE>
[LOGO](R) American Home Products Corporation
Five Giralda Farms
Madison, New Jersey 07940
EXHIBIT 21
<TABLE>
SUBSIDIARIES OF THE COMPANY
DECEMBER 31, 1999
State or Country
Name of Incorporation
<S> <C>
Domestic
American Cyanamid Company Maine
Ayerst-Wyeth Pharmaceuticals Incorporated Delaware
Berdan Insurance Company Vermont
Cyanamid International Corporation Limited Delaware
Genetics Institute, Inc. Delaware
Greenwich Holdings 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-Whitehall Pharmaceuticals, Inc. Puerto Rico
Foreign
AHP Finance Ireland Limited Ireland
AHP Manufacturing B.V. Netherlands
Cyanamid Agro France
Cyanamid de Argentina S.A. Delaware
Cyanamid Agrar GmbH & Co. KG Germany
Cyanamid (Japan) Ltd. Japan
Cyanamid Quimica do Brasil Ltda. Brazil
Cyanamid Taiwan Corporation Taiwan
Dimminaco AG Switzerland
John Wyeth & Brother Limited England
Laboratorios Wyeth-Whitehall Ltda. Brazil
Wyeth Australia Pty. Limited Australia
Wyeth-Ayerst Canada Inc. Canada
Wyeth-Lederle France
Wyeth-Lederle S.p.A. Italy
Wyeth Lederle Nordiska A.B. Sweden
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 25, 2000 included
in American Home Products Corporation's (the Company) Annual Report to
Shareholders for the year ended December 31, 1999. Furthermore, we consent to
the incorporation of our reports dated January 25, 2000 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, 333-15509 and 333-76939).
ARTHUR ANDERSEN LLP
New York, New York
March 29, 2000
<TABLE> <S> <C>
<ARTICLE> 5 EXHIBIT 27
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE AMERICAN HOME PRODUCTS CORPORATION AND SUBSIDIARIES CONSOLIDATED
BALANCE SHEET AS OF DECEMBER 31, 1999 AND CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1999, 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-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,892,715
<SECURITIES> 520,587
<RECEIVABLES> 3,520,406
<ALLOWANCES> 240,108
<INVENTORY> 2,244,834
<CURRENT-ASSETS> 9,738,108
<PP&E> 7,061,862
<DEPRECIATION> 2,496,836
<TOTAL-ASSETS> 23,906,277
<CURRENT-LIABILITIES> 7,110,223
<BONDS> 3,668,643
0
61
<COMMON> 434,639
<OTHER-SE> 5,780,047
<TOTAL-LIABILITY-AND-EQUITY> 23,906,277
<SALES> 13,550,176
<TOTAL-REVENUES> 13,550,176
<CGS> 3,692,522
<TOTAL-COSTS> 3,692,522
<OTHER-EXPENSES> 1,739,960
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 213,866
<INCOME-PRETAX> (1,925,626)
<INCOME-TAX> (698,505)
<INCOME-CONTINUING> (1,227,121)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,227,121)
<EPS-BASIC> (0.94)
<EPS-DILUTED> (0.94)
</TABLE>
EXHIBIT 99
Exhibit 99 to the Annual Report on Form 10-K
for the Fiscal Year Ended December 31, 1999
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, litigation, 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:
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 United States, 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.
Government laws and regulations affecting U.S. and international
operations, including trade, monetary and fiscal policies, taxes
(including the phasing out of 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 possible regulatory action and the regulatory approval
processes and possible regulatory action of other non-U.S. countries,
including, without limitation, delays in approval of new products or
business interruptions related to regulatory action.
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,
impairments in asset carrying values, 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, REDUX and PONDIMIN. Other legal
factors include, without limitation, antitrust litigation, environmental
concerns and patent disputes with competitors, any of which could preclude
commercialization or negatively affect the profitability of existing
products or products in development.
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 economic conditions including inflation and fluctuations in
interest rates and foreign currency exchange rates.
