1993 Annual Report
American Home Products
Corporation
Special Report:
----------------------
A Global Commitment
to Advancing
Medical Therapy
American Home Products Corporation
American Home Products Corporation is an innovation-driven
company focused on discovering and commercializing new, cost-effective
products that represent significant therapeutic advances. Our global
scientific discovery and clinical program is at the leading edge of medical
science in areas of critical need where the quality of life can be
improved for millions of people.
Our Company's broad lines of prescription drugs, nutritionals,
over-the-counter medications, and medical devices, supplies and instru-
mentation make an important contribution to health care worldwide.
We also are known for quality food brands that are highly regarded by
consumers in the United States and Canada.
In 1993, American Home Products Corporation achieved record
sales and earnings, and the Company increased its dividend for the 42nd
consecutive year.
On the cover: Lorayne Jenkins, Associate Pharmacologist at Wyeth-Ayerst
Research in Princeton, New Jersey, is one of the many dedicated scientists
and technicians who contribute to our Company's research and development
efforts.
Contents
2 Chairman's Report to Shareholders
5 Special Report:
A Global Commitment to
Advancing Medical Therapy
13 Review of Operations
25 Financial Section
44 Directors and Officers
45 Corporate Data
Financial Highlights
Net Sales by Segment
Pharmaceuticals 57.5%
- ---------------------------
Consumer
Health Care 21.0%
- ---------------------------
Medical Supplies
and Diagnostic
Products 10.2%
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Food Products 11.3%
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[Graph representing earnings per share]
[Graph representing dividends per share]
[Graph representing net sales]
[Graph representing net income]
Years Ended December 31, 1993 1992*
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(In thousands except per share amounts)
Net sales .............................. $8,304,851 $7,873,687
Net income ............................. 1,469,300 1,460,842
Net income per common share ............ 4.73 4.65
Dividends per common share ............. 2.86 2.66
Working capital ........................ 3,223,273 3,059,360
Shareholders' equity ................... 3,876,488 3,562,589
* 1992 net income and net income per common share include $90 million
of net income ($.29 per share) related to accounting changes and
the charge for acquired research associated with the
acquisition of a majority stake in Genetics Institute, Inc.
Chairman's Report to Shareholders
I am pleased to report that in 1993 American Home Products Corporation achieved
another year of record sales and earnings, and the dividend was increased for
the 42nd consecutive year. 1993 also was a year in which we added to our broad
portfolio of products in the United States and throughout the world while
enhancing our focus on the discovery, development and commercialization of new,
innovative products.
This year's performance was achieved in spite of a very challenging
environment for all in the health care industry in the United States and,
indeed, throughout the world. The political and economic debate about domestic
health care reform has intensified in the past year, leaving the industry
subject to unprecedented scrutiny and criticism. Therefore, I will begin this
letter by making several points about these reform initiatives and their
potential impact upon our Company.
There is a clear need for significant health care reform in the United
States. We support the availability of affordable health care coverage for all
U.S. citizens. We also believe that this country has a social obligation and
strong economic interest in preserving the best health care system in the world.
The United States has a long-standing history of supporting innovation and
rewarding innovators; but that tradition would be jeopardized by reforms which
include government price controls.
Price controls in this industry are not the solution. We believe that
constraining free market forces through government regulation would not only
fail to resolve the problem but would significantly impact the funds available
for research and development. If innovation is impeded by artificial economic
restraints, important and cost-effective therapeutic advances would be
undermined. The U.S. pharmaceutical industry would lose its global leadership
position at the expense of its citizens and their good health.
Our industry is an important part of the solution, not the problem. We
believe that the orientation toward government regulation could lead to changes
that would impair our ability to conquer disease and lower costs.
We strongly urge legislators to consider the following:
o Pharmaceuticals prevent, control and cure some of the most devastating and
expensive health problems. Within recent memory, polio, smallpox, influenza,
diphtheria, whooping cough and measles claimed many millions of lives each year.
Pharmaceuticals have all but eradicated these diseases or reduced their death
rate to nearly zero. Further, many millions of people suffering from depression,
cancer, heart disease, arthritis and other chronic illnesses now can lead
productive lives because of effective drug therapy.
o Our industry is poised to make an even bigger difference. It invested about
$12.6 billion, or 15 cents of each sales dollar, in R&D during 1993. This level
of spending, per dollar of sales, is approximately four times higher than the
average investment of other research-intensive industries based in the United
States.
o Our industry is a highly cost-effective component of the health care system.
In spite of our industry's enormous investment in R&D, prescription drug costs
as a percentage of total U.S. health care costs have fallen from 15% to less
than 8% during the past three decades and continue to decline. Drug spending has
remained at less than 1% of gross domestic product (GDP) while overall health
care spending has risen from 5% to 14% of GDP in the same period.
The marketplace already is working to hold down the cost of prescription
drugs. Weighted average price increases for our Wyeth-Ayerst U.S.
pharmaceuticals have been held at a level approximately equal to the Consumer
Price Index in 1992 and 1993, even in light of our additional investments in
R&D. The highly competitive U.S. pharmaceutical industry has, in fact, helped
keep overall health care cost increases down. Private sector initiatives to
control total health care cost are having a substantial impact and should be
permitted to continue.
We expect to continue to play a positive role in building on the
accomplishments of the pharmaceutical industry as an integral part of the health
care system. We are committed to solving its problems within the context of real
competition and clear and productive incentives for substantial innovation.
We now turn to a discussion of financial results and other major
operational developments in our Company.
Financial Highlights of 1993
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o Net sales increased 5% from last year to $8,304,851,000.
o Net income, exclusive of the 1992 accounting changes and the charge for
acquired research related to the acquisition of a majority stake in Genetics
Institute, Inc., increased 7% to $1,469,300,000 in 1993.
o Earnings per share, excluding the effect of the accounting changes and the
charge for acquired research, increased 8% to $4.73 per share.
2
o In October 1993, the Board of Directors approved management's recommendation
to increase the quarterly dividend to $.73 per share. With this increase, the
1993 dividend was $2.86, an 8% increase over the 1992 dividend of $2.66.
[Photograph of John R. Stafford, Chairman, President and Chief Executive
Officer]
Research and Development
- --------------------------------------------------------------------------------
Underscoring the priority we attach to product innovation as the key to our
Company's future growth, our R&D expenditures, including those of Genetics
Institute, increased to $663 million in 1993. This represents a 20% increase
over the prior year.
We are focused on areas of critical need where we have significant
knowledge based on established products and intensive R&D programs. We also are
"fast tracking" product candidates that have the greatest potential. A special
report highlighting several of our R&D programs follows this letter.
Ethical Pharmaceuticals
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A number of positive steps, including important new drug introductions, were
taken to strengthen our broad-based pharmaceutical business. We established the
Wyeth-Ayerst Women's Health Research Institute in 1993 to build upon our global
leadership position in women's health care. Premarin, the most widely prescribed
drug in the United States, continued to expand in worldwide markets. A major
addition to our U.S. pharmaceutical product line is the structurally novel
antidepressant, Effexor, which will be available in the spring of 1994. The
approval and introduction of Oruvail and Lodine 400 mg. strengthen
Wyeth-Ayerst's position in the important anti-inflammatory market. 1993 also saw
the marketing launch of Genetics Institute's Recombinate, the first genetically
engineered form of recombinant antihemophilic factor (rAHF), a blood-clotting
protein used to treat hemophilia.
We continued to enter into collaborative scientific ventures that are using
biotechnology and other important emerging technologies to develop new therapies
in many areas. Wyeth-Ayerst, in 1993, signed a collaborative agreement with
Cygnus Therapeutic Systems, Inc. to develop and market transdermal hormone
replacement products on a global basis.
Consumer Health Care
- --------------------------------------------------------------------------------
The performance of major brands such as Advil, Robitussin and Dimetapp
strengthened Whitehall-Robins as a leader in the increasingly competitive
nonprescription analgesic and cough/cold/allergy categories in the United
States.
Our excellent, growing core franchises in the United States place us in a
strong position to capture a larger share of the self-medication market
worldwide. This market is expected to expand significantly as governments seek
to control health care costs and as consumer interest in self-diagnosis and
self-treatment increases. We are moving vigorously to capitalize on these trends
by extending our core franchises internationally and by building a pipeline of
prescription products that are candidates for "switching" to the OTC market.
Animal Health Care
- --------------------------------------------------------------------------------
Strong growth for Fort Dodge Laboratories in the United States augmented our
leadership in key areas of veterinary pharmaceuticals and biologicals. LymeVax,
our Lyme disease vaccine, became the single largest dollar volume canine vaccine
in the United States. Fort Dodge also began to introduce a wide range of
products in Europe.
3
Medical Supplies and Hospital Products
- --------------------------------------------------------------------------------
Sherwood Medical Company continued to benefit from manufacturing efficiencies
and marketing programs designed to improve competitiveness in an increasingly
price-sensitive market. A growing number of value-added products are being
developed and marketed that improve therapy and enhance patient and health care
worker safety while reducing costs.
A contribution to sales growth was made by Symbiosis Corp., a leading
developer and manufacturer of disposable instruments for laparoscopic and
endoscopic surgery acquired in September 1992. Sales for Symbiosis as well as
for our U.S. perinatal monitoring and medical diagnostic businesses continue to
be affected by the uncertainty about health care reform. We believe these
businesses will regain momentum as the health care system places greater
emphasis on early diagnosis and screening of patients to help contain costs.
Food Products
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The brands of American Home Food Products hold leading positions in several key
food categories, including prepared pastas, glazed popcorn and cooking sprays.
In 1993, American Home Foods added to its quality line by acquiring M. Polaner,
Inc., a leading manufacturer of all-natural spreadable fruit products and wet
spices.
Changes in Management and Headquarters Relocation
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Dr. Bernard Canavan, President of American Home Products, retired early in 1994
after 25 years of exemplary service to our Company. Dr. Canavan's medical
background combined with his strong managerial skills and vision were extremely
valuable to our Company as we increased our commitment to health care markets
and to global R&D programs. We thank Dr. Canavan for his many contributions.
In January 1994, William F. Laporte announced that he would not stand for
re-election to the Board of Directors. In recognition of his outstanding
contributions to our Company, including 37 years of service as a Director, the
Board named Mr. Laporte Director Emeritus, effective immediately following the
Company's Annual Meeting on April 20, 1994.
Joining the Board in 1993 was Clifford L. Alexander, Jr. The Company will
benefit greatly from Mr. Alexander's knowledge and experience, which includes
serving as Chairman of the Equal Employment Opportunity Commission and Secretary
of the Army.
In May 1993, Joseph J. Carr and Fred Hassan were elected Senior Vice
Presidents of the Company. Also elected to corporate positions in 1993 were John
B. Adams, Vice President-Corporate Development; Thomas G. Cavanagh, Vice
President-Investor Relations; E. Thomas Corcoran, Vice President; and Roxanne E.
Parker, Treasurer.
In January 1994, Terrence L. Stecz was named President of Whitehall-Robins.
Headquarters personnel of the Corporation as well as Whitehall-Robins and
American Home Foods relocated from New York City and Richmond, Virginia, to
Madison, New Jersey, in November 1993.
Outlook for 1994 and Beyond
- --------------------------------------------------------------------------------
The challenges of change continue in our industry. We are committed to seeking
solutions to our nation's health care problems that reflect the important
contributions the pharmaceutical industry makes to the well-being of all
citizens.
At the same time, we are determined that our Company will be properly
positioned for the new era that is unfolding. We have much to be confident
about. Our growing R&D effort holds the promise of innovative therapeutic
breakthroughs that can alleviate suffering, prevent illness and help to reduce
the burden of health care costs. Our product franchise is among the broadest,
most competitively priced and strongest in the industry. With our financial
strength, we can continue to make major investments to enhance our growth.
The success of our Company ultimately depends on the skill, dedication and
hard work of our employees. On behalf of the Board of Directors, I thank them
for their outstanding efforts in 1993. I also want to thank the Board for its
continued counsel and support.
Times of change present unique challenges and opportunities. Working
together, we can meet these challenges and make the years ahead the best for
American Home Products.
John R. Stafford
Chairman, President and Chief Executive Officer
February 24, 1994
4
Special Report
A Global Commitment to Advancing
Medical Therapy
Research and development are at the center of efforts by the people of American
Home Products Corporation to contribute to the quality of life worldwide.
Our programs, which represented an investment of more than $650 million in
1993, are focused on areas of critical need, including women's health care,
inflammatory disease, central nervous system disorders, cardiovascular and
metabolic disease, oncology and infectious disease.
This major commitment enabled us to make significant progress during 1993
in bringing important therapeutic advances to the health care community.
Approvals to market three new prescription drug products were received in the
United States. Wyeth-Ayerst Laboratories entered 1994 with 26 new molecular
entities, vaccines or major line extensions in various stages of clinical
development. An additional six Investigational New Drug applications are
expected to be filed during the year. Genetics Institute, Inc., a major
biotechnology company in which we are a majority shareholder, increased its
development portfolio from three to five promising product candidates in 1993.
Further, we shared expertise and proprietary knowledge in a broad range of
therapeutic areas with an expanding number of premier biotechnology companies
with which we have collaborative arrangements seeking to develop new therapies.
In this special report, we highlight several initiatives within key areas
of therapeutic focus that could represent breakthroughs in treating serious
health problems. The individuals pictured are members of the team dedicated
to each research initiative and are representative of the many
talented people throughout our Company and at Genetics Institute.
Central Nervous
System
Disorders
Immune
System Modulation
Oncology
Cardiovascular
Disease
Women's Health Care
Infectious
Disease
Metabolic Disease
5
Central Nervous System Disorders
Providing an Important Option for
Treating Depression
[graph representing total patients treated for depression in the United States]
G. Morris Husbands, Ph.D.
Research Fellow, Wyeth-Ayerst Research, Princeton, N.J.
Depression is a serious and expensive illness that afflicts many millions of
people worldwide. If left untreated, it results in prolonged suffering,
deterioration of family and work relationships, and a heightened risk of
suicide and physical illness.
Effexor
Effexor (venlafaxine HCl), a product of Wyeth-Ayerst's discovery research
program, is expected to be an important option in treating depression.
