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AMERICAN HOME PRODUCTS CORPORATION
1994 ANNUAL REPORT
American Home Products
Acquires American Cyanamid:
an Expanded Commitment
to Worldwide Leadership in
Health Care
[PHOTO]
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FINANCIAL HIGHLIGHTS--1994
Years Ended December 31, (In thousands except per share amounts)
1994* 1993
NET SALES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$8,966,214 $8,304,851
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,528,254 1,469,300
NET INCOME PER COMMON SHARE. . . . . . . . . . . . . . . . . . . . . .
4.97 4.73
DIVIDENDS PER COMMON SHARE . . . . . . . . . . . . . . . . . . . . . .
2.94 2.86
WORKING CAPITAL. . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,203,160 3,223,273
SHAREHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . . . . . . . .
4,254,101 3,876,488
* The 1994 information reflects the acquisition of American Cyanamid
Company, effective December 1, 1994.
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CONTENTS
4 Chairman's Report to Shareholders
10 American Home Products at a Glance
13 Principal Products--United States
14 Review of Operations
41 Financial Section
63 Directors and Officers
64 Corporate Data
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COVER
Stephen S. Lin, Ph.D., Research Scientist, Wyeth-Ayerst
Research, Princeton, New Jersey.
The combination of American Home Products
and American Cyanamid represents one of the leading
commitments worldwide to pharmaceutical research
and development.
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AMERICAN HOME PRODUCTS
CORPORATION
[GRAPHS]
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CHAIRMAN'S REPORT TO SHAREHOLDERS
I am pleased to report that 1994 was a year of substantial
accomplishment for American Home Products Corporation. We reported record
sales and earnings and increased the dividend for the 43rd consecutive year.
The acquisition of American Cyanamid Company was completed in November 1994,
strengthening our ability to discover, develop and market innovative,
life-improving products while positioning our Company for accelerated growth
in the future.
Cyanamid adds to the competitiveness of all of our health care
businesses and gives us a major presence in crop protection products, a new
business for AHP. Also, the acquisition has strengthened our management ranks,
and we are well along in combining operations to maximize our strengths in key
businesses and achieve cost efficiencies.
Overall, the new American Home Products is:
* a premier, global health care, food and crop protection products company
with pro forma sales in excess of $13 billion, operating in 145 countries;
* among the world leaders in research and development investment;
* one of the world's top three companies in sales of prescription drugs;
* among the leading companies in sales of non-prescription medications
worldwide and the leader in vitamin sales in the United States;
* a leader in generic pharmaceuticals;
* one of the largest crop protection products companies in the world; and
* a leader in the global animal health care market.
Cyanamid's impact on AHP is included in the discussion of financial
results, major operational areas and growth strategies that follows.
FINANCIAL HIGHLIGHTS OF 1994
* Net sales increased 8% from last year to $8.97 billion.
* Net income increased 4% to $1.53 billion.
* Earnings per share increased 5% to $4.97.
* Dividends per share increased 3% to $2.94.
RESEARCH AND DEVELOPMENT
The combination of American Home Products and Cyanamid represents an R&D
commitment of approximately $1 billion annually. The major portion of this
investment is devoted to pharmaceutical research.
The addition of Cyanamid's agricultural product research provides AHP
with a comprehensive and global life science-based research program. The
Company's research library now has more than 500,000 unique molecules and
natural products that are available for screening as potential new products
for human, animal and agricultural use.
Lederle Laboratories enhances our discovery programs in the areas of
central nervous system disorders and cardiovascular and inflammatory diseases,
while Lederle-Praxis Biologicals significantly strengthens our vaccine
discovery effort.
ETHICAL PHARMACEUTICALS
Excluding Cyanamid, worldwide pharmaceutical sales increased 5% in 1994 with
domestic sales gains complemented by strong increases abroad. This performance
was recorded despite a decline in Norplant and nutritional sales in the United
States and declines in sales for several other products exposed to generics.
Pharmaceutical sales increases were led by Premarin, oral
contraceptives and cardiovascular products. Contributions also were made by
newer products, including the antidepressant Effexor, the anti-inflammatory
Oruvail and ISMO, a leading anti-anginal product. The decline in Norplant
sales was attributable to patient and health care provider concerns over use
of the product, largely generated by adverse publicity associated with product
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liability lawsuits. The Company intends to vigorously defend the product and
the lawsuits.
We received FDA approval at year-end for Prempro and Premphase. These
combination estrogen and progestin products offer a convenient way to take
hormone replacement therapy. Prempro and Premphase provide proven endometrial
protection for women while treating menopausal symptoms and preventing
osteoporosis.
Lederle adds to our already broad line of quality products in key
therapeutic areas such as anti-infectives, vaccines, cardiovasculars and anti-
cancer agents. Lederle also strengthens our presence in several key European
markets and in the Pacific Rim. In China, construction was completed on a
Lederle manufacturing plant that is expected to be operational in 1995 and
will augment our base in that growing market for vitamins and antibiotics.
Lederle Standard Products markets an expanding line of oral generic
products that complements our strong line of injectable generics and is a
leader in the United States. Our sales of generic pharmaceuticals now are in
excess of $450 million.
Consumer Health Care
Whitehall-Robins, among the leading consumer health care companies in the
world, increased sales in 1994 due to gains internationally. Advil continued
to grow as the leading OTC ibuprofen in the United States. Robitussin and
Dimetapp, our major cough/cold/allergy brands, were affected by a milder than
usual cold and flu season. Whitehall-Robins is expected to benefit
significantly from the addition of Lederle's Centrum vitamin line, the leader
in the United States.
Whitehall-Robins sharpened its focus on the transfer of prescription
drugs to OTC status. In late 1994, the company submitted a New Drug
Application seeking approval for an OTC version of Axid, an H2 antagonist
developed under a licensing agreement with Eli Lilly and Company. This
application was accepted for review by the FDA. The FDA also is reviewing an
OTC version of Wyeth-Ayerst's analgesic Orudis.
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"The consolidation of the health care products industry continues at a
rapid pace, with fewer, stronger companies dominating the global marketplace."
MEDICAL SUPPLIES AND DIAGNOSTIC PRODUCTS
Sales of medical supplies and diagnostic products, excluding those of
Corometrics Medical Systems which was sold in May, increased in 1994.
Worldwide sales growth was recorded for needles and syringes as well as
tympanic
thermometry products. In addition, Symbiosis Corp., a leading U.S. developer
and manufacturer of disposable instruments for laparoscopic and endoscopic
surgery, had strong sales growth in 1994.
AGRICULTURAL PRODUCTS
The crop protection products of Cyanamid further diversify our Company and
give us a leadership position in expanding global markets for herbicides,
insecticides and fungicides. These products hold more than 50% of the
worldwide soybean herbicide market.
Cyanamid's crop protection R&D has generated 24 new products that have
made a very significant contribution to sales over the past decade. Key
herbicides are formulated with imidazolinones, a unique chemistry discovered
by Cyanamid that is safe to wildlife.
ANIMAL HEALTH
Fort Dodge's strong U.S. franchise is well-complemented by Cyanamid's presence
abroad. The acquisition provides increased opportunities in more than 40
countries to market a broad range of poultry, swine, bovine, equine and small
animal products.
FOOD PRODUCTS
The growth of Polaner All Fruit and PAM and the addition of new Sesame Street
Pasta resulted in a net sales increase for American Home Food Products. Sesame
Street Pasta is the first line of food products to be licensed by the
Children's Television Workshop, the creators of Sesame Street, and is
specially formulated for children's tastes.
CHANGES IN MANAGEMENT
Four members of the Board of Directors will retire after the Company's Annual
Meeting on April 26, 1995. K. Roald Bergethon, John W. Culligan, Edwin A. Gee
and Robert W. Sarnoff have provided valuable guidance to our Company, and we
are grateful for their many contributions. Three new members were elected to
the Board of Directors, effective February 1, 1995: John P. Mascotte, Chairman
and Chief Executive Officer of The Continental Corporation; Mary Lake Polan,
M.D., Ph.D., Chairman and Professor, Department of Obstetrics and Gynecology
of the Stanford University School of Medicine; and Fred Hassan, Senior Vice
President, American Home Products Corporation.
Two former Cyanamid executives, David Lilley and William J. Murray,
were named to Corporate Vice President positions at American Home Products in
January 1995. Mr. Lilley is responsible for our medical supplies and
diagnostic
products business, and Mr. Murray is responsible for our crop protection
business. Also elected to corporate positions were Leo C. Jardot, Vice
President - Government Relations, and Rene R. Lewin, Vice President - Human
Resources.
Joseph R. Bock, Senior Vice President, retired in 1994 after 30 years
of
dedicated and valued service.
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OUTLOOK FOR 1995 AND BEYOND
Some of the crucial trends that will affect AHP in years to come are the
following:
* Health care continues to undergo dramatic change worldwide, with mounting
emphasis on the provision of affordable medical treatment.
* There is growing interest in self-medication, and this is expected to double
the $32 billion global consumer medication market in the next 10 years.
* The consolidation of the health care products industry continues at a rapid
pace, with fewer, stronger companies dominating the global marketplace.
Over the past decade, we have been pursuing growth strategies that
have
placed AHP in a strong position to capitalize on these trends. The
acquisition of Cyanamid is an important step in implementing these
strategies, which cover the areas of R&D, finance, production and marketing.
EXPANDING R&D PIPELINE--In our remarks about health care reform in recent
years, we have pointed out that pharmaceuticals are the most cost-effective
component of health care. As a research-intensive company, we are focused on
finding breakthroughs in treating or preventing serious health problems that
cost health care systems worldwide hundreds of billions of dollars annually.
Our expanding R&D pipeline includes six new products in
pre-registration
as well as 18 products in Phase III and 11 products in Phase II clinical
trials.
Our developmental plan for new products includes all of the requirements that
provide for global registration. Our drug discovery program involves more than
1,200 scientists and technicians, and our ongoing capital investment has
provided our Company with state-of-the-art discovery facilities.
The R&D expertise of Wyeth-Ayerst and Lederle is complemented by our
expanding participation in the biotechnology field. The acquisition of
Cyanamid provides us with a majority ownership position in Immunex
Corporation, a leading biotechnology company. Along with our majority
position in Genetics Institute, Inc. and the strategic alliances that we have
formed with other innovative biotechnology companies, we are at the forefront
of using genetic engineering to discover new therapies.
"The addition of Lederle's pharmaceuticals enables us to provide a
wider range of therapeutic category coverage than any other brand name
company."
FINANCIAL STRENGTH--We are committed to maintaining American Home Products as
one of the most financially sound companies worldwide.
We see substantial opportunity for synergies and resulting cost
savings
in all business areas affected by the acquisition of Cyanamid and are
aggressively implementing our integration plan. Our acquisition debt of $8.8
billion will be paid down as quickly as possible by cash flows from the
combined
operations, cost savings including headcount reductions and the sale of
non-core
businesses, product lines and assets. On January 10, 1995, we sold our South
American oral health care business for $1.04 billion, and on January 24, 1995,
we announced the reduction of 4,000 positions. Combined with announcements
made
in July and November 1994, the number of positions to be eliminated by the end
of 1995 totals 8,600. Further plans regarding reductions in 1996 will be
announced later this year.
PRODUCTION EFFICIENCIES--AHP's goal is to be the most efficient, lowest-cost
manufacturer of quality products. In 1994, we initiated a program in the
United States to yield greater efficiencies in materials procurement and in
their manufacturing and distribution. We included a $174 million charge in the
results of operations to record the costs of implementing this program. This
initiative now is being extended to our international operations and will be
part of the integration plans for Cyanamid.
As in the research area, we have made substantial capital investments
to keep our production and distribution facilities abreast of new
technologies. In addition, we have
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made good progress in consolidating our manufacturing and distribution centers
to strengthen our competitive base in our major markets while reducing costs.
EXPANDED PRODUCT PORTFOLIO--Our long-term success depends on growing worldwide
market share by having major products in all markets where we compete. Product
leadership facilitates the introduction of new products and line extensions
and provides the revenue stream to expand global R&D.
We are committed to vigorously building our product franchise, which
is
one of the strongest in the industry. The addition of Lederle's
pharmaceuticals
enables us to provide a wider range of therapeutic category coverage than any
other brand name company. We have a leadership position in women's health
care,
anti-inflammatories, vaccines and generics and a strong presence in
cardiovascular drugs, mental health products, anti-infectives and oncology
therapies. Once again, in 1994, more prescriptions were written for
Wyeth-Ayerst
pharmaceuticals than for those of any other brand name company, and Premarin
was
the most frequently prescribed pharmaceutical in the United States. In our
generic products portfolio, we offer 123 products in oral and injectable form
that cover 58 product categories.
In the consumer products area, Whitehall-Robins has 12 brands that are
market leaders in a wide range of important categories, including the three
largest markets: analgesics, cough/cold and vitamins.
Our broad, growing portfolios of branded and generic pharmaceuticals
and
OTC medications place us in a strong position to help U.S. managed care
organizations manage all aspects of illnesses and their side effects. We have
restructured our marketing organizations to respond aggressively to the
growing
importance and influence of health maintenance organizations, group purchasing
organizations and pharmacy benefit managers.
In the agricultural products area, Cyanamid is a market leader in
soybean herbicides and corn soil insecticides. New imidazolinone herbicides,
pyrrole insecticides and fungicides from Cyanamid research will expand
Cyanamid's presence in the global cotton, fruit, vegetable and rice markets.
American Home Products is fully committed to being a world leader in health
care. As we look to the future, our skilled, dedicated and hard-working
employees remain our most important asset, and we are pleased to welcome the
people of Cyanamid into the AHP family. On behalf of the Board of Directors, I
thank all of our employees for their outstanding efforts in 1994. I also want
to
thank the Board for its continued counsel and support in this exceptionally
eventful year.
In this period of rapid change for our industry, our abilities and
resolve are constantly tested. Working together, I am confident that we can
meet
the challenges that lie ahead and play an even greater role in improving the
quality of life for people worldwide.
/s/ JOHN R. STAFFORD
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John R. Stafford
Chairman, President and Chief Executive Officer
February 28, 1995
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- --
In April 1995, John W. Culligan will retire from the American Home Products
Corporation Board of Directors after nearly six decades of outstanding service
to the Company as employee, officer, Chairman and Chief Executive Officer, and
Director. Mr. Culligan joined American Home Products in 1937 and spent his
early career with Whitehall Laboratories, rising to its Presidency in 1964.
He was elected a Corporate Vice President in 1967 and became President of AHP
and a member of the Board of Directors in 1973. From 1981 to 1986, Mr.
Culligan
was Chairman of the Board and Chief Executive Officer. Following his
retirement
from the Company, he continued to serve as a Director and a member of the
Executive Committee of the Board. We extend to him our sincere gratitude for
his significant achievements on behalf of American Home Products. In
recognition
of Mr. Culligan's invaluable contributions to the Company over the years, he
will be named Director Emeritus.
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AMERICAN HOME PRODUCTS AT A GLANCE
The diverse businesses of American Home Products span important,
growing
markets where they receive the highest recognition among health care
professionals and consumers. The breadth and strength of the Company's product
franchise place AHP among the top tier of global companies and position us for
continued growth. Highlighted here are some of the major businesses in AHP's
portfolio.
ETHICAL PHARMACEUTICALS, VACCINES AND NUTRITIONALS
WOMEN'S HEALTH CARE
[PHOTO]
Wyeth-Ayerst Laboratories is a global leader in women's health care with
products, research and educational services that benefit millions of women.
Wyeth-Ayerst is the largest provider of hormone replacement therapy and
hormonal
contraceptive products worldwide. Leading products include PREMARIN, TRIPHASIL
and LO/OVRAL. A major event in 1994 was the approval of PREMPRO and PREMPAHSE
in
the United States for treatment and prevention of menopausal symptoms and
osteoporosis.
CARDIOVASCULAR AND GASTROENTEROLOGY THERAPIES
[PHOTO]
Wyeth-Ayerst ranks number one in sales and prescriptions in the United
States for cardiac arrhythmia therapies, including CORDARONE, and is a leader
in
a broad range of cardiovascular therapies. Lederle Laboratories' VERELAN is a
fast-growing anti-hypertensive agent in the U.S. calcium channel-blocker
market.
Internationally, Lederle introduced ZOTON, a second-generation proton pump
inhibitor, which is a new, highly effective therapy for duodenal ulcers and
reflux esophagitis.
MENTAL HEALTH PRODUCTS
[PHOTO]
Wyeth-Ayerst markets therapies for depression, anxiety and sleep disorders
worldwide. EFFEXOR/EFEXOR, a novel antidepressant discovered by Wyeth-Ayerst,
was introduced in the United States during the year and continued to be
expanded to international markets. ATIVAN is a leading product throughout the
world for the short-term treatment of anxiety.
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ANTI-INFLAMMATORY AND METABOLIC DISEASE THERAPIES
[PHOTO]
Wyeth-Ayerst holds the number one position in the branded non-steroidal
anti-inflammatory drug (NSAID) market in the United States. In 1994, LODINE
became one of the leading branded NSAIDs prescribed by primary care physicians
in the United States. ORUVAIL gained additional dosing flexibility as U.S.
Food
and Drug Administration market clearance for 100 mg. and 150 mg.
extended-release capsules was received.
ANTI-INFECTIVES AND VACCINES
[PHOTO]
Lederle offers major antibiotic products that are marketed throughout the
world. Lederle-Praxis and Wyeth-Ayerst together represent an important factor
in the discovery, development and marketing of vaccines worldwide. In the
United States, Lederle-Praxis is a leading producer of childhood vaccines.
Wyeth-Ayerst is one of the largest suppliers of influenza, cholera, typhoid
and
adenovirus vaccines in the United States.
PEDIATRIC HEALTH CARE
[PHOTO]
Wyeth-Ayerst's scientifically formulated nutritional products for infants and
children are recommended by the medical community and are leaders worldwide.
SMA and S-26 are widely used infant formulas in international markets, and
BONAMIL, an economically priced first-stage formula, was introduced in the
United States during 1994.
ONCOLOGY THERAPIES
[PHOTO]
Anti-cancer agents from Lederle Laboratories and Immunex Corporation are used
by oncologists throughout the world as therapy for anemia, breast cancer,
leukemia and non-Hodgkin's lymphoma as well as cell-rescue therapy following
anti-cancer therapy. Genetics Institute's research programs in blood cell
growth
factors and immune system modulation have produced products for use in cancer
therapy.
