<PAGE>
2000 HIGHLIGHTS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(In thousands except per share amounts)                2000                     1999
<S>                                                <C>                      <C>
Net Revenue                                        $ 13,262,754             $ 11,881,196
--------------------------------------------------------------------------------------------
Income from Continuing Operations
     before Unusual Items*                            2,514,004                2,133,257
--------------------------------------------------------------------------------------------
Diluted EPS before Unusual Items                           1.90                     1.61
--------------------------------------------------------------------------------------------
Loss from Continuing Operations*                       (901,040)              (1,207,243)
--------------------------------------------------------------------------------------------
Diluted Loss per Share
     from Continuing Operations                           (0.69)                   (0.92)
--------------------------------------------------------------------------------------------
Dividends per Common Share                                0.920                    0.905
--------------------------------------------------------------------------------------------
Total Assets                                         21,092,466               23,123,756
--------------------------------------------------------------------------------------------
Stockholders' Equity                                  2,818,093                6,214,747
--------------------------------------------------------------------------------------------
</TABLE>

*     Unusual items, after-tax, for 2000 were the Warner-Lambert Company
      termination fee of $1,111,097, the gain on the sale of Immunex Corporation
      common stock of $1,414,859, the diet drug litigation charge of $5,375,000,
      goodwill impairment of $341,000, the special charge for the voluntary
      market withdrawal of any products containing phenylpropanolamine of
      $52,000 and the special charge for certain product discontinuations of
      $173,000. Unusual items, after-tax, for 1999 were the diet drug litigation
      charge of $3,287,500 and the special charge for the RotaShield voluntary
      market withdrawal of $53,000.



American Home Products Corporation is a global leader in pharmaceuticals,
consumer health care products and animal health products. Our products are sold
in more than 150 countries, and our product portfolio includes some of the most
innovative therapies introduced in recent years. AHP's worldwide resources
encompass more than 48,000 employees, manufacturing facilities on five
continents and one of the industry's broadest R&D programs, representing all
three major discovery and development platforms - small molecules, proteins and
vaccines.

     As one of the world's foremost research-based pharmaceutical companies, AHP
is at the vanguard of the biotechnology revolution that is transforming the
diagnosis, treatment and prevention of disease. We are breaking new ground in
applying biopharmaceutical science to develop novel therapies for serious, unmet
medical needs across a wide variety of therapeutic areas.
<PAGE>
        [Photo]                                              [Photo]
John R. Stafford, Chairman                          Robert Essner, President
and Chief Executive Officer                       and Chief Operating Officer


MESSAGE TO STOCKHOLDERS

The strong operating performance of American Home Products in 2000 reflects
AHP's successful evolution into a world leader in research-based pharmaceutical
products. In June, we completed the divestiture of our agricultural products
business. AHP now is completely focused on pharmaceuticals, consumer health care
products and animal health products. Each of these businesses achieved excellent
results during the year, enabling our Company to increase net revenue, on a pro
forma basis, by 13 percent. With leading products in important market segments
and strengths in product discovery, development, manufacturing and marketing, we
anticipate solid growth for AHP well into the future.

   AHP's revenue growth in 2000 underscores the strength of our global
pharmaceutical business. Today, more than 81 percent of net revenues are from
pharmaceuticals - up from 51 percent just 10 years ago.

   AHP's stock price in 2000 benefited from the Company's operating performance,
outpacing major competitors in the pharmaceutical industry, as well as the
Standard & Poor's 500, the Dow Jones Industrial Average and the NASDAQ, by a
wide margin.

   AHP's performance in new product launches was among the most impressive in
the industry. Wyeth-Ayerst, our ethical pharmaceutical division, received
regulatory approval for seven major pharmaceutical and vaccine products from
June 1999 to May 2000, the best new product approval record in the industry
during that time period. These innovative new products reflect success from
all three of our discovery and development platforms: small molecules, proteins
and vaccines.

   We took aggressive action during 2000 to move toward resolution of the diet
drug litigation involving AHP. In August, AHP received trial court approval of
the negotiated nationwide, class action settlement of the litigation, which
covers the vast majority of the individuals who took AHP's diet drugs. Among
patients who opted out of the settlement, approximately 80 percent of claims now
have been settled or are subject to settlement agreements. In the fourth quarter
of 2000, the Company recorded an additional charge of $7.5 billion related to
the litigation, bringing the total charges for the diet drug litigation to
$12.25 billion. We are confident that no further charges will be required.
Although this total is more than originally expected, we believe it is in the
best interest of AHP stockholders to resolve this litigation quickly. By working
to put this matter behind us, our strong pipeline and accelerating operating
momentum no longer will be overshadowed, and we can devote full attention to
growing our pharmaceutical business and capitalizing on our many global
opportunities.


NET REVENUE AND RESULTS OF OPERATIONS

AHP's worldwide net revenue for 2000 reached $13.3 billion, an increase of 13
percent over 1999 pro forma net revenue. Excluding the negative impact of
foreign


2
<PAGE>
"TODAY, MORE THAN 81 PERCENT OF NET REVENUES ARE FROM PHARMACEUTICALS - UP FROM
51 PERCENT JUST 10 YEARS AGO."



[BAR GRAPH OMITTED]
[Insert Graphic]



PHARMACEUTICAL
NET REVENUE
$ millions




exchange, pro forma worldwide net revenue increased 16 percent for the year.
This increase was due primarily to growth in pro forma global pharmaceutical net
revenue of 15 percent in 2000.

   Excluding the diet drug charge and other unusual items detailed in the
financial section of this report and including the dilutive effect of common
stock equivalents, both income and diluted earnings per share from continuing
operations increased 18 percent - from $2.13 billion and $1.61, respectively,
for 1999 to $2.51 billion and $1.90, respectively, for 2000.

   Also in 2000, we reached an agreement with Immunex Corporation - in which AHP
was the majority stockholder - to participate in a stock offering that would
allow Immunex, our partner in the promotion of Enbrel, to raise funds for
additional research and manufacturing capabilities while enabling AHP to realize
a portion of the gain on its highly successful investment in the company. In
November, we completed the sale of more than 60 million shares of Immunex stock
in an underwritten public offering, reducing AHP's ownership of outstanding
shares from 55 percent to approximately 41 percent at the end of 2000. The
Company recorded an after-tax gain of $1.4 billion related to the sale. AHP
continues to be a major participant in the future development and growth of
Immunex. Importantly, our co-promotion partnership with Immunex for the
breakthrough rheumatoid arthritis (RA) therapy, Enbrel, remains in full effect
going forward.


INVESTING IN THE FUTURE

AHP invested approximately $1.7 billion in research and development in 2000.
This investment is focused on key therapeutic franchises that offer a strong
foundation for growth and innovation.

   We also are making major capital investments to provide AHP with a
competitive edge in biotechnology and protein manufacturing. For example, we
anticipate spending more than $2 billion over the next five years to expand our
manufacturing capacity for recombinant protein and vaccine products at four
locations - Andover, Massachusetts; St. Louis, Missouri; Sanford, North
Carolina; and West Greenwich, Rhode Island - and to build a new state-of-the-art
biopharmaceutical development and manufacturing facility in Grange Castle,
Clondalkin, Ireland.

   In addition to our own research programs, we have established key alliances
with a number of other major pharmaceutical and biotechnology firms. Two
important alliances were announced in July 2000, when we reached agreements with
Celera Genomics Group and Incyte Genomics, Inc. Through these relationships, AHP
will gain access to databases containing extensive information on human, animal
and microbial genes, including Celera's complete sequence of chemical "letters"
of DNA that make up the human genome.

   As a result of these investments and alliances, AHP now has one of the
largest biotechnology research programs in the pharmaceutical industry. Using
genomics, recombinant DNA and other technologies, AHP scientists are developing
new strategies and innovative products in the fight against some of the most
devastating diseases, including cancer, Alzheimer's, diabetes and hemophilia.


3
<PAGE>
   In October 2000, Wyeth-Ayerst entered into a consent decree with the U.S.
Food and Drug Administration (FDA) focusing on the Company's compliance with
current Good Manufacturing Practices at our facilities in Marietta,
Pennsylvania, and Pearl River, New York. We are confident in the safety and
efficacy of our products and feel certain that the investments we are making
to improve our manufacturing processes and facilities will help us to
consistently maintain the highest quality standards.

   In 2001, we will begin the relocation of employees into the new Wyeth-Ayerst
global headquarters in Collegeville, Pennsylvania, which we purchased in 2000.
The Collegeville facility will provide a fully integrated campus environment
that will enhance efficiency and communication.


HUMAN ETHICAL PHARMACEUTICALS

The strong growth of AHP's human pharmaceutical business in 2000 reflected
the impact of new product launches as well as the continuing strength of our
cornerstone global products.

   Sales of the Premarin family of hormone replacement therapy products
approached $1.9 billion for the year. Worldwide sales of the Effexor family of
antidepressants reached nearly $1.2 billion in 2000 - a 48 percent increase over
1999. Enbrel achieved $690 million in global sales. Wyeth-Ayerst continued to
expand these key product lines in 2000 with new claims, indications and dosages:
Effexor XR was approved in the United States for the long-term treatment of
generalized anxiety disorder; Enbrel received FDA approval for inhibiting the
progression of structural damage in the joints of early stage RA patients; and
regulatory submissions were filed for new, lower dose formulations of
Premarin and Premarin/MPA products.

   AHP's new products also produced significant results in 2000. The launch
of Meningitec, a meningococcal Group C conjugate vaccine, was advanced to reach
the market in the United Kingdom in October 1999, enabling the U.K. Department
of Health to initiate a vaccination program before the 1999-2000 winter season.
Meningococcal disease is one of the most common causes of death in children and
young people under the age of 20 in the United Kingdom. In January 2001, the
U.K. Department of Health reported a 90 percent reduction in the number of
meningococcal Group C cases in the age group at highest risk since the inception
of the vaccination program.

   Prevnar, the first vaccine to help prevent invasive pneumococcal disease
in infants and young children, has been well-received in both the private and
public health sectors following its recommendation for infant immunization.



"AHP NOW HAS ONE OF THE LARGEST BIOTECHNOLOGY RESEARCH PROGRAMS IN THE
PHARMACEUTICAL INDUSTRY."



[BAR GRAPH OMITTED]

[PLOT POINTS TO COME]

PHARMACEUTICAL
AND CONSUMER
HEALTH CARE R&D
EXPENDITURES
$ millions


4
<PAGE>
"AHP INVESTED APPROXIMATELY $1.7 BILLION IN RESEARCH AND DEVELOPMENT IN 2000."



After FDA approval in February 2000, Wyeth-Ayerst shipped more than 9 million
doses of Prevnar for a total of $461 million in sales in 2000. European Union
approval of the vaccine - marketed as Prevenar internationally - was received in
February 2001.

   In February 2000, the FDA approved Protonix for short-term treatment in the
healing and symptomatic relief of erosive esophagitis. Following a May 2000
launch, Protonix had a successful first year on the market with $145 million in
sales.

   In March 2000, ReFacto, for hemophilia A, was approved by the FDA, and the
product was launched in the United States in January 2001.

   In addition, Wyeth-Ayerst's novel oncology therapy, Mylotarg, was approved in
the United States in May 2000 for the treatment of relapsed acute myeloid
leukemia in patients over age 60.

   Altace, an ACE inhibitor co-promoted in the United States by Wyeth-Ayerst and
King Pharmaceuticals, Inc., received FDA approval in 2000 for an important new
indication - to reduce the risk of stroke, heart attack and death from
cardiovascular causes in patients over age 55 at risk for cardiovascular
disease.

   Additionally in 2000, a regulatory submission was accepted for review in the
United States for FluMist, an intranasal flu vaccine. Regulatory review of
rhBMP-2, a unique recombinant protein that stimulates bone growth to facilitate
the healing of long-bone fractures that require open surgical management, began
early in 2001.

CONSUMER HEALTH CARE

Whitehall-Robins Healthcare continues to be a leader in the global consumer
health care market. Total sales in 2000 were nearly $2.5 billion, driven by
increased sales in our three largest consumer health care categories -
analgesics, cough/cold/allergy products and vitamins/nutritional supplements.
Ten of the division's products rank number one or two in their category in the
United States, and two global consumer health care brands - Advil and Centrum -
are among the top 10 selling consumer health care brands in the world.


ANIMAL HEALTH PRODUCTS

AHP's Fort Dodge is a global leader in the animal health industry. Fort Dodge
sales in 2000 reached nearly $800 million, an increase of 20 percent over 1999.
Fort Dodge has expanded recently through innovative product development,
supplemented by a series of strategic acquisitions. Product introductions during
the year included the launch in Australia of ProHeart SR12, a groundbreaking,
once-a-year injectable for the prevention of heartworms in dogs, which is
expected to enter the U.S. market in 2001.


INSIDE AHP

On May 1, 2001, Robert Essner will become the Chief Executive Officer of the
Company and will continue as President of the Company, a position he was elected
to in July 2000. John R. Stafford will remain Chairman of the Board, and Mr.
Essner will continue to serve on the Board. Mr. Essner has been instrumental for
the past 11 years in leading



--------------------------------------------------------------------------------
75 YEARS OF INNOVATION

American Home Products Corporation was formed in 1926 through the merger of a
group of non-prescription medicine companies.

   From its inception, the Corporation was successful in building stockholder
value. To illustrate - assuming no dividend reinvestment - a $1,000 investment
in AHP stock when it went public in 1926 would be worth nearly $2.5 million
today. The same investment in the S&P 500 - without dividend reinvestment -
would be worth approximately $0.1 million.

   Over its 75-year history, AHP consistently has invested in its health care
businesses, leading to significant accomplishments such as the mass production
of penicillin during World War II and the development and manufacturing of
vaccines that virtually have eliminated smallpox and polio globally.

   In recent years, AHP has developed a leading expertise in biotechnology and
substantially increased its pharmaceutical R&D spending, expanding its pipeline
of high-tech pharmaceutical products and delivering many new, first-in-class
therapies for serious, unmet medical needs to the global market.
--------------------------------------------------------------------------------


5
<PAGE>
our pharmaceutical business. We believe that his election as the next Chief
Executive Officer provides for continuity of our strategic direction as a
first-tier pharmaceutical company devoted to the development, manufacturing and
marketing of a broad range of innovative products.

   Several other significant appointments were made within the last 12 months.
In July, Louis L. Hoynes, Jr., was elected Executive Vice President and General
Counsel of AHP. He previously was Senior Vice President and General Counsel of
AHP. Additionally at AHP, L. Patrick Gage, Ph.D., was elected Senior Vice
President - Science and Technology; Bernard J. Poussot was elected Senior Vice
President; Lawrence V. Stein was elected Vice President and Deputy General
Counsel; and Justin R. Victoria was elected Vice President - Investor Relations.

   Changes in AHP's Board of Directors during 2000 include the election in July
of Richard L. Carrion, who serves as Chairman, President and Chief Executive
Officer of Banco Popular de Puerto Rico - the leading banking institution in
Puerto Rico - and of Popular, Inc., Banco Popular's holding company; and the
election in October of Walter V. Shipley, retired Chairman of the Board of The
Chase Manhattan Corporation.

   In 2000, three officers of AHP - Joseph J. Carr, Gerald A. Jibilian and
William J. Murray - retired after many years of dedicated service. We thank
these gentlemen for their many contributions to the Company.

   It is with great sadness that we note the passing of Robert I. Levy, M.D.,
Senior Vice President - Science and Technology for AHP, in October 2000. Dr.
Levy was a giant in the field of medicine and in the pharmaceutical industry,
and his leadership was invaluable in guiding AHP through its evolution into a
leading research-based global pharmaceutical company.

MOVING FORWARD

AHP is moving forward with confidence in its 75th anniversary year as a
strong, independent company well-positioned for continued growth in the global
pharmaceutical marketplace. We recently have launched a significant number of
new pharmaceutical products, and we continue to invest in our research and
manufacturing capabilities to sustain our growth in the future. More important,
the drugs we produce are saving lives and improving the quality of life for
people around the world.

   In the pharmaceutical business, we recognize a special obligation to our
customers. From molecule to market, we must produce medicines of the highest
quality. This obligation is at the heart of AHP's commitment to continuous
improvement. To realize our vision for quality, we are making substantial
investments in plants, systems and people.

   We thank our employees for their diligence and dedication, which were the
keys to our success in 2000. Their hard work, innovative ideas and commitment to
quality will maintain our momentum and help us achieve even greater results in
the years ahead.

   We also thank AHP's Board of Directors for their guidance and support.

   Our future is exciting. We look forward to applying our growing knowledge of
the human genome and the mechanisms of disease in the search for new cures and
innovative therapies for life-threatening diseases and other challenging health
problems on a global scale.



/s/John R. Stafford


John R. Stafford
Chairman and Chief Executive Officer



/s/Robert Essner

Robert Essner
President and Chief Operating Officer

March 6, 2001


6
<PAGE>
[BACKGROUND PICTURE OF JAMIN CHI, SCIENTIST I, WYETH-AYERST RESEARCH
                            WORKING WITH TEST TUBES]


INVESTING IN THE FUTURE:

BIOTECHNOLOGY OPENS A NEW WORLD OF PHARMACEUTICAL DISCOVERY AND DEVELOPMENT


AHP is committed to remaining at the forefront of pharmaceutical research in the
new millennium and is making significant investments in biotechnology. We are
applying these technologies throughout the drug development process to speed up
the discovery of proprietary targets, improve target validation, screen
potential treatments more quickly, and design safer and more efficacious
products in all three of our primary discovery platforms: small molecules,
proteins and vaccines. We also have established strategic alliances with leading
genomics and biotechnology companies around the world to supplement our internal
resources, such as the agreements we signed in 2000 with Celera Genomics Group
and Incyte Genomics, Inc. to access their extensive genetic databases, including
the entire human genome sequence.

     The benefits of these investments clearly are demonstrated by the
innovative products we have introduced in recent years and by our strong R&D
pipeline. In the articles that follow, three AHP research scientists describe in
their own words the impact of biotechnology on key research projects. Their
stories are representative of the efforts made by thousands of AHP's scientists
and technicians who are using new biotechnology tools to develop novel therapies
for challenging medical conditions that will benefit people throughout the
world.


7
<PAGE>
"rhBMP-2 could fundamentally change the clinical approach to bone regeneration
and repair."



John Wozney, Ph.D., Assistant Vice President,
Bone Biology, Wyeth-Ayerst Research

[PHOTO of John Wozney]


[GRAPHIC OMITTED]

   "Our research addresses the clinical problem of bone regeneration in cases
where bone either is lost or does not heal properly due to trauma. Currently,
surgeons attempt to regenerate and heal bone through the use of medical devices,
bone grafts or bone graft materials - all of which have shortcomings. We wanted
to find a biological solution that would stimulate the body's own ability to
form bone.

   We knew that bone growth is triggered by cellular activity during embryonic
development or following a bone injury. However, it was only through the recent
availability of advanced biotechnology tools that we were able to explore this
process at a molecular level and begin to uncover the proteins that were
involved. The successful application of this approach led to the discovery of
the bone morphogenetic proteins, or BMPs - a family of proteins that helps to
control the development of many tissue types, including bone.

   One of these proteins, BMP-2, appeared to be a very promising therapeutic
candidate to induce bone formation. Biotechnology allowed us to derive the gene
sequence of this protein, isolate and clone the sequence, and insert the BMP-2
gene into a production cell to create a recombinant form of the protein -
rhBMP-2 - for clinical testing. In clinical trials, we found that rhBMP-2 does
indeed induce bone formation in patients when applied locally. In February 2001,
our Pre-marketing Authorization Application was accepted by the U.S. Food and
Drug Administration for the use of rhBMP-2 in the treatment of long-bone
fractures that require open surgical management. The introduction of rhBMP-2
could fundamentally change the clinical approach to bone regeneration and
repair.

   In addition to bone growth, the BMP family of proteins holds tremendous
potential for therapies involving many other types of tissues, including
cartilage regeneration in osteoarthritis, tendon and ligament repair, and even
the regeneration of lost function in the kidney or the brain. In fact, the
discovery of BMPs has created a whole new area of basic research in tissue
repair and regeneration. And biotechnology made it all possible."


[BROKEN BONE GRAPHIC]


8
<PAGE>
   "Biotechnology has dramatically altered the process of drug discovery in the
20 years since I entered the field as a molecular biologist. Today,
pharmaceutical development largely is centered on the study of proteins and
genes. Virtually every drug on the market either is a small molecule that binds
to a protein target, such as an enzyme, or is itself a protein. Biotechnology
gives us the tools to unravel the secrets of proteins to find potential
targets for therapies and provides the ability to reproduce these protein
targets for faster and more efficient testing of drugs to change their
function.

[GRAPHIC OMITTED]

   Our discovery of the PSGL-1 gene is a good example of how the ability to
isolate and characterize a gene can lead to multiple therapeutic opportunities.
The gene encodes the human PSGL-1 glycoprotein, which extends from the surface
of white blood cells, or leukocytes, and helps the cells bind to the blood
vessel wall in a process known as cell adhesion. Thus, PSGL-1 plays a critical
role in the migration of these cells from the bloodstream to the site of tissue
damage.

   While this process is essential in helping the body heal itself after an
injury, it also can be harmful. Immediately following a heart attack, for
example, the leukocytes that attach to the damaged blood vessels create
inflammation, which actually causes additional tissue damage, called
reperfusion injury. Biotechnology allowed us to understand the molecular details
of this process and then create a genetically engineered protein that links the
adhesive part of PSGL-1 to the tail portion of a human antibody. This new
therapeutic, called rPSGL-Ig, protects the site of tissue damage by preventing
leukocytes and platelets from adhering and causing inappropriate
inflammation.

   Currently, rPSGL-Ig is in Phase II clinical trials evaluating its ability to
help accelerate clot destruction and prevent reperfusion injury following a
heart attack.

   While the creation of a potentially beneficial new drug is extremely
rewarding, we are equally gratified that our research has revealed many other
therapeutic opportunities. With our detailed knowledge of this cell adhesion
pathway, we are exploring additional therapies - both small molecule and protein
- that could block this process in other inflammatory and autoimmune
conditions, such as strokes and organ transplant rejection. Ultimately, the
integration of biotechnology into our discovery process makes this an exciting
time to be doing pharmaceutical research."



"BIOTECHNOLOGY GIVES US THE TOOLS TO UNRAVEL THE SECRETS OF PROTEINS."

Gray Shaw, Senior Scientist and
Laboratory Head, Wyeth-Ayerst Research


[PHOTO GARY SHAW]


9
<PAGE>
"BIOTECHNOLOGY HELPED US DEVELOP A POTENTIAL LIFE-SAVING TREATMENT MORE
QUICKLY."

Kurt Steiner, Ph.D., Senior Director,
Biological Research, Wyeth-Ayerst Research


[PHOTO KURT STEINER]


"Biotechnology played a key role in the development of PTP-112, a novel
treatment for type II diabetes. In type II patients - who constitute the vast
majority of diabetics - the pancreas continues to produce insulin, but the
tissues in the body that normally react to insulin don't respond properly or
efficiently. As a result of this `insulin resistance,' blood sugar levels
rise, and vital processes in the body that usually are triggered by insulin
don't respond appropriately, creating serious health problems such as kidney
failure, nerve damage and blindness.

   Until the 1990s, the standard treatments for type II diabetes stimulated
release of insulin to compensate for resistance - an approach that often did not
work effectively or led to secondary failure later as patients became less
responsive over time. More recent treatments have targeted insulin resistance
but have met with limited success.

   We wanted to get at the root of the problem and find a way to overcome
insulin resistance. Our search for potential therapeutic targets focused on the
PTPase family of enzymes because they are directly involved in the process of
`turning off' insulin receptors. With the help of biotechnology, we validated
one specific target enzyme, PTP-1B. We then created a humanized, recombinant
version of the protein to use with a high-throughput screen, rapidly testing
tens of thousands of compounds to find one that would inhibit the action of this
enzyme. Upon finding a promising candidate, we refined it using
technologies such as x-ray crystallography and molecular modeling along with
creative medicinal chemistry to enhance the structure of the compound for
greater efficacy. The result of that work was PTP-112, a small molecule with
a novel therapeutic action that keeps the insulin receptor `turned on' and
prolongs the body's responses to insulin. PTP-112 is scheduled to begin Phase II
clinical trials during 2001.

[GRAPHIC OMITTED]

   Biotechnology helped us develop a potential life-saving treatment more
quickly and efficiently than we could have in the past. It enhanced our
ability to find a likely therapeutic target and allowed us to create a
recombinant version for validation and testing - something that is possible only
with these advanced capabilities. Perhaps most important, biotechnology provided
us with the data we needed to move this product forward into clinical testing
with greater confidence."


