Item 2. Results of Operations
Worldwide net revenue for the 2003 second quarter and first half was
7% and 4% higher, respectively, compared with prior year levels. The
increase in worldwide net revenue for the 2003 second quarter and
first half was due primarily to higher worldwide net revenue of both
pharmaceuticals and consumer healthcare. Excluding the impact of
foreign exchange, worldwide net revenue increased 3% for the 2003
second quarter and was flat for the 2003 first half.
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 June 30,
($ in millions) ----------------------
Segment 2003 2002 % Increase
Pharmaceuticals $3,193.5 $3,009.7 6%
Consumer Healthcare 553.1 493.1 12%
Total $3,746.6 $3,502.8 7%
Net Revenue
Six Months
Ended June 30,
($ in millions) ----------------------
Segment 2003 2002 % Increase
Pharmaceuticals $6,350.5 $6,158.8 3%
Consumer Healthcare 1,085.1 987.6 10%
Total $7,435.6 $7,146.4 4%
Pharmaceuticals
Worldwide pharmaceutical net revenue increased 6% for the 2003 second
quarter and 3% for the 2003 first half. Excluding the impact of
foreign exchange, worldwide pharmaceutical net revenue increased 2%
and decreased 1% for the 2003 second quarter and first half,
respectively.
Worldwide human pharmaceutical net revenue increased 6% for the second
quarter as higher sales of PROTONIX (strong prescription volume
growth), EFFEXOR XR (substantial global growth), PREVNAR and ZOSYN
(both reflecting consistent increased manufacturing capability) and
increased alliance revenue were offset, in part, by lower sales of the
PREMARIN family of products and CORDARONE I.V. (market exclusivity
ended October 2002). The lower sales of the PREMARIN family of
products included a $60.0 million reserve recorded by the Company in
the 2003 second quarter for anticipated returns in connection with a
projected shift in prescriptions toward
16
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Six Months Ended June 30, 2003
the recently approved lower dosage forms of PREMARIN and PREMPRO.
Excluding the impact of foreign exchange, worldwide human
pharmaceutical net revenue increased 2% and decreased 1% for the 2003
second quarter and first half, respectively.
Worldwide animal health product net revenue increased 10% for the 2003
second quarter and 11% for the 2003 first half. The increase in net
revenue was due primarily to higher domestic sales of the Company's
WEST NILE - INNOVATOR, a biological vaccine for horses. Excluding the
impact of foreign exchange, worldwide animal health product net
revenue increased 6% and 8% for the 2003 second quarter and first
half, respectively.
The following table sets forth the significant worldwide human
pharmaceutical and animal health net revenue by product for the three
and six months ended June 30, 2003 compared with the same periods in
the prior year:
Three Months Six Months
Ended June 30, Ended June 30,
(In millions) --------------------- ---------------------
Products 2003 2002 2003 2002
--------------------------- -------- -------- -------- --------
EFFEXOR $636.4 $605.5 $1,229.9 $1,027.6
PREMARIN family 276.6 447.3 679.3 1,122.9
PROTONIX 310.4 192.2 670.4 439.3
PREVNAR 264.9 149.4 493.7 297.6
Nutritionals 215.3 195.3 418.1 399.3
Oral Contraceptives 134.6 127.4 288.9 314.1
ZOSYN / TAZOCIN 145.0 75.6 285.1 177.8
ZOTON 86.6 79.7 159.1 147.2
BENEFIX 62.5 55.3 121.1 101.8
SYNVISC 61.0 61.2 110.1 106.2
ATIVAN 55.0 48.2 110.0 101.5
ReFacto 56.4 52.4 108.8 90.8
ENBREL 64.6 36.8 107.4 70.4
RAPAMUNE 40.8 27.5 85.5 51.1
CORDARONE 2.7 75.6 8.2 201.2
Alliance revenue 156.5 86.9 251.2 164.1
Other 410.2 499.5 827.8 990.5
-------- -------- -------- --------
Total human pharmaceuticals 2,979.5 2,815.8 5,954.6 5,803.4
-------- -------- -------- --------
WEST NILE - INNOVATOR 28.8 10.6 49.7 16.4
ProHeart 6 12.9 2.8 19.1 12.8
Other 172.3 180.5 327.1 326.2
-------- -------- -------- --------
Total animal health 214.0 193.9 395.9 355.4
-------- -------- -------- --------
Total pharmaceuticals $3,193.5 $3,009.7 $6,350.5 $6,158.8
======== ======== ======== ========
17
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Six Months Ended June 30, 2003
Consumer Healthcare
Worldwide consumer healthcare net revenue increased 12% for the 2003
second quarter and 10% for the 2003 first half due primarily to sales
of ALAVERT (introduced in the 2002 fourth quarter) and higher sales of
other cough/cold/allergy products, ADVIL COLD & SINUS, CALTRATE and
ADVIL. The first half increase was partially offset by lower sales of
CENTRUM products. Excluding the impact of foreign exchange, worldwide
consumer healthcare net revenue increased 8% and 7% for the 2003
second quarter and first half, respectively.