This structurally novel antidepressant received market clearance in the
United States in 1993 and is being reviewed by health regulators
worldwide. Effexor specifically inhibits both serotonin and
norepinephrine reuptake, which play pivotal roles in the cause of
depression. In clinical studies, Effexor has demonstrated efficacy and
safety, and its side effects are comparable to the leading
antidepressants on the market.
The annual cost of depression
in the United States is
estimated to be $43.7 billion.
6
Immune System Modulation
Preventing and Treating Organ
Transplant Rejection
Joseph S. Camardo, M.D.
Rapamune Task Force Chairman, Wyeth-Ayerst Research, Radnor, Pa.
Kidney and heart transplants enable many thousands of people to live productive,
fulfilling lives. However, immunosuppressants are needed to ensure that
the transplanted organs are not rejected by the body's immune system.
Side effects and transplant rejection occur with all current therapies.
Rapamune
Rapamune (rapamycin), in contrast to currently marketed immunosuppressant
products, has been shown to exert a unique pharmacologic effect on the
immune system. In animal models predictive of organ rejection, these
properties translated into a superior efficacy and safety profile in the
treatment of acute and chronic organ rejection. Studies now are being
conducted in humans to determine the utility of Rapamune as first-line
chronic therapy for the prevention and treatment of organ rejection.
Rapamune reaches a milestone in 1994 when Wyeth-Ayerst reviews plans with
the U.S. Food and Drug Administration (FDA) for Phase II/III clinical
studies.
In 1992, close to 20,000
kidney transplant procedures
were performed worldwide
[Graph representing organ transplants in the United States]
7
Oncology
Enhancing the Safety of
Chemotherapy
Paul F. Schendel, Ph.D.
Project Director, rhIL-11, Genetics Institute, Cambridge, Mass.
One of the most common side effects of chemotherapy is the
lowering of platelet counts, a condition known as thrombocytopenia.
Platelets are the blood cells that help to control bleeding. Platelet
transfusion from another individual to the patient can be used when
severe platelet reduction occurs so that chemotherapy may continue.
However, platelet transfusion is expensive and is associated with risks
of transmission of infectious diseases as well as allergic reactions.
Neumega Recombinant-Human Interleukin Eleven (rh IL-11)
Genetics Institute is developing this novel human regulatory protein using
genetic engineering. A Phase I study, completed in 1993, shows that
Neumega rhIL-11 can increase platelet production and is well tolerated by
patients even through multiple cycles of chemotherapy treatment. A
multi-center Phase II study of Neumega rhIL-11 was initiated late in 1993
and is ongoing. In addition, a Phase I/II study of Neumega rhIL-11 in
patients undergoing extremely high-dose chemotherapy with bone marrow
transplantation was started in 1993.
The use of platelet transfusions
presents a number of significant
medical risks and is costly.
[Graph representing Cancer - New Cases and Mortality - 1993, United States]
8
Cardiovascular Disease
Leading in Research on Coronary
Heart Disease in Women
[Graph representing Estimated Cost of Heart Disease by Type of Expenditure]
# Hospital/nursing home services
$37.2 billion
# Physician/nurse services
$8.7 billion
# Lost output $8.0 billion
# Drugs $2.4 billion
Betty S. Riggs, M.D.
Director of Clinical Research, Wyeth-Ayerst Research, Radnor, Pa.
Cardiovascular research has historically focused on men.
However, coronary heart disease (CHD) is the most common cause of death
among women over 50 years of age. Further, women are more likely than men
to suffer pain and disability from angina and to die from myocardial
infarction during angioplasty and heart bypass procedures.
Heart and Estrogen-Progestin Replacement Study (HERS)
HERS is the largest clinical trial ever undertaken to examine the role of
hormone replacement therapy (Premarin MPA) as protection against CHD
events in postmenopausal women with existing coronary heart disease. This
landmark $40 million, multi-center study is being conducted and funded by
Wyeth-Ayerst in the United States. HERS ultimately will enroll more than
2,300 women and is scheduled for completion within five years. The study
is expected to complement the growing worldwide recognition of Premarin
(conjugated estrogens) as a cardioprotection therapy.
At older ages, women who have
heart attacks are twice as
likely as men to die from them
within a few weeks.
9
Women's Health Care
Focusing on Critical Health Care
Needs for Women
[Graph representing Annual Diagnosis of Osteoporosis Among Women -
United States 1991-93]
Andres Negro-Vilar, M.D., Ph.D.
Vice-President, Women's Health Research Institute, Wyeth-Ayerst
Research, Radnor, Pa.
Disorders associated with menopause, such as osteoporosis and cardiovascular
disease as well as cancer, reproductive diseases, contraception,
infertility and sexually transmitted diseases, are among the most serious
health concerns for women worldwide. The at-risk group for disorders
related to menopause alone will number more than 500 million by the year
2000.
[picture of Women's Health Research Institute]
In 1993, Wyeth-Ayerst established the Women's Health Research Institute
(WHRI) in Radnor, Pennsylvania, to expand its leadership position in
women's health care. The WHRI will foster the discovery of new drugs
using basic and clinical research as well as the development of products
through external alliances. The Institute's first initiatives are
directed at finding new therapies for osteoporosis, endometriosis and
contraception and will be expanded to uncover new therapies for
menopausal symptoms, reproductive diseases and dysfunctions, and
infertility. These efforts build on Wyeth-Ayerst's extensive knowledge as
the premier supplier of hormone replacement therapy and oral
contraceptives worldwide.
In osteoporosis, the density
of bone tissues decreases,
increasing the brittleness
of the bones and the probability
of fractures.
10
Infectious Disease
Finding a Breakthrough
Rotavirus Vaccine
William H. Wainwright, Ph.D.
Associate Director, Biological Development, Wyeth-Ayerst
Research, Marietta, Pa.
Nearly 1 million lives are claimed by acute infantile gastroenteritis each year.
This disease is the leading cause of death among young children in
developing nations. The primary symptom is diarrhea, and the severest
cases are caused by the rotavirus. Finding a vaccine is one of the
world's top health priorities.
Rotavirus Vaccine
A Wyeth-Ayerst rotavirus vaccine that could represent a dramatic advance in
the prevention of severe childhood diarrhea began final clinical studies
in 1994. The vaccine is being tested in concert with the World Health
Organization, European government health agencies and the FDA. To date,
more than 9,000 subjects worldwide have been studied. The vaccine is
administered orally, which facilitates distribution and immunization in
geographically remote areas. It is expected to be the first product
manufactured in Wyeth-Ayerst's new Biological Development Center, a
state-of-the-art facility in Marietta, Pennsylvania, that is dedicated to
the development, production and testing of new live virus vaccines.
Rotaviruses are the major
cause of viral diarrhea in
human infants.
[Graph representig Cases of Infant Death from Diarrheal Illness in Less-
Developed Countries]
# Rotavirus 1.0 million
# Other causes 3.0 million
11
Metabolic Disease
Developing an Innovative
Diabetic Therapy
[Graph representing Total Economic Cost of Diabetes, 1992 - United States]
$91.9 Billion
- --------------------------
# Institutional/outpatient
care 49.2%
# Mortality 29.4%
# Long-term morbidity 12.2%
# Short-term morbidity 9.2%
Thomas Hohman, Ph.D.
Research Fellow, Wyeth-Ayerst Research, Princeton, N.J.
The complications of diabetes can seriously diminish the quality of life for
more than 120 million diabetics worldwide. More than 50% of diabetics
eventually will suffer from neuropathy, a degeneration of the nervous
system, and retinopathy, a major cause of blindness. Nephropathy, a
kidney ailment, also afflicts more than half of all diabetics and is one
of the leading causes of death in juvenile diabetics.
Alredase
Wyeth-Ayerst's Alredase (tolrestat) is the first of a class of drugs known as
aldose reductase inhibitors to be commercially available for the
management of diabetic complications. It has been approved as a therapy
for diabetic neuropathy in 19 countries and is marketed in nine of them.
Alredase is in advanced Phase III studies in the United States for the
treatment of the diabetic complications of neuropathy, retinopathy and
nephropathy. Filing of a New Drug Application for the neuropathy
indication is planned in 1994 upon successful completion of multi-center
studies in the United States and Canada. Data from these studies, the
most expansive of their kind, are expected to have a significant impact
on the management of diabetic neuropathy.
Each year in the United States,
nearly 50,000 people with
diabetes have lower limbs
amputated because of the
complications of neuropathy.
12
Review of Operations
Ethical Pharmaceuticals, Vaccines and Nutritionals
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The broad product lines of ethical pharmaceuticals, vaccines and nutritionals of
Wyeth-Ayerst Laboratories are widely recognized by the medical community and
people worldwide. In the United States, Wyeth-Ayerst prescription products are
dispensed more often than those of any other research-based pharmaceutical
company. Wyeth-Ayerst also has leading products in major therapeutic areas
internationally. Global basic and clinical research is concentrated on
discovering and developing innovative products where important therapeutic gaps
exist. Genetics Institute, Inc., of which the Corporation is a majority
shareholder, is in the forefront of the biopharmaceutical industry, focusing on
the discovery of protein-based therapies.
Women's Health Care - Wyeth-Ayerst, the leader in women's health care,
furthered its commitment to remain at the forefront in research and education in
women's health care by establishing the Wyeth-Ayerst Women's Health Research
Institute in 1993. It is devoted to basic and clinical research in areas of
significant need, including hormone replacement therapy, contraception and
reproductive diseases and dysfunctions. Work proceeded on the landmark $40
million Heart and Estrogen-Progestin Replacement Study (HERS), which
investigates Premarin MPA's use for women with pre-existing coronary artery
disease. In addition, Wyeth-Ayerst signed an agreement with the National
Institutes of Health (NIH) to provide hormone replacement therapy (both Premarin
and Premarin MPA) and placebo for the NIH's "Women's Health Initiative" trial
that will examine the causes and prevention of heart disease, cancer and
osteoporosis in some 160,000 women aged 50 and over.
Wyeth-Ayerst maintained its worldwide position as the largest provider of
hormone replacement therapy and hormonal contraceptive products.
Premarin (conjugated estrogens), the number-one estrogen replacement
therapy, continued to be the most widely prescribed drug in the United States,
sustaining several years of growth. Premarin is used to prevent and treat
osteoporosis, a debilitating disease that afflicts more than 25 million
Americans and has related annual health care costs of approximately $10 billion.
Premarin also is a therapy for short-term symptoms of menopause such as hot
flashes and vaginal atrophy.
Premarin sustained impressive growth in international markets, gaining
rapidly in recognition as a treatment for the short-term symptoms of menopause
as well as protection from the long-term effects of estrogen deficiency,
including osteoporosis and cardiovascular disease. It now is registered in 86
countries and has approvals pending in 18 others.
Global registration filings for Premarin MPA were completed in 21
countries, and registration is planned to be completed in the United States in
1994. This combination estrogen and progestin product is indicated for the
treatment and prevention of menopausal symptoms and osteoporosis. The database
for Premarin MPA contains information on the protective effects of the progestin
MPA (medroxyprogesterone acetate) on the endometrium and the positive effects of
conjugated estrogens - Premarin - on lipoproteins.
Combination products grew in physician and consumer support
internationally, including Prempak C (conjugated estrogens and norgestrel),
which continued to enjoy strong support in the United Kingdom for treatment of
postmenopausal disorders and osteoporosis.
In keeping with plans to make available a variety of treatment options for
estrogen deficiency, Wyeth-Ayerst entered into a collaborative arrangement with
Cygnus Therapeutic Systems, Inc. to develop and market transdermal hormone
replacement products worldwide. Cygnus, located in California, is a leader in
transdermal patch technology.
While oral contraceptive demand has been relatively flat,
Wyeth-Ayerst's oral contraceptives were the products of choice in many
countries due to their reliability and excellent side-effect profile.
Wyeth-Ayerst continues to research and develop promising low-dose
contraceptives that are
long-acting and have fewer side effects than currently available products.
Triphasil (levonorgestrel), marketed internationally under the trademark
Trinordiol, remained the second-largest selling oral contraceptive in the United
States and was the leading oral contraceptive in Canada. Lo/Ovral (norgestrel)
maintained its
13
Review of Operations
position as the number-one selling monophasic contraceptive in the United
States, and Nordette (levonorgestrel) was widely used in the United States and
throughout the world.
Patient usage expanded significantly in international markets for
gestodene-based oral contraceptive formulations, which have pharmacologic and
biochemical profiles similar to natural progesterone. Tri-Minulet (triphasic
gestodene) now is approved in 19 countries. Registration is pending in four
additional countries. Steady growth continued for Minulet (monophasic
gestodene), which is available in 53 countries. European registrations are
expected to begin in 1994 for one of two lower-dose monophasic gestodene
products currently in Phase III clinical studies.
Wyeth-Ayerst continued its U.S. information and instruction programs for
the Norplant System (levonorgestrel implants). Since its launch in the United
States three years ago, this reversible, five-year progestin-only contraceptive
has been used by approximately 900,000 women. The Norplant System was approved
in Canada and will be introduced in early 1994. A New Drug Application (NDA)
filing is anticipated in 1994 for Norplant II, a three-year implant system. In
1993, sales of Norplant declined after the initial pent up demand for this
innovative product had been met. Norplant sales are expected to reflect more
normalized levels during 1994.
Mental Health Products - Approval was received in the United States for
Effexor (venlafaxine HCl), a novel antidepressant characterized by serotonin and
norepinephrine reuptake inhibition. Effexor, which is expected to be launched in
the United States in the spring of 1994, provides physicians with a significant
new option to treat depression. Registrations currently are pending in 23 other
countries, and significant approvals are anticipated during 1994.
Worldwide leadership, in a declining category, was retained by Ativan
(lorazepam) for short-term treatment of anxiety. Loramet (lormetazepam),
indicated for anxiety and sleep disorders, continued to grow in many markets.
The anti-anxiety agent Serax (oxazepam) and Normison (temazepam), for treatment
of sleep disorders, were other key products internationally.
Early clinical development continued on a novel anti-anxiety/
antidepressant compound as well as a new anti-anxiety compound.
