===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended Commission file number 1-1225
March 31, 2003
Wyeth
-----
(Exact name of registrant as specified in its charter)
Delaware 13-2526821
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Five Giralda Farms, Madison, N.J. 07940
--------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (973) 660-5000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- --
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes X No
----- --
The number of shares of Common Stock outstanding as of the close of business on
April 30, 2003:
Number of
Class Shares Outstanding
--------------------------------- ------------------
Common Stock, $0.33-1/3 par value 1,327,966,729
================================================================================
WYETH
INDEX
Page No.
Part I - Financial Information 2
Item 1. Consolidated Condensed Financial Statements:
Consolidated Condensed Balance Sheets -
March 31, 2003 and December 31, 2002 3
Consolidated Condensed Statements of Operations -
Three Months Ended March 31, 2003 and 2002 4
Consolidated Condensed Statements of Changes in
Stockholders' Equity - Three Months Ended
March 31, 2003 and 2002 5
Consolidated Condensed Statements of Cash Flows -
Three Months Ended March 31, 2003 and 2002 6
Notes to Consolidated Condensed Financial Statements 7-14
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 15-25
Item 3. Quantitative and Qualitative Disclosures About Market
Risk 26
Item 4. Controls and Procedures 26-27
Part II - Other Information 28
Item 1. Legal Proceedings 28-29
Item 6. Exhibits and Reports on Form 8-K 30
Signature 31
Certifications 32-35
Exhibit Index EX-1
Items other than those listed above have been omitted because they are not
applicable.
1
Part I - Financial Information
------------------------------
WYETH
The consolidated condensed financial statements included herein have been
prepared by Wyeth (the Company), without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States
have been condensed or omitted pursuant to such rules and regulations; however,
the Company believes that the disclosures are adequate to make the information
presented not misleading. In the opinion of management, the consolidated
condensed financial statements include all adjustments, all of which are of a
normal recurring nature, necessary to present fairly the financial position of
the Company as of March 31, 2003 and December 31, 2002, and the results of its
operations, cash flows and changes in stockholders' equity for the three months
ended March 31, 2003 and 2002. It is suggested that these consolidated condensed
financial statements and management's discussion and analysis of financial
condition and results of operations be read in conjunction with the financial
statements and the notes thereto included in the Company's 2002 Annual Report on
Form 10-K.
2
WYETH
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands Except Per Share Amounts)
(Unaudited)
March 31, December 31,
2003 2002
----------- ------------
ASSETS
Cash and cash equivalents $2,748,939 $2,943,604
Marketable securities 1,034,911 1,003,275
Amgen investment - 1,509,947
Accounts receivable less allowances 2,104,355 2,379,819
Inventories:
Finished goods 827,727 736,360
Work in progress 923,509 808,711
Materials and supplies 431,634 447,653
----------- ------------
2,182,870 1,992,724
Other current assets including deferred taxes 2,261,313 1,766,483
----------- ------------
Total Current Assets 10,332,388 11,595,852
Property, plant and equipment 10,229,820 9,834,985
Less accumulated depreciation 2,706,895 2,599,293
----------- ------------
7,522,925 7,235,692
Goodwill 3,764,648 3,745,749
Other intangibles, net of accumulated amortization
(March 31, 2003-$102,892 and December 31, 2002-$95,223) 141,953 145,915
Other assets including deferred taxes 3,802,643 3,271,741
----------- ------------
Total Assets $25,564,557 $25,994,949
=========== ============
LIABILITIES
Loans payable $513,993 $804,894
Trade accounts payable 600,146 672,633
Accrued expenses 3,762,811 3,788,653
Accrued federal and foreign taxes 815,072 209,479
----------- ------------
Total Current Liabilities 5,692,022 5,475,659
Long-term debt 6,409,250 7,546,041
Accrued postretirement benefit obligations other than pensions 983,205 965,081
Other noncurrent liabilities 3,734,351 3,852,256
Contingencies and commitments (Note 3)
STOCKHOLDERS' EQUITY
$2.00 convertible preferred stock, par value $2.50 per share 45 46
Common stock, par value $0.33-1/3 per share 442,345 442,019
Additional paid-in capital 4,604,372 4,582,773
Retained earnings 4,259,120 3,286,645
Accumulated other comprehensive loss (560,153) (155,571)
----------- ------------
Total Stockholders' Equity 8,745,729 8,155,912
----------- ------------
Total Liabilities and Stockholders' Equity $25,564,557 $25,994,949
=========== ============
The accompanying notes are an integral part of these consolidated condensed financial statements.
3
WYETH
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In Thousands Except Per Share Amounts)
(Unaudited)
Three Months
Ended March 31,
---------------------------
2003 2002
---------- ----------
Net revenue $3,689,057 $3,643,521
---------- ----------
Cost of goods sold 928,304 802,179
Selling, general and administrative expenses 1,291,470 1,270,284
Research and development expenses 513,514 480,206
Interest expense, net 27,000 53,338
Other expense (income), net 6,735 (84,648)
Gain on sale of Amgen shares (860,554) -
---------- ----------
Income before federal and foreign taxes 1,782,588 1,122,162
Provision for federal and foreign taxes 504,706 250,242
---------- ----------
Net income $1,277,882 $871,920
========== ==========
Basic earnings per share $0.96 $0.66
========== ==========
Diluted earnings per share $0.96 $0.65
========== ==========
Dividends paid per share of common stock $0.23 $0.23
========== ==========
The accompanying notes are an integral part of these consolidated condensed
financial statements.
4
WYETH
CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In Thousands Except Per Share Amounts)
(Unaudited)
Three Months Ended March 31, 2003:
$2.00 Accumulated
Convertible Additional Other Total
Preferred Common Paid-in Retained Comprehensive Stockholders'
Stock Stock Capital Earnings Loss Equity
----------- -------- ---------- ---------- ------------- -------------
Balance at January 1, 2003 $46 $442,019 $4,582,773 $3,286,645 $(155,571) $8,155,912
Net income 1,277,882 1,277,882
Currency translation adjustments 115,342 115,342
Unrealized losses on derivative contracts (7,210) (7,210)
Unrealized gains on marketable securities 2,400 2,400
Realized gain reclassified to net income (515,114) (515,114)
-------------
Comprehensive income, net of tax 873,300
=============
Cash dividends declared (1) (305,101) (305,101)
Common stock issued for stock options 294 19,016 19,310
Other exchanges (1) 32 2,583 (306) 2,308
----------- -------- ---------- ---------- ------------- -------------
Balance at March 31, 2003 $45 $442,345 $4,604,372 $4,259,120 $(560,153) $8,745,729
=========== ======== ========== ========== ============= =============
Three Months Ended March 31, 2002:
$2.00 Accumulated
Convertible Additional Other Total
Preferred Common Paid-in Retained Comprehensive Stockholders'
Stock Stock Capital Earnings Loss Equity
----------- -------- ---------- ---------- ------------- -------------
Balance at January 1, 2002 $51 $440,190 $4,295,051 $170,309 $(833,028) $4,072,573
Net income 871,920 871,920
Currency translation adjustments (33,711) (33,711)
Unrealized gains on derivative contracts 274 274
Unrealized losses on marketable securities (8,679) (8,679)
-------------
Comprehensive income, net of tax 829,804
-------------
Cash dividends declared (304,377) (304,377)
Common stock issued for stock options 1,541 136,739 138,280
Other exchanges (1) 109 26,950 (1,960) 25,098
----------- -------- ---------- ---------- ------------- -------------
Balance at March 31, 2002 $50 $441,840 $4,458,740 $735,892 $(875,144) $4,761,378
=========== ======== ========== ========== ============= =============
(1) Includes the preferred stock cash dividend of $0.50 per share ($9 in the aggregate) declared March 5, 2003 and
payable on April 1, 2003.