GENERIC PHARMACEUTICALS
[PHOTO]
Lederle Standard Products offers a wide portfolio of generic pharmaceuticals
in the United States, augmented by the products of ESI-Pharma, Inc., formed by
Wyeth-Ayerst in 1993. An extensive line of generic injectable products is
marketed in the United States under the TUBEX and ELKINS-SINN trademarks.
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AMERICAN HOME PRODUCTS AT A GLANCE
CONSUMER HEALTH CARE
[PHOTO]
With the addition of the top-selling Lederle vitamin business,
Whitehall-Robins
grew as one of the largest consumer health care products companies in the
world. The leading brands of Whitehall-Robins have top positions in major
segments of growing categories, including analgesics, cough/cold/allergy
remedies, hemorrhoidal and asthma relief, family planning and in-home
diagnostics, lip care and medicated shampoo.
MEDICAL SUPPLIES AND DIAGNOSTIC PRODUCTS
[PHOTO]
In the United States, Sherwood Medical is a leader in tubes, catheters,
chest drainage products and safety syringes. Davis & Geck is a worldwide
manufacturer of wound closure products. Quinton Instruments markets
cardiopulmonary instrumentation and devices. Symbiosis Corp. develops and
manufactures disposable products for less-invasive surgery, and Acufex
manufactures devices for arthroscopic surgery. Vision care products are
marketed
worldwide by Storz Instruments.
FOOD PRODUCTS
[PHOTO]
The ready-to-eat convenience foods of American Home Food Products, Inc. and
Canadian Home Products Limited are among the most popular brands in major
food categories in North America. The CHEF BOYARDEE line of prepared pastas is
the market leader in the United States and Canada. POLANER ALL FRUIT is the
number one line of fruit juice sweetened spreadable fruit.
AGRICULTURAL PRODUCTS
[PHOTO]
Cyanamid is an innovator and leader in the crop protection market worldwide
with some of the largest-selling herbicides and insecticides. Many of
Cyanamid's key products are safe to wildlife and are effective at low
application rates.
ANIMAL HEALTH CARE
[PHOTO]
Fort Dodge Laboratories holds a leadership position in key segments of
veterinary biological and pharmaceutical markets in the United States.
Cyanamid
markets an expanding line of veterinary biological products internationally
and
is a global marketer of medicated feed additives.
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PRINCIPAL PRODUCTS--UNITED STATES
ETHICAL
PHARMACEUTICALS,
VACCINES AND NUTRITIONALS
=========================
WOMEN'S HEALTH
Lo/Ovral
Nordette
Ovral
Premarin
Premphase
Prempro
Triphasil
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CARDIOVASCULAR
Cordarone
Inderal
ISMO
Isordil
Maxzide
Quinidex
Sectral
Tenex
Verelan
Ziac
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MENTAL HEALTH
Ativan
Effexor
Serax
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ANTI-INFLAMMATORIES
Lodine
Orudis
Oruvail
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ANTI-INFECTIVES
Minocin
Myambutol
Pipracil
Suprax
Zosyn
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VACCINES
Acel-Imune
FluShield
HibTITER
Orimune
Pnu-Imune 23
Tetramune
Tri-Immunol
- ------------------------
PEDIATRIC HEALTH
Bonamil
Children's Advil
Suspension
Donnagel
Nursoy
SMA
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ONCOLOGY THERAPIES
Ativan Injection
Leukine
Novantrone
Reglan
Thioplex
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OTHER PRODUCTS
Dimetane
Elkins-Sinn, ESI-
Pharma and Lederle
Standard generic
pharmaceuticals
Micro-K
Phenergan
Tubex
CONSUMER HEALTH CARE
========================
ANALGESICS AND
COUGH/COLD/ALLERGY
Advil
Advil Cold and Sinus
Anacin
Dimetapp
Dristan
Robitussin
- ------------------------
VITAMIN AND MINERAL
SUPPLEMENTS
Caltrate
Centrum
Centrum, Jr.
Centrum Silver
- ------------------------
OTHER PRODUCTS
Anbesol
Chap Stick
Clearblue Easy
Clearplan Easy
Denorex
FiberCon
Preparation H
Primatene
FOOD PRODUCTS
========================
CHEF BOYARDEE
PREPARED FOODS
Canned and microwave
entrees
Packaged dinners
Pizza mixes, sauces
- ------------------------
REGIONAL SPECIALTIES
Dennison's
Luck's
Ranch Style
Ro*Tel
- ------------------------
FOOD ENHANCEMENTS
AND SNACKS
Crunch 'n Munch
Gulden's
Jiffy Pop
PAM
Polaner
MEDICAL SUPPLIES
AND DIAGNOSTIC
PRODUCTS
========================
SHERWOOD MEDICAL
Argyle tubes, catheters
and drainage devices
Blisterfilm, Ultec and
Viasorb dressings
FirstTemp Genius
tympanic thermo-
meters and Filac pre-
dictive thermometers
Kangaroo enteral
feeding systems and
enteral access devices
Monoject needles and
syringes
Voldyne incentive
breathers
- ------------------------
QUINTON INSTRUMENTS
Cardiac stress test
systems
Cath lab recording
and analysis systems
Dialysis catheters
Electrocardiographs
Electrophysiology data
management systems
Holter monitoring
Image analysis systems
Treadmills
- ------------------------
DAVIS & GECK
Wound closure
products, including
sutures, needles and
skin staplers
- ------------------------
STORZ INSTRUMENTS
Vision care products,
including surgical
equipment, pharma-
ceuticals, intraocular
lenses and surgical
instruments
- ------------------------
SYMBIOSIS
Disposable
laparoscopic and
endoscopic surgical
products
- ------------------------
ACUFEX MICROSURGICAL
Instruments, supplies
and television
imaging systems for
arthroscopic surgery
AGRICULTURAL
PRODUCTS
========================
HERBICIDES
Arsenal
Assert
Prowl
Pursuit
Scepter
Squadron
- ------------------------
INSECTICIDES
Amdro
Counter
Thimet
ANIMAL HEALTH CARE
========================
VETERINARY PHARMACEUTICALS AND BIOLOGICALS
Cefa-Dri
Cefa-Lak
Cefa-Tabs/Cefa Drops
Cydectin
Discovery
Duramune
Fel-O-Vax
Fluvac
Ketaset
LymeVax
PYRAMID
ToDAY
ToMORROW
Triangle
- ------------------------
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ETHICAL PHARMACEUTICALS, VACCINES AND NUTRITIONALS
The ethical pharmaceuticals, vaccines and nutritionals of Wyeth-Ayerst
Laboratories and Wyeth-Ayerst International have enhanced their competitive
position through the acquisition of Lederle Laboratories and Lederle-Praxis
Biologicals, recent product introductions and a growing new product pipeline.
In the United States, Wyeth-Ayerst and Lederle products are prescribed
more often and used in a broader range of therapeutic categories than those of
any other research-based pharmaceutical company. Internationally, Wyeth-Ayerst
focuses on three major therapeutic areas in which it has a significant
presence
in key markets: women's health care, mental health and nutritionals. Lederle
Laboratories adds an important presence worldwide in anti-infectives,
oncologics
and cardiovascular products. Lederle-Praxis is a worldwide leader in the field
of vaccines.
AHP is the majority shareholder in Genetics Institute, Inc. and
Immunex
Corporation. These companies are in the forefront of the biopharmaceutical
industry and focus on the discovery of protein-based therapies.
WOMEN'S HEALTH CARE--Wyeth-Ayerst is the world leader in women's health
care, providing products, research and educational services to help improve
the
lives of millions of women.
Wyeth-Ayerst continued to be the largest provider of hormone
replacement
therapy (HRT) and hormonal contraceptive products. Premarin (conjugated
estrogens) remained the most frequently prescribed drug in the United States.
- ---
Left: Glenda Prechae of Metairie, Louisiana, has used Premarin for more than
10
years. Ms. Prechae, age 52, maintains a very active lifestyle, which includes
coaching and referreeing local youth soccer. Today, millions of American women
take Premarin for the symptoms of menopause and for the prevention of
osteoporosis.
LEDERLE AND LEDERLE-PRAXIS COMPLEMENT WYETH-AYERST ON A GLOBAL SCALE WITH
IMPORTANT THERAPEUTICS AND VACCINES, EXPANDED MARKETING AND DISTRIBUTION IN
KEY REGIONS, AND AN INTENSIVE RESEARCH AND DEVELOPMENT PROGRAM. THE ADDITION
OF
A MAJORITY INTEREST IN IMMUNEX STRENGTHENS THE COMPANY'S PRESENCE IN THE
GROWING
FIELD OF BIOTECHNOLOGY.
Premarin is indicated as therapy for short-term symptoms of menopause
such as hot flashes and vaginal atrophy and, more importantly, for the
prevention of osteoporosis, a debilitating bone disease characterized by
excessive loss of bone mass. Osteoporosis is one of the most serious
conditions
resulting from menopause. In the United States alone, osteoporosis causes
approximately 1.5 million bone fractures each year and results in medical
costs
exceeding $10 billion annually. An estimated 43 million women in the United
States have reached or are nearing menopause, and 20 million more will reach
it
by the year 2000.
Internationally, Premarin now is registered in more than 90 countries
and has approvals pending in four others.
Two new HRT products, Prempro and Premphase, received U.S. Food and
Drug
Administration (FDA) market clearance in December 1994 and are the first
combination estrogen and progestin products approved in the United States.
Prempro and Premphase are the next generation of products in the Premarin
family
and were part of the largest prospective study on HRT, involving 1,700 women
at
99 sites. These combination products are expected to expand the HRT market by
providing proven and convenient new HRT options to the millions of women
reaching menopause.
Low-dose Prempro is a combination package providing daily, continuous
use of both Premarin and medroxy-progesterone acetate tablets. Over time,
daily
usage of
15
<PG$PCN>
"Two new HRT products, Prempro and Premphase, received FDA market
clearance in December 1994 and are the first combination estrogen and
progestin
products approved in the United States."
Prempro gives women the ability to eliminate their monthly, menstrual-like
bleeding and still receive all the benefits of HRT. Low-dose Premphase, also a
combination package, provides Premarin daily, but medroxyprogesterone acetate
tablets are introduced in only the last two weeks of the monthly cycle,
allowing a woman to have a regular period if she chooses. Both therapies
prevent endometrial hyperplasia and are equally effective in treating
moderate-to-severe menopausal symptoms and preventing osteoporosis. A New Drug
Application (NDA) for single-tablet dosage of Prempro and Premphase was
accepted for filing by the FDA in January 1995.
Internationally, Premarin MPA (conjugated estrogens and
medroxyprogesterone acetate) was approved for marketing in 10 countries,
including Australia, Switzerland and the United Kingdom. Registration filings
are pending in 12 countries. Registration filings also have been submitted in
eight countries for a convenient, single-tablet formulation. Prempak C
(conjugated estrogens and norgestrel) received physician and consumer support
in
the United Kingdom.
During 1994, enrollment was completed in the four- to-five year Heart
and Estrogen-Progestin Replacement Study (HERS). More than 2,700 patients have
been recruited for this $40 million landmark study, which is being conducted
and
funded by Wyeth-Ayerst in the United States. HERS will be the largest clinical
trial ever undertaken to examine the role of HRT - Premarin MPA in
single-combination tablet dosage - as protection against coronary heart
disease
events in postmenopausal women with existing coronary heart disease.
Wyeth-Ayerst is the supplier of more than 100 million tablets of
Premarin, Premarin MPA and placebo for the Women's Health Initiative, a major
National Institutes of Health trial involving 27,500 women for 14 years.
Results
of the PEPI (Postmenopausal Estrogen/Progestin Interventions) three-year trial
involving 875 healthy menopausal women were published in the January 18, 1995
issue of the Journal of the American Medical Association. The Premarin and
Premarin MPA arms of the study show a significant improvement in lipid
profiles
and other cardiovascular risk factors.
Wyeth-Ayerst held the number one position in oral contraceptives
worldwide. Triphasil (levonorgestrel), marketed internationally under the
trademark Trinordiol, was the second most widely prescribed triphasic oral
contraceptive in the United States. Triphasil Cycle Pack, an innovative,
mini-sized dispenser designed to enhance user compliance, was successfully
introduced during the year.
Lo/Ovral (norgestrel) remained the number one selling monophasic
contraceptive in the United States. Nordette (levonorgestrel) frequently was
prescribed for first-time contraceptive users in the United States and was an
important product worldwide.
Tri-Minulet (triphasic gestodene) and Minulet (mono-phasic gestodene)
recorded steady gains in Europe. Minulet did exceptionally well in Latin
America. These low-dose gestodene-based formulations have pharmacologic and
biochemical profiles similar to natural progesterone. Tri-Minulet is available
in 21 countries with registrations pending in four others. Minulet is
available
in 70 countries.
Wyeth-Ayerst continued to expand its oral contraceptive franchise.
Registrations were filed in 10 European countries for a new, lower-dose
gestodene-based product while an even lower-dose gestodene-based formulation
entered Phase III clinical trials. Several other new, lower-dose
contraceptives
containing progestins and estrogens either began or advanced in clinical
trials.
16
<PG$PCN>
Mr. An Ngo's cardiac arrhythmia was life-threatening. Entered into the
Cordarone IV investigational protocol at Lankenau Hospital in Philadelphia,
Pennsylvania, he responded well. Later switched to Cordarone oral, Mr. Ngo,
age
35, remains free of arrhythmia and enjoys a happy family life.
[PHOTO]
CARDIOVASCULAR AND METABOLIC DISEASE THERAPIES--Wyeth-Ayerst's family of
cardiac arrhythmia therapies ranks number one in sales and prescriptions in
their category in the United States. Key agents, which can treat symptomatic
arrhythmias ranging from the mildest to the most life-threatening, are
Quinidex
Extentabs (long-acting quinidine sulfate), Sectral (acebutolol HCl) and
Cordarone (amiodarone HCl).
Impressive sales growth was recorded for Cordarone oral. Favorable
results continued to be announced from clinical trials involving survivors of
cardiac arrest and congestive heart failure. Ongoing trials in post-myocardial
infarction patients will be completed in 1995.
In October 1994, Cordarone IV was recommended for approval by the
FDA's
Cardio-Renal Advisory Committee and now has reached the approvable stage at
the
FDA. A New Drug Submission (NDS) for this product was filed in Canada.
Cordarone
IV, which is indicated for treatment of life-threatening ventricular
tachycardia
or ventricular fibrillation, has been granted orphan drug status and, upon NDA
approval, will likely obtain exclusive seven-year marketing rights in the
United
States.
ISMO (isosorbide mononitrate) remained the leader in the branded oral
nitrate market in the United States. Launched in 1992, this medication is
indicated for the prevention of angina due to coronary artery disease.
Verelan (verapamil HCl), with its patented sustained release delivery
system, continued to grow in the calcium channel-blocker market. In 1994, the
drug became the first anti-hypertensive agent ever to receive FDA approval for
a
new "sprinkle-on" method of dosing for patients
17
<PG$PCN>
Benson Stewart (center) is one of many depression sufferers who has found
Effexor helpful in management of this serious, debilitating illness. Mr.
Stewart, a high school senior from Baltimore, Maryland, also is a spokesperson
for the National Alliance for the Mentally Ill.
[PHOTO]
who have difficulty swallowing. Also, results of a clinical study completed in
1994 demonstrated that the effectiveness of Verelan was not compromised when
used in tandem with certain non-steroidal anti-inflammatory drugs.
Wyeth-Ayerst's Sectral, Inderal (propranolol) and Inderal LA combined
remained as leading beta-blocker agents in the treatment of cardiovascular
disease, including hypertension. The company also markets Maxzide
(triamterene/hydrochlorothiazide) and Tenex (guanfacine HCl) as
anti-hypertensives in the United States.
Clinical trials are proceeding for an angiotensin II receptor
antagonist
developed by Wyeth-Ayerst Research for treating hypertension.
Alredase (tolrestat), an aldose reductase inhibitor developed by
Wyeth-Ayerst for management of diabetic complications, continued to gain a
more
favorable medical consensus internationally as a therapy for diabetic
neuropathy. Alredase, currently marketed in 10 countries, is registered in 24
countries and has registrations pending in 22 others. Analyses for patients in
three North American nerve biopsy trials with Alredase are ongoing. Clinical
trials for related conditions of retinopathy and nephropathy continue. Results
of the eight-year retinopathy trials will be available in 1996.
Clinical studies were begun for a growth hormone-releasing peptide
developed by Kaken Pharmaceutical Co., Ltd. and Wyeth-Ayerst for treating
pediatric short stature due to growth hormone deficiency. Lederle is
conducting
clinical studies for an ACAT inhibitor for lowering cholesterol as well as
Phase
II trials for a beta3 agonist for obesity and adult diabetes.
An NDA was filed in May 1993 for a compound that has been shown in
clinical studies to block the carbohydrate craving associated with obesity.
This drug, licensed by Lederle for marketing in the United States, has been
well-accepted in Europe.
18
<PG$PCN>
"In 1994, Oruvail, the extended-release form of the NSAID Orudis,
generated excellent sales growth..."
MENTAL HEALTH PRODUCTS--Wyeth-Ayerst holds an important position in the mental
health products category with innovative therapies for depression, anxiety and
related disorders.
Effexor/Efexor (venlafaxine HCl) was introduced in the United States
in
early 1994 and had been prescribed approximately 1 million times by the end of
the year. This structurally novel antidepressant inhibits both serotonin and
norepinephrine reuptake, which are believed to play pivotal roles in the cause
of depression.
Significant progress was made in expanding Effexor/ Efexor to
international markets. Successful launches were completed in Canada and
Holland
in late 1994, and approvals were obtained in 11 other markets, including
Australia, France, Italy and the United Kingdom.
A once-a-day dosage form of Effexor/Efexor is in late-stage
development,
and an extended-release product providing constant blood levels of the drug is
in early trials.
Ativan (lorazepam), for the short-term treatment of anxiety,
maintained
a leading position in worldwide tranquilizer sales but experienced sales
erosion
from generics. Internationally, Loramet (lormetazepam), indicated for anxiety
and sleep disorders, recorded steady growth in the hypnotic and sedative
categories. Serax (oxazepam) continued to be a significant anti-anxiety drug
internationally but lost sales to generics in the United States.
Wyeth-Ayerst began Phase II trials for a new compound with potential
use
in treating anxiety and other psychiatric disorders. An additional compound is
expected to enter clinical trials by late 1995 for treating stroke-related
nerve
damage. In addition, Lederle has initiated Phase III trials for a
non-benzodiazepine product for insomnia.
