Wyeth · 10-Q · For 6/30/04
Filed On 8/9/04 3:32pm ET · SEC File 1-01225 · Accession Number 5187-4-104
As Of Filer Filing As/For/On Docs:Pgs
8/09/04 Wyeth 10-Q 6/30/04 7:81
Document/Exhibit Description Pages Size
1: 10-Q Quarterly Report 62 302K
2: EX-10.1 Executive Retirement Plan 11± 45K
3: EX-12 Statement re: Computation of Ratios 2± 10K
4: EX-31.1 Certification per Sarbanes-Oxley Act (Section 302) 2 10K
5: EX-31.2 Certification per Sarbanes-Oxley Act (Section 302) 2 10K
6: EX-32.1 Certification per Sarbanes-Oxley Act (Section 906) 1 6K
7: EX-32.2 Certification per Sarbanes-Oxley Act (Section 906) 1 6K
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended Commission file number 1-1225
June 30, 2004
Wyeth
-----
(Exact name of registrant as specified in its charter)
Delaware 13-2526821
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Five Giralda Farms, Madison, N.J. 07940
--------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (973) 660-5000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
------ --
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes X No
------ --
The number of shares of Common Stock outstanding as of the close of business on
July 30, 2004:
Number of
Class Shares Outstanding
----- ------------------
Common Stock, $0.33-1/3 par value 1,333,808,583
================================================================================
WYETH
INDEX
Page No.
--------
Part I - Financial Information (Unaudited) 2
Item 1. Consolidated Condensed Financial Statements:
Consolidated Condensed Balance Sheets -
June 30, 2004 and December 31, 2003 3
Consolidated Condensed Statements of Operations -
Three and Six Months Ended June 30, 2004 and 2003 4
Consolidated Condensed Statements of Changes in
Stockholders' Equity - Six Months Ended
June 30, 2004 and 2003 5
Consolidated Condensed Statements of Cash Flows -
Six Months Ended June 30, 2004 and 2003 6
Notes to Consolidated Condensed Financial Statements 7-24
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 25-47
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 48
Item 4. Controls and Procedures 48
Part II - Other Information 49
Item 1. Legal Proceedings 49-56
Item 4. Submission of Matters to a Vote of Security Holders 57
Item 6. Exhibits and Reports on Form 8-K 58-59
Signature 60
Exhibit Index EX-1
Items other than those listed above have been omitted because they are not
applicable.
1
Part I - Financial Information
------------------------------
WYETH
The consolidated condensed financial statements included herein have been
prepared by Wyeth (the Company), without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission (SEC). Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States
have been condensed or omitted pursuant to such rules and regulations; however,
the Company believes that the disclosures are adequate to make the information
presented not misleading. In the opinion of management, the consolidated
condensed financial statements reflect all adjustments, including those that are
normal and recurring, considered necessary to present fairly the financial
position of the Company as of June 30, 2004 and December 31, 2003, the results
of its operations for the three and six months ended June 30, 2004 and 2003, and
changes in stockholders' equity and cash flows for the six months ended June 30,
2004 and 2003. It is suggested that these consolidated condensed financial
statements and management's discussion and analysis of financial condition and
results of operations be read in conjunction with the financial statements and
the notes thereto included in the Company's 2003 Annual Report on Form 10-K,
Quarterly Report on Form 10-Q for the quarter ended March 31, 2004 and
information contained in Current Reports on Form 8-K filed since the filing of
the 2003 Form 10-K.
We make available through our Company Internet website, free of charge, our
Company filings with the SEC as soon as reasonably practicable after we
electronically file them with, or furnish them to, the SEC. The reports we make
available include Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q,
Current Reports on Form 8-K, proxy statements, registration statements, and any
amendments to those documents. The Company's Internet website is www.wyeth.com.
2
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WYETH
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands Except Per Share Amounts)
(Unaudited)
June 30, December 31,
2004 2003
----------- ------------
ASSETS
Cash and cash equivalents $4,315,184 $6,069,794
Marketable securities 1,678,643 1,110,297
Accounts receivable less allowances 2,635,054 2,529,613
Inventories:
Finished goods 803,563 821,637
Work in progress 1,229,837 1,141,916
Materials and supplies 351,231 448,631
----------- ------------
2,384,631 2,412,184
Other current assets including deferred taxes 2,854,054 2,840,354
----------- ------------
Total Current Assets 13,867,566 14,962,242
Property, plant and equipment 12,029,364 11,686,252
Less accumulated depreciation 3,243,511 3,025,201
----------- ------------
8,785,853 8,661,051
Goodwill 3,810,140 3,817,993
Other intangibles, net of accumulated amortization
(June 30, 2004-$142,458 and December 31, 2003-$128,137) 120,110 133,134
Other assets including deferred taxes 3,350,175 3,457,502
----------- ------------
Total Assets $29,933,844 $31,031,922
=========== ============
LIABILITIES
Loans payable $334,676 $1,512,845
Trade accounts payable 880,554 1,010,749
Dividends payable 306,771 -
Accrued expenses 5,239,102 5,461,835
Accrued federal and foreign taxes 344,200 444,081
----------- ------------
Total Current Liabilities 7,105,303 8,429,510
Long-term debt 7,592,038 8,076,429
Accrued postretirement benefit obligations other than pensions 1,028,910 1,007,540
Other noncurrent liabilities 4,292,605 4,224,062
Contingencies and commitments (Note 7)
STOCKHOLDERS' EQUITY
$2.00 convertible preferred stock, par value $2.50 per share 41 42
Common stock, par value $0.33-1/3 per share 444,572 444,151
Additional paid-in capital 4,797,529 4,764,390
Retained earnings 4,768,813 4,112,285
Accumulated other comprehensive loss (95,967) (26,487)
----------- ------------
Total Stockholders' Equity 9,914,988 9,294,381
----------- ------------
Total Liabilities and Stockholders' Equity $29,933,844 $31,031,922
=========== ============
The accompanying notes are an integral part of these consolidated condensed financial statements.