Cardiovascular and Metabolic Disease Therapies - Wyeth-Ayerst ranks number one
in sales and prescriptions in the United States for cardiac arrhythmia
therapies. The family of agents in this therapeutic area - Cordarone (amiodarone
HCl), Sectral (acebutolol HCl) and Quinidex Extentabs (long-acting quinidine
sulfate) - can treat arrhythmias ranging from the mildest to the most
life-threatening.
Cordarone oral continued to register strong sales gains. The recent study
"Cardiac Arrest in Seattle: Conventional versus Amiodarone Drug Evaluation,"
funded by the NIH, shows that Cordarone was more effective than conventional
agents in preventing recurrence of fatal or near-fatal arrhythmias in high-risk
ventricular fibrillation survivors. In 1994, an NDA is expected to be filed for
Cordarone Intravenous, which will be indicated for treatment of life-threatening
ventricular tachycardia or ventricular fibrillation. When this dosage form is
available, Cordarone is expected to be the only Class III agent with oral and
intravenous formulations, providing physicians with the option to continue
patients on the same agent when they leave the hospital.
14
Sectral, the only cardioselective beta-blocker to have an indication for
premature ventricular contractions, was the subject of a favorable study
published in the Journal of the American Medical Association. The study shows
that therapy using Sectral and a diuretic together provided a significantly
greater improvement in quality of life over newer classes of anti-hypertensive
agents.
In addition, Wyeth-Ayerst continues to be a leader in a broad range of
cardiovascular therapy. Inderal (propranolol) and Inderal LA combined remain as
leading beta-blocker agents in the treatment of cardiovascular disease,
including hypertension.
Verelan (verapamil HCl), a co-promotion venture with Lederle Laboratories,
Inc., has successfully penetrated the calcium channel-blocker market by becoming
the fastest growing branded verapamil.
The emergence of ISMO (isosorbide mononitrate) as a leading branded oral
nitrate has further established Wyeth-Ayerst as a leader in nitrate therapy.
Approval is anticipated in the United States in 1994 for Normiflo, a low
molecular-weight heparin for prevention of venous thromboembolic disease in
orthopedic surgery patients. This agent has shown advantages over currently
available heparin products, including a longer duration of action with increased
absorption.
Alredase (tolrestat), the first commercially available aldose reductase
inhibitor for management of diabetic complications, gained increasing physician
support internationally as a therapy for diabetic neuropathy. Alredase is
registered in 19 countries and currently is marketed in nine countries. An NDA
for neuropathy is expected to be filed in the United States in 1994 upon
successful completion of multi-center studies.
Anti-Inflammatory Drugs - In a unique move in the U.S. pharmaceutical industry,
Wyeth-Ayerst launched two products concurrently in the same therapeutic area.
These are Lodine (etodolac) 400 mg. and Oruvail (ketoprofen), which are expected
to strengthen Wyeth-Ayerst as a leader in the $2 billion non-steroidal
anti-inflammatory drug (NSAID) field.
The 400 mg. tablet of Lodine adds a higher strength of the NSAID indicated
for treatment of osteoarthritis and relief of pain. Lodine, one of the most
frequently prescribed NSAIDs in the United States, also continued to grow
internationally as therapy for osteoarthritis, rheumatoid arthritis and pain. It
is registered in 48 countries and is available in 35. A once-a-day dosage form,
Lodine SR, was introduced successfully in France, Mexico, Switzerland and the
United Kingdom. It is registered in five other countries, has approvals pending
in eight countries and continues in Phase III trials in the United States.
Oruvail extended release capsules are a once-a-day dosage form that offers
a valuable treatment option for the 18 million people in the United States who
suffer from osteoarthritis and rheumatoid arthritis. Sales of Oruvail, launched
in October 1993, are expected to offset, in part, sales declines in Orudis
(ketoprofen) due to patent expiration in 1991. Orudis continued to be an
important NSAID in the United States for moderate pain, arthritis and
dysmenorrhea.
Advanced Phase III trials continued for bromfenac sodium, a potent,
long-acting analgesic with fewer side effects than narcotic analgesics.
15
Review of Operations
Anti-Infectives, Vaccines and Immunomodulators - Wyeth-Ayerst is the leader in
small volume parenterals in the United States. It supplies a wide range of
products, including: Ativan Injection, a premedication used in surgical,
oncologic and critical care procedures; Infumorph (preservative-free morphine
sulfate sterile solution) for the management of chronic pain; FluShield
(influenza vaccine); and the Tubex Closed Injection System, which is the most
comprehensive line of pre-filled syringe delivery systems.
Sales of anti-infectives were strong internationally. Key products were
Bicillin (sterile penicillin G benzathine and penicillin G procaine) and Pen-Vee
K (penicillin V potassium). Both are valuable products for treating a range of
upper respiratory infections, including strep throat as well as the treatment of
rheumatic fever.
Wyeth-Ayerst also is one of the largest suppliers of influenza, cholera,
typhoid and adenovirus vaccine in the United States. Progress was made toward
developing a new generation of more effective flu vaccines.
Children's Health Care - Wyeth-Ayerst continued to build recognition for
products that improve health care for infants and children.
The scientifically formulated nutritional products of Wyeth-Ayerst are
widely recommended by the medical community and are leaders worldwide.
Increased sales in many international markets reflected growth in established
products and new product introductions. A significant expansion to our
state-of-the-art nutritional manufacturing facility in Ireland began operations.
Unit sales of SMA infant formula increased in the United States as well as
internationally where it is sold as S-26. The brand held the number- one
position in the first-age formula segment in key international markets such as
Australia and the United Kingdom. The brand is growing throughout Latin America,
where a whey-based SMA with nucleotides was introduced in Mexico. The addition
of this formulation, which may help to bridge the immunological gap between
breast milk and commercial formulas, aligns Mexico with Wyeth-Ayerst's product
line in North America. Nursoy, a soy-based formula for infants and children
allergic to cow's milk, sustained sales gains in the United States. Bonamil, an
economical alternative to existing casein-based formulas, was launched
successfully in Canada.
Increased recognition among medical professionals of the need to improve
the diet of babies aged six months or older led to excellent sales growth for
Promil and other follow-on formulas.
Sales growth was recorded for Croissance, a liquid third-age product that
is marketed jointly with Cedilac, the largest French milk producer.
Pediatric pharmaceutical specialties complement the nutritional franchise
in the United States. Children's Advil (ibuprofen) Suspension, indicated for the
reduction of fever and relief of the symptoms of juvenile arthritis, was up in
sales. Donnagel is recommended as an anti-diarrheal product.
16
Cough/Cold/Allergy Products - Wyeth-Ayerst is a leader in total prescriptions
for cough/cold/allergy products in the United States. Major products include the
codeine formulas of the Phenergan (promethazine) and Robitussin lines of cough
control products and the combination antihistamine/decongestant formulas of
Dimetane, which are used in the treatment of serious colds and allergies.
Generic Products - ESI-Pharma, Inc. was formed by Wyeth-Ayerst in 1993 to
compete in the U.S. generic drug marketplace with a broad line of oral products.
ESI's initial product introductions were two drugs indicated for secondary
amenorrhea and abnormal uterine bleeding. Cycrin (medroxyprogesterone acetate)
is bioequivalent and interchangeable with Provera. Aygestin (norethindrone
acetate) is bioequivalent to Norlutate. These drugs compete in the progestin
market, which has been growing in recent years.
The Wyeth Group Germany, consisting of Wyeth-Pharma, Brenner-Efeka, Kytta
and Leipziger Arzneimittelwerk, holds a substantial stake in the expanding
generic market. Further growth potential was added by the acquisition of
Siegfried Pharma GmbH in early 1994. Siegfried has a strong generic line of
cardiovascular and other ethical pharmaceuticals.
Managed Care - In response to rapidly changing industry conditions,
Wyeth-Ayerst intensified efforts to work with hospital purchasing groups,
entering into agreements with two of the largest such organizations, which
represent nearly 25% of the hospitals in the United States.
Similarly, Wyeth-Ayerst significantly expanded the size of its Managed
Care sales and marketing organization in 1993. This staff expansion is
reflective of a commitment to maintain our prescription drug leadership position
in a health care delivery system that will be increasingly influenced by
managed care plans. Wyeth-Ayerst will respond to competition in this new
environment and will maintain its position in providing quality, cost-effective
products and services.
Biopharmaceuticals - Genetics Institute, Inc. is developing a portfolio of
genetically engineered human proteins and small molecules for use in treating a
range of health problems. A Phase I study was completed in 1993 for Neumega
rhIL-11, an agent for enhancing blood platelet production that often is lowered
by the toxic side effects of chemotherapy in cancer patients. rhBMP-2, a protein
that has shown encouraging preclinical activity as a treatment for multiple
orthopedic indications where bone growth or repair is desired, is being
evaluated in pilot studies. Phase II studies continue for rhM-CSF as a potential
agent for the treatment of cancer, and a Phase I/II clinical study began for the
reduction of significantly elevated cholesterol levels. Two new products,
rhIL-12 for treating cancer and infectious disease and rhFactor IX for treating
hemophilia B, progressed from discovery research to product development during
the year.
Construction was begun on the Bioscience Center, which will augment
pharmacology research and add transgenic capabilities at Wyeth-Ayerst's
Princeton, New Jersey, research complex. This will enhance our ability to
develop and utilize animal models of human diseases in the search for new
medicines.
17
Review of Operations
Research Partnerships - Several collaborative research ventures proceeded during
the year. Clinical trials continued for three products using new drug delivery
system technology developed by ALZA Corporation.
A research partnership with Athena Neurosciences, Inc. and Genetics
Institute, Inc. in the areas of "cell trafficking" and cell adhesion technology
is aimed at developing products to treat inflammation.
A discovery research program is using the proprietary technologies of
Panlabs, Inc. to screen natural products for new drugs for stroke, asthma and
osteoporosis.
Research with Oncogene Science, Inc. is directed at finding genetically
engineered therapies for asthma, osteoporosis, immune system modulation and
diabetes.
International Initiatives - Substantial progress was made in establishing
state-of-the-art pan-European manufacturing and distribution facilities. A new
manufacturing center began operations in Ireland, producing prescription and
over-the-counter (OTC) products. Distribution centers are being established in
Belgium, France, Germany and the United Kingdom.
Production facilities were augmented in Mexico and in Canada, where the
Company's Wyeth and Ayerst subsidiaries were merged to form Wyeth-Ayerst Canada,
Inc.
Consumer Health Care
- --------------------------------------------------------------------------------
Whitehall-Robins is a premier consumer health care business with leading
products in key market segments in many countries and major initiatives to meet
the growing emphasis on self-medication. A focused research and development
effort in the United States and the United Kingdom is directed at converting
prescription products to OTC status. Whitehall-Robins has one of the largest OTC
medical detailing efforts in the United States. In addition, Whitehall-Robins
has established a core unit of specialists to capitalize on the growing
opportunities within managed health care in the United States. It also is
rapidly extending its core product franchise to international markets through
targeted research and development and expanded access to the services and
facilities of Wyeth-Ayerst.
Late in 1993, an application was submitted by Whitehall- Robins to the
U.S. Food and Drug Administration (FDA) for an OTC version of Wyeth-Ayerst's
prescription analgesic Orudis. Efforts continued under an agreement
with Eli Lilly and Company to develop and market an OTC version of Axid
(nizatidine), an H2 antagonist.
Analgesics - Sales growth continued for Advil (ibuprofen), one of the most
successful prescription-to-OTC product conversions in history. Advil is the
largest-selling OTC ibuprofen product in the United States and Canada and the
second-largest selling non-prescription U.S. analgesic. The brand benefited from
expanded advertising, promotion, physician detailing and education programs of
the Advil Forum on Health Education. These efforts raised awareness of the
effectiveness of ibuprofen for relief of pain due to many types of ailments.
18
Growth of the ibuprofen sector of the analgesic market is coming somewhat
at the expense of the older aspirin-based analgesic products. Among
aspirin-based products, Anacin remained an important analgesic in North America.
Anadin, the leading analgesic in the United Kingdom, was strengthened through an
extension of its top-selling Anadin Extra product and was launched in Portugal.
The Spalt/Doppel-Spalt line continued as a leader in Germany, and the Company
introduced Spalt fur die Nacht, the first nighttime analgesic in Europe.
Cough/Cold/Allergy Remedies - Strong sales increases continued for leading
products in the U.S. OTC cough/cold/ allergy category, one of the fastest
growing in the field of self-medication.
Robitussin built on its leadership in the U.S. cough syrup category,
continuing as the brand most frequently recommended by physicians and
pharmacists. New products included Robitussin Pediatric Night Relief and two
cold formulations - Robitussin Cold & Cough Liqui-Gels and Robitussin Severe
Congestion Liqui-Gels.
Robitussin Cough Drops strengthened its position as the second-largest
selling brand of U.S. cough drops with the introduction of Robitussin Liquid
Center Cough Drops, and the brand was launched in Mexico.
Sales for Dimetapp increased in the highly competitive cold segment. The
brand remained the OTC antihistamine/ decongestant most widely recommended by
physicians for colds and allergies. The launch of Dimetapp Allergy in tablet and
Liquigel forms expanded the brand in one of the fastest-growing segments of the
category. An initial entry was made into the fast-growing non-drowsy segment
with Dimetapp Decongestant Liquigels. Sales climbed for Dimetapp in Canada,
where national advertising was begun, and in Brazil and Australia. The brand was
approved for OTC marketing in Mexico.
Advil Cold and Sinus (ibuprofen and pseudoephedrine) was one of the
fastest growing brands in the U.S. cough/cold/allergy category and was
introduced in Canada. FDA now has approved expansion of the franchise to include
sales of tablets as well as caplets for Advil Cold and Sinus. This product also
was introduced in France under the name RhinAdvil. The Dristan line declined in
the United States but expanded internationally. Dristan solidified its strong
leadership in Colombia. In Argentina, Dristan's leading position in cold symptom
relief was strengthened with the introduction of Dristancito for children.
