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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission file number
December 31,1997 1-1225
AMERICAN HOME PRODUCTS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-2526821
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
Five Giralda Farms, Madison, NJ 07940-0874
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (973) 660-5000
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange On
Title of Each Class Which Registered
$2 Convertible Preferred Stock, $2.50 par value New York Stock Exchange
Common Stock, $.33 - 1/3 par value New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
State the aggregate market value of the voting stock held by nonaffiliates of
the registrant. (The aggregate market value shall be computed by reference to
the price at which the stock was sold, or the average bid and asked prices of
such stock, as of a specified date within 60 days prior to the date of filing).
Aggregate market value at March 2, 1998 $61,446,876,563
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date (applicable only to
corporate registrants).
Outstanding at
March 2, 1998
Common Stock, $.33 - 1/3 par value 654,924,364
Documents incorporated by reference: list hereunder the following documents if
incorporated by reference and the part of the Form 10-K into which the document
is incorporated: (1) any annual report to security holders; (2) any proxy or
information statements; and (3) any prospectus filed pursuant to Rule 424(b) or
(c) under the Securities Act of 1933 (the listed documents should be clearly
described for identification purposes).
(1) 1997 Annual Report to Shareholders - In Parts I, II and IV
(2) Proxy Statement filed March 25,1998 - In Part III
PART I
ITEM 1. BUSINESS
General
American Home Products Corporation (the "Company"), a Delaware
corporation organized in 1926, is currently engaged in the discovery,
development, manufacture, distribution and sale of a diversified line
of products in two primary business segments: health care products
and agricultural products. Health care products include branded and
generic ethical pharmaceuticals, biologicals, nutritionals, consumer
health care products, and animal biologicals and pharmaceuticals.
Agricultural products include crop protection and pest control
products such as herbicides, insecticides, fungicides and plant growth
regulators. The Company holds a majority interest in Immunex
Corporation, a biopharmaceutical company whose stock is publicly
traded.
In February 1998, the Company sold the Sherwood-Davis & Geck medical
devices business to a subsidiary of Tyco International Ltd. for
approximately $1.77 billion. This transaction completed the Company's
exit from the medical devices business.
In December 1997, the Company sold the stock of Storz Instrument
Company and affiliated companies, a global manufacturer and marketer
of ophthalmic products, and certain assets relating to the Storz
business for $380 million.
In February 1997, the Company acquired the worldwide animal health
business of Solvay S.A. for approximately $460 million.
In December 1996, the Company acquired the remaining equity interest
in the biopharmaceutical company Genetics Institute, Inc. ("G.I.")
that it did not already own for approximately $1.3 billion.
In November 1996, the Company sold a majority interest in the American
Home Foods business for approximately $1.2 billion. The Company
retained a 20% equity interest in International Home Foods, the
successor to American Home Foods. In November 1997, the Company sold
a portion of the 20% equity interest in International Home Foods.
In late 1994, the Company acquired the outstanding common stock of
American Cyanamid Company ("Cyanamid"). The aggregate purchase price
to acquire all of Cyanamid including acquisition-related fees and
expenses was approximately $9.6 billion.
Additional information relating to the G.I., Solvay S.A. and Cyanamid
acquisitions, the American Home Foods, Sherwood-Davis & Geck and Storz
dispositions, and certain other acquisitions and divestitures is set
forth in Notes 2 and 3 of the Notes to Consolidated Financial
Statements in the Company's 1997 Annual Report to Shareholders and is
incorporated herein by reference.
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Unless stated to the contrary, or unless the context otherwise
requires, references to the Company in this report include American
Home Products Corporation and its majority-owned subsidiaries.
Industry Segments
Financial information, by industry segment, for the three years ended
December 31, 1997 is set forth in Note 11 of the Notes to Consolidated
Financial Statements in the Company's 1997 Annual Report to
Shareholders and is incorporated herein by reference.
The Company is not dependent on any single or major group of customers
for its sales. The Company currently manufactures, distributes and
sells a diversified line of products in two primary industry segments.
The product designations appearing in differentiated type herein are
trademarks.
HEALTH CARE PRODUCTS -
Pharmaceuticals - This sector includes a wide variety of ethical
pharmaceutical and biological products for human and veterinary use
which are promoted and sold worldwide primarily to wholesalers,
pharmacies, hospitals, managed care organizations and physicians.
Some of these sales are made to large buying groups representing
certain of these customers. Principal product categories for human
use and their respective products are: women's health care including
PREMARIN, PREMPRO, LO/OVRAL (marketed as MIN-OVRAL internationally),
NORDETTE and TRIPHASIL (marketed as TRINORDIOL internationally);
infant nutritionals (international markets only); cardiovascular
including CORDARONE and ZIAC; mental health including ATIVAN and
EFFEXOR; anti-inflammatory and gastroenterology including LODINE,
ORUVAIL, ZOTON (international markets only) and NAPRELAN; anti-
infectives including MINOCIN, SUPRAX and ZOSYN (marketed as TAZOCIN
internationally); vaccines including HIBTITER; biopharmaceuticals
including recombinant Factor VIII; and oncology therapies. In
addition, the Company markets generic pharmaceutical products.
Principal animal health product categories include vaccines,
pharmaceuticals (including anthelmintics), endectocides and growth
implants. The Company manufactures these products in the United
States and Puerto Rico and in 22 foreign countries.
Sales of women's health care products in the aggregate accounted for
more than 10% of consolidated net sales in 1997, 1996 and 1995.
Except for sales of women's health care products, no single
pharmaceutical product or other category of products accounted for
more than 10% of consolidated net sales in 1997, 1996 or 1995. The
operating income before taxes from the women's health care products
in the aggregate, and the PREMARIN family of products individually,
accounted for more than 10% of consolidated operating income before
taxes in 1997, 1996 and 1995.
Consumer health care - Principle over-the-counter health care product
categories and their respective products are: analgesics including
ADVIL; cough/cold/allergy remedies including ROBITUSSIN and DIMETAPP;
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vitamins and mineral supplements including CENTRUM; hemorrhoidal;
antacids; and asthma relief items. These products are generally sold
to wholesalers and retailers, and are primarily promoted to consumers
worldwide through advertising. These products are manufactured in the
United States and Puerto Rico and in 17 foreign countries.
No single consumer health care product or category of products
accounted for more than 10% of consolidated net sales or operating
income before taxes in 1997, 1996 or 1995.
Medical Devices - In February 1998, the Company sold the Sherwood-
Davis & Geck medical devices business to a subsidiary of Tyco
International Ltd. This transaction completed the Company's exit from
the medical devices business. Principal products in this sector
included MONOJECT needles and syringes, ARGYLE tubes, catheters and
chest drainage devices, DAVIS & GECK wound closure products, tympanic
and predictive thermometers, ophthalmic surgical equipment and vision
care products, exercise equipment, cardiopulmonary instrumentation and
devices, enteral feeding systems and access devices, microsurgical
equipment and other hospital products which were promoted and sold
worldwide, principally to physicians, hospitals, other health care
institutions and wholesalers. Buying groups also represented certain
of these customers. In addition to the United States and Puerto Rico,
these products were manufactured in 10 foreign countries.
No single medical device product or category of products accounted for
more than 10% of consolidated net sales or operating income before
taxes in 1997, 1996 or 1995.
AGRICULTURAL PRODUCTS -
Principal agricultural product categories and their respective
products are: herbicides including PURSUIT (marketed as PIVOT
internationally), PROWL (marketed as STOMP internationally) and
SCEPTER; insecticides including COUNTER; and fungicides which are
promoted to consumers worldwide and generally sold directly to
wholesalers and retailers. In addition to the United States and Puerto
Rico, these products are manufactured in eight foreign countries.
No single agricultural product or category of products accounted for
more than 10% of consolidated net sales or operating income before
taxes in 1997, 1996 or 1995.
FOOD PRODUCTS -
In November 1996, the Company sold a majority interest in the American
Home Foods business. Products in this segment included prepared
pastas and other entrees, regional specialty foods, condiments, snack
products, spreadable fruit products and other food products which were
promoted to consumers through advertising and generally sold directly
to wholesalers and retailers. The Company retained a 20% equity
interest in International Home Foods, the successor to American Home
Foods. In November 1997, the Company sold a portion of the 20% equity
interest in International Home Foods.