3
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WYETH
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In Thousands Except Per Share Amounts)
(Unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
----------------------- -----------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
Net revenue $4,223,205 $3,746,556 $8,237,994 $7,435,613
---------- ---------- ---------- ----------
Cost of goods sold 1,130,033 1,019,895 2,227,949 1,948,199
Selling, general and administrative expenses 1,427,494 1,362,022 2,781,704 2,653,492
Research and development expenses 584,255 500,851 1,289,557 1,014,365
Interest expense, net 31,896 25,878 58,828 52,878
Other income, net (13,551) (270,302) (127,013) (263,567)
Gain on sale of Amgen common stock - - - (860,554)
---------- ---------- ---------- ----------
Income before federal and foreign taxes 1,063,078 1,108,212 2,006,969 2,890,800
Provision for federal and foreign taxes 235,733 243,807 429,921 748,513
---------- ---------- ---------- ----------
Net income $827,345 $864,405 $1,577,048 $2,142,287
========== ========== ========== ==========
Basic earnings per share $0.62 $0.65 $1.18 $1.61
========== ========== ========== ==========
Diluted earnings per share $0.62 $0.65 $1.18 $1.61
========== ========== ========== ==========
Dividends paid per share of common stock $0.23 $0.23 $0.46 $0.46
========== ========== ========== ==========
Dividends declared per share of common stock $0.46 $0.46 $0.69 $0.69
========== ========== ========== ==========
The accompanying notes are an integral part of these consolidated condensed financial statements.
4
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WYETH
CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In Thousands Except Per Share Amounts)
(Unaudited)
Six Months Ended June 30, 2004:
$2.00 Accumulated
Convertible Additional Other Total
Preferred Common Paid-in Retained Comprehensive Stockholders'
Stock Stock Capital Earnings Loss Equity
----------- -------- ---------- ---------- ------------- -------------
Balance at January 1, 2004 $42 $444,151 $4,764,390 $4,112,285 $(26,487) $9,294,381
Net income 1,577,048 1,577,048
Currency translation adjustments (83,008) (83,008)
Unrealized gains on derivative contracts, net 26,159 26,159
Unrealized losses on marketable securities, net (12,631) (12,631)
-------------
Comprehensive income, net of tax 1,507,568
-------------
Cash dividends declared (1) (920,083) (920,083)
Common stock issued for stock options 327 25,257 25,584
Other exchanges (1) 94 7,882 (437) 7,538
----------- -------- ---------- ---------- ------------- -------------
Balance at June 30, 2004 $41 $444,572 $4,797,529 $4,768,813 $(95,967) $9,914,988
=========== ======== ========== ========== ============= =============
Six Months Ended June 30, 2003:
$2.00 Accumulated
Convertible Additional Other Total
Preferred Common Paid-in Retained Comprehensive Stockholders'
Stock Stock Capital Earnings Loss Equity
----------- -------- ---------- ---------- ------------- -------------
Balance at January 1, 2003 $46 $442,019 $4,582,773 $3,286,645 $(155,571) $8,155,912
Net income 2,142,287 2,142,287
Currency translation adjustments 421,842 421,842
Unrealized losses on derivative contracts, net (14,014) (14,014)
Unrealized gains on marketable securities, net 6,206 6,206
Realized gain on sale of Amgen stock
reclassified to net income (515,114) (515,114)
-------------
Comprehensive income, net of tax 2,041,207
-------------
Cash dividends declared (2) (916,761) (916,761)
Common stock issued for stock options 1,617 87,489 89,106
Other exchanges (2) 57 17,202 (1,908) 15,349
----------- -------- ---------- ---------- ------------- -------------
Balance at June 30, 2003 $44 $443,693 $4,687,464 $4,510,263 $(256,651) $9,384,813
=========== ======== ========== ========== ============= =============
(1) Included in cash dividends declared were the following dividends payable at June 30, 2004:
- Common stock cash dividend of $0.23 per share ($306,755 in the aggregate) declared on June 16, 2004 and payable on
September 1, 2004; and
- Preferred stock cash dividends of $0.50 per share ($16 in the aggregate) declared on April 22, 2004 and paid on
July 1, 2004 and declared on June 16, 2004 and payable on October 1, 2004.
(2) Included in cash dividends declared were the following dividends payable at June 30, 2003:
- Common stock cash dividend of $0.23 per share ($306,148 in the aggregate) declared on June 25, 2003 and paid on
September 1, 2003; and
- Preferred stock cash dividends of $0.50 per share ($18 in the aggregate) declared on April 24, 2003 and paid on
July 1, 2003 and declared on June 25, 2003 and paid on October 1, 2003.
The accompanying notes are an integral part of these consolidated condensed financial statements.
5
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WYETH
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Six Months
Ended June 30,
--------------------------
2004 2003
---------- ----------
Operating Activities
--------------------
Net income $1,577,048 $2,142,287
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on sale of Amgen shares - (860,554)
Gains on sales of assets (167,165) (290,154)
Depreciation and amortization 301,076 262,589
Change in deferred income taxes 94,039 (7,344)
Diet drug litigation payments (255,173) (248,434)
Security fund deposit - (535,200)
Changes in working capital, net (588,124) 459,299
Other items, net 243,185 27,891
---------- ----------
Net cash provided by operating activities 1,204,886 950,380
---------- ----------
Investing Activities
--------------------
Purchases of property, plant and equipment (589,227) (792,265)
Proceeds from sale of Amgen common stock - 1,579,917
Proceeds from sales of assets 315,921 317,973
Proceeds from sales and maturities of marketable securities 374,596 485,306
Purchases of marketable securities (959,459) (609,717)
---------- ----------
Net cash provided by (used for) investing activities (858,169) 981,214
---------- ----------
Financing Activities
--------------------
Net repayments of commercial paper - (3,329,485)
Proceeds from issuance of long-term debt - 1,800,000
Repayments of long-term debt (1,500,000) -
Other borrowing transactions, net (6,720) (26,573)
Dividends paid (613,312) (610,595)
Exercises of stock options 25,584 89,106
---------- ----------
Net cash used for financing activities (2,094,448) (2,077,547)
---------- ----------
Effect of exchange rate changes on cash and cash equivalents (6,879) 18,969
---------- ----------
Decrease in cash and cash equivalents (1,754,610) (126,984)
Cash and cash equivalents, beginning of period 6,069,794 2,943,604
---------- ----------
Cash and cash equivalents, end of period $4,315,184 $2,816,620
========== ==========
Supplemental Information
------------------------
Interest payments $106,625 $160,510
Income tax payments, net of refunds 424,123 312,927
The accompanying notes are an integral part of these consolidated condensed financial statements.