Oral Health - Whitehall's Kolynos oral health care franchise, which includes
dental creams, toothbrushes, dental floss and mouthwash, boosted its leading
market share position in many Latin American markets. In Brazil, Kolynos dental
creams continue to dominate the market through increased consumer advertising
investments and line extensions, such as Kolynos Total Action, which was
introduced in late 1993. The Kolynos brand of toothbrushes achieved market
leadership for the first time in Brazil. This leadership position was fueled by
the introduction of Kolynos Master toothbrushes and an extended line of Kolynos
Doctor toothbrushes.
In Argentina, the Kolynos brand maintained its leading position in the
oral health care market through the introduction of dental cream line
extensions, Kolynos Star Gel and Kolynos Ninos, and innovative product
presentations such as pump dispensers.
19
Review of Operations
During 1993, Whitehall Colombia maintained a leading position in the oral
health care market. New advertising campaigns and product reformulations enabled
Kolynos to achieve consistent share gains.
Hemorrhoidal and Asthma Relief - Preparation H remained the number-one selling
product in the hemorrhoidal relief category in the United States, Canada and
many European countries and was launched in Spain. Primatene, the
largest-selling non-prescription brand in the United States for relief of
asthma, was strengthened by the introduction of new Primatene Dual Action
Formula Tablets. This is the first line extension for the franchise in more than
10 years.
Family Planning and In-Home Diagnostics - Clearblue Easy was number one in
recommendations by chain drugstore pharmacists and a leader in drugstore and
food store sales in the fast-growing U.S. pregnancy test kit category. The brand
continued to be expanded internationally, where it was introduced in Argentina.
Sales were up for Clearplan Easy, which gained as the leader in the U.S.
ovulation predictor category.
Leadership in the U.S. family planning category was maintained with the
Today Contraceptive Sponge, the largest-selling feminine OTC contraceptive.
Lip Care, Medicated Shampoo and Topical Analgesics - Sales growth for Chap Stick
Lip Balm, a category leader in the United States, was fueled by the expansion of
a medicated line and new marketing programs.
Denorex remained a leading medicated shampoo in the United States. The
franchise benefited from the addition of Denorex for Dry Scalp and Denorex
Shampoo and Conditioner for Dry Scalp - the first products for relief of dry,
itchy scalp that are enriched with Panthenol (provitamin B5), a conditioning
agent.
The Anbesol line of leading topical analgesics in the United States
demonstrated expanding sales in both the adult and baby categories of the
market.
International Research and Development facilities - A state-of-the-art
central development center was completed in the United Kingdom, and an
additional center is scheduled for completion during the first quarter of 1994
in Brazil. The U.K. facility focuses on incorporating new technology into OTC
products and on supporting introductions in new categories. The Brazilian center
will focus on the development of oral health products and new OTC products that
meet the unique needs of Latin American consumers.
Medical Supplies and Instrumentation
- --------------------------------------------------------------------------------
The innovative medical devices, supplies and diagnostic instrumentation of
American Home Products Corporation meet specialized needs of health care
providers in the United States and internationally. Sherwood Medical Company,
Corometrics Medical Systems, Quinton Instrument Company and Symbiosis Corp. are
known for quality, cost-effective products that are safe and easy to use.
Disposable Syringes and Needles - Sherwood's sales of safety syringes continued
to grow dramatically in the United States. Sherwood now offers a complete range
of needle and syringe
20
combinations to protect health care workers from accidental needlesticks and
exposure to blood-borne pathogens.
Tubes, Catheters and Chest Drainage Products - The Argyle line gives Sherwood a
leading U.S. position in the key areas of umbilical vessel catheters, connecting
tubes, naso-gastric tubes and chest drainage products. A substantial sales
increase was registered in the United States for the Argyle Salem Sump
Anti-Reflux Valve. This product protects patients and clinical staff from
contact with potentially hazardous bodily fluids during prolonged stomach
drainage. In 1994, Sherwood will introduce the Argyle Turkel Safety
Thoracentesis System. This new product, used to drain fluid from the pleural
space, incorporates many safety features and benefits that minimize potential
complications associated with traditional thoracentesis procedures, such as
inadvertent lung puncture and potential pneumothorax. Initial clinical feedback
has been favorable.
Sherwood maintained its leadership position in tubes and catheters in
Germany and recorded sales growth in France. Nippon Sherwood strengthened its
leading share in Japan for stomach drainage products and continued as a leader
in suction, intravenous hemodialysis and enteral feeding tube products.
An innovative hemostatic puncture closure device licensed from Kensey Nash
Corporation and developed in cooperation with Quinton will be marketed by
Sherwood internationally and by Quinton in the United States under the trade
name Angio-Seal. Clinical trials continue in Europe and in the United States for
this product, which is expected to significantly increase patient comfort while
reducing costs related to arterial punctures during the termination of cardiac
catheterization procedures.
Disposable and Consumable Obstetrical Products - Sales of disposable and
consumable products contributed to the positioning of Corometrics as a leader in
the obstetrical market. Ongoing development of disposable and sensor products is
focusing on increased vital signs detection with non-invasive technology.
Perinatal Monitoring Systems - Corometrics sustained a leading position in the
perinatal medical area in the United States through technological improvements
to its obstetrical and neonatal equipment and systems. New software updates and
monitoring features strengthened the Model 116 Intrapartum Fetal Monitor as the
standard product for labor-to-birth care of mother and fetus in the obstetrical
market. New software enhancements improved the display, operation and ease of
use of the Model 556 Patient Monitor, which is particularly suited for neonatal
intensive care.
Major obstetrical, neonatal and pediatric monitoring systems were
introduced internationally and are awaiting approval in the United States. These
systems include the first and only fetal and maternal monitoring system combined
into a single package; a compact, lower-cost intrapartum fetal monitor; and
advanced infant monitors for hospital and homecare uses.
Cardiopulmonary Instrumentation and Devices - Quinton maintained a leadership
position in the stress-testing field in the United States and expanded
internationally where software for the Q4500 Stress Test System, was made
available
21
Review of Operations
in French, German, Italian and Spanish language versions.
Sales increased for the EPLab automated electrophysiology management
system, which provides data analysis, reporting and optical disk storage. The
system was enhanced by the introduction of EPAmp, a new electrophysiology/
catheter lead switching system that significantly increases speed and efficiency
in data analysis. Electrophysiology is a rapidly growing area that has shown
great success in treating potentially fatal heart rhythm disturbances.
Quinton also held a leading share of cardiac catheterization laboratory
monitors. New angiography and ventriculography digital imaging now is available
for the Q-Cath Cardiac Catheterization Laboratory System. These programs make
Q-Cath the first system of its type to provide real-time hemodynamic analysis,
online cardiac image analysis and combined image and analysis reporting.
Laparoscopic and Endoscopic Instruments - Symbiosis Corp., an original equipment
manufacturer acquired in 1992, holds a leading position in disposable
laparoscopic and endoscopic surgical products and provides innovative products
to major surgical instrumentation companies for sales to customers. Laparoscopy,
a method of performing surgery through very small incisions, offers significant
benefits to patients and substantial savings to the health care system.
In 1993, a new laparoscopic suction irrigation system that integrates
electrosurgical cutting and coagulation capabilities was introduced. This
product is among the first of a new generation of laparoscopic instruments
designed specifically to incorporate multiple technologies in a single device.
It also represents the initial less-invasive product to be marketed in the
United States by Sherwood Intrascopic. This is a new division established by
Sherwood to strengthen the Company's presence in key segments of the
less-invasive surgical product market.
In addition, Symbiosis entered the arthroscopic field, introducing a new
line of disposable instruments. Arthroscopy involves the interior examination
and treatment of a joint.
Enteral Feeding Systems - A strong performance by the Kangaroo Pet Enteral
Feeding Pump strengthened Sherwood as a leader in enteral feeding devices in the
United States. This ambulatory system, introduced last year, has exclusive
safety features and is the most compact product of its type. Sales for the
Kangaroo device product line benefited from gains for adult formula supplements,
particularly the KDS ready-to-use system.
Wound Care Dressings - Specialty wound care brands such as Viasorb, Blisterfilm
and Ultec recorded significant sales increases for Sherwood in the wound care
dressings field in the United States. These products offer a cost-effective
alternative to conventional methods for treating chronic wounds.
Thermometry - Sherwood is a thermometry leader in the United States with Filac
electronic predictive thermometers and innovative FirstTemp infrared tympanic
thermometers, which enable temperatures to be taken accurately and quickly.
Excellent sales gains were recorded in Europe, Canada and Australia for tympanic
thermometers.
22
Facilities Development - Sherwood continued to consolidate European
manufacturing of tube, catheter and chest drainage products in Ireland.
Construction was begun by Quinton on a new administrative, manufacturing and
warehouse facility in Bothell, Washington.
Animal Health Care
- --------------------------------------------------------------------------------
Fort Dodge Laboratories experienced strong sales growth in 1993 and is making a
dedicated commitment to increase its leadership in key segments of veterinary
biological and pharmaceutical markets in the United States. The division also is
expanding its presence in Europe, Asia and Latin America.
Small Animal Products - LymeVax (borrelia burgdorferi bacterin) continued to
gain acceptance as the only U.S. Department of Agriculture (USDA) licensed
canine Lyme disease vaccine, achieving another year of strong sales growth and
becoming the single largest-dollar-volume canine vaccine in the United States.
Fort Dodge strengthened its position as a leader in the growing feline
biological field fueled by sales increases for Fel-O-Vax Lv-K IV. Duramune
(coronavirus) combination vaccines and Ketaset (ketamine hydrochloride) and
Telazol (tiletamine HCl/zolazepam HCl) anesthetics also recorded substantial
sales growth in the small animal line.
In 1994, the division expects to introduce the first fungal vaccine
licensed by the USDA for prevention and treatment of feline ringworm. Under
development are new canine antibiotic and inflammation control products and
feline analgesics.
A complete range of equine, bovine and small animal vaccines was
successfully introduced in Ireland. Through collaboration with the GHEN
Corporation, Fort Dodge expects to receive licenses for canine and feline
vaccines in Japan.
Dairy and Cattle Products - Leadership in antibiotic products for mastitis
prevention and treatment in the dairy industry was maintained for Fort Dodge and
Franklin Laboratories, its OTC entity, with Today, Tomorrow, Cefa-Lak and
Cefa-Dri. Advances in production technology led to sales increases for Triangle
and Discovery, the leading lines of inactivated bovine biologicals. TrichGuard
and Reprotec gained in recognition for protection against bovine infertility.
Internationally, a full range of bovine biologicals was introduced in
Ireland, Italy and Spain. Licenses for small animal and equine vaccines were
received in many European countries. Production of the full line of Fort Dodge
vaccines for Europe was begun in a new facility in Ireland, and efforts were
initiated to establish a European sales and marketing network.
Marketing and Production Improvements - A unique toll-free order system was
installed that ensures next-day product delivery in the United States, and the
sales force was expanded significantly to provide greater customer access to
technical resources and product information. The addition of new high-speed and
automated production capabilities and the consolidation of distribution
operations resulted in increased capacity, lower operating costs, and improved
productivity and customer service in the United States.
23
Review of Operations
Food Products
- --------------------------------------------------------------------------------
American Home Food Products, Inc. and Canadian Home Products Limited are known
for quality, nutritious, ready-to-eat convenience foods that represent some of
the most popular brands in key food categories in North America.
Prepared Meals and Side Dishes - American Home Foods strengthened its leading
share of the prepared pasta category in the United States through new products
and line extensions. The appeal of the Chef Boyardee brand to older children and
adults was increased with the introduction of a meat and cheese tortellini
variety. Chef Boyardee Sir Chomps-a-Lot, a bite-sized, canned pasta successfully
introduced in 1992, was expanded with two new varieties: lasagna and O' Rings
with mini-meatballs. The franchise also was bolstered by the restage of Chef
Boyardee Teenage Mutant Ninja Turtles and Chef Boyardee Dinosaurs in new pasta
shapes to coincide with the release of popular movies.
The company expanded its leadership in the microwave segment with Chef
Boyardee Microwave Meals, a leading line of microwavable prepared pastas, and
Chef Boyardee Main Meals, a line of microwave products in family portions.
Record sales were achieved in Canada for the canned pasta line, which
added Chef Boyardee Sir Chomps-a-Lot and fettuccine products.
Dennison's, the top-selling line of chili products on the West Coast,
introduced Hot & Chunky Chili. Ranch Style continued to be a leading line of
bean products in key geographic areas. Luck's, a leading brand of beans and peas
in the Southeast, achieved a sizable sales increase for Chili Hot Beans in a
redesigned package.
Condiments and Snacks - Pam No Stick Cooking Spray maintained its leadership in
a highly competitive category in the United States and Canada. Gulden's
continued as the largest-selling spicy brown mustard in the United States.
Another year of excellent sales growth was recorded for Crunch 'n Munch,
the leading brand of glazed popcorn in the United States and Canada.
Early in 1993, American Home Foods became one of the top fruit spread
marketers in the United States with the acquisition of M. Polaner, Inc. Polaner
All Fruit has recently become the number-one fruit juice sweetened spreadable
fruit. The company expects to further strengthen the brand through national
expansion and increased marketing support. Polaner also is a leader in the
rapidly growing ready-to-use garlic and wet spices category.
The Ro*Tel brand of canned tomatoes and green chilies introduced a
bottled, pourable version for convenient use on sandwiches and other foods.
Ro*Tel was acquired in 1992 and is the leading brand in its segment.