The accompanying notes are an integral part of these consolidated condensed financial statements.
5
WYETH
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Three Months
Ended March 31,
---------------------------
2003 2002
---------- ----------
Operating Activities
- --------------------
Net income $1,277,882 $871,920
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Gain on sale of Amgen shares (860,554) -
Gains on sales of assets (2,697) (47,191)
Depreciation and amortization 131,100 120,602
Deferred income taxes (1,871) 221,787
Diet drug litigation payments (134,627) (712,176)
Security fund deposit (535,200) (370,000)
Changes in working capital, net 445,184 (522,248)
Other items, net 9,216 (24,235)
---------- ----------
Net cash provided by (used for) operating activities 328,433 (461,541)
---------- ----------
Investing Activities
- --------------------
Purchases of property, plant and equipment (344,614) (341,689)
Proceeds from sales of Amgen common stock 1,579,917 -
Proceeds from sales of assets 7,860 348,315
Proceeds from sales and maturities of marketable securities 176,242 1,287,860
Purchases of marketable securities (203,333) (701,086)
---------- ----------
Net cash provided by investing activities 1,216,072 593,400
---------- ----------
Financing Activities
- --------------------
Net proceeds from (repayments of) debt (1,456,650) 632,309
Dividends paid (305,092) (304,377)
Exercises of stock options 19,310 138,280
---------- ----------
Net cash provided by (used for) financing activities (1,742,432) 466,212
---------- ----------
Effects of exchange rate changes on cash balances 3,262 (1,881)
---------- ----------
Increase (decrease) in cash and cash equivalents (194,665) 596,190
Cash and cash equivalents, beginning of period 2,943,604 1,744,734
---------- ----------
Cash and cash equivalents, end of period $2,748,939 $2,340,924
========== ==========
Supplemental Information
- ------------------------
Interest payments $155,240 $162,362
Income tax payments, net of refunds 112,800 126,053
The accompanying notes are an integral part of these consolidated condensed financial statements.
6
WYETH
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Summary of Significant Accounting Policies
------------------------------------------
The following policies are required interim updates to those disclosed
in Footnote 1 of the 2002 Annual Report on Form 10-K:
Stock-Based Compensation: The Company has five Stock Incentive Plans
which it accounts for using the intrinsic value method in accordance
with APB Opinion No. 25, Accounting for Stock Issued to Employees. No
stock-based employee compensation cost is reflected in net income, as
all options granted under those plans had an exercise price equal to
the market value of the underlying common stock on the date of grant.
The following table illustrates the effect on net income and earnings
per share if the Company had applied the fair value recognition
provisions of SFAS No. 123, Accounting for Stock-Based Compensation,
to stock-based employee compensation:
Three Months
Ended March 31,
-------------------------
(In thousands except per share amounts) 2003 2002
----------------------------------------------- ---------- --------
Net income, as reported $1,277,882 $871,920
Deduct: total stock-based employee compensation
expense determined under fair value-based
method for all awards, net of tax 82,375 61,965
---------- --------
Pro forma net income $1,195,507 $809,955
========== ========
Earnings per share:
Basic - as reported $0.96 $0.66
========== ========
Basic - pro forma $0.90 $0.61
========== ========
Diluted - as reported $0.96 $0.65
========== ========
Diluted - pro forma $0.90 $0.61
========== ========
Goodwill and Other Intangibles: On January 1, 2002, the Company
adopted SFAS No. 142, Goodwill and Other Intangible Assets. With the
adoption of SFAS No. 142, goodwill is no longer being amortized but is
subject to at least an annual assessment for impairment by applying a
fair value-based test. The same applies to other intangibles that have
been determined to have indefinite useful lives. However, other
intangibles with finite lives will continue to be amortized. The
Company's other intangibles, which all have finite lives, are being
amortized over their estimated useful lives ranging from three to 10
years.
7
WYETH
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
The changes in the carrying amount of goodwill by segment for the
three months ended March 31, 2003, are as follows:
Consumer
(In thousands) Pharmaceuticals Healthcare Total
-------------------------------- --------------- ---------- ----------
Balance at January 1, 2003 $3,155,403 $590,346 $3,745,749
Currency translation adjustments 18,426 473 18,899
---------- -------- ----------
Balance at March 31, 2003 $3,173,829 $590,819 $3,764,648
========== ======== ==========
Note 2. Issuance of Notes and Credit Facilities
---------------------------------------
Issuance of $1,800.0 Million of Notes:
On February 11, 2003, the Company issued $1,800.0 million of Notes.
The issuance consisted of two tranches of Notes, each of which pays
interest semiannually, as follows:
o $300.0 million 4.125% Notes due March 1, 2008 with interest
payments due on March 1 and September 1
o $1,500.0 million 5.25% Notes due March 15, 2013 with
interest payments due on March 15 and September 15
The interest rate payable on each of these tranches of Notes is
subject to an increase of 0.25 percentage points per level of
downgrade in the Company's credit rating by Moody's or S&P. There is
no adjustment to the interest rate payable on either series of Notes
for the first single-level downgrade in the Company's credit rating by
S&P. If Moody's or S&P subsequently were to increase the Company's
credit rating, the interest rate payable on each series of Notes is
subject to a decrease of 0.25 percentage points for each level of
credit rating increase. The interest rate payable for both series of
Notes cannot be reduced below the original coupon rate of either
series of Notes. However, the total adjustment to the interest rate
for either series of Notes cannot exceed two percentage points and the
interest rate in effect on March 15, 2006, for both series of Notes,
will become the effective interest rate until maturity. The Company
would incur a total of approximately $4.5 million of additional annual
interest expense for every 0.25 percentage point increase in the
interest rate.
The Company entered into two interest rate swaps with an aggregate
notional amount of $300.0 million relating to the $300.0 million
4.125% Notes and two interest rate swaps with an aggregate notional
amount of $1,500.0 million relating to the $1,500.0 million 5.25%
Notes whereby the Company effectively converted the fixed rate of
interest on these Notes to a floating rate, which is based on LIBOR.
8
WYETH
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
New Credit Facility:
In March 2003, the Company's $3,000.0 million credit facility matured.