ANTI-INFLAMMATORY AND GASTROENTEROLOGY DRUGS--Wyeth-Ayerst is among the
world leaders in pharmaceutical products for the treatment of pain and
inflammation. In the United States, rapid market acceptance of Lodine 400 mg.
(etodolac) and Oruvail (ketoprofen) moved Wyeth-Ayerst to the number one
position in the $2 billion non-steroidal anti-inflammatory drug (NSAID)
category. Lodine became one of the leading branded NSAIDs prescribed by
primary
care physicians in 1994.
Lodine is marketed internationally as therapy for osteoarthritis,
rheumatoid arthritis and pain. The drug is registered in 53 countries and is
marketed in 32, including Japan, where it was successfully launched in 1994.
Growth opportunities for Lodine include a co-promotion agreement that
has initiated sales efforts covering more than 100,000 dental professionals.
An
NDA was filed in 1994 for the additional indication of rheumatoid arthritis,
and
an NDA filing is planned in early 1995 for Lodine XR, an extended-release
form.
This once-a-day version will have a formulation patent until 2007. Lodine SR,
a
once-a-day form, currently is registered in 11 countries outside the United
States and has approvals pending in nine other countries.
In 1994, Oruvail, the extended-release form of the NSAID Orudis
(ketoprofen), generated excellent sales growth that more than offset the sales
lost by Orudis to generics.
Wyeth-Ayerst submitted an NDA in late 1994 for bromfenac sodium, a
potent, non-narcotic analgesic with a long duration of effect. Advancing to
Phase II trials were a new anti-asthmatic drug and a new, potentially potent
analgesic. Immunex is developing cytokine receptor products that may have
potential as anti-inflammatory or immune suppressive therapies.
19
<PG$PCN>
Mrs. Frances Porembo-Krentz, age 70, takes Lodine for her osteoarthritis. Use
of the product greatly increases her mobility and comfort. Mrs.
Porembo-Krentz,
who once again can enjoy crocheting, her favorite pastime, resides with her
husband, George, in Aston, Pennsylvania.
[PHOTO]
Zoton (lansoprazole), a second-generation proton pump inhibitor
licensed
from Takeda Chemical Industries, was successfully launched by Lederle in
several
inter-national markets, including the United Kingdom. Proton pump inhibitors
are
the newest and most effective treatment for duodenal ulcers and reflux
esophagitis.
ANTI-INFECTIVES--Lederle offers major antibiotic products that are marketed
worldwide. Sales of Suprax (cefixime), a third-generation cephalosporin,
increased significantly in 1994 despite the introduction of new competitive
products. Suprax offers convenient once-a-day dosing, which is advantageous in
treating childhood ear infections and adult respiratory infections. Phase IV
trials are under way to expand the indications for Suprax.
Zosyn (piperacillin sodium/tazobactam sodium), a broad spectrum,
intravenous therapy for a wide range of life-threatening infections, performed
well in its first full year of sales in the United States. Sold in an
expanding
number of international markets as Tazocin, this product represents a
therapeutic advance due to its stability in the presence of enzymes produced
by
some bacteria that inactivate other antibiotics. A new indication for
nosocomial
pneumonia, a condition that accounts for the largest hospital usage of
antibiotics, is pending at the FDA.
Other major Lederle antibiotics are Minocin (minocycline HCl), used
worldwide for the treatment of moderate-to-severe acne, and Pipracil
(piperacillin), a broad spectrum, semi-synthetic penicillin. Sales for both
products have been adversely affected by generic competition in major markets.
Clinical trials were begun by Wyeth-Ayerst for a new oral penem
antibiotic that was developed with Suntory Ltd. in Japan for use in the United
States. Penems are similar in structure to penicillins but have a broader
spectrum of activity.
Recombinant human interleukin-twelve (rhIL-12) began clinical trials
in
cancer patients and in Human Immunodeficiency Virus (HIV) sufferers. This
immune
system modulator is being developed and commercialized via a joint venture
between Wyeth-Ayerst and Genetics Institute. Other infectious disease
indications may be explored in the future.
VACCINES--Vaccine technology is recognized as one of the most effective
methods for preventing and controlling disease and for reducing health care
costs. Lederle-Praxis and Wyeth-Ayerst together represent an important factor
in
the discovery, development and marketing of vaccines worldwide.
20
<PG$PCN>
RESEARCH REPORT
AMONG THE LARGEST GLOBAL COMMITMENTS TO THE ADVANCEMENT OF MEDICAL THERAPY
[PHOTO]
THE COMBINED RESEARCH EFFORTS OF WYETH-AYERST RESEARCH, LEDERLE AND
LEDERLE-PRAXIS REPRESENT ONE OF THE LARGEST COMMITMENTS WORLDWIDE TO BRINGING
IMPORTANT THERAPEUTIC ADVANCES TO THE HEALTH CARE COMMUNITY.
THE COMPANY'S SCIENTIFIC DISCOVERY PROGRAMS ARE ENHANCED BY THE WORK
OF
GENETICS INSTITUTE, INC. AND IMMUNEX CORPORATION, LEADING BIOTECHNOLOGY
COMPANIES IN WHICH AMERICAN HOME PRODUCTS HAS MAJORITY OWNERSHIP. THE PROVEN
ABILITY OF THESE COMPANIES TO USE GENETIC ENGINEERING TO DISCOVER AND DEVELOP
PROTEIN-BASED THERAPIES COMPLEMENTS THE EXPERTISE OF WYETH-AYERST RESEARCH AND
LEDERLE IN BIOLOGY, CHEMISTRY AND PHARMACOLOGY. THE SCOPE OF WYETH-AYERST'S
MEDICAL TECHNOLOGY ALSO IS EXTENDED THROUGH A GROWING NUMBER OF IMPORTANT
COLLABORATIVE ARRANGEMENTS WITH OTHER BIOTECHNOLOGY COMPANIES AND RESEARCH
INSTITUTIONS.
THE COMPANY IS FOCUSED ON FINDING BREAKTHROUGHS IN TREATING OR
PREVENTING SERIOUS HEALTH PROBLEMS IN AREAS OF CRITICAL NEED THAT COST HEALTH
SYSTEMS WORLDWIDE HUNDREDS OF BILLIONS OF DOLLARS ANNUALLY. WYETH-AYERST
RESEARCH HAS MAJOR DISCOVERY PROGRAMS IN THE AREAS OF WOMEN'S HEALTH,
CARDIOVASCULAR AND METABOLIC DISEASE, CENTRAL NERVOUS SYSTEM DISORDERS AND
IMMUNO-INFLAMMATORY DISEASE. LEDERLE ALSO WORKS IN MOST OF THESE AREAS AND
ADDS
STRONG ONCOLOGY AND INFECTIOUS-DISEASE EFFORTS. LEDERLE-PRAXIS IS A LEADER IN
VACCINE RESEARCH AND DEVELOPMENT.
Lederle-Praxis, a leading producer of childhood vaccines in the United
States, currently is the only U.S. manufacturer of oral polio vaccine,
marketed
under the Orimune trademark. Since its introduction in 1963, more than 600
million doses of Orimune have been distributed in the United States, virtually
eliminating the threat of polio.
Tetramune, introduced in 1993 as the first combination vaccine
approved
for protection against infant bacterial meningitis, diphtheria, tetanus and
pertussis, grew significantly during its first full year of sales. Use of
Tetramune reduces by half the number of injections a child requires by age 15
months for immunization against these diseases.
Lederle-Praxis is developing important new vaccines to protect against
infant pneumonia and middle ear infections. Research priorities also include
new
combination vaccines and delivery systems designed to reduce the number of
injections required to fully immunize children.
Wyeth-Ayerst is one of the largest suppliers of influenza, cholera,
typhoid and adenovirus vaccines in the United States. Phase III trials
continued
for a Wyeth-Ayerst rotavirus vaccine that could represent a dramatic advance
in
the prevention of acute infantile gastroenteritis, which claims nearly 1
million
lives each year. This vaccine is expected to be the first product manufactured
in Wyeth-Ayerst's new Biological Development Center. The Center, validated in
1994, is a state-of-the-art facility in Marietta, Pennsylvania, dedicated to
the
development, production and testing of new live virus vaccines.
PEDIATRIC HEALTH CARE--Wyeth-Ayerst is a leader worldwide in developing
and marketing scientifically formulated products that meet the nutritional and
therapeutic needs of infants and children. Demand for established nutritionals
and new product introductions led to
21
<PG$PCN>
Physicians like Dr. Thomas Moskow of Denville, New Jersey (shown here with
Deborah and John Ryan Huffstutler), choose Lederle-Praxis' Tetramune for
their pediatric patients. Lederle-Praxis is the leading producer of childhood
vaccines in the United States.
[PHOTO]
increased sales in many international markets in 1994.
SMA, marketed internationally as S-26, continued to hold the number
one
position in the first-stage formula segment in several key markets although,
in
the United States, SMA infant formula sales declined because of Wyeth-Ayerst's
decision to exit some deep-discount markets due to low profitability. Nursoy,
a
soy-based formula for infants and children allergic to cow's milk, also
declined
in U.S. sales but continued to grow internationally.
Sales growth of follow-on formulas for infants aged six months and
older was led by Promil. Bonamil, an economical alternative to existing
first-stage formulas, was launched in Canada in 1993 and was introduced in the
United States in late 1994.
Progress, specially formulated for children one to four years of age,
successfully completed its first full year of sales in key Asian markets and
was
introduced in Middle Eastern markets.
The nutritional franchise is complemented in the United States by
pediatric pharmaceutical specialties. Children's Advil Suspension (ibuprofen),
indicated for the reduction of fever and relief of the symptoms of juvenile
arthritis, increased in sales. Donnagel is recommended as an anti-diarrheal
product.
COUGH/COLD/ALLERGY PRODUCTS--Wyeth-Ayerst is the leader in prescriptions
for cough/cold/allergy products in the United States. Major products include
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.
22
<PG$PCN>
"Wyeth-Ayerst is a leader worldwide in developing and marketing
scientifically formulated products that meet the nutritional and therapeutic
needs of infants and children."
ONCOLOGY THERAPIES--Effective cancer treatment remains one of the major
challenges of medical practitioners and researchers. Lederle has developed
several anti-cancer agents that are owned and marketed by Lederle
internationally and by Immunex in North America. Major products include
Novantrone (mitoxantrone), which is used in the treatment of acute myelogenous
leukemia and currently is in a clinical study for non-Hodgkin's lymphoma and
prostate cancer. Leucovorin calcium is used in combination with 5-fluorouracil
in the treatment of colorectal cancer and methotrexate overdose. Thioplex
(lyophilized thiotepa) recently was approved by the FDA and is used to treat a
variety of tumors.
Leukine (sargramostim), a biotechnology product of Immunex, is a white
blood cell stimulant used to promote immune cell recovery following bone
marrow
transplantation. Additional indications for Leukine in the oncology setting
currently are under review at the FDA.
BIOPHARMACEUTICALS AND IMMUNOMODULATORS--Portfolios of genetically engineered
human proteins and small molecules are being developed by Genetics Institute
for use in treating a range of health problems.
Several pilot studies continue for Genetics Institute's rhBMP-2, a
protein that has shown encouraging pre-clinical activity as a treatment for
multiple indications where bone growth or repair is desired. Phase I safety
trials of rhIL-12, in both oncology and HIV infection, are under way. rhFactor
IX, for treating hemophilia B, is expected to enter clinical studies early in
1995. Research continues at Genetics Institute in the areas of immunology and
hematopoiesis, bone and connective tissue biology, soft tissue repair, organ
regeneration and small molecule drug discovery. There are three Phase II
studies
under way in the United States and one Phase II study in Japan for Genetics
Institute's Neumega rhIL-11, an agent for enhancing blood platelet production,
which often is lowered by the side effects of chemotherapy in cancer patients.
Research at Immunex focuses on proteins that regulate the immune
system.
Cytokines such as Leukine increase production of important cells that can
restore the immune response or boost the body's ability to fight infection.
Leukine is in Phase III studies for reduction of post-operative infections and
Phase II studies for HIV infection. Immunex's focus on the immune system has
led
to discovery of other molecules, including Interleukin-15, with potential in
the
treatment of mucositis, and the CD40 ligand, which may play a role in the
treatment of B-cell lymphoma. Phase IIItrials are ongoing with Immunex's
PIXYKINE (PIXY321), a novel blood cell growth factor designed to stimulate
white
blood cells and platelets, essential blood elements that often are destroyed
by
cancer treatment.
Wyeth-Ayerst began Phase II clinical studies for Rapamune (rapamycin)
as
first-line chronic therapy for the prevention and treatment of organ
rejection.
Rapamune has been shown to exert a unique pharmacologic effect on the immune
system, in contrast to currently marketed immunosuppressant products.
23
<PG$PCN>
"With a broad range of branded and generic products covering an
extensive list of therapeutic areas, Wyeth-Ayerst and Lederle are
well-positioned to be valuable partners with most managed providers of
pharmaceutical care."
GENERIC PRODUCTS--Lederle Standard Products is a leader in the United States
in marketing generic versions of major pharmaceuticals. ESI-Pharma, Inc.,
formed by Wyeth-Ayerst in 1993, continues to build a portfolio of generic
products. These products, combined with the extensive line of generic
parenteral
products marketed under the Elkins-Sinn and Tubex labels, give the Company a
generic portfolio of 123 products in oral and injectable forms, covering 58
product categories.
The Lederle Standard Products line of generic pharmaceuticals was
expanded through the successful launch of new products, including cimetidine,
the generic version of a top-selling anti-ulcer medication; gemfibrozil, the
generic version of a widely used cholesterol-lowering agent; alprazolam, the
generic of a leading anti-anxiety agent; and naproxen, the generic of a
broadly
prescribed anti-inflammatory therapy.
The initial product introductions of ESI-Pharma gained market
acceptance. These drugs include medroxy-progesterone acetate and norethindrone
acetate.
Internationally, several steps recently were taken by Wyeth-Ayerst to
strengthen its competitive base in the generic marketplace. An agreement was
reached with Novopharm Ltd., Canada's leading manufacturer of generic
pharmaceuticals giving Wyeth-Ayerst access to more than 200 different generic
products as well as use of Novopharm's product registration dossiers. A
pan-European generics company was formed to coordinate activities throughout
Europe and especially in Germany, where Wyeth-Ayerst has grown in the generic
market through a series of acquisitions.
MANAGED CARE--The United States continues to realize significant growth
in managed health care. With a broad range of branded and generic products
covering an extensive list of therapeutic areas, Wyeth-Ayerst and Lederle are
well-positioned to be valuable partners with most managed providers of
pharmaceutical care. The increase in the number of lives covered by managed
care
is driving the formation of integrated provider networks composed of medical
centers, hospitals, clinics, specialists, primary care and pharmacy providers.
Wyeth-Ayerst and Lederle are positioned to coordinate the offering of all
products, services and materials to best serve these emerging health care
systems.
Wyeth-Ayerst now has entered into agreements with most of the major
group purchasing organizations and continues to establish programs, services,
software and educational resources to solidify relations with managed care
customers.
In 1994, Lederle-Praxis also launched a number of initiatives directed
to managed care customers, including "Safeguards for the Future," a
comprehensive teaching program that managed care organizations can provide to
their constituents to educate them about common infectious diseases.
24
<PG$PCN>
Manjari Joshi, M.D., Assistant Professor of Medicine at the University of
Maryland, specializes in infectious diseases. Dr. Joshi, shown here with
colleague Neal Reynolds, M.D., is the lead author on a study for the
additional
indication of nosocomial pneumonia for Lederle's antibiotic, Zosyn.
[PHOTO]
COLLABORATIVE VENTURES--Wyeth-Ayerst and Lederle initiated or progressed with
several research and development partnerships during the year.
Wyeth-Ayerst entered into a joint discovery program with Affymax N.V.,
a
biotechnology company that is developing new technologies to accelerate the
pace
of drug discovery. A Wyeth-Ayerst discovery research program using proprietary
screening technologies of Panlabs, Inc. identified several natural products
that
could have therapeutic applications for stroke, asthma and osteoporosis.
Wyeth-Ayerst and Oncogene Science, Inc. made progress in identifying
lead molecules that regulate genes in order to develop new therapies for
asthma,
osteoporosis, immune system modulation and diabetes.
A research alliance was established by Wyeth-Ayerst with Ligand
Pharmaceuticals to develop a new generation of estrogen- and
progesterone-based
products. Ongoing collaborations continued with specialized drug delivery
companies in order to improve Wyeth-Ayerst's new product flow in the areas of
contraception and HRT.
25
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[PHOTO]
<PG$PCN>
CONSUMER HEALTH CARE
Whitehall-Robins is a worldwide leader in the research and
development,
manufacturing and marketing of consumer health care products. The addition of
Lederle's vitamin and mineral supplement products complements the OTC
medications of Whitehall-Robins and further strengthens its competitive
position.
In 1994, U.S. sales for Whitehall-Robins, exclusive of Cyanamid, were
slightly lower than the prior year because of a mild cold and flu season and
also because of increased competition from private label copies of its leading
brands. During the year, Whitehall-Robins continued its substantial investment
in research and development and will further increase this investment in 1995.
Concurrent with the increase in R&D investment is a substantial enhancement of
the company's scientific infrastructure and capabilities, underscoring a
commitment to introduce new, cost-effective health products through
prescription
to OTC s witches, major line extensions and product improvements. In late
1994,
the company submitted an NDA for an OTC version of Axid (nizatidine), an H2
antagonist for the treatment of heartburn and acid indigestion. The
application,
which was accepted for review by the FDA, was developed under a licensing
agreement with Eli Lilly and Company. In addition, an OTC version of the
Wyeth-Ayerst prescription analgesic Orudis currently is under review by the
FDA.
The leadership of Whitehall-Robins in the United States also is
sustained by a major medical detailing effort that includes a core group of
specialists dedicated to forming partnerships with managed care organizations.
THE NON-PRESCRIPTION MEDICATIONS FROM LEDERLE, COMBINED WITH THOSE OF
WHITEHALL-ROBINS, ENHANCE AHP'S LEADERSHIP POSITION IN OTC SALES. THE COMPANY
ALSO OCCUPIES THE LEADERSHIP POSITION IN THE U.S. VITAMIN MARKET AND HAS
SIGNIFICANTLY IMPROVED ITS MARKET POSITION INTERNATIONALLY.
Internationally, where Whitehall-Robins registered increased sales in
1994, the company is building a major OTC franchise that includes analgesics,
digestive remedies, cough medicines, cold remedies and vitamins.