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No single food product or category of products accounted for more than
10% of consolidated net sales or operating income before taxes in 1996
or 1995.
Sources and Availability of Raw Materials
Generally, raw materials and packaging supplies are purchased in the
open market from various outside vendors. The loss of any one source
of supply would not have a material adverse effect on the Company's
consolidated financial position or results of operations.
Patents and Trademarks
The Company owns, has applications pending for, and is licensed under
many patents relating to a wide variety of products. The Company
believes that its patents and licenses are important to its business,
but no one patent or license (or group of related patents or licenses)
currently is of material importance in relation to its business as a
whole.
In the pharmaceuticals business, most of the Company's major products
are not protected by patents. The non-steroidal anti-inflammatory
("NSAID") LODINE ceased to be under patent protection in the United
States in 1997. LODINE XL, a product extension of LODINE, will have
patent protection until 2007. The anti-depressant EFFEXOR will have
patent protection into 2007. TETRAMUNE, a combination vaccine, will
have patent protection until 2007. SUPRAX, a third-generation
cephalosporin antibiotic, remains under patent protection until 2002.
VERELAN, a calcium channel blocker, will have patent protection until
2006. PREMPRO, a combination estrogen and progestin product, will
have patent protection until 2006. Concentrated recombinant human
antihemophilic factor (Factor VIII), a product that helps regulate
activation of the body's coagulation pathway, will have patent
protection until 2014.
Sales in the consumer health care business are largely supported by
the Company's trademarks and brand names. These trademarks and brand
names are a significant part of the Company's business and have a
perpetual life as long as they remain in use. See "Competition" below
for a discussion of generic and store brands competition.
In the Agricultural Products segment, the imidazolinone herbicide
products SCEPTER and PURSUIT will have patent protection until at
least 2006.
Seasonality
Sales and results of operations of the U.S. agricultural products
business are seasonal and tend to be heavily concentrated in the first
six months of each year. Sales of consumer health care products are
affected by seasonal demand for cold/flu products and, as a result,
second quarter results for consumer health care products tend to be
lower than results in other quarters.
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Competition
HEALTH CARE PRODUCTS -
The Company operates in the highly competitive health care industry
which includes the ethical pharmaceutical, animal health and consumer
health care businesses. Within the ethical pharmaceutical and animal
health businesses, the Company has many major multi-national
competitors and numerous other smaller domestic and foreign
competitors. Based on net sales, the Company believes it ranks within
the top 10 major competitors within the ethical pharmaceutical
business category and, with the acquisition of the Solvay S.A. animal
health business in the first quarter of 1997, the Company believes it
ranks within the top five major competitors within the animal health
business category. The consumer health care business also has many
competitors. Based on net sales, the Company believes it ranks
within the top five major competitors within this business category.
The Company's competitive position in the Health Care Products segment
is affected by several factors including resources available to
develop, enhance and promote products, customer acceptance, product
quality, patent protection, development of alternative therapies by
competitors, scientific and technological advances and governmental
actions affecting pricing and generic substitutes. For prescription
products, the growth of managed care organizations, such as health
maintenance organizations ("HMOs") and pharmaceutical benefit
management companies, has resulted in increased competitive pressures.
The continued growth of generic substitutes is further promoted by
legislation, regulation and various incentives enacted and promulgated
in both the public and private sectors.
PREMARIN, the Company's conjugated estrogens product, which has not
had patent protection for many years, contributes significantly to
sales and results of operations. PREMARIN currently is not subject to
generic competition in the United States, and, on May 5, 1997, the
U.S. Food and Drug Administration (FDA) announced that it would not
approve synthetic conjugated estrogens products at this time because
these products have not been shown to contain the same active
ingredient as PREMARIN. The FDA further stated that, until the full
composition of PREMARIN is determined, a synthetic generic version
cannot be approved, although a generic product derived from the same
natural source could be approved earlier under certain circumstances.
Although the Company believes that, as a result of this announcement,
PREMARIN is not likely to face generic competition in the near term,
it cannot predict the timing or outcome of continued efforts to obtain
approval for a generic conjugated estrogens product. 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 recently introduced combination estrogen and progestin
products in the PREMARIN family.
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Health care costs will continue to be the subject of attention in
both the public and private sectors in the U.S. Similarly, in
international markets, health care spending is subject to increasing
governmental review, much of which is focused on pharmaceutical
prices. While the Company cannot predict the impact that any future
health care initiatives may have on the Company's worldwide results of
operations, the Company believes that the pharmaceutical industry will
continue to play a very positive role in helping to contain global
health care costs through the development of innovative products.
The growth of generic and store brands continued to impact some of the
Company's consumer health care branded product line categories in 1997
and is expected to continue during 1998.
AGRICULTURAL PRODUCTS -
The Company operates in the highly competitive agrochemical industry.
The Agricultural Products segment has over 40 competitors worldwide
and ranks in the top 10 based on net sales. Among these companies,
the top 10 competitors are multi-national, representing over 70% of
the sales in the agrochemical market. Competitive factors include
product efficacy, distribution channels and resource availability for
development of new products and improvement of existing ones. There
can also be generic competition when products are no longer patent
protected.
GENERAL -
In all business segments, advertising and promotional expenditures are
significant costs to the Company and are necessary to effectively
communicate information concerning the Company's products to health
professionals, to the trade and to consumers.
Research and Development
Worldwide research and development activities are focused on
developing and bringing to market new products to treat and/or prevent
some of the most serious health care and agricultural problems.
Research and development expenditures totaled $1,558,035,000
in 1997, $1,429,056,000 in 1996 and $1,354,963,000 in 1995 with
approximately 80% of these expenditures in the ethical pharmaceutical
area in 1997.
The Company currently has 4 New Drug Applications and 28 Supplemental
Drug Applications filed with the FDA for review, and 98 active
Investigational New Drug Applications and two Biologics License
Applications pending. During 1997, several major collaborative
research and development arrangements were commenced or continued with
other pharmaceutical and biotechnology companies. Additionally, the
animal health business has 78 Veterinary Biologics License
Applications awaiting approval by the United States Department of
Agriculture ("USDA") and the Agricultural Products segment has 49
applications for new products and/or expanded use of existing products
awaiting approval by the United States Environmental Protection Agency
("EPA"). The extent of subsequent contributions from these potential
products, if any, cannot presently be predicted.
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During 1997, the Company received FDA approval for the mental health
product EFFEXOR XR, the pain and anti-inflammatory products DURACT and
SYNVISC, the cardiovascular blood thinner NORMIFLO, the oral
contraceptive ALESSE, the progesterone gel CRINONE, BENEFIX
coagulation Factor IX (Recombinant), the platelet factor product
NEUMEGA, the animal health care product DICURAL, a new fluroquinolone
antibiotic for the treatment of serious infections in dogs, the equine
dewormer and boticide product QUEST, the canine heartworm preventive
product PROHEART and the OTC product Children's ADVIL Grape
Suspension. The EPA also approved the Company's LIGHTNING and RAPTOR
herbicide products.
Regulation
The Company's various health care and agricultural products are
subject to regulation by government agencies throughout the world.
The primary emphasis of these requirements is to assure the safety and
effectiveness of the Company's products. In the United States, the
FDA, under the Federal Food, Drug and Cosmetic Act and the Public
Health Service Act, regulates many of the Company's health care
products, including human and animal pharmaceuticals, vaccines and
consumer health care products. The U.S. Department of Agriculture
("USDA") regulates the Company's domestic animal vaccine products.