Concurrent with this maturity, the Company entered into new credit
facilities totaling $2,700.0 million. These credit facilities are
composed of a $1,350.0 million, 364-day facility and a $1,350.0
million three-year facility. The maturity date of any borrowings under
the $1,350.0 million, 364-day credit facility that are outstanding
upon its termination in February 2004 is extendible by the Company for
an additional year. The credit facilities contain substantially
identical financial and other covenants, representations, warranties,
conditions and default provisions as the maturing facility.
At March 31, 2003, the Company had commercial paper outstanding of
$557.7 million which is supported by the credit facilities identified
above and was classified as long-term debt.
Note 3. Contingencies and Commitments
-----------------------------
The Company is involved in various legal proceedings, including
product liability and environmental matters of a nature considered
normal to its business. It is the Company's policy to accrue for
amounts related to these legal matters if it is probable that a
liability has been incurred and an amount is reasonably estimable.
The nationwide class action settlement to resolve litigation brought
against the Company regarding use of the diet drugs PONDIMIN (which in
combination with phentermine, a product that was not manufactured,
distributed or sold by the Company, was commonly referred to as
"fen-phen") or REDUX received final judicial approval effective
January 3, 2002. In connection with the REDUX and PONDIMIN diet drug
matter, the Company has recorded litigation charges totaling $14,600.0
million. These charges are intended to cover the total amount required
to resolve all diet drug litigation, including anticipated funding
requirements for the nationwide class action settlement, anticipated
costs to resolve the claims of any members of the settlement class who
in the future may exercise an intermediate or back-end opt out right,
costs to resolve the claims of primary pulmonary hypertension (PPH)
claimants and initial opt out claimants, and administrative and
litigation expenses.
During the 2003 first three months, individual settlement payments,
legal fees and other costs totaling $134.6 million were paid and
applied against the litigation accrual. At March 31, 2003, $1,816.1
million of the litigation accrual remained.
In December 2002, following a joint motion by the Company and
plaintiffs' counsel, the Court approved an amendment to the settlement
agreement which provided for the merger of Funds A and B into a
combined fund which will now cover all expenses and injury claims in
connection with the settlement. The effect of the merger is to
accelerate the spillover of the expected remainder in Fund A, which
will now be available to pay
9
WYETH
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Fund B claims. The merger of the two funds took place in January 2003.
In February 2003, as required by the amendment to the settlement
agreement merging the two settlement funds, an additional $535.2
million was added by the Company to the security fund. The Company
established the security fund as collateral for the Company's
financial obligations under the settlement. The amounts in the
security fund are owned by the Company and will earn interest income
for the Company while residing in the security fund.
The Company continuously reviews its diet drug litigation reserve as
additional information becomes available with respect to claims both
inside and outside of the nationwide class action settlement. Within
the settlement, the number of individuals who have filed claims that
allege significant heart valve disease (known as matrix claims) has
been higher than had been anticipated. While the Company does not have
precise current information, the settlement trust has recorded in
excess of 61,000 matrix-level claim forms to date and it is likely
that a substantial number of forms have been received but not yet
logged in. Only half of these forms have been processed to date, and
only a very small percentage of that half have been found valid and
been paid. In addition, in light of substantial questions that have
been raised concerning the validity of many of these matrix claims,
the federal court overseeing the nationwide settlement has ordered
that 100% of the matrix claims be audited for eligibility for awards
under the settlement. That 100% audit process is just now beginning
and the Company expects that, as a result of the audit process, only a
fraction of the actual claim forms submitted will result in a payment.
With respect to claims outside of the settlement, the Company has
resolved the claims of all but a small percentage of the "initial" opt
outs (i.e., those individuals who exercised their right to opt out of
the settlement class) and continues to work toward resolving the rest.
In regard to those class members who seek to exercise a "downstream"
opt out right provided by the settlement, based on preliminary
estimates, approximately 70,000 intermediate opt out forms were
submitted by May 3, 2003, the applicable deadline for most class
members (other than qualified class members receiving echocardiograms
through the settlement trust after January 3, 2003, who may exercise
intermediate opt out rights within 120 days after the date of their
echocardiogram). The number of class members who have purported to
exercise a back-end opt out right is estimated to be 20,000 and
certain additional class members will be entitled to exercise back-end
opt out rights in the future. However, the Company expects that the
number of valid opt outs will be substantially less than the number of
forms submitted. First, there is no estimate at this time of the
percentage of those purported exercise forms that are valid, i.e.,
forms that are not duplicative of other filings, that are not filed on
behalf of individuals who have already either received payments from
the settlement trust or settlements from the Company, and are
otherwise not invalid on their face. Second, there is no estimate at
this time of the percentage of the purported opt outs that satisfy the
settlement's medical eligibility requirements. The Company is
vigorously challenging all intermediate and back-end opt out claims of
disputed validity or questionable medical eligibility and the number
of such claims that meet the settlement criteria will not be known for
some time.
10
WYETH
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Intermediate and back-end opt outs who meet the settlement's criteria
may pursue lawsuits against the Company, but must prove their cases
without relying on verdicts, judgments or factual findings made in
other lawsuits. They also may not seek or recover punitive, exemplary
or multiple damages and may sue only for the valvular condition giving
rise to their opt out right. The Company plans to vigorously defend
such lawsuits.
Based upon the information currently available, the Company believes
that there is no basis to change its reserves to cover the remaining
obligations relating to the diet drug litigation. However, in light of
the inherent uncertainty in estimating litigation exposure and the
fact that substantial additional information will become available in
the future, it is possible that additional reserves may be required.
In the opinion of the Company, although the outcome of any legal
proceedings cannot be predicted with certainty, the ultimate liability
of the Company in connection with its legal proceedings will not have
a material adverse effect on the Company's financial position but
could be material to the results of operations or cash flows in any
one accounting period.
Note 4. Restructuring Program
---------------------
In December 2002, the Company recorded a special charge for
restructuring and related asset impairments of $340.8 million to
recognize the costs of closing certain manufacturing facilities and
two research facilities, as well as the elimination of certain
positions at the Company's facilities. The Company recorded its asset
impairments in accordance with SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets and its restructuring
charges, including personnel and other costs, in accordance with EITF
No. 94-3, Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs
Incurred in a Restructuring).
The restructuring will ultimately result in the elimination of
approximately 3,150 positions worldwide. The reductions in workforce
are permanent and affected all of the Company's segments, including
Corporate. As of March 31, 2003, the Company has initiated the process
of closing certain manufacturing facilities and had eliminated
approximately 2,565 positions.
The activity in the restructuring accruals was as follows:
Personnel Other Closure/
(In thousands) Costs Exit Costs Total
------------------------------------------- --------- -------------- --------
Restructuring accruals at December 31, 2002 $163,700 $73,000 $236,700
Cash expenditures (55,900) (5,400) (61,300)
--------- -------------- --------
Restructuring accruals at March 31, 2003 $107,800 $67,600 $175,400
========= ============== ========
11
WYETH
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 5. Company Data by Segment
-----------------------
The Company has three segments: Pharmaceuticals, Consumer Healthcare
and Corporate. The Company's Pharmaceuticals and Consumer Healthcare
operating segments are strategic business units that are managed
separately because they manufacture, distribute and sell distinct
products and provide services, which require various technologies and
marketing strategies.