24
Financial Section
Contents
26 Ten-Year Selected Financial Data
28 Consolidated Balance Sheets
29 Consolidated Statements of Income
30 Consolidated Statements of Retained Earnings
and Additional Paid-in Capital
31 Consolidated Statements of Cash Flows
32 Notes to Consolidated Financial Statements
39 Report of Independent Public Accountants
39 Management Report on Financial Statements
40 Quarterly Financial Data
40 Market Prices of Common Stock and Dividends
41 Management's Discussion and Analysis of
Financial Condition and Results of Operations
25
Ten-Year Selected Financial Data
American Home Products Corporation and Subsidiaries
- ------------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984
(Dollar amounts in thousands except per share amounts)
Summary of Sales and Earnings
- ------------------------------------------------------------------------------------------------------------------------------------
Net sales ............ $8,304,851 $7,873,687 $7,079,443 $6,775,182 $6,747,016 $6,401,454 $5,850,383 $5,683,507 $5,358,376 $5,088,798
Net income (1) ....... 1,469,300 1,460,842 1,375,273 1,230,597 1,102,158 995,461 928,232 865,922 818,459 695,478
Net income per
common share ...... 4.73 4.65 4.36 3.92 3.54 3.22 2.98 2.73 2.54 2.14
Dividends per
common share ...... 2.86 2.66 2.375 2.15 1.95 1.80 1.67 1.55 1.45 1.32
Year-End Financial Position
- ------------------------------------------------------------------------------------------------------------------------------------
Current assets ....... $4,807,684 $4,552,077 $4,119,057 $3,826,075 $3,532,786 $3,256,494 $3,310,467 $3,249,404 $2,634,616 $2,328,294
Current liabilities .. 1,584,411 1,492,717 1,270,135 1,693,852 1,108,895 1,067,599 1,392,800 1,103,109 754,216 775,031
Ratio of current
assets to current
liabilities ....... 3.03 3.05 3.24 2.26 3.19 3.05 2.38 2.95 3.49 3.00
Total assets ......... 7,687,353 7,141,405 5,938,797 5,637,107 5,681,487 5,492,424 5,411,150 4,928,476 3,972,634 3,577,565
Long-term debt ....... 859,278 601,934 104,710 111,430 1,895,796 100,057 90,076 70,815 63,017 63,249
Average
shareholders'
equity ............ 3,719,539 3,431,568 2,987,885 2,322,623 1,651,050 1,077,462 1,572,972 2,227,801 1,977,817 2,115,118
Shareholders -- Outstanding Shares
- ------------------------------------------------------------------------------------------------------------------------------------
Number of common
shareholders ...... 72,664 73,064 71,209 69,907 70,904 70,021 73,353 75,405 77,797 79,541
Number of preferred
shareholders ...... 726 780 870 931 1,021 1,110 1,187 1,314 1,417 1,975
Average number of
common shares
outstanding used
for earnings per
share calculation
(in thousands...... 310,668 314,201 315,726 314,066 311,644 309,396 311,975 317,678 322,259 325,151
Preferred shares
outstanding at
year-end (in
thousands) ........ 40 43 51 57 64 71 77 87 98 112
Employment Data
- ------------------------------------------------------------------------------------------------------------------------------------
Number of employees
at year-end ....... 51,399 50,653 47,938 48,700 50,816 51,464 50,623 49,896 53,337 53,298
Wages and salaries ... $1,654,984 $1,575,615 $1,388,397 $1,398,721 $1,391,233 $1,284,208 $1,171,788 $1,045,691 $1,052,264 $ 967,651
Benefits (including
social security
taxes) ............ 396,045 367,899 300,810 312,750 256,458 245,834 215,109 164,306 188,946 176,165
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Net income in 1992 includes the impact of accounting changes and the charge
for acquired research discussed in Notes 2, 4 and 9 and in Management's
Discussion and Analysis of Financial Condition and Results of Operations.
Excluding these items, 1992 net income was $1,370,738 and net income per
common share was $4.36. Net income in 1987 and 1984 excludes provisions
related to Dalkon Shield claims of $1.75 billion and $615 million,
respectively, recorded by A.H. Robins Company, Incorporated prior to its
acquisition by the Company in 1989.
26
Consolidated Balance Sheets
American Home Products Corporation and Subsidiaries
- ------------------------------------------------------------------------------
December 31, 1993 1992
(In thousands except share amounts)
Assets
- ------------------------------------------------------------------------------
Cash and cash equivalents ...................... $1,936,834 $1,692,761
Marketable securities .......................... 283,449 289,603
Accounts receivable less allowances
(1993 - $45,949 and 1992 - $38,905) ......... 1,389,555 1,250,541
Inventories .................................... 958,896 944,568
Other current assets ........................... 238,950 374,604
---------- ----------
Total Current Assets ...................... 4,807,684 4,552,077
Property, plant and equipment:
Land ...................................... 89,375 79,881
Buildings ................................. 1,473,413 1,292,741
Machinery and equipment ................... 1,897,577 1,684,271
---------- ----------
3,460,365 3,056,893
Less accumulated depreciation .................. 1,400,580 1,279,102
---------- ----------
2,059,785 1,777,791
Goodwill ....................................... 716,395 708,832
Other assets ................................... 103,489 102,705
---------- ----------
$7,687,353 $7,141,405
========== ==========
Liabilities
- ------------------------------------------------------------------------------
Loans payable to banks ......................... $ 4,280 $ 11,162
Trade accounts payable ......................... 388,804 366,986
Accrued expenses ............................... 1,019,923 970,498
Accrued federal and foreign taxes on income .... 171,404 144,071
---------- ----------
Total Current Liabilities ................. 1,584,411 1,492,717
Long-term debt ................................. 859,278 601,934
Accrued postretirement benefit obligation ...... 264,553 250,355
Other noncurrent liabilities ................... 903,993 1,008,708
Minority interests ............................. 198,630 225,102
Shareholders' Equity
- ------------------------------------------------------------------------------
$2 convertible preferred stock,
par value $2.50 per share;
5,000,000 shares authorized ................. $ 100 $ 108
Common stock, par value $.33 1/3
per share; 600,000,000 shares authorized .... 103,442 104,349
Additional paid-in capital ..................... 1,014,911 953,155
Retained earnings .............................. 2,884,244 2,547,719
Currency translation adjustments ............... (126,209) (42,742)
---------- ----------
Total Shareholders' Equity ................ 3,876,488 3,562,589
---------- ----------
$7,687,353 $7,141,405
========== ==========
- ------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated balance
sheets.
28
Consolidated Statements of Income
American Home Products Corporation and Subsidiaries
- ------------------------------------------------------------------------------
Years Ended December 31, 1993 1992 1991
(In thousands except per share amounts)
Net Sales ................................ $8,304,851 $7,873,687 $7,079,443
---------- ---------- ----------
Cost of goods sold ....................... 2,723,902 2,568,690 2,390,463
Selling, administrative
and general expenses .................. 2,922,579 2,846,365 2,541,422
Research and development expenses ........ 662,689 552,450 430,519
Other expense (income), net .............. 3,016 (37,888) (42,771)
Special charge ........................... -- 220,000 --
---------- ---------- ----------
6,312,186 6,149,617 5,319,633
---------- ---------- ----------
Income before federal and foreign
taxes on income ....................... 1,992,665 1,724,070 1,759,810
Provision for taxes on income:
Federal ............................. 287,846 351,193 163,217
Foreign ............................. 235,519 222,139 221,320
---------- ---------- ----------
523,365 573,332 384,537
---------- ---------- ----------
Income before accounting changes ......... 1,469,300 1,150,738 1,375,273
Cumulative effect of accounting
changes:
Income taxes ........................ -- 383,295 --
Postretirement benefits other
than pensions
(net of taxes of $37,704) ........ -- (73,191) --
---------- ---------- ----------
Net Income ............................... $1,469,300 $1,460,842 $1,375,273
========== ========== ==========
Income per share of common stock
before accounting changes ............. $ 4.73 $ 3.66 $ 4.36
Cumulative effect of accounting changes:
Income taxes ........................ -- 1.22 --
Postretirement benefits other
than pensions .................... -- (.23) --
---------- ---------- ----------
Net Income per Share of Common Stock ..... $ 4.73 $ 4.65 $ 4.36
========== ========== ==========
- ------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated statements.
29
Consolidated Statements of Retained Earnings and Additional Paid-in Capital
American Home Products Corporation and Subsidiaries
- ------------------------------------------------------------------------------
Years Ended December 31, 1993 1992 1991
(In thousands except per share amounts)
Retained Earnings
- ------------------------------------------------------------------------------
Balance, beginning of year ............ $2,547,719 $2,316,555 $1,802,658
Net income ............................ 1,469,300 1,460,842 1,375,273
---------- ---------- ----------
4,017,019 3,777,397 3,177,931
---------- ---------- ----------
Cash dividends declared:
Preferred stock (per share:
1993 - 1991, $2.00) ............. 82 92 108
Common stock (per share: 1993-
1991, $2.86, $2.66, $2.375) ..... 888,100 833,758 749,030
---------- ---------- ----------
888,182 833,850 749,138
Cost of treasury stock acquired,
less amount charged to capital ..... 244,593 395,828 112,238
---------- ---------- ----------
1,132,775 1,229,678 861,376
---------- ---------- ----------
Balance, end of year .................. $2,884,244 $2,547,719 $2,316,555
========== ========== ==========
Additional Paid-in Capital
- ------------------------------------------------------------------------------
Balance, beginning of year ............ $ 953,155 $ 838,099 $ 683,504
Excess over par value of common
stock issued ....................... 84,013 125,513 145,583
Miscellaneous, net .................... (22,257) (10,457) 9,012
---------- ---------- ----------
Balance, end of year .................. $1,014,911 $ 953,155 $ 838,099
========== ========== ==========
- ------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated statements.
30
Consolidated Statements of Cash Flows
American Home Products Corporation and Subsidiaries
- -----------------------------------------------------------------------------
Years Ended December 31, 1993 1992 1991
(In thousands)
Operating Activities
- -----------------------------------------------------------------------------
Net income ........................... $ 1,469,300 $ 1,460,842 $ 1,375,273
Adjustments to reconcile to net cash
provided from operating activities:
Depreciation and amortization ... 241,068 210,213 167,166
Deferred income taxes ........... 153,314 (223,484) (15,459)
Special charge .................. -- 220,000 --
Changes in working capital, net
of businesses acquired or sold:
Accounts receivable ............ (135,038) (192,150) (2,997)
Inventories .................... (8,341) (72,057) (51,554)
Trade accounts payable and
accrued expenses ............ 62,758 104,217 270,865
Accrued taxes .................. 27,333 31,457 (23,251)
Other current assets ........... (13,101) 138 34,728
Other items, net ................ (115,905) (26,031) 143,288
----------- ----------- -----------
Net cash provided from operating
activities ........................ $ 1,681,388 $ 1,513,145 $ 1,898,059
=========== =========== ===========
Investing Activities
- -----------------------------------------------------------------------------
Purchases of property, plant and
equipment ......................... $ (517,912) $ (428,109) $ (227,911)
Purchases of businesses for cash,
net of cash acquired .............. (67,500) (565,952) --
Proceeds/(purchases) of marketable
securities, net ................... 6,154 (238,589) --
Proceeds from sales of
businesses/assets ................. 13,614 60,341 44,947
Purchases of other assets ............ (16,038) (10,165) (8,470)
----------- ----------- -----------
Net cash used for investing
activities ........................ $ (581,682) $(1,182,474) $ (191,434)
=========== =========== ===========
Financing Activities
- -----------------------------------------------------------------------------
Dividends paid ....................... $ (888,182) $ (833,850) $ (749,138)
Net proceeds/(repayments) of
commercial paper and notes ........ 251,646 503,759 (665,039)
Purchases of treasury stock .......... (277,495) (434,947) (123,898)
Exercise of stock options ............ 69,255 95,431 127,873
----------- ----------- -----------
Net cash used for financing
activities ........................ (844,776) (669,607) (1,410,202)
----------- ----------- -----------
Effects of exchange rates on
cash balances ..................... (10,857) (32,906) (20,354)
----------- ----------- -----------
Increase/(decrease) in cash
and cash equivalents .............. 244,073 (371,842) 276,069
Cash and cash equivalents,
beginning of year ................. 1,692,761 2,064,603 1,788,534
----------- ----------- -----------
Cash and cash equivalents,
end of year ....................... $ 1,936,834 $ 1,692,761 $ 2,064,603
=========== =========== ===========
- -----------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated statements.
31
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 subsidiaries
(the Company).
Cash and Cash Equivalents, for purposes of reporting cash flows, consists
primarily of certificates of deposit, time deposits and other short-term, highly
liquid securities and is stated at cost, which approximates fair value.
Marketable Securities consists of U.S. government or agency issues and corporate
bonds and are stated at cost, which approximates fair value. The fair values are
estimated based on quoted market prices. In May 1993, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards (SFAS) No.
115 - Accounting for Certain Investments in Debt and Equity Securities. This
Statement will be adopted in the first quarter of 1994, and the effect will be
immaterial to the Company.
Inventories are valued at the lower of cost or market. Inventories valued under
the last-in, first-out (LIFO) method amounted to $148,700,000 at December 31,
1993 and $265,816,000 at December 31, 1992. Current value exceeded LIFO value by
$65,607,000 and $52,894,000 at December 31, 1993 and 1992, respectively. The
remaining inventories are valued under the first-in, first-out (FIFO) or the
average cost method.
Inventories at December 31 consisted of:
(In thousands) 1993 1992
- --------------------------------------------------------------
Finished goods......................... $435,902 $477,226
Work in progress....................... 219,701 197,368
Materials and supplies................. 303,293 269,974
-------- --------
$958,896 $944,568
======== ========
- --------------------------------------------------------------
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 is being amortized on the straight-line method over periods not
exceeding 40 years. Accumulated amortization was $636,385,000 and $604,484,000
at December 31, 1993 and 1992, respectively.
Long-Term Debt is stated at face value, which approximates fair value (see Note
3). The fair value of the Company's long-term debt is estimated based on quoted
market prices.
2 Acquisitions
- --------------------------------------------------------------------------------
On March 19, 1993, the Company acquired M. Polaner, Inc. (Polaner), a
manufacturer of jams, for $67,500,000 in a purchase transaction. The excess of
the purchase price over the net assets acquired was approximately $65,600,000.
In January 1992, the Company acquired a majority interest in Genetics
Institute, Inc. (G.I.), a biopharmaceutical company. The Company acquired
approximately 40% of G.I.'s outstanding common stock for $50 per share in cash
and purchased approximately 9,500,000 newly issued shares of G.I. common stock
for $300,000,000. The total consideration paid by the Company for the
approximate 60% interest in G.I. was $666,000,000. The purchase price exceeded
the net tangible assets acquired by approximately $365,000,000 of which
$220,000,000 was attributable to acquired research and was expensed as a special
charge in 1992. The unamortized goodwill at December 31, 1993 was $164,000,000
inclusive of additional share purchases of 40,000 and 907,000 shares in 1993 and
1992, respectively, bringing the Company's total ownership at December 31, 1993
to approximately 64%. The Company holds an option to acquire the remaining
shares of G.I. from the public shareholders over a five-year period ending
December 31, 1996 at prices escalating by approximately $1.84 per quarter, to
$85 per share through December 31, 1996. At January 1, 1994, the option price
per share was $64.74. The Company has the right to acquire additional shares
through open market or privately negotiated purchases, provided that its
aggregate holdings do not exceed 75% of G.I.'s outstanding equity. G.I.
continues as a publicly traded company.