The following table sets forth the significant worldwide consumer
healthcare net revenue by product for the three and six months ended
June 30, 2003 compared with the same periods in the prior year:
Three Months Six Months
Ended June 30, Ended June 30,
(In millions) ----------------- -------------------
Products 2003 2002 2003 2002
--------------------------------- ------ ------ -------- ------
CENTRUM $134.4 $133.4 $254.0 $263.3
ADVIL 99.6 93.3 208.4 203.4
Other cough/cold/allergy products 56.8 50.9 137.6 115.7
CALTRATE 38.7 35.1 68.9 62.5
SOLGAR 26.7 24.6 55.2 53.0
ADVIL COLD & SINUS 27.9 20.9 52.5 40.0
ALAVERT 30.6 - 51.7 -
CHAP STICK 16.0 19.5 39.4 43.5
Other 122.4 115.4 217.4 206.2
------ ------ -------- ------
Total consumer healthcare $553.1 $493.1 $1,085.1 $987.6
====== ====== ======== ======
18
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Six Months Ended June 30, 2003
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) % Increase (Decrease)
Three Months Ended June 30, 2003 Six Months Ended June 30, 2003
--------------------------------------------- ---------------------------------------------
Foreign Total Foreign Total
Volume Price Exchange Net Revenue Volume Price Exchange Net Revenue
------ ----- -------- ----------- ------ ----- -------- -----------
Pharmaceuticals
-------------------
United States (8%) 8% - - (8%) 6% - (2%)
International 3% 3% 11% 17% - 3% 10% 13%
--- --- --- --- --- --- --- ---
Total (4%) 6% 4% 6% (6%) 5% 4% 3%
=== === === === === === === ===
Consumer Healthcare
-------------------
United States 6% 2% - 8% 3% 3% - 6%
International 5% 4% 10% 19% 5% 3% 9% 17%
--- --- --- --- --- --- --- ---
Total 6% 2% 4% 12% 4% 3% 3% 10%
=== === === === === === === ===
Total
-------------------
United States (6%) 7% - 1% (7%) 6% - (1%)
International 3% 3% 11% 17% 1% 3% 10% 14%
--- --- --- --- --- --- --- ---
Total (3%) 6% 4% 7% (4%) 4% 4% 4%
=== === === === === === === ===
Operating Expenses
Cost of goods sold, as a percentage of Net revenue, increased to 27.2%
for the 2003 second quarter compared with 25.3% for the 2002 second
quarter and increased to 26.2% for the 2003 first half compared with
23.6% for the 2002 first half due primarily to higher manufacturing
costs and a less profitable product mix related to lower sales of
higher margin products. The impact of higher manufacturing costs and a
less profitable product mix on gross margin was partially offset by
increased alliance revenue recorded in the 2003 second quarter and
first half net revenue as compared with the 2002 second quarter and
first half 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, decreased to 36.4% for the 2003 second quarter and 35.7% for
the 2003 first half compared with 37.4% for the 2002 second quarter
and 36.1% for the 2002 first half as a result of cost containment
efforts initiated in the second half of 2002 offset, in part, by
higher general expenses related to increased pension expense, general
insurance and other employee benefit expenses.
Research and development expenses decreased 5% for the 2003 second
quarter and increased 1% for the 2003 first half. The 2003 second
quarter decrease was primarily due to reduced spending for operating
expenses, including lower chemical and material costs and salaries,
offset, in part by higher clinical grant spending. Increased research
and
19
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Six Months Ended June 30, 2003
development spending is expected for the 2003 second half as a result
of the commencement of several Phase III clinical development
programs.
Interest Expense and Other Income
Interest Expense, net for the three and six months ended June 30, 2003
and 2002 consisted of the following:
Three Months Six Months
Ended June 30, Ended June 30,
(In millions) 2003 2002 2003 2002
Interest expense $72.7 $96.2 $143.8 $189.9
Interest income (18.9) (20.4) (38.4) (43.5)
Less: amount capitalized for
capital projects (27.9) (20.2) (52.5) (37.4)
Total interest expense, net $25.9 $55.6 $52.9 $109.0
Interest expense, net decreased 53% for the 2003 second quarter and
51% for the 2003 first half due primarily to lower weighted average
debt outstanding, compared with prior year levels. Weighted average
debt outstanding during the 2003 second quarter and first half was
$6,938.1 million and $7,176.1 million, respectively, compared with
prior year levels of $10,379.7 million and $10,161.3 million,
respectively. The decrease in interest expense was also affected by
higher capitalized interest resulting from spending for long-term
capital projects in process. These projects include a new bio-pharma
and vaccine manufacturing facility in Ireland, as well as the
expansion of an existing manufacturing facility in Ireland.