10
<PAGE>
AHP'S THERAPEUTIC
FRANCHISES:

A SOLID FOUNDATION
FOR GROWTH AND
INNOVATION


[BACKGROUND PHOTO]


AHP today has one of the strongest product portfolios of any company in the
pharmaceutical industry. Anchored by breakthrough therapies and strengthened by
innovative products from our R&D pipeline, AHP's pharmaceuticals, consumer
health care products and animal health products provide a solid foundation for
growth and innovation and support our continued expansion as a global health
care leader.

      The following pages highlight the latest developments in our key
therapeutic franchises and offer testimonials from some of the people whose
quality of life is enhanced by AHP's products.


11
<PAGE>
[PHOTO OF PRESCRIPTION DRUGS]

WOMEN'S HEALTH CARE

      AHP has been a leader in women's health care for nearly 60 years. Our
Women's Health Care franchise is anchored by the Premarin family, the most
widely used hormone replacement therapy (HRT) for postmenopausal women. The
Premarin family of products achieved nearly $1.9 billion in global sales this
year, a 5 percent increase over 1999, led by sales of the combination HRT
products - Prempro and Premphase - which grew 19 percent in 2000. The Premarin
family of products was the most prescribed medication in the United States
during 2000.

      Efforts continued to expand this important product line in 2000, including
the filing of regulatory submissions in the United States for lower dose
formulations of Premarin and Premarin/MPA products for the relief of moderate to
severe vasomotor symptoms associated with menopause. An additional indication
for the prevention of osteoporosis is expected to be filed for regulatory
approval during 2001.

      A key area of HRT research focuses on therapies that incorporate
trimegestone, a novel progestin licensed from Aventis Pharma and developed by
Wyeth-Ayerst. In 2000, AHP received marketing approval in Sweden for the first
trimegestone product on the market, Totelle - an HRT product containing
trimegestone and 17 (beta)-estradiol for the prevention of osteoporosis and the
relief of menopausal vasomotor symptoms. Totelle is undergoing regulatory review
throughout the other European Union countries. Another new combination HRT,
using Premarin and trimegestone, is undergoing Phase III clinical trials in the
United States.

      AHP also is conducting a major research program in tissue- selective
estrogens, which target specific tissue systems and promise to provide
clinicians and users with selective hormone treatments to optimize efficacy and
tolerability. During 2001, Phase III clinical trials will begin for AHP's
tissue-selective estrogen - TSE-424 - for postmenopausal osteoporosis.

      In addition to its menopausal health research programs, AHP is a global
leader in hormone-based oral contraceptive (OC) research and holds a leading
market position worldwide. Recently, we received approval for a new
gestodene-based OC, Minesse, in 17 countries. Minesse is the lowest dose oral
contraceptive available on the international market. Submissions for regulatory
approval in five additional countries were filed for Minesse in 2000. AHP's
other major OCs include Alesse and Triphasil.


                       AHP is committed to discovering and developing
                  the next generation of therapies to meet the unique
                                health care needs of women worldwide.


12
<PAGE>
[BACKGROUND PHOTO]


"I started taking Premarin about eight years ago. It's been a good choice for me
because I haven't experienced the menopausal symptoms that I hear about from so
many of my friends. I consider myself fortunate to be in such good health, and I
definitely think Premarin is part of the reason."

                                                Diane Dunn - Columbus, Ohio -
                                                with daughters Katherine, Meghan
                                                and Barbara

13
<PAGE>
Misty Slightam - Seattle, Washington


[BACKGROUND PHOTO]


"I've suffered from depression for a long time. I just never wanted to do
anything, and I isolated myself. About two years ago, my doctor asked me to try
Effexor XR. Within a few weeks, I started feeling better. I began to do things
with other people - just going out and having fun. It's nice to be able to feel
like a real person and smile again."



14
<PAGE>
[PHOTO OF PRESCRIPTION DRUGS]

NEUROSCIENCE THERAPIES


      Our Neuroscience franchise focuses on improving the quality of life for
those affected by serious central nervous system (CNS) disorders. The key global
brand in this franchise is the Effexor family, which reached nearly $1.2 billion
in worldwide sales in 2000.

      The therapeutic profile of Effexor XR, a novel antidepressant, continued
to expand during 2000 with the U.S. approval of an indication for the long-term
treatment of generalized anxiety disorder (GAD), which is characterized by
persistent, excessive anxiety about routine life events. Effexor XR is the only
product approved for depression and both short- and long-term treatment of GAD.
Effexor XR now has been approved in 49 countries for GAD.

      AHP also submitted supplemental New Drug Applications (sNDA) for Effexor
and Effexor XR for the prevention of relapse and the recurrence of depression,
and we expect to file an sNDA for a social anxiety disorder indication in 2001.

      Sonata, our novel insomnia treatment approved in the United States in
1999, also received regulatory approval in 26 additional countries during 2000.
In February 2001, regulatory approval was granted for a 35-night efficacy
supplement, which is expected to further expand the Sonata franchise.

      Our R&D efforts in Neuroscience are directed at several other major CNS
disorders. Retigabine, a novel anticonvulsant for epilepsy licensed from Asta
Medica, is in Phase II clinical trials. In addition, Phase I trials are under
way for a potential first-line treatment for schizophrenia.

      AHP formed an alliance in 2000 with Elan Corporation to collaborate on the
development of an innovative immunotherapy for mild to moderate Alzheimer's
disease - a progressive, degenerative disorder of the brain that affects an
estimated 4 million people in the United States. In preclinical research, this
experimental treatment has been shown to reduce and prevent the development of
amyloid plaque, a substance believed to be associated with the progression of
Alzheimer's disease. Phase I clinical safety studies have been completed in the
United States.


                         AHP formed an alliance with Elan Corporation
                       for the development of a treatment for mild to
                                        moderate Alzheimer's disease.


15
<PAGE>
[PHOTO OF PRESCRIPTION DRUGS]

VACCINES AND INFECTIOUS DISEASES


      AHP's Vaccines and Infectious Diseases franchises share a common mission:
to reduce the number of serious illnesses and deaths from bacterial and viral
infections and to help overcome the growing problem of bacterial resistance to
existing treatments.

      Leading this fight is Prevnar, a new vaccine for invasive pneumococcal
disease, the major cause of bacteremia, meningitis and pneumonia in infants and
young children. Approved and launched in the United States during the first
quarter of 2000, Prevnar achieved sales of $461 million for the year. Prevnar
received recommendations for use - both from the American Academy of Pediatrics
and from the Centers for Disease Control and Prevention's Advisory Committee on
Immunization Practices - for all children up to two years of age as well as for
high-risk children between the ages of two and five. Marketed as Prevenar
outside the United States, the vaccine was approved in the European Union in
February 2001. During 2000, AHP filed a supplemental application for Prevnar in
the United States for the prevention of pneumococcal otitis media, or middle ear
infection.

      Another new vaccine, Meningitec, was approved in October 1999 in the
United Kingdom for the prevention of meningococcal Group C disease. Meningitec
played the central role in a 90 percent reduction in reported cases of
meningococcal Group C disease in the age group at highest risk in the United
Kingdom. AHP received the prestigious Prix Galien award in the United Kingdom
for innovation in the health care industry, recognizing the public health
benefit brought by the introduction of Meningitec. Sales of Meningitec in 2000
exceeded $322 million.

      FluMist, a unique live, attenuated influenza vaccine, administered in
the form of a nasal spray, was accepted for review by the FDA. This
easy-to-administer formulation, licensed from Aviron, is expected to increase
the number of people - especially children - taking advantage of protection
against the flu.

      AHP's Infectious Diseases franchise also grew significantly in 2000. Sales
of our leading product, Zosyn, marketed as Tazocin outside the United States,
increased by more than 16 percent to $367 million for the year. Zosyn is used to
treat serious diseases, including intra-abdominal infection and
community-acquired and hospital-acquired pneumonia.

      Our research in this franchise took significant steps forward in 2000.
GAR-936, a novel glycylcycline antibiotic, entered Phase II clinical trials.
Additionally, in the rapidly growing area of anti-virals, HCI-436 - developed
with ViroPharma Incorporated - began Phase II trials as a potential first-
in-class treatment for hepatitis C.


                     Meningitec received the Prix Galien award in the
                           United Kingdom, recognizing the innovation
                   and public health benefit brought by this vaccine.


16
<PAGE>
[BACKGROUND PHOTO]


"My pediatrician highly recommended a new vaccine called Prevnar. He said it
prevents a type of meningitis that can be very dangerous for young children.
It's good to know that new vaccines are available for these types of diseases,
and I'm glad we were able to take advantage of it to help protect Nicole's
health."

                                          Gloria Herrel - San Jose, California -
                                          with daughter Nicole


17
<PAGE>
Deborah Cooper - Huntington Beach,
California - with daughter Kelsey


[BACKGROUND PHOTO]


"I was diagnosed with rheumatoid arthritis shortly after my daughter was born.
There were times when I couldn't move my fingers enough to pick her up or play
with her. About three years ago, I started taking Enbrel, and now I can push my
daughter on the swing and play tennis with my family. I've gotten my quality of
life back."


18
<PAGE>
[PHOTO OF PRESCRIPTION DRUGS]

MUSCULOSKELETAL THERAPIES


      AHP's Musculoskeletal franchise is the source of important new therapies
for patients with joint and bone disorders. Led by Enbrel, a breakthrough
biological treatment for rheumatoid arthritis (RA) that helps patients lead more
active lives, this franchise is pursuing numerous opportunities to apply novel
treatment approaches to bone, tissue and organ repair.

      Enbrel was approved for marketing in the United States in November 1998 as
the first biological treatment for the symptoms of moderate to severe RA.
Discovered by Immunex Corporation - in which AHP is the largest shareholder -
and co-promoted in North America by Immunex and Wyeth-Ayerst, Enbrel has
received subsequent approvals in the United States for inhibiting the
progression of structural damage in the joints of early stage RA patients and
for treating juvenile RA. In 2000, its second full year on the market, Enbrel
achieved global sales of $690 million - 84 percent growth over 1999. Thirty
countries have approved Enbrel for the treatment of RA, including the European
Union.

      The Company and Immunex are investing more than $1 billion for the
construction of two major biological manufacturing facilities to meet the
growing demand for this product, driven by its use in rheumatoid arthritis as
well as potential use in other therapeutic applications.

      AHP also has a strong presence in the osteoarthritis (OA) treatment market
with Synvisc, the leading viscosupplementation product in the United States.
Synvisc is injected into the knee to restore lubrication and cushioning to the
joint. Synvisc, jointly developed and marketed with Genzyme Biosurgery,
increased sales by 44 percent to $179 million in 2000, and the product is
included in the American College of Rheumatology's new recommendations for
treatment of OA in the knee.

      Additionally, the FDA has accepted the regulatory submission for rhBMP-2
as a treatment for long-bone fractures that require surgical management. The
development of this unique product is discussed on page 8 of this report.

      Other potential applications for rhBMP-2 include use in spinal fusion
surgery (in collaboration with Medtronic Sofamor Danek) and dental/craniofacial
surgery. Bone morphogenetic proteins also are being studied for possible use in
soft tissue repair, such as tendons and ligaments.


                              AHP and Immunex are investing more than
               $1 billion to construct major biological manufacturing
                    facilities to meet the growing demand for ENBREL.


19
<PAGE>
[PHOTO OF PRESCRIPTION DRUGS]

INTERNAL MEDICINE


      The cardiovascular therapies in AHP's Internal Medicine franchise
continued to grow in 2000 - bolstered by recent updates of two important medical
guidelines that added the franchise's key products to their treatment
recommendations.

      In August 2000, the American Heart Association (AHA) revised its Advanced
Cardiac Life Support Guidelines to add Cordarone I.V., an antiarrhythmic
medication, to treat ventricular fibrillation/pulseless ventricular tachycardia
in patients who do not respond to cardiopulmonary resuscitation or
defibrillation. The decision to include Cordarone I.V. in the guidelines was
based on extensive data supporting its efficacy - most notably, the ARREST
trial, in which Cordarone I.V. increased patient survival to hospital admission
by 29 percent. Cordarone I.V. sales increased 81 percent in 2000 to $186
million.

      Altace, an angiotensin-converting-enzyme (ACE) inhibitor co-promoted in
the United States by Wyeth-Ayerst and King Pharmaceuticals, Inc., received a new
indication from the FDA in 2000 to reduce the risk of stroke, heart attack and
death from cardiovascular causes in patients age 55 and over with a history of
cardiovascular disease or who have diabetes that is accompanied by at least one
other cardiovascular risk factor. Altace is the only ACE inhibitor with this
indication, which was based on evidence from the landmark Heart Outcomes
Prevention Evaluation Study. Patients in the study taking Altace experienced 32
percent fewer strokes, 26 percent fewer cardiovascular deaths and 20 percent
fewer heart attacks. In January 2001, the American Stroke Association, a
division of the AHA, published new guidelines recommending the use of Altace to
reduce the incidence of stroke in diabetes patients.

      In the gastrointestinal area, our new proton pump inhibitor (PPI),
Protonix tablets, was approved in February 2000 and launched in the United
States in May 2000 for the short-term treatment of erosive esophagitis
associated with gastroesophageal reflux disease. Despite strong competition,
Protonix achieved sales of $145 million in its first year on the market.
Additionally, an intravenous version of Protonix is expected to be approved in
the first half of 2001. This approval would position Protonix as the first drug
in its class that offers both an oral and an intravenous formulation in the U.S.
market. Zoton, a PPI which is licensed by the Company for sale internationally,
increased sales in 2000 by 12 percent to $234 million.

      Research projects in Internal Medicine include rPSGL-Ig and PTP-112,
discussed on pages 9 and 10 of this report. Also, Enbrel, co-promoted by Immunex
Corporation and Wyeth-Ayerst for rheumatoid arthritis, is undergoing Phase III
clinical trials for the treatment of congestive heart failure.


                              Use of CORDARONE I.V. increased patient
                        survival to hospital admission by 29 percent.


20
<PAGE>
                                         Juliet Henshaw - Pleasanton, California


[BACKGROUND PHOTO]


"As a paramedic in Alameda County, California, I've encountered hundreds of
cases of cardiac arrhythmia. One of the biggest challenges we face is keeping
these people alive until we get to a hospital. Our county currently is involved
in a pilot study with Cordarone I.V., which has been shown to increase patient
survival to hospital admission."


21
<PAGE>
Rita Gonzales -
Houston, Texas -
with son Damien


[BACKGROUND PHOTO]


"My son Damien started taking ReFacto for his hemophilia four years ago in a
clinical trial. The selection of a clotting product is very important for every
family dealing with this condition. We talked with our physician about safety,
purity, side effects and the size of the dose and chose ReFacto. We've been very
happy with the results."


22
<PAGE>
[PHOTO OF PRESCRIPTION DRUGS]

HEMOPHILIA

      For approximately two decades, AHP has been a global scientific leader in
the search for safer and more effective treatments for hemophilia. As a result
of this commitment and a significant investment in recombinant DNA technology,
our efforts have led to important medical advances in the treatment of
hemophilia: the development of the first recombinant factor IX product (BeneFIX
for hemophilia B) and the first albumin-free formulated factor VIII product
(ReFacto for hemophilia A).

      The original hemophilia treatments developed in the 1960s and 1970s were
derived from purified human blood plasma, which resulted in widespread
transmission of viral pathogens. Despite major improvements in purity and viral
safety, today's plasma-derived products still give rise to patient concern about
the potential for blood-borne diseases. AHP's hemophilia product portfolio
employs a theoretically safer approach using advanced biotechnology tools to
produce clotting factors from non-human production cells.

      The anchor products of our Hemophilia franchise are BeneFIX and ReFacto.
BeneFIX, the only recombinant factor IX product, represents the state of the art
in hemophilia B treatment because it is not derived from human plasma. BeneFIX
was launched in the United States in 1997 and in Europe in 1999. It now is the
number one selling hemophilia B product in the world, with sales increasing by
18 percent in 2000. BeneFIX continued to expand through commercialization in
several new markets during this past year, and commercial launches are scheduled
in additional countries during 2001.

      ReFacto, the first recombinant factor VIII product without human serum
albumin added to the final formulation, further reduces the theoretical risk of
viral contamination for hemophilia A patients. ReFacto was launched throughout
Europe during 1999, and sales surpassed $90 million during its first full year
on the market. The FDA approved ReFacto in March 2000, and the product was
launched in the United States in January 2001. AHP plans to invest approximately
$100 million in a manufacturing facility in St. Louis, Missouri, to meet the
growing demand for ReFacto.

      Our research into hemophilia treatments continues to focus on increased
patient safety and efficacy. During 2001, we are scheduled to begin clinical
trials on an improvement to our existing ReFacto product. This improved version
of ReFacto will be produced without any animal- or human-derived proteins
throughout the entire manufacturing process.

      In addition to our focus on improving existing treatments, we formed an
alliance during 2000 with Targeted Genetics Corporation to pursue gene therapy
treatments for hemophilia A and B that eventually may offer a cure for these
diseases.


                               AHP's hemophilia product portfolio uses
                          advanced biotechnology tools to discover and
                          develop safer and more effective treatments.


23
<PAGE>
[PHOTO OF PRESCRIPTION DRUGS]

IMMUNOLOGY AND ONCOLOGY

      The Immunology franchise is focused on expanding the market for Rapamune,
AHP's novel immunosuppressant for organ transplantation. Rapamune, in its liquid
form, was approved in the United States in 1999 for the prevention of organ
rejection following kidney transplants and received a recommendation for
approval in Europe in December 2000. In addition, AHP received approval for a
tablet form of Rapamune in the United States in August 2000, which will improve
ease of dosing.

      Research projects in Immunology include expanded indications for Rapamune
for other types of organ transplantation, including Phase II trials that are
under way for therapy following liver transplants.


      AHP is studying other innovative approaches to immunosuppression such as
anti-B7 monoclonal antibodies, which potentially offer a more specific approach
to the prevention of organ transplant rejection. In addition, Phase III clinical
trials are under way for recombinant interleukin-11 for the treatment of Crohn's
disease.

      The May 2000 approval of Mylotarg by the FDA marked a significant
milestone for AHP's Oncology franchise. Mylotarg - a novel chemotherapy agent
for relapsed acute myeloid leukemia in patients age 60 and over - is the first
oncology treatment to directly target leukemic cells using innovative monoclonal
antibody-targeted chemotherapy. Developed in collaboration with Celltech Group
Plc., Mylotarg is unique because it delivers a powerful antitumor agent called
calicheamicin directly to leukemic cells. AHP scientists developed technology
linking calicheamicin to a humanized antibody that attaches to and destroys a
specific type of cancer cell. This is dramatically different from standard
chemotherapy, which kills both cancerous and healthy cells.

      AHP is conducting trials to extend the use of Mylotarg to other forms of
leukemia, as well as evaluating additional monoclonal antibodies in order to
expand the use of this groundbreaking chemotherapy technology to breast cancer,
lymphoma and prostate cancer.

      Mylotarg joins Neumega in AHP's global Oncology franchise product
portfolio. Clinical studies with Neumega - recombinant interleukin-11, approved
for use in the United States as a platelet growth factor for
chemotherapy-induced thrombocytopenia in nonmyeloid malignancies - are further
defining its role in managing thrombocytopenia in myeloid malignancies and viral
disease.

      There currently are two other promising oncology research programs in
Phase II clinical trials: CCI-779 and ERA-923. CCI-779 is designed to interrupt
growth in a variety of tumors by inhibiting the action of a protein called mTOR,
which appears to control a number of cell growth functions. It will be evaluated
as a treatment for breast, prostate and renal cell cancers as well as soft
tissue sarcoma. ERA-923 is a selective estrogen receptor modulator being
developed as a treatment for breast cancer.


                         Mylotarg is the first oncology treatment that
                      directly targets leukemia cells using innovative
                                       antibody-targeted chemotherapy.


24
<PAGE>
                                               Irving Smith - Brooklyn, New York


[BACKGROUND PHOTO]


"After being on dialysis for four years because of kidney failure, I had a
kidney transplant last November. My mother donated one of her kidneys to me.
I've been taking Rapamune and other drugs since the operation, and everything is
going well so far. I feel stronger than I have in years - almost like I'm a new
person."


25
<PAGE>
[BACKGROUND PHOTO]


"I've been working with Advil for more than 13 years now. When I pitched in the
major leagues, I used Advil to help treat all those strains and sprains. And
now, Advil helps me manage the aches and pain associated with osteoarthritis.
Thanks to Advil, I'm still doing the things I love to do."


Nolan Ryan - Alvin, Texas


26
<PAGE>
[PHOTO OF PRESCRIPTION DRUGS]

CONSUMER HEALTH CARE

      Global branding is the cornerstone of AHP's success in the worldwide
consumer health care market. Two AHP product lines - Advil and Centrum - are
among the top 10 selling consumer health care brands in the world. Other major
AHP global consumer health care brands include Caltrate, Chap Stick, Dimetapp,
Preparation H and Robitussin. We continue to build on this global franchise
through innovative line extensions and geographic expansion while also
introducing new products that meet the growing worldwide demand for effective
self-medication.

      The Advil family of products, which achieved sales of more than $590
million in 2000, received an important new addition in 2000 with the U.S. launch
of Advil Migraine, the first and only FDA-approved non-prescription migraine
medicine that comes in liquid-filled capsules. A number of other new and
innovative line extensions contributed to this growth, including the recent
introductions of Advil 400mg tablets in France, Children's Advil Suspension in
Colombia and Advil Liqui-gels in Canada. The unique Liqui-gel product also was
launched under the Anadin brand in the United Kingdom and under the Spalt brand
in Germany to further boost the overall growth of the global analgesic
franchise.

      Global sales of Centrum multivitamin/multimineral products reached $533
million in 2000. Centrum now is available in more than 60 countries around the
world. International introductions of Centrum Silver in Australia, Brazil,
China, Poland, Russia and Thailand are broadening the appeal of the brand's
unique nutritional benefits. Recent additions to the product line in the United
States include: Centrum Performance, a premium formulation of vitamins, minerals
and herbs designed to meet the high-energy demands of an active lifestyle;
Centrum Focused Formulas, with targeted combinations of nutrients and herbals to
support specific health areas such as Heart, Energy and Mental Clarity; and
Centrum Kids, featuring the characters from the popular "Rugrats" television
show.

      Brand extensions - such as the recently added honey-containing products
that include Honey Cold, Honey Cough and Honey Flu - also fueled sales growth
for the Robitussin franchise as well as for the Chap Stick brand, whose latest
additions include Chap Stick Overnight Lip Treatment and Chap Stick Lipsations.

      In addition, our franchise continued to expand its presence in health food
stores with the Solgar line of vitamin and nutritional supplements.


                            Centrum incorporates the latest scientific
                    advances in nutrition to offer innovative products
                   addressing specific concerns, needs and lifestyles.


27
<PAGE>
[PHOTO OF PRESCRIPTION DRUGS]

ANIMAL HEALTH PRODUCTS


      As a world leader in animal health products, Fort Dodge Animal Health
offers a wide range of biologicals and pharmaceuticals for the livestock, swine
and poultry industries as well as for companion animals, such as dogs, cats and
horses. Global sales of Fort Dodge products grew by 20 percent to nearly $800
million in 2000.

      Innovative Fort Dodge biologicals include: LymeVax, a vaccine for canine
Lyme disease; Fel-O-Vax vaccines for multiple feline diseases; Fluvac vaccine
for equine herpes virus and influenza; and Bursine vaccine for infectious bursal
disease in chickens. Key pharmaceutical products include: Cydectin Pour-On for
parasite control in beef and dairy cattle; EtoGesic tablets for canine
osteoarthritis; and Quest Gel dewormer and boticide for horses.

      In 2000, Fort Dodge introduced an improvement in the control of heartworm
disease in dogs with the launch of ProHeart SR12 in Australia. Until the advent
of ProHeart SR12, the most common way to prevent heartworms was with daily or
monthly tablets administered by pet owners - an approach that frequently results
in poor compliance. With ProHeart SR12, a dog receives a single injection from a
veterinarian, protecting the animal for a full year. Fort Dodge expects to
launch this product in the United States and Japan during 2001.

      Another unique Fort Dodge product recently launched in the United States
under conditional license is a vaccine to aid in the prevention of Equine
Protozoal Myeloencephalitis (EPM) - a serious disorder that attacks the central
nervous system of horses. Symptoms of EPM can include seizures, muscle atrophy
and paralysis, but the condition is difficult to diagnose, and current
treatments can cost thousands of dollars. Fort Dodge's vaccine is the first ever
available for the prevention of this debilitating condition.

      Innovative products in the animal health R&D pipeline include: West Nile
Encephalitis vaccines for companion animals (in conjunction with the Centers for
Disease Control and Prevention); a Feline Immunodeficiency Virus vaccine; and
food safety treatments such as a poultry Salmonella vaccine.


                                Fort Dodge Animal Health introduced an
                       improvement in the control of heartworm disease
                             in dogs with the launch of ProHeart SR12.