On September 24, 1992, pursuant to a Stock Purchase Agreement, the Company
acquired Symbiosis Corp. (Symbiosis), a manufacturer of disposable surgical
instruments. Under the terms of the agreement, the Company paid
32
$175,000,000 for 100% of Symbiosis' stock. The purchase price exceeded the net
assets acquired by approximately $173,000,000.
The results of operations of G.I., Symbiosis and Polaner have been included
in the consolidated statements of income since their acquisition dates.
The Company also acquired all the outstanding stock of Intelligent Medical
Systems, Inc. (IMS) in exchange for 498,242 shares of the Company's common
stock. This acquisition was accounted for as a pooling-of-interests, effective
January 1, 1992. The 1991 financial statements were not restated for this
transaction as the effects were immaterial.
The Company had other acquisitions during the 1991-1993 period, the effect
of which, individually and in the aggregate, was not material to the
consolidated financial position or results of operations.
Unaudited pro forma results of operations to reflect the 1993 and 1992
acquisitions as if they had taken place on January 1 of those years are not
presented as the effects are immaterial.
3 Long-Term Debt and Financing Arrangements
- --------------------------------------------------------------------------------
On April 10, 1992, the Company issued $250,000,000 principal amount of five-year
Notes due April 15, 1997. The five-year Notes bear interest at the rate of
6.875% payable semiannually on April 15 and October 15.
On October 2, 1992, the Company issued an additional $250,000,000 principal
amount of 10-year Notes due October 15, 2002. The 10-year Notes bear interest of
6.5% payable semiannually on April 15 and October 15.
On February 19, 1993, the Company issued $250,000,000 principal amount of
30-year Notes due March 1, 2023. The 30-year Notes bear interest of 7.25%
payable semiannually on March 1 and September 1.
All the Notes were issued under a $1,000,000,000 shelf registration
statement filed with the Securities and Exchange Commission in February 1992.
These Notes are unsecured and unsubordinated and may not be redeemed prior to
maturity. The proceeds from the sale of the Notes were used for acquisitions and
general corporate purposes, including common share repurchases and repayments of
commercial paper.
In April 1993, the Company entered into a Revolving Credit Facility
Agreement, for a 364-day term, with a syndicate of international lending
institutions. The facility allows the Company to borrow a maximum of
$1,000,000,000 on an unsecured basis at variable interest rates and may be used
to satisfy general corporate cash requirements, including acquisitions, common
share repurchases and commercial paper backup. Fees under the agreement are not
significant. The Company intends to renew the facility upon the expiration of
the 364-day term. To date, there have been no borrowings under this agreement.
The Notes and the Revolving Credit Facility Agreement contain customary
covenants, representations, warranties, conditions and default provisions which,
given the Company's current financial position, provide substantial flexibility.
The Company participates in certain off-balance sheet arrangements,
including interest rate swap agreements and foreign exchange forward contracts,
as part of its management of interest rate and foreign currency exposures,
which, in the aggregate, are not significant. The Company believes that the
risks of accounting loss associated with these arrangements, principally from
non-performance by the counterparties or due to fluctuations in interest and/or
exchange rates, would not have a material adverse effect on the Company's
results of operations or financial position.
Interest payments in connection with the Company's debt obligations for the
years ended December 31, 1993, 1992 and 1991 amounted to $55,215,000,
$26,151,000 and $37,159,000, respectively.
4 Employee Benefit Plans
- --------------------------------------------------------------------------------
Pension Plans: The Company sponsors various retirement plans for most full-time
employees. Total pension expense for 1993, 1992 and 1991 was $50,660,000,
$46,003,000 and $43,412,000, respectively. Pension plan benefits are based
primarily on participants' compensation and years of credited service. It has
been the Company's policy to fund all current and prior service costs under
retirement plans, and all liabilities for accrued vested and nonvested benefits
have been fully funded.
33
Notes to Consolidated Financial Statements
Net periodic pension cost of domestic pension plans was as
follows:
(In thousands) 1993 1992 1991
- --------------------------------------------------------------
Service cost on benefits earned
during the year........... $ 31,520 $ 28,237 $ 25,277
Interest cost on projected
benefit obligation........ 59,485 54,226 49,513
Actual return on plan assets... (113,393) (53,600) (105,376)
Net amortization and
deferral.................. 57,642 2,502 59,009
--------- -------- --------
Net periodic pension cost...... $ 35,254 $ 31,365 $ 28,423
========= ======== ========
- --------------------------------------------------------------
The actuarial present value of benefit obligations and funded
status for the Company's domestic plans were as follows:
(In thousands) 1993 1992 1991
- --------------------------------------------------------------
Benefit obligations:
Vested benefits........ $620,872 $510,892 $486,306
Nonvested benefits..... 45,702 36,461 34,021
-------- -------- --------
Accumulated benefit
obligation............. 666,574 547,353 520,327
Projected compensation
increases.............. 160,079 153,495 116,568
-------- -------- --------
Projected benefit
obligation............. 826,653 700,848 636,895
Plan assets at fair value... 743,292 668,005 608,245
-------- -------- --------
Projected benefit obligation
in excess of plan assets (83,361) (32,843) (28,650)
Unrecognized net
loss (gain)............ 16,457 (18,080) (30,800)
Unrecognized net transition
obligation............. 2,891 1,968 1,045
Unrecognized prior
service cost........... 26,177 29,482 22,761
-------- -------- --------
Net pension liability....... $(37,836) $(19,473) $(35,644)
======== ======== ========
- --------------------------------------------------------------
Assumptions used in developing the projected benefit obligation
as of December 31 were as follows:
1993 1992 1991
- --------------------------------------------------------------
Discount rate......................... 7.5% 8.5% 8.5%
Rate of increase in
compensation..................... 4.5% 6.0% 6.0%
Rate of return on plan assets......... 8.5% 9.0% 9.0%
- --------------------------------------------------------------
Postretirement Benefits: The Company provides postretirement health care
and life insurance benefits for retired employees. Most full-time employees
become eligible for these benefits after attaining specified age and service
requirements.
Effective January 1, 1992, the Company adopted SFAS No. 106 - Employers'
Accounting for Postretirement Benefits Other Than Pensions. SFAS No. 106
requires the Company to accrue the estimated cost of retiree benefit payments,
other than pensions, during the employee's active service period. The Company
had established reserves in prior years for the postretirement health care
benefits of existing retirees totaling $129,084,000 as of December 31, 1991.
Prior to adoption of SFAS No. 106, the Company expensed the cost of these
benefits, principally health care and related benefits, as claims were paid.
The Company recognized this change as a cumulative effect of a change in
accounting principle as of January 1, 1992, resulting in a non-recurring
after-tax charge of $73,191,000. The Company's unfunded accumulated
postretirement benefit obligation (APBO) increased to $355,864,000 as of
December 31, 1993, due principally to claims experience in 1993 and the
reduction of the discount rate. The Company recorded an accrued postretirement
benefit obligation of $264,553,000 as of December 31, 1993.
Net periodic postretirement health care cost at December 31 included the
following components:
(In thousands) 1993 1992
- --------------------------------------------------------------
Service cost on benefits earned
during the year................... $ 9,759 $ 8,439
Interest cost on APBO.................. 26,765 21,456
Amortization of loss................... 1,230 --
------- -------
Net periodic postretirement
health care cost.................. $37,754 $29,895
======= =======
- --------------------------------------------------------------
The cost of these programs in 1991 was $15,218,000.
The APBO at December 31 was as follows:
(In thousands) 1993 1992
- --------------------------------------------------------------
Retirees............................... $165,797 $118,920
Fully eligible active participants..... 151,753 103,090
Other active participants.............. 38,314 28,345
-------- --------
APBO .................................. 355,864 250,355
Unrecognized net loss.................. (91,311) --
-------- --------
Accrued postretirement
benefit obligation................ $264,553 $250,355
======== ========
- --------------------------------------------------------------
34
Assumptions used in developing the APBO were as follows:
1993 1992
- --------------------------------------------------------------
Discount rate........................... 7.5% 9.0%
Increase in per capita cost
of health care benefits
that gradually was decreased
over 10 years and
held constant thereafter........... 11%-6% 12%-6%
- --------------------------------------------------------------
A one percentage point increase in the assumed health care cost trend rates
would increase the APBO as of December 31, 1993 by approximately $36,382,000,
and the total of the service and interest cost components of the net periodic
postretirement health care cost would increase by approximately $5,017,000.
In November 1992, the Financial Accounting Standards Board issued SFAS No.
112 - Employers' Accounting for Postemployment Benefits. This Statement will be
adopted in the first quarter of 1994, and the effect will be immaterial to the
Company.
5 Other Noncurrent Liabilities
- --------------------------------------------------------------------------------
Other noncurrent liabilities include reserves for contingencies relating to
income taxes and environmental and product liabilities. Deferred income taxes
payable, liabilities for the Company's Management Incentive Plan and reserves
for plant reorganizations, including severance payments, also are included.
The Company has responsibilities for environmental safety and cleanup under
various state, local and federal laws, including the Comprehensive Environmental
Response, Compensation and Liability Act, commonly known as Superfund. The
Company also is involved in various other environmental claims and legal
proceedings of a nature considered normal to its business. The Company provides
for the estimated costs of remediation for all known environmental liabilities.
The Company's Management Incentive Plan provides for cash and deferred
contingent common stock awards to key employees. The maximum shares issuable
under the plan are 12,000,000 common shares, of which 8,702,162 have been
awarded through December 31, 1993. Deferred contingent common stock awards plus
accrued dividends totaling 316,648 shares were outstanding at December 31, 1993.
Awards for 1993 amounted to $31,266,000, which included deferred contingent
common stock of $7,120,000 (101,348 shares). Awards for 1992 were $30,337,000,
which included deferred contingent common stock of $7,201,000 (104,098 shares).
Awards for 1991 amounted to $25,871,000, which included deferred contingent
common stock of $14,324,000 (168,911 shares).
6 Capital Stock
- --------------------------------------------------------------------------------
There were 600,000,000 shares of common stock and 5,000,000 shares of preferred
stock authorized at December 31, 1993. Of the authorized preferred shares, there
is a series of shares (40,137 outstanding), which is designated as $2
convertible preferred stock. Each share of the $2 series is convertible at the
option of the holder into nine shares of common stock. This series may be called
for redemption at $60 per share plus accrued dividends if the market price of
the common stock is at least $6.67 per share.
Changes in outstanding common shares during 1993, 1992 and 1991 are
summarized as follows:
(In thousands) 1993 1992 1991
- --------------------------------------------------------------
Balance, beginning of year..... 313,048 315,623 314,028
Issued for stock options and
Management Incentive
Plan...................... 1,754 2,681 3,470
Conversions of preferred stock
(3,011 shares in 1993,
7,900 shares in 1992 and
5,900 shares in 1991)..... 27 72 53
Purchase of shares for treasury (4,503) (5,826) (1,928)
Issued for acquisition of IMS -- 498 --
------- ------- -------
Balance, end of year........... 310,326 313,048 315,623
======= ======= =======
- --------------------------------------------------------------
7 Stock Options
- --------------------------------------------------------------------------------
The Company has three Stock Option Plans - 1985, 1980 and 1978 - and a 1990
Stock Incentive Plan. In addition, in June 1993, the Board of Directors of the
Company approved the 1993 Stock Incentive Plan to be presented to shareholders
for approval in April 1994. Under the 1993 and 1990 plans, a maximum of
14,000,000 and 12,000,000 option shares, respectively, may be granted at prices
not less than 100% of the fair market value at the date of option grant. No
further grants will be made under the 1985, 1980 and 1978 plans.
35
Notes to Consolidated Financial Statements
The plans provide for the granting of incentive stock options as defined
under the Internal Revenue Code. Under the plans, grants may be made to selected
officers and employees of non-qualified stock options with a 10-year term or
incentive stock options with a term not exceeding 10 years. The plans provide
for the granting of Stock Appreciation Rights (SAR) which permit the optionee to
surrender an exercisable option for an amount equal to the excess of the market
price of the common stock over the option price when the right is exercised. In
May 1991, all SARs issued to U.S. employees were canceled. Foreign employee SARs
for 112,800 shares remain outstanding and exercisable at December 31, 1993. The
1993 and 1990 plans, in addition and among other things, provide for the
issuance of up to 2,000,000 of the available options as restricted stock
performance awards under each plan. No restricted stock performance awards have
been granted under these plans.
Transactions involving the plans are summarized as follows:
Option Shares 1993 1992
- --------------------------------------------------------------
Outstanding January 1.............. 12,465,013 12,671,683
Granted............................ 10,710,210 1,899,100
Canceled........................... (322,450) (70,600)
Exercised (1993 - $23.03 to
$60.88 per share)............. (1,511,849) (2,035,170)
---------- ----------
Outstanding December 31............ 21,340,924 12,465,013
========== ==========
Exercisable December 31
(1993 - $27.06 to
$79.31 per share)............. 10,805,634 10,562,913
========== ==========
- --------------------------------------------------------------
At December 31, 1993, 12,713,740 shares were available for future grants under
the 1993 and 1990 plans.