The FDA's powers include the imposition of criminal and civil
sanctions against companies, including seizures of regulated products
and criminal sanctions against individuals. The FDA's enforcement
powers also include its inspection of the numerous facilities operated
by the Company. To facilitate compliance, the Company from time to
time may institute voluntary compliance actions such as product
recalls when it believes it is appropriate to do so. In addition,
many states have similar regulatory requirements. Most of the
Company's pharmaceutical products, and an increasing number of its
consumer health care products, are regulated under the FDA's new drug
approval processes, which mandate pre-market approval of all new
drugs. Such processes require extensive time, testing and
documentation for approval, resulting in significant costs for new
product introductions. The Company's pharmaceutical business is also
affected by the Controlled Substances Act, administered by the Drug
Enforcement Administration, which regulates strictly all narcotic and
habit-forming drug substances. In addition, in the foreign countries
where the Company does business, it is subject to regulatory and
legislative climates that, in many instances, are similar to or more
restrictive than that described above. The Company devotes
significant resources to dealing with the extensive federal, state and
foreign regulatory requirements applicable to its products.
Federal law also requires drug manufacturers to pay rebates to state
Medicaid programs in order for their products to be eligible for
federal matching funds under the Social Security Act. Additionally, a
number of states are, or may be, pursuing similar initiatives for
rebates and other strategies to contain the cost of pharmaceutical
products. The federal Vaccines for Children entitlement program
enables states to purchase vaccines at federal vaccine prices and
limits federal vaccine price increases in certain respects. Federal
and state rebate programs are expected to continue.
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The manufacture and sale of pesticides are regulated by the EPA. No
new pesticide and no existing pesticide for a new use may be
manufactured, processed or used in the United States without prior
notice to or approval of the EPA. Outside the United States,
agricultural chemicals are regulated by various agencies, often by
standards which differ from those in the United States.
Environmental
Certain of the Company's operations are affected by a variety of
federal, state and local environmental protection laws and regulations
and the Company has, in a number of instances, been notified of its
potential responsibility relating to the generation, storage,
treatment and disposal of hazardous waste. In addition, the Company
has been advised that it may be a responsible party in several sites
on the National Priority List created by the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"),
commonly known as Superfund. (See Item 3. Legal Proceedings.) In
connection with the spin-off in 1993 by Cyanamid of Cytec Industries
Inc. ("Cytec"), Cyanamid's former chemicals business, Cytec assumed
the environmental liabilities relating to the chemicals businesses,
except for the former chemical business site at Bound Brook, New
Jersey, and certain sites for which there is shared responsibility
between Cyanamid and Cytec. This assumption is not binding on third
parties, and if Cytec were unable to satisfy these liabilities, they
would, in the absence of other circumstances, be enforceable against
Cyanamid. The Company has no reason to believe that it has any
practical exposure to any of the liabilities against which Cytec has
agreed to assume and indemnify Cyanamid.
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. Additional information on environmental matters
is set forth in Notes 3, 5 and 10 of the Notes to Consolidated
Financial Statements in the Company's 1997 Annual Report to
Shareholders and is incorporated herein by reference.
Employees
At the end of 1997, the Company had 60,523 employees worldwide, with
31,233 employed in the United States including Puerto Rico.
Approximately 29% of worldwide employees are represented by various
collective bargaining groups. Relations with most organized labor
groups remain relatively stable.
Financial Information about the Company's Foreign and Domestic
Operations
Financial information about foreign and domestic operations for the
three years ended December 31, 1997 is set forth in Note 11 of the
Notes to Consolidated Financial Statements in the Company's 1997
Annual Report to Shareholders and is incorporated herein by reference.
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The Company's operations outside the United States are conducted
primarily through subsidiaries. International sales in 1997 amounted
to 42% of the Company's total worldwide sales.
The Company's international businesses are subject to risks of
currency fluctuations, governmental actions and other governmental
proceedings which are inherent in conducting business outside of the
United States. The Company does not regard these factors as deterrents
to maintaining or expanding its non-U.S. operations. Additional
information about foreign operations, specifically the Asian-Pacific
region, is set forth in Liquidity, Financial Condition and Capital
Resources in Management's Discussion and Analysis of Financial
Condition and Results of Operations in the Company's 1997 Annual
Report to Shareholders and is incorporated herein by reference.
ITEM 2. PROPERTIES
The Company's corporate headquarters and the headquarters of its
domestic consumer health care business are located in Madison, New
Jersey. The Company's domestic and international ethical
pharmaceutical operations and its international consumer health care
business are headquartered in three executive/administrative buildings
in Radnor and St. Davids, Pennsylvania. The Company's animal health
business is headquartered in Overland Park, Kansas. The Company's
principal medical devices business maintained its headquarters in St.
Louis, Missouri. The Agricultural Products segment maintains its
headquarters in Parsippany, New Jersey. The Company's foreign
subsidiaries and affiliates, which generally own their properties,
have manufacturing facilities in 24 countries outside the United
States. The following are the principal manufacturing plants (M) and
research laboratories (R) of the Company as of December 31, 1997:
INDUSTRY SEGMENT
Health Care Products:
Alpirsbach, Germany (M)
Andover, Massachusetts (M, R)
Askeaton, Ireland (M, R)
*Ballymoney, N. Ireland (M)
Baulkham Hills, Australia (M)
Buenos Aires, Argentina (M)
Cabuyao, Philippines (M)
Cambridge, Massachusetts (R)
Carolina, Puerto Rico (M)
Catania, Italy (M, R)
Charles City, Iowa (M)
Chazy, New York (R)
Cherry Hill, New Jersey (M, R)
*Commerce, Texas (M)
*Deland, Florida (M)
Fort Dodge, Iowa (M, R)
Georgia, Vermont (M)
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Gosport, Great Britain (M)
Guayama, Puerto Rico (M)
Havant, Great Britain (M, R)
Hsin-Chu Hsien, Taiwan (M)
Maracay, Venezuela (M)
Marietta, Pennsylvania (M, R)
Munster, Germany (M)
Newbridge, Ireland (M)
*Norfolk, Nebraska (M)
Pearl River, New York (M, R)
Princeton, New Jersey (R)
Radnor, Pennsylvania (R)
Richmond, Virginia (M, R)
Rouses Point, New York (M, R)
Sanford, North Carolina (M)
Smithfield, Australia (M)
St. Laurent, Canada (M, R)
Suzhou, China (M)
*Tijuana, Mexico (M, R)
West Chester, Pennsylvania (M)
Agricultural Products:
Genay, France (M)
Gravelines, France (M)
Hannibal, Missouri (M)
Paulina, Brazil (M)
Princeton, New Jersey (R)
Resende, Brazil (M)
Schwabenheim, Germany (R)
*These facilities were divested on February 27, 1998 as part of
the Company's sale of the Sherwood-Davis & Geck medical devices
business.
All of the above properties are owned except certain facilities in
Cambridge, Massachusetts, Cherry Hill, New Jersey, Guayama, Puerto
Rico, Suzhou, China and Tijuana, Mexico which are under lease. The
Company also owns or leases a number of other smaller properties
worldwide which are used for manufacturing, research, warehousing
and office space.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are parties to numerous lawsuits and
claims arising out of the conduct of its business, including product
liability and other tort claims.
As of March 19, 1998, the Company has been served with more than 3,200
lawsuits in federal and state courts on behalf of approximately 48,000
plaintiffs alleging injuries as a result of use of the NORPLANT
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SYSTEM, the Company's implantable contraceptive containing
levonorgestrel. Although approximately 70 of the cases have been
filed as class actions, class certification has been denied in the
federal actions as well as in every state in which the question has
been considered. On December 6, 1994, the Judicial Panel on Multi-
District Litigation ("MDL") ordered that all NORPLANT SYSTEM lawsuits
filed in federal courts be consolidated for pretrial proceedings in
the U.S. District Court (E.D. Tex.) in Beaumont. The MDL proceedings
now account for over 37,000 of the NORPLANT SYSTEM plaintiffs.
Following the denial of class certification, the MDL court scheduled
three "bellwether" trials, each involving the claims of five Texas
plaintiffs. Rather than proceeding with the first of these trials as
scheduled on February 24, 1997, the court entered summary judgment in
favor of the Company on all of plaintiffs' claims. That decision is
now on appeal to the U.S. Court of Appeals for the Fifth Circuit. No
NORPLANT SYSTEM case involving the Company has yet been tried to a
verdict. All of the cases involving the Company that have approached
trial have either been dismissed by the courts or withdrawn by the
plaintiffs, except for one trial in Hidalgo County, Texas which
resulted in a mistrial in January 1998 due to conflicts among
plaintiffs' attorneys. The Company will continue to contest the
NORPLANT SYSTEM litigation vigorously.