28
<PAGE>
FINANCIAL REVIEW


[BACKGROUND PHOTO]


"My business is training dogs for movies, television and advertising. With the
help of Fort Dodge's products, my dogs have the kind of appearance and spirit
that my clients are looking for."

Gregg Holland - Santa Rosa, California



30    Ten-Year Selected Financial Data
32    Consolidated Balance Sheets
33    Consolidated Statements of Operations
34    Consolidated Statements of Changes
      in Stockholders' Equity
35    Consolidated Statements of Cash Flows
36    Notes to Consolidated Financial Statements
50    Report of Independent Public Accountants
50    Management Report on Financial Statements
51    Quarterly Financial Data
51    Market Prices of Common Stock and Dividends
52    Management's Discussion and Analysis
      of Financial Condition and Results of Operations




29
<PAGE>
TEN-YEAR SELECTED FINANCIAL DATA
(Dollar amounts in thousands except per share amounts)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,                                                          2000              1999              1998

SUMMARY OF NET REVENUE AND EARNINGS
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>               <C>               <C>
Net revenue(1)                                                            $ 13,262,754      $ 11,881,196      $ 11,268,570
Income (loss) from continuing operations(1)(2)(5)                             (901,040)       (1,207,243)        2,152,344
Diluted earnings (loss) per share from continuing operations(1)(2)(3)            (0.69)            (0.92)             1.61
Dividends per common share                                                      0.9200            0.9050            0.8700


YEAR-END FINANCIAL POSITION
----------------------------------------------------------------------------------------------------------------------------
Current assets(1)                                                         $ 10,180,811      $ 12,384,778      $ 10,698,188
Current liabilities(1)(5)                                                    9,742,059         6,480,383         3,478,119
Ratio of current assets to current liabilities(1)(5)                              1.05              1.91              3.08
Total assets(1)                                                             21,092,466        23,123,756        20,224,231
Long-term debt(1)                                                            2,394,790         3,606,423         3,839,402
Average stockholders' equity(5)                                              4,516,420         7,914,772         8,895,024


STOCKHOLDERS -- OUTSTANDING SHARES
----------------------------------------------------------------------------------------------------------------------------
Number of common stockholders                                                   58,355            62,482            65,124
Weighted average common shares outstanding used for
    diluted earnings per share calculation (in thousands)(3)                 1,306,474         1,308,876         1,336,641


EMPLOYMENT DATA(1)
----------------------------------------------------------------------------------------------------------------------------
Number of employees at year end                                                 48,036            46,815            47,446
Wages and salaries                                                        $  2,264,258      $  2,032,431      $  2,175,517
Benefits (including social security taxes)                                     602,816           593,222           577,930
</TABLE>


(1) As a result of the sale of the Cyanamid Agricultural Products business on
    June 30, 2000, amounts for the years 1994 through 1999 were restated to
    reflect this business as a discontinued operation. Beginning in 1994,
    current assets include the net assets of the discontinued business held for
    sale related to the Cyanamid Agricultural Products business.

(2) See "Management's Discussion and Analysis of Financial Condition and Results
    of Operations" for amounts related to gains on sales of business and Immunex
    common stock, termination fee, litigation charges, goodwill impairment and
    special charges for the years ended December 31, 2000, 1999 and 1998.

(3) The weighted average common shares outstanding for diluted loss per share
    for 2000 and 1999 did not include common share equivalents, as the effect
    would have been antidilutive.

(4) The 1994 information reflects the acquisition of American Cyanamid Company
    for the one-month period ended December 31, 1994.

(5) In the 2000 fourth quarter, the Company recorded an additional litigation
    charge of $7,500,000 related to the litigation brought against the Company
    regarding the use of the diet drugs Redux or Pondimin. The initial
    litigation charge of $4,750,000 was recorded in the 1999 third quarter. As a
    result of these litigation charges, current liabilities have increased
    substantially in 2000 and 1999 compared with prior years, and the ratio of
    current assets to current liabilities and average stockholders' equity has
    decreased substantially in 2000 and 1999 compared with prior years.



30
<PAGE>
<TABLE>
<CAPTION>
        1997             1996             1995              1994(4)            1993             1992             1991


---------------------------------------------------------------------------------------------------------------------
<S>              <C>              <C>                 <C>              <C>              <C>              <C>
$ 12,076,621     $ 12,099,428     $ 11,466,287        $  8,882,952     $  8,304,851     $  7,873,687     $  7,079,443
   1,747,638        1,651,617        1,472,525           1,525,517        1,469,300        1,460,842        1,375,273
        1.33             1.28             1.18                1.24             1.17             1.15             1.08
      0.8300           0.7825           0.7550              0.7350           0.7150           0.6650           0.5938



---------------------------------------------------------------------------------------------------------------------
$ 10,025,512     $ 10,310,256     $ 11,084,841        $ 11,321,682     $  4,807,684     $  4,552,077     $  4,119,057
   3,476,322        3,584,256        3,929,940           4,291,452        1,584,411        1,492,717        1,270,135
        2.88             2.88             2.82                2.64             3.03             3.05             3.24
  19,851,517       19,924,666       20,721,093          21,328,267        7,687,353        7,141,405        5,938,797
   5,007,610        6,010,297        7,806,717           9,972,444          859,278          601,934          104,710
   7,568,672        6,252,545        4,898,550           4,065,295        3,719,539        3,431,568        2,987,885



---------------------------------------------------------------------------------------------------------------------
      64,313           67,545           68,763              71,223           72,664           73,064           71,209

   1,312,975        1,287,790        1,250,902           1,234,100        1,252,990        1,267,240        1,273,390



---------------------------------------------------------------------------------------------------------------------
      54,921           54,194           58,957              70,300           51,399           50,653           47,938
$  2,428,518     $  2,439,604     $  2,512,418        $  1,811,402     $  1,654,984     $  1,575,615     $  1,388,397
     619,528          614,179          641,169             439,572          396,045          367,899          300,810
</TABLE>




31
<PAGE>
CONSOLIDATED BALANCE SHEETS
(In thousands except share and per share amounts)

<TABLE>
<CAPTION>
DECEMBER 31,                                                                            2000              1999

--------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>               <C>
ASSETS
Cash and cash equivalents                                                       $  2,644,306      $  1,892,715
Marketable securities                                                                341,031           520,587
Accounts receivable less allowances (2000 -- $144,150 and 1999 -- $141,759)        2,740,272         2,389,863
Inventories                                                                        1,531,727         1,607,960
Net assets -- discontinued business held for sale                                         --         4,192,346
Other current assets including deferred taxes                                      2,923,475         1,781,307
                                                                                ------------------------------
Total Current Assets                                                              10,180,811        12,384,778
Property, plant and equipment:
    Land                                                                             149,810           135,013
    Buildings                                                                      2,694,612         2,598,890
    Machinery and equipment                                                        3,510,529         3,269,793
    Construction in progress                                                       1,223,282           389,252
                                                                                ------------------------------
                                                                                   7,578,233         6,392,948
Less accumulated depreciation                                                      2,543,409         2,274,771
                                                                                ------------------------------
                                                                                   5,034,824         4,118,177
Goodwill and other intangibles, net of accumulated amortization
    (2000 -- $1,739,368 and 1999 -- $1,667,711)                                    4,052,410         4,823,309
Other assets including deferred taxes                                              1,824,421         1,797,492
                                                                                ------------------------------
Total Assets                                                                    $ 21,092,466      $ 23,123,756
                                                                                ==============================
--------------------------------------------------------------------------------------------------------------
LIABILITIES
Loans payable                                                                   $     58,717      $  1,880,816
Trade accounts payable                                                               595,233           562,679
Accrued expenses                                                                   8,831,459         3,809,525
Accrued federal and foreign taxes                                                    256,650           227,363
                                                                                ------------------------------
Total Current Liabilities                                                          9,742,059         6,480,383
Long-term debt                                                                     2,394,790         3,606,423
Other noncurrent liabilities                                                       5,226,495         5,925,313
Accrued postretirement benefits other than pensions                                  911,029           896,890
                                                                                ------------------------------
--------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
$2.00 convertible preferred stock, par value $2.50 per share; 5,000,000
  shares authorized                                                                       55                61
Common stock, par value $0.33 1/3 per share; 2,400,000,000 shares authorized
  (outstanding shares: 2000 -- 1,311,774,000 and 1999 -- 1,303,916,000)              437,258           434,639
Additional paid-in capital                                                         3,952,457         3,392,705
Retained earnings (accumulated deficit)                                             (899,118)        3,000,827
Accumulated other comprehensive loss                                                (672,559)         (613,485)
                                                                                ------------------------------
Total Stockholders' Equity                                                         2,818,093         6,214,747
                                                                                ------------------------------
Total Liabilities and Stockholders' Equity                                      $ 21,092,466      $ 23,123,756
                                                                                ==============================
</TABLE>


The accompanying notes are an integral part of these Consolidated Financial
Statements.


32
<PAGE>
CONSOLIDATED STATEMENTS
OF OPERATIONS
(In thousands except per share amounts)


<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,                                                   2000              1999              1998

-------------------------------------------------------------------------------------------------------------------
<S>                                                                <C>               <C>               <C>
Net Revenue                                                        $ 13,262,754      $ 11,881,196      $ 11,268,570
                                                                   ------------------------------------------------
Cost of goods sold                                                    3,269,418         3,022,556         2,843,185
Selling, general and administrative expenses                          5,032,548         4,388,265         4,209,162
Research and development expenses                                     1,687,889         1,587,505         1,475,862
Interest expense, net                                                    57,562           213,866           207,157
Other income, net                                                      (161,039)         (255,697)         (285,848)
Gains on sales of business and Immunex common stock                  (2,061,204)               --          (592,084)
Termination fee                                                      (1,709,380)               --                --
Litigation charges                                                    7,500,000         4,750,000                --
Goodwill impairment                                                     401,000                --                --
Special charges                                                         347,000            82,000           321,200
                                                                   ------------------------------------------------
Income (loss) from continuing operations before
  federal and foreign taxes                                          (1,101,040)       (1,907,299)        3,089,936
Provision (benefit) for federal and foreign taxes                      (200,000)         (700,056)          937,592
                                                                   ------------------------------------------------
Income (Loss) from Continuing Operations                               (901,040)       (1,207,243)        2,152,344
Discontinued operations:
  Income (loss) from operations of discontinued agricultural
    products business (including federal and foreign taxes of
    $57,289, $1,551 and $173,530 for 2000, 1999 and 1998,
    respectively)                                                       103,346           (19,878)          321,994
  Loss on disposal of agricultural products business
    (including federal and foreign tax charges of $855,248)          (1,572,993)               --                --
                                                                   ------------------------------------------------
Income (Loss) from Discontinued Operations                           (1,469,647)          (19,878)          321,994
                                                                   ------------------------------------------------
Net Income (Loss)                                                  $ (2,370,687)     $ (1,227,121)     $  2,474,338
                                                                   ================================================
Basic Earnings (Loss) per Share from Continuing Operations         $      (0.69)     $      (0.92)     $       1.64
Basic Earnings (Loss) per Share from Discontinued Operations              (1.12)            (0.02)             0.24
                                                                   ------------------------------------------------
Basic Earnings (Loss) per Share                                    $      (1.81)     $      (0.94)     $       1.88
                                                                   ================================================
Diluted Earnings (Loss) per Share from Continuing Operations       $      (0.69)     $      (0.92)     $       1.61
Diluted Earnings (Loss) per Share from Discontinued Operations            (1.12)            (0.02)             0.24
                                                                   ------------------------------------------------
Diluted Earnings (Loss) per Share                                  $      (1.81)     $      (0.94)     $       1.85
                                                                   ================================================
</TABLE>


The accompanying notes are an integral part of these Consolidated Financial
Statements.

33
<PAGE>
CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS' EQUITY
(In thousands except per share amounts)

<TABLE>
<CAPTION>
                                                   $2.00                                  RETAINED      ACCUMULATED
                                             CONVERTIBLE                ADDITIONAL        EARNINGS            OTHER           TOTAL
                                               PREFERRED      COMMON       PAID-IN    (ACCUMULATED    COMPREHENSIVE    STOCKHOLDERS'
                                                   STOCK       STOCK       CAPITAL        DEFICIT)             LOSS          EQUITY

------------------------------------------------------------------------------------------------------------------------------------
<S>                                          <C>            <C>         <C>           <C>             <C>              <C>
Balance at January 1, 1998                          $ 72    $435,298    $2,530,696     $ 5,489,292      $  (280,106)    $ 8,175,252
                                                    ================================================================================
Net income                                                                               2,474,338                        2,474,338
Currency translation adjustments                                                                            (45,803)        (45,803)
Unrealized loss on marketable securities                                                                     (2,428)         (2,428)
                                                                                                                        ------------
  Comprehensive income                                                                                                    2,426,107
                                                                                                                        ------------
Cash dividends declared:
  Preferred stock (per share: $2.00)                                                           (54)                             (54)
  Common stock (per share: $0.87)                                                       (1,143,198)                      (1,143,198)
Common stock acquired for treasury                            (2,521)      (34,984)       (377,098)                        (414,603)
Common stock issued for stock options                          4,342       399,488                                          403,830
Conversion of preferred stock
  and other exchanges                                 (8)        347       177,674         (10,551)                         167,462
                                                    --------------------------------------------------------------------------------
Balance at December 31, 1998                          64     437,466     3,072,874       6,432,729         (328,337)      9,614,796
                                                    ================================================================================
------------------------------------------------------------------------------------------------------------------------------------
Net loss                                                                                (1,227,121)                      (1,227,121)
Currency translation adjustments                                                                           (285,963)       (285,963)
Unrealized gain on marketable securities                                                                        815             815
                                                                                                                        ------------
  Comprehensive loss                                                                                                     (1,512,269)
                                                                                                                        ------------
Cash dividends declared:
  Preferred stock (per share: $2.00)                                                           (50)                             (50)
  Common stock (per share: $0.905)                                                      (1,183,571)                      (1,183,571)
Common stock acquired for treasury                            (6,409)      (39,505)     (1,012,385)                      (1,058,299)
Common stock issued for stock options                          3,376       230,894                                          234,270
Conversion of preferred stock
  and other exchanges                                 (3)        206       128,442          (8,775)                         119,870
                                                    --------------------------------------------------------------------------------
Balance at December 31, 1999                          61     434,639     3,392,705       3,000,827         (613,485)      6,214,747
                                                    ================================================================================
------------------------------------------------------------------------------------------------------------------------------------
Net loss                                                                                (2,370,687)                      (2,370,687)
Currency translation adjustments                                                                            (70,496)        (70,496)
Unrealized gain on marketable securities                                                                     11,422          11,422
                                                                                                                        ------------
  Comprehensive loss                                                                                                     (2,429,761)
                                                                                                                        ------------
Cash dividends declared:
  Preferred stock (per share: $2.00)                                                           (46)                             (46)
  Common stock (per share: $0.92)                                                       (1,201,431)                      (1,201,431)
Common stock acquired for treasury                            (2,472)      (16,316)       (374,289)                        (393,077)
Common stock issued for stock options                          4,949       405,933                                          410,882
Conversion of preferred stock
  and other exchanges                                 (6)        142       170,135          (6,663)                         163,608
International operations year end change                                                    53,171                           53,171
                                                    --------------------------------------------------------------------------------
Balance at December 31, 2000                        $ 55    $437,258    $3,952,457     $  (899,118)     $  (672,559)    $ 2,818,093
                                                    ================================================================================
</TABLE>

The accompanying notes are an integral part of these Consolidated Financial
Statements.


34
<PAGE>
CONSOLIDATED STATEMENTS
OF CASH FLOWS
(In thousands)


<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,                                                           2000             1999             1998

--------------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>              <C>              <C>
OPERATING ACTIVITIES
Income (loss) from continuing operations                                    $  (901,040)     $(1,207,243)     $ 2,152,344
Adjustments to reconcile income (loss) from continuing operations to
  net cash provided from operating activities of continuing operations:
  Litigation charges                                                          7,500,000        4,750,000               --
  Gains on sales of business and Immunex common stock                        (2,061,204)              --         (592,084)
  Goodwill impairment                                                           401,000               --               --
  Special charges                                                               347,000           82,000          321,200
  Gains on sales of assets                                                     (159,430)        (205,739)        (445,380)
  Depreciation                                                                  336,239          341,871          315,103
  Amortization                                                                  198,810          199,307          196,504
  Deferred income taxes                                                        (814,282)      (1,410,068)          51,952
  Diet drug litigation payments                                              (3,966,845)        (117,581)              --
  Deconsolidation of Immunex                                                   (236,768)              --               --
  Changes in working capital, net of businesses acquired,
    sold or deconsolidated:
    Accounts receivable                                                        (433,182)         164,588         (391,921)
    Inventories                                                                  31,188         (115,699)        (100,493)
    Other current assets                                                        179,817         (170,478)        (213,003)
    Trade accounts payable and accrued expenses                                 270,518          (73,946)         (21,545)
    Accrued federal and foreign taxes                                          (393,330)        (121,227)          (4,008)
  Other items, net                                                              178,851          377,592           82,082
                                                                            ----------------------------------------------
Net cash provided from continuing operations                                    477,342        2,493,377        1,350,751
Net cash provided from/(used for) discontinued operations                        77,600         (327,771)          10,074
                                                                            ----------------------------------------------
Net Cash Provided from Operating Activities                                     554,942        2,165,606        1,360,825
                                                                            ==============================================
--------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchases of property, plant and equipment                                   (1,681,906)        (937,435)        (690,058)
Purchase of business, net of cash acquired                                           --               --         (425,041)
Proceeds from sales of businesses                                             3,800,000               --        1,770,000
Proceeds from sale of Immunex common stock                                    2,404,875               --               --
Proceeds from sales of assets                                                   256,192          327,730          620,632
Purchases of marketable securities                                             (677,802)        (789,846)        (350,687)
Proceeds from sales and maturities of marketable securities                     384,292          383,941          278,290
                                                                            ----------------------------------------------
Net Cash Provided from/(Used for) Investing Activities                        4,485,651       (1,015,610)       1,203,136
                                                                            ==============================================
--------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net proceeds from/(repayments of) debt                                       (3,080,381)       1,593,468       (1,174,137)
Dividends paid                                                               (1,201,477)      (1,183,621)      (1,143,252)
Purchases of common stock for treasury                                         (393,077)      (1,058,299)        (414,603)
Exercises of stock options                                                      410,882          234,270          403,830
Termination of interest rate swap agreements                                         --               --          (96,655)
                                                                            ----------------------------------------------
Net Cash Used for Financing Activities                                       (4,264,053)        (414,182)      (2,424,817)
                                                                            ----------------------------------------------
Effects of exchange rates on cash balances                                      (24,949)         (25,418)          (8,197)
                                                                            ----------------------------------------------
Increase in Cash and Cash Equivalents                                           751,591          710,396          130,947
Cash and Cash Equivalents, Beginning of  Year                                 1,892,715        1,182,319        1,051,372
                                                                            ----------------------------------------------
Cash and Cash Equivalents, End of  Year                                     $ 2,644,306      $ 1,892,715      $ 1,182,319
                                                                            ==============================================
</TABLE>

The accompanying notes are an integral part of these Consolidated Financial
Statements.

35
<PAGE>
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The accompanying Consolidated Financial Statements
include the accounts of American Home Products Corporation and its
majority-owned subsidiaries (the Company). The financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States and necessarily include amounts based on judgments and estimates
made by management.
    Effective January 1, 2000, the financial results of certain pharmaceutical
subsidiaries in Japan and India, which previously were included on an equity
basis, were consolidated in the financial results of the Company due to changes
which gave the Company the ability to exercise control over the operations of
these affiliates. Also, effective January 1, 2000, the financial results of
Immunex Corporation (Immunex), which previously were consolidated, were
deconsolidated and included on an equity basis in the results of operations of
the Company (see Note 2).
    Prior to 2000, certain of the Company's international affiliates reported
their results of operations on a one-month lag (year ended November 30), which
allowed more time to compile results. In December 2000, the one-month lag was
eliminated, primarily to reflect the results of these operations on a more
timely basis. As a result, December 2000 income from continuing operations for
these entities of $53,171,000 was recorded directly to stockholders' equity.
    DESCRIPTION OF BUSINESS: The Company is a U.S.-based multi-national
corporation engaged in the discovery, development, manufacture, distribution and
sale of a diversified line of products in two primary businesses:
Pharmaceuticals and Consumer Health Care. Pharmaceuticals include branded and
generic human ethical pharmaceuticals, biologicals, nutritionals, and animal
biologicals and pharmaceuticals. Principal products include women's health care
products, infant nutritionals, cardiovascular products, neuroscience therapies,
gastroenterology drugs, anti-infectives, vaccines, biopharmaceuticals, oncology
therapies, musculoskeletal therapies and transplantation products. Principal
animal health products include vaccines, pharmaceuticals, endectocides and
growth implants. Consumer Health Care products include analgesics,
cough/cold/allergy remedies, nutritional supplements, herbal products, and
hemorrhoidal, antacid, asthma and other relief items sold over-the-counter. The
Company sells its diversified line of products to wholesalers, pharmacies,
hospitals, physicians, retailers and other health care institutions located in
various markets in more than 150 countries throughout the world. The Company is
not dependent on any single customer or major group of customers for its sales.
    The Company is not dependent on any one patent-protected product or line of
products for a substantial portion of its net revenue or results of operations.
However, Premarin, one of the Company's conjugated estrogens products, which has
not had patent protection for many years, contributes significantly to net
revenue and results of operations. See "Competition" in "Management's Discussion
and Analysis of Financial Condition and Results of Operations" on page 57 for
further details.
    EQUITY METHOD OF ACCOUNTING: The Company accounts for its investments in
20%- to 50%-owned companies using the equity method. Accordingly, the Company's
share of the earnings of these companies is included in Other income, net. The
related equity investment is included in Other assets including deferred taxes.
At December 31, 2000, Immunex was the Company's only material equity investment.
Immunex is a biopharmaceutical company that discovers, manufactures and markets
therapeutic products for the treatment of cancer and musculoskeletal disorders
such as rheumatoid arthritis. See Note 2 for the discussion of Immunex common
stock sold in 2000.
    CASH EQUIVALENTS consist primarily of certificates of deposit, time deposits
and other short-term, highly liquid securities with original maturities of three
months or less and are stated at cost, which approximates fair value. The
carrying value of cash equivalents approximates fair value due to the
short-term, highly liquid nature of cash equivalents.
    MARKETABLE SECURITIES consist of U.S. government or agency issues,
commercial paper, time deposits and corporate bonds and are stated at fair
value, which approximates cost due to the short-term, highly liquid nature of
these securities (less than six months). All marketable securities are
available-for-sale investments. The fair values are estimated based on current
market prices.
    INVENTORIES are valued at the lower of cost or market. Inventories valued
under the last-in, first-out (LIFO) method amounted to $325,059,000 and
$407,668,000 at December 31, 2000 and 1999, respectively. The current value
exceeded the LIFO value by $59,658,000 and $66,879,000 at December 31, 2000 and
1999, respectively. The remaining inventories are valued under the first-in,
first-out (FIFO) method or the average cost method.
   Inventories at December 31 consisted of:
<TABLE>
<CAPTION>
(In thousands)                                         2000                 1999
--------------------------------------------------------------------------------
<S>                                              <C>                  <C>
Finished goods                                   $  585,123           $  753,831
Work in progress                                    586,656              471,327
Materials and supplies                              359,948              382,802
                                                 -------------------------------
                                                 $1,531,727           $1,607,960
                                                 ===============================
</TABLE>
    PROPERTY, PLANT AND EQUIPMENT is carried at cost. Depreciation is provided
over the estimated useful lives of the related assets placed into service,
principally on the straight-line method.
    GOODWILL AND OTHER INTANGIBLES: The excess of cost over the fair value of
net assets acquired is amortized using the straight-line

36
<PAGE>
method over various periods ranging from 15 to 40 years for goodwill and three
to 10 years for other intangibles. The Company continually reviews goodwill and
other intangibles to evaluate whether changes have occurred that would suggest
such assets may be impaired. If circumstances suggest an impairment,
undiscounted future cash flows of the assets acquired or purchased are
estimated. If this estimate indicates that the remaining estimated useful life
of goodwill or other intangibles requires revision or that the associated costs
are not recoverable, the carrying value of the goodwill or other intangibles is
reduced to fair value by the estimated shortfall of future cash flows on a
discounted basis.

    FOREIGN CURRENCY AGREEMENTS: The Company enters into short-term foreign
currency agreements to manage specifically identifiable risks. Short-term
(approximately 30 days) foreign exchange forward contracts are part of the
Company's management of foreign currency balance sheet exposures. Foreign
currency agreements are accounted for under the fair value method. The fair
value of foreign currency agreements is based on current market prices. The fair
value represents the estimated amount the Company would receive or pay to
terminate the agreements, taking into consideration current foreign currency
exchange rates. The fair value of the foreign currency agreements is carried on
the Consolidated Balance Sheets with changes in the fair value recognized in
results of operations offsetting any gains and losses recognized on the
underlying transactions.