Whitehall-Robins opened a state-of-the-art product development facility in the
United Kingdom during 1994.
ANALGESICS--Sales growth for Advil (ibuprofen) outpaced all
established
competitors in the expanding U.S. analgesic category despite pressure from a
new
prescription to OTC switch product and the introduction of line extensions for
other established brands. Advil is the largest-selling OTC ibuprofen product
in
the United States and Canada and the second-largest selling non-prescription
U.S. analgesic. In the United States, the brand benefited from new, easy-open
cap packaging as well as extensive advertising, promotion, physician detailing
and education programs.
Although sales of aspirin-based products continued to diminish, Anacin
remained an important aspirin-based analgesic in North America. Anadin Extra
continued to lead sales gains for the Anadin line of products, the number one
selling analgesics in the United Kingdom.
COUGH/COLD/ALLERGY REMEDIES--In the United States, Robitussin, the leader in
the cough syrup category, remained the brand most frequently recommended by
Left: Bob Madonna, age 65, is an active marathon runner who has finished
60 of these endurance contests, including the 1994 New York Marathon. Mr.
Madonna, of Rochelle Park, New Jersey, uses and recommends Advil for
occasional
muscle aches and soreness.
27
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Josephine Fagone, who turned 101 years old on February 2, 1995, attributes her
good health--in part--to regular use of Centrum. Ms. Fagone, pictured here
with her daughter, Nell Compesi, lives in Garfield, New Jersey, and is an
active senior with an upbeat outlook.
[PHOTO]
physicians and pharmacists.
Sales for the OTC cough/cold/allergy category remained unchanged in
1994, although strong sales were recorded for Robitussin Cold & Cough
Liqui-Gels
in its first full year on the market. The Robitussin brand continued to expand
in the cold category with the introduction of Robitussin Cold, Cough & Flu
Liqui-Gels. Robitussin Cold & Cough Liqui-Fills was launched in Canada, where
the brand recorded increased sales. Robitussin Pediatric Night Relief, also
introduced last year, grew in sales. In addition, Robitussin and Dimetapp
showed
sales gains in Australia.
Robitussin Cough Drops built on its position as the second-largest
selling brand of cough drops in the United States, recording sales increases
and
introducing Robitussin Sugar-Free Cough Drops.
In the increasingly competitive cold segment, Dimetapp remained the
OTC
antihistamine/decongestant most widely recommended by physicians in the United
States for colds and allergies. The launch of Dimetapp Cold & Cough Liqui-Gels
expanded the brand into the fastest growing product form in the cough relief
segment. The introduction of Dimetapp Decongestant Pediatric Drops, for
children
ages two to three, is expected to enhance Dimetapp as the cold and allergy
brand
most frequently recommended by pediatricians.
Advil Cold and Sinus (ibuprofen and pseudoephedrine) continued to
generate strong sales growth in the United States. The brand also experienced
success with a launch in Canada and continued to grow in France.
VITAMIN AND MINERAL SUPPLEMENTS--Lederle's Centrum and Centrum Silver, the
market leaders in the U.S. and Canadian adult multivitamin category, recorded
sales increases in 1994 despite competitive pressure. Centrum received
increased support from consumers who are new users of vitamins, drawn by
extensive media coverage
28
<PG$PCN>
"In the United States, Robitussin, the leader in the cough syrup
category, remained the brand most frequently recommended by physicians and
pharmacists."
of nutritional issues as well as the brand's positioning as the leader in
scientific advances.
Aggressive marketing programs for Centrum, Jr. resulted
in major sales gains and moved the brand to the number two position in the
children's vitamin category.
Protegra, an antioxidant vitamin and mineral supplement, had
impressive
sales in its first full year on the U.S. market, and FiberCon, a bulk-forming
fiber laxative, increased in sales in 1994.
Lederle is well-positioned to take advantage of expanded opportunities
in the calcium supplement category with Caltrate. Sales in this category are
expected to grow as a result of recommended guidelines, announced by the
National Institutes of Health in December 1994, for calcium intake to prevent
osteoporosis.
HEMORRHOIDAL AND ASTHMA RELIEF--Preparation H registered sales equivalent to
the prior year. The brand continued to be the largest-selling product in the
hemorrhoidal relief category in the United States and Canada and maintained
leadership in certain European countries.
A new clinical study using Primatene Mist, the number one selling OTC
asthma relief product in the United States, demonstrates that people with mild
asthma can obtain significant benefits within 15 seconds of inhaling
epinephrine, the brand's active ingredient.
FAMILY PLANNING AND IN-HOME DIAGNOSTICS--Clearblue Easy declined in sales in
the face of increased competition from new, lower-priced market entrants in
the U.S. pregnancy test kit category. In Europe, Clearblue Easy was the market
leader in Switzerland and Austria and also gained market leadership in
Germany.
New advertising and an innovative information program for
obstetricians
and gynecologists yielded sales growth for Clearplan Easy, which gained as the
leader in the U.S. ovulation predictor category.
Early in 1995, the decision was made to stop the manufacture of Today
Sponge. The cost and time required to comply with more stringent
government-directed manufacturing and testing mandates would have resulted in
the Company having to price the product beyond the reach of many consumers.
LIP CARE, TOPICAL ORAL ANALGESICS AND MEDICATED SHAMPOO--The success of
its medicated line enabled the Chap Stick lip balm franchise to grow as a
category leader in the United States and Australia. Additionally, Chap Stick
sales increased significantly in other international markets.
Anbesol, a leading line of topical oral analgesics in the United
States,
posted increased sales in both the adult and baby categories of the market.
Sales growth for Denorex, a leading line of medicated shampoos in the
United States, was driven by the strong performance of Denorex for Dry Scalp,
a
product for the relief of dryness and itching.
29
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[PHOTO]
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MEDICAL SUPPLIES AND DIAGNOSTIC PRODUCTS
Sherwood Medical Company, Quinton Instrument Company and Symbiosis
Corp.
manufacture and market innovative medical devices, supplies and diagnostic
instrumentation that meet the specialized needs of patients and health care
providers in the United States and throughout the world. Augmenting the
Company's presence in medical supplies and instrumentation are the businesses
acquired with Cyanamid in 1994. These include the Davis & Geck wound closure
products company; Acufex Microsurgical Inc., which manufactures accessory
products for arthroscopic surgery; and Storz Instrument Company, a
manufacturer
and marketer of ophthalmic products.
DISPOSABLE SYRINGES AND NEEDLES--Sherwood increased sales in the United States
and internationally in 1994. Sherwood is one of only two major suppliers of
safety syringes in the United States and markets, under the Monoject
trademark,
a complete range of needle and syringe combinations that protect health care
workers from accidental needlesticks and exposure to blood-borne pathogens.
Late in the year, Sherwood introduced the Angel Wing Safety Needle System, a
patented safety blood collection device designed to provide optimum protection
during the collection of blood specimens.
TUBES, CATHETERS AND CHEST DRAINAGE PRODUCTS--Sherwood's Argyle line is a
leader
in the United States in the important areas of umbilical vessel catheters,
connecting tubes, naso-gastric tubes and chest drainage products. Sherwood
continued to be a leader in tubes and catheters in Germany and showed strong
growth in this category in Italy. In Japan, Nippon Sherwood, a joint venture
with Mitsui, retained the leading share in gastric drainage products and was a
leader in suction, intravenous hemodialysis and enteral feeding tube products.
THE CYANAMID ACQUISITION PROVIDES AHP WITH PRODUCTS IN WORLDWIDE MARKETS
FOR OPHTHALMIC EQUIPMENT AND WITH IMPORTANT BRANDS IN THE WOUND CLOSURE AND
ARTHROSCOPIC SURGERY MARKETS.
The initial market introduction of Angio-Seal was made by Sherwood in
France late in 1994. Angio-Seal, an innovative hemostatic puncture closure
device, is designed to significantly increase patient comfort while reducing
costs related to arterial punctures during the termination of cardiac
catheterization procedures. Clinical trials continue for this product in
Europe
and in the United States.
A new range of patented arterial blood gas sampling products and a
complete new line of spinal and epidural kits and trays were introduced by
Sherwood in the United States. Also introduced in 1994 were the Argyle Turkel
Safety Thoracentesis and Pneumothorax Systems, which are being marketed by
Sherwood and manufactured by Symbiosis. These systems, used to drain fluid
from
the pleural space, incorporate many safety features and benefits.
CARDIOPULMONARY INSTRUMENTATION AND DEVICES--The broad line of advanced
monitoring products from the Quinton Instrument Company is designed to follow
the patient from initial diagnosis through cardiac rehabilitation. Quinton, a
leader in stress-testing equipment in
Left: (Bernard Lancelin, M.D., Centre Chirurgical Marie Lannelongue,
Cardiologie Interventionelle, Paris, France) Dr. Lancelin, a French
cardiologist, now uses Sherwood's Angio-Seal to enhance patient comfort and
increase operating room efficiency.
31
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"Sherwood's Kangaroo line maintained a leadership position in enteral
feeding devices in the United States and secured sales growth in Europe and
Australia."
the United States, registered sales increases in 1994.
An expansion was made in the cardiac catheterization laboratory area
with Quinton's acquisition of ImageCOMM Systems, Inc., a manufacturer of
cardiac
imaging products.
Electrophysiology products from Quinton Electro-physiology Corporation
now are part of Quinton's comprehensive line of diagnostic cardiology systems,
and in 1994, sales for these products grew rapidly. EPAmp is a new amplifier
designed to work with the EPLab Data Management System. It features improved
touch-screen lead configuration at the patient table and stand-alone
architecture for patient monitoring back-up.
Continued enhancement of Q-Tel, Quinton's cardiac rehabilitation
telemetry software product, bolstered Quinton as a leader in cardiac
rehabilitation monitoring. Quinton re-entered Holter monitor sales with the
launch of two products developed under agreement with Zymed Medical
Instrumentation, a leading manufacturer and marketer of high-end Holter
monitors.
ENTERAL FEEDING SYSTEMS--Sherwood's Kangaroo line maintained a leadership
position in enteral feeding devices in the United States and secured sales
growth in Europe and Australia. Future global market growth opportunities were
strengthened by the acquisition from Biosearch Medical Products of certain
assets and licenses for patented technology in enteral access devices.
Acquired
products, marketed under the Dobbhoff and Entri-Flex trademarks, include a
line
of nasoenteric feeding tubes, percutaneous endoscopic gastrostomy devices and
low-profile gastrostomy tubes.
THERMOMETRY-Significant sales increases for FirstTemp Genius infrared
tympanic thermometers increased Sherwood's leadership in the hospital sector
of
thermometry sales in the United States. Sales for tympanic thermometers also
grew rapidly in Europe, led by gains in the United Kingdom and Nordic markets
and in Canada.
WOUND CARE AND WOUND CLOSURE PRODUCTS--Sales growth in the wound care
dressings field in the United States was achieved by Sherwood's specialty
brands
Viasorb, Blisterfilm and Ultec, which offer cost-effective alternatives to
conventional methods for treating chronic wounds.
Davis & Geck is a worldwide manufacturer of wound closure products,
including sutures designed for cardiovascular, ophthalmological, plastic,
obstetrical/gynecological and other surgical specialties. In addition, Davis &
Geck supplies the medical industry with unique bioabsorbable products and skin
staplers.
LESS-INVASIVE SURGICAL INSTRUMENTS--Symbiosis Corp., a leader in developing
and manufacturing innovative disposable laparoscopic and endoscopic surgical
products that are supplied to major surgical instrumentation companies for
sale to customers, recorded strong sales increases in 1994.
32
<PG$PCN>
Nannette Bac, R.N., is the Infection Control Supervisor at Mercer Medical
Center in Trenton, New Jersey. Ms. Bac, pictured here with Sherwood Medical
sales representative Marti Heckman, was instrumental in the Medical Center's
decision to use Monoject Safety Syringes exclusively.
[PHOTO]
Radial Jaw 3, a biopsy forceps introduced in 1994, utilizes new sheath
technology that improves gastrointestinal endoscopic procedures.
Symbiosis acquired a worldwide license to manufacture and market
laparoscopic instruments from Hemostatic Surgery Corp. This new technology
provides superior control of bleeding with minimal tissue damage.
Acufex Microsurgical also posted sales gains for the year. Acufex
manufactures instruments, scopes, fiber-optic light sources and television
imaging systems for arthroscopic surgical procedures.
VISION CARE PRODUCTS-Major products of the Storz Instrument Company include
ophthalmic microsurgical systems, intraocular lenses, ophthalmic
pharmaceuticals and hand-held ophthalmic surgery instruments. Additionally,
Storz markets instrumentation for the specialties of otolaryngology and
plastic
and reconstructive surgery.
33
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[PHOTO]
<PG$PCN>
FOOD PRODUCTS
The quality foods of American Home Food Products and Canadian Home
Products represent some of the most popular brands in key food categories in
North America. These products are in step with the increasing consumer demand
for taste and convenience as well as health and dietary benefits.
PREPARED MEALS AND SIDE DISHES--New products and line extensions enabled
American Home Food Products to increase sales in 1994 and maintain its leading
share of the prepared pasta category in the United States and Canada. The
appeal of the Chef Boyardee brand to toddlers and younger children increased
with the introduction of Sesame Street Pasta. This is the first line of food
products to be affiliated with the Children's Television Workshop, creators of
"Sesame Street." Each recipe consists of pasta shaped as Sesame Street
characters and is lower in fat or sodium than many adult foods.
The launch of fettuccine and tortellini varieties increased the appeal
of Chef Boyardee to older children and adults. Chef Boyardee Microwave Meals
maintained its leadership in the microwave segment by introducing the first
rice
products in chicken and beef varieties.
Dennison's, a popular canned chili on the West Coast, introduced
Jalapeno Chili. Ranch Style, a leading line of bean products in key geographic
areas, added Black Beans and a beef stew product. A custom-formulated bean and
jalapeno version of the brand now is being used by a leading restaurant group
in
a new burrito item. Luck's, a leading brand of beans and peas in the
Southeast,
introduced Light Red Kidney Beans, which is low in fat and high in fiber.
FOOD ENHANCEMENTS AND SNACKS--Sales growth for PAM outpaced all competitors in
an expanding category despite pressure from competitive introductions and
private label products. PAM is the largest-selling no-stick cooking spray in
the United States and Canada. It is positioned as a low fat, no cholesterol
alternative to butter, margarine and oil.
Polaner All Fruit, acquired in 1993, increased significantly in sales
and remained the number one fruit juice sweetened spreadable fruit. Polaner,
which contains no added sugar or fat, benefited from its national expansion
and
an increased user base in established markets. The brand's position as a
leader
in the wet spices category was strengthened with the launch of the first
sun-dried tomato product cut into strips.
Gulden's continued as the largest-selling spicy brown mustard in the
United States. Ro*Tel, the leading brand of canned tomatoes and green chilies,
was expanded to the West Coast.
Crunch 'n Munch remained the leading brand of glazed popcorn in the
United States and Canada. A new, unique Crunch 'n Munch Light product was
successfully introduced in Canada.
Left: (J. Baxter Urist, Senior Vice President, Children's Television Workshop)
The Sesame Street line of Chef Boyardee canned and micro-wave pastas is the
first food product to be licensed by Children's Television Workshop, the
creators of Sesame Street.
35
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[PHOTO]
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AGRICULTURAL PRODUCTS
Cyanamid is an innovator and a global leader in the crop protection
market with some of the largest-selling herbicides and insecticides as well as
a
growing presence in fungicides. The acquisition of the international
agricultural products business of Shell Petroleum Company Limited by Cyanamid
in
1993 significantly broadened the product franchise internationally and
provided
a direct, well-established international distribution capability.
HERBICIDES--Cyanamid's key herbicides are formulated from the imidazolinones,
a unique class of compound that essentially is safe to wildlife and is
effective at low application rates.
Pursuit is the leading soybean broadleaf herbicide in the United
States,
and sales continued to grow for this product internationally, particularly in
Argentina and Brazil. Cyanamid strengthened its position as the U.S. market
leader among soybean grass herbicides, with Prowl remaining a major product
internationally where it is marketed as Stomp. Squadron, another major U.S.
herbicide, grew in sales. Scepter, a soybean herbicide, remained an important
product in the United States and Latin America, and Assert, a wheat herbicide,
gained in Canada and the United States. Arsenal, a leading herbicide in the
forestry market, had strong growth in the United States and internationally.
INSECTICIDES--Cyanamid markets leading corn soil insecticides in the
United States and other countries. Counter maintained a strong market position
as customers shifted to its new, easier-to-use packaging. Thimet sales
increased
in the United States and internationally. Fastac, used for a variety of crops,
was a major contributor to sales in international markets. A submission is
planned to reregister this product in the European Union.
WITH THE ADDITION OF LEADING CROP PROTECTION PRODUCTS MANUFACTURED AND
MARKETED BY CYANAMID, AHP ENTERED A MAJOR, GLOBAL BUSINESS. CYANAMID'S CROP
PROTECTION RESEARCH AND DEVELOPMENT EFFORTS HAVE GENERATED NUMEROUS NEW
PRODUCTS
THAT HAVE MADE SUBSTANTIAL CONTRIBUTIONS TO SALES.
FUNGICIDES--Delan and Saprol, sold internationally for use with a wide
range of crops, were major contributors to sales in Japan, Italy and other
international markets. Acrobat/Forum, which provides a new mode of action, was
launched during the year in key markets.
RESEARCH--The products discovered and developed over the past several years
have become major factors in soybean and cereal markets and have increased
Cyanamid's presence in the corn herbicide market. Products currently in
development will expand Cyanamid's participation in the cotton, fruit and
vegetable insecticide markets and in the rice herbicide market.
A registration dossier was submitted late in 1994 to the U.S.
Environmental Protection Agency for a new cotton insecticide from the novel
pyrrole family, a new class of compounds developed by Cyanamid researchers. In
field trials, the pyrroles have produced excellent results in controlling
insects, including those that have become resistant to other insecticide
classes. European and other international submissions will be made in 1995.
Left: In Ashburn, Georgia, Cyanamid AgriCenter dealer Tim Floyd (top) of
Coley Farm Service works with Cyanamid Master Sales Representative Wiley
Durden
in planning crop protection strategies for his customers. Cyanamid is a global
leader in products that protect soybeans, corn, cotton and other major crops.
37
<PG$PCN>
Marinus Los, Ph.D., Director, Crop Sciences Discovery, pictured here at
Cyanamid's Princeton, New Jersey-based Agricultural Research Center, was
instrumental in the discovery and development of the imidazolinones, a new
class
of chemistry. In recognition of his achievement, Dr. Los received the National
Medal of Technology from the President of the United States.