On September 15, 1997, the Company's Wyeth-Ayerst Laboratories
Division, the manufacturer of PONDIMIN (fenfluramine hydrochloride)
tablets C-IV and the distributor of REDUX (dexfenfluramine
hydrochloride capsules) C-IV, announced a voluntary and immediate
withdrawal of these antiobesity medications. The Company took this
action on the basis of new, preliminary information provided to the
Company on September 12, 1997 by the U.S. Food and Drug Administration
(FDA) regarding heart valve abnormalities in patients using these
medications. The Company estimates that approximately six million
people used these medications in the U.S.
As of March 19, 1998, the Company has been served or is aware that it
has been named as a defendant in 797 lawsuits as the manufacturer of
PONDIMIN and/or the distributor of REDUX. These lawsuits have been
filed on behalf of individuals who claim to have been injured as a
result of their use of PONDIMIN and/or REDUX, either individually or
in combination with the prescription drug phentermine (which the
Company does not manufacture, distribute or market). The lawsuits
also often name as defendants other distributors and/or retailers of
PONDIMIN and/or REDUX, the manufacturers, distributors and/or
retailers of phentermine and physicians or other health care
providers. The Company anticipates that it will be named as a
defendant in additional PONDIMIN and/or REDUX lawsuits in the future.
Of the 797 lawsuits naming the Company as a defendant, 180 are actions
that seek certification of a class, some on a national and others on a
statewide basis. Of these 180 lawsuits, 133 are pending in various
federal district courts and 47 are pending in various state courts. A
number of the actions brought in state courts have been removed to
federal courts. Individual plaintiffs have filed the remaining
lawsuits: 334 individual lawsuits are pending in various federal
district courts and 283 individual lawsuits are pending in various
state courts. On December 10, 1997, the federal Judicial Panel on
Multidistrict Litigation transferred all pending federal lawsuits
alleging injuries from the use of REDUX and/or PONDIMIN to the U.S.
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District Court for the Eastern District of Pennsylvania (MDL 1203),
where they will be coordinated for all pretrial purposes before U.S.
District Judge Louis C. Bechtle. The state cases are pending in 30
different states, with the bulk of the cases in California,
Massachusetts, New Jersey, New York, Oklahoma, Pennsylvania and Texas.
Plaintiffs' allegations of liability are based on various theories of
recovery, including, but not limited to, product liability, strict
liability, negligence, various breaches of warranty, conspiracy,
fraud, misrepresentation and deceit. These lawsuits typically allege
that the short or long-term use of PONDIMIN and/or REDUX,
independently or in combination (including the combination of PONDIMIN
and phentermine popularly known as "fen/phen"), causes, among other
things, primary pulmonary hypertension, valvular heart disease and/or
neurological dysfunctions. In addition, some lawsuits allege severe
emotional distress caused by the knowledge that ingestion of these
drugs, independently or in combination, could cause such injuries.
Plaintiffs typically seek relief in the form of monetary damages
(including general damages, medical care and monitoring expenses, loss
of earnings and earnings capacity, compensatory damages and punitive
damages), generally in unspecified amounts, on behalf of the
individual or the class. In addition, some actions seeking class
certification ask for certain types of purportedly equitable relief,
including, but not limited to, declaratory judgments and the
establishment of a research or medical surveillance program.
The Company is also named as a defendant in two shareholder lawsuits
arising out of the REDUX and PONDIMIN withdrawal. Oran, et al. v.
Stafford, et al.(No. 97-CV-4513 (NHP), U.S.D.C., D.N.J.)
(filed Sept. 18, 1997) is a securities fraud putative class action
in which plaintiffs allege, on behalf of a class of individuals
who purchased shares of the Company's common stock on the open market
during the period from March 1, 1997 through September 16, 1997, that
the Company (and nine officers and directors named as controlling
persons under Section 20(a) of the Securities Exchange Act of 1934)
engaged in a plan to defraud the market and purchasers of the
Company's common stock in violation of Section 10(b) of the Exchange
Act and SEC Rule 10b-5 by failing to disclose material facts or making
material misstatements of fact regarding alleged adverse events
associated with REDUX and PONDIMIN, in particular the alleged
association between those two products and valvular heart disease.
Plaintiffs' amended complaint also includes claims for negligent
misrepresentation and common law fraud and deceit. Plaintiffs seek
compensatory and punitive damages for themselves and for the class.
Grill v. Stafford, et al.(No. MRS-L-164-98, N.J. Sup. Ct.,
Morris Cty.) (filed Jan. 14, 1998) is a shareholder derivative action
filed against the Company, the directors (other than Mr. Essner), a
former director and officer of the Company, and certain officers which
seeks to recover any losses or damages sustained by the Company, as
well as profits from the sale of stock by certain present and former
officers and directors, as a result of alleged intentional, reckless
or negligent breaches of fiduciary duty by the defendants. The
complaint contains allegations of material misstatements and omissions
regarding alleged adverse events associated with REDUX and PONDIMIN
similar to those described above and alleges that the defendants'
actions have exposed the Company to liability for personal injury
lawsuits and securities claims.
I-12
The Company believes that it has meritorious defenses to these actions
and that it has acted properly at all times in dealing with PONDIMIN
and REDUX matters. The Company intends to defend all of the REDUX and
PONDIMIN related litigation vigorously.
In an action for patent infringement pending in U.S. District Court
(No.92-7403, E.D. Pa.), McNeilab Inc. is seeking approximately $77
million (plus $10 million in interest) in compensatory damages against
Scandipharm Inc., which would be entitled to seek indemnification from
a subsidiary of the Company, Eurand Microencapsulation, S.A. In this
action McNeilab is alleging that pancreatic tablets used to treat
cystic fibrosis, which Eurand exclusively supplies to Scandipharm,
infringe U.S. patents licensed to McNeilab. Treble damages are also
sought for alleged willful infringement.
On July 7, 1997, the plaintiffs were awarded $44 million in
compensatory damages and $1 million in punitive damages in an action
which was commenced in U.S. District Court in August 1993
(University of Colorado et al. v. American Cyanamid, Docket No.
93-K-1657, D.Col.). The plaintiffs had accused American Cyanamid of
misappropriating the invention of, and patenting as its own, the
formula for the current MATERNA Multi-Vitamins. The complaint also
contained allegations of conversion, fraud, misappropriation, wrongful
naming of inventor and copyright and patent infringement. The patent
whose ownership and inventorship is in dispute was granted to American
Cyanamid in 1984. The Court had previously granted American
Cyanamid's summary judgment motions dismissing all counts for relief
except for unjust enrichment and fraud, which were the issues tried
before the court in a three-week bench trial in May 1996. Although
the plaintiffs had earlier been granted summary judgment of their
copyright infringement claim, the court had declined to award
plaintiffs damages on that claim. Plaintiffs' post-trial motions
seeking to increase the damages to approximately $111 million
allegedly representing American Cyanamid's gross profit for 1982-1985
from the sale of the reformulated MATERNA product and to recover
approximately $800,000 of attorneys fees has been denied. The Company
has appealed the district court decision to the U.S. Court of Appeals
for the Federal Circuit.
On October 14, 1993, Rite Aid Corporation, Revco D.S. Inc. and other
retail drug chains and retail pharmacies filed an action in U.S.
District Court (M.D. Pa.) against the Company, other pharmaceutical
manufacturers and a pharmacy benefit management company alleging that
the Company and other defendants provided discriminatory price and
promotional allowances to managed care organizations and others in
violation of the Robinson-Patman Act. The complaint further alleges
collusive conduct among the defendants related to the alleged
discriminatory pricing in violation of the Sherman Antitrust Act as
well as certain other violations of common law principles of unfair
competition.
Subsequently, numerous other cases, many of which were purported class
actions brought on behalf of retail pharmacies and retail drug and
grocery chains, were filed in various federal courts against the
Company as well as other pharmaceutical manufacturers and wholesalers.