Net Revenue Income before Taxes (*)
--------------------------- ---------------------------
Three Months Three Months
Ended March 31, Ended March 31,
(In thousands) --------------------------- ---------------------------
Segment 2003 2002 2003 2002
------------------- ---------- ---------- ---------- ----------
Pharmaceuticals $3,157,053 $3,149,044 $943,882 $1,073,208
Consumer Healthcare 532,004 494,477 80,204 159,479
---------- ---------- ---------- ----------
3,689,057 3,643,521 1,024,086 1,232,687
Corporate - - 758,502 (110,525)
---------- ---------- ---------- ----------
Total $3,689,057 $3,643,521 $1,782,588 $1,122,162
========== ========== ========== ==========
(*) Corporate for the 2003 first quarter included a gain of $860,554
relating to the sale of Amgen shares.
Note 6. Earnings per Share
------------------
The following table sets forth the computations of basic earnings per
share and diluted earnings per share:
Three Months
Ended March 31,
-----------------------------
(In thousands except per share amounts) 2003 2002
------------------------------------------------------ ---------- ---------
Net income less preferred dividends $1,277,873 $871,910
Denominator:
Weighted average number of common shares outstanding 1,327,131 1,323,940
---------- ---------
Basic earnings per share $0.96 $0.66
========== =========
Net income $1,277,882 $871,920
Denominator:
Weighted average number of common shares outstanding 1,327,131 1,323,940
Common stock equivalents of outstanding stock
options and deferred common stock awards 4,282 14,567
---------- ---------
Total shares 1,331,413 1,338,507
---------- ---------
Diluted earnings per share $0.96 $0.65
========== =========
At March 31, 2003 and 2002, the equivalent of 88.9 million and 0.9
million common shares, respectively, issuable under the Company's
Stock Incentive Plans, were excluded from the computation of diluted
earnings per share because the effect would have been antidilutive.
12
WYETH
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 7. Marketable Securities
---------------------
The cost, gross unrealized gains and (losses), and fair value of
available-for-sale and held-to-maturity securities by major security
type at March 31, 2003 and December 31, 2002, were as follows:
Gross Gross
(In thousands) Unrealized Unrealized Fair
At March 31, 2003 Cost Gains (Losses) Value
---------------------------------- ---------- ---------- ---------- ----------
Available-for-sale:
U.S. Treasury securities $147,654 $642 $(132) $148,164
Commercial paper 33,930 - - 33,930
Certificates of deposit 30,544 18 (4) 30,558
Corporate debt securities 187,406 693 (114) 187,985
Other debt securities 9,625 209 - 9,834
Institutional fixed income fund 513,277 19,116 - 532,393
---------- ---------- ---------- ----------
Total available-for-sale 922,436 20,678 (250) 942,864
---------- ---------- ---------- ----------
Held-to-maturity:
Time / term deposits 25,000 - - 25,000
Commercial paper 58,521 - - 58,521
Certificates of deposit 250 - - 250
Other debt securities 8,276 - - 8,276
---------- ---------- ---------- ----------
Total held-to-maturity 92,047 - - 92,047
---------- ---------- ---------- ----------
$1,014,483 $20,678 $(250) $1,034,911
========== ========== ========== ==========
Gross Gross
(In thousands) Unrealized Unrealized Fair
At December 31, 2002 Cost Gains (Losses) Value
---------------------------------- ---------- ---------- ---------- ----------
Available-for-sale:
U.S. Treasury securities $105,583 $615 $(15) $106,183
Commercial paper 57,397 - - 57,397
Certificates of deposit 29,218 77 - 29,295
Corporate debt securities 214,127 1,202 (388) 214,941
Other debt securities 9,702 150 - 9,852
Institutional fixed income fund 510,574 16,312 - 526,886
---------- ---------- ---------- ----------
Total available-for-sale 926,601 18,356 (403) 944,554
---------- ---------- ---------- ----------
Held-to-maturity:
Time / term deposits 30,002 - - 30,002
U.S. Treasury securities 1,996 - - 1,996
Commercial paper 10,473 - - 10,473
Certificates of deposit 15,251 - - 15,251
Other debt securities 999 - - 999
---------- ---------- ---------- ----------
Total held-to-maturity 58,721 - - 58,721
---------- ---------- ---------- ----------
$985,322 $18,356 $(403) $1,003,275
========== ========== ========== ==========
13
WYETH
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
The contractual maturities of debt securities classified as
available-for-sale and held-to-maturity as of March 31, 2003 were as
follows:
Fair
(In thousands) Cost Value
---------------------------------------- -------- --------
Available-for-sale:
Due within one year $174,400 $174,370
Due after one year through five years 234,759 236,101
Due after five years through 10 years - -
Due after 10 years - -
-------- --------
$409,159 $410,471
======== ========
All held-to-maturity debt securities are due within one year and had
aggregate fair values of $92.0 million.
Note 8. Sale of Amgen Common Stock Investment
-------------------------------------
During the first quarter of 2003, the Company completed the sale of
the remaining 31,235,958 shares of Amgen common stock held by the
Company at December 31, 2002. These remaining shares netted proceeds
of $1,579.9 million and resulted in a gain of $860.6 million ($558.7
million after-tax or $0.42 per share-diluted).
14
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months Ended March 31, 2003
Item 2. Results of Operations
---------------------
Worldwide net revenue for the 2003 first quarter was 1% higher
compared with prior year levels. The increase in worldwide net revenue
for the 2003 first quarter was due primarily to higher worldwide net
revenue of consumer healthcare. Excluding the impact of foreign
exchange, worldwide net revenue decreased 2% for the 2003 first
quarter.
The following table sets forth worldwide net revenue results by
operating segment together with the percentage changes from the
comparable period in the prior year:
Net Revenue
-------------------------
Three Months
Ended March 31,
($ in millions) -------------------------
Operating Segment 2003 2002 % Increase
------------------------ -------- -------- ----------
Pharmaceuticals $3,157.1 $3,149.0 -
Consumer Healthcare 532.0 494.5 8%
-------- -------- ----------
Total $3,689.1 $3,643.5 1%
======== ======== ==========
Pharmaceuticals
---------------
Worldwide pharmaceutical net revenue was flat for the 2003 first
quarter. Excluding the impact of foreign exchange, worldwide
pharmaceutical net revenue decreased 3% for the 2003 first quarter.
Worldwide human pharmaceutical net revenue was flat as higher sales of
EFFEXOR XR (substantial global growth), PROTONIX (strong prescription
volume growth) and PREVNAR (reflecting consistent increased
manufacturing capability) were offset by lower sales of the PREMARIN
family of products and CORDARONE I.V. (market exclusivity ended
October 2002). Excluding the impact of foreign exchange, worldwide
human pharmaceutical net revenue decreased 3% for the 2003 first
quarter.