    In 2000, the Company established a cash flow hedging program to cover
currency risk related to intercompany inventory sales denominated in foreign
currencies. The exposures are managed using purchased foreign currency put
options. Put options provide the Company with the right, but not the obligation,
to sell foreign currencies at a predetermined price. Net gains on exercised
option contracts are deferred on the Consolidated Balance Sheets and are
reclassified into earnings in the same period that the underlying exposure is
reflected in results of operations. There were no option contracts outstanding
as of December 31, 2000. The net impact of foreign currency programs on the
results of operations for 2000 was not material.

    CURRENCY TRANSLATION: The majority of the Company's international operations
are translated into U.S. dollars using current foreign currency exchange rates
with currency translation adjustments reflected in Accumulated other
comprehensive loss in stockholders' equity. Currency translation adjustments
comprise the majority of Accumulated other comprehensive loss on the
Consolidated Balance Sheets and the Consolidated Statements of Changes in
Stockholders' Equity. Currency translation adjustments related to international
operations in highly inflationary economies are included in the results of
operations.

    REVENUE RECOGNITION: Revenue from the sale of Company products is recognized
in Net revenue upon shipment to customers. Provisions for certain rebates,
product returns and discounts to customers are provided for as reductions in
determining Net revenue in the same period the related sales are recorded.

    Revenue under co-promotion agreements from the sale of products developed by
other companies, such as the Company's arrangement with Immunex to co-promote
Enbrel, is recorded as alliance revenue and is included in Net revenue. Such
alliance revenue is earned when the co-promoting company ships the product to a
third party. Selling and marketing expenses related to alliance revenue are
included in Selling, general and administrative expenses.

    SHIPPING AND HANDLING COSTS, which include transportation to customers,
transportation to distribution points, warehousing and handling costs, are
included in Selling, general and administrative expenses. The Company typically
does not charge customers for shipping and handling costs. Shipping and handling
costs were $212,493,000, $204,508,000 and $204,866,000 in 2000, 1999 and 1998,
respectively.

    REBATES AND SALES INCENTIVES are offered to customers based upon volume
purchases, the attainment of market share levels, sales support, government
mandates, coupons and consumer discounts. Rebates and sales incentives included
in Accrued expenses at December 31, 2000 and 1999 were $482,666,000 and
$434,490,000, respectively.

    EARNINGS (LOSS) PER SHARE: The following table sets forth the computations
of basic earnings (loss) per share and diluted earnings (loss) per share:

(In thousands except
per share amounts)

<TABLE>
<CAPTION>
Years Ended December 31,                      2000           1999           1998
--------------------------------------------------------------------------------
<S>                                    <C>            <C>            <C>
Income (loss) from continuing
  operations less preferred
  dividends                            $  (901,086)   $(1,207,293)   $ 2,152,290
Income (loss) from
  discontinued operations               (1,469,647)       (19,878)       321,994
                                       -----------------------------------------
Net income (loss) less
  preferred dividends                  $(2,370,733)   $(1,227,171)   $ 2,474,284
                                       -----------------------------------------
Denominator:
  Weighted average common
  shares outstanding                     1,306,474      1,308,876      1,314,580
                                       -----------------------------------------
Basic earnings (loss) per share
  from continuing operations           $     (0.69)   $     (0.92)   $      1.64
Basic earnings (loss) per
  share from discontinued
  operations                                 (1.12)         (0.02)          0.24
                                       -----------------------------------------
Basic earnings (loss) per share        $     (1.81)   $     (0.94)   $      1.88
                                       =========================================

Income (loss) from continuing
  operations                           $  (901,040)   $(1,207,243)   $ 2,152,344
Income (loss) from
  discontinued operations               (1,469,647)       (19,878)       321,994
                                        ----------------------------------------
Net income (loss)                      $(2,370,687)   $(1,227,121)   $ 2,474,338
                                       -----------------------------------------
Denominator:
  Weighted average common
  shares outstanding                     1,306,474      1,308,876      1,314,580
  Common share equivalents
  of outstanding stock options
  and deferred contingent
  common stock awards*                          --             --         22,061
                                       -----------------------------------------
Total shares*                            1,306,474      1,308,876      1,336,641
                                       -----------------------------------------
Diluted earnings (loss) per
  share from continuing
  operations*                          $     (0.69)   $     (0.92)   $      1.61
Diluted earnings (loss) per
  share from discontinued
  operations*                                (1.12)         (0.02)          0.24
                                       -----------------------------------------
Diluted earnings (loss)
  per share*                           $     (1.81)   $     (0.94)   $      1.85
                                       =========================================
</TABLE>

*  The total weighted average common shares outstanding for diluted loss per
   share for 2000 and 1999 did not include common share equivalents, as the
   effect would have been antidilutive.


37
<PAGE>
    RECENTLY ISSUED ACCOUNTING STANDARDS: In June 1998, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS)
No. 133, "Accounting for Derivative Instruments and Hedging Activities." In June
2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities, an Amendment of FASB Statement No.
133." SFAS No. 138 was issued to address a limited number of issues causing
implementation difficulties for entities that apply SFAS No. 133. SFAS Nos. 133
and 138 require that all derivatives be measured at fair value and be recognized
as assets or liabilities on the balance sheet. Changes in the fair value of
derivatives should be recognized in either net income (loss) or comprehensive
income (loss), depending on the designated purpose of the derivative. The
Company will adopt SFAS Nos. 133 and 138 in the 2001 first quarter. Based on the
Company's current activities, the Company does not believe that adoption of
these pronouncements will have a material impact on the Company's financial
position, results of operations or cash flows.

    In May 2000, the Emerging Issues Task Force (EITF) reached a consensus on
Issue No. 00-14, "Accounting for Certain Sales Incentives." EITF No. 00-14
addresses the recognition, measurement and Consolidated Statements of Operations
classification for sales incentives offered voluntarily to customers. This
guidance is required to be implemented by the Company no later than the 2001
second quarter. The Company currently is in compliance with the recognition and
measurement aspects of EITF No. 00-14. The Company does not believe that the
Consolidated Statements of Operations classification requirement will have a
material impact on net revenue.

    RECLASSIFICATIONS: Certain reclassifications have been made to the December
31, 1999 and 1998 Consolidated Financial Statements to conform with the December
31, 2000 presentation.


2.  ACQUISITIONS, DIVESTITURES AND DISCONTINUED OPERATIONS

Discontinued Operations -- Cyanamid Agricultural Products

On March 20, 2000, the Company signed a definitive agreement with BASF
Aktiengesellschaft (BASF) to sell the Cyanamid Agricultural Products business
which manufactures, distributes and sells crop protection and pest control
products worldwide. On June 30, 2000, the sale was completed, and BASF paid the
Company $3,800,000,000 in cash and assumed certain debt. The Company recorded an
after-tax loss on the sale of this business of $1,572,993,000 or $1.20 per
share-diluted and reflected this business as a discontinued operation in the
2000 first quarter. The loss on the sale included closing costs from the
transaction and operating income of the discontinued business from April 1, 2000
through June 30, 2000 (the disposal date). The loss on the sale was due
primarily to a difference in the basis of the net assets sold for financial
reporting purposes compared with the Company's basis in such net assets for tax
purposes. This difference related, for the most part, to goodwill, which is not
recognized for tax purposes. As a result, the transaction generated a taxable
gain requiring the recording of a tax provision, in addition to a book loss
related to a write-off of net assets in excess of the selling price. The
Consolidated Financial Statements and related notes for the periods ended
December 31, 1999 and 1998 have been restated, where applicable, to reflect the
Cyanamid Agricultural Products business as a discontinued operation.

Operating results of discontinued operations were as follows:


<TABLE>
<CAPTION>
(In thousands except
per share amounts)                            Statement of Operations Data
                                       -----------------------------------------
Years Ended December 31,                      2000           1999           1998
--------------------------------------------------------------------------------
<S>                                    <C>            <C>            <C>
Net revenue                            $   546,790    $ 1,668,980    $ 2,194,117
                                       -----------------------------------------
Income (loss) before federal
  and foreign taxes                        160,635        (18,327)       495,524
Provision for federal and
  foreign taxes                             57,289          1,551        173,530
                                       -----------------------------------------
Income (loss) from operations
  of discontinued agricultural
  products business                        103,346        (19,878)       321,994
Loss on disposal of agricultural
  products business
  (including federal and
  foreign tax charges
  of $855,248)                          (1,572,993)            --             --
                                       -----------------------------------------
Income (loss) from
  discontinued operations              $(1,469,647)   $   (19,878)   $   321,994
                                       =========================================
Diluted income (loss)
  per share from
  discontinued operations              $     (1.12)   $     (0.02)   $      0.24
                                       =========================================
</TABLE>


Sale of Immunex Common Stock

In October 2000, the Company increased its ownership in Immunex from
approximately 53% to approximately 55% by converting a $450,000,000 convertible
subordinated note into 15,544,041 newly issued shares of common stock of
Immunex. In November 2000, through a joint public equity offering, Immunex sold
20 million shares of newly issued Immunex common stock, and the Company sold
60.5 million shares of Immunex common stock. Proceeds to the Company were
approximately $2,404,875,000, resulting in a gain on the sale of $2,061,204,000
($1,414,859,000 after-tax or $1.08 per share-diluted). Included in the gain on
the sale was a noncash pre-tax gain of $303,192,000 ($200,247,000 after-tax),
representing the Company's increase in its proportionate share of the net book
value of Immunex from Immunex's issuance of 20 million shares of its common
stock at a price above the net book value per share owned by the Company. The
Company used the net proceeds from the sale of its Immunex common stock to
reduce outstanding commercial paper and for other general corporate purposes.

    The public equity offering reduced the Company's ownership in Immunex from
approximately 55% to approximately 41%, which represented the ownership at
December 31, 2000. As a result of the reduction in ownership below 50%, the
Company included the financial results of Immunex on an equity basis retroactive
to January 1, 2000. Quarterly results of operations in 2000, reflected in
"Quarterly Financial Data" herein, were restated to reflect the accounting for
Immunex on an equity basis; however, there was no impact on income from
continuing operations.

    Key elements of related agreements between the Company and Immunex included
the future sale by the Company of its recently acquired biotechnology facility
in Rhode Island to Immunex and the Company's agreement, if requested, to supply
up to $550,000,000 in financing guarantees relating to Immunex's financing of
its proposed new research and technology center in Seattle, Washington. All
existing licensing and marketing rights to Enbrel remain unchanged.



38
<PAGE>
Other Acquisitions and Divestitures

In July 1998, the Company purchased the vitamin and nutritional supplement
products business of Solgar Vitamin and Herb Company Inc. and its related
affiliates (Solgar) for $425,041,000 in cash. The purchase price exceeded the
net assets acquired by $397,568,000. The excess purchase price has been recorded
in Goodwill and other intangibles and is being amortized over periods of four to
25 years. In December 2000, based on projected profitability and future cash
flows, the carrying value of Solgar goodwill was determined to be impaired (see
Note 3). As a result, a pre-tax charge of $170,000,000 was recorded to write
down the carrying value of Solgar goodwill to its fair value of $189,644,000 at
December 31, 2000.

    In February 1998, the Company sold the Sherwood-Davis & Geck medical devices
business for approximately $1,770,000,000, resulting in a pre-tax gain of
$592,084,000. The proceeds from the sale were used primarily to reduce
outstanding commercial paper. Income and diluted earnings per share from
continuing operations for 1998 included an after-tax gain on the sale of
$330,782,000 and $0.25, respectively.

    The Company had other acquisitions and divestitures during 2000, 1999 and
1998, the effects of which, individually and in the aggregate, were not material
to the Company's financial position, results of operations or cash flows. The
operations of all businesses acquired and divested during 2000, 1999 and 1998,
individually and in the aggregate, except for the sale of the Cyanamid
Agricultural Products business, were not material to the Company's financial
position, results of operations or cash flows in any of these years.


3. TERMINATION FEE, GOODWILL IMPAIRMENT AND SPECIAL CHARGES

Termination Fee

On November 3, 1999, the Company and Warner-Lambert Company entered into an
agreement to combine the two companies in a merger-of-equals transaction. On
February 6, 2000, the merger agreement was terminated. The Company recorded
income of $1,709,380,000 ($1,111,097,000 after-tax or $0.85 per share-diluted)
resulting from the receipt of a $1,800,000,000 termination fee provided for
under the merger agreement offset, in part, by certain related expenses.

Goodwill Impairment

Based on projected profitability and future cash flows associated with generic
pharmaceuticals and the Solgar consumer health care product line, it was
determined that goodwill related to these product lines, at December 31, 2000,
was impaired. As a result, the Company recorded a charge of $401,000,000
($341,000,000 after-tax or $0.26 per share-diluted) in 2000 to write down the
carrying value of goodwill, to fair value, based upon discounted future cash
flows.


SPECIAL CHARGES:

Voluntary Market Withdrawals

In November 2000, the U.S. Food and Drug Administration (FDA) requested that the
pharmaceutical industry voluntarily stop producing and distributing any products
containing phenylpropanolamine (PPA). The Company immediately ceased global
production and shipments of any products containing PPA and voluntarily withdrew
any such products from customer warehouses and retail store shelves. As a
result, the Company recorded a special charge of $80,000,000 ($52,000,000
after-tax or $0.04 per share-diluted) to provide primarily for product returns
and the write-off of inventory. The Company already had reformulated a majority
of the products involved in the voluntary market withdrawal and began shipping
these products in the United States at the end of November 2000. At December 31,
2000, approximately $49,552,000 of the accrual remained.

    During the 1999 second quarter, the Company recorded a special charge
aggregating $82,000,000 ($53,000,000 after-tax or $0.04 per share-diluted) for
estimated costs associated with the suspension of shipments and the voluntary
market withdrawal of RotaShield, the Company's rotavirus vaccine. At December
31, 2000, approximately $4,200,000 of the accrual remained.

Product Discontinuations

During the 2000 fourth quarter, the Company recorded a special charge of
$267,000,000 ($173,000,000 after-tax or $0.13 per share-diluted) related to the
discontinuation of certain products manufactured at the Company's Marietta,
Pennsylvania, and Pearl River, New York, facilities. Approximately $227,100,000
related to fixed asset impairments and inventory write-offs, with the remainder
of the charge covering severance obligations, idle plant costs and contract
termination costs. At December 31, 2000, approximately $39,900,000 of the
accrual remained.

Restructuring Charge and Related Asset Impairments

In December 1998, the Company recorded a special charge for restructuring and
related asset impairments of $321,200,000 ($224,800,000 after-tax or $0.17 per
share-diluted) to recognize the costs of the reorganization of the
pharmaceutical and nutritional supply chains (primarily in the Asian-Pacific and
Latin American regions), the reorganization of the U.S. pharmaceutical and
consumer health care distribution systems, and a reduction in personnel from the
globalization of certain business units. The reorganization of the
pharmaceutical and nutritional supply chains will result in the closure of 14
plants (nine pharmaceutical and five nutritional). The reorganization of the
U.S. pharmaceutical and consumer health care distribution systems resulted in
the closure of three distribution centers. The restructuring ultimately will
result in the elimination of 3,600 positions offset, in part, by 1,000 newly
created positions in the same functions at other locations. The components of
this charge were as follows: (i) personnel costs of $119,975,000, (ii) noncash
costs for fixed asset write-offs of $115,225,000 and (iii) other closure/exit
costs of $86,000,000. The noncash costs of $115,225,000 reduced the carrying
value of the fixed assets to their estimated fair value, taking into
consideration depreciation expected during the transition period, which was
determined by experience with similar properties and external appraisals. These
fixed assets, with a fair value of $11,575,000, have remained operational during
the transition period of obtaining the necessary regulatory approvals to
relocate these operations to new and existing facilities. Since these fixed
assets have remained in use, depreciation was not suspended and will be
recognized over the transition period. Other closure/exit costs are a direct



39
<PAGE>
result of the restructuring plan. The majority of the other closure/exit costs
are anticipated to be paid after the facilities cease production and prior to
disposition. These costs include non-cancelable operating leases, security,
utilities, maintenance, property taxes and other related costs that will be paid
during the disposal period. Due to the specialized nature of these facilities,
the majority of the costs will be paid over a two- to three-year period as
product transfers are approved by regulatory authorities and manufacturing sites
are closed. However, delays in obtaining certain regulatory approvals and other
closure delays will cause certain costs to be paid after that period.

    At December 31, 2000, approximately 3,300 positions had been eliminated, and
two distribution centers owned by the Company and a leased distribution center
had been closed. The manufacturing plants, eight of which were closed in 2000,
are continuing their phase-out period. The Company currently anticipates closing
three plants in 2001 and the remaining facilities in 2002, assuming no further
delays in regulatory approvals.

    Activity in the restructuring accruals from continuing operations was as
follows:

<TABLE>
<CAPTION>
                                              Personnel    Fixed Asset    Other Closure/
(In thousands)                                    Costs     Write-offs        Exit Costs        Total
-----------------------------------------------------------------------------------------------------
<S>                                           <C>          <C>            <C>               <C>
Restructuring accruals at inception           $ 119,975      $ 115,225         $  86,000    $ 321,200

Cash expenditures                                  (527)            --              (922)      (1,449)
Write-offs of fixed assets                           --       (115,225)               --     (115,225)
                                              -------------------------------------------------------
Restructuring accruals at December 31, 1998     119,448             --            85,078      204,526
Cash expenditures                               (64,695)            --            (5,817)     (70,512)
                                              -------------------------------------------------------
Restructuring accruals at December 31, 1999      54,753             --            79,261      134,014
Cash expenditures                               (48,504)            --           (19,626)     (68,130)
                                              -------------------------------------------------------
Restructuring accruals at December 31, 2000   $   6,249      $      --         $  59,635    $  65,884
                                              =======================================================
</TABLE>


4.  DEBT AND FINANCING ARRANGEMENTS

The Company's debt from continuing operations at December 31 consisted of:

<TABLE>
<CAPTION>
(In thousands)                                               2000           1999
--------------------------------------------------------------------------------
<S>                                                    <C>            <C>
Commercial paper                                       $  798,029     $2,841,630
Notes payable:
  7.70% notes due 2000                                         --      1,000,000
  6.50% notes due 2002                                    250,000        250,000
  7.90% notes due 2005                                  1,000,000      1,000,000
  7.25% debentures due 2023                               250,000        250,000
Pollution control and industrial revenue bonds:
  5.1% - 5.8% due 2006 - 2020                              85,150         96,850
Other debt:
  2.1% - 24.0% due 2001 - 2009                             70,328         48,759
                                                       -------------------------
                                                        2,453,507      5,487,239
Less current portion                                       58,717      1,880,816
                                                       -------------------------
                                                       $2,394,790     $3,606,423
                                                       =========================
</TABLE>

    The fair value of the Company's outstanding debt was $2,506,594,000 and
$5,490,427,000 at December 31, 2000 and 1999, respectively. The fair value of
the Company's outstanding debt was estimated based on market prices.

    The weighted average interest rate on the commercial paper outstanding at
December 31, 2000 and 1999 was 6.45% and 5.72%, respectively. The commercial
paper had original maturities that did not exceed 270 days and a weighted
average remaining maturity of 35 days and 42 days at December 31, 2000 and 1999,
respectively.

    In 1998, the Company reduced its $5,000,000,000 revolving credit facility to
$2,000,000,000 by terminating a $2,500,000,000, 364-day credit facility in its
entirety and by reducing a $2,500,000,000, five-year credit facility to
$2,000,000,000. The remaining $2,000,000,000, five-year credit facility supports
a significant portion of the Company's commercial paper program and has a
maturity date of July 31, 2002.

    In March 2001, subsequent to the date of the "Report of Independent Public
Accountants," the Company obtained new revolving credit facilities totaling
$6,000,000,000 to support future expected borrowings under its commercial paper
program. The new credit facilities are composed of a $3,000,000,000, 364-day
facility with the option to extend the term of borrowings, if any, under the
facility for an additional year and a $3,000,000,000, 364-day bridge facility to
capital markets, which will be terminated upon the issuance of term debt by the
Company during 2001.

    The interest rate on borrowings under the three credit facilities, which
total $8,000,000,000, is based on various rate options available to the Company.
The proceeds of the credit facilities may be used to support commercial paper
and the Company's general corporate and working capital requirements, including
payments related to the Redux and Pondimin litigation. The credit facilities
each contain the same financial covenant and various other customary covenants,
representations, warranties, conditions and default provisions. At December 31,
2000 and 1999, there were no borrowings outstanding under the $2,000,000,000
credit facility. The entire balance of



40
<PAGE>
commercial paper outstanding at December 31, 2000 and the portion of commercial
paper outstanding at December 31, 1999 supported by the $2,000,000,000 credit
facility were classified as Long-term debt since the Company intends, and has
the ability, to refinance these obligations through the issuance of additional
commercial paper, through the use of its $2,000,000,000 credit facility or
through the issuance of long-term debt. Outstanding commercial paper of
$841,630,000 at December 31, 1999 was classified as current, representing the
amount of the outstanding commercial paper borrowings in excess of the Company's
$2,000,000,000 credit facility that supports the commercial paper program.

    The Company has outstanding $1,000,000,000 of 7.90% notes due February 2005.
These non-callable notes, which have semiannual interest payments due on
February 15 and August 15, are unsecured and unsubordinated. The Company also
has outstanding $250,000,000 of 6.50% notes due October 2002 and $250,000,000 of
7.25% debentures due March 2023. The 6.50% non-callable notes have semiannual
interest payments due on April 15 and October 15. The 7.25% non-callable
debentures have semiannual interest payments due on March 1 and September 1. The
non-callable notes and debentures are unsecured and unsubordinated. The
Company's $1,000,000,000 of 7.70% notes, which were classified as current at
December 31, 1999, were due and repaid in February 2000.

    The aggregate maturities of debt during the next five years and thereafter
at December 31, 2000 are as follows:

<TABLE>
<CAPTION>
(In thousands)
--------------------------------------------------------------------------------
<S>                                                                   <C>
2001                                                                  $   58,717
2002                                                                     252,347
2003                                                                       7,697
2004                                                                       5,788
2005                                                                   1,001,394
Thereafter                                                               329,535
                                                                      ----------
                                                                       1,655,478
Commercial paper (classified as Long-term debt)                          798,029
                                                                      ----------
Total debt                                                            $2,453,507
                                                                      ==========
</TABLE>

    Interest payments in connection with the Company's debt obligations for the
years ended December 31, 2000, 1999 and 1998 amounted to $342,970,000,
$294,790,000 and $316,018,000, respectively.

    Interest expense, net included interest income of $181,278,000, $129,406,000
and $115,813,000 in 2000, 1999 and 1998, respectively. Interest capitalized in
connection with capital projects was $43,303,000, $15,375,000 and $9,497,000 in
2000, 1999 and 1998, respectively.

    The Company enters into short-term foreign exchange forward contracts as
part of its management of foreign currency exposures (see Note 1). At December
31, 2000 and 1999, the Company had notional amounts of $558,768,000 and
$681,102,000, respectively, of foreign exchange forward contracts outstanding.
The fair value of the foreign exchange forward contracts was a net receivable of
$3,355,000 at December 31, 2000 and a net payable of $12,979,000 at December 31,
1999. The Company believes that the risk of loss associated with the foreign
currency agreements from non-performance by the counterparties is not material
to its financial position, results of operations or cash flows.


5.  OTHER NONCURRENT LIABILITIES

Other noncurrent liabilities include reserves for the Redux and Pondimin
litigation (see Note 10), reserves relating to income taxes, environmental
matters, product liability and other litigation, as well as restructuring,
pension and other employee benefit liabilities, and minority interests.

    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. At December 31, 2000, the Company was a party to, or
otherwise involved in, legal proceedings directed at the cleanup of 59 Superfund
sites.

    It is the Company's policy to accrue for environmental cleanup costs if it
is probable that a liability has been incurred and an amount is reasonably
estimable. In many cases, future environmental-related expenditures cannot be
quantified with a reasonable degree of accuracy. Environmental expenditures that
relate to an existing condition caused by past operations that do not contribute
to current or future results of operations are expensed. As investigations and
cleanups proceed, environmental-related liabilities are reviewed and adjusted as
additional information becomes available. The aggregate environmental-related
accruals were $378,570,000 and $359,190,000 at December 31, 2000 and 1999,
respectively. Environmental-related accruals have been recorded without giving
effect to any possible future insurance proceeds or the timing of payments. See
Note 10 for a discussion of contingencies.