[PHOTO]
Several combination products with imidazolinones are anticipated to
receive registration. These will strengthen Cyanamid's competitive position by
minimizing the impact of weed resistance.
Cyanamid also will develop combination products using the fungicide
dimethomorph to increase the spectrum of disease control and to minimize
potential for the development of resistance.
In discovery, Cyanamid has compounds that will be approaching the
development stage in late 1995. These compounds have the potential to maintain
the company's momentum in global herbicide, insecticide and fungicide markets
and help further penetrate crop segments where Cyanamid currently is not a
major
factor. These compounds include a new herbicide, a second pyrrole insecticide,
a
new fungicide and a genetically engineered biopesticide.
38
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ANIMAL HEALTH CARE
Fort Dodge Laboratories markets a broad range of products in more than
40 countries and ranks second in animal vaccines in North America while
sustaining a major animal health research and development effort. The Cyanamid
acquisition provides an expanded presence for Fort Dodge, both in North
America
and internationally, for poultry, swine, bovine, equine and small animal
products. Excluding Cyanamid, 1994 sales for Fort Dodge were consistent with
the
prior year.
SMALL ANIMAL AND EQUINE PRODUCTS--The first fungal vaccine licensed by the
U.S. Department of Agriculture (USDA) for prevention and treatment of feline
ringworm was introduced by Fort Dodge. Marketed as Fel-O-Vax MC-K, this new
product boosted sales in the fast-growing feline biological field.
Sales for Duramune (coronavirus) combination canine biologicals and
LymeVax (Borrelia burgdorferi bacterin), the canine Lyme disease vaccine,
maintained Fort Dodge's leadership in U.S. canine biologicals. LymeVax
remained
the single-largest dollar-volume canine vaccine in the United States.
Sales increases were recorded for key antibiotic products, among them
Amiglyde-V (amikacin sulfate) and Cefa-Tabs/Cefa Drops (cefadroxil), and the
anesthetics Ketaset (ketamine HCl) and Telazol (tiletamine HCl/zolazepam HCl).
New small animal pharmaceuticals introduced in 1994 included
Torbugesic SA (butophanol tartrate), a potent analgesic for pain relief in
cats; Arquel Tablets (meclofenamic acid), an oral NSAID for the relief of pain
and inflammation in dogs; Robamox-V Suspension (amoxicillin), a liquid
formulation of the popular antibiotic amoxicillin; and Sedazine (xylazine), a
potent sedative/analgesic.
THE INTEGRATION OF CYANAMID'S ANIMAL HEALTH BUSINESSES INTO FORT DODGE
ENHANCES
THE COMPANY'S POSITION IN ANIMAL BIOLOGICALS AND PHARMACEUTICALS WORLDWIDE. IT
ALSO PROVIDES A STRONG ENTRY INTO THE MEDICATED FEED ADDITIVES MARKET.
Fort Dodge's position as a leader in equine vaccines was maintained
through increased sales for several key products. A new equine biological
introduced during the year - Fluvac EHV 4/1 with MetaStim - features a new
adjuvant system that stimulates the immune system to respond to vaccination
more
effectively.
DAIRY AND CATTLE PRODUCTS--Fort Dodge and Franklin Laboratories, its OTC
entity, exhibited a strong performance in sales of mastitis prevention and
treatment products for the U.S. dairy industry, including ToDAY, ToMORROW,
Cefa-Lak, Cefa-Dri, Hetacin-K and Dry-Clox.
Fort Dodge strengthened its leadership in bovine biological sales
through the introduction of PYRAMID MLV 4. This is the first four-way modified
live vaccine licensed by the USDA that provides single-dose administration as
well as the option of subcutaneous or intramuscular injection. Fort Dodge's
leading line of inactivated bovine biologicals expanded with the launch of
Triangle 4+PH/HS and Discovery 4+PH/Somnus. In the bovine reproductive
biological category, Trichguard and Reprotec registered increased sales.
Cydectin (moxidectin) is an endectocide developed by Cyanamid to
protect
cattle and sheep against a broad range of internal and external parasites.
Cydectin annualized sales continued to grow as registrations were achieved
around the world. The product gained acceptance in Australia where it was
launched in 1994. In 1995, several
39
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Gilbert Griffith, D.V.M., of Prairieville, Louisiana, recommends Fort Dodge's
newest feline vaccine - Fel-O-Vax MC-K - for the prevention and treatment of
ringworm in cats.
[PHOTO]
formulations will be launched in Europe. Registration is pending in the
United States and other countries while new species-specific formulations and
delivery systems are in advanced development.
Presponse (pasteurella haemolytica toxoid), a respiratory bacterin for
cattle developed by Cyanamid, experienced growth in the United States after
receiving approval for single-dose administration. The product also was
launched
in France. Two other Cyanamid vaccines experiencing rapid growth are Cyblue,
for
the prevention of PRRS (porcine respiratory and reproduction syndrome), and
Bursavac, for the prevention of infectious bursal disease in poultry.
Annualized sales exceeded expectations for Cyanamid livestock
anti-parasite products such as Flectron (cypermethrin) and Renegade
(alphacypermethrin).
MEDICATED FEED ADDITIVES--Cyanamid's medicated feed additives include
antibacterials, anticoccidials and productivity growth enhancers for
livestock.
These products are used to combat respiratory and intestinal infections in
livestock, meeting global needs for increased food production and disease
control.
NEW PRODUCT AND MARKETING INITIATIVES--Fort Dodge will seek to complete
development of a proprietary sustained release formulation of porcine
somatotropin developed by Cyanamid that would allow swine producers to grow
leaner pigs more quickly. Additionally, an agreement was signed that provides
worldwide rights to develop and market a new behavior modifying drug for use
in
small animals. Other products in early stages of development are a novel
biological treatment/prophylaxis for allergic dermatitis in dogs, an equine
respiratory disease vaccine and a second-generation Lyme disease vaccine.
Continuing its commitment to the European Common Market, Fort Dodge
recently purchased major distribution channels in Holland and Spain.
40
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FINANCIAL SECTION
--------------------------------------------
CONTENTS
42 Ten-Year Selected Financial Data
44 Consolidated Balance Sheets
45 Consolidated Statements of Income
46 Consolidated Statements of Retained Earnings
and Additional Paid-in Capital
47 Consolidated Statements of Cash Flows
48 Notes to Consolidated Financial Statements
57 Report of Independent Public Accountants
57 Management Report on Financial Statements
58 Quarterly Financial Data
58 Market Prices of Common Stock and Dividends
59 Management's Discussion and Analysis of
Financial Condition and Results of Operations
<PG$PCN>
- ------------------------------------------------------------------------------
- ----------------------------
TEN-YEAR SELECTED FINANCIAL DATA
American Home Products Corporation and Subsidiaries
- ------------------------------------------------------------------------------
- ----------------------------
Years Ended December 31,
1994(2) 1993 1992
(Dollar amounts in thousands except per share amounts)
SUMMARY OF SALES AND EARNINGS
- ------------------------------------------------------------------------------
- ----------------------------
Net sales . . . . . . . . . . . . . . . . . . . . . . . . $ 8,966,214
$8,304,851 $7,873,687
Net income (1) . . . . . . . . . . . . . . . . . . . . . . 1,528,254
1,469,300 1,460,842
Net income per common share . . . . . . . . . . . . . . . 4.97
4.73 4.65
Dividends per common share . . . . . . . . . . . . . . . . 2.94
2.86 2.66
YEAR-END FINANCIAL POSITION
- ------------------------------------------------------------------------------
- ----------------------------
Current assets . . . . . . . . . . . . . . . . . . . . . . $ 7,821,246
$4,807,684 $4,552,077
Current liabilities. . . . . . . . . . . . . . . . . . . . 4,618,086
1,584,411 1,492,717
Ratio of current assets to current liabilities . . . . . . 1.69
3.03 3.05
Total assets . . . . . . . . . . . . . . . . . . . . . . . 21,674,812
7,687,353 7,141,405
Long-term debt . . . . . . . . . . . . . . . . . . . . . . 9,973,240
859,278 601,934
Average shareholders' equity . . . . . . . . . . . . . . . 4,065,295
3,719,539 3,431,568
SHAREHOLDERS - OUTSTANDING SHARES
- ------------------------------------------------------------------------------
- ----------------------------
Number of common shareholders . . . . . . . . . . . . . . 71,223
72,664 73,064
Number of preferred shareholders . . . . . . . . . . . . . 666
726 780
Average number of common shares outstanding . . . . . . .
used for earnings per share calculation (in thousands). . 307,413
310,668 314,201
Preferred shares outstanding at year-end (in thousands). . 37
40 43
EMPLOYMENT DATA
- ------------------------------------------------------------------------------
- ----------------------------
Number of employees at year-end . . . . . . . . . . . . . 74,009
51,399 50,653
Wages and salaries . . . . . . . . . . . . . . . . . . . . $ 1,820,450
$ 1,654,984 $1,575,615
Benefits (including social security taxes) . . . . . . . . 441,768
396,045 367,899
- ------------------------------------------------------------------------------
- ----------------------------
(1) Net income in 1992 includes the impact of accounting changes and the
charge for acquired research discussed in Notes 2, 5 and 10. Excluding
these items, 1992 net income was $1,370,738, and net income per common
share was $4.36. Net income in 1987 excludes a provision related to
Dalkon Shield claims of $1.75 billion recorded by A.H. Robins Company,
Incorporated prior to its acquisition by the Company in 1989.
(2) The 1994 information reflects the acquisition of American Cyanamid
Company, effective December 1, 1994.
42
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- ------------------------------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------
1991 1990 1989 1988
1987 1986 1985
- ------------------------------------------------------------------------------
- ------------------------------------------------------
$7,079,443 $6,775,182 $6,747,016 $6,401,454
$5,850,383 $5,683,507 $5,358,376
1,375,273 1,230,597 1,102,158 995,461
928,232 865,922 818,459
4.36 3.92 3.54 3.22
2.98 2.73 2.54
2.375 2.15 1.95 1.80
1.67 1.55 1.45
- ------------------------------------------------------------------------------
- ------------------------------------------------------
$4,119,057 $3,826,075 $3,532,786 $3,256,494
$3,310,467 $3,249,404 $2,634,616
1,270,135 1,693,852 1,108,895 1,067,599
1,392,800 1,103,109 754,216
3.24 2.26 3.19 3.05
2.38 2.95 3.49
5,938,797 5,637,107 5,681,487 5,492,424
5,411,150 4,928,476 3,972,634
104,710 111,430 1,895,796 100,057
90,076 70,815 63,017
2,987,885 2,322,623 1,651,050 1,077,462
1,572,972 2,227,801 1,977,817
- ------------------------------------------------------------------------------
- ------------------------------------------------------
71,209 69,907 70,904 70,021
73,353 75,405 77,797
870 931 1,021 1,110
1,187 1,314 1,417
315,726 314,066 311,644 309,396
311,975 317,678 322,259
51 57 64 71
77 87 98
- ------------------------------------------------------------------------------
- ------------------------------------------------------
47,938 48,700 50,816 51,464
50,623 49,896 53,337
$1,388,397 $1,398,721 $1,391,233 $1,284,208
$1,171,788 $1,045,691 $1,052,264
300,810 312,750 256,458 245,834
215,109 164,306 188,946
- ------------------------------------------------------------------------------
- ------------------------------------------------------
43
<PG$PCN>
- ------------------------------------------------------------------------------
- -----------------------------------------------------
CONSOLIDATED BALANCE SHEETS
American Home Products Corporation and Subsidiaries
- ------------------------------------------------------------------------------
- -----------------------------------------------------
December 31,
1994 1993
(In thousands except per share amounts)
ASSETS
- ------------------------------------------------------------------------------
- -----------------------------------------------------
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . $ 1,696,204 $1,936,834
Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . 247,970 283,449
Accounts receivable less allowances (1994 - $97,382 and 1993 - $45,949) . . .
. . . . . 2,380,730 1,389,555
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . 2,246,150 958,896
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . 1,250,192 238,950
----------- ----------
TOTAL CURRENT ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . 7,821,246 4,807,684
Property, plant and equipment:
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . 178,693 89,375
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . 2,422,113 1,473,413
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . 2,857,269 1,897,577
----------- ----------
5,458,075 3,460,365
Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . 1,646,145 1,400,580
----------- ----------
3,811,930 2,059,785
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . 9,181,129 716,395
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . 860,507 103,489
----------- ----------
$21,674,812 $7,687,353
=========== ==========
LIABILITIES
- ------------------------------------------------------------------------------
- -----------------------------------------------------
Loans payable to banks . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . $ 113,284 $ 4,280
Trade accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . 1,042,468 388,804
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . 2,999,127 1,019,923
Accrued federal and foreign taxes on income . . . . . . . . . . . . . . . . .
. . . . . 463,207 171,404
----------- ----------
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . 4,618,086 1,584,411
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . 9,973,240 859,278
Accrued postretirement benefit obligation . . . . . . . . . . . . . . . . . .
. . . . . 696,814 264,553
Other noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . 1,809,153 903,993
Minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . 323,418 198,630
SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------------
- -----------------------------------------------------
$2 convertible preferred stock, par value $2.50 per share; 5,000,000 shares
authorized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . $ 91 $ 100
Common stock, par value $.33 1/3 per share; 600,000,000 shares authorized . .
. . . . . 101,994 103,442
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . 1,020,658 1,014,911
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . 3,226,100 2,884,244
Currency translation adjustments . . . . . . . . . . . . . . . . . . . . . . .
. . . . . (94,742) (126,209)
----------- ----------
TOTAL SHAREHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . 4,254,101 3,876,488
----------- ----------
$21,674,812 $7,687,353
=========== ==========
- ------------------------------------------------------------------------------
- -----------------------------------------------------
The accompanying notes are an integral part of these consolidated balance
sheets.
44
<PG$PCN>
- ------------------------------------------------------------------------------
- -----------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
American Home Products Corporation and Subsidiaries
- ------------------------------------------------------------------------------
- -----------------------------------------------------
Years Ended December 31,
1994 1993 1992
(In thousands except per share amounts)
NET SALES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . $8,966,214 $8,304,851 $7,873,687
---------- ---------- ----------
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . 2,795,581 2,723,902 2,568,690
Selling, administrative and general expenses . . . . . . . . . . . . . . . . .
. . 3,175,684 2,922,579 2,846,365
Research and development expenses . . . . . . . . . . . . . . . . . . . . . .
. . 817,090 662,689 552,450
Other (income) expense, net . . . . . . . . . . . . . . . . . . . . . . . . .
. . (25,598) 3,016 (37,888)
Restructuring and special charge . . . . . . . . . . . . . . . . . . . . . .
. . 173,697 -- 220,000
---------- ---------- ----------
6,936,454 6,312,186 6,149,617
---------- ---------- ----------
Income before federal and foreign taxes on income . . . . . . . . . . . . . .
. . 2,029,760 1,992,665 1,724,070
Provision for taxes on income:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . 249,961 287,846 351,193
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . 251,545 235,519 222,139
---------- ---------- ----------
501,506 523,365 573,332
---------- ---------- ----------
Income before accounting changes . . . . . . . . . . . . . . . . . . . . . . .
. . 1,528,254 1,469,300 1,150,738
Cumulative effect of accounting changes:
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . -- -- 383,295
Postretirement benefits other than pensions
(net of taxes of $37,704) . . . . . . . . . . . . . . . . . . . . . . .
. . -- -- (73,191)
---------- ---------- ----------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . $1,528,254 $1,469,300 $1,460,842
========== ========== ==========
Income per share of common stock before accounting changes . . . . . . . . . .
. . $ 4.97 $ 4.73 $ 3.66
Cumulative effect of accounting changes:
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . -- -- 1.22
Postretirement benefits other than pensions . . . . . . . . . . . . . . .
. . -- -- (.23)
---------- ---------- ----------
NET INCOME PER SHARE OF COMMON STOCK . . . . . . . . . . . . . . . . . . . . .
. . $ 4.97 $ 4.73 $ 4.65
========== ========== ==========
- ------------------------------------------------------------------------------
- -----------------------------------------------------
The accompanying notes are an integral part of these consolidated statements.
45
<PG$PCN>
- ------------------------------------------------------------------------------
- -----------------------------------------------------
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS AND ADDITIONAL PAID-IN CAPITAL
American Home Products Corporation and Subsidiaries
- ------------------------------------------------------------------------------
- -----------------------------------------------------
Years Ended December 31,
1994 1993 1992
(In thousands except per share amounts)
RETAINED EARNINGS
- ------------------------------------------------------------------------------
- -----------------------------------------------------
Balance, beginning of year . . . . . . . . . . . . . . . . . . . . . . . . .
$2,884,244 $2,547,719 $2,316,555
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,528,254 1,469,300 1,460,842
---------- ---------- ----------
4,412,498 4,017,019 3,777,397
---------- ---------- ----------
Cash dividends declared:
Preferred stock (per share: 1994 - 1992, $2.00) . . . . . . . . . . . . .
76 82 92
Common stock (per share: 1994 - 1992, $2.94, $2.86, $2.66) . . . . . . . .
903,089 888,100 833,758
---------- ---------- ----------
903,165 888,182 833,850
Cost of treasury stock acquired, less amount charged to capital . . . . . . .
272,061 244,593 395,828
Unrealized loss on marketable securities . . . . . . . . . . . . . . . . . .
11,172 -- --
---------- ---------- ----------
1,186,398 1,132,775 1,229,678
---------- ---------- ----------
Balance, end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,226,100 $2,884,244 $2,547,719
========== ========== ==========
ADDITIONAL PAID-IN CAPITAL
- ------------------------------------------------------------------------------
- -----------------------------------------------------
Balance, beginning of year . . . . . . . . . . . . . . . . . . . . . . . . .
$1,014,911 $ 953,155 $ 838,099
Excess over par value of common stock issued . . . . . . . . . . . . . . . .
41,448 84,013 125,513
Miscellaneous, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(35,701) (22,257) (10,457)
---------- ---------- ----------
Balance, end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,020,658 $1,014,911 $ 953,155
========== ========== ==========
- ------------------------------------------------------------------------------
- -----------------------------------------------------
The accompanying notes are an integral part of these consolidated statements.