Worldwide animal health product net revenue increased 13% for the 2003
first quarter. The increase in sales of animal health products was due
primarily to higher U.S. sales of the Company's WEST NILE - INNOVATOR
biological vaccine for horses. Excluding the impact of foreign
exchange, worldwide animal health product net revenue increased 11%
for the 2003 first quarter.
15
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months Ended March 31, 2003
The following table sets forth the significant worldwide human
pharmaceutical and animal health net revenue by product for the three
months ended March 31, 2003 compared with the same period in the prior
year:
Three Months
Ended March 31,
(In millions) -----------------------------
Products 2003 2002
--------------------------- -------- --------
EFFEXOR $593.5 $422.1
PREMARIN family 402.7 675.6
PROTONIX 360.0 247.1
PREVNAR 228.8 148.2
Nutritionals 202.8 204.0
Oral Contraceptives 154.3 186.7
ZOSYN/TAZOCIN 140.1 102.2
ZOTON 72.5 67.5
BENEFIX 58.6 46.4
ATIVAN 55.0 53.3
ReFacto 52.3 38.4
SYNVISC 49.1 45.0
RAPAMUNE 44.7 23.6
ENBREL 42.8 33.6
Alliance revenue 94.7 77.2
Other 423.2 616.6
-------- --------
Total human pharmaceuticals 2,975.1 2,987.5
-------- --------
WEST NILE - INNOVATOR 20.9 5.8
Other 161.1 155.7
-------- --------
Total animal health 182.0 161.5
-------- --------
Total pharmaceuticals $3,157.1 $3,149.0
======== ========
Consumer Healthcare
-------------------
Worldwide consumer healthcare net revenue increased 8% for the 2003
first quarter due primarily to sales of ALAVERT (introduced in the
2002 fourth quarter) and higher sales of cough/cold/allergy products
offset, in part, by lower sales of CENTRUM products. Excluding the
impact of foreign exchange, worldwide consumer healthcare net revenue
increased 5% for the 2003 first quarter.
16
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months Ended March 31, 2003
The following table sets forth the significant worldwide consumer
healthcare net revenue by product for the three months ended March 31,
2003 compared with the same period in the prior year:
Three Months
Ended March 31,
(In millions) ---------------------------
Products 2003 2002
--------------------------- ------ ------
CENTRUM $119.7 $129.9
ADVIL (*) 108.9 110.1
Cough/cold/allergy products 105.4 84.0
CALTRATE 30.2 27.4
SOLGAR 28.5 28.3
CHAP STICK 23.4 24.0
ALAVERT 21.0 -
Other 94.9 90.8
------ ------
Total consumer healthcare $532.0 $494.5
====== ======
(*) ADVIL COLD & SINUS family is included within the
cough/cold/allergy product line.
The following table sets forth the percentage changes in worldwide net
revenue by operating segment compared with the prior year, including
the effect volume, price and foreign exchange had on these percentage
changes:
% Increase (Decrease)
Three Months Ended March 31, 2003
---------------------------------------------
Foreign Total
Volume Price Exchange Net Revenue
------ ----- -------- -----------
Pharmaceuticals
------------------------
United States (8%) 4% - (4%)
International (3%) 3% 9% 9%
--- --- --- ---
Total (7%) 4% 3% -
=== === === ===
Consumer Healthcare
------------------------
United States 1% 3% - 4%
International 4% 2% 8% 14%
--- --- --- ---
Total 2% 3% 3% 8%
=== === === ===
Total
------------------------
United States (7%) 4% - (3%)
International (2%) 2% 9% 9%
--- --- --- ---
Total (6%) 4% 3% 1%
=== === === ===
17
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months Ended March 31, 2003
Cost of goods sold, as a percentage of net revenue, increased to 25.2%
for the 2003 first quarter compared with 22.0% for the 2002 first
quarter due primarily to higher manufacturing costs and a less
profitable product mix related to lower sales of higher margin
products. This increase was partially offset as a result of increased
alliance revenue recorded in the 2003 first quarter net revenue as
compared with the 2002 first quarter net revenue. There are no costs
of goods sold relating to alliance revenue, and therefore any net
revenue fluctuations impacted by alliance revenue will also impact
gross margins.
Selling, general and administrative expenses, as a percentage of net
revenue, remained flat for the 2003 first quarter as compared with the
same period in the prior year at approximately 35.0% due primarily to
lower selling and marketing expenditures offset by higher general
expenses associated with increased insurance and pension and other
employee benefit costs.
Research and development expenses increased 7% for the 2003 first
quarter due primarily to higher clinical grant spending, cost sharing
and licensing expenditures from pharmaceutical collaborations offset,
in part, by reduced spending for operating expenses, including lower
chemical and material costs.
Interest expense, net decreased 49% in the 2003 first quarter due
primarily to lower weighted average debt outstanding, as compared with
the 2002 first quarter. Weighted average debt outstanding during the
2003 and 2002 first quarters was $7,152.6 million and $9,932.2
million, respectively. The decrease in interest expense was also
affected by higher capitalized interest resulting from spending for
capital projects.
Other income, net decreased significantly for the 2003 first quarter
due in part to lower gains on sales of non-strategic assets and the
non-recurrence of income received in 2002 in connection with a class
action settlement gain relating to price fixing by certain vitamin
suppliers.
18
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months Ended March 31, 2003
The following table sets forth worldwide income before taxes by
segment together with the percentage changes from the comparable
period in the prior year:
Income before Taxes
---------------------------
Three Months
Ended March 31,
($ in millions) --------------------------- % Increase
Segment 2003 2002 (Decrease)
------------------- -------- -------- -----------
Pharmaceuticals $943.9 $1,073.2 (12%)
Consumer Healthcare 80.2 159.5 (50%)
-------- -------- ----
1,024.1 1,232.7 (17%)
Corporate (*) 758.5 (110.5) -
-------- -------- ----
Total $1,782.6 $1,122.2 59%
======== ======== ====
(*) Corporate for the 2003 first quarter included a gain of $860.6
relating to the sale of Amgen shares. Excluding the gain on the
sale of Amgen shares from the 2003 first quarter results,
Corporate expenses, net decreased 8%.
Worldwide pharmaceutical income before taxes decreased 12% for the
2003 first quarter due primarily to lower gross profit margins earned
on worldwide sales of human pharmaceuticals combined with higher
research and development expenses and lower other income, net
(primarily lower gains on sales of non-strategic assets and the
non-recurrence of equity income received in 2002) offset, in part, by
lower selling, general and administrative expenses.
Worldwide consumer healthcare income before taxes decreased 50% for
the 2003 first quarter while consumer healthcare sales increased 8%.
This difference is primarily attributable to the non-recurrence of
income received in 2002 in connection with a class action settlement
gain relating to price fixing by certain vitamin suppliers, lower
asset sale gains, and higher selling, general and administrative
expenses as a percentage of sales primarily due to increased marketing
and selling expenses associated with the launch of ALAVERT.