6
WYETH
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Summary of Significant Accounting Policies
------------------------------------------
The following policies are required interim updates to those disclosed
in Footnote 1 of the 2003 Annual Report on Form 10-K:
Stock-Based Compensation: The Company has three Stock Incentive Plans
that it accounts for using the intrinsic value method in accordance
with APB Opinion No. 25, Accounting for Stock Issued to Employees. All
options granted under these plans have an exercise price equal to the
market value of the underlying common stock on the date of grant.
Accordingly, no stock-based employee compensation cost is reflected in
net income other than for the Company's restricted stock awards. The
following table illustrates the effect on net income and earnings per
share if the Company had applied the fair value recognition provisions
of SFAS No. 123, Accounting for Stock-Based Compensation as amended by
SFAS No. 148, Accounting for Stock-Based Compensation - Transition and
Disclosure, Amendment of SFAS No. 123, to stock-based employee
compensation:
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Three Months Six Months
Ended June 30, Ended June 30,
-------------------- ------------------------
(In thousands except per share amounts) 2004 2003 2004 2003
------------------------------------------ -------- -------- ---------- ----------
Net income, as reported $827,345 $864,405 $1,577,048 $2,142,287
Add: Stock-based employee compensation
expense included in reported net income,
net of tax 3,875 6,763 6,368 8,079
Deduct: Total stock-based employee
compensaton expense determined
under fair value-based method for all
awards, net of tax (76,185) (79,941) (161,328) (163,632)
-------- -------- ---------- ----------
Adjusted net income $755,035 $791,227 $1,422,088 $1,986,734
======== ======== ========== ==========
Earnings per share:
Basic - as reported $0.62 $0.65 $1.18 $1.61
======== ======== ========== ==========
Basic - adjusted $0.57 $0.60 $1.07 $1.50
======== ======== ========== ==========
Diluted - as reported $0.62 $0.65 $1.18 $1.61
======== ======== ========== ==========
Diluted - adjusted $0.56 $0.59 $1.06 $1.49
======== ======== ========== ==========
7
WYETH
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Goodwill and Other Intangibles: In accordance with SFAS No. 142,
Goodwill and Other Intangible Assets, the changes in the carrying
amount of goodwill by reportable segment for the six months ended June
30, 2004 are as follows:
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Consumer Animal
(In thousands) Pharmaceuticals Healthcare Health Total
-------------------------------- --------------- ---------- -------- ----------
Balance at December 31, 2003 $2,691,772 $592,526 $533,695 $3,817,993
Currency translation adjustments (7,455) (243) (155) (7,853)
---------- -------- -------- ----------
Balance at June 30, 2004 $2,684,317 $592,283 $533,540 $3,810,140
========== ======== ======== ==========
The Company's other intangibles consist primarily of license
agreements which are being amortized over their estimated useful lives
ranging from three to 10 years.
Note 2. Earnings per Share
------------------
The following table sets forth the computations of basic earnings per
share and diluted earnings per share:
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Three Months Six Months
Ended June 30, Ended June 30,
---------------------- ------------------------
(In thousands except per share amounts) 2004 2003 2004 2003
--------------------------------------- --------- --------- ---------- ----------
Net income less preferred dividends $827,329 $864,387 $1,577,024 $2,142,260
Denominator:
Weighted average common shares
outstanding 1,333,505 1,329,333 1,333,215 1,328,238
--------- --------- ---------- ----------
Basic earnings per share $0.62 $0.65 $1.18 $1.61
========= ========= ========== ==========
Net income $827,345 $864,405 $1,577,048 $2,142,287
Denominator:
Weighted average common shares
outstanding 1,333,505 1,329,333 1,333,215 1,328,238
Common stock equivalents of
outstanding stock options and
deferred contingent common stock
awards* 3,646 5,853 4,232 5,068
--------- --------- ---------- ----------
Total shares* 1,337,151 1,335,186 1,337,447 1,333,306
--------- --------- ---------- ----------
Diluted earnings per share* $0.62 $0.65 $1.18 $1.61
========= ========= ========== ==========
* At June 30, 2004 and 2003, 128,502 and 86,789, respectively, of
common shares related to options outstanding under the Company's
Stock Incentive Plans were excluded from the computation of
diluted earnings per share, as the effect would have been
antidilutive.
8
WYETH
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 3. Marketable Securities
---------------------
The Company has marketable debt and equity securities, which are
classified as either available-for-sale or held-to-maturity, depending
on management's investment intentions relating to these securities.
The cost, gross unrealized gains (losses) and fair value of
available-for-sale and held-to-maturity securities by major security
type at June 30, 2004 and December 31, 2003 were as follows:
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Gross Gross
(In thousands) Unrealized Unrealized Fair
At June 30, 2004 Cost Gains (Losses) Value
---------------------------------- ---------- ---------- ---------- ----------
Available-for-sale:
U.S. Treasury securities $81,063 $25 $(599) $80,489
Commercial paper 50,742 - (11) 50,731
Certificates of deposit 114,585 11 (169) 114,427
Corporate debt securities 196,131 122 (169) 196,084
Other debt securities 2,527 - (15) 2,512
Equity securities 47,493 7,083 (4,813) 49,763
Institutional fixed income fund 528,550 15,883 (2,967) 541,466
---------- ---------- ---------- ----------
Total available-for-sale 1,021,091 23,124 (8,743) 1,035,472
---------- ---------- ---------- ----------
Held-to-maturity:
Commercial paper 449,493 - - 449,493
Certificates of deposit 144,461 - - 144,461
Other debt securities 49,217 - - 49,217
---------- ---------- ---------- ----------
Total held-to-maturity 643,171 - - 643,171
---------- ---------- ---------- ----------
$1,664,262 $23,124 $(8,743) $1,678,643
========== ========== ========== ==========
Gross Gross
(In thousands) Unrealized Unrealized Fair
At December 31, 2003 Cost Gains (Losses) Value
---------------------------------- ---------- ---------- ---------- ----------
Available-for-sale:
U.S. Treasury securities $152,851 $44 $(23) $152,872
Commercial paper 42,964 4 (4) 42,964
Certificates of deposit 63,643 22 (27) 63,638
Corporate debt securities 212,198 252 (32) 212,418
Other debt securities 4,296 - (11) 4,285
Equity securities 21,078 13,158 (188) 34,048
Institutional fixed income fund 522,847 16,868 - 539,715
---------- ---------- ---------- ----------
Total available-for-sale 1,019,877 30,348 (285) 1,049,940
---------- ---------- ---------- ----------
Held-to-maturity:
Commercial paper 60,107 - - 60,107
Certificates of deposit 250 - - 250
---------- ---------- ---------- ----------
Total held-to-maturity 60,357 - - 60,357
---------- ---------- ---------- ----------
$1,080,234 $30,348 $(285) $1,110,297
========== ========== ========== ==========
9
WYETH
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
The contractual maturities of debt securities classified as
available-for-sale at June 30, 2004 were as follows:
Fair
(In thousands) Cost Value
---------------------------------------- -------- --------
Available-for-sale:
Due within one year $266,809 $266,613
Due after one year through five years 167,098 166,505
Due after five years through 10 years - -
Due after 10 years 11,141 11,125
-------- --------
$445,048 $444,243
======== ========
All held-to-maturity debt securities are due within one year and had
aggregate fair values of $643.2 million at June 30, 2004.