    In 2000, the Company introduced a new incentive program to employees, the
Performance Incentive Award Program (PIA), based on the Company's operating
results and the individual employees' performance. Substantially all U.S. and
Puerto Rico exempt employees, who are not subject to other incentive programs,
and key international employees are eligible to receive cash awards under PIA.
The value of PIA awards for 2000 was $94,658,000. In 1999, cash bonuses totaling
$38,773,000 were paid to key employees. In 1998, the Company provided incentive
awards under the Management Incentive Plan (MIP), which provides for cash and
deferred contingent common stock awards to key employees. The value of MIP
awards for 1998 was $56,892,000, which included deferred contingent common stock
of $14,261,000 (261,256 shares). Deferred contingent common stock awards plus
accrued dividends totaling 1,104,340 shares were outstanding at December 31,
2000.


6. PENSIONS AND OTHER POSTRETIREMENT BENEFITS

PENSIONS: The Company sponsors various retirement plans for most full-time
employees. These defined benefit and defined contribution plans cover most U.S.
and certain international locations. Total pension expense from continuing
operations for both defined benefit and defined contribution plans for 2000,
1999 and 1998 was $107,654,000, $95,464,000 and $93,435,000, respectively.
Pension plan benefits for defined benefit plans are based primarily on
participants' compensation and years of credited service. It has been the
Company's policy to fund the minimum amount required by local regulations of
current and prior year service costs under its funded defined benefit retirement
plans. Contributions to defined contribution plans are based on a percentage of
employees' compensation. Pension expense from continuing operations recognized
for defined



41
<PAGE>
contribution plans for 2000, 1999 and 1998 totaled $62,902,000, $61,587,000 and
$58,715,000, respectively.

    OTHER POSTRETIREMENT BENEFITS: The Company provides postretirement health
care and life insurance benefits for retired employees of most domestic
locations and Canada. Most full-time employees become eligible for these
benefits after attaining specified age and service requirements.

    Although the Company sold the Cyanamid Agricultural Products business (see
Note 2), which was accounted for as a discontinued operation, the pensions and
other postretirement benefits were excluded from the sale for U.S. plans since
employees of the Cyanamid Agricultural Products business accrued benefits in
plans that encompassed other business segments. Except for one pension plan in
Germany, all international plans will continue to be maintained by the Company
to pay benefits that were accrued prior to the sale. Accordingly, benefit
obligations, fair value of plan assets and accrued benefit liabilities were not
restated, except to reflect the sale of the pension plan in Germany. However,
components of net periodic benefit cost from continuing operations were restated
to reflect the Cyanamid Agricultural Products business as a discontinued
operation.

    The change in benefit obligation, change in plan assets and reconciliation
of funded status of the Company's defined benefit plans (principally U.S. plans)
for 2000 and 1999 were as follows:

<TABLE>
<CAPTION>
                                                                      PENSIONS               OTHER POSTRETIREMENT BENEFITS
                                                           ----------------------------      -----------------------------
CHANGE IN BENEFIT OBLIGATION (In thousands)                       2000             1999             2000             1999
--------------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>              <C>              <C>              <C>
Benefit obligation at January 1                            $ 3,005,665      $ 3,156,754      $ 1,076,298      $ 1,025,286
Consolidation of Japan benefit plan                            186,327               --               --               --
Service cost                                                    74,656           69,056           20,460           23,001
Interest cost                                                  225,248          211,971           77,666           74,871
Service and interest cost from discontinued operations           3,074            9,839            2,189            3,986
Amendments                                                      11,235           28,518           16,952               --
Net actuarial loss/(gain)                                       71,158         (107,782)         (72,589)          13,089
Curtailments/settlements                                       (39,826)          (2,315)         (24,289)              --
Benefits paid                                                 (296,613)        (350,573)         (75,900)         (64,486)
Currency translation adjustment                                (30,349)          (9,803)            (457)             551
                                                           --------------------------------------------------------------
Benefit obligation at December 31                          $ 3,210,575      $ 3,005,665      $ 1,020,330      $ 1,076,298
                                                           ==============================================================
</TABLE>

<TABLE>
<CAPTION>
                                                                      PENSIONS               OTHER POSTRETIREMENT BENEFITS
                                                           ----------------------------      -----------------------------
CHANGE IN PLAN ASSETS (In thousands)                              2000             1999             2000             1999
--------------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>              <C>              <C>              <C>
Fair value of plan assets at January 1                     $ 3,001,154      $ 2,891,610               --               --
Consolidation of Japan benefit plan                             76,089               --               --               --
Actual return on plan assets                                    34,607          439,515               --               --
Amendments                                                          --            6,843               --               --
Company contributions                                           17,554           14,259      $    75,900      $    64,486
Benefits paid                                                 (296,613)        (350,573)         (75,900)         (64,486)
Currency translation adjustment                                (16,775)            (500)              --               --
                                                           --------------------------------------------------------------
Fair value of plan assets at December 31                   $ 2,816,016      $ 3,001,154      $        --      $        --
                                                           ==============================================================
</TABLE>

<TABLE>
<CAPTION>
                                                                      PENSIONS               OTHER POSTRETIREMENT BENEFITS
                                                           ----------------------------      -----------------------------
RECONCILIATION OF FUNDED STATUS (In thousands)                    2000             1999             2000             1999
--------------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>              <C>              <C>              <C>
Benefit obligation in excess of plan assets                $   394,559      $     4,511      $ 1,020,330      $ 1,076,298
Unrecognized net actuarial gain/(loss)                         (44,225)         289,953          (15,603)        (112,160)
Unrecognized prior service cost                                (60,502)         (74,198)         (18,698)          (2,248)
Unrecognized net transition obligation                          (8,266)          (4,811)              --               --
                                                           --------------------------------------------------------------
Accrued benefit liability                                  $   281,566      $   215,455      $   986,029      $   961,890
                                                           ==============================================================
</TABLE>

    The fluctuation in unrecognized net actuarial loss for pensions in 2000
compared with the unrecognized net actuarial gain for pensions in 1999 was due
primarily to the actual return on plan assets being less than the expected
return on plan assets in 2000, pertaining mostly to the U.S. plans. Accrued
benefit liability increased in 2000 compared with 1999 due primarily to
consolidating the benefit plan of a subsidiary in Japan. The decrease in
unrecognized net actuarial loss for other postretirement benefits resulted from
a change in the plans' expected per capita cost for benefits provided to
employees.



42
<PAGE>
    There were no plan assets for the Company's other postretirement benefit
plans at December 31, 2000 and 1999 as postretirement benefits are funded by the
Company when claims are paid. The current portion of the accrued benefit
liability for other postretirement benefits was $75,000,000 and $65,000,000 at
December 31, 2000 and 1999, respectively.

    At December 31, 2000 and 1999, the Company had six unfunded pension plans
with aggregate projected benefit obligations of $234,888,000 and $219,706,000,
respectively, and accumulated benefit obligations of $186,328,000 and
$176,504,000, respectively.

    Assumptions used in developing the benefit obligations at December 31 were
as follows:

<TABLE>
<CAPTION>
                                                                       PENSIONS                    OTHER POSTRETIREMENT BENEFITS
                                                           -------------------------------     -------------------------------------
WEIGHTED AVERAGE ASSUMPTIONS AT DECEMBER 31,                2000         1999        1998          2000          1999          1998
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>          <C>         <C>       <C>          <C>            <C>
Discount rate                                                7.5%         7.75%       7.0%          7.5%         7.75%          7.0%
Rate of compensation increase                                4.0%         4.5%        4.0%           --            --            --
Expected return on plan assets                               9.5%         9.5%        9.5%           --            --            --
Increase in per capita cost of health care benefits
  that gradually decreases and is held constant
  thereafter beginning in 2004                                --           --          --      7.0%-5.0%     7.5%-5.0%     8.0%-5.0%
</TABLE>

    The assumed health care cost trend rates have a significant effect on the
amounts reported. A one percentage point increase in the assumed health care
cost trend rates would increase the postretirement benefit obligation by
$105,327,000 and the total service and interest cost components from continuing
operations by $12,923,000. A one percentage point decrease in the assumed health
care cost trend rates would decrease the postretirement benefit obligation by
$98,815,000 and the total service and interest cost components from continuing
operations by $10,235,000.

    Net periodic benefit cost from continuing operations for 2000, 1999 and 1998
of the Company's defined benefit plans (principally U.S. plans) was as follows:

<TABLE>
<CAPTION>
                                                                 PENSIONS                          OTHER POSTRETIREMENT BENEFITS
COMPONENTS OF NET PERIODIC BENEFIT COST FROM     ----------------------------------------     --------------------------------------
CONTINUING OPERATIONS (In thousands)                  2000           1999           1998           2000          1999          1998
------------------------------------------------------------------------------------------------------------------------------------
<S>                                              <C>            <C>            <C>            <C>           <C>           <C>
Service cost                                     $  74,656      $  69,056      $  64,590      $  20,460     $  23,001     $  17,489
Interest cost                                      225,248        211,971        213,428         77,666        74,871        64,965
Expected return on plan assets                    (270,131)      (260,323)      (253,034)            --            --            --
Amortization of prior service cost                  10,704         10,734         11,328            330           339           339
Amortization of transition obligation                2,184          1,114          1,143             --            --            --
Recognized net actuarial loss/(gain)                 2,091          2,827          3,005            134         6,852          (103)
Curtailment gain                                        --         (1,502)        (5,740)            --            --            --
                                                 -----------------------------------------------------------------------------------
Net periodic benefit cost from
  continuing operations                          $  44,752      $  33,877      $  34,720      $  98,590     $ 105,063     $  82,690
                                                 ===================================================================================
</TABLE>

    Net periodic pension benefit cost from continuing operations was higher in
2000 compared with 1999 due primarily to consolidating a subsidiary in Japan
effective January 1, 2000 (see Note 1).

    Net periodic other postretirement benefit cost from continuing operations
was higher in 1999 compared with 1998 due primarily to a change in early
retirement assumptions.

    As a result of the sale of the Cyanamid Agricultural Products business, the
Company realized a curtailment gain related to the pension plans of $25,517,000.
This curtailment gain was recorded in Loss on disposal of agricultural products
business.


7.  CAPITAL STOCK

There were 2,400,000,000 shares of common stock and 5,000,000 shares of
preferred stock authorized at December 31, 2000 and 1999. Of the authorized
preferred shares, there is a series of shares (21,948 and 24,241 outstanding at
December 31, 2000 and 1999, respectively) which is designated as $2.00
convertible preferred stock. Each share of the $2.00 series is convertible at
the option of the holder into 36 shares of common stock. This series may be
called for redemption at $60.00 per share plus accrued dividends.

    On October 7, 1999, the Company's Board of Directors declared a dividend of
one preferred share purchase right for each share of common stock outstanding on
October 18, 1999. The rights also will apply to all future stock issuances. Each
right permits the holder, under certain circumstances and upon the occurrence of
certain events, to purchase from the Company one one-thousandth of a share of
Series A Junior Participating Preferred Stock of the Company (the Series A
Preferred Stock) at an exercise price of $225 per one one-thousandth of a share
of Series A Preferred Stock under a Rights Plan relating to such Series A
Preferred Stock. The 5,000,000 shares of preferred stock authorized will be used
for the exercise of any preferred share purchase rights. The Rights Plan has
provisions that are triggered if any person or group acquires beneficial
ownership of 15% or more of the outstanding common stock or acquires the



43
<PAGE>
Company in a merger or other business combination (an Acquiring Person). In such
event, stockholders (other than the Acquiring Person) would receive stock of the
Company or the Acquiring Person, as the case may be, having a market value of
twice the exercise price along with substantially increased voting and dividend
rights, among other things. The rights expire on October 7, 2009, and prior to
there being an Acquiring Person, the Company may redeem the rights issued under
the Rights Plan for $0.01 per right. The Board can, except with respect to the
redemption price, amend the Rights Plan in any manner without the consent of the
holders of the rights, provided that such amendment does not adversely affect
the rights of the holder at any time after there is an Acquiring Person.

    Changes in outstanding common shares during 2000, 1999 and 1998 were as
follows:

<TABLE>
<CAPTION>
(In thousands except
shares of preferred stock)                 2000            1999            1998
--------------------------------------------------------------------------------
<S>                                   <C>             <C>             <C>
Balance at January 1                  1,303,916       1,312,399       1,300,755
Issued for stock options                 15,123          10,589          19,811
Purchases of common stock
  for treasury                           (7,414)        (19,226)         (8,284)
Conversions of preferred stock
  (2,293, 1,239 and 3,365
  shares in 2000, 1999 and
  1998, respectively) and
  other exchanges                           149             154             117
                                      -----------------------------------------
Balance at December 31                1,311,774       1,303,916       1,312,399
                                      =========================================
</TABLE>

    The Company has a common stock repurchase program under which the Company is
authorized to repurchase common shares. At December 31, 2000, the Company was
authorized to repurchase 6,492,460 common shares in the future.


8.  STOCK OPTIONS

The Company has two Stock Option Plans and four Stock Incentive Plans. No
further grants may be made under the two Stock Option Plans. Under the four
Stock Incentive Plans, options to purchase a maximum of 229,000,000 shares may
be granted at prices not less than 100% of the fair market value of the
Company's common stock on the date the option is granted. At December 31, 2000,
46,242,457 shares were available for future grants under the Stock Incentive
Plans.

    The plans provide for the granting of incentive stock options as defined
under the Internal Revenue Code. Under the plans, grants may be made to selected
officers and employees of non-qualified stock options with a 10-year term or
incentive stock options with a term not exceeding 10 years. The plans also
provide for the granting of stock appreciation rights (SAR), which entitle the
holder to receive shares of the Company's common stock or cash equal to the
excess of the market price of the common stock over the exercise price when
exercised. At December 31, 2000, there were no outstanding SARs.

    Each Stock Incentive Plan allows for, among other things, the issuance of up
to 8,000,000 shares (32,000,000 shares in the aggregate for all Stock Incentive
Plans) as restricted stock awards. Restricted stock awards representing 148,900,
148,850 and 68,400 units were granted in 2000, 1999 and 1998, respectively,
under the plans to certain key executives. These units generally are converted
to shares of restricted stock based on the achievement of certain performance
criteria related to performance years 1998 through 2004.

    Under the 1999 Stock Option Plan for Non-Employee Directors, a maximum of
250,000 shares may be granted to non-employee directors at 100% of the fair
market value of the Company's common stock on the date of the grant. During each
of 2000 and 1999, 21,000 stock options were granted to non-employee directors,
and 208,000 shares were available for future grants at December 31, 2000.

    Under the 1994 Restricted Stock Plan for Non-Employee Directors, a maximum
of 100,000 restricted shares may be granted to non-employee directors. The
restricted shares granted to each non-employee director are not delivered prior
to the end of a five-year restricted period. At December 31, 2000, 66,400 shares
were available for future grants.

    Stock option information related to the plans was as follows:

<TABLE>
<CAPTION>
                                                                  WEIGHTED                  WEIGHTED                  WEIGHTED
                                                                   AVERAGE                   AVERAGE                   AVERAGE
                                                                  EXERCISE                  EXERCISE                  EXERCISE
STOCK OPTIONS                                             2000       PRICE          1999       PRICE          1998       PRICE
------------------------------------------------------------------------------------------------------------------------------
<S>                                                <C>            <C>        <C>            <C>        <C>            <C>
Outstanding at January 1                            85,244,130    $  39.13    75,790,629    $  30.53    83,306,276    $  24.86
Granted                                             16,496,678       56.51    21,945,755       62.00    15,167,210       50.13
Canceled                                            (3,866,134)      58.32    (1,903,601)      51.83    (2,872,314)      37.03
Exercised (2000 -- $11.80 to $62.31 per share)     (15,123,361)      27.90   (10,588,653)      22.76   (19,810,543)      20.79
                                                   -----------               -----------               -----------

Outstanding at December 31
  (2000 -- $14.52 to $65.19 per share)              82,751,313       43.74    85,244,130       39.13    75,790,629       30.53
                                                   ===========               ===========               ===========

Exercisable at December 31                          51,830,094       35.31    52,789,450       28.27    54,471,524       24.51
                                                   ===========               ===========               ===========
</TABLE>



44
<PAGE>
    The following table summarizes information regarding stock options
outstanding at December 31, 2000:

<TABLE>
<CAPTION>
                     Options Outstanding                                        Options Exercisable
----------------------------------------------------------------------    -------------------------------
                                  Weighted Average    Weighted Average                   Weighted Average
       Range of         Number           Remaining            Exercise         Number            Exercise
Exercise Prices    Outstanding    Contractual Life               Price    Exercisable               Price
---------------------------------------------------------------------------------------------------------
<S>                <C>            <C>                 <C>                 <C>            <C>
$14.52 to 19.99     16,211,773           3.3 years              $17.80     16,211,773              $17.80
 20.00 to 29.99      5,305,927           4.9 years               26.38      5,305,927               26.38
 30.00 to 39.99     14,541,345           5.7 years               36.18     14,541,345               36.18
 40.00 to 49.99        764,125           8.0 years               46.00        362,785               46.20
 50.00 to 59.99     27,800,657           8.5 years               53.96      8,671,779               50.59
 60.00 to 65.19     18,127,486           8.4 years               62.32      6,736,485               62.33
                    ----------                                             ----------
                    82,751,313           6.7 years               43.74     51,830,094               35.31
                    ==========                                             ==========
</TABLE>

    The Company accounts for stock-based compensation using the intrinsic value
method. Accordingly, no compensation expense has been recognized for stock
options. If compensation expense for the Company's stock options issued in 2000,
1999 and 1998 had been determined based on the fair value method of accounting,
the Company's net income (loss) and earnings (loss) per share would have been
adjusted to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
(In thousands except
per share amounts)                           2000            1999           1998
--------------------------------------------------------------------------------
<S>                                   <C>             <C>             <C>
Net income (loss)
  less preferred dividends:
    As-reported                       $(2,370,733)    $(1,227,171)    $2,474,284
    Pro forma                          (2,520,657)     (1,312,238)     2,412,431
Basic earnings (loss) per share:
    As-reported                       $     (1.81)    $     (0.94)    $     1.88
    Pro forma                               (1.93)          (1.00)          1.84
Net income (loss):
    As-reported                       $(2,370,687)    $(1,227,121)    $2,474,338
    Pro forma                          (2,520,611)     (1,312,188)     2,412,485
Diluted earnings (loss) per share*:
    As-reported                       $     (1.81)    $     (0.94)    $     1.85
    Pro forma                               (1.93)          (1.00)          1.80
</TABLE>


* The total weighted average common shares outstanding for diluted loss per
  share for 2000 and 1999 did not include common share equivalents, as the
  effect would have been antidilutive.


    The fair value of issued stock options is estimated on the date of grant
using a variant of the Black-Scholes option pricing model incorporating the
following assumptions for stock options granted in 2000, 1999 and 1998,
respectively: expected volatility (the amount by which the stock price is
expected to fluctuate) of 31.2%, 25.0% and 24.2%; expected dividend yield of
1.6%, 2.2% and 2.8%; risk-free interest rate of 6.3%, 5.6% and 5.6%; and
expected life of five, four and four years. The weighted average fair value of
stock options granted during 2000, 1999 and 1998 was $18.76, $14.36 and $10.03
per option share, respectively.


9.  INCOME TAXES

The provision (benefit) for income taxes from continuing operations consisted
of:

<TABLE>
<CAPTION>
(In thousands)
YEARS ENDED DECEMBER 31,                 2000             1999             1998
--------------------------------------------------------------------------------
<S>                               <C>              <C>              <C>
Current:
  Federal                         $   321,484      $   290,020      $   422,309
  Foreign                             292,798          419,992          463,331
                                  ----------------------------------------------
                                      614,282          710,012          885,640
Deferred:
  Federal                            (836,883)      (1,399,709)          82,275
  Foreign                              22,601          (10,359)         (30,323)
                                  ----------------------------------------------
                                     (814,282)      (1,410,068)          51,952
                                  ----------------------------------------------
                                  $  (200,000)     $  (700,056)     $   937,592
                                  ==============================================
</TABLE>

    Net deferred tax assets from continuing operations, inclusive of valuation
allowances for certain deferred tax assets from continuing operations, were
reflected on the Consolidated Balance Sheets at December 31 as follows:


<TABLE>
<CAPTION>
(In thousands)                                            2000              1999
--------------------------------------------------------------------------------
<S>                                                 <C>               <C>
Net current deferred tax assets                     $2,595,662        $1,013,410
Net noncurrent deferred tax assets                     795,441         1,461,582
                                                    ----------        ----------
Net deferred tax assets                             $3,391,103        $2,474,992
                                                    ==========        ==========
</TABLE>


    Deferred income taxes are provided for temporary differences between the
financial reporting basis and the tax basis of the Company's assets and
liabilities. Deferred tax assets result principally from the recording of
certain accruals and reserves, which currently are not deductible for tax
purposes. Deferred tax liabilities result principally from the use of
accelerated depreciation for tax purposes and timing differences of equity
investments.

45
<PAGE>
    The components of the Company's deferred tax assets and liabilities from
continuing operations at December 31 were as follows:


<TABLE>
<CAPTION>
(In thousands)                                            2000             1999
--------------------------------------------------------------------------------
<S>                                                <C>              <C>
Deferred tax assets:
  Diet drug litigation accruals                    $ 2,157,951      $ 1,421,346
  Product litigation and environmental
    liabilities and other operating accruals           708,247          598,431
  Postretirement, pension and other
    employee benefits                                  592,709          509,438
  Net operating loss and other tax
    credit carryforwards                                 4,134          105,639
  Goodwill impairment                                   60,000               --
  Restructuring and reorganization accruals            214,758          177,464
  Inventory reserves                                    94,393           86,752
  Investments and advances                              38,894           39,045
  Other                                                 81,970           68,124
                                                   -----------------------------
Total deferred tax assets                            3,953,056        3,006,239
                                                   -----------------------------
Deferred tax liabilities:
  Depreciation                                        (277,512)        (260,261)
  Pension and other
    employee benefits                                  (54,751)         (49,050)
  Equity investments                                  (102,945)              --
  Other                                                (75,592)         (70,527)
                                                   -----------------------------
Total deferred tax liabilities                        (510,800)        (379,838)
                                                   -----------------------------
Deferred tax asset valuation allowances                (51,153)        (151,409)
                                                   -----------------------------
Net deferred tax assets from
  continuing operations                            $ 3,391,103      $ 2,474,992
                                                   =============================
</TABLE>


    Valuation allowances have been established for certain deferred tax assets
related to net operating loss carryforwards and portions of other deferred tax
assets as the Company determined that it was more likely than not that these
benefits will not be realized. During 2000 and 1999, the valuation allowance
decreased by $100,256,000 and $97,642,000, respectively. The decrease of the
valuation allowance in 2000 related to a reduction in net operating loss
carryforwards as a result of the deconsolidation of Immunex (see Note 2). The
1999 valuation allowance decrease was due primarily to the utilization of net
operating loss carryforwards.

    The Company has provided for federal income taxes on unremitted earnings
from its subsidiaries overseas that are expected to be remitted back to the
United States. Federal income taxes for unremitted earnings which are
permanently reinvested overseas were not material.

    Reconciliations between the Company's effective tax rate and the U.S.
statutory rate from continuing operations, excluding the effect of the
termination fee in 2000 (see Note 3), gain on the sale of Immunex common stock
in 2000 (see Note 2) and the diet drug litigation charges in 2000 and 1999 (see
Note 10), were as follows:

<TABLE>
<CAPTION>
TAX RATE
YEARS ENDED DECEMBER 31,                  2000            1999            1998
--------------------------------------------------------------------------------
<S>                                      <C>             <C>             <C>
U.S. statutory rate                       35.0%           35.0%           35.0%
Effect of Puerto Rico and
    Ireland manufacturing
    operations                           (11.0)           (9.3)           (5.7)
Research credits                          (2.2)           (1.5)           (1.1)
Goodwill amortization                      1.9             1.8             1.7
Goodwill impairment                        3.0              --              --
Gain on sale of business                    --              --             3.1
Other, net                                (0.8)            0.8            (2.7)
                                         --------------------------------------
Effective tax rate                        25.9%           26.8%           30.3%
                                         ======================================
</TABLE>

    Including the effect of the termination fee and the gain on the sale of
Immunex common stock in 2000, which had tax provisions of 35.0% and 31.4%,
respectively, and the 28.3% tax benefit associated with the 2000 litigation
charge, the overall effective tax rate from continuing operations in 2000 was an
18.2% tax benefit. Including the effect of the 1999 litigation charge, which had
a 30.8% tax benefit, the overall effective tax rate from continuing operations
in 1999 was a 36.7% tax benefit. The difference in the tax benefit related to
the 2000 and 1999 litigation charges versus the statutory rate of 35.0% was
caused by provisions of $500,000,000 and $200,000,000 in 2000 and 1999,
respectively, for additional federal income taxes, net of tax credits, that will
be paid as the Company plans to remit certain overseas earnings, taxed at a
lower rate than in the United States, to the United States for diet drug
litigation settlement payments.