8 Other Expense (Income), Net
- --------------------------------------------------------------------------------
This caption in the Consolidated Statements of Income is summarized as follows:
(In thousands) 1993 1992 1991
- --------------------------------------------------------------
Interest income............. $(89,677) $(108,720) $(137,203)
Interest expense............ 47,174 35,503 31,431
Foreign exchange
loss and other......... 45,519 35,329 63,001
--------- ---------- ----------
Total....................... $ 3,016 $ (37,888) $ (42,771)
========= ========== ==========
- --------------------------------------------------------------
9 Income Taxes
- --------------------------------------------------------------------------------
The provision for income taxes consisted of:
(In thousands) 1993 1992 1991
- --------------------------------------------------------------
Current:
Domestic............... $150,916 $154,572 $173,555
Foreign................ 219,135 221,245 226,441
370,051 375,817 399,996
Deferred:
Domestic............... 136,930 196,621 (10,338)
Foreign................ 16,384 894 (5,121)
-------- -------- --------
153,314 197,515 (15,459)
-------- -------- --------
$523,365 $573,332 $384,537
======== ======== ========
- --------------------------------------------------------------
Deferred tax (liabilities) assets, inclusive of a valuation allowance for
deferred tax assets, were reflected in the consolidated balance sheets at
December 31 as follows:
(In thousands) 1993 1992
- --------------------------------------------------------------
Net current assets....................... $ 140,902 $289,744
Net noncurrent liabilities............... (148,558) (144,086)
--------- --------
$ (7,656) $145,658
========= ========
- --------------------------------------------------------------
Deferred income taxes are provided for the temporary differences between the
financial reporting basis and the tax basis of the Company's assets and
liabilities. Deferred tax benefits result principally from the recording of
certain reserves which currently are not deductible for tax purposes. Deferred
tax credits result principally from temporary differences in the recognition of
gains and losses from certain investments and from the use, for tax purposes, of
accelerated depreciation.
36
In 1992, the Company adopted SFAS No. 109 - Accounting for Income Taxes.
The impact of SFAS No. 109 resulted in the accelerated recognition of
$301,706,000 of tax benefits related to the remaining net operating loss (NOL)
carryforward as of January 1, 1992 of its subsidiary, A.H. Robins Company,
Incorporated (Robins), and additional tax benefits of $81,589,000 not previously
recognized. Prior to the adoption of SFAS No. 109, the Company had recognized
the Robins' NOL benefit, for financial reporting purposes, as this benefit was
realized for tax purposes in accordance with SFAS No. 96 - Accounting for Income
Taxes, which is superseded by SFAS No. 109. The aggregate amount of the tax
benefits was $383,295,000.
Included in the 1991 current domestic provision for income taxes is the
benefit of the Robins' NOL of $132,371,000. The Robins' NOL for tax purposes was
fully utilized during 1993.
The Company has recorded deferred tax assets as of December 31, 1993 under
SFAS No. 109 of $507,937,000 related principally to reserves for product and
environmental liabilities, postretirement benefit obligations and other employee
benefits and reorganizations. A valuation allowance was established on January
1, 1992 for certain deferred tax assets related to reorganizations, product
liability and other matters, as the Company determined that it was more likely
than not that these benefits will not be realized. During 1993, the valuation
allowance was reduced by $9,961,000 to $91,363,000. There was no change to this
allowance in 1992. Deferred tax liabilities of $424,230,000 as of December 31,
1993 related principally to accelerated depreciation, losses on securities and
employee compensation.
A reconciliation between the Company's effective tax rate and the U.S.
statutory rate is as follows:
Tax Rate 1993 1992 1991
- ---------------------------------------------------------------
U.S. statutory rate................... 35.0% 34.0% 34.0%
Effect of Puerto Rico and Ireland
manufacturing operations......... (6.1) (6.1) (6.0)
Effect of Robins' net
operating loss................... -- -- (7.5)
Expenses for which no tax
benefits were recorded........... -- 4.5 --
Research credits...................... (1.3) (0.4) (0.9)
Other................................. (1.3) 1.3 2.3
----- ---- ----
Effective tax rate.................... 26.3% 33.3% 21.9%
===== ==== ====
- ---------------------------------------------------------------
Total income tax payments for the years ended December 31, 1993, 1992 and 1991
amounted to $335,102,000, $292,170,000 and $349,333,000, respectively.
10 Net Income per Share
- --------------------------------------------------------------------------------
Net income per share of common stock was based on the average of common shares
and common share equivalents outstanding during the year: 310,668,000 shares in
1993, 314,201,000 shares in 1992 and 315,726,000 shares in 1991.
11 Contingencies
- --------------------------------------------------------------------------------
The Company is involved in various legal proceedings, including product
liability suits of a nature considered normal to its business.
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 litigation
cannot be predicted with certainty, the ultimate liability of the Company in
connection with pending litigation will not have a material adverse effect on
the Company's results of operations or financial position.
37
Notes to Consolidated Financial Statements
12 Company Data by Industry Segment
- --------------------------------------------------------------
Years Ended December 31,
-------------------------------
(In millions) 1993 1992 1991
- --------------------------------------------------------------
Net Sales to Customers
Health Care Products:
Pharmaceuticals.......... $4,774.6 $4,589.3 $4,018.0
Consumer Health
Care.................... 1,743.0 1,611.0 1,435.7
Medical Supplies and
Diagnostic Products..... 851.5 807.6 766.6
-------- -------- --------
7,369.1 7,007.9 6,220.3
Food Products................. 935.8 865.8 859.1
-------- -------- --------
Consolidated Total............ $8,304.9 $7,873.7 $7,079.4
======== ======== ========
- --------------------------------------------------------------
Income before Taxes
- --------------------------------------------------------------
Health Care Products.......... $1,836.7 $1,755.7 $1,561.3
Food Products................. 152.4 146.1 129.4
-------- -------- --------
Total Health Care and
Food Products............ 1,989.1 1,901.8 1,690.7
Corporate (1)................. 3.6 (177.7) 69.1
-------- -------- --------
Consolidated Total............ $1,992.7 $1,724.1 $1,759.8
======== ======== ========
- --------------------------------------------------------------
Total Assets at December 31
- --------------------------------------------------------------
Health Care Products.......... $5,165.3 $4,944.4 $3,601.9
Food Products................. 504.4 384.0 317.4
Corporate..................... 2,017.7 1,813.0 2,019.5
-------- -------- --------
Consolidated Total............ $7,687.4 $7,141.4 $5,938.8
======== ======== ========
- --------------------------------------------------------------
Depreciation Expense
- --------------------------------------------------------------
Health Care Products.......... $172.3 $169.3 $138.8
Food Products................. 11.8 10.6 10.5
Corporate..................... 6.8 3.7 3.5
------ ------ ------
Consolidated Total............ $190.9 $183.6 $152.8
====== ====== ======
- --------------------------------------------------------------
Capital Expenditures (2)
- --------------------------------------------------------------
Health Care Products.......... $416.3 $474.4 $209.1
Food Products................. 24.9 20.0 16.1
Corporate..................... 76.7 60.9 12.9
------ ------ ------
Consolidated Total............ $517.9 $555.3 $238.1
====== ====== ======
- --------------------------------------------------------------
Company Data by Geographic Segment
- --------------------------------------------------------------
Years Ended December 31,
-------------------------------
(In millions) 1993 1992 1991
- --------------------------------------------------------------
Net Sales to Customers
- --------------------------------------------------------------
United States................. $5,695.8 $5,387.1 $4,877.7
Canada and Latin
America.................. 897.7 758.9 707.5
Europe and Africa............. 1,196.6 1,244.1 1,108.8
Asia and Australia............ 514.8 483.6 385.4
-------- -------- --------
Consolidated Total............ $8,304.9 $7,873.7 $7,079.4
======== ======== ========
- --------------------------------------------------------------
Income before Taxes
- --------------------------------------------------------------
United States (1)............. $1,465.7 $1,245.9 $1,334.8
Canada and Latin
America.................. 214.9 158.9 148.7
Europe and Africa............. 224.0 233.6 211.0
Asia and Australia............ 88.1 85.7 65.3
-------- -------- --------
Consolidated Total............ $1,992.7 $1,724.1 $1,759.8
======== ======== ========
- --------------------------------------------------------------
Total Assets at December 31
- --------------------------------------------------------------
United States................. $5,736.6 $5,249.6 $4,385.5
Canada and Latin
America.................. 467.5 436.6 356.9
Europe and Africa............. 1,075.7 1,065.3 867.2
Asia and Australia............ 407.6 389.9 329.2
-------- -------- --------
Consolidated Total............ $7,687.4 $7,141.4 $5,938.8
======== ======== ========
- --------------------------------------------------------------
(1) These segments include the special charge of $220,000,000 in 1992 (see
Note 2).
(2) Capital expenditures for 1992 include additions from businesses acquired.
Transactions between industry and geographic segments are not material.
Foreign exchange adjustments, which were included in operating income before
taxes in this note and in other expense (income), net in the Consolidated
Statements of Income on page 29, resulted in net charges to income of
$55,475,000 in 1993, $23,662,000 in 1992 and $66,610,000 in 1991, principally in
the Canada and Latin America segment (see Note 8).
38
Report of Independent
Public Accountants
To the Board of Directors and Shareholders of
American Home Products Corporation:
We have audited the accompanying consolidated balance sheets of American Home
Products Corporation (a Delaware corporation) and subsidiaries as of December
31, 1993 and 1992, and the related consolidated statements of income, retained
earnings, additional paid-in capital and cash flows for each of the three years
in the period ended December 31, 1993. 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, 1993 and 1992, and the results
of their operations and cash flows for each of the three years in the period
ended December 31, 1993 in conformity with generally accepted accounting
principles.
As discussed in Notes 4 and 9 to the consolidated financial statements,
effective January 1, 1992, the Company changed its methods of accounting for
postretirement benefits other than pensions and income taxes.
Arthur Andersen & Co.
New York, N.Y.
January 18, 1994
Management Report on Financial Statements
Management has prepared and is responsible for the Company's consolidated
financial statements and related notes. They have been prepared in accordance
with generally accepted accounting principles and necessarily include amounts
based on judgments and estimates made by management. All financial information
in this Annual Report is consistent with the financial statements.
The Company maintains internal accounting control systems and related
policies and procedures designed to provide reasonable assurance that assets are
safeguarded, that transactions are executed in accordance with management's
authorization and are properly recorded, and that accounting records may be
relied upon for the preparation of financial statements and other financial
information. The design, monitoring and revision of internal accounting control
systems involve, among other things, management's judgment with respect to the
relative cost and expected benefits of specific control measures. The Company
also maintains an internal auditing function which evaluates and formally
reports on the adequacy and effectiveness of internal accounting controls,
policies and procedures.
The Company's financial statements have been audited by independent
auditors who have expressed their opinion with respect to the fairness of these
statements.
The Audit Committee of the Board of Directors, com-posed of non-employee
directors, meets periodically with the external and internal auditors to
evaluate the effectiveness of the work performed by them in discharging their
respective responsibilities and to assure their independent and free access to
the Committee.
John R. Stafford Robert G. Blount
Chairman, President and Executive Vice President and
Chief Executive Officer Chief Financial Officer
39
Quarterly Financial Data
- ---------------------------------------------------------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter
(In thousands except
per share amounts) 1993 1993 1993 1993
- ---------------------------------------------------------------------------------------
Net Sales ................. $2,111,015 $1,909,416 $2,168,116 $2,116,304
Gross Profit .............. 1,450,423 1,258,745 1,455,053 1,416,728
Net Income ................ 401,509 287,490 397,553 382,748
Net Income per Common Share $ 1.29 $ 0.93 $ 1.28 $ 1.23
- ---------------------------------------------------------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter
1992 1992 1992 1992
- ---------------------------------------------------------------------------------------
Net Sales ................. $2,002,039 $1,759,867 $2,109,318 $2,002,463
Gross Profit .............. 1,346,276 1,181,303 1,404,109 1,373,309
Net Income ................ 453,368 263,493 382,428 361,553
Net Income per Common Share $ 1.43 $ 0.84 $ 1.22 $ 1.16
- ---------------------------------------------------------------------------------------
Market Prices of Common Stock and Dividends
1993 Range of Prices* 1992 Range of Prices*
- ------------------------------------------------ ---------------------------
Dividends Dividends
High Low per Share High Low per Share
- --------------------------------------------------------------------------------
First Quarter .. $68.00 $55.50 $0.71 $84.25 $72.75 $0.65
Second Quarter . 69.00 62.38 0.71 82.00 66.75 0.65
Third Quarter .. 65.75 58.38 0.71 77.13 66.88 0.65
Fourth Quarter . 65.38 58.88 0.73 73.25 63.25 0.71
- --------------------------------------------------------------------------------
* Prices are those of the New York Stock Exchange - Composite Transactions.
40
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 (Notes) on
pages 28 to 38.
Results of Operations
- --------------------------------------------------------------------------------
Net sales increased 5% to $8.3 billion in 1993, while net sales for 1992
increased 11% from 1991 levels. Worldwide health care products segment sales of
$7.4 billion in 1993 were 5% higher than in 1992, and 1992 sales of $7.0 billion
were 13% above 1991 levels. Food products sales increased 8% to $936 million in
1993 and 1% in 1992.
Net sales of health care and food products in the United States in 1993
were $5.7 billion, an increase of 6% from 1992; 1992 net sales increased 10%
from 1991. Foreign sales increased 5% in 1993 to $2.6 billion and increased 13%
in 1992 to $2.5 billion. Net sales of health care products in the United States
of $4.8 billion in 1993 increased 5%, and 1992 net sales of $4.6 billion
increased 12%. U.S. pharmaceutical sales increased 5% in 1993, due primarily to
unit volume growth of 3%. U.S. pharmaceutical sales growth of 14% in 1992 was
due primarily to unit volume increases of 11%.
The Company voluntarily established a policy to limit the weighted average
U.S. prescription pharmaceutical price increase to not more than the increase in
the Consumer Price Index, which in 1993 was 2.7%. The Company's U.S.
prescription pharmaceutical price increase in 1993 was 2.6%. In 1992, the
Company's weighted average U.S. prescription pharmaceutical price increase was
3.7%, which approximated the 1992 increase in the Consumer Price Index.
Unit volume growth in the U.S. pharmaceutical segment was led by Premarin
and increases in the anti-inflammatory and veterinary product line categories.
Genetics Institute, Inc.'s (G.I.) recombinant antihemophilic factor (rAHF) bulk
product sales also contributed to this volume growth. U.S. pharmaceutical sales
growth was impacted by increased competitive pressures on pricing in both the
public and private sectors, increases in Medicaid rebates, and additional
rebates under the Women, Infants and Children Program. It is anticipated that
these trends will continue in this market in 1994, regardless of the outcome of
proposed health care reform legislation. U.S. pharmaceutical sales increases in
1992 were due principally to unit volume increases in female health care
products, the anti-inflammatory product, Lodine, and infant nutritional
products.