46
<PG$PCN>
- ------------------------------------------------------------------------------
- -----------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
American Home Products Corporation and Subsidiaries
- ------------------------------------------------------------------------------
- -----------------------------------------------------
Years Ended December 31,
1994 1993 1992
(In thousands)
OPERATING ACTIVITIES
- ------------------------------------------------------------------------------
- -----------------------------------------------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. $ 1,528,254 $1,469,300 $ 1,460,842
Adjustments to reconcile to net cash provided from operating activities: . .
.
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . .
. 306,169 241,068 210,213
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . .
. (92,259) 153,314 (223,484)
Restructuring and special charge . . . . . . . . . . . . . . . . . . . .
. 163,697 -- 220,000
Changes in working capital, net of businesses acquired or sold:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . .
. 13,972 (135,038) (192,150)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. (157,072) (8,341) (72,057)
Trade accounts payable and accrued expenses . . . . . . . . . . . . . .
. 324,795 62,758 104,217
Accrued taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. 121,807 27,333 31,457
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . .
. (161,674) (13,101) 138
Other items, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. (146,180) (115,905) (26,031)
----------- ---------- -----------
Net cash provided from operating activities . . . . . . . . . . . . . . . . .
. $ 1,901,509 $1,681,388 $ 1,513,145
=========== ========== ===========
INVESTING ACTIVITIES
- ------------------------------------------------------------------------------
- -----------------------------------------------------
Purchases of businesses for cash, net of cash acquired . . . . . . . . . . .
. $(9,356,230) $ (67,500) $ (565,952)
Purchases of property, plant and equipment . . . . . . . . . . . . . . . . .
. (472,510) (517,912) (428,109)
Proceeds/(purchases) of marketable securities, net . . . . . . . . . . . . .
. 24,307 6,154 (238,589)
Proceeds from sales of businesses/assets . . . . . . . . . . . . . . . . . .
. 195,078 13,614 60,341
Purchases of other assets . . . . . . . . . . . . . . . . . . . . . . . . . .
. (6,104) (16,038) (10,165)
----------- ---------- -----------
Net cash used for investing activities . . . . . . . . . . . . . . . . . . .
. $(9,615,459) $ (581,682) $(1,182,474)
=========== ========== ===========
FINANCING ACTIVITIES
- ------------------------------------------------------------------------------
- ----------------------------------------------------
Net proceeds of commercial paper and notes . . . . . . . . . . . . . . . . .
. $ 8,639,718 $ 251,646 $ 503,759
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. (903,165) (888,182) (833,850)
Purchases of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . .
. (313,807) (277,495) (434,947)
Exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . .
. 37,805 69,255 95,431
----------- ---------- -----------
Net cash provided by/(used for) financing activities . . . . . . . . . . . .
. 7,460,551 (844,776) (669,607)
----------- ---------- -----------
Effects of exchange rates on cash balances . . . . . . . . . . . . . . . . .
. 12,769 (10,857) (32,906)
----------- ---------- -----------
(Decrease)/increase in cash and cash equivalents . . . . . . . . . . . . . .
. (240,630) 244,073 (371,842)
Cash and cash equivalents, beginning of year . . . . . . . . . . . . . . . .
. 1,936,834 1,692,761 2,064,603
----------- ---------- -----------
Cash and cash equivalents, end of year . . . . . . . . . . . . . . . . . . .
. $ 1,696,204 $1,936,834 $ 1,692,761
=========== ========== ===========
- ------------------------------------------------------------------------------
- ----------------------------------------------------
The accompanying notes are an integral part of these consolidated statements.
47
<PG$PCN>
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).
Acquisition of American Cyanamid Company: On November 21, 1994, the Company
acquired substantially all the outstanding shares of American Cyanamid Company
(Cyanamid) for approximately $9.6 billion, including acquisition-related
costs. Cyanamid is a research-based life sciences company which discovers and
develops medical and agricultural products and manufactures and markets such
products in more than 135 countries. The acquisition was accounted for under
the
purchase method of accounting, effective December 1, 1994, and, accordingly,
the
operating results of Cyanamid for the month of December 1994 have been
included
in the consolidated operating results of the Company. The purchase price
exceeded the net assets acquired by approximately $8.5 billion, which is being
amortized over 40 years. The net assets were valued using preliminary
estimates
of fair values and include the cost of integration. The Company will continue
its evaluation of the estimated fair values that were allocated to the net
assets of Cyanamid during 1995.
The following unaudited pro forma results of operations reflect the
acquisition as if it had occurred at the beginning of each year presented
after
including the impact of adjustments for interest expense on acquisition debt,
amortization of goodwill and merger-related financing costs, and related
income
tax benefits.
(In thousands except per share amounts) 1994 1993
- ---------------------------------------------------------------------------
Sales . . . . . . . . . . . . . . . . . . . $13,500,376 $12,581,651
Net income . . . . . . . . . . . . . . . . $ 1,273,000 $ 645,212
Net income per share of common stock . . . $ 4.14 $ 2.08
- ---------------------------------------------------------------------------
The above pro forma results are not necessarily indicative of what actually
would have occurred if the acquisition had been in effect for the periods
presented. Further, the pro forma results are not intended to be a projection
of future results and do not reflect any cost savings resulting from
synergistic opportunities.
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 fair value. The fair values are estimated
based on quoted market prices. Effective January 1, 1994, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 115 - Accounting for
Certain Investments in Debt and Equity Securities. The impact of this
statement
was not material to the Company as cost approximated fair value.
Inventories are valued at the lower of cost or market. Inventories valued
under the last-in, first-out (LIFO) method amounted to $716,354,000 at
December 31, 1994 and $148,700,000 at December 31, 1993. Current value
exceeded
LIFO value by $70,206,000 and $65,607,000 at December 31, 1994 and 1993,
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) 1994 1993
- --------------------------------------------------------------------
Finished goods . . . . . . . . . . . $1,158,045 $435,902
Work in progress . . . . . . . . . . 525,269 219,701
Materials and supplies . . . . . . . 562,836 303,293
---------- --------
$2,246,150 $958,896
========== ========
- --------------------------------------------------------------------
48
<PG$PCN>
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 $705,399,000 and $636,385,000
at December 31, 1994 and 1993, respectively. The Company evaluates whether
changes have occurred that would require revision of the remaining estimated
useful life of the assigned goodwill or rendered the goodwill not recoverable.
If such circumstances arise, the Company uses an estimate of the related
business' after-tax income contribution on a discounted basis to determine
whether the goodwill is recoverable.
Long-Term Debt is stated at face value, which approximates fair value. The
fair value of the Company's long-term debt is estimated based on quoted market
prices.
Interest Rate Swap and Foreign Currency Agreements: The fair value of interest
rate swap and foreign currency agreements is based on market prices. This
value represents the estimated amount the Company would receive/pay to
terminate the agreements taking into consideration current interest rates or
currency exchange rates.
Currency Translation: The majority of the Company's international operations
are translated into U.S. dollars using current exchange rates with translation
adjustments accumulated in shareholders' equity. For other international
operations, certain financial statement accounts are translated at historical
exchange rates. The resultant translation adjustments for these international
operations are recorded in results of operations. These international
operations pertain to countries with hyper-inflationary economies and are
located principally in Latin America.
Net Income per Share of Common Stock is based on the average of common shares
and common share equivalents outstanding during the year: 307,413,000 shares
in 1994, 310,668,000 shares in 1993 and 314,201,000 shares in 1992.
2 OTHER ACQUISITIONS AND DIVESTITURES
In addition to the Cyanamid acquisition, the Company purchased and divested
various other businesses as follows:
In May 1994, the Company sold Corometrics Medical Systems, Inc., a
manufacturer of perinatal monitoring systems, for $73,600,000 and Agri-Bio
Corp., a manufacturer of a medicated feed additive for the poultry industry,
for
$39,939,000. In addition, the Company sold its former corporate headquarters
facility in New York City for $50,000,000. Other (income) expense, net
includes
a gain of approximately $75,787,000 from these sales.
In March 1993, the Company acquired M. Polaner, Inc. (Polaner), a
manufacturer of spreadable fruit products, for $67,500,000 in a purchase
transaction. The excess of the purchase price over the net assets acquired was
approximately $65,600,000.
As of December 31, 1994, the Company owned approximately 64% of
Genetics
Institute, Inc. (G.I.). Approximately $220,000,000 of the initial purchase
price
was attributable to acquired research and was expensed as a special charge in
1992. The Company holds an option to acquire the remaining shares of G.I. from
the public shareholders until December 31, 1996 at prices escalating by
approximately $1.84 per quarter, to $85 per share. At January 1, 1995, the
option price per share was $72.11. 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
shares. G.I. continues as a publicly traded company.
In September 1992, the Company acquired Symbiosis Corp. (Symbiosis), a
manufacturer of disposable surgical instruments for $175,000,000. The purchase
price exceeded the net assets acquired by approximately $173,000,000.
The results of operations of G.I., Symbiosis and Polaner have been
included in the consolidated statements of income since their acquisition
dates.
The Company also acquired all the outstanding stock of Intelligent
Medical Systems, Inc. (IMS) in exchange for 498,242 shares of the Company's
common stock. This acquisition was accounted for as a pooling-of-interests,
effective January 1, 1992.
The Company had other acquisitions and divestitures during the
1992-1994
period, the effects of which, individually and in the aggregate, were not
material to the consolidated financial position or results of operations.
49
<PG$PCN>
Unaudited pro forma results of operations to reflect the 1994 and 1993
transactions as if they had taken place on January 1 of those years, other
than
the Cyanamid acquisition which is discussed in Note 1, are not presented as
the
effects are immaterial.
In January 1995, the Company sold its South American oral health care
business for $1.04 billion, the net proceeds from which will be used primarily
to reduce the acquisition debt incurred relating to the Cyanamid purchase.
3 DEBT AND FINANCING ARRANGEMENTS
The Company's debt at December 31 consisted of:
(In thousands) 1994 1993
- --------------------------------------------------------------------
Commercial paper . . . . . . . . . $ 8,796,507 --
Notes payable
6.875% notes due 1997. . . . . . 250,000 $250,000
6.50% notes due 2002 . . . . . . 250,000 250,000
7.25% debentures due 2023 . . . 250,000 250,000
Pollution control and industrial
revenue bonds
5.10%-8.75% due 1995-2020 . . . 165,932 41,675
Sinking fund debentures
7.375%-8.375% due 2001-2006. . . 95,129 --
Other debt
5.60%-9.61% due 1995-2009 . . . 278,956 71,883
----------- --------
10,086,524 863,558
Less current portion . . . . . . . 113,284 4,280
----------- --------
$ 9,973,240 $859,278
=========== ========
- --------------------------------------------------------------------
In connection with the acquisition of Cyanamid, the Company and certain of its
subsidiaries issued short-term notes (commercial paper), of which $8.8 billion
was outstanding at December 31, 1994. The weighted average interest rate on
the
commercial paper outstanding at December 31, 1994 was 6.06%. The commercial
paper has original maturities not exceeding 270 days and a weighted average
remaining maturity of 36 days as of December 31, 1994. The commercial paper is
supported by two credit agreements totaling $10.0 billion, each dated
September
9, 1994, among the Company and certain of its subsidiaries and a syndicate of
lenders. The credit facilities are composed of a $3.0 billion, five-year
credit
facility and a $7.0 billion, 364-day credit facility which may be renewed
annually with the consent of the majority lenders in amounts equal to the
commitments of the consenting lenders and replacement lenders, if any. The
interest rate on borrowings under the credit facilities is based on various
rates at the option of the Company. The proceeds of the credit facilities may
be
used to support commercial paper and the Company's general corporate and
working
capital purposes. The credit facilities contain a financial covenant and
various
other customary covenants, representations, warranties, conditions and default
provisions. As of December 31, 1994, there were no borrowings outstanding
under
the credit facilities. Commercial paper outstanding at December 31, 1994 is
classified as long-term since the Company intends, and has the ability, to
refinance these obligations through the issuance of additional commercial
paper,
through the use of its credit facilities or through the issuance of long-term
debt.
The 6.875% and 6.50% notes payable have semiannual interest payments
due
on April 15 and October 15. The 7.25% debentures have semiannual interest
payments due on March 1 and September 1. These notes payable are unsecured and
unsubordinated and may not be redeemed prior to maturity.
The aggregate maturities of debt during the next five years as of
December 31, 1994 are as follows:
(In thousands)
- ------------------------------------------------------
1995 . . . . . . . . . . . . . . . . . . $ 113,284
1996 . . . . . . . . . . . . . . . . . . 48,166
1997 . . . . . . . . . . . . . . . . . . 288,240
1998 . . . . . . . . . . . . . . . . . . 71,859
1999 . . . . . . . . . . . . . . . . . . 29,915
Thereafter . . . . . . . . . . . . . . . 738,553
-----------
1,290,017
Commercial paper . . . . . . . . . . . . 8,796,507
-----------
Total debt . . . . . . . . . . . . . . . $10,086,524
===========
- ------------------------------------------------------
Interest payments in connection with the Company's debt obligations for the
years ended December 31, 1994, 1993 and 1992 amounted to $114,831,000,
$55,215,000 and $26,151,000, respectively.
In October 1994, the Company entered into $4.75 billion notional
amount
of simple, unleveraged interest rate
50
<PG$PCN>
swap agreements as a means of (1) locking in the underlying U.S. treasury
security rates to be paid in connection with long-term debt planned to be
issued during 1995 and (2) converting a portion of the commercial paper issued
in connection with the acquisition of Cyanamid from a floating rate obligation
to a fixed rate obligation. The swap agreements are contracts under which the
Company pays a fixed rate of interest and receives a floating rate of interest
over the term of the swap agreements without the exchange of the underlying
notional amounts. During 1994, the weighted average interest rates paid and
received on these agreements were 7.9% and 5.9%, respectively. The swap
agreements have maturities ranging from 1996 to 2005. At December 31, 1994,
the
fair value of these interest rate swap agreements was $32,964,000. The Company
has other interest rate swap agreements in the notional amount of
approximately
$6,250,000 as of December 31, 1994, under which the Company also pays a fixed
rate of interest and receives a floating rate of interest. These interest rate
swap agreements were entered into to manage specifically identifiable risks.
The
Company does not speculate on interest rates as a means of enhancing yield.
The Company enters into foreign exchange forward contracts as part of
its management of foreign currency exposure. The Company does not engage in
speculation on foreign currency. At December 31, 1994, the Company had
notional
amounts of $312,100,000 of foreign exchange forward contracts outstanding.
The Company believes that the risk of loss associated with the
interest
rate or foreign currency agreements, from either non-performance by the
counterparties or due to fluctuations in interest or foreign exchange rates,
would not be material.
4 RESTRUCTURING CHARGE
In the second quarter of 1994, the Company recorded a $173,697,000 charge for
the cost of implementing two restructuring programs related primarily to the
U.S. pharmaceutical and consumer health care businesses. These programs will
result in the elimination of excess production capacity and associated
workforce, primarily through the closure of a manufacturing facility and
further
workforce reductions through various organizational effectiveness initiatives.
The restructuring programs have been initiated with cash outlays of
approximately $10,000,000 through December 31, 1994. Employees who will be
impacted by these restructurings were notified, some of the distribution
center
closures were completed and the registration process to transfer certain
production among the Company's U.S. manufacturing facilities was initiated
during 1994.
5 EMPLOYEE BENEFIT PLANS
Pension Plans: The Company sponsors various retirement plans for most
full-time employees. Total pension expense for 1994, 1993 and 1992 was
$68,652,000, $50,660,000 and $46,003,000, 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 year service
costs under retirement plans, and substantially all liabilities for accrued
vested and nonvested benefits have been fully funded.
Prior to the acquisition, Cyanamid had various pension plans covering
substantially all employees in the United States and Canada. Effective
December
31, 1994, Cyanamid's U.S. Employee Retirement Plan was merged with the
Company's
U.S. pension plan.
Net periodic pension cost of domestic pension plans was as follows:
(In thousands) 1994 1993 1992
- ------------------------------------------------------------------------------
Service cost on benefits earned
during the year . . . . . . . . $ 35,642 $ 31,520 $ 28,237
Interest cost on projected
benefit obligation . . . . . . . 69,598 59,485 54,226
Actual loss (return) on plan
assets . . . . . . . . . . . . . 62,498 (113,393)
(53,600)
Net amortization and
deferral . . . . . . . . . . . . (120,372) 57,642 2,502
--------- -------- --------
Net periodic pension cost . . . . . $ 47,366 $ 35,254 $ 31,365
========= ======== ========
- ------------------------------------------------------------------------------
The net amortization and deferral for 1994 primarily reflects the
difference between the expected return on plan assets and the actual loss on
plan assets for this period.
51
<PG$PCN>
The Company's pension plans are substantially fully funded. The
actuarial present value of benefit obligations and funded status for the
Company's pension plans, including Cyanamid's plans as of December 31, 1994,
were as follows:
(In thousands) 1994 1993
- -------------------------------------------------------------------
Benefit obligations:
Vested benefits . . . . . . . . $2,062,791 $620,872
Nonvested benefits . . . . . . 89,103 45,702
---------- --------
Accumulated benefit obligation . . 2,151,894 666,574
Effect on benefits from projected
compensation increases. . . . . 276,139 160,079
---------- --------
Projected benefit obligation . . . 2,428,033 826,653
Plan assets at fair value. . . . . 2,053,595 743,292
---------- --------
Projected benefit obligation
in excess of plan assets. . . . (374,438) (83,361)
Unrecognized net loss. . . . . . . 36,235 16,457
Unrecognized net transition
obligation. . . . . . . . . . . 3,787 2,891
Unrecognized prior service cost. . 18,991 26,177
---------- --------
Net pension (liability). . . . . . $ (315,425) $(37,836)
========== ========
- -------------------------------------------------------------------
Assumptions used in developing the projected benefit obligation as of
December 31 were as follows:
1994 1993 1992
- ------------------------------------------------------------------
Discount rate . . . . . . . . . . . . . 8.5% 7.5% 8.5%
Rate of increase in
compensation . . . . . . . . . . . . 5.0% 4.5% 6.0%
Rate of return on plan assets. . . . . . 8.5-9.0% 8.5% 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 $830,625,000 as of
December 31, 1994, due principally to the addition of $461,660,000 for
Cyanamid.
