American Home Products Corporation

Harvard Business School

Case Software 2-292-701
Copyright (c) 1989 by the President and Fellows of Harvard College.
Developed in conjunction with MicroMentor, Inc., Cambridge, MA.
This case was prepared as a basis for class discussion rather than
to illustrate either effective or ineffective handling of an
administrative situation.

EXHIBIT 1Selected Financial Data for American Home Products

Corporation 1972-1981

Sales ($ mill)
Cash
Total Debt
Net Worth
Total Assets ($ mill)
Net income ($ mill)
Earnings per share
Dividends per share

1972
$1,587.1
---1042
172.7
1.08
$0.59

Annual Growth in Sales -Annual Growth in EPS

-Dividend Payout Ratio 54.6%
After Tax Profit Margin 10.9%
Return on Equity
25.9%

1973
$1,784.4
---1126
199.2
1.25
$0.63

1974
$2,048.7
---1241.6
225.6
1.42
$0.78

1975
$2,258.6
---1390.7
250.7
1.58
$0.90

More -->
1976
$2,471.7
358.8
7.8
991.5
1510.9
277.9
1.75
$1.00

1977
$2,685.1
322.9
10.3
1035.3
1611.3
306.2
1.94
$1.15

1978
$3,062.6
436.6
13.7
1178
1862.2
348.4
2.21
$1.33

1979
$3,406.3
493.8
10.3
1322
2090.7
396
2.51
$1.50

12.4%
15.7%
50.0%
11.2%
28.2%

14.8%
13.6%
54.7%
11.0%
28.2%

10.2%
11.3%
57.0%
11.1%
27.9%

9.4%
10.8%
57.1%
11.2%
28.0%

8.6%
10.9%
59.3%
11.4%
29.5%

14.1%
13.9%
60.0%
11.4%
29.6%

11.1%
13.6%
59.8%
11.6%
30.0%

1980
$3,798.5
593.3
13.9
1472.8
2370.3
445.9
2.84
$1.70

1981
$4,131.2
729.1
16.6
1654.5
2588.5
497.3
3.18
$1.90

11.7%
13.1%
60.0%
11.7%
30.3%

8.8%
12.0%
59.7%
12.0%
30.1%

EXHIBIT 2Comparison Data for American Home Products and

Warner-Lambert, 1980 ($ million except for per share
and ratio data)
American
Home
WarnerProducts
Lambert
Corp. Company
Sales
$3,798.5
$3,479.2
5-yr compound annual growth rate
11.0%
9.9%
Profit after tax
445.9
192.7
5-yr compound annual growth rate
12.2%
3.3%
Cash and Equivalents
Accounts Receivable
Inventory
Net Propert, plant and equipment
Other
Total Assets
Total Debt
Net Worth

$593.3
517.3
557.3
450.5
251.9
2370.3
13.9
$1,472.8

$360.3
541.5
645.8
827.1
582.5
2957.2
710.1
$1,482.7

Earnings per share

5-yr compound annual growth rate
Dividends per share
5-yr compound annual growth rate
Stock Price (end of 1980)
Price/Earnings Ratio

$2.84
12.40%
$1.70
13.6%
$30
10.6

$2.41
3.00%
$1.32
8.0%
$20
8.3

Profit Margin (profit after tax/sales)

Return on Equity
Interest Coverage (times)
Ratio of Total Debt to Total Capital
Bond Rating (a)

11.7%
30.3%
436.6X
0.9%
AAA

5.5%
13.0%
5.0X
32.4%
AAA/AA

(a) Warner-Lambert's debt was rated triple A but analysts felt

the firm was close to being downgraded to double A.

EXHIBIT 3

Sales
EBIT (a)
Interest
PROFIT BEFORE TAXES
Taxes
PROFIT AFTER TAXES
Dividends on Pfd. Stock
Earnings Available to
Common Shareholders
Dividnds on Common Stock
Average Common Shares
Outstanding (millions)
Earnings per Share
Dividends per Share

BEGINNING OF YEAR:
Cash and Equivalents
Total Debt
Net Worth
Common Stock Price
Aggregate Market Value
of Common Stock

Pro Forma 1981 Results for Alternative Capital

Structure ($ millions except per share data)
--------Pro Forma 1981 for-----Actual 30% Debt 50% Debt 70% Debt
1981
--------- to Total Capital ------$4,131.2 $4,131.2 $4,131.2 $4,131.2
954.8
922.2
922.2
922.2
2.3
52.7
87.8
122.9
952.5
869.5
834.4
799.3
455.2
417.4
400.5
383.7
497.3
452.1
433.9
415.6
0.4
0.4
0.4
0.4
496.9
$295.3

451.7
$271.0

433.5
$260.1

415.2
$249.1

155.5
$3.18
$1.90

135.7
$3.33
$2.00

127.3
$3.41
$2.04

118.9
$3.49
$2.10

$593.30
13.9
$1,472.8
$30
$4,665.0

After recapitalization
$360.30 $360.30 $360.30
376.1
626.8
877.6
$877.6
$626.9
$376.1
-----

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(a) EBIT is reduced in pro forma results due to the loss of

interest income from the $233 million in excess cash used to
repurchase stock.

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