Corporate expenses, net, decreased 8% for the 2003 first quarter,
excluding the 2003 first quarter gain of $860.6 million from the sale
of the Company's remaining Amgen shares. The decrease in corporate
expenses, net is due primarily to lower interest expense resulting
from lower weighted average debt outstanding as compared with the 2002
first quarter and higher other income, net relating to gains on the
Company's foreign exchange hedging programs. These items were
partially offset by higher general expenses related to increased group
and general insurance expenses.
19
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months Ended March 31, 2003
Excluding the 2003 first quarter gain on the sale of the Company's
remaining Amgen shares, the effective tax rate remained flat at 22.0%
for the 2003 first quarter compared with 22.3% for the 2002 first
quarter.
Consolidated Net Income and Diluted Earnings Per Share Results
--------------------------------------------------------------
Net income and diluted earnings per share for the 2003 first quarter
increased to $1,277.9 million and $0.96 compared with $871.9 million
and $0.65 in the prior year. The 2003 first quarter net income and
diluted earnings per share included a gain of $860.6 million ($558.7
million after-tax or $0.42 per share-diluted) related to the sale of
the remaining 31,235,958 shares of the Company's Amgen common stock
holdings. Excluding the gain on the sale of Amgen shares from the 2003
first quarter results, net income and diluted earnings per share for
the 2003 first quarter decreased 18% and 17%, respectively, to $719.2
million and $0.54 compared with the 2002 first quarter. The decreases
in net income and diluted earnings per share for the 2003 first
quarter were impacted by higher costs of goods sold as a percentage of
net revenue, higher research and development expenses and lower other
income.
Liquidity, Financial Condition and Capital Resources
----------------------------------------------------
Cash flows provided by operating activities totaling $328.4 million
during the 2003 first quarter were generated primarily by earnings of
$1,277.9 million and proceeds of $213.4 million relating to improved
collections on outstanding accounts receivable. Driving the cash
outflows were payments of $134.6 million relating to the diet drug
litigation and a payment of $535.2 million to the security fund as
collateral for the Company's financial obligations under the diet drug
settlement (see Note 3 to the consolidated condensed financial
statements). Additionally, payments made on outstanding payables and
accrued expenses totaling $123.6 million and an increase in
inventories of $160.9 million due primarily to production planning
impacted cash outflows.
The Company generated $1,216.1 million of cash from investing
activities during the 2003 first quarter due primarily to proceeds
received of $1,579.9 million relating to the sale of the Company's
remaining 31,235,958 shares of Amgen common stock. The Company used
$547.9 million for investments in property, plant and equipment and
marketable securities. The capital expenditures made during the 2003
first quarter were consistent with the Company's commitment to expand
existing manufacturing and research and development facilities
worldwide, and build new biotechnology facilities.
The Company also used cash for financing activities relating to
repayments of net debt totaling $1,456.7 million and dividend payments
of $305.1 million.
At March 31, 2003, the Company had outstanding $6,923.2 million in
total debt. The Company's total debt consisted of commercial paper of
$557.7 million, and notes payable
20
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months Ended March 31, 2003
and other debt of $6,365.5 million. The Company offers its commercial
paper in a very liquid market commensurate with its short-term credit
ratings from Moody's (P2), S&P (A1) and Fitch (F1). Current debt at
March 31, 2003, classified as loans payable, consisted of $514.0
million of notes payable and other debt that is due within one year.
All of the commercial paper outstanding at March 31, 2003 was
supported by the Company's new credit facilities, totaling $2,700.0
million, and is classified as long-term debt.
Management remains confident that cash flows from operating activities
and existing and prospective financing resources will be adequate to
fund the Company's operations, pay opt out settlement payments and
fund the nationwide class action settlement relating to the REDUX and
PONDIMIN diet drug litigation, pay dividends, maintain the ongoing
programs of capital expenditures, and repay both the principal and
interest on its outstanding obligations, without requiring the
disposition of any significant strategic core assets or businesses.
Certain Factors that May Affect Future Results
----------------------------------------------
Prempro / Premarin - HRT Studies
Two subsets of the Women's Health Initiative (WHI) enrolled a total of
27,000 predominantly healthy postmenopausal women to assess the risks
and benefits of either long-term estrogen replacement therapy (ERT) or
long-term hormone replacement therapy (HRT). The primary endpoint of
the WHI study was coronary heart disease, with invasive breast cancer
as the primary adverse outcome studied. The HRT subset of the WHI
study, involving women who received a combination of conjugated
estrogens and medroxyprogesterone acetate (PREMPRO), was stopped early
(after the patients were followed in the study for an average of 5.2
years) because, according to the predefined stopping rule, increased
risks of breast cancer and cardiovascular events exceeded the
specified long-term benefits. The study observed an increased
incidence of cardiovascular disease and, over time, breast cancer
among women on HRT compared to those on placebo. The study also
observed a reduction in the incidence of hip, vertebral and other
osteoporotic fractures and of colon cancer among women on HRT compared
to those on placebo. The study did not evaluate the use of HRT for the
treatment of menopausal symptoms, the main indications of the product.
These findings provide additional information about the risks of
breast cancer and cardiovascular disease which were identified as
potential adverse events in the labeling for the Company's HRT
products. Additional analyses of data from the HRT subset of the WHI
study are expected to be released over the next several months.
Sales of PREMPRO and other PREMARIN family products have been and will
continue to be adversely affected by the WHI results. Based on the
most recent available market data, average weekly prescriptions
written for PREMPRO and PREMARIN decreased approximately 67% and 33%,
respectively, compared to the average weekly
21
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months Ended March 31, 2003
prescriptions written during the eight-week period preceding the
termination of the study subset. PREMPRO sales (including PREMPHASE)
for the three months ended March 31, 2003 represented approximately 4%
of consolidated net revenue. Set forth below are individual product
operating results for both PREMPRO/PREMPHASE and PREMARIN for the
three months ended March 31, 2003 and 2002.
Prempro/Premphase
-------------------------
Three Months
Ended March 31,
-------------------------
(In millions) 2003 2002
----------------- ------ ------
Net revenue $142.9 $216.1
Gross profit 123.5 182.7
Premarin
-------------------------
Three Months
Ended March 31,
-------------------------
(In millions) 2003 2002
----------------- ------ ------
Net revenue $259.8 $459.5
Gross profit 233.2 425.7
Competition
The Company operates in the highly competitive pharmaceutical and
consumer health care industries. PREMARIN, the Company's principal
conjugated estrogens product manufactured from pregnant mare's urine,
and related products PREMPRO and PREMPHASE (which are single tablet
combinations of the conjugated estrogens in PREMARIN and the progestin
medroxyprogesterone acetate), are the leaders in their categories and
contribute significantly to the Company's net revenue and results of
operations. PREMARIN's natural composition is not subject to patent
protection (although PREMPRO has patent protection). The principal
indications of PREMARIN, PREMPRO and PREMPHASE are to manage the
symptoms of menopause and to prevent osteoporosis, a condition
involving a loss of bone mass in postmenopausal women.