Net periodic postretirement health care cost includes the following
components:
(In thousands) 1994 1993 1992
- -------------------------------------------------------------------------
Service cost on benefits
earned during the year . . . . . . $13,447 $ 9,759 $ 8,439
Interest cost on APBO . . . . . . . . . 31,612 26,765 21,456
Amortization of loss . . . . . . . . . 6,016 1,230 --
------- ------- -------
Net periodic postretirement
health care cost. . . . . . . . . . $51,075 $37,754 $29,895
======= ======= =======
- -------------------------------------------------------------------------
The APBO, including Cyanamid's plans as of December 31, 1994, was as
follows:
(In thousands) 1994 1993
- -------------------------------------------------------------------
Retirees . . . . . . . . . . . . . . . . $538,617 $165,797
Fully eligible active participants . . . 147,852 151,753
Other active participants. . . . . . . . 144,156 38,314
-------- --------
APBO . . . . . . . . . . . . . . . . . . 830,625 355,864
Unrecognized net loss. . . . . . . . . . (78,811) (91,311)
-------- --------
Accrued postretirement
benefit obligation. . . . . . . . . . $751,814 $264,553
======== ========
- -------------------------------------------------------------------
Assumptions used in developing the APBO were as follows:
1994 1993 1992
- ----------------------------------------------------------------------------
Discount rate . . . . . . . . . . . . . . 8.5% 7.5% 9.0%
Increase in per capita cost
of health care benefits
that gradually was decreased
over 10 years and held
constant thereafter . . . . . . . 10.5%-6% 11%-6% 12%-6%
- ----------------------------------------------------------------------------
52
<PG$PCN>
A one percentage point increase in the assumed health care cost trend rates
would increase the APBO as of December 31, 1994 by approximately $91,730,000,
and the total of the service and interest cost components of the net
annualized
periodic postretirement health care cost would increase by approximately
$11,563,000.
6 OTHER NONCURRENT LIABILITIES
Other noncurrent liabilities include reserves for contingencies relating to
income taxes, environmental matters and product liability, as well as
Management Incentive Plan and other employee benefit liabilities.
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. As of December 31, 1994, the Company was a party to, or otherwise
involved in, legal proceedings directed at the cleanup of 63 Superfund sites.
Thirty-three of these sites are the result of acquiring Cyanamid. These sites
exclude sites for which full liability was assumed by Cytec Industries Inc.
(Cytec), which was spun off by Cyanamid in 1993, but include certain sites for
which there is shared responsibility between Cyanamid and Cytec. Cytec
encompassed substantially all of Cyanamid's former chemical businesses. The
Company has various preferred stock interests in Cytec, including one series
that contains various financial and other covenants designed to preserve
Cytec's
ability to discharge certain liabilities of Cyanamid which Cytec assumed upon
the spin-off, particularly certain environmental matters.
In many cases, future environmental-related expenditures cannot be
quantified with a reasonable degree of accuracy. It is the Company's policy to
accrue environmental cleanup costs if it is probable that a liability has been
incurred and an amount is reasonably estimable. As investigations and cleanups
proceed, these liabilities are reviewed and adjusted as additional information
becomes available. The aggregate environmental-related accruals were
$248,772,000 and $79,501,000 at December 31, 1994 and 1993, respectively.
Accruals have been recorded without giving effect to any possible future
insurance proceeds or the timing of the payments.
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 8,795,045 have been
awarded through December 31, 1994. Deferred contingent common stock awards
totaling 354,154 shares were outstanding at December 31, 1994. Awards for 1994
amounted to $35,842,408, which included deferred contingent common stock of
$6,512,513 (102,398 shares). Awards for 1993 were $31,266,000, which included
deferred contingent common stock of $7,120,000 (101,348 shares). Awards for
1992
amounted to $30,337,000, which included deferred contingent common stock of
$7,201,000 (104,098 shares).
7 CAPITAL STOCK
There were 600,000,000 shares of common stock and 5,000,000 shares of
preferred
stock authorized at December 31, 1994. Of the authorized preferred shares,
there is a series of shares (36,513 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 $60 per share plus accrued dividends.
Changes in outstanding common shares during 1994, 1993 and 1992 are
summarized as follows:
(In thousands) 1994 1993 1992
- ---------------------------------------------------------------------------
Balance, beginning of year . . . . . . . 310,326 313,048 315,623
Issued for stock options and
Management Incentive
Plan . . . . . . . . . . . . . . . . 958 1,754 2,681
Conversions of preferred stock
(3,624 shares in 1994,
3,011 shares in 1993 and
7,900 shares in 1992). . . . . . . . 33 27 72
Purchase of shares for treasury. . . . . (5,336) (4,503) (5,826)
Issued for acquisition of IMS. . . . . . -- -- 498
------- ------- -------
Balance, end of year . . . . . . . . . . 305,981 310,326 313,048
======= ======= =======
- ---------------------------------------------------------------------------
53
<PG$PCN>
8 STOCK OPTIONS
The Company has three Stock Option Plans - 1985, 1980 and 1978 - and two
Stock Incentive Plans - 1993 and 1990. 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.
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. In addition, the
1993 and 1990 plans, 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. In 1994, restricted stock performance awards representing 54,400
units were granted under the plan to certain key executives. These units will
be
converted to shares of restricted stock based on the achievement of certain
performance criteria over a three-year period of restriction.
In April 1994, the shareholders approved the Restricted Stock Plan for
Non-Employee Directors. Under the plan, a maximum of 25,000 restricted shares
may be granted to non-employee directors at not less than 100% of the fair
market value at the date of grant. The restricted shares will not be delivered
until the end of the restricted period which does not exceed five years.
Transactions involving the plans are summarized as follows:
OPTION SHARES 1994 1993
- ---------------------------------------------------------------------
Outstanding January 1 . . . . . . . . . 21,340,924 12,465,013
Granted . . . . . . . . . . . . . . . . 1,984,050 10,710,210
Canceled. . . . . . . . . . . . . . . . (971,380) (322,450)
Exercised (1994 - $27.06 to
$65.19 per share). . . . . . . . . . (885,562) (1,511,849)
---------- ----------
Outstanding December 31 . . . . . . . . 21,468,032 21,340,924
---------- ----------
Exercisable December 31
(1994 - $31.75 to
$79.31 per share). . . . . . . . . . 19,379,282 10,805,634
========== ==========
- ---------------------------------------------------------------------
At December 31, 1994, 11,594,810 shares were available for future grants under
the 1993 and 1990 plans.
9 OTHER (INCOME) EXPENSE, NET
This caption in the Consolidated Statements of Income is summarized as
follows:
(In thousands) 1994 1993 1992
- ---------------------------------------------------------------------
Interest income . . . . . . . . $(106,430) $(89,677) $(108,720)
Interest expense. . . . . . . . 115,186 47,174 35,503
Foreign exchange
loss and other . . . . . . . 41,433 45,519 35,329
Gain on the sale of
certain assets . . . . . . . (75,787) -- --
--------- ------- ---------
Total . . . . . . . . . . . . . $ (25,598) $ 3,016 $ (37,888)
========= ======= =========
- ---------------------------------------------------------------------
10 INCOME TAXES
The provision for income taxes consisted of:
(In thousands) 1994 1993 1992
- ----------------------------------------------------------------------
Current:
Domestic . . . . . . . . . . . . $351,581 $150,916 $154,572
Foreign . . . . . . . . . . . . 242,184 219,135 221,245
-------- -------- --------
593,765 370,051 375,817
Deferred:
Domestic . . . . . . . . . . . . (101,620) 136,930 196,621
Foreign . . . . . . . . . . . . 9,361 16,384 894
-------- -------- --------
(92,259) 153,314 197,515
-------- -------- --------
$501,506 $523,365 $573,332
======== ======== ========
- ----------------------------------------------------------------------
54
<PG$PCN>
Deferred tax assets (liabilities), inclusive of a valuation allowance
for deferred tax assets, were reflected in the consolidated balance sheets at
December 31 as follows:
(In thousands) 1994 1993
- ---------------------------------------------------------------
Net current assets . . . . . . . . . $629,205 $ 140,902
Net noncurrent assets. . . . . . . . 345,730 --
Net noncurrent liabilities . . . . . -- (148,558)
-------- ---------
$974,935 $ (7,656)
======== =========
- ---------------------------------------------------------------
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.
As a result of the acquisition of Cyanamid, the Company recorded a net
deferred tax asset of $890,332,000, which is inclusive of a valuation
allowance
of $228,542,000 for differences between the estimated fair value and tax basis
of the net assets acquired.
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. The aggregate amount of the tax benefits was $383,295,000. The
Robins' NOL for tax purposes was fully utilized during 1994.
The Company has recorded deferred tax assets as of December 31, 1994
of
approximately $1.5 billion related principally to reserves for product and
environmental liabilities, postretirement benefit obligations, and other
employee benefits and reorganizations. A valuation allowance was established
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 1994, the valuation allowance
increased by $159,613,000 as reductions in these reserves of $68,929,000 were
more than offset by increases as a result of the Cyanamid acquisition. During
1993, the valuation allowance was reduced by $9,961,000. There was no change
to
the allowance in 1992. The balance in the valuation allowance at December 31,
1994 was $250,976,000. Deferred tax liabilities of $558,823,000 as of December
31, 1994 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 1994 1993 1992
- -------------------------------------------------------------------------
U.S. statutory rate . . . . . . . . . . 35.0% 35.0% 34.0%
Effect of Puerto Rico and Ireland
manufacturing operations. . . . . . (5.5) (6.1) (6.1)
Reversal of reserves. . . . . . . . . . (3.4) (0.7) --
Expenses for which no tax
benefits were recorded. . . . . . . -- -- 4.5
Research credits. . . . . . . . . . . . (1.2) (1.3) (0.4)
Other . . . . . . . . . . . . . . . . . (0.2) (0.6) 1.3
---- ---- ----
Effective tax rate. . . . . . . . . . . 24.7% 26.3% 33.3%
==== ==== ====
- -------------------------------------------------------------------------
The lower effective tax rate in 1994 was attributable, in part, to the
reversal
of certain tax reserves that no longer were deemed necessary in the second
quarter of 1994.
Total income tax payments for the years ended December 31, 1994, 1993
and 1992 amounted to $536,854,000, $335,102,000 and $292,170,000,
respectively.
11 CONTINGENCIES
The Company is involved in various legal proceedings, including product
liability and environmental matters of a nature considered normal to its
business.
The Company is self-insured against ordinary product liability risks
and
has liability coverage in excess of certain limits from various insurance
carriers. See Note 6 for a discussion of environmental matters.
In the opinion of the Company, although the outcome of any litigation
cannot be predicted with certainty, the ultimate liability of the Company in
connection with pending litigation will not have a material adverse effect on
the Company's financial position but could be material to the results of
operations in any one accounting period.
55
<PG$PCN>
12 COMPANY DATA BY INDUSTRY SEGMENT
Years Ended December 31,
------------------------------
(In millions) 1994 1993 1992
- -----------------------------------------------------------------------
NET SALES TO CUSTOMERS
- -----------------------------------------------------------------------
Health Care Products:
Pharmaceuticals . . . . . . . . . $5,199.9 $4,774.6 $4,589.3
Consumer Health
Care. . . . . . . . . . . . . . 1,802.1 1,743.0 1,611.0
Medical Supplies and
Diagnostic Products . . . . . . 883.6 851.5 807.6
-------- -------- --------
7,885.6 7,369.1 7,007.9
Food Products . . . . . . . . . . . 997.3 935.8 865.8
Agricultural Products. . . . . . . . 83.3 -- --
-------- -------- --------
Consolidated Total . . . . . . . . . $8,966.2 $8,304.9 $7,873.7
======== ======== ========
- -----------------------------------------------------------------------
INCOME BEFORE TAXES
- -----------------------------------------------------------------------
Health Care Products (4) . . . . . . $1,839.9 $1,836.7 $1,755.7
Food Products . . . . . . . . . . . 155.6 152.4 146.1
Agricultural Products. . . . . . . . 16.8 -- --
Corporate (2). . . . . . . . . . . . 17.5 3.6 (177.7)
-------- -------- --------
Consolidated Total . . . . . . . . . $2,029.8 $1,992.7 $1,724.1
======== ======== ========
- -----------------------------------------------------------------------
TOTAL ASSETS AT DECEMBER 31
- -----------------------------------------------------------------------
Health Care Products . . . . . . . . $ 8,118.4 $5,165.3 $4,944.4
Food Products . . . . . . . . . . . 558.8 504.4 384.0
Agricultural Products. . . . . . . . 1,173.9 -- --
Corporate (1). . . . . . . . . . . . 11,823.7 2,017.7 1,813.0
-------- -------- --------
Consolidated Total . . . . . . . . . $21,674.8 $7,687.4 $7,141.4
======== ======== ========
- -----------------------------------------------------------------------
DEPRECIATION EXPENSE
- -----------------------------------------------------------------------
Health Care Products . . . . . . . . $200.7 $172.3 $169.3
Food Products . . . . . . . . . . . 13.3 11.8 10.6
Agricultural Products. . . . . . . . 5.2 -- --
Corporate . . . . . . . . . . . . . 9.4 6.8 3.7
-------- -------- --------
Consolidated Total . . . . . . . . . $228.6 $190.9 $183.6
======== ======== ========
- -----------------------------------------------------------------------
CAPITAL EXPENDITURES (3)
- -----------------------------------------------------------------------
Health Care Products . . . . . . . . $424.4 $416.3 $474.4
Food Products . . . . . . . . . . . 35.5 24.9 20.0
Agricultural Products. . . . . . . . 6.3 -- --
Corporate . . . . . . . . . . . . . 6.3 76.7 60.9
-------- -------- --------
Consolidated Total . . . . . . . . . $472.5 $517.9 $555.3
======== ======== ========
- -----------------------------------------------------------------------
COMPANY DATA BY GEOGRAPHIC SEGMENT
Years Ended December 31,
(In millions) 1994 1993 1992
- -----------------------------------------------------------------------
NET SALES TO CUSTOMERS
- -----------------------------------------------------------------------
United States . . . . . . . . . . . $5,908.0 $5,695.8 $5,387.1
Canada and Latin
America . . . . . . . . . . . . . 1,022.4 897.7 758.9
Europe and Africa. . . . . . . . . . 1,422.7 1,196.6 1,244.1
Asia and Australia . . . . . . . . . 613.1 514.8 483.6
-------- -------- --------
Consolidated Total . . . . . . . . . $8,966.2 $8,304.9 $7,873.7
======== ======== ========
- -----------------------------------------------------------------------
INCOME BEFORE TAXES
- -----------------------------------------------------------------------
United States (2, 4) . . . . . . . . $1,346.2 $1,465.7 $1,245.9
Canada and Latin
America . . . . . . . . . . . . . 270.5 214.9 158.9
Europe and Africa. . . . . . . . . . 299.9 224.0 233.6
Asia and Australia . . . . . . . . . 113.2 88.1 85.7
-------- -------- --------
Consolidated Total . . . . . . . . . $2,029.8 $1,992.7 $1,724.1
======== ======== ========
- -----------------------------------------------------------------------
TOTAL ASSETS AT DECEMBER 31
- -----------------------------------------------------------------------
United States (1). . . . . . . . . . $17,828.1 $5,736.6 $5,249.6
Canada and Latin
America . . . . . . . . . . 902.7 467.5 436.6
Europe and Africa. . . . . . . . . . 2,192.5 1,075.7 1,065.3
Asia and Australia . . . . . . . . . 751.5 407.6 389.9
-------- -------- --------
Consolidated Total . . . . . . . . . $21,674.8 $7,687.4 $7,141.4
======== ======== ========
- -----------------------------------------------------------------------
(1) Goodwill of approximately $8.5 billion related to the purchase of
Cyanamid is included in these segments for 1994. The Company currently is
performing an evaluation of the estimated fair values of the net assets
acquired. This evaluation will be completed in 1995.
(2) These segments include the special charge of $220,000,000 in 1992 (see
Note 2).
(3) Capital expenditures for 1992 include additions from businesses acquired.
(4) Segments include the restructuring charge of $173,697,000 in 1994 (see
Note 4).
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 (income) expense, net in the Consolidated
Statements of Income on page 45, resulted in net charges to income of
$35,694,000 in 1994, $55,475,000 in 1993 and $23,662,000 in 1992, principally
in
the Canada and Latin America segment (see Note 9).
56
<PG$PCN>
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, 1994 and 1993, 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, 1994. 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, 1994 and 1993, and
the
results of their operations and cash flows for each of the three years in the
period ended December 31, 1994 in conformity with generally accepted
accounting
principles.
As discussed in Notes 5 and 10 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 LLP
New York, N.Y.
January 23, 1995
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, composed 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
57
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- ------------------------------------------------------------------------------
- -------------------------------------------
QUARTERLY FINANCIAL DATA
- ------------------------------------------------------------------------------
- -------------------------------------------
First Quarter Second
Quarter Third Quarter Fourth Quarter
(In thousands except per share amounts) 1994
1994 1994 1994
- ------------------------------------------------------------------------------
- -------------------------------------------
Net Sales . . . . . . . . . . . . . . . . . $2,144,045
$1,977,853 $2,258,525 $2,585,791
Gross Profit . . . . . . . . . . . . . . . . 1,486,580
1,349,958 1,523,522 1,810,573
Net Income . . . . . . . . . . . . . . . . . 415,800
299,981 412,985 399,488
Net Income per Common Share . . . . . . . . $ 1.34 $
0.98 $ 1.35 $ 1.30
- ------------------------------------------------------------------------------
- -------------------------------------------
- ------------------------------------------------------------------------------
- -------------------------------------------
First Quarter Second
Quarter Third Quarter Fourth Quarter
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
- ------------------------------------------------------------------------------
- -------------------------------------------
- ------------------------------------------------------------------------------
- -------------------------------------------
MARKET PRICES OF COMMON STOCK AND DIVIDENDS
1994 RANGE OF PRICES*
1993 Range of Prices*
- -----------------------------------------------------------------------------
-----------------------------------
DIVIDENDS
Dividends
HIGH LOW PER SHARE
High Low per Share
- ------------------------------------------------------------------------------
- -------------------------------------------
First Quarter . . . . . . . . . . . . $65.75 $57.25 $0.73
$68.00 $55.50 $0.71
Second Quarter. . . . . . . . . . . . 60.50 55.63 0.73
69.00 62.38 0.71
Third Quarter . . . . . . . . . . . . 60.50 55.38 0.73
65.75 58.38 0.71
Fourth Quarter. . . . . . . . . . . . 67.25 58.00 0.75
65.38 58.88 0.73
- ------------------------------------------------------------------------------
- -------------------------------------------
</Table
* Prices are those of the New York Stock Exchange--Composite Transactions.
58
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following commentary should be read in conjunction with the
Consolidated Financial Statements and Notes to Consolidated Financial
Statements
on pages 44 to 56.