    Total income tax payments, net of tax refunds, for continuing and
discontinued operations in 2000, 1999 and 1998 amounted to $1,038,265,000,
$717,174,000 and $897,361,000, respectively.


10. CONTINGENCIES AND LITIGATION CHARGES

The Company is involved in various legal proceedings, including product
liability and environmental matters of a nature considered normal to its
business (see Note 5 for a discussion of environmental matters). It is the
Company's policy to accrue for amounts related to these legal matters if it is
probable that a liability has been incurred and an amount is reasonably
estimable.

    The Company has been named as a defendant in numerous legal actions relating
to the diet drugs Redux or Pondimin, 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 the
prescription drug phentermine (which the Company did not manufacture, distribute
or market), caused certain serious conditions, including valvular heart disease.

    On October 7, 1999, the Company announced a nationwide, class action
settlement (or the settlement) to resolve litigation brought against the Company
regarding the use of the diet drugs Redux or Pondimin. The settlement covers all
claims arising out of the use of



46
<PAGE>
Redux or Pondimin, except for claims of primary pulmonary hypertension (PPH),
and is open to all Redux or Pondimin users in the United States, regardless of
whether they have lawsuits pending. The settlement agreement is subject to
judicial approval. Preliminary approval was granted on November 23, 1999. The
settlement agreement states that it shall not be construed to be an admission or
evidence of any liability or wrongdoing whatsoever by the Company or the truth
of any of the claims alleged.

    Of the estimated 5.8 million diet drug users, approximately 260,000
individuals have registered for the settlement to date. A majority of those who
registered have elected the settlement's Accelerated Implementation Option,
which provides for prompt benefits and resolves the claims of those class
members. An amendment to the settlement agreement, dated July 20, 2000, related
to the timing of payments by the Company into the proposed settlement funds,
administration of the settlement trust and opt out credits available to the
Company. On August 28, 2000, Senior District Judge Louis C. Bechtle of the
United States District Court for the Eastern District of Pennsylvania approved
the settlement, which approval has been appealed to the United States Court of
Appeals for the Third Circuit. A decision on that appeal is not expected until
later in 2001.

    Payments by the Company related to the settlement are made
into settlement Funds A and B (the settlement funds). Fund A is intended to
cover refunds, medical screening costs, additional medical services and cash
payments, education and research costs, and administration costs. Fund B will
compensate claimants with significant heart valve disease. Payments to provide
settlement benefits, if needed, may continue for approximately 16 years after
final judicial approval. Payments to the settlement funds in 2000 and 1999 were
$383,000,000 and $75,000,000, respectively. The settlement provides
opportunities during three different time periods for claimants to opt out of
the settlement. Under certain circumstances, the Company will receive credits
for future settlement payments to claimants who opt out of the settlement.

    Approximately 50,000 diet drug users exercised the initial opt out right
afforded by the nationwide, class action settlement and, therefore, are not part
of the settlement. As of January 2001, the Company had agreed to settle the
claims of approximately 80%, or 40,000 of these individuals. The claims of
approximately 10,000 opt outs remain unresolved.

    In the 2000 fourth quarter, the Company recorded a $7,500,000,000
($5,375,000,000 after-tax or $4.11 per share-diluted) litigation charge for the
estimated final amount required to resolve all diet drug litigation, including
all anticipated payments in connection with the nationwide, class action
settlement, payments to the approximately 40,000 opt out claimants with whom the
Company has agreed to settle, and all anticipated payments to resolve the claims
of the remaining approximately 10,000 opt outs and any PPH claimants, as well as
all legal fees and other costs. The Company recorded the initial litigation
charge of $4,750,000,000 ($3,287,500,000 after-tax or $2.51 per share-diluted),
net of insurance, related to the diet drug matters in the 1999 third quarter. At
December 31, 2000, $8,165,574,000 of the total litigation accrual remained;
$5,900,000,000 and $2,265,574,000 were included in Accrued expenses and Other
noncurrent liabilities, respectively. At December 31, 1999, $4,632,419,000 of
the initial litigation accrual remained; $1,400,000,000 and $3,232,419,000 were
included in Accrued expenses and Other noncurrent liabilities, respectively. The
amount of the reserve is based upon, among other things, the assumption that the
settlement will receive final judicial approval. Payments to the nationwide,
class action settlement funds, individual settlement payments, legal fees and
other items were $3,966,845,000 and $117,581,000 in 2000 and 1999, respectively.

    The Company is a defendant in cases that have been consolidated in federal
district court in Illinois as Brand Name Prescription Drugs Antitrust Litigation
(MDL 997) relating to claims made by certain retail pharmacies against the
Company and other pharmaceutical manufacturers. The Company and other
pharmaceutical manufacturers also are defendants in similar litigation brought
on behalf of consumers and in some cases on behalf of pharmacies in various
state courts. The Company has settled the class action case in MDL 997 and
certain other cases but remains as a defendant in other cases. The Company
believes it has complied with the antitrust laws and other applicable laws and
has settled these cases in order to avoid the costs and risks of litigation. The
settlement agreements are not admissions of any violation of law.

    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.

    In the opinion of the Company, although the outcome of any legal proceedings
cannot be predicted with certainty, the ultimate liability of the Company in
connection with its legal proceedings will not have a material adverse effect on
the Company's financial position but could be material to the results of
operations and cash flows in any one accounting period.

    The Company leases certain property and equipment for varying periods under
operating leases. Future minimum rental payments under non-cancelable operating
leases from continuing operations with terms in excess of one year in effect at
December 31, 2000 are as follows:

<TABLE>
<CAPTION>
(In thousands)
--------------------------------------------------------------------------------
<S>                                                                     <C>
2001                                                                    $115,161
2002                                                                     111,323
2003                                                                     107,045
2004                                                                     101,347
2005                                                                     100,462
Thereafter                                                                99,294
                                                                        --------
Total rental commitments                                                $634,632
                                                                        ========
</TABLE>

    Rental expense from continuing operations for all operating leases was
$128,232,000, $135,144,000 and $118,558,000 in 2000, 1999 and 1998,
respectively.



47
<PAGE>
11. COMPANY DATA BY OPERATING AND GEOGRAPHIC SEGMENT

The Company has three reportable segments: Pharmaceuticals, Consumer Health
Care, and Corporate and All Other. The Company's Pharmaceuticals and Consumer
Health Care reportable segments are strategic business units that offer
different products and services. The reportable segments are managed separately
because they manufacture, distribute and sell distinct products and provide
services, which require various technologies and marketing strategies. The
Company is not dependent on any single customer or major group of customers for
its sales (see Note 1).

    The Pharmaceuticals segment manufactures, distributes and sells branded and
generic human ethical pharmaceuticals, biologicals, nutritionals, and animal
biologicals and pharmaceuticals. Principal products include women's health care
products, infant nutritionals, cardiovascular products, neuroscience therapies,
gastroenterology drugs, anti-infectives, vaccines, biopharmaceuticals, oncology
therapies, musculoskeletal therapies and transplantation products. Principal
animal health products include vaccines, pharmaceuticals, endectocides and
growth implants.

    The Consumer Health Care segment manufactures, distributes and sells
over-the-counter health care products whose principal products include
analgesics, cough/cold/allergy remedies, nutritional supplements, herbal
products, and hemorrhoidal, antacid, asthma and other relief items.

    Corporate is responsible for the treasury, tax and legal operations of the
Company's businesses and maintains and incurs certain assets, liabilities,
expenses, gains and losses related to the overall management of the Company
which are not allocated to the other reportable segments. All Other consists of
the Sherwood-Davis & Geck medical devices business, which the Company divested
in February 1998.

    The accounting policies of the segments described above are the same as
those described in the Summary of Significant Accounting Policies in Note 1. The
Company evaluates the performance of the Pharmaceuticals and Consumer Health
Care reportable segments based on income from continuing operations before taxes
which includes goodwill amortization, gains on the sales of non-corporate assets
and certain other items. Corporate and All Other includes special charges,
interest expense and interest income, gains on the sales of investments and
other corporate assets, including the sale of Immunex common stock, the
Warner-Lambert Company termination fee, certain litigation provisions, including
the Redux and Pondimin litigation charges, goodwill impairment, the gain on the
sale of the Sherwood-Davis & Geck medical devices business and other
miscellaneous items.


Company Data by Operating Segment

<TABLE>
<CAPTION>
(In millions)
YEARS ENDED DECEMBER 31,                      2000           1999           1998
--------------------------------------------------------------------------------
NET REVENUE FROM CUSTOMERS
--------------------------------------------------------------------------------
<S>                                      <C>            <C>            <C>
Pharmaceuticals                          $10,797.6      $ 9,505.9      $ 8,901.8
Consumer Health Care                       2,465.2        2,375.3        2,174.7
Corporate and All Other                         --             --          192.1
                                         ---------------------------------------
Consolidated Total                       $13,262.8      $11,881.2      $11,268.6
                                         =======================================


INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE TAXES(1)
--------------------------------------------------------------------------------
Pharmaceuticals                          $ 2,930.0      $ 2,554.6      $ 2,488.3
Consumer Health Care                         616.1          578.6          509.7
Corporate and All Other(2)                (4,647.1)      (5,040.5)          91.9
                                         ---------------------------------------
Consolidated Total                       $(1,101.0)     $(1,907.3)     $ 3,089.9
                                         =======================================


DEPRECIATION AND
AMORTIZATION EXPENSE
--------------------------------------------------------------------------------
Pharmaceuticals                          $   458.8      $   465.6      $   443.8
Consumer Health Care                          61.0           57.3           52.3
Corporate and All Other                       15.2           18.3           15.5
                                         ---------------------------------------
Consolidated Total                       $   535.0      $   541.2      $   511.6
                                         =======================================


TOTAL ASSETS
--------------------------------------------------------------------------------
Pharmaceuticals                          $12,388.6      $11,101.4      $11,158.2
Consumer Health Care                       1,697.2        1,864.4        1,809.6
Net assets -- discontinued
  business held for sale                        --        4,192.3        4,078.7
Corporate and All Other                    7,006.7        5,965.7        3,177.7
                                         ---------------------------------------
Consolidated Total                       $21,092.5      $23,123.8      $20,224.2
                                         =======================================


EXPENDITURES FOR
LONG-LIVED ASSETS
--------------------------------------------------------------------------------
Pharmaceuticals                          $ 1,720.1      $ 1,038.9      $   571.3
Consumer Health Care(3)                       38.4           66.8          100.3
Corporate and All Other                       55.0           31.4           20.5
                                         ---------------------------------------
Consolidated Total                       $ 1,813.5      $ 1,137.1      $   692.1
                                         =======================================
</TABLE>



48
<PAGE>
COMPANY DATA BY GEOGRAPHIC SEGMENT

<TABLE>
<CAPTION>
(In millions)
YEARS ENDED DECEMBER 31,                      2000           1999           1998
NET REVENUE FROM CUSTOMERS(4)
--------------------------------------------------------------------------------
<S>                                      <C>            <C>            <C>
United States                            $ 8,007.6      $ 7,229.0      $ 6,791.1
United Kingdom                               898.1          745.1          623.1
Other International                        4,357.1        3,907.1        3,854.4
                                         ---------------------------------------
Consolidated Total                       $13,262.8      $11,881.2      $11,268.6
                                         =======================================


LONG-LIVED ASSETS
AT DECEMBER 31(4),
--------------------------------------------------------------------------------
United States                            $ 6,228.8      $ 6,379.7      $ 6,083.6
International                              3,074.8        2,824.8        2,889.6
                                         ---------------------------------------
Consolidated Total                       $ 9,303.6      $ 9,204.5      $ 8,973.2
                                         =======================================
</TABLE>

(1) Income (loss) from continuing operations before taxes included goodwill
    amortization for 2000, 1999 and 1998 as follows: Pharmaceuticals -- $147.8,
    $154.3 and $158.2, and Consumer Health Care -- $31.8, $32.7 and $22.6,
    respectively, and Corporate and All Other -- $0.9 in 1998.

(2) 2000 and 1999 Corporate and All Other included litigation charges of
    $7,500.0 and $4,750.0, respectively, relating to the litigation brought
    against the Company regarding the use of the diet drug products Redux or
    Pondimin. The charges provide for all anticipated payments in connection
    with the nationwide, class action settlement, payments to the approximately
    40,000 opt out claimants with whom the Company has agreed to settle, and all
    anticipated payments to resolve the claims of the remaining approximately
    10,000 opt outs and any PPH claimants, as well as all legal fees and other
    costs, net of insurance (see Note 10). The charges related to the
    Pharmaceuticals operating segment.

    2000 Corporate and All Other included:

        -   Income of $1,709.4 resulting from the receipt of a $1,800.0
            termination fee provided for under the merger agreement with
            Warner-Lambert Company offset, in part, by certain related expenses
            (see Note 3).

        -   Income of $2,061.2 relating to the Company selling a portion of its
            investment in Immunex common stock in a joint public equity offering
            with Immunex (see Note 2). The transaction related to the
            Pharmaceuticals operating segment.

        -   Goodwill impairment of $401.0 related to the goodwill associated
            with generic pharmaceuticals and the Solgar consumer health care
            product line. The charge related to the operating segments as
            follows: Pharmaceuticals -- $231.0 and Consumer Health Care --
            $170.0 (see Note 3).

        -   A special charge of $80.0 related to the voluntary ceasing of
            production and subsequent market withdrawal of products containing
            PPA (see Note 3). The charge related to the Consumer Health Care
            operating segment.

        -   A special charge of $267.0 related to costs associated with certain
            product discontinuations (see Note 3). The charge related to the
            Pharmaceuticals operating segment.

    1999 Corporate and All Other included a special charge of $82.0 related to
    the suspension of shipments and the voluntary market withdrawal of
    RotaShield, the Company's rotavirus vaccine (see Note 3). The charge related
    to the Pharmaceuticals operating segment.

    1998 Corporate and All Other included a special charge for restructuring and
    related asset impairments of $321.2 (see Note 3). The charge related to the
    operating segments as follows: Pharmaceuticals -- $294.9 and Consumer Health
    Care -- $26.3.

    1998 Corporate and All Other included the gain on the sale of the
    Sherwood-Davis & Geck medical devices business of $592.1 (see Note 2).

(3) 1998 expenditures for long-lived assets for Consumer Health Care excluded
    $408.6 of expenditures for goodwill and long-lived assets acquired in
    purchase business combinations.

(4) Other than the United States and the United Kingdom, no other country in
    which the Company operates had net revenue greater than 5% of the respective
    consolidated total. Other than the United States, no country in which the
    Company operates had long-lived assets greater than 5% of the respective
    consolidated total. The basis for attributing net revenue to geographic
    areas is the location of the customer. Long-lived assets consist of
    property, plant and equipment, goodwill and other intangibles, and other
    assets, excluding deferred taxes, net investments in equity companies and
    other investments.



49
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Board of Directors and Stockholders of American Home Products
Corporation:

   We have audited the accompanying consolidated balance sheets of American Home
Products Corporation (a Delaware corporation) and subsidiaries as of December
31, 2000 and 1999, and the related consolidated statements of operations,
changes in stockholders' equity and cash flows for each of the three years in
the period ended December 31, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

   We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

   In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American Home Products
Corporation and subsidiaries as of December 31, 2000 and 1999, and the results
of their operations and cash flows for each of the three years in the period
ended December 31, 2000 in conformity with accounting principles generally
accepted in the United States.

Arthur Andersen LLP
New York, New York
January 25, 2001


MANAGEMENT REPORT ON FINANCIAL STATEMENTS


Management has prepared and is responsible for the Company's Consolidated
Financial Statements and related notes. They have been prepared in accordance
with accounting principles generally accepted in the United States and
necessarily include amounts based on judgments and estimates made by management.
All financial information in this Annual Report is consistent with the financial
statements.

    The Company maintains internal accounting control systems and related
policies and procedures designed to provide reasonable assurance that assets are
safeguarded, that transactions are executed in accordance with management's
authorization and are properly recorded, and that accounting records may be
relied upon for the preparation of financial statements and other financial
information. The design, monitoring and revision of internal accounting control
systems involve, among other things, management's judgment with respect to the
relative cost and expected benefits of specific control measures. The Company
also maintains an internal auditing function, which evaluates and formally
reports on the adequacy and effectiveness of internal accounting controls,
policies and procedures.

    The Company's financial statements have been audited by independent public
accountants who have expressed their opinion with respect to the fairness of
these statements.

    The Audit Committee of the Board of Directors, composed of non-employee
directors, meets periodically with the independent public accountants and
internal auditors to evaluate the effectiveness of the work performed by them in
discharging their respective responsibilities and to assure their independent
and free access to the Committee.

<TABLE>
<S>                   <C>                   <C>
John R. Stafford      Robert Essner         Kenneth J. Martin
Chairman and          President and         Senior Vice President
Chief Executive       Chief Operating       and Chief Financial
Officer               Officer               Officer
</TABLE>


50
<PAGE>
QUARTERLY FINANCIAL DATA(6)
<TABLE>
<CAPTION>
                                                       FIRST QUARTER  SECOND QUARTER   THIRD QUARTER  FOURTH QUARTER
(In thousands except per share amounts)                         2000            2000            2000            2000
--------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>            <C>              <C>            <C>
Net revenue(1)                                            $3,206,871      $3,040,657     $ 3,509,414     $ 3,505,812
Gross profit(1)                                            2,424,879       2,269,615       2,664,155       2,634,687
Income (loss) from continuing operations(2)(3)             1,746,009         412,734         762,100      (3,821,883)
Diluted earnings (loss) per share from
  continuing operations(2)(3)(5)                                1.32            0.31            0.58           (2.91)
Net income (loss)(2)(3)                                      276,362         412,734         762,100      (3,821,883)
</TABLE>
<TABLE>
<CAPTION>
                                                       FIRST QUARTER  SECOND QUARTER   THIRD QUARTER  FOURTH QUARTER
(In thousands except per share amounts)                         1999            1999            1999            1999
--------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>            <C>                             <C>
Net revenue                                               $2,858,049      $2,743,164     $ 3,191,040     $ 3,088,943
Gross profit                                               2,157,743       2,007,105       2,384,162       2,309,630
Income (loss) from continuing operations(3)(4)               538,140         294,334      (2,642,435)        602,718
Diluted earnings (loss) per share from
  continuing operations(3)(4)(5)                                0.40            0.22           (2.02)           0.46
Net income (loss)(3)(4)                                      654,918         398,673      (2,873,944)        593,232
</TABLE>
(1)      First, Second and Third Quarters 2000 were restated to reflect the
         accounting for Immunex on an equity basis, assuming Immunex was an
         equity investment as of January 1, 2000. Excluding alliance revenue in
         2000, gross profit from product sales was $2,388,949, $2,227,358,
         $2,615,179 and $2,573,543 for the First, Second, Third and Fourth
         Quarters, respectively.

(2)      First Quarter 2000 included income of $1,111,097 after-tax and $0.84
         per share-diluted resulting from the receipt of a $1,800,000
         termination fee provided for under the merger agreement with
         Warner-Lambert Company offset, in part, by certain related expenses.

(3)      Fourth Quarter 2000 and Third Quarter 1999 included litigation charges
         of $5,375,000 and $3,287,500 after-tax and $4.10 and $2.51 per
         share-diluted, respectively, in connection with litigation brought
         against the Company regarding the use of the diet drugs Redux or
         Pondimin.

         Fourth Quarter 2000 included:

         -        Income of $1,414,859 after-tax and $1.08 per share-diluted
                  related to the Company selling a portion of its investment in
                  Immunex common stock in a joint public equity offering with
                  Immunex.

         -        Goodwill impairment of $341,000 after-tax and $0.26 per
                  share-diluted related to the goodwill associated with generic
                  pharmaceuticals and the Solgar consumer health care product
                  line.

         -        A special charge of $52,000 after-tax and $0.04 per
                  share-diluted related to the voluntary ceasing of production
                  and subsequent voluntary market withdrawal of products
                  containing PPA.

         -        A special charge of $173,000 after-tax and $0.13 per
                  share-diluted related to costs associated with certain product
                  discontinuations.

(4)      Second Quarter 1999 included a special charge of $53,000 after-tax and
         $0.04 per share-diluted related to the suspension of shipments and the
         voluntary market withdrawal of RotaShield, the Company's rotavirus
         vaccine.

(5)      The weighted average common shares outstanding for diluted loss per
         share for the Fourth Quarter 2000 and Third Quarter 1999 did not
         include common share equivalents, as the effect would have been
         antidilutive. In addition, the sum of the 2000 and 1999 diluted
         earnings (loss) per share from continuing operations for each quarter
         did not equal the full year 2000 and 1999 diluted loss per share from
         continuing operations, respectively, for the same reason.

(6)      In the 2000 First Quarter, the Company reflected the Cyanamid
         Agricultural Products business, which was sold on June 30, 2000, as a
         discontinued operation, and recorded a loss on disposal of such
         business of $1,572,993, net of tax charges of $855,248. All prior
         periods presented were restated.

MARKET PRICES OF COMMON STOCK AND DIVIDENDS
<TABLE>
<CAPTION>
                               2000 RANGE OF PRICES*                     1999 RANGE OF PRICES*
                         ----------------------------------         ------------------------------
                                                  DIVIDENDS                              DIVIDENDS
                          HIGH          LOW       PER SHARE          HIGH       LOW      PER SHARE
--------------------------------------------------------------------------------------------------
<S>                      <C>          <C>         <C>               <C>        <C>       <C>
First quarter            $56.25       $39.38       $0.23            $68.19     $51.19     $0.225
Second quarter            61.63        50.94        0.23             70.25      51.00      0.225
Third quarter             60.13        50.38        0.23             58.44      38.50      0.225
Fourth quarter            65.25        53.50        0.23             58.00      36.50      0.230
</TABLE>
*        Prices are those of the New York Stock Exchange -- Composite
         Transactions.

51
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following commentary should be read in conjunction with the "Consolidated
Financial Statements and Notes to Consolidated Financial Statements" on pages 32
to 49.

RESULTS OF OPERATIONS

Management's discussion and analysis of results of operations for 2000 and 1999
are presented on an as-reported basis, except for Net revenue variation
explanations for 2000, which are presented on an as-reported and pro forma
basis. Effective January 1, 2000, the financial results of certain
pharmaceutical subsidiaries in Japan and India, which previously were included
on an equity basis, were consolidated in the financial results of the Company.
The financial results of Immunex, which previously were consolidated in the
financial results of the Company, were deconsolidated and included on an equity
basis, retroactive to January 1, 2000, within the pharmaceuticals segment.
Accordingly, alliance revenue was recorded in 2000 for co-promotion agreements
between the Company and Immunex. The 2000 pro forma net revenue percentage
changes reflect the respective consolidation and deconsolidation of these
subsidiaries and include alliance revenue from Immunex, assuming all
transactions occurred as of January 1, 1999. Neither the consolidation nor the
deconsolidation of these subsidiaries had any effect on income from continuing
operations in 2000.

   Worldwide net revenue increased 12% to $13.3 billion for 2000 on an
as-reported basis. After adjusting for the consolidation and deconsolidation of
the subsidiaries identified above, and including alliance revenue from Immunex,
pro forma worldwide net revenue increased 13% due primarily to higher worldwide
sales of pharmaceuticals.

   Worldwide net revenue increased 7% to $11.9 billion for 1999 after adjusting
for the sale of the Sherwood-Davis & Geck medical devices business, which was
sold effective February 27, 1998. The increase in 1999 was due primarily to
higher worldwide sales of pharmaceuticals and U.S. sales of consumer health care
products. Including net revenue of the Sherwood-Davis & Geck medical devices
business prior to its sale, worldwide net revenue increased 5% for 1999.

   The following table sets forth 2000, 1999 and 1998 worldwide net revenue
results by operating segment together with the percentage changes in
"As-Reported" and "Pro Forma" (where applicable) worldwide net revenue from
prior years:

<TABLE>
<CAPTION>
                                                                                               2000 VS. 1999         1999 VS. 1998
                                                                                       --------------------------    --------------
                                         YEARS ENDED DECEMBER 31,                                                      AS-REPORTED
(Dollar amounts in millions)        ----------------------------------                 AS-REPORTED      PRO FORMA      % INCREASE
NET REVENUE                            2000        1999         1998                   % INCREASE      % INCREASE      (DECREASE)
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                 <C>         <C>          <C>                       <C>             <C>             <C>
Operating Segment:
   Pharmaceuticals                  $10,797.6   $ 9,505.9    $ 8,901.8                       14%          15%                 7%
   Consumer Health Care               2,465.2     2,375.3      2,174.7                        4%           4%                 9%
                                    ----------------------------------                  -------------------------------------------
                                     13,262.8    11,881.2     11,076.5                       12%          13%                 7%
   Corporate and All Other*             --          --           192.1                       --           --              (100)%
                                    ----------------------------------                  -------------------------------------------
   Consolidated Net Revenue         $13,262.8   $11,881.2    $11,268.6                       12%          13%                 5%
                                    ==================================                  ===========================================
</TABLE>

*        Corporate and All Other, as-reported, for 1998 included the net revenue
         of the Company's divested medical devices business discussed above.