Estrogen-containing products manufactured by other companies have been
marketed for many years for the treatment of menopausal symptoms.
During the past several years, other manufacturers have introduced
products for the treatment and/or prevention of osteoporosis. New
products containing different estrogens and/or different progestins
than those found in PREMPRO and PREMPHASE, utilizing various forms of
delivery and having one or more of the same indications have also been
introduced. Some companies have attempted to obtain approval for
generic versions of PREMARIN. These products, if approved, would be
routinely substitutable for PREMARIN and related products under many
state laws and third-party insurance payer plans. In May 1997, the FDA
announced that it would not approve certain synthetic estrogen
products
22
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months Ended March 31, 2003
as generic equivalents of PREMARIN given known compositional
differences between the active ingredient of these products and
PREMARIN. Although the FDA has not approved any generic equivalent to
PREMARIN to date, PREMARIN will continue to be subject to competition
from existing and new competing estrogen and other products for its
approved indications and may be subject to generic competition from
either synthetic or natural conjugated estrogens products in the
future. At least one other company has announced that it is in the
process of developing a generic version of PREMARIN from the same
natural source, and the Company currently cannot predict the timing or
outcome of these or any other efforts.
Product Supply
Market demand for ENBREL is strong; however the sales growth had been
constrained by limits on the existing source of supply. In December
2002, the retrofitted Rhode Island facility owned by Amgen was
completed, and manufacturing production was approved by the FDA.
Consequently, manufacturing capacity for ENBREL will significantly
increase in 2003. Market demand is expected to continue to grow, and
additional manufacturing supply is projected to be required. In April
2002, Immunex (prior to being acquired by Amgen) announced it entered
into a manufacturing agreement with Genentech, Inc. to produce ENBREL
beginning in 2004, subject to FDA approval. The current plan for the
longer term includes an additional manufacturing facility, which is
being constructed by the Company in Ireland and expansion of the Rhode
Island facility, both of which are expected to be completed during
2005.
Litigation and Contingent Liabilities
The Company is involved in various legal proceedings, including
product liability and environmental matters that arise from time to
time in the ordinary course of business, the most significant of which
are described in the Company's Annual Report on Form 10-K for the year
ended December 31, 2002 and this Quarterly Report on Form 10-Q. These
include allegations of injuries caused by drugs, vaccines and
over-the-counter products, including PONDIMIN (which in combination
with phentermine, a product that was not manufactured, distributed or
sold by the Company, was commonly referred to as "fen-phen"), REDUX,
DIMETAPP, ROBITUSSIN and PREMPRO. In addition, the Company has
responsibility for environmental, safety and cleanup obligations under
various local, state and federal laws, including the Comprehensive
Environmental Response, Compensation and Liability Act, commonly known
as Superfund.
The estimated costs that the Company expects to pay in these cases are
accrued when the liability is considered probable and the amount can
be reasonably estimated. In many cases, future environmental-related
expenditures cannot be quantified with a reasonable degree of
accuracy. As investigations and cleanups proceed,
environmental-related liabilities are reviewed and adjusted as
additional information becomes available. In
23
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months Ended March 31, 2003
addition, the Company is self-insured against ordinary product
liability risks and has liability coverage, in excess of certain
limits and subject to certain policy ceilings, from various insurance
carriers. It is the opinion of the Company that any potential
liability that might exceed amounts already accrued will not have a
material adverse effect on the Company's financial position but could
be material to the results of operations or cash flows in any one
accounting period.
Cautionary Statements Regarding Forward-Looking Information
-----------------------------------------------------------
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. This quarterly report,
including management's discussion and analysis set forth herein, as
well as our annual, quarterly and special reports, proxy statements
and other information filed with the Securities and Exchange
Commission and other written or oral statements made by us or on our
behalf may include forward-looking statements reflecting our current
views at the time these statements were made with respect to future
events and financial performance. These forward-looking statements can
be identified by the use of words such as "anticipates," "expects,"
"is confident," "plans," "could," "will," "believes," "estimates,"
"forecasts," "projects" and other words of similar meaning. These
forward-looking statements address various matters, including:
o our anticipated results of operations, liquidity position,
financial condition and capital resources;
o the benefits that we expect will result from our business
activities and certain transactions we announced or
completed, such as increased revenues, decreased expenses,
and avoided expenses and expenditures;
o statements of our expectations, beliefs, future plans and
strategies, anticipated developments and other matters that
are not historical facts;
o the future impact of presently known trends, including those
with respect to product performance and competition;
o anticipated developments related to PREMPRO/PREMARIN
performance and ENBREL product supply, and
o expectations regarding the impact of potential litigation
relating to PREMPRO; the nationwide class action settlement
relating to REDUX and PONDIMIN; and additional litigation
charges related to REDUX and PONDIMIN, including those for
opt outs from the national settlement.
All forward-looking statements address matters involving numerous
assumptions, risks and uncertainties, which may cause actual results
to differ materially from those expressed or implied by us in those
statements. Accordingly, we caution you not to place undue reliance on
these forward-looking statements, which speak only as of the date on
which they were made. From time to time, we also may provide oral or
written forward-looking statements in other materials we release to
the public. Additionally, we undertake no obligation to publicly
update or revise any forward-looking statements,
24
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months Ended March 31, 2003
whether as a result of new information, future developments or
otherwise. Certain factors which could cause the Company's actual
results to differ materially from expected and historical results are
discussed herein and others have been identified by the Company in
Exhibit 99 to the Company's 2002 Annual Report on Form 10-K, which
exhibit is incorporated herein by reference.
25
Item 3. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
The market risk disclosures appearing on page 65 of the Company's 2002
Annual Report as incorporated by reference on Form 10-K have not
materially changed from December 31, 2002.
At March 31, 2003, the fair values of the Company's financial
instruments were as follows:
Carrying Fair
Notional/ Value Value
(In millions) Contract ----------------------
Description Amount Assets (Liabilities)
--------------------- ------------------------------------
Forward contracts (1) $826.3 $8.8 $8.8
Option contracts (1) 883.0 (22.1) (22.1)
Interest rate swaps 3,300.0 216.7 216.7
Outstanding debt (2) 6,721.9 (6,923.2) (7,194.7)
(1) If the value of the U.S. dollar were to increase or decrease by
10%, in relation to all hedged foreign currencies, the net
payable on the forward and option contracts would decrease or
increase by approximately $70.3.
(2) If the interest rates were to increase or decrease by one
percentage point, the fair value of the outstanding debt would
increase or decrease by approximately $325.1.
The estimated fair values approximate amounts at which these financial
instruments could be exchanged in a current transaction between
willing parties. Therefore, fair values are based on estimates using
present value and other valuation techniques that are significantly
affected by the assumptions used concerning the amount and timing of
estimated future cash flows and discount rates that reflect varying
degrees of risk. Specifically, the fair value of outstanding debt
instruments reflects a current yield valuation based on observed
market prices as of March 31, 2003; the fair value of interest rate
swaps and forward contracts reflects the present value of the future
potential gain or (loss) if settlement were to take place on March 31,
2003; and the fair value of option contracts reflects the present
value of future cash flows if the contracts were settled on March 31,
2003.