Consumer health care sales in the United States increased 5% to $1.2
billion in 1993 as price increases were partly offset by unit volume declines of
3%. Unit volume growth in the cough/cold/allergy product line was more than
offset by unit sales declines in some of the Company's analgesic products,
particularly Anacin. However, Advil unit volume grew 8% in the United States in
1993. U.S. consumer health care sales were unfavorably impacted by the continued
growth of private label brands and new competitive products. U.S. consumer
health care sales in 1992 were 12% higher than 1991 levels, due principally to
unit volume growth in the analgesic and cough/cold/allergy product categories.
Medical supplies and diagnostic products sales in the United States
increased 6% in 1993, due principally to increased unit volume as competitive
conditions in the hospital supply market held prices in many product categories
at 1992 levels. The acquisition of Symbiosis Corp. (Symbiosis) in late 1992 and
sales growth in Sherwood's disposable needle and syringe products contributed to
the sales increase. U.S. medical supplies and diagnostic products sales in 1992
increased 4% as a result of the acquisition of Symbiosis and Intelligent Medical
Systems, Inc. (see Note 2) and increased unit sales of cardiovascular monitoring
systems.
Foreign sales of health care products in 1993 increased 5% to $2.5 billion.
Unit volume grew 5%, while price increases of 6% were offset by unfavorable
foreign exchange rates. Foreign sales of health care products in 1992 of $2.4
billion increased 13%, due to 6% unit volume growth, price increases averaging
5% and favorable foreign exchange rates.
Foreign pharmaceutical sales increased 2% in 1993, led by unit volume gains
for female health care and infant nutritional products. Excluding the effects of
exchange rates, foreign pharmaceutical sales would have increased 9% in 1993.
The Company operates under governmental price controls in many of its more
significant international markets and, during 1993, experienced price rollbacks
in several countries, including Germany and Italy. Pricing pressures are
expected to continue in 1994, particularly in Europe. The Company was able to
increase prices in line with inflation and related currency devaluations in
several Latin American markets in 1993, particularly Brazil, which contributed
to the foreign pharmaceuticals sales gain.
41
Management's Discussion and Analysis
of Financial Condition and Results of Operations
However, changes in governmental health care policies and, to a lesser extent,
competitive conditions may constrain prices in 1994. Foreign sales of
pharmaceuticals increased 14% in 1992, led by unit volume gains for infant
nutritional and female health care products.
Foreign consumer health care sales in 1993 increased 16% to $586 million,
due primarily to unit volume growth in the oral health care product line,
particularly in Argentina, and inflation-related price increases in Brazil. In
1992, foreign consumer health care sales increased 12%, primarily due to unit
volume growth in the oral health care product line.
Food products sales in the United States in 1993 were $879 million, 9%
above year-ago levels. This increase was led by unit volume growth of 8%,
principally as a result of the M. Polaner, Inc. (Polaner) acquisition (see Note
2), with additional volume contributions from Crunch 'n Munch. Competitive
conditions, primarily in certain regional and specialty product markets,
continue to constrain sales growth. U.S. sales of food products in 1992 of $808
million were 1% above 1991 levels.
Cost of goods sold in 1993, as a percentage of net sales, was consistent
with 1992 levels. Cost of goods sold in 1992 was one percentage point below 1991
levels, due principally to operating efficiencies in the consumer health care
and food products businesses.
Selling, administrative and general expense, as a percentage of net sales,
decreased by approximately one percentage point from 1992, due primarily to
decreases in media spending, particularly in the U.S. consumer health care
segment. Selling, general and administrative expense in 1992, as a percentage of
net sales, was consistent with 1991 levels.
Research and development expense increased 20% to $663 million in 1993 and
28% to $552 million in 1992. The increased expenditures in 1993 and 1992 were
due, in part, to G.I.'s research spending (see Note 2), net of its collaborative
revenues. Excluding G.I.'s expenditures, research and development expenses
increased 11% in 1993 and 19% in 1992. Pharmaceutical research and development
expense, as a percentage of worldwide pharmaceutical sales, exclusive of
nutritional sales, was 14% and 12% in 1993 and 1992, respectively.
As discussed in Note 8, other expense (income), net in 1993 reflects
reduced net interest income, due primarily to the use of cash balances and
proceeds from debt issuances for acquisitions and common share repurchases in
1993 and 1992 and, to a lesser extent, lower interest rates on invested funds.
Foreign exchange rates, principally in Brazil, also had an unfavorable impact on
earnings in 1993. Other (income) expense, net in 1992 reflected lower interest
rates compared to 1991 and reduced foreign exchange losses.
The growth in sales outpaced the growth in income before taxes in 1993,
exclusive of the 1992 special charge, due primarily to the impact of recent
acquisitions from which the incremental sales contribution exceeded the income
contribution and also due to lower net interest income previously mentioned.
In August 1993, Congress passed the Omnibus Budget Reconciliation Act of
1993. The Company's effective tax rate of 26.3% in 1993 was not significantly
impacted by this legislation as the 1% increase in the corporate tax rate to
35%, effective January 1, 1993, was more than offset by the retroactive
reinstatement of the research tax credit. The Company's effective tax rate of
33.3% in 1992 reflected the non tax-deductible $220 million write-off of the
acquired research related to the G.I. acquisition. The Company's effective tax
rate in 1994 is expected to increase to approximately 28% - 29%, due primarily
to a reduction in Section 936 tax benefits derived from its manufacturing
operations in Puerto Rico, offset, in part, by incremental tax benefits from its
manufacturing operations in Ireland (see Note 9).
As discussed above and in Notes 2, 4 and 9, reported results in 1992 were
impacted by the $220 million special charge and the adoption of Statement of
Financial Accounting Standards Nos. 109 and 106. Excluding the impact of these
non-recurring items from 1992 results, net income and earnings per share
increased 7% and 8%, respectively, in 1993 as these items, in the aggregate,
contributed $90 million ($.29 per share) to 1992 net income.
42
As previously mentioned, intense competition and pricing pressures in the
U.S. pharmaceutical and other health care markets are expected to continue in
the near term, particularly from managed care organizations, hospital
associations/alliances, governmental agencies and other large buying groups. In
addition, health care reform legislation in the United States has been proposed
to the Congress by President Clinton. Other health care reform proposals from
members of Congress are being introduced with varied agendas on issues such as
Medicaid and Medicare rebates, price controls, governmental alliances and other
matters. Similarly, in international markets, particularly in Europe and Brazil,
health care spending is subject to increasing governmental scrutiny, much of
which is focused on pharmaceutical prices. While we cannot predict the impact
this proposed health care legislation will have on the Company's worldwide
results of operations, we believe 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. However, it is expected that global
market forces will continue to constrain price growth regardless of the outcome
of health care reform.
The Company is not dependent on any one patent-protected product or line of
products for a substantial portion of its revenues or profits. However,
Premarin, the Company's conjugated estrogens product, which no longer is patent-
protected, does contribute significantly to sales and profits. While Premarin
presently is subject to competition from other hormone replacement products, it
currently is not subject to competition from generic conjugated estrogens
products. The Company cannot presently predict the timing of regulatory approval
of such generic products and their potential impact on the market.
Financial Condition and Liquidity
- --------------------------------------------------------------------------------
Cash, cash equivalents and marketable securities as of December 31, 1993 totaled
$2.2 billion. Principal sources of cash in 1993 were operating activities, which
generated $1.7 billion, and the proceeds from the issuance of $250 million of
30-year debentures (see Note 3). These funds were used principally for dividend
payments of $888 million, common share repurchases of $277 million, and
additions to property, plant and equipment of $518 million. In 1992, the Company
issued $500 million of medium-term notes. These funds, in addition to operating
funds of $1.5 billion, were used for dividend payments, share repurchases,
capital additions and the acquisitions noted in the following paragraphs.
On March 19, 1993, the Company acquired all the outstanding common stock of
Polaner for $67.5 million (see Note 2).
Effective January 16, 1992, the Company acquired a majority interest in
G.I. (see Note 2). The cost to the Company to acquire the outstanding G.I.
shares, which the Company does not own, ranges from approximately $1.0 billion
to $1.3 billion under the option discussed in Note 2.
As also discussed in Note 2, in September 1992, the Company acquired 100%
of the common stock of Symbiosis, a developer and manufacturer of disposable
instruments for endoscopic and laparoscopic surgery, for $175 million.
The Company continued to expand and upgrade its operating plants, research
facilities and office facilities during the year. Significant capital projects
included the completion of pharmaceutical manufacturing facilities in Ireland
and the expansion of Premarin manufacturing facilities in Canada. The expansion
of research and development facilities in Radnor, Pennsylvania, and Andover,
Massachusetts, also continued in 1993. In October 1993, the construction of the
new corporate headquarters in Madison, New Jersey, was completed. The Company
also continued to invest capital in its manufacturing facilities to comply with
environmental regulations.
The Company has significant cash balances, a consistent ability to generate
cash flow from operations and available funds under its Revolving Credit
Facility Agreement (see Note 3). The Company foresees no difficulty in
maintaining its present financial condition and liquidity and the ability to
finance its global research and development, capital programs and other
foreseeable future needs.
43
Directors and Officers
Board of Directors
John R. Stafford(1)
Chairman, President and
Chief Executive Officer
Clifford L. Alexander, Jr.
President, Alexander & Associates, Inc.
Frank A. Bennack, Jr.
President and Chief
Executive Officer,
The Hearst Corporation
K. Roald Bergethon
Educational Consultant
Robert G. Blount
Executive Vice President
John W. Culligan(1)
Retired-Former Chairman
of the Board
Robin Chandler Duke
National Chair, Population
Action International
John D. Feerick
Dean, Fordham University
School of Law
Edwin A. Gee
Retired-Former Chairman,
International Paper Company
William F. Laporte(1)
Retired-Former Chairman
of the Board
Robert W. Sarnoff
Director/Consultant
John R. Torell III
Chairman,
Torell Management Inc.
William Wrigley
President and Chief
Executive Officer,
Wm. Wrigley Jr. Company
Principal Corporate Officers
John R. Stafford(2,3)
Chairman, President and
Chief Executive Officer
Robert G. Blount(2,3)
Executive Vice President
Stanley F. Barshay(2,3)
Senior Vice President
Joseph R. Bock(2,3)
Senior Vice President
Joseph J. Carr(2,3)
Senior Vice President
Fred Hassan(2,3)
Senior Vice President
Louis L. Hoynes, Jr.(2,3)
Senior Vice President and
General Counsel
John B. Adams
Vice President-Corporate Development
Thomas G. Cavanagh
Vice President-Investor Relations
John R. Considine(2,3)
Vice President-Finance
E. Thomas Corcoran(3)
Vice President
Paul M. Heinrich
Vice President-Engineering
Gerald A. Jibilian
Vice President and Associate
General Counsel
Thomas M. Nee(2)
Vice President-Taxes
Edward A. Schefer
Vice President-Management
Information Systems
Steven A. Tasher
Vice President-Environmental Affairs
and Associate General Counsel-
Environment
Carol G. Emerling
Secretary
Robert J. Haller
Comptroller
Roxanne E. Parker
Treasurer
Principal Division and
Subsidiary Officers
American Home
Food Products, Inc.
Charles E. LaRosa,(3) President
Corometrics Medical Systems
Craig A. Castle, President
Fort Dodge Laboratories
E. Thomas Corcoran,(3)
Vice President, AHPC
Genetics Institute, Inc.
Gabriel Schmergel, President
Quinton Instrument Company
Anthony G. Perri, President
Sherwood Medical Company
David A. Low,(3) President
Specialty Pharmaceuticals Division
David Strunce, President
Symbiosis Corp.
Kevin W. Smith, President
Whitehall International, Inc.
Jean-Claude Leroux,(3) President
Whitehall-Robins
Terrence L. Stecz,(3) President
Wyeth-Ayerst Laboratories
Robert Essner,(3) President
Wyeth-Ayerst International, Inc.
David M. Olivier,(3) President
Wyeth-Ayerst Research
Robert I. Levy, M.D.,
President
(1)Executive Committee
(2)Finance Committee
(3)Operations Committee
44
Corporate Data
Corporate Employee Relations
Relations with organized labor remain harmonious and responsible. Our labor
agreements offer competitive wages and benefits, giving us the ability to
compete and provide our employees with a broad base of benefit programs.
Our established affirmative action and equal employment programs
demonstrate our long-standing commitment to provide job and promotional
opportunities for all qualified persons regardless of age, color, national
origin, physical or mental disability, race, religion, sex or status as a
Vietnam-era veteran or a qualified disabled veteran.
Our continued progress is the result of our ability to attract and retain
highly qualified employees who, through their superior performance, contribute
significantly to our success. We sincerely appreciate the dedication, commitment
and support all of our employees gave us throughout 1993.
Independent Auditors
Arthur Andersen & Co.
Transfer Agent and Registrar
Chemical Bank
450 West 33rd Street
New York, NY 10001
Executive Offices
American Home Products
Corporation
Five Giralda Farms
Madison, NJ 07940
Annual Meeting
The Annual Meeting of Shareholders will be held on April 20, 1994, in Short
Hills, New Jersey.
Form 10-K
A copy of the Company's Form 10-K Annual Report to the Securities and
Exchange Commission may be obtained by any shareholder without charge upon
written request to:
American Home Products
Corporation
Treasurer's Department
Five Giralda Farms
Madison, NJ 07940
(201) 660-6936
Master Investment Plan
The plan provides shareholders 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:
Chemical Bank
Dividend Reinvestment
Department
J.A.F. Building
P.O. Box 3069
New York, NY 10116-3069
Shareholder Relations
(800) 851-9677
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
Office of Environment and Safety
Five Giralda Farms
Madison, NJ 07940
Product designations appearing
in differentiated type are trademarks.
Pages 25-44 are printed on
recycled paper.
American Home Products Corporation
Five Giralda Farms
Madison, New Jersey 07940