These cases make one or more similar allegations of violations of
federal or state antitrust or unfair competition laws. In addition, a
I-13
mail order pharmacy plaintiff alleges that it was forced out of
business and certain plaintiffs also allege that the defendants'
patents covering brand name prescription drugs give the defendants
power to enter into exclusionary arrangements with certain managed
care customers and seek compulsory patent licenses. The various class
actions were consolidated as a single class action (the "Consolidated
Class Action") which alleges violations of Section 1 of the Sherman
Act. All of the federal actions have been coordinated and consolidated
for pretrial purposes under the caption In re Brand Name Prescription
Drugs Antitrust Litigation (MDL 997 N.D. Ill.). These federal actions
seek treble damages in unspecified amounts and injunctive and other
relief.
The court in the federal actions approved an amended settlement among
certain defendants, including the Company, and the Consolidated Class
Action plaintiffs. The settlement provides, among other things, for
certain payments to be made by the settling defendants, over a period
of three years, to the Consolidated Class Action plaintiffs. The
Company's settlement payments (including payments to be made on behalf
of American Cyanamid) will total $42.5 million. Certain provisions of
the amended settlement, which became effective on January 28, 1998 and
will be in effect for three years, prohibit the settling manufacturers
from refusing to grant discounts to retailers solely because of their
status as retailers and require that retailers be given the
opportunity to demonstrate their ability to move market share and to
negotiate and earn discounts similar to any discounts offered to
managed care organizations. The settlement also provides that it shall
not be deemed or construed to be an admission or evidence of any
violation of any statute or law or of any liability or wrongdoing by
the Company or of the truth of any of the claims or allegations
alleged in the Consolidated Class Action. In 1997, the Court of
Appeals for the Seventh Circuit reversed a district court ruling that
plaintiffs in the multidistrict proceeding could seek damages for
purchases that were only indirectly made from manufacturers. However,
many indirect purchasers are likely to remain in the cases because the
district court allowed the addition of wholesalers as defendants.
The individual federal actions, including those brought by Rite Aid
Corporation, Revco D.S. Inc. and other retail drug and grocery chains,
remain pending against the Company. In 1997, similar complaints were
filed by the American Drug Stores and Eckerd's Drug Stores chains and
they have been consolidated in the multidistrict litigation. In 1997,
the class action plaintiffs also filed a complaint against the
defendants that settled the Consolidated Class Action, including the
Company. The class action plaintiffs allege that the settling
defendants conspired to not implement the affirmative obligations in
the settlement agreements which were before the Seventh Circuit Court
of Appeals and not yet final at that time. The complaint seeks class
action status and requests preliminary and permanent injunctions. It
does not request money damages. The request for a preliminary
injunction was denied.
In addition to the federal actions, similar litigation on behalf of
consumers or retail pharmacies has been brought in various state
courts, including purported class actions in Alabama, Arizona,
California, Colorado, District of Columbia, Florida, Kansas, Maine,
Michigan, Minnesota, Mississippi, New York, North Carolina, Tennessee,
Washington and Wisconsin. These actions are all in various pre-trial
stages. Final approval has been granted for a settlement of a
I-14
purported class action with similar allegations under state antitrust,
unfair competition and unitary pricing laws in Wisconsin state court
on behalf of retail pharmacies located in that state. The Company's
share of that settlement is approximately $440,000. Final approval
was received for a settlement of a similar state law case by
retailers in Minnesota. The Company's share of the Minnesota
settlement with retailers was approximately $99,000. The actions in
Colorado, Washington and New York have been dismissed on pre-trial
motions. An appeal of the New York action is pending.
The Federal Trade Commission is investigating allegations of concerted
action in the pricing of pharmaceutical products and the Company has
provided information in response to a subpoena.
In an action commenced in state court in Texas in January 1997 by
Foxmeyer Health Corporation against McKesson Corp., the Company's
Wyeth-Ayerst Laboratories Division and eleven other manufacturers,
which was removed to U.S. District Court for the Northern District of
Texas and referred to U.S. Bankruptcy Court in Dallas, Texas (Adv. No.
397-3052, U.S.B.C., N.D. Tex.), Foxmeyer is seeking in excess of $400
million in compensatory damages alleged to have risen from an alleged
conspiracy to drive Foxmeyer's subsidiary into bankruptcy, ostensibly
so that McKesson could then purchase the drug distribution operations
of the subsidiary at a discounted price.
A purported class action commenced in 1997 in state court in
Tennessee, Fox v. American Cyanamid Company (No. 19,996,
Ch.Ct.Tenn.), alleges violations of state antitrust and consumer
protection laws by Cyanamid concerning pricing practices relating to
marketing programs for crop protection products. The complaint
purports to be on behalf of indirect purchasers of Cyanamid's crop
protection products in the states of Tennessee, Alabama, California,
Florida, Kansas, Maine, Michigan, Minnesota, Mississippi, New Mexico,
North Carolina, North Dakota, South Dakota, West Virginia, Wisconsin
and the District of Columbia. A purported class action in federal
court in Alabama, Lowell v. American Cyanamid Company
(No.97-581-BH-M, U.S.D.C., S.D. Ala.) alleges violations of federal
antitrust laws involving pricing practices relating to marketing
programs for crop protection products. This action was dismissed
but the plaintiffs have filed a notice of appeal.
As discussed in Item I, the Company is a party to, or otherwise
involved in, legal proceedings under CERCLA and similar state laws
directed at the cleanup of various sites including 61 Superfund sites,
including the Cyanamid-owned Bound Brook, N.J. site. The Company's
potential liability varies greatly from site to site. For some sites,
the potential liability is de minimis and, for others, the final costs
of cleanup have not yet been determined. As assessments and cleanups
proceed, these liabilities are reviewed periodically and are adjusted
as additional information becomes available. Environmental
liabilities are inherently unpredictable. The liabilities can change
substantially due to such factors as additional information on the
nature or extent of contamination, methods of remediation required,
and other actions by governmental agencies or private parties. The 61
Superfund sites exclude sites for which Cytec assumed full liability
and agreed to indemnify Cyanamid but include certain sites for which
there is shared responsibility between Cyanamid and Cytec. The
Company has no reason to believe that it has any practical exposure to
I-15
any of the liabilities against which Cytec has agreed to assume and
indemnify Cyanamid.
In the opinion of the Company, although the outcome of any litigation
cannot be predicted with certainty, the ultimate liability of the
Company in connection with pending litigation and other matters
described above will not have a material adverse effect on the
Company's consolidated financial position but could be material to the
results of operations in any one accounting period.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
I-16
EXECUTIVE OFFICERS OF THE REGISTRANT AS OF MARCH 27, 1998
Each officer is elected to hold office until a successor is chosen or until
earlier removal or resignation. None of the executive officers is related to
another:
Elected to
Name Age Offices and Positions Office
John R. Stafford 60 Chairman of the Board, President December 1986
and Chief Executive Officer,
Chairman of Executive, Finance,
Operations and Nominating
Committees
Business
Experience: 1991 to date, Chairman of the
Board, President and Chief
Executive Officer (President to
May 1990 and from February 1994)
Robert G. Blount 59 Senior Executive Vice President, October 1995
Director, Member of Executive,
Finance and Operations
Committees
Business
Experience: To October 1995, Executive Vice
President
October 1995 to date, Senior
Executive Vice President
Robert Essner 50 Executive Vice President September 1997
Director, Member of Finance
and Operations Committees
Business
Experience: To March 1997, President, Wyeth-
Ayerst Laboratories, U.S.