Note 4. New Credit Facility
-------------------
In February 2004, the Company replaced its $1,350.0 million, 364-day
credit facility entered into in March 2003 with a $1,747.5 million,
five-year facility. The new facility contains substantially identical
financial and other covenants, representations, warranties, conditions
and default provisions as the replaced facility.
10
WYETH
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 5. Pensions and Other Postretirement Benefits
------------------------------------------
In accordance with SFAS No. 132 (revised 2003), Employers' Disclosures
about Pensions and Other Postretirement Benefits, an amendment of FASB
Statement Nos. 87, 88, and 106, the following pension and other
postretirement benefit plan disclosures are now required in interim
financial statements.
Net periodic benefit cost for the Company's defined benefit plans for
the three and six months ended June 30, 2004 and 2003 (principally
U.S.) was as follows:
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Pensions
-----------------------------------------------
Three Months Six Months
Ended June 30, Ended June 30,
(In thousands) ------------------- ---------------------
Components of Net Periodic Benefit Cost 2004 2003 2004 2003
--------------------------------------- ------- ------- -------- --------
Service cost $38,172 $29,627 $73,543 $59,380
Interest cost 65,896 62,465 128,189 124,435
Expected return on plan assets (78,843) (67,617) (155,147) (135,046)
Amortization of prior service cost 2,834 2,763 5,677 5,515
Amortization of transition obligation (405) (373) (827) (752)
Recognized net actuarial loss 27,691 26,081 50,154 52,128
Settlement loss - - - 13,034
------- ------- -------- --------
Net periodic benefit cost $55,345 $52,946 $101,589 $118,694
======= ======= ======== ========
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Other Postretirement Benefits
---------------------------------------------
Three Months Six Months
Ended June 30, Ended June 30,
(In thousands) ------------------- -------------------
Components of Net Periodic Benefit Cost 2004 2003 2004 2003
--------------------------------------- ------- ------- ------- -------
Service cost $10,550 $9,524 $21,695 $19,039
Interest cost 22,613 23,572 46,173 47,118
Amortization of prior service cost (4,478) (563) (8,187) (1,125)
Recognized net actuarial loss 3,771 4,676 11,611 9,347
------- ------- ------- -------
Net periodic benefit cost $32,456 $37,209 $71,292 $74,379
======= ======= ======= =======
As of June 30, 2004, $19.8 million and $50.1 million of contributions
have been made in 2004 to the Company's defined benefit pension plans
and other postretirement benefit plans, respectively. The Company
presently anticipates further contributions of approximately $256.0
million and $90.0 million to fund its defined benefit pension and
other postretirement benefit plans in 2004.
The Financial Accounting Standards Boards (FASB) Staff Position No.
106-2, Accounting and Disclosure Requirements Related to the Medicare
Prescription Drug, Improvement and Modernization Act of 2003, was
recently issued to provide guidance on the accounting for the effects
of the Medicare Prescription Drug, Improvement and Modernization Act
of 2003 (the Act). The Act provides for a federal subsidy to sponsors
of retiree health care benefit plans that provide a benefit that is at
least actuarially
11
WYETH
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
equivalent to Medicare Part D. The federal subsidy is based on 28% of
an individual beneficiary's annual prescription drug costs between
$250 and $5,000 (subject to indexing and the provisions of the Act as
to "allowable retiree costs"). Wyeth provides prescription drug
coverage to retirees meeting certain age and service requirements. For
retirees covered under the plan, the Company's management believes the
coverage provided by Wyeth affords retirees lower out-of-pocket costs
than would result if coverage were provided under Medicare Part D. As
such, the Company's management has concluded that Wyeth's plan is at
least actuarially equivalent to Medicare Part D.
The Company adopted FASB Staff Position No. 106-2 during the 2004
second quarter. Accordingly, the Company's postretirement benefit
obligation has been remeasured as of January 1, 2004 in order to
reflect the impact of the Act. As a result of the remeasurement, an
unrecognized actuarial gain was realized during the 2004 second
quarter, which reduced the Company's accumulated postretirement
benefit obligation by approximately $195.4 million. This unrecognized
actuarial gain is being amortized over the average working life (which
approximates 10 years) of the Company's employees eligible for
postretirement benefits beginning January 1, 2004. The effect of the
Act also decreased the Company's 2004 first half postretirement
benefits expense by approximately $15.4 million. This reduction
consisted of lower service and interest costs of $3.0 million and $6.1
million, respectively, as well as decreased amortization of $6.3
million related to recognized actuarial losses.
Note 6. Restructuring Program
---------------------
2003 Restructuring Charge and Related Asset Impairments
In December 2003, the Company recorded a special charge for
manufacturing restructurings and related asset impairments of $487.9
million. The Company recorded these restructuring charges,
including personnel and other costs, in accordance with SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal Activities, and
its asset impairments in accordance with SFAS No. 144, Accounting for
the Impairment of Long-Lived Assets. The restructuring charges and
related asset impairments impacted only the Pharmaceuticals segment
and were recorded to recognize the costs of closing certain
manufacturing facilities, as well as the elimination of certain
positions at the Company's facilities. As of June 30, 2004, the
Company is continuing with the 2003 restructuring program. The
majority of the contract settlement costs are scheduled to be paid
over an extended period of time based on the contractual terms of the
agreements, which extend through 2005.