RESULTS OF OPERATIONS
Net sales increased 8% to $9.0 billion in 1994 while net sales for 1993
increased 5% from 1992 levels. In the fourth quarter of 1994, the Company
completed its acquisition of American Cyanamid Company (Cyanamid). Operating
results for the fourth quarter and the 12 months ended December 31, 1994
reflect
Cyanamid's operating results and related acquisition interest expense and
goodwill amortization for the month of December. Excluding the impact of
Cyanamid, net sales for the year ended 1994 would have increased 4%.
Net income and net income per share for 1994 increased 4% and 5%,
respectively, above 1993 levels. The Cyanamid operating income for the month
of
December was more than offset by acquisition-related interest expense and
goodwill amortization and resulted in net dilution of four cents per share for
the fourth quarter and the full year 1994. Excluding the effects of Cyanamid,
net income and net income per share for 1994 would have increased 5% and 6%,
respectively, over 1993. Net income and net income per share for 1993
increased
1% and 2%, respectively, above 1992 levels. The 1992 results include the
cumulative effect of certain accounting changes and a charge for acquired
research in connection with the acquisition of Genetics Institute, Inc.
Excluding the impact of the accounting changes and the charge for acquired
research from 1992 results, net income and net income per share in 1993
increased 7% and 8%, respectively.
The increase in worldwide net sales of 4%, exclusive of Cyanamid, is
composed of unit volume growth of 2% and price increases of 2%. Foreign
exchange
had less than a 1% effect on the Company's consolidated worldwide sales for
1994. The 1993 worldwide increase in net sales of 5% is composed of unit
volume
growth of 3% with price increases of 4% being offset by unfavorable foreign
exchange of 2%. Worldwide net sales of health care products increased 7% in
1994
and 5% in 1993. Food products sales increased 7% in 1994 and 8% in 1993.
Worldwide pharmaceutical sales increased 9% in 1994 and 4% in 1993.
U.S.
pharmaceutical sales increased 5% in 1994 and 1993. When sales of Cyanamid and
Agri-Bio Corp. (which was sold in 1994) are excluded, U.S. pharmaceutical
sales
would have increased 3% in 1994 due to unit volume growth. There was no
pricing
impact on the Company's U.S. pharmaceutical business in 1994. The 1994 sales
growth, exclusive of Cyanamid and Agri-Bio, was attributable to increased
sales
of Premarin as well as cardiovascular, anti-inflammatory and oral
contraceptive
products. Effexor, an antidepressant which was introduced in the United States
in early 1994, also contributed to these sales increases. Offsetting these
increases, in part, were lower sales of Norplant, Ativan and infant
nutritional
products. The decline in Norplant sales was attributable to patient and health
care provider concerns over use of the product, largely generated by adverse
publicity associated with product liability lawsuits. The Company intends to
vigorously defend the product and the lawsuits. Ativan sales continue to erode
due to generic competition. Nutritional products sales declines reflect, in
part, the Company's decision to refrain from bidding on certain state
contracts
under which Women, Infants and Children (WIC) infant formula programs are
awarded in an effort to improve the profitability of this product line. The
U.S.
pharmaceutical sales increase of 5% in 1993 was due to unit volume growth of
3%
and price increases of 2%. This growth was led by increases in Premarin and
the
anti-inflammatory and veterinary products categories. Genetics Institute,
Inc.'s
recombinant antihemophilic
59
<PG$PCN>
factor (rhAHF) bulk product sales also contributed to this volume growth.
International pharmaceutical sales increased 16% in 1994 and 2% in
1993.
Excluding the impact of Cyanamid, international pharmaceutical sales would
have
increased 9% in 1994 due to unit volume growth of 4% and price increases of
5%.
Foreign exchange had less than a 1% effect on 1994 international
pharmaceutical
sales. In 1993, the international pharmaceutical sales increase was due to
unit
volume growth of 4%, with price increases of 6% being more than offset by
unfavorable foreign exchange of 8%. The sales increases for both 1994 and 1993
were driven by increased growth of infant nutritional and female health care
products. The Company operates under governmental price controls in many of
its
more significant international markets, particularly in Europe.
Worldwide consumer health care sales increased 3% in 1994 and 8% in
1993. Excluding the effects of Cyanamid, U.S. consumer health care sales would
have decreased 1% in 1994. U.S. consumer health care price increases in 1994
of
4% were more than offset by the 5% decline in unit volumes, particularly in
the
cough/cold/allergy, family planning and asthma relief product lines. These
decreases were partially offset by increased sales in 1994 of analgesics and
lip
care products. The sales increase in 1993 of 5% in the U.S. consumer health
care
business was due to price increases of 8% being offset, in part, by unit
volume
declines of 3%. Growth in 1993 in the cough/cold/allergy product line was more
than offset by sales declines in the Company's analgesics products,
particularly
Anacin. U.S. consumer health care sales continued to be unfavorably impacted
in
1994 by the continued growth of private label brands, particularly in the
analgesics and asthma categories. However, despite the introduction of new
competitive products in the analgesics category in 1994 and increased
competition from other branded and private label products, the Advil franchise
continued to grow as sales increased 8% over 1993. The cough/cold/allergy
product category, particularly the Robitussin, Dimetapp and Dristan product
lines, was negatively impacted by the mild cold and flu season in the latter
part of 1993 and early 1994. This trend is repeating itself as the 1994/1995
cold and flu season has again been mild. Sales decreased in the family
planning
category in 1994 as a result of lower sales of Today Sponge, which was
voluntarily discontinued in early 1995. The discontinuation was due to new
governmental manufacturing mandates which would require extensive resources
that
would make this product uneconomical.
International consumer health care sales increased 10% in 1994 and 16%
in 1993. Excluding the effects of Cyanamid, international consumer health care
sales in 1994 would have increased 9%. This increase is attributable to unit
volume growth of 3%, with price increases of 7% being slightly offset by
unfavorable foreign exchange of 1%. The Company was able to increase prices in
line with inflation and related currency devaluations in several Latin
American
markets in 1994 and 1993, particularly Brazil, which contributed to the sales
gains for both the international consumer health care and pharmaceutical
businesses. The 1994 increase is due primarily to increased sales of oral
health
care products and cough/cold products in certain Latin American countries. In
January 1995, the Company sold its oral health care business in South America
for $1.04 billion. This business had sales of approximately $290 million in
1994. Excluding these sales, international consumer health care sales would
have
increased 6% in 1994. The 1993 increase of 16% was attributable to unit volume
growth of 7%, price increases of 14% and unfavorable foreign exchange of 5%.
The
1993 increase was primarily due to growth in the oral health care product
line,
particularly in Argentina, and inflation-related price increases in Brazil.
Sales of medical supplies and diagnostic products increased 4% in
1994.
Excluding the effects of Cyanamid and Corometrics Medical Systems, Inc. (which
was sold in 1994), sales for this segment would have increased 6% in 1994 and
7%
in 1993 due to increases in sales of needles and syringes, tympanic
thermometry
products and surgical devices. The 1994 increase was composed of unit volume
increases of 5% and favorable foreign exchange of 1%. The 1993 increase was
composed of unit volume growth of 6% being offset by a 1% decline in prices.
Competitive conditions in the hospital supply market continued to place
significant pressure on prices in both 1994 and 1993.
Sales of food products increased 7% in 1994 and 8% in 1993. The 1994
increase was attributable to a 6% volume increase and a 1% increase in price.
The 1994 sales growth was attributable primarily to PAM, Polaner and the newly
introduced Sesame Street nutritional pasta line. In 1993, the increase was led
by volume growth of 7%, principally as a result of the acquisition of M.
Polaner, Inc., with price
60
<PG$PCN>
increases contributing another 1% to the growth. The 1993 growth, in addition
to the contribution from the Polaner acquisition, was led by increased sales
of Crunch 'n Munch.
Agricultural products is a new business segment of the Company as a
result of the Cyanamid acquisition. This segment discovers, develops,
manufactures and markets crop protection products on a worldwide basis. On a
pro
forma basis, this segment would have had $1.6 billion of sales in 1994. Sales
in
this segment are seasonal and are heavily concentrated in the first six months
of the year. Therefore, performance in the first half of 1995 will not be
indicative of the results to be expected for the full year 1995.
The Company's 1994 operating results included a $174 million charge to
record the costs of implementing certain restructuring programs primarily
related to the U.S. pharmaceutical and consumer health care businesses and
gains
of approximately $76 million from the sale of Corometrics Medical Systems,
Agri-Bio and the Company's former headquarters building. Also recorded was a
reversal of certain tax reserves of approximately $64 million related to
reserves that no longer were deemed necessary. In the aggregate, these items
had
no net impact on 1994 net income and earnings per share. In 1994, the
restructuring program was initiated, and through year-end, there was
approximately $10 million of cash outlays. Employees who will be impacted were
notified, some of the distribution center closures were completed and the
registration process to transfer certain production among the Company's U.S.
manufacturing facilities was initiated. The remaining portions of this
restructuring program, as well as pre-acquisition Cyanamid restructuring
programs, currently are being re-evaluated due to the integration of Cyanamid.
It is anticipated that even if the priorities of the restructuring programs
are
changed, all remaining restructuring program funds will be used in the
integration.
Excluding the impact of Cyanamid and of the items discussed in the
preceding paragraph, income before tax increased 7% in 1994 and outpaced the
1994 sales growth of 4% primarily due to a reduction in cost of sales as a
percentage of total sales, which decreased due to improved product mix,
reductions in inventory losses and reduced royalties. Cost of goods sold in
1993, as a percentage of net sales, was consistent with prior year levels.
Selling, administrative and general expenses, as a percentage of net
sales, excluding the effects of Cyanamid, was comparable to 1993. This expense
category was favorably impacted in 1994 by the reversal of certain litigation
reserves that no longer were required. In 1993, this percentage decreased one
percentage point from 1992 due primarily to decreases in media spending,
particularly in the U.S. consumer health care segment.
Research and development expense increased 23% in 1994 and 20% in
1993.
Excluding the effects of Cyanamid, the 1994 increase was 16%. Pharmaceutical
research and development expense, as a percentage of worldwide pharmaceutical
sales, exclusive of nutritional sales, was 13% and 14% in 1994 and 1993,
respectively.
As previously discussed, other (income) expense, net includes the gain
on the sale of Corometrics Medical Systems, Agri-Bio and the Company's former
headquarters building. Also included in other (income) expense, net, and
offsetting these gains, was interest related to the Cyanamid acquisition.
Other
(income) expense, net in 1993 reflected reduced net interest income, which was
caused primarily by the use of cash balances and of the proceeds from certain
debt issuances for acquisitions and common share repurchases and, to a lesser
extent, lower interest rates on invested funds.
The effective tax rate decreased to 24.7% in 1994 from 26.3% in 1993
due
primarily to the reversal of certain tax reserves as previously discussed.
Excluding this reduction and the impact related to the non-deductibility of
goodwill amortization related to the Cyanamid acquisition, the effective tax
rate for 1994 would have been 28%. The increase in rates between years is due
to
the reduced Section 936 tax benefits derived from the Company's manufacturing
operations in Puerto Rico. The Company's effective tax rate is expected to
increase to approximately 30% in 1995 due primarily to the non-deductibility
of
the Cyanamid goodwill amortization.
While plans currently are well under way to implement the integration
of
Cyanamid, the Company expects that the Cyanamid acquisition will be dilutive
to
1995 earnings from operations. The gain on the sale of the South American oral
health care business will be recognized in the first quarter of 1995.
61
<PG$PCN>
HEALTH CARE REFORM AND COMPETITION
In 1994, the effort to pass a U.S. health care reform bill was discontinued by
the Congress. It is expected that an effort will be reinitiated in 1995 to
make less comprehensive changes to the U.S. health care system. While the
Company cannot predict with any certainty the nature of the potential reforms
and the impact they may have on its domestic business, market forces are
continuing to place pressures on pricing of pharmaceuticals and operating
results. This trend is expected to continue throughout the remainder of 1995
and
beyond. Moreover, it is expected that global market forces will continue to
constrain price growth regardless of health care reform in the United States.
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 has not had patent
protection for many years, does contribute significantly to sales and, more
significantly, to profits. In 1994, a generic drug company announced it had
filed an Abbreviated New Drug Application with the U.S. Food and Drug
Administration (FDA)for one strength of conjugated estrogens tablet. The
Company
cannot predict the timing of FDA action on this application. While the
introduction of generic competition ordinarily is expected to significantly
impact the market for a brand name product, the extent of such impact on
Premarin and related products cannot be predicted with certainty due to a
number
of factors, including the nature of the product and the introduction of new
combination estrogen and progestin products in the Premarin family.
LIQUIDITY, FINANCIAL CONDITION AND CAPITAL RESOURCES
The acquisition cost of $9.6 billion for Cyanamid was financed through the
issuance of short-term commercial paper, which was supported by $10.0 billion
of credit facilities established in 1994, and the use of the Company's general
corporate funds. The credit facilities are composed of a $3.0 billion,
five-year credit facility and a $7.0 billion, 364-day credit facility. In
connection with the acquisition, the Company's commercial paper and long-term
debt ratings were downgraded. In February 1995, the Company issued, under a
$3.5 billion shelf registration statement, $1.0 billion of 7.70% notes due
February 2000 and $1.0 billion of 7.90% notes due February 2005. Net proceeds
from these issuances were used to repay commercial paper. The notes are
unsecured and unsubordinated and may not be redeemed prior to maturity. In
connection with the $2.0 billion note issue, the Company terminated $2.0
billion of the interest rate swap agreements that previously had been entered
into. The effect of terminating these swap agreements was deferred and will be
amortized to interest expense over the five- and 10-year terms of the related
notes.
The acquisition-related financings are anticipated to be repaid not
only
with cash flows from operations but through the use of proceeds from the sale
of
certain assets, including approximately $900 million of net proceeds from the
sale of the South American oral health care business.
Cash flows from operations continued to be strong in 1994. These funds
were used principally for dividend payments of $903 million, capital
expenditures of $473 million and $314 million for common share repurchases.
Capital expenditures included the expansion of the Company's research and
development facilities in New Jersey, New York and Pennsylvania, facilities
expansion projects at Genetics Institute, Inc. and continued strategic
investments in manufacturing/distribution facilities worldwide. In 1993,
besides
operating cash flows, proceeds from the issuance of $250 million of 30-year
debentures were used primarily for dividend payments, common share
repurchases,
capital additions and certain other acquisitions, including Polaner. The
Company
believes that the foreign currency risks to which it is exposed are not
reasonably likely to have a material adverse effect on the Company's results
of
operations or financial position given the concentration of sales in the
United
States. No single foreign currency accounted for more than 5% of 1994
worldwide
sales.
The Company has established aggressive objectives in order to reduce
its
current debt position, including, but not limited to, the sale of
non-strategic
assets. Synergies from the Cyanamid acquisition, which are targeted to begin
in
1995, are expected to substantially increase operating cash flows. Therefore,
management is confident that the cash flows from the combined businesses will
be
adequate to repay both the principal and interest on the acquisition financing
without requiring the disposition of any significant strategic core businesses
or assets and, further, to allow the Company to continue to fund its
operations,
pay dividends and maintain its ongoing programs of capital expenditures
without
restricting its ability to make further acquisitions as may be appropriate.
62
<PG$PCN>
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.(1)
President and Chief
Executive Officer,
The Hearst Corporation
*K. Roald Bergethon
Educational Consultant
Robert G. Blount(1)
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
Fred Hassan
Senior Vice President
John P. Mascotte
Chairman and Chief Executive Officer,
The Continental Corporation
Mary Lake Polan, M.D., Ph.D.
Chairman, Department of OB/GYN
Stanford University School of Medicine
*Robert W. Sarnoff
Director/Consultant
John R. Torell III
Chairman,
Torell Management Inc.
William Wrigley
President and Chief
Executive Officer,
Wm. Wrigley Jr. Company
DIRECTOR EMERITUS
William F. Laporte
Retired-Former Chairman of
the Board
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 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(2,3)
Vice President
Paul M. Heinrich
Vice President-Engineering
Leo C. Jardot
Vice President-Government Relations
Gerald A. Jibilian
Vice President and Associate
General Counsel
Rene R. Lewin(2)
Vice President-Human Resources
David Lilley(2,3)
Vice President
William J. Murray(2,3)
Vice President
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
Roxanne E. Parker
Treasurer
Charles P. Slacik
Comptroller
PRINCIPAL DIVISION AND
SUBSIDIARY OFFICERS
Acufex Microsurgical Inc.
James R. Stitt, President
American Home Food Products, Inc.
Charles E. LaRosa,(3) President
Cyanamid Agricultural Products
Howard L. Minigh, Ph.D., President
Cyanamid Agricultural Products Research
Mark W. Atwood, Ph.D., President
Cyanamid International Agricultural Products
Marco A. Fonseca, President
Cyanamid Latin America
Agricultural Products
Ken Bakshi, Vice President
Davis & Geck
Jeffrey P. Ashpitz, President
Fort Dodge Laboratories
E. Thomas Corcoran,(2,3)
Vice President, AHPC
Genetics Institute, Inc.**
Gabriel Schmergel, President and
Chief Executive Officer
Immunex Corporation**
Edward V. Fritzky, Chairman and
Chief Executive Officer
Quinton Instrument Company
Anthony G. Perri, President
Sherwood Medical Company
David A. Low,(3) President
Specialty Pharmaceuticals Division
David Strunce, President
Storz Instrument Company
Robert H. Blankemeyer, President
Symbiosis Corp.
Kevin W. Smith, President
Whitehall International, Inc.
Jean-Claude Leroux,(3) President
Whitehall-Robins Healthcare
Terrence L. Stecz,(3) President
Wyeth-Ayerst International, Inc.
David M. Olivier,(3) President
Wyeth-Ayerst Laboratories
Robert Essner,(3) President
Wyeth-Ayerst Research
Robert I. Levy, M.D.,(3) President
(1) Executive Committee
(2) Finance Committee
(3) Operations Committee
* Not a candidate for re-election to the Board of Directors
** AHP is majority owner
63
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CORPORATE DATA
INDEPENDENT AUDITORS
Arthur Andersen LLP
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 26, 1995, in
Whippany,
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 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) 565-2067
POLICY ON HEALTH, SAFETY AND ENVIRONMENTAL PROTECTION
A copy of the Company's "Policy on Health, Safety and Environmental
Protection"
may be obtained upon written request to:
American Home Products Corporation
Department of Environment and Safety
Five Giralda Farms
Madison, NJ 07940
Product designations appearing in differentiated type are trademarks.
[LOGO] Pages 41-64 are printed on recycled paper.
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