Pharmaceutical Business
March 1997 to September 1997,
President, Wyeth-Ayerst Global
Pharmaceuticals
September 1997 to date, Executive
Vice President
Joseph J. Carr 55 Senior Vice President May 1993
Member of Finance and Operations
Committees
Business
Experience: To May 1993, Group Vice President
May 1993 to date, Senior Vice
President
I-17
Elected to
Name Age Offices and Positions Office
Louis L. Hoynes, Jr. 62 Senior Vice President and November 1990
General Counsel
Member of Finance and
Operations Committees
Business
Experience: 1991 to date, Senior Vice
President and General
Counsel
Robert I. Levy, M.D. 60 Senior Vice President-Science March 1998
and Technology
Member of Finance and
Operations Committees
Business
Experience: To March 1998, President,
Wyeth-Ayerst Research
March 1998 to date, Senior Vice
President - Science and
Technology
William J. Murray 52 Senior Vice President October 1995
Member of Finance and
Operations Committees
Business
Experience: To January 1995, Group Vice
President, American Cyanamid
Company
January 1995 to October 1995, Vice
President
October 1995 to date, Senior Vice
President
David M. Olivier 54 Senior Vice President January 1996
Member of Finance and
Operations Committees
Business
Experience: To January 1996, President,
Wyeth-Ayerst International, Inc.
January 1996 to date,
Senior Vice President
I-18
Elected to
Name Age Offices and Positions Office
John R. Considine 47 Vice President - Finance February 1992
Member of Finance and
Operations Committees
Business
Experience: 1992 to date, Vice President -
Finance
William A. Hawkins 44 Vice President - Medical Device April 1997
and Specialty Pharmaceutical
Divisions
Member of Finance and
Operations Committees
Business
Experience: To January 1995, President & Chief
Executive Officer, IVAC
Corporation, Eli Lilly and Company
January 1995 to October 1995,
President & Chief Executive
Officer, Guidant Corporation,
Devices for Vascular
Intervention
October 1995 to April 1997,
President, Ethicon Endo-Surgery, Inc.,
Johnson & Johnson
May 1997 to March 1998, President,
Sherwood-Davis & Geck
April 1997 to date, Vice President
- Medical Device and Specialty
Pharmaceutical Divisions
Paul J. Jones 52 Vice President and Comptroller May 1995
Member of Finance Committee
Business
Experience: To April 1995, Senior Vice
President - Finance and
Administration, Wyeth-Ayerst
Laboratories Division
May 1995 to date, Vice President
and Comptroller
I-19
Elected to
Name Age Offices and Positions Office
Rene R. Lewin 51 Vice President - Human Resources May 1994
Member of Finance Committee
Business
Experience: To May 1994, Executive Director
Human Resources - Worldwide
Pharmaceutical Division,
Eli Lilly and Company
May 1994 to date, Vice President -
Human Resources
Thomas M. Nee 58 Vice President - Taxes May 1986
Member of Finance Committee
Business
Experience: 1991 to date, Vice President -
Taxes
I-20
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The New York Stock Exchange is the principal market on which the
Company's common stock is traded. Tables showing the high and low
sales price for the stock, as reported in the consolidated transaction
reporting system, and the dividends paid per common share for each
quarterly period during the past two years, as presented in Market
Prices of Common Stock and Dividends on page 38 of the Company's 1997
Annual Report to Shareholders, are incorporated herein by reference.
There were 63,774 holders of record of the Company's common stock as
of March 2, 1998.
On March 5, 1998, the Company's Board of Directors approved a two-for-
one split of the Company's common stock to be effected in the form of
a 100% stock dividend. The stock split is subject to stockholder
approval of an increase in the number of authorized shares of common
stock from 1,200,000,000 to 2,400,000,000 at the Company's annual
meeting to be held on April 23, 1998.
ITEM 6. SELECTED FINANCIAL DATA
The data with respect to the last five fiscal years, appearing in the
Ten-Year Selected Financial Data presented on pages 20 and 21 of the
Company's 1997 Annual Report to Shareholders, are incorporated herein
by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and
Results of Operations, appearing on pages 39 through 44 of the
Company's 1997 Annual Report to Shareholders, is incorporated herein
by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and Notes to Consolidated
Financial Statements on pages 22 through 36 of the Company's 1997
Annual Report to Shareholders, the Report of Independent Public
Accountants on page 37, and Quarterly Financial Data on page 38, are
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
II-1
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Information relating to the Company's directors is incorporated herein
by reference to pages 2 through 5 of a definitive proxy statement
filed with the Securities and Exchange Commission on March 25, 1998
("the 1998 Proxy Statement").
(b) Information relating to the Company's executive officers as of March
27, 1998 is furnished in Part I hereof under a separate unnumbered
caption ("Executive Officers of the Registrant as of March 27, 1998").
(c) Information relating to certain filing obligations of directors and
executive officers of the Company under the federal securities laws
set forth on page 6 of the 1998 Proxy Statement under the caption
"Section 16(a) Beneficial Ownership Reporting Compliance" is
incorporated by reference herein.
ITEM 11. EXECUTIVE COMPENSATION
Information relating to executive compensation is incorporated herein
by reference to pages 9 through 14 and pages 16 and 17 of the 1998
Proxy Statement. Information with respect to compensation of
directors is incorporated herein by reference to pages 5 and 6 of the
1998 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information relating to security ownership is incorporated
herein by reference to pages 7 through 9 of the 1998 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
III-1
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)1. Financial Statements
The following Consolidated Financial Statements, Notes to Consolidated
Financial Statements and Report of Independent Public Accountants,
included on pages 22 through 37 of the Company's 1997 Annual Report to
Shareholders, are incorporated herein by reference.
Pages
Consolidated Balance Sheets as of
December 31, 1997 and 1996 22
Consolidated Statements of Income
for the years ended December 31,
1997, 1996 and 1995 23
Consolidated Statements of Retained
Earnings and Additional Paid-in
Capital for the years ended
December 31, 1997, 1996 and 1995 24
Consolidated Statements of Cash Flows
for the years ended December 31, 1997,
1996 and 1995 25
Notes to Consolidated Financial Statements 26-36
Report of Independent Public Accountants 37
(a)2. Financial Statement Schedules
The following consolidated financial information is included in Part
IV of this report:
Pages
Report of Independent Public Accountants
on Supplemental Schedule IV-8
Schedule II - Valuation and Qualifying
Accounts for the years ended December 31, 1997,
1996 and 1995 IV-9
Schedules other than those listed above are omitted because they are
not applicable.
IV-1
ITEM 14. (Continued)
(a)3. Exhibits
Exhibit No. Description
(2.1) Agreement and Plan of Merger, dated August 17, 1994, as amended, among
the Company, AC Acquisition Corp. and American Cyanamid Company, filed
as Exhibit (I) to the Report on Schedule 13D for Immunex Corporation
filed by the Company, dated December 1, 1994 for the event which
occurred on November 21, 1994 is hereby incorporated herein by
reference.
(3.1) The Company's Restated Certificate of Incorporation is incorporated
herein by reference to Exhibit 3.1 of the Company's Form 10/A dated
April 30, 1996.
(3.2) The Company's By-Laws, as amended to date.
(4.1) Indenture, dated as of April 10, 1992, between the Company and The
Chase Manhattan Bank (successor to Chemical Bank), as Trustee, is
incorporated by reference to Company's Exhibit 2 of the Company's Form
8-A dated August 25, 1992 (File Number 1-1225).
(4.2) Supplemental Indenture, dated October 13, 1992, between the Company
and The Chase Manhattan Bank (successor to Chemical Bank), as Trustee,
is incorporated by reference to Company's Form 10-Q for the quarter
ended September 30, 1992 (File Number 1-1225).
(10.1) A Credit Agreement, dated as of September 9, 1994, among the Company,
American Home Food Products, Inc., Sherwood Medical Company, A.H.
Robins Company, Incorporated, the several banks and other financial
institutions from time to time parties thereto and The Chase Manhattan
Bank (successor to Chemical Bank), as agent for the lenders
thereunder, filed as Exhibit 11(b)(2) to Amendment No. 7 to the
Schedule 14D-1 is hereby incorporated herein by reference.
(10.2) B Credit Agreement, dated as of September 9, 1994, among the Company,
American Home Food Products, Inc., Sherwood Medical Company, A.H.
Robins Company, Incorporated, the several banks and other financial
institutions from time to time parties thereto and The Chase Manhattan
Bank (successor to Chemical Bank), as agent for the lenders
thereunder, filed as Exhibit 11(b)(3) to Amendment No. 7 to the
Schedule 14D-1 is hereby incorporated herein by reference.