12
WYETH
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
The activity in the restructuring accruals was as follows:
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Reserve at Payments/ Reserve at
(In thousands) Total December 31, Non-cash June 30,
2003 Restructuring Charges 2003 Charges 2004
------------------------- -------- ------------ --------- ----------
Personnel costs $3,400 $3,400 $(2,700) $700
Asset impairments 419,400 - - -
Contract settlement costs 47,900 45,200 (4,300) 40,900
Other closure/exit costs 17,200 17,200 (16,300) 900
-------- ------------ --------- ----------
$487,900 $65,800 $(23,300) $42,500
======== ============ ========= ==========
2002 Restructuring Charge and Related Asset Impairments
In December 2002, the Company recorded a special charge for
restructuring and related asset impairments of $340.8 million to
recognize the costs of closing certain manufacturing facilities and
two research facilities, as well as the elimination of certain
positions at the Company's facilities. The Company recorded these
asset impairments in accordance with SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets and its restructuring
charges, including personnel and other costs, in accordance with EITF
No. 94-3, Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs
Incurred in a Restructuring).
The restructuring will ultimately result in the elimination of
approximately 3,150 positions worldwide. The reductions in workforce,
which are permanent and affected all of the Company's segments,
including Corporate, are substantially complete. As of June 30, 2004,
the Company is continuing with the 2002 restructuring program. The
timing of the remaining personnel costs to be paid has been delayed
since, in many instances, the terminated employees elected or were
required to receive their severance payments over an extended period
of time. However, substantially all of the payments are expected to be
made during 2004. The activity in the restructuring accruals was as
follows:
· Download Table
Payments/
Reserve at Non-cash Reserve at
(In thousands) Total December 31, Charges June 30,
2002 Restructuring Charges 2003 in 2004 2004
------------------------ -------- ------------ --------- ----------
Personnel costs $194,600 $36,800 $(17,500) $19,300
Asset impairments 68,700 - - -
Other closure/exit costs 77,500 27,900 (11,200) 16,700
-------- ------------ --------- ----------
$340,800 $64,700 $(28,700) $36,000
======== ============ ========= ==========
13
WYETH
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 7. Contingencies and Commitments
-----------------------------
The Company is involved in various legal proceedings, including
product liability and environmental matters, of a nature considered
normal to its business. It is the Company's policy to accrue for
amounts related to these legal matters if it is probable that a
liability has been incurred and an amount is reasonably estimable.
In the opinion of the Company, although the outcome of any legal
proceedings cannot be predicted with certainty, the ultimate liability
of the Company in connection with its legal proceedings (other than
the diet drug litigation discussed immediately below) will not have a
material adverse effect on the Company's financial position but could
be material to the results of operations or cash flows in any one
accounting period.
The Company has been named as a defendant in numerous legal actions
relating to the diet drugs PONDIMIN (which in combination with
phentermine, a product that was not manufactured, distributed or sold
by the Company, was commonly referred to as "fen-phen") or REDUX,
which the Company estimated were used in the United States, prior to
their 1997 voluntary market withdrawal, by approximately 5.8 million
people. These actions allege, among other things, that the use of
REDUX and/or PONDIMIN, independently or in combination with
phentermine, caused certain serious conditions, including valvular
heart disease.
On October 7, 1999, the Company announced a nationwide class action
settlement (the settlement) to resolve litigation brought against the
Company regarding the use of the diet drugs REDUX or PONDIMIN. The
settlement covered all claims arising out of the use of REDUX or
PONDIMIN, except for claims of primary pulmonary hypertension (PPH),
and was open to all REDUX or PONDIMIN users in the United States.
The number of individuals who have filed claims within the settlement
that allege significant heart valve disease (known as "matrix" claims)
has been higher than had been anticipated. The settlement agreement
grants the Company access to claims data maintained by the settlement
trust (the Trust). Based on its review of that data, the Company
understands that, as of July 14, 2004, the Trust had recorded
approximately 116,710 matrix claim forms. Approximately 31,380
of these forms were so deficient, incomplete or duplicative of other
forms filed by the same claimant that, in the Company's view, it is
unlikely that a significant number of these forms will result in
further claims processing.
The Company's understanding of the status of the remaining
approximately 85,330 forms, based on its analysis of data received
from the Trust through July 14, 2004, is as follows. Approximately
19,200 of the matrix claims had been processed to completion, with
those claims either paid (approximately 3,330 payments, totaling
$1,230.1 million, had been made to approximately 3,190 claimants),
denied or in show cause proceedings (approximately 14,340) or
withdrawn. Approximately 2,760 claims were in some stage of the 100%
audit process ordered in late 2002 by the federal court overseeing the
14
WYETH
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
national settlement. Approximately 16,980 claims alleged
conditions that, if true, would entitle the claimant to receive a
matrix award; these claims had not yet entered the audit process.
Another approximately 23,730 claims with similar allegations have been
purportedly substantiated by physicians or filed by law firms whose
claims are now subject to the outcome of the Trust's Claims Integrity
Program, discussed below. Approximately 22,490 claim forms did not
contain sufficient information even to assert a matrix claim, although
some of those claim forms could be made complete by the submission of
additional information and could therefore become eligible to proceed
to audit in the future. The remaining approximately 170 claims were in
the data entry process and could not be assessed.
In addition to the approximately 116,710 matrix claims filed as of
July 14, 2004, additional class members may progress to the matrix
stage through 2015 if they develop a matrix condition in the future,
have registered with the Trust by May 3, 2003, and have demonstrated
FDA+ regurgitation (i.e., mild or greater aortic regurgitation, or
moderate or greater mitral regurgitation) or mild mitral regurgitation
on an echocardiogram conducted after diet drug use and obtained either
outside of the Trust by January 3, 2003 or within the Trust's
screening program.
The Company's understanding, based on data received from the Trust
through July 14, 2004, is that audits had produced preliminary or
final results on 4,396 of the claims that had begun the 100% audit
process since its inception. Of these, 1,539 were found to be payable
at the amount claimed and 137 were found to be payable at a lower
amount than had been claimed. The remaining claims were found
ineligible for a matrix payment, although the claimants may appeal
that determination to the federal court overseeing the settlement.
Because of numerous issues concerning the audit process raised in
motions and related proceedings now pending before the federal court,
the Company cannot predict the ultimate outcome of the audit process.
Both the volume and types of claims seeking matrix benefits received
by the Trust to date differ materially from the epidemiological
projections on which the court's approval of the settlement agreement
was predicated. Based upon data received from the Trust, approximately
93% of the 16,980 matrix claimants who allege conditions that, if
true, would entitle them to an award (and approximately 98% of the
approximately 23,730 claims certified by physicians and/or law firms
currently subject to the Trust's Integrity Program) seek an award
under Level II of the five-level settlement matrix. (Level II covers
claims for moderate or severe mitral or aortic valve regurgitation
with complicating factors; depending upon the claimant's age at the
time of diagnosis, and assuming no factors are present that would
place the claim on one of the settlement's reduced payment matrices,
awards under Level II ranged from $192,111 to $643,500 on the
settlement agreement's payment matrix.)