52
<PAGE>
    Worldwide pharmaceutical net revenue increased 14% on an as-reported basis
and 15% (primarily human pharmaceuticals) on a pro forma basis for 2000.
Excluding the negative impact of foreign exchange, pro forma worldwide
pharmaceutical net revenue increased 19% for 2000. Pro forma U.S. pharmaceutical
net revenue increased 22% for 2000 due primarily to higher sales of Prevnar
(introduced in the 2000 first quarter), Effexor XR (as a result of higher volume
and market share of new prescriptions, and expanded indications), Protonix
(introduced in the 2000 second quarter), Premarin products, animal health
products and alliance revenue offset, in part, by lower sales of Lodine (due to
generic competition) and factor VIII.

   Pro forma international pharmaceutical net revenue increased 7% for 2000 due
primarily to higher sales of Meningitec (introduced in the United Kingdom in the
1999 fourth quarter), Effexor XR (as a result of higher volume and market share
of new prescriptions, and expanded indications) and ReFacto (introduced in the
1999 second quarter).

   Worldwide pharmaceutical net revenue increased 7% (9% for human
pharmaceuticals) for 1999. Excluding the negative impact of foreign exchange,
worldwide pharmaceutical net revenue increased 8% for 1999. U.S. pharmaceutical
net revenue increased 7% for 1999 due primarily to higher sales of Enbrel
(introduced in 1998), Effexor XR (due to increased selling efforts and expanded
indications), Premarin products and Zosyn, which were offset, in part, by lower
sales of animal health products, Naprelan and Verelan (divested in 1998), oral
contraceptives and Cordarone (due to generic competition). Lower sales of animal
health products were due primarily to customers reducing consumption of
livestock-related animal health products, in part, as a result of continuing
commodity price declines in the livestock markets.

    International pharmaceutical net revenue increased 6% for 1999 due primarily
to higher sales of Effexor XR (due to increased selling efforts and expanded
indications), Meningitec (introduced in the United Kingdom in the 1999 fourth
quarter), ReFacto (introduced in the 1999 second quarter), Tazocin, HibTITER and
Zoton.

   Worldwide consumer health care net revenue increased 4% on an as-reported and
pro forma basis for 2000. Excluding the negative impact of foreign exchange,
worldwide consumer health care net revenue increased 6% for 2000. U.S. consumer
health care net revenue increased 4% for 2000 due primarily to higher sales of
Centrum products (including Centrum Performance, which was launched in the
United States in the 1999 fourth quarter), cough/cold/allergy products, Chap
Stick and Flexagen (introduced in the United States in the 2000 second quarter).

   International consumer health care net revenue increased 3% for 2000 due
primarily to higher sales of Centrum products and Caltrate offset, in part, by
lower sales of Anacin.

   Worldwide consumer health care net revenue increased 9% for 1999. Excluding
the negative impact of foreign exchange, worldwide consumer health care net
revenue increased 11% for 1999. U.S. consumer health care net revenue increased
10% for 1999 due primarily to higher sales of Solgar products (acquired in
1998), Centrum products, cough/cold/allergy products, Chap Stick and Caltrate.
Solgar products contributed 3% to the U.S. sales increase for 1999.

    International consumer health care net revenue increased 7% for 1999 due
primarily to higher sales of Centrum products, Caltrate, Solgar products
(acquired in 1998) and Advil. Solgar products contributed 3% to the
international sales increase for 1999.

    The following table sets forth the percentage changes in pro forma worldwide
net revenue by operating and geographic segment compared with the prior year,
including the effect volume, price and foreign exchange had on these percentage
changes:

<TABLE>
<CAPTION>
                                            % INCREASE (DECREASE)                             % INCREASE (DECREASE)
                                       YEAR ENDED DECEMBER 31, 2000(1)                   YEAR ENDED DECEMBER 31, 1999(2)
                                  -------------------------------------------          --------------------------------------------
                                                          FOREIGN         TOTAL                               FOREIGN        TOTAL
                                  VOLUME        PRICE     EXCHANGE   NET REVENUE       VOLUME        PRICE    EXCHANGE  NET REVENUE
-----------------------------------------------------------------------------------------------------------------------------------
<S>                               <C>           <C>       <C>        <C>               <C>           <C>      <C>       <C>
PHARMACEUTICALS
United States                       15%           7%         --           22%           4%           3%        --             7%
International                       14%         --            (7)%         7%           7%           3%         (4)%          6%
                                    --------------------------------------------------------------------------------------------
Total                               15%           4%          (4)%        15%           5%           3%         (1)%          7%
                                    ============================================================================================

CONSUMER HEALTH CARE(3)
United States                        3%           1%         --            4%           9%           1%        --            10%
International                        5%           3%          (5)%         3%           8%           5%         (6)%          7%
                                     -------------------------------------------------------------------------------------------
Total                                4%           2%          (2)%         4%           9%           2%         (2)%          9%
                                    ============================================================================================

TOTAL
United States                       12%           6%         --           18%           5%           3%        --             8%
International                       13%           1%          (7)%         7%           7%           3%         (4)%          6%
                                    --------------------------------------------------------------------------------------------
Total                               13%           3%          (3)%        13%           6%           3%         (2)%          7%
                                    ============================================================================================
</TABLE>


(1)      Effective January 1, 2000, the financial results of certain
         subsidiaries in Japan and India, which previously were included on an
         equity basis, were consolidated in the results of the Company. Also
         effective January 1, 2000, the financial results of Immunex, which
         previously were consolidated in the results of the Company, were
         deconsolidated and included on an equity basis. Accordingly, alliance
         revenue was recorded in 2000 for co-promotion agreements between the
         Company and Immunex. The 2000 pro forma net revenue percentage changes
         reflect the respective consolidation and deconsolidation of these
         subsidiaries and include alliance revenue from Immunex, assuming all
         transactions occurred as of January 1, 1999. Neither the consolidation
         nor the deconsolidation of these subsidiaries, nor the inclusion of
         alliance revenue from Immunex, had any effect on income from continuing
         operations in 2000.

(2)      Net revenue results are presented after adjusting for the sale of the
         Sherwood-Davis & Geck medical devices business (effective February 27,
         1998).

(3)      Solgar products contributed 3% to the U.S., international and total net
         revenue volume increases for 1999.


53
<PAGE>
    Cost of goods sold, as a percentage of Net revenue, decreased slightly to
24.7% for 2000 compared with 25.4% for 1999. Excluding alliance revenue, cost of
goods sold, as a percentage of sales, for 2000 was 25.0%, a 0.4% decrease from
1999. A favorable mix of higher margin products in the pharmaceuticals segment
was offset, in part, by an increase in royalty expenses and costs associated
with improving the production and supply chain processes at certain
international sites. Cost of goods sold, as a percentage of Net revenue,
increased slightly to 25.4% for 1999 compared with 25.2% for 1998 due primarily
to an unfavorable product mix in both operating segments.

   Selling, general and administrative expenses, as a percentage of Net revenue,
increased to 37.9% for 2000 compared with 36.9% for 1999. Higher selling,
general and administrative expenses were due primarily to increased selling and
marketing expenses supporting higher field sales headcount and salaries,
promotional efforts for recent product launches and rapid growth products, and
direct-to-consumer programs. The increase in the ratio of these expenses, as a
percentage of Net revenue, was offset, in part, by deconsolidating Immunex in
2000 as these expenses carried a higher expense ratio, and consolidating Japan
and India in 2000 as their expense ratio was lower than the Company overall.

   Selling, general and administrative expenses, as a percentage of Net revenue,
decreased to 36.9% for 1999 compared with 37.4% for 1998. The expense ratio
decreased as a result of the divestiture of the Sherwood-Davis & Geck medical
devices business, as this business was more cost intensive. The decrease was
offset, in part, by higher selling expenses related to certain pharmaceutical
and consumer health care product launches in late 1998 and in 1999, pre-launch
marketing costs for certain pharmaceutical products launched in 2000 and
increased headcount to support new product initiatives.

   Research and development expenses increased 6% for 2000 due primarily to
certain advancements and ongoing clinical trials of pharmaceuticals in several
therapeutic categories, as well as additional payments for existing licensing
agreements offset, in part, by lower costs as a result of deconsolidating
Immunex in 2000. Research and development expenses increased 8% for 1999 due
primarily to higher pharmaceutical research and development expenditures as a
result of advanced clinical trials, discovery initiatives and license payments.
Pharmaceutical research and development expenditures accounted for 96%, 95% and
94% of total research and development expenditures in 2000, 1999 and 1998,
respectively. Pharmaceutical research and development expenses, as a percentage
of worldwide pharmaceutical net revenue, exclusive of infant nutritional sales
and alliance revenue, were 16%, 17% and 17% in 2000, 1999 and 1998,
respectively.

   Interest expense, net decreased 73% for 2000 due primarily to an increase in
interest income as a result of higher cash and cash equivalents, as well as
lower debt resulting from the payoff of the $1,000.0 million of 7.70% notes on
February 15, 2000. In addition, on June 30, 2000, the Company used a portion of
the proceeds from the sale of the Cyanamid Agricultural Products business to pay
down a substantial portion of the outstanding commercial paper borrowings.

   Interest expense, net increased 3% for 1999 due primarily to increased
borrowings of commercial paper to finance purchases of common stock for treasury
as part of the Company's common stock repurchase program offset, in part, by
higher interest income and a reduction in long-term debt from the proceeds of
the divestiture of the Sherwood-Davis & Geck medical devices business during the
1998 first quarter. Weighted average debt outstanding during 2000 and 1999 was
$3,853.0 million and $4,889.0 million, respectively.

   Other income, net decreased 37% for 2000 due primarily to payments for
various pharmaceutical collaborations, costs associated with a consent decree
(described below), lower gains on the sales of non-strategic assets and costs
related to a product discontinuation offset, in part, by insurance recoveries of
environmental costs, higher equity income (due to the deconsolidation of
Immunex) and lower Year 2000 conversion costs. In conjunction with the consent
decree identified above, the Company recorded a pre-tax charge of $56.1 million
which included payments to the U.S. government and charges associated with
actions required by the FDA based on an inspection of the Marietta,
Pennsylvania, and Pearl River, New York, facilities. Pursuant to the consent
decree, the Company will have a comprehensive inspection performed by expert
consultants to determine compliance with current Good Manufacturing Practices.

   Other income, net decreased 11% for 1999 due primarily to lower gains on the
sales of non-strategic assets, including certain non-core product rights offset,
in part, by lower non-recurring charges and lower unfavorable foreign exchange
results.

2000, 1999 and 1998 Unusual Transactions
----------------------------------------
During the 2000 first quarter, the Company and Warner-Lambert Company terminated
their merger agreement. The Company recorded income of $1,709.4 million
($1,111.1 million after-tax or $0.85 per share-diluted) in income from
continuing operations resulting from the receipt of a $1,800.0 million
termination fee provided for under the merger agreement offset, in part, by
certain related expenses (see Note 3 to the Consolidated Financial Statements).

    In November 2000, Immunex and the Company completed a joint public equity
offering allowing the Company to sell 60.5 million shares of Immunex common
stock. Proceeds to the Company were $2,404.9 million resulting in a gain on the
sale of $2,061.2 million ($1,414.9 million after-tax or $1.08 per
share-diluted). The Company used the net proceeds from the sale of its Immunex
common stock to reduce outstanding commercial paper and for other general
corporate purposes (see Note 2 to the Consolidated Financial Statements).

    In November 2000, in accordance with an FDA request, the Company immediately
ceased global production and shipments of any products containing PPA and
voluntarily withdrew any such products from customer warehouses and retail store
shelves. As a result, the Company recorded a special charge of $80.0 million
($52.0 million after-tax or $0.04 per share-diluted) to provide primarily for
product returns and the write-off of inventory (see Note 3 to the Consolidated
Financial Statements).

    During the 2000 fourth quarter, the Company recorded a special charge of
$267.0 million ($173.0 million after-tax or $0.13 per share-diluted) related to
the discontinuation of certain products. The special charge provided for fixed
asset impairments, inventory write-offs, severance obligations, idle plant costs
and contract termination costs (see Note 3 to the Consolidated Financial
Statements).

    At December 31, 2000, the Company performed goodwill and other intangible
reviews and noted that projected profitability and future cash flows associated
with generic pharmaceuticals and the Solgar consumer health care product line
would not be sufficient to recover the remaining goodwill related to these
product lines. As a result, the Company recorded a charge of $401.0
million ($341.0

54
<PAGE>
million after-tax or $0.26 per share-diluted) to write down the carrying value
of goodwill related to these product lines, to fair value, representing
discounted future cash flows (see Note 3 to the Consolidated Financial
Statements).

    During the 2000 fourth quarter, the Company recorded a charge of $7,500.0
million ($5,375.0 million after-tax or $4.11 per share-diluted) relating to the
litigation brought against the Company regarding the use of the diet drugs Redux
or Pondimin (see Note 10 to the Consolidated Financial Statements). An initial
litigation charge of $4,750.0 million ($3,287.5 million after-tax or $2.51 per
share-diluted) was recorded in the 1999 third quarter. The combination of these
two charges represents the estimated total amount required to settle all diet
drug litigation, including all anticipated payments in connection with the
nationwide, class action settlement, payments to the approximately 40,000 opt
out claimants with whom the Company has agreed to settle, and all anticipated
payments to resolve the claims of the remaining approximately 10,000 opt outs
and any PPH claimants, as well as all legal fees and other costs, net of
insurance (see Note 10 to the Consolidated Financial Statements and the
"Liquidity, Financial Condition and Capital Resources" section for further
discussion relating to the Company's additional financing requirements for the
future settlement payments).

   During the 1999 second quarter, the Company recorded a special charge
aggregating $82.0 million ($53.0 million after-tax or $0.04 per share-diluted)
for estimated costs associated with the suspension of shipments and the
voluntary market withdrawal of RotaShield, the Company's rotavirus vaccine (see
Note 3 to the Consolidated Financial Statements).

   In December 1998, the Company recorded a special charge for restructuring and
related asset impairments of $321.2 million ($224.8 million after-tax or $0.17
per share-diluted) to recognize the costs of the reorganization of the
pharmaceutical and nutritional supply chains (primarily in the Asian-Pacific and
Latin American regions), the reorganization of the U.S. pharmaceutical and
consumer health care distribution systems, and a reduction in personnel from the
globalization of certain business units (see Note 3 to the Consolidated
Financial Statements).

   In February 1998, the Company sold the Sherwood-Davis & Geck medical devices
business (see Note 2 to the Consolidated Financial Statements) for approximately
$1,770.0 million, resulting in a pre-tax gain of $592.1 million ($330.8 million
after-tax or $0.25 per share-diluted).

Income (Loss) from Continuing Operations before Taxes
-----------------------------------------------------
The following table sets forth worldwide income (loss) from continuing
operations before taxes by operating segment together with the percentage
changes from the comparable periods in the prior year on an as-reported basis:


<TABLE>
<CAPTION>
                                                                                                  2000 VS. 1999     1999 VS. 1998
                                                                   YEARS ENDED DECEMBER 31,      --------------     -------------
(Dollar amounts in millions)                              -----------------------------------     % INCREASE
INCOME (LOSS)FROM CONTINUING OPERATIONS BEFORE TAXES(1)       2000        1999         1998        (DECREASE)      % INCREASE
---------------------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>          <C>           <C>         <C>               <C>
Operating Segment:
   Pharmaceuticals                                        $  2,930.0   $ 2,554.6     $2,488.3            15%              3%
   Consumer Health Care                                        616.1       578.6        509.7             6%             14%
                                                          -----------------------------------         ---------------------------

                                                             3,546.1     3,133.2      2,998.0            13%              5%
   Corporate and All Other(2)                               (4,647.1)   (5,040.5)        91.9            (8)%            --
                                                          -----------------------------------         ---------------------------

   Total(3)                                               $ (1,101.0)  $(1,907.3)    $3,089.9           (42)%            --
                                                          ===================================         ===========================
</TABLE>

(1)      Income (loss) from continuing operations before taxes included goodwill
         amortization for 2000, 1999 and 1998 as follows: Pharmaceuticals --
         $147.8, $154.3 and $158.2, and Consumer Health Care -- $31.8, $32.7 and
         $22.6, respectively, and Corporate and All Other -- $0.9 in 1998.

(2)      2000 and 1999 Corporate and All Other included litigation charges of
         $7,500.0 and $4,750.0, respectively, relating to the litigation brought
         against the Company regarding the use of the diet drugs Redux or
         Pondimin. The charges provide for all anticipated payments in
         connection with the nationwide, class action settlement, payments to
         the approximately 40,000 opt out claimants with whom the Company has
         agreed to settle, and all anticipated payments to resolve the claims of
         the remaining approximately 10,000 opt outs and any PPH claimants, as
         well as all legal fees and other costs, net of insurance.

         2000 Corporate and All Other included:

         -        Income of $1,709.4 resulting from the receipt of a $1,800.0
                  termination fee provided for under the merger agreement with
                  Warner-Lambert Company offset, in part, by certain related
                  expenses.

         -        Income of $2,061.2 related to the Company selling a portion of
                  its investment in Immunex common stock in a joint public
                  equity offering with Immunex.

         -        Goodwill impairment of $401.0 related to the goodwill
                  associated with generic pharmaceuticals and the Solgar
                  consumer health care product line.

         -        A special charge of $80.0 related to the voluntary ceasing of
                  production and subsequent market withdrawal of products
                  containing PPA.

         -        A special charge of $267.0 related to costs associated with
                  certain product discontinuations.

         1999 Corporate and All Other included a special charge of $82.0 related
         to the suspension of shipments and the voluntary market withdrawal of
         RotaShield, the Company's rotavirus vaccine.

         1998 Corporate and All Other included a special charge for
         restructuring and related asset impairments of $321.2.

         1998 Corporate and All Other included the gain on the sale of the
         Sherwood-Davis & Geck medical devices business of $592.1.

         Excluding the 2000 termination fee, 2000 and 1999 litigation charges,
         2000 gain on the sale of Immunex common stock, 2000 goodwill
         impairment, 2000, 1999 and 1998 special charges, and 1998 gain on the
         sale of the Sherwood-Davis & Geck medical devices business from 2000,
         1999 and 1998 results, Corporate and All Other expenses, net decreased
         19% for 2000 and increased 16% for 1999.

(3)      Excluding the 2000 termination fee, 2000 and 1999 litigation charges,
         2000 gain on the sale of Immunex common stock, 2000 goodwill
         impairment, 2000, 1999 and 1998 special charges, and 1998 gain on the
         sale of the Sherwood-Davis & Geck medical devices business from 2000,
         1999 and 1998 results, total income from continuing operations before
         taxes increased 15% for 2000 and 4% for 1999.


55
<PAGE>
   The following explanations of changes in income (loss) from continuing
operations before taxes, by operating segment, for 2000 compared with 1999, and
1999 compared with 1998, exclude items listed in footnote (2) to the table
above:

   Worldwide pharmaceutical income from continuing operations before taxes
increased 15% (11% for human pharmaceuticals) for 2000 due primarily to higher
worldwide net revenue (including alliance revenue) offset, in part, by higher
selling, general and administrative expenses, research and development expenses,
and other expenses (primarily collaboration payments and costs for a consent
decree). Higher selling, general and administrative expenses were due primarily
to increased media and promotional expenses to support product launches and
existing product lines through increased headcount.

   Worldwide pharmaceutical income from continuing operations before taxes
increased 3% (9% for human pharmaceuticals) for 1999 due primarily to higher
worldwide sales offset, in part, by higher selling, general and administrative
expenses, higher research and development expenses, lower gains on the sales of
non-strategic assets and an unfavorable product mix. Higher selling, general and
administrative expenses for worldwide pharmaceuticals for 1999 were the result
of higher selling expenses related to certain product launches in late 1998 and
in 1999, pre-launch marketing costs for certain products expected to be launched
in 2000 and increased headcount to support new product initiatives.

   Worldwide consumer health care income from continuing operations before taxes
increased 6% for 2000 due primarily to higher worldwide sales. Worldwide
consumer health care income from continuing operations before taxes increased
14% for 1999 due primarily to higher worldwide sales, which were offset, in
part, by higher selling, general and administrative expenses.

   Corporate and All Other expenses, net decreased 19% for 2000 due primarily to
lower interest expense, net and increased current year insurance recoveries
related to environmental costs offset, in part, by lower gains on sales of
non-strategic assets, higher general and administrative expenses, and costs
related to a product discontinuation.

   Corporate and All Other expenses, net increased 16% for 1999 due primarily to
higher general and administrative expenses, the loss of the Sherwood-Davis &
Geck medical devices business operating profit and lower gains on sales of
non-strategic assets, which were offset, in part, by lower one-time charges.

   The effective tax rate for 2000, excluding the effect of the 2000 termination
fee, 2000 gain on the sale of Immunex common stock, and the 2000 and 1999
litigation charges, was 25.9% which is comparable to the 26.8% effective tax
rate for 1999.

   The effective tax rate, excluding the effect of the 1999 litigation charge,
for 1999 was 26.8% compared with 30.3% for 1998. The effective tax rate
decreased in 1999 due primarily to an increased benefit from products
manufactured in lower taxed jurisdictions and basis differences for tax and
financial reporting purposes, primarily goodwill, on the sale of the
Sherwood-Davis & Geck medical devices business and sales of certain other
non-core assets in 1998.

Income (Loss) and Diluted Earnings (Loss) per Share from
--------------------------------------------------------
Continuing Operations
---------------------
Loss and diluted loss per share from continuing operations in 2000 were $901.0
million and $0.69, respectively, compared with $1,207.2 million and $0.92 in
1999, respectively. Income and diluted earnings per share from continuing
operations in 1998 were $2,152.3 million and $1.61, respectively. The income
(loss) from continuing operations for 2000, 1999 and 1998 included the following
unusual items:

<TABLE>
<CAPTION>
                                                                 INCOME (LOSS)                       DILUTED EARNINGS (LOSS) PER
(In millions except per share amounts)                    FROM CONTINUING OPERATIONS              SHARE FROM CONTINUING OPERATIONS
                                                     ---------------------------------------      --------------------------------
YEARS ENDED DECEMBER 31,                                    2000         1999         1998           2000       1999      1998
----------------------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>               <C>          <C>           <C>       <C>       <C>
Income from continuing operations before
   unusual items and including the dilutive
   effect of common share equivalents (CSE)               $ 2,514.0    $ 2,133.3    $ 2,046.3     $    1.90 $    1.61 $    1.53
Dilutive effect of CSE *                                         --           --           --          0.02      0.02        --
                                                          ---------    ---------    ---------     --------- --------- ---------
                                                          $ 2,514.0    $ 2,133.3    $ 2,046.3     $    1.92 $    1.63 $    1.53
Warner-Lambert Company termination fee                      1,111.1           --           --          0.85        --        --
Gain on sale of Immunex common stock                        1,414.9           --           --          1.08        --        --
Gain on sale of Sherwood-Davis & Geck medical
  devices business                                               --           --        330.8            --        --      0.25
Redux and Pondimin diet drug litigation charges            (5,375.0)    (3,287.5)          --         (4.11)    (2.51)       --
Goodwill impairment                                          (341.0)          --           --         (0.26)       --        --
Special charges:
   Voluntary market withdrawals                               (52.0)       (53.0)          --         (0.04)    (0.04)       --
   Product discontinuations                                  (173.0)          --           --         (0.13)       --        --
   Restructuring charge                                          --           --       (224.8)           --        --     (0.17)
                                                          ---------    ---------    ---------     --------- --------- ---------

Income (loss) from continuing operations                  $  (901.0)   $(1,207.2)   $ 2,152.3     $   (0.69) $ (0.92) $    1.61
                                                          ---------    ---------    ---------     --------- --------- ---------
                                                          ---------    ---------    ---------     --------- --------- ---------
</TABLE>

*  The $0.02 per share benefit represents the impact on income from
   continuing operations of excluding the dilutive effect of CSE.

56
<PAGE>
   For further details related to the items listed in the table above, refer to
the discussion of "2000, 1999 and 1998 Unusual Transactions," herein.

   Excluding all unusual items listed in the table above and including the $0.02
per share dilutive effect of common share equivalents in 2000 and 1999 results,
both income and diluted earnings per share from continuing operations in 2000
increased 18% compared with 1999. The increases were due primarily to additional
worldwide sales of pharmaceuticals and lower interest expense offset, in part,
by higher selling, general and administrative expenses and research and
development expenses.

   Excluding all unusual items listed in the table above in 1999 and 1998 and
including the $0.02 per share dilutive effect of common share equivalents in
1999 results, income and diluted earnings per share from continuing operations
for 1999 increased 4% and 5%, respectively, compared with 1998. The increases
were due primarily to increased sales of pharmaceuticals and consumer health
care products offset, in part, by higher pharmaceutical research and development
expenses and the loss of the Sherwood-Davis & Geck medical devices business
operating profit.