IV-2
ITEM 14. (Continued)
(a)3. Exhibits
Exhibit No. Description
(10.3) First Amendment to A Credit Agreement, dated as of August 4, 1995,
among the Company, American Home Food Products, Inc., Sherwood Medical
Company, A.H. Robins Company, Incorporated, the several banks and
other financial institutions from time to time parties thereto and The
Chase Manhattan Bank (as successor to Chemical Bank), as agent for the
lenders thereunder is incorporated by reference to Exhibit 10.3 of the
Company's Form 10-K for the year ended December 31, 1995.
(10.4) First Amendment to B Credit Agreement, dated as of August 4, 1995,
among the Company, American Home Food Products, Inc., Sherwood Medical
Company, A.H. Robins Company, Incorporated, the several banks and
other financial institutions from time to time parties thereto and The
Chase Manhattan Bank (successor to Chemical Bank), as agent for the
lenders thereunder is incorporated by reference to Exhibit 10.4 of the
Company's Form 10-K for the year ended December 31, 1995.
(10.5) Second Amendment to A Credit Agreement, dated as of August 2, 1996,
among the Company, American Home Food Products, Inc., Sherwood Medical
Company, A.H. Robins Company, Incorporated, the several banks and
other financial institutions from time to time parties thereto and The
Chase Manhattan Bank, as agent for the lenders thereunder is
incorporated by reference to Exhibit 10.5 of the Company's Form 10-K
for the year ended December 31, 1996.
(10.6) Second Amendment to B Credit Agreement, dated as of August 2, 1996,
among the Company, American Home Food Products, Inc., Sherwood Medical
Company, A.H. Robins Company, Incorporated, the several banks and
other financial institutions from time to time parties thereto and The
Chase Manhattan Bank, as agent for the lenders thereunder is
incorporated by reference to Exhibit 10.6 of the Company's Form 10-K
for the year ended December 31, 1996.
(10.7) Third Amendment to A Credit Agreement, dated as of July 31, 1997,
among the Company, Sherwood Medical Company, A.H. Robins Company,
Incorporated, AC Acquisition Holding Company, the several banks and
other financial institutions from time to time parties thereto and The
Chase Manhattan Bank, as agent for the lenders thereunder.
(10.8) Third Amendment to B Credit Agreement, dated as of July 31, 1997,
among the Company, Sherwood Medical Company, A.H. Robins Company,
Incorporated, AC Acquisition Holding Company, the several banks and
other financial institutions from time to time parties thereto and The
Chase Manhattan Bank, as agent for the lenders thereunder.
IV-3
ITEM 14. (Continued)
(a)3. Exhibits
Exhibit No. Description
(10.9)* 1978 Stock Option Plan, as amended to date, is incorporated herein
by reference to Exhibit 10.2 of the Company's Form 10-K for the year
ended December 31, 1990 (File Number 1-1225).
(10.10)* 1980 Stock Option Plan, as amended is incorporated by reference to
Exhibit 10.3 of the Company's Form 10-K for the year ended December
31, 1991 (File Number 1-1225).
(10.11)* Amendment to the 1980 Stock Option Plan is incorporated by
reference to Exhibit 10.7 of the Company's Form 10-K for the year
ended December 31, 1995.
(10.12)* 1985 Stock Option Plan, as amended is, incorporated by reference
to Exhibit 10.4 of the Company's Form 10-K for the year ended
December 31, 1991 (File Number 1-1225).
(10.13)* Amendment to the 1985 Stock Option Plan is incorporated by
reference to Exhibit 10.9 of the Company's Form 10-K for the year
ended December 31, 1995.
(10.14)* Amendment to the 1985 Stock Option Plan is incorporated by
reference to Exhibit 10.12 of the Company's Form 10-K for the year
ended December 31, 1996.
(10.15)* Management Incentive Plan, as amended to date.
(10.16)* Supplemental Executive Retirement Plan is incorporated herein by
reference to Exhibit (10.6) of the Company's Form 10-K for the year
ended December 31, 1990 (File Number 1-1225).
(10.17)* American Cyanamid Company's Supplemental Executive Retirement Plan
is incorporated by reference to Exhibit 10K of American Cyanamid
Company's Form 10-K for the year ended December 31, 1988 (File 1-
3426).
(10.18)* American Cyanamid Company's Supplemental Employees Retirement Plan
Trust Agreement, dated September 19, 1989, between American Cyanamid
Company and Morgan Guaranty Trust Company of New York is
incorporated by reference to Exhibit 10K of American Cyanamid
Company's Form 10-K for the year ended December 31, 1989 (File 1-
3426).
*Denotes management contract or compensatory plan or arrangement required to be
filed as an exhibit hereto.
IV-4
ITEM 14. (Continued)
(a)3. Exhibits
Exhibit No. Description
(10.19)* American Cyanamid Company's ERISA Excess Retirement Plan is
incorporated by reference to Exhibit 10N of American Cyanamid
Company's Form 10-K for the year ended December 31, 1988 (File 1-
3426).
(10.20)* American Cyanamid Company's Excess Retirement Plan Trust
Agreement, dated September 19, 1989, between American Cyanamid
Company and Morgan Guaranty Trust Company of New York is
incorporated by reference to Exhibit 10M of American Cyanamid
Company's Form 10-K for the year ended December 31, 1989 (File 1-
3426).
(10.21)* 1990 Stock Incentive Plan is incorporated herein by reference to
Exhibit 28 of the Company's Form S-8 Registration Statement File No.
33-41434 under the Securities and Exchange Act of 1933, filed June
28, 1991 (File Number 1-1225).
(10.22)* Amendment to the 1990 Stock Incentive Plan is incorporated by
reference to Exhibit 10.13 of the Company's Form 10-K for the year
ended December 31, 1995.
(10.23)* Amendment to the 1990 Stock Incentive Plan is incorporated by
reference to Exhibit 10.21 of the Company's Form 10-K for the year
ended December 31, 1996.
(10.24)* 1993 Stock Incentive Plan is incorporated herein by reference to
Exhibit I of the Company's definitive Proxy Statement filed March
17, 1994.
(10.25)* Amendment to the 1993 Stock Incentive Plan is incorporated by
reference to Exhibit 10.15 of the Company's Form 10-K for the year
ended December 31, 1995.
(10.26)* Amendment to the 1993 Stock Incentive Plan is incorporated by
reference to Exhibit 10.24 of the Company's Form 10-K for the year
ended December 31, 1996.
(10.27)* 1996 Stock Incentive Plan, as amended to date.
(10.28)* Form of Stock Option Agreement is incorporated by reference to
Exhibit 10.27 of the Company's Form 10-K for the year ended December
31, 1996.
*Denotes management contract or compensatory plan or arrangement required to be
filed as an exhibit hereto.
IV-5
ITEM 14. (Continued)
(a)3. Exhibits
Exhibit No. Description
(10.29)* Form of Special Stock Option Agreement (phased vesting) is
incorporated by reference to Exhibit 10.27 of the Company's Form 10-
K for the year ended December 31, 1995.
(10.30)* Form of the Company's Special Stock Option Agreement (three-year
vesting) is incorporated by reference to Exhibit 10.28 of the
Company's Form 10-K for the year ended December 31, 1995.
(10.31)* Amendment to Special Stock Option Agreement is incorporated by
reference to Exhibit 10.30 of the Company's Form 10-K for the year
ended December 31, 1996.
(10.32)* Form of the Company's Special Stock Option Agreement (transferable
options).
(10.33)* Form of the Company's Restricted Stock Performance Award Agreement
under the 1990 Stock Incentive Plan, 1993 Stock Incentive Plan and
1996 Stock Incentive Plan for a three year period is incorporated
by reference to Exhibit 10.31 of the Company's Form 10-K for the
year ended December 31, 1996.
(10.34)* Form of the Company's Restricted Stock Performance Award Agreement
under the 1990 Stock Incentive Plan, 1993 Stock Incentive Plan and
1996 Stock Incentive Plan for a two year period is incorporated by
reference to Exhibit 10.32 of the Company's Form 10-K for the year
ended December 31, 1996.