Item 4. Controls and Procedures
-----------------------
Within the 90 days prior to the date of filing this Quarterly Report
on Form 10-Q, the Company carried out an evaluation, under the
supervision and with the participation of the Company's management,
including the Chief Executive Officer and Chief Financial Officer, of
the effectiveness of the design and operation of the Company's
disclosure controls and procedures pursuant to Exchange Act Rule
13a-14. Based upon that evaluation, the Chief Executive Officer and
Chief Financial Officer concluded that the Company's disclosure
controls and procedures are reasonably effective in design and
practice to alert them, in a timely manner, to material information
relating to the Company (including its consolidated subsidiaries)
required to be included in the
26
Company's periodic SEC filings. Subsequent to the date of that
evaluation, there have been no significant changes in the Company's
internal controls or in other factors that could significantly affect
internal controls, nor were any corrective actions required with
regard to significant deficiencies or material weaknesses.
27
Part II - Other Information
---------------------------
Item 1. Legal Proceedings
-----------------
The Company and its subsidiaries are parties to numerous lawsuits and
claims arising out of the conduct of its business, including product
liability and other tort claims, the most significant of which are
described in the Company's Annual Report on Form 10-K for the year
ended December 31, 2002.
In the litigation involving PREMPRO, the Company's estrogen and
progestin replacement therapy, three additional putative class action
lawsuits have been filed. Brown, et al. v. Wyeth, No. CV03-0138S,
U.S.D.C., W.D. La; Slater, et al. v. Wyeth, No. 03-4016-CV-C-NKL,
U.S.D.C., W.D. Mo; and Phillips, et al. v. Wyeth, No. CV03-5, Cir.
Ct., Jefferson Cty., AL. Slater seeks to represent a nationwide class
of women who have ever ingested PREMPRO and seeks on behalf of the
putative class: 1) purchase price refunds; 2) personal injury damages;
3) medical monitoring expenses and 4) an order requiring the Company
to inform the public of the reported risks of PREMPRO. Brown and
Phillips seek similar relief on behalf of putative classes of
Louisiana and Alabama users of the product, respectively. In addition
to the 16 class actions, the Company is defending approximately 40
individual actions and 13 multi-plaintiff actions (with a total of
approximately 130 named plaintiffs) in various courts for personal
injuries including breast cancer, stroke and heart disease.
The Company intends to continue to defend all of the foregoing
litigation vigorously.
In the litigation involving allegations that the Company violated
federal and state antitrust laws through alleged exclusionary
practices regarding PREMARIN and the Company's contracts with managed
care organizations and pharmacy benefit managers, United States
District Judge Sandra S. Beckwith has granted the direct-purchasers'
motion for class certification. J.B.D.L. Corp. d/b/a/ Beckett
Apothecary, et al. v. Wyeth-Ayerst Laboratories, Inc., et al., No.
C-1-01-704, U.S.D.C., S.D. Oh. Three putative indirect-purchaser class
actions with allegations similar to those contained in the J.B.D.L.
complaint are presently pending against the Company. One putative
indirect-purchaser class action is pending in Ohio federal district
court, and two putative indirect-purchaser class actions are pending
in California state courts. The complaints seek injunctive relief,
damages, and disgorgement of profits. The Company believes that its
contracts involving PREMARIN do not violate state or federal laws.
On April 11, 2003, the U.K. Competition Commission report on its
investigation into the supply of prescription-only veterinary
medicines in the U.K. concluded that three monopoly situations exist
in the U.K. market for such medicines. According to the report, one
such monopoly situation arises from the failure of eight animal-health
manufacturers, including Fort Dodge Animal Health U.K., to enable
pharmacies to obtain supplies of prescription-only veterinary
medicines on terms that would enable them to compete with veterinary
surgeons. The report recommended two remedies for the situation,
applicable to all of the relevant manufacturers, which are designed to
allow the pharmacies to obtain prescription-only veterinary medicines
on competitive terms with the veterinary surgeons. The U.K. Office of
Fair Trading will consult with the relevant
28
parties on the terms of orders to implement the Commission's remedies
during the next three months.
In the opinion of the Company, although the outcome of any legal
proceedings cannot be predicted with certainty, the ultimate liability
of the Company in connection with its legal proceedings will not have
a material adverse effect on the Company's financial position but
could be material to the results of operations in any one accounting
period.
29
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
--------
Exhibit No. Description
----------- -----------
(3.2) By-laws, as amended to date.
(10.1) Savings Plan, as amended to date.
(10.2) Supplemental Employee Retirement Plan, as amended
to date.
(10.3) Supplemental Employee Savings Plan, as amended to
date.
(10.4) Union Savings Plan, as amended to date.
(12) Computation of Ratio of Earnings to Fixed Charges.
(99.1) Certification pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(99.2) Certification pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
-------------------
The following Current Reports on Form 8-K were filed by the
Company:
o January 28, 2003 relating to the exchange of Immunex shares
for Amgen common stock in the acquisition of Immunex by
Amgen and the subsequent sales of the Company's remaining
Amgen common stock holdings (including disclosure on Item
2).
o January 28, 2003 to furnish the Company's 2002 Fourth
Quarter and Full Year Press Release.
o March 13, 2003 to furnish the Company's 2002 Annual Report
to Stockholders.
o April 23, 2003 to furnish the Press Release reporting the
Company's earnings results for the 2003 First Quarter.
30
Signature
---------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Wyeth
-----
(Registrant)
By /s/ Paul J. Jones
-----------------
Paul J. Jones
Vice President and Controller
(Duly Authorized Signatory
and Chief Accounting Officer)
Date: May 15, 2003
31
Certifications
--------------
I, Robert Essner, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Wyeth (the
registrant);
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for,
the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
32
6. The registrant's other certifying officers and I have indicated
in this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
By /s/ Robert Essner
-----------------
Robert Essner
Chairman, President and Chief Executive Officer
Date: May 15, 2003
33
Certifications
--------------
I, Kenneth J. Martin, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Wyeth (the
registrant);
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for,
the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
34
6. The registrant's other certifying officers and I have indicated
in this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
By /s/ Kenneth J. Martin
---------------------
Kenneth J. Martin
Executive Vice President and Chief Financial Officer
Date: May 15, 2003
35
Exhibit Index
-------------
Exhibit No. Description
----------- -----------
(3.2) By-laws, as amended to date.
(10.1) Savings Plan, as amended to date.
(10.2) Supplemental Employee Retirement Plan, as amended
to date.
(10.3) Supplemental Employee Savings Plan, as amended to
date.
(10.4) Union Savings Plan, as amended to date.
(12) Computation of Ratio of Earnings to Fixed Charges.
(99.1) Certification pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(99.2) Certification pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
EX-1