   Discontinued operations: On June 30, 2000, the Company announced that it had
completed the sale of the Cyanamid Agricultural Products business to BASF. Under
the terms of the definitive agreement, BASF paid the Company $3,800.0 million in
cash and assumed certain debt. As a result, the Company recorded an after-tax
loss on the sale of this business of $1,573.0 million or $1.20 per share-diluted
and reflected this business as a discontinued operation beginning in the 2000
first quarter and restated all prior periods presented (see Note 2 to the
Consolidated Financial Statements).

EURO CURRENCY

As of January 1, 2001, 12 of the 15 member countries of the European Union
adopted the Euro as a new common legal currency. However, the legacy currencies
of the member countries are scheduled to remain legal tender as
sub-denominations of the Euro between January 1, 1999 and January 1, 2002 (the
transition period). Critical areas impacted by the conversion to the Euro have
been identified and appropriate strategies developed, which currently are being
implemented to facilitate the adoption of the Euro and to facilitate business
transactions during the transition period. The costs related to the Euro
conversion and transition period will not have a material adverse effect on the
Company's financial position, results of operations or cash flows. However, the
conversion to the Euro may have competitive implications on the Company's
pricing and marketing strategies, the total impact of which is not known at this
time.

COMPETITION

The Company operates in the highly competitive pharmaceutical and consumer
health care industries. The Company is not dependent on any one patent-protected
product or line of products for a substantial portion of its net revenues or
results of operations. 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 net revenue and results of
operations. Premarin's natural composition is not subject to patent protection
(although Prempro has patent protection). The principal uses 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, and several of these
products also have an approved indication for the prevention of osteoporosis.
During the past several years, other manufacturers have introduced products for
the treatment and/or prevention of osteoporosis. New products containing
different estrogens than those found in Prempro and Premphase and having many
forms 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 as
generic equivalents of Premarin given known compositional differences between
the active ingredient of these products and Premarin. Although the FDA has not
approved any generic equivalent to Premarin to date, Premarin will continue to
be subject to competition from existing and new competing estrogen and other
products for its approved indications and may be subject to generic competition
from either synthetic or natural conjugated estrogens products in the future. At
least one other company has announced that it is in the process of developing a
generic version of Premarin from the same natural source, and the Company
currently cannot predict the timing or outcome of these or any other efforts.

LIQUIDITY, FINANCIAL CONDITION AND CAPITAL RESOURCES

Cash and cash equivalents increased $751.6 million in 2000 to $2,644.3 million.
Cash flows from operating activities of $554.9 million (which included a
termination fee, net of certain related expenses, received from Warner-Lambert
Company of $1,709.4 million and payments related to the Redux and Pondimin
litigation of $3,966.8 million), proceeds from the sale of the Cyanamid
Agricultural Products business of $3,800.0 million, proceeds from the sale of
Immunex common stock of $2,404.9 million, proceeds from exercises of stock
options of $410.9 million, proceeds from the sales and maturities of marketable
securities of $384.3 million, and proceeds from the sales of assets of $256.2
million were used principally for net repayments of debt of $3,080.4 million,
capital expenditures of $1,681.9 million, dividend payments of $1,201.5 million,
purchases of marketable securities of $677.8 million and purchases of common
stock for treasury of $393.1 million.

57
<PAGE>
   Capital expenditures were significant in 2000 due primarily to strategic
investments in manufacturing facilities worldwide, and the expansion of the
Company's research and development facilities to support new product franchises
(primarily biotechnology based) and the expansion of existing brand products.
This level of capital expenditures is expected to continue in 2001.

   At December 31, 2000, the carrying value of cash equivalents approximated
fair value due to the short-term, highly liquid nature of cash equivalents,
which have original maturities of three months or less. Interest rate
fluctuations would not have a significant effect on the fair value of cash
equivalents held by the Company.

    As discussed in Note 10 to the Consolidated Financial Statements, on October
7, 1999, the Company announced a nationwide, class action settlement to resolve
litigation brought against the Company regarding the use of the diet drugs Redux
or Pondimin. As of December 31, 2000, the Company had recorded charges totaling
$12,250.0 million to provide for all anticipated payments in connection with the
nationwide, class action settlement, payments to the approximately 40,000 opt
out claimants with whom the Company has agreed to settle, and all anticipated
payments to resolve the claims of the remaining approximately 10,000 opt outs
and any PPH claimants, as well as all legal fees and other costs, net of
insurance. Payments to the nationwide, class action settlement funds, individual
settlement payments, legal fees and other costs were $3,966.8 million and $117.6
million for 2000 and 1999, respectively. Payments to provide settlement
benefits, if needed, may continue for approximately 16 years after final
judicial approval. Payments made to date and future payments related to the diet
drug litigation are anticipated to be financed through existing cash resources,
cash flows from operating activities, additional commercial paper borrowings
supported by expanded credit facilities obtained in March 2001, as well as term
debt financings and international earnings remitted back to the United States,
if necessary.

   On February 15, 2000, the Company repaid its $1,000.0 million of 7.70% notes.
Throughout 2000, the Company used portions of the Warner-Lambert Company
termination fee and proceeds from the sale of the Cyanamid Agricultural Products
business and sale of Immunex common stock to reduce outstanding term debt and
commercial paper.

   The $2,000.0 million five-year credit facility, which has a maturity date of
July 31, 2002, had no outstanding balance at December 31, 2000. In March 2001,
the Company obtained new revolving credit facilities totaling $6,000.0 million
to support its commercial paper program. The credit facilities are composed of a
$3,000.0 million 364-day facility with an option to extend the term of any
borrowings, under the facility, for an additional year and a $3,000.0 million
364-day bridge facility to capital markets, which will be terminated upon the
issuance of term debt by the Company during 2001.

   The Company has outstanding $1,000.0 million of 7.90% notes due February
2005. The Company also has outstanding $250.0 million of 6.50% notes due October
2002 and $250.0 million of 7.25% debentures due March 2023. These non-callable
notes and debentures are unsecured and unsubordinated.

   The Company has a common stock repurchase program under which the Company is
authorized, at December 31, 2000, to repurchase 6,492,460 additional shares in
the future. Depending upon market conditions, among other things, the Company
may make limited repurchases of its common stock to offset stock issuances in
connection with exercises of stock options during 2001.

   Management is confident that cash flows from operating activities and
available debt financing resources, including the expanded credit facilities
obtained in March 2001, will be adequate to fund the Company's operations, pay
opt out settlement payments and the nationwide, class action settlement relating
to the Redux and Pondimin litigation, pay dividends, maintain its ongoing
programs of capital expenditures, including the amount already committed at
December 31, 2000 of $894.0 million, and to repay both the principal and
interest on its outstanding obligations, without requiring the disposition of
any significant strategic core businesses.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to market risk from changes in foreign currency exchange
rates and interest rates that could impact its financial condition, results of
operations and cash flows. The Company manages its exposure to these market
risks through its regular operating and financing activities and, when deemed
appropriate, through the use of derivative financial instruments. The Company
uses derivative financial instruments as risk management tools and not for
trading purposes. In addition, derivative financial instruments are entered into
with a diversified group of major financial institutions in order to manage the
Company's exposure to non-performance on such instruments.

   Foreign Currency Risk Management: The Company generates a portion of Net
revenue from sales to customers located outside the United States, principally
in Europe. International sales are made mostly from international subsidiaries
in the local countries and are typically denominated in the local currency of
the respective country. These subsidiaries also incur most of their expenses in
the local currency. Accordingly, most international subsidiaries use the local
currency as their functional currency. International business, by its nature, is
subject to risks including, but not limited to: differing economic conditions,
changes in political climate, differing tax structures, other regulations and
restrictions, and foreign exchange rate volatility. Accordingly, future results
could be adversely impacted by changes in these or other factors.

   The Company has established programs to protect against adverse changes in
exchange rates due to foreign currency volatility. At December 31, 2000, the
fair value of the $558.8 million notional amount of foreign exchange forward
contracts was a net receivable of $3.4 million. If the value of the U.S. dollar
were to increase or decrease by 10% in relation to all hedged foreign
currencies, the net receivable would decrease or increase by approximately $35.5
million.

58
<PAGE>
   The Company believes that the foreign currency risks to which it is exposed
are not reasonably likely to have a material adverse effect on the Company's
financial position, results of operations or cash flows due to the high
concentration of sales in the United States. No single foreign currency
accounted for more than 5% of 2000 or 1999 worldwide net revenue, except for the
British Pound, which accounted for 7% and 6% of 2000 and 1999 worldwide net
revenue, respectively. As previously discussed, 12 member countries of the
European Union adopted the Euro as a new common legal currency. However, the
legacy currencies of the member countries are scheduled to remain legal tender
as sub-denominations of the Euro until January 1, 2002. Collectively, these
countries accounted for 11% and 13% of 2000 and 1999 worldwide Net revenue,
respectively.

   Interest Rate Risk Management: The fair value of the Company's fixed-rate
long-term debt is sensitive to changes in interest rates. Interest rate changes
would result in gains/losses in the market value of this debt due to differences
between the market interest rates and rates at the inception of the debt
obligation. At December 31, 2000, the fair value of the Company's outstanding
debt was $2,506.6 million. If interest rates were to increase or decrease by one
percentage point, the fair value of the outstanding debt would decrease or
increase by approximately $72.7 million. Management does not expect any
significant changes in its exposure to interest rate fluctuations or in how such
exposure is managed in the near future.


ENBREL SUPPLY

Although the market demand for Enbrel is increasing, the sales growth is
currently constrained by limits on the existing source of supply. This is
expected to continue until the retro fitting of a Rhode Island facility is
completed and approved, which is expected to occur in 2002. If the market demand
continues to grow, there may be further supply constraints even after the Rhode
Island facility begins producing Enbrel. The current plan for the longer term
includes a new manufacturing facility, which is being constructed in Ireland.

CAUTIONARY STATEMENTS FOR FORWARD-LOOKING INFORMATION

This Annual Report, including management's discussion and analysis set forth
above, contains certain forward-looking statements, including, among other
things, statements regarding the Company's results of operations, Euro currency,
competition, liquidity, financial condition and capital resources, Enbrel
supply, foreign currency and interest rate risk, the nationwide, class action
settlement relating to Redux and Pondimin, and additional litigation charges
related to Redux and Pondimin including those for opt outs. These
forward-looking statements are based on current expectations. Certain factors
which could cause the Company's actual results to differ materially from
expected and historical results have been identified by the Company in Exhibit
99 to the Company's 1999 Annual Report on Form 10-K and the Company's 2000
Annual Report on Form 10-K, which will be filed by April 2, 2001.


59
<PAGE>
   BOARD OF DIRECTORS

   John R. Stafford (1)
   Chairman and Chief Executive Officer

   Clifford L. Alexander, Jr. (2)(4)
   President, Alexander & Associates, Inc.

   Frank A. Bennack, Jr. (1)(3)(5)
   President and Chief Executive Officer,
   The Hearst Corporation

   Richard L. Carrion(3)(5)
   Chairman, President and Chief Executive Officer, Popular, Inc. and Banco
   Popular de Puerto Rico

   Robert Essner (1)
   President and Chief Operating Officer

   John D. Feerick (2)(3)
   Dean, Fordham University School of Law

   John P. Mascotte (2)(3)(5)
   President and Chief Executive Officer,
   Blue Cross and Blue Shield of Kansas City, Inc.

   Mary Lake Polan, M.D., Ph.D. (2)(4)
   Chairman and Professor, Department of Gynecology and Obstetrics, Stanford
   University School of Medicine

   Ivan G. Seidenberg (1)(4)(5)
   President and Co-Chief Executive Officer, Verizon Communications, Inc.

   Walter V. Shipley (3)(5)
   Retired Chairman of the Board,
   The Chase Manhattan Corporation

   John R. Torell III (2)(4)
   Senior Managing Partner, Conifer Capital Group


   DIRECTORS EMERITI

   John W. Culligan
   Retired -- Former Chairman of the Board

   William F. Laporte
   Retired -- Former Chairman of the Board


   PRINCIPAL CORPORATE OFFICERS

   John R. Stafford (6)(7)(8)
   Chairman and Chief Executive Officer

   Robert Essner (6)(7)(8)
   President and Chief Operating Officer

   Louis L. Hoynes, Jr. (6)(7)(8)
   Executive Vice President and General Counsel

   L. Patrick Gage, Ph.D. (7)
   Senior Vice President -- Science and Technology

   Kenneth J. Martin (6)(7)(8)
   Senior Vice President and Chief Financial Officer

   David M. Olivier (6)(7)
   Senior Vice President

   Bernard J. Poussot (7)
   Senior Vice President

   John B. Adams
   Vice President -- Corporate Development

   Egon E. Berg
   Vice President and Associate General Counsel

   Thomas G. Cavanagh
   Vice President -- Investor Relations

   Bruce Fadem
   Vice President -- Corporate Information Services and
   Chief Information Officer

   Leo C. Jardot
   Vice President -- Government Relations

   Paul J. Jones (6)(7)
   Vice President and Comptroller

   Rene R. Lewin (6)(8)
   Vice President -- Human Resources

   Thomas M. Nee (6)(8)
   Vice President -- Taxes

   Jack M. O'Connor
   Vice President and Treasurer

   Marily H. Rhudy
   Vice President -- Public Affairs

   Lawrence V. Stein
   Vice President and Deputy General Counsel

   Steven A. Tasher
   Vice President -- Environmental
   Affairs and Facilities Operations, and Associate General Counsel

   Justin R. Victoria
   Vice President -- Investor Relations

   Eileen M. Lach
   Secretary and Associate General Counsel -- International


   PRINCIPAL DIVISION AND SUBSIDIARY OFFICERS

   Fort Dodge Animal
   Health Division
   E. Thomas Corcoran (7)
   President

   Specialty Pharmaceuticals Division
   David G. Strunce
   President

   Whitehall International, Inc.
   Bruce I. Macphail (7)
   President

   Whitehall-Robins Healthcare
   David M. Olivier (6)(7)
   Senior Vice President, AHP

   Wyeth-Ayerst Global Pharmaceuticals
   Bernard J. Poussot (7)
   President

   Wyeth-Ayerst Global Pharmaceuticals --
   Europe, Middle East and Africa
   Robert N. Power (7)
   President

   Wyeth-Ayerst Global Pharmaceuticals --
   Intercontinental Region
   Mark M. Larsen (7)
   President

   Wyeth-Ayerst Global Pharmaceuticals --
   North America
   Joseph M. Mahady (7)
   President

   Wyeth-Ayerst Research
   L. Patrick Gage, Ph.D. (7)
   President

   Wyeth Vaccines and Nutrition
   Kevin L. Reilly
   President


   1 Executive Committee

   2 Audit Committee

   3 Compensation and Benefits Committee

   4 Corporate Issues Committee

   5 Nominating and Governance Committee

   6 Finance Committee

   7 Operations Committee

   8 Retirement Committee


60
<PAGE>

   PRINCIPAL PRODUCTS

   ETHICAL PHARMACEUTICALS, NUTRITIONALS AND VACCINES

   HEMOPHILIA
   BeneFIX
   ReFacto

   IMMUNOLOGY & ONCOLOGY
   Mylotarg
   Neumega
   Rapamune

   INFECTIOUS DISEASES
   Minocin
   Minomycin
   Pipracil
   Suprax
   Tazocin
   Zosyn

   INTERNAL MEDICINE
   Altace (2)
   Cordarone I.V.
   Protonix
   Zebeta
   Ziac
   Zoton

   MUSCULOSKELETAL
   Enbrel (1)
   Seltouch
   Synvisc

   NEUROSCIENCE
   Efexor
   Effexor
   Effexor XR
   Sonata

   NUTRITIONALS
   Materna
   Nursoy
   Progress
   Promil
   Promise
   SMA
   SMA Gold
   S-26
   S-26 Gold

   VACCINES
   FluShield
   HibTITER
   Meningitec
   Pnu-Imune 23
   Prevenar
   Prevnar

   WOMEN'S HEALTH CARE
   Alesse
   Harmonet
   Lo/Ovral
   Minesse
   Minulet
   Premarin
   Premphase
   Prempro
   Totelle
   Tri-Minulet
   Trinordiol
   Triphasil

   CONSUMER HEALTH CARE

   ANALGESICS
   Advil
   Anacin
   Anadin
   Children's Advil
   Robaxin
   Spalt

   COUGH/COLD/ALLERGY
   Advil Cold & Sinus
   Dimetapp
   Dristan
   Robitussin
   Robitussin Honey Products

   NUTRITIONAL SUPPLEMENTS
   Caltrate
   Centrum
   Centrum Focused Formulas
   Centrum Jr.
   Centrum Kids
   Centrum Performance
   Centrum Select
   Centrum Silver
   Solgar

   OTHER PRODUCTS
   Anbesol
   Chap Stick
   Denorex
   FiberCon
   Preparation H
   Primatene

   ANIMAL HEALTH CARE

   Bursine
   Cydectin
   Duramune
   EtoGesic
   Fel-O-Vax
   Fluvac
   LymeVax
   Polyflex
   Poulvac
   ProHeart
   PYRAMID
   Quest
   ToDAY
   ToMORROW
   Torbugesic
   Triangle


   (1) Co-promoted with Immunex Corporation
   (2) Co-promoted with King Pharmaceuticals, Inc.

   The above principal products are identified as trademarks used by American
Home Products Corporation and its subsidiaries.


61
<PAGE>
   CORPORATE DATA


   EXECUTIVE OFFICES
   American Home Products Corporation
   Five Giralda Farms
   Madison, NJ 07940
   (973) 660-5000


   STOCK TRADING INFORMATION
   American Home Products stock is listed on the
   New York Stock Exchange (ticker symbol: AHP).


   INDEPENDENT PUBLIC ACCOUNTANTS
   Arthur Andersen LLP
   1345 Avenue of the Americas
   New York, NY 10105


   ANNUAL MEETING
   The Annual Meeting of Stockholders will be held on Thursday, April 26, 2001,
   at the Headquarters Plaza Hotel in Morristown, New Jersey.


   STOCKHOLDER ACCOUNT INFORMATION
   Mellon Investor Services LLC is the transfer agent, registrar, dividend
   disbursing agent and dividend reinvestment agent for the Company.
   Stockholders of record with questions about lost certificates, lost or
   missing dividend checks, or notification of change of address should contact:

   Mellon Investor Services LLC
   Overpeck Center
   85 Challenger Road
   Ridgefield   Park, NJ 07660 (800) 565-2067
   For the hearing impaired: (800) 231-5469 (TDD)
   Internet address: www.mellon-investor.com


   FORM 10-K
   A copy of the Company's Annual Report on Form 10-K may be obtained by any
   stockholder without charge through Mellon Investor Services LLC.

   INVESTOR SERVICES PROGRAM
   The program provides stockholders of record and new investors with a
   convenient way to make cash purchases of the Company's common stock and to
   automatically reinvest dividends. Inquiries should be directed to Mellon
   Investor Services LLC.


   EQUAL EMPLOYMENT OPPORTUNITY
   Our established affirmative action and equal employment programs demonstrate
   our long-standing commitment to provide job and promotional opportunities for
   all qualified persons regardless of age, color, disability, national origin,
   race, religion, sex, sexual orientation, status as a Vietnam-era veteran or a
   special disabled veteran, or any military uniformed services obligation.


   POLICY ON HEALTH, SAFETY AND ENVIRONMENTAL PROTECTION
   Copies of the Company's "Policy on Health, Safety and Environmental
   Protection" and "2000 Environmental and Safety Report" may be obtained upon
   written request to: American Home Products Corporation Department of
   Environment and Safety Five Giralda Farms Madison, NJ 07940


   AHP ON THE INTERNET
   American Home Products' Internet address is:
   www.ahp.com


   TRADEMARKS
   Product designations appearing in differentiated type are trademarks.


62
<PAGE>
                                 [PHOTO OMITTED]


[AHP LOGO] (R)   American Home Products Corporation
                 Five Giralda Farms
                 Madison, New Jersey 07940


American Home Products Corporation Annual Report 2000


STRONG AND GROWING

DELIVERING INNOVATIVE THERAPIES THROUGH BIOTECHNOLOGY


American Home Products Corporation Annual Report 2000


                           [PHOTO OF DAMIEN GONZALES]


[AHP LOGO]


A PIPELINE FOR GROWTH



AHP's extensive investments in biopharmaceutical research and technology are
reflected in a strong product pipeline across a broad array of therapeutic
areas.

         The chart on the following pages shows some of the new products and new
indications for which AHP currently is conducting post-Phase I clinical trials
or that have been submitted for regulatory approval.

         These products address some of the world's most critical health needs
and provide a solid foundation for the Company's future growth.


On the cover:
Damien Gonzales,
ReFacto patient



  2  Message to Stockholders
  7  Biotechnology at AHP
 11  AHP's Therapeutic Franchises
 29  Financial Section
 60  Directors and Officers
 61  Principal Products
 62  Corporate Data



<PAGE>
AHP's Pharmaceutical Pipeline

<TABLE>
<CAPTION>
                                                                         PHASE II                 PHASE III        REGULATORY REVIEW
<S>                                                                      <C>                      <C>              <C>
Women's Health Care
ALESSE(R) Acne labeling
PREMARIN(R) LOW DOSE Menopausal symptoms
     Osteoporosis
PREMARIN(R)/MPA LOW DOSE Menopausal symptoms
     Osteoporosis
TOTELLE(R) Hormone replacement therapy (EU)
TRIMEGESTONE/17 (BETA)-ESTRADIOL Hormone replacement therapy (EU)
PREMARIN(R)/TRIMEGESTONE Hormone replacement therapy
TRIMEGESTONE/ETHINYL ESTRADIOL Oral contraceptive
TSE-424 Postmenopausal osteoporosis                                                           [Insert Graphic]

Neuroscience Therapies
EFFEXOR(R)/EFFEXOR(R) XR Prevention of relapse/recurrence of depression
     Social anxiety disorder
RETIGABINE Anti-epileptic

Vaccines/Infectious Diseases
FLUMIST(TM) INTRANASAL INFLUENZA VACCINE Frozen formulation
     Liquid formulation
PREVNAR(R) Otitis media
9-VALENT PNEUMOCOCCAL CONJUGATE VACCINE
9-VALENT PNEUMOCOCCAL CONJUGATE-MENINGOCOCCAL
         GROUP C CONJUGATE VACCINE
RSV SUBUNIT VACCINE Prevention of RSV infections
ZOSYN(R) Nosocomial pneumonia q6h
GAR-936 Antibiotic for serious infections
HCI-436 Treatment for hepatitis C

Musculoskeletal Therapies
ENBREL(R) Disease modification in early stage RA (EU)
rhBMP-2 Orthopaedic trauma (long-bone
         fractures requiring surgery)
     Spinal fusion
     Dental/craniofacial
     Osteonecrosis
ANTI-IL-12 Rheumatoid arthritis (joint with Abbott Laboratories)
</TABLE>

<TABLE>
<CAPTION>
                                                                         PHASE II                 PHASE III        REGULATORY REVIEW
<S>                                                                      <C>                      <C>              <C>
Internal Medicine
PROTONIX(R) ORAL Maintenance of erosive esophagitis (U.S.)
     Zollinger-Ellison Syndrome (U.S.)
PROTONIX(R) I.V. Erosive esophagitis (U.S.)
     Zollinger-Ellison Syndrome (U.S.)
AMIODARONE AQUEOUS Recurrent ventricular fibrillation and
         unstable ventricular tachycardia
ENBREL(R) Congestive heart failure
PTP-112 Type II diabetes*
rPSGL-IG Acute myocardial infarction                                             [Insert Graphic]

Immunology and Oncology
RAPAMUNE(R) Renal transplantation - liquid (EU)
     Maintenance (U.S.)
     Renal transplantation - tablets (EU)
     Liver transplantation
rhil-11 Subcutaneous therapy for Crohn's disease
MYLOTARG(R) Relapsed acute myeloid leukemia (EU)
     Induction/consolidation in acute myeloid leukemia
CCI-779 Various solid tumors
ERA-923 Breast cancer

                                                                         PHASE II:                 PHASE III:      REGULATORY
                                                                         Determination             Determination   REVIEW:
                                                                         of safe and               of overall      Evaluation of
                                                                         effective dosage          benefit/risk    safety
                                                                         for an experimental       ratio for an    and efficacy
                                                                         medicine, generally       experimental    data by
                                                                         conducted in              medicine,       governmental
                                                                         hundreds of               generally       regulatory
                                                                         patients                  conducted in    agencies
                                                                                                   thousands of
                                                                                                   patients

</TABLE>

* Scheduled to enter Phase II in 2001

Design: Arnold Saks Associates  Cover and Major Photography: Mark Tuschman