(10.35)* 1994 Restricted Stock Plan for Non-Employee Directors is
incorporated herein by reference to Exhibit II of the Company's
definitive Proxy Statement filed March 17, 1994.
(10.36)* Savings Plan, as amended, is incorporated herein by reference to
Exhibit 99 of the Company's Form S-8 Registration Statement File No.
33-50149 under the Securities and Exchange Act of 1933, filed
September 1, 1993 (File Number 1-1225).
(10.37)* Retirement Plan for Outside Directors, as amended on January 27,
1994 is herein incorporated by reference to Exhibit 10.12 of the
Company's Form 10-K for the year ended December 31, 1993.
(10.38)* Directors' Deferral Plan is incorporated by reference to Exhibit
10.37 of the Company's Form 10-K for the year ended December 31,
1996.
*Denotes management contract or compensatory plan or arrangement required to be
filed as an exhibit hereto.
IV-6
ITEM 14. (Continued)
(a)3. Exhibits
Exhibit No. Description
(10.39)* Restricted Stock Trust Agreement under the 1993 Stock Incentive
Plan is incorporated by reference to Exhibit 10.23 of the Company's
Form 10-K for the year ended December 31, 1995.
(10.40)* Deferred Compensation Plan is incorporated by reference to Exhibit
10.1 of the Company's Form 10-Q for the quarter ended September 30,
1997.
(10.41)* Executive Retirement Plan is incorporated by reference to Exhibit
10.2 of the Company's Form 10-Q for the quarter ended September 30,
1997.
(10.42)* Supplemental Employee Savings Plan, as amended to date.
(10.43)* Form of Severance Agreement entered into between the Company and
the executive officers specified therein.
(12) Computation of Ratio of Earnings to Fixed Charges.
(13) 1997 Annual Report to Shareholders. Such report, except for those
portions thereof which are expressly incorporated by reference
herein, is furnished solely for the information of the Commission
and is not to be deemed "filed" as part of this filing.
(21) Subsidiaries of the Company.
(23) Consent of Independent Public Accountants relating to their report
dated January 27, 1998, consenting to the incorporation thereof in
Registration Statements on Form S-3 (File Nos. 33-45324 and 33-
57339) and on Form S-8 (File Nos. 2-96127, 33-24068, 33-41434, 33-
53733, 33-55449, 33-45970, 33-14458, 33-50149, 33-55456 and 333-
15509) by reference to the Form 10-K of the Company filed for the
year ended December 31, 1997.
(27) Financial Data Schedule.
(99) Cautionary Statements regarding "Safe Harbor" Provisions of the
Private Securities Litigation Reform Act of 1995.
(b) Reports on Form 8-K
None
*Denotes management contract or compensatory plan or arrangement required to be
filed as an exhibit hereto.
IV-7
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To American Home Products Corporation:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements included in American Home Products
Corporation's Annual Report to Shareholders incorporated by reference in this
Form 10-K, and have issued our report thereon dated January 27, 1998. Our audit
was made for the purpose of forming an opinion on those statements taken as a
whole. The schedule listed in the accompanying index is the responsibility of
the Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. The schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
New York, N.Y.
January 27, 1998
IV-8
American Home Products Corporation and Subsidiaries
Schedule II - Valuation and Qualifying Accounts
For the Years Ended December 31, 1997, 1996 and 1995
(Dollars in thousands)
Column A Column B Column C Column D Column E
Balance Balance
at at
Beginning Additions Deductions End of
of Period (A) Period
Description
Year ended 12/31/97:
Allowance for doubtful
accounts $179,980 $9,974 $21,529 $168,425
Allowance for cash
discounts 24,141 226,284 221,695 28,730
Allowance for deferred
tax assets 294,840 19,486 14,902 299,424
$498,961 $255,744 $258,126 $496,579
Year ended 12/31/96:
Allowance for doubtful
accounts $108,164 $88,273 $16,457 $179,980
Allowance for cash
discounts 27,445 235,802 239,106 24,141
Allowance for deferred
tax assets 206,644 117,569 29,373 294,840
$342,253 $441,644 $284,936 $498,961
Year ended 12/31/95:
Allowance for doubtful
accounts $77,985 $32,186 $2,007 $108,164
Allowance for cash
discounts 21,483 240,871 234,909 27,445
Allowance for deferred
tax assets 250,976 45,604 89,936 206,644
$350,444 $318,661 $326,852 $342,253
(A) Represents amounts used for the purposes for which the accounts were
created and reversal of amounts no longer required.
IV-9
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Annual Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AMERICAN HOME PRODUCTS CORPORATION
(Registrant)
March 27, 1998 By/S/Robert G. Blount
Robert G. Blount
Senior Executive Vice President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signatures Title Date
Principal Executive Officer:
/S/John R. Stafford Chairman, President and March 27 ,1998
John R. Stafford Chief Executive Officer
Principal Financial Officer:
/S/Robert G. Blount Senior Executive Vice March 27, 1998
Robert G. Blount President and Director
Principal Accounting Officer:
/S/Paul J. Jones Vice President and March 27, 1998
Paul J. Jones Comptroller
Directors:
/S/Clifford L. Alexander, Jr. Director March 27, 1998
Clifford L. Alexander, Jr.
/S/Frank A. Bennack, Jr. Director March 27, 1998
Frank A. Bennack, Jr.
/S/Robin Chandler Duke Director March 27, 1998
Robin Chandler Duke
IV-10
Signatures Title Date
/S/Robert Essner Director March 27, 1998
Robert Essner
/S/John D. Feerick Director March 27, 1998
John D. Feerick
/S/John P. Mascotte Director March 27, 1998
John P. Mascotte
/S/Mary Lake Polan, M.D., Ph.D. Director March 27, 1998
Mary Lake Polan, M.D., Ph.D.
/S/Ivan G. Seidenberg Director March 27, 1998
Ivan G. Seidenberg
/S/John R. Torell III Director March 27, 1998
John R. Torell III
/S/William Wrigley Director March 27, 1998
William Wrigley
IV-11
INDEX TO EXHIBITS
Exhibit No. Description
(3.2) The Company's By-Laws, as amended to date.
(10.7) Third Amendment to A Credit Agreement, dated as of July 31, 1997,
among the Company, Sherwood Medical Company, A.H. Robins Company,
Incorporated, AC Acquisition Holding Company, the several banks and
other financial institutions from time to time parties thereto and
The Chase Manhattan Bank, as agent for the lenders thereunder.
(10.8) Third Amendment to B Credit Agreement, dated as of July 31, 1997,
among the Company, Sherwood Medical Company, A.H. Robins Company,
Incorporated, AC Acquisition Holding Company, the several banks and
other financial institutions from time to time parties thereto and
The Chase Manhattan Bank, as agent for the lenders thereunder.
(10.15)* Management Incentive Plan, as amended to date.
(10.27)* 1996 Stock Incentive Plan, as amended to date.
(10.32)* Form of Company's Special Stock Option Agreement (transferable
options).
(10.42)* Supplemental Employee Savings Plan, as amended to date.
(10.43)* Form of Severance Agreement entered into between the Company and
the executive officers specified therein.
(12) Computation of Ratio of Earnings to Fixed Charges.
(13) 1997 Annual Report to Shareholders. Such report, except for those
portions thereof which are expressly incorporated by reference
herein, is furnished solely for the information of the Commission
and is not to be deemed "filed" as part of this filing.
(21) Subsidiaries of the Company.
(23) Consent of Independent Public Accountants relating to their report
dated January 27, 1998, consenting to the incorporation thereof in
Registration Statements on Form S-3 (File Nos. 33-45324 and
33-57339) and on Form S-8 (File Nos. 2-96127, 33-24068, 33-41434,
33-53733, 33-55449, 33-45970, 33-14458, 33-50149, 33-55456 and
333-15509) by reference to the Form 10-K of the Company filed for
the year ended December 31, 1997.
(27) Financial Data Schedule.
(99) Cautionary Statements regarding "Safe Harbor" Provisions of the
Private Securities Litigation Reform Act of 1995.
*Denotes management contract or compensatory plan or arrangement required to be
filed as an exhibit hereto.