An ongoing investigation, which the Company understands is being
conducted by counsel for the Trust, and discovery conducted to date by
the Company in connection with certain Intermediate and Back-End opt
out cases (brought by some of the same
15
WYETH
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
lawyers who have filed these Level II claims and supported by some of
the same cardiologists who have certified the Level II claims) cast
substantial doubt on the merits of many of these matrix claims and
their eligibility for a matrix payment from the Trust. Therefore, in
addition to the 100% audit process, the Trust has embarked upon a
Claims Integrity Program, which is designed to protect the Trust from
paying illegitimate or fraudulent claims.
Pursuant to the Claims Integrity Program, the Trust has required
additional information concerning matrix claims purportedly
substantiated by 18 identified physicians or filed by two law firms in
order to determine whether to permit those claims to proceed to audit.
Based upon data obtained from the Trust, the Company believes that
approximately 23,730 matrix claims were purportedly substantiated by
the 18 physicians and/or filed by the two law firms covered by the
Claims Integrity Program as of July 14, 2004. It is the Company's
understanding that additional claims substantiated by additional
physicians or filed by additional law firms might be subjected to the
same requirements of the Claims Integrity Program in the future. As an
initial step in the integrity review process, each of the identified
physicians has been asked to complete a comprehensive questionnaire
regarding each claim and the method by which the physician reached the
conclusion that it was valid. The ultimate disposition of any or all
claims that are subject to the Claims Integrity Program is at this
time uncertain. Counsel for certain claimants affected by the program
have challenged the Trust's authority to implement the Claims
Integrity Program and to require completion of the questionnaire
before determining whether to permit those claims to proceed to audit.
While that motion was denied by the court, additional challenges to
the Claims Integrity Program and to the Trust's matrix claim
processing have been filed.
In late 2003, the Trust adopted a program to prioritize the handling
of those matrix claims that it believed were least likely to be
illegitimate. Under the program, claims under Levels III, IV and V
were to be processed and audited on an expedited basis. (Level III
covers claims for heart valve disease requiring surgery to repair or
replace the valve, or conditions of equal severity. Levels IV and V
cover complications from, or more serious conditions than, heart valve
surgery.) The program prioritized the auditing of, inter alia, Level I
claims, all claims filed by a claimant without counsel (i.e., on a pro
se basis) and Level II claims substantiated by physicians who have
attested to fewer than 20 matrix claims.
On April 15, 2004, the Trust announced that it would cease temporarily
to audit or act on audit results of Level I and Level II matrix
claims. The Trust stated that it would continue to initiate audits
with respect to Level III, IV and V matrix claims and would continue
to act on the results of audits of Level III, IV and V claims. It also
announced that "[d]ue to concerns about the manner in which
echocardiograms have been taken, recorded and presented, the Trust is
reviewing all echocardiograms and related materials prior to payment
of claims on which they are based and, where possible, prior to
initiation of a medical audit. This will result in a temporary delay
in initiating audits and in payments following audit. Where the review
of the echocardiogram reveals substantial
16
WYETH
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
evidence of an intentional, material misrepresentation that calls into
question the validity of a claim, the Trust will not pay the claim."
In a joint motion filed in the U.S. District Court for the Eastern
District of Pennsylvania on May 4, 2004, the Company, counsel for the
plaintiff class in the nationwide settlement and counsel for a number
of individual class members moved to stay for 60 days the processing
and payment of Level I and Level II matrix claims and certain
associated court proceedings. That motion was granted by the court on
May 10, 2004. The stay was intended to provide the parties with an
opportunity to draft and submit to the court a Seventh Amendment to
the settlement agreement that would create a new claims processing
structure, funding arrangement and payment schedule for these claims.
On July 13, 2004, the District Court extended the stay, which had
expired on July 9, 2004, until July 21, 2004. On July 21, the parties
informed the Court that an agreement had been reached on the terms of
the proposed Seventh Amendment and that the parties had placed the
signed agreement in escrow with the Court's Special Master while the
parties finalized the exhibits to the agreement, including the
proposed Form of Notice to the class. At the parties' request, the
Court extended the stay on the processing and payment of Level I and
Level II claims until August 4, 2004. On August 5, the stay was again
extended, through August 10, 2004. If the parties file a motion for
preliminary approval of the proposed Seventh Amendment by August 10,
the stay will automatically be extended until the District Court
enters an order granting or denying that motion.
The proposed Seventh Amendment would require preliminary court
approval, notice to the class and an opportunity for class members to
opt out of the Seventh Amendment process, final agreement by the
Company following the opt out period, trial court approval and final
judicial approval. If finalized and approved, the proposed Seventh
Amendment would include the following key terms:
o The amendment would create a new Supplemental Fund, to be
administered by a Fund Administrator who will be appointed by the
District Court and who will process the Level I and Level II
matrix claims;
o The Company would make initial payments of up to $50.0 million to
facilitate the establishment of the Supplemental Fund. Following
approval by the federal court overseeing the settlement and any
appellate courts, the Company would make an initial payment of
$400.0 million. The timing of additional payments would be
dictated by the rate of review and payment of claims by the Fund
Administrator. The Company would ultimately deposit a total of
$1,275.0 million, net of certain credits, into the Supplemental
Fund;
o All current matrix Level I and II claimants who qualify under the
Seventh Amendment, who pass the Settlement Fund's medical review
and who otherwise satisfy the requirements of the settlement
would receive a pro rata share of the $1,275.0 million
Supplemental Fund, after deduction of certain expenses and other
amounts from the Supplemental Fund. The pro rata amount would
vary depending upon the number of claimants who pass medical
review, the nature of their claims, their age and other factors.