Other income, net increased significantly for both the 2003 second
quarter and first half as a result of significant second quarter gains
from the divestiture of certain pharmaceutical and consumer healthcare
products amounting to approximately $265.2 million. The divestitures
included product rights to ATIVAN, ISORDIL, DIAMOX, ZIAC, ZEBETA,
AYGESTIN, ANACIN and SONATA. The sales, profits and net assets of
these divested products, individually or in the aggregate, were not
material to either business segment or the Company's consolidated
financial position or results of operations.
20
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Six Months Ended June 30, 2003
Income Before Taxes
The following table sets forth worldwide income before taxes by
segment together with the percentage changes from the comparable
period in the prior year:
Income Before Taxes
---------------------------------------------------------------------------
Three Months Six Months
Ended June 30, Ended June 30,
---------------------------------- ------------------------------------
($ in millions) % Increase
Segment 2003 2002 % Increase 2003 2002 (Decrease)
----------------------- -------- ------ ---------- -------- -------- ----------
Pharmaceuticals(1) $1,083.4 $736.6 47% $2,027.3 $1,809.8 12%
Consumer Healthcare (2) 149.0 143.4 4% 229.2 302.9 (24%)
-------- ------ --- -------- -------- ----
1,232.4 880.0 40% 2,256.5 2,112.7 7%
Corporate (3) (124.2) (108.3) 15% 634.3 (218.8) -
-------- ------ --- -------- -------- ----
Total $1,108.2 $771.7 44% $2,890.8 $1,893.9 53%
======== ====== === ======== ======== ====
(1) Pharmaceuticals for the 2003 second quarter and first half
included gains of $231.2 as a result of the divestiture of
product rights to ATIVAN, ISORDIL, DIAMOX, ZIAC, ZEBETA, AYGESTIN
and SONATA. Excluding these divestiture gains, Pharmaceuticals
income before taxes increased 16% for the 2003 second quarter and
decreased 1% for the 2003 first half.
(2) Consumer Healthcare for the 2003 second quarter and first half
included a gain of $34.0 related to the divestiture of ANACIN. In
addition, gains of $40.3 and $73.9 in the 2002 second quarter and
first half, respectively, related to a class action settlement
regarding price fixing by certain vitamin suppliers. Excluding
the divestiture and settlement gains, Consumer Healthcare income
before taxes increased 12% for the 2003 second quarter and
decreased 15% for the 2003 first half.
(3) Corporate for the 2003 first half included a first quarter gain
of $860.6 relating to the sale of Amgen shares. Excluding the
gain on the sale of Amgen shares from the 2003 first half
results, Corporate expenses, net increased 3%.
Worldwide pharmaceutical income before taxes increased 47% for the
2003 second quarter and 12% for the 2003 first half due primarily to
higher other income, as a result of gains from the divestiture of
certain products, lower selling, general and administrative expenses
and research and development expenses offset, in part, by lower gross
profit margins earned on worldwide sales of human pharmaceuticals.
Worldwide consumer healthcare income before taxes increased 4% for the
2003 second quarter and decreased 24% for the 2003 first half while
consumer healthcare sales increased 12% and 10% for the 2003 second
quarter and first half, respectively. This difference between sales
growth and the growth of income before taxes for the 2003 second
quarter is primarily attributable to lower gross profit margins earned
on worldwide sales of consumer healthcare products and higher selling,
general and administrative expenses as a result of increased marketing
expenses associated with the launch of ALAVERT and ADVIL ALLERGY
SINUS. The 2003 first half difference was additionally impacted by the
non-recurrence of income received in 2002 in
21
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Six Months Ended June 30, 2003
connection with a class action settlement gain relating to price
fixing by certain vitamin suppliers.
Corporate expenses, net, increased 15% for the 2003 second quarter and
3% for the 2003 first half, excluding the 2003 first quarter gain of
$860.6 million from the sale of the Company's remaining Amgen shares.
The increase in corporate expenses, net is due primarily to higher
general expenses related to increased pension expense, general
insurance and other employee benefit expenses offset, in part, by
lower interest expense resulting from lower weighted average debt
outstanding as compared with prior year levels.
The effective tax rate remained flat at 22.0% for both the 2003 second
quarter and first half, excluding the 2003 first quarter gain on the
sale of the Company's remaining Amgen shares, compared with 22.3% for
both the 2002 second quarter and first half.