A Seventh Amendment participant who
17
WYETH
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
does not qualify for a payment after such medical review would be
paid $2,000 from the Supplemental Fund;
o Participating class members who would in the future have been
eligible to file Level I and Level II matrix claims would be
eligible to receive a $2,000 payment from the settlement Trust;
such payments would be funded by the Company apart from its other
funding obligations under the national settlement;
o If the participants in the Seventh Amendment have surgery or
other more serious medical conditions on Matrix Levels III-V by
the earlier of fifteen years from the date of their last diet
drug ingestion or by December 31, 2011, they would remain
eligible to submit claims to the existing settlement Trust and be
paid the current matrix amounts if they qualify for such payments
under terms modified by the Seventh Amendment. In the event the
existing settlement Trust is unable to pay those claims, the
Company would guarantee payment; and
o Class members would have the right to opt out of the Seventh
Amendment and to remain bound by the terms of the existing
national settlement. The Company, however, would have the right
to withdraw from the Seventh Amendment if participation by class
members is inadequate or for other reasons. All class members who
participate in the Seventh Amendment would give up any further
opt-out rights. Approval of the Seventh Amendment would also
preclude any lawsuits by the Trust or the Company to recover any
amounts previously paid to class members by the Trust, as well as
terminate the Claims Integrity Program as to all claimants who do
not opt out of the Seventh Amendment.
There can be no assurance that the Company will ultimately proceed
with the amendment (based upon the level of participation in the
amendment or for other reasons), or that the amendment will be
approved by the court and upheld on appeal.
The Trust has indicated that one of the goals of the Claims Integrity
Program referenced above is to recoup funds from those entities that
caused the Trust to pay illegitimate claims and the Trust has filed
two lawsuits to that end. The Trust has filed a suit alleging
violations of the Racketeer Influenced and Corrupt Organizations
(RICO) Act against a Kansas City cardiologist who attested under oath
to the validity of over 2,500 matrix claims. The suit alleges that the
cardiologist intentionally engaged in a pattern of racketeering
activity to defraud the Trust. The Trust has also filed a lawsuit
against a New York cardiologist who attested under oath to the
validity of 83 matrix claims, alleging that the cardiologist engaged
in, among other things, misrepresentation, fraud, conspiracy to commit
fraud, and gross negligence.
The Trust has filed a number of motions directed at the conduct of the
companies that performed the echocardiograms on which many matrix
claims are based. In a pair of motions related to the activities of a
company known as EchoMotion, the Trust has asked the court to stay
payment of claims already audited and found payable in whole or in
part if the echocardiogram was performed by EchoMotion and to
disqualify all echocardiograms by EchoMotion that have been used to
support matrix claims that have not yet been audited. In addition, the
Trust has filed a motion seeking discovery of 14
18
WYETH
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
specific companies whose echocardiograms support a large number of
claims to determine whether their practices violate the settlement.
The Trust has also moved to stay and/or disqualify claims brought by
claimants represented by certain law firms or attested to by certain
physicians. The Company has joined in certain of these motions and has
filed its own motions addressing the abuse of the matrix claims
process and seeking an emergency stay of claim processing. All of
these motions, as well as the Trust lawsuits referenced above, have
also been stayed pending the resolution of the outstanding issues
involving the proposed Seventh Amendment. As indicated above, approval
of the Seventh Amendment would result in the withdrawal of these
motions as to claimants who do not opt out of the Seventh Amendment.
The Company continues to monitor the progress of the Trust's audit
process and its Claims Integrity Program. Even if substantial progress
is made by the Trust, through its Claims Integrity Program or other
means, in reducing the number of illegitimate matrix claims, a
significant number of the claims which proceed to audit might be
interpreted as satisfying the matrix eligibility criteria,
notwithstanding the possibility that the claimants may not in fact
have serious heart valve disease. If so, notwithstanding any agreement
to, or approval of, the Seventh Amendment described above, matrix
claims found eligible for payment after audit may cause total payments
to exceed the $3,750.0 million cap of the settlement fund.
Should the settlement fund be exhausted, most of the matrix claimants
who filed their matrix claims on or before May 3, 2003 and who pass
the audit process at a time when there are insufficient funds to pay
their claims may pursue an additional opt out right created by the
Sixth Amendment to the settlement agreement, unless the Company first
elects, in its sole discretion, to pay the matrix benefit after audit.
Sixth Amendment opt out claimants may then sue the Company in the tort
system, subject to the settlement's limitations on such claims. In
addition to the limitations on all Intermediate and Back-End opt outs
(such as the prohibition on seeking punitive damages and the
requirement that the claimant sue only on the valve condition that
gave rise to the claim), a Sixth Amendment opt out may not sue any
defendant other than the Company and may not join his or her claim
with the claim of any other opt out. The Company cannot predict the
ultimate number of individuals who might be in a position to elect a
Sixth Amendment opt out or who may in fact elect to do so, but that
number could be substantial. Several class members affected by the
terms of the Sixth Amendment opposed the approval of the amendment on
the ground that, should the settlement fund be exhausted, they should
be entitled to pursue tort claims, including a claim for punitive
damages, without the limitations imposed by the Sixth Amendment. While
the District Court overruled those objections and approved the
amendment, the class members have appealed to the United States Court
of Appeals for the Third Circuit. That appeal has been fully briefed
and argued and is awaiting decision. The Company cannot predict the
outcome of this appeal.
Some individuals who registered to participate in the settlement by
May 3, 2003, who had demonstrated either FDA+ level regurgitation or
mild mitral regurgitation on an
19
WYETH
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
echocardiogram completed after diet drug use and conducted either
outside of the settlement prior to January 3, 2003 or within the
settlement's screening program, and who subsequently develop (at any
time before the end of 2015) a valvular condition that would qualify
for a matrix payment may elect to pursue a Back-End opt out. Such
individuals may pursue a Back-End opt out within 120 days of the date
on which they first discover or should have discovered their matrix
condition. The Company cannot predict the ultimate number of
individuals who may be in a position to elect a Back-End opt out or
who may in fact elect to do so, but that number could also be
substantial.
The Company's current understanding is that approximately 76,000
Intermediate opt out forms were submitted by May 3, 2003, the
applicable deadline for most class members (other than qualified class
members receiving echocardiograms through the Trust after January 3,
2003, who may exercise Intermediate opt out rights within 120 days
after the date of their echocardiogram). The number of Back-End opt
out forms received as of July 14, 2004 is estimated to be
approximately 20,000, although certain additional class members may
elect to exercise Back-End opt out rights in the future (under the
same procedure as described above) even if the settlement fund is not
exhausted. After eliminating forms that are duplicative of other
filings, forms that are filed on behalf of individuals who have
already either received payments from the Trust or settlements from
the Company, and forms that are otherwise invalid on their face, it
appears that approximately 77,000 individuals had filed Intermediate
or Back-End opt out forms as of July 14, 2004.