Consolidated Net Income and Diluted Earnings Per Share Results
Net income and diluted earnings per share for the 2003 second quarter
increased to $864.4 million and $0.65 compared with $599.9 million and
$0.45 in the prior year, both increases of 44%. The increases in net
income and diluted earnings per share for the 2003 second quarter were
greater than the growth rate in net revenue due primarily to higher
other income, as a result of gains from the divestiture of certain
pharmaceutical and consumer healthcare products and lower interest
expense, which factors were partially offset by higher costs of goods
sold, as a percentage of net revenue.
Net income and diluted earnings per share each increased 46% for the
2003 first half to $2,142.3 million and $1.61, respectively, compared
with $1,471.8 million and $1.10 in the prior year. The 2003 first half
net income and diluted earnings per share included a first quarter
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 half results, net income
and diluted earnings per share for the 2003 first half each increased
8% to $1,583.6 million and $1.19 compared with the 2002 first half.
Higher net income for the 2003 first half, excluding the Amgen gain,
was affected by the same items that impacted the 2003 second quarter
results, which included higher other income and lower interest
expense, partially offset by a less profitable product mix and higher
manufacturing costs, as well as higher selling, general and
administrative expenses.
22
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Six Months Ended June 30, 2003
Liquidity, Financial Condition and Capital Resources
Cash flows provided by operating activities totaling $950.4 million
during the 2003 first half were generated primarily by earnings of
$991.6 million (which excludes non-cash gains related to the sale of
the remaining Amgen shares and sales of other assets) and proceeds of
$126.2 million relating to improved collections on outstanding
accounts receivable. Driving the cash outflows were payments of $248.4
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, an
increase in inventories of $326.4 million due primarily to production
planning impacted cash outflows.
The Company generated $981.2 million of cash from investing activities
during the 2003 first half 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 $1,402.0
million for investments in property, plant and equipment and
marketable securities. The capital expenditures made during the 2003
first half were consistent with the Company's commitment to expand
existing manufacturing and research and development facilities
worldwide, and build new biotechnology facilities.
The Company received proceeds of $1,800.0 million from the issuance of
two tranches of Notes in February 2003 (see Note 2 to the consolidated
condensed financial statements). These proceeds were offset by cash
used for financing activities relating to repayments of commercial
paper and other borrowing transactions totaling $3,356.1 million and
dividend payments of $610.6 million.
At June 30, 2003, the Company had outstanding $6,927.0 million in
total debt. The Company's total debt consisted of commercial paper of
$457.7 million, and notes payable and other debt of $6,469.3 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 June 30, 2003, classified as
Loans payable, consisted of $511.8 million of notes payable and other
debt that is due within one year. All of the commercial paper
outstanding at June 30, 2003 was supported by the Company's new credit
facilities, totaling $2,700.0 million, and is classified as Long-term
debt.
Subject to the uncertainty in predicting the outcome of litigation
(see Note 3 to the consolidated condensed financial statements),
management believes 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.
23
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Six Months Ended June 30, 2003
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. In July 2002, 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 indication of the product.
Additional analyses of data from the HRT subset of the WHI study,
including data on stroke, cognition, dementia, and breast cancer
characteristics have been released during 2003, and further analyses
of WHI data are expected to be released in the future.
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 72% and 36%,
respectively, compared to the average weekly prescriptions written
during the eight-week period preceding the termination of the study
subset. PREMPRO sales (including PREMPHASE) for the three and six
months ended June 30, 2003 represented approximately 1% and 2%,
respectively, of consolidated net revenue.
24
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Six Months Ended June 30, 2003
Set forth below are individual product operating results for both
PREMPRO/PREMPHASE and PREMARIN for the three and six months ended
June 30, 2003 and 2002.
Prempro/Premphase
Three Months Six Months
Ended June 30, Ended June 30,
(In millions) 2003 2002 2003 2002
Net revenue $22.1 $171.5 $165.0 $387.6
Gross profit (*) (8.4) 147.2 115.1 332.9
Premarin
Three Months Six Months
Ended June 30, Ended June 30,
(In millions) 2003 2002 2003 2002
Net revenue $254.4 $273.9 $514.2 $733.3
Gross profit 223.5 247.0 456.7 676.1
(*) The Company recorded a $60.0 reserve in the 2003 second quarter
for anticipated returns in connection with a projected shift in
prescriptions toward the recently approved lower dosage forms of
PREMARIN and PREMPRO.
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
25
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Six Months Ended June 30, 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. In June 2003, a competitor company announced that it had filed
an Abbreviated New Drug Application for approval of a generic version
of PREMARIN allegedly made from the same natural source; the Company
cannot predict the timing or outcome of the approval process.
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, Quarterly Report on Form 10-Q for the quarter
ended March 31, 2003 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
26
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Six Months Ended June 30, 2003
liabilities are reviewed and adjusted as additional information
becomes available. In 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 one or
more accounting periods.
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
27
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Six Months Ended June 30, 2003
undertake no obligation to publicly update or revise any
forward-looking statements, 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.
28
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