Purported Intermediate or Back-End opt outs (as well as Sixth
Amendment opt outs) who meet the settlement's medical eligibility
requirements may pursue lawsuits against the Company, but must prove
all elements of their claims - including liability, causation and
damages - without relying on verdicts, judgments or factual findings
made in other lawsuits. They also may not seek or recover punitive,
exemplary or multiple damages and may sue only for the valvular
condition giving rise to their opt out right. To effectuate these
provisions of the settlement, the federal court overseeing the
settlement had issued orders limiting the evidence that could be used
by plaintiffs in such cases. Those orders, however, were challenged on
appeal and were reversed by a panel of the U.S. Court of Appeals for
the Third Circuit in May 2004. The Company's petition to the Third
Circuit for a rehearing or rehearing en banc was subsequently denied.
The Company is considering a petition to the United States Supreme
Court for a writ of certiorari.
In addition to the specific matters discussed herein, the federal
court overseeing the national settlement has issued a number of
rulings concerning the processing of matrix claims and the rights of,
and limitations placed on, class members by the terms of the
settlement. Several of those rulings are being challenged on appeal.
Certain class members have also filed a number of motions and lawsuits
attacking both the binding effect of the settlement and the
administration of the Trust, some of which have been decided against
class members and are currently on appeal. The Company cannot predict
the outcome of any of these motions or lawsuits.
20
WYETH
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
As of July 19, 2004, approximately 53,000 individuals who had filed
Intermediate or Back-End opt out forms had served lawsuits on the
Company. The claims of approximately 42% of the plaintiffs in the
Intermediate and Back-End opt out cases served on the Company are
pending in federal court, with approximately 36% pending in state
courts. The claims of approximately 22% of the Intermediate and
Back-End opt out plaintiffs have been removed from state courts to
federal court, but are still subject to a possible remand to state
court. The Company expects to challenge vigorously all Intermediate
and Back-End opt out claims of questionable validity or medical
eligibility and a number of cases have already been dismissed on
eligibility grounds. However, the total number of filed lawsuits that
meet the settlement's opt out criteria will not be known for some
time. As a result, the Company cannot predict the ultimate number of
purported Intermediate or Back-End opt outs that will satisfy the
settlement's opt out requirements, but that number could be
substantial. As to those opt outs who are found eligible to pursue a
lawsuit, the Company also intends to vigorously defend these cases.
The Company has resolved the claims of all but a small percentage of
the "initial" opt outs (i.e., those individuals who exercised their
right to opt out of the settlement class) and continues to work toward
resolving the rest. The Company intends vigorously to defend those
initial opt out cases that cannot be resolved prior to trial.
On July 27, 2004, a Philadelphia jury in the Pennsylvania Court of
Common Pleas, First Judicial District, hearing the Intermediate opt
out cases of Istnick v. Wyeth, et al., No. 021200268, and Clepper v.
Wyeth, et al., No. 021202456, returned a verdict finding that
plaintiff Istnick had not been damaged by her use of PONDIMIN and that
plaintiff Clepper had been damaged in the amount of $48,000 by the use
of PONDIMIN. The Istnick case was thereupon dismissed and the parties
resolved the Clepper case. On July, 30, 2004, a Philadelphia jury in
the Pennsylvania Court of Common Pleas, First Judicial District,
hearing the Intermediate opt out case of Cannon v. Wyeth, et al., No.
021201534, returned a defense verdict finding that plaintiff Cannon
had not proven that she had valvular heart disease. The
Istnick/Clepper and the Cannon cases were tried under a reverse
bifurcation procedure, in which the parties first try the issue of the
plaintiff's alleged injury and damages, and only proceed to a trial of
the Company's liability for the jury's award if any damages are found.
Because the Istnick/Clepper and Cannon cases were resolved by the
damage phase, the cases did not proceed to the liability phase. On
August 6, 2004, a Philadelphia jury in the Pennsylvania Court of
Common Pleas, First Judicial District, hearing the combined Back-End
opt out cases of Davis v. Wyeth, et al., No. 021101477, Sidwell v.
Wyeth, et al., No 021101431, Roberts v. Wyeth, et al., No. 021102564,
May v. Wyeth, et al., No. 021103564, and Rogowski v. Wyeth, et al.,
No. 021201594 returned a verdict in favor of the plaintiffs, awarding
plaintiff Davis $1,000 in damages and the remaining plaintiffs $750
each in damages.
On April 27, 2004, a jury in Beaumont, Texas hearing the case of
Coffey, et al. v. Wyeth, et al., No. E-167,334, 172nd Judicial
District Court, Jefferson Cty., TX, returned a verdict in favor of the
plaintiffs for $113.353 million in compensatory damages and
21
WYETH
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
$900.0 million in punitive damages for the wrongful death of the
plaintiffs' decedent, allegedly as a result of PPH caused by her use
of PONDIMIN. On May 17, 2004, the trial court entered judgment on
behalf of the plaintiffs for the full amount of the jury's verdict, as
well as $4.2 million in pre-judgment interest and $188,737 in guardian
ad litem fees. On July 26, 2004, the trial court denied in their
entirety the Company's motions for a new trial or for judgment
notwithstanding the verdict, including the Company's request for
application of Texas's statutory cap on punitive damage awards. The
Company intends to file an appeal from the judgment entered by the
trial court and believes that it has strong arguments for reversal or
reduction of the awards on appeal due to the significant number of
legal errors made during trial and in the charge to the jury and due
to a lack of evidence to support aspects of the verdict. In connection
with its appeal, the Company will be required to post a bond, which,
under Texas law, may not exceed $25.0 million. The appeal process is
expected to take one to two years at a minimum.
As of July 16, 2004, the Company was a defendant in approximately 350
lawsuits in which the plaintiff alleges a claim of PPH, alone or with
other alleged injuries. Almost all of these claimants must meet the
definition of PPH set forth in the national settlement agreement in
order to pursue their claims outside of the national settlement
(payment of such claims, by settlement or judgment, would be made by
the Company and not the Trust). Approximately 75 of these cases appear
to be eligible to pursue a PPH lawsuit under the terms of the national
settlement. In approximately 50 of these cases the Company expects the
PPH claims to be voluntarily dismissed by the claimants (although they
may continue to pursue other claims). In approximately 45 of these
cases the Company has filed or expects to file motions under the terms
